In a Single Image, Exposing the Fallacy of Zero-Sum Class Warfare

A few years ago, I shared an image that neatly summarized why the left’s fixation on income inequality is misguided.

Now I have something even better.

I don’t know who “JIMBOB” is, but this cartoon he created is a masterpiece. The car analogy is perfect.

I’ll have to recycle this cartoon every time I write on the issue (along with substantive analysis, including Max Roser’s numbers and the powerful Chinese data).

That being said, I’m going to suggest one possible revision to JIMBOB. I think it would be a slight improvement if both captions started with “some.”

For what it’s worth, I think that phrasing would better reflect how the left thinks.

Or, to be fair, it shows how some on the left think.

I’ve never forgotten a conversation I had with a friend from the other side of the spectrum. His support for class-warfare policies is based on the fact that some (many?) rich people got their wealth via government.

And those people obviously don’t deserve their loot.

The difference between me and my friend is that I’d rather keep tax rates low and get rid of the programs that provide unjust riches. In other words, we should be guided by this very powerful image.

What Makes Someone Decide to Be a Conservative or Liberal, a Statist or Libertarian?

Politically aware people generally understand the policy differences between conservative and liberals (as they are currently defined, not classical liberals).

For those who don’t follow politics, there’s an accurate – and amusing – guide from Playboy that explains the difference between Republicans and Democrats.

And it includes libertarians and greens as well, which is a nice touch for those of us with unconventional views.

But what actually causes someone to pick an ideology?

In February, I shared a bunch of research that looked at how various personal characteristics are associated with – and may even cause – political differences.

This is interesting research. Though I suspect it irks many of us, regardless of our philosophical orientation, since it implies that our views aren’t necessarily the result of reason.

According to an article in Business Insider, this type of research even shows that differences extend beyond politics.

…what in the brains of conservative and liberal voters actually drive their belief systems? Scientists have been researching the psychological differences between people with different stances, and there are a few key ways that people on opposite ends of the political spectrum see the world. …Liberal and conservative tastes in music and art are different. …liberals enjoyed more cubist and abstract art. …conservative readers tended to say they’d rather visit Times Square than the Metropolitan Museum of Art. …conservative voters were found to be more likely to agree with statements like: “I often have tender, concerned feelings for my family members who are less fortunate than me.” But their responses suggested such feelings did not extend to people from other countries. Liberals, on the other hand, were more likely to feel that same level of compassion for people around the world, and even to non-human and imaginary subjects like animals and aliens. …A longitudinal study of more than 16,000 people in the UK found that… “Children who showed higher levels of conduct problems — that is, aggression, fighting, stealing from peers — were more likely to be economically left-leaning.”

What about libertarians?

In his Bloomberg column, Professor Tyler Cowen reveals that we are the most thoughtful group.

Libertarians measure as being the most analytical political group. That’s according to something called the cognitive reflection test, which is designed to measure whether an individual will override his or her immediate emotional responses and give a question further consideration. So if you aren’t a libertarian, maybe you ought to give that philosophy another look. It’s a relatively exclusive club, replete with people who are politically engaged, able to handle abstract arguments and capable of deeper reflection.

Trump voters and independents, by contrast, are less informed and more impulsive.

What else can we learn from this new study of political and analytical tendencies, conducted by Gordon Pennycook and David G. Rand of Yale University? …one group that measured as especially nonanalytical was Democrats who crossed party lines and voted for Donald Trump. There is a stereotype of a less well-educated voter, perhaps both white and male, who reacts negatively and emotionally to Hillary Clinton… For all the dangers of stereotyping, the study’s data are consistent with that picture. …independents do poorly on the analytic dimension. …that group measures as relatively impulsive and prone to less informed judgments.

And here’s some research on “free-marketeers” from the U.K.-based Times.

