Bryan Caplan

The Myth of the Rational Voter

Popular metaphors equate foreign trade with racing and warfare, so you might say that antiforeign views are embedded in our language. Perhaps foreigners are sneakier, craftier, or greedier. Whatever the reason, they supposedly have a special power to exploit us. As Newcomb explains:

It has been assumed as an axiom which needs no proof, because none would be so hardy as to deny it, that foreign nations cannot honestly be in favor of any trade with us that is not to our disadvantage; that the very fact that they want to trade with us is a good reason for receiving their overtures with suspicion and obstructing their wishes by restrictive legislation.

Alan Blinder echoes Newcomb's lament a century later. People around the world scapegoat foreigners:

When jobs are scarce, the instinct for self-preservation is strong, and the temptation to blame foreign competitors is all but irresistible. It was not only in the United States that the bunker mentality took hold. That most economists branded the effort to save jobs by protectionism shortsighted and self-defeating was beside the point. Legislators are out to win votes, not intellectual kudos.

There is probably no other popular opinion that economists have found so enduringly objectionable. In The Wealth of Nations, Smith admonishes his countrymen:

What is prudence in the conduct of every private family, can scarce be folly in a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.

As far as his peers were concerned, Smith's arguments won the day. Over a century later, Newcomb could securely observe in the Quarterly Journal of Economics that 'one of the most marked points of antagonism between the ideas of the economists since Adam Smith and those which governed the commercial policy of nations before his time is found in the case of foreign trade.' There was a little backsliding during the Great Depression, but economists' pro-foreign views abide to this day. Even theorists like Paul Krugman who specialize in exceptions to the optimality of free trade frequently downplay their findings as curiosities:

This innovative stuff is not a priority for today's undergraduates. In the last decade of the 20th century, the essential things to teach students are still the insights ofHume and Ricardo. That is, we need to teach them that trade deficits are self-correcting and that the benefits of trade do not depend on a country having an absolute advantage over its rivals.

Economists are especially critical of the antiforeign outlook because it does not just happen to be wrong; it frequently conflicts with elementary economics. Textbooks teach that total output increases if producers specialize and trade. On an individual level, who could deny it? Imagine how much time it would take to grow your own food, when a few hours' wages spent at the grocery store feed you for weeks. Analogies between individual and social behavior are at times misleading, but this is not one of those times. International trade is, as Steven Landsburg explains, a technology:

There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First you plant seeds, which are the raw materials from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships westward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.

And this is one amazing technology. The Law of Comparative Advantage, one of most fascinating theorems in economics, shows that mutually beneficial international trade is possible even if one nation is less productive in every way. Suppose an American can make 10 cars or five bushels of wheat, and a Mexican can make one car or two bushels of wheat. Though the Americans are better at both tasks, specialization and trade increase production. If one American switches from wheat to cars, and three Mexicans switch from cars to wheat, world output goes up by two cars plus one bushel of wheat.

How can anyone overlook trade's remarkable benefits? Adam Smith, along with many 18th- and 19th-century economists, identifies the root error as misidentification of money and wealth: 'A rich country, in the same manner as a rich man, is supposed to be a country abounding in money; and to heap up gold and silver in any country is supposed to be the best way to enrich it.' It follows that trade is zero-sum, since the only way for a country to make its balance more favorable is to make another country's balance less favorable.

Even in Smith's day, however, his story was probably too clever by half. The root error behind 18th-century mercantilism was unreasonable distrust of foreigners. Otherwise, why would people focus on money draining out of 'the nation,' but not 'the region,' 'the city,' 'the village,' or 'the family'? Anyone who consistently equated money with wealth would fear all outflows of precious metals. In practice, human beings then and now commit the balance-of-trade fallacy only when other countries enter the picture. No one loses sleep about the trade balance between California and Nevada, or me and Tower Records. The fallacy is not treating all purchases as a cost, but treating foreign purchases as a cost.

Modern conditions do make antiforeign bias easier to spot. To take one prominent example, immigration is far more of an issue now than it was in Smith's time. Economists are predictably quick to see the benefits of immigration. Trade in labor is roughly the same as trade in goods. Specialization and exchange raise output—for instance, by letting skilled American moms return to work by hiring Mexican nannies.

In terms of the balance of payments, immigration is a nonissue. If an immigrant moves from Mexico City to New York, and spends all his earnings in his new homeland, the balance of trade does not change. Yet the public still looks on immigration as a bald misfortune: jobs lost, wages reduced, public services consumed. Many see a larger trade deficit as a fair price to pay for reduced immigration. One peculiar pro-NAFTA argument is that if we admit more Mexican goods, we will have fewer Mexicans. It should be evident, then, that the general public sees immigration as a distinct danger—independent of, and more frightening, than an unfavorable balance of trade. People feel all the more vulnerable when they reflect that these foreigners are not just selling us their products. They live among us.