Some More Thoughts on Protectionism

Commenting on this post, Rob makes the case the protectionism is a legitimate policy if it is done on grounds of morality. In other words, if Nation A decides to enact a protectionist policy against Nation B, it is legitimate only if its motivation is because of certain policies (say labor or environmentally related) that Nation A calls into question.

Let's remember that protectionist policies are government mandated policies, most notably enacted as price controls in the form of tariffs and subsidies. So protectionist policies are determined by government officials, not markets.

Rob claims he doesn't have faith in markets to make such decisions, but seems to believe government actors do. He concludes his comment by stating, "it is simply the right of a nation to decide what crosses their borders," which I interpret as meaning government officials possess the right to determine what crosses the nation's borders, and thus enter the marketplace.

Here are my issues with this view:

1. How is it determined what economic practices and policies are moral or not? For example, are sweat shops with "low" wages and "unsafe" working conditions "immoral"? Why? What role does bias, perception and relativism have to play in this determination?

2. Who is making these moral decisions? Why should they be trusted? What are the checks on their decision-making?

3. How far can we extend this moral governance? To domestic issues? To the state and local level? Where is the line drawn? Why there?

4. If markets are not to be trusted, why not?

5. Public Choice Theory would argue that political actors are more subject to the irrational emotions market actors are normally subjected to (greed and fear) because they have less "skin in the game." How are we to trust that they [political actors] are immune to these forces in these instances?

6. Trade has been one of the greatest catalysts of economic dynamism and productivity. What does limiting it, even on moral grounds, ultimately achieve, especially for those whom are being protected against and are thus at the greatest disadvantage?

7. Costs go far beyond regulatory costs. There are real price costs, opportunity costs, political costs, etc... How are these to be measured? What is the cost/benefit? For example, much of the reason the American-Cuban Trade Embargo is still in place is due to "moral" reasons (the fact that these so called moral motivations are so murky to begin with supports my first question). Now would anyone seriously argue, from an economic perspective, that the benefits of this policy have outweighed the costs?

8. Going back to relativity, what degree does the demand for safety, environmental protections, etc... have to play? If these are immutable laws, as supply and demand in whatever form often are, what is the point of attempting to legislate them away? What are the unintended consequences of doing so?

9. Finally, you [Rob] used Rawls' "Veil of Ignorance" thought experiment to claim that, "I can imagine situations in which I would design a world such that protectionism were allowed despite not knowing what country I would be born in." I think I may see your point, as the costs of racism, from our perspective, are far more visible than the costs of protectionism, especially on an anecdotal level. But that seems like a straw man to me. The negative effects still exist (and probably to a much greater degree) even if they don't grab the same headlines. In that sense, I think the Rawlsian line of reasoning shifts the emphasis of the argument in a different direction and thus doesn't have much relevance to this discussion.

Protectionism vs Racism, continued

In his comment on my most recent post, Rob hints at an issue I feel I should have addressed in my post.

When we talk about state-compelled racism or protectionism (versus individual passive or aggressive stances), it is necessary to point out that the structure of the modern state lends itself very easily to international protectionist policy. This is not the case for state-compelled racism. For though it can be easily be mandated domestically (see slavery, Jim Crow laws, etc...), internationally it simply falls under the category of xenophobic protectionism. I don't know if Rob was arguing from this angle, but if he was, I find this argument more compelling than if it were to come from the individual passive or aggressive view. On the state level, comparing racism and protectionism as I was was a bit of an apples to oranges argument.

That being said, I have trouble buying Rob's externality argument. He is more or less advocating sanctions. I don't think this is sound trade policy and am not aware of many instances in history where growth and progress were the direct result of economic sanctions. My study of history, especially of 20th century history, has led me to believe that the more one opens one's borders the better off country will be in the long run.

But aside from us haggling over the economics, does Rob's argument suggesting that if Country A refuses to trade with Country B because A thinks B's domestic policies are reprehensible, they are doing the morally conscionable thing, hold water?

I don't know, but I think it's an interesting take. I'm going to mull it over for a bit and see what I can come up with.

Is Protectionism Worse Than Racism?

This Steve Landsburg post got me thinking about the above question (note: I have not read the column the said post is based on). I think if you were to ask a random sampling of (reasonable) Americans if racism was "bad", they would almost all say yes. On the other hand, if you were to ask the same sample if protectionism was "bad", I wouldn't be surprised if it was split down the middle, or even in favor of "no". So why is this?

As Landsburg points, racism and protectionism are simply two forms of discrimination; one is based on, well, race, and the other regional affiliation. Now Landsburg claims that his analogy isn't perfect because protectionism by necessity forces itself to act on another. I don't think this is true as I believe one needs to clarify the setting in which the policy is practiced. For instance, if I was a regular person who happened to be a protectionist to the extreme, I would buy a parcel of land in Montana and fend for myself beholden to no one. If I was the same person, but a racist to, say black people, I would attempt to find a community where no black people would ever be found. I could see if Landsburg was making an opportunity cost argument about protectionism (my withdrawal from society takes my skills from society and thus forces more people to take up more of a burden, as well as takes away any potential benefits I may have provided), but I didn't get the impression that was what he was referring to. Besides, one could probably make a very similar argument about the effects of racial discrimination.

But I think the real issue at hand is it worse for government to be protectionist or racist. As government has a monopoly over the use of force, its actions in the area of discrimination are far more powerful than any private entity.

(Yes, I know if an influential CEO is a protectionist or racist he is going to affect a significant number of people with his discriminatory policies, but in his case it would be a trade-off as he would be enduring the cost of significantly limiting the size of his potential resource pool. Government faces no such cost).

So, is it worse for government to implement racist policies or protectionist policies?

It's a moot question in my opinion. Both are stupid policies, and both are immoral policies. I don't believe either provide any benefits (except to certain special interests, but that's a topic for another day).

Yet that brings us back to our second and third questions. Why would a majority of people say racism is a bad thing, but protectionism not? Is there a discernible difference between the two that makes one worse than the other?

My guess is that is a combination of our [American] view of American History as well economic ignorance.