Shift Happens

by Don Boudreaux on February 27, 2008

in Myths and Fallacies, Politics, Trade

Hillary Clinton and Barack Obama are increasingly hostile to trade (or so they say on the campaign trail — admittedly not a stage on which truth and frankness get many lines).

There are countless distressing facets of this anti-trade nonsense.  One of these is the weaselly “I’m for free trade as long as it’s fair trade” refrain.  Such a claim (now as familiar in political campaigns as Dunkin’ Donuts) is a cowardly attempt by the candidate to stand on both sides of the issue by invoking a word (“fair”) loaded with emotion but devoid, in this context, of meaning.  No one, as far as I know, favors unfair trade — but by slapping the label “unfair” on any trade that a candidate’s favorite constituents dislike, that candidate can oppose free trade while claiming still to support free trade.

Such a rhetorical gimmick is unfair.

Also distressing is the fact that Austan Goolsbee, the fine economist who is a close adviser to Obama, apparently is ignored by the would-be President of the USA on this front.  Of course, I have no knowledge of what Goolsbee says and doesn’t say to Obama, but I presume that Goolsbee isn’t in the anti-trade camp.  Consider that just this past June Goolsbee had this excellent column in the New York Times, with this key passage:

We [Americans] hate experiencing major adjustments and industry transformations that force people to look for new jobs. That experience has made many skeptical about the future of the United States in the world economy. Yet the evidence seems to show that for all our dissatisfaction, we are the most flexible economy around and may be best poised to take advantage of the coming changes on a global scale precisely because we are so good at adjusting.

A related source of distress is Alan Blinder’s recent skepticism of trade — his lending his good name and the prestige of the economics profession to protectionists.  It’s very bizarre (especially in light of the fact that Blinder wrote this).  In today’s New York Times, “Economic Scene” columnist David Leonhardt quotes Blinder as saying that “Trade has winners and losers … and there have been a lot of losers in Ohio.”  I’ve written elsewhere about “winners and losers” from trade.  But I can’t resist making my point again, if only in a slightly different way.

Trade is just one manifestation of consumer sovereignty.  Just as there are, by Blinder’s calculus, winners and losers from consumers shifting their expenditures from goods made in America to goods made abroad, there are winners and losers from consumers shifting their expenditures from goods made in Illinois to goods made in Arizona – and from consumers shifting their expenditures from donuts, beef, cigarettes, whiskey, and train travel to bagels, fish, yoga lessons, wine, and air travel.  Trade plays no unique, or uniquely important, role as an avenue of economic change spurred in part by consumer sovereignty.  The only practical way to rid the economy of such “loses” is to try to freeze it, a futile step that will in the long-run only make losers of everyone.

(I thank my friend Greg Papandrew for the title of this post.)

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{ 24 comments }

Per Kurowski February 27, 2008 at 10:22 am

Don Boudreaux "No one, as far as I know, favors unfair trade — but by slapping the label "unfair" on any trade that a candidate's favorite constituents dislike, that candidate can oppose free trade while claiming still to support free trade."

Hold it there. Is this not the reverse way of how fair trade has mostly been negotiated… unfairly?

And come to think of it, what’s wrong with unfair trade, if it benefits you and you can enforce it? Just because I can sing and you don’t, is that unfair?

The real underlying issue that the candidates should instead be called out to answer is on what are their beliefs in terms of free trade being either bright or stupid; and then of course, bright or stupid for whom.

An import duty charged on oranges is of course great for the groves while being groomed to be turned into malls…but is it right that a poor in Michigan has to pay more expensive oranges because of that?

Shift does not only happen… it does so abundantly!

Sam Grove February 27, 2008 at 10:39 am

Actually, unfair trade might best be slapped on subsidized trade, that is unfair to whoever has to pay for the subsidy, and unfair to competitors that aren't receiving subsidy.

Mathieu Bédard February 27, 2008 at 12:59 pm

Wouldn't "unfair trade" be an oxymoron anyway?..

Randy February 27, 2008 at 1:31 pm

Mathieu,

Exactly. Unfair trades either don't happen at all, are actionable, or don't ever happen again.

muirgeo February 27, 2008 at 1:36 pm

My problem with the trade imbalance is that I've read good articles that it is not a benign issue. The trade debt is in effect fostered by Fed policies and we all end up paying for it in so many ways.

