In his novel The Choice, economist Russell Roberts treats his readers to a fictional exchange between economic philosopher David Ricardo and Stellar TV president Ed Johnson – styled after the interaction between George Bailey and the angel Clarence in It’s a Wonderful Life. Using this method, he makes a strong argument for free trade and against protectionism. He also refutes many of the most prominent arguments supporters of protectionism put forth.
Roberts makes it easy for his readers to cut through many of the complexities of economic theories by boiling them down to simple forms. “The essence of trade,” he says, “is how it affects peoples’ lives.” While free trade may mean that Americans stop working in individual plants and factories, free trade also opens up new opportunities for people. If a television plant goes out of business in America, workers may retire – or it may push them to attend college and to develop new skills. Whereas, if a television business stays in one family, decade after decade, that business may thrive, children may not have the opportunity to develop skills in new industries such as the pharmaceutical industry. If they do not have the opportunity to learn new skills, new industries might never be created. This may mean that new life saving drugs are never discovered or produced. Whereas opponents of free trade believe that foreign competition leads to job loss and harms the American economy, Roberts notes that statistics indicate that the opposite is true.
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In addition to creating new opportunities for workers, he notes, allowing foreign competition also results in consumers facing lower prices for goods and having more money to spend on other products. Furthermore, lack of competition is bad for business. He notes that when automobile manufacturers have to compete with foreign companies, they have an incentive to add greater safety features and more attractive technology. Without competition, they might dimply continue to build the same model over decades.
Companies may not go out of business because of foreign competition. They may, instead, evolve. Roberts notes that Motorola once sold televisions, but that it found success by making cell phones and semi-conductors. Whereas the company once employed only 14,000 people, it now employs 130,000 around the globe. Ricardo also note that when people began worrying about outsourcing between 1999 and 2004,the number of computer programmers dropped by 25%, but that the number of computer engineers rose by 50 and the real wages of workers in the computer industry rose.
One of Ricardo’s most interesting points is that tariffs do not benefit the economy. He argues that tariffs lead to increased prices. Foreign TVs will cost more as companies try to offset the cost of the tariffs. Meanwhile, because foreign TVs become expensive, demand for American TVs increases. Because supplies remain the same, manufacturers cope with increased demand by hiking up their prices. This means that consumers will lose out as they will pay more for the same good they could get more cheaply before. The government may benefit from a tariff, but this, Roberts points out, is only an advantage if the government spends the money it takes in wisely.
Roberts, though, is skeptical about the ability of governments to spend wisely. He points to international efforts to solve problems like poverty where the actions of governments have been wasteful and ineffective. Attempts to set up schools in impoverished nations have failed, because families need their children to work in order to survive. Bureaucrats have wasted and stolen money meant to aid others. A better solution, he suggests, is to let countries trade freely with the United States instead of protecting certain industries. He frowns on subsidies for farms and methods used to punish foreign companies that compete with Americans in key industries including agriculture.
Perhaps the most enlightening lesson from The Choice, however, is Roberts’ version of Ricardo’s theory of comparative advantage. He explains it simply, saying, “The idea is that even if a nation is relatively poor at doing everything, there are some things it does relatively well. And a nation that is really good at doing many things should still specialize in some items and import the rest.” Nations should focus on producing what they are comparatively better at producing than their trading partners and then import what their partners are better at producing, to be sure that time and productivity – scare resources – are used efficiently.
By using a Frank Capra-esque style, Roberts makes his arguments for free trade interesting and compelling and gives his readers a thorough understanding of the benefits of international trade.
- Roberts, Russell. The Choice: A Novel of Free Trade and Protectionism. Upper Saddle River: Pearson Prentice Hall, 2007.
