Posted on 10/16/2017 12:07:04 PM PDT by TBP
The economic argument for free international trade is basically that people produce in order to consume, not the other way around, so the economic system should be geared to the benefit of the consumer, not the producer. In the economic sense, producers include workers and owners of capital or land, who often join in associations called "firms." There are more consumers than producers, as everybody is a consumer but not everybody is a producer; some live off the production of parents, donors, or taxpayers. So there are more consumers than producers; but this is not the important point.
Free Trade Helps More Than Hinders
The important point is that free trade benefits consumers more than its competitive pressure harms producers. Economic theory provides a nice geometric demonstration of the proposition that the total cost of protectionism for consumers is higher than its total benefits to producers. The demonstration can be (imperfectly) rendered in plain English: if free trade harmed producers more than it benefits consumers, the former could outcompete their foreign competitors by bribing domestic consumers with better prices and still gain compared to ceding the market to foreign producers - and protectionism would not be necessary. When domestic producers are unable to compensate consumers for not patronizing foreign suppliers, it means that free trade benefits consumers more than it harms producers.
That free trade would have net benefits is not surprising in light of the theory of comparative advantage, due to 19th-century economist David Ricardo. If two countries - that is, all producers in the two countries - produce what they are most efficient at, the total volume of goods available for exchange and consumption will be larger.
A popular objection to these economic arguments is that a consumer cannot benefit from lower prices if he does not have a job. Since free trade destroys jobs, it cannot be said to help consumers in general. You can't consume if you lose your job - or you have to consume less by getting a lower paying job or relying on transfers, public (unemployment insurance, social welfare, and such) or private (help from family or charity). Let me call this the "populist" objection to free trade.
A first reply is that availability of jobs is a symptom, not the cause, of prosperity. If jobs were the cause of prosperity, banning agricultural technology would generate much prosperity by dramatically increasing employment in that sector. Nearly 12 million Americans worked in agriculture in 1910 (the year when agricultural employment reached its peak) while they number less than 2.5 million today (for a population three times as large). In the meantime, the total number of jobs in the American economy increased from 37 to 151 million. We should beware of the obsession of job creation, especially by government edict.
Even assuming that the number of jobs is a good indication of welfare, the populist objection is not valid. Although some workers can, like other producers, be harmed by competition, free trade does not destroy net jobs. At least as many new jobs appear as old ones disappear.
Job Creation and Job Destruction
Consider the example of manufacturing. The number of jobs in American manufacturing dropped from its peak of 19 million in 1979 to 12 million today. Most recent job losses in manufacturing come more from the impact of technological progress than from import competition; economists Michael J. Hicks and Srikant Devaraj estimate that international trade accounts for only 13% of these losses. And - this is the important point - while manufacturing employment was decreasing, total employment in the economy increased from 99 to 151 million between 1979 and today, for a net creation of 52 million jobs. In the meantime, and this is the really important point, GDP per capita (the most comprehensive measure of the standard of living) increased by 79%.
Another way to approach the populist objection that free trade destroys jobs is to observe that the main factor in employment is population growth. Employment naturally grows in line with population. Every new worker who arrives on the labor market creates his own job in the very real sense that he spends as much as he earns (or the rest is invested, creating jobs too); indeed, it is precisely in order to spend an equivalent amount that he starts working and earning an income (a reflection of Say's law, recently featured in The Economist). The new worker creates his own job by creating another one elsewhere in the economy through his own consumption.
The figure below illustrates the general point by showing the level of civilian employment in relation to the American working-age population (15 to 64 years of age) over the past half-century. Each dot on the chart represents one year. Observe how closely employment growth tracks population growth. A simple regression analysis confirms the visual impression: the coefficient of correlation is 0.992 and is highly statistically significant (at a level of significance much lower than 1%). Because the working population increases with time, the horizontal axis nearly coincides with the chronological order. The drop in the employment towards the end of the curve corresponds to the 2008-2009 recession and the slow recovery that followed.
