The Bad Economics of Non-economists

The science of economics began in earnest in the mid-18^th century largely as a response to the prevailing understanding of international trade. Most notably, two Scottish philosophers – David Hume and Adam Smith – systematically challenged the assumptions and conclusions of what Smith called “the mercantile system.” 

We today call this system “mercantilism” (although Smith himself never used this word in any of his published works, surviving correspondence, or, apparently, in his lectures). Mercantilism, in short, is the belief that a nation is enriched by accumulating money and, therefore, exports are generally beneficial because they are sold for money, while imports are generally harmful because they are paid for with money.

Mercantilism was the chief target of the mighty intellectual guns that Smith skillfully forged and deployed in his 1776 An Inquiry Into the Nature and Causes of the Wealth of Nations, a monumental work correctly regarded as launching economic science. And although economists since have expanded economics into domains well beyond those covered by Smith, the analysis of international commerce has remained central to the discipline.

A Long Deluge of Protectionist Apologetics

Economists’ continual attention to international trade was further fueled by the combination of two features of reality over the past 250 years. The first is the spread of democracy. The second is governments’ never-ending inclination to use tariffs and subsidies to protect politically influential domestic producers from foreign competition.

As monarchy and autocracy gave way to democracy, governments’ need for popular justification of their policies intensified. Ideas do indeed have consequences, and especially so in democracies. And so on matters of trade policy, the more favorable is the public to protective tariffs and export subsidies, the less intense is popular resistance to these policies. Indeed, to the extent that members of the general public can be fooled into believing that mercantilist dogmas are correct, demand for government interference with trade might come from voters themselves.

The immense unearned profits – “rents” – able to be seized by producers who operate with mercantilist special privileges ensure that producers relentlessly seek such privileges. But politicians in democratic countries will grant such privileges only if doing so improves their chances of winning and holding on to office. This dynamic has thus for centuries created a steady market for protectionist apologetics. The world has never wanted for clever orators and wordsmiths devoted to justifying protectionism.

In response, economists have risen to the challenge of exposing the fallacies lurking within those apologetics.

Protectionists’ fervor at making the case for tariffs and subsidies, dating back as it does for centuries, has by now produced every such conceivable argument against free trade. And economists’ determination to expose the flaws in these arguments means that we economists have heard it all before, many times over.

And yet members of each new generation of protectionists think themselves to be brilliantly breaking new ground with their attempts to excuse tariffs and subsidies. Encountering this appalling ignorance of intellectual history is frustrating, and made doubly so by the fact that this ignorance nurtures arguments in support of policies that impoverish.

“Market liberal” Straw Man #211,476,893

A recent example of such ignorance appears in Daniel McCarthy’s January 22^nd Law & Liberty essay adorned with the unintentionally ironic title “Economic Nationalism as Political Realism.” In this essay, McCarthy – an American conservative trained, not in economics, but in the classics – unrealistically asserts that we economists and other “market liberals” who support free trade build our case on the “abstraction” of  “a pristine market in which there are no pre-existing distortions arising from political influence (or any other source).”

McCarthy fails to offer a single example of any such oblivious real-world market liberal. This failure is unsurprising, for no such market liberal exists; he or she is purely a figment of McCarthy’s imagination. (In a post at my blog I challenge McCarthy to supply evidence of the reality of his alleged “market liberal.”)

No one familiar enough with the economics of trade to be competent to declaim publicly on this topic would write what McCarthy wrote. Indeed, those of us who possess some knowledge of the economics of trade find this particular assertion by McCarthy to be especially bizarre. The reason is that nearly all of the intellectual energy that has been poured over the past few centuries into defending a policy of free trade has been devoted to explaining why free trade is the best policy despite the distortions introduced into markets both by foreign governments and by the home government.

From Adam Smith forward, economists and market liberals have explicitly addressed – patiently, repeatedly, and in countless different ways – the incessant protectionist assertion that the home country will suffer if it doesn’t impose tariffs on imports from countries whose governments impose tariffs on home-country exports. Indeed, countering this particular protectionist canard is standard fare for many students as early as ECON 101.

Informed free traders have also continually explained why market-distorting subsidies used by foreign governments justify neither subsidies nor tariffs in the home country. Similarly, we market liberals have, again and again and again, busted the myth that the home-country government should impose tariffs or dole out subsidies in order to counteract the economic damage done at home by the home-country government’s own unwise regulations and burdensome taxes.

It would, of course, be impossible to counter these protectionist excuses for tariffs and subsidies without recognizing that governments both abroad and at home do indeed often intervene in ways that distort markets.

That Daniel McCarthy knows no economics isn’t a sin. Most people know no economics, and most economists know nothing about other fields and disciplines. We’re all fortunate enough to live in a world of deep specialization.

It is, however, inexcusable for people such as McCarthy to present themselves to the public as if they know the economics that they criticize with such cocksureness. Judging from what he writes, McCarthy is as unschooled in economics as I am in the classics, which is to say almost completely. And so McCarthy’s criticisms of  the economics of trade – and of market-liberals’ support for a policy of unilateral free trade – deserve no more respect than would be deserved by any criticism that I might offer on the merits of a new translation of Ovid’s Tristia.

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