Protectionism
From Wikipedia
Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow “Fair” competition between imports and goods and services produced domestically.
This policy contrasts with free trade, where government barriers to trade and movement of capital are kept to a minimum. In recent years, it has become closely aligned with anti-globalization. The term is mostly used in the context of economics, where protectionism refers to policies or doctrines which protect businesses and workers within a country by restricting or regulating trade with foreign nations.
Historically, protectionism was associated with economic theories such as mercantilism (that believed that it is beneficial to maintain a positive trade balance), and import substitution. During that time, Adam Smith famously warned against the 'interested sophistry' of industry, seeking to gain advantage at the cost of the consumers.[1]
Most modern economists agree that protectionism is harmful in that its costs outweigh the benefits, and that it impedes economic growth.[2][3] Economics Nobel prize winner and trade theorist Paul Krugman once famously stated that, "If there were an Economist’s Creed, it would surely contain the affirmations 'I understand the Principle of Comparative Advantage' and 'I advocate Free Trade'."[4]
Recent examples of protectionism in developed countries are typically motivated by the desire to protect the livelihoods of individuals in politically important domestic industries.[citation needed] Whereas formerly mostly blue-collar jobs were being lost from developed countries to foreign competition[citation needed], in recent years there has been a renewed discussion[by whom?] of protectionism due to offshore outsourcing and the loss of white-collar jobs.
Everyone knows -- you can't block free trade -- that's Protectionism!
And "protecting" your nation's peoples -- their jobs, their careers, their futures -- well that's just Wrong, economically speaking.
Even liberal Paul Krugman, says so ... Everyone knows ...
Since the Wiki, cited Krugman as a "Free Trader" -- I was curious, exactly what was the context of that reference.
It took me a while to find it, in text form. Here it is. Note the Date of the paper, and the depth and nuance of Krugman's arguments, even back then.
Economic Perspectives -- Volume 1, Number 2 -- Fall 1987 -- Pages 131-144
Is Free Trade Passe?
Paul R. Krugman
Professor of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts
If there were an Economist's Creed, it would surely contain the affirmations "I understand the Principle of Comparative Advantage" and "I advocate Free Trade." For one hundred seventy years, the appreciation that international trade benefits a country whether it is "fair" or not has been one of the touchstones of professionalism in economics. Comparative advantage is not just an idea both simple and profound; it is an idea that conflicts directly with both stubborn popular prejudices and powerful interests. This combination makes the defense of free trade as close to a sacred tenet as any idea in economics.
Yet the case for free trade is currently more in doubt than at any time since the 1817 publication of Ricardo's Principles of Political Economy. This is not because of the political pressures for protection, which have triumphed in the past without shaking the intellectual foundations of comparative advantage theory. Rather, it is because of the changes that have recently taken place in the theory of international trade itself. While new developments in international trade theory may not yet be familiar to the profession at large, they have been substantial and radical. In the last ten years the traditional constant returns, perfect competition models of international trade have been supplemented and to some extent supplanted by a new breed of models that emphasizes increasing returns and imperfect competition. These new models call into doubt the extent to which actual trade can be explained by comparative advantage; they also open the possibility that government intervention in trade via import restrictions, export subsidies, and so on may under some circumstances be in the national interest after all.
To preview this paper's conclusion: free trade is not passe, but it is an idea that has irretrievably lost its innocence. Its status has shifted from optimum to reasonable rule of thumb. There is still a case for free trade as a good policy, and as a useful target in the practical world of politics, but it can never again be asserted as the policy that economic theory tells us is always right.
[...]
Well, what is Professor Krugman, trying to say exactly? Free Trade may have run its course as a "National Pie-grower", for each trading party? ... especially when, "international trade" has kind of "jumped the shark"?
This Econ 101 teacher poses a few questions about the wider scope of "Free Trade", somewhat challenging the way, it has been traditionally been taught. I especially like his Glossary, and the definition for "Externality" -- funny how Externalities are rarely ever factored into our Profits Protectionist decision matrix. It's as if, External Costs, are always "somebody else's problem" -- and definitely not the problem of the Profit-takers -- those who generate all those "trivial" Externalities, out into the ether in the first place. The ether can absorb it.
