Pierre Lemieux has a new post discussing how some people oppose US gas exports because they drive up prices to American consumers. This is interesting, as the sorts of groups that gain and lose from gas exports are quite difference from the case of import competition.
Economists traditionally support free trade because the gain to consumers from trade exceeds the cost to producers (in terms of lost profits and wages.) Protectionists are not convinced by this sort of cold utilitarian logic, pointing to the fact that the losses from imports are highly concentrated (such as autoworkers losing jobs) while the gains from imports are widely dispersed (slightly lower car prices for millions of consumers.)
With exports, this all gets flipped around. If we restrict natural gas exports, millions of consumers benefit from slightly lower gas prices, while a smaller number of blue color workers lose good jobs in the fracking industry, and become “hamburger flippers” (to use the derisive terminology of protectionists.)
Actually, if you apply the logic used by the auto industry protectionists to gas exports then not only should we not restrict exports; we should actually subsidize them, even if it means a greater increase in gas prices to consumers.
It’s clear to me that while protectionists may believe that some sort of consistent logic supports their position, in fact it is comprised of an incoherent grab bag of faulty intuitions. It “seems bad” when auto workers lose jobs. It “seems bad” when natural gas consumers in New England pay higher prices. It’s an application of the idea that “something must be done”, when there are what Frédéric Bastiat would call negative “effects that are seen“, even of the positive unseen effects are even greater.
You might wonder if I am being inconsistent. In the auto import case I favor the policy that helps the widely dispersed group (consumers), while in the gas export case I favor the policy that favors the concentrated (producer) group. Actually, both policies have something in common; free trade maximizes the total welfare of society. The only consistency in the protectionist position is that they always favor the policy that makes society as a whole worse off. Their justification for that in the import tariff case (favoring the concentrated group of blue collar workers), would suggest that we should actually be subsidizing gas exports, even if it drives up gas prices for America consumers. Good luck with that idea on Capitol Hill!
READER COMMENTS
Loquitur Veritatem
Nov 28 2022 at 12:51pm
There is no such thing as the “total welfare of society”. A’s gain doesn’t compensate for B’s loss.
Don Geddis
Nov 28 2022 at 3:53pm
You haven’t offered any alternative approach for making policy choices. You have two possible policies: (1) protectionism, or (2) free trade. The first benefits thousands of people, while causing millions to suffer. The second benefits millions of people, while causing thousands to suffer. It doesn’t matter if “A’s gain doesn’t compensate for B’s loss”. That doesn’t help in any way to make the decision — and you still must make some choice.
Most choose to advocate for “the greatest value for the greatest number of people”. If you have some different decision criteria, let’s hear it. Perhaps, “I want my friends to win, while I don’t care at all if strangers in my same country lose”? (Putin’s Russia works a little like that. Are you a fan?)
robc
Nov 28 2022 at 4:13pm
Free trade is the morally correct position, regardless of benefits.
Jim Glass
Nov 28 2022 at 6:48pm
(1) protectionism, or (2) free trade. The first benefits thousands of people, while causing millions to suffer. The second benefits millions of people, while causing thousands to suffer.
Only in the short run. In the medium run most of those thousands gain too, and in the long run everybody gains – including those not directly in contact with any of the industries in play.
Massachusetts has a Route 129 (?, I forget) which back in the Reagan era was all old textile factories dating back to when the industry was spawned on water wheels. Cheap foreign imports put them out of business, and the protectionists screamed “look at all the empty factories and unemployed workers! we should have protected them!”).
A decade later the area was Silicon Valley East, all the old factories had been absorbed by the booming computer industry — and most of the “thousands” were back at work with higher-paying jobs in it. When old factories close the plumbers, electricians, bookkeepers, engineers, landscapers, etc. who worked in them can move right back to working in them when they are renovated for use in a new higher-paying industry.
And in the long run, of course, the entire country was better was off for having the area’s resources working in the world leading computer industry, instead of a protected, money-losing, T-shirts & shoes industry. With zero effect on total unemployment.
Free trade increases national productivity, which helps everyone. A nation has a finite amount of capital resources, moving them from least- to most-productive use matters. Barbers in NYC get paid far more than people doing the same job in central Africa because US national productivity is so much higher.
Jon Murphy
Nov 28 2022 at 8:53pm
Close. 128 🙂
Scott Sumner
Nov 28 2022 at 7:13pm
“A’s gain doesn’t compensate for B’s loss.”
Sometimes it does.
Fazal Majid
Nov 28 2022 at 2:48pm
And yet, every major economic power used mercantilist protectionism in its early stages to gain that status, then promptly switched to advocate free-trade when it suited them (England, Germany, the United States, Japan, China, South Korea). Of course, protectionism alone does not guarantee results, otherwise India would already be No. 1, but the standard model conveniently forgets this reality.
