Debating free traders
As an economic nationalist, you may have experienced just how hard it is to persuade a free trader to your point of view. Too many free traders, one cannot get to listen seriously — or less yet, even to listen courteously; they seem to want only to bombard you with the same, stale five-minute “Economics 101″ lecture, over and over again. I used to be one of those people, and to my discredit I behaved in precisely the manner described, so this is something I know a little about.
If you are a free trader, you should read this. I hope that you will.
If you are an economic nationalist, then I wish that I could tell you exactly how to persuade a committed free trader. I cannot tell you exactly how, because when you try, what resists you is often not logic or experience, but a belief of an almost religious character. Fortunately however the free trade religion is pretty shallow, and it broadly contradicts the known history of our own country, so in the long run persuasion is possible. I do think that we economic nationalists can prevail, but it is not going to be easy, and we shall stand in a better position to prevail when we understand clearly the nature of the foe we fight.
- Many free traders adhere to the free trade gospel, not because it is true, but rather because it makes them feel smarter than you. They know that free trade is beneficial, because it is an elegant idea which takes a smattering of logical sophistication to comprehend, sophistication they think Joe Lunchbox doesn’t share (Joe’s biceps may be impressive, but his brain is constrained by that hard hat, you see). From these free traders, you get the old five-minute lecture on “Economics 101″:
Macroeconomic productivity is maximized when producers produce at greatest comparative advantage.
If the lecture doesn’t work, they bait you. Such free traders remind one of the twenty-two year-old man, too lazy to pump some iron or correct his poor table manners, who thinks that professing a shallow feminism attracts women. You cannot convince him that feminism is wrong. He’s just not thinking on that wavelength.
- The Pareto-exchange theory (click here for an off-site PDF paper which explains it) which undergirds the free-trader’s philosophy really is elegant. If you like mathematics, then it is hard not to like this theory, which is intellectually compelling. Moreover, broadly, the theory actually is correct. (It is in the overly wide application of the theory that the free traders go wrong, but that is a topic for another post.)
- Some free traders still remember the big union labor disruptions of the 1970s. Free trade is a champ when it comes to cutting corruptly led unions down to size, because when the UAW strikes General Motors, the free trader can just go out and buy a Toyota. The error of course in our free trader’s thinking is that the 1970s were thirty years ago, and that times have changed, radically. But, it’s hard to convince someone whose cousin crossed a picket line thirty years ago — and paid for his act with slashed tires — that big union labor is no longer really the issue, that today’s unionized industrial workers are political allies not foes. One does not have to be 100 percent for the big labor union leadership to recognize that skill-demanding, high paying, family-supporting industrial jobs are a tangible national blessing not lightly to be dismissed. But when you try to point this out, you run up against a visceral dislike of labor unionism which, unfortunately, is largely of the big unions’ own making. At least free traders who oppose economic nationalism on this basis are being honest with us.
- Some free traders seem motivated by fuzzy thinking about how international competition forces U.S. producers to produce more efficiently. It is usually best not to try to debate this point head on, because although it is not tremendously hard to find the flaw in it, almost invariably it’s a front for one of the other points. Better to go straight to the root of the disagreement than to argue over peripheral matters which probably aren’t going to move anybody, anyway.
- A few, exceptional free traders are principally motivated by the noble belief that international trade promotes peace between nations. You actually can debate these people profitably, because they’ll usually give you a fair hearing when you point out that World War II pitted Germany against its principal trading partners, and that the first Gulf War was in part positively motivated by the international oil trade. They’ll come back with counterevidence of their own, and then you and they can usually agree that on this point the evidence is inconclusive.
- Some free traders are right-wing libertarians. Sorry, friends. You cannot convince them. To them, it’s a freedom issue, pure and simple.
- Many free traders are liberals. They are for free trade not because they disagree with you and me but rather because they agree. They are anti-economic nationalists not because they are anti-economic but because they are anti-nationalist. Many liberals mature into conservatives — and as they do, economic nationalism ought to win them as natural converts — but until they do, if you try to persuade them you should probably expect a smirk in reply, because on the economic mechanics they already largely agree with you.
- Most free traders of any stripe have not been personally, directly hurt, yet, by free trade. If you are an attorney, a professor or a Wall Street Journal editor, then cheap foreign labor does not immediately threaten you, and you can afford to take an abstract intellectual stance on the matter.
