Trade and the Moral Community

Much of the recent trade debate between Rodrik, Mankiw, Tyler and others (see Tyler’s excellent post for links) is primarily not about positive economics but about the relevant moral community. Rodrik, for example, hasn’t argued that trade does not increase aggregate wealth he has argued that trade is not guaranteed to increase national wealth – something quite different.  I consider three moral communities and the case for trade.

Peter wishes to trade with Jose.  The individualist says the relevant moral community is Peter and Jose and presumptively no one else.  Trade, the right of association, is a human right and on issues of rights the moral community is the individual.  When Jose offers Peter a better deal than Joe it’s wrong – a moral outrage – for Joe to prevent Jose at gun point from trading with Peter.

The more common view expressed implicitly by Dani Rodrik, but by many others as well, is the nationalist view, the moral community is Peter and Joe.  Joe gets a vote on Peter’s trades.  Peter should be allowed to trade only if both Peter and Joe benefit, otherwise too bad.  Jose counts for less.

A third view, that of the liberal internationalist, says that Peter, Jose and Joe count equally and are together the moral community.

Now how does the positive economics apply to these three cases?  Peter and Jose presumptively are better off from trade otherwise they wouldn’t trade so the individualist economist (the economist who takes Peter and Jose as the relevant moral community) will support free trade.  The liberal internationalist will also support free trade because there is a strong argument from positive economics that trade increases total wealth (comparative advantage, specialization, competition etc.).

In between, we have the nationalist economist for whom it depends.  The case for trade for the nationalist economist is pretty good – after all the individuals involved benefit and the world benefits – so the case is reasonably strong that Peter and Joe taken together will also benefit especially if we consider many trade pacts on some of which Joe benefits directly.  Nevertheless, Rodrik is correct that when you exclude Jose it is possible to come up with examples where Joe’s losses exceed Peter’s gains.

I would argue, however, that economists are too quick to take the nation as the relevant moral community.  It is quite possible, for example, for Peter to benefit from trade but for Peter’s city to be harmed, for Peter’s state to benefit but for his region to be harmed, for his country to benefit but for his continent to be harmed.  Why should we cut the cake in one way, excluding some from the moral community, but not in another?  Indeed, geography is not the only way we can define the moral community.  Why not ask whether English speakers benefit from free trade or Christians or left handed people?  Each of these is just as valid as asking whether the collection of people called the nation benefit from free trade.

I understand individual rights and I understand counting everyone equally but I see less value in counting some in and some out based on arbitrary characteristics like which side of the border the actors fall on.


I am so glad you raised the issue. As a citizen of a LDC, it always baffles me how (virtually) everyone in the US seems to overlook the point you raise whenever discussing trade, but also immigration.

This posting is a fine illustration of Across Difficult Country's definition of libertarianism as applied autism.

It wasn't too long ago that the relevant moral community was defined differently. It was based on race, and many state governments prohibited economic transactions that benefited both individuals because they were thought to harm the white race as a whole. Can't have blacks taking all the good jobs for lower pay, or for that matter, marrying all the white women. Legalized discrimination (aka Jim Crow) was one of the most shameful periods in our nation's history. Today, you can't find a single politician who thinks that it was right to treat people differently based upon the color of their skin, but virtually all of them think it's still perfectly acceptable to discriminate based upon an equally uncontrollable and irrelevant factor--the location of their birth.

I understand individual rights and I understand counting everyone equally but I see less value in counting some in and some out based on arbitrary characteristics like which side of the border the actors fall on.

The problem is that you consider it "arbitrary" -- once you say that citizenship is an arbitrary construct, then of course you're not going to see any reason to treat in-group differently from out-group. In the old social contract model of government that's given to us in our high school civics classes, though, our fellow citizens are part of our community, defined by our mutual willingness to sacrifice certain rights in favour of certain benefits. The other members of your community aren't going to subscribe to that kind of arrangement if they end up getting the short end of the stick, e.g. if A trades cross-border with B, and the low cost of labour in B's country forces down the valuation of C's labour, C being A's neighbour. Is that what C is paying his taxes for? Sure he still gets great benefits like roads and a military and nuclear weapons, but it's unsurprising that he wants more.

