What’s Wrong with the World

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What’s Wrong with the World is dedicated to the defense of what remains of Christendom, the civilization made by the men of the Cross of Christ. Athwart two hostile Powers we stand: the Jihad and Liberalism...read more

What’s The Matter With Garbutt?

Given Tuesday’s disappointing Republican primary results and the end of Ted Cruz’s campaign for the nomination as the Republican party’s presidential candidate, now is as good a time as any to look more closely at Trump’s actual ‘policy’ positions (to the extent he has any positions at all that won’t change at a moment’s notice when it is convenient for him) and discuss their relationship to the common good. I’m particularly interested in examining Trump’s views on international trade and I thought I would use as a springboard for my piece National Review’s Kevin Williamson, who caused a bit of a kerfuffle on the internet recently when he decided to take Donald Trump’s supporters to task. More specifically, Williamson had the gall to call out the white working class as the author of their own failures.

Williamson has been writing about the white working class for National Review for the past year or so in poignant and well-researched articles on their use and abuse of prescription drugs and heroin in the South and their dysfunction in the white ghettoes of Appalachia. However, when he dared to suggest in clear sentences that the best thing that folks faced with few opportunities in dying small towns (like Garbutt in upstate New York) could do was to move out and seek better opportunities elsewhere, his critics on the mostly traditional and paleo Right (at least these are the critics I’m interested in) were not happy with him.

Rod Dreher led the charge in a long and thoughtful post that is worth reading in its entirety. To begin, Dreher uses his dad as a springboard to find himself in agreement with Williamson on some points (especially with the idea that young men do need to stop being lazy, exercise self-restraint, and get to work):

During my crusading liberal days in college, I was full of ardor and right-thinking on the subject of race and poverty. I dismissed my dad’s conservative views as typical hard-hearted Reaganism, and fumed over how someone like him, who was raised working-class and was culturally working class, could sympathize with Reagan, that old racist. What it took me years to see was that however shaped my father’s views on race and poverty were by his generation’s attitudes, they were also deeply informed by years of observation of how poor black people, like poor white people, lived. He would try to explain to me how nobody who lived the way so many of the black (and white) poor did in our parish could ever hope to break the cycle of poverty. It took education, and hard work, and self-discipline, especially staying off of drink, drugs, and avoiding having children outside of marriage. You had to be sensible with your money, he would tell me (I didn’t know until many years later how hard he and my mom, a school bus driver, struggled financially during my childhood).

Then Dreher shifts gears and uses the writer Michael Brendan Dougherty, who has gone back and forth with Williamson on the subject of the white working class, and uses Dougherty as a foil for Williamson on the following points:

(MBD says:) When conservatives think of American trade negotiators and diplomats working to lower the barriers to American capitalists investing in overseas workforces, they see it as a core function of government, not as a kind of favor to wealthy clients of the American state. But if the same negotiators had in mind the interests of American workers instead, they see it as corrupt protectionism, that coddles the undeserving. There is a huge failure of imagination on the right. And a failure of self-awareness. It may also be that I don’t see conservatism’s primary duty as guarding the purity of certain 19th century liberal principles on economics. I see its task as reconciling and harmonizing the diverse energies and interests of a society for the common good.

Ah ha! There it is in all its Trumpian glory – the classic case against “free trade” – it is bad for American workers and bad for the “common good.” As Trump says himself (or at least the people he hired to write his website say) of our deal to let China into the World Trade Organization:

In January 2000, President Bill Clinton boldly promised China’s inclusion in the World Trade Organization (WTO) “is a good deal for America. Our products will gain better access to China’s market, and every sector from agriculture, to telecommunications, to automobiles. But China gains no new market access to the United States.” None of what President Clinton promised came true. Since China joined the WTO, Americans have witnessed the closure of more than 50,000 factories and the loss of tens of millions of jobs. It was not a good deal for America then and it’s a bad deal now. It is a typical example of how politicians in Washington have failed our country.

So setting aside for a moment all the other issues related to the white working class, let’s train our focus on trade as it has become one of Trump’s signature themes of his campaign. Indeed, another one of Williamson’s critics, this time on the “alt-right” also singled out this issue (among a litany of issues) as a policy that has hurt the working class:


Kevin says, “Nothing happened to them. There wasn’t some awful disaster.” But he’s wrong, there was a disaster, but no just one, multiple related disasters all occurring simeltaneously. Ones that would be missed by a rootless cosmopolitan like Williamson. These disasters include the sexual revolution, the long march, feminism, mass immigration, globalization/off-shoring, forced integration, the drug epidemic, mass TV propoganda, governmental growth, and cultural genocide [my note: the alt-right is nothing if not colorful!]

Within a span of a few decades working-class whites saw their communities invaded and destroyed by immigrants and integration, the traditional sexual/moral framework destroyed and replaced by degenerate Hollywood mores, the collapse of restraining institutions such as the church and local community, and what [sic] forced into competition for what jobs weren’t off-shored to foreign places paying starvation wages with imported illegals willing to work for almost nothing [my emphases].

Moving on to the paleo right, Chronicles magazine also called out Williamson and the issue of trade when one of their writers highlighted the Michigan Assembly plant he grew up next to in Wayne, Michigan and claimed that:

Michigan Assembly has had its ups and downs, as I wrote in Chronicles last July. The stupid trade laws Trump attacks have played a part. So has Federal Reserve Board policy. When the Fed inflates the dollar, as in the 1970s and 2000s, gas prices rise fast and people switch from SUVs to the small cars made at Michigan Assembly. But when there’s deflation, as in the past five years, gas prices plunge and American drivers park their small cars for giant SUVs. That’s the major immediate reason why a year ago Michigan Assembly laid off 700 workers—my people—and moved production of the small Focus and C-Max to Mexico. No wonder Wayne’s population has dropped 20 percent the past 30 years. The long-term reasons for the industrial economy’s problems are all the other government stupidities and sellouts Trump has attacked. No wonder my Michigan relatives told me in the recent GOP primary they voted to Make America Great Again.

One wonders what exactly these other “government stupidities and sellouts” the Chronicles writer is referring to, but you get the sense that he is not a big fan of free-trade agreements or trading with Third-World countries in general.

Breitbart finishes our little round-up of attacks with some of the most specific claims against Williamson related to trade policy:

Williamson blames the very people who are undeniably the victims of a combination of big government regulation and disastrous trade policies that have traded manufacturing jobs for lower costs for those products. In spite of his claim that “On the trade front, American manufacturing continues to expand and thrive,” the reality is that since the year 2000 when Permanent Normal Trade Relations with China went into effect, five million manufacturing jobs have been lost, according to data compiled by the Bureau of Labor Statistics. What’s more, the nation’s Gross Domestic Product growth has not exceeded 4 percent since that same year. In fact, GDP growth hasn’t exceeded 3 percent since 2005 making the past decade the worst for economic growth since the Great Depression.

This is not the fault of those who lived in those towns that depended upon local manufacturing that was shipped overseas, it is the fault of the government policy that put into place the environment where closing local mills in North Carolina made more economic sense than keeping them open.



Notice by the way, that the guy attacking free trade who actually does some research comes up with a figure (five million) that is different from Trump's by a factor of at least 10!!

Clearly these writers attacking Williamson are incensed by a variety of issues – but they all mention trade and its supposedly baleful effects on the working class of America and this is the focus of my blog post. Should the conservative movement reconsider its long-time support for free-trade given Trump’s rise and the plight of the white working class? In a word, I would argue a firm no.

Whether or not Kevin Williamson’s advice to the working class is always and everywhere sound counsel (i.e. maybe not every young ‘blue-collar’ man needs to move out of a small town to find gainful employment – maybe he can start his own home remodeling business or car repair shop or heaven forfend, a lawn maintenance service and compete with the Hispanics who seems to have cornered that market in my neighborhood!) it is certainly still sound economic theory and practice that trade with other nations will enrich our own. I like the way the economist Mark Perry laid out the basic concepts in a recent Los Angeles Times opinion piece:

To understand how economically backward Trump’s position is on trade, imagine him standing in the parking lot of a Walmart, Home Depot or Best Buy and shouting to Americans as they leave with their merchandise, “Hey, you just got absolutely crushed by those merchants who sold you cheap products made in China, Japan and Mexico. People overseas are now laughing at you.” That’s ridiculous. Consumers who voluntarily purchased those products, and who probably said “thank you” to the cashier as they left, did so because they valued the merchandise they selected more than the dollars they left behind.

When American businesses and consumers voluntarily purchase more products from China than Chinese businesses and consumers buy from us, it does lead to a U.S. trade deficit with China. But the trade deficit can’t accurately be referred to a “loss,” because it’s based on millions of mutually agreeable individual exchanges that took place between a willing seller and a willing buyer.

In fact, you could make a strong case that China “lost” last year on trade with America, not vice versa. After all, we acquired $482 billion of merchandise made in China and they acquired only $116 billion of merchandise made in the U.S., for a net merchandise surplus of $366 billion in our favor. China “lost” a net amount of $366 billion of goods that ended up being consumed and enjoyed by Americans.

It would also be accurate to say that China gained a net amount of $366 billion worth of U.S. currency, the exact amount of the trade deficit. But what happened to those dollars? They aren’t sitting idly somewhere. On the contrary, they quickly came back into the U.S. as a capital inflow to purchase America’s financial assets like corporate stock and bonds, real estate, bank deposits and Treasury securities, and as foreign direct investment in America’s factories and businesses.

Well, the critics say, what about all those job losses and the working class? Unfortunately for the critics, they don't even get this right! The economic picture concerning manufacturing job loss is more complicated than the story the anti-trade side tells (from an excellent piece on trade in the National Review):

For these and other reasons, it is widely accepted that U.S. manufacturing “decline” has been limited to employment, and that these loses were primarily cause by productivity gains, not trade. Indeed, even the most pessimistic academic studies on imports and manufacturing jobs have found only a limited connection between the two. Autor, Dorn, and Hanson found in 2013, for example, that “import competition explains [only] one-quarter of the contemporaneous aggregate decline in US manufacturing employment” between 1990 and 2007. Other studies have been even more sanguine. For example, a recent Ball State study attributed almost 90 percent of all U.S. manufacturing-job losses since 2000 to productivity gains. “Had we kept 2000-levels of productivity and applied them to 2010-levels of production,” the authors write, “we would have required 20.9 million manufacturing workers. Instead, we employed only 12.1 million.” Thus, it is simply wrong to blame import competition for the disappearance of American manufacturing jobs of the supposed destruction of U.S. industrial capacity.

Second, despite its harms to some manufacturing interests, free trade also has generated broad-based benefits for U.S. consumers, businesses, and workers. In The Payoff to America from Global Integration, economists with the Peterson Institute found that past global-trade liberalization through the WTO and other efforts generated between $2,800 and $5,000 in additional income for the average American and between $7,100 and $12,900 for the average household. The consumer gains from trade disproportionally accrue to America’s poor and middle class. A 2015 study by Pablo Fajgelbaum and Amit Khandelwal finds that these groups, because they concentrate spending in more-traded sectors such as food and clothing, enjoy almost 90 percent of the consumer benefits of trade. These benefits are even more concentrated for Chinese imports, since poor and middle-class American consumers are more likely than their richer counterparts to shop at “big box” stores such as Target and Walmart that carry a lot of made-in-China goods.

American businesses, of course, also benefit. More than half of all imports (including those from China) are inputs and capital goods consumed by other American manufacturers to make globally competitive products. Raising these firms’ costs via tariffs would mean fewer employees, if not outright bankruptcy—a particularly bad outcome given that downstream industries (e.g., steelmakers) typically employ far more workers than their upstream counterparts (e.g., steel users). Non-manufacturers benefit, too – whether they be retailers such as the Gap, transportation and logistics companies such as FedEx, or multinational firms such as Apple, which assembles iPhones in China but generates most of their final sale price through marketing, design, engineering, and even manufacturing done in the United States. (Chinese manufacturers themselves earn only a few dollars from an iPhone’s assembly.) U.S. exporters such as Caterpillar and Boeing also gain from trade, and many foreign markets wouldn’t be open without reciprocal trade agreements, such as NAFTA. According to the Business Roundtable, in 2014, U.S. free-trade-agreement (FTA) partners purchased 13 times more goods per capita from the United States than non-FTA countries did.

Minor job losses and overall strong, positive economic income effects for poor and middle-class families -- what's not to like about free trade? It should also be noted, in direct response to the foolish Breitbart author, that Williamson is correct to point out that manufacturing is thriving in the United States (indeed we produce more than any other country in the world except for China) despite the fact that manufacturing employment is declining – this is because manufacturing in the United States, as detailed above and in this link, gets more and more capital intensive and efficient in producing finished goods. In China it might take 10 workers to produce one $100 television – here in the U.S. it might take five workers to produce a $10,000 machine that is used to make televisions!

So if trade makes sense for the common good, what about those workers who do get left behind? Is Williamson’s advice enough for them? Well actually, Williamson offers more than exhortations to the working class to get a job – he does advocate for better public policy that supports economic growth. Here he is in a “Corner” post from February 8th on what conservative policy offers the working class:

What do conservatives offer to lightly educated, lightly skilled, low-earning white men of the sort Dougherty considers? Only the same thing we always have: The opportunity to be something else. Between 1980 and 1990, real household income for Americans who were in the lowest-earning bracket at the beginning of that period grew by 77 percent; among those who had been in the lowest-earning income quintile, 85.8 percent moved to a higher-income bracket over the next eight years, and 14.7 percent of them moved to the top bracket. Which is to say, those in the lowest-earning fifth of Americans in 1980 were more likely to have moved to the top income group by 1990 than to remain at the bottom. That wasn’t magic. It was economic growth driven by real investment and enabled by better public policies than those that had prevailed before.

I would go further – some very smart conservative economists have been beating the drum for macro-economic policy changes that would help promote economic growth for a number of years, the kind that usually follows a recession and generates job growth. Here is my favorite, John Taylor, discussing this subject in the Wall Street Journal last year:

For years I and many others have argued that a return to the principles of economic freedom would convert this not-so-great recovery into a great one. But Washington has not seriously considered pro-growth policy—no tax reform to lower tax rates and spur hiring, no regulatory reform to scale back costly regulations, no new free-trade agreements, no entitlement reform to stop the debt explosion, and at best only a hint at monetary normalization to reduce uncertainty.

One reason: There is growing skepticism that these tried and true policies will boost growth rates. It is too late now, pessimists say. The economy missed the 6% or 7% 1980s-style growth at the start of the recovery, and it is impossible to make it up. Or even more pessimistically, an incurable “secular stagnation” plagues the economy with permanently diminished rates of return on investment and ever-increasing income inequality. Why bother with difficult reforms if they won’t make much difference? At least we’re doing better than Europe.

But a sharp acceleration in growth is a real possibility in the U.S. if policy makers take the necessary steps. Rapid growth following a recession usually occurs as people return to the labor force and productivity accelerates, boosted by higher investment. Labor-force participation—the percentage of the population that is looking for work or employed—is now lower than at the end of the recession. There is a lot of room to grow. And the growth of productivity—the amount of goods and services produced per worker-hour—has hovered around 1% for the past five years, less than half the nearly 2.5% average of the previous 20 years. There is room for acceleration there, too.

As a matter of arithmetic, the growth of the economy equals employment growth plus productivity growth. Simply reversing the decline in the labor-force participation rate—it fell every year of the so-called recovery, to 62.9% in 2014 from 66% in 2008—would cause a 5% increase in employment, or 1% growth for five years. Adding about 1% for population growth from Census projections equals employment growth of 2% a year. The percentage of the working-age population that is working would thereby finally exceed 2009 levels, and the U.S. would begin seeing promising changes.

Professor Taylor has also devoted his blog to this topic over the past couple of years and summarizes all of his posts on the subject here. They are worth reviewing if you think there is nothing to be done to help growth the economy and therefore provide meaningful help to the working class.

Williamson is mostly right – some small towns can’t be saved and it makes sense for young men to leave Garbutt and search for better opportunities where they can be found. We can also push politicians and policy makers to adopt tried and true economic reforms of the kind that will promote real growth and therefore job creation. This might not be the message that the Rod Drehers and the alt-right wants to hear (they seem enchanted with the possibility that we can somehow alter the fundamental realities of the world and change basic patterns of supply and demand so that trade is not necessary and no one ever has to abandon Garbutt.) But it is a good message and an old-fashioned conservative one.

P.S. One good reason to restrict international trade would be for national security reasons: I'm not convinced that we are doing all we should be doing to keep important secrets away from the Chi-Coms. But this is a national defense/security argument, not an economic one.

P.P.S. Sometimes you'll read someone argue that free trade must mean open borders. Nonsense. Immigration is different from trade -- going to live in another country, adopt their language and culture mores, etc. is not the same thing as buying goods or even services (if a worker comes over to your country for a set period of time to provide a service) from another country. It is silly to conflate the two and it is perfectly consistent to be opposed to high levels of immigration and still be happy with free trade with other countries.

Comments (148)

In China it might take 10 workers to produce one $100 television – here in the U.S. it might take five workers to produce a $10,000 machine that is used to make televisions!

Granted but the blind spot that free trade enthusiast have is that it is

not
necessarily good.
You have more things, to be sure, but the quantum of things is not the sole determinant of prosperity and common good. Have you forgotten that idle hands are devils' workshop?

free trade must mean open borders.
Have you read Bryan Caplan, for instance? He claims that it is a violation of fundamental right of contract between a willing employer and a willing worker if the worker is prevented from accepting the contract for immigration reasons. You are moderate free-trade but for more enthusiastic free-traders. free trade precisely means open borders.

I'm for Lyin' Don.

Your article seems pretty fair to both sides. I like the article, but believe that trade protection makes the stronger case.

[I]t is certainly still sound economic theory and practice that trade with other nations will enrich our own.

Did you literally mean this, or was it just imprecise phrasing? If imprecise, would you like to clarify? If literal, I doubt that many protectionists of intellectual caliber would find your statement objectionable. The U.S. has always traded with other nations, and (except during the War of 1812) in huge volume. Was it your impression that American protectionists wished that the U.S. did not trade with other nations?

National Review mentions the Peterson Institute. I have never heard of the Peterson Institute, but there are lots of things of which I have never heard, and Peterson has probably never heard of you and me; so we're all even on that score. Nevertheless, have you and I cause to believe that Peterson's figures might rest on sound premises? That whatever definitions he uses are indicative of anything meaningful?

Like you, I'm a numbers guy, very familiar with how extremely easy it is to marshal data of dubious quality or doubtful applicability in a spreadsheet and then pull bogus numbers from them; so, when I hear from one Peterson "that past global-trade liberalization through the WTO and other efforts generated between $2,800 and $5,000 in additional income for the average American and between $7,100 and $12,900 for the average household," why, I shall want to have a clear, concise, convincing overview of premises and methodology; and an explanation of why Peterson believes that the income exists, is additional, and is not due to some other factor like technological advance. Shan't you?

I shall also want to know how Peterson would explain the historical fact that Britain, the U.S., imperial Germany and postwar Japan each in turn built the most impressive industrial economies the world had ever seen, and did this precisely under protectionist policies. Presumably, Peterson believes that these countries did this in spite of, not because of, protection; but the natural presumption is against Peterson there, isn't it? The burden of proof would lie on him.

An abstract economic proposition with a pretty differential equation won't cut it. That is, if the standard Heckscher-Ohlin-Samuelson model (for which incidentally I have much respect) straightforwardly explained the history, this would be all well and good; but if the model broadly contradicts the history (as I believe that it does), then what does this tell us? To ignore the history?

I don't buy it.

Maybe your experience differs, but in mine, an astonishingly large number of published studies, across many fields, exist to clad mere nothingness in a pleasing form and dress. Heckscher, Ohlin and Samuelson did good work in my view even if their conclusion is as wrong as I believe it to be. Personally, though, I suspect that Peterson is all wet.

Well, the critics say, what about all those job losses and the working class? Unfortunately for the critics, they don't even get this right!

No, you are right. Too many of the critics make bad arguments against free trade, which is unfortunate and unnecessary. They didn't get it right.

However, good arguments against free trade exist. You want to seek out and respond to those. Except for polemical purposes, the bad arguments -- which are legion -- just aren't worth responding to.

My comment, which is already too long, does not really advance much in the way of arguments for trade protection. You could criticize my comment for that. However, there exist several good arguments, introducing all of which would require a short book. If there happened to be some particular argument to which you would like me to respond, though, let me know. We could talk median wages, systemic overcentralization, national security, tax policy, supply chains, whatever you like. Or we could talk none of them if you lack interest or time. As for me, I believe that free trade loses on all these points.

Notice that I never said that protection was good for "jobs." That's Lyin' Don's point, not mine. That's Donald J. Trump.

Incidentally, there is little point in responding to Lyin' Don's arguments regarding free trade. Lyin' Don's arguments are neither bad nor good, for he means little he says, and says little but to manipulate.

Did I mention that I'm for Lyin' Don?

I am all in. It will be worth it if he builds the wall. Trade protection, if we get it, will just be a bonus.

Good post, Jeff. I esp. appreciate the point that favoring relatively free trade policies is not identical to favoring open immigration.

I don't know where the "right" and paleo opponents of Williamson are coming from on the minimum wage, but I have been appalled lately at the push for increasing the minimum wage. Appalled because it would be so incredibly bad for the very people that the left (and now also the right) supposedly cares about--low-skilled, low-education workers.

Indeed, *in general* the economic policies that are failing these workers are things like over-regulation and excessive demands by unions. I have lost a great deal of sympathy for anti-trade advocates ever since the debacle in which the NLRB twisted the arm of Boeing when they started a *new* plant in, I believe, North Carolina, which was a right-to-work state. Boeing didn't even _close_ a plant in Washington State, though one of their execs was impolitic enough to admit that they didn't open the _new_ one there because all the strikes had lowered productivity. This was considered "anti-unionism" or "paybacks" or something crazy like that, so they were going to be punished. In the end it was all "worked out" by their raising wages to the workers in the Washington State plant--a direct form of extortion, punishing them for opening the new plant in the southern state. The unionists were utterly unconcerned for the workers in the southern state and not at all happy that _they_ were now getting jobs. No, everyone was focusing on punishing Boeing for _daring_ to try to avoid the stifling effects of the Washington unions.

Nobody who wants to argue for tariffs, etc., because he's _so concerned_ about jobs has any credibility anymore to me if he takes that attitude. That is a perfect example, and many more can be given, of almost trying to drive companies away to off-shoring.

If we want to help the working man and open up jobs, that sort of thing needs to stop yesterday.

Yet I have never _once_, never _once_, seen somebody who was all up in arms about the harms of free trade who was willing to get creative and try to use carrot rather than stick to bring manufacturing jobs back to the U.S. It was all the same-old, same-old punitive unionism and anti-capitalism, which is an invitation to economic sclerosis and joblessness in the U.S. Those are the attitudes that the low-end workers have to thank for their lack of jobs.

"But the trade deficit can’t accurately be referred to a “loss,” because it’s based on millions of mutually agreeable individual exchanges that took place between a willing seller and a willing buyer."

Not to be too polemical, but the same can be said for Eve and the Devil. That didn't exactly work out too well. People thoughtlessly buy the new shiny, no matter where it comes from and how much damage said purchase might inflict because most people are very short-sighted.

As for moving to where the jobs are - how, exactly is one to get the money to re-located? I could not pull up stakes and move to another state even if I had a good job waiting. Imagine trying to make this argument to some unemployed factory worker who has exhausted his workers comp. It is a bit like marriage - most people marry other people who live within 25 miles of themselves. Unless absolutely forced to move, most people don't have the resources to do so to find another job. This strategy might have worked 100 years ago when transportation was cheaper and housing problems were simpler, but it is much harder, today.

