comparative advantage

Unpaid work and the double burden

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Apr 16, JDN 2457860

When we say the word “work”, what leaps to mind is usually paid work in the formal sector—the work people do for employers. When you “go to work” each morning, you are going to do your paid work in the formal sector.

But a large quantity of the world’s labor does not take this form. First, there is the informal sector—work done for cash “under the table”, where there is no formal employment structure and often no reporting or payment of taxes. Many economists estimate that the majority of the world’s workers are employed in the informal sector. The ILO found that informal employment comprises as much as 70% of employment in some countries. However, it depends how you count: A lot of self-employment could be considered either formal or informal. If you base it on whether you do any work outside an employer-employee relationship, informal sector work is highly prevalent around the world. If you base it on not reporting to the government to avoid taxes, informal sector work is less common. If it must be your primary source of income, whether or not you pay taxes, informal sector work is uncommon. And if you only include informal sector work when it is your primary income source and not reported to the government, informal sector work is relatively rare and largely restricted to underdeveloped countries.

But that’s not really my focus for today, because you at least get paid in the informal sector. Nor am I talking about forced labor—that is, slavery, essentially—which is a serious human rights violation that sadly still goes on in many countries.

No, the unpaid work I want to talk about today is work that people willingly do for free.

I’m also excluding internships and student work, where (at least in theory) the idea is that instead of getting paid you are doing the work in order to acquire skills and experience that will be valuable to you later on. I’m talking about work that you do for its own sake.

Such work can be divided into three major categories.
First there is vocation—the artist who would paint even if she never sold a single canvas; the author who is compelled to write day and night and would give the books away for free. Vocation is work that you do for fun, or because it is fulfilling. It doesn’t even feel like “work” in quite the same sense. For me, writing and research are vocation, at least in part; even if I had $5 million in stocks I would still do at least some writing and research as part of what gives my life meaning.

Second there is volunteering—the soup kitchen, the animal shelter, the protest march. Volunteering is work done out of altruism, to help other people or work toward some greater public goal. You don’t do it for yourself, you do it for others.

Third, and really my main focus for this post, is domestic labor—vacuuming the rug, mopping the floor, washing the dishes, fixing the broken faucet, changing the baby’s diapers. This is generally not work that anyone finds particularly meaningful or fulfilling, nor is it done out of any great sense of altruism (perhaps toward your own family, but that’s about the extent of it). But you also don’t get paid to do it. You do it because it must be done.

There is also considerable overlap, of course: Many people find meaning in their activism or charitable work, and part of what motivates artists and authors is a desire to change the world.

Vocation is ultimately what I would like to see the world move towards. One of the great promises of a basic income is that it might finally free us from the grind of conventional employment that has gripped us ever since we first managed to escape the limitations of subsistence farming—which in turn gripped us ever since we escaped the desperation of hunter-gatherer survival. The fourth great stage in human prosperity might finally be a world where we can work not for food or for pay, but for meaning. A world of musicians and painters, of authors and playwrights, of sculptors and woodcutters, yes; but also a world of cinematographers and video remixers, of 3D modelers and holographers, of VR designers and video game modders. If you ever fret that no work would be done without the constant pressure of the wage incentive, spend some time on Stack Overflow or the Steam Workshop. People will spend hundreds of person-hours at extremely high-skill tasks—I’m talking AI programming and 3D modeling here—not for money but for fun.

Volunteering is frankly kind of overrated; as the Effective Altruism community will eagerly explain to you any chance they get, it’s usually more efficient for you to give money rather than time, because money is fungible while giving your time only makes sense if your skills are actually the ones that the project needs. If this criticism of so much well-intentioned work sounds petty, note that literally thousands of lives would be saved each year if instead of volunteering people donated an equivalent amount of money so that charities could hire qualified workers instead. Unskilled volunteers and donations of useless goods after a disaster typically cause what aid professionals call the “second disaster”. Still, people do find meaning in volunteering, and there is value in that; and also there are times when you really are the best one to do it, particularly when it comes to local politics.

But what should we do with domestic labor?

