The trends in globalization have led to fearful predictions. Upon closer scrutiny, most of these warnings fall apart. Yet even if the situation were dire, it still would not follow that placing tariffs or restrictions on capital mobility would make Americans richer. Until the critics can come up with some non-protectionist alternative, the just and pragmatic solution is freedom. FULL ARTICLE
Source link: http://blog.mises.org/4788/is-there-a-libertarian-case-against-free-trade/
Is There a Libertarian Case Against Free Trade?
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Er… make that hours ago. Many hours ago.
Roy: causal posts only, please.
Wow. A lot of ludicrous economic fallacies in this thread.
I’ll just tackle one, hoping that one insight will lead to a general understanding.
tz’s analogy with the broken leg and the crutch implies some kind of race which ought to be ‘fair’. Ludicrous. Life isn’t fair, mate. The inequality of our existences and abilities is the whole point of trade. For the question of allowing free trade, the question of how those inequalities came into being matters not. Regardless if the government broke your leg or you were born a cripple or it was broken by mobsters is besides the point: free trade benefits even those poorly abled (law of comparative advantage anyone?).
The broken leg, the culprit, the crutch, and the trade restriction are all separate issues. It doesn’t matter economically if one led to the other politically.
The same thing can be said for half the posts on this thread. Slave labour, currency fanagling, protectionism, etc. They’re all separate issues. No amount of manipulation justifies more of it. You can’t correct market distortions with other market distortions.
Haven’t you learned anything from this web site?!
As for the original article, no specific grievance (economic phenomenon) can be addressed a priori, but nothing can be understood empirically without prior deductive reasoning, either.
Various plausible hypotheses can be constructed with this reasoning, then the factors can be attributed to one or the other cause. Most of the problems I see today are due to how central banks support the global clearinghouse currency (USD) to fuel their exports. In other words, the world is financing the US spending binge. Although some see this as enriching some countries at the expense of others, in reality these inflationary policies, in concert, are bankrupting everyone who plays this crazy game.
We could easily insulate ourselves from these poor consequences with real money. Free trade (or trade as we know it) isn’t the problem, and neither are the economic policies of foreign nations. The problem is the currency we use.
Person,
I think you do a marvellous job here of tirelessly pointing out the errors in the work of Hoppe. That this master of the non sequitur has managed to pass off such a bunch of nonsense as brilliant libertarian thinking over the years is quite staggering. Your debunking of his ouvre and your coruscating wit while you do it are widely appreciated by many of us who lurk. Don’t lose heart.
No exchange is voluntary if I can’t choose from all the alternatives, or if those alternatives are worse because of intervention. Unless you consider taxes voluntary if you can choose if they should be on your income or on your spending.
Are you saying that we should continue to use violent aggression to prevent voluntary trades from occuring?
Only in the sense that we are already preventing most voluntary trades from occuring (I can’t choose to employ children, or buy from someone in this country that is outside of OSHA or EPA control). The choice I’m left with now is to buy from a domestic government-crippled industry that is given a crutch or two that isn’t very efficient so produces expensive merchandise, v.s. a heavily subsidized (directly and via credit expansion, and theft of land from farmers, etc.) foreign industry. The rational choice destroys the domestic industry.
Also as Mises points out, in the bust that follows a boom, a perfectly viable business will also collapse because their credit disappears even if they didn’t exist only because of the boom – IBM is hurt by the dot-com bust, homebuilders will be hurt when the real-estate bubble collapses.
While our economy is on credit cocaine, and borderline overdosing, we can try to prevent worse damage – we feel so good we think we can jump off a cliff, or give away our house and car as we will win at the lotto or gambling, etc. But maybe we should try to prevent some of the most maiming or fatal effects of the pecuniary psychosis. If that means using force to mitigate misused force – yes. I would fight fire with water, but sometimes you aren’t allowed water so you must fight fire with fire or not at all.
Let the crippled industries held hostage by the state die of torture at their hands, or give in a little to the cruel agents so the cripple might recover one day. It is a horrible choice, yet it is also a choice.
Here is a good article on China and the distortions there:
http://www.investorsinsight.com/otb_va_print.aspx?EditionID=292
Now I need to go see if V for Vendetta is playing at midnight anywhere locally.
I read your article (in Lew Rockwell’s blog today)with interest, Bob, but I may have inadvertently skipped the part where you explained the big picture, i.e. the forest rather than the trees: At the end of the twentieth century the inhabitants of the USA were, in large part, enjoying a very high standard of living compared to those in China and India – a very large disparity, indeed! So, what happens when those vast hordes in China and India begin to compete with the much higher paid people in the USA? What else but a leveling of the standard of living?
