Is Free Trade Really Wrecking the Union?
For years Paul Craig Roberts has been a leading academic critic of free trade, outsourcing, and "globalization" in general. His latest article ssues the direst warnings and hurls the strongest insults yet. He claims that the US is wasting away due to outsourcing and free trade. Murphy argues that he is way off base. FULL ARTICLE
Comments (18)
Great rebuttle to the protectionists. For more on the state of manufacturing in the US, look for an article I wrote for the American Institute of Economic Research, AIER.org. You can subscribe to their bi-monthly newsletter, or wait a few months for it to post on the web site. In brief, most of the job losses in manufacturing were caused by investment that improved productivity. In other words, technology is the biggest killer of jobs in manufacturing, not trade. Also, fewer manufacturing firms are being started, which has a lot to do with regulation and taxation. Adjusted for inflation, the dollar volume of manufacturing is at a record high.
Published: February 15, 2006 10:45 AM
Good article. I like these points on trade:
“… [trade] deficits alone mean nothing.�
and
"Allowing people the freedom to use their property without artificial regulations or taxes definitely benefits the US economy, even if those people decide to buy more manufactured goods from foreigners than foreigners buy from them."
Published: February 15, 2006 1:30 PM
So you mean NAFTA and those other paper abominations are what YOU mean by "free trade"? Especially in an environment of fiat currency and credit expansion.
This is however the perfect example of Harry Browne's saying the government breaks your legs (economic games, overregulation, taxation, etc.) and then gives you a crutch (protectionism) so you can limp better.
But where I break with the "any deregulation is good" libertarians are 1. Most such are like NAFTA - managed trade that while having some moniker of "free trade" is actually a huge set of regulations. 2. Currency games can do more than explicit tariffs and subsidies (consider Mexico's peso before and after NAFTA was passed). Remove the crutch but leave the leg broken? Then say they aren't competetive against someone with healthy legs, so deserve to lose?
I find it stupid to consider any effect - be it WalMart's success or the manufacturing's sector failure - in such an environment of overregulation, credit roller coasters, and other distortions - to be the effect of anything like a "free market". You wouldn't say that if congressed passed a 95% tax on manufacturing in the US and destroyed the rest of the industry (or consider the luxury tax on the yacht industry here if you want a real world specific example) to be just competition or "creative destruction". But the currency and regulatory distortions do exactly the same thing, but indirectly.
I'm all for free trade. I think every sector would be better under it including manufacturing. But what has that to do with the monstrous regulatory international trade and forex regime we currently have?
We should slay the dragon, not issue everyone protective asbestos jumpsuits. But that is very different than saying we can leave the dragon alone and not worry about the burn victims.
Published: February 15, 2006 4:37 PM
Well written rebuttal to those who wish to "protect" jobs by forcing the working masses to pay higher prices for goods. As Mr. Murphy wrote, "Don't American consumers benefit just a tad from all of this cost cutting? While he's at it, Roberts might as well add machinery to his list of job destroyers; after all, greedy CEOs would gladly lay off ten workers if a new machine could do their job more cheaply."
The end game of all production is not to provide "well paying" jobs or self-esteem or whatever. The end game of all production is the satisfaction of our wants, and the cheaper that's done, the better it benefits all. "Protectionism" injuries the working masses for the benefit of a small group of politically connected parasites.
The sooner such an immoral policy is put behind us, the better off the workers will be.
Published: February 15, 2006 4:53 PM
Tz,
>But where I break with the "any deregulation is good" libertarians
That sounds like me.
>are 1. Most such are like NAFTA - managed trade that while having some moniker of "free trade" is actually a huge set of regulations.
NAFTA is certainly more regulation. Therefore it is not deregulation. Therefore, it is not good.
>2. Currency games can do more than explicit tariffs and subsidies (consider Mexico's peso before and after NAFTA was passed).
Sure interventions in money are bad; tariffs and subsidies are bad too. They are all theft and wealth redistributions. They simply don’t cancel each other out; they each add insult to the injury caused by the others.
>Remove the crutch but leave the leg broken? Then say they aren't competetive against someone with healthy legs, so deserve to lose?
I don’t like the crutch analogy, unless it is used also to reflect the bruised hands and arm-pits it gives you, and that those hands, arms and fingers are now unavailable for any other use but operating the crutches. It should also consider the costs of acquiring the crutches.
Coercive interventions always hamper the market further. It is erroneous to believe that the state can ever intervene in the market in a good way. The same irresponsible and criminal thinking that got us the first round of rotten regulation will be at work in the next round, and so on. Watch the pattern under the scope of this model: the people who legislate are crooks. All will seem more clear after that.
Published: February 15, 2006 5:17 PM
Some employees who are currently well-paid may in fact suffer as a result of free trade. This is unfortunate and I would not like to be one of them. On the other hand, to draw attention to this fact is demagoguery, not a sound argument against free trade. We cannot make just laws on the basis of whether those who are in an advantageous position today will either benefit or suffer from them. Justice can only entail equal treatment under the law.
Published: February 15, 2006 6:36 PM
tz,
Murphy stipulated at the end of the article that we do not enjoy free trade. And he did not praise NAFTA. So I don't see where you have an argument.
