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What
Every Debater Should Know About Economics
#5
Trade creates wealth
For centuries
people believed that for exchange to occur the goods exchanged
must be of equivalent value. Old habits die hard. This is
still one of the most common economic fallacies. But the intense
interest that people take in trading, whether they trade dollars
for a new stereo, or their labor for a paycheck gives the
lie to this misconception. With only a little reflection it
is easy to see that in every exchange we make we give up something
we value less than what we receive... and so does the person
we are trading with. Voluntary exchanges benefit both parties
to the exchange and this benefit is rightly seen as an increase
in wealth for both. Remember, more wealth doesn't mean "more
stuff"; it often means getting stuff into the hands of the
people who value it most. Air conditioners in Arizona and
space heaters in Saskatchewan.
Exchange
creates wealth in indirect ways, as well, by creating the
possibility of specialization and division of labor. Most
of us would be desperately poor, even to the point of starvation,
if we had to produce everything we needed for ourselves. But
by specializing in one type of production that we do very
well and exchanging that product or service for the other
things we need, we can be much better off. Along with the
division of labor comes division of knowledge -people gaining
specialized knowledge and skills that benefit millions of
other people who can be blissfully unaware of how it all comes
together. The increased division of labor and division of
knowledge are the chief sources of the economic growth that
has occurred in human history. And they are only possible
because of the freedom to exchange.
The significance
of this for debaters and extempers is this: be alert to proposals
to limit, regulate, or restrict free exchanges between people.
Many a nation has choked off economic progress and trapped
its people in poverty by imposing a morass of regulations,
licenses, permits, taxes, and fees on every type of transaction.
Gwartney and Stroup use the extraordinary example of Peru
as a nation whose economy has stagnated under the weight of
bureaucracy and regulation, yet the U.S. may be almost as
good an example. Economist Thomas Hopkins has estimated that
the current cost to the U.S. economy of government regulations
is over $500 billion per year 9 . Tariffs and quotas
on imports alone cost consumers $80 billion a year -over $1,200
per family10. These trade restrictions destroy
American jobs by reducing the dollars available for foreigners
to purchase American exports and by leaving consumers with
less money to spend on other things.
Licensing
restrictions and regulations on small business have especially
hurt minority and low-income entrepreneurs by blocking entry
to markets where they can sell their goods and services. Rationalized
in the halls of government as a protection to consumers, these
restrictions are mainly backed by businesses who fear the
competition of new entrants that might provide better service
or a lower price. Minimum wage laws, too, reduce the demand
for low-skilled labor and close off economic opportunities
for young people just entering the job market. Trade restrictions
that impact people with low skills and low income are doubly
costly in that they drive disappointed job-seekers into the
welfare system and add to the burden of taxes in the economy.
Discussion
about the way internet merchants track peoples' buying patterns
and share this information with each other rarely considers
the benefits of this practice for the expansion of free trade
and competition in the economy. The growth in the capacity
to instantly relay crucial information for better serving
consumers has been a substantial factor in the long period
of prosperity we have enjoyed over the last two decades. The
capacity for a new business to gain a list of likely customers
to offer its services to improves the odds that that business
will succeed in the market. Consumers benefit from the free
exchange of accurate information about their desires because
they are thereby approached by more businesses whose products
and services interest them, and fewer that do not. Regulating
such exchange may make some privacy advocates happy, but it
is likely to chill the growth of the new economy and harm
both business and consumers in the process.11
In short,
every policy that restricts free trade, free contract, or
free entry into the market diminishes wealth for individuals
and the nation as a whole.
9 Michael
Tanner, Cato Handbook for Congress, 1995, p. 181.
10 James Bovard, The Fair Trade Fraud, 1991, p.
5.
11 See http://www.cato.org/dailys/12-13-99.html
for evidence of this.
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