Free trade becomes epistemology

Foseti responds on Free Trade with a very thoughtful post. Mark Horning also chimes in, suspicious.

I'd suggest that one of Foseti's key lines is:

However, free trade is an area where history and economic theory disagree.

And I think that this is the crux of our disagreement. Foseti, having read List, believes that Free trade is not how folks have gotten richer. I, having read academic economists and libertarians, believe that whenever you compare two countries that are SIMILAR, the one with freer trade does better. You can get other results by anecdote, but not by regression.

It's like saying women are paid less than men. It's crap. Yes, the schoolteacher who works 35 hours a week, 180 days a year makes less than the investment banker who went to 8 additional years of school, and works 96 hour weeks...but that's not a real comparison. Women who work 40 hours a week are paid less than men who work 50 hours a week. Women of child-bearing age are paid a little less than men, because the employer is bearing a risk-premium of having to pay 6+ weeks of maternity leave. Women who are 35, and have been working for 6 years (time off for babies) are paid less than men who are 35, and have been working for 12 years. Women doctors who choose pleasant, low hour, low stress specialties (pediatrics/family practice) are paid less than men who choose less fun, high hour, high stress specialties (neurosurgeon, say). Compare apples to apples (instead of peaches to cucumbers), factor out work experience, education, real hours spent (not nominal), and specializations...and women end up earning a rate of between 97-105% of what men earn, depending on the study you read..

Certainly one can cherry pick examples...but when one does a serious analysis that goes beyond anecdote...Free-er trade kicks serious ass. This is the academic economist position. It has an awful lot of historical data and regression analysis behind it, besides the really elegant theory. For 2 comparable countries, the country with freer trade is both richer, and has more jobs created. The country with less free trade is poorer and has fewer jobs, ceteris paribus.

Responding to Both Mark and Foseti:

The key element that does not appear in either of your analyses is that trade creates jobs locally as well. Local regulations don't impact that at all...they do kill jobs, but the effect is domestic. Local regulations = -n% jobs. Local regulation + Free trade = -(n/2)% jobs. Free trade creates both jobs and wealth. I think that the problem we're having is that neither Foseti nor Mark understands that the argument includes jobs. Free trade = MORE jobs than protectionism. Both historically, and theoretically. EVEN in the face of stupid domestic rules.

All it takes is a proper understanding of dynamism in the economy...10% of the jobs in the manufacturing sector of the US economy are destroyed each year. A different 10% are created. Every year, year in year out. Protectionism does NOT protect jobs...it has the net effect of destroying jobs, but it does stabilize (somewhat) which jobs exist.

If you're going to argue anti-free trade, you really have to do it on national security grounds, as Foseti sometimes does. The other arguments are just factually wrong, based on the best data anlysis we've got.

The discussion of future value is more complex...and requires its own post. Summary: growth is about innovation and adjusting better to new information. The free trade argument is that (1) short term and long term economic growth are not different on country-sized scales. (2) free trade promotes growth. Using Foseti's simplest example....in a family-by-family calculation, pro-natalist policies have a long horizon. On a country-level calculation pro-natalism reaps benefits every year.