Published: February 15, 2006 7:14 PM
Murphy asks;
"Is Free Trade Really Wrecking the Union?"
Uh, correct me if I am wrong, but wasn't the primary driver behind the formation of the "Union" free trade? And that even though the Constitution says "provide for the common defense", the states had their own militias, leaving a customs union or free trade zone as the only unique reason FOR the Union?
Published: February 15, 2006 7:19 PM
"Murphy stipulated at the end of the article that we do not enjoy free trade. And he did not praise NAFTA. So I don't see where you have an argument."
The point is that, even though Murphy admitted that we do not have free trade, he implicitly attributed recent developments in job markets to free trade. If we do not have free trade, then we cannot attribute the results that we are experiencing, good or bad, to free trade. It's like when people bash our socialistic health system as a failure of the free market.
Published: February 15, 2006 7:56 PM
EXACTLY. Which is why I have no problem at all ascribing the few good things that happen to the little bit of freedom remaining, and the bulk of the bad to regulation and protectionism.
Published: February 16, 2006 12:32 AM
I've just replied to similar comments (by Paul Edwards, as it happens) over at the Australian wheat thread.
As someone remarked earlier, the present system isn't actually free trade but distorted in various ways. Unfortunately, that means that partial changes can actually make things worse (it depends - I won't try to prove it here).
So we cannot dismiss Roberts' observations simply because they don't fit predictions for a true free trade model.
For what it's worth, there's a problem with the examples Murphy gave, as a reductio ad absurdum, of mortgages and credit cards being harmful by this sort of reasoning. He obviously meant it to highlight the ridiculousness of this sort of reasoning.
The catch is that common sense is a poor guide to 100% of economics (as it is to statistics and quantum physics). It so happens that credit cards are bad, because of a Tragedy of the Commons embedded in their fee system, and mortgages can be bad in a similar way in certain circumstnaces, though those are unusual.
As usual, it all depends. And you cannot refute Roberts' observations by pointing out a mismatch with what ought to happen in the best of all possible worlds. This isn't that world.
Published: February 16, 2006 5:22 AM
You cannot cherry-pick results. Hazlitt pointed that out. If you are free to ascribe the a good aspect to the little bit of freedom, then you need give the socialists the freedom to ascribe the benefit to farmers of subsidies as the good of govenrment, and the higher prices and surpluses are just the bad of the market.
That is absurd. The system is dynamic. If you are low on fuel, adding oil to the engine won't compensate for that. Taking the oil out of the engine and adding it to the fuel tank would be worse. There are intended and unintended, good and bad effects to any regulation. And one problem is the market does adapt to regulation so finds ways around or through problems. When you "fix" something by deregulaiton, you undo those adaptations.
The S&Ls in the 1980s are possibly the best example. They deregulated the benefit but kept the risk socialized. The good S&Ls that made prudent home loans and used the proceeds could pay only market rates were destroyed by the cowboys that flipped overassessed real-estate while running a ponzi scheme fueled by $100K federally insured 13% CDs. Was that real-estate bubble, the corruption and the crash - which were effects of the deregulated part better?
Published: February 16, 2006 4:44 PM
tz;
The problem comes when these bad effects are used to try to justify further distortions. Two wrongs do not make a right.
Published: February 18, 2006 10:01 PM
I now see that our good old friend PCR have now come out officially in opposition to tax cuts-even domestic tax cuts (needless to say he opposes tariff cuts even more). This is because "Income distribution is a legitimate issue" particularly it seems because of that darn outsourcing ("This is especially the case when offshore production and jobs outsourcing are destroying the American middle class".). Moreover, that darn outsourcing have apparently not only made government redistribution (which PCR used to refer to as "slavery") legitimate and repealed the law of comparative advantage, it have also repealed the law of supply ("The substitution of foreign for American labor and the relocation abroad of US plant and equipment prevent reductions in marginal tax rates from having any appreciable effect on aggregate supply in the US.")
I don't know if PCR is religous, but if he is, he must think that outsourcing is the worst thing Satan ever pulled.
Published: March 1, 2006 8:41 AM
As any basic economics textbook can tell you, a true "free market" situation can exist only when there is relatively equal bargaining power between the parties involved. (Yes, I have a degree in economics--and journalism.)
To be truly free, trade and enterprise must first be fair. Markets are not God, nor should they be treated as such. Markets, like governments, are created by people and properly exist to serve them and their needs. Any market, like any government, that violates human rights should be altered or replaced.
Does anyone really think that a lone, unprotected individual worker really has any chance to strike a fair bargain with a multibillion-dollar corporation? Freedom to be a corporate serf or starve is not really freedom. Freedom in any industrial society requires the active protection of government, labor unions, and other forces that can countervail corporate and other wealth-driven power.
Paul Craig Roberts, once again, indeed has it right. For anyone who yet doubts the depth and danger of the enemies and the threat to your and our way of life and freedoms that you and most Americans today, whether middle-class, working poor, or, yes, poor, have been and are facing--and need to act, now, to defeat with the same unity, urgency, and strength that a united people did to stop others who, during World War II, gravely threatened us all--here are some more recent words from Roberts, a former assistant U.S. treasury secretary.
