Tuesday, 24 January 2017

Protection and job losses

At the Cafe Hayek blog Don Boudreaux makes the point that protection does not stop job losses.
You are correct that under a regime of free trade some people, through no fault of their own, lose jobs. You are also correct that such experiences are unpleasant. But protectionism does not stop job losses from occurring. Even if Uncle Sam were to completely shut the American economy off from global markets, job losses would still occur. American consumers would still change their spending patterns such that goods and services that were in high demand yesterday would be in lower demand today. Entrepreneurs would still experiment with new products and with new, labor-saving methods of production and distribution. Economic churn would still happen, complete with its unavoidable job losses.

The difference would be that, being denied access to the creative insights and productive efforts of 95 percent of the world’s population as well as to the bulk of the world’s resources, we’d all be much poorer.
What changes in trade policy do is change who has jobs, not the total number of jobs. Change trade policy and you just move jobs around the economy without having much effect on the total number of those jobs. As Paul Krugman has written,
It should be possible to emphasize [...] that the level of employment is a macroeconomic issue, depending in the short run on aggregate demand and depending in the long run on the natural rate of unemployment, with microeconomic policies like tariffs having little net effect. Trade policy should be debated in terms of its impact on efficiency, not in terms of phony numbers about jobs created or lost.
But the other point made by Boudreaux is also important, protection makes us poorer. The more we protect, the more we have to do things we are (relatively) bad at doing and the less time we spend on doing things we are good at doing. In the process we make ourselves worse off. It is better for us to concentrate on what we are good at producing and trading that for the things we are bad at producing with people who are good at producing it. As Krugman notes efficiency is what matter and by doing things we are bad at we become less efficient, not more.

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