Friday, December 01, 2006

Free Trade

Arnold Kling has a good introduction to a topic that we will be discussing shortly, free trade.

The main points of his article can be summarized by this story:

"The surgeon talks about needing to give her house a new coat of paint. Her tennis partner suggests that compared with a typical house painter she probably could do this job better herself. "That's true," the surgeon replies. "I have steady hands, and I work more carefully and efficiently than most painters. But I figured that even though it will take the painters 50 hours to do the house and I could do it in 40, it's still a better use of my time to see patients. I can pay the painters with the money I get from seeing patients for two hours, so in a way I can paint my house in just two hours by sticking to medicine."

This one:

Finally, the tennis partner says. "My brother-in-law had a kidney stone. I was going to recommend that he come to you, but his doctor said that there is a new pill that dissolves some stones. So he doesn't need surgery."

And finally, this comment:

"The last anecdote illustrates one of the most subtle benefits from trade. Competition and trade lead to innovation, in this case the development of a drug that reduces the cost and risk of removing kidney stones.
Competition and innovation are not necessarily a benefit for the surgeon. The demand for her services falls to the extent that medication can be used in place of surgery"

Me: Think about this another way. Free trade and technological innovation have destroyed numerous jobs in agriculture over the past century (before the 20th century America had many more jobs in agriculture. I believe the figure is now down to 2%.) But the gains from trade, an exponential increase in food production, vastly outweighed the loss of jobs in that industry. Further, with jobs opening up in industries that American had a comparative advantage in, people migrated towards those new jobs and normal economic development created other jobs. At the end of the day the economy has many more jobs now (at higher pay!) than they did 100 years ago.

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