by Sam Selikoff April 30, 2010
A common cry today among politicians, professors and even the laity is that of job protection. They say we must increase tariffs to protect American workers; subsidize car companies to protect auto workers; and even ‘tax the rich’ to protect the middle-class workers.
All of these claims suffer the fatal economic flaw of focusing on the immediate effects of a change in the economy, while ignoring the distant consequences that follow and that are just as real and important. If the Chinese sell American consumers tires at a lower price than American tire producers can, it is true that American tire producers may lose their jobs. But to keep them in business by arbitrarily raising the price (i.e. instating a tariff) would mean to keep these producers in an industry in which they are relatively worse at than their Chinese counterparts. This means real resources would be diverted into a comparatively less-efficient industry, and would not be available for alternative production processes.
And what of the now jobless tire producers? If we ignore the other side of the story, we may think that their unemployment will persist. But since American consumers now spend less money purchasing tires (because of the lower Chinese price), they will have more money left over. And since everyone has an infinite amount of wants – that is, we all desire to make ourselves better off in the future compared with today – consumers will spend their additional savings on even more goods and services. It is in these respective industries, spurred by the increase in demand brought about by the lower-priced Chinese tires, that the American producers will find work. Specialization and comparative advantage will thus increase the total number of goods and services, making society as a whole better off.
The same can be said for newly-developed productive machinery, which ultimately eliminates (comparatively worse) jobs. But there is something even more subtle which can have the same effect. I’ll let Henry Hazlitt (writing in 1946, but sounding as fresh and relevant as if he were writing today) explain:
"Just as there is no technical improvement that would not hurt someone, so there is no change in public taste or morals, even for the better, that would not hurt someone. An increase in sobriety would put thousands of bartenders out of business. A decline in gambling would force croupiers and racing touts to seek more productive occupations. A growth of male chastity would ruin the oldest profession in the world."
And if we can see (hopefully clearly) that pouring resources into propping up the production and sale of alcohol in the name of protecting jobs is folly, so too should we see that punishing American consumers with tariffs, subsidies and taxes for the same purpose is simply not prudent.