http://www.thefiscaltimes.com/Columns/2 ... onal-Trade
The whole article is worth reading. Mark Thoma is a regular contributor to the Financial Times."... Economists are taught that if a particular policy makes some people better off without making anyone else worse off, then that policy can be endorsed. However, if a policy makes some people better off and others worse off, then we cannot take a stand on whether the policy is good or bad. That would involve a value judgment that hurting one group of people is okay because of the good it does for others. Even if a policy helps billions of people and hurts just a few, we cannot take a stand on whether the policy should or should not be enacted.
Economists, however, have ways around this. If a policy such as opening our borders to more international trade has both positive and negative effects, but the positive effects exceed the negative, then it would be possible to distribute the benefits in a way that makes everyone at least as well off as they were before the policy change. So if billions are helped and just a few are hurt, we can redistribute some of the gains to more than compensate the losers. It doesn’t matter if the redistribution actually happens, so long as it’s theoretically possible the policy can be endorsed.
The second way around the problem of a policy creating winners and losers is to separate the short-run from the long run. While increased trade may cause difficult adjustment costs in the short-run, in the long run, according to this argument, trade “lifts all boats” such that the overall benefits are positive.
I think both of these arguments have problems, especially in recent decades, but before explaining why one last note on the evaluation of trade policy. When making calculations about the winners and losers, we must first decide whose welfare matters. Should we limit our analysis to the consequences for people within the US, or should we be more cosmopolitan and also include residents of other nations, particularly those in developing nations struggling to overcome poverty? Or should we include both, but give more weight to those closest to us? ...
Although there is disagreement about the magnitude, estimates on the impacts of trade find that it is a net positive for the US as a whole. Thus, in theory, we ought to be able to more than compensate the losers from trade so that everyone is better off. But in reality this rarely if ever happens due to the accumulation of political and economic power in the hands of those who would have to give up some of their benefits to compensate those who have been hurt. "
yrs,
rubato