Some of it can and will be automated away—the Parable of the Dishwasher with literal dishwashers. But it will be awhile before it all can, and right now it’s still a bit expensive. Maybe instead of vacuuming I should buy a Roomba—but $500 feels like a lot of money right now.

Much domestic labor we could hire out to someone else, but we simply choose not to. I could always hire someone to fix my computer, unclog my bathtub, or even mop my floors; I just don’t because it seems too expensive.
From the perspective of an economist, it’s actually a bit odd that it seems too expensive. I might have a comparative advantage in fixing my computer—it’s mine, after all, so I know its ins and outs, and while I’m no hotshot Google admin I am a reasonably competent programmer and debugger in my own right. And while for many people auto repair is a household chore, I do actually hire auto mechanics; I don’t even change my own oil, though partly that’s because my little Smart has an extremely compact design that makes it hard to work on. But I surely have no such comparative advantage in cleaning my floors or unclogging my pipes; so why doesn’t it seem worth it to hire someone else to do that?

Maybe I’m being irrational; hiring a cleaning service isn’t that expensive after all. I could hire a cleaning service to do my whole apartment for something like $80, and if I scheduled a regular maid it would probably be something like that per month. That’s what I would charge for two hours of tutoring, so maybe it would behoove me to hire a maid and spend that extra time tutoring or studying.

Or maybe it’s this grad student budget of mine; money is pretty tight at the moment, as I go through this strange societal ritual where young adults go through a period of near-poverty, overwhelming workload and constant anxiety not in spite but because we are so intelligent and hard-working. Perhaps if and when I get that $70,000 job as a professional economist my marginal utility of wealth will decrease and I will feel more inclined to hire maid services.

There are also transaction costs I save on by doing the work myself. A maid would have to commute here, first of all, reducing the efficiency gains from their comparative advantage in the work; but more than that, there’s a lot of effort I’d have to put in just to prepare for the maid and deal with any problems that might arise. There are scheduling issues, and the work probably wouldn’t get done as quickly unless I were to spend enough to hire a maid on a regular basis. There’s also a psychological cost in comfort and privacy to dealing with a stranger in one’s home, and a small but nontrivial risk that the maid might damage or steal something important.

But honestly it might be as simple as social norms (remember: to a first approximation, all human behavior is social norms). Regardless of whether or not it is affordable, it feels strange to hire a maid. That’s the sort of thing only rich, decadent people do. A responsible middle-class adult is supposed to mop their own floors and do their own laundry. Indeed, while hiring a plumber or an auto mechanic feels like paying for a service, hiring a maid crosses a line and feels like hiring a servant. (I honestly always feel a little awkward around the gardeners hired by our housing development for that reason. I’m only paying them indirectly, but there’s still this vague sense that they are somehow subservient—and surely, we are of quite distinct socioeconomic classes. Maybe it would help if I brushed up on my Spanish and got to know them better?)

And then there’s the gender factor. Being in a same-sex couple household changes the domestic labor dynamic quite a bit relative to the conventional opposite-sex couple household. Even in ostensibly liberal, feminist, egalitarian households, and even when both partners are employed full-time, it usually ends up being the woman who does most of the housework. This is true in the US; it is true in the UK; it is true in Europe; indeed it’s true in most if not all countries around the world, and, unsurprisingly, it is worst in India, where women spend a whopping five hours per day more on housework than men. (I was not surprised by the fact that Japan and China also do poorly, given their overall gender norms; but I’m a bit shocked at how badly Ireland and Italy do on this front.) And yes, while #ScandinaviaIsBetter, still in Sweden and Norway women spend half an hour to an hour more on housework on an average day than men.

Which, of course, supports the social norm theory. Any time you see both an overwhelming global trend against women and considerable cross-country variation within that trend, your first hypothesis should be sexism. Without the cross-country variation, maybe it could be biology—the sex differences in height and upper-body strength, for example, are pretty constant across countries. But women doing half an hour more in Norway but five hours more in India looks an awful lot like sexism.

This is called the double burden: To meet the social norms of being responsible middle-class adults, men are merely expected to work full-time at a high-paying job, but women are expected to do both the full effort of maintaining a household and the full effort of working at a full-time job. This is surely an improvement over the time when women were excluded from the formal workforce, not least because of the financial freedom that full-time work affords many women; but it would be very nice if we could also find a way to share some of that domestic burden as well. There has been some trend toward a less unequal share of housework as more women enter the workforce, but it still has a long way to go, even in highly-developed countries.

