Merton Miller, the 1990 economics laureate, said those words, not me. Some of the best theory in economics is comparative advantage – a theory that Paul Samuelson once described as being both true and non-trivial.
It is unfortunate that comparative advantage is usually taught as part of international trade and not in the early stages of any economics subject. The point being that comparative advantage is not uniquely applicable to international trade, but rather it applies to all trade. Individuals should specialise in the production of those goods and services where they have an advantage and trade for those goods and services where they do not have an advantage.
Third party interference in that process means that the gains from trade are not fully exploited and that some people are worse off than they otherwise could have been. I have almost never found anyone who disagrees with that sort of statement until I suggest that we imagine that two individuals want to trade across an international border and the third party interference is coming from a national government.
Then, all of a sudden, previously smart people become dumb people.
Apparently there are “special circumstances” that apply to international trade that make it entirely different to ordinary trade.
Economists have been exposed to these “special circumstances” arguments for centuries. Now these arguments vary in their sophistication and urgency but quite frankly they are rubbish. Just rubbish. Now the election of Donald Trump has not made these arguments any more sophisticated nor any more urgent. The argument that if only government imposed a tax on trade (or indeed anything else) the world would become a better place was just as invalid when Obama was president and remains just as invalid today.
It is well worth emphasising that arguments against free trade are always conspiracy theories. Evil foreigners are doing bad things to us. Normally those bad things involve them selling higher quality goods and services to willing buyers at lower prices. Or evil foreigners wanting to buy domestic assets for higher prices. As if somehow buying low and selling high was a bad thing.
Now we loathe the government telling us how to live our lives on the domestic front because we know it simply lacks the information and knowledge that we possess to pursue our own self-interest, yet some believe that once a foreigner comes into our lives that magically the government does possess the information and knowledge to maximise our interest.
The only interests that all Australians have in common, and with the government, is the maintenance of law and order, and national security. Some people try to push the restrictions on trade are important for national security line. Senator Kim Carr of Victoria, for example, long maintained the argument that a domestic motor car industry was vital for national security. Something about car manufacturing skills and aeroplane manufacture – forgetting, perhaps, that modern fighters use jet engines and not the internal combustion engine.
Once you examine the arguments for trade restriction to bolster national security, they are quickly exposed as appeals to emotion and prejudice. It was Milton Friedman who made the argument that restricting trade is something we do to our enemies in times of war, yet trade restriction is something we do to ourselves in times of peace.
Now I understand that often good economics doesn’t appear to be good politics. Yet good politicians always make good economics work for them.