In a reductionist view, suppose the border is just the delineation between residents of a condo and those outside the condo. Or a co-op or whatever. The rules may prevent you from operating a business from the condo, or bar you from subdividing and renting out your rooms and so on and so forth, except to people who are already members of the co-op or condo association. This is, of course, a restraint of trade, imposed on you by the other members of the co-op or the condo association, and it's one they impose for their own benefit. That's part of the price of living in that condo or co-op. And it applies, I am sure, to people who inherit their membership (e.g. from a parent's estate), or simply happen to be born there (e.g. children living in their parents' condo), all by the accident of birth. It makes perfect sense to me.

Whether this is an optimal strategy to pursue is a different matter -- you could say that the cost of maintaining societal cohesion or distributional equity or whatever by preferring in-group trades to out-group trades is such that your society will eventually lose ground to other societies without that preference and get crushed in the next war. Trade tends to make everyone richer overall, even if it makes some people poorer. But that's a choice societies can make, through the wonderful mechanism of voting.

I always wonder if anti-trade, anti-immigration folks just expect poor people in LDCs to die or suffer in misery quietly.

I suspect they expect the inhabitants of LDCs to develop themselves -- it's not like developed countries developed by magic or anything, or developed through trade with the advanced economies of Arcturus and Alpha Centauri. Band together, put together a government that's not ridiculously corrupt, and experiment with the many paths to development we've seen throughout human history. Admittedly, crony-capitalism export-driven development (e.g. Korea, now China, probably most of Southeast Asia too) empirically seems to work much more quickly than the various attempts to develop advanced industries from scratch solely for domestic consumption (didn't one country try that with computers?), so cutting off trade kind of closes that path. And an important element of many development strategies is, I think, sending your people to developed countries to learn about advanced technology and business management and all that, so it can be brought back home and applied. Closing the borders makes that rather harder as well. But there's no reason I can see to think it's impossible. People in LDCs are human just like people in more advanced economies -- they're not monkeys or anything. It's just much, much harder without trade.

Yes, but when has nationalism ever been philosophically appropriate? I read Rodrik as (implicitly perhaps) pointing out that when we give recommendations to policymakers, we don't get to choose the "moral community." With respect to US (or any other country's) trade policy, policymakers take their own nation as the "moral community." With politicians, the question is always "Is it in the national interest to do xyz?" When a cable news network covers a potential trade policy it does not ask, "Will the Bangladeshi come out ahead?" but instead, "Will the US come out ahead."

You and I, as economists, may look at the border as arbitrary. But for everybody else in the country, these choices depend on whether they are the "national interest" or not. As academics and policy advisors, it is disingenuous for us to pretend that free trade is always in the "national interest."

It is also immoral to mislead people into giving up their livelihoods for the greater good (the "international moral community"), for example by misleading them into adopting free-trade policies they wouldn't adopt if they had full knowledge.

Although you don’t see much value in which side of the border an actor falls on, politicians do. A politician’s primary incentive is either to get or stay elected, not maximizing the gains from trade. Actors that cannot vote for a politician carry no weight. Thus it would be a good strategy, from a political stand point, to “help† Joe at the expense to Jose* to get Joe’s vote, even at the expense of economic efficiency (something meaningless to politicians).

*Peter presumably will also be hurt, but Peter would probably already be supporting a candidate who supports free trade, so our politician never had his vote to begin with.

I think Slocum and Taeyoung hit on the important thing here: discrimination based on citizenship is anything but arbitrary. For Tyler to throw out rhetoric like that is disappointingly disingenuous (maybe even dishonest).

From the libertarian point of view, I can certainly see how the national distinction seems a little more arbitrary. But from the point of view of the rest of us, a nation is a distinct political unit that we contribute to, and in exchange, receive substantial benefits from. When a company has grown its business by generating revenue from Wall Street, employing educated Americans as employees and taken advantage of markets, supply chains and infrastructure that our society has made possible or directly provided, they owe something to that society. Honestly, restrictions on trade are not that much different from paying taxes, from this point of view.

And why are nations more important than cities or states? I think its pretty obvious. Most of our contributions run directly to the federal government and most of the benefits from being a US citizen directly back. And there is a substantial degree of similarity across states and cities that prevent arbitrage opportunities from damaging the system.

There are plenty of good arguments to be made about whether the internationalist or the nationalist perspective is more compelling, but to pretend that the national distinction is simply arbitrary... please, I think it deserves a little more respect.

but virtually all of them think it's still perfectly acceptable to discriminate based upon an equally uncontrollable and irrelevant factor--the location of their birth.