Finally, you haven't mentioned the elephant in the room which will, eventually make this issue moot - the rise of automation 2.0. More and more jobs are being relegated to AI systems. This will displace even more manufacturing jobs than free trade. Cheap labor from China is a stop-gap measure until these advanced AI systems come on-line in a few decades.

The Chicken

Not to be too polemical, but the same can be said for Eve and the Devil. That didn't exactly work out too well. People thoughtlessly buy the new shiny, no matter where it comes from and how much damage said purchase might inflict because most people are very short-sighted.

Unless there _is_ something wrong with the exchange, why make that comparison? The same description Jeff gave ("mutually agreeable exchange between willing seller and willing buyer") could be applied to my having bought a new lawn mower last week (it happened to be German-made), but it would be absurd to describe that as being anything like Eve and the Devil. Our old lawn mower's starter cord was broken, the wheels were bald, and we'd already replaced the handles twice by buying new handles on-line and installing them ourselves (who knows where the replacement handles were made). So this year when we found that the starter cord was shot, we decided to replace this time rather than repair. It was a completely legit exchange for a useful tool for our home, nothing evil about it.


As for moving to where the jobs are - how, exactly is one to get the money to re-located?

I think it's important to realize that people often harm themselves _far_ more by insisting on _not_ relocating than by even _borrowing_ money from friends and relatives if necessary to relocate. Or getting rid of most of their personal possessions and driving to the new location (where one found a job) in an old car. It would be ridiculous to hold that our public policies must continue to sustain every person in every location in the U.S., including in towns that grew up originally by sheer chance in the middle of nowhere a hundred years ago based upon some industry that literally no longer exists or in towns that have turned into expensive bedroom communities where poor people can no longer afford to live because property values have risen and so forth.

I have seen people who end up trying to settle down in the vicinity of the place where they went to college, because they made friends in college, and this ends up being a fiscally unsustainable decision. E.g. Because that town is so expensive a place to live. But they keep scraping by and scraping by because they are _unwilling_ to move, and then when they are 55 years old they are nearly starving to death, or living with their kids in squalor, because they have hitched their wagon to this particular community which isn't structured for people with their level of education and skills. They would have done _much_ better to have relocated years ago when they were younger and had more energy.

As for _finding_ another job, the advent of the Internet helps a lot with that. (Now, increasing the _numbers_ of jobs anywhere is a different matter, and something we're discussing overall here.) Even people who can't afford their own Internet can use the Internet for free at the local public library to search for a job. If you can find one and it involves relocating, then you do what you have to do just to get there--stuff your few possessions into the back of your car, rent a U-Haul and beg a friend to help with the driving, or whatever. I moved on almost nothing from Pennsylvania to Nashville when we went to graduate school over twenty-five years ago. It took the help of family, yes, but we did it because it was the next stage in where we were going.

I think there needs to be determination, but for some people what is the alternative? Stay where you are and starve because the government isn't creating good jobs ex nihilo in a ghost town in rural Oklahoma or because the factory you worked for in Chicago moved to another state? Live in one's friend's house indefinitely? Perhaps the friend would rather help with moving!

To my mind being determined to find a way to relocate, and realizing that it is necessary, is sometimes a matter of sheer realism.

Finally, you haven't mentioned the elephant in the room which will, eventually make this issue moot - the rise of automation 2.0.

Driven in part by the minimum wage. And will get worse if the minimum wage rises.

Mr. Harrison,

The historical record on trade is interesting and does give me pause -- there is no denying the growth experienced during protectionist policies. There are, of course, other factors at play -- imperial powers were taking advantage of colonies that weren't able to defend their own interests properly (i.e. they were being used for cheap, raw material for the mother country.) We cannot rewind history but it does appear to me that as markets become open and free around the world, Americans prosper.

Lydia,

Boeing is such a great example -- you are quite right to highlight their labor woes. It is not like the jobs they are offering in the South pay 'starvation wages' -- a high-school graduate can easily raise a family building airplanes working at a Boeing factory. Incidentally, in one of my links you will discover that in 2015 we exported $63 billion worth of civilian airplanes to the world -- more than any other type manufactured good (and the Asian and Middle-Eastern market is just growing in demand for our planes!)

The Chicken,

Your comments are always wise. My links and post do not disagree with your note about the "elephant in the room", as the National Review article attests, many more manufacturing jobs have been lost to increases in productivity (i.e. technology) than competition from foreign markets. As for the difficulties of moving to where the jobs are -- this is where public policy might play a role. Why not change unemployment compensation, for certain kinds of lay-offs or job loses into a lump-sum payment for moving to a place with better opportunities? Or since individual states probably don't want to see residents leave, create some sort of federal moving fund using the tariffs in place now (such a program would be unconstitutional if we were judging it from an older, stricter standard; but under today's broad commerce clause and 'general welfare' ruling, just about anything goes when it comes to federal government spending.) I'm all for creative public policy solutions to help the working class but I want to work with the market, not against it.

Bedarz,

- "Have you read Bryan Caplan, for instance?"

Yes, I read Bryan Caplan regularly and while he is a smart and interesting guy, he's also crazy and wrong about immigration (empirically wrong and philosophically wrong.)

- "You have more things, to be sure, but the quantum of things is not the sole determinant of prosperity and common good. Have you forgotten that idle hands are devils' workshop?"

Agree with you 100%. If I thought free trade led to terrible job loss I wouldn't support it. But it doesn't, it leads to a growing economy which leads to job growth overall (even if there is some job loss within some industries.) In the end, as John Taylor and others explain, we need to return to old-fashioned pro-growth economic policies to get the American economy growing -- that is the only way we eliminate idle hands.

I like Jeff's idea of converting some portion of at least federal unemployment compensation into moving expense reimbursement. That's the kind of creative thinking that we need. After all, if the person gets a job he will be going off of unemployment, so one could reward people for getting off of unemployment sooner than the deadline by giving some percentage of the benefit toward moving expenses for relocating for a job.

Lydia:

You may be right about the minimum wage. I am not sure. Since I happen to have an (unimpressively) modest payroll to meet, and have on at least one occasion paid exactly the minimum wage, the whole question has heretofore been a merely practical one to me; so, though I do not know the right and wrong of it, your remarks are interesting to me.

Notwithstanding, one notices this:

Yet I have never _once_, never _once_, seen somebody who was all up in arms about the harms of free trade who was willing to get creative and try to use carrot rather than stick to bring manufacturing jobs back to the U.S.

So, I am all up in arms about the harms (in harms about the arms?) of free trade. The only carrot I have in my bag consists of favored access for U.S. producers to a tariff-shielded U.S. market. (Some free traders, though no one so far in this comment column, will at this point tiresomely object that tariffs punish the U.S. consumer. This objection is regrettably so commonplace that it requires a response, for such an objection is somewhat akin to the objection that crosswalks punish the U.S. pedestrian. "To punish" is in each case probably not a useful verb. For tariffs, the verb "to tax" would be more straightforward. Since carrots cost so many cents a pound and are not gratis, it is true that someone will have to pay something for them. Tariff revenues do flow straight into the Treasury, by the way, though, in lieu of other taxes one should otherwise have to pay. Tariffs can help to pay for the army, the navy, the FBI, the Dept. of Ed., food stamps, the National Endowment for the Arts, and searches of your poor mother's underwear at the airport.)

If not favored market access for our own to our own, had you some other carrot in mind?

If not favored market access for our own to our own, had you some other carrot in mind?

Oh, yes.

Here are just a few ideas. I don't know that all of them would be good ideas, but it's the way we _should_ be thinking and talking.

1) Tax breaks. For companies who verify that they have x% of American workers and manufacturing within U.S. jurisdictions.

2) Easement of labor law restrictions. A guarantee that the extortionist !#$%%^ that happened to Boeing won't happen to said company.

3) Lowering the minimum wage across the board to woo jobs back to the U.S.

4) General re-consideration of regulations on manufacturing jobs in order to streamline them and lessen unnecessary bureaucratic disincentives to manufacture in the U.S.

Etc.

The blogger Vox Day has begun to write extensively that free trade is inextricably linked to the free movement of labor. And lo and behold, when you dig into the free trade agreements like NAFTA, you find extensive provisions regarding issuance of visas. So the globalists seem to understand the link between the movement of goods and labor in international trade better than most on the right. And TPP would be only the latest and biggest example. One of the umbrella agreements under TPP that would be approved once TPP passed like night follows day is TTIP (or some such) which would essentially grant corporations the legal authority to issue any number of work visas they desired. Immigration by other means and the final victory of the globalists.

The German Freidrich List wrote well about industrial policy in the early 1800's. More recently, Ian Fletcher is really good on this. There are lots of interviews of his if you google him. Here's a good presentation of his from the last election cycle.

https://www.youtube.com/watch?v=qmUlN3p8qK8

One specific idea that would be great for federal law would be something to the effect that the NRLB is not permitted to disfavor or exact any punishment upon any company for moving its operations to a right-to-work state or for opening operations in a right-to-work state, even if the company admits that it is doing so because the state is right-to-work and to avoid the effects of unionism. This would be a perfect way for federal law to allow diversity in _state_ policies to flourish and allow the states to try to woo companies to bring jobs to those states without being stymied by federal policies. I think it could help to bring back jobs from overseas as well.

Andrew E.,

I don't trust Vox on the issue of free trade -- he is simply obsessed with the idea that free trade must lead to increases in immigration. He's just plain wrong. For example, a few minutes of Google research on NAFTA and I discover the following "extensive provisions" regarding visas for Canada and Mexico residents:

Canadians and Mexicans may be eligible to work in the United States as NAFTA professionals under the following conditions: Applicant is a citizen of Canada or Mexico; Profession is on the NAFTA list; Position in the United States requires a NAFTA professional; Applicant will work in a prearranged full-time or part-time job for an employer (see Required Documentation). Self employment is not permitted; Applicant has the qualifications, meeting the specific requirements, education, and/or experience, of the profession.

Following the link to "Required Documentation" and we get this:

Gather Required Documentation

Gather and prepare the following required documents before your visa interview:

Passport valid for travel to the United States - Your passport must be valid for at least six months beyond your period of stay in the United States (unless exempt by country-specific agreements). If more than one person is included in your passport, each person who needs a visa must submit a separate application.

Nonimmigrant Visa Application, Form DS-160 confirmation page

Application fee payment receipt, if you are required to pay before your interview

Photo – You will upload your photo while completing the online Form DS-160. If the photo upload fails, you must bring one printed photo in the format explained in the Photograph Requirements. (A photo is not required if you are applying in Mexico.)

A contract or letter of employment in the United States - To show that you have a job offer, provide a contract or employment letter from your employer in the United States confirming your upcoming employment in one of the professional occupations listed in Appendix 1306.d.1 of NAFTA Chapter 16. The letter should also include:

Your purpose of entry;
A detailed description of your anticipated business activities or job responsibilities;
Your anticipated length of stay in the United States;
Your educational qualifications or appropriate credentials demonstrating professional status;
Evidence of your compliance with Department of Homeland Security (DHS) regulations and/or state laws; and
Arrangements for your pay.

Documentation proving that you meet the minimum education and/or work experience requirements set forth in Appendix 1603.d.1 of NAFTA chapter 16 – Evidence of education would include degrees, diplomas, certificates, professional licenses, and /or membership in professional organizations. To demonstrate your experience, present letters from former employers. If you were self-employed, provide your business records.

I would bet lots of money that NAFTA visa provisions has led to at most a trickle of official immigrants coming to work in this country, not live here permanently.

It is just silly to claim as a matter of logic and practice that free trade agreements must be "inextricably linked to the free movement of labor." The real problem with immigration right now are the ideologues, in both parties, that are committed to the idea that more immigration (especially of the Third World) variety is always and everywhere a good thing. They are wrong and conservatives, including those at National Review who have been doing yeoman's work on this issue for years, will continue to make arguments against this foolish notion. But the issue of immigration should be separated from the issue of trade.

The most I can see is a kind of rhetorical and psychological connection between trade and immigration--some kind of rah-rah, rosy-glasses globalism that sees both things as a good because they bring the world together or eliminate differences between people or some slogan like that. Or perhaps a commitment to both of them as part of ideologically purist libertarianism, which tends toward anarchism and wants to eliminate both borders and trade restrictions *as part of* that overarching ideology. But none of that amounts to "inextricable linkage." At most it would be a psychological linkage in some people.

Keep in mind that I'm not saying free trade is bad because of the immigration issue. Free trade is bad because of free trade, see Ian Fletcher. But that free trade also happens to be linked to immigration. You don't trust Vox. I don't trust National Review. We all have to pick our authorities.

I have no opinion re Vox, but Ian Fletcher is sober, has been around for years, holds a master's degree in econ., is an American, and knows the trade issue extremely well. I concur with Andrew E.: if you wish to know why intellectually-oriented right-wing U.S. protectionists believe as they do, I know no better source than Fletcher.

One can read Gomory & Baumol too. Lacking an economics degree, I only made it through half of Gomory's and Baumol's book before giving up. You may fare better; but, at any rate, I found Fletcher more convincing. Fletcher finds Gomory & Baumol convincing, though.

For a third book, Pat Buchanan's is now a bit out of date but was a bestseller in its day and is, of course, very readable.

Those are just for reference. ISBNs: Fletcher, 0578079674; Gomory & Baumol, 0262072092; Buchanan, 0316115185.

"Or since individual states probably don't want to see residents leave, create some sort of federal moving fund using the tariffs in place now (such a program would be unconstitutional if we were judging it from an older, stricter standard; but under today's broad commerce clause and 'general welfare' ruling, just about anything goes when it comes to federal government spending.) I'm all for creative public policy solutions to help the working class but I want to work with the market, not against it."

Very good idea. Of course, having more children so there is an extended family which can act as a cushion during the moving process would, also, be nice.

The Chicken

It is just silly to claim as a matter of logic and practice that free trade agreements must be "inextricably linked to the free movement of labor."

It's not silly once you realize that free trade as discussed in the mainstream tends to intentionally avoid the trade in services. What most "free trade" advocates want is an unprincipled exception that allows for the free trade of goods and not services. The influx of migrants to the US is the natural consequence of people seeking free trade in services. One of Vox Day's points was that were it not for immigration controls abroad, a lot of Americans would in fact have to do the same thing, migrating in large numbers to where the new jobs are abroad.

And actually a lot of critics of NAFTA did foresee the rise in illegal immigration because all of the activity along the border would create a natural pull to the border. It was only easy then for people to just take a few steps further into the US.

But none of that amounts to "inextricable linkage."

Borders that are regulated and defended are an intrinsic limit on the free trade of services.

The use of the phrase "free trade in services" is just a question-begging way of trying to make an "inextricable linkage" between what people _usually_ mean by "free trade" (which has to do with goods) and immigration by the use of definitional language.

Defining oneself into correctness is clever an' all, but it gets kind of boring kind of fast to someone able to spot it. This is all the more true when you cannot (as you cannot) cite some kind of principle which someone like Jeff must believe which would entail or even strongly imply that the two should be treated the same. Here, again, mere prejudicial and question-begging terminology (throwing in "unprincipled exception" without any argument) is doing the work of argument.

The use of the phrase "free trade in services" is just a question-begging way of trying to make an "inextricable linkage" between what people _usually_ mean by "free trade" (which has to do with goods) and immigration by the use of definitional language.

What people usually mean by "Capitalism" is closer to Distributism than anything Rand or Von Mises would want. Do you really want to go there?

When *I* say "free trade" I mean goods, and you doubtless knew that, and you probably suspect it about Jeff as well, since he _explicitly_ made a distinction with immigration. Therefore, while you're talking to us, your "argument" is no argument at all but merely question-begging, and I would say it's question-begging against most who are in favor of free trade and that you ought to know that. Your most recent comment merely tries to change the subject (something you often try to do when someone else makes a good point).

Mike T,

"Borders that are regulated and defended are an intrinsic limit on the free trade of services."

Sigh.

Not really except in the most tendentious meaning of the term "services." Unless you are coming over to another country with your family to live there, you are going to either trade something (sell a 'good') or sell your labor directly in the foreign country for a period of time. Generally this means living there for a set period of time and then moving back to your country of origin -- think of American oil workers (say an engineer) in Saudi Arabia who have no intent of bringing their families to move and live there but might work over in Arabia for a couple of years to get an oil project off the ground and running.

Moving into another country to live and work there with your entire family is immigration. That has a different meaning than free trade and just because some crazed libertarians want to conflate the two doesn't mean I have to play along.

It is actually you and Jeff who are twisting the subject around, debating the subject as though your private definition is what most influential people and less influential ideologues actually mean when they say "free trade." When you say "free trade" without your qualification, you are referring to the formal principle, not Lydia and Jeff's Limited Version.

sell your labor directly in the foreign country for a period of time

There's nothing intrinsic to the concept that the time the person can sell their labor is bound to a particular limit before it comes something else.

Mike T,

"There's nothing intrinsic to the concept that the time the person can sell their labor is bound to a particular limit before it comes something else."

Bigger sigh.

Really Mike -- go ask 10 random people off the street if they know the difference between free trade and immigration! I'll bet you that all of them -- or most -- use the idea that immigration involves moving to another country to live (and work) versus just trading goods; or if you pressed them even services for a limited time, rather than starting a new life in a new country.

This is not rocket science. Google the definition and you will find the common-sense arguments I am making and no reference to immigration.

Really Mike -- go ask 10 random people off the street if they know the difference between free trade and immigration! I'll bet you that all of them -- or most -- use the idea that immigration involves moving to another country to live (and work) versus just trading goods; or if you pressed them even services for a limited time, rather than starting a new life in a new country.

If argumentum ad populum weren't a logical fallacy, that might work. However, to get to the heart of the matter which is what the essence of free trade really is, you'd have to phrase it as "if free trade is defined in the full sense of 'trade,' both goods and services, do you support removing all barriers to trade."

I suspect your response would be not just no, but "Hell, no!" People have seen what free trade in services has done via outsourcing abroad. When you remove the barriers to trade, you have to remove the immigration barriers that prevent a third world landscaper from moving to the US and selling his services here. The fact that a developer in India can work remotely on a software project, but a landscaper from India needs to move here to sell his service just highlights how a large swath of free trade, if enacted, would be disastrous for immigration controls.

Mike T.,

"However, to get to the heart of the matter which is what the essence of free trade really is,..."

No, that's how you define free trade. Here's how the first six hits on Google define it:

1) from "Investopedia":

Free trade is the unrestricted purchase and sale of goods and services between countries without the imposition of constraints such as tariffs, duties and quotas. Free trade is a win-win proposition because it enables nations to focus on their core competitive advantage(s), thereby maximizing economic output and fostering income growth for their citizens.

Formerly insular economies such as China and India have expanded at much faster growth rates since they adopted free trade principles in the 1980s and 1990s, respectively.

Free trade enables nations to concentrate their efforts on manufacturing products or providing services where they have a distinct comparative advantage, according to the theory first espoused by economist David Ricardo two centuries ago. A free trade policy should enable a nation to generate enough foreign currency to purchase the products or services that it does not produce indigenously. The process works best when there are few if any barriers to entry for such imports. The imposition of artificial constraints such as tariffs on imports or the provision of subsidies to exports will introduce distortions and impede free trade.

2) from "Dictionary.com":

1. trade between countries, free from governmental restrictions or duties.

2. international trade free from protective duties and subject only to such tariffs as are needed for revenue.

3. the system, principles, or maintenance of such trade.

3) from "Britannia":

Free trade, also called laissez-faire, a policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports). A free-trade policy does not necessarily imply, however, that a country abandons all control and taxation of imports and exports.

4) from "Merriam-Webster":

trade based on the unrestricted international exchange of goods with tariffs used only as a source of revenue

5) from "Business Dictionary.com":

The interchange of goods and services (but not of capital or labor) unhindered by high tariffs, nontariff barriers (such as quotas), and onerous or unilateral requirements or processes.

Under a WTO treaty signed by 124 nations in 1995, tariffs are being systematically cut by an average of 40 percent during a fixed timeframe.

6) from Wikipedia:

Free trade is a policy followed by some international markets in which countries' governments do not restrict imports from, or exports to, other countries. Free trade is exemplified by the European Economic Area and the North American Free Trade Agreement, which have established open markets. Most nations are today members of the World Trade Organization (WTO) multilateral trade agreements.


Not one definition mentions immigration. The first mentions the unrestricted sale of services, but again, that doesn't have to imply that you allow foreigners to live in your country for indefinite periods of time (and bring their families!!!)

Immigration controls can work just fine with free trade.

Stop being silly.

Not one definition mentions immigration. The first mentions the unrestricted sale of services, but again, that doesn't have to imply that you allow foreigners to live in your country for indefinite periods of time (and bring their families!!!)

It doesn't have to mention immigration because immigration controls are an intrinsic barrier on the migrant's ability to continue selling his services. By definition, a law that says he must stop living in the community means that a service worker whose service requires proximity to the client must stop performing that service. Ergo, it is implicitly a trade restriction. Just because it is ALSO a restriction on demographics, does not negate the fact that it is a restriction on trade.

By the way, your last definition actually supports my argument as the Eurozone actually is a free migratory environment.

Jeffrey S:

The first mentions the unrestricted sale of services, but again, that doesn't have to imply that you allow foreigners to live in your country for indefinite periods of time.

Limiting the time that foreigners may work in one's country is limiting their freedom to sell their labour (with respect to local workers). So by direct corollary for free trade in labour one must allow foreigners to work in one's country for indefinite periods of time.

Similarly, unrestricted sale of services in general would also imply no time restriction, i.e. that services can be provided for indefinite periods of time. And many of these services involve coming over to one's country and living there to perform the service.

just because some crazed libertarians want to conflate the two doesn't mean I have to play along

You don't, but then free trade is a libertarian doctrine and your efforts to take it out of context and baptize it don't give you a right to claim ownership of the idea. It belongs naturally to them just as the Labor Theory of Value belongs to Socialism.

Similarly, unrestricted sale of services in general would also imply no time restriction, i.e. that services can be provided for indefinite periods of time. And many of these services involve coming over to one's country and living there to perform the service.

Precisely. By Jeff and Lydia's argument, it's OK for Huawei to sell cheap phones in the US, but immigration if China's equivalent of Waste Management Industries sent a ship full of workers and trucks to the US to compete with our domestic garage collectors. Why? Because Huawei doesn't need to move factories to the US, but it's cost-prohibitive to move trash by drone from China (for now).

Mike T:

By the way, your last definition actually supports my argument as the Eurozone actually is a free migratory environment.

And yet even since its birth there's been massive protectionism within the Eurozone (e.g. in the form of agricultural subsidies).

This example illustrates how free trade in practice has always been double-think on a massive scale, with significant amounts of protectionism always present (to protect the common good, y'see). With respect to labour and services in general this double-think manifests as 'We believe in unrestricted trade!' but restrictions such as that involving time, skill, or number (i.e. quotas) are imposed, especially through visa requirements.

We can continue to play this global game of double-think, or we can face reality and fully acknowledge that freedom (in trade) is not all it's made up to be. Everyone believes in some form of protectionism for the good of certain segments of society. The true disagreement is over which segments of society should benefit, and if you're going to throw, for example, lots of manufacturing workers under the bus through "free" trade 'for the common good' don't be at all surprised that they support someone else - someone who promises to fight for their interests.

I suppose I shouldn't be surprised but I am a little surprised that anyone finds it worthwhile to argue in such a trivial way: "The ideologue libertarians own the phrase 'free trade', so you're unprincipled if you try to advocate any half measure short of 'free trade' as an ideologue libertarian would define it." I would die of boredom if I were spending my time making such an argument. It is self-evidently more profitable to discuss *what trade policies* are good and advantageous to the public weal and whether, for example, high tariffs are good, bad, or some good and some bad for the American working man, and how. Should we or shouldn't we raise protectionist policies vis a vis the exchange of goods with other countries? Etc. Why would anyone sit around pushing counters in the game of "who _owns_ the phrase 'free trade'" in a thread on American foreign trade instead of discussing those kinds of questions? Good grief.

