It's hard to believe we're still debating free trade
How is it possible that in the Year of Our Lord 2009 we should find ourselves debating protectionism? It is a central premise of our civilization that free inquiry and open debate will over time improve our understanding. But apparently the product may not be exactly as shown in the advertisement. When the U.S. Congress threatens to apply sweeping "Buy American" requirements to its stimulus package we are driven to stop debating the dubious merits of stimulus packages and start trying to explain free trade instead. From the beginning. As though neither logic nor experience had previously been invoked on the subject or, worse, had been invoked in vain.
Back in 1817 David Ricardo offered an elegant and compelling proof that free trade benefits both parties. It is almost the only thing the social sciences have ever proven with mathematical rigour and yet it is disputed, or ridiculed, by persons who accept with comic credulity the pseudo-scientific findings of sociologists like Alfred Kinsey.
Here in Canada we have always had anti-free-traders, and I still get the odd scary mailing from the Council of Canadians about how under NAFTA the Americans are going to suck the Great Lakes dry and blow the dust in our faces, or some such nefarious plot.
But I thought after 1988, with the clearly enormous benefits of free trade, such views had retreated to the margins. Hoo hah! Instead, as Bill Watson pointed out in Wednesday's Citizen, the latest "conservative" federal budget includes $175 million for new Coast Guard vessels that will protect shipyards not only against foreign but against interprovincial competition.
After the catastrophic beggar-thy-neighbour trade policies of the 1930s, almost everyone became a free trader in theory. But almost no one did in practice, partly because they didn't actually understand the theory. Politicians and citizens alike generally remain convinced that exports are good and imports are bad, and free trade means getting foreigners to buy our exports by agreeing to endure their imports. But this analysis is backwards, and makes those who succumb to it vulnerable to bouts of panicky protectionism at bad moments.
In truth the only reason we export is to pay for imports. When we export, we put labour and material into things then give them to foreigners in return for bits of coloured paper with dead politicians on them. When we import, by contrast, we give bits of coloured paper with dead politicians on them to foreigners in return for useful things they produced with effort and expense. If we could import indefinitely without having to pay for it we would. Regrettably we can't. But in an economic emergency we might try temporarily to stop sending useful things out of the country while continuing to bring them in; we certainly shouldn't want to do the reverse.
I won't repeat Ricardo's argument here, partly because in graduate school I once tried to combat a piece of dopey protectionism by invoking it, and when no one had heard of it I began, "Suppose you have two countries and two products," and the professor interrupted me with "Whoa, this is way too complicated." I stifled any grade-imperilling retort about the complexity of two plus two, and learned instead to cite economist Arthur Laffer's illustration of the folly of protectionism: "Say we invented a cure for polio and Japan invented a cure for cancer. True to form, they prevented us from selling our cure in their country. Should we get even? Should we stop them from selling their cure for cancer here?"
In case Democrats in Congress think the answer is yes, let me try to catch them in their own fallacy by asking simply: Why should foreigners buy American goods if Americans won't buy theirs? Oh, you hadn't thought of that. Hadn't thought, period.
That the United States might be about to trigger a catastrophic bout of protectionism is certainly alarming enough for one day. But that it is happening in 2009 leads me to clip this passage from John Stuart Mill's On Liberty ... and burn it: "as mankind improve, the number of doctrines which are no longer disputed or doubted will be constantly on the increase: and the well-being of mankind may almost be measured by the number and gravity of the truths which have reached the point of being uncontested." As mankind improve? We appear to need a far bleaker conception of history, one that not only incorporates P.J. O'Rourke's maxim that "ignorance is a renewable resource" but admits that large numbers of superficially intelligent and well-meaning people seem strangely busy actively renewing it.
If you don't agree, tell me, please, how we can even be discussing protectionism in the Year of Good Grief 2009.
[First published in the Ottawa Citizen]