Economically speaking, unrestricted trade is a no-brainer: when trading nations produce based on comparative advantage, they can achieve greater productivity than if they didn't trade.
And yet, rich countries create inefficiency in their economies by restricting trade. In the perfect world of theoretical economics, this shouldn't happen. But in the world of politics, this is the only possibility.
So why do rich nations favor inefficient trade restrictions?
This is, in fact, the wrong question to ask: it's not actually the whole "rich nation" that makes these policy decisions, it is politicians.
So let's re-frame the question: Why do politicians favor inefficiency?
This question is much easier to answer. In democratic countries like the US, politicians are elected by the people. Inevitably, some of those people work in domestic industries that could be cheaply outsourced to less developed countries. While outsourcing lowers costs of production and results in cheaper goods, it also leaves US workers in that industry out of a job.
The textbook put it nicely: "Those who directly benefit from import protection are few in number but have much at stake." In the textbook's example, keeping one job with a salary of $50,000 in the US could cost the economy $200,000 (which is four times more!). However, this $200,000 is spread across millions of US citizens, who probably don't care if they contribute such a negligible amount. On the other hand, if this job were outsourced, it would cost one person greatly: they would lose their $50,000 salary.
US steel workers vehemently demanding their (less than efficient) jobs be saved.
So the workers in that US industry will vehemently demand trade restrictions protecting inefficient industries. These inefficiencies result in costs that the majority of US consumers don't really mind paying.
The politicians creating the trade policy have much to gain by protecting inefficient domestic industries (the politician will probably win the vote of all of those workers) but will gain no votes by creating efficient trade policies. From an economic stand point, it's counter-intuitive that the politician's best choice would be to create inefficient policies, but the answer to the question, "Why do rich nations favor inefficient trade restrictions?", is not about economics; it's politics.
I totally agree with you. When we talk about economics, we often have to face politics. As you said in your blog, politicians who want to create an economic policy change have to gain the vote from the people and the people want whatever benefits them most (in this case, workers in unions want their jobs to be protected). If the politician doesn't fight for what the public majority wants, he/she won't get elected.
ReplyDeleteGreat post, Anya! I think this completely illustrates the idea that economics is theoretical, because in practice, the irrationality of humans interferes with these theories. While it is rational for politicians to open up trade in economic terms, their political motivations can be seen as an irrational influence because it interferes with ideal economics. Politicians' drive to be win votes and hold offices interferes with their rational economic thought.
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