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Were the Mercantilists Right After All?
An imaginary seaport with a transposed Villa Medici, painted by Claude Lorrain around 1637, at the height of mercantilism.
I have found my views on free trade “evolving” over the past year or so. The Red Fish of 2010 or so would have happily provided a lengthy dissertation on the benefits of NAFTA and free trade to any group who wanted to listen. Or didn’t want to listen. 2010 Red Fish was like that.
I read this morning over at The Federalist an interesting piece detailing the way many Republican Party candidates no longer support free trade. Why is a base that went ballistic a year ago over the attempt to force the Ex-Im Bank back into existence now ready to back candidates who don’t support free trade? And more importantly (to me), why am I starting to agree with them? It’s 2016 now, and Blue Fish is starting to make sense to me.
I used to hear more from Mickey Kaus in the Ricochet podcasts, particularly when he was so dead set against immigration for economic reasons. He would always tie that back to how NAFTA and other free trade agreements hurt working class people. In response, Rob and Peter would talk about how free trade lifts all boats, provides new types of jobs and new industries, and results in a net positive economic effect. I still believe that’s true.
But what I am now having a hard time reconciling, particularly as I watch Trump do what he does, is that the benefits of free trade, which are near-impossible to identify in individual lives, don’t seem to compare very well to the very real impact that free trade has on specific people who lose their jobs and see negative pressure on their wages. If we make that argument about immigration, why shouldn’t we make that argument about free trade? One is shipping the job overseas, and the other is importing the employee. But it’s the same effect on the American who lost his job or took a pay cut, no?
Okay, so goods are cheaper. But what does that mean to someone without a job? Again, a benefit that is generally available (cheaper goods in the market) and a specific harm (an employee who lost his job).
The new information (to me at least) that’s weighing heavily on my mind is a better understanding of how the rest of the world is manipulating markets, providing subsidies, setting up barriers, etc., to limit our access to their markets or pull our businesses away. Yes, Boeing is in fact moving a plant overseas because the Ex-Im Bank is no longer giving them what they did previously. In the real world, where dismantling the Ex-Im Bank means Boeing planes are moved to factories overseas, isn’t subsidizing Boeing a good way to spend taxpayer money? It’s better than endless unemployment insurance and welfare, right?
Is it right to disarm mercantilist protections in a world where we’re the only ones really doing that? Why aren’t we protecting those workers from foreign competition?
Ricochetti — explain to Blue Fish why he is just wrong on this.
Published in Economics, Foreign Policy, General
It depends on where each individual places value. I’ll tell you that my parents moved all over the globe to ensure their children had what they needed. I have moved constantly and changed industries three times. Americans once risked their lives moving west to ensure greater prosperity for themselves and their families and now it’s too much to ask them to move where the jobs are? What has changed that Americans now expect the government to guaranty them employment in their chosen profession for life 2 miles from where they were born?
Your last statement is entirely untrue, both in point of fact, and in attempting to connect an alleged decline with China.
Their cheap (relative to the rest of the world) labor is what got them a manufacturing base, not monetary policy.
What was the National Debt 20 years ago compared to GDP?
What is it now?
You’re arguing that a guy who took out $30,000 in credit card debt is actually wealthy because he has such a well-furnished apartment.
You know, I keep hearing complaints about the tone on this site, and then I see comments like this and understand why. If you want to argue peaceably, fine, but this isn’t arguing, this is trolling.
Yes, and the big 3 auto makers were saved? Let’s see: GM floundered for another 20 years before collapsing under its obligations, was taken over by the government in a crony debt swap, then given to the UAW so the UAW could in turn sell off its shares for cash. And now Fiat owns Chrysler. Ford alone managed to hang on to itself. All protectionism did here was protect the UAW and the auto makers from their own bad decisions for 20 years. When the next big test came, they still failed.
In part, perhaps, artificially inflated housing prices in the places where the jobs are? Exclusionary zoning has become a big deal since the seventies, and politically-popular policies to keep housing prices up result in making moving very expensive. William Fischel has written some about this. I will sometime in the near future be posting an OP on what Fischel wrote.
I don’t complain about the tone and in fact I once defended Jaime Lockett directly when someone complained about our harshness.
It seems to me that free trade increasingly relies upon quasi-religious invocations of faith along with assertions and special pleading that put the underpants gnomes of South Park to shame.
If your chosen policies are as awesome as you presume you shouldn’t need any of that, and Donald Trump wouldn’t be gop frontrunner, either.