GJ,

You say,

"The true disagreement is over which segments of society should benefit, and if you're going to throw, for example, lots of manufacturing workers under the bus through "free" trade 'for the common good' don't be at all surprised that they support someone else - someone who promises to fight for their interests."

Did you bother to read my post? I doubt it -- because I argue that free trade does not throw lots of manufacturing workers "under the bus." If anything has done that (whatever that means) it has been productivity gains via technology.

As Lydia says, this argument is tired because if you want to argue for protectionist policies, then explain to me how they will benefit the American economy and the common good. I obviously don't think they will, so that's where the disagreement lies.

Jeffrey S:

Did you bother to read my post? I doubt it -- because I argue that free trade does not throw lots of manufacturing workers "under the bus." If anything has done that (whatever that means) it has been productivity gains via technology.

I read that nonsense about how “import competition explains [only] one-quarter of the contemporaneous aggregate decline in US manufacturing employment” is "limited connection" and died of laughter. In general I don't tend to take propaganda too seriously, especially when self-contradictory - as Harrison has pointed out numbers can often be easily pulled out of nowhere.

As Lydia says, this argument is tired because if you want to argue for protectionist policies, then explain to me how they will benefit the American economy and the common good. I obviously don't think they will, so that's where the disagreement lies.

Did you bother to read my comment? It's all right, I can repeat myself:

Everyone believes in some protectionism, even when they're mouthing off about the goodness of free trade.

Visa requirements to work are a form of protectionism against free trade of labour and services. If you want to argue for work visas, then explain to me how these restrictions will benefit the American economy and the common good.

You believe in protectionism too. Everyone does.

You believe in protectionism too. Everyone does.

And you're getting so much weird pleasure out of repeating that kind of stuff over and over, you think it's such a zinger and makes some vast point for you, that you don't even want to bother to discuss whether raising tariffs (which apparently is your bag) is actually going to help the people you claim to care about and whether other policies would work better instead.

What an idiotic waste of pixels.

Ian Fletcher makes clear that our tariff system was largely dismantled after WWII not because we suddenly realized Ricardo was right but because we found ourselves fighting the Cold War. And the nation decided that to win we needed to prop up the economies of our allies by giving them an export market here in the US. Only then followed by the ex post facto psuedo-economic justification for it.

One subtle but (I believe) significant problem with free trade is that high-IQ elites promote it for the ostensible good of average citizens who do not grasp its rationale. The very fact that average citizens do not grasp its rationale seems to burnish free trade's appeal to high-IQ elites.

I do not say, imply, suggest or suspect that this were the case with any participant in the present discussion! However, I do sense that -- among policy makers -- sheer intellectual vanity is no small reason why free trade is promoted and enforced. If so, the average citizen may not grasp Ricardian equilibrium, but he knows condescension when he sees it.

This is very bad for morale.

I would conjecture that such a moral factor alone may suffice to wipe out the modest GDP gains the Heckscher-Ohlin-Samuelson model predicts from tariff elimination.

And this is merely one of the weaker arguments against free trade.

for the ostensible good of average citizens who do not grasp its rationale

Some things are easy to grasp: "Would you like the clothes and shoes you need to buy for your kids to cost a lot more?"

By the way, one alternative plan I have read is to lower or eliminate certain taxes that businesses currently have to pay on goods they are producing for export. Obviously lowering the cost to produce such goods could help to bring jobs back to America and make American export goods more competitive abroad. Like I said: Carrot rather than stick. Also not sparking a trade war could be good for Americans, who have to buy basic goods.

Some things are easy to grasp: "Would you like the clothes and shoes you need to buy for your kids to cost a lot more?"

It's also easy to grasp what Trump said about R&D, which is that when Boeing trains Chinese workers to build jets for their market, they're training people who can copy the design and sell it themselves. So that question of yours also becomes "would you like the jets your airline buys to cost a lot more?" Why buy Boeing when some state-owned aerospace firm in China can build a Boeing clone for 75% the price and still make a good profit?

As to clothing costs, fashion is proof that most of the arguments for free trade are a lie. It costs Ralph Lauren probably all of $5 to make and ship a polo shirt or button down shirt made in Vietnam, Indonesia, etc. to the US. The same shirt retails for about $50-$60 new. If they were forced to send that job to Alabama or Idaho, do you think it'd retail for $100-$150? No. The market would not support that rate. They'd just have to accept less profit.

This use of arbitrage is nothing short of a massive upward redistribution of wealth. Do you think Carrier HVACs are going to go down in price now that most of them are made in Mexico? Heck no. You'll never see a 20% reduction in price at the same level of quality. Carrier is going to sit pretty on those profits while the laid off American workers get a $9/hour job at Wal-Mart.

Reducing taxes and certain regulations makes a lot of sense, but one of the things that is frequently missed about China is precisely how bad China is environmentally now. China is suffering environmental harm that makes our industrial revolution era pollution look not that bad. There are premium schools in China where students literally go through an airlock into a pressurized school to get clean air. There is actually a real market there for bottled Canadian mountain air because the pollution is that bad.

On some level, letting them do this to themselves is morally akin to feeding a hard drug addict. The arguments for protectionism are not only self-serving.

It's not silly once you realize that free trade as discussed in the mainstream tends to intentionally avoid the trade in services. What most "free trade" advocates want is an unprincipled exception that allows for the free trade of goods and not services.

Oh, don't be stupid, Mike. Drop the expression "free trade" for just a moment and you will see that there is a clear and PRINCIPLED difference between movement of physical goods between countries and movement of people. When I buy a watch from Japan, I don't have to buy into Japanese culture, I don't have to decide whether I like or don't like their religion, whether I can live with or cannot live with their philosophy, I don't have to decide whether their social habits are pleasant or unpleasant. I don't have to accommodate myself to their morals or lack of morals. I don't have to change my job, my partying, my church-going, my family life, or my society to avoid them or get along with them.

If the Japanese guy moves next door, I do.

All that becomes subject to alteration: my customs, my religious tenets, my mores, all become subject to scrutiny for new problems: whether he and I can co-exist in the same social space. Most importantly, the "general welfare" to which the government devotes itself comes to include HIS general welfare (even if in imperfect degree). There is a principled reason to distinguish between importing a watch and a person.

Before Adam Smith or any other economic theorist came along, everyone knew that "trade" meant moving physical goods around. "The trades" were distinguished from jobs like house servant or doctor. Even if economic theory now rightly associates "services" with "trade goods" for many economic purposes, the purposes of government are not limited to those economic purposes. It remains true that importing services by importing persons is different enough from importing physical goods that the we (and the government) should treat them differently.

By Jeff and Lydia's argument, it's OK for Huawei to sell cheap phones in the US, but immigration if China's equivalent of Waste Management Industries sent a ship full of workers and trucks to the US to compete with our domestic garage collectors. Why? Because Huawei doesn't need to move factories to the US, but it's cost-prohibitive to move trash by drone from China (for now).

Whether it's "immigration" or not, is COMPLETELY SEPARATE from whether it is "OK" or not. Of course it is immigration if a bunch of Chinese move here. If that certain bunch move here for really good reasons, including reasons that both the free-traders and the protectionists and all the other groups ALL AGREE is going to help the US economically, it is STILL immigration.

And whether it helps or hurts economically, it still causes hamrs socially. Now, there is (probably) some degree of economic gain that will offset some (or perhaps even all) of some degree of social harm, but that's the sort of thing that requires a judgment call on how much gain or loss you anticipate from each angle. A judgment call that nobody can possibly represent that they can measure with certainty, since so much of it rests on contingent future events. So it remains possible that reasonable people may still say "the economic gains do not offset the social harms."

It doesn't have to mention immigration because immigration controls are an intrinsic barrier on the migrant's ability to continue selling his services. By definition, a law that says he must stop living in the community means that a service worker whose service requires proximity to the client must stop performing that service. Ergo, it is implicitly a trade restriction.

Mike, I challenge you: modify your argument by leaving off the term "free trade" as a primary issue and make your argument that such free movement it is wrong, bad for us, etc, EVEN IF IT WEREN'T "free trade." The immigration controls ARE a restriction on his free movement (which all sides agree). So make your case that these controls and restrictions, of themselves, imply the good thing or the bad thing that you are complaining about. Because, if they do, then they do whether it is rightly called "free trade" or "not free trade". If his unrestricted movement is good as such, then it is good even if it falls under some other term than "free trade". If it is bad, then it is bad even if it falls under some other term than "free trade".

It's also easy to grasp what Trump said about R&D, which is that when Boeing trains Chinese workers to build jets for their market, they're training people who can copy the design and sell it themselves.

Are they actually doing this? Gaaaaa! How the hell can they not see how this will absolutely KILL them in 10 years? (Michael Crichton wrote about EXACTLY this issue, in "Airframe", more than 20 years ago. The inherent problems didn't go away.)

Jeff, this is a great eye-opener about the debate and the problems, thank you.

In the past, I have never been a hard-line "free-trader", nor a hard-line opponent either. I have always tended to think that trade restrictions for economic reasons tends to be an economically dangerous move, for the EXACT SAME reason as government subsidies are dangerous: they introduce non-economic incentives into the market.

Now, I am NOT utterly opposed to society using controls to modify the marketplace: the market is a PART of society, and it is primarily a functional tool of society, not an end in itself nor an organic whole that has a purpose "in itself". It's purpose is to be a part of society. Because society is bigger and has ends beyond the freedom of market exchange, it is inherently the case that society may need to impose constraints on the marketplace for the common good. Indeed, some rules are impose ON the marketplace in order to make the marketplace itself a better functional part of society (transparency of information, for example, promotes economic agents rightly identifying their marginal costs and benefits of a good, which better prices goods). Other controls are needed because economic agents are HUMAN BEINGS, not abstract 'buyers' and 'sellers' with no other feature than those of buying or selling.

But by and large, government subsidies of a good, or of an industry, skew the marketplace and distort valuation judgments. This is NOT to say that subsidies are inherently wrong. Rather, I have always thought that the norm for a subsidy, in order to not damage the marketplace more than the gain you seek by it, should have a narrow purpose that is constrained by a limit (usually, by a specified time limit). Sure, we will prop up the steel industry with a subsidy...until you retool and recover the cost of retooling, then the subsidies go away. Or, we will subsidize the rye prices...until you find a variant that is resistant to rye-rot or 8 years (at which you will just have to switch to growing some other grain).

I cannot see why tariff-type restriction of trade of physical goods outside the country can in principle be any different from government subsidies of physical goods inside the country, economically: they are an artificial way of modifying market values. As such, they are inherently a distortion of the natural pricing incentives of the marketplace. I DO NOT oppose this, for limited and narrow purposes that can be understood fairly clearly and have an anticipatable limit. But to do it as an open-ended, more or less permanent feature of the economy, seems to imply that it is better to have a skewed marketplace, with fictitious values and pricing models, than to have the natural pricing play out eventually. I have yet to understand how it is that would be a good thing as a permanent condition. How is this different from the Communist "planned economy" which controls production and pricing the way people "ought" to work, not the way they DO work? How COULD it be different, in principle?

Whether it's "immigration" or not, is COMPLETELY SEPARATE from whether it is "OK" or not. Of course it is immigration if a bunch of Chinese move here.

For all of the accusations that GJ and I are being stupid or silly, the three of you cannot grasp that just because something is immigration doesn't mean it cannot be something else as well.

Before Adam Smith or any other economic theorist came along, everyone knew that "trade" meant moving physical goods around.

Before Adam Smith there was also not a real formal service industry, let alone entire economies that depended upon services. So what's your point? Ancient theories of trade could not imagine a day when a lot of trade would happen between computers, involving no humans at all. That's why appealing to some salt of the Earth, traditional understanding of trade rather than dealing with trade as 21st century economies understand trade is pointless.

Another circumstantial point for you. The very same people who support free trade in office almost invariably refuse to actually support the enforcement of immigration controls. As parties, they can't even take a single step as positive as funding the increase of the Border Patrol for an extra 30k positions on the southern border. Aside from rhetoric, you'd have no idea that the mass migration even bothers them.

As to clothing costs, fashion is proof that most of the arguments for free trade are a lie. It costs Ralph Lauren probably all of $5 to make and ship a polo shirt or button down shirt made in Vietnam, Indonesia, etc. to the US. The same shirt retails for about $50-$60 new. If they were forced to send that job to Alabama or Idaho, do you think it'd retail for $100-$150? No. The market would not support that rate. They'd just have to accept less profit.

A convenient hypothetical assertion, with precious little in the way of evidence to support its sweeping assertion that "most of the arguments for free trade are a lie." 1) The market (that already supports such a ridiculous price as $60 for a designer shirt) might very well support $70-$80 under those circumstances, so the shirt still costs more. 2) A lot of the savings is not on designer clothes but on generic clothes at a local big-box store or even J.C. Penney. Those are _quite_ cheap (as I can attest personally) and would be _extremely_ difficult to keep selling that cheaply if they had to be manufactured in the U.S. And these are the things that are helping the poor by being cheap, not Ralph Lauren.

Lydia,

There is room to allow some goods to be produced abroad as a prudential judgment about where our economy simply cannot do those things well. What you would find about most of us who are opposed to free trade is that we are not dogmatic about protectionism, but rather strongly against free trade as an imperative, especially a moral imperative.

However, cheap goods for the poor cannot be a trump card on trade because the argument can be used on literally any good up to things like pharmaceuticals, aerospace products and more. Allowing Chinese copies of American jets to be sold would benefit the poor. It would make airline industry costs plummet if they're made right. The free trade argument often comes down to a very liberal tactic: "why do you hate poor people and want to see them spend more for less."

Well the reality is that the Carrier working class folks who made the HVAC systems forced a downward redistribution of wealth from middle and upper class workers to them by making them have to buy goods made in America, not Mexico. Textile workers in the US would do the same thing. It would raise the cost for everyone, but middle and upper class dollars would flow downward to them.

And another thing about trade in services, outsourcing office work is a form of free trade in services. It has had very bad effects on a number of industries. It is harder to get started in software development now because so many grunt jobs can now be done for $5-10/hour in a third world country instead of $20-$25/hour. Free trade advocates generally oppose any restriction on outsourcing work, even stuff as simple as imposing federal taxes on contracted labor. A company like Infosys doesn't make products, but they would be mortally offended if they were told their work doesn't count for purposes of free trade discussion.

Tony writes:

Indeed, some rules are imposed ON the marketplace in order to make the marketplace itself a better functional part of society (transparency of information, for example, promotes economic agents rightly identifying their marginal costs and benefits of a good, which better prices goods).

The italics are mine, for Tony has brought forth another of the several, concrete, known reasons tariffs are good policy.

For example, one rather minor consequence, among several, of Tony's reason is this: the service manuals of U.S.-manufactured equipment are written originally in English, by engineers who implicitly grasp how, why, when and under what conditions their U.S. customers might service the equipment. (There exist objections and answers to objections, etc. I gather that some neoclassical economists might appeal to the theory of the pricing mechanism to assure themselves, impenetrably, that such an argument is a net canard. If so, they are wrong, as the impenetrable usually are.)

Lydia:

Some things are easy to grasp: "Would you like the clothes and shoes you need to buy for your kids to cost a lot more?"

I am glad that you have brought this up. It is a central point. Most unfortunately, whenever this point is raised in public debate (and it often is), the conversation instantly careens off on some extremely confusing, not-very-relevant tangent regarding the preservation or restoration of manufacturing jobs in U.S. textile factories. I bet you thought that I was going to go there! Because I actually happen to know something about tariff theory, I'm not.

So, when you say, "to cost a lot more," what is the "more" that they "cost"? (Those are not scare quotes but just quotes. The question is Socratic.)

Is not the "more" merely a tariff? Is not a tariff merely a tax? And, moreover, is it not a tax whose administrative burden lies remarkably lightly upon the economy (and whose administrative burden incidentally, directly contributes to national security)? If so, then to where does this tax flow, but straight to the Treasury?

Under the ideal of free trade, no tariff is to flow to the Treasury. This lets us eliminate a customs bureaucracy, which is a real gain, except that the customs bureaucracy is, or ought to be, an integral component of national defense—so we cannot eliminate it, after all, but on the contrary must bolster and strengthen it. At any rate, as far as I know, when you eliminate the tariff, revenue from the income tax or some other tax must compensate. If the parents you mention pay the income tax, then it would seem to me that—on the face of it—your clothes-and-shoes argument is a wash.

It is not immediately obvious to me that tariffs are inherently more mischievous than income taxes. Some say that tariffs "distort" something or other, but [a] "to distort" is in this context little more than a pejorative way of saying "to affect" and [b] it is unclear to me why tariffs should distort things but income taxes should not.

It is true that the Heckscher-Ohlin-Samuelson model theoretically predicts a second-order suboptimality in the tariff as a tax. Now, there exists no way to speak of second-order suboptimalities to the general public who have never and should never study Taylor series and differential equations. The public debate simply cannot go there, which is why it inevitably careens of on mostly irrelevant, Trumpian tangents regarding "jobs." However, since U.S. public policy remains in fact, by the sage advice of eminently respectable experts, in thrall to the Heckscher-Ohlin-Samuelson model, this is a question you and I shall have to address.

And we can't do it very well without descending into some mathematical jargon. The comment you are reading must indulge just enough jargon to frame, with tolerable brevity, what I believe to be more or less the correct argument. Please pardon.

In applications of mathematics as you know, zeroth- and first-order effects (as in the Taylor series) are almost always important, but second-order effects seldom amount to much unless the deviation which enters into the second-order term grows sufficiently large. In trade theory, the relevant deviation which enters into the second-order term is the tariff rate.

So, a 200-percent tariff is a bad idea. A 35-percent tariff, not so much.

I strongly suspect that the minor, second-order deviation Heckscher and friends predict of a 35-percent tariff is utterly swamped by practical and moral factors of the first order. Tony is really on the right track here. As for me, I admit to a bias in the matter: for a living, I happen to be a professional engineer in building construction, in which small second-order terms are not something to which one can often profitably design, because the effects of such terms seldom materialize in practice. (If you design to a second-order effect, you will invariably find out that one of the workmen has neglected to drill in some screw or other that was supposed to have been installed. The lack of the screw is a practical, first-order effect. So, you learn not to be too impressed by theoretical results of the second order. This is my point.)

Economies are less orderly, less quantifiable, less predictable, than are buildings under construction.

I could go on, but you have not asked me to, and I am already embarrassed at having found it necessary to introduce a Taylor series into a nonmathematical blog discussion—which introduction is not really fair play. Let me leave it there for now.

Lydia:

By the way, one alternative plan I have read is to lower or eliminate certain taxes that businesses currently have to pay on goods they are producing for export. Obviously lowering the cost to produce such goods could help to bring jobs back to America and make American export goods more competitive abroad. Like I said: Carrot rather than stick. Also not sparking a trade war could be good for Americans, who have to buy basic goods.

This is well argued. You put free trade's best foot forward, as you ought. However, we protectionists have answers to all of this.

Carrot and stick. To eliminate a tax is often a sound idea for several reasons, not least of which is that the elimination of a tax removes the administrative burden which attends the tax! So, I am with you there. However, some tax shall have to be paid by someone, sometime, to fund the manifold activities of the overweening socialist state for good or for ill; or else the funding shall have to be monetized by deficit spending, which—when done by the same federal government that issues the fiat money—amounts to a perverse, hidden tax. So, when you "lower or eliminate certain taxes," it seems to follow that other taxes shall have to be retained or increased. I would much rather raise the tariff and lower the income tax. Or (since I don't care for deficit spending) even raise the tariff and merely stabilize the income tax. In any event, I'm for tariffs—and not because I disagree with your reasoning, but precisely because I agree with your reasoning.

Jobs. Does anyone really want me to address this? I would, but would rather not. The mischievous word "jobs" as it enters these discussions is almost positively designed to frustrate clear thinking. In brief: a job is an action, not a thing; an economic verb rather than an economic noun. Almost everyone who is not a professional economist keeps using the word as though it were an economic noun. Powerless to break through the wall of public confusion that guards this single word, I would rather just avoid the word in discussions of macroeconomics.

Competitiveness abroad. Does competitiveness at home not come first? At any rate, to simplify the discussion, suppose that the competitor is Chinese. Then, you have three cases. Case 1: the market is China. China has no natural obligation to buy anything from the U.S. I assume that, if Chinese individuals do buy any particular thing from the U.S., it is partly because the Chinese state deems the purchase to be consonant with the national interest of China. Case 2: the market is Brazil. Brazil sets the rules. We and the Chinese follow the rules, or we and the Chinese stay out of Brazil. That's it. Case 3: the market is the U.S. It is just self-evident that the U.S. market must normally be the preferred (not sole, but preferred) market for a typical U.S. manufacturer, even if the manufacturer happens to sell the majority of its output abroad. The U.S. market is huge, and is a precious national resource which is not to be squandered on the project of building up Chinese manufacturers. The Chinese sell here at our sufferance. I believe that we should make it simple for them: charge them a 45 percent tariff as the prince of entry; after which they can sell more or less what they like.

Competitiveness. This word is, if anything, more harmful to clear macroeconomic thinking than is the word "jobs." Substitute the word "productivity" for "competitiveness," and the confusion gradually starts to melt away. I do not say that competitiveness is irrelevant in macroeconomics—far from it—but, still, competitiveness is mostly a microeconomic concept. The careless transfer of micro ideas to the macro realm causes much confusion.

Trade war. I agreed with Mitt Romney in 2012 (an incomparably better candidate than my man, Lyin' Don, in 2016). I still do agree with Mr. Romney. We are already in a trade war. We just have not been fighting our side of it.

This is what happens when I spend my night away from the blog -- everyone else makes all the good arguments I wanted to make and I'm late to the party :-)

Anyway, just to recap:

1) Tony -- thanks for your comments. I'm not as adverse to adding services into the mix of stuff we trade with the rest of the world. I know this freaks out Mike T, but again, if we aren't throwing in immigration into the mix, then I think this limits the practical application of what exactly can be traded. I mentioned the engineers working on oil fields of Arabia as one example -- I'm actually more familiar with engineers and architects here in Chicago working for SOM on Chinese buildings. They travel over there for a couple of weeks on a project but most of the design work is done here in the U.S. because that's the nature of the service -- you can draw plans anywhere in the world and we are better at drawing building (and their 'guts') than the Chinese. Yes, that means cheap Indian computer programmers will, at times, compete with some of our guys to the extent that work can be done overseas. Likewise, our software is sold in India. Boo hoo. Comparative advantage in action.

2) Mike T, you say:

As to clothing costs, fashion is proof that most of the arguments for free trade are a lie. It costs Ralph Lauren probably all of $5 to make and ship a polo shirt or button down shirt made in Vietnam, Indonesia, etc. to the US. The same shirt retails for about $50-$60 new. If they were forced to send that job to Alabama or Idaho, do you think it'd retail for $100-$150? No. The market would not support that rate. They'd just have to accept less profit.

This use of arbitrage is nothing short of a massive upward redistribution of wealth. Do you think Carrier HVACs are going to go down in price now that most of them are made in Mexico? Heck no. You'll never see a 20% reduction in price at the same level of quality. Carrier is going to sit pretty on those profits while the laid off American workers get a $9/hour job at Wal-Mart.