Far from being a flaming liberal, Roberts served under Ronald Reagan's administration and is a former editorial page editor of The Wall Street Journal and a contributing editor of the conservative magazine National Review.
In his words, words that need to be sent to and acted upon by you and by every thinking American:
"The United States is the first country in history to destroy the prospects and living standards of its labor force. It is amazing to watch freedom-loving libertarians and free-market economists serve as full time apologists for the dismantling of the ladders of upward mobility that made the America of old an opportunity society.
"America has begun a polarization into rich and poor. The resulting political instability and social strife will be terrible."
You can read Roberts's full article containing these comments at this link:
http://www.counterpunch.org/roberts03062006.html
When I think about these and related issues, many of which, as you all know, I've been talking and writing about for many years, I've increasingly found myself reminded of a famous painting that was widely reproduced during the early 20th century called From the Depths.
In it, a large party of well-fed, well-clothed, wealthy--and thoroughly clueless--people are shown at a lavish party, complete with formal dress, classical sculpture, and elegant punch bowls, all literally supported from beneath by a mass of ill-fed, ill-clad people in a dark, barren realm below.
One among the latter group has gotten a clue as to must be done for his and his fellows' dignity and very survival, and it's clear from facial expressions that others near him on his level are catching on. His unwashed but honest and powerful fist has just smashed upward through that polished floor. And a few of those soon-to-be-enlightened partygoers, the ones nearest that newly created hole in their oh-so-polished floor that has long insulated them from their fellow human beings and from reality and justice, are just beginning to react in shock and disbelief at what is happening, only the start of what will, must, and should happen next. . . . Right on!
If I can find a link to or a print source for this painting, I'll be glad to do so and send the link or source to you all. It resonated with millions of Americans a century or so ago, and, sadly, it is resonating again.
I found Roberts's quote--and the article from which it comes--through the excellent Web site of bestselling author and social observer Barbara Ehrenreich. Her Web site is at http://www.barbaraehrenreich.com/. Click on the "Commentary" link on the left side of her home page to find the quote and many, many more powerful comments about how many if not most working Americans have to live in our once-beautiful country.
And consider joining Ehrenreich's new organization, United Professionals!
Yours for restoring the American dream--and America itself,
Scott Enk
senk8105@sbcglobal.net
Published: November 26, 2006 9:12 PM
"It is amazing to watch freedom-loving libertarians and free-market economists serve as full time apologists for the dismantling of the ladders of upward mobility that made the America of old an opportunity society." from Paul Craig Roberts
Certainly, as opposed to, excluding far too few, busying themselves by spreading, as seed, the insights they have gleaned from the, many, fields rapaciously harvested of the truths they once bore. That combine, stripping our meta-physical bounty and the manufacturing capability to sustain it, is a combine of those posing as our servants. Left unchecked, serve us, they well will.
Published: November 26, 2006 10:24 PM
For additional background on Paul Craig Roberts' take, one may wish to see: "Can capitalism survive? No. I do not think it can." Thus opens Schumpeter's prologue to a section of his 1942 book, Capitalism, Socialism and Democracy. One might think, on the basis of the quote, that Schumpeter was a Marxist. But the analysis that led Schumpeter to his conclusion differed totally from Karl Marx's. Marx believed that capitalism would be destroyed by its enemies (the proletariat), whom capitalism had purportedly exploited. Marx relished the prospect. Schumpeter believed that capitalism would be destroyed by its successes. Capitalism would spawn, he believed, a large intellectual class that made its living by attacking the very bourgeois system of private property and freedom so necessary for the intellectual class's existence. And unlike Marx, Schumpeter did not relish the destruction of capitalism. He wrote: "If a doctor predicts that his patient will die presently, this does not mean that he desires it."
from: http://www.econlib.org/library/Enc/bios/Schumpeter.html
Published: November 27, 2006 8:52 AM
You argue that credit card companies are not at fault for consumer profligacy regardless they are allowed to extend lines of credit based on incontrovertible currency. Rather, you argue that consumer profligacy and debt is the fault of the consumer. Therefore, "trade deficits represent[ing] a forfeiture of existing assets" is the domestic consumer's fault for not having bought American regardless the comparative advantage held by China produces a similar import that is cheaper.
Should Americans impose a tariff to prevent American profligacy? And what of US Government profligacy? You argue that it is good that the Chinese government should invest in the US government by buying bonds, especially that the return will be paid in a depreciating currency. What commodities and services does the US government offer that would give incentive for China to invest in its profligacy? An aggressive foreign policy in favor of liberty? What commodities and services can the US government provide China as a return on their bonds should China not accept a depreciating currency? Could it be UN votes, control over US foreign policy, public holdings in real estate, the institutions in areas of education, health, and correction, transportation and energy infrastructure, etc. etc.
Why is it consumer profligacy and not an unconstitutional currency that is at fault? Doesn’t your argument amount to telling a man robbed by a thief that there is no need for justice, just more common sense and prudence when it comes to protecting assets?
Published: June 8, 2007 10:12 PM