So, we can start by trying to shift the social norm that housework is gendered: Women clean the floors and change the diapers, while men fix the car and paint the walls. Childcare in particular is something that should be done equally by all parents, and while it’s plausible that one person may be better or worse at mopping or painting, it strains credulity to think that it’s always the woman who is better at mopping and the man who is better at painting.

Yet perhaps this is a good reason to try to shift away from another social norm as well, the one where only rich people hire maids and maids are servants. Unfortunately, it’s likely that most maids will continue to be women for the foreseeable future—cleaning services are gendered in much the same way that nursing and childcare are gendered. But at least by getting paid to clean, one can fulfill the “job” norm and the “housekeeping” norm in one fell swoop; and then women who are in other professions can carry only one burden instead of two. And if we can begin to think of cleaning services as more like plumbing and auto repair—buying a service, not hiring a servant—this is likely to improve the condition and social status of a great many maids. I doubt we’d ever get to the point where mopping floors is as prestigious as performing neurosurgery, but maybe we can at least get to the point where being a maid is as respectable as being a plumber. Cleaning needs done; it shouldn’t be shameful to be someone who is very good at doing it and gets paid to do so. (That is perhaps the most pernicious aspect of socioeconomic class, this idea that some jobs are “shameful” because they are done by workers with less education or involve more physical labor.)
This also makes good sense in terms of economic efficiency: Your comparative advantage is probably not in cleaning services, or if it is then perhaps you should do that as a career. So by selling your labor at whatever you are good at and then buying the services of someone who is especially good at cleaning, you should, at least in theory, be able to get the same cleaning done and maintain the same standard of living for yourself while also accomplishing more at whatever it is you do in your profession and providing income for whomever you hire to do the cleaning.

So, should I go hire a cleaning service after all? I don’t know, that still sounds pretty expensive.

How we can best help refugees

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JDN 2457376

Though the debate seems to have simmered down a little over the past few weeks, the fact remains that we are in the middle of a global refugee crisis. There are 4 million refugees from Syria alone, part of 10 million refugees worldwide from various conflicts.

The ongoing occupation of the terrorist group / totalitarian state Daesh (also known as Islamic State, ISIS and ISIL, but like John Kerry, I like to use Daesh precisely because they seem to hate it) has displaced almost 14 million people, 3.3 million of them refugees from Syria.

Most of these refugees have fled to Lebanon, Jordan, Turkey, and, Iraq, for the obvious reason that these countries are both geographically closest and culturally best equipped to handle them.
There is another reason, however: Some of the other countries in the region, notably Saudi Arabia, have taken no refugees at all. In an upcoming post I intend to excoriate Saudi Arabia for a number of reasons, but this one is perhaps the most urgent. Their response? They simply deny it outright, claiming they’ve taken millions of refugees and somehow nobody noticed.

Turkey and Lebanon are stretched to capacity, however; they simply do not have the resources to take on more refugees. This gives the other nations of the world only two morally legitimate options:

1. We could take more refugees ourselves.

2. We could supply funding and support to Turkey and Lebanon for them to take on more refugees.

Most of the debate has centered around option (1), and in particular around Obama’s plan to take on about 10,000 refugees to the United States, which Ted Cruz calls “lunacy” (to be fair, if it takes one to know one…).

This debate has actually served more to indict the American population for paranoia and xenophobia than anything else. The fact that 17 US states—including some with Democrat governors—have unilaterally declared that they will not accept refugees (despite having absolutely no Constitutional authority to make such a declaration) is truly appalling.

Even if everything that the xenophobic bigots say were true—even if we really were opening ourselves to increased risk of terrorism and damaging our economy and subjecting ourselves to mass unemployment—we would still have a moral duty as human beings to help these people.

And of course almost all of it is false.