Lydia already said most of what I wanted to say in response, but to pile on, with all due respect, you have no idea what kind of operating costs (or overall cost structure) are faced by these industries, what the competitive market is like (nationally much less internationally), their profit margins, etc., etc. Especially when it comes to textiles, we know the market is extremely competitive overall as costs have dropped dramatically over the past 20+ years:

Over the last 20 years, the Consumer Price Index for all items has increased by 63.5% (see red line in chart above), while the price of clothing measured by the CPI for apparel has fallen by 3.3% (blue line), meaning that the real inflation-adjusted cost of apparel for Americans has fallen by about 41% (1 – (96.7 / 163.5)), see chart above (and thanks to “Old Pete” for the new, revised formula). In other words, clothing that would have cost $100 in 1993 would today cost only $59.10 in constant dollars.

Measured in average hourly earnings (“time cost”), clothing prices have fallen even more dramatically over the last two decades. Since January 1993, the Average Earnings of Private Production and Nonsupervisory Employees has increased by 84.6% from $10.94 per hour to $20.20 per hour. Therefore, for the average worker to purchase $100 worth of clothing in 1993 would have required 9.14 hours of work ($100 / $10.94 per hour); whereas the average worker today would only have to work 4.8 hours to purchase the same clothing today ($97 / $20.20 per hour), for a 47.5% reduction in the “time cost” of purchasing clothing.

Bottom Line: This is another example of the fact that even if median household money income (which doesn’t account for total compensation, i.e. non-monetary fringe benefits) is stagnant over time, that doesn’t necessarily mean that the average household’s standard of living is stagnant or declining. In the case of buying clothing for a typical American household even with a constant income over time, the standard of living for most households has actually increased significantly over the last 20 years, when measured in what is ultimately most important: household consumption and the affordability of life’s basics.

3) Howard I think you make a very sensible case for tariffs, to the extent one can be made. I think your argument suffers from two major problems: (1) a tariff of 35% would represent a massive tax increase on the cost of most consumer goods (most tariffs today are in the 1-3% range) and therefore a massive hit to the living standards of poor and middle-income Americans; (2) you've provided no evidence that protectionism benefits the overall U.S. economy.

Thanks everyone for a lively discussion!

(2) you've provided no evidence that protectionism benefits the overall U.S. economy.

You keep saying this and yet it contradicts every observable case of a developed economy in the history of the world. To quote Ian Fletcher from memory: "No developed economy ever became so by practicing free trade. Not one, including the United States. In fact, they all became so by practicing some form of protectionism."

Andrew E.,

It is true that the Soviet Union was able to industrialize. Does that mean socialism is a good way to industrialize? It is also true that over the course of history economies have grown at differing rates at differing times for all sorts of reasons. We can debate economic history all day. The question remains what is the evidence here and now for protectionism and/or free trade. You don't like the evidence I have presented that suggest that free trade (or at least freer trade) leads to better growth and overall increased living standards for the poor and middle-class. That's fine, but Fletcher has got nothing in response so until you find some better evidence, go away and do some research.

(or at least freer trade)

There you go, moving the goal post while y'all accuse me of doing that. There is a whole range of options between radical protectionism and doctrinaire free trade. Your position presumes that being open to protectionism means one must be for protectionism in all cases. That is not what any of us here have put forward, but rather that free trade as a doctrine does not work.

Case in point, NAFTA did in fact gut the US industrial base in a number of areas. That doesn't mean a particular policy of free trade with Vietnam to produce textiles is bad for our economy. It doesn't mean that total free trade with a true peer like Japan is bad. It does, however, mean that "free trade" with a radical protectionist export state like China is probably a bad thing and pretending that we can have peer level free trade with them is madness.

95% of the "ermagerd pertercshunizm" from the right over Trump has been him simply calling out the fact that most of the deals are based on ideology, not prudential judgments.

It is true that the Soviet Union was able to industrialize. Does that mean socialism is a good way to industrialize?

I think you're still missing the point. The point is not that you can industrialize through socialism. The point is that you cannot industrialize through free trade. How do we know? The easiest way to know is that it's never happened and that's a fact.

Mike T,

"Case in point, NAFTA did in fact gut the US industrial base in a number of areas."

Name one.

Also, try and write in English when you post comments. I'm open to modifying trade deals based on prudential judgments -- if our national security is threatened I would cut off trade in certain sectors with the Chinese right away. But the evidence before me suggests our free trade deals have been a economic blessing for us and helped the poor and middle-class.

Andrew E,

"The point is that you cannot industrialize through free trade."

Andrew, I'd like to introduce you to Hong Kong. Hong Kong, say hello to Andrew. Meanwhile, all those East Asian Tigers that used to meddle in their economies have gotten religion over the past 20 to 30 years:

Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. The evidence on this is clear. No country in recent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world. In contrast, trade opening (along with opening to foreign direct investment) has been an important element in the economic success of East Asia, where the average import tariff has fallen from 30 percent to 10 percent over the past 20 years.

Opening up their economies to the global economy has been essential in enabling many developing countries to develop competitive advantages in the manufacture of certain products. In these countries, defined by the World Bank as the "new globalizers," the number of people in absolute poverty declined by over 120 million (14 percent) between 1993 and 1998.1

There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking.2 Indeed, one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10.3 Countries that have opened their economies in recent years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty reduction.4 On average, those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than those that did not.5

- footnotes and more juicy detail at this link: https://www.imf.org/external/np/exr/ib/2001/110801.htm

Andrew,

That's not entirely true. VD made a point about how Asian Tigers did industrialize in no small part through free trade. However, they only sought free trade with countries at their level of development or higher. It worked because they were able to exploit their trade partner's higher level of prosperity to claw their way up, but what we do see time and again is that over time free trade between countries with a great disparity tends to cause an equilibrium of wealth between them. As we have seen with NAFTA and elsewhere, it did help us get some cheaper products, but it inevitably lowered the earning power of our workers while raising those in Mexico.

if our national security is threatened I would cut off trade in certain sectors with the Chinese right away. But the evidence before me suggests our free trade deals have been a economic blessing for us and helped the poor and middle-class.

How does it benefit the poor and working class when Ford makes a car across the border in Mexico and sells it for the same price as one made in the South? They wouldn't build the product in Mexico for import into the US if there were no arbitrage to profitably exploit. Look at IBM, which is now overwhelmingly a foreign company with a US presence, not the other way around. Somewhere around 75% of their employees who are available to do business for American customers are in foreign offices (free trade in services). How do our domestic workers benefit from having middle class jobs exported abroad to service American business?

I think you're still missing the point.

I think all of them are missing the point on some level. Freer trade can certainly work. Between peers, it is even good and healthy because it just honest trade. Between developing countries and advanced economies, there is too much arbitrage to exploit for the state to idly stand by. No one that I know is saying screw open trade, let's go full on mercantilism. Rather it is a specific assault on doctrinaire free trade which, contrary to Jeff's assertions, is different from what he is defending. It is not freer trade with prudential considerations, but a dogma with a moralistic angle that sits comfortably within a liberal, globalist vision for humanity.

As far missing the point, the irony is that Jeff hasn't noticed that I am not arguing against freer trade on principle, but arguing that an outlook of free trade as normal is not prudent and not supported by the facts.

Barriers to free trade include tariffs and non-tariff barriers. Every Asian nation either has tariffs and/or has a banking system controlled by the government which arranges investment, education and distribution in order to direct their economies in ways that simply don't exist in the US. They don't do things the way we do things and any deviation from the way we do things (which is 99% free trade) means less free trade. And that includes Hong Kong, Taiwan, South Korea, etc.

That is certainly true. There is a strong Fascist tendency (in the historic, non-pejorative sense) in most of those economies. That they exploited freer trade to grow should not be mistaken for them being champions of free trade. They are rather fierce in defending their interests in a way that would be shocking to most of their free trade supporters.

Andrew E,

"Barriers to free trade include tariffs and non-tariff barriers. [Then goes on to describe a bunch of socialist policies that have nothing to do with trade.]"

We are done as I proved my point.

Mike T,

"How does it benefit the poor and working class when Ford makes a car across the border in Mexico and sells it for the same price as one made in the South? They wouldn't build the product in Mexico for import into the US if there were no arbitrage to profitably exploit."

As Lydia said so memorably earlier, it benefits them because they can buy a car cheaply (and I doubt Ford would sell that car as the same price as one made in the South -- if there are efficiencies to exploit by moving production overseas there will be price competition and savings for consumers.) If your answer to me is 'what about the jobs' -- then you are ignores the reams of evidence that international trade doesn't lead to the loss of many manufacturing jobs. Period, end of story.

Look, you are a broken record at this point -- I haven't convinced you and you haven't convinced me. So unless you have something novel or interesting to say, please stop posting the same point over and over again.

That they exploited freer trade to grow should not be mistaken for them being champions of free trade. They are rather fierce in defending their interests in a way that would be shocking to most of their free trade supporters.

Right. Pragmatic free trade in specific industries with specific partners, and many numerous pragmatic protective barriers otherwise. As always, in practice there's none of the 'free trade is Good' and 'protectionism is Bad' dogma.

No one that I know is saying screw open trade, let's go full on mercantilism.

I don't think you "know" all the same people I know.


They wouldn't build the product in Mexico for import into the US if there were no arbitrage to profitably exploit.

There seems to be an unspoken premise here and in similar comments that whatever advantage the manufacturer (be it auto, clothing, etc.) gains by manufacturing abroad it salts away somewhere in the form of "profits." Now, aside from the fact that profits are not some sum of money that Ford buries in the ground or in a mattress somewhere that does no good to anyone but Ford, there is also the fact that this premise itself is *clearly false*. If it were true, we wouldn't see lower prices for the consumer at the far end for goods manufactured abroad. The consumer would just pay the same price either way and the evil capitalist off-shorer would take the difference in additional profits. But we _do_ see lower prices at the consumer end. Hence, the off-shoring company isn't *just* "exploiting" the benefits of off-shoring to make more money per item sold. Rather, it is passing on a very noticeable chunk of the savings per item to the American purchaser.

I will say that it's only fair for each side to acknowledge the role that ceteris paribus assumptions are playing in argument. This comes out in my exchanges with H. Harrison, above. Harrison points out, fairly enough, that when I propose lowering taxes in various forms on American corporations, I am not addressing possible unintended consequences in the form of either a) increased deficit spending or b) other raised taxes. So I'm talking like there will be a net gain to the American everyman in the form of, say, more job opportunities (if we woo manufacturing back to the U.S.) without rising costs (caused by tariffs). But what if everyman has to pay higher income taxes? Or what if the American economy is further destabilized by increased deficit spending, causing some kind of crash that harms everyman through massive, economy-wide job loss?

These are relevant points worth considering.

But the same thing is true on the other side: The advocate of raised tariffs helps his own case through the assumption that the net tax burden on the consumer _stays the same_ in that tariffs _replace_ some kind of income taxes. But that isn't necessarily true. For example, the low-income American may not be paying taxes anyway, because of our graduated tax system. So *even if* someone's income taxes are lowered by a windfall from tariffs, that someone is probably not that guy, who nonetheless pays more for his goods to help cover the tariffs and various effects of the tariffs upon prices. Moreover, we can't assume that all else stays equal if the U.S. raises tariffs--that is, that tariffs replace some other taxes for anybody. Maybe the U.S. government just spends more money!

[Then goes on to describe a bunch of socialist policies that have nothing to do with trade.]

Of course it does. A state controlled bank will tell domestic companies from whom to buy and to whom to sell. "Negotiate the price amongst yourselves, so long as you don't buy from so and so and don't sell to so and so. Otherwise you'll find your credit dry up very quickly."

Then there is China. Chinese exporters have to hand over their dollars obtained in trade with the US to state-controlled banks in return for Chinese currency. Then the state-controlled banks put those dollars wherever the government tells them to (mostly US debt and assets). This affects the price of both Chinese currency and US currency which in turn affects all trade in those currencies. This is done deliberately by the Chinese to further interests and is the currency manipulation that Trump refers to constantly.

Lydia,

This is well said:

"There seems to be an unspoken premise here and in similar comments that whatever advantage the manufacturer (be it auto, clothing, etc.) gains by manufacturing abroad it salts away somewhere in the form of "profits." Now, aside from the fact that profits are not some sum of money that Ford buries in the ground or in a mattress somewhere that does no good to anyone but Ford, there is also the fact that this premise itself is *clearly false*. If it were true, we wouldn't see lower prices for the consumer at the far end for goods manufactured abroad."

That's what my data on clothing above shows (quite dramatically, which Mike quickly ignored the minute I bothered to find the data) and I bet I can dig up comparable data on automobiles if I was in the mood.

Andrew E.

You say the following as an example of the problem of state-owned banks interfering with trade:

Then there is China. Chinese exporters have to hand over their dollars obtained in trade with the US to state-controlled banks in return for Chinese currency. Then the state-controlled banks put those dollars wherever the government tells them to (mostly US debt and assets). This affects the price of both Chinese currency and US currency which in turn affects all trade in those currencies. This is done deliberately by the Chinese to further interests and is the currency manipulation that Trump refers to constantly.

I agree that this is less-than ideal -- from China's perspective (they are allocating their resources poorly when central planners are in charge.) But explain to me how this hurts the U.S.? The Chinese are buying U.S. debt and assets (from willing sellers!) and this is bad because...

Now keep in mind Lydia's earlier point -- all things being equal. Our debt and assets are for sale. You and I might agree (I hope) that it would be much better if the U.S. had a lot less debt and a smaller, less bloated welfare state. But what this has to do with free trade with China is beyond me -- the Japanese own a lot of our debt, various Caribbean islands (banking havens), all sorts of European countries, etc. And foreigners still only own about 30% of all outstanding U.S. debt anyway -- so why is bad specifically that China owns some debt (or assets) as opposed to any of our other trading partners?

It's bad because it is this tariff and non-tariff based protectionism on the part of the rest of our trading partners that is responsible for our chronic trade deficits that are unending since 1975 and have been massive since at least 1990. And the currency which makes up the trade deficits can only be 1)stuffed under the mattress, 2)used to purchase US assets or 3)used to purchase US debt. (Or 4, used to purchase gold bullion but that is a totally different discussion)

And what we have had is 40 years of 2) and 3), foreigners buying up our debt and assets. This means we have less and owe more. We are poorer as a nation. Ian Fletcher estimates that the cumulative value of these trade deficits represents 13% of our economy. In other words, there is a whole in our economy larger than the economy of Canada that is missing because of our trade policies. It's like a family that sells off its furniture and loads up on credit card debt. Totally unsustainable.

This is just the economic aspect. There is the national security angle where we can't build fighter jets without inputs from potential adversaries.

That should be: "there is a hole in our economy..."

Andrew,

Sometimes I feel like banging my head against the wall.

"And what we have had is 40 years of 2) and 3), foreigners buying up our debt and assets. This means we have less and owe more. We are poorer as a nation."

No, we are not poorer. How come the foreigners were able to buy all our debt and assets? Anyone? Because we paid them money for their goods! Why did we pay them money? Because we wanted the stuff they were selling! Why did we want the stuff they were selling? Because human beings have needs for clothes, and electronic devices, and appliances in their homes, and cars, and machines, etc., etc. So we buy lots of foreign-made goods (we buy lots of American-made goods as well, but let's try and stay focused) and we are richer as a result of consuming the goods we buy and the money we save through the efficiencies discovered via the give and take of trade. There is nothing missing from our economy -- only economic gain and goods enjoyed by individuals and households (and investment from foreigners as they decide to park all their dollars back into the U.S. since it is a good place to invest their money.) Everyone wins -- with the temporary losers being those out of a job in industries that can't compete, just as those who lose jobs to domestic competition or new technologies lose out until they can readjust and find new work.

That's just how dynamic economies work -- also known as capitalism.

I once tried to understand why trade deficits are bad per se when studying why England started the Opium Wars with China. Obviously, England thought a trade deficit was bad or they wouldn't have started the Opium Wars. Maybe they were afraid that China would end up with all their silver and that they would end up with no more silver and a bunch of tea that they already drank. I dunno, but it was never clear to me that England was _correct_ (even economically, aside from moral considerations) that it was economically urgent to reverse the trade deficit with China by forcing China to buy opium produced in English colonies.

Jeffrey, you're just wrong. I can't make you see it. If we had balanced trade for those 40 years than all those wonderful cheap Chinese goods could still have been purchased by American consumers but we would have sold them goods in return and we'd still have our assets and owe a lot less money. Median wages would be higher, households would be wealthier. We didn't get anything for those trade deficits, that's just a dead loss we gave away for the sake of ideology.

Our trading relationship with China cannot be characterized as capitalism. The relationship looks how it does because we unilaterally surrender to China's state-capitalism.

Andrew and I had been holding in reserve what is possibly the strongest argument in favor of tariffs. Andrew writes:

This is just the economic aspect. There is the national security angle where we can't build fighter jets without inputs from potential adversaries.

I cannot really improve upon Andrew's statement.

Jeffrey, since you have named me, "Mr. Harrison," you have me at a disadvantage in courtesy, for I can hardly respond with "Mr. S."! Someone else in the thread has named me "Harrison," which is just as well. It's a pseudonym, anyway.

I fear that I have nothing else very insightful or interesting to add, but I can respond to your last remarks if you wish.

In my view, your line of reasoning is not so much wrong as faulty in paradigm. The pieces are okay on their own; but
(as I judge) the conclusion the pieces reach, when strung together, happens to be unhelpful.

How come the foreigners were able to buy all our debt ...

Like you, I remain unconvinced that the debt is a very relevant issue. It would be preferable that we did not have it, but national debt payable in fiat money is a funny thing, with funny consequences. Greece's and Puerto Rico's chief problem is that each lacks fiat authority. So, I'm with you on this point.

... and assets?

Because we are the Prodigal Son.

Why did we want the stuff they were selling?

Because we want it. Because we like stuff.

... we are richer as a result of consuming ...

Interesting. Certainly, we live richer as a result of consuming. Saving is the usual alternative to consuming, though. Some of us are richer as a result of saving—which does not seem quite to fit your scheme.

The aforementioned paradigm fault begins above to be seen.

... the efficiencies discovered via the give and take of trade.

Were you under the impression that we protectionists substantially discounted these efficiencies? Free trade and autarky were never the only two alternatives. Free trade does not equal trade.

Tariffed trade is a prudential, middle scheme that seeks to raise revenue for the state in a manner that does less harm than do other means of raising revenue, and in a manner that even does some good to offset the harm. (I saw what Lydia had to write on this point, incidentally. The connection between mode of taxing and volume of spending seems tenuous to me, but maybe I am missing something on this point. The rest of Lydia's response is well taken, though; I don't have anything to add to it.)

There is nothing missing from our economy ...

Unless you count missing industries.

Everyone wins ...

Your mileage may vary.

... until they can readjust and find new work.

Largely true. I do not care to debate this point, because I mainly agree with you on it, and because long experience has shown that no known system produces wealth remotely so well as capitalism does. However, capitalism is a great social solvent. It breaks up the familiar and the settled....

That's just how dynamic economies work -- also known as capitalism.

As you said.

To that extent and in this specific way, capitalism is not exactly a good thing. We should be warier.

Tariffs are one good way to be warier.

... you've provided no evidence that protectionism benefits the overall U.S. economy.

Perhaps not. It was not actually my goal to benefit the overall U.S. economy, but to benefit the overall U.S. citizenry, and to strengthen the U.S. as a nation, a nation being (in my view) something much more than merely the sum of her people.

But now one has to define economy, which I had better not try to do, because I would do it wrong and because no one really reads blog comments that long, anyway.

So, I would not press this point, but would yield it if you like.

The connection between mode of taxing and volume of spending seems tenuous to me, but maybe I am missing something on this point.

In case I was unclear: Suppose that the U.S. government were to raise tariffs substantially and get money that way. I'm even willing for the moment to set aside potential "Laffer curve-like" reasons why perhaps this wouldn't even mean that the U.S. government *takes in* more money. (Because maybe businesses go bankrupt and hence aren't around to pay taxes, for example, or maybe people don't start businesses because of the tariffs.) Setting those aside, here's Uncle Sam with more money than he ever had before, or anticipating it, so long as he _keeps_ in place all of the current income taxes, corporate taxes, taxes on your dog's cousin's number of barks, and whatever other taxes we have. Now, in the pro-tariff picture, Uncle Sam says, "By Jove, I don't need all of _that_. I shall hereby repeal or lower some of these _other_ taxes and _replace_ them with the tariff windfall I am now taking in." Hence, what we lose in paying tariffs on our goods we gain back by paying less in other taxes. Now, what I meant about spending is that it seems to me highly dubious that Uncle Sam will do anything of the kind. Uncle Sam seems to me _far_ more likely to say, "By Jove, _look_ at all this extra money we stand to bring in with tariffs. This is wonderful! I can think of _lots_ of new goodies and agendas to fund with _that_," so the taxpayer just pays all of the taxes he was paying before _plus_ higher prices for goods. Even if this were _partially_ true, the net financial burden would end up higher.

Like you, I remain unconvinced that the debt is a very relevant issue. It would be preferable that we did not have it, but national debt payable in fiat money is a funny thing, with funny consequences. Greece's and Puerto Rico's chief problem is that each lacks fiat authority. So, I'm with you on this point.

It's true that debt in a fiat world is tricky. That's why I mentioned briefly option 4, gold bullion. But that is a long and difficult topic for another day. But I would suffice to say that if we believe our debt is meaningful and to be honored in real terms, then we owe a lot of it that we wouldn't otherwise under balanced trade. If we want to say we can just print what we need in a pinch to pay what obligations we need to pay, sure. But that is also likely to negatively affect the value of accumulated savings of virtually all Americans who have any savings.

Harrison:

In my view, your line of reasoning is not so much wrong as faulty in paradigm. The pieces are okay on their own; but(as I judge) the conclusion the pieces reach, when strung together, happens to be unhelpful....

Because we want it. Because we like stuff...

Interesting. Certainly, we live richer as a result of consuming. Saving is the usual alternative to consuming, though. Some of us are richer as a result of saving—which does not seem quite to fit your scheme.

The aforementioned paradigm fault begins above to be seen...

capitalism is a great social solvent. It breaks up the familiar and the settled....

To that extent and in this specific way, capitalism is not exactly a good thing. We should be warier.

Amen. Something that has caused great disquiet to me has been what seemed to be the wholesale adoption of a materialistic calculus for determination of the common good, once the 'economic realm' is entered in the discussion of trade.

Sure, certain increases in wealth and standards of living are good. But the world would have that all are. And we cannot automatically acquiesce to this conclusion of the world.

Jeffrey has asked what benefits protectionist measures could provide. Here is one: it would be a moral and counter-cultural stand, a stand against the widespread greed and mindless consumption in society.

Jeffrey has asked what benefits protectionist measures could provide. Here is one: it would be a moral and counter-cultural stand, a stand against the widespread greed and mindless consumption in society.

I have watched this bait and switch happen over and over again in debates over, literally, a couple of decades with various third-wayers and protectionists.

Here's how one version of the bait and switch goes: The other chap _begins_ by saying that the poor common man is being driven into despair and/or misery by the loss of his _job_ and _livelihood_--a straightforward appeal to the supposed loss of material, economic well-being by the common man. The claim may be, for example, that the poor common man has lost his job because of increased technology. Hence, technology improvement is bad because of job churn and the difficulty that the common man in question has retraining. Or the claim may be that he's lost his job because manufacturing went overseas and that type of job was what he was most fit for, so now he's understandably angry because his job went to China and he's out of work. Then I, or someone like Jeff, responds carefully with arguments and statistics designed to show that the net material, economic well-being of the common man in question has _not_ actually been made worse by the thing in question (e.g., changing technology, low tariffs in trade with China). _Then_ the other chap suddenly changes horses and starts saying that actually his argument isn't _about_ the supposed loss of mere _material_, economic well-being by the common man but about his loss of such immaterial goods as the ability to, y'know, have less and learn not to be greedy. Our response to his _original_ argument is portrayed as mere materialistic greed in action. Material well-being is mere dross. The common man _should_ learn to live more simply, to do without, to have less stuff, to consume less. Then he will be ennobled by this ascetic exercise and will be better off in a higher sense than what we, materialist capitalists that we are, have been droning on about.