Clever children will probably grow up to have free-market economic views, according to new academic research. The direct link between intelligence and economic conservatism holds true even if the self-interest that high earners have in a lower-tax, free-market economy is taken into account. The authors of the research, Gary Lewis and Timothy Bates, psychologists at Royal Holloway, University of London and Edinburgh University respectively, state: “Intelligence assessed in childhood [ages 10-11] was predictive of adult [30-33] economic conservatism.” …The authors studied data from the 1970 British Cohort Study and the National Child Development Study of 1958, both of which measured the intelligence of more than 17,000 children before they were distorted by educational differences. The authors also adjusted for sex, parental social class and childhood conduct problems.

I like these results, for the obvious reason.

But also notice that the authors adjusted the data based on the assumption that a “lower-tax, free-market economy” generates greater wealth. Interesting (and accurate) admission.

Now let’s consider the statist side of the spectrum.

According to some revised research that was reported by the New York Post, our friends on the left have authoritarian tendencies.

A political-science journal that published an oft-cited study claiming conservatives were more likely to show traits associated with “psychoticism” now says it got it wrong. Very wrong. The American Journal of Political Science published a correction this year saying that the 2012 paper has “an error” — and that liberal political beliefs, not conservative ones, are actually linked to psychoticism. …“The descriptive analyses report that those higher in Eysenck’s psychoticism are more conservative, but they are actually more liberal; and where the original manuscript reports those higher in neuroticism and social desirability are more liberal, they are, in fact, more conservative.” In the paper, psychoticism is associated with traits such as tough-mindedness, risk-taking, sensation-seeking, impulsivity and authoritarianism.

Since we’re on the topic of authoritarianism, let’s close by looking at some new research, reported by PsyPost, that doesn’t reflect well on the right or left.

New research provides evidence that left-wing authoritarian attitudes exist in the United States. The preliminary findings, published in the scientific journal Political Psychology, suggest liberals could be just as likely to be authoritarians as conservatives. …Conway and his colleagues developed a measure of left-wing authoritarianism, which was adapted from the right-wing authoritarianism scale developed by psychologist Bob Altemeyer. …The new LWA scale, on the other hand, asks questions such as: “It’s always better to trust the judgment of the proper authorities in science with respect to issues like global warming and evolution than to listen to the noisy rabble-rousers in our society who are trying to create doubts in people’s minds” and “Our country desperately needs a mighty leader who will do what has to be done to destroy the radical new ways and sinfulness that are ruining us.” …The researchers found that left-wing authoritarianism was associated with liberal views, dogmatism, and prejudice.

In other words, partisans on both sides are tempted to use the coercive power of government to impose their beliefs.

Which underscores why government shouldn’t have much power in the first place!

The good news is that we still have lots of freedom. At least compared to the rest of the world.

The bad news is that we have less freedom than we used to have.

P.S. You could say we’re becoming less like Liberland and more like Senator Murphy’s dystopia.

Seven Reasons to Support Free Trade

Earlier this week, Neil Cavuto asked me about the politics of trade and I warned that Trump’s protectionism may backfire on Republicans because many workers and businesses are suffering the consequences.

Needless to say, I’m not a political expert, and I think even the folks who do that for a living have a hard time disentangling the various factors that motivate voters, so we may not even know for sure after the mid-term elections.

But I do have some actual knowledge of economics, so this is a good opportunity to share some excerpts from my recent article in the Federalist. I start with the basic observation that interventionism is misguided.

…the economy grows faster when markets rather than politicians determine where labor and capital go. …Simply stated, government intervention is a recipe for cronyism, corruption, and inefficiency. It’s no coincidence that market-oriented jurisdictions such as Hong Kong are so much more prosperous than state-driven nations such as Greece. This appreciation of markets explains why conservatives should be in the forefront of the battle to defend free trade.

And it doesn’t matter whether politicians are interfering with transactions between neighbors or interfering with transactions between people who live in different countries.

We understand it would be wrong to let politicians interfere with our freedom to trade with our local grocery store. We also understand it would be a mistake to allow politicians to hinder our liberty to trade with people in neighboring states. The same argument applies when looking at our trade with people in other nations.

