I recently gave a podcast interview to Vox Day, a prominent Christian libertarian, explaining why free trade is bad for America. He followed it up with an article making many of the same points.
Finally, a libertarian gets it.
This did not go over well with some of his followers.
I'm not qualified to speak to the "Christian" aspects of free trade -- whatever those are -- beyond observing that globalism, of which free trade is a part, certainly looks like the Tower of Babel. But as one prominent libertarian has now seen through the free trade delusion that generally grips his fellow libertarians, this is probably a good time to explain what he got and they didn't.
The libertarian defense of free trade can get as complicated as anything in technical economics, but at bottom it comes down to ideas like this, which one can read all over the place in the comments posted after my articles -- and now Vox Day's:
"What right do you have to tell me who I may and may not buy things from?"
At first blush, that's quite a challenge. Many libertarians certainly seem to think it's decisive. It's certainly a snappy quote.
But it's wrong.
Let's start by noting that I am not claiming any right at all. Protectionism, if implemented, wouldn't be implemented by me. It would be implemented by the U.S. Government, and would be legitimate -- if it is legitimate -- for the same reasons all our other legitimate laws are legitimate:
We have Constitution and a democratic process, and that's where laws come from.
Some libertarians prefer to call themselves constitutionalists, so it is worth pointing out that Article I, Section 8 of the Constitution explicitly gives Congress the right "to regulate commerce with foreign nations."
The second point in answer to the libertarian challenge stated above is this:
This isn't just about you.
Like it or not, even a capitalist economy is a system in which your actions affect other people. Your freedom to swing your fist ends, famously, at the tip of my nose, and what you buy and don't buy affects other people.
Even more importantly, your own economic actions don't mean anything except in the context of a system that you didn't create. You don't enjoy the income you enjoy -- which is what gives you the very ability to buy things disputed above -- solely because of your own efforts. You enjoy that income because, among other things, you were born into a society which had a per-capita GDP of $47,000 during your working lifetime.
If you'd been born in medieval Afghanistan, it would be a very different matter. And not because of anything you personally can claim credit (or deserve blame) for.
So you can't claim that what you've got derives solely from your own efforts and that you are therefore entitled to do what you like with it. Robinson Crusoe can claim absolute economic freedom; you can't.
None of this is to deny that a reasonable amount of economic freedom is a good thing. But you get into trouble when you elevate it, like any other good, into an absolute. Try absolutizing national security, traditional values, law enforcement, self expression, religious piety, intellectual sophistication, social order... get my point?
Here the plot thickens, because the nature of this economic system we are all a part of is the real key to why free trade doesn't work even within libertarian assumptions.
The libertarian economic model is a model based on free markets. That is, it is based on the idea that free market economics describes both the way the economy is (insofar as it works well) and the way it should be.
The key idea of this free market economics is equilibrium. That is to say, free market economics holds that if market forces are allowed free play, then the prices and production of things will reach natural equilibria that are the most efficient outcome that could exist.
To a huge (but not total) extent, this is true. (I studied economics at the University of Chicago; trust me, I know this story.)
But there's a catch. Equilibria only balance properly if nobody puts a "thumb on the scale" anywhere in the economic system and distorts it. If that happens, then all bets are off about the outcome being efficient at the level of the system as a whole.
All bets are also off -- this is the key -- about any individual "free" market decision being valid. Why? Because the market isn't free anymore. You can't play by free market rules when you're not in a free market.
Try playing fair when the game is rigged. That's not fairness, it's suicide.
Unfortunately, there are a million "thumbs on the scale" in international trade right now. All of these distort market forces, so even if pure-free-market economics is right (it isn't, but that's another story), libertarian economic conclusions don't follow.
How are markets distorted in trade? Don't get me started. To name just a few ways:
Whenever libertarians buy foreign goods that are cheaper because of all these practices, they encourage them.
And that actually diminishes, rather than increases, freedom.
So even from a libertarian point of view, free trade is a losing move.
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You got to appeal to their greed. Greed is what drives a Libertarian, I know cause I use to be one, shortly. Tell the Libertarian that this massive cumulative trade deficit devalues the dollar making imports more expensive to the consumer.
Where did you learn international economics? Did they not teach you that in the long-run the Central Bank may be able to manipulate the nominal exchange rate but the real exchange rate will be set by market forces? The Chinese peg the yuan to the dollar to keep domestic inflation down. Not for any trade reasons.
