Tuesday, October 11, 2016

Protectionism as Bogus Contracts

Do you want to know how it feels?
Do you want to know that it doesn't hurt me?
Do you want to hear about the deal that I'm making?
--Kate Bush

Interesting article arguing that protectionism amounts to various bogus contracts that buyers (consumers) never agreed to with sellers (protected producers). No law prohibits producers from demanding that customers patronize their business for long periods of time. Of course, buyers are free to say no.

In order to make such a contract remotely interesting to buyers, sellers would have to offer exceptionally favorable terms--such as very low prices. This is because buyers would not bind themselves into such a long term deal for nothing.

We see very few contracts of this nature. The explanations are that a) sellers are unwilling to lower prices to the point where buyers are willing to lock themselves in for long periods of time, and/or b) sellers see the long term costs of locking themselves in as outweighing the long term benefits.

This is why workers have no valid ethical or economic complaint about losing jobs to other workers foreign or domestic, or to machines for that matter. They may have contractually locked in employment guarantees over long periods of time with employers if they were willing to make concessions such as working for significantly lower wages. Instead, they choose higher wages with the associated risk of job loss if working environments change.

Yet, when buyers shift some of their patronage to foreign sellers, domestic producers (both owners and workers) insist that government intervenes to force consumers to continue to purchase domestic output despite no corresponding reduction in prices or wages charged by the sellers. In fact, in many cases the opposite occurs--prices and wages increase under protectionist cover.

There is nothing remotely legitimate about this insistence. Domestic producers favoring protectionist policies are merely seeking to use the strong armed government agents to enforce bogus contracts that consumers have not signed.

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