George,
To get an answer to “So, what happens when those vast hordes in China and India begin to compete with the much higher paid people in the USA? What else but a leveling of the standard of living?” I’d recommend reading Robert’s other article “Who Benefits From Free Trade, and How” that he links to in the above article which is here: http://mises.org/daily/1429
Also, adding my own two cents worth, it is crucial to understand precisely what it is that provides one nation with a higher standard of living than what another nation enjoys. The answer is not protectionism, despite what we are often told. The only thing that raises living standards is increased labor productivity. Increased labor productivity is a result of savings and consequent investment in labor enhancing tools of production: capital. If Americans are paid a higher wage it is because they are more productive. If they are more productive it is because someone saved and invested in capital in the past.
Therefore, do not look toward protectionism: tariffs, import quotas, and restrictions on outsourcing to improve the lot of Americans. Look instead towards less state intervention in the American economy, lower taxation, less regulation, less hampering of the market by the state in general, to improve living standards. By such policies, resources are freed up and instead of being wasted on consumption spending by the state, individuals can save and invest them in capital. Individuals with the state off their backs are more inclined and more able to direct wealth back into capital, and therefore in the long run, increase both labor’s productivity and labor’s living standards.
Radical Sceptic: Thanks a lot. I enjoy knowing that my posts are being appreciated. I actually don’t harbor any particular grudge against Hoppe; I just find the arguments I discuss here to be in serious error. And of course feel free to mock the pro-trade/anti-immigration argument with my “you poor thing”/”suck it up” sketch. Although I’m sure British English users might use different terms.
Paul, from Robert’s other article: “To understand what would prevent the outsourcing at some point, keep in mind that ‘cheap’ foreign labor would no longer be so cheap after nominal wages changed…” but then he errs by stating: “Yes, the actual dollar amount of the average American’s salary might be lower, but his standard of living would be higher because of all the new, cheap imports due to outsourcing.” But, if wages level, then standards of living would also level because those imports would no longer be ‘cheap.’
Hi George,
All other things remaining equal, i think you’re right that there would come a time when the standard of living of the American would not continue to climb as quickly as it would during the initial stages after the introduction of complete free trade, however in comparison to standards of living in the US under trade restrictions such as we have right now, we would necessarily see an overall increase in the American standard of living due to the mentioned increase in productivity and lowered costs.
I also noticed today that Reisman’s article dovetails somewhat to our discussion when he mentions that when someone can do the same job as you for less, it frees you to fulfill other needs in the market which increases overall production and therefore wealth and living standards. I thing you’ll like the article it is “Production versus Consumption”.
Contrary to your opinion, I think that only when the disparity levels off will the American standard of living stop decreasing.
You are suggesting that increasing people’s liberty to trade with whomever they wish will lead to a decrease in their living standards. The corollary to this is that restricting trade further could potentially increase living standards further. On that basis, try this little experiment in your mind. Extend this principle you are advocating to the borders of each state of these United States. Then extend the principle to the borders of counties, then cities, then neighborhoods, and then finally households. Disallow all trade. If on each increase in the restriction of trade you can see how this would necessarily improve the nation’s overall living standard, then lay it out for me and we can discuss it. If you suspect it would have the opposite affect, then international trade is simply the same principle on a grander scale. It must also increase our wealth and living standards.
The benefits of trade do not respect geographic, language, cultural or skin color differences. If free trade improves overall social welfare at all, it does so always in all conditions.
“You are suggesting that increasing people’s liberty to trade with whomever they wish will lead to a decrease in their living standards.” I have not suggested that at all. “If free trade improves overall social welfare at all, it does so always in all conditions.” Since the condition in question is not listed in your scenario, I’ll repeat it: At the end of the twentieth century the inhabitants of the USA were, in large part, enjoying a very high standard of living compared to those in China and India – a very large disparity, indeed! So, what happens when those vast hordes in China and India begin to compete with the much higher paid people in the USA? If wages level, then standards of living would also level because imports would no longer be ‘cheap.’ When the standards of living reach parity, then the American standard of living will stop decreasing.
See the exchange below this article.
My libertarian anti-WalMart comment goes into some of this.
http://blog.mises.org/archives/004822.asp#comments
Thieves can have a very high standard of living. If ours depends on stealing the savings of the chinese through inflation, on stealing their property’s worth through allowing pollution without recourse, and with actual theft of farmland from farmers to build factories cheaply, then either “free trade” includes the ability to buy and sell stolen merchandise yet have good title, or we are not the beneficiaries of better production, but a better fencing operation for stolen merchandise.
