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.
Did you read what you posted? Have you ever understood theorizing to illusions?
“Protectionism is simply mercantilism. “
Well, at least you got the first part right.
That mercantilism built the biggest capital stock in the history of man, NOT “free trade”.
The US established the high bar of mercantilism from its’ inception in 1787 until, at least, the 1950s. As the US began to cede this posture in the 60’s, Japan and China picked it up and came to realize that the US model was how nations became rich. Filthy, stinkin’ rich.
Since, we have witnessed the largest transfer of capital stock since the barbarians stormed the gates of Rome.
It’s gone from the US to China, and a lesser extent to Japan.
We have about 45 million citizens out of work.
Please, can't we have more free trade? /s
This premise died a slow death, but it is dead.
Reasoned reciprocal trade is good.
We haven't had it.
Trade creates jobs, in China, India and Taiwan.
Oh, but he has an impressive-looking graph.
So I suppose that makes everything okay.
No country ever off shored, retailed and imported its way to prosperity.
Here too. Read the article. Check the data. Free trade grows the economy of all the partners like nothing else can.
Did you vote for Trump.
So he hates Trump and loves Bush and the GOP e ....got it
Show me one modern trade agreement that actually involves free trade....there ain’t none
Trump is right the agreements made in the last thirty years all favor other countries. And even then we won’t enforce them
Only problem is there is NO free trade
Dang! I missed that...
“:^)
“Protectionism is simply mercantilism. Trade creates jobs. “
It creates jobs in other countries, not ours. The facts are conclusive.
OTH Having to pay $32.50 for a domestic toaster instead of $30.00 for gook made one is only an inconvenience at most. It is not a loss in any way.
No Way Around It, free trade is an absolute destruction of the working class in our country, and the soul-less exploitation of the world’s most vulnerable people.
You’e simply wrong on that point, and the facts do not support you.
Protectionism is much like Obamacare or minimum wage hikes. It closes off available markets, reducing sales, raising prices, and causing economic dislocation. The result of that is higher unemployment.
We haven’t had free trades in office for a while.
China has no OSHA. No EPA. No Obamacare taxes on employees.
Free trade means....given a choice.....companies will always go there to make stuff.
Free trade only makes sense if ALL participants play by the same rules.
The author of this piece is an idiot for skipping over this fundamental truth.
Free traders in a mercantilist world are suckers. We call their countries colonies, eventually.
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Free Trade is economic terrorism.
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