"Fair Trade" equals more poverty

Trade is one of the most enriching activities that we humans engage in - providing all of us with far more things (and better things) than we could ever produce on our own.  Here's the problem: when the government dabbles in the trade business, the enriching power of trade is lost.  In the name of helping people, the government hurts them.

To illustrate: The Smith's make their own food from scratch.  Let's say that Dad makes fish sandwiches, Mom makes salad, and Junior makes lemonade.  Each family member trades with each other.  Everyone is employed and happy, right?

Junior gets so good at making lemonade, he can produce enough for his family and the Franklin's, next door.  Since he likes the cookies Mrs. Franklin produces, he works out a deal - if she'll overproduce cookies, Junior will overproduce lemonade.  Now, both families get more to eat - and some variety. 

Things get even better when other neighborhood families enter the trade.  

Suddenly, there is a buffet of food available, and everyone is motivated to increase the quality of their food while lowering the "price" (how much they require for it in trade).  They know that upgrading the food and making it more affordable will result in more households trading to get what they have to offer.  Efficiency increases, and the neighborhood dining gets better and better every year.

That's when Junior notices that his lemonade isn't selling as well as it used to.  The Johnson's little boy figured out a way to make it faster (and it tastes a hint better).  People start buying Johnson-made lemonade because it is cheaper and better.  He runs to Mom crying about the need for "job protection."  What are the options?

1. Set up a conference with the Johnson's, putting pressure on them to raise the price level of their lemonade, to make things "fair" for Junior.  Dad even threatens to stop buying the hamburgers that Mr. Johnson grills each evening, and to stop allowing the Johnson's access to Mom's salad.

2. Conspire with the Franklin's and the Bowman's to deny traded foods to the Johnson household, to force the Johnson's out of the neighborhood. They even print bumper stickers with their family symbol to pass out, demanding: "Buy Junior's!"

3. Add a tariff tax to the lemonade the Johnson's sell, so that Mom and Dad will pay a higher price to get  Johnson-made lemonade, making their son's lemonade look attractive. While this will keep Junior working, it will reduce the amount of other goods Mom and Dad can choose to eat, since they'll have less to trade with other neighbors.  They consider working out a deal to tariff tax all "imports," so they can use the collected extras for the benefit of Junior, so that he can still eat even though his lemonade is no longer trading well.  (Junior likes the idea, and stops selling lemonade altogether, content to live off of the "revenue" Mom and Dad give to him.)

4. Decide that since the Johnson's are better at producing lemonade, Junior should find a new type of food he can produce better than everyone else.  This could either be enhanced lemonade or something completely different, like sweet iced tea.  Even though he's out of work temporarily while he gets retrained and gathers supplies, he is motivated to be creative and produce something new - something tasty that the neighborhood never had before.  Now, his family still enjoys lemonade (made by the Johnson's), they enjoy sweet iced tea (made by Junior), and their trade grows.  In this way, everybody "wins."

The problem, of course, is what Mom will do when confronted with her sobbing child.  In that moment, will she: provide him with 26 weeks of her salad for free, as a way to make Junior feel better?  Agree with him that those evil Johnson's need to be put out of business?  Lobby Dad to slap some sort of extra taxes on "imported" food to the household, to make things "fair?"

Or, will she encourage him to seek a new and better way to provide food people would want, so that their family (and everyone in the neighborhood) can benefit?

Moral of the Story: The more a government "protects" jobs, "levels the playing field," and "favors" its domestic producers, the less overall wealth its people produce; and the lower the standard of living for the world's people - particularly those who live under the protective government.

There is no denying capitalism’s record. Market economies have succeeded over the centuries by thoroughly weeding out the inefficient and poorly equipped, and by granting rewards, to those who anticipate consumer demand and meet it with the most efficient use of labor and capital resources. Newer technologies increasingly drive this unforgiving capitalist process on a global scale. To the extent that governments "protect" portions of their populations from what they perceive as harsh competitive pressures, they achieve a lower overall material standard of living for their people.
—Alan Greenspan, The Age of Turbulence, pp. 268-9.

The answer is free, not fair, trade.

Comments

[Joshua]

Very good. Very very good.