Put differently, If we invaded China with our army, imposed a poll tax (inflation), kicked out farmers to build bases, and generally burned and pillaged and wasted the countryside, then transfered the wealth here, the words used to describe such an act would not be approving. Yet when done in the economic sphere, they are not merely excused but lauded.
TZ,When discussing what I consider to be the oncoming economic depression in the USA caused by the rapid entry of China & India to full-scale industrialization, I’m not considering value judgments such as whether or not a standard of living is the result of any violation of the priciples of free trade.
I think that if one takes conditions as they presently are, then it is apparent that the timelines will proceed thusly: 1) For three reasons (vast populations, very low standards of living, & rapid industrialization) the very low prices of goods and services from China & India will incrementally increase, along with their standards of living, but only at a very slow rate. 2) For two reasons (comparatively small population & very high standard of living) USA wages, and hence the standard of living, will incrementally decrease at a very fast rate.
Although the point at which the two timelines reach parity is not magical, it is, I think, a convenient place to consider that at parity the USA standard of living might start to increase. My guess is that the duration of this depression will be at least several years.
Soviet Russia rapidly industrialized in the 1920s and 30s – consider the Lenin Steel works. China has had a vast population forever. If you don’t think about WW1 or WW2, the 20th century would have been very different, but in 1900-1910 no one was thinking the unthinkable. Yes, a depression, but chaos will destroy the predictability. Japan was supposed to crash, but they muddled through. A new “black death” can change quite a few things.
Whom the gods would destroy they first make them think they can predict the future (usually “it’s different this time”). That goes for contrarians too – the world can stay irrational longer than you can stay alive.
tz –
Soviet Russia rapidly industrialized in the 1920s and 30s – consider the Lenin Steel works.
It would’ve been fully industrialized before 30s if not for the revolution — the process was already in full swing before 1914, and by that time already created the class of industrial workers who became the recruitment base for the bol’sheviks. (Peasants were strongly anti-communist, and paid for that dearly during the collectivization of farms).
Actually, there’s one thing we can predict with near certainity – the stupidity of the “masses” which will be led by some crooks to self-destruction.
tz & averros, acually I’m not trying to make a prediction, but rather to elaborate on a particular condition. This has led me to realize that the free market credo, “everyone benefits,” is not applicable in all free market conditions.
Robert:
Just for the record, a case can be made against free trade, though not one based on libertarian principles.
At the heart of the case against free trade is a single question: what is a man? More specifically: what is it about men, about us, about human creatures, that is most important?
You say that the most important consideration about us is our rationality, which means: given a choice between A (less) or B (more) we choose B. This in your opinion has vast and on the whole beneficial consequences under the right circumstances.
The case against free trade (and against the libertarian project in general) turns on a different vision of man, a different imago homini. Not to mince words or resort to euphemisms, this different vision looks at men from the perspective of evolution, and draws a different conclusion. We are primates, it says, with three requirements. (1) We have to form ourselves into groups of “them and us.” (2) Once we have formed ourselves in groups of “them and us,”, we have to compete against other groups for resources, and (3) we have to compete within our own group for altitude, i.e. prestige, confidence — in the end (this being a vision based on evolution) more or higher quality sexual partners.
In order to think about implications of these two different visions, go to a small town somewhere in America about to receive its first Walmart — sometime in the not too distant past.
You see the coming of Walmart as good. Its arrival gives people the chance to choose B instead of A (more instead of less) and thereby free up resources for other goals, wants and purposes.
I see its arrival as bad, as disruptive. The town pre-Walmart is coalesced into groups of “them and us.” One such group consists of local merchants with retail stores. These merchants have independence, prestige, confidence and authority. They are in a position to be a civilizing force within the community. They may not be, but if there is going to be a force for civilization they are it. (To keep matters simple, think of civilization in terms of Hayek’s four creations of human action but not of human design: language, morals, money and law.)
The job of civilization requires wisdom (needed to handle the endless problems involved with maintaining the traditions of civilization through the generations). Plus also of course wisdom is needed in knowing how to steer a course between freedom and license, preservation and innovation, duty to oneself and duty to others, to the community, etc.
Wisdom takes time to acquire both for the individual and the community. Where there is economic efficiency, elites come under pressure and lose something crucial — their leisure. Without leisure, they lack the time and space needed to acquire wisdom, and without wisdom, they cannot maintain the traditions of civilization. Soon the community is barbaric (i.e., running on raw, unchanneled instinct, e.g., sex without romance, power without vision….).
