Free Trade to Benefit the Many; D. Lee

The key to a successful economy has never been simplythe creation of jobs. The abilityto consume always exceeds the ability to pro duce, so there is never a lack·of work to do. The key to a successful economy is directing people into the most productive jobs, those that create the most value for consumers. This is .the real advantage of international trade. Dr. Lee teaches economics at the University of Georgia, and is this month's guest editor. We create more productive domestic jobs both when we sell andwhenwe buyfrom other countries, and the more open the interna tional trade arrangements the better for all countries. When country B restricts the im port of American products it reduces its productivity as well as ours. But we only add to our productivity loss if we respond by restricting the ability of our citizens to buy products from country B. Consider the fact that, despite political rhetoric, when we· buy foreign products we create American jobs. It would actually be better for Americans if this weren't true.

When Americans buy products from, say, Japan, we end up with products we value more than the dollars spent could have bought elsewhere, and the Japanese end up with more dollars (actually the one who sellsyen to American importers to pay for the Japanese products ends up with more dollars, but this doesn't meaningfully alter the story). What do the Japanese do with these dollars? It would be nice if they treated them as collector's items, to be kept and admired. Then Amer icans could obtain valuable products by doing nothing more costly than printing up dollars, something so easy that even the federal gov ernment does it well..But the Japanese pro duce goods for Americans not because they want dollars, but because of what dollars can 588 buy. Those dollars eventually come back to America as claims on goods produced by American workers, or as investments in America that create domestic employment opportunities. They may not all come back directly from Japan, but they do come back.

I don't deny that by restricting foreign imports we can save some American jobs. But because these jobs, by definition, cannot sur vive the demands of international trade they obviously don't create as much value as those American jobs that would have been created without the import restrictions. Foreign trade eliminates only those jobs that are producing goods which domestic consumers can import cheaper by shifting their effort into more productive employment elsewhere in the economy. Unfortunately, the general benefits from unrestricted imports (lower prices for con sumers and a more productive economy) are largely ignored by the political process, which sees imports as a threat to existing jobs. The problem here reflects a distortion inherent in the political process. Relatively small groups organized around a common concern, such as protecting profits and jobs in a particular industry, are well positioned and strongly motivated to communicate through the polit ical process with a loud, clear voice. On the 589 other hand, the general consuming public is too large and too diverse in its concerns to communicate a clear and consistent message through the political process. If something threatens to concentrate a cost on an orga nized few while spreading a benefit over the unorganized many, politicians will hear from the few but not from the many.

This bias in favor of special interests over the general interest explains a host of political perversities. It explains, for example, the difficulty politicians have cutting spending programs, which tend to concentrate benefits on organized interest groups, in order to reduce the burden on the general taxpayer. And it certainly explains the political perspec tive on free trade, which emphasizes the advantage in protecting existingjobs over the far greater, but much more general, advan tage of better choices for consumers and improved economic productivity. If politicians could feel the gain of the unorganized many as intensely as they feel the pain of the organized few, a large number of government restrictions on our economic choices would be quickly eliminated. Restric tions on our ability to buy the best products at the lowest prices, whether produced at home or abroad, would be among the first to go. 0 At What PriceWill The Gold Standard Return1 1797 Half Eagle 5.00 Gold Piece Uncirculated Price HlstDry 1957 -$700 1967 - $3,800 1977 - $9,500 1987 - $30,000 1997 - $137,500 • Quality U.S., Latin American and world rare coins for aggressive or conservative portfolios.

• collection building expert. • Buying, selling, trading. Tom Pilltowski 6278 North Federal Hwy, #369, Ft. lauderdale, Florida 33308 U.S. Toll Free: 1-800-524-6321 • Tel: 1-954-979-2640 • Fax: ·1-954-979-2624 THEFREEMAN IDEAS ON LIBERTY EntitlementsVersus Investments:A Parable by George C. Leef I magine two nations. We'll call one Atlantis and the other Pacifica. They are similar in most respects, except one. The government of Atlantis has established a right to housing, which is provided free to all citizens. Houses are built by unionized government employees following plans and procedures approved by the Atlantis Housing Department (AHD). Citizens are assigned houses based on family size. They may modify the house (within certain limits), but it remains government property. If a family dislikes their assigned house, they may spend their money to build one or buy one that is not government prop erty.