Well, I cry foul.

The *original point* was supposed to be about the poor common man's *loss of a decent-paying job*, which *is* an economic argument. If we're going to talk about his economic well-being, then let's talk about his economic well-being. You don't get to suddenly switch to saying, "Why, yes, the common man _will_ be economically worse off with protectionist policies, but actually that's a _good_ thing because Greed Is Bad and you freer-traders are just all about encouraging people in being greedy."

Give me a break. If _that's_ what we're talking about, you should have said in the first place that your goal was to drive people into poverty. Heck, if it's all about making a stand against "greed and mindless consumption," then maybe free trade would be better if it _did_ drive all the jobs over to China and left the men in the erstwhile manufacturing district s living on food stamps. Just think what a _stand_ that would help them to make against the "greed and mindless consumption" in society. In which case, that shouldn't be an argument _against_ free trade.

You can't have it both ways.

Lydia:

You may or may not be able to avoid all-or-nothing thinking, but please do try not to project it:

I have not argued that economic arguments are not all valid. Rather, with Harrison, I have noted the troubling tendency of many in defaulting to the world's purely materialistic calculus during economic discussions - whether about free trade, the wonderfulness of "free" markets, capitalism, and so on. I then went on to suggest that (as Christians) we shouldn't uncritically and automatically buy wholesale into what is a thoroughly greed-soaked and worldly mode of thinking.

Not that, of course, your counter-charges are at all a surprise - challenge the reigning paradigm of thought and one is often branded as 'communist', wanting people to be poor, ignorant of the magic of capitalism, ...the idol does not fall easily.

I see all these comments flip back and forth like a tennis ball on steroids, and I don’t know if I can jump in and say something worthwhile or not. If it’s more the “not”, please excuse me.

I thank Harrison for making his comments without adding to the heat, rather cooling the temperature a bit. Well done, it is noticed and appreciated. I think that a lot of the arguments are at loggerheads because there are assumptions being made about what order of effects this or that point is getting at, and I am just a little slow on economics so I want to stop assuming my way past all the baby steps and take it slow and steady, and not jump to far-reaching conclusions.

I take it that Mike at least is more or less OK with “free”, or at least fairly free, trade with true peers, partners whose economic picture makes it so that we can buy from them and they can buy other stuff from us and at least in principle there is no reason to expect an ongoing trade deficit in one direction. Me too. (The “more or less” takes account of trade restrictions for such things as national security, not restrictions solely for economic purposes, and since the argument here is whether this or that action is a healthy ECONOMIC choice, I believe such reasons get left at the door here. Of course restrictions for national security are normally a good choice, all other things being equal.)

But if you are going to trade with someone who is not a peer, if it is the US and Honduras, there enters in effects of the disparity. The Honduran worker can (and does) provide his hour of labor in return for a LOT less of a wage than the otherwise similarly placed American worker. Please note: this isn’t bad, in and of itself. He lives at a lower standard of living, he can afford to take a wage that an American worker cannot afford. This is just the nature of the given reality, there is no moral judgment so far.

The primary effect of a US Company C buying the Honduran part instead of the American part as a part of its manufactured end product is that C achieves a cost savings of X. Call that Effect 1. That’s the first-order effect. Now, it has a choice about what to do with that cost savings: it can sock it into a company savings account, it can spend it on higher wages, it can announce and distribute a profit to the owners, or it can pass on the cost savings to its customers. (Or, naturally, a combination). One of these, or the combination choice it chooses, would have to be the second-order effect, Effect 2a. The third-order effects would have to follow either the profits to the owner(s) – such as spending more on goods, or investing in new production, or having another kid, … - or the increased wages to the workers, or the cost savings to the customers, and all of these would be 3a effects.

Another second-order effect (on the downside) is that Company C is not buying the good it used to buy from an American worker, so that worker (and/or his company) takes a hit in demand for its work / product. Call this Effect 2b (using b for the downside effects). The fall-out from 2b is the US supplier S either announces lower profits to their owners, or lays off some employees, etc, these (or some combination chosen) are third-order effects 3b. And then these would be followed by 4th order effects, 4b, of the nature of the owners contracting their spending on consumer goods or on investment, the out-of-work employees contracting their spending on goods, etc.

In this partial analysis, if you stick at any specific level, 1, 2, 3 or 4, the beneficial effects of the cost savings are always better than the downside effects. The equivalent degree of downside effects always come at the next layer on the downside as the benefits occur on the upside: 2a to 3b, 3a to 4b. But if we include ALL of the effects together (multiple levels), the question is whether the benefits outweigh the unbenefits, and this is where (I think) the core dispute rests. It is of course better to get the part cheaper than otherwise, at X instead of X+Y. But the Y is not an isolated gain only, it is a gain with losses associated in the larger picture. It is hard to prove in any relatively small # of levels that the gains on the benefits side are clearly better than the unbenefits side are bad.

It is only in allowing the effects to ripple on out almost indefinitely farther that you are likely to see real systemic gains or losses. The reason, I think, that this picture (so far) is not susceptible to a Smithian productivity improvement paradigm is that in constructing this description, I purposely avoided taking in what happens in Honduras with the new American dollars. Why? Because there IS NO PRODUCTIVITY IMPROVEMENT, if you measure productivity in terms of output per hour worked.* That’s another point at the crux of the issue. The Honduran worker may have to work 3 hours to equal the output of one hour of the American worker. But since he is paid 1/10 of the American worker, Company C still “makes out well” in hiring the Honduran labor. By the definition given, the change from one hour of work to 3 is a productivity LOSS, not a gain. If you include the effects in Honduras, as part of a larger “system”, you have to account the change as being a loss of productivity. The only way Company C can “generate” this new gain (measured by the difference Y) is to account for only part of the system, not the whole system. (For instance, Company C cannot turn around and sell its newly reduced-price product to the worker in Honduras, he STILL cannot afford it, more than likely. But he can now afford much more of the local Honduran goods produced with much lower productivity than American goods.)

*Productivity is theoretically defined differently: output per unit of input. But it is nearly impossible to quantify this in rational terms in the above scenario, because for one thing the American worker (not the Company) has ALREADY “paid” for much of the input costs (education and training), (and that education and training is, also, what enables him to be a culturally viable person in America as well as culturally need the 10x wage for the work, unlike the Honduran). For Company C to measure its productivity in terms of ITS OWN “input” costs without measuring the rest of the social input is just to externalize the costs, not to measure them. That’s one reason I stuck to “hours worked” for the example. I recognize that economists attempt to take into account the other inputs by using GDP and such, but I have doubts that it works effectively across a “market” as widely divergent in nature as a US – Honduras “system”.

It is, of course, possible to claim that with the American social investment inputs in the worker and in the structure of the society supporting his work, the productivity of the Honduran is higher than that of the American, and this justifies – on a purely economic basis - enlarging the “market” by buying labor from Honduras than America for this one part. IT might even be true. But I rarely see someone claiming this, more often what I see (like Mike and Harrison) is someone claiming that precisely because Company C can “turn a bigger profit” in buying the Honduran labor, that just is proof of higher productivity in the combined new system of Company C –plus-Honduran-labor. But I think this argument fails, because it reflects only part of “the system” and not all of it.

When Mike says

VD made a point about how Asian Tigers did industrialize in no small part through free trade. However, they only sought free trade with countries at their level of development or higher. It worked because they were able to exploit their trade partner's higher level of prosperity to claw their way up, but what we do see time and again is that over time free trade between countries with a great disparity tends to cause an equilibrium of wealth between them.

I think this is more right than wrong: the equilibrium that occurs at levels 5 through 12 or so is that the American high productivity is exchanged for Honduran low productivity (but higher marginal utility), and the WEALTH spreads out more evenly in the new larger “system” of the two formerly separate markets. “More evenly” necessarily means more in Honduras and less in America. That “less” in America implies less to invest, at the minimum.

(By the way, I don’t believe that reducing the net system productivity rate by this kind of trading with a sub-par trading partner is per se a bad thing. There are plenty of ways in which humans are better off with choice A over choice B even when A is less economically refined, including A having lower total productivity. For one thing, if by such trade we also introduce Christianity, that alone might be a pretty good reason to do it, and nuts to the profits. )

I don’t see why you can determine whether C’s switch from buying the part from supplier S to buying it from Honduras is ultimately a better economic picture without (a) considering not just productivity per se but also marginal utility, and (b) including Honduras in the total picture and not just the US (i.e. including the Honduran worker’s higher marginal utility at 1/10 of the wage than the US worker’s). And when you include Honduras, you have to accept wealth spread as part of your total economic picture in order to say that the total picture is “better” economically than otherwise.

In the much longer run (centuries), taking into account effects at the 2000th remove, it seems possible that getting ALL countries to be “peer” level trading partners, with a much, much larger even-level market amongst them all, could result in important synergy effects in productivity boosts all throughout that much larger economy, effects that would otherwise never be experienced. However, it is also plausible that such a world-wide even-level market would always be behind where an American economy could have been had she never lowered net effective productivity by trading on unequal terms with sub-par markets and diluted her wealth in ways that limited her investment potential at home. Can it be proven definitively either way? I tend to think that the “science” of economics (scare quotes intentional) has trouble proving things even in hindsight, much less is capable of proving something so far distant.

I have of course ignored the effects (down at 20 or 30 levels) of the American worker going to get re-trained for a better job, one that has even higher productivity than his prior one. This does happen - but there are reasons to be cautious about that also: (a) the system is not infinitely pliable within a specified time frame, so you cannot always just ASSUME that there IS some better sort of work ready for him; and (b) the worker himself is not infinitely pliable - he may not BE trainable, or he may be too close to retirement to make it worth it. If had robots instead of human beings, one could nearly ignore the human limitations of "the system" in these respects, and just assume that the downside problems tend to erase themselves. Given actual humans, it is less than obvious that this should be accepted as an assumption.

Tony, I'm really not sure I follow the concept of productivity loss with the Honduran worker. Would the same analysis apply if there were no federal minimum wage or labor regulations and state minimum wages and other regulations varied widely, so that the American company could make the part much more cheaply in Georgia than in New York? Would one then say, by your analysis, that there was a "productivity loss" by making the part in Georgia? There's obviously something I'm just not getting.

The other thing to consider is the effects--negative and positive--of proposed "solutions" if we consider that it would be _better_ for more manufacturing to be done in the U.S. than is currently done. Even supposing we grant some good effects of inducing that to happen, it could easily be brought about in a way that would do more harm than good.

Perhaps my useful part in this discussion is to play the role of the Man-on-the-streets whho knows little about economics, but has to go to work everyday (which is, in fact, my lot in life).

Ford makes cars more cheaply in Mexico. Why? Certainly, it is not because Mexicans have more natural resources nor easily obtainable technology. Certainly, Mexicans are not more hard working than Americans. The principle reason is that the Mexicans who make the cars are more willing to live on substandard diets, poorer quality air, more raggedy clothing, etc., than Americans. In other words, it is easier to insult Mexicans by paying them a substandard wage and by cutting corners than it would be for an American worker. There is no inherent reason why making a car in Mexico should be any less expensive - from any physical measure, such as energy expended, material used, etc - these are closed loop processes - if the identcal car is being made. The savings comes in the fact that Mexico simply does not work at the same standard of concern for its workers and the manufacturing processes as we do in America. This is playing Mexico for suckers, in a sense, since if the enjoyed the same standard of living thag we do (in general), then cars would cost the same to make there as here. This is exploitation, pure and simple. No matter what the ultimate cost of the car turns out to be - this who structure is immoral.

I have no data whether or not free trade lowers the number of manufacturing jobs in the U. S. but it sure does in certain white collar areas, such as IT. When is the last time you tried to discuss a matter involving a computer where youactually spoke to someone speaking American English? IBM, Microsoft, etc., are all off-shoring their technical work, with the result that many highly trained and creative American workers are going begging. Using manufacturing to prove the point about free trade is useless, because it is no longer the major growth area. Look, instead at white color jobs to see the profound effect that trade between uequal partners is having.

At least this is what I read on the tech blogs.

The Chicken

Sorry for all of the spelling error. I am writing on a bare-bones browser (one probably no one has ever heard of) because I'm using dial-up. I wasn't even sure it would post, so I didn't want to try hitting preview and re-read what I wrote.

Lydia, that is a very good question.

Taking minimum wage out of the picture, a company would regularly have the option of having a task done in his own plant in 1 hour by a highly trained specialist with an expensive tool, or by an unskilled worker with poor tools in 3 hours "down in Georgia". When you factor in the costs of training the specialist and making his tools (and/or transporting the part back), it may or may not be cost effective to have the unskilled person do it. But EITHER WAY, the costs of the training and tools and transporting occur within a social structure in which the unskilled person, too, also (in some sense) has access to the training, and he also is part of the social structure in which the cost benefits of the cheaper method (whichever it is) are available to him as an end product. We are inclined to say that he is naturally a part of the same single economic picture, in which the cost / benefit ratios decide the better productivity model, and reflect the _costs_and_benefits of the product generated. If the Georgian has a higher marginal utility in offering his hour of work for only $6 instead of $18, that marginal utility takes into account his access to the same utilities, the same roads, the same food, the same medical establishment, the same principles for safe and allowable behavior, etc.

Why does this matter? Isn't it a little incoherent to suggest that we, as a society, (economically) value all children going to school and getting educated, and then promoting companies buying foreign parts made by children in factories? Not just morally incoherent, but even economically incoherent? Isn't that sort of model simply a way of externalizing the cost of educating our own children? Jeff pointed out (correctly, I think) that Britain and other European countries underwent a surge in economies in the 1800 and early 1900s at least in part on the basis of exploiting colonies: "Here, we'll take those raw materials for our use, thanks." If good schooling is a critical element of our economically advanced culture, how is it NOT a form of (soft) economic colonialism to accept foreign goods produced in a social structure that rests on precluding that possibility to them, as if their behavior is "part" of this economy for the goods produced, but not "not part" of the same economy with respect to the manner in which they are produced?

If we used to get pearls cheaply from Tahiti, where they would train youths to dive up to 200', but 1 in 15 dies in the work, do we think that this is likely to be an economically sound proposition as an element of OUR economy? I'm not talking about moral qualms: are we prepared to say "that's worth it" economically speaking? Is saying that true only by separating out the gain (the pearls) from the costs, and claiming the former as part of our economy but not the latter? Would we do that for any job in the US?

By the way, I don't mean to say that these questions justify stiff tariffs. There is more to it than that. I am just questioning whether we are measuring economic gains and costs accurately when we look at trade with third world countries.

I guess that to put it in a nutshell, I would suggest that in a proper economic accounting, with the the costs to Company C saved by getting the part from Honduras for X instead of US supplier S for X+Y, the GAIN can only be a true gain if it is also true that the costs of re-training (and re-tooling for new work) the American employee is ALSO less than Y. That the effects on the system are properly an improvement if the change accrued enough benefits to offset the costs to the system.

If the BEST way to meet those costs to the system are to impose a tariff, I would say that this would be an ideal argument for tariffs. But I tend to doubt it. First, because we don't hear arguments that tariffs pertain fundamentally to only those goods that will have downstream costs to the system, nor that the tariffs need to be measured by those downstream costs. I tend to doubt that GOVERNMENT is going to be a particularly effective agent of measuring those costs. I don't know who would be BETTER, mind you. I don't think economists have a great track record. (As according to the old canard: they have a distinct disadvantage - they have to predict using economic theories.)

Ford makes cars more cheaply in Mexico. Why? Certainly, it is not because Mexicans have more natural resources nor easily obtainable technology. Certainly, Mexicans are not more hard working than Americans. The principle reason is that the Mexicans who make the cars are more willing to live on substandard diets, poorer quality air, more raggedy clothing, etc., than Americans. In other words, it is easier to insult Mexicans by paying them a substandard wage and by cutting corners than it would be for an American worker. There is no inherent reason why making a car in Mexico should be any less expensive - from any physical measure, such as energy expended, material used, etc - these are closed loop processes - if the identcal car is being made. The savings comes in the fact that Mexico simply does not work at the same standard of concern for its workers and the manufacturing processes as we do in America. This is playing Mexico for suckers, in a sense, since if the enjoyed the same standard of living thag we do (in general), then cars would cost the same to make there as here. This is exploitation, pure and simple.

Whoa, that's an amazingly prejudicial way of putting _all_ of this. Do you _know_ all of these things, MC? Because I sure don't.

Let's consider: Is all pay below the U.S. national minimum wage automatically exploitative, insulting, and substandard? Since when is the decision of possibly economically confused or economically illiterate American congressmen about the minimum wage a moral standard? Are all U.S. regulations that increase costs to the manufacturer essential for non-exploitative work? That is _far_ from obvious. Are U.S. unions' demands for salary and benefits _the_ standard of what is not exploitative, so that anyone who goes to another country to avoid paying them is _by definition_ harming, insulting, and exploiting his workers? Again, far, far from obviously true. Indeed, I often find it rather sadly ironic that some of the same people (not necessarily you, MC, but possibly some people who have influenced you) who go on and on and on about the evil of greed are _completely_ blinkered to the way that blatant, extortionate greed plays a role in the high-toned demands made by unions on behalf of their workers.

Indeed, whether jobs are harming or helping the workers in question may actually _depend_ upon other background factors. Jay Richards tells about a situation where some American celebrity owned a clothing factory, which some activists considered a "sweatshop," in a South American country. A young lady who had worked at that factory was recruited to come to the U.S. and go about giving talks about the working conditions (my recollection is that they were neither obviously evil nor ideal) and the pay and so forth, and everybody got up in arms. The celebrity closed down her "sweatshops" in that country. The next thing you know, the young lady who had been speaking was saying, "Wait! Now that that factory closed down, my friends are going into prostitution!"

So would it have been better for them to be working 12-hour shifts at relatively low wages making shirts or for them to be prostitutes? I'm sorry to put it that starkly, but the idea that it would just be "simple" to provide these jobs in these countries while giving American-level benefits, much less that continuing to provide the jobs under those circumstances, or to shut down the foreign plant and bring the jobs back to the U.S., is a _moral_ imperative, is very much open to question.

Tony, you have an interesting question concerning economic systems, and I've often thought about that question. I'm not sure that there is a cut-and-dried way to say what counts as "this system," economically. One obvious reason for that is varied currencies. Another sovereign nation has a different sovereign currency, which they control, so in one sense it's _impossible_ for there to be one giant "economic system" that includes both nations. I think we have to live with the ambiguity, because the ambiguity is inherent in the worldwide economic situation with different sovereign nations that interact with each other but are also free to limit interaction (e.g., they have borders and can limit immigration, and so forth). So in one sense the less-educated Honduran worker really is not part of the same economic system as Ford motor, and in another sense he is. There's just no getting around those variations in the concept of "same system."

My own opinion for what it's worth is that, as long as the company isn't doing something _immoral_, it isn't wrong for them to take realistic account, and even realistic advantage, of the ways and senses in which their customers are not part of the same economic system as their laborers. Again, subject to _moral_ constraints, the economic differences just are what they are. So the Honduran auto worker is probably never going to be able to buy the kind of car he's making, and he doesn't have access to the same roads, education, etc., as the people who buy the cars he's making. Unless we can show that this is _morally_ wrong, it's not at all clear that it's _economically_ bad.

MC apparently thinks this is _immoral_. You see this (rightly) as a separate question from whether it's economically unsound, from the perspective of the good of the country we are talking about (the United States) and its people. Remember that it is U.S. policy that we are discussing, because we're U.S. citizens and that's the policy we have influence over. Also, our lawmakers (I think you will agree) have a primary duty to the citizens they represent in making policy. So, again, unless there is some moral wrong being done (to the workers in the other countries), it does not seem wrong for U.S. lawmakers to permit U.S. companies to do what is helpful and non-harmful economically to U.S. citizens and permanent residents, and we have to find out what that is.

Not forgetting, of course, that the protectionists make an _economic_ argument about _American_ workers in any event. So they certainly can't have it both ways: They can't start with a kind of nationalist argument that the primary duty of American lawmakers is to secure jobs for American workers because they should have more concern for the economic well-being of their "ain folk" and then switch around and say that we shouldn't have jobs abroad because we're harming foreign workers by exploiting them for low wages to get low prices for our "ain folk" and we should care just as much about the foreign worker as about Americans! Trying to do both of those as arguments against jobs abroad is inconsistent.

If the BEST way to meet those costs to the system are to impose a tariff, I would say that this would be an ideal argument for tariffs. But I tend to doubt it.

I also tend to doubt it.

I do not know what would be the best way to meet those costs to the system. There may exist no systematic way to meet those costs. I suppose that the U.S. probably had those costs alike a century ago, when the U.S. still had substantial tariffs; but, at any rate, at first thought, a tariff sounds to me like rather too blunt tool with which to meet the costs in question.

Donald Trump is indeed proposing to use the tariff as a tool to meet the costs in question—or, at least, that would be one way to interpret Mr. Trump's recent remarks regarding the Carrier plant in Indiana. However, little purpose would be served (as far as I know) by trying to make logical sense on an intellectual level of anything Mr. Trump literally says regarding trade. (Part of Mr. Trump's genius is to grasp that his countrymen are rightly weary of incessant hectoring by intellectuals and pseudointellectuals like me, whether on trade or on any other topic.)

Whoa, that's an amazingly prejudicial way of putting _all_ of this. Do you _know_ all of these things, MC? Because I sure don't.

It's also not far from the observed truth of how illegal immigrants often live in the US. Immigration officials often encounter cases where 20 men will live in a house that would barely comfortably hold a family of 4-5 Americans. The Mexican men are single in many cases and would rather live dirt cheap to save as much as they can.

With a per capita GDP of about $10k, Mexico is noticeably poorer than the US. That means a lower expectation on food, clothing, housing, public services, etc., etc. It's really not a big jump from all of these observations to the why of it. Ford would not move a job to Mexico, as opposed to a poor state like Arkansas or Alabama (which are right to work) if there weren't some great motivation.

Hell, apparently the prevailing wage for line workers in GMC's Chinese factories is like $3/hour. Anyone want to guess why GM would move to China as opposed to building in the South where they might have to pay $20-$25/hour (with senior, northern union rates at about $75/hour all in I believe)

Not forgetting, of course, that the protectionists make an _economic_ argument about _American_ workers in any event. So they certainly can't have it both ways: They can't start with a kind of nationalist argument that the primary duty of American lawmakers is to secure jobs for American workers because they should have more concern for the economic well-being of their "ain folk" and then switch around and say that we shouldn't have jobs abroad because we're harming foreign workers by exploiting them for low wages to get low prices for our "ain folk" and we should care just as much about the foreign worker as about Americans! Trying to do both of those as arguments against jobs abroad is inconsistent.

False dichotomy, Lydia. It's entirely possible to prioritize the well-being of your own people while factoring in highly the well-being of others. One aspect of that well-being of your own people is that you don't allow your people to get caught up in evil abroad.

No, we are not poorer. How come the foreigners were able to buy all our debt and assets? Anyone? Because we paid them money for their goods! Why did we pay them money? Because we wanted the stuff they were selling! Why did we want the stuff they were selling? Because human beings have needs for clothes, and electronic devices, and appliances in their homes, and cars, and machines, etc., etc. So we buy lots of foreign-made goods (we buy lots of American-made goods as well, but let's try and stay focused) and we are richer as a result of consuming the goods we buy and the money we save through the efficiencies discovered via the give and take of trade. There is nothing missing from our economy -- only economic gain and goods enjoyed by individuals and households (and investment from foreigners as they decide to park all their dollars back into the U.S. since it is a good place to invest their money.) Everyone wins -- with the temporary losers being those out of a job in industries that can't compete, just as those who lose jobs to domestic competition or new technologies lose out until they can readjust and find new work.