So, what happens after when Sam Walton comes to town and sets up his operation?
People have cheaper lawn mowers but the independence of the local elite is destroyed. An elite of sorts is still around post-Walmart but one with no leisure and hence no wisdom. A vacuum emerges into which moves “the coldest of cold monsters,” the state.
Why?
The only real constraint on the state comes from people linked together in non-state structures with independent sources of power, prestige, confidence and authority. Destroy these independent structures and you destroy the bars of the cage that keep the monster locked up, no matter how many constitutional provisions you enact. (In fact, a constitution without independent sources of power and authority is soon turned into a weapon of the state, as has happened to ours here in the USA).
Your libertarian philosophy, if it has any influence at all, goes in the direction of helping the interests of the state, which is why in places where there has been for a while something resembling a free market there is soon a vast and ugly state.
Paul Johnson –
Your libertarian philosophy, if it has any influence at all, goes in the direction of helping the interests of the state, which is why in places where there has been for a while something resembling a free market there is soon a vast and ugly state.
And just because the State is sticking its fingers wherever it can we should welcome the same State forcing people not to do better than others? Quite reasonable, yeah, sure.
Sorry. Sam Walton is one of the true elite – a person who can and do something new and better than others could.
A company of small-town merchants is not an elite, no matter how you slice it. They lack both originality and ability to do better than others (of course, they’re better than the proletariat and bums, but not by far).
Now, what your course of action advocates is strangling the true elite (the ones which could eventually gather enough force to get rid of the State) in order to benefit mediocrity, which is only capable of bleating when the state comes to “fill the vacuum”. And, because members of the true elite really want to make things happen – only a credible threat of violence (or even only actual violence) is going to stop them.
It is not like those “local elites” are crowded out by the State because their more efficient competitors disposess them – these sheep are welcoming the State to come and shield them from the competition from the people who are better than they are. So the elite sheepie bleat for someone to do some stick-waving and door-bashing for them.
No matter which angle one chooses to look at a modern social-democrat, one cannot help but to behold a bol’shevik. An advocate of habitual violence as a solution for jealousy.
And, no, all that ethological detour about the ways apes form bands is not relevant; people are a lot more than apes. The fact that apes live like that and that biologically people are close relatives to apes – does not means that it is the best way for people to live.
It is like pointing to a tribe of Bushmen and stating that this is what a civilization is meant to be.
But, on the second thought, a honest democrat may indeed consider back-to-caves to be desireable. A lot of New Agey types certainly do so.
The reason for the USA trade deficit is insufficient production of wealth here as a direct result of outsourcing. Now, when one of the foriegn central banks decides to start replacing it’s accumulation of US$, then other central banks may follow suit; resulting in a severe USA economic inflation and/or depression. This will probably be explained by most free-market theorists as an “economic correction” rather than as a particular economic condition not outlined in any free-market textbook.
China poised to pass U.S. in manufactured goods exports [excerpt]
China exported $713 billion worth of manufactured goods in 2005, a catalog that predictably included such low-tech products as footwear and textiles and apparel, but more importantly also featured higher-tech goods such as office equipment and telecommunications equipment. Indeed, among China’s six largest manufacturing export sectors in 2005, export growth among higher-tech goods — which included electrical machinery, non-electronics machinery and chemicals in addition to office and telecommunications equipment – -was greater in percentage terms than for textiles and apparel. Exports of textiles and apparel grew 21% to $115.3 billion while export growth ranged from 26% to 29% among higher-tech goods; exports of higher-tech goods totaled $360 billion. The picture that emerges is a global competition in trade in manufactures dominated by the EU, China, and the U.S., with Japan in a strong fourth position, followed by South Korea, and with [these] ‘big five’ together accounting for two-thirds of global exports of manufactures. – Industry Week
You argue that the recent slump in manufacturing is largely due to a “drop in domestic demand because of the recession.” Is this recession the result of inflating the supply of fiat currency? If so, is a fiat currency that is easily inflatable really good? (You argued in “Trade Deficits and Fiat Currencies” that depreciation of the dollar is good because it cheats China on their investment in US bonds.)
You argue that “cheap imports and outsourcing are” not “destroying US jobs, so much as…a drop in foreign demand is hurting US exporters.” Is a drop in foreign demand the result of China buying our debt to keep the dollar strong in the global economy? (You argue in “The Alleged China Threat” that China trades Yuan for Dollar in order to keep its stockpile of Dollars artificially strong.)
Doesn’t arguing against NAFTA critics as if they were arguing against genuine free trade, give NAFTA the appearance of genuine free trade?
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