Mises Wire

A
A
Home | Blog | Mercantilist chickens coming home to roost?

Mercantilist chickens coming home to roost?

January 15, 2004

The ongoing debate between Paul Craig Roberts and other Mises Institute scholars is indeed stimulating.  Roberts & Schumer have a point in that ours is a world of near-perfect capital mobility and rapidly advancing information technology; therefore, it is a world of rapid economic change.  Removing trade barriers results in near-instantaneous adjustments of the structure of production and thereby creates a lot of domestic "losers:" people who are no longer part of the market for a particular good or service.  We can expect them to complain, and to complain loudly.

As far as I'm aware, the relevant root causes of the disparity between the first- and third-worlds has yet to be adequately addressed: first-world protectionism and illiberal institutions in the third world.  In other words, a dizzyingly complex array of tariffs, quotas, regulations, assorted other protectionist measures, and anti-market institutions in the third world have so distorted the structure of production that any "correction" is bound to be severe.  Centuries worth of institutional hurdles have prevented prices and wages from equalizing at the margin.  Once those hurdles are eliminated, we can expect the adjustment process to be extremely painful for some people.

The domestic "victims" of globalization--and I use the term "victims" loosely--stand to lose a lot in the short run.  These are people who have bought houses, cars, college educations, and a variety of consumer goods based on their expectations about future streams of income.  If those streams of income fail to materialize (or turn out to be much smaller than the workers expected), workers are faced with real losses (namely, bankruptcy).

In summary, unmitigated free trade is a great thing in the long run.  However, the transition from a severely hampered to an unhampered market will create lots of real losers in the short run, maybe even to the point that first-world economies are severely depressed while factors of production are reallocated (this won't necessarily happen, but whether prices will fall faster than nominal wages is an empirical question).  While we shouldn't hesitate to advocate trade liberalization, we should be prepared to accept the fact that it won't be wine-and-roses for everyone.

Follow Mises Institute

Add Comment