Time Matters in Trade and Immigration Policy
We’ve been writing a lot lately about trade and immigration policy, and getting a wide array of thought-provoking comments. It strikes me that a key source of the disconnect in our country’s debate about whether freer trade and immigration cost American jobs is time. Those who oppose loosening current restrictions focus mainly on the short run, when some Americans will inevitably lose jobs when exposed to new competition from industries and workers abroad. Proponents of freer trade and more open borders usually focus on the long run, when the economy will direct its resources to more efficient ends and those workers will find jobs more sustainable in the freer market. I generally support freer trade and immigration policy, but no matter which side you come down on, it’s worthwhile to look at the problems over both short- and long-run horizons.
Advocates of restrictions on trade and immigration tend to emphasize the immediate causes and effects. Foreign goods or labor costs less, American firms or workers cannot compete on prices or wages, and Americans lose jobs. Among the many points missed by this argument are the overall health of the economy (the law of comparative advantage tells us this increased specialization will increase the size of the overall pie) and sustainability (jobs that exist only because of trade or immigration restrictions cannot last forever without significant costs to the economy). Both of these are long-run arguments, which look beyond the immediate impact of new competition.
Advocates of free trade and immigration, however, sometimes forget the short run entirely. If American factories in comparatively inefficient industries shut down, the economy and its workers will indeed adjust, but such a process can take years. Letting that process happen may well be the right policy, but an argument based only on long-term results misses the real suffering that workers go through during this period. There’s no easy answer to this problem, but when it is ignored, displaced workers can form enough of a voting bloc to elect a president with stated protectionist views. Sound familiar?
This disconnect between analysis in the short and long runs carries over into debates about reforming the government. Many libertarians and progressives, for example, would like to see significant cuts in military spending. But this spending supports several million jobs, between those on active duty and those working in industries that supply the military. It is important to understand the positive consequences of letting the economy adjust to fewer jobs depending on government largesse, but also to find ways the private and public sectors can ease the pain of a transition that will happen far from overnight. Looking at both short and long time horizons reminds us that few arguments about something as complex as our economy are cut and dry.
Max Gulker
Max Gulker is a former Senior Research Fellow at the American Institute for Economic Research. He is currently a Senior Fellow with the Reason Foundation. At AIER his research focused on two main areas: policy and technology. On the policy side, Gulker looked at how issues like poverty and access to education can be addressed with voluntary, decentralized approaches that don’t interfere with free markets. On technology, Gulker was interested in emerging fields like blockchain and cryptocurrencies, competitive issues raised by tech giants such as Facebook and Google, and the sharing economy.
Gulker frequently appears at conferences, on podcasts, and on television. Gulker holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Prior to AIER, Max spent time in the private sector, consulting with large technology and financial firms on antitrust and other litigation. Follow @maxg_econ.
