The point of “efficiency,” at least when economist use the term, is given a deal can be struck between winners and losers, everyone can be made better off (or at least as well off as they were before). Freeing trade increases efficiency in this way. The best case would be to have the winners from trade sit down with the losers and work out some deal.

The problem with this scenario is that the winners are most everyone (we can now buy cheap goods from China at Walmart), the losers are a concentrated group. Notice the winners each win just a little from trade but the losers lose their jobs. Its practically impossible to get those two groups of people together to negotiate a deal.

So you have to come up with some inexpensive way to get the winners to compensate the losers.

My idea is to have cultural norms that encourage people to build skills that make them adept to changing market conditions. Instead of training to be the 34th component in some production line in some particular industry, people should learn skills that would make them productive in many contexts. Critical thinking, curiosity, computer skills are some of things I can think of, but most importantly people should expect to be learning through their whole lives… This suggests our “cram young people in rooms for the first 1/4 of their lives” schools system is a bit bogus.

The effect is to reduce the losses for losers.