Only a tiny fraction of refugees are terrorists, indeed very likely smaller than the fraction of the native population or the fraction of those who arrive on legal visas, meaning that we would actually be diluting our risk of terrorism by accepting more refugees. And as you may recall from my post on 9/11, our risk of terrorism is already so small that the only thing we have to fear is fear itself.

There is a correlation between terrorism and refugees, but it’s almost entirely driven by the opposite effect: terrorism causes refugee crises.

The net aggregate economic effect of immigration is most likely positive. The effect on employment is more ambiguous; immigration does appear to create a small increase in unemployment in the short run as all those new people try to find jobs, and there is some evidence that it may reduce wages for local low-skill workers. But the employment effect is small temporary, and there is a long-run boost in overall productivity. However, it may not have much effect on overall growth: the positive correlation between immigration and economic growth is primarily due to the fact that higher growth triggers more immigration.

And of course, it’s important to keep in mind that the reason wages are depressed at all is that people come from places where wages are even lower, so they improve their standard of living, but may also reduce the standard of living of some of the workers who were already here. The paradigmatic example is immigrants who leave a wage of $4 per hour in Mexico, arrive in California, and end up reducing wages in California from $10 to $8. While this certainly hurts some people who went from $10 to $8, it’s so narrow-sighted as to border on racism to ignore the fact that it also raised other people from $4 to $8. The overall effect is not simply to redistribute wealth from some to others, but actually to create more wealth. If there are things we can do to prevent low-skill wages from falling, perhaps we should; but systematically excluding people who need work is not the way to do that.

Accepting 10,000 more refugees would have a net positive effect on the American economy—though given our huge population and GDP, probably a negligible one. It has been pointed out that Germany’s relatively open policy advances the interests of Germany as much as it does those of the refugees; but so what? They are doing the right thing, even if it’s not for entirely altruistic reasons. One of the central insights of economics is that the universe is nonzero-sum; helping someone else need not mean sacrificing your own interests, and when it doesn’t, the right thing to do should be a no-brainer. Instead of castigating Germany for doing what needs to be done for partially selfish reasons, we should be castigating everyone else for not even doing what’s in their own self-interest because they are so bigoted and xenophobic they’d rather harm themselves than help someone else. (Also, it does not appear to be in Angela Merkel’s self-interest to take more refugees; she is spending a lot of political capital to make this happen.)

We could follow Germany’s example, and Obama’s plan would move us in that direction.

But the fact remains that we could go through with Obama’s plan, indeed double, triple, quadruple it—and still not make a significant dent in the actual population of refugees who need help. When 1,500,000 people need help and the most powerful nation in the world offers to help 10,000, that isn’t an act of great openness and generosity; it’s almost literally the least we could do. 10,000 is only 0.7% of 1.5 million; even if we simply accepted an amount of refugees proportional to our own population it would be more like 70,000. If we instead accepted an amount of refugees proportional to our GDP we should be taking on closer to 400,000.

This is why in fact I think option (2) may be the better choice.

There actually are real cultural and linguistic barriers to assimilation for Syrian people in the United States, barriers which are much lower in Turkey and Lebanon. Immigrant populations always inevitably assimilate eventually, but there is a period of transition which is painful for both immigrants and locals, often lasting a decade or more. On top of this there is the simple logistical cost of moving all those people that far; crossing the border into Lebanon is difficult enough without having to raft across the Mediterranean, let alone being airlifted or shipped all the way across the Atlantic afterward. The fact that many refugees are willing to bear such a cost serves to emphasize their desperation; but it also suggests that there may be alternatives that would work out better for everyone.

The United States has a large population at 322 million; but Turkey (78 million) has about a quarter of our population and Jordan (8 million) and Lebanon (6 million) are about the size of our largest cities.

Our GDP, on the other hand, is vastly larger. At $18 trillion, we have 12 times the GDP of Turkey ($1.5 T), and there are individual American billionaires with wealth larger than the GDPs of Lebanon ($50 B) and Jordan ($31 B).

This means that while we have an absolute advantage in population, we have a comparative advantage in wealth—and the benefits of trade depend on comparative advantage. It therefore makes sense for us to in a sense “trade” wealth for population; in exchange for taking on fewer refugees, we would offer to pay a larger share of the expenses involved in housing, feeding, and ultimately assimilating those refugees.