Ah, therein lies the rub. How do we decide how much economic freedom is a good thing? Why of course----the answer is a government bureaucracy charged with having the wisdom to make such distinctions!
Honestly, just let government get out of the economic business entirely. Repeal legal tender laws and let the best money win. So many economic problems would be solved if we had an honest, stand-alone money instead of a "legally" empowered credit-creating monster that distorts EVERYTHING ECONOMIC and keeps us indentured to a class of usorious parasites.
And simply put, the federal government DOESN'T have the right under the Constitution to restrict my choices as a consumer----unless you love the State and have the naive belief that giving the State the power to do politically correct "good" things you can somehow hope that the State won't be empowered to expand that power to do bad things, like CIA-sponsored coups. Truly, just work to keep the Federal State as restricted as possible. No system is perfect, but ours has surely morphed into a monster and a return to a strict interpretation of the Constitution is called for.
(1) The Congress shall have the power to lay and collect taxes, duties, imposts and excises....
(3)To regulate commerce with foreign nations, and among the several states, and within Indian tribes
The Federal Govt actually does have to right to restrict your choices as a consumer. Try reading the Constitution before declaring we need to interpret it more strictly!
http://press-pubs.uchicago.edu/founders/documents/a1_8_3_commerces19.html
And the purpose of government schools is to make sure people are ignorant enough of actual history to allow tyrannical busybodies to make the absurd claim that the Commerce Clause grants the government the power to restrict your choices as a consumer.
(Side note: Governments don't have rights. They don't grant rights. Only individuals have rights, and it's something they start out with. The U.S. government was, in theory anyway, invested with POWERS to defend people's rights.)
We are not on a level playing field with our trade partners. I produce a product in the US that has a few technical advantages over the competition, so I do very well even though my prices are high.
I was offered a contract to nearly triple my business. The offer was from a US based multi-national firm. The contract required that I produce the product in China, near one of their plants. Why? Because they would not accept the constant need to increase prices borne by manufacturing in the US. New regulations, a weakening dollar and a host of other issues put upward pressure on pricing for US manufacturers.
I took the deal. I'll be hiring 110 to 140 new employees, all in China, to satisfy this contract. This is what our government is doing to American jobs.
I have innovation in my product line. This innovation's created 67 jobs in the US over the past seven years. Now that innovation will be creating jobs in China.
Since word got out in my industry about the agreement I signed, a competitor of my customer has approached me about opening a plant in Brazil. Guess what? Another US based multi-national company that doesn't want my product if it's produced in the US. Simply too much economic uncertainty.
American innovation isn't enough. We need economic stability.
This is of course is rational, capitalist thinking. Cut costs, maximize my profits - I'm all right Jack.
But you're only fooling yourself if you truly think anyone but you made this decision. You knew exactly what you were about to do re American workers/families and rationalized your action using a economic philosophy based on greed.
This story, as you point out, has been and is being repeated endlessly with every free trade agreement. Again, you blame government, but it is a capitalist government, isn't it, not one based on the best interests of people.
And what are you complaining about anyway??? Sorry, your tone sounds as if you think something unfortunately is going on here. Could there possibly be some other way to organize society aside from greed and self-interest?
Nah. Didn't think so.
I will take no jobs from the US. In fact, I'll need to add several jobs in the US to support the plant in China.
But all of these jobs could have been in the US if it weren't for the uncertainty in taxes, regulations, fees and other factors that are strong impactors of business performance. I find it reprehensible that this administration does nothing to make the US a good place to do business. Too many Americans suffer directly due to the policies now in place of under consideration.
You seem to think this position of corporate America is just fine. I disagree.
This isn't about me. I was OK before the decision to open another plant. I'll be OK after. But America won't benefit, other than the taxes I'll pay (I will bring all profts home and pay full taxes on them).
Why is this so hard for you and many others to understand?
I call bull. What business person would talk like this on a public forum?
Ian Fletcher writes: "The key idea of this free market economics is equilibrium."
This is classical economics, not Austrian economics. The author is clearly not acquainted with the material he claims to be refuting.
