The Forgotten Consumer; E. Banfield

Last year former U.S. trade representa tive Carla Hills debated Senator Don Riegle about the potential effects on jobs of the North American Free Trade Agreement (NAFTA). In committee testimony and on business news shows, Senator Riegle said Americans in several industries would lose jobs to Mexico (and Canada), and that only bankers and other financial-sector employ ees would gain. Ms. Hills countered that U.S. firms in many sectors would be able to sell more goods and services in Mexico and Canada, and that means more jobs for Americans. Framed that way, the issue seemed one of netting out the "gainers" and "losers," all in terms of "how many jobs." The debate degenerated into a "sector analysis," with Hills and Riegle sounding like stockbrokers arguing over which industries to invest in. Worse, Hills fell into Riegle's trap: Neither Eric-Charles Banfield is owner of Banfield Ana lytical Services in Westmont, Ill.

debater ever used the word "consumer," the real reason for free trade. The misguided "jobs" focus hits close to home, too. Wal-MartfounderSam Walton's death led many to eulogize his great busi ness achievements. But many in small U.S. towns and even some urban areas reacted critically, saying the emergence of Wal Mart stores, with their low prices and good selections, drove their local but expensive mom-and-pop stores to ruin. The issue to them was "jobs." Again, no one mentioned the consumer. In both cases, debaters (and the media airing their views) made the same mistake: looking at free trade and free markets as primarily a jobs issue, and completely ig noring the consumer issue: That trade means competition and lower prices for consumers, and that helps economies. In economic terms, they focused on the pos sibleloss in "producer surplus" and ignored the certain gain in "consumer surplus."

If Not for Jobs, Then Why Free Trade? Freer trade creates tremendous economic benefits. A bottom-up process, it diffuses its effects across all markets and at all stages of production. Lower tariffs and increased competition reduce prices to consumers, enabling more people to enjoy the benefits of goods and services at prices lower than they 105 106 THE FREEMAN • MARCH 1993 were willing to pay before, and in greater quantity. That increased consumer surplus means either: (1) more money available in people's budgets to buy an additional quantity of goods and services, adding to demand and growth; or (2) more money to save, adding to invest ment and capital formation; or (3) higher-quality goods at the same price and in the same quantity. Those direct, primary benefits, valuable intheir own right, shouldbe sufficientto make the case for free trade, regardless of jobs. If jobs are stillat issue, then the free-trade case is yet stronger. Those three consumer benefits mean: (1) greater demand for goods and ser vices from producers and suppliers, which creates jobs; (2) more credit and capital for new ven tures, which creates jobs; and (3) a higher standard of living, which certainly can't hurt jobs.

Yet both opponents and proponents ob scure the solid demand-side case for free trade by .emphasizing employment, a sec ondary consideration. Creative Destruction In the perpetual motion of economic change, jobs are constantly destroyed and created. A freer level of trade, especially if brought about suddenly, will no doubt de stroy some jobs in some sectors, but will create jobs in probably every sector of the economy. Politically, that's the trap. As Frederic Bastiat said in 1848, "there's what you see and what you don't see." Observers will be able to see fairly clearly which jobs are destroyed by competition from cheaper sup pliers. They'll find it much harder to iden tify, on the other hand, which jobs have been created by the diffuse benefits that accrue to consumers. An auto or textile plant can layoff work ers, and cameras can capture that on the evening news. But who will notice that increased consumer demand and capital availability will cause thousands of small businesses to start? Politicians won't be able to point to a new job and say "free trade created that job," but they can point to a layoff at a textile plant and say "free trade destroyed that job. "That's why "jobilism"

is such a common campaign tactic. Try Some Real Populism But if people want to use populism to bolster their case for or against free trade, why appeal to employment? Better to ap peal to consumers: Everyone is a consumer. Everyone willsave money from lower tariffs and increased competition. What could be more "popular" than that? But even alleged supporters of free mar kets fail to make the proper appeal to consumers, letting the opponents set the parameters for the discussion. That could cost them the d.ebate.Unfortunately, if they fail to make the proper case for free trade, it is consumers who will face the greatest cost, quite literally. 0 The Function of Protectionism T HE main function of tariffs and other protectionist devices today is to disguise the real effects of interventionist policies designed to raise the standard of living of the masses. Economic nationalism is the necessary complement of these popular policies which pretend to improve the wage earners' material well-being while they are in fact impairing it.

-LUDWIG VON MISES, Human Action IDEAS ON LIBERTY $ THEFREEMAN IDEASON LIBERTY THE CASE FOR SHOPPING AT KROGER by Anthony Woodlief T· he Kroger grocery workers in my sec • tion of Michigan recently ended a strike of several weeks after management gave in to some of their demands for higher wages and benefits. Most of my friends and ac quaintances refused to shop at Kroger while the employees were on strike and were shocked that I did not join their boycott. When they visited me, some even asked for assurances that the food I was serving had not been purchased from Kroger. The Uni versity of Michigan graduate student teach ing union, to which I am forced to pay dues, organized members to help the Kroger workers picket and harass customers. Union officials and opinion columnists assailed us non-boycotters in print with arguments about how Kroger was denying its employ ees "justice" and "fair" or "decent"