So count me as one that's glad to hear that Barak doesn't just repeat the simple idea that trade is good no matter what. I'm glad he's intelligent enough to realize simple ideas on economic policy often sound good and neat but have serious real life consequences in the real world.

Here is a great article that seriously undercuts Prof Boudreauxs idea that trade is good no matter what. The world is just not that simple…neither is monetary policy.

Mathieu Bédard February 27, 2008 at 1:39 pm

That was a rhetorical question actually ;)

colson February 27, 2008 at 1:51 pm

"Unfair trade" would best be described as extortion, theft, or fraud. But politicians know they can not use those words without disturbing their political base.

If traders are being "unfair", politicians, essentially, have to prove that the trade was made under duress or taken involuntarily from an opposing party or the trade was conducted based on fraudulent factors. There is significant legal precedent and law allowing affected parties to seek remedy through the court system.

The politician *should* know that any of the cases for "unfair" trade can be made in court; it would be a legal matter and not a political point.

The reality is that in any given point in time, trade is more often lawful than unlawful – serving "fair" trade in the political arena is nothing more than toeing an imaginary line with much fist shaking and spittle flying.

The end result is quite the opposite of the rhetorical speech used by so-called fair traders. It asks people to vote for a politician to make trade unfair by leveraging the power of government to exert force on individual transactions. While it is illegal for business to extract trade through force (by means of extortion), government *will* do it with impunity (and call it fair).

Randy February 27, 2008 at 2:04 pm

colson,

"…toeing an imaginary line with much fist shaking and spittle flying."

Good one :)

Mcwop February 27, 2008 at 2:51 pm

Muirgeo read Brad Delong's take it is much clearer:

"Exorbitant Privilege," or, How Worrisome Is the U.S. Trade Deficit?
Is America's Trade Deficit Sustainable?
One More

The Fed's impact on the Trade deficit is very indirect. Low rates actually may help reduce the deficit by making US goods cheaper for foreigners (but I do not thinks this works well with countries that peg their currency to the dollar like China). Additionally, it makes bonds less attractive on a yield basis, and less buying of US denominated bonds helps reduce the trade number – see next paragraph.

One big event to watch is China's current negative trade carry. China pegs their currency to the dollar, which means they need to buy lots of dollars to keep our currency up relative to theirs (basically China is preventing their currency from increasing against the dollar). But, this process costs money. The Chinese central bank must issue bonds in their currency to fund their dollar purchases (their interest rates have been rising). Currently rates on US bonds are lower, and China may be losing around 250 bps on the carry purchase they are now making so their central bank is losing about $4-5 billion a month. They still turn a profit from the older bonds in their portfolio. Sooner or later China will have to allow its currency to appreciate. The question is when and what impact on the trade deficit, amongst other things. I hope this illustrates the complex goings-on behind the trade deficit number.

Jeff S. February 27, 2008 at 3:08 pm

Balella,

Since you continue to link to the Palley article, perhaps you could suggest (because Palley does not) a means of achieving his goal, namely "…a stable long-term course…" by "…ending trade deficits that drain spending and jobs, and restoring the link between wages and productivity".

What would be your policy measures, and what would be the mechanism of their theoretical success? Or should you be using this time to give your patients below-average care?

muirgeo February 27, 2008 at 3:53 pm

Jeff,

One key aspect of being a professional is protecting a patient or clients confidentiality. It's consider malpractice and lower then low… basically the equivalent of a personal threat to put peoples personal information out when the expressely do not consent so.

If you want to talk about economic issues and can do so in earnest with out resort to innuendo and threats because you can't handle views point that threaten your version of reality then fine. Otherwise go to hell asshole.

gator80 February 27, 2008 at 3:55 pm

I'll read the Thomas Palley article, but keep in mind he is a union advisor and, among other positions, doesn't see what is wrong with the minimum wage.

gator80 February 27, 2008 at 3:56 pm

I'll read the Thomas Palley article, but keep in mind he is a union advisor and, among other positions, doesn't see what is wrong with the minimum wage.

Sam Grove February 27, 2008 at 5:55 pm

IOW, Palley also operates on the faulty premises of mercantilism.

Jeff S. February 27, 2008 at 10:26 pm

George, having tangled with you many times at other sites, where you volunteered your name and profession (you'd think that someone who describes himself as "smarter than 95% of society" would know better), I'm aware that, with few exceptions, the last thing you want to do is "talk about economic issues".