Econ 101H -- Michael Salemi
Is Free Trade Passé?
by Paul Krugman
Discussion Questions
1. Why, according to Krugman, is the economic case for free trade currently in doubt?
a. How, according to Krugman, does the possibility of “returns to scale” affect the case against free trade?
b. How, according to Krugman, does the possibility of “external economies” affect the case against free trade?
c. What does Krugman mean by a “strategic trade policy”?
[...]
Returns to Scale (Economies of Scale). For normal production processes, the marginal cost of producing another unit begins to rise long before the equilibrium quantity is reached. With some production processes however, marginal cost falls and is still falling at quantities near those that satisfy consumer demand. A good example is electric power.
Imperfect Competition. Perfect competition exists when no buyer and no seller can influence price. Informally, economists say that individual buyers and sellers are too small to influence price and therefore take price as given. Imperfect competition exists when a producer-seller is large relative to the market and realizes that it has some control over price. A good example is the Coca Cola Company which is the only producer of Coke™ products. Many consumers consider other fizzy beverages to be imperfect substitutes for Coke.
Laissez faire is a French term meaning “let it be” or “leave it alone.” In economics, laissez-faire generally means that government should not interfere with the workings of free markets.
Externality (Third Party Effect). An externality exists when the costs and/or benefits of producing and consuming a good are not private to the producer and consumer of the good but affect other agents as well. One intuitive example is a cigarette. Consuming a cigarette has third party effects on nearby individuals since “second hand smoke” is a health hazard and, to many, otherwise unpleasant.
So what has Nobel Prize winner Paul Krugman, had to say about Free Trade and Protectionism lately?
Surely his views have evolved over the course of two passé decades ...
Protectionism and stimulus (wonkish)
by Paul Krugman, NYTimes.com -- Feb 1, 2009
Should we be upset about the buy-American provisions in the stimulus bill? Is there an economic case for such provisions? The answer is yes and yes. And I do think it’s important to be honest about the second yes.
The economic case against protectionism is that it distorts incentives: each country produces goods in which it has a comparative disadvantage, and consumes too little of imported goods. And under normal conditions that’s the end of the story.
But these are not normal conditions. We’re in the midst of a global slump, with governments everywhere having trouble coming up with an effective response.
[...]
And this in turn means that if macro policy isn’t coordinated internationally -- and it isn’t -- we’ll tend to end up with too little fiscal stimulus, everywhere.
Now ask, how would this change if each country adopted protectionist measures that “contained” the effects of fiscal expansion within its domestic economy? Then everyone would adopt a more expansionary policy -- and the world would get closer to full employment than it would have otherwise. Yes, trade would be more distorted, which is a cost; but the distortion caused by a severely underemployed world economy would be reduced.
[...]
But there is a short-run case for protectionism -- and that case will increase in force if we don’t have an effective economic recovery program.
So sometimes the short-term Protectionism medicine, is better that ignoring the long-term National Unemployment disease. According to Krugman, as of a few years ago.
I heard administration adviser Jeffrey Immelt on CNN this morning with Fareed Zakaria, arguing that:
... if only Wages in the US could be brought back down to 'the right wage level -- to around $35,000 to $40,000 a year, THEN you would see a lot of Manufacturing jobs returning to the US.'
Immelt, former General Electric Chairman and CEO, reasoned that Corporations, by outsourcing, are 'only doing what the Corporate Investors want -- Maximizing their Profits'.
Well isn't that special?
This 1-dimensional pursuit of profits, struck me as what's so very wrong with out Economy. Where was the discussion of Trade Policy? Where was the discussion of a Living Wage? Where was the discussion of building a strong Middle Class, in America -- NOT just China's booming Middle Class?
Where was the discussion of Corporate Patriotism?
Who decided to make "Unchecked Corporate Profits", our end-all Economic King?
No matter where those Profits, may lie. No matter what those Profits, may ultimately cost us (and the Planet) ... in the long run.
When do a Nation's People, get a Voice in our Nation's long-term Economic Policies? When do we get a chance, for employment -- in the short-run.
Why do the outsourcing "Job-Creators", get to call the shots? With absolutely "No Barriers" to them to keep on tapping those cheaper overseas resources ... for all they're worth?
When do a Nation's People, get a Voice in our Nation's long-term Economic Policies?
Perhaps when, its citizens become literate enough, to discuss this very "dismal science" -- Economics ... intelligently, and state our Case, against the Maximum Profit rule.