Ron Paul, even among his detractors, enjoys a reputation for being a man of clear and consistent principle. Perhaps on some issues he is. But the more I study his positions on free trade, the more the one word that comes to mind is... disingenuous.
What does Rep. Paul have to say about free trade? A supporter's website neatly summarizes his position as follows:
Ron Paul is a proponent of free trade and rejects protectionism, advocating "conducting open trade, travel, communication, and diplomacy with other nations."
OK. Not my position, obviously, but it's a clear stance. Unfortunately, the rest of his thinking is a mish-mash of abstract ideology, doubletalk, and blindness to the logical consequences of facts.
To wit, continuing with the same summary:
He opposes many free trade agreements (FTAs), like the North American Free Trade Agreement (NAFTA), stating that "free-trade agreements are really managed trade" and serve special interests and big business, not citizens.
So Rep. Paul is in favor of free trade in theory, he's just not in favor of free trade as actually practiced. What a neat way to simultaneously preserve one's fealty to an ideological ideal while also being able to take a swipe at unpopular "special interests and big business."
Any problems you think free trade causes? They're the bad guys' fault.
This stance renders the idea of free trade logically immune to any empirical counter-evidence, because one can always explain away that evidence as being due to imperfect implementation. Marxists once used this trick: "No, the failure of Russia, China, Cuba... doesn't disprove communism. They don't represent real communism!"
Unfortunately, free trade isn't just a good thing, badly implemented. It is fundamentally defective in its own right. (There's not the space to explain why here, but I did write a whole book on the question, with a skeleton summary here.) For most of American history, we didn't practice it.
Now, to be fair, it is indeed true that what we have today isn't real free trade. As I and many other people have pointed out many times, it's one-sided free trade, in which America opens its market to the world but major foreign nations do not reciprocate. Lack of reciprocity isn't the whole problem, but it's at least half of it.
But does Dr. Paul say this? No. He doesn't even give a hint that he's even aware of it. So this isn't, apparently, what he means. (My apologies if it is and I somehow failed to find this in his published record.)
But let's continue:
He voted against the Central American Free Trade Agreement (CAFTA), holding that it increased the size of government, eroded U.S. sovereignty, and was unconstitutional... Congress, rather than the executive branch, should construct FTAs.
Fair enough. I believe all these complaints are true. But... suppose we did a free trade agreement his way? How would the outcome be any different? How would a trade agreement negotiated by Congress (i.e. without using the 1934 Trade Agreements Act, in which Congress, arguably unconstitutionally, handed its tariff-setting powers over to the president) be any better?
It wouldn't. And I can't help noticing that, back before the 1934 Act, when trade policy was set by Congress, America was protectionist. So perhaps Rep. Paul has a glimmer of the right idea here, but it leads to policy conclusions the opposite of his own.
Similarly, Rep. Paul claims to revere the Constitution and the intentions of the Founders. Someone needs to tell him that they were protectionists.
Ron Paul hates "managed" trade. He sees it as the great corrupter of free trade. But here's the problem: if we're going to fix the problems caused by free trade -- like massive trade deficits -- we're going to do it by having managed trade, not by avoiding it.
For example, we're going to have to tell China, quite bluntly, that they only get to sell us $1 billion of stuff if they buy approximately $1 billion back from us. But we're never going to solve our problems by having more "free" trade, because if China isn't confronted with this kind of deal, it will just take advantage of us and run surpluses against us.
You can play word games, if you like, about what counts as "free" trade and what doesn't. Perhaps you want to define "free" as meaning "free in both directions." Fine, and that's actually not a bad policy choice. But if you're going to enforce that "in both directions" bit, then trade has to be managed -- somehow, somewhere, by somebody.
Where does Paul get his policy ideas on free trade from? Like most people, they derive ultimately from theory, his beliefs about how the world works. So let's take a look at what he says he thinks here. He once said (February 12, 2001):
Free trade is the process of free people engaging in market activity without government interference such as tariffs or managed-trade agreements.
