Saturday, July 23, 2011

Econ and trade...

I've been doing some Economics reading recently, and finding it surprisingly accessible. Of course, I've been reading mostly Paul Krugman who is not just a brilliant economist, but also a good writer. I've nevertheless noticed something.

Although economic arguments are frequently made, and the arguments used to try to drive policy, economics is inherently morally empty.

Economics is a study of people trading, getting goods and services in return for other goods and services, either directly or indirectly. And economics can tell you about things that will decrease overall levels of goods and services, and what will increase them. But it doesn't (and shouldn't!) include a moral component.

For example: trade. Every economist will agree that trade is good. Trade between nations is good, and, with free trade, you'll see more goods and services for less effort than you'll see without it - even if other countries aren't trading freely with you, trading freely with them will (almost surely) create some kind of advantage in production of goods and services.

Let me re-emphasize that: even if the other country is engaging in protectionist practices, engaging in free trade with them is nevertheless likely to be better - more goods and services at a better price - than not.

Krugman had a fine way of looking at it. Imagine someone said they had a magic factory that could produce certain goods or provide certain services cheaper than you could get here. You give this person money, and they provide those goods and services. Well, you don't understand how this all works, but clearly, if this person can provide nice things cheaper than others, there's no problem with rewarding that person, right?

Then, you learn that there's no factory at all - just a fleet of trucks, or boats, or planes. Hah! Gotcha! It's just international trade!

Let's all pretend that none of us saw that coming, and have a good laugh at ourselves. Of course, *something* will always be made a bit more cheaply, a bit more efficiently, somewhere else. Let's import that something, and export something that we make a bit more cheaply or efficiently.

Now, let's consider another possibility. Someone says that he can provide raw cotton more cheaply than other places can provide it. He has this "magic factory". We, thinking that, of course, it's just another fleet of trucks or boats or planes, buy the cotton and discover that, whoops - no, this time it's slave labor providing the advantage. Well, the cotton didn't actually become more expensive, did it? It might still be cheaper than one could get elsewhere, right? But that shows us the problem with this model of trade as a magic factory.

Economics is not concerned with how, or why, a country has a competitive advantage in trade. It's only concerned with noting that there will be such advantages.

The advantage might be workers who are slaves, or the next best thing to being slaves. The advantage might be a lack of workplace safety that results in the deaths of many workers. It could be lax environmental controls that poison people near the factory.

Economics won't consider these things. That's not its job.

What does scare me is that there are economists who won't consider those things either. Nations gotta grow, after all... if Country_A wants to let polluters pollute and treat its citizens likes slaves to get GNP higher, so be it.

But economic growth is not everything. Money isn't a moral principle. And a nation that has a competitive advantage at manufacturing widgets will either still have that when there are good worker and environmental protections - or, they won't, and they'll find something else to export.

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