Tim Worstall very nicely champions unilateral free trade in this essay in today’s TimesOnLine:
Here’s an excerpt:
Because it is imports that we desire — exports being simply the
tiresome labour that we must ship abroad to pay for them — negotiating
with other countries about their tariffs and quotas is ludicrous. Why
should we care if the foreign governments make their own citizens
poorer by denying them the products of the globe? We should concentrate
on what makes us richer, the abolition of all those barriers to our own
wealth that we impose upon ourselves.
Joan Robinson, the Cambridge economist, once pointed out that
trade negotiations are conducted on the basis that we’ll stop throwing
rocks in our harbours when you stop throwing rocks in yours: this is
not rational.
Indeed. Politcs itself is not rational.
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When I make this argument to my non-libertarian, non-economist friends, they look at me as if I've lost my mind. They can't seem to get over the ingrained notion that "unilaterally disarming" in the "trade wars" would leave us defenceless to foreign plunder. As I try to counter, all we have to lose are our (self-administereed) straight jackets.
I may be missing something. It's not obvious to me at all that foreign tariffs don't harm me. They would seem to reduce the value of my export to those with whom I could profitably trade, making both sides poorer.
I fully agree that imposing my own stupidity on top of theirs isn't a good reaction, but it seems to me that stones thrown in foreign harbors hurt me in exactly the same was as stones thrown in my own.
Economists Are Destroying America
Economists, politicians, and executives from both parties have promised American families that “free” trade policies like NAFTA, CAFTA, and WTO/CHINA would accomplish three things:
• Increase wages
• Create trade surpluses (for the US)
• Reduce illegal immigration
Well, their trade policies have been in effect for about 15 years. Let’s review the results:
• Declining real wages for 80% of working Americans (while healthcare, education, and childcare costs skyrocket)
• A record-high 46 million Americans who don’t have health insurance (due in part to declining wages and benefits)
• Illegal immigration out of control
• Soaring trade deficits, much with countries that use slave and child labor
• Personal and national debt both out-of-control
• Global environments threatened by lax trade deal enforcement
Economists Keep Advocating Policies That Aren’t Working
Upon seeing incontrovertible evidence of these negative trade agreement results, economists continue with Pollyannish blather. Some say, “Cheer up! GDP is up and the stock market’s doing fine.” Others say, “Be patient. Stay the course. Free trade will raise all ships.”
Even those economists who acknowledge problems with trade agreements offer us only half-measures—adjusting exchange rates, improving safety nets, and providing better job retraining. None of these will close the wage gap in America—and economists know it.
Why Aren’t American Economists Shouting From Street Corners?
America needs trade deals that support American families and businesses in terms of wage, environmental, and intellectual property abuses. Why aren’t economists demanding renegotiation of our trade deals? There are three primary reasons:
• Economists are too beholden to corporations and special interests that provide them with research grants.
• Economists believe—but refuse to admit—that sacrificing the American middle class is necessary and appropriate to generate gains in third world economies.
• Economists refuse to admit they make mistakes.
Economic Ambulance Chasers
Now more than ever, Americans need their economists to speak truth and stand up to their big business clients. Instead, economists sound like lawyers caught chasing ambulances: they claim they’re “doing it for our benefit”.
I hope that was intended to be humorous (not that it is, but still).
Yetter,
Quite clearly Mr. Konop believes what he's written; however you seem unable of extending him the courtesy of addressing what you perceive to be his errors, opting instead for the cheap and oh-so-smart rhetorical bombshell.
Perhaps you are just naturally discourteous – if so, it's a trait best not publicly displayed.
His comments certainly seem to be worthy of consideration and respect, not just casual, airy dismissal – don't you think?
John,
I have some sympathy for your position, but not enough to advocate a return to protectionism. Much as I have sympathy for those who pay high taxes, but still do not advocate a repeal of the income tax. Public policy must consider the greater good. And as I see it, an expanding global economy will benefit far more people than would benefit from the protection of specific groups of industries or workers.
Dagon, foreign tariffs do indeed hurt you but no where near as much as domestic ones.
John Konop: one question: do you make your own bread or do you buy it?
A subsidiary: if you make your own bread do you buy the flour or grind it youself?
A second subsidiary: if you grind your flour yourself do you buy the wheat or grow it yourself?
Like Noah Yetter, I was not sure if Konup was serious. The errors start from the get-go: free-trade economists do not claim that free trade will lead to trade surpluses. They claim that the trade balance don't matter.
It's hard to take serious an argument that health care costs are rising because of free trade.
A couple of thoughts on this article:
The esteemed writer says "exports being simply the tiresome labour that we must ship abroad to pay for them".
Fair enough. I'd agree that "tiresome labour" is no fun. However, without that "tiresome labour" (Absent the advent of some miracle manna-making-machine) how does the author expect us to PAY for all those wonderful imports?
Yes, stuff is good, but isn't an inherent part of trade the axiomatic concept that both parties come away from the transaction with something they value? Without those pesky trade goods (or fiat currency) there would be no trade…..or did someone change the laws of commerce while I wasn't looking.