It seems to me that free trade increasingly relies upon quasi-religious invocations of faith along with assertions and special pleading that put the underpants gnomes of South Park to shame.
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We have cited example after example both of where trade has been beneficial, and where crony protectionism has created real and lasting harm. Can you show any counter examples where actual free trade has caused more harm than good, or will you instaed continue to throw out insults like this?
Let’s see: Japan did not manage to bankrupt American automakers circa 1984, resulting in a president Walt Mondale and much else.
So yes, they were saved. And other companies had good reason to invest in the United States, mitigating the damage from the incredible incompetence of the Big Three that eventually doomed them.
I have a degree in Economics. There is a lot of lip service to this, but there is a disconnect there where they fall in love with graphs and numbers and assume everyone will behave as they predict. They don’t because people are not driven solely by quantifiable variables like money.
No you haven’t. You’ve made assertion after assertion, demanding abject acceptance, then whined piteously that your assertions were not accepted without question.
Spare me. Whole industries have disappeared from the United States, with vast seen and unseen consequences, yet free traders only claim to notice the consequences they like.
The vast and endless welfare state, the myriad ruined towns, the endless unemployable morass of unemployed, the shocking rise of an appallingly ignorant reality TV star to become frontrunner of the gop- nope, that has nothing to do with the complete and utter indifference on the part of the ruling class about the fate of most Americans- and the thoughtless acceptance of free trade dogma.
Nope. It’s-it’s-it’s-the yoonyuns!!
Yeah, Yoonyuns!
That’s it!
[Editors’ Note: not what we do here. Enough.]
Their death was merely postponed. An earlier bankruptcy might well have been far less painful as it would have forced a reckoning when the damage was less extensive.
This assumes that they would not have done so anyway. Honda built its first US plant in Marysville OH in 1982. They were laying the groundwork for that plant years before Reagan.
Part of getting other nations to invest here is for them to have the belief that they will not be punished for doing so. Nations with high protectionism are also nations that do not receive much in the way of foreign investment.
In any case, constant appeals to WWRD (what would Reagan do) are unpersuasive. This is not 1982. Reagan was a product of his time, and that included him being quite the protectionist where votes mattered. He also put tariffs on foreign steel to save US Steel (today a shell of itself) and voiced support for gun control in a way unthinkable to conservatives today.
What would you suggest we protect today? What would that protecting save? Who would benefit? Who would be harmed? If protectionism is so beneficial, give a current example.
I have flagged this. If you want to engage, fine. But you’ve done nothing but insult.
Are we still lamenting the horse and carriage jobs lost? What about the vast whale oil industry that has disappeared from the North East. There is just no end to the industries that have disappeared form America. We should immediately enact tarrifs to bring these jobs back!!
Interestingly, Andrew Klavan talked about this topic yesterday on his podcast vis-a-vis Trump’s appeal to the white working class.
http://www.dailywire.com/podcasts/2771/ep-61-real-reason-palin-endorsed-trump-andrew-klavan
(Klavan does this in video form, but you can listen for free from iTunes)
Xennady has argued repeatedly that protectionism would also be a vote-getter today, though, too. And given Trump’s popularity, Xennady may have a point there.
Midge,
That if is popular doesn’t make it the right thing to do. Obama was elected twice I should remind you.
Excellent point. Also, when settlers were moving West, they worked the land and lived off it. No one who loses a factory job in Ohio is packing up the sedan and starting a cattle ranch or subsistence farming. It is also ignores structural unemployment where the jobs being created either require more skills than they have and can reasonably be expected to quickly and cheaply acquire or pay much less. Klavan broke down the numbers on this yesterday where the middle class jobs are what are being sent overseas, and we’re creating millions of lower class jobs like waiting tables and bartending. Someone who goes from making decent money running a press brake is rightfully going to see it as a step down to take a job as a waiter making less. These are the people Trump is appealing to, and they are tired of being taken for granted.
As assertion not in evidence.
You assume that would have happened absent the intense protectionist sentiment of the time. Perhaps, but I suspect not.
Where did this come from? How are other nations that invest here punished? Universally they are welcomed, by everyone.
Like China?
I’m glad you accept this, because I’ve said as much and been denounced as a lunatic. Votes matter, votes matter, quick tell
Mitt Romney Jeb Bush Marconever mind.What’s left? Not enough to matter, I suspect.
Too late.