Don Geddis
Nov 28 2022 at 3:48pm
You’re confusing correlation with causation. Just because everyone did it, doesn’t mean it was helpful. They could well have succeeded despite their poor economic policies. You need a much deeper causal analysis to determine whether those policies were actually beneficial.
Jon Murphy
Nov 28 2022 at 4:49pm
To Don’s point, you’re confusing correlation with causation. Yes, many countries used mercantilist policies, but they grew in spite of, not because of, those policies. Most (all?) economic research on the question shows that trade barriers caused more harm them good. One particular thing to check out would be Doug Irwin’s work. He shows (among other things) that US economic growth in the 1800s came from unprotected industries, not protected industries.
Another thing to consider: some countries have gotten wealthy with protectionist policies. But a great many more have failed to become wealthy (or gotten poorer) when they adopted such. You noted just one (India), but there are many more. So, you really don’t even have correlation to support your argument.
Mark Z
Nov 28 2022 at 5:04pm
Protectionism in the early industrial states was actually concentrated on agricultural goods, e.g., the British corn laws, which were disadvantageous to industry. In Germany, it was the expansion of free trade due to the formation and expansion of the Zollverein that drove industrialization rather than protectionism.
Jim Glass
Nov 28 2022 at 6:58pm
And yet, every major economic power used mercantilist protectionism in its early stages to gain that status…
Which sure worked great for the mighty mercantilist Spanish Empire as it dominated the western world, while it competed with the puny English, who were forced to resort to trade because as a little isolated island they didn’t have the power to force…
Oh, wait.
Scott Sumner
Nov 28 2022 at 7:21pm
“every major economic power used mercantilist protectionism in its early stages”Suppose you replaced “used mercantilist protectionism” with “experienced corruption”. Would that prove that corruption helps an economy?
vince
Nov 28 2022 at 7:24pm
Fazal wrote: “And yet, every major economic power used mercantilist protectionism in its early stages to gain that status, then promptly switched to advocate free-trade when it suited them (England, Germany, the United States, Japan, China, South Korea).”
The US is a good example. Tariffs to promote and protect northern manufacturing was arguably the main reason for the Civil War.
Jon Murphy
Nov 28 2022 at 8:55pm
No. The main cause was slavery (this is not a disputable fact). Protectionism did anger the Southern states, but tariffs were being lowered by the time the Civil War came about.
vince
Nov 28 2022 at 11:08pm
“The main cause was slavery (this is not a disputable fact). ”
You confuse opinion with fact.
Jon Murphy
Nov 29 2022 at 6:53am
No. First off, you are incorrect as to what opinion is. An opinion is “a view or judgement based formed about something.” A fact is “a thing known or proven to be true.” Opinion carries with it an aesthetic quality, facts do not. I made a factual claim in response to your factual claim. Neither constitute an opinion. My factual claim may be right or wrong (just like yours), but it is not an opinion. An opinion is not an incorrect factual claim.
Second, that slavery was the main cause of the Civil War is established by primary source documents, such as the official statements produced by the seceding states. Alternative explanations came about as part of the Lost Cause movement some years after the War.
And besides, as I point out above, the timeline doesn’t work. Tariffs were falling prior to the Civil War.
vince
Nov 29 2022 at 1:00pm
” First off, you are incorrect as to what opinion is. ”
Wrong.
“that slavery was the main cause of the Civil War is established by primary source documents, such as the official statements produced by the seceding states. ”
Wrong. Official documents mention much more than slavery. So do other source documents. The conflict actually started with Tariffs during the War of 1812, which led to the Nullification Crisis in 1832 and a near war between the US and SC.
You’re entitled to your opinion.
Ilverin
Nov 28 2022 at 4:26pm
-John Maynard Keynes
More self sufficiency isn’t worth literally nothing, although I don’t think self sufficiency is worth the cost. If war with China were guaranteed to happen, the benefit value of self sufficiency would rise.
Jon Murphy
Nov 28 2022 at 4:44pm
That doesn’t follow. If war with China were to happen, the value of trade with China would fall, yes, but the benefit of self-sufficiency would not rise. Trade would still remain the superior option, but with countries who are not China.
vince
Nov 28 2022 at 5:40pm
Maybe we should consider outsourcing our military to China. There could be gains from free trade.
Scott Sumner
Nov 28 2022 at 7:22pm
“If war with China were guaranteed to happen”I have a better idea. How about the US refrain from attacking China? I’m almost certain that China has no intention of attacking the US.In any case, it’s not at all clear that economic self sufficiency is beneficial during a war. Don’t forget that trade works both ways, as China is also somewhat dependent on trade with the US.
vince
Nov 28 2022 at 7:28pm
” I’m almost certain that China has no intention of attacking the US.”‘
It seems certain that they intend to take over Taiwan. Do we then intervene like we have in Ukraine?