Next, presume John Konop is correct in his assertion that the middle class is in trouble, etc. ("sacrificing the American middle class is necessary and appropriate to generate gains in third world economies"). We then get to Randy's comment that "Public policy must consider the greater good. And as I see it, an expanding global economy will benefit far more people…".
Am I to infer that the middle class in the US is "expendable" on the table as a ritual pig for the benefit of "third world economies"?
With regard to that "Public Policy": Whose policy? Should US trade policy be rigged to benefit third world workers? Should that "public policy" have as one of its concerns the workers in any other country?
Expand that question to "public policy" in general. Isn't the single and specific goal of "public policy" the general welfare of the governed? (Leaving aside the obvious and true consideration that politicians are inherently dishonest and corrupt).
Faultolerant,
Actually, my belief is that most workers in the US will continue to benefit as well – along with the benefits to a great many in the rest of the world. How do I know this for sure? I don't. But that has been the historical trend, and I see no reason for the trend to suddenly reverse course. I understand the fear, but I don't see fear as a valid basis for public policy.
"Declining real wages for 80% of working Americans (while healthcare, education, and childcare costs skyrocket)"
I'll let other people respond to the rest of your post, but I had to single this comment out. Let me get this straight. You use real wages to make a point and then reference increasing costs.
Well, the real wages statistic exists to specifically account for those costs. It's an utter fallacy to say that real wages have gone up by, say, 1%, when fuel costs have gone up by 50% because the fuel costs are including in that real wage statistic.
By the way, where did you get that first statistic anyways (that 80% of incomes have declined)? There's many problems with the real wage statistic, including the CPI's failure to account for quality, the failure to account for immigration and the failure to account for non-pecuniary benefits.
We can debate about these nuances later, but your "while costs increase" line is just horribly, horribly wrong and misleading.
Dagon is right, but not through the mechanisms that he think exist.
Government interference in markets will always bring about a price and quantity less optimal than the unregulated market, absent externalities. Let's say that China put a huge tariff on US automobiles and let's say the US is a completely free trade country with no tariffs. Because of the tariffs, China buys more Chinese and non-American cars, even though American cars might have cost them less prior to the tariffs. Therefore, people in countries other than America will produce these cars who otherwise would have done something else where they did have a comparative advantage. This results in less production for everyone involved and in turn a lower standard of living.
To think of it another way, if I became a hermit somewhere and decided to not buy something anybody else produced, I would not only hurt myself but you would be hurt by me not producing what you could enjoy. Unfortunately, we often just pile on inefficient tariffs or subsidies of our own instead of addressing the problem of Chinese tariffs and we only make it even worse for ourselves.
For those of you who think that the results of the election had only to do with the war, consider this…
Michigan re-elected a Democrat governor by an overwhelming margin despite the worst economic situation in the U.S. and her challenger is the model of the U.S. businessman that is so fervently supported at this site.
Could it be that theory and reality have a disconnect? Nah, it's just millions of independent, economic decision-makers saying that they really don't like the gutting of America for the benefit of a few.
Of course, the refusal of the President to even hold a meeting with the CEOs of the three large automobile manufacturing companies probably had some impact on those millions of independent, economic decision-makers. Creative destruction has to have a creative element to be believable… and right now… it's not believable.
Sorry guys.
Bruce,
Congratulations to the Democrats.
I think this election shows that a significant percentage of Americans believe that changing politicians can change their lives. Some of them are overjoyed and some are angry. I wish them all the best of luck. As for me, I'm going to fix breakfast, get the kids up and off to school, and then head in to the office – just like yesterday.
Matthew,
Excellent posts. The only exception being "We can debate about these nuances later". The things you list – CPI's failure, benefits, and immigration – are no longer nuances. Benefits have become a large part of compensation – to the point where argueing 'wages' is a dishonest arguement.
Bruce Hall: "Nah, it's just millions of independent, economic decision-makers saying that they really don't like the gutting of America for the benefit of a few."
What do you mean by "gutting of America"? Are you referring to the movement of auto manufacturing from Michigan to the numerous right-to-work states? Are you referring to the growth in production in Sun Belt states that far exceeds the growth in the Midwest?
What do you mean by the "benefit of the few"? I think the Nissan employees in Smyrna, TN, are doing just fine. So are the BMW employees in Spartanburg, SC.
Real median wages in the U.S. may not be rising as fast as you wish, but those wages are not declining. In fact, for workers with desired skills, such as engineering and nursing, wages continue to rise.
I'm not sure what it is that you argue against, Bruce. Can you be more specific?
John:
http://www.csmonitor.com/2006/1102/p02s01-uspo.html
This can serve as an *example*. People voted with their pocketbooks and will continue to do so. War is a distraction; personal finances are core.
Bruce,
Your link points out that bad economy is a regional issue, not a national one. No doubt the labor-friendly states which relied so heavily on vehicle manufacturing have suffered.