Well, in that case, we can forget about the idea having much relevance (at least on this planet), because in the real world, most international trade is manipulated by governments in one way or another. And because trade requires a foreign counterparty, this includes governments that we have no control over. He continues, in the same speech, saying:
In a true free market, individuals and companies do business voluntarily, which means they believe they will be better off as a result of a transaction.
Here Rep. Paul has slipped in that ancient laissez-faire canard that any voluntary transaction must be beneficial to all concerned -- or, after all, why would they engage in it?
Why indeed?
Because you might as well ask whether it's a good thing for a starving man to sell his shoes.
Voluntary transactions may be beneficial in the instant, but this edits out of the picture how the parties to the transaction arrived at the bargaining position they found themselves in when they did the transaction. This argument has been used for centuries to justify the unjustifiable, from child labor on down. Most of what counts in economics is about how we all wind up in the economic circumstances we inhabit, not about the individual transactions we then execute.
You can't justify free trade just by looking at individual trade transactions. You need to look at what kind of economic system you get, when you have free trade. And, need I tediously point out, our individual transactions are hardly free, either, when we're buying goods produced with slave labor, or close to it, in places like China.
Some further elements of the Pauline economic philosophy:
If taxes are low on imported goods, consumers benefit by being able to buy at the best price, thus saving money to buy additional goods and raise their standard of living.
True enough, but again, it's only a half-truth. Cheap goods don't only give us cheap immediate consumption, they also deplete our capacity to produce goods ourselves when their importation destroys domestic industries. And without domestic industries, where do we earn the money to buy imports? In technical terms, Paul has given a partial-equilibrium solution to a general-equilibrium problem.
Similarly, so-called managed trade agreements like WTO favor certain business interests and trading nations over others, which reduces the mutual benefit inherent in true free trade.
Okay, fine, but... which "certain business interests and trading nations?" Rep. Paul declines to tell us, I suspect, because the correct answer here is "the business interests of nations that practice mercantilism, and the nations that practice it." Giving this answer would require admitting that mercantilism -- you know, the economic philosophy practiced by nations, like China, which are cleaning our clock right now -- can work, which is contrary to free-market ideology.
Free market ideology says mercantilism can never work, because manipulating markets can never work. Only dumb socialists try to do that, and they always fail. Free-market ideology has never heard of state capitalism, much less of the fact that it is proving a devastatingly effective rival to the U.S.
President Obama appears to be merely ignorant of this last fact; Rep. Paul seems to go him one better by believing that it can't be true as a matter of fundamental principle,. What we need right now is a president who knows that it is true, and has a plan for America to fight it.
Maybe I'm wrong. Maybe Rep. Paul does, somewhere, acknowledge the existence of state capitalism, and that in the right hands it can work very well indeed. Good for him if he does. But if this is true, then the whole underlying economics of libertarianism -- that pure free markets are always best -- collapses.
Here's a good video clip of Paul's disingenuousness on free trade:
Follow Ian Fletcher on Twitter: www.twitter.com/IanFletcher
Many Paulbots/Ronulans/Paulestinians only support Ron Paul because they hear him bashing NAFTA, but when they find out his true positions on trade they drop their support on a dime.
You need to get the word out on Ron Paul Ian.
I know you think you are intelligent, and maybe you are, but please learn some humility, arrogance is very unbecoming.
The tariff acts of 1789-1816 were strictly for raising revenue in order to repay back our doubt that was accumulated during the Revolutionary War, unlike our current leaders, I'm not only referring to Obama but also previous presidents, our leaders in the beginning were actually concerned with paying off our debt. Our protectionist era didn't strictly start until the passing of the tariff of 1824 and even then it was relatively moderate up until the Civil War in which it was used again for revenue purposes. The extreme tariffs stayed in place after the Civil War ended and through the Restoration period, they became even more intense in the latter decades of the century reaching such extremes as 100% and beyond on certain products. Again, for a complete dissertation on the subject, up to 1909 at least, you should read the book that I've already recommended.
Ron Paul is an exemplary citizen and candidate. That's undeniable even we don't agree with all of his policies.
Try not to base too many of your decisions on blind assumptions.