Nathan, that's incorrect. It is uncontrollable, but it isn't irrelevant. To begin with, following P.F. Strawson, I'd argue that a truly objective outlook is impossible. How much I like a person is in some measure a function of how easily I can identify with them, which perforce means that people who are similar to me in feelings and outlook get preference. Further, my interests are more likely (though not certain) to converge with those who are similar to me in outlook.

This does not preclude my recognition that some forms of differentiation or gradient are, in fact, counter-productive to me because they actually arbitrarily divide me from people who actually are quite similar to me in outlook, bar some simple arbitrary characteristic like skin color. But that doesn't mean that I have the same amount of commonality or congruence with every human being on earth. Plenty have attitudes or feelings that I find loathsome or inimical to my interests, and borders are a simple (if far from perfect) heuristic.

To continue that thought, the notion that With politicians, the question is always "Is it in the national interest to do xyz? is quite false.

Politicians are interested in doing what it takes to get the most votes possible. If that means screwing over the wolves via taking bribes (i.e. campaign contributions) from the lamb, and to use that money to persuade voters to vote for them, then that is what they will do. Alternatively if it means slow roasting the lamb in order to get the wolves to vote for the politician in question, then they will do that.

Politicians have a remarkable ability to rationalize most anything to themselves and to voters alike. This is a far cry from saying they have any form of moral right to do so.

replace Once you realize that, the reason why we prefer the welfare of our fellow citizens to that of non-citizens is obvious:

The people in your country are the people who would fight on your side.

with this

Once you realize that, the reason why we prefer the welfare of our fellow race to that of other races is obvious:

The people in your race are the people who would fight on your side.

and you have the exact reasoning why apartheid was implemented in South Africa.

I would advocate Peter and Jose stomping the mud out of Joe, but that would weaken an already small market.

Italics off.

"Hmmmmm" seems to be saying that the entire concept of the nation-state, and national borders, is inherently racist.

"Wild Pegasus" seems to be saying that because civil wars and conflict have occurred throughout history, it is *equally* likely that one's fellow national citizen would kill their countrymen as defend them in war against other countries - and that since *permanent* national cohesion is impossible, ergo, any attempt to defend national cohesion is pointless.

Autism applied, indeed.

I know there are some kooky nationalists who think that the nation really is the morally relevant moral community. But moral relevance is only part of the story. As a liberal internationalist, I support trade in principle because I’m fairly confident that it will increase total welfare worldwide. But, morality aside, there are important political reasons for caring about the effect of trade on national welfare. To the extent one can convince either political party that a certain policy is good for national welfare, it will be hard for that political party to oppose the policy. If a policy is apparently bad for national welfare, even if it’s a morally good policy, it’s going to be hard to convince either party to support the policy.

Which raises an interesting political/moral/intellectual question: If reason tells you that a policy is bad for national welfare, but you believe it’s a morally good policy, is it right to attempt to downplay valid arguments that the policy is bad for national welfare? If trade is bad for national welfare, is it right to tell the “noble lie† that trade is good for national welfare? Is it right to deliberately use the wrong model to analyze it? If you’re not sure which model is right, is it right to choose based on which model gives a politically convenient answer? Is it right to refuse to ask the question because the answer is politically inconvenient?

I'm a little wary of *anyone* who claims to be instructing us in how to attain the Greatest Good For Us All. And didn't libertarian economists used to specialize in reminding us of the value of self-interest?

Self interest as defined by your self as an individual, yes. Self interest as defined by your race or nationality, no.'

So logically the smart thing to do is import more people who have no faith in Anglo-American concepts of individuality and personal responsibility, and who have little respect for the law to boot. Certainly, La Raza, MEChA, and countless other Hispanic advocacy groups and political lobbies would agree that importing and granting citizenship to tens of millions of Latin Americans is a wonderful way of minimizing ethnic self-interest.

I feel a much stronger kinship to the illegal immigrant Jose's down at my local Hope Depot than I do for the Steve Sailers of the world

I'm sure you do. I'm equally certain they feel the same way about you as you are passing them by in the check-out line. I'm also certain you will find much common ground with their native-born children, who are largely uneducated and who possess little of their parents' Third World work ethic, and who are prone to crime, gang activity, government dependency, illegitimacy, and voting liberally.

I guess the open-borders crowd has finally taken notice of the fact that Latin America is truly a libertarian's paradise, a place where class warfare is all but unknown and populism is given no quarter by those famously individualistic Latinos.

Autistic indeed.

