Then God Said Let There Be Trade

July 30, 2018

 

No God didn’t create trade on the eight day but it is something He gave us after He rightly kicked our ass out of Eden.  We lost Paradise but God in His mercy allowed us to build a world of unimaginable beauty and comfort for an unimaginably wide number of people by providing in and on the Earth the resources to accomplish this.  The only caveat is that we have to cooperate in order to achieve this.  That is to say we must treat one another the way we wish to be treated and to love one another the way God loves us.  Doing this leads inexorably to trade.

 

This brings up the obvious point that the moral case for free exchange is unimpeachable.  People have the right to freely and non-violently trade with one another.  To engage in this activity is our God-given right and it is totally consistent with the way God calls us to live as humans in community.  We of course want the freedom to exchange as we see fit.  We must therefore allow others to do the same or we are not loving our neighbor as our self.  It is a denial of our humanity to short-circuit the innate human drive to truck and barter.

 

Practically speaking, we need to trade because of two indisputable facts; we all have different skills and competencies and the natural resources humans use are spread all over the Earth.  This means in order to achieve the things we want to consume (remember consumption is the point of all economic activity) we must exchange our skills and resources with those of others.  Exchange is just the outgrowth of the division of labor which is one of the foundations of economic progress.  We all do what we are relatively good at and this makes us more productive and increased productivity is the ONLY way to  achieve increased material wealth.

 

It is literally impossible to conceive of our world without the division of labor.  Take a look around whatever room you are in at the moment. Now contemplate making everything in that room absolutely by yourself. The classic essay about this is I Pencil, the story of how no one person knows how to make a #2 lead pencil.  This humorous video shows how long it would take to make a sandwich from scratch.  This is without even considering making the tools that make the sandwich or making the tools that make the tools, etc. etc. etc. The point of all this is to underline how completely interdependent with each other we are for our very lives.  To suggest that we should or even can make everything ourselves consigns most of humanity to death and abject poverty.

 

When we look at this from a macro perspective nothing changes.  What is true as individuals is true of regions and nations.  Economics does not care about nations or lines on a map.  Not coincidentally, God does not either.  These are arbitrary manifestations of a fallen humanity.  They need not determine how we treat one another nor is it practically effective to allow them to do so.  Only economic science deniers claim otherwise.

 

The claim these illiterates make is that by raising barriers to international trade we can “protect” certain industries.  The claim is usually that these industries are critical to our “national security”. The truth is really that they have politically effective lobbies.  As the great economist Bastiat pointed out this fallacy perpetuates because only the visible effects are considered.  We must look at that which is not seen.  If say a tariff is placed on steel, then some steel producing jobs are saved.  This is visible and touted by politicians.  What is not seen are the jobs lost or not created because steel is now more expensive.  Those using steel as an input are now at a disadvantage.  This article explains how we lost more jobs due to Bush Administration steel tariffs than even existed in the steel industry.  Also not considered is the fact that for every additional dollar now being spent on the protected product is a dollar that cannot be spent on something else.  Resources are scarce, so raising the cost of one resource means fewer resources to spend on other things.  This effect will ripple through an economy in all kinds of directions that are not even definable in advance but logically predictable.  

 

There will be no net employment gains from such a policy but a net loss.  Domestic industry will be producing things they are less efficient in producing, that is they will produce less with more cost.  This lowers productivity which means the consumer will be able to buy less with their money.  Wages may go up in the protected industry but will go down overall.  It changes the structure of domestic production to favor the less efficient which harms everyone overall.  All of this occurs without even considering the inevitable retaliation and escalation that will happen.

 

The other thing trade restrictionists will screech about is that we have a current account imbalance. We are “losing” money they erroneously claim. The theory is that we should export more than we import in order to “win”.  This is nonsense.  In reality exports must equal imports.  Exports pay for imports and vice versa.  How can we expect a foreign entity to buy U.S. goods unless they are allowed to sell their goods in the U.S.  By definition there are only two things a foreign exporter can do after selling goods in the U.S. market.  Since they are paid in U.S. dollars and cannot spend those dollars in say Beijing, they can either use those dollars to buy U.S. goods to ship back to their country or they can use those dollars to invest in businesses here in the U.S.. Either way we win, as the entire economy is made more productive, therefore wealthier and more jobs are available both here and overseas.  Briefly, the third thing that can happen is that the foreign entity can exchange their earned dollars for another currency, say Euros or Yen and then the new holders of those dollars have the same two choices as outlined above.

 

To moan about a current account deficit at the macro level is as ridiculous as moaning about it at your own level.  I, for instance have a MASSIVE current account deficit with my local grocery store. I export thousands of dollars there every year and my home is flooded with imports from this store.  Oh My!!!  This is of course a non-worry for all of us.  Our own accounts must balance the same as a nation’s.  We pay for our “imports” with our “exports” or borrow the difference (only as long as creditors allow).  The entire process makes us wealthier the same as it does for a nation.  This is true even if we practice unilateral free trade as this article lays out.

 

So we can once again see that the way God intends for us to live; in peace and freedom, is the way in which human society can flourish.  I am sure that when God created trade He looked upon His creation and said it is good.

 

Praise Be to God

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