A Double Whammy Of Economic Error : Clark and Harper on Protectionism

Posted on February 25, 2009

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Joe Clark wrote a well-intentioned Op-Ed for the Globe today. See here. The main thesis is that the rich countries should make a real effort to help poor countries and not try only to cushion the blows of the recession here at home. Canada, in particular, should lend a hand in the Caribbean. Great sentiment, great intentions, right vision, one problem: dangerously inaccurate economic analysis.

He writes:

Prime Minister Stephen Harper used the right words when he warned President Barack Obama about “Buy American” programs that might hurt Canada: “If we pursue stimulus packages, the goal of which is only to benefit ourselves or to benefit ourselves, worse, at the expense of others, we will deepen the world recession, not solve it.” But that principle goes well beyond trade.

Clearly, Mr. Clark thinks protectionism can provide some benefit but, on balance, is morally incorrect and will eventually deepen the world recession. Much of the press coverage concerning Mr. Harper’s remarks suggest he is also making this point in the quote cited by Mr. Clark. Unfortunately — and shockingly — their analysis is incorrect. This is a shock because Mr. Clark is a former Prime Minister and long time Foreign Minister and Mr. Harper a sitting Prime Minister with an MA in  economics. Surely, these guys should be able to get the analysis right.

But, they don’t. Text book economics has long ago shown that protectionism benefits no one. Not a single person. Protectionist measures simply shifts resources from one group of people within a nation to another, quickly drives up the costs for everyone, and stifles innovation. Protectionism never provides an economic benefit to anyone. Politicians may earn votes, citizens may feel better about themselves for protecting a particular industry but everyone is made worse off from an economic perspective. There is no such thing as a free lunch and protectionism is an imaginary free lunch which detrimentally affects everyone at the expense of everyone.

Why is this important? Our politicians must challenge the assumption that protectionism is actually a benefit to a nation’s citizens. After all, if things get really tough, it becomes all the more easy to say, well, we need to look after ourselves rather than those guys over there. Mr. Clark and Mr. Harper’s analysis is like telling a person with a rope around his neck that he shouldn’t kick out the chair he is standing on because, even though kicking out the chair sometimes can be a benefit, it will be better for the other guy with a rope around his neck if we don’t and it might eventually lead to bad consequences for us in the long run. Unfortunately, things can always get bad enough that we stop caring about that other guy and pretty soon we are all left hanging. And that’s the true nature of protectionism and our politicians have an obligation to make that point clear and understandable to all of us.

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