Interstate Protectionism

Austrian Economist Russell Roberts was gracious enough to visit my blog and leave a comment.  Though our disagreement is fundamental - really, we seem to live in different worlds - I appreciate the participation.

Adam Ozimek of MODELED BEHAVIOR, on the other hand, has not seen fit to acknowledge my comment on his blog.  It's been over a week now, so it doesn't like like he's going to.  I haven't read Ozimek extensively, but it appears his world is closer to Roberts's than to mine.  In fact, I found CAFE HAYEK by following his link.

Here is his post, where he quotes Roberts.  My comment (with typos correct) follows.

Which of us lives in your world?

One way criticize someone’s reasoning is by showing that if followed through it leads you to absurd conclusions. The occasional radical will simply bite the bullet and accept the absurd, often ridiculous, conclusion, but by and large people will change their reasoning, or just refuse to accept logic. Protectionists in the State of New Jersey have decided to eagerly bite the bullet.

A popular argument against protectionism is that if you follow the logic through, it implies you should have protectionism between states. Here is Russ Roberts laying it out:

If it’s true that theory and evidence in favor of protectionism are sufficiently strong to warrant economists abandoning their conclusion that free-trade policy is generally sound, then why shouldn’t economists… also start exploring the potential benefits of intra-national protectionism?  Surely a scholar not benighted with the free-trade “faith” ought to take seriously the possibility that, say, Tennesseeans could be made wealthier if their government in Nashville restricts their ability to trade with people in Kentucky, Texas, Rhode Island, and other states?

The usual protectionist defense rejects this absurd conclusion via some argument about differences in laws and institutions… or something like that. New Jersey’s protectionists, on the other hand, have decided to bite the bullet and are actually embracing the idea that interstate protectionism can make them better off. State legislators are trying to pass a law that mandates that all public servants must be New Jersey residents. The impacts would be far reaching:

The bill would affect teachers, firefighters, police officers, and all other employees of state, county, and local governments, as well as public authorities, boards, agencies, commissions, and state colleges and universities. Both full-time and part-time employees would be affected.

What’s great about this is that it really illustrates the flaws of protectionism that are often unintuitive when it occurs between nations. The tradeoffs you face are much clearer when the town you live in can’t hire the most qualified firefighters and teachers, and instead you’re left less qualified individuals who wouldn’t have gotten hired if they didn’t happen to live on the right side of the state line. If you want protectionism in your schools and public services,  you’re going get lower quality schools and public services.

My Comment:

Unfortunately, if your logic isn’t perfect, you end up with straw men.

What you’re presenting is wrong on many levels.

While a population of limited size and resources might not have the critical mass to contain highly-qualified teachers and firefighters, it’s silly to suggest that of NJ.

A Residency requirement is a very specific and limited example of protectionism – if it even qualifies at all, which I am not ready to concede. Protectionism is used to stabilize economic entities that might not survive broad competition. Residency requirements are usually promoted for a different rationale. This looks a whole lot like Ray Bolger to me.

The States are — you know — UNITED.  For one thing, they can’t manipulate their currencies relative to one another, like China does. For another, States have common goals in a way that any grouping of countries – even the E.U – does not.

Besides, Roberts makes no attempt to drive a proposition to it’s logical conclusion. He merely asks a question.

What a disappointing presentation this post is.

Wie Schade,

JzB

I'll add that many big cities, including New Jersey's near neighbors New York and Philadelphia, have residency requirements for their public servants.  The economics of residency are pretty trivial.  The rationale is primarily based on being a part of the community you serve.

So, whose world do YOU live in?

Update, 3/22:

I comments, below, I point out that protectionism is a zero-sum game.  Here is Keynes on that topic, in 1932.  (Emphasis added.)  H/T to Delong.

The competitive struggle for liquidity has now extended beyond individuals and institutions to nations and to governments, each of which endeavors to make its internal balance sheet more liquid by restricting imports and stimulating exports by every possible means, the success of each one in this direction meaning the defeat of someone else.  Moreover, each country discourages capital development within its own borders for fear of the effect on its international balance. Yet it will only be successful in its object in so far as its progress toward negation is greater than that of its neighbors.