In my recently published paper, “Should Trade’s ‘Losers’ Be Compensated?: An Exploration of the Welfare Economics of the Losses and Costs of Economic Change” (Journal of Law, Economics and Policy, 2022) I argue that the risk of job loss for each worker in an exchange economy such as ours is the price that he or she voluntarily pays in order to reap the enormous benefits available to each person who participates in this economy. This price is no different from any other price that is voluntarily paid in exchange for something of greater value.
To drive this point home, I explain that incurring the risk of job loss is economically and ethically identical to the contractual obligation undertaken to make monthly mortgage payments in exchange for a mortgage loan:
Suppose that, in order to buy a home, I borrow $200,000 from a mortgage lender and agree to repay the loan, in monthly installments, at a certain rate of interest over the course of fifteen years. I move into the home today and commence living in it. A man from Mars, with no previous knowledge of earthly conventions, pops down to earth two years from now and observes me sending a check each month to the mortgage holder. After a few months of observation, the Martian reports to his leaders on the red planet that each month some mysterious force inflicts on me a loss in the amount of my mortgage payment. The Martian and his leaders conclude that I would be better off were I not obliged to suffer a loss each month in the form of these monthly amounts.
But no knowledgeable earthling would describe me as each month suffering a loss. When asked to describe the meaning of my mortgage payments, the earthling would instead say that I am paying the cost of having borrowed money to purchase a home. The earthling would be correct. Of course, I would be delighted, after obtaining the borrowed funds, for the mortgage holder to then relieve me of my obligation to repay. My welfare would be raised by such relief. But I clearly would be made worse off if, as a result of the mistaken conclusion that the institution of mortgage lending imposes losses on borrowers, creditors had long been prohibited from demanding repayment from debtors. While in my ideal world the mortgage lender would simply give me the $200,000 with no strings attached, I am nevertheless better off in a world in which mortgage lenders can demand repayment of loans than I would be in a world in which such demands are unlawful.
Now consider an American steelworker who loses a job because fellow Americans start buying more steel from Brazil and, hence, less steel from Ohio. This worker suffers no loss. Instead, this worker is paying a cost of participating in the modern commercial global economy. It is indisputable that this worker would prefer not to have to pay this cost, just as it is indisputable that I would prefer not to have to repay my mortgage lender. But this reality does not transform the worker’s (or my) cost into a loss.
Each worker in a modern commercial economy is very much like the above-mentioned mortgage holder. Each such worker voluntarily participates in this economy because of the enormous benefits he or she reaps from doing so.
More than a few people have challenged my claim of voluntary participation in the global economy. But I stand by this claim.
Later in the paper I argue:
No one is forced to participate [in the market economy]. Each of us has the option of withdrawing from commercial society, as a tiny handful of people have actually done. A great deal of rural land is available for purchase. Each of us is free to buy this land on which we can scratch out a living, either literally alone or with whatever small band of individuals we persuade to accompany us.
Of course, the resulting material standard of living of economically isolated individuals would be desperately low compared to the standard of living available even to the poorest of those who participate in the modern commercial economy. Indeed, the colossal difference between the maximum standard of living achievable by those who divorce themselves from modernity and the minimum standard of living available to those who remain integrated into modernity is what makes my claim that it is possible to abandon commercial society seem so far-fetched.
Again, I stand by this claim. Yet I understand why many people continue to doubt its realism: we Americans and Europeans today almost never observe anyone actually opting out of commercial society. How realistic is this option if no one takes it?
But in reading Michael Shellenberger’s 2020 book, Apocalypse Never, I ran across some real-world evidence of the validity of my claim. In discussing his work as a young man in the 1990s in Brazil, Shellenberger writes:
I can count on a single hand the number of young people who told me they wanted to remain on their family’s farm and work their parents’ land. The large majority of young people wanted to go to the city, get an education, and get a job. They wanted a better life than what low-yield peasant farming could provide.
When confronted more explicitly and consciously than we Americans are with the choice of avoiding, or embracing, the particular kinds of risks that are inseparable from participation in a global market economy, most people choose to embrace these risks. People who have actually experienced the ‘security’ that comes from insulation from market forces understand that the price they pay for this ‘security’ is far too high. That price includes the inability to enjoy goods and services that we in America today regard as indispensable – good and services such as indoor plumbing, plentiful food, shelter that’s sturdy and spacious, antibiotics, and motorized transportation. This price includes also the greater insecurity to life and limb that curses all who have no access to these goods and services.
People who have actually had the ready opportunity to ‘protect’ themselves from the global market economy understand that the fruits of that economy are far more abundant and sweet than is the pathetic ‘security’ that comes from being sheltered from global market forces. Overwhelmingly, and not merely by default, these people choose to be part of the global market economy. The fact that Americans and Europeans make this choice as a matter of course without really thinking about it does not mean that we don’t really have such a choice. We do. We just choose to continue to position ourselves to reap the fruits of the global market economy. And therefore, each of us must be willing to pay the relatively small price of participating in this economy.
By Donld J. Boudreaux
Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalization, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.