Naked Economics Wheelan, Charles (books to read for 13 year olds TXT) 📖

the old order. International trade makes markets bigger, more competitive, and more disruptive. Mark Twain anticipated the fundamental dilemma: “I’m all for progress; it’s change I don’t like.”

Marvin Zonis, an international consultant and a University of Chicago Booth School of Business professor, has called the potential benefits of globalization “immense,” particularly for the poorest of the poor. He has also noted, “Globalization disrupts everything, everywhere. It disrupts established patterns of life—between husband and wife, parents and children; between men and women, young and old; between boss and worker, governor and governed.”7 We can do things to soften those blows. We can retrain or even relocate workers. We can provide development assistance to communities harmed by the loss of a major industry. We can ensure that our schools teach the kinds of skills that make workers adaptable to whatever the economy may throw at them. In short, we can make sure that the winners do write checks (if indirectly) to the losers, sharing at least part of their gains. It’s good politics and it’s the right thing to do.

Kenneth Scheve, a Yale political science professor, and Matthew Slaughter, an economist at the Tuck School of Business at Dartmouth, wrote a provocative piece in Foreign Affairs arguing that the United States should adopt a “fundamentally more progressive federal tax system” (e.g., tax the rich more) as the best way of saving globalization from a protectionist backlash. What’s interesting is that these guys are not left-wing radicals wearing tie-dye shirts; Matt Slaughter served in the George W. Bush administration. Rather, they argue that the huge benefits for the U.S. economy as a whole are being put at risk by the fact that too many Americans aren’t seeing their paychecks get bigger. Scheve and Slaughter explain:

[U.S.] policy is becoming more protectionist because the public is becoming more protectionist, and the public is becoming more protectionist because incomes are stagnating or falling. The integration of the world economy has boosted productivity and wealth creation in the United States and much of the rest of the world. But within many countries, and certainly within the United States, the benefits of this integration have been unevenly distributed—and this fact is increasingly being recognized. Individuals are asking themselves, “Is globalization good for me?” and, in a growing number of cases, arriving at the conclusion that it is not.

The authors propose “a New Deal for globalization—one that links engagement with the world economy to a substantial redistribution of income.” Remember, this isn’t hippy talk. These are the capitalists who see angry workers with pitchforks loitering outside the gates of a very profitable factory, and they are making a very pragmatic calculation: Throw these people some food (and maybe some movie tickets and beer) before we all end up worse off.8

Protectionism saves jobs in the short run and slows economic growth in the long run. We can save the jobs of those Maine shoe workers. We can protect places like Newton Falls. We can make the steel mills in Gary, Indiana, profitable. We need only get rid of their foreign competition. We can erect trade barriers that stop the creative destruction at the border. So why don’t we? The benefits of protectionism are obvious; we can point to the jobs that will be saved. Alas, the costs of protectionism are more subtle; it is difficult to point to jobs that are never created or higher incomes that are never earned.

To understand the costs of trade barriers, let’s ponder a strange question: Would the United States be better off if we were to forbid trade across the Mississippi River? The logic of protectionism suggests that we would. For those of us on the east side of the Mississippi, new jobs would be created, since we would no longer have access to things like Boeing airplanes or Northern California wines. But nearly every skilled worker east of the Mississippi is already working, and we are doing things that we are better at than making airplanes or wine. Meanwhile, workers in the West, who are now very good at making airplanes or wine, would have to quit their jobs in order to make the goods normally produced in the East. They would not be as good at those jobs as the people who are doing them now. Preventing trade across the Mississippi would turn the specialization clock backward. We would be denied superior products and forced to do jobs that we’re not particularly good at. In short, we would be poorer because we would be collectively less productive. This is why economists favor trade not just across the Mississippi, but also across the Atlantic and the Pacific. Global trade turns the specialization clock forward; protectionism stops that from happening.

America punishes rogue nations by imposing economic sanctions. In the case of severe sanctions, we forbid nearly all imports and exports. A recent New York Times article commented on the devastating impact of sanctions in Gaza. Since Hamas came to power and refused to renounce violence, Israel has limited what can go in and out of the territory, leaving Gaza “almost entirely shut off from normal trade and travel with the world.” Prior to the Iraq War, our (unsuccessful) sanctions on Iraq were responsible for the deaths of somewhere between 100,000 and 500,000 children, depending on whom you believe.9 More recently, the United Nations has imposed several rounds of increasingly harsh sanctions on Iran for not suspending its clandestine nuclear program. The Christian Science Monitor explained the economic logic: Tougher sanctions “would hit the ruling mullahs hard by raising Iran’s already high unemployment, and perhaps force trickle-up regime change.”

Civil War buffs should remember that one key strategy of the North was imposing a naval blockade on the South. Why? Because then the South couldn’t trade what it produced well (cotton) to Europe for what it needed most (manufactured goods).

So here’s a question: Why would we want to impose trade sanctions on ourselves—which is exactly what any kind of protectionism does? Can the