fatvegan

It is common sense that when you buy something, you would rather pay less than more for it. That is as true for a nation as it is for a household.

Gregory Mankiw

I have read this claim more times than I can remember. The first sentence is mostly fine. The only problem with it is that if two things that appear identical have a different price, they're probably not identical. If you include characteristics of a good such as the wage paid to its producer, then very few goods are perfect substitutes. And preferences about the wage paid to the producer are no less valid than preferences about the colour and quality of something. Although including less obvious attributes obviously messes up some of the economic models, which definitely prefer the idea that many goods are interchangeable.

But even if you assume that the first sentence is reasonable, the second sentence is completely unreasonable. It almost definitely can't be subjected to any sort of test, so we must take on faith that in this respect households and nations are equivalent. Nations are totally different to households in most respects. For a start it's simple for a household to maximise its welfare if it ignores the people around it, because the consequences of the household's choices on the people in it are fairly predictable. The fact that the child might end up paying more for a packet of chips at school because the father working at Smith's got a pay rise is not a serious problem. In a nation, the equivalent is a critical problem. Households also have a negligible impact on their environment, but the same certainly cannot be said for nations.

I think it's just another example of economists simplifying things for the sake of argument, and then promptly forgetting that they've done so.

That said, I agree that the paper subsidies mentioned in his post are probably a bad idea. Generally, I think that social security is a better way of saving workers than trade restrictions.