Seeing Beyond the Immediate

Annette Peterman: Period 3: Honorbound

Why do people oppose what helps them? In Naked Economics, Charles Wheelan brings up an important point “even when economists reach consensus on policies that would make us better off, those policies often run into a brick wall of political opposition” why? [1]. The simple answer is that people seek to maximize their personal utility, not the good of the economy. This can be seen perfectly when it comes to foreign trade. People oppose international trade deals, such as NAFTA, because they focus on the loss of jobs and fail to recognize the economic benefits.

The North American Free Trade Agreement, between the United States, Mexico, and Canada, created the world’s largest free trade area and links 450 million people. Trade is vital to an economy, it “makes the most efficient use of the world’s scarce resources” and helps to prevent the loss of efficiency [2]. Trade also facilitates the exchange of technology, innovation, and developments between countries, allowing for further advancement in all fields.

However, despite generating around $20.8 trillion, many people view NAFTA in an unfavorable light. Paul Krugman states that “You could say- and I would- that globalization, driven not by human goodness but by the profit motive, has done far more good for far more people than all the foreign aid and soft loans ever provided by well-intentioned governments and international agencies. But in saying this, I know from experience that I have guaranteed myself a barrage of hate mail” [3]. Why is this? It seems obvious that people would not oppose something that brings them so much economic successes in the long run. However, people do not think in the long run, like Charles Wheelan says, “In the long run, international trade is a powerful force for good; in the short run, it has victims” [4].

Unfortunately, the minds of the public are for the most part limited to what happens immediately to them. Therefore people dislike international trade, because they only see that it has costed them US jobs. Are they wrong? No, “competition from Mexican firms has forced many U.S. firms to relocate to Mexico in search of cheaper labor”, which has cost around 500,000-750,000 American jobs [5]. This angers many Americans, however, they fail to take into account the fact that “the agreement has quadrupled trade between the three countries and boosted U.S. growth by as much as 0.5 percent a year, creating around 5 million new jobs” [6]. This makes unemployment a completely invalid argument against NAFTA, because it has actually increased employment by about 10x what it loses. However, people fail to look at the long run positive effect of NAFTA and instead focus on what they can criticize: the short run effects.

 

1- Charles Wheelan, Naked Economics: Undressing the Dismal Science (New York: W.W. Norton & Company, 2010).

2- Ibid.

3- Ibid.

4- Ibid.

5- “Do NAFTA’s 6 Pros Outweigh Its 6 Cons?” The Balance. Accessed March 28, 2017. https://www.thebalance.com/nafta-pros-and-cons-3970481

6- “NAFTA’s Impact on the U.S. Economy: What Are the Facts?” Wharton: University of Pennsilvania. Accessed March 27, 2017. http://knowledge.wharton.upenn.edu/article/naftas-impact-u-s-economy-facts/

 

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