unemployment

Once upon a time, America had a relatively good system for dealing with displaced workers. But the shallowness of its recessions and the rapidity with which employment tended to spring back led to complacency and neglect of these institutions. In Europe, by contrast, governments responded to persistent high unemployment with a wave of labour market reforms and investments in retraining and other measures to return workers to the labour force. Recent jobless recoveries have therefore left the American economy with a declining participation rate, while Europe has done better.


Growth in trade with China contributes to the closure of the local textile mills, which significantly damages the local economy. The most skilled workers then leave; they can do better in growing towns nearby, and they probably have the financial resources to relocate. The low-skill workers left behind do not move. Why? Well, they may not be able to afford to do so, but other factors make staying in place more attractive. housing is durable and so housing supply is fixed. Combine fixed housing supply with a shrinking population and you get falling home prices. For low-skilled workers, the increased affordability of housing in a declining city is quite attractive. Combine that with poorly designed transfer payments, which go much farther in the falling cost environment of the declining town, and you have a recipe for immobility.




Trade liberalisation generally produces net benefits, such that some of the winners' gains can be redistributed to losers, leaving all in better shape than before. But this is not how policy functions in the real world.


the same argument can be made in reverse—the parties that benefit from protectionism never compensate those that lose from the restrictions. Since optimal redistribution is lacking in both cases, the most efficient solution should be the one we support: free trade.


I see the problem of adequately compensating the losers from international trade as just a part of the larger question of how we treat people in our society who, through no fault of their own, have fallen on hard times. International trade is just one of the many enormous, inexorable forces that constantly reshape our economy. Technological change, demographic change, or the fluctuations of the macroeconomic business cycle may devastate millions of families each year just as surely as international trade.

economies are based on the gains from voluntary, mutually-beneficial transactions, and the government should be very reluctant to prevent people from engaging in these transactions. No one wants to be told what or from which people they can buy. But what's price to one person is income to another. Sometimes people begin buying different things, for many different reasons—technological changes, policy changes, shifts in tastes, recessions—and that change in buying patterns will cost some people their income. Very often, these changes will strike the victim as unfair. But life, as parents have explained for millenia, is not fair. The proper response to this unfairness is not to try and undo it, to reject the choices of others engaging in voluntary transactions as illegitimate. The proper response is to work to build society's safety net so that those hit by life's inevitable unfairness aren't left destitute and hopeless because of it.

Society doesn't owe anyone a factory job, and it doesn't owe factory workers a cheque if an improvement in trade rules leaves them jobless. It owes them precisely what it owes all of its members: a level of protection against the unpredictable sufficient to afford them the opportunity to get back on their feet.