I then list seven reasons why free trade is desirable, starting with the fact that exchange, by definition, is mutually beneficial.

1. Voluntary Trade Is a De Facto Good – The capitalist system, based on competition and trade, is defined by voluntary exchange. There is no need for “balance” between participants. We all have trade deficits with our local gas stations. …they never buy from us. Is that bad? Of course not.

And it doesn’t matter whether people in one country are buying more than people in another country.

2. A ‘Trade Deficit’ Means a ‘Capital Surplus’ – Nations don’t trade, people do. So when people in one nation buy goods from people in another nation, the money doesn’t disappear. …Foreigners have placed trillions of dollars in America’s financial markets… This “capital surplus” boosts prosperity and should be celebrated, not bemoaned.

I also point out that trade barriers enable cronyism and corruption.

3. Protectionism Corrupts Markets – Many people unfortunately equate capitalism with big business. This is very unfortunate because large companies…manipulate the political process in order to obtain unearned profits. Trade barriers…interfere with genuine free markets…they contribute to the perception that capitalism is merely a system for the benefit of the rich and powerful.

I then share Bastiat’s wisdom about the “seen” and the “unseen.”

4. Trade Barriers Reduce Jobs and Growth – It’s easy to identify jobs that have been “saved” because of protectionism…it’s not easy to calculate the greater number of jobs that are lost because of higher prices, lost purchasing power, enforced inefficiency, and lost competitiveness.

I admit that trade of any kind can be harsh, but that’s what drives prosperity.

5. Creative Destruction Is Painful But Beneficial – Trade causes pain, but not because goods cross borders. Far more jobs are lost because of domestic trade than because of international trade. …These changes, including ones driven by cross-border trade, are painful for some people, but we all wind up much richer if markets are allowed to function.

I close with two lessons in economic history, starting with an explanation of what drove growth in the 19th century.

6. Tariffs Didn’t Create Growth in the 1800s – …the growth of the 1800s wasn’t because of trade barriers. This was an era before the welfare state. Government was very small and there were no income taxes. There was no regulatory state. …Those were the policies that helped make America an economic powerhouse.

And concluding with an observation about the success of nations with laissez-faire trade policy.

7. Protectionist Nations Lag Free-Trade Jurisdictions – …sometimes it’s easier for people to learn from real-world examples. Hong Kong and Singapore are the two jurisdictions with the world’s lowest trade barriers. Is it any coincidence that they have become rich and prosperous? …countries like New Zealand enjoyed a renaissance after dismantling trade barriers.

The bottom line is that Trump’s protectionism is bad policy. And risky policy.

I politely ask those who disagree to answer these eight questions.

What’s Happening with Wages?

Some economic statistics are very important in the world of politics.

When President Obama’s so-called stimulus was in effect, critics (including me) kept pointing to higher-than-predicted unemployment rates. President Trump, meanwhile, mistakenly thinks America somehow is losing because of the trade deficit. And the GDP numbers are the subject of considerable discussion on all sides.

Another very important piece of data is wage growth, especially since Trump wants to claim his policies are generating big results. I take a jaundiced view on such claims, but the issue is very important, so let’s take a look at two interesting columns.

Michael Strain of the American Enterprise Institute, writing for Bloomberg, starts by noting that some folks on the left think workers are being screwed.

Are wages determined by market forces, or do businesses get to decide what pay they offer to workers? …Why has wage growth been so sluggish for so many years? …you might answer that employers have made the decision to boost profits at the expense of raising wages. …it is common to hear some prominent analysts and organizations on the left argue that the link between wages and productivity for most workers has effectively been severed.

Not so fast, he writes.

Businesses don’t pay employees less than the value of their productivity — the amount of revenue workers generate for their employer — because doing so would result in their workers taking another job where they would get paid what they’re worth. In this sense, employers don’t “decide” what wages they pay. Instead, wages are set in markets. …worker productivity remains the dominant force in setting wages. …Market forces are powerful. A recent paper by economists Anna M. Stansbury and Lawrence H. Summers of Harvard confirms this. They find that over the last four decades, a one-percentage-point increase in productivity growth is associated with a 0.73 percentage point increase in the growth rate of median compensation. That’s a strong link.

