In this chapter we really got into comparative
advantage and gains from trade. We highlighted the benefit of
trade, and showed that it works BOTH on the micro (individual) and
macro (economy) level. Often the discussion of free trade is
contrasted by comparing to its logical opposite,
"protectionism". "Protectionism" is an idea that certain
domestic industries should be protected (from new products or
foreign producers) in order to ensure that their employees aren't
negatively impacted. Those who favor protectionism have very
good intent, but it is almost universally viewed as bad for
economic welfare by professional economists.
There are multiple factors at work here. First, there's a
concept called "Creative Destruction". Creative Destruction
is the concept that new technology disrupts the existing model so
much that old industries will be replaced with new industries.
(Think the automobile industry destroying the horse and horse
related business, the computer destroying the typewriter, the
digital camera destroying film, Streaming video replacing VHS,
etc). The creation of the new improved product DOES displace
those who are in the old industry. It IS harmful to those
impacted. However, there is clearly a benefit from the
newer, improved product to society as a whole. With each
evolution, societal welfare has improved, but it costs some their
jobs (until they can be retrained and utilized elsewhere).
Both trade and creative destruction causes a reorganization
of resources and people. It's destructive, but powerful.
Question #1)
If you were an economic advisor, briefly (one paragraph) explain
which of the following would be your primary economic goal:
Protecting existing jobs and industries or
improving societal welfare? How could
you economically explain your position?
Hint: One wonderful historical critic of protectionism
is Frederic Bastiat (a French Economist from early 1800s). He
took protectionism to an extreme in his satirical writing "Candle
Maker's Petition". Read the article Bastiat's
Candle Maker Petition that highlights the flaw of
protectionism when taken to the extreme. (Or if you can make
a sound counter-argument, please do so). Bonus points if you
can tie this to a Simpsons episode!
Question #2)
Watch this 3-minute Video on Creative Destruction.
Identify a market that has been fundamentally changed due to
creative destruction (not one mentioned in the video).
Explain how the negative impacts are often more visible than
the positive impacts.
Please answer both questions for this discussion.
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