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February 2, 2009 – One of the things economists across the political spectrum agree on is that protectionism is bad. It is clearly bad for foreign companies being excluded from domestic markets, but it is also bad for domestic companies using foreign inputs, and bad too for domestic consumers who must pay more for goods and services. Bad for everyone, in short, except the specific domestic industries targeted for special privileges. Oh, and the politicians who cater to those industries and can expect votes and contributions in return.
And yet, it is not simply a matter of special interest lobbying. In spite of being bad for almost everyone, protectionism is widely popular around the world. Despite some real progress, protectionist measures still exist everywhere, as shown by the stalled Doha round of trade talks. As economist Bryan Caplan tells us in his 2007 book, The Myth of the Rational Voter, the trade liberalization that has taken place in recent decades has done so in spite of voter resistance.
Especially when times get rough, groupthink kicks in and we all seem to go tribal, wanting to secure jobs for our country, our region, our industry. We see only the short-term benefits of huddling close together with “our” people, and to hell with those people over there. This may have made some sense in humanity’s evolutionary past. Back then, my survival was intimately tied to the survival of my tribe, which had the nasty habit of being in a near-constant state of war with all other tribes. However, one of the great discoveries of the modern world, though it has yet to be integrated fully, is that we are better off trading with our neighbors than killing them. Objectivism treats other people as individuals, and points out that we are best served in the long run when we deal with others based on voluntary interaction to mutual benefit.
The latest protectionist threat is a “Buy American” provision in the gargantuan $819 billion stimulus bill passed by the U.S. House of Representatives last week. As though all of these stimulus bills being passed around the world were not bad enough, robbing the productive and prudent in order to rescue the inefficient and reckless from consequences largely of their own making. (I say “largely” because governments actually promote reckless behavior by, for instance, giving economic actors every reason to expect to be bailed out.) Adding insult to injury, though, the “Buy American” provision blocks the use of foreign-made steel and iron from infrastructure projects funded by the stimulus bill. A Senate version of the bill would go even further, extending protection to manufactured goods as well.
The latest protectionist threat is a “Buy American” provision in the gargantuan $819 billion stimulus bill passed by the U.S. House of Representatives.
History is filled with examples of expert consensus being shown to be wrong, but in their opposition to protectionism, the economic experts are right. Even as far back as 1930, when the profession was fiercely debating this or that aspect of what would come to be known as Keynesianism, over a thousand economists petitioned President Hoover not to sign the Smoot-Hawley tariff bill. Hoover ignored their plea and signed the tariff bill anyway. This led quite predictably to “retaliation” from other countries and a downward spiral in world trade that contributed significantly to the severity and duration of human suffering during the Great Depression.
Why the scare quotes around the word “retaliation”? Because fighting protectionism with protectionism is like shooting yourself in the foot as revenge for your neighbor shooting himself in the foot. But government leaders around the world in the 1930s were quick to pander to the tribal impulse—and there is every reason to believe they will do so again if the “Buy American” provision remains. In a hopeful sign, President Obama did finally say this past Tuesday, February 3, that he is opposed to “send[ing] a protectionist message” that would “trigger a trade war.” Whether this will be enough to expunge the protectionist provisions from any final bill remains to be seen.
The protectionist case has never held water, but it was neatly demolished over a hundred and fifty years ago by a brilliant French satirist named Frédéric Bastiat. In his famous “Petition of the Candlemakers,” Bastiat sarcastically argues that everyone connected with the manufacture of lighting is faced with unfair competition from a “foreign” competitor who can produce light much more cheaply than domestic industries can. That competitor, it is soon revealed, is none other than the sun. The remedy Bastiat proposes is for all windows to be shuttered during the day, leading to a sure stimulus of the lighting industries—and to just as certain an impoverishment of the rest of the population, which would effectively be required by law to double or triple its purchases of candles and lamps, and thus have less to spend on all other goods and services.
Every bout of protectionism makes us all poorer in the long run.
What was true for lighting then is just as true for steel and iron today. Humanity’s interests are actually in harmony, for every bout of protectionism makes us all poorer in the long run, and in the long run each one of us has a clear interest in free trade. But while the evils of protectionism have been well understood by economists for centuries, they continue to be poorly appreciated by the general public. The problem is that modern economic reality is complex, and understanding it requires careful thought, which does not happen automatically. Our default position is to focus solely on the immediate, narrow results of economic policies, on what we perceive directly before our eyes and feel in our guts, and to ignore the broader, more lasting unintended consequences of those policies, which cannot easily be seen or felt.
It does not have to be this way. We are slaves neither to our evolutionary heritage nor to our current cultural environment. We can choose, in any given moment, to turn on the light of consciousness instead of shuttering the windows of our minds to the practical benefits and to the moral rightness of treating other human beings as free individuals.
President Obama apparently still has work to do in this regard, however. Obama said he was against “sending a message that somehow we’re just looking after ourselves and not concerned with world trade.” His reasoning implicitly accepts the flawed notion that protectionism would be in a nation’s interests if only others would not retaliate. Worse still, it implies that pursuing one’s own interests is wrong. But it is precisely this, the right of everyone to pursue his own rational self-interest, that most needs to be affirmed—along with the fact that no one’s rational self-interest is ultimately served by protectionism. Is it too much to ask for a President to understand this and to have the patience, the courage, and most of all the simple honesty to explain it to the public at large? Now that would be a change I could believe in.
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