I was getting my haircut today, and the barber woman and I were talking about the sorry state of the economy. She said my that she is doing her part to help our economy by refusing to buy Mexican hair products, even though they are cheaper than American ones. She said she would spend as much as $2 more per bottle of shampoo if that’s what it would take, in the interest of boosting the American economy. Buying from Mexico can only hurt us.
Now, it is doubtful that this woman ever had a class on economics or even knows that such a body of thought exists. Maybe she is watching the wrong shows on television and that’s the source of the problem. I certainly had the sense that her views were not actually directly influenced by a particular intellectual force but rather something that she just made up based on some one-step thought process, rooted in some kind of rah-rah Americanism.
What this protectionist-style opinion comes down to is rather simple: the claim that it helps the economy to waste resources. There’s really nothing more to it than that, and when phrased this way the error is more obvious. But it has never occurred to her that if she bought the Mexican product, she would have a buck or two left over to spend on something else or save, and that is is a better path to helping. Further, by paying more for a product the equivalent of which is offered at lower cost from outside the country, she is actually subsidizing domestic inefficiency, which is certainly her right, but it’s not a viable business strategy or public policy to count on that effect to sustain itself over the long haul.
Thomas Woods once said to me that the reason people miss fundamental truths about economics is that economic thinking usually requires at least two steps of logic to arrive at truth, whereas the common man is only willing to take one step at most. That’s as good an explanation as I’ve found for why it is that the average person so easily falls into economic fallacy.
