After World War II, some gifted people in the Truman administration, along with others, looked back—and what did they see? They saw two world wars; the first was settled in rather vindictive terms that helped lead to the second, in which 50 million people were killed and many others injured and displaced. They saw the Holocaust. They saw the Great Depression and the protectionism and currency manipulation that aggravated it. They said to themselves, What an abysmal world, and we are part of it whether we like it or not. They set out to construct something better, and just as they got going, the Cold War emerged. So the Marshall Plan, the Bretton Woods system, NATO, and the doctrine of containment came into being. Gradually, continuing through various administrations and mostly on a nonpartisan basis, a security and economic commons was constructed, with important leadership from the United States, from which everybody benefited. But that commons is now at risk everywhere, and in many places it no longer really exists.
For now, we want to focus on a chapter on trade and immigration written by John Cochrane, who helps dispel a great deal of the ignorance and misinformation one gets from both sides of the aisle. At its most fundamental level, free trade is good because both sides prosper (by getting the best products at the lowest prices). Donald Trump, who thinks the “trade deficit” means we are “losing” to China, would do well to study up:
To the extent that all the dollars don’t end up buying American goods, foreigners end up buying assets in America, investing in our businesses. To the extent they do not buy private assets, they invest in our government bonds, financing deficits and US government spending that would otherwise vanish. Every dollar comes back. This isn’t theory. It isn’t an “on the other hand” proposition. It’s simple arithmetic. And it doesn’t just come out even. Since, pretty much by definition, the foreign goods we buy are better or cheaper, and our goods better or cheaper there, each country is better off.
The “churn” or creative destruction inherent in a market economy means businesses are constantly changing and forced to innovate:
The process of economic growth is painful. New, more efficient businesses come in and displace old, less efficient ones. In a competitive economy, anyone earning rents—extra compensation and an easy life—is a target for growth-producing disruption. Southwest and JetBlue disrupted United, TWA, and Pan Am (remember them?) and their employee unions. A&P put mom and pop out of business, Wal-Mart destroyed A&P, and Amazon.com may displace Wal-Mart. Uber is upending the taxi businesses. And we’re all getting cheaper and better goods and services as a result. Lots of people are doing well working for the new businesses. You might argue against “better” in the case of air travel. But that’s your choice: 1970 air travel at 1970 prices is still available. It’s called “business class.” The free market gives you better choices.
Critical in debunking myths about both trade and immigration is understanding the “lump of labor fallacy” — that is, imagining there are only so many jobs and that each newcomer takes away one from someone here already:
The lump-of-labor fallacy pervades thinking about trade and immigration, as well as many other misguided laws and policies. In the popular imagination, there are only so many jobs to be had. There are more people who want to work than there are jobs. Unemployment consists of people waiting around for a job to be “created,” especially by a politician hungry for a moment on camera. This vision has nothing to do with reality. . . .We can see direct evidence against the lump-of-labor fallacy in our own history. One of the greatest job invasions in all trade and immigration 115 history was the increase in women working. Women’s labor force participation rose from 32 percent to 60 percent from 1950 to 2000. But 27 percent of men are not permanently out of work now as a result. In the “great migration,” about six million African Americans moved from the rural South to Northern cities. Despite widespread fears, riots, and shameful efforts to exclude these newcomers, six million whites did not suffer permanent unemployment as a result.
It is not unfair to conclude that Trump would like to go back to the era before so many women and minorities were competing for jobs, but then we’d be poorer and suffer even greater inequality than we do now. On immigration, in particular, Cochrane finds incoherence and flat-out dishonesty in much of the political discussion. “Immigrants work and occupy jobs, yes. But they spend money, too! Every immigrant wants a car, a house, a haircut, food, clothes, and so on,” he explains. “The number of jobs in the United States expands to fill these demands. If immigrants steal jobs, ask yourself how 159 million Americans have jobs now. We are immigrants or descendants of immigrants. The answer is, we created new businesses and new demand just as much as we created new workers.”
He recommends at the very least that we should make certain we are not “keeping out high-skill, high-wealth, or high-earnings migrants” who help grow the economy for everyone’s benefit.
It is a shame neither Republican nor Democrats treat voters like adults who can be persuaded by reasonable arguments and easily verifiable facts. Trump probably doesn’t know better, but there is no excuse for other Republicans and Democrats feeding public anxiety and playing to voters’ ignorance.