For over two centuries economists have agreed that free trade is mutually beneficial. They argue countries should specialize in what they do best -- and buy the rest. They explain why the usual alternatives, protectionism and trade barriers, ultimately destroy wealth or frustrate its creation.

Princeton economist Paul Krugman, a high priest of the anyone-but-Bush crowd, understands this: “[O]ld fallacies about international trade have been making a comeback lately.... [I]t is as true as ever that the U.S. economy would be poorer and less productive if we turned our back on world markets.... The result would be a less hopeful, more dangerous world.” This is a lesson we share with federal judges.

However, economists have generally failed to convince the general public that free trade is beneficial. So I’ll try a different route, a trip to Yellowstone National Park. I’ll then note obstacles to free trade.

Pretend you invite five friends to meet you in Yellowstone next summer. You’ll pay for their vacation if they meet at the same place at the same time. You can’t tell them where or when and they can’t communicate. The gates are off limits. No more hints allowed.

Where and when would you all meet? In my experience over several decades, three-quarters of my students gave this answer: “We’ll meet at Old Faithful, at noon, on the 4th of July.” This is a “Schelling point,” named for economist Tom Schelling. A Schelling point illustrates coordination without communication. It’s a place to which folks naturally go.

Without political forces, I suspect free trade would be a Schelling point. And I don’t mean all goods would go to Old Faithful. Instead, all activities would be conducted, all services provided, and all stuff made where most efficient. If the world were unencumbered by tariffs, quotas, and other political constraints, this efficient outcome would be a Schelling point. Bentham’s felicific calculus would produce this result.

Most economists discount or ignore the human costs of free trade, focusing on the macro effects and neglecting impacts on individuals. In the real world, people are displaced by the migration of jobs to more efficient locations. Free trade relentlessly creates winners and losers.

Alarmists are wrong when they predict all jobs will flow to places with cheap, exploited labor. Rather, they go where labor is most productive. But even a well-trained U.S. worker can’t be sufficiently productive to compete with an equal worker in India whose wage rate is one-fifth ours. Are there solutions? No easy ones, but here are two suggestions.

First, America must continuously increase its citizens’ human capital. This requires substantial educational reforms and investments. This also requires increased federal and corporate expenditures on R&D. The research laboratories of IBM, Xerox, and Bell nurtured a generation of American technological innovations. We are still reaping the benefits. The human genome project is a current example. History tells us that investments in human capital are unambiguously positive.

But scientific leadership alone does not guarantee prosperity and social progress. Americans must turn new knowledge and discoveries into new products and techniques. Only continual innovation will enable America to maintain its edge.

Second, America’s ultimate comparative advantage is her resilient culture and institutions, i.e., an honest bureaucracy, an independent judiciary, and laws protecting intellectual property. New York Times columnist Thomas Friedman explains in his recent piece, “The Secret of our Sauce.”

America’s success “is the product of a multitude of factors: ...an emphasis on independent thinking, a steady immigration of new minds, a risk-taking culture with no stigma attached to trying and failing, a noncorrupt bureaucracy, and financial markets and a venture capital system that are unrivaled at taking new ideas and turning them into global products.”

Hobbling this culture, e.g., through excessive regulations or by punishing success, risks spoiling the American “sauce” that Friedman celebrates. Passing laws that protect industry, stifle innovation, and discourage risk taking will erode America’s advantage.

The decline in manufacturing and our recent “offshoring” of technical jobs tempt politicians toward protectionism. Economic liberalism produces immediate dislocations. When unemployment goes up, nations tighten up. When political passions collide with economic rationality, politics will trump. That’s where politicians naturally converge. Not all Schelling points are happy places.