M. Hodak February 27, 2008 at 11:49 pm

Free trade IS the greatest threat to the economies of Michigan and Ohio. People and industries are leaving them for…Texas and South Carolina, for crying out loud!

Which is exactly what the rust-belt Govs are doing instead of competing.

Keith February 28, 2008 at 8:55 am

Quote from muirgeo: "The trade debt is in effect fostered by Fed policies and we all end up paying for it in so many ways."

If the Fed is the source of the problems, then why are we fretting over trade?

vidyohs February 28, 2008 at 9:35 am

Sir JeffS,

""George, having tangled with you many times at other sites, where you volunteered your name and profession (you'd think that someone who describes himself as "smarter than 95% of society" would know better), I'm aware that, with few exceptions, the last thing you want to do is "talk about economic issues".

Posted by: Jeff S. | Feb 27, 2008 10:26:36 PM""

As are we, sir, as are we. But, of course we are spared those "few exceptions, thank God. Judging by the quality of the intellect that goes into muirduck's posts here, I can only imagine what its casual conversation must be.

I salute you, JeffS, in your adept skewering of the "duck". LOL

vidyohs February 28, 2008 at 9:37 am

"The only practical way to rid the economy of such "loses" is to try to freeze it, a futile step that will in the long-run only make losers of everyone."

The paradox here, Don, is that no matter at what point in time the economy is "frozen" it will include the current winners and losers, so even this is not a practical solution for a cure, only a solution for stagnation at some particular point.

vidyohs February 28, 2008 at 10:27 am

Oh JeffS,

In addition. Not to brag but just to justify, one of my hobbies is cooking. I have managed to garner a respectable reputation among friends and family as a creative cook with decent skills.

I discovered a long time ago that "duck" is best prepared by skewering them and letting them turn slowly roasting in their own juices. And the only good duck is on the spit, otherwise they are just a nuisance.

And, do this outside over a pit or cooker (in public) or else you'll royally grease your oven.

I see by your treatment of our muirduck that this is knowledge that you've also picked up.

Bless you brother Chef.

Martin Brock February 28, 2008 at 10:37 am

No one, as far as I know, favors unfair trade — …

No one, as far as I know, favors not trading. It's always about the terms of trade. Globalization is not free trade. It's "fair trade"; otherwise, we wouldn't be trying to impose our patent monopolies across the globe.

… but by slapping the label "unfair" on any trade that a candidate's favorite constituents dislike, that candidate can oppose free trade while claiming still to support free trade.

This statement doesn't distinguish Clinton and Obama from McCain at all. The massive trade treaties we call "globalization" are packed with "fair trade" restrictions, like the TRIPS agreement.

The only practical way to rid the economy of such "losers" is to try to freeze it, a futile step that will in the long-run only make losers of everyone.

That way's not very practical really. Another way is to rid the WTO of TRIPS or simply to rid the world of the WTO. I don't know exactly what lies in this direction, but I now it's not about to happen.

Why should I believe that North American trade is actually freer with the North American Free Trade Agreement than it would be with no treaty? Because the statesmen put "free" in the title? Should I expect the next one to be titled the North American Tyrannical Trade Agreement? NATTA.

Sam Grove February 28, 2008 at 11:51 am

Nail it, Martin.

Politicians love sticking misleading labels on their products.

Aaron February 28, 2008 at 2:51 pm

I work in international trade, and I do have to say that I believe free trade is a great thing indeed, just go to your supermarket.

However, if some countries play games with their "free trade" then its not really "free trade" and we should be cautious.

Just like a free market economy benefits from a strong rule of law, free trade works much better when both sides are friendly to imports, rather than trying to somehow game the regime…like China trying to apply tariffs to car parts that are imported there to be assembled. (When some Chinese suppliers moan about the appreciation of the Yuan, I say, "hey, maybe you should've just bought our cars instead of demanding we open joint ventures to make them in China. Then you maybe wouldn't have this problem."

And of course, in the long run these things all work out. I just hope the professors can empathize a bit….what if India decided to export Econ profs with their government paying the first 50k of salary and they were willing to do this for 20 years. Hey that's a great deal for America and we should have no problem accepting that, right? It's a bargain. And the econ profs can all re-train to become Gender Studies profs. They are smart and can handle the transition. How fun would that be for you guys?

Bob Smith February 28, 2008 at 5:00 pm

However, if some countries play games with their "free trade" then its not really "free trade" and we should be cautious.

I would argue that we should eliminate our tariffs regardless of the tariff other countries charge on our goods.

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