The pain of being a protectionist

You'll soon see how much I dislike all attempts by government to restrict competition. It only serves a select few by providing them with favors and penalizes the rest of us through higher prices and fewer purchasing options. Over the long term, it prevents capital flows, restricting economic grow.

Lets look back 100 years to a time when our economy was about half agriculture. What if we'd decided that the threat from competitor nations was too great and decided to give massive subsidies to farms and and tariffed the heck out of any food that crossed our borders? All those people who worked on those farms would have stayed there because the government was paying them to stay there, having the effect of keeping the world's supply of food unnaturally high. High supply drives the price of a given item down. Not only would the farmers we're subsidizing receive less money for the food they sell (requiring the government to give them even more subsidies), but farmers in other countries would also get let money for the food they sell. Unfortunately, they don't receive subsidies from their government to help make ends meet, so they have to stop farming, driving them further into poverty.

Not only that, but because these people stay on the farm (again, why would they leave if the government is paying them to stay there), they aren't free to do other more productive things. Who would've developed computers and the internet, for example, if we needed 50% of our workforce on the farm? When we free people from less economically productive jobs, we put them to work on more economically productive jobs. That doesn't mean there won't be a (sometimes painful) transition, but we're much better off nowadays because we moved people off farms and into, for example, technology.

But are these other countries, the ones who get these less productive jobs, actually better off? Of course. More than likely, those countries are poorer than we are. We give them the opportunity to take a jobs that pay better than the ones they currently have, which probably don't pay anything at all, and begin to pull themselves out of poverty. They grow, which is a good thing. Here is an example.

From Friday's WSJ:

"The current business cycle will go down in the history books as one which confirmed that leadership in the global economy is now shifting from the old industrial countries to the emerging market countries. During 2007, the developing countries produced over 52% of global growth, compared to 37% during the late 1990s. China alone produced 17.8% of global GDP growth last year, compared to 14.6% for the U.S. economy. The developing countries' share of total world output has risen to 29% this year from 18% in 1995. The World Bank is forecasting that the economies of developing countries will grow 7.4% this year, compared to 2.2% in the old industrial nations."

The fact that emerging market economies are growing is a very good thing. The greater share of world growth and GDP they assume, the better. Why? Why not? Why does economic prosperity have to depend on a geographic border?

But aside from the feel-good argument that these people are becoming more and more free, they also become consumers. Also from the WSJ article:

"In the decade before 2005, American consumers were the growth engine for the world economy, accounting for more than half of global consumer spending. The balance of power is now shifting.

In 2000, the consumer spending of the world's 17 largest emerging-market countries was equal to 48% of U.S. consumer spending; last year it was equal to 65%. At current growth rates, the developing countries could exceed U.S. consumer spending by 2015."

I don't like to use this argument because it appeals to the old mercantilist idea that we need to be exporting to be growing as an economy, which isn't true. We just need to be trading, however we're trading. And by doing so, we're all better off.