Can We Trust Economists on Free Trade?

Chronicles ^ | November 2004 | Ian Fletcher

[rmlew]

Political Economy ping

[Age of Reason]

It all depends on how you define prosperity.

Which is something most economists overlook.

[rmlew]

Economists fail to define almost as many things as they assume.

[SpaceBar]

"Free trade" is a misnomer and a non-existent entity. If Hewlett-Packard can hire a seasoned programmer from Mumbai for $11,500, I should be able to buy fifty pounds of basmati rice for 37 cents.

[Carry_Okie]

Economists, in their infatuation with comparative advantage, forget that the US taxpayer bears nearly the entire burden of providing safe conduct for production of goods from abroad. That taxpayer then has to be paid higher wages accordingly to cover that cost and, as a laborer, thus operates at a significant market disadvantage. Globalization thus enjoys a significant military subsidy from the American taxpayer.

[Last Dakotan]

As time goes on you see more and more engineers questioning our adherence to free trade.

[fallujah-nuker]

I hear you there, Black and decker moved production to chi-com factories, their cost of labor was slashed but the tools did not get any cheaper. Or take shoes, the average wage in China is less than 5 dollars a day, what Henry Ford payed his workers in 1914. Shouldn't we get shoes at 1914 prices since they're mostly made in China now?

[rhetor]

Yawn.

This guy needs to read a few classics on free-market economics (rather than interventionist economics which he mistakenly believes is free-market) so that he can at least appear to know what he's talking about.

1. "Economics in One Lesson" by Henry Hazlitt
2. "The Conquest of Poverty" by Henry Hazlitt
3. "The Failure of the 'New Economics' - An Analysis of the Keynesian Fallacies" by Henry Hazlitt
4. "Liberalism" by Ludwig von Mises
5. "Socialism" by Ludwig von Mises
6. "Omnipotent Government" by Ludwig von Mises
7. "Economics on Trial" by Mark Skousen
8. "Government Against the Economy" by George Reisman
9. "Capitalism" by George Reisman

[Noachian]

The one thing that has always struck me as odd was the build up of communist China as a base for our many of our manufacturing plants.

Only a couple of decades ago China was quite open in its quest for world domination, and saw America as the one obstacle in its path.

Within the past few weeks China anounced that it would seek military parity with the US within this century. China, it seems, holds a long term view of power.

So, we are now in a situation where a "cold enemy" has charge of a good portion of our manufacturing base, builds up its military on the money made from exports to the US, and our economists feed us economic theories based on models that have nothing to do with China's covert intentions.

If we are to trust economists with the welfare of this republic then hard questions will have to be asked and answered about China.

[OrthodoxPresbyterian]

Can We Trust Economists on Free Trade?

"The average person has no strong opinions about chemistry.
But he has lots of opinions about economics.
Which are usually wrong." -- Leonard E. Read

[rmlew]

Mr. Fletcher is more well read than your think.

[Nephi]

It is puzzling to me that conservatives fight against liberal tax policies, but embrace liberal globalist trade theory. Globalism is the brainchild of communism.

Until TR ran against the protectionist Taft, helping WW to win and begin the irreversible downward spiral of America, Republicans had always been protectionist. Of course, up until then, big business wanted America to be protectionist.

You have to ask yourself, "Why would notorious labor Democrats betray unions in order to pass free trade treaties?" If you say it, "for the good of the country," you must be kidding yourself.

[WFTR]

As our $500 billion/yr trade deficit, with its attendant job destruction and long-term damage to our industrial base, continues to spiral out of control, the public may be forgiven for wondering whether there might be problems with the free-trade theories that have gotten us into this mess.

I think there's a great deal of merit in this essay, and I like the fact that the writer brings up some important points about the "science" of economics and the economists who manage that "science." I've often said that free trade will become a less popular idea among economists when more economists' jobs are outsourced to China. In fact, the death of free trade will come when the jobs of bureaucrats, lawyers, and television personalities are outsourced to China and India.

In spite of some agreement with the author, I disagree with the statement that free-trade theories are entirely responsible for the current "mess" in the American economy. I think three or four other factors are equally if not more responsible for many of our problems. They include the following.

Lawsuits: A big part of the reason that anything made in America costs more than the same item made in other countries is that the item made in America carries greater legal costs. Anything done over here has to be cleared with the lawyers. Lawyers are involved in hiring employees. They are involved in making product. They are involved in marketing a product. They are involved in protecting the manufacturer from lawsuits once the product is made. I'm not saying that companies shouldn't be held responsible for faulty and dangerous products. I'm not saying that certain practices by employers shouldn't be stopped. However, many of the lawsuits that have gone against our manufacturers have been decided wrongly. A manufacturer who faces loss of income from unjust suits here in America versus freedom from these suits overseas is going to be more likely to move overseas.

Energy: The cost of energy in the United States is rising dramatically. Every time the price of natural gas increases, my employer moves a little closer to closing the plant where I work and sending that production to China. In some places, they still flare natural gas as a waste product. In the United States, the cost continues to rise. One of the big reasons that the cost is rising is that we are using less of our most abundant natural resource, coal. We have good supplies of this resource and have pretty good technology for burning it cleanly. Unfortunately, we've been pushing industries to convert to natural gas, and the result is a rise in the cost of gas that is hurting all industries that use gas. We need to reverse this trend.

