Imports are good

Madsen Pirie of the ASI has an excellent 10-point lesson on "very good things" for the economy. I especially recommend his insights on profits, bankruptcies and capitalism (more to follow). However, what I wanna touch upon today are imports:

"A common fallacy supposes that nations become rich by exporting more than they import. Many governments make the effort to augment exports and diminish imports. This usually involves subsidizing exports by means of grants and lower taxes, and discouraging imports by means of tariffs. 

It used to be thought that a country's wealth was augmented by a positive 'balance of trade,' under which the surplus of exports over imports would bring in more gold and silver than went out, leaving the nation richer. Adam Smith exposed this fallacy [also called the mercantilism fallacy], pointing out that the wealth of nations consisted in the productive labour of its peoples rather than in bars of precious metals stored in its treasury. 

In fact it is imports that make a nation richer. [my emphasis] By importing goods that are cheaper than those they can produce themselves, nations have cash to spare as well as the goods. This makes them wealthier than if they were self-dependent. Adam Smith said that Scotland could grow grapes and produce wine "by means of hot-walls and glass houses" on the slopes of Ben Nevis, but it would cost them 30 times the price of equivalent French wine. By buying the French wine, they saved twenty-nine thirtieths of the cost and could spend it on other things. 

Of course these imports have to be paid for, and exports make that possible. We export to gain the wherewithal to enrich ourselves through imports. It need not be manufactured goods we export. It can be services such as insurance, skills such as design, or the returns on our own overseas investments."

Madsen couldn't have made the point more simply.  Imports make a country richer.

I read a great book a while ago by Brian Caplan called "Myth of the Rational Voter: Why Democracies Choose Bad Policies" where he compares survey data of how the public and professional economists seem to think about a variety of issues. It is striking how in most cases they tend to differ. Particularly in the field of international trade, migration or corporate profits. Where almost every economist would strictly oppose things like tariffs or export subsidizing, the majority of the people would reach a completely different conclusion. Voters seriously underestimate the benefits of markets. This, in effect, drives political decisions in favour of the median voter opinion, which is too often lacking information and good judgement. 

Caplan's conclusion is that voters almost never posses enough information, operate under strong prejudices and tend to be highly irrational when picking political leaders. But that's another story.

Why am I linking this to Madsen's post? Simply because the fallacy of imports being "bad" is the most widespread fallacy in modern society. It is a topic where common sense will say one thing, but political ideology and voter prejudice will claim another. Among the other most misunderstood topics (and very often for the silliest reasons) are also immigration and trade. Prejudice is very hard to fight, but that's exactly why we need efforts like Madsen's or Caplan's to point out the fallacies, and keep an open mind.