- Most free traders of an intellectual bent are aware of the fact that we economic nationalists lack a coherent, well-developed theory to challenge their established Pareto-exchange theory. They deceive themselves with equations, but until professional economists on our side can put counterbalancing equations on the table, we are going to lose a lot of debates we should have won. Gomory and Baumol have developed one candidate set of equations. Although it is far from clear that their equations are the right ones, still, it’s a start.
Regarding the first point, associating some well-meaning free trader with a guy who can’t get a date is not quite fair (just who is baiting whom, here?), but there is something to the wavelength idea, I think. The first point is chief among the nine; a lot of the opposition we economic nationalists face today is pure intellectual vanity. Those people believe that if you’re not pro-free trade, then either you must be a corrupt trade unionist with a tattoo under your shirt, or you simply do not understand the basics of economics. Ask them a question like, “Does the United States not want to be as self-sufficient as it reasonably can be?” and they either disregard the question or grow condescending, or hostile.
Walter Williams, to his credit, actually tried to tackle the self-sufficiency question recently, … sort of. Dr. Williams is a venerable figure, a patriotic right-wing libertarian who deserves no disrespect from me, so I’ll just link you over to his column and let you decide for yourself. Here are Pat Buchanan’s earlier words to which Williams was responding.
The ultimate formula as to how to show the free trader his error is not something I can give you. We have a drum, so to speak, and for now we simply must keep beating it. Pat Buchanan thinks that the 2006 election was the first great triumph for twenty-first century economic nationalism. Well, to the extent that Buchanan is right, I welcome this and so should you; but the problem (and I suspect that Buchanan would agree with you and me on this) is that liberalism and economic nationalism fundamentally conflict with one another, and that the political victor of 2006 was the national party American liberalism calls its home. Now, when the Democrats are right, I will salute them, but as a party their hearts won’t really be in the effort to roll back the excesses of international free trade, I don’t think. After all, will the same Democratic congressmen who promote amnesty for Mexican illegals, deny amnesty for Chinese imports? One suspects that they will not. For this reason, I at least am not yet prepared to recognize the first real triumph of modern economic nationalism in the Democratic victory of 2006.
Well, the Democrats have won. I hope what Buchanan hopes. Soon we shall see.
There is a lot more to write about many of the points this post raises, but we can save most of that for future posts. Any comments you wish to make regarding this post, directly or tangentially, the floor is open for now.
HJH
November 26th, 2006 at 4:09 pm
You are leaving aside one motive in support for free trade.
Class snobbery.
I have noticed a genuine contempt for non college educated, blue collar people among supporters for free trade, all of whom enjoy identifying with elites.
November 30th, 2006 at 10:56 pm
I’ll say up front I’m a free trade enthusiast, and an economist who probably typifies what you fight against. But I can’t help but be impressed by the quality of your writing and your obvious sophistication. So I’m interested in hearing more.
“Macroeconomic productivity is maximized when producers produce at greatest comparative advantage.”
Do you disagree? On what basis?
Why do you feel the pareto-exchange theory is too widely applied when used as an argument for free trade?
What is so great about self sufficiency? (If you have answered this in other posts feel free to just point me to them) Do you like it for its own sake or is it a means to some particular end?
December 2nd, 2006 at 1:19 pm
It is a pleasure to hear from a professional economist, Dr. Reed. I appreciate your response. The blog welcomes you.
Your concise questions deserve commensurately concise answers, which I may struggle to provide but let me try. You ask whether and on what basis I disagree that macroeconomic productivity is maximized when producers produce at greatest comparative advantage. I do not disagree. It is far preferable to import black pepper from Brunei than to try to grow the stuff in greenhouses in Idaho. Bruneians for their part would probably be ill served to try to develop their own supply chain for computer memory chips, when Idaho provides high quality chips in large quantity at relatively low cost. The trade in black pepper and computer memory chips benefits both Bruneians and Idahoans, because, without the trade, both too little pepper and too few chips would be produced for the use of all concerned.
Because when so used, it implies at least two unwarranted assumptions in my view:
(1) that the welfare of the United States and her people depends largely on maximizing global productivity; and
(2) (readers’ indulgence is requested here for a little necessary mathematical jargon) that the theory’s second-order effects are predictively equally as valid as its first-order effects — that is, that the second-order effects are not swamped by practical factors for which the theory simply does not account.
