Quote of the day: An excellent conclusion on trade

This is a point we all need to remember.

Even when the benefits outweigh the costs, the tabulation of gains and losses by groups highlights the facts that international trade has distributional consequences. That realization should not induce policymakers to hinder trade via protectionist measures. Rather it reminds us that transfers from gainers to losers is a prerequisite for trade to be Pareto improving.

You always see economists arguing.  But you would be hard pressed to find an economist who objected to this concept – they may argue about magnitudes, but there is a broad agreement with regards to this idea.

  • Greg

    Wait, what?

    I thought the standard economist line was that the losers could frictionlessly move into the winning industries.

  • @Greg

    Short answer: No.

    Long answer: Some economists may put on their normative hat, as people rather than economists, and reach that sort of conclusion. However, the general economic framework is very much premised on the quote about – and no standard economist would disagree with it.

  • Greg

    So in the NZ context, with our comparative advantage in land-intensive production and comparative disadvantage in labour-intensive production, transfers from land owners to labour owners are appropriate. Working for Families, for instance.

    No?

  • @Matt Nolan
    I’d note that you don’t need to assume frictions to get redistribution, only heterogeneity of labour. So they’re quite separate debates, although frictions will obviously amplify the redistribution in the short run.

  • Swan

    Even when the benefits outweigh the costs, the tabulation of gains and losses by groups highlights the facts that enforcing anti-corruption laws has distributional consequences. That realization should not induce policymakers to hinder the justice system.

  • Miguel Sanchez

    Greg :So in the NZ context, with our comparative advantage in land-intensive production and comparative disadvantage in labour-intensive production, transfers from land owners to labour owners are appropriate. Working for Families, for instance.
    No?

    No. WFF is not a transfer from land owners, who have endlessly creative ways to minimise their taxable income. Instead it’s mostly a transfer from labour owners to other labour owners.

  • Paul Walker

    But wait …… if there are losses then it can’t be Pareto improving. To be Pareto improving it must be that someone can be made better off without making anyone worse off. Using compensation to make losses better off may make the policy Hicks-Kaldor improving but not Pareto.

  • Miguel Sanchez

    Paul, what’s happened to your blog?

  • @Greg

    The argument could be justified – I dont’ have access to the social welfare function so I can’t say. One thing I would say is that, if we want to subsidise importers (beyond the implicit subsidy from the exchange rate) why only do it for importers with families?

    @Swan

    For sure – we just need to improve jail services so that people committing the crimes don’t miss out by as much …

    @Miguel Sanchez

    Good point.

    @Paul Walker

    By no economists would disagree, I meant no economist who is will to read it is a “potential pareto improvement” and not be pedantic about terminology 😉

    @Miguel Sanchez

    Indeed, I haven’t been able to get on your blog over the last few days either Paul.