The Concise Guide to Economics: Free Trade vs. Protectionism

conciseguidetoeconomics.com ^ | Unknown | Jim Cox

[Luis Gonzalez]

Consumer electronics are cheaper today than in 1974, gas (even at the current level), was more expensive in 1974, cars are cheaper today than in 1974. Those are just starters.

[Luis Gonzalez]

And you want the Us government to traet its citizens like China.

That makes you a communist.

You should have listened to your mother: "So, if Johnny jumps off a building, you should jump off that buildng too?"

[1rudeboy]

For the first time since the 1960s, U.S. productivity has been growing at an annual rate above 2.5 percent. As numbers go, this may not seem spectacular, but it has enabled the economy to sustain a very low level of unemployment--less than 5 percent in each of the past three years--while holding retail price inflation to about 2 percent a year. The late stages of most business cycles put irresistible pressure on employers to raise wages, which ordinarily leads to increased prices and in turn acts to slow or stop the expansion. But in the present circumstances, employers can raise wages without upping prices because of increased productivity.

According to the President's Council of Economic Advisers, about half of the increase in productivity since 1995 is explained by increased capital equipment--particularly computers and software--plus increased productivity in the computer-manufacturing industry. The remaining half of the productivity increase may reflect new efficiencies from Internet use by business and the normally greater efficiency of employees during periods of high demand.

The better educated benefited the most from the rise in productivity. Average hourly earnings in private, nonagricultural business increased in real terms by about 16 percent during the past 40 years, but professionals did better: physicians, for example, enjoyed an increase in real earnings of 33 percent in the same period. One way of looking at the benefits of rising productivity is to compare various family income groups. The top 5 percent of families had an increase in income of 129 percent in real terms from 1960 to 1998, while the middle fifth had an increase of 54 percent and the bottom fifth only 38 percent. Family income went up not only because productivity was greater for other reasons, such as the increasing number of wives taking jobs outside the home. The average real income of working Americans, as the chart shows, increased beginning in 1995--undoubtedly made possible by the spurt in productivity over the same period. [emphasis added]

Source: Scientific American

[1rudeboy]

oops . . . the above refers to the period up to the year 2000.

[edsheppa]

Good post, but there's no way you'll get through to them. They've invested a lot in doom'n'gloom and won't let go. It's like arguing with creationists.

[Libertarianize the GOP]

bump

[american spirit]

That's very good info but it does neglect an inescapable yet never discussed facet of this whole debate and that is the explosion of debt at all levels since free trade became a front and center issue. I've been in the com'l/military electronics business since the early 80's and that's about the time frame I recall major concerns being expressed about the path we were embarking on at that time. (I'm sure the debate started much sooner but I do recall fierce discussions about Asian penetration at that time).

Here's the point....according to the Federal Reserve's own figures, since the early 80's corporate debt has gone from a little over 1 trillion to approx. 5 trillion in about 20 years....that's five-fold increase. What's more household debt went from a shade under 2T to almost 10T in the same time frame (5X). Also, fedgov debt went from a little over 1 trillion in '83 to the current 7 trillion they're willing to publicize and the over 40 TRILLION in "unfunded liabilites" that they're somewhat reticent to discuss....anyone heard any discussions on this fact during the debates? (I think not).

Of course there are numerous reasons for the dramatic increase in those numbers but it's undeniable that if free trade policies had delivered the wealth creating possibilities we were all left to believe would be created, those levels of debt would not be even close to what we've witnessed. It doesn't take a rocket scientist or even a free trade cheerleader to figure out that the explosion of debt has masked the debillitating effects of a flawed policy that will wreak havoc on future generations of Americans....and all the name calling and swarmy remarks cannot change that UNDENIABLE FACT!

[greenwolf]

So, did slave labor and thatch huts just get invented?

We seem to have been doing just fine competing in that world up to now.

The civil war was fought over tarrifs and industrial policy. If Abraham Lincoln had believed in Adam Smith, the civil war would not have happened. The fruits of those policies coupled with our free internal systems propelled us to world dominance and, for a period of time after WW-II, we were the only nation on earth left with a manufacturing capacity which was still relatively intact.

ANY theory could look good under those circumstances, but circumstances change. And, unless republicans get some sort of a handle on present realities involving jobs and outsourcing and the like, their circumstances are going to change too...

[upcountryhorseman]

According to the Economic Report of the President, 1991; a chart showing Trade/GNP Ratio and National Productivity Growth indicates that, starting in 1973, productivity growth
declined as the trade/GNP ratio increased.

Real wages have declined because since 1973 we have converted to a service economy and lost manufacturing jobs:
manufacturing jobs paid more than service jobs, consequently, two-job households became necessary.

[Luis Gonzalez]

"It's like arguing with creationists."

I have a very simple answer to that debate: God created evolution.

[Luis Gonzalez]

1974 per capita income US $ 5,676.00
2002 per capita income US $30,941.00

American Institute for Economic Research Cost of Living Calculator results:

$5,676.00 in 1974 equals to $20,712.22 in 2002.

$5,676.00 equaled a $109.15 a week salary.
$30,941.00 equals a $595.02 a week salary.

Ten gallons of gasoline in 1974= $5.28, or 4.8% of weekly salary.

Ten gallons of gasoline in 2002= $15.10, or 2.5% of weekly salary.

Things ain't as you say they are.

[neutrino]

Post proof of America's protectionst past.

Why sure, Luis. I'm glad to help educate you on the errors in free traitin.

You can also find the data at http://home.netcom.com/~rdavis2/tariffs.html

Enjoy!

[1rudeboy]

Please correct me if I'm wrong, but doesn't that chart show a lowering of tariff rates contributing to the greatest expansion of economic activity in history?

[dgallo51]

You can choose to wait, that's cool. I prefer ramming with an Abrams M1A1/2 :-)

[Luis Gonzalez]

Look at that...

Mmmm...

Tariffs rise dramatically, then suddenly THE GREAT DEPRESSION!!!!

Coincidentally, when they go back down...Great Depression over and "happy days are here again"!!!

Thanks form proving my point.

[Luis Gonzalez]

Hey Poohbah...check out neutered's chart on #52.

See the relation to high tariffs and the Great Depression?

[upcountryhorseman]

Regarding the real wages issue; Since 1973, when free trade started in this country, there has been a disconnect between
productivity and real income(1982 dollars). As productivity increased, real income decreased. This is shown by examining productivity and real wages from 1950 to 1990. From 1950 to 1973, productivity increased as manufacuring wages and average wages increased. But, from 1973 to 1990, as productivity continued to increase, manufacturing wages
and average wages both decreased.

[upcountryhorseman]

Convert this to 1982 dollars.

[upcountryhorseman]

Smoot-Halley was implemented after the depression started:
it didn't start the depression.

[natewill]

I wonder if anyone has read The Great Betrayal by Pat Buchanan. I had been a free-trade zealot for years, and Pat had some very thought-provoking stuff to say on the subject. Turned my opinions around 180 degrees. Our whole government structure was based on import duties, partly for protection of US industry, but partly because that's how we funded federal govt activities; there was no income tax. And I agree with whoever pointed out that Adam Smith was no more a part of the founding of this country than was Howdy Doody.