There is also a third reason. People are not mere numbers in an equation, and I think that far too many economists forget this. When Keynes famously said, “In the very long run, we are all dead,” he expressed a wisdom far deeper than support for mere monetarism. When globalization throws out of work a Ford union factory machinist in Dearborn, Mich., who was paying a mortgage and his son’s college costs in East Lansing, it isn’t funny. That man and his family are fellow Americans; yet few if any professional American economists are personally threatened by cheap foreign labor, and, Dr. Reed, I think that the attitude shows.
Now, I do not wish for a moment to imply that you personally disregard anybody. One supposes that you would hardly spare the time for such a blog as this if you did! My hope on the contrary is that, like Gomory and Baumol, you will consider applying your expertise to contribute to the development of a more suitable, more realistic, more empirical, more correct theoretical trade framework than Pareto’s and Say’s.
Regrettably, perhaps not to an end the mainstream of professional economic thought recognizes as valid; but let me offer a few scattered points from among many, then you can decide for yourself.
(1) German U-boat warfare brought Britain to the brink of starvation in 1916 because Britain before 1914 had grown dependent on overseas food supplies. It was only timely American support which kept Britain fed.
(2) Japan attacked Pearl Harbor in 1941 in no small measure because Japan had predicated her imperial expansion plans on access to American petroleum, which the Roosevelt administration cut off precipitously the previous year. You and I will hardly approve of Japanese imperial expansion, of course, but that is not the point. The point is that, from the imperial Japanese point of view, Japan must have planned its conquest more prudently and self-reliantly from the start, had it factored in the political unreliability of U.S. oil.
(3) Today, no American really knows how to manufacture the flat-panel display on which you may be reading these words. The senior design engineer from the Samsung/Sony flat-panel plant who retires to academia is likely to pass his knowledge on to the rising generation of engineers, not at the U. of Illinois in English, but at Ajou U. in Korean.
(4) From Pat Buchanan’s The Great Betrayal, 1998: “[H]ow farsighted is such global interdependence? During the Bush era it was said that the United States could not take a tough stand in trade talks with Tokyo, lest an angry Japan dump its hoard of U.S. debt onto the world market, forcing up U.S. interest rates and thereby inducing an American recession. In the name of national security, what benefit are we reaping from trade with Japan, to justify this vulnerability to Japanese retribution?”
A moderate, practical self-sufficiency is a traditional American frontier value which has long served our nation well. Of course, few if any American families today can or should be as self-sufficient as our 19th-century pioneer forebears were, but there is still something to the good old American shotgun ethic which provides for itself and relies on its own. Excessive dependence on foreigners for things we Americans can, should and recently did produce for ourselves, excessive economic vulnerability to unpredictable overseas events, seem to me serious, fundamentally unwise risks to take.
Your colleagues who disagree ought in my view to explain why — in order to insulate the nation substantially from global instability and foreign economic threats, in order to broaden America’s engineering and technological capability — the theoretical, second-order Pareto inefficiency a traditional American tariff might cause is not an acceptable price to pay. Remember our countryman in Dearborn, Dr. Reed. He matters.
At the very minimum, the conventional Pareto model probably needs to acquire a term or two which acknowledge the inherent value of national self-sufficiency, of family-oriented job stability, of diverse engineering capability, and of the recompartmentalization of the global economy against global economic shock. Add to the revised model a federal revenue-neutral constraint which substitutes a tariff for part of the income tax, and let your colleagues run the numbers again and see what they get. Gomory’s and Baumol’s production-factor idea may be wrong, but their attempt to fix the broken Pareto model is not wrong-headed; if Gomory and Baumol really are wrong, let your colleagues explain why, and then let them search for a better alternative. But more than these: let your colleagues stop believing their own infernal models so much, and let them open their eyes, ears and hearts to what actually, empirically is happening to our country. American industry is dying. American self-sufficiency is disappearing. American fathers who had rationally expected to earn a solid middle-class family wage, no longer can. American big business is no longer truly, reliably, patriotically American. These things matter. These evils are self-inflicted, unnecessary. To ameliorate them, Americans do not have to stop trading with the world; we need only to find the old, balanced, conservative trade policy we once had. The lynchpin of that fine old policy is the tariff.
Your courtesy is acknowledged and appreciated, but I do not wish at all to fight against you. On the contrary, the cause of economic nationalism needs you on its side — and you more than most people, because you are a professional economist.
There is of course much more one could write for or against each of these points, but I hope that their general thrust seems clear. If you ask further questions I shall try to answer. Otherwise the blog would be pleased to include your rebuttal (or even your concurrence, if one might hope) as the last word.