Unions: Unions did tremendous good for the American worker at one time, but for the last generation or so, they've mostly been poisoning the well from which our jobs come. If I have a choice between dealing with people in one country who treat me like an enemy for hiring them and people in another country who treat me like a friend for hiring them, I'd go to the country where people treated me like a friend. Unfortunately, many unions and their members have treated employers like the enemy. I'm not saying that unions have no place, but the attitudes of many unions and union members is detrimental to keeping manufacturing in the United States.

Subsidies: The United States has subsidized the infrastructure that has allowed other countries to be in a position where companies can build factories there. True free trade theory would suggest that a factory in any country must compete on the basis that every expense associated must be part of the capital or ongoing cost of the product from that factory. In many cases, we skewed that equation by paying for much of the infrastructure with foreign aid. When one of our factories closes because of competition from one of their factories, "free trade" didn't hurt our factory but instead the departure from free trade hurt our factory.

Bill

[fallujah-nuker]

Very true, these guys are much more comfortable with a 28% tax on the value of labor I export to my US employer than on exports from chi-com factories to the US. It is no coincidence that the founding fathers who limited the role of the federal government chose a funding method that would limit the federal governments share of GDP to a few percent. To finance a nanny state that takes 20% of GDP you must have an income tax. I get a kick out of these conservatives who prefer the taxation system of Woodrow Wilson to that of George Washington.

[fallujah-nuker]

I think one guy whose job has been outsourced in Alan Greenspan, check out this article. When the chi-coms crash the dollar with the currency reserves gained from free trade all that cheap crap at Wal-Mart is going to get more expensive. Robert Heinlin said it best, TANSTAAFL.

Dollar expected to fall amid China's rumoured selling
By Steve Johnson in London and Andrew Balls in Washington
Published: November 7 2004 19:43 | Last updated: November 7 2004 19:43

The dollar could slide still further, in spite of hitting an all-time low against the euro last week in the wake of George W. Bush's re-election, currency traders have said.


The dollar sell-off has resumed amid fears among traders that Mr Bush's victory will bring four more years of widening US budget and current account deficits, heightened geopolitical risks and a policy of "benign neglect" of the dollar.

Many currency traders were taken aback on Friday when the greenback fell in spite of bullish data showing the US economy created 337,000 jobs in October.

"If this can't cause the dollar to strengthen you have to tell me what will. This is a big green light to sell the dollar," said David Bloom, currency analyst at HSBC, as the greenback fell to a nine-year low in trade-weighted terms.

The dollar's fall comes as the Federal Reserve is widely expected to raise US interest rates by a quarter point to 2 per cent when it meets on Wednesday and to signal that it will continue with a measured pace of rate increases.

Speculative traders in Chicago last week racked up the highest number of long-euro, short-dollar contracts on record. Options traders have reported brisk business in euro calls - contracts to buy the euro at a pre-determined rate.

However, the market has been rife with rumours that the latest wave of selling has been led by foreign governments seeking to cut their exposure to US assets.

India and Russia have reportedly been selling US assets, as well as petrodollar-rich Middle Eastern investors.

China, which has $515bn of reserves, was also said to be selling dollars and buying Asian currencies in readiness to switch the renminbi's dollar peg to a basket arrangement, something Chinese officials have increasingly hinted at. Any re-allocation could push the dollar sharply lower and Treasury yields markedly higher.

[Dalite]

Unfortunately, Trade deficits are necessary for the US to have a vehicle to export it's inflation to other contries.

In a debt-based money system, the only way to show economic growth is by going deeper in debt. As long as the money has sufficient velocity, the overall economy looks good. It's kinda like giving a patient an infusion of blood through a fire hydrant, wading knee-deep in the blood that is flowing from the patient's wound(s) and declaring that the condition is stable. (Joseph Heller was better at describing this situation than I can... )

Unfortunately, spewing a constant flow of cash into an economy to keep it afloat only produces inflation, and weakens the buying power of the money. To lessen this effect, a large amount of this cash must go overseas; as a vehicle for hiding the inflation from the American Citizen.

For all the dollars that China has taken off our hands, their only reward was U.S. threats if they contine to link their currency to the American dollar. (Tag; you're it!)

You're not gonna find many economists talking about this; just like you don't see too many parents telling their kids that they are ugly.

[Dalite]

Dollar expected to fall amid China's rumoured selling By Steve Johnson in London and Andrew Balls in Washington Published: November 7 2004 19:43 | Last updated: November 7 2004 19:43 The dollar could slide still further, in spite of hitting an all-time low against the euro last week in the wake of George W. Bush's re-election, currency traders have said.

All of this could also have something to do with OPEC pushing to abandon the U.S. Dollar in favor of only accepting Euros for OPEC oil payment.

This started With Saddam Hussein in late 2000 / early 2001, and the idea has since spread like the plague.

This is likely to continue to press oil dependent countries to continue in their trend of dumping U.S. Debt in favor of building Euro Reserves. To them, this becomes a matter of survival.

We are in the midst of a cold-war stance between the U.S. and E.U. over control of the world's most favored currency. The stand-off is only expected to widen from this point on.

[Shermy]

"Free trade" is something not at all practiced by India and China. "Free trade" is an ideological cover story to stripmine the lower and middle classes of the USA.

[fallujah-nuker]

Amen, you are one who sees what is going on. The EU is a rival, we should adjust our policy accordingly. The Euro was created to replace the dollar, an economic weapon against America. I am amazing at all these guys on here who bash the French, but would go ballistic if we kept their cheese, wine and Airbus jets out with tariffs.