During a recent student orientation event at CCGA, I was given 15 minutes to teach a group of teenagers something about economics. I chose to use a 3-part demonstration:
1. I asked the students to rate their current level of happiness on a scale of 0 (miserable) to 10 (couldn’t be happier).
2. Then, I gave each student a free snack and asked them again to rate their happiness.
3. Last, I gave the students a chance to trade snacks with anyone in the room, and once more, after the end of the trading period, I had each student rate their happiness.
At the end of the exercise, when we paused to tally results, we found the overall happiness in the room had risen with each successive rating.
And I knew that’s what would happen because this exercise is a simple picture of two of the most fundamental principles of economics.
First, more is better than less. If you suddenly come into possession of a snack you didn’t have before and if nothing else in your life has changed, you certainly cannot be worse off than you were before the snack. Even if you hate the snack, you could throw it away or stomp on it and be right back where you were before I gave it to you.
Second, this exercise demonstrates that trade creates value. This is again simple logic. If you have a candy bar and your friend has a banana, you will only choose to trade with your friend if the banana is at least as good to you as the candy bar. And your friend will feel the same way about trading for your candy bar. So, as long as you are allowed to trade without restrictions, you will not choose a trade that decreases your happiness.
This is a foundational principle of economics, and within this classroom exercise, it seems obvious. But that trade creates value is a principle we tend quickly to forget in policymaking.
Taxes, tariffs, price controls, immigration restrictions, etc., limit our ability to trade. In so doing, they limit our social welfare — total happiness and profits. Yet, versions of these policies are supported by citizens and policymakers of all political persuasions.
Sometimes, there is good reason for these policies. Indeed, government cannot exist without some form of taxes. But, we should never allow political rhetoric to convince us that limiting trade, in itself, is good for individual or national welfare.
At step 3 of the classroom exercise, the only students whose happiness levels decreased were the students who could not find a trading partner. They appreciated being gifted a snack, but they were sad they couldn’t trade for something better.
If I had not limited trading to within the classroom, these students would have been much more likely to make a trade that improved the happiness not only of themselves but also of their trading partner.
This week, as we celebrate our country’s independence, we also should recognize and celebrate our interdependence with our trading partners. Our commitment to this interdependence is what will allow us to remain strongly independent.
Dr. Melissa Trussell is a professor in the School of Business and Public Management at College of Coastal Georgia who works with the college’s Reg Murphy Center for Economic and Policy Studies. Contact her at email@example.com.