Bartering has been around since before the wheel was invented. We call it trading these day. Or simply, buying. We all buy stuff. We trade money for things. And lot’s of times, depending on the item, we haggle over how much.
During my first year in college, I lived in a dorm. It was a fraternity. To live on that floor, you had to belong. So I belonged. It was a long dorm floor with at least 15 rooms on each side of the hall, two frat heads per room.
One evening in the middle of the semester as I was in a colleague’s room (studying the functions of a chem-lab made water pipe), I was admiring a shirt he had hanging on his chair. I tried it on and it fit me like it was mine. Then, I asked him if he was interested in trading a clothing item I had for said shirt. After a “depends on what” answer, I went across the hall to my room and gathered several items that I was willing to trade. When I returned and gave him a choice, I think he took a sweater. We were both happy with our new items.
Another guy in the room happened to like one of the other items I brought with me and said he was going to his room to get something I might be interested in so that he could trade for the item he liked.
Within 10 minutes, about a dozen guys from the adjoining rooms were all out in the hallway, everyone with several items they wanted to trade for something new. Within about 30 minutes, most rooms in that dorm had emptied out and the hallway resembled a used flea market, with piles of clothes spread out from one end to the other. Even some from other floors joined in. That evening turned into one huge trading session.
Everyone took away something new and for the most part, many more people were content than not. There were no restrictions. No one from another floor lobbied to the frat leaders that their interests needed to be protected.
Prior to NAFTA being signed to include Mexico, there was a public debate about what open trade with our southern neighbor would do to many businesses in the U.S. Many lobbied that we should not open trade, claiming that free trade would harm our domestic industries. The most famous opponent at the time was Ross Perot. He declared that if NAFTA passed there would be a “giant sucking sound” of jobs flowing from the U.S. to Mexico. He was right. A vivid example was the clothing industry. Tens of thousands of jobs almost immediately disappeared and flowed south of the border.
But a funny thing happened. Over the next few years, our unemployment rate actually went down. Those who lost jobs to Mexican workers found other jobs. In most cases, they found other higher paying jobs. In the case of the apparel assembly, which requires low skill labor, Perot was arguing that we should keep low skill (non) expertise in the U.S. He didn’t want to export low skill. He didn’t want to trade low skill away for higher skill. He thought and believed that we should protect all those low skill jobs for the sake of jobs.
The same thing is happening all the time. During the first month I moved to New York (10 years ago) from Africa, GV and I ran into a large demonstration/parade. Part of Park Avenue was closed. The very loud demonstrators were calling for an end to international trade. They were arguing for protection. And they were fervent. Most looked very granola, but their views felt stale.
A story I heard an Economics professor stuck with me for years. I’m paraphrasing because I don’t remember it exactly. It goes something like this: “Thousands of years ago there were two cities called Froy and Tarta. They were about 100 miles apart separated by a treacherous desert. Nevertheless, people still traveled back and forth on a limited basis to trade items risking that their return would be worth the trip. Finally one year the rulers of both cities got together and decided to invest in building a highway between both cities to make travel and commerce easier for everyone. It was a win/win agreement. There seemed to be no downside. Once the highway was completed people could travel much easier, safer, cheaper.
Froy had excellent sword makers. They made the finest swords found anywhere. The extremely high quality made them desirable. As the market for their services in Froy was somewhat limited, they started taking their swords to Tarta along the new highway. Tarta was happy to buy the swords as Tarta had no one who could make swords like those of Froy.
However, even though their swords were not quite the quality of Froy’s swords, the sword makers in Tarta were unhappy. Once Froy’s swords were available in Tarta, the demand for their swords started to diminish. They got upset. They then hired a lobbyist who went to the rulers to argue that the sword industry of Tarta was being harmed and therefore, Tarta was being harmed. They spent a lot of time and money lobbying the rulers saying that the easy access of swords from Froy had left some sword makers in Tarta without work and that this was not in Tarta’s national interest.
Finally, given to lobby pressure, Tarta’s rulers decided to build several roadblocks along the new highway, making it much more difficult for the sword wagons to make the trip.
About the same time, the robe makers of Tarta, who made exquisite robes, started taking their robes to Froy. The people of Froy were happy to buy the robes from Tarta. When the rulers of Froy heard about the new roadblocks constructed by Tarta to inhibit the movement of swords, they retaliated and built roadblocks to make it difficult for Troy’s robe makers.
The retaliation ping pong’d across several other industries until the beautiful new highway that both cities had invested in were now littered with roadblocks.” A cute story but relevant. When we restrict trade, costs go up and we all end up paying.
The same holds true for any industry wanting protection. Protecting one group always means that another will pay. If we protect those making cars in one country, the balance of society not involved in car making will pay. We rarely connect with the collateral harm when we reach out to protect someone yelling harm.
The same holds true with employment. When we hire ourselves out, we are trading our labor for income. When we demand more; i.e., artificially protect our worth, (unions anyone?), costs go up for everyone, and to a certain extent, we put a cap on trading up. Its often a softer, wider, net cast over those who don’t realize the residual (and mostly inefficient) added costs.
Some countries have gone so far as to eliminate anything foreign in an effort to reverse protect. Think Zimbabwe. And it wasn’t too long ago that Peru’s new government threw out all things foreign, prohibited even the use of English. Both more vivid examples of countries who took giant leaps backwards, protecting a few at the expense of many. Openly trading down.
With all the medical bills I’ve had over the last year, I’ve given in to trading my time trying to negotiate some of them down. Sometimes it’s just trading immediate payment for reduced balances. (señor stryker contributed good help here). The trades don’t always work.
As a country, we want to protect jobs. The crazy thing is that there are many jobs out there crying to be filled. But our qualifications don’t match the requirements. Instead of spending the money and effort to be better sword makers, Tartans decided to protect their limited ability. They did what Ross Perot wanted to do — protect lower skill at the expense of trading up.
Now I ask you, what do you want to trade?