HJH
December 7th, 2006 at 11:08 pm
Sorry to take so long to reply. Thanks for your thoughtful comments. I hope you won’t be to disappointed if I confess I’m not terribly convinced on the merits of the sort of policy you suggest. Here are some of the reasons why:
1) The burden of a tariff would not fall entirely or even mostly on foreign producers but rather mostly on American consumers in the form of higher prices. These higher prices would result both from foreign producers passing on the cost of the tariff and from reduced competitive pressures on domestic producers. A fact that is missed in a lot of discussion of economic policy is the fact that low prices increase standards of living just as surely as higher wages do. The downward pressure on prices from trade has been tremendously important of increasing the living standards of Americans. So, in my opinion, much of the benefit you assert of revenue from a tariff allowing for lower taxes would be swamped by the higher prices which would act as a de facto tax, and a regressive one at that. Additionally, it is likely to have additional costs such as retaliatory tariffs agaist our exports and the costs of collecting and enforcing the tariff, which may considerable as there may be complicated efforts to evade it.
2) (Addressing your Dearborn argument) Jobs are created and lost over time for countless reasons, many of which are beyond the reach of economic policy. Technological progress, changes in consumer taste, and changes in comparative advantage are all reasons why particular jobs may disappear in the American economy. In all of these case, it would be expensive and possibly futile to preserve particular jobs. Obviously the mix of jobs in the 1960s is different than the mix of jobs today for many reasons, and attempts to preserve the same mix that we had in the 1960s would be in my opinion be wrongheaded and damaging. Should there be policies to protect the jobs of the workers at the typewriter plant? (The government buying lots of typewriters, I guess) Or, consider the unfortunate results of fighting against the market’s signal to devote fewer resources to food production…hundreds of billions of dollars in subsidies, assorted price supports, payments to farmers not to farm in order to limit supply. The costs to the economy at large to to try to avoid the decline of the romantic life of the family farmer have been huge (and I haven’t mentioned the terrible costs borne by very poor farmers of underdeveloped countires) but yet the family farm declines. Fundamentally, protecting a job threatned by trade is not very different than protecting one threatened by changes in taste or technology. What if he had tried to defend textile jobs from foreign trade? The comparative advantage of other nations is so large that the tariffs (or other trade restrictions) required would have been huge and increasing, and clothes would be dramatically more expensive, to the detriment of virtually every American. Now certainly some human misery would have been avoided…I grew up in Southwestern Virginia and remember the sad tales of factories closing down and workers who had known nothing but that industry, that company, being laid off. I have to believe, though, that at some point it is just too expensive to the rest of us to gear policies towards preventing these sorts of changes. Rather, it seems to me that a public education system that creates a more skilled, adaptable work force and programs to provide direct aid and/or training to displaced workers are preferable. I will conceed that we have seen a phenomenon that since America tends not to have a comparative advantage where unskilled labor is concerned, the costs of trade fall disproportionately on the unskilled, and we see the troubling phenomenon of those not fortunate enough to be endowed with marketable skills or opportunities for education being left with little opportunity for a dignified career. This is a real problem and a legitimate argument for certain protectionist policies, but at least in most cases I don’t think it carries the day, at least in my opinion.
3) Except in certain strategic goods I find the self sufficiency argument to be essentially a value judgment. That doesn’t mean you are wrong; we just have different opinions on the intrinsic value of self sufficiency. We might as a society choose to sacrifice efficiency for self sufficiency; I would myself prefer not to in most cases but I can’t say that others’ preferences are wrong. I am very skeptical, however, that the sort of tariffs you suggest are really going to provide us great security from international uncertainty.
Finally I want to add that:
-My expertise in economics is not particularly in trade matters so my opinions should not be weighted as coming from someone with great expertise. I know you’ve thought about these matters a great deal and it may be on some points your analysis is more correct than mine. I know you said you would give me the last word but feel free to respond if you wish. Thanks for letting me participate here, and kudos again for the level of discourse on your site.
-Steve Reed
July 16th, 2007 at 8:49 am
[…] Let it be understood: Opposition to free trade does not mean opposition to trade. Far from it. We Americans want to trade many things with many peoples, just as we always have done. Opposition to free trade means a balanced recognition that the lowest possible prices at Wal-Mart are not the only national good to be sought. It means a balanced assessment that the benefits of trade are not free but come at a price. Historically from Washington through FDR, Americans achieved this balance by means of a tariff, under which Americans grew to be the wealthiest, happiest, most secure, most independent advanced people on earth. The economic nationalist seeks a return to that old wisdom. […]