Not to beat a dead horse and go back to the State of the Union address, but with the latest round of China trade deficit fear-mongering, the imagined collapse of the U.S. as a maker of things and Joe Biden pitching a monorail to Springfield (partly because of our “need” to catch said Chinese), it was good to see Greg Mankiw’s recent piece in the NYT:
For one thing, “Winning the Future” was the title of a 2005 book by Newt Gingrich. It is almost as if Mr. Gingrich were to run for president in 2012 under the banner “Audacious Hope.” And then there is that pesky abbreviated form of the phrase — WTF — that does not exactly inspire confidence.
More troublesome to me as an economist, though, is that calling on Americans to “win the future” misleads us about the nature of the policy choices ahead. Achieving economic prosperity is not like winning a game, and guiding an economy is not like managing a sports team.
Yes. If you want just one, simple red flag to program in the back of your head that you can count on to tell you when someone probably doesn’t know what they’re talking about when it comes to matters of economics and trade, it’s when the zero-sum game talk starts. There is not some finite pie that someone can only get more of at the cost of others getting less. Trade isn’t theft. The beauty of trade is that it makes the pie bigger. A simple example, from the Mankiw piece:
You have a driveway covered in snow and would be willing to pay $40 to have it shoveled. The boy next door can do it in two hours, or he can spend that time playing on his Xbox, an activity he values at $20. The solution is obvious: You offer him $30 to shovel your drive, and he happily agrees.
The key here is that everyone gains from trade. By buying something for $30 that you value at $40, you get $10 of what economists call “consumer surplus.” Similarly, your young neighbor gets $10 of “producer surplus,” because he earns $30 of income by incurring only $20 of cost. Unlike a sports contest, which by necessity has a winner and a loser, a voluntary economic transaction between consenting consumers and producers typically benefits both parties.
Look at that – the guy and his neighbor both “won.” That’s the magic of it. It’s what separates us from the animals. So when we start talking about the future as a game/event/match to be won, who’s supposed to lose? (cue Donald Trump yelling “CHINA! China is supposed to lose!”) It’s easy to think about things this way, as if international commerce is the Olympics writ large. It’s just not the case.