We thus have both a straightforward economic argument and empirical evidence to the effect that economic freedom in general and foreign trade, in particular, do not destroy net jobs in the economy. The number of jobs moves with the number of people who want to work, barring regulatory obstacles created by government.
Trump ran on border taxes and tariffs. It must have taken some real mental gymnastics for you to vote for Trump against your religion.
We have enough customers right here.
Prices determine markets. When American companies can no longer produce cheap crap, it will be done in China, for everyone’s benefit.
His collection of data made it clear that monopolies (mercantilism) were drags on the economy.
Having larger markets spur the further division of labor not possible in small ones. This increases production and lowers prices for the consumer. Hence, the reason we have international trade.
Adam Smith’s theory was something to shoot for not an actual accomplishment. The establishments profited from Protectionism hence were bitterly opposed to it.
Your last comment is just a Straw Man not a relevant or intelligent one.
The same arguments can be made about why sales or income tax shouldn’t be in place.
Re-read my post. I’m on your side.
I agree, that was one of the reasons I opposed Obamacare.
You do realize tariffs would grow government as well as pit portions of the economy against themselves.
I’m sorry I was in the attack mode. I am not used to having allies. Friendly fire accident.
These people are ready to throw themselves into the flames because they see the World Economy as a Zero Sum Game.
And everyone already has a toaster here, right?
I understand trade very well, and have read The Wealth of Nations.
I have also studied Capital Stock Adjustment theory and Friedman, Keynes and the Austrian School.
When discussing “free trade”, none address the fact that all the nations are predatory mercantilists.
Every single one of them.
Do you propose the US eliminate all trade barriers?
Apparently our founding fathers thought industry was important enough to enact tariffs in 1789 - the USA’s first law.. I don’t remember any of them self immolating with fire.
One thing you left out.
Along with the offshoring of manufacturing jobs, we have increasingly been offshoring technical, engineering, I.T., back office, agricultural, financial, and virtually anything else that can be done remotely. Add to that a massive influx of low skilled immigrant and illegal laborers over the last 20 years, along with dealing with heavily subsidized communist regimes and their forced technology transfers and rampant intellectual property theft, and it makes sense why nobody in their right mind would want to do business in the US.
Don’t forget, this has been going on for over 40 years. Many FRee traitors have made a fortune from selling out to third world communist regimes, and many have retired very wealthy from this process.
I understand trade very well, and have read The Wealth of Nations.
I have also studied Capital Stock Adjustment theory and Friedman, Keynes and the Austrian School.
When discussing “free trade”, none address the fact that all the nations are predatory mercantilists.
Every single one of them.
Do you propose the US eliminate all trade barriers?
The process of creative destruction is not limited to one economy, it is a world-wide and irrepressible process. A process produced by Freedom. Capitalism is produced by trying to provide more for less this means constant change.
There are federal retraining options and programs for people whose job is lost overseas.
Should the Horse Blinder industry have been protected from automobiles? Should American tv manufactures obsolete tube technology have been protected from the competition from Japanese printed curcuit and transistor technology?
“Your last comment is just a Straw Man not a relevant or intelligent one.”
Given your concession that Smithsonian Free Trade has never been accomplished, I assert my last comment is the ONLY relevant or intelligent commentary on this subject.
So, I’ll post it again for your edification:
“And if folks want to take down all defenses to all the other Mercantilists, they are just stupid, or suicidal, or both.”
It will be if we economic nationalists(patriots) get our way. That is what we are fighting for. You Free Traitors™ control both parties. That has been a terrible thing for so long. All economics is political.
We make NEW products.
You are arguing against the Export Cycle:
1 A new product is created;
2 the technology is perfected and rationalized here and prices and production are maxed out;
3 the product is exported;
4 companies in the export receiving country figure out they can produce the product with a lower price;
5 that product ceases to be produced where it was initially created BECAUSE OF MARKET FORCES.
Process starts all over.
We need to foster CREATIVITY not protect obsolescence. That is the well-spring of expanding the economic life.
Free trade is fine.
What the President and most of us here is for free trade to be FAIR trade.
Those aren’t Free Trade, just a caricature of the concept. Government’s claws are truly off actual free trade.
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