In one of its good initiatives, the Obama administration is trying to finalize the Trans Pacific Partnership – a multilateral trade treaty with some of the most successful and fast-growing nations West of California. Populists like Senator Elizabeth Warren are attacking the treaty with all kinds of bad arguments. Mind you, these are not original bad arguments: they are arguments that have been refuted 200 years ago. Revisiting those arguments tries my patience: I suggest readers consult any standard textbook on international trade (here’s  a particularly good one).

I would like to address here a different argument that is often offered by writers  who are otherwise sympathetic to free trade. This is the argument that, while free trade is beneficial in the aggregate and ought to be pursued, it produces winners and losers. Society has an obligation to compensate the losers, because it is not their fault that they have lost their jobs as a result of trade liberalization. The government lowered trade barriers and as a result workers have lost their jobs (and their employers, their businesses.) Therefore, the government, who caused the situation, must compensate these losers.

One way to compensate displaced workers is by offering them government-subsidized retraining.  Most specialists (but not all) are sympathetic to retraining because it is not a protectionist policy but, on the contrary, it accompanies the economy’s comparative advantages, thus helping workers adjust to the efficiencies of production. I do not address this policy here, although I tend to agree that it is a good second-best to fully-deregulated labor markets.

I want to address a second form of compensation that has been proposed: that folks who lose from trade liberalization should be compensated by the state. Daniel Altman, for example, in the article referenced above, suggests: “One idea would be to identify the prospective winners of a new trade agreement and ask them to contribute lump sums to a fund that would compensate the losers.” Assuming this proposal is a coercive collection of funds,  it should be rejected because it is unjust. The reason, simply put, is that businesses who seek and receive protection from foreign competition are crony-capitalists who could not have prospered as they did without the coercive backing of their friends in government. When government comes to its senses and repeals the protection, these businesses do not have a residual claim to be producing things that consumers no longer want. That consumers no longer want what they produce is proved by the fact that consumers now will start buying the better and cheaper foreign product, which is why these businesses and their workers will be the losers from free trade.

Now consider workers. Someone can retort that the workers had nothing to do with the crony-capitalist shenanigans of their employers and that they are innocent victims of the fact that their industry is no longer competitive. But they, too, invested in a line of work that was more remunerative than available options. And it was more remunerative precisely because it was protected. Suppose Timmy is offered a job at quota-protected Chrysler at $40 an hour and a job at unprotected Electronics inc. at $25. He naturally chooses the higher-paying job. But then the government repeals trade protection for cars and Chrysler fires half its employees, Timmy included. Does Timmy have a claim against society, and especially against the trade winners like Electronics? I don’t think so. He should have known that  one of the reasons the Chrysler job was attractive was because of the trade protection it enjoyed. He gambled that Chrysler would continue to be a successful crony-capitalist  venture and lost.

More generally, trade protection causes an artificial flow of capital and labor to the protected industry, thus aborting the emergence of other industries that could have employed those who are now unemployed as a result of trade liberalization. So the worker who accepts a job at a protected industry is (wittingly or unwittingly) harming an indeterminate number of persons who remain unemployed because the artificially pumped industry is blocking labor and capital. In other words: the demise of inefficient industries is a good thing, because it frees factors of productions for the industries that grow. I do not think cooperating with crony-capitalist schemes merits societal compensation.

A final thought. It is ironic that Senator Warren, who claims to fight crony capitalism, has taken the anti-trade, that is, the pro crony-capitalist, stance. I can only quote Borges: “These versatile folks, by tirelessly contradicting themselves , have forgotten that even incoherence must be justified.”