THE DISCUSSION of free trade continues. Many readers passionately argue that economic ideologues have caused the catastrophic de-industrialization of America.

A reader in the latest thread writes:

I have a B.A. in economics, something I am profoundly ashamed of. I have most of a Masters in Econ and did some courses with Murray Rothbard who was a spellbinding lecturer and like Milton Friedman had a simple, clear, brilliant, wrong answer for every complex question. Economists have spectacularly failed to predict or forestall two massive economic bubbles, two recessions and worsening unemployment (that’s just in the last 10 years). My own view is that the discipline is corrupt.

Free trade assumes two individuals or countries trying to optimize their natural advantages in producing goods and services. The hope is that the market will prevent or punish cheating. In practice, in the real world it is possible to strategically loot an opponent’s economy of particular industries. Unlike free trade theory, which would predict that we would create a new crop of industries (based on our relative advantages) to replace the old industries, this has not happened. It is easy to blame regulations, and certainly that is a large part of it, but there are fundamental problems with us opening our markets while others do not. 

It is better to examine the policies of successful economies. 

The discussion about free trade reveals many of the mistakes economic thinking creates. First, the discussion has revolved around optimizing the production of goods and services. But that’s not the only thing worth optimizing. Japan wanted power. Japan has no natural advantage that makes it adept at producing cars. But it produces excellent cars because it decided to gut our auto industry. 

China is doing the same. A friend of mine recently returned from Kenya where the Chinese are building self-contained colonies to exploit local natural resources. The Kenyans sold wooden carvings and trinkets to tourists to make money. The Chinese saw this and now sell the same trinkets for less money undercutting the locals. When you can oppress your people, the Central planners can do what they want in terms of trade. 

In my opinion, economies are organic (the phrase used by the urban theorist Jane Jacobs). They are expressions of particular cultures and people in a particular place. An economy is part of a complex web of social structures. They are not a series of summed up supply-and-demand curves. Hernando de Soto has wrestled with this problem for years.

There is another problem. The intelligence of the people in any country is a normally distributed bell curve. Half the people in a country are not as smart as the other half. Smart is not the only economic indicator but it is an important one. All the people in a country deserve a chance to work and live with some level of dignity. That means not everyone can be a knowledge worker or a Free trade columnist. We need to be able to provide jobs for everyone. If only to provide some political stability. 

Yes, protectionism distorts the market and increases the price of goods and services. It also helps ensure our neighbors have jobs and prevents the growth of a permanent underclass. Protectionism was also the official policy of the U.S. for its first 150 years and was critical in developing our economy. We need to produce goods and services to have an economy that is stable for everyone. At the end of discussion, we need patriots running our country who think deeply, guided by knowledge of the world as it is – free from ideology and cant. I pray for it nightly.

— Comments —

Jeff W. writes:

Like your reader, I have wasted too much of my life studying economics in college. My opinion now of professional economists is that they are on the side of maximizing wealth for government and the banks, and their job is to convince the public that it is morally and scientifically right for government and the banks to plunder the productive economy. They are frauds and charlatans.

Like your reader, I also admire Jane Jacobs. She tried to look at the world as it is, going out on the streets to observe economic activity with her own eyes in order to understand how the economy works. This is something that professional economists never seem to do.

I am personally not in favor of traditional protectionism. I argue that we need balanced trade. Each country that sells us a dollar’s worth of manufactured products should also buy a dollar’s worth of manufactured products. Those countries that sell without buying should be hit with increasing tariffs until trade comes into balance.

I was once told of a study that was done by economists at the University of Michigan in the 1980’s that showed that when countries trade with each other, wage rates rapidly equalize. The greater the volume of trade, the faster they equalize. That study was suppressed. I have searched for it repeatedly and have never been able to find it. What it means is that “free trade” with China will rapidly cause Americans’ wages to equalize with those of the Chinese. If we don’t want that (and as a note to Kristor, nothing of American culture can survive on $2/hour average wages), we have to take action to protect American wage earners from mercantilist competition.

My impression of Kristor and others here is that they think it’s all right for Americans to earn $2 an hour. If that’s the outcome of free trade, then they think it’s right and just that Americans should be impoverished. But I do not take that view, and I am sure that I have at least 90% of Americans on my side in not wanting Americans to be ground down into third-world style poverty.

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