[extropy-chat] 'Unskilled jobs to go in 10 years'

Hal Finney hal at finney.org
Thu Nov 11 18:54:16 UTC 2004


I'm not an economist, and I can't quite figure out the answer to this
question: can opening up free trade between two nations (or any two
groups), one richer and one poorer, make the richer one become poorer?

I think the answer is no, but I'm not certain.

To approach it, I think of the simplest possible case: one person.
He is isolated and works only for himself, making all his own goods.
Now we introduce another person, a poorer person, and allow them to trade.
Can this trade make the first person become poorer than he was?

I don't think it can, because every trade he makes is done because, from
his perspective, he gets more for the trade than he gives.  Therefore
each trade increases his net wealth.  If a trade would make him poorer,
he wouldn't make it.  He'd just continue to make his own goods instead.

Now, does this generalize to two nations?  I'm not sure; generalizations
from individuals to large groups are often erroneous in economics.
But broadly speaking, if we look at each individual trade between the
nations as being on net beneficial to both sides, then I think trade
can only make both of them wealthier than if no trade were possible.

If this is true, it puts a different perspective on outsourcing.
It's not a problem of money being sucked overseas.  Rather, the problem
is one of redistribution within the richer country (we'll assume for
now that outsourcing is an unalloyed benefit to the poorer country,
no doubt an oversimplifed and false assumption).  In the rich country,
for each job lost overseas, someone there gets richer - and it follows,
if my assumption is right, that the increase in wealth is greater than
the loss to the unemployed person.

This means that rich nations can, if they choose, compensate for the costs
of outsourcing and other forms of free trade through redistribution of
their own wealth.  Of course the degree to which they choose to engage in
such practices will vary from country to country depending on ideological
and economic factors.  But they have the potential to do so.

Outsourcing is not a threat to rich nations, if my rather simplistic
economic analysis is correct.  It is merely a new economic factor that
increases wealth while redistributing it, as indeed any new economic
innovation is likely to do.  Countries have it within their power to
cushion such changes to whatever degree they like, without curtailing
free trade.

I'd be interested in hearing whether this naive economic approach holds
up under a more rigorous analysis.

Hal



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