Angry Bear and other economic blogs have recently had some posts on free trade… and whether there should be limits to free trade. The typical example – if the other side imposes tariffs or doesn’t “play fair” – should we? I personally haven’t made up my mind on that particular issue. But I am against “free trade” if its just a way to facilitate the imposition of externalities on third parties. (E.g., if a company moves to Mexico for no other reason than that Mexico has more lax pollution standards.)
To all of that, the folks at Naked Capitalism have a post that throws
loss aversion into the mix:
Even in games involving small amounts of money, researchers have found that most participants exhibit loss aversion: they don’t like to participate in games where they might lose everything they have, or worse, wind up with a loss, even if the odds are stacked in their favor. While that might be irrational when small amounts are involved, it isn’t crazy at all if you are talking about sums that are significant relative to one’s financial health.
So in other words, the average American would not take a bet that would give him a $10,000 gain if he might lose his job. Indeed, the lab examples tell us he’d need an expected gain of several multiples of his wages and benefits to willingly take that bet.
But per above, that is the tradeoff that economists tell us that more open trade is creating. That’s why people who are exposed to the real possibility of job loss are so skeptical of free trade. And as outsourcing makes people who were heretofore protected, like lawyers and bankers, also vulnerable, expect the resistance to become more broad based.
Throw in the fact that the winners and the losers are often different people, and regionally concentrated, and the whole fear factor becomes self-reinforcing and rational.
That said, I would note… I think Americans were almost unanimously in favor of free trade from the end of WW2 to about the 1970s. It probably had something to do with the fact that it was the US beating the pants off everyone else, and it was foreigners losing their jobs.