Here’s a letter to a new visitor to the Cafe:
Mr. M__:
You write that “economists’ textbook fiction for validating free trade is defeated by the facts and logic of President Trump when, talking to the Davos group, he said about Canada that ‘we don’t need them to make our cars, we make a lot of them, we don’t need their lumber because we have our own forests…. We don’t need their oil and gas, we have more than anybody.’”
With respect, you – and Mr. Trump – could not be more mistaken. In the early 19th century economists identified the principle of comparative advantage, which shows that mere physical ability to produce something is economically irrelevant. What is relevant is the cost of producing particular goods and services yourself relative to the cost of acquiring those goods and services from someone else.
For example, you might have, as many Americans do, a large enough backyard to grow your own tomatoes. But the cost to you of doing so – in terms of your time, as well as of alternative uses of your yard – is higher than is the cost to you of buying tomatoes from others and using your backyard and time as you actually use them. Were you to grow your own tomatoes simply because you have the capacity to do so, you’d lose the capacity to produce other things – things that you produce at lower cost than do other people. You can’t grow your own tomatoes without diverting your time and backyard space away from other uses. You and those with whom you trade, therefore, both gain when each of you specializes at producing what you produce best and buying the rest of what you want to consume from others, using the income you earn from selling the outputs that you produce.
If Mr. Trump really believes what he told the Davos crowd, not only would he prevent us Americans from trading with foreigners, he’d also personally cook his own meals, drive and wash his own automobiles, cut his own hair, clean his own toilets, and grow his own tomatoes. He has the capacity to do each of these (and other) tasks for himself. Yet I’m sure that he does none of these things for himself. And despite his mistaken economics, he in fact would be made worse off if you or I coerced him to perform all of these tasks himself on the grounds that he has the capacity to do so.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
