How "We" Gain from Free Trade

Don Boudreaux recently wrote, about our persistent trade deficits::

"And being a net recipient of capital is not only not necessarily a bad thing for Americans, but is likely a good thing."

What Don means is that for every 100 factory workers who lose their $50,000 / year jobs, one CEO will get a $10 million bonus: net gain!

And when was the last time stinkin’ factory workers funded an all-expenses-paid trip to a libertarian convention at a tropical resort?!


  1. This is possible, but is there any reason to think it's true?

    1. Yes, very many! (BTW< I don't think Boudreaux ever *expresses* this thought to himself. But it is very hard to get a man to accept the truth when his living depends on his not doing so.)

    2. Boudreaux has tenure. His living doesn't depend on him saying anything in particular about trade.

    3. Oh my: you don't think an awful lot of funding would dry up if he came out against free trade?!

    4. I've seen Dani Rodrik, to give one example, make exactly your point about trade. He seems to be doing okay.

    5. The Dani Rodrik, who's NOT a libertarian and is NOT funded by libertarian think tanks?

      That Dani Rodrik?

    6. Your comment leaves me baffled, Josiah. Someone who is funded by tobacco companies will have their funding dry up if they start denouncing smoking. Someone funded by the ACA will have their funding dry up if they start saying "Smoking's great!"

      Is this real escaping you?

    7. Someone who is funded by tobacco companies will have their funding dry up if they start denouncing smoking.

      No, their funding *from tobacco companies* would dry up if they denounced smoking. Whether their funding would dry up depends on whether they could secure funding from other sources for denouncing smoking.

      There's plenty of funding available for non-libertarian economists. And Boudreaux is a talented guy. If he wanted he could get people to fund him for espousing non-libertarian views. If he espouses libertarian views it's because he really believes them.

    8. Josiah is right. If Richard Dawkins announced he'd found Jesus he'd make millions instantly.

  2. I'm not sure I understand this anyway -- isn't the situation, more or less, that since no place actually imports more than it exports, if America is running a 'trade deficit', it only means that it is making up for the deficit of goods by 'exporting capital?' (i.e., our foreign trade partners are taking possession of American capital in lieu of goods in order to balance the supply-and-demand for dollars).

    That's what it means when foreign parties 'invest' here, isn't it? That sounds like almost the exact opposite of what's being said -- that we're 'recipients of capital'.

    Why exactly should "we" think that's good, at least as a knee-jerk reflex? That seems at least as likely to be interpreted as bad as it is good, to me anyway...

    1. Yes, that's right.

    2. It is considered a "good thing", because that is how Americans were able to get a lifestyle over their means.

      With foreigners investing in American debt, the American consumer was able to get a fridge, a TV, a car, a home, and sometimes even a swimming pool.

      Had America run a trade surplus the last 2 to 3 decades, many Americans would never have had a fridge, a TV, a car, a home, or a swimming pool.

      When I am assessing what is my quality of life, am I looking at the country's trade statistics, or am I looking at what I have in my possession?

    3. PS: Before anyone misinterprets me, I am not saying that was sustainable either - what goes around comes around, and many Americans have lost those things that they had. I am just saying that you can't tell the average American consumer, "You must tolerate a worse standard of living in order to improve our trade statistics."

    4. Good point Prateek. I had thought of lower interest rates generally, but not the 'binge consumerism' aspect of it.

      I think Gene's main point is that there is a bit of an 'aggregation induced bias' at work here -- and even in the case of low interest rates, they helped a lot of people, but definitely not everyone. In general, you need income to qualify for a loan, and if you've been tossed out of your job, it doesn't much matter how low the rate is. So, actually probably a lot of 'consumers' were altogether doubly worse off -- losing much of their income, and then having their competitors' ability to bid for resources subsidized by cheap loans.

      And to top it off, their government can finance their welfare cheaply, so when it comes down to it, at least in the short term, nobody but them really feels the pinch that emerges out of the situation...

      Ever since I learned about this kind of stuff, I try to 'play the game' as best I can, but it is definitely beyond the capabilities of a lot of people. (And who knows -- maybe beyond mine...) maybe in principle America could do great things with 'receiving capital', but in practice it looks like kind of a mixed blessing that falls down pretty hard on some and not too much on others, and encourages a lot of bad behavior.

      And at least just looking at it on its face -- to be a 'recipient of capital' in the way he's saying it either means going into additional debt or relinquishing productive capital, neither of which makes me think 'OK, well that sounds pretty reasonable. Sign me up!' Especially when one of the prime beneficiaries is a binge-borrowing government apt to prefer putting people on welfare over job creation by going in-hock to foreign governments. That sounds like a really terrible deal to me.


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