Donald J. Boudreaux’s Economics in Many Lessons: Does free trade have losers? |
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Donald J. Boudreaux

Today’s enthusiasm for protectionism is unintentionally fueled by many friends of free trade who feel obliged to concede that “free trade has losers.” The argument goes like this:

Protectionist: “Free trade is bad because the winners’ gains are too small to justify the losses suffered by the losers.”

Free-trader: “Free trade is good because the winners’ gains are so large that they justify the losses suffered by the losers.”

The free-trader and protectionist disagree only over the relative sizes of the gains and losses.

In fact, though, free trade has no losers — at least not over the long run. Here’s what I mean.

Suppose you can join a special poker game in which the house gives each player more money to play with every time a new hand is dealt. The amount of new money the house adds to your earnings is random: Sometimes you get a lot; other times very little. And sometimes the amount of new money that you get will be more than what the person sitting beside you gets, while other times it will be less. But each time you get at least some additional new money from the house.

Here, though, is what makes this poker game really special: The amount of new money that the house distributes over time to each player is so great that every player who stays in the game long enough is guaranteed to become richer, regardless of how well or poorly he plays the game. And the longer a player stays in the game, the richer that player becomes.

Keep in mind that you can also increase your earnings by playing the game well. In each round you can bet whatever amount of your earnings you wish. If you win a particular round, you obviously grow richer — you get the table’s winnings from that round and whatever amount of new money the house distributes to you after that round.

But you won’t win every round. Indeed, if you bet a great deal on a round that you lose, you might be poorer after that round than you were before that round began, even though you got some new money that round from the house. But again, the house guarantees that, regardless of your fate after each round, if you play the game long enough your wealth will grow.

In this game, therefore, there are no losers. There are, of course, individuals who suffer losses in each round. But because the house guarantees to each player that he will grow richer over time the longer he remains in the game, this game has only winners. A person who loses a particular round would be foolish to want to stop the game.

Free trade is very much like this special poker game. The house — the free-market economy — ensures that over time every participant grows richer. But there is no guarantee that in every “round” no one suffers losses. And so while today some peoples’ incomes do fall because of trade, it makes no sense to describe these people as losing from trade itself. Their very participation in the world economy makes them richer over time.

Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.

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