Free Trade Frees Us — and the Poor — for Better Things

By Anne Bradley Published on May 3, 2015

Last week in The New York Times, Harvard economist Greg Mankiw encouraged Congress to hasten President Obama’s ability to negotiate a trade agreement with countries in Asia through legislation known as the Trade Promotion Authority (TPA). Mankiw seems worried that Congress lacks the wisdom to see the benefits of free trade. I share his concern.

“Among economists,” Mankiw writes, “this issue is a no-brainer.” That’s because they understand some basic economic realities:

  • We live in a world of scarcity: we have unlimited wants and limited means (resources) to satisfy those wants.
  • As individuals, we aren’t good at producing everything we need to survive. We are limited in our talents and opportunities.
  • We flourish when we are free to trade the things we are better at producing for the things we are not as good at producing.

These three points help us understand the idea of comparative advantage. This idea dates back to the work of David Ricardo and is why so many economists know that free trade is a path to widespread prosperity.

To focus on your comparative advantage, you do not try to do everything. You specialize, by producing what you are relatively better at making compared to others and then trade for what you are relatively worse at producing. The ideas “relative” and “compared to” are key. If, at the moment, I am relatively better at software engineering than cake baking, then it makes sense for me, at least for now, to produce software and purchase birthday cakes from a baker.

This is one reason free trade can make us all better off. Free trade allows me to have a smartphone in my purse and to come home to a refrigerator that makes and dispenses ice. It allows me to make hot oatmeal for breakfast for around $0.65 — using organic milk instead of water, a plastic spoon and a paper plate, and a $55 microwave from Walmart that lasts two years. Using hot water instead of milk would push it under $0.40 per serving.

If I had to make the oatmeal each day from scratch I would never leave the house. I would have to grow oats. Since I have a townhouse with no backyard, that would be a problem. I would need to build a microwave or a stovetop range. I have no idea how to do that, and I doubt I would be good at it even if I did.

I don’t need to be anywhere near the top 1% of the income distribution to have all these products and millions more. Free trade frees me up to do other things: the things that I am relatively better at doing. It does the same for you. Free trade is largely what separates us from the developing world since it liberates each one of us from trying to produce everything we need to survive.

Left entirely to our own devices, most of us would be either dead or rubbing sticks together in a cave somewhere. Most of human history has been about survival. Brad Delong, economist at U.C. Berkeley, writes that by most accounting measures, until about 1340 A.D. humans lived on about $100 per year and even then it was not until 1925 that world GDP per capita broke $1,000 per year.

In the 19th century, Thomas Malthus predicted that if the population kept growing as it was at the time, there would be mass starvation because the population would outrun the food supply. Prior to the Industrial Revolution, he reasoned that mass death due to plagues made life easier for the survivors, because there were fewer people chasing the scarce amounts of food, shelter and water. This is not a life of prosperity or dignity. To use the language of Hobbes this life was no doubt “nasty, poor, brutish and short.”

But the Malthusian apocalypse never came, largely because free trade allowed us to produce goods and services that we could never provide individually and also opened an entrepreneurial environment for technological innovation. We now enjoy services and carry goods in our pockets that didn’t exist fifteen years ago. Malthus never imagined such miracles.

The problem with affluence and prosperity in 2015 is that there isn’t enough of it for enough people. Right now somewhere in the third world there is a woman walking to a dirty waterhole where animals bathe. She is collecting water for cooking and drinking and doing the backbreaking work of hand-washing clothes for her family. She doesn’t get to come home and fill a plastic cup with ice and clean water fortified with fluoride. Our scenario is unfathomable to her but mundane to us. The lack of free trade keeps the poor in chains.

On both economic and moral grounds, free trade is a no-brainer. For the sake of those who do not yet fully benefit from it, we should encourage as much of it as possible. Let’s hope Congress has enough wisdom to realize that.

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  • D A

    A Trade Deal done in Secret hardly counts as Free Trade. Especially one which is barreling through to be passed before anyone knows what’s in it and who mentored it.

    “We have to pass it to find out what’s in it “…..THIS is how things are done now in America ???

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