Landsburg is exactly right. In theory. But, in theory, communism works. Landsburg has the economics down, but misses the larger political context of free trade debates. It is true that, as Landburg argues "Americans as a group are net winners. What we lose through lower wages is more than offset by what we gain through lower prices." But that winning can't happen if Americans as a political entity reject free trade and globalization due to the costs.
All economists know that when American jobs are outsourced, Americans as a group are net winners. What we lose through lower wages is more than offset by what we gain through lower prices. In other words, the winners can more than afford to compensate the losers. Does that mean they ought to? Does it create a moral mandate for the taxpayer-subsidized retraining programs proposed by Mr. McCain and Mr. Romney?
Um, no. Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born. If the world owes you compensation for enduring the downside of trade, what do you owe the world for enjoying the upside?
I doubt there’s a human being on earth who hasn’t benefited from the opportunity to trade freely with his neighbors. Imagine what your life would be like if you had to grow your own food, make your own clothes and rely on your grandmother’s home remedies for health care. Access to a trained physician might reduce the demand for grandma’s home remedies, but — especially at her age — she’s still got plenty of reason to be thankful for having a doctor.
Some people suggest, however, that it makes sense to isolate the moral effects of a single new trading opportunity or free trade agreement. Surely we have fellow citizens who are hurt by those agreements, at least in the limited sense that they’d be better off in a world where trade flourishes, except in this one instance. What do we owe those fellow citizens?
One way to think about that is to ask what your moral instincts tell you in analogous situations. Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web. Do you have an obligation to compensate your pharmacist? If you move to a cheaper apartment, should you compensate your landlord? When you eat at McDonald’s, should you compensate the owners of the diner next door? Public policy should not be designed to advance moral instincts that we all reject every day of our lives.
Free trade by nature is particularly vulnerable to collective action problems (in short, the steel worker who loses his job to foreign competition has more incentive to lobby for redress than the millions of people who save $2 on each car they purchase have to lobby for expanded free trade). As we saw in the 2006 midterm elections, the political opposition against free trade is growing stronger, even as the economic benefits from globalization continue to increase. A recent Pew Research Center poll showed that Americans had the lowest favorable attitudes towards globalization and trade of all 47 nations surveyed.
In terms of pure economic efficiency, and maybe even morally, it might not make sense to compensate the losers from globalization. But from a political perspective, it is imperative that we do so, if only to be able to maintain public and political support for expanding free trade. If some of the gains of free trade have to be spent to maintain the regime, so be it.