Protectionism and Beneficial Political Ignorance

As longtime VC readers know, one of my pet peeves is denouncing the harmful effects of widespread political ignorance and irrationality. As a general rule, the things voters don’t know often hurt them. On rare occasions, however, political ignorance can actually be beneficial. The issue of free trade and protectionism is one such example.

In this article, Chicago Tribune columnist Steve Chapman laments the two presidential candidates’ pandering to public ignorance about the benefits of free trade:

Both candidates indulge the superstition that while exports are good, imports and outsourcing are bad. In reality, it makes no sense to make something at home if we can buy it cheaper from elsewhere. The point of producing is to allow consumption. Raising the cost of consumer goods by shutting out imports makes us poorer, not richer.

Outsourcing is a competitive necessity in a global economy. If a U.S. firm can’t compete with companies producing in Mexico or China, it’s wiser to relocate its factories abroad than to go on losing money here.

The assumption promoted by Obama and Romney is that unless we act against the Chinese, our manufacturers will be unable to compete. In fact, the value of American manufactured goods, adjusted for inflation, has risen by 10 percent over the past decade.

That’s easy to forget because the number of jobs has shrunk—a consequence of rising productivity, which allows companies to do more with less. Another reason it’s easy to forget is that Chinese output has grown. But as of 2010, the World Bank says, the U.S. remains the world’s biggest manufacturer. And we are far better off with China exporting manufactures than exporting virtually nothing, as was the case a generation ago.

Economists across the political spectrum agree that free trade is better for the economy than protectionism. Take it from Paul Krugman, if you don’t believe me. But polls show that the public is mostly protectionist. For example, a 2010 NBC/Wall Street Journal poll finds that 53% believe that trade agreements have generally hurt the US, compared to only 17% who believe they helped. As Bryan Caplan describes in detail his book The Myth of the Rational Voter, this divergence between public and expert opinion is mostly due to economic ignorance on the part of the former (the divergence persists and even grows after you control for income, economic self-interest, partisanship, ideology and other factors). Because the benefits of trade (lower prices for goods and effective use of comparative advantage) are often counterintuitive and difficult to explain to rationally ignorant voters, politicians like Obama and Romney have strong incentives to pander to protectionist prejudices.

Yet, Chapman notes, presidents’ actual policies on trade are much better than their campaign rhetoric:

If there is any good news about the candidates, it’s that their policies will most likely be better than their rhetoric. Aside from tires, Obama has generally avoided protectionism, while signing free-trade deals with South Korea, Panama and Colombia.

Romney will hear from plenty of Republican CEOs who favor freer trade. Few experts believe he will keep his pledge to label China a currency manipulator, setting off a trade war. Obama, after all, slammed President George W. Bush for failing to do so—but followed suit.

Obama reneged on his 2008 campaign promises to renegotiate NAFTA and impose sanctions on China. If Romney wins this year, his protectionist pandering will likely be forgotten after election day too. How can they get away with ignoring public opinion on this issue? Probably because most voters don’t follow trade policy closely and don’t notice when presidents renege on protectionist promises. As a result, Obama has suffered little political damage for ignoring his promises on these issues. The same ignorance that leads most voters to be protectionist in the first place also prevents them from punishing presidents who fail to act on their protectionist campaign rhetoric.

But the ignorance here is not entirely blissful. We have less protectionism than we would if the public closely monitored trade policy and severely punished politicians who deviate from its preferences. But we have much more than would exist if the majority of voters understood the benefits of free trade in the first place, and used their votes to punish protectionists. As things stand, many harmful protectionist policies still get enacted – partly because politicians cater to industry interest groups that benefit from them, and partly because they can’t completely ignore majority opinion on the issue.

In this case, ignorance does indeed have some beneficial effects. But that’s mostly because ignorance in one area partially offsets the harm caused by ignorance in another. Greater knowledge across the board would be better. But it’s not likely to happen any time soon.

UPDATE: I have corrected a couple of minor but annoying snafus in this post, most notably omitting Steve Chapman’s name in the first sentence mentioning his column. I apologize for the mistake.