Free Trade does have winners and losers. If you calculate the total net benefit on the country as a whole, any movement toward free trade likely is positive. However, in a democratic republic what is determinitive is not the aggregate benefit, but the mix of winners and losers and the distribution of gains and losses. If the gains are small spread over a large populace, but the losses are concentrated among a few then the losers will be highly motivated and lobby for protection and likely win even if the net over the whole population is positive (tire example above). In the reverse situation (losses small and spread out, benefit concentrated) the concentrated group again will likely win (Ex-Im bank, sugar, etc). This is why political forces will always be against free trade.
More dangerous to my mind to lower skilled workers is not free trade, but technology and the large compensation accruing to intelligence.
The bible was translated wrong. It is, “The geek shall inherit the earth.”
We aren’t now, but don’t think it didn’t harm the people who were involved in those industries then. There is still a distinct difference in a manufacturing economy and a service economy. It’s not as difficult to switch from one industry to another in a manufacturing economy. Running one machine is much like running another. Asking someone to go from being a machinist to a software developer or system administrator is completely different. I’ve worked with enough of those kinds of folks in the steel fab industry who are in way over their heads to know the reality differs from the theory.
Forgive me, but I think this fits any rational definition of “piteous.”
Depending on your locale, waiting tables and bartending can be quite lucrative. My city has a lot of tourism and generally high incomes. There are some waitresses that bring in nearly $100 k/yr due to tips. One of the problems is that the high earners tend to be youngish and good looking. Your average looking 50 year old mother of three, no matter how talented at customer service is unlikely to make even half that. In addition to waiting tables and bartending you have lots of poorly compensated busboys and line cooks.
Xennedy, kindly dial it back.
And the technology level of the machines is to the point where 1 person can run an entire assembly line, so not only do you need fewer workers, the ones who remain have to be really really good.
That’s less a free trade issue, though, and more into the relentless march of technological obsolescence. The US still manufactures an incredible number of things, what’s changed there isn’t just low-buck jobs going overseas (definitely a factor) but flat out needing fewer people. A skilled US worker has a productivity unrivaled in the 80s or 90s.
Saw a documentary on the Kia plant in Georgia. They churn out cheap cars at a rate that only a big Detroit plant could touch in the 80s, but they have just 200 people, where the old big 3 plant might have had 2000. Everything is automated, and very few human hands touch the vehicle, except for things like trim pieces and awkward parts.
Real median family income has not been flat for 40 plus years. You have to add non-wage income like health benefits etc to wage income to get to total compensation. That makes a material difference.
Even with only wage income, the picture is different if you adjust for labor force composition. Because of the large influx of unskilled “immigrant” labor, the current labor force is more skewed towards the unskilled relative to what prevailed in the 1970s. If you make that adjustment, you’ll see real wages have increased significantly. See Edward Conard’s “Unintended Consequences.”
Free trade does not cause real wages to stagnate; instead it tends to increase real wages by making goods cheaper. Imagine Trump imposing a 100% tariff to force Apple to make phones here. You’d see IPhone costs doubling. Consumers are screwed while some workers get to assemble Apple phones. Not a good deal for the economy.
Over time, real wage growth is mainly determined by productivity growth. You really don’t need to look any further than that.
Of course if you import a lot of unskilled labor, your average economy-wide productivity will be lower than otherwise.
Are you suggesting that low skill workers who lose their jobs in America should move to China or India?
The government can impose tariffs and remove them without negotiating with anybody, unless that change violates an existing treaty. The government harms large numbers of Americans every time it imposes a tariff. That points to the question that really ought to be asked.
The need for trade agreements is political. The government doesn’t want to unilaterally remove tariffs without showing that it “got” something for it.
I can see that if you live in a steel town like Pittsburgh, PA or Youngstown, Ohio, you might want to be a steel worker; just like your dad and your granddad before him. They made pretty good money at it and you want the same for yourself. Also, you don’t want to move away from your roots. Steel working is in your blood.
If that’s what you want, you’re right to want it. I don’t blame you at all.
But nobody owes you that. You have a right to want it. You don’t have a right to demand it.
If people can get their steel cheaper elsewhere, they have a right to do it. The government shouldn’t force them to buy it from you.
Protectionism won’t save an industry whose time is past. It will just keep it on life support at the expense of everybody else.
Bastiat Junior: Are you suggesting that low skill workers who lose their jobs in America should move to China or India? If the jobs that are being lost in one part of the U.S. were just moving to another part of the U.S., that’s one thing. But in many or most cases, those jobs are moving to the other side of the globe.