And where did most of that money come from? Debt. The level of debts carried by households, corporations and the public sector are through the roof compared to where they were a generation ago. Go do a Google search on Vox Day's blogs. He has a number of posts and charts showing that, and to even start linking to all of them would quickly hit your spam filter...

Hell, apparently the prevailing wage for line workers in GMC's Chinese factories is like $3/hour. Anyone want to guess why GM would move to China as opposed to building in the South where they might have to pay $20-$25/hour (with senior, northern union rates at about $75/hour all in I believe)

At those costs—if those really are the costs (I wouldn't know)—Americans would save so much by driving imported cars that shuttering the plant in Michigan would be worth it. At those costs, with a tariff, Americans would save by importing the cars; while, as a bonus, the tariff revenue would fill the Treasury, whence the money could conceivably be used to retrain the Michigan workers. If managed right, that'd probably be a win for Americans on all sides.

Whether it's a win for China is not especially our concern. (This paragraph heeds Lydia's last advice regarding consistency.)

The scenario you describe (if it were accurate) slightly resembles that of black pepper in the U.S. market. One supposes that we Americans could grow black pepper in Mississippi greenhouses if we really wanted to, but why bother when Vietnamese are happy to grow Black pepper for us outdoors?

And, no, I haven't switched to the other side regarding tariffs. We protectionists are mostly in favor of trade, not against it. A 35-percent tariff on Vietnamese black pepper would surely not suffice to keep Vietnamese black pepper out of our market. So, we get the black pepper, pay the tax, fill the Treasury and season our food. What's not to like?

The principle reason is that the Mexicans who make the cars are more willing to live on substandard diets, poorer quality air, more raggedy clothing, etc., than Americans. In other words, it is easier to insult Mexicans by paying them a substandard wage and by cutting corners than it would be for an American worker.
It's also not far from the observed truth of how illegal immigrants often live in the US. Immigration officials often encounter cases where 20 men will live in a house that would barely comfortably hold a family of 4-5 Americans. The Mexican men are single in many cases and would rather live dirt cheap to save as much as they can.

Mike, I don't think it follows from the fact that Ford can pay a lower wage, that the Mexicans are living with "substandard diets, poorer quality air, more raggedy clothing, etc." because of that wage. I don't think that stands up to historical reality. The Mexicans were living that was BEFORE Ford opened the plant. Typically, the plants the Americans open do pay better wages than the homegrown factories pay. So while it is true in a sense that Ford is taking advantage of the differential in standard of living, (which Lydia pointed out herself) that cannot prove that Ford is taking advantage of the Mexicans, simply.

In the US, you mention how illegal immigrants live. You fail to note that it's not just the illegals, sometimes the legals live that way too. Including the ones getting a legal wage. Whether they are getting legal wages, or half that as illegals, they are CHOOSING to live on significantly less than they are making, so they can send some home. This means that the poverty they endure in the housing you describe is SELF-imposed, not imposed by employer exploitation as such.

My own opinion for what it's worth is that, as long as the company isn't doing something _immoral_, it isn't wrong for them to take realistic account, and even realistic advantage, of the ways and senses in which their customers are not part of the same economic system as their laborers. Again, subject to _moral_ constraints, the economic differences just are what they are. So the Honduran auto worker is probably never going to be able to buy the kind of car he's making, and he doesn't have access to the same roads, education, etc., as the people who buy the cars he's making. Unless we can show that this is _morally_ wrong, it's not at all clear that it's _economically_ bad.

Lydia, I too would prefer that rules don't prevent a company from doing what is moral, so as long as it isn't immoral, the company SHOULD be able to take advantage of real differentials in the marginal utility of labor in location X versus Y. However, because morality in choice is composed not only of the primary intention but also circumstances, and in prudently foreseen consequences, a truly moral company would NOT ignore the "hidden" costs of its behavior, e.g. the downstream effects of its cost-savings change in supplier. The hidden costs have to either be met at the society level (and are therefore correctly addressed by government at least in some degree), or they have to be met by other actors, such as by companies or by individuals. Those hidden costs are not only disguised but also difficult to determine even when understood to be present; individuals are unable to properly estimate the costs, and companies (especially shareholder-owned ones) have extremely strong incentives to ignore or avoid them until acknowledging them is FORCED upon them by a more authoritative agent - like government (or Church, in some times and places).

I would be much more comfortable in telling government to butt out of immediate handling of this issue if there was any plausible mechanism by which companies did regularly see to it themselves - even if it was only some companies. But since there is no clear way to pinpoint the costs in any direct way as they actually arise by the choices at the individual and company level, none of these agents are readily able to locate the right amount to pay to meet these costs that result from their economic choices. And in our moral climate, public companies have acquired the unfortunate perspective that anything they undertake to do that eats away at the profit level which is "unnecessary" (and by which they mean "not illegal to avoid doing", rather than "neither illegal nor immoral to avoid doing") is actually an injustice to the shareholders. So we are virtually guaranteed, in this environment, that they WILL NOT undertake to deal with those costs themselves, voluntarily. So we are stuck with government doing it, if at all.

I think that my quasi-ideal would be a non-partisan agency (like a cross between GAO and CBO) trying to pinpoint costs arising in some of the larger transactions (like Verizon moving X operation to India), stating system-wide costs that seem to be accruing across the board, and would even take on projects to rule on individual cases for companies at their request. In theory, transparency (which is part of an ideal marketplace, after all) would require companies to be as transparent about these costs as they can. Again ideally, part of a company's overall package of benefits as negotiated with each person would ALSO address the manner in which the company normally will recognize "change in efficiencies" downstream costs and deal with them, INCLUDING changes that require re-education of workers. Employees ought to have a right to be able to (up front) choose to work for employers who do or don't pay attention to this area of of benefit packaging, they ought to know at they are getting in to. Again, with ideally transparent information, customers too would be able to and free to place their custom with companies that do or don't participate in this kind of behavior: if you are strapped for cash for some special reason, maybe you "can't afford" that extra 20% in costs, but in normal times maybe you would prefer to shop only with companies who prove they take these downstream costs into account (instead of externalizing them). With customer knowledge, that option becomes possible.

But we would still need things like unemployment insurance and similar mechanisms to pick up the slack of misjudgment of the downstream effects, and so on. Tariffs (especially targeted ones, if we could make that work) would be another such mechanism. Such a tax is not devised as a prohibition on such trading, but as a way of imposing the true costs on the parties entering into the transaction rather than picking up the pieces later by others not directly involved.

My last comment went too far.

Unlike spice agriculture, an active automotive industry is a vital strategic asset to the United States. I believe that the U.S. has exactly two vital strategic industries, the other being semiconductors. We must not lose either.

Still, at the costs earlier proposed, you'd save so much by importing most cars that you would have money left over for the U.S. government to tax you directly (that's the income tax) to fund pilot domestic auto plants for strategic use.

It'd be something like that. I do not know all the details.

False dichotomy, Lydia. It's entirely possible to prioritize the well-being of your own people while factoring in highly the well-being of others.

Mike T., if you have some argument that _both_ a person currently working in a manufacturing plant in Honduras (that was Tony's choice of country) making cars _and_ American workers would be _economically better off_ if the U.S. company closed its plant in Honduras and moved back to the United States, good luck trying to make that case.

And, yeah, I'm going to stick to the economic discussion, because that's what you guys started with. I'm not going to let you change horses and start saying that actually everyone would be economically _worse_ off (or some people would be, or whatever) with the policies you favor but that that's now a _good_ thing. (Because Greed Iz Bad or it's spiritually great to be poor or whatever.) You don't get to say that making people economically worse off is a bad thing if the policies you disfavor have that effect but is a good thing if the policies you favor have that effect.

And where did most of that money come from? Debt. The level of debts carried by households, corporations and the public sector are through the roof compared to where they were a generation ago.

Mike, I don't think you are going to convince Jeff that carrying debt (that paid for goods, even consumed goods) is a form of decreased wealth. We got the goods, and handed you a piece of paper promising something in the future. Either (a) the promise is good, in which case (presumably) the goods we got were worth the price in the future we are going to pay, or (b) we default, and we got goods for nothing in return, in which case were are enriched by the transaction.

Of course, this assumes that the price we "paid" - rather, agreed to for the future - is one that matches with the benefit we enjoy from the product we purchase. This is unlikely to be true if we are systemically unable to rightly measure value in these exchanges - such as by a moral myopia that esteems today's pleasure more important than tomorrow's pain.

It's also not far from the observed truth of how illegal immigrants often live in the US. Immigration officials often encounter cases where 20 men will live in a house that would barely comfortably hold a family of 4-5 Americans. The Mexican men are single in many cases and would rather live dirt cheap to save as much as they can.

With a per capita GDP of about $10k, Mexico is noticeably poorer than the US. That means a lower expectation on food, clothing, housing, public services, etc., etc. It's really not a big jump from all of these observations to the why of it. Ford would not move a job to Mexico, as opposed to a poor state like Arkansas or Alabama (which are right to work) if there weren't some great motivation.

Yeah, so? Let me get this straight: A different country and culture has different social standards on cleanliness, living conditions, and living dirt cheap and saving money, and this means that it's _wrong_ for American companies to employ those people, *in those countries*, given their ideas about these things, in order to make stuff cheaper? No, that really doesn't follow. At all.

However, because morality in choice is composed not only of the primary intention but also circumstances, and in prudently foreseen consequences, a truly moral company would NOT ignore the "hidden" costs of its behavior, e.g. the downstream effects of its cost-savings change in supplier.

Tony, my understanding from our discussion thus far is that you see some of these "costs" as having something to do with the overall low quality of living in foreign countries where American companies employ people at lower wages than they would pay in the U.S. Now, I may be misunderstanding you, but insofar as that is one of the supposed "costs," I can't look at it that way. Certainly there _could_ be clearly immoral ways of carrying things out (slavery), but my understanding is that very often it is _raising_ the quality of life for the people in those countries when the industrialized companies employ them. It's not as though Ford's employing the guy in Honduras makes him _more_ likely to turn to a life of crime and destruction! If anything, just the opposite.

As far as the cost of retraining _American_ workers (I think that may be what you mean), it seems to me to vary a lot as to whether this should be regarded as a cost of the company. A term like "externalizing costs" is used a lot, but often I'm dubious of it. If a company opens a _new_ plant in Honduras instead of opening a plant in the U.S., it is pretty questionable that the hypothetical workers that they might otherwise have employed in the U.S., and their lack of jobs, counts as a "cost" of the decision to open a new plant in Honduras. It's not that we can't talk about that question when considering policy. We certainly can and should discuss possible effects. But to call it a cost in any sense that can be _recouped_ from the company itself is a far different matter. Maybe instead the U.S. politicians, union officials, and bureaucrats should pay for that "cost" if we can discern they were the ones whose policies and unreasonable demands motivated the company to locate its new plant in Honduras instead of the U.S.!!

Lydia writes:

... this means that it's _wrong_ for American companies to employ those people, *in those countries*, given their ideas about these things, in order to make stuff cheaper?

No, not wrong. As Tony has observed:

And in our moral climate, public companies have acquired the unfortunate perspective that anything they undertake to do that eats away at the profit level which is "unnecessary" (and by which they mean "not illegal to avoid doing", rather than "neither illegal nor immoral to avoid doing") is actually an injustice to the shareholders.

(I would mildly dissent from the adjective "unfortunate," since it seems to me that the public company is by its very design a poor tool with which to do good for nonshareholders; that'd be a bit like using a wrench to turn a screw. Otherwise, however, I'm with Tony.)

However, it is fundamentally imprudent for the U.S. to let her formerly awesome, independent domestic industrial diversity be melted down, as it were; to let American industry be recast as so many cogs of the global machine.

I am quite aware that nonintellectual (and maybe even some intellectual) protectionists tend to disagree with me on this point. They're allies, so I don't argue with them; but my own reasons differ. I'm with Tony.

However, it is fundamentally imprudent for the U.S. to let her formerly awesome, independent domestic industrial diversity be melted down, as it were; to let American industry be recast as so many cogs of the global machine.

*To some degree*, HH, that horse has left the stable. American industry _is_ part of the world at large. This doesn't make me a rah-rah globalist by any means. I would oppose with my last breath any kind of proposal to govern "the global machine" by a one-world government or any such nonsense as that. But there's no getting around the fact that American isn't, ever, going to make all its own stuff here in its own country and that American industry is going to cease to be a set of cogs in the global machine.

As far as industrial diversity, I can sympathize with a concern that America could be ill-placed if we needed to go to war and lost contact with a country that is currently supplying some important goods that we were no longer able to make ourselves. That is a legit. prudential consideration.

But does it justify anything remotely like a 35% tariff on cars, car parts, etc.? Even if we could be more confident than we can be that we'd get more industrial diversity within the borders of the U.S. if we did something like that, the answer is still nooo wayyyy. In my opinion, it's not even close.

Lydia:

*To some degree*, HH, that horse has left the stable.

Yes, I believe so. Let us suffer no illusions. To try to reclaim a mythical past is often a fool's game. So it is here.

However, the same trade models which recommend, in the second order, that we eliminate tariffs, also predict, in the first order, that a simple, across-the-board tariff promotes domestic industrial diversity.

Promotes! Not guarantees, completes or ensures; but promotes.

And that is where we want to land, in Fletcher's estimation: in that region between the first- and second-order effects. Practical experience with the tariff (experience of which the U.S. and other industrial powers had much, prior to WWII), suggests to Fletcher that 30 percent or so is probably about right. Moreover, according to Fletcher, the exact number is unimportant; and Lyin' Don's 35 percent (45 on China) is probably about as workable a number as any.

But does it justify anything remotely like a 35% tariff on cars, car parts, etc.?

In my belief, easily, yes. Let us observe or recall three points: [i] tariffs drive down the volume of imports and drive up the volume of production for domestic consumption, so you end up paying the full 35 percent on less than you think; [ii] when a tax is assessed on a transaction, which of the transactors ultimately pays the tax is a bit ambigious; probably the safest assumption is 50-50; if so, then something like half the tariff is ultimately paid by the foreign manufacturer rather than by us; and [iii] 100 percent of the tariff, less collection costs, flows into the U.S. Treasury—an important point.

You have not raised the objection, but others will raise it at this point in the argument: doesn't this start a trade war? But Romney says that we are already in a trade war. Trump says that, insofar as we run a trade deficit, "we hold all the cards." Buchanan had said both things years before. I believe that Buchanan, Romney and Trump are right.

There's no end to typos, is there?

ambigious

But I rather like this one.

But Romney says that we are already in a trade war.

That hardly answers anything, does it? Presumably when people say "start a trade war" they mean something _more_ than whatever-it-is that we are "already in." Obviously, that sort of thing could escalate a heck of a lot more than it currently has, and that could be a pretty bad thing for Americans.


Moreover, according to Fletcher, the exact number is unimportant

Well, that's _gotta_ be wrong. You said yourself upthread that even in your own perspective the number matters. Maybe not a big difference in economic effects from a single percentage point, but this, "Hey, what the heck, 35-45% tariff is as workable a number as anything" sounds absolutely cavalier to me. Like FDR making up the price of gold over his breakfast eggs, just because he could.

By the way, you keep repeating that this money flows into the U.S. Treasury. You say that like it's unequivocally a good thing. It ain't necessarily so.

Tony,

Thanks for all your thoughtful comments. I suspect that the issue of productivity remains one that is still driven by basic economic forces. In other words, I think that while it is certainly true that multinationals set up shop in the Third World to take advantage of cheap labor, that labor only benefits them (1) for certain basic manufacturing tasks, (2) that labor, over time, becomes more expensive because those jobs actually pay wages and benefits that enable those workers to better themselves and demand more over time (they also become more productive as they become more experienced.) Here is a nice little article about how this process has played out in Asia:

http://www.economist.com/news/briefing/21646180-rising-chinese-wages-will-only-strengthen-asias-hold-manufacturing-tightening-grip

The article notes that Chinese workers are indeed becoming more expense, relative to other Asian workers, and therefore China is having to shift to more high-end manufacturing. Indeed, one reason not many cars are made and sold for export to other counties (contrary to Mike's fever dreams of a flood of Chinese cars, so far GM has only imported one model and they just started last year) is because car making is a sophisticated process done by workers who are very productive and so are paid higher wages. Therefore, it makes sense to assemble cars close to where they will be sold as the assembly process is expensive. Ironically, a country like Japan or now the United States can actually profitably export cars only when another country is doing a bad job of it or making them inefficiently (as we were in the 70s and as China, to some extent, is doing now -- we exported over 2 million cars in 2014.

Harrison,

Like Lydia, I'm open to arguments that industry X or industry Y is vital to American security and therefore we cannot export product A or B or C for security reasons. But when you say something like this "across-the-board tariff promotes domestic industrial diversity" I must admit alarm bells go off. I read that and think how does Harrison know that (1) this will work, and (2) more importantly, this "industrial diversity" is important -- you seem like a central planner trying to pull the levels of the economy to do your bidding. I feel like you haven't read enough Hayek to know this is a fools errand -- was there a planner in some bureaucratic office mapping out industrial policy for the U.S. that anticipated the fracking revolution? Silicon Valley? The renaissance in technology and innovation that is bringing something like the 3D printer to the manufacturing process?

I just don't think a tariff will help promote entrepreneurs or small businesses grow that way that other tried and true economic policy reforms can and will encourage economic growth. Let these folks be a part of global supply chains, let our consumers benefit from cheaper goods at Walmart and Sears and let's export our goods to the rest of the world where we are competitive.

Yeah, so? Let me get this straight: A different country and culture has different social standards on cleanliness, living conditions, and living dirt cheap and saving money, and this means that it's _wrong_ for American companies to employ those people, *in those countries*, given their ideas about these things, in order to make stuff cheaper? No, that really doesn't follow. At all.

It's not wrong, but there are prudential considerations for trade policy in there. The issue is not the employment of the foreign worker, but the target market.

The article notes that Chinese workers are indeed becoming more expense, relative to other Asian workers, and therefore China is having to shift to more high-end manufacturing. Indeed, one reason not many cars are made and sold for export to other counties (contrary to Mike's fever dreams of a flood of Chinese cars, so far GM has only imported one model and they just started last year)

Actually a bigger concern is the cars made in Mexico by cheaper workers operating close enough to the border that trucking them to domestic markets is actually cost effective. Why produce in Mexico for an American market if it's not cost advantageous to do that? If it weren't, it would make more sense to build the factory in the domestic market region it will service because shipping costs would be even less.

And by the way, Jeff, the main example I used with China was jets, not cars. If you're going to accuse me of delusions, do at least try to reference them properly. (Jets are also Trump's example, and not a bad one because the majority of semi-industrial countries simply cannot produce one at all)

Jeffrey:

I read Hayek's short book Road to Serfdom cover to cover about 25 years ago. Can't say that I remember it that well. It did not make as much of an impression on me as on some readers, I admit. Chesterton was more my speed.

Jeffrey, Lydia, Tony, Andrew, GJ and others:

You have been most kind to grant me as much of an audience as you have. I have not had this much fun debating the trade topic since I kept the blog The Economic Nationalist (no longer online) about the time W4 first opened. No one but you has been patient enough to walk so far with me in years.

I gather that Jeffrey and Lydia (maybe among others) will agree to disagree with me on the subject of tariffs. Admittedly, Jeffrey's and Lydia's arguments are familiar to me (I've heard 'em all and a few more), but Jeffrey and Lydia have put the arguments rather better than most outside the economics profession can, so accept my compliments for that.

With Tony, apparently, I have some areas of agreement, which seems fair enough.

Permit me to retire before I wholly wear out my welcome! This you could take as an admission of defeat if you must: I'll leave you to judge it; but, at any rate, thanks for the good talk.

Andrew and GJ seem quite capable of carrying the debate from here.

In China it might take 10 workers to produce one $100 television – here in the U.S. it might take five workers to produce a $10,000 machine that is used to make televisions!

This is part of a larger discussion about IQ and employment, but sometimes optimizing for efficiency is not something to be celebrated too much since optimization often means reducing the need for people.

Relative to Jeff's point about Chinese workers, here is an interesting related video about child labor in Bangladesh and elsewhere:

https://www.facebook.com/LearnLiberty/videos/1189834937715196/?fref=nf

Ah, I see, Lydia, while departing, I have failed to answer your entirely valid question regarding the 35 percent. This is why I had once briefly mentioned the inscrutable mathematics of the Taylor series and its second-order term, none of which is very conducive to good conversation; so let me try to paint a single mental image, and if it helps, so much the better.

Imagine a tall hill with a broad, round top. Suppose that you, Jeffrey and I set out to climb the hill. I get tired and stop halfway up, but you and he continue to the very top—except that, because the top is so broad and round, it is hard to say precisely where the top is. Jeffrey might stop to enjoy the view from the height while you continued another 20 yards, but you cannot say that he never made it to the top, because the top is so broad, so round; the top's location is just not that precise. You and Jeffrey are both in the neighborhood of the top, and that's as close as matters.

By contrast, you can certainly say that I never made it to the top.

The favorable outcome in the general region of a 30 percent tariff is, as Fletcher might assert, a bit like the view from the hilltop. At 30 percent, 35 percent, whatever, the net of trade-offs is all about equal, all about at the top of that broad, round hill.

If that helps, great; if not, you can forget it. I'm really departing now.

I'm not as adverse to adding services into the mix of stuff we trade with the rest of the world. I know this freaks out Mike T, but again, if we aren't throwing in immigration into the mix, then I think this limits the practical application of what exactly can be traded. I mentioned the engineers working on oil fields of Arabia as one example

Jeff, I am not adverse to it either. I just note that in this case the benefits vs disadvantages to be weighed are not only the economic ones, but also the social effects of having the visitors here (and for how long, and how often). As long as we are actually attending to those additional factors, I am fine with it. Mike's point is that the people in power who are pro free trade DON'T attend to it, indeed they usually undermine enforcement of the existing rules. I don't really know on my own the details, but I see the effects of zillions of immigrants and visitors with work visas (even just for a few weeks or months) in my community (nearly an ex-urb), and doubt that Mike is making it all up.

I suspect that the issue of productivity remains one that is still driven by basic economic forces. In other words, I think that while it is certainly true that multinationals set up shop in the Third World to take advantage of cheap labor, that labor only benefits them (1) for certain basic manufacturing tasks, (2) that labor, over time, becomes more expensive because those jobs actually pay wages and benefits that enable those workers to better themselves and demand more over time (they also become more productive as they become more experienced.)

Oh, I agree, Jeff. My point isn't that the company's actions aren't driven by basic economic forces. They do take advantage of cheap labor, and gradually that labor cost rises toward the average in the US. Actually, I suspect it tends to rise toward the average of the new combined system of the US plus the Honduras. As do wages in the US? Do they both tend toward the new center of gravity of the joint system? Seems likely.
My point was that that whether the company's actions PLUS the downstream effects, constitute an increase in the economy as a whole or not cannot be measured merely by the fact that the COMPANY turns a profit, and the customer saves money. It must also measure the costs of other US workers out of a job, having to retrain, etc. It MAY STILL be a net improvement, after taking all that into account, and if so, great! But if not, how would we know? It won't be because the company goes bust: if they have avoided being responsible for some of the downstream effects, THEIR profit margin can look great even if the overall impact is negative.

Tony, my understanding from our discussion thus far is that you see some of these "costs" as having something to do with the overall low quality of living in foreign countries where American companies employ people at lower wages than they would pay in the U.S. Now, I may be misunderstanding you, but insofar as that is one of the supposed "costs," I can't look at it that way. Certainly there _could_ be clearly immoral ways of carrying things out (slavery), but my understanding is that very often it is _raising_ the quality of life for the people in those countries when the industrialized companies employ them. It's not as though Ford's employing the guy in Honduras makes him _more_ likely to turn to a life of crime and destruction! If anything, just the opposite.