Consider. Right now, people can choose to go to Wal-Mart and purchase shoes, clothes, lawn chairs, etc. A great majority of the cheaper goods are a result of cheap Chinese imports. If a tariff system were imposed on China (and let's assume that China wouldn't react by dumping treasuries wreaking havoc on the value of the dollar), goods in Wal-Mart would no doubt become more expensive to sell.
How would the public at large (especially those of lower income levels) benefit from more expensive goods? If a pair of jeans that once cost $20.00 now cost $30.00, the American consumer who needs to buy jeans must realize a $10.00 deficit in their budget. What once constituted a $10.00 deposit in a savings account or $10.00 in gasoline, now goes to the pockets of an American business the tariff is meant to protect.
Tariffs protect American businessmen at the expense of the consumer. And for what cause? To maintain an advantage in an otherwise uncompetitive business?
Now you posit that imposing tariffs would only have a minor pricing implications?
Aside from pricing implications, what would the effect of Chinese retaliation be on American importers to China? What wold the effect on American jobs be?
However, a lot of really committed libertarians are very obstinate, and they will rebut every criticism you have with philosophical conjecture and pseudo-logical arguments based on a priori assumptions with no basis in empirical fact.
I think it really points to how libertarian thought on free trade is very unrealistic.
I will be number 37.
Some form of trade equity legislation may be the answer.
In a similar vein one could have to have some tracking and enforced guarantee that the entire supply chain (wherever it winds through) provides the local workers with living wage, workplace protections, and healthcare. Instead of the carbon footprint, measure the humanity footprint.
This would raise worker pay in developing nations and slow outsourcing in a 'race to the bottom' fashion we have today.
THEY ARE ALWAYS WRONG ABOUT EVERYTHING.
if they want to live without a government, then move the h#&& to somolia. the rest of us are quite
happy living in a civilized world thank you very much.
http://www.reuters.com/article/2011/06/14/us-usa-trade-tariffs-idUSTRE75D3YT20110614
Tell me again HOW American workers can compete in the global marketplace with third world and communist countries....even Canada..... with the cost of a MEDIOCRE family health insurance plan exceeds $12k...before copays and deductibles.
By the way...it is the WTO that decides and arbitrates the legality of tariffs....NOT the government.
The WTO has no real teeth and govt's often ignore their findings. Protectionism merely begets more retaliation.
You want to see what free trade advocates...like the Koch Brothers....do to a company?? Look no further than Georgia Pacific...the once Preeminent world wide force in manufacturing forest products....now but a shell of it's former self...all those middle class jobs.....gone.
The U.S. government enters into trade treaties like NAFTA and GATT.
That's how we got the World Trade Organization, the world government many felt the UN would become.
http://www.globalexchange.org/campaigns/wto/OpposeWTO.html
Top Reasons to Oppose the WTO
"1. The WTO Is Fundamentally Undemocratic
2. The WTO Will Not Make Us Safer
3. The WTO Tramples Labor and Human Rights
4. The WTO Would Privatize Essential Services
5. The WTO Is Destroying the Environment
6. The WTO is Killing People
7. The WTO is Increasing Inequality
8. The WTO is Increasing Hunger
9. The WTO Hurts Poor, Small Countries in Favor of Rich Powerful Nations
10. The WTO Undermines Local Level Decision-Making and National Sovereignty..."
(the text of each point has been omitted)
http://www.businessweek.com/magazine/content/11_19/b4227060634112.htm
Society, including it's economy, is a contract between all of its members. Members agree (whether they realize it or not) to surrender some of their freedoms in the interest of security and predictability. True, you may find yourself a member of this society through no fault of your own. And a "libertarian" may feel that his/her personal freedom is unduly restricted under such a system. But they can complain only because the system protects them whether they like it (or realize it) or not. What I see from "libertarians" is it's always about me, me, me. I've watched Ron Paul yammering on about "me." It's ridiculous. Like all "libertarians," he wants the government to protect his freedom by denying freedom to others, and then claiming that the misfortunes of others
Hank Paulson, CEO of Goldman Sachs, self-interested capitalist requiring government regulatory oversight.
Hank Paulson, Treasury Secretary of the United States, savior of the economy.
No, the difference between business and government is that General Atomics can't force you and me to pay for one of their predator drones with which to murder innocent civilians in Yemen. Goldman Sachs cant force you and me to bail out their creditors so they get paid. They need the government for that.