Legislators Should Listen to Economists, History
“If all the economists in the world were laid end to end,” George Bernard Shaw famously wrote, “they wouldn’t reach any conclusion.” Although economists may disagree on many policy issues, they do agree on many others. The concept that free trade is beneficial is one of these areas of consensus. In fact, 90.1 percent of economists disagree that “the U.S. should restrict employers from outsourcing work to foreign countries.” Even Paul Krugman supports free trade.
If free trade is one area that this contentious group can agree, why do elected officials in Washington and in Jeff City continue to pass measures that impede, rather than proliferate, free trade?
As the latest example of impeding free trade, the U.S. Senate is targeting companies that outsource, particularly to India:
Democrat Senator of Missouri Claire McCaskill on Thursday said the proposal would increase fees for particular companies that exploit two categories of visas — H-1B and L.
Not only do legislators seem to ignore economists, they also seem to ignore history. The fact that protectionist policies do more harm than good has been repeatedly demonstrated in the past (e.g., the Smoot-Hawley Tariff Act in 1930, the steel import tariffs in 2002, and protectionism in the vehicle manufacturing industry).
When a country or a state protects certain industries, those companies do not have to innovate their product to compete in the marketplace. As additional negative consequences, such protectionism dampens downward pressure on consumer prices and reduces the variety of goods and services available to consumers in a region, who are more limited to that which they can produce themselves because goods from elsewhere are artificially priced out of market availability. If this proposal progresses, perhaps the same problems could plague the IT services industry.
Subsidizing favored companies and industries and simultaneously imposing restrictions on those that are not favored is an expensive and inefficient practice. In doing so, the government sends the fallacious message that it can pick winners and losers in the marketplace. Overall welfare would improve if the United States and Missouri both embraced the creative destruction of their respective economies, instead of cementing favored activities for reasons of nostalgia and/or xenophobia.