I have two thoughts on this. First, productivity is the key to our prosperity. I’m in full agreement with Paul Krugman’s observation that, “Productivity isn’t everything, but in the long run it is almost everything.”

Second, as illustrated by this chart, we get more productivity with greater levels of investment.

The problem is that government often undermines productivity growth.

Governments have thrown a wrench in the market machine through the absurd proliferation of occupational licenses, reducing wages for workers who can’t get a license and restricting the mobility of licensed workers. A recent study finds that the rate of migration across state lines for individuals in occupations with state-specific licensing requirements is over one-third lower than among individuals in occupations that don’t have such rules.

Amen.

And there are plenty of additional policies that have a negative effect as well.

In a column for the Wall Street Journal, David Henderson says the data on wage growth tell an incomplete story.

Standard wage data show that between the spring of 2017 and the spring of 2018, real wages in the U.S. increased only 0.1%. But there are three major problems with these data. First, they don’t account for fringe benefits, which are an increasing proportion of employee pay. Second, standard wage data use an index that overstates the inflation rate. Third, each year the composition of the workforce changes, as older, higher-paid workers retire and young, lower-paid workers enter the workforce.

He digs into some of the data that have been shared by the CEA.

…the White House Council of Economic Advisers addresses these three biases and concludes that real wages grew by 1% in 2017-18, not the measly 0.1% reported in the wage data. …including benefits would add 0.2 percentage point to the 2017-18 figure. …An alternate measure of inflation, the personal- consumption-expenditures price index, while also imperfect, is a better measure of inflation. Economists at the Federal Reserve prefer the PCEPI to the CPI. Using the PCEPI adds 0.5 percentage point to the 2017-18 growth of real wages. …The Census Bureau estimates that 3.57 million people turned 65 in 2017, compared with 2.68 million in 2010. Taking account of the decline in older, higher-paid workers and the increase in younger, lower-paid workers, the CEA estimates that this “composition factor” added 0.3 percentage point to real wage growth from 2017-18.

I have two thoughts about this data.

First, I don’t pretend to know the ideal measure to capture inflation, but I definitely know that we’d have lower prices in the absence of government intervention.

Second, the CEA definitely is right about fringe benefits being an ever-larger share of total compensation (mostly driven by government intervention).

And these observations apply, regardless of who’s in the White House.

This is not a partisan point. The same methodology would show that real wages grew more than was reported during much of President Obama’s time in office. …there is, in this context, one relevant difference between the Trump and Obama administrations: the 2017 tax cut. Real after-tax wages increased 1.4% between 2017 and 2018, according to the CEA study.

I obviously like the part about tax cuts being helpful, but I’ll reiterate my concern that this effect will evaporate if GOPers don’t get serious about spending restraint.

And I’ll close with the essential observation that there is no substitute for across-the-board pro-market policies if the goal is improving people’s lives.

Remarkable OECD Study on Corporate Tax Rates, Corporate Tax Revenue, and the Laffer Curve

Last month, I revealed that even Paul Krugman agreed with the core principle of the Laffer Curve.

Today, we have another unlikely ally. Regular readers know that I’m not a big fan of the Organization for Economic Cooperation and Development. The Paris-based international bureaucracy routinely urges higher tax burdens, both in the United States and elsewhere in the world.

But the professional economists who work for the OECD are much better than the political appointees who push a statist agenda.

So when I saw that three of them (Oguzhan Akgun, David Bartolini, and Boris Cournède) produced a study estimating the relationship between tax rates and tax revenues, I was very curious to see the results.

They start by openly acknowledging that high tax rates can backfire.

This paper investigates the capacity of governments to raise revenue by assessing the ways in which tax receipts respond to rates… Revenue returns from tax increases can be expected to decrease with the level of tax rates, because higher rates exacerbate disincentives to produce and raise incentives to avoid taxation. These two main channels can therefore imply that tax receipts rise less than proportionately with rates and may peak at a given point.