Another thing we could offer (and have a comparative as well as absolute advantage in) is technology. These surprisingly-nice portable shelters designed by IKEA are an example of how First World countries can contribute to helping refugees without necessarily accepting them into their own borders (as well as an example of why #Scandinaviaisbetter). We could be sending equipment and technicians to provide electricity, Internet access, or even plumbing to the refugee camps. We could ship them staple foods or even MREs. (On the other hand, I am not impressed by the tech entrepreneurs whose “solutions” apparently involve selling more smartphone apps.)

The idea of actually taking on 400,000 or even 70,000 additional people into the United States is daunting even for those of us who strongly believe in helping the refugees—in the former case we’re adding another Cleveland, and even in the latter we’d be almost doubling Dearborn. But if we estimate the cost of simply providing money to support the refugee camps, the figures come out a lot less demanding.
Charities are currently providing money on the order of millions—which is to say on the order of single dollars per person. GBP 887,000 sounds like a lot of money until you realize it’s less than $0.50 per Syrian refugee.

Suppose we were to grant $5,000 per refugee per year. That’s surely more than enough. The UN is currently asking for $6.5 billion, which is only about $1,500 per refugee.

Yet to supply that much for all 4 million refugees would cost us only $20 billion per year, a mere 0.1% of our GDP. (Or if you like, a mere 3% of our military budget, which is probably smaller than what the increase would be if we stepped up our military response to Daesh.)

I say we put it to a vote among the American people: Are you willing to accept a flat 0.1% increase in income tax in order to help the refugees? (Would you even notice?) This might create an incentive to become a refugee when you’d otherwise have tried to stay in Syria, but is that necessarily a bad thing? Daesh, like any state, depends upon its tax base to function, so encouraging emigration undermines Daesh taxpayer by taxpayer. We could make it temporary and tied to the relief efforts—or, more radically, we could not do that, and use it as a starting point to build an international coalition for a global basic income.

Right now a global $5,000 per person per year would not be feasible (that would be almost half of the world’s GDP); but something like $1,000 would be, and would eliminate world hunger immediately and dramatically reduce global poverty. The US alone could in fact provide a $1,000 global basic income, though it would cost $7.2 trillion, which is over 40% of our $18.1 trillion GDP—not beyond our means, but definitely stretching them to the limit. Yet simply by including Europe ($18.5 T), China ($12.9 T), Japan ($4.2 T), India ($2.2 T), and Brazil ($1.8 T), we’d reduce the burden among the whole $57.7 trillion coalition to 12.5% of GDP. That’s roughly what we already spend on Medicare and Social Security. Not a small amount, to be sure; but this would get us within arm’s reach of permanently ending global poverty.

Think of the goodwill we’d gain around the world; think of how much it would undermine Daesh’s efforts to recruit followers if everyone knew that just across the border is a guaranteed paycheck from that same United States that Daesh keeps calling the enemy. This isn’t necessarily contradictory to a policy of accepting more refugees, but it would be something we could implement immediately, with minimal cost to ourselves.

And I’m sure there’d be people complaining that we were only doing it to make ourselves look good and stabilize the region economically, and it will all ultimately benefit us eventually—which is very likely true. But again, I say: So what? Would you rather we do the right thing and benefit from it, or do the wrong thing just so we dare not help ourselves?

Free trade, fair trade, or what?

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JDN 2457271 EDT 11:34.

As I mentioned in an earlier post, almost all economists are opposed to protectionism. In a survey of 264 AEA economists, 87% opposed tariffs to protect US workers against foreign competition.

(By the way, 58% said they usually vote Democrat and only 23% said they usually vote Republican. Given that economists are overwhelmingly middle-age rich White males—only 12% of tenured faculty economists are women and the median income of economists is over $90,000—that’s saying something. Dare I suggest it’s saying that Democrat economic policy is usually better?)

There are a large number of published research papers showing large positive effects of free trade agreements, such as this paper, and this paper, and this paper, and this paper. It’s hard to find any good papers showing any significant negative effects. This is probably why the consensus is so strong; the empirical evidence is overwhelming.

