23 May 2011

Omnia mutantur

The Big Questions | Steven Landsburg | Who Owes Whom?

Under the headline “Ultimatum Holding Up Trade Deals”, the New York Times reports that:
The Obama administration said on Monday that it would not seek Congressional approval of free trade agreements with Colombia, Panama and South Korea until Republicans agree to expand assistance for American workers who might lose jobs as a result.
I have said this before and I will say it again: Anybody who loses his job because of a free trade agreement was overpaid to begin with. The $20-an-hour American who loses his job to a $5-an-hour Colombian is an American who has spent the past few years charging his countrymen twenty dollars for something they ought to have been able to buy for five.
I'd never thought about it quite like that, though I have had similar thoughts about unemployment (and especially the way unemployment insurance is organized).

Companies are often pilloried for laying people off. Paradoxically, they seem to be more heavily criticized the longer their workers have been employed. And woe to the firm which fires people whose parents (well, fathers only, in practice) also worked for the same firm.

I think this is a special sort of status quo bias.  What the firm is doing when firing people is not upsetting the state of nature, it is returning to it.  People see the resting state of the system as "however things were yesterday" and so firing people is a shift away from "the ways things ought to be."  But the natural state is to not be engaging in a particular trade.  There are uncountably many transactions that could be occurring in the economy; the default state is for each of them to not be occurring.  It is the hiring and continued employment that are the aberration, not the termination of employment.

I know emotions are high when jobs are terminated, but as impartial bystanders we should not blame companies for ending employment, we should be happy they created it in the first place.

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