The Choice: A Fable of Free Trade and Protectionism.

Whaples, Robert

In the past few years, with the battles over NAFTA and GATT, the debate over free trade and protectionism has moved from the confines of economics journals and textbooks to the political forefront. The American public has learned that the vast majority of economists is in favor of free trade. (In a poll of economists, Richard Altson, J. R. Kearl, and Michael Vaughan, "Is There a Consensus among Economists in the 1990s?" American Economic Review Papers and Proceedings, May 1992, 82, p. 204, found that 71 percent generally agreed that "Tariffs and import quotas usually reduce general economic welfare." 21 percent partially agreed and only 6.5 percent generally disagreed.) However, even though the arguments of economists may have been decisive in the passage of NAFTA, the general public still has only a hazy understanding of why economists normally side with free trade, and even students who have taken economics courses have trouble linking abstractly-presented textbook concepts to the real world. It's not that these ideas are difficult to understand, it may be that economists simply haven't spent enough energy trying to cast the issues into a more readily accessible form that eschews "graphonomics."

Fortunately, with The Choice: A Fable of Free Trade and Protectionism, Russell Roberts, director of the Management Center at the John M. Olin School of Business at Washington University in St. Louis, has bridged this communications gap. Roberts' solution is a unique mixture of Socrates and Frank Capra. The ghost of classical economist David Ricardo touches down on earth in 1960 to visit Ed Johnson, the fictional president of a television manufacturing company struggling against Japanese imports. During the course of an evening Dave and Ed discuss the advantages and drawbacks of free trade and protectionism, and Ricardo transports Ed to two economic futures - the year 1995 as we see it, and the year 1995 as it would have turned out if the U.S. had erected high protectionist walls in 1960.

This counterfactual history is the highlight of the book, allowing Roberts to move beyond standard comparative statics to examine how trade practices affect the dynamic path of the economy. The counterfactual history also underlines one of the book's greatest strengths. Roberts' fable of free trade and protectionism is full of shades of grey. Although he favors free trade, he does not hesitate pointing out the costs as well as the benefits associated with it. The relatively free-trade world of 1995 is not a perfect world. Millions have paid a price along the way because of free trade, while greater millions have reaped what are certainly larger benefits. Likewise, the counterfactual protectionist world is not a hellish dystopia, but bears a remarkable resemblance to the 1950s. Little economic growth has occurred, but people seem happy and contented. As an economic historian, I find his alternative scenario quite plausible.

Dave's and Ed's discussion is entertaining, but Roberts' doesn't cut corners. Because he wants readers to make their own informed decisions, they and Ed must grapple with sunk costs, opportunity costs, present value, factor mobility, dumping, tariffs, quotas, voluntary restraint agreements, the infant industry argument, the national security argument, industrial policy, the rise of the service sector, income inequality, the causes of the Japanese catch-up, how to correctly compare incomes across countries, and many other issues and concepts. The discussion of comparative advantage, which Roberts renames the "Roundabout Way to Wealth," is especially insightful. He explains that America still "makes" television sets in 1995. However, they aren't made in America. Instead, employees of Merck make them by manufacturing pharmaceutical products which are then traded for the televisions.

Most importantly, Roberts stresses that "The Choice" is not ultimately about how to create jobs. Economists unwittingly mislead the public on this issue during the debate over NAFTA. In both a trading and an autarkic world there will be about as many jobs as job seekers. Trade does not create or destroy jobs, it alters the jobs that people perform. "Jobs aren't sitting there like boxes waiting for people to jump into them. Think (about) the high-paying medical jobs that wouldn't exist if disease were eliminated. Do you think the people who would have been doctors are now going to be street sweepers? . . . They are not. They are going to take their skills and discipline to learn about something other than medicine. There is no limit to the human imagination. America's greatest resources are knowledge, know-how, and creativity. Such markets can never be cornered" (p. 40).

The Choice should be read far beyond the classroom, because it is the type of book that can be passed on to parents, grandparents, siblings, or friends to explain how the world works and what economics is all about.

ROBERT WHAPLES Wake Forest University