Yet protectionism is very popular among the general public. The majority of both Democrat and Republican voters believe that free trade agreements have harmed the United States. For decades, protectionism has always been the politically popular answer.

To be fair, it’s actually possible to think that free trade harms the US but still support free trade; actually there are some economists who argue that free trade has harmed the US, but has benefited other countries like China and India so much more that it is worth it, making free trade an act of global altruism and good will (for the opposite view, here’s a pretty good article about how “free trade” in principle is often mercantilism in practice, and by no means altruistic). As Krugman talks about, there is some evidence that income inequality in the First World has been exacerbated by globalization—but it’s clearly not the primary reason for rising inequality.

What’s going on here? Are economists ignoring the negative impacts of free trade because it doesn’t fit their elegant mathematical models? Is the general public ignorant of how trade actually works? Does the way free trade works, or its interaction with human psychology, inherently obscure its benefits while emphasizing its harms?

Yes. All of the above.

One of the central mistakes of neoclassical economics is the tendency to over-aggregate. Instead of looking at the impact on individuals, it’s much easier to look at the impact on aggregated abstractions like trade flows and GDP. To some extent this is inevitable—there are simply too many people in the world to keep track of them all. But we need to be aware of what welose when we aggregate, and we need to test the robustness of our theories by applying different models of aggregation (such as comparing “how does this affect Americans” with “how does this affect the First World middle class”).

It is absolutely unambiguous that free trade increases trade flows and GDP, and for small countries these benefits can be mind-bogglingly huge. A key part of the amazing success story of economic development that is Korea is that they dramatically increased their openness to global trade.

The reason for this is absolutely fundamental to economics, and in grasping it in 1776 Adam Smith basically founded the field: Voluntary trade benefits both parties.

As most economists would put it today, comparative advantage leads to Pareto-improving gains from trade. Or as I’d tend to put it, more succinctly yet just as thoroughly based in modern game theory: Trade is nonzero-sum.

When you sell a product to someone, it is because the money they’re offering you is worth more to you than the product—and because the product is worth more to them than the money. You each lose something you value less and gain something you value more—so you are both better off.

This mutual benefit occurs whether you are individuals, corporations, or nations. It’s a fundamental principle of economics that underlies the operation of markets at every scale.

This is what I think most people don’t understand when they say they want to “stop sending jobs overseas”. If by that all you mean is ensuring that there aren’t incentives to offshore and outsource, that’s quite reasonable. Even some degree of incentive to keep businesses in the US might make sense, to avoid a race-to-the-bottom in global wages. But I get the sense that it is more than this, that people have a general notion that jobs are zero-sum and if we hire a million people in China that means a million people must lose their jobs in the US. This is not simply wrong, it is fundamentally wrong; it misses the entire point of economics. If there is one core principle that defines economics, I think it would be that the universe is nonzero-sum; gains for some can also be gains for others. There is not a fixed amount of stuff in the world that we distribute; we can make more stuff. Handled properly, a trade that results in a million people hired in China can mean an extra million people hired in the US.

Once you introduce a competitive market, things get more complicated, because there aren’t just winners—there are also losers. When you have competitors, someone can buy from them instead of you, and the two of them benefit, but you are harmed. By the standard methods of calculating benefits and harms (which admittedly leave much to be desired), we can show quite clearly that in general, on average, the benefits outweigh the harms.

But of course we don’t live “in general, on average”. Despite the overwhelming, unambiguous benefit to the economy as a whole, there is some evidence that free trade can produce a good deal of harm to specific individuals.

Suppose you live in the US and your job is to assemble iPads. You’re good at it, you like it, it pays pretty well. But now Apple says that they want to “reduce labor costs” (they are in fact doing nothing of the sort; to really reduce labor costs in a deep economic sense you’d have to make work easier, more productive, or more fun—the wage and the cost are fundamentally different things), so they outsource production to Foxconn in China, who pay wages 1/30 of what you were being paid.