Given the OECD’s love affair with higher tax burdens, this is a remarkable admission about an important limit on the ability of governments to grab revenue.

Their estimate of the actual revenue-maximizing burden is almost secondary. But nonetheless still noteworthy.

According to the estimated coefficients in model 5 of Table 3, an EMTR of 25% maximises CIT revenue.

Not that different from the estimates produced at the Tax Foundation and American Enterprise Institute.

Here’s a chart showing the revenue-maximizing level of tax, which varies depending on the degree to which a country has close economic ties with the rest of the world.

Interestingly, the study openly admits that tax competition plays a big role.

Trade openness is found to reduce CIT revenue. The latter is consistent with…international tax competition, which is likely to increase the effects of tax rates on the location of firms or more broadly of their profit-generating activities.

Sadly, the political types at the OECD have a “BEPS” scheme that is designed to curtail tax competition.

Which is a very good argument for why tax competition should be allowed to flourish.

But let’s not digress. Here’s another remarkable admission in the study. The OECD economists point out that it is not a good idea for governments to try to maximize revenue.

Estimates of revenue-maximising rates should not be seen as policy objectives or recommendations, as they imply high levels of economic distortions or tax avoidance.

Amen. I cited a study in 2012 showing that a revenue-maximizing tax rate might destroy as much as $20 of private sector output for every $1 collected by government. Only Bernie Sanders would think that’s a good deal.

Last but not least, the study even points out a class-warfare approach is misguided when looking at personal income taxes.

More progressive broadly defined personal income taxes generally yield more revenue, but very strong progressivity is associated with lower revenue.

Another wise observation.

The bottom line is that high tax rates of any kind are not a good idea.

P.S. The International Monetary Fund inadvertently provided very strong evidence about the Laffer Curve and corporate taxes.

P.P.S. An occasional good study doesn’t change my belief that the OECD no longer should be subsidized by American taxpayers.

One or Two Cheers for Price Gougers, Three Cheers for Markets, and No Cheers for Anti-Gouging Laws

Responding to Hurricane Harvey last year, I shared three very good videos explaining why laws against “price gouging” are misguided.

Simply stated, politicians can’t wave a legislative wand and change underlying conditions of supply and demand.

Laws that artificially dictate the price of something almost surely will have adverse consequences (just as artificially setting the price of labor causes some joblessness and artificially controlling price of health insurance can cause a death spiral).

Needless to say, this is not a welcome observation in some quarters.

John Stossel addresses price gouging in a new Townhall column. He starts by describing the political response.

Officials in states hit by Hurricane Florence are on the lookout for “price gouging.” People who engage in “excessive pricing” face up to 30 days jail time, said North Carolina’s attorney general. South Carolina passed a “Price Gouging During Emergency” law that imposes a $1,000 fine per violation. …These are “bad people,” said Florida Attorney General Pam Bondi angrily during a previous storm.

He then explains some basic economics.

Pursuing profit is simply the best mechanism for bringing people supplies we need. Without rising prices indicating which materials are most sought-after, suppliers don’t know whether to rush in food, or bandages, or chainsaws. …Who will bring supplies to a disaster area if it’s illegal to make extra profit? It’s risky to invest in 19 generators, leave home, rent a U-Haul and drive 600 miles. …If prices don’t shoot up during disasters, consumers hoard. We rush to gas stations to top off our tanks. Stores run out of batteries because early customers stock up. Late arrivals may get nothing. … America should have learned that when Richard Nixon imposed price controls on gasoline. That gave us gasoline shortages and long gas lines. …allowing prices to rise, even sharply, is the best way to help desperate people get supplies they need. As supplies rush in, prices quickly return to normal. We shouldn’t call it gouging. It’s just supply and demand.

He concludes with some advice that politicians almost certainly will ignore.

The best thing “price police” can do in a disaster is stay out of the way.

