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Protectionism: Everybody stimulate yourself!

At the annual World Economic Forum in Davos, Switzerland, economists are discussing the world economic downturn and possible reactions to it. One item that caught my attention was the conversation on protectionism.

[T]he downturn could persuade politicians to introduce trade barriers and steer investments only into their own economies.

This would harm developing countries the most, said South Africa's finance minister Trevor Manuel.

Anybody who advocates protectionist economic policies is looking to (how do I say this) protect some people by increasing the exposure of others. And since political borders define the jobs of most government officials, those are the lines that define who various policies are intended to benefit. Everybody outside those lines is (how do I say this) foreign, and therefore given a whole lot less consideration.

There are several reasons why I think protectionist policies are asinine and unhelpful, but I don't expect to be able to persuade the protectionist advocates with high talk of universal values or the proper role of government, or even by dumping tea in the harbor. The best shot I've got is to quote Justin Yifu Lin, Senior Vice-President of Development Economics and Chief Economist at the World Bank:

The whole world is a closed economy. Fiscal stimuli will not work if they are not coordinated.

While it will strike some of our regular readers as quite collectivist, I think he makes an excellent point. If a government is capable of promoting or causing economic stimulus at all, it certainly can't do so in a vacuum. On the grand scale, it would be foolish and harmful for the developed nations to even try to stimulate their own economies at the expense of everybody else.

In the modern global economy, those lines on the map are in many ways less important than the lines of commerce. This is becoming more so than ever before. Most major corporations are multinationals whose health and profits are dependent on many parts of the globe. Your investments, your bank, your employment, your food staples and clothes and widgets are all a part of a global market.

Simply put, wealth is not made through isolationism.