The net result of this change to the economy as a whole is almost certainly positive—the price of iPads goes down, we all get to have iPads. (There’s a meme going around claiming that the price of an iPad would be almost $15,000 if it were made in the US; no, it would cost about $1000 even if our productivity were no higher and Apple could keep their current profit margin intact, both of which are clearly overestimates. But since it’s currently selling for about $500, that’s still a big difference.) Apple makes more profits, which is why they did it—and we do have to count that in our GDP. Most importantly, workers in China get employed in safe, high-skill jobs instead of working in coal mines, subsistence farming, or turning to drugs and prostitution. More stuff, more profits, better jobs for some of the world’s poorest workers. These are all good things, and overall they outweigh the harm of you losing your job.

Well, from a global perspective, anyway. I doubt they outweigh the harm from your perspective. You still lost a good job; you’re now unemployed, and may have skills so specific that they can’t be transferred to anything else. You’ll need to retrain, which means going back to school or else finding one of those rare far-sighted companies that actually trains their workers. Since the social welfare system in the US is such a quagmire of nonsensical programs, you may be ineligible for support, or eligible in theory and unable to actually get it in practice. (Recently I got a notice from Medicaid that I need to prove again that my income is sufficiently low. Apparently it’s because I got hired at a temporary web development gig, which paid me a whopping $700 over a few weeks—why, that’s almost the per-capita GDP of Ghana, so clearly I am a high-roller who doesn’t need help affording health insurance. I wonder how much they spend sending out these notices.)

If we had a basic income—I know I harp on this a lot, but seriously, it solves almost every economic problem you can think of—losing your job wouldn’t make you feel so desperate, and owning a share in GDP would mean that the rising tide actually would lift all boats. This might make free trade more popular.

But even with ideal policies (which we certainly do not have), the fact remains that human beings are loss-averse. We care more about losses than we do about gains. The pain you feel from losing $100 is about the same as the joy you feel from gaining $200. The pain you feel from losing your job is about twice as intense as the joy you feel from finding a new one.

Because of loss aversion, the constant churn of innovation and change, the “creative destruction” that Schumpeter considered the defining advantage of capitalism—well, it hurts. The constant change and uncertainty is painful, and we want to run away from it.

But the truth is, we can’t. There’s no way to stop the change in the global economy, and most of our attempts to insulate ourselves from it only end up hurting us more. This, I think, is the fundamental reason why protectionism is popular among the general public but not economists: The general public sees protectionism as a way of holding onto the past, while economists recognize that it is simply a way of damaging the future. That constant churning of people gaining and losing jobs isn’t a bug, it’s a feature—it’s the reason that capitalism is so efficient in the first place.

There are a few ways we can reduce the pain of this churning, but we need to focus on that—reducing the pain—rather than trying to stop the churning itself. We should provide social welfare programs that allow people to survive while they are unemployed. We should use active labor market policies to train new workers and match them with good jobs. We may even want to provide some sort of subsidy or incentive to companies that don’t outsource—a small one, to make sure they don’t do so needlessly, but not a large one, so they’ll still do it when it’s actually necessary.

But the one thing we must not do is stop creating jobs overseas. And yes, that is what we are doing, creating jobs. We are not sending jobs that already exist, we are creating new ones. In the short run we also destroy some jobs here, but if we do it right we can replace them—and usually we do okay.

If we stop creating jobs in India and China and around the world, millions of people will starve.

Yes, it is as stark as that. Millions of lives depend upon continued open trade. We in the United States are a manufacturing, technological and agricultural superpower—we could wall ourselves off from the world and only see a few percentage points shaved off of GDP. But a country like Nicaragua or Ghana or Vietnam doesn’t have that option; if they cut off trade, people start dying.

This is actually the main reason why our trade agreements are often so unfair; we are in by far the stronger bargaining position, so we can make them cut their tariffs on textiles even as we maintain our subsidies on agriculture. We are Mr. Bumble dishing out gruel and they are Oliver Twist begging for another bite.

We can’t afford to stop free trade. We can’t even afford to significantly slow it down. A global economy is the best hope we have for global peace and global prosperity.

That is not to say that we should leave trade completely unregulated; trade policy can and should be used to enforce human rights standards. That enormous asymmetry in bargaining power doesn’t have to be used to maximize profits; it can be used to advance human rights.

