Tuesday, May 1, 2007

Rodrik on Trade

Dani has an excellent post on free trade. A recurring theme here is that economists are so eager to defend free trade against bad arguements that they forget about good ones.

For example whether or not we think there should be completely free trade between households, there is not. I can't sell you whatever I want, whenever I want. Why then would we automatically assume that free trade is always the best policy between nations.

Perhaps, we think households are capable of mistakes that nations are not. However, if we take public choice theory seriously we have to conclude that if anything nations are in more need to oversight. Moreover, not all nations are democratic.

For example, I think it is a rare economist that you will find advocating child labor. For one, it is not entirely clear what the power relationship is between parent and child. The child might prefer to invest in her own education but her parents may be coercing her into do otherwise.

Even when we don't think that parents might make their kids work there are still reasons to be skeptical about child labor. Can children make informed decisions about the risks and trade-offs? Is education a public good that needs to be encourged? Are people subject to hyperbolic discounting (read: lack of self control) that leads them to make choices they know they will regret?

Any of the above could be reasons why we don't think children should be allowed to sell their labor.

So then why would allow American consumers to buy child labor from abroad?

Environmental standards are even more justifiable at an international level. Even if we don't buy the concept of non-use value we all share the same air and in particular the same oceans. When Chinese factories pump mercury in the air this pollutes my cherished Alskan Salmon. I see no reason why a consumer should be able to escape the Pigouvian tax (or regulation if thats the best we have) just because the products she buys happen to be made in Asia.

As a general rule any restriction we are willing to place on trades within our borders are at least on the table when dealing with international trade.

11 comments:

James M. Jensen II said...

I have been thinking similar thoughts for years now. Asking American companies to compete with companies employing slave labor is like asking an honest merchant to compete with one who deals in stolen goods.

At the very least, one would expect a company operating in multiple countries be required to abide by all applicable regulations.

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