Price police? I wonder if they get the same training as the milk police and bagpipe police?

But I’m digressing.

I’m going to augment Stossel’s analysis with some simple supply-and-demand curves. We’ll start with a look at a normal, competitive market. The supply curve shows producers are willing to provide ever-larger amounts of a product at higher and higher prices.

Conversely, the demand curve shows that consumers are willing to buy a lot of a product when prices are low, but the quantity they want declines as prices increase.

The “equilibrium price” is where the two curves intersect.

Now imagine you live in North Carolina and the hurricane is wreaking havoc. Two things are likely to happen. First, some sellers will be knocked out of the market. Maybe they lost power, got flooded, or went someplace safe for the duration of the storm.

The real-world impact is shown by this next graph. The supply curve has shifted to the left, meaning that there is less product available at any given prices. The net result is that the market price will go up.

The second effect is that there presumably will be more demand. Consumers will suddenly decide that certain goods (milk, bread, candles, batteries, generators, plywood, etc) are more valuable than they were last month.

This chart shows the effect of increased demand.

By the way, the way I randomly created the charts shows the quantity staying roughly the same, but that all depends on market conditions. Prices can rise a lot or a little, and quantity demanded can fall a lot or rise a lot.

Here’s all you really need to understand. If the government has anti-gouging laws that prevent prices from adjusting to market conditions, the result will be a shortage.

Which is what’s depicted in this chart. Consumers will want a lot of the product, but they won’t be able to find enough willing sellers.

That might seem like a good outcome if you were one of the lucky people who was willing to wait in line or otherwise got lucky (the “seen”). But it means a lot of consumers get left out (as Bastiat points out, those are the “unseen”).

For instance, look at what happened after Hurricane Sandy, for instance.

Perhaps most important, it means that there’s very little incentive for entrepreneurs to incur a lot of expense and effort to get much-needed supplies to a disaster area.

So people would be left waiting for the government, which means a sluggish reaction and often the wrong kind of help.

None of this suggests that “price gougers” are heroes. Yes, some of them take a risk with time and money (and maybe even personal safety) by rushing to a disaster zone. But others simply want to take advantage of an opportunity to jack up prices and get a windfall.

My point is simply that laws against gouging are bad since many consumers will be denied the opportunity to get desperately needed goods and services.

P.S. If you want more evidence of the folly of price controls, see how they backfired in Puerto Rico and Venezuela.

P.P.S. The post-war German economic miracle was triggered by the removal of price controls.

The Evidence-Based Case for Unilateral Free Trade

When President Trump proposed zero trade barriers among major economies, I applauded. Government-imposed barriers to commerce hurt prosperity, whether those restrictions hinder voluntary exchange inside a country or across national borders.

There’s a debate over Trump’s sincerity, and I’m definitely with the skeptics (look at his supposed deal with Mexico, for instance), but let’s set that issue aside and investigate the merits of free trade.

But let’s go one step farther. Instead of looking at whether multiple nations should simultaneously eliminate trade barriers, let’s consider the case for unilateral free trade.

In other words, should the government abolish all tariffs, quotas, and other restrictions so that buying products from Rome, Italy, is as simple as buying products from Rome, Georgia.

The global evidence says yes, regardless of whether other countries do the same thing.

Consider the examples of Singapore, Macau, and Hong Kong. According to the World Trade Organization, trade barriers are virtually nonexistent in these jurisdictions.

Have they suffered?

Hardly. According to the World Bank, all three jurisdictions are among the most prosperous places on the planet. Indeed, if you removed oil sheikdoms and tax havens from the list, they would win the gold, silver, and bronze medals for prosperity.

To be sure, there are many reasons that Singapore, Macau, and Hong Kong are rich. They have low taxes and small government, as well as comparatively little red tape and intervention.

But free trade definitely helps to explain why these jurisdictions have become so rich at such a rapid pace.

Let’s also look at the example of New Zealand. It doesn’t have absolute free trade, but average tariffs are 2.02 percent, which means it is the world’s fifth-most pro-trade nation.