Scott Sumner
Nov 29 2022 at 1:18pm
“Do we then intervene like we have in Ukraine?”
I hope so! We refrained from attacking Russia, and I would hope that we refrain from attacking China.
Jim Glass
Nov 29 2022 at 10:41am
I’m almost certain that China has no intention of attacking the US.
I know for a fact that Germany had no intention of attacking the US before WWII — or even during it for that matter, they couldn’t even get across the English Channel at the height of their power. So what was all our pre-war military alarmism and political hand-wringing back then about?
Well, at least IBM showed how to be true to free trade in such times.
Travis Allison
Nov 29 2022 at 6:44pm
Scott, don’t you think that in retrospect, Europe would have liked to have been less dependent on importing Russia’s natural gas?
Scott Sumner
Nov 30 2022 at 10:17am
Yes. But I also believe that US trade with China makes war less likely, as China also has much more to lose from war than if they were isolated.
vince
Nov 30 2022 at 12:22pm
Isn’t avoiding dependence on another country’s exports contrary to free trade?
vince
Nov 28 2022 at 5:35pm
Sure, free trade looks good on paper. So does capitalism and so does socialism. In the real world, countries use protectionism. All those economic arguments must be ignoring real world factors that countries are not ignoring.
Jon Murphy
Nov 28 2022 at 5:48pm
Two quick things:
First: with a few exceptions, the general trend over the past three centuries or so has been away from protectionism by almost any measure one wants to use. So, in the real world, countries use free trade. All those protectionist arguments must be ignoring real world factors that countries are not ignoring.
Second: as I said to Fazal Majid above, there is lots of economic work on the political economy of trade (see none other than the classic work The Wealth of Nations by Adam Smith). It’s incorrect as a factual matter to claim economists ignore real world factors.
vince
Nov 28 2022 at 6:14pm
” It’s incorrect as a factual matter to claim economists ignore real world factors.”
It’s quite a stretch to say economists capture every possible factor, and even more to presume they can value the factors accurately.
Jon Murphy
Nov 28 2022 at 6:16pm
True. Exactly why I oppose central planning, protectionism, and other schemes that act like they can capture and value all values perfectly.
Indeed, the very case for free trade over protectionism is that value is subjective.
vince
Nov 28 2022 at 7:12pm
” the general trend over the past three centuries or so has been away from protectionism”
How about since the Russian Ukraine war?
“Exactly why I oppose central planning, protectionism, and other schemes that act like they can capture and value all values perfectly.”
Excepting the work done by economists who support completely free trade, no doubt.
Jon Murphy
Nov 28 2022 at 8:58pm
Same. Generally moving more toward freer trade.
I don’t know what this is supposed to mean? Free traders oppose central planning and teach value is subjective.
Besides, you haven’t answered my point. I used your own words against you to show the flaw in your logic.
vince
Nov 28 2022 at 9:09pm
What point? What flaw?
Jon Murphy
Nov 29 2022 at 6:57am
Initially, you stated that protectionism was the norm and therefore economists must be ignoring real world factors. But I pointed out that the norm is generally free trade. Thus, using your argument, protectionists must be ignoring something. In other words, free trade and not protectionism “for them it MIGHT be the correct policy. They have skin in the game.”
(There is another flaw here where you confuse positive analysis with normative policy recommendations, but that’s a discussion for another time)
vince
Nov 29 2022 at 1:03pm
“But I pointed out that the norm is generally free trade. ”
If you define free trade as the absence of protectionism, then the norm is not free trade.
Jon Murphy
Nov 29 2022 at 5:29pm
I do not. It’s a spectrum and the trend has been toward free trade, as I said.
Scott Sumner
Nov 28 2022 at 7:25pm
“All those economic arguments must be ignoring real world factors that countries are not ignoring.”
So you are saying that if many countries do X, then X must be the correct policy? I’m confused. What is your point?
vince
Nov 28 2022 at 7:32pm
Not that is MUST be the correct policy, but that for them it MIGHT be the correct policy. They have skin in the game. Economists working on papers do not.
Jon Murphy
Nov 28 2022 at 8:59pm
We have far more skin in the game than politicians do. Most people do. That’s why most people prefer free trade (as evidenced by the fact protectionism has to be imposed).
vince
Nov 28 2022 at 9:27pm
Does skin in the game not depend on your definition? Mine was on winning elections by satisfying voters. Economists don’t do that.
robc
Nov 29 2022 at 12:03am
Elections arent skin in the game. They are literally zero sum, someone is gonna win.
Since when is good policy decided by what wins elections?
