On Protectionism

An online conversation excerpt:

Michael: “Protectionism makes sense if your standard of living has been raised to an artificially higher level than much of the rest of the world. You have to engage in protectionism, then, in order to preserve the established standard. Who wants to return to the former lower level in order to restore the balance? But the down side to that is what we’ve seen over the past couple of decades, where manufacturing companies see greater profits in moving their operations overseas to take advantage of the cheaper labor. That translates, then, into loss of jobs here and a declining economy. Thus, the market balances itself out over time. Interference in the mechanics of the marketplace always results in a short term benefit, but yields disappointing consequences in the long term.”

Free trade means that people who produce things inefficiently will have to retool and do something else where they have a better competitive advantage.

Tom Anderson: “Michael, protectionism does not help in that scenario. All it does is entrench a paradigm of slow death, which might be fine if you’re 10 years from retirement and don’t care about your children and grandchildren. But in terms of an entire economy, protectionism only hurts people. Free trade means that people who produce things inefficiently will have to retool and do something else where they have a better competitive advantage. This ensures that everyone is producing exactly the right things and being most productive. Protectionism is a form of price-fixing. Price-fixing is never good. Moving manufacturing operations elsewhere is not a cause of job loss, it is a cause of job optimization. The reason we have job loss is because people do not have the freedom to easily start new businesses, which is where most of the labor force should be going.

“It’s as though you get a ten million dollar offer on your house, and so you sell, because that’s ostensibly more than you thought it was worth. That’s a good thing. But then after you sell, you find that in order to buy another house or build one on vacant land, you have to spend twenty million dollars on red tape and wait five years, so you end up in a cardboard box in a dank alley. It wasn’t the fact that you sold your house for $10 mil that got you into a cardboard box, but the regulations, taxation, etc., keeping you out of a new one. Protectionism is like laws preventing you from selling your house and then claiming that that prevents homelessness.”



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