Freeman

ARTICLE

Blockading Ourselves

FEBRUARY 01, 1989 by T. NORMAN VAN COTT, CECIL E. BOHANON

Professors Bohanon and Van Cott teach in the Department of Economics at Ball State University, Muncie, Indiana.

Blockading enemies is a standard wartime tactic. The objective, of course, is to prevent an adversary from trading with other countries. At the same time, warring nations try to keep their own seaports open. In light of this centuries-old wartime tactic, it is curious that nations at peace regularly blockade themselves by pursuing policies which restrict imports. The irony of nations turning a wartime weapon on their own citizens during peacetime has escaped attention in the flood of recent commentary on international trade.

One might object to this wartime/peacetime contradiction on the grounds that it is an imperfect analogy. Note, however, that the goals of wartime blockades and peacetime import restrictions are similar in that both seek to prevent foreign goods from entering a particular market. Logical consistency implies that if wartime blockades hurt enemies, peacetime restrictions hurt our own economies. Alternatively, if peacetime restrictions improve a nation’s economic strength, wartime blockades are treasonous.

A Lesson from U.S. History

During the U.S. Civil War, the North blockaded the major seaports of the South. Historians generally agree that the South’s economic strength was sapped by the blockade. Entering and leaving Confederate seaports became more costly, usually requiring the skills of blockade runners.

The adverse economic effects of the blockade on the South were twofold. First, the blockade made imported goods less available, so that the Confederacy had to eliminate certain uses to which imports heretofore had been put. The resources the Confederacy previously had been using to pay for these imports had to be redirected to less-preferred goods. Second, the imports that did slip through the blockade came at a greater cost. More costly imports meant the Confederacy had to send more of its production to foreigners as exports to obtain these imports.

Today’s media pundits sing the praises of exports and consistently denigrate imports. Fortunately for the North, Abraham Lincoln and his Secretary of the Navy, Gideon Welles, knew better. The purpose of the blockade from the North’s point of view was to reduce the Confederacy’s access to imports. Admittedly, the North also tried to prevent Confederate exports when, for example, it intercepted cotton-laden ships bound for England. But these export interruptions served the North’s interest only because they reduced the Confederacy’s ability to pay for imports. The North surely would have been willing to permit Confederate exports, provided it could have completely eliminated Confederate imports. Popular wisdom aside, exporting without importing is counter to a nation’s well-being; it reduces the availability of goods and services to the inhabitants.

From the time of Adam Smith and David Ricardo, economists have carried the torch for free trade. It is common to hear people say that economists have won all the formal debates on the subject, but have been steady losers in the political arena. Curiously, economists have not trumpeted the fact that governments’ wartime actions are consistent with the free-trade doctrines of Smith and Ricardo. Perhaps the economists’ reticence reflects what Milton Friedman, in The Optimum Quantity of Money and Other Essays, describes as a tendency among economists “to discard war years as abnormal.”

We submit, however, that government officials’ wartime actions should not be overlooked. Indeed, the contradiction between their wartime and peacetime actions can be explained in terms of the first principles of economics. These same principles suggest, moreover, an important consideration if the dream of free trade is to become a reality.

Why do government officials behave as they do? The personal benefits and costs to politicians obviously play a key role. Peacetime import restrictions benefit politicians because they can confer privileges on domestic industries that are facing foreign competition. Politicians bear little personal cost because consumers harmed by the restrictions are spread throughout the economy and are too unorganized to be politically important. Politicians cover their tracks with rhetoric to the effect that imports “weaken the economy,” “deter economic growth,” and “destroy jobs.”

However, if one believed this political rhetoric, one would never suggest a wartime blockade. Quite the opposite—a better wartime strategy would be to encourage neutral nations to trade with your enemies. Indeed, why not subsidize your own citizens’ trade with enemy nations, since it supposedly saps your enemies’ economic strength?

Any schoolchild, of course, can see the folly of this logic. Such policies risk national disaster, which in this case translates into personal disaster for the policy-makers. For this reason, the lessons of Smith and Ricardo necessarily loom large in the calculations of wartime politicians. When viewed in this perspective, the contradiction becomes more understandable.

At the risk of belaboring the wartime/ peacetime imagery, the contradiction is similar to the foxhole religious conversions that occur during every war. Soldiers under heavy fire promise God they will “walk the straight and narrow” if God will get them out of their predicament. Once safe, however, they return to their “backsliding” ways. So it is with government officials and international economic policy. Peace reduces their personal costs of acting contrary to national economic efficiency.

Raising the Costs

Aside from pointing out the logical inconsistency of protectionist rhetoric, what does the foregoing tell us? Perhaps the salient point of the contradiction relates to how personal costs influence government policy-makers. This in turn suggests that the path to reform of international economic policy must go beyond merely explaining the economics of trade, as desirable as this may be. That is, essential to international economic reform is the idea that peacetime protectionism must be personally more costly to government policy-makers. It is quite likely that reform along-these lines encompasses changes that are of a quasi-constitutional or constitutional nature.

ASSOCIATED ISSUE

February 1989

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