Vehicle production nationwide is at the same levels as 10 years ago and 30 years ago. So why have auto industry jobs declined in the U.S., particularly in the Midwest? It's due to continued automation and to the Sunbelt's business-friendly laws. I don't see how electing Democrats in rust belt states will change either factor. I do see how the labor-friendly Democratic agenda might hurt the economies of all states.
Does the election put Shumer/Graham back in play?
John,
Your presumption that the number of jobs in the auto industry has remained the same is somewhat flawed.
While overall ASSEMBLY LINE jobs may be similar, related jobs for research, design, engineering and components have decline markedly as more of those aspects have moved to overseas locations.
It's also not the case that the closings are a result of automation and efficiency. http://money.cnn.com/2006/06/01/news/companies/plant_productivity/index.htm
And now, some more of the story…
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20061108:MTFH23754_2006-11-08_18-03-08_N08272424&type=comktNews&rpc=44
Chief economists for the three car companies will meet with Tim Adams, Treasury's undersecretary for international affairs, in the afternoon, said Collins and representatives for the auto companies.
A Treasury spokeswoman declined to comment on the meeting, saying only that department officials periodically meet with business and industry leaders to discuss topics of mutual interest.
The Detroit companies want to emphasize that the Japan currency issue does not get the attention it deserves from the Treasury and the yen's depressed level against the dollar gives Japanese automakers a huge profit advantage that allows them to price more aggressively and add content to vehicles.
"When you read about currency, you read about China, not Japan," he said. "Why does Japan get a free pass?", Collins said, adding that he would like the Treasury and other Group of Seven rich nations to pressure Japan to avoid intervention in currency markets.
The automakers argue that the yen should be trading around 90-100 per dollar, compared with Wednesday's trading price of 117.74 . But the Bank of Japan regularly uses its massive foreign exchange reserves to buy dollars to keep the yen level depressed, they argue.
Toyota on Tuesday cited a soft yen as a key factor in a 44 percent jump in second quarter operating profit and an increase in its full-year operating profit forecast to 2.2 trillion yen — about the size of Albania's economy.
Bruce Hall: "Your presumption that the number of jobs in the auto industry has remained the same is somewhat flawed."
I did not say that at all, Bruce. Please reread my post. I said just the opposite:
"So why have auto industry jobs declined in the U.S., particularly in the Midwest?"
What I did say was that U.S. vehicle PRODUCTION, at approximately 12.5 million per year, was unchanged from 10 years and 30 years ago.
Bruce Hall: "It's also not the case that the closings are a result of automation and efficiency."
I also did not say the existence of a particular automaker's plant was due to its relative efficiency. What I said was that total U.S. auto industry jobs have declined due to automation. Certainly GM and Ford have not maintained sales at such a level that they require all former plants.
I observed automation's impact when I recently toured GM's Arlington, TX, plant. My guide was a retired autoworker who spent many years at that plant. He pointed out how tire mounting and body painting, formerly labor-intensive activities, were now completely the work of computers and machines.
I agree that U.S. design and engineering jobs declined in the auto industry. As I see it, those jobs declined because GM and Ford did not provide the automobile designs that all U.S. consumers desired. Those job losses have nothing to do with any government policy. Unless, of course, you wish to eliminate the consumer's freedom to choose the cars he desires. That would require a Central Planning Committee, right?
How bad is China hurting themselves with their massive, mercantilist trade surplus?
Any chance the Communist Party is going to lose the next election with the damage their doing?
Excellent post, Kent G. Isn't it strange – the "market liberals" prefer one-party China. How liberal.
Amistades
Why do Economist Lie?
Middle class feels squeezed, lawmakers told
This is the point I have been making about why real wages are going down. This is how the government and ECONOMIST have been hiding the number for years post the failed trade deals. They count the increase cost the employers pay for health insurance as part of your raise. Yet everyone who pays for health insurance (other than CONGRESS) has seen their contribution go up (co-pays and monthly payment) and coverage go down. At the end of the day the government calls this an increase in your real wages.
How much of an issue will be the middle class squeeze be in 08?
AJC-Cultural and economic changes are causing middle-class American families to feel squeezed despite their rising incomes, witnesses told a Senate committee Thursday.
“This is not your father’s middle class,” Scott Hodge, president of the Tax Foundation, a nonpartisan research group, told the Senate Finance Committee at a hearing on “Can the Middle Class Make Ends Meet?”
Their raises are not reflected just as take-home pay on their paychecks, noted Gary Burtless, an economist at the Brookings Institution.
counted as compensation by federal statisticians, he said. The same applies to employer pension contributions. So while average annual compensation for a full-time U.S. worker increased by nearly $3,000 between 2000 and 2005, only $849 of that showed up as a wage increase.
That’s one reason “a majority believes the middle class is worse off even though average incomes have improved,” Burtless told the senators. “How many people know how much their employer is spending on insurance for them?”
READ MORE
http://controlcongress.com/uncategorized/middle-class-feels-squeezed-lawmakers-told