Jon Murphy
Nov 29 2022 at 6:58am
Precisely correct! No skin in the game about whether protectionism is better or not than free trade. They do not face the full costs of their actions. They face the incentive to choose the policy that wins them votes, not that is best.
vince
Nov 29 2022 at 2:54pm
“They face the incentive to choose the policy that wins them votes”
And voters generally should get what they want in a democracy? Sure, you can provide examples where voters made bad choices, but who is to dictate what those choices should be?
vince
Nov 29 2022 at 12:28am
“Elections arent skin in the game. They are literally zero sum, someone is gonna win.Since when is good policy decided by what wins elections?”
What does zero sum have to do with skin in the game? And if good policy is based on what pleases the majority of the voters, ie democracy, then winning an election would be the measure. Most politicians will do anything to maintain their position. Look at all the career politicians. Ask them if they have skin the game, the game being to get elected and to keep the job.
Jon Murphy
Nov 29 2022 at 7:00am
Ah note that you have changed the game! Before it was “best economic policy.” Now it’s “get elected and keep the job.”
vince
Nov 29 2022 at 12:48pm
“Ah note that you have changed the game!”
You’re joking, right?
Ike Coffman
Nov 29 2022 at 2:15pm
As an unbiased, impartial observer let me make an observation. Vince, you are claiming that your opinions are facts. I certainly see where you try to justify your positions, but unfortunately your logic is faulty.
My advice is to never get into any kind of argument with people who are clearly more intelligent than you.
vince
Nov 29 2022 at 2:39pm
“Vince, you are claiming that your opinions are facts.”
Examples, please.
vince
Nov 30 2022 at 6:35pm
“Examples, please. ”
Crickets?
Scott Sumner
Nov 29 2022 at 1:20pm
“Not that is MUST be the correct policy, but that for them it MIGHT be the correct policy.”
OK, but your previous statement said “must”. I’m relived that you are backing off from that illogical claim.
vince
Nov 29 2022 at 2:06pm
You’re pulling MUST out of context. I said economists must be missing some real world factors about protectionist actions, not that protectionism MUST be the correct policy. My point is that it MIGHT be the correct policy for a particular country if every real world factor were considered.
Jim Glass
Nov 29 2022 at 3:31pm
Vince wrote:
I said economists must be missing some real world factors about protectionist actions
Why? Because politicians who know full well that protectionism is bad for their economies use so much of it to personally and politically profit from patronage, payoffs, graft, and hyping nationalist populist tides?
That’s like saying people who believe “honesty is the best policy” and “crime is bad” logically ‘must be missing something’ because there are so many lyin’ criminals running about.
Scott Sumner
Nov 30 2022 at 10:14am
Vince, Jim nailed it.
vince
Nov 30 2022 at 12:08pm
His claim is that countries intentionally choose a policy that will harm the economy, and he blames corrupt politicians who will personally benefit. Don’t politicians want to get re-elected? Implied too is that voters are too ignorant to know what’s good for them. My point is that there MIGHT be more too it, and that’s why protectionism doesn’t go away. Why is that so controversial?
ssumner
Dec 1 2022 at 1:13am
“Why is that so controversial?”
It’s not.
Jim Glass
Nov 29 2022 at 11:08am
In the real world, countries use protectionism. All those economic arguments must be ignoring real world factors that countries are not ignoring.
An absolutely true and accurate statement!
Argentina went from world-leading GDP per capita to third world “developing” country in a couple generations. It did so basing its economy on “import substitution”, blocking foreign competitors from its markets to boost domestic industries. It worked! In the 1980s its people were driving 1950s-model Chevys — made in Argentina! (I remember clearly, I wrote a graduate school paper on the subject.)
Argentina’s leaders indeed heeded “real world factors” not in the free trade textbooks. Such as the huge personal gains to themselves in money via corruption in payoffs from the protected industries, and in politics from fueling the anti-foreigner tides of nationalist populism. You’re right — not in the free trade textbooks!
Jose Pablo
Dec 3 2022 at 2:17pm
Read Bastiat’s “That Which is Seen, and That Which is Not Seen” to understand the “real world factors” that countries are not ignoring.
It is truly that simple.
Another “real world factor” behind trade barriers can be clearly seen in the fact that it makes the same sense for Texas or Pennsylvania to ban the export of gas to the rest of the Union (or for the Reeves County to ban imports to the rest of Texas, which very likely, would make natural gas free in this county, since natural gas is, to some extent, a byproduct)
The reasons for trade barriers seem to arise from “political” not “economic” reasons.
Jim Glass
Nov 28 2022 at 6:12pm
in fact it is comprised of an incoherent grab bag of faulty intuitions.
You just described the political process generally — thinking on most other issues isn’t any better than on this one.
And this is how bad candidates elected.
Jon Murphy
Nov 30 2022 at 10:38am
Also over at Adam Smith Works, Julliette Selgren has an excellent podcast episode with Colin Grabow on the muddled thinking behind the Jones Act. Very much in the theme of this blog post.
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