By Russell Roberts
Russell Roberts is director of the Management Center at the John M. Olin School of Business at Washington University in St. Louis. He is the author of “The Choice: A Fable of Free Trade and Protectionism” (Prentice Hall).
The good effects of laws are often easily seen. The bad effects, unseen. So observed Frederic Bastiat 150 years ago. His basic insight remains true today. We live in busy times. Information bombards us. In such a world, even that which is seen is often overlooked. The unseen is that much more elusive.
If we are to make the case for economic freedom, we have to bring these unseen costs to light. Consider an increase in the minimum wage. What is seen: businesses give some of their low-wage workers a raise. The direct effects of the minimum wage—more money for low-wage workers, less money for businesses that pay them—frame the entire debate. Senator Christopher Bond of Missouri says the minimum wage is bad because it hurts small business—as he argued in his recent re-election campaign. So most people see the minimum wage as a tax on small business that helps the poor. No wonder many people think it’s a good idea.
If we want to dent the consciousness of the average American, we have to talk about how the minimum wage doesn’t just tax small business. We have to show how it bankrupts some firms that hire low-skill workers. That means fewer opportunities for low-skill workers. But even the firms that survive will try to reduce the hours of low-skill workers and their numbers. In short, while the minimum wage helps some low-skill workers by giving them a modest pay increase, it has a devastating effect on others, pushing them out of the work force and into the street. The minimum wage thwarts human possibility among those it tries to help. And as Bastiat understood, it is easy to see those who are helped by the minimum wage. Those who are harmed are much harder to identify.
We’ve done a decent job explaining the hidden costs of the minimum wage. We’ve done such a good job, in fact, that proponents of the minimum wage have actually tried to argue that increases in the minimum wage have no effect on low-skill employment. To paraphrase Orwell, you’d have to be an academic economist to find that argument compelling. But in other areas, we have a long way to go if we wish to cast light on the unseen costs of government intervention.
Free Trade and Protectionism
Here’s how trade often gets discussed in the media: should we destroy jobs in America in order to have cheap imports? That’s like being asked how long you’ve been beating your wife. Why does it get discussed this way?
Opponents of free trade want the American people to think that trade is about destroying jobs in order to get cheap foreign goods. It makes free trade look mean-spirited and mercenary. But another reason is that these are the most obvious effects of free trade. If Americans buy from foreign suppliers, people understand that fewer Americans will be hired in the competing domestic companies. Unseen are the jobs created to make the products we exchange with foreigners. Unseen is the impact of specialization and comparative advantage. Unseen is the power of foreign competition to induce our domestic industries to innovate.
Unless we can illuminate the unseen, making the case for free trade will be an uphill battle. Unfortunately, one of the best things about free trade is extremely difficult to see: free trade allows resources to flow to their highest use. But to make the argument compelling, we have to describe it in a way that allows it to be seen without a semester’s worth of economics.
Freeing Up Opportunity
Somewhere in South Carolina, there’s a high school girl whose mom works in a textile factory. This girl doesn’t know what she wants to do with her life, but like most high school kids in America, she probably doesn’t want to work in the same job or career as her parents. The security of the textile factory is appealing, but she might want to go to college and try something different. It all depends on her options.
That factory is threatened by Chinese competition. Should we let the factory go under or should we protect it from the cheaper Chinese imports? We could spend hours on the pros and cons and the economic impact of that decision. But let’s look at the impact on that girl in high school. If we keep the factory around, we make the choice of working in the factory more appealing. If we let the factory die, we change the available options. We push her out into the world.
Exploring the world is a good thing, but that’s not reason enough for letting the factory go under. What is harder to see is that the world to be explored is a more vibrant and alive place when the factory goes under. Allowing the factory to die frees up capital and management skill that can be used elsewhere. If we maintain all of the factories and all of the companies that cannot survive competition, then the American economy is a much more static place.
If we try to make everything for ourselves and be self-sufficient, we lose the opportunity to specialize in doing what we do best. Our capital gets tied up in industries that do not take the greatest advantage of our unique skills. Free trade allows a high school kid in South Carolina to inherit a world of maximum human potential, with the maximum chance for her to use her gifts, whatever they may be.
A skeptic would ask how the girl in South Carolina is going to achieve her potential if her mom is out of work. And that in turn might lead to a discussion of how past generations have managed to survive and thrive in a dynamic economy. In 1900, one-third of the American work force was in agriculture. Today the number is around 3 percent. Do you think the kids on the farms of 1900 are glad that we let agriculture become more capital intensive with fewer jobs? It wasn’t a trivial transition, but in 1900, we couldn’t see the industries that would arise to use the skills of the next generation. And we can’t know the opportunities that will arise to help that girl in South Carolina if we let the textile factory fail. But they will arise. What they will be depends on the gifts and aspirations of the next generation.
If we want to inspire people to support free trade, we must touch their imagination. Bastiat understood that 150 years ago. Our best chance is to make the unseen, seen. Economics can bring the unseen to light, but only if we leave the jargon behind and show how free trade and other economic freedoms help transform our lives.
This article has been published with FEE‘s permission and has been originally published at The Freeman March 1999 • Volume: 49 • Issue: 3.