Yes, autistic indeed, gringo.

An important part of concepts like individuality and personal responsibility include respecting the rights of - and therefore refusing to commit violence against - peaceful individuals who happen to disagree with you politically.

Well great, but when did I ever advocate violence? That is a very obvious straw man....

Or perhaps you would be in favor of deporting the already-legally immigrated racial and ethnic groups who happen to have the attributes you dislike?

...followed, in short order, by an ad hominem attack.

I don't think Alex is doing his side (which, btw, I generally root for) any favors by playing universalist moral philosopher. Wouldn't economists do better to be modest, admit that they don't know everything, and make humble small-scale suggestions? I note that the subhead of MR is "Small steps towards a much better world" ...

Come on, Micha, you're being ridiculous. Try out the freshman philosophy 101 debating tactics somewhere else.

"seem to have no problem forcefully deporting/forcefully blocking entrance to illegal immigrants for their political beliefs or group characteristics."

I can't speak for Tommy, but that is not why I want to block entrance to illegal immigrants. I want to block entrance to illegal immigrants - through the use of "violence" (also known as border defense) - because I believe my citizenship has value and I want people to respect the laws of this land - all of them. I am married to an immigrant and we did it the legal way. I believe borders are not just "arbitrary lines" - they have meaning and value and need to be enforced.

You have missed Rodrik's point. In addition to what Conchis said, I would point out the due process (i.e., procedural fairness) issue as well.

Are nations as relevant moral communities "arbitrary" like Alex argues? After all, borders are nothing more than pyschological constructs.

This isn't exactly an argument against nations. The family is arbitrary too. Why should one help their brother or sister before some random individual somewhere else?

But strictly speaking, the fact that Alex is alive is arbitrary. He is nothing more than a bizarre collection of atoms, the result of a random connection between a particular sperm and a particular egg. I say, the very existence of Alex is arbitrary.

Whether something is arbitrary or not is not the question. Because the answer is that many things in life are in fact arbitrary. Yes, the border between Canada and the United States could be drawn differently. Yes, Cuba could be a state, rather than a foreign country. Yes, borders are arbitrary.

But here is the thing. We humans work better when we cooperate and help each other. But the thing is, it is not realistic to expect one person to be in charge of everyone who needs help. It is as though you were walking through a major city, determined to help all the homeless. Do you think you could help them all? Obviously not. But isn't selecting one particular individual to help but not others, arbitrary? Yes it is. But if you don't do so, the result is that you don't help anyone.

Community makes us stronger. But to have community, there have to be defined borders. You can't provide equal help to everyone (because in that situation, you couldn't afford to provide any help to anyone). Thus, for community to work, there have to be boundaries.

Another factor to take into consideration is reciprocity. If I select a subset of people to help, then those same people can help me. Obviously, I am not going to be able to build a network that includes absolutely everyone.

This is not an argument against internationalism. I do think that as a nation becomes prosperous and the level of need of its own citizens is low relative to the need of people in other countries, it makes sense to extend the moral community in various ways.

It should be noted that the term "moral community" is a misleading one, to the extent that it seems to designate a binary construct, one where you are either part of or not part of. But really, this is a matter of degree. Members of your family might have take priority over fellow citizens, who in turn might take priority over citizens of other countries. It is not the case that the "moral community" does not include citizens of other countries, as much you have to have priorities.

Here is a thought experiment. What if the family were abolished? It is an arbitrary construct anyway. Would people be better off if everyone enjoyed a precisely equal position within our individual "moral communities?"

The answer is no. It turns out, that if:
X1, X2, and X3 all give priority to each other while Y1, Y2, and Y3 all give priority to each other while Z1, Z2, and Z3 all give priority to each other that everyone is better off than in situations where X1 gives equal priority to everyone else in the whole entire world. We all need people we can depend on. People who will show us more consideration than a stranger.

The nation is just an extension of the family. In an ideal world, the citizens of each nation would give each other priority, and everyone is better off since people have focused their efforts and also benefit from reciprocal networks of relationships.

All this is to say that Alex has not really made anything more than a superficial argument. Yes, borders are arbitrary. But that is not an argument against them! The question is whether we are better off or worse off with borders and defined responsibilities to each other. Of course, we should always be open to the expansion of the relevant moral community, especially as we become ever more prosperous and more able to help others.

For Alex to make a valid argument, he would have to explain why nation-states are not useful. It is no argument to merely say that borders are arbitrary.


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