Lydia, it's not the downstream effects in Honduras that I was primarily focused on. In general (as Mike said), Honduras is increasing their wealth rather directly by the transactions. It is mainly the downstream effects in the US that I was considering.

I accept that not all downstream effects (US supplier loses work, puts some employees out of a job, reduces orders to its own suppliers, the unemployed workers spend less on goods, putting still more people out of work...) are the responsibility of Ford. And I will accept that using the term "externalizing costs" - as a blanket expression - can tend to oversimplify the reality, may tend to be used to imply that all such effects ARE Ford's responsibility. But if the effects are NOT Ford's to be concerned with, then WHOSE job is it to be concerned with them? No other one company CAN look at the problems, they spread over many companies, indeed over many industries or sectors. No individual can do it. So, both by default and by actual scope of the problem, it seems that the problem is for the government to deal with. But when the government tries to poke in and say "hey, if you're going to do things like that, we're going to tax you to deal with the downstream effects", all of a sudden I seem to hear "leave the government out of this, it's just a private transaction between two companies."

This is an area where "free market" is a necessary element of society but not enough, on its own. The free market is unable, without direction from outside itself, to organize transactions en masse so as to re-route both information and capital so that the laid off worker (or the soon-to-be laid off worker) is directed (merely by the market itself) to be retrained for a new job ready for him.

Nor can he do it by himself: it used to be said (I saw this in print just a few years ago) that a worker should have 6 months of wages saved for "just in case" events like if he is laid off. IN 2007, that might have seemed sufficient. IN 2016 (and for the last 5 years) it is clear that he would need 2 years at a minimum, and probably more, to make it to the next job. The first 6 months isn't even enough time (even in this information age) to tell for sure whether he should be looking for another job in his own field, or start retraining because that field is going away. And, in reality, even if he has savings to cover himself for those 2 to 3 years (this is true of less than 10% of workers), he doesn't have the cost of the re-education.

I have no doubt that the "wisdom of the market" can eventually surface and people can eventually find that internal and external pressures push them into more productive work - for many. But (and this is where we have to note the difference between the market's "worker" unit and real life's "human being") the _eventually_ requires the person to eat and have a house and get medical care IN THE MEANTIME. And it is neither the case that the market is geared, right now, to make him anticipate and himself save for 2 to 3 years of downtime while he experiences the recalibration of the market and his place in it, nor to have other private entities (i.e. companies, primarily) attend to that requirement. IF THE MARKET is properly a function of human beings, then either the market must attend to it, or someone outside the market with the capacity to constrain the market and set some of the rules it follows (i.e. the government) has to do it. Either that, or we have ceased to talk about a human space and are now dealing with "units" and biological robots that can be turned off when not needed.

If that trade with Honduras really is good for us as well as for Honduras, then it will really be good for us even though some people will lose work and have to re-direct their energy. That's GREAT, if it happens in a humane way. If the model for it happening ignores human realities, then it isn't REALLY good for us economically. I don't think anyone believes we have a really sound model for re-directing workers to new work: as "market efficiency" goes, this is a particularly poorly functioning part of the market. It is, perhaps, just barely LESS bad than the communist solution, but that isn't "good". I know too many people, hard-working, intelligent (with degrees in *real* fields) who were out of work for extended periods, to accept that this is an unalterable and necessary aspect of the "free market". If the market is supposed to engender efficiencies, let's get it to focus on this area to re-write the process and generate some efficiencies there, too. I would rather not have the government do it, but I am wary of claims that "it isn't the company's responsibility" because that implies that yes, it IS going to have to be government. Somebody has to.

Lydia:

And, yeah, I'm going to stick to the economic discussion, because that's what you guys started with. I'm not going to let you change horses and start saying that actually everyone would be economically _worse_ off (or some people would be, or whatever) with the policies you favor but that that's now a _good_ thing. (Because Greed Iz Bad or it's spiritually great to be poor or whatever.)

What utter rubbish. The question here is and has always been about the common good and how various economic policies relate to and affect the common good.

It is emphatically not about economic policies for the sake of improving economic conditions to benefit the economy. It is not about economics as an end in itself. That's worldly thinking.

Lydia, it's not the downstream effects in Honduras that I was primarily focused on. In general (as Mike said), Honduras is increasing their wealth rather directly by the transactions. It is mainly the downstream effects in the US that I was considering.

And the equilibrium that I was referring to was the one that happens when the Honduran worker and American worker's wages reach a rough meeting point much lower than what used to be the prevailing wage for the American. One of the blind spots in the free trade side is that the single greatest expense a family will ever have, their home, cannot be reduced in fundamental terms by free trade because you can't make more land. Free traders focus obsessively on the cost of consumer goods, and would say that the Carrier employee who once made $25/hour but now makes $10/hour at retail can now afford cheaper consumer goods. That of course assumes that the employee did not choose to forego those retail goods to save money for a house. So yeah, at $10/hour those clothes are more affordable. It's also true that $10/hour does not give him the luxury of choosing to shop at thrift stores and other avenues to put the capital toward a house or condo. In other words, it's certainly not a total loss, but it is more of a pyrrhic victory.

Jeff, I am not adverse to it either. I just note that in this case the benefits vs disadvantages to be weighed are not only the economic ones, but also the social effects of having the visitors here (and for how long, and how often). As long as we are actually attending to those additional factors, I am fine with it. Mike's point is that the people in power who are pro free trade DON'T attend to it, indeed they usually undermine enforcement of the existing rules. I don't really know on my own the details, but I see the effects of zillions of immigrants and visitors with work visas (even just for a few weeks or months) in my community (nearly an ex-urb), and doubt that Mike is making it all up.

Unlike Jeff, my view is essentially "let reason be silent when experience gainsays its conclusions." On paper, there is not ironclad connection between open borders and free trade, but when you look at the actual effects in the real world of real people embracing free trade in its fullest terms you get that among the people with the power to make real decisions.

Yes, that means cheap Indian computer programmers will, at times, compete with some of our guys to the extent that work can be done overseas. Likewise, our software is sold in India. Boo hoo. Comparative advantage in action.

That shows you actually don't even know what comparative advantage is. In fact, you just undermined Ricardo's argument without even intending to do so.

Tony,

Once again you honor me with an excellent and well-thought out response. I actually think we are coming closer to common-ground with this passage:

If that trade with Honduras really is good for us as well as for Honduras, then it will really be good for us even though some people will lose work and have to re-direct their energy. That's GREAT, if it happens in a humane way. If the model for it happening ignores human realities, then it isn't REALLY good for us economically. I don't think anyone believes we have a really sound model for re-directing workers to new work: as "market efficiency" goes, this is a particularly poorly functioning part of the market. It is, perhaps, just barely LESS bad than the communist solution, but that isn't "good". I know too many people, hard-working, intelligent (with degrees in *real* fields) who were out of work for extended periods, to accept that this is an unalterable and necessary aspect of the "free market". If the market is supposed to engender efficiencies, let's get it to focus on this area to re-write the process and generate some efficiencies there, too. I would rather not have the government do it, but I am wary of claims that "it isn't the company's responsibility" because that implies that yes, it IS going to have to be government. Somebody has to.

Here's what I would say in response, before I head off to church!

1) again, compared to the loss of jobs via technological improvement, free trade is a drop in the bucket; so what we are really talking about is helping workers adjust to change, period.

2) here we agree -- I do think it is the proper role of the government, in their duty for the common good, to help workers adjust to a dynamic economy. This might take many forms, but keep in mind that our government's track record, as usual, is not good -- job training and retraining programs exist now and are often overlapping and have mixed results. Still, as with my prior discussion with The Chicken, I'm open to creative solutions to help workers that need help -- if that means we help them with money to move to get to where the jobs are, let's do that. If that means giving a corporation money to help them team up with a community college to train workers for their new machine process, let's do it (if enough jobs are at stake and they pay well!) I'm open to government assistance.

3) finally though, I still think the best "medicine" for lower wage workers remains a *growing*, dynamic economy -- our recent experience with anemic, 2% growth rates is a big part of the problem (and again, if you believe the economists I believe, the boated and burdensome regulatory federal government is what is holding back our normal 4%+ growth.) Change economic policy to make the United State more business friendly (lower corporate tax rates, less regulation, no more Obamacare, fewer labor laws, etc.) and when workers lose their jobs it won't take 6 months to two years to find another -- a tight labor market will help more than any government program could ever help!

And I will accept that using the term "externalizing costs" - as a blanket expression - can tend to oversimplify the reality, may tend to be used to imply that all such effects ARE Ford's responsibility. But if the effects are NOT Ford's to be concerned with, then WHOSE job is it to be concerned with them? No other one company CAN look at the problems, they spread over many companies, indeed over many industries or sectors. No individual can do it. So, both by default and by actual scope of the problem, it seems that the problem is for the government to deal with. But when the government tries to poke in and say "hey, if you're going to do things like that, we're going to tax you to deal with the downstream effects", all of a sudden I seem to hear "leave the government out of this, it's just a private transaction between two companies."

Well, Tony, actually here's something else you are hearing: To the extent that companies' leaving the U.S. is a bad thing, this bad thing may well be blamed not on the companies but on greedy unions, foolish U.S. laws that drive them away, and overbearing, stupid bureaucrats.

So why, "If you're going to *do things like that* we're going to tax you to deal with the downstream effects" directed at the _companies_, as though _not opening a plant in the U.S._ and _opening it in Honduras instead_ is the company's "doing things like that" to be scolded for, but not passing the policies that motivate the company _understandably_ to "to things like that"?

I'm very serious about this. The idea that a company somehow prima facie _owes_ it to the U.S. to operate under U.S. regulations and high costs is _by no means_ obvious to me. If we're going to shake our finger under somebody's nose and ask him to "pay for" the effects of his actions, it seems to me that that we need to get a much broader view of who that person, or who those people, should be.

I don't grant that many of the things or even most of the things the manufacturers are trying to avoid are _reasonable_ costs here in the U.S. In fact, I think in many cases they are highly _unreasonable_. Therefore, it is to my mind misguided and unreasonably punitive to treat the company as needing to "pay for" these negative effects.

Consider a parallel in the case of the minimum wage _within_ the country. Seattle just raised the minimum wage to $15 and a bunch of people got laid off. I'm guessing you would agree with me that Washington State lawmakers would be very misguided to go to Seattle businessmen and suggest that they pay for the downstream negative effects of those layoffs--retraining people and so forth. To my mind the blame _clearly_ lies at the feet of the lawmakers in Seattle who ignored the _obvious_ predictions of job loss and raised the minimum wage anyway. It would be absurd and peevish, not to mention economically utterly confused, to first raise the cost of doing business in Seattle and then tell the businesses who lay off people, "If you're going to do things like that, we're going to tax you to deal with the downstream effects." No way, no how.

And to my mind, a _great deal_ of the job loss (and job non-creation) we might be concerned with with offshoring is of *precisely* the same type. Precisely the same type. Government passes unreasonable costs on businesses, including the minimum wage among others, which keeps going up, and businesses do perfectly legitimate things to avoid these unreasonable demands. Why should _they_ have to pay to offset the negative effects? Those who pass the stupid policies should reverse the stupid policies of which there are legion. And they are driving business away from the U.S. Let's get started changing that.

so what we are really talking about is helping workers adjust to change, period.

Absolutely, Jeff. I see the job going overseas, or the product being bought from overseas, as part and parcel with the job ceasing to exist because automation or another efficiency took it out of play.

Still, as with my prior discussion with The Chicken, I'm open to creative solutions to help workers that need help -- if that means we help them with money to move to get to where the jobs are, let's do that.

I'm good with that too - in a kind of general sort of way. I see a basic social problem with it, though: part of the problem of social dynamics in the past 60 years is that people move (and expect to move) so often as to make localities no more than the temporary groupings of strangers. This is bad for many reasons, of course, we conservatives know this, especially the Richard Weaverites among us. So, while moving to where the work is, is better than not having work, moving is a third or fourth best solution, not first. If it were to become the norm that your job became obsolete every 12 years, and that you had to move to replace it, that would NOT be a humane economy. Fortunately we are not there yet for most things (in IT, though, people change their jobs much more often, and I know people who move more often than every 12 years in other fields.)

Change economic policy to make the United State more business friendly (lower corporate tax rates, less regulation, no more Obamacare, fewer labor laws, etc.) and when workers lose their jobs it won't take 6 months to two years to find another -- a tight labor market will help more than any government program could ever help!

In an ideal world, I think this is exactly right: a healthy economy has places ready for people who are ready to work, and the main barriers to having a good job will be personal ones: refusal to get educated, refusal to work hard, etc (or, for a woman: starting a family, a perfectly fine reason not to have a job). In the world we actually have, with boom and bust cycles created as much by big business in bed with big government as other factors, where a significant part of the cycle of money changing hands is NOT related to building wealth but in moving wealth out of the hands of the simple and into the hands of the sophisticated, there are lots of barriers to getting a decent job other than willingness to dig in and a willingness to adjust to changes. It seems right that an economy that has made opportunities for an enterprising guy to become a high-tech something or other, after closing a door on his previous job as a low-tech grunt in a factory, is an economy that has done right by him...unless it took 6 tries and 10 years for him to finally land in that good job. And...unless that same economy left behind the simple guy who was well suited to doing grunt work, did it well and willingly, but was never EVER going to be cut out for that high tech job and now can no longer feed his family of 5 on any comparable grunt work in any location, though he was doing it well 20 years ago. If the "progress" of a dynamic economy is to leave behind people who are truly unable to "keep up" for no fault of their own, then that economy is only satisfying part of its purpose, not the whole.

Change economic policy to make the United State more business friendly (lower corporate tax rates, less regulation, no more Obamacare, fewer labor laws, etc.) and when workers lose their jobs it won't take 6 months to two years to find another

I can't even count the number of times I have heard of someone who would have started a new business but for the startup and regulatory hurdles. It's insane! By its actions, you would have to conclude that the government does not want people to start new businesses.

Hi,

I'd like to pose a question to both sides of the house ( :) ), assuming that they're both still around.

A common pro-free trade argument is that American dollars go to Chinese hands, who have to use them to buy American assets/goods, thereby benefitting the American economy. I believe Jeffrey S made this argument at some point in this thread.

It occurs to me that Chinese spending may not benefit certain classes of Americans: for instance, if Americans are buying cheap baby clothing from China, then so are the Chinese, so local American manufacturers have no market. Chinese spending would be concentrated on "luxury" items, such as sending their children to the Ivy Leagues, buying property in San Diego, and perhaps investing in American craft beer.

Is there evidence that the redistribution of Chinese-spent American money to those outside the industries the Chinese spend on is sufficient to offset the economic loss faced by those who are unable to compete with the Chinese? Otherwise, wouldn't the market shift to one where the American upper and middle class benefit from cheap Chinese goods, and the Chinese invest in American goods that benefit the American upper and middle classes, while the American lower class gets shut out of the market due to a loss of income?

To the extent that companies' leaving the U.S. is a bad thing, this bad thing may well be blamed not on the companies but on greedy unions, foolish U.S. laws that drive them away, and overbearing, stupid bureaucrats.

Lydia, I completely agree. In a sense, not only can the Hondurans run a factory their way and not ours because they can't afford our regulatory standards, neither can we. That's why the factories leave.

So why, "If you're going to *do things like that* we're going to tax you to deal with the downstream effects" directed at the _companies_, as though _not opening a plant in the U.S._ and _opening it in Honduras instead_ is the company's "doing things like that" to be scolded for, but not passing the policies that motivate the company _understandably_ to "to things like that"?

I agree there, too: in addition to putting offshoring on a coherently humane basis (not to forbid it, but to make it integrate with the economy more fully, including through addressing its effects), so also we need to put regulation on a coherently humane basis: if the average joe cannot even open a coffee shop without hiring a lawyer to sort through the regulations, something has gone wrong.

I don't grant that many of the things or even most of the things the manufacturers are trying to avoid are _reasonable_ costs here in the U.S. In fact, I think in many cases they are highly _unreasonable_. Therefore, it is to my mind misguided and unreasonably punitive to treat the company as needing to "pay for" these negative effects.

Two different sets of negative effects, completely different in intelligibility. The one is the natural and necessary effect of making a significant change in a work process (e.g. buying parts from offshore): by its very nature, this has a cascade effect on _people_ and other economic factors, not all of which automatically work out well for human beings. The other is neither the necessary nor natural operation of a functioning economy: regulating so as to create unneeded rules etc... I am not saying that we should not address the fact that there are VALID causes for companies to seek to ease burdens by offshoring. I think quite necessary to address that TOO: get rid of the unnatural causes that lead companies to offshore, and leave only the natural economic causes. One of the natural causes is reduced costs of the foreign parts, taking into account transportation of the parts, of course. Another is the reduced costs of the foreign parts, taking into account the needed accounting for downstream effects of putting people out of work and requiring moving or retraining. That's just part of the natural functioning of the economy.

Look, I really don't care whether those downstream costs are met by the company, by the government, or by some other actually functioning aspect of the social order. I am just pointing out that those costs ARE a natural part of the healthy economy, and they have to be met somehow. If companies (all of them) are told by economists that "that's not your problem", and if we conservatives tell government "that's not your problem", I see a disconnect.

Consider a parallel in the case of the minimum wage _within_ the country. Seattle just raised the minimum wage to $15 and a bunch of people got laid off. I'm guessing you would agree with me that Washington State lawmakers would be very misguided to go to Seattle businessmen and suggest that they pay for the downstream negative effects of those layoffs--retraining people and so forth. To my mind the blame _clearly_ lies at the feet of the lawmakers in Seattle who ignored the _obvious_ predictions of job loss and raised the minimum wage anyway.

Absolutely, as you know from my many strong diatribes against such minimum wage nonsense. Idiots. They are making it worse for poor people, not better.

Joshua,

Thanks for stopping by! I'll try and answer your question as best I can. I think you are getting hung up on specifics -- we really don't know, in an economy our size, all the "downstream" impacts (to use Tony's word) on *specific* businesses and their benefits and liabilities. For example, you mention cheap baby clothes -- I think you are probably right that many U.S. textile manufacturers have gone out of business because they can't compete with the cost structure of the Third World (and more importantly, making clothes is a simple, labor-intensive process.) However, your example misses something important -- you are focused on Chinese spending but there is also American savings! All the American consumers who save money buying cheaper clothing benefits us in a real way -- think especially of large families that have to spend a lot more on clothes for six or eight kids. Now those clothes are more affordable (and made with cotton, are comfortable, etc.) We benefit when we buy goods abroad.

As for what we sell -- it depends, but we generally focus on what we do best and that high end, high-productivity items (from a labor perspective.) In one of my comments I found a stat that detailed what the Chinese buy from us and the biggest sector is aerospace -- they love Boeing's airplanes! What's nice about this is that Boeing pays well and a typical manufacturing job at Boeing, for someone with a high school education, can easily support a family (even in a non-union state.)

Now, does all this trade back and forth ultimately help the U.S.? Again, all I have are the economic studies I quoted from my original post that suggest that consumers/households save money via international trade and that American manufacturers save money (and perhaps are able to stay in business and remain competitive) via trade as they buy inputs for their finished products.

I'll give some credence to her claim about "greedy" unions as soon as Lydia writes a mild criticism of Wall Street greed. Otherwise, it is perversely called class warfare only when you try to defend yourself.

That's really tiresome, Step2. Two wrongs don't make a right. The stuff the union and the NRLB did to Boeing was plain wrong. It wasn't "defending oneself" or defending anybody. It was just wrong, flat.

As for Wall Street greed, by my recollection, I was one of the people around here opposing the bailout of Wall Street back-along-aways. I hate too big to fail with a burning passion. You'll probably say for some reason that doesn't count, but I say if Wall Street can't take the consequences of its own mistakes and wants to live on its expectation of bailout by the hard-working taxpayer, _that_ is greed.

Now, I would recommend that you not try to threadjack with childish tu quoque attempts.

As for Wall Street greed, by my recollection, I was one of the people around here opposing the bailout of Wall Street back-along-aways.

In addition to the long string of articles here denouncing Wall Street's usury.

The issue in the Boeing case was that the NLRB stepped in when there was no clear contractual issue to enforce. The federal government at times will have to prevent union jobs from moving to right to work states as a matter of enforcing state contract law. If Boeing were to sign a contract with the unions mandating a percentage of all jobs being in WA, and they violate that, there is a federal enforcement function required to order the new plant in SC to cease functioning in order to ensure that WA's civil law has the force of law.

From what I understand, the NLRB clearly did not do that. It was just a naked act of siding with the union.

However, your example misses something important -- you are focused on Chinese spending but there is also American savings! All the American consumers who save money buying cheaper clothing benefits us in a real way

In order for that to work, the drop in consumer prices and wages must still yield a net gain. That remains to be seen in a lot of these cases. That's why trade regulation must be done on a matter of prudence, not ideology. Clothing cannot be made that cheaply (yet) in the US, but there is no clear benefit to American consumers from having their cars and HVAC systems produced in Mexico and shipped across the border since the price tag is the same as the one made in the South.

By the, Intel is a great example for how companies can produce incredibly complicated products almost entirely in the US. Intel spent the big bucks to keep their manufacturing almost entirely in the US; they just ship the near finished product to Asia for finalizing and integration. Unlike a lot of American companies, they value their IP and are willing to spend the money needed to ensure they aren't training Chinese replacements.

I want to apologize for the firestorm I started with my comment on Saturday. Perhaps, I am just getting too jaded to think well of many large manufacturers. After reading the horror stories of sweatshops and the suicides at the Apple plants in China, it is hard to think that at least some large manufacturers see humans as anything more than disposable inconveniences. Indeed, if all of the human labor could be replaced by robots, I doubt the upper management would bat an eye or shed a tear. This may sound cynical, but it does suggest that human dignity is not the first consideration.

I am all for free trade among equals, but free trade among unequal parties, in the long run, only works to the advantage of people when the stronger party is also confirmed in virtue. Then, the lesser party is elevated by the actions of the other.

Sorry to sound so left-wing and I realize I am way over-generalizing, but the quest for profit can become idolatry if not restrained by higher motives. Humanity and virtue can get lost in the process. That doesn't always happen, but it seems to be happening more frequently, today. China has to pipe in clean air into airlocks in its schools just so kids can breath freely. One reason is that, while Western manufacturing created the demand for more power, they did not, likewise, insist that the coal-burning electrical plants conform to generally accepted standards for non-pollution. If they cared about the people, they might have been generous in caring about their health, as well.

I know I over-generalize, but I wonder by how much?

Anyways, perhaps my view of economics is too simple, but I thought the Ten Commandments should be the guiding principle for any enterprise truly wishing to engage in free trade. Prudential areas outside of morality should be taken care of, next. Imprudent, but profitable areas should not so much be mentioned.

The Chicken

The stuff the union and the NRLB did to Boeing was plain wrong.

Only when someone is in denial and thinks openly admitting to violating labor law nullifies its enforcement. If I granted for the sake of argument that this one incident was an example of greed it still wouldn't explain why you think it can be applied as a general, blanket description for all unions.

You'll probably say for some reason that doesn't count, but I say if Wall Street can't take the consequences of its own mistakes and wants to live on its expectation of bailout by the hard-working taxpayer, _that_ is greed.

I've never seen such a weird definition of greed. Was it unjust? Sure, but not greedy in any regular sense. Besides, you didn't seem to understand the actual scope of the losses (officially estimated by the Treasury at $19 trillion in 2011 dollars in the US, unofficially estimated by world stock prices at $34 trillion globally in 2009 dollars). It is all the fraudulent things that happened before and resumed after the bailouts which are greedy. Even for a self-inflicted wound it isn't normally considered greedy to ask for a blood transfusion to stay alive.

In addition to the long string of articles here denouncing Wall Street's usury.