This is not as simple as saying we should never trade with nations that have bad human rights records, by the way. First of all that would require we cut off Saudi Arabia and China, which is totally unrealistic and would impoverish millions of people; second it doesn’t actually solve the problem. Instead we should use sanctions, tariffs, and trade agreements to provide incentives to improve human rights, rewarding governments that do and punishing governments that don’t. We could have a sliding tariff that decreases every time you show improvement in human rights standards. Think of it like behavioral reinforcement; reward good behavior and you’ll get more of it.

We do need to have sweatshops—but as Krugman has come around to realizing, we can make sweatshops safer. We can put pressure on other countries to treat their workers better, pay them more—and actually make the global economy more efficient, because right now their wages are held down below the efficient level by the power that corporations wield over them. We should not demand that they pay the same they would here in the First World—that’s totally unrealistic, given the difference in productivity—but we should demand that they pay what their workers actually deserve.

Similar incentives should apply to individual corporations, which these days are as powerful as some governments. For example, as part of a zero-tolerance program against forced labor, any company caught using or outsourcing to forced labor should have its profits garnished for damages and the executives who made the decision imprisoned. Sometimes #Scandinaviaisnotbetter; IKEA was involved in such outsourcing during the Cold War, and it is currently being litigated just how much they knew and what they could have done about it. If they knew and did nothing, some IKEA executive should be going to prison. If that seems extreme, let me remind you what they did: They used slaves.

My standard for penalizing human rights violations, whether by corporations or governments, is basically like this: Follow the decision-making up the chain of command, stopping only when the next-higher executive can clearly show to the preponderance of evidence that they were kept out of the loop. If no executive can provide sufficient evidence, the highest-ranking executive at the time the crime was committed will be held responsible. If you don’t want to be held responsible for crimes committed by people who work for you, it’s your responsibility to bring them to justice. Negligence in oversight will not be exonerating because you didn’t know; it will be incriminating because you should have. When your bank is caught laundering money for terrorists and drug lords, it isn’t enough to have your chief of compliance resign; he should be imprisoned—and if his superiors knew about it, so should they.

In fact maybe the focus should be on corporations, because we have the legal authority to do that. When dealing with other countries, there are United Nations rules and simply the de facto power of large trade flows and national standing armies. With Saudi Arabia or China, there’s a very real chance that they’ll simply tell us where we can shove it; but if we get that same kind of response from HSBC or Goldman Sachs (which, actually, we did), we can start taking out handcuffs (that, we did not do—but I think we should have).

We can also use consumer pressure to change the behavior of corporations, such as Fair Trade. There’s some debate about just how effective these things are, but the comparison that is often made between Fair Trade and tariffs is ridiculous; this is a change in consumer behavior, not a change in government policy. There is absolutely no loss of freedom. Choosing not to buy something does not constitute coercion against someone else. Maybe there are more efficient ways to spend money (like donating it directly to the best global development charities), but if you start going down that road you quickly turn into Peter Singer and start saying that wearing nicer shoes means you’re committing murder. By all means, let’s empirically study different methods of fighting poverty and focus on the ones that work best; but there’s a perverse smugness to criticisms of Fair Trade that says to me this isn’t actually about that at all. Instead, I think most people who criticize Fair Trade don’t support the idea of altruism at all—they’re far-right Randian libertarians who honestly believe that selfishness is the highest form of human morality. (It is in fact the second-lowest, according to Kohlberg.) Maybe it will turn out that Fair Trade is actually ineffective at fighting poverty, but it’s clear that an unregulated free market isn’t good at that either. Those aren’t the only options, and the best way to find out which methods work is to give them a try. Consumer pressure clearly can work in some cases, and it’s a low-cost zero-regulation solution. They say the road to Hell is paved with good intentions—but would you rather we have bad intentions instead?

By these two methods we could send a clear message to multinational corporations that if they want to do business in the US—and trust me, they do—they have to meet certain standards of human rights. This in turn will make those corporations put pressure on their suppliers, all the way down the supply chain, to uphold the standards lest they lose their contracts. With some companies upholding labor standards in Third World countries, others will be forced to, as workers refuse to work for companies that don’t. This could make life better for many millions of people.

But this whole plan only works on one condition: We need to have trade.