"Because you might as well ask whether it's a good thing for a starving man to sell his shoes." Instead of looking at the mans shoes, one might ask why he has to sell them at all. Likely it was due to a trade policy, implemented by some tweedle dee agency, overseen by some tweedle dum bureaucrat, who never made a deal in their whole life, that cost him his job, forcing him to sell his shoes.
"then trade has to be managed -- somehow, somewhere, by somebody." It is self-managed by the buyer seller relationship and market forces, which far exceed the ability of government to understand, enforce, or particularly drive.
"we're going to have to tell China, quite bluntly, that they only get to sell us $1 billion of stuff if they buy approximately $1 billion back from us. " They buy our debt so we can fight wars in deserts around the world. We are trading them our fortunes for a few trinkets, outsourcing our manufacturing and jobs, to supplement our government fiscal mismanagement that exchanges favors with protected classes for votes.
But Mr. Fletcher is in complete agreement on that point!
Look at our trade imbalance. China absorbs those dollars by manipulating its currency. The only way China can use all those dollars is to buy dollar-based assets. That helps lead to our asset bubbles.
http://dailyreckoning.com/currency-manipulators-created-7-trillion-causing-the-global-economic-bubble/
Mr. Fletcher is suggesting that trade policy has to be tough enough to reduce the trade imbalance, and to deal with the other unfair practices and advantages of China's state capitalism.
Uhhh, dude. There is no such thing as a non-government managed currency. Currency, by definition, is a government managed thing, always has been.
It's not the governments right or responsibility to manage "free trade", it's their responsibility to enforce the crimes from doing bad business. They can not effectively prevent anything from happening, they can't stop some one from using drugs.. Merely interfere.. They can not stop every terrorist attack, they merely interfere. They can make the economy more productive by printing billions in more paper money, they merely interfere. They can not prevent a highway accident by passing seat belt laws, they merely encourage us to drive more recklessly as a result of "being safer".
Get a grip on reality.
You also seem to imply 'free trade' as at no cost. It should be, "free to trade with". Unfortunately, tariffs could actually be of some use when it comes to financing the expansion of government oversight required to enforce such a 'free' policy.. I guess you don't mind paying a little extra taxes for that, or maybe your children eventually paying a little extra taxes for that.
But it's useless in arguing, just follow the carrot.
http://www.youtube.com/watch?v=gU8rQnKN_uo
The guy whose work was always about reinforcing government supported "state capitalism"? The guy whose work faced numerous criticism on the basic math & sustainability, which he never answered? The guy who never completed his master work on his theories because he couldn't make the numbers work?
Ron Paul's basing things on that guy, huh?
Sounds great!
The guy who opposed the theories of John Maynard Keynes and argued that government intervention in the free market is destructive of individual values and could not prevent such economic ailments as inflation, unemployment, and recession but in fact helps to cause the "Business Cycle" or "Boom and Bust", "Bubble Markets". Keynes was actually "The guy whose work faced numerous criticism on the basic math & sustainability"
To say he "never completed his master work on his theories" is complete fallacy. Hayek completed his magnum opus "Law, Legislation and Liberty" in three volumes in 1979.
Also, Austrian economists argued adamantly AGAINST STATE CAPITALISM which incorporates central planning into a national economy, which removes power from individual calculation and moves it towards bureaucrats and politicians, similarly to centrally-planned socialism. Basically, no matter how well you try to plan and calculate the markets with Keynesian Economic Philosophy (Allan Greenspan, Ben Bernanke) you will never have enough information to accurately predict the markets true demand because your are missing the organic signals that arise naturally to provide for "spontaneous order" like in truly Free Markets.
If we could get everything we wanted from a country that never bought anything from the us we would still be better off as long as the purchase was voluntary.
Only if there's a sucker in the 1st world willing to give up their job, oh that would be you free traders.
remember the usa essentially defaulted on it's trade deficit in the 60s when france demanded the usa pay off it's trade deficit. knowing it did not have the gold to pay off the total trade deficit the usa defaulted, closed the gold window and reopened as the petro dollar window,a scam continuing until today. so, absent arrogant cheaters, a gold standard would be an effective means to naturally regulate free trade.