Two TAA Thought Experiments

Richard Epstein's typically insightful comments on TAA got me thinking more about the abject irrationality of a special program that compensates workers for economic activity (free trade) that overwhelmingly benefits the nation as a whole.  As you'll recall, Epstein wrote:

So conduct this little thought experiment: what would be the state of play in the United States if every time a new firm opened up in one state it was required to fund trade assistance for workers at other firms who lost their jobs as a result? The need to compensate incumbent workers would drive out all new firms, and thus entrench inefficient firms in a near monopoly position. It is for that reason that the proper response is always to ignore these losses, and to deal with the question of unemployment through a generalized system of unemployment insurance that, of course, has massive difficulties of its own.

The "international-versus-intranational protectionism" thought experiment is a favorite of AEI's Mark Perry (among others), and he frequently applies it, with great effect, to demonstrate that protectionism across national borders is just as harmful and irrational as protectionism across state (or county or city or neighborhood) borders.

So it got me thinking: if TAA is, as its advocates in the White House and Congress routinely claim, an absolutely essential "core value" of American trade and economic policy, then why don't we have state-level TAA when, say, freely traded imports of Florida oranges into New York end up putting the Empire State's nascent orange growers out of work, or when imports of South Carolinian BMWs displace Michigan autoworkers?  I mean, if we need to compensate workers due to import competition across national borders, then why don't we do the same thing across state and local borders?

Because it's clearly a ridiculous policy, that's why.  (I know, I know, I shouldn't give our politicians any ideas.)

Perry often demonstrates this ridiculousness by creatively converting a news story on barriers to international trade into one on barriers to intranational trade.  I haven't seen Perry do one on TAA, so with apologies in advance for stealing his awesome idea, I think a simple example is in order.  Here's a sympathetic article on Sen. Sherrod Brown's (D-OH) fight to extend TAA back in February.  Now let's re-imagine the story with state-level TAA (STAA) based on free trade among the US States:

One Ohio lawmaker plans to make the extension of a program that benefits Ohio workers displaced due to free trade among the American states one of his top priorities during this congressional session, according to The Youngstown Vindicator.

Sen. Sherrod Brown (D-OH) plans to begin lobbying fellow members on an extension of state trade-adjustment assistance benefits, which provides Ohio workers displaced due to trade with other American states with reemployment assistance and training, income support and job search and relocation allowances.

Brown said that STAA benefits are “lifelines for tens of thousands of Americans Ohioans who, through no fault of their own, lost their job or their pensions and health-care benefits due to imports of goods and services from places like New York, Alabama and California.” 

With a new Republican majority in the House, however, Brown acknowledges that it will be an uphill battle....

Passing an extension of STAA benefits would be a good step toward helping those Ohio workers that have fallen on hard times due to America’s failed state-level trade policies. But to continue with those trade policies at a time with unemployment already hovering around 10 percent would be foolish.

“We can’t pass trade agreements allow imports from other US states that undermine Ohio workers, and then turn our backs on those workers when they lose their jobs,” Brown said.

Pretty silly, isn't it?  As Americans, we inherently understand the benefits that state-level import competition and specialization bring our economy, so we naturally reject policies to inhibit such helpful economic activity, despite the fact that it necessarily causes some job losses along the way.  But when we move beyond US borders, our brains shut off and the government meddling and handouts begin.

But, hey, let's not stop there and instead conduct another thought experiment to further reveal the irrationality of both TAA and the Obama administration's current TAA/FTA demands.  As economists like Cafe Hayek's Don Boudreaux frequently note, the beneficial job churn associated with import competition is no different from that associated with technology gains:

Would it have been appropriate, for example, for the White House to prevent Americans from buying iPods and Kindles until and unless Congress funded the retraining of workers who lost their jobs at Tower Records and Border’s? Should government have stopped automakers from improving the quality of their vehicles until and unless the public fisc was tapped for funds to retrain auto mechanics and tow-truck drivers? Ought government restrict consumers’ access to Lasik surgery until and unless taxpayers pay to retrain workers who make eyeglasses, contact lenses, and saline solution?

In short, people lose jobs due to import competition and they lose jobs due to new technologies (a lot more of the latter than the former, by the way), and while those job losses are obviously tough for the affected workers, American society as a whole is clearly better off by letting the free market work.  So why do we treat globalization so differently than mechanization?  Boudreaux reasons that it's because "the only thing unique about international trade is its ability to be demagogued by politicians seeking votes from the economically uninformed," so let's go back to that Sherrod Brown TAA article and help inform the distressingly-large group of uninformed Americans with a little more creative editing:

One Ohio lawmaker plans to make the extension of a program that benefits workers displaced due to free trade robots and other innovations one of his top priorities during this congressional session, according to The Youngstown Vindicator.

Sen. Sherrod Brown (D-OH) plans to begin lobbying fellow members on an extension of robot trade-adjustment assistance benefits, which provides workers displaced due to trade new technologies with reemployment assistance and training, income support and job search and relocation allowances.

Brown said that RTAA benefits are “lifelines for tens of thousands of Americans who, through no fault of their own, lost their job or their pensions and health-care benefits due to robots or other innovations.” 

With a new Republican majority in the House, however, Brown acknowledges that it will be an uphill battle....

Passing an extension of RTAA benefits would be a good step toward helping those that have fallen on hard times due to America’s failed mechanization trade policies. But to continue with those trade policies innovating and modernizing at a time with unemployment already hovering around 10 percent would be foolish.

“We can’t pass trade agreements create new technologies that undermine Ohio workers, and then turn our backs on those workers when they lose their jobs,” Brown said.

Hopefully after we've conducted these thought experiments it's easier to see why the White House stance on TAA - i.e., it is the multi-billion dollar price that America must pay to get new, economically-beneficial trade agreements with Panama, Korea and Colombia - is so distressing.  It would be patently offensive and irrational for the President to block intrastate trade or to prohibit further technological advances until Congress agreed to fund workers allegedly displaced by that trade/mechanization, and it's just as offensive and absurd for the White House to do it for international trade and TAA.

Yet here we are.