jmherbenerThe “economy” is all of us cooperating by arranging our resources in a division of labor by which each person produces to satisfy the consumption ends of other people and has his consumption ends satisfied by them. What improves the economy, then, is letting people self-select into different tasks under entrepreneurial organization of teams of producers. Entrepreneurs can use economic calculation to determine which techniques of production are lower cost and which set of consumer goods are higher valued. If everyone self-selects into their area of efficient production, then we can produce the greatest output with our given inputs. What harms the economy is violent interference with this self-selection process. Protectionism uses state coercion to criminalize trade between people that is perfectly licit, e.g., buying and selling clothes. When the state criminalizes trade in textiles, then less efficient textile producers continue to specialize in that area instead of their area of efficiency and more efficient textile producers must specialize in areas in which they are not efficient. With our given resources, we can produce less output. While protected textile workers may be better off, society is worse off. State coercion has forcibly transferred wealth from non-protected to protected workers. (For consumers to pay the higher prices for clothes which allows higher wages for inefficient textile workers, consumer must decrease their demands for other goods which suppresses wages of efficient workers in other industries.) This is not only immoral, it is inefficient. Furthermore, where does the application of protectionism end. if it’s good to protect textile workers, why not workers in other industries? According to the protectionist logic, then, it would be better if Americans consumed only what Americans produced and, with the same logic, it would be better if Pennsylvanians consumed only what Pennsylvanians produced, and so on down to self sufficiency for each person. At that point, each person would have all the jobs for himself, but his standard of living would be subsistence.
Take a look at Henry Hazlitt’s book, Economics in One Lesson:
http://library.mises.org/books/Henry%20Hazlitt/Economics%20in%20One%20Lesson.pdf