Have the Kiwis suffered from free trade?

Nope. I shared a remarkable video last year that explains the nation’s remarkable turnaround coincided with a period of unilateral trade liberalization.

Today, let’s look at a column on the same topic by Patrick Tyrrell.

New Zealand…is one of the champions of economic freedom around the world. But it wasn’t always so. In the mid-1980s, New Zealand was facing an economic crisis, with its domestic market and international trade both heavily regulated. Unemployment had reached 11 percent… In response, the government of New Zealand began implementing revolutionary economic reforms, most significantly related to trade policy. It announced in 1987 a program that would reduce the tax on imports to under 20 percent by the year 1992. By 1996, that tax was reduced further to under 10 percent, and by the end of 1999, about 95 percent of New Zealand’s tariffs were set at zero.

Was that a successful policy?

Extremely beneficial.

New Zealand’s adoption of less restrictive trade policies has corresponded to its climb up the trade-freedom scale…and with a huge boost in per capita gross domestic product. The United States could take a page out of New Zealand’s trade-policy book and implement the same type of reductions in tariffs… That would enhance innovation and economic freedom—and grow our economy.

Here’s the chart from Patrick’s column.

Once again, the obvious caveat applies. New Zealand has adopted many pro-market policies in recent decades, so trade is just one of the reasons the country has moved in the right direction.

Now let’s go back in history and peruse Professor Peter Cain’s analysis of what happened when the U.K. adopted unilateral free trade in the mid-nineteenth century.

The trend to freer trade began in the late eighteenth century. …it was the 1840s that saw the beginning of a true revolution in policy. Earlier moves towards freer trade had been conditioned by an insistence on reciprocity (i.e. agreements with other states on mutual tariff reductions), but from the 1840s policy was determined unilaterally. The most dramatic instance of this was the Repeal of the Corn Laws in 1846. …It also reflected a growing belief that cheap imports were the key to prosperity because they would benefit the consumer as well as reduce business costs… Free trade certainly became a hugely popular cause in Britain… It was attractive not only because it guaranteed cheap food, but also because it supported the belief, widespread amongst both the business class and their workforce, that the state should be kept out of economic life.

What was the impact of this shift to unilateral free trade?

…free trade, in combination with heavy foreign investment, certainly helped to change the shape of the British economy in the late nineteenth century. …the long run effect of unilateral free trade had been to increase competition for British agriculture and industry, lower profits and stimulate capital exports. …this regime had yielded great benefits. British capital, pouring into foreign railways and other industries overseas, had helped to reduce agricultural commodity prices, shifting the terms of trade in Britain’s favour and raising national income. Dividends and interest payments on foreign investments had also increased greatly and these returns were realised by importing cheap foreign produce freely. Furthermore, …this unilateral free trade-foreign investment system had provided a strong boost to Britain’s commercial and financial sector.

Here’s the Maddison data on per-capita GDP in the United Kingdom between 1800-1914.

Looking at this chart, I’m wondering how anyone can possibly argue that unilateral free trade hurts an economy.

Once again, many caveats apply. Most important, many other policies play a role in determining national prosperity. It’s also worth noting that a handful of tariffs on products like wine and tobacco were maintained. Most troubling, the era of unilateral free trade coincided with the imposition of the income tax (though it didn’t become a money machine for bigger government until the 1900s).

The bottom line is that every example of unilateral free trade (or sweeping unilateral reductions in trade barriers) tells a positive story. Trade liberalization isn’t everything, but it’s definitely a huge plus for growth.

Yes, the best of all worlds is for trade liberalization to happen simultaneously in all countries, and negotiations have produced considerable progress since the end of World War II, so I’m somewhat agnostic about the best strategy.

But there’s no ambiguity about the ultimate goal of ending protectionism.

P.S. Sometimes bad things happen for good reasons. The income tax in the United States also was adopted in part to offset the foregone revenue from lower trade taxes.