Please note I wasn't calling out Paul for being inconsistent about his condemnations.

If I granted for the sake of argument that this one incident was an example of greed it still wouldn't explain why you think it can be applied as a general, blanket description for all unions.

You mean all the activities of all unions? I never said it did. But I think it applies to a lot of the demands of a lot of unions. And what the union demanded in the Boeing case was *absolutely typical*, par for the course, of most unions' general attitude toward jobs--that they are entitlements. To union members. At the rates demanded by the unions. And that the government should use the power of force to insure that these entitlements come to those who are entitled to them.

If I granted for the sake of argument that this one incident was an example of greed it still wouldn't explain why you think it can be applied as a general, blanket description for all unions.

Step2, I have usually taken a middle attitude about unions. I sure appreciate the fact that they curbed some horrible abuses of the early industrial age. And I sure depreciate the fact that they have driven some fine companies right into the ground.

But I have lately been asking myself one very simple question: what gives them the right to trample freedom of association into the ground in operating?

OK, let me re-state that a little less intensely: in this country (and most western ones, I gather), labor unions are allowed to, and nearly always do, create employer/union rules that say the employer may not employ people in the covered job categories NOT covered by the union agreement. As a result, anyone who was working for the employer before the union contract was written, but did not vote for the union, ends up having the union "represent" them expressly contrary to their preferences. Anyone who wants a DIFFERENT contract with their employer is precluded from negotiating a different contract - even if they and the employer both desire it.

In effect, a labor contract erects a mini-state of coercion at work in which your "participation" with the contract is not voluntary, it is mandatory. This violates freedom of association principles: I cannot associate with my employer freely, but only how some third party not chosen by me directs. Another party has contracted obligations for me without my consent. Why is this legal, and is it right?

Joshua,

I congratulate you for at least beginning to think about the issue from sound premises. Specifically, that in China/US trade there are not simply buyers and sellers involved but Chinese and Americans. And the Chinese self-consciously and deliberately arrange their trade with other nations so as benefit themselves to the extent possible. All advanced economies do if they're not in decline as opposed to simply opening their markets wide open to all and letting the magic of the marketplace take over come what may.

A common pro-free trade argument is that American dollars go to Chinese hands, who have to use them to buy American assets/goods, thereby benefitting the American economy.

When China trades with the US we can pay for our imports with goods we produce today, goods produced yesterday (assets) or goods we will produce in the future (debt). When we run a trade deficit that means we're paying for imports with the latter two, debt and assets. There are libertarian purists like Peter Schiff who understand that trade deficits are a bad thing, that they represent wealth leaving the country and will weaken and impoverish us if allowed to continue indefinitely. Schiff just happens to think that if we reduce taxes and regulations the deficits will close on their own. (Incidentally, lowering taxes and eliminating burdensome regulations are also key parts of Trump's platform.)

It's also worth mentioning that because the fiat US dollar is the world reserve asset used to settle international trade globally there is no natural feedback mechanism to push foreign trade back to balance over the short term as there would be if trade were settled in physical gold bullion for example. So if there are nations which would like to keep running surpluses against us for their own purposes, it is possible for them to do so for a long time unless we stop them. This is what China does by forcing their surplus dollars from trade into our debt and assets. They do this because they can and because they understand industrial policy.

America has had industrial policy ever since its founding. Alexander Hamilton wrote his 1791 Report on Manufactures as his clarion call to the Founding Fathers for the need to establish a protective tariff in order to develop an advanced economy that would allow America to grow into a wealthy and powerful nation. And the Founders agreed with Hamilton, so did Lincoln and Teddy Roosevelt and Coolidge. Even the vaunted Silicon Valley was birthed from industrial policy. Semiconductors began with transistors which were invented by Bell Labs, part of a government-sanctioned monopoly, AT&T. And virtually all of the semiconductor industry's output for its first two decades in the 50's and 60's was purchased by the US military to run expensive weapons guided systems. This at a time when virtually all commercial electronics still ran on vacuum tubes (Fletcher, p. 202).

Jeffery mentions Boeing. Boeing's commercial operations ran on losses for the first 20 years. Our government identified semiconductors and aviation as strategically important industries, to name two examples, and took interventionist measures to see that we became leaders in them. And given our unilateral surrender in trade to China, they are now requiring that their latest order of Boeing aircraft includes the building of a manufacturing facility in China. Why? Obviously so they can learn the production methods and techniques, copy them, and begin building airliners themselves to undersell the market and capture the industry. They've done it before. And they will succeed again this time as well unless Trump wins the presidency.

Balanced trade with China would mean they buy goods produced today rather assets (yesterday) and debt (tomorrow). But it doesn't mean that China-bought goods were goods otherwise bought by someone else in the trade deficit scenario. Balanced trade would result in goods bought by China that were otherwise never produced in the trade deficit scenario. This is where the growth from industrial policy comes from versus the free trade scenario. Even Ayn Rand understood that demand creates supply. In Atlas Shrugged, before the government takes Henry Rearden's metal away he meets with a fellow industrialist to discuss the need for the metal on a certain project. Rearden is already running his factories at full capacity but makes a deal for the order and expands production to produce the additional product.

A smart industrial policy would promote high value, high innovation industries with bright futures (the same way the government knew semiconductors and aviation were high value and high innovation industries and promoted them without waiting for the free market to tell them so) and direct foreign demand into them. "No, we don't want you redirecting your trade surpluses into our debt and assets. Instead we'd like to balance our trade by exporting some of our LCDs, prefab chips, lithium batteries, etc. Take your pick." Or some such. Of course, we didn't actually do this with China or anyone else and thus we don't have LCD, prefab chip or lithium battery industries in this country. Another way to begin balancing trade would be the flat 30% tariff Fletcher recommends. Enough to begin the relocation of high value, capital intensive industries but probably not high enough to relocate the t-shirt industry.

Another party has contracted obligations for me without my consent. Why is this legal, and is it right?

Tony, I think you are fundamentally misunderstanding the point of unions. It is called organized labor and collective bargaining, not disorganized labor and individual bargaining. Once you've established that the majority can establish governing rules and representatives for the rest of the group (similar to how representative government works in US politics), then as far as I can tell the rest of your criticism amounts to disputing contract law.

And given our unilateral surrender in trade to China, they are now requiring that their latest order of Boeing aircraft includes the building of a manufacturing facility in China. Why? Obviously so they can learn the production methods and techniques, copy them, and begin building airliners themselves to undersell the market and capture the industry. They've done it before. And they will succeed again this time as well unless Trump wins the presidency.

And this is a good reason why Intel chooses to pay the price to produce in the US versus use arbitrage to gain a lot of temporary profit. A lot of their competitive advantage is in their fab process. They're always a full cycle ahead of their competition. Whatever gains they'd make by utilizing production in China on a large scale would come at the risk of training a lot of people how to take those skills to competitors or other fabs that could then service their rivals.

No doubt part of the reason China wants that work done there is just to employ more of their own people. That is the sort of thing that governments have to hash out on trade deals. There is not much for us to gain by losing those potential jobs in WA or SC to make China happy.

Andrew E.,

This is quite a story you tell:

America has had industrial policy ever since its founding. Alexander Hamilton wrote his 1791 Report on Manufactures as his clarion call to the Founding Fathers for the need to establish a protective tariff in order to develop an advanced economy that would allow America to grow into a wealthy and powerful nation. And the Founders agreed with Hamilton, so did Lincoln and Teddy Roosevelt and Coolidge. Even the vaunted Silicon Valley was birthed from industrial policy. Semiconductors began with transistors which were invented by Bell Labs, part of a government-sanctioned monopoly, AT&T. And virtually all of the semiconductor industry's output for its first two decades in the 50's and 60's was purchased by the US military to run expensive weapons guided systems. This at a time when virtually all commercial electronics still ran on vacuum tubes (Fletcher, p. 202).

It is of course factually true that American politicians and bureaucrats have developed what you call "industrial policy" and have attempted to direct private capital to where they think it will do some good. The rest of your paragraph is a bunch of half-truths and nonsense -- yes, the U.S. military often drives interesting innovative commercial adaptations. We also have no idea what private capital might have done on their own without government meddling -- the computer and phone industries are actually good examples of what happens when the government gets out of the way (i.e. ends AT&T's monopoly) we start to see all sorts of innovation, business start-up and growth (e.g. mobile phones and then smart phones), and whole industries created out of the dreams of programmers (e.g. computer games, e-commerce, etc.) To claim that it was government foresight and "policy" that drove the birth of Silicon Valley is ridiculous (akin to Al Gore claiming that the government invented the internet.)

As I have repeatedly said, I'm open to the states or even the federal government (given our current screwed-up constitutional regime) playing some role in research and development. But you and Ian Fletcher are crazy to think bureaucrats know how to direct private capital better than Wall Street, hedge funds, venture capitalists, etc. I mean, it's not like we have experience with all of the governments failures in trying to figure out where to spend money and on what (Solyndra, the F-35, Clinch River Nuclear Reactor, hydrogen vehicle development, etc.)

Once you've established that the majority can establish governing rules and representatives for the rest of the group (similar to how representative government works in US politics), then as far as I can tell the rest of your criticism amounts to disputing contract law.

Step2, I DID grasp that the majority were establishing governing rules and representatives for the rest of the group.

You are ASSUMING that this kind of "representation" is fine and without problems OUTSIDE the context of belonging to (and subject to) a state. See, I get that I am a citizen of the US, and the meaning of such a polity is that the government is my government whether I like it's rules or not. I don't get to choose to not belong this week and belong next week. Because of the nature of a political order, everyone IN the country must perforce be SUBJECT to the polity (unless just visiting, etc). Membership in a nation is not absolutely voluntary. And via membership, the rules apply to me, whether I like them or not.

What I was asking, then, is whether that standard applies - and ought to apply - to what is NOT a polity: my employer. I have read a body of literature describing unions, and they make it plain that "membership is voluntary". (Kind of like any other sub-state voluntary association, right?) But what they disguise (in text) is that the RULES are not. The rules apply to me whether I am formally a member or not. The contract they sign controls me whether I join or not. In other words, "membership" in the sense of formally on their books is not the full extent of membership, the entity controls people who do not want to be under their rules. Like a government. So, in effect a union IS NOT a purely voluntary association.

So, again, WHY is it legal for what ought to be a non-governmental entity to create a form of governmental control over my head? And, even more, is that appropriate?

Once you've established that the majority can establish governing rules and representatives for the rest of the group

Below the level of a government: in a chess club, in a political party, in an archery club, the majority can establish rules for the rest of the group that wants to belong TO THAT GROUP, but it cannot impose them on people who do not want to belong to the group.

In this country, under current laws, organized unions are effectively governments. And I dispute that this is a good way to set up employee rights associations.

We also have no idea what private capital might have done on their own without government meddling -- the computer and phone industries are actually good examples of what happens when the government gets out of the way (i.e. ends AT&T's monopoly) we start to see all sorts of innovation, business start-up and growth (e.g. mobile phones and then smart phones), and whole industries created out of the dreams of programmers (e.g. computer games, e-commerce, etc.) To claim that it was government foresight and "policy" that drove the birth of Silicon Valley is ridiculous (akin to Al Gore claiming that the government invented the internet.

One of the reasons why the Internet developed the way it did was that so much of the research early on was done on government grants and was released patent free. On top of that, the de facto reference implementation of TCP/IP for many early commercial systems (the BSD network stack) was developed by government. HTTP and HTML were designed in a public sector research facility in Europe.

Oracle also got its start as a CIA project that was allowed to be spun off by Larry Ellison and the government (state universities or DoD/DNI) frequently releases some of the best and most interesting big data projects out there such as Apache Spark, Accumulo, NiFi and more.

Membership in a nation is not absolutely voluntary. And via membership, the rules apply to me, whether I like them or not.

Membership in a nation is technically voluntary once you've reached adulthood. Although it often isn't easy to change your citizenship it can be done.

What I was asking, then, is whether that standard applies - and ought to apply - to what is NOT a polity: my employer.

What you asked was whether it was legal and right for a majority to contract obligations (and benefits) on your behalf without your consent. Unless you are inclined to say representative government is, by its very nature, illegal and immoral, then I think I've answered your question.

In other words, "membership" in the sense of formally on their books is not the full extent of membership, the entity controls people who do not want to be under their rules.

I'm at a loss to think of any social group where there aren't any rules or a degree of control exerted against those who disagree with the rules.

Below the level of a government: in a chess club, in a political party, in an archery club, the majority can establish rules for the rest of the group that wants to belong TO THAT GROUP, but it cannot impose them on people who do not want to belong to the group.

I think this gets more to the heart of the apparent problem but it spins apart when you start looking at official, sanctioned activities and titles. You can't make up your own chess club with your own rules and then insist you are a chess grandmaster.

Mike T,

Right on to your 5:27 AM comment -- there is nothing I wouldn't disagree with. As I said earlier, supporting basic research, especially via our universities (or via the defense department) makes sense to me. That is a far cry from a deliberate "industrial policy" or picking industries to commercialize or favor as the 'next big thing' to compete on the world stage because you think they'll generate growth and jobs. I have zero confidence that our bureaucrats can figure that out.

That is a far cry from a deliberate "industrial policy" or picking industries to commercialize or favor as the 'next big thing' to compete on the world stage because you think they'll generate growth and jobs.

It's not about jobs and economic growth alone, but the full needs of the economy and country. If the federal government didn't protect aerospace engineering, it's possible that the US could have fallen to the level of development we see in Europe on that front which would put us in danger of also falling behind on defense aerospace.

I have zero confidence that our bureaucrats can figure that out.

DARPA, IARPA and In-Q-Tel have a good track record of picking areas for the federal government to invest money. In fact, In-Q-Tel is a particularly good counter example showing how the federal government can step outside of its normal bureaucracy to direct R&D and investment.

Membership in a nation is technically voluntary once you've reached adulthood. Although it often isn't easy to change your citizenship it can be done.

And again, Step2, you refuse to either read or grapple with what I said. I said membership is not absolutely voluntary. And it isn't: first, until you are 18, you have no freedom to change it. Second, after 18 you can theoretically change it - but only if you are able to accomplish certain other things, like moving to another country. What if no other country will have you? It's kind of like telling a destitute person with poor grades "you are free to go to medical school". Furthermore, you cannot, for example, freely dis-associate, and then later re-join at will. In short, it's not absolutely voluntary: membership generally is something that happens to you, and about which under certain circumstances you have SOME potential for choice, but not complete freedom. It certainly isn't primarily nor only a result of positive choices you make freely, as is the case with "voluntary associations".

I'm at a loss to think of any social group where there aren't any rules or a degree of control exerted against those who disagree with the rules.

How does the chess club down the street exert control over me when I am not a member, and disagree with the rules?

I pointed out what I am talking about, you just go hying off on tangents. OF COURSE a club exerts control over its members, including rules that certain members don't like. But it does NOT exert control over non-members. But a union exerts control over non-members' employment arrangements with the employer, in spite of the fact that neither the employer nor the non-union employee wants it to. It does so as a government, not as a voluntary association.

You can't make up your own chess club with your own rules and then insist you are a chess grandmaster.

Sure I can. I just did it. I printed up a membership form, signed it, wrote a by-law that Tony is chess grandmaster, and voted the by-laws in by a 100% majority vote. The fact that no other chess club in the world will recognize my status is completely irrelevant to MY club, which doesn't want to belong to any stuffy "International League of Chess Clubs" with boring old rules.

What you asked was whether it was legal and right for a majority to contract obligations (and benefits) on your behalf without your consent. Unless you are inclined to say representative government is, by its very nature, illegal and immoral, then I think I've answered your question.

Oh, come, Step2, you are trying to step into a black hole with that comment. Surely you don't mean to imply that anything a democratic government does or enforces is morally upright! Just because it was "voted in" or "put in place" doesn't mean it was the upright thing for the government to do or for society to sit still for.

As for legal: The question is not whether the FEDERAL or STATE government have the legal and moral authority to impose employment restrictions on me directly - they do. The question is whether the feds can hand that off to a newly created government entity that is neither the federal government nor in any way a creature of state government, and have it exercise control over me that the federal government could not do directly. The way our legal system works, certain things are put OFF LIMITS to government, so when the government tries to do them anyway, (and sometimes, when the government succeeds in doing them) it is illegal at a deeper level than the level of the "law" they enforce. My question was, WHY was it legal for the government to erect and enforce "unions" (i.e. little - or big - new governments which are on the face of it completely extra-constitutional governments)? The mere fact that the federal government got away with it does not prove that it was actually legal. And even if it were legal after all, it doesn't answer the question WHY it is legal.

My sense is that unions get their coercive power from the federal government's say so, but get their beyond-federal REACH through being a so-called "voluntary" association. And I question whether those two are valid together.

I said membership is not absolutely voluntary.

Okay, but that doesn't mean there still isn't something voluntary about it.

But it does NOT exert control over non-members.

In a negative sense it does, by prohibiting them from official, sanctioned activities and titles.

I printed up a membership form, signed it, wrote a by-law that Tony is chess grandmaster, and voted the by-laws in by a 100% majority vote.

Congratulations on your imaginary club and title :)

Surely you don't mean to imply that anything a democratic government does or enforces is morally upright!

Most certainly I don't, but you have been asking me to justify why it should be permissible to interfere with freedom of association. It isn't that any particular contract or union decision can't be mistaken, of course it can, but the argument is about whether an underlying principle of unions is inherently unjust.

My question was, WHY was it legal for the government to erect and enforce "unions" (i.e. little - or big - new governments which are on the face of it completely extra-constitutional governments)?

Again, this is disputing contract law. The more fundamental question is can unions have the same legal rights as corporations to make contracts? Since you are rather adamant that corporations have this right it seems absurd to me to insist that other legal entities cannot. And of course corporations are controlled by majority vote of stockholders, which by your logic means they are a "new government" that "tramples" upon the freedom of association of stockholders and employees who disagree with the majority rule.

isn't that any particular contract or union decision can't be mistaken, of course it can, but the argument is about whether an underlying principle of unions is inherently unjust.

Say, rather, one of the underlying principles of unions as we have enacted them. There can be other models of union - employer arrangements that are not coercive in this way. To "bargain for many at once" is not the same thing as "to bargain for all at once." the notion that "collective bargaining" has to be coercive is logically problematic. Handing exclusive

bargaining rights to one group entity instead of allowing bargaining rights to be handled by multiple groups representing multiple collections of employees in the same job categories - by multiple groups who have different views of how to achieve their best result - is still to impose more than just "collective bargaining".

I see that the conversation yet continues.

Jeffrey, would you mind if I observed (or thought that I observed) that some of the arguments you refute are not arguments all of us protectionists actually advance? To charge you with the vice of attacking straw men would be much too harsh, for your arguments evidently have more merit than that; but, still....

It seems to me that you believe free markets to be good, ipso facto, more or less. Some of us protectionists take what we feel to be a more balanced approach.

You may judge ours to be merely a muddled approach, but we don't see it that way.

If you and I were both in Congress, then I should be very happy to compromise with you to reduce the incidence of detailed bureaucratic meddling in free-market outcomes. In fact, you and I need not even compromise, for I would probably just vote for your bill. The difference between you and me is that I'm okay in principle with a national border that, simply by law, separates that which is outside the border from that which is inside the border, including goods and services.

My border is not Ricardian, 'tis true; but I do not think my border very bureaucratic. Do you? Rather, it is a place where protectionist law is to be more or less evenly applied and where tariffs are to be fairly collected from those who will voluntarily ship things in.

I understand (and surely Andrew does, too) that customs administration will never be perfectly fair or even, that one will inevitably suffer a certain incidence of smuggling, bribery, false declarations, selective enforcement, legislative logrolling, etc.—just as with the governmental administration of any other thing. We believe in robust commercial borders for all that.

You have called Ian Fletcher's information into question. Fair enough. Why should you believe Fletcher, after all? Andrew and I have no proof that Fletcher's information is accurate. We don't think that you have proof that Fletcher's information were inaccurate. To us, Fletcher has the ring of truth. To our knowledge, no one has broadly refuted Fletcher's facts in print.

You have spent enough time and effort in this comment column, and in the fine article that heads it, that I suspect that Fletcher's book might rise to your level of interest. Why don't you consider reading it? I've read Hayek, after all. Fletcher may not be a great man like Hayek, and I doubt that he'll fully convince you (for one's Weltanschauung is not so easily changed); but Fletcher like Hayek does make some points worth considering.

At any rate, it is not that Andrew and I believed in bureaucratic meddling (I think that my tolerance for bureaucratic meddling is pretty low, though I do not know how to convince you of this). Rather, it is that Andrew and I disbelieve in market fundamentalism in principle, and that we strongly oppose the broad, general, counterhistorical absorption of the United States into the global economy.

The difference between you and me is that I'm okay in principle with a national border that, simply by law, separates that which is outside the border from that which is inside the border, including goods and services.

My border is not Ricardian, 'tis true; but I do not think my border very bureaucratic. Do you? Rather, it is a place where protectionist law is to be more or less evenly applied and where tariffs are to be fairly collected from those who will voluntarily ship things in.

HH, you seem to posit that because the border, imported goods should have a tariff imposed unless proven otherwise, unless there is a special reason not to. Perhaps this is too abrupt a characterization, perhaps you intend by the above merely an abbreviation of the rationale, not the fullness of it. So let me put it to you point blank: in your thinking, is the tariff to be applied as a default, because tariffs in general naturally serve to benefit the national economy as a whole? Or, in your thinking, are tariffs to be applied in general because tariffs in numerous cases serve to benefit the national economy, and it is bureaucratically more sensible to start off by applying it everywhere than to fine-tune tariffs to just the goods to which its application will be directly beneficial?

Tony asks:

HH, you seem to posit that because the border, imported goods should have a tariff imposed unless proven otherwise, unless there is a special reason not to. Perhaps this is too abrupt a characterization, perhaps you intend by the above merely an abbreviation of the rationale, not the fullness of it. So let me put it to you point blank: in your thinking, is the tariff to be applied as a default, because tariffs in general naturally serve to benefit the national economy as a whole? Or, in your thinking, are tariffs to be applied in general because tariffs in numerous cases serve to benefit the national economy, and it is bureaucratically more sensible to start off by applying it everywhere than to fine-tune tariffs to just the goods to which its application will be directly beneficial?

Interesting question. Sorry to fail to give a definite answer, but I am not sure. The question is new to me.

On the one hand, I am a particularist who, like Edmund Burke, temperamentally distrusts sweeping generalizations and leveling plans. This would suggest your second answer, that "tariffs in numerous cases serve to benefit the national economy as a whole."

The second answer would be fine with me. I would be happy to endorse it. Notwithstanding, since you offer a choice, I think that I would instead take the first answer, that "tariffs in general naturally serve to benefit the national economy as a whole." It seems to me that the first answer is simpler, safer, and less apt to legislative logrolling.

So, I would lean toward the first answer.

But, really, my answer is: I am not sure. You may safely infer that, were I in Congress, I would gladly join forces with protectionists of both stripes.

In the meantime, I remain persuadable. What do you think that my answer should be?

What do you think that my answer should be?

I am unaware of any confirmed economic rationale that would prove that tariffs in general _naturally_ serve to benefit the national economy, as a matter of principle. At a minimum, it seems unlikely that tariffs between two close trading partners that are close physically, economically, and socially, would serve to naturally produce a benefit.

It seems, to me, intensely unlikely that the unnatural mechanism of a fiat added charge to certain goods (imported ones) will in the long run generate positive pricing information structuring leading the marketplace to correctly understand what goods best benefit the people subject to that added charge. To me, it seems more likely that if the principle is valid, it should work just as well for states as for the country: if each state were to impose a 30% tariff for all imports, that should generate economic gains within the state. So, if it works, all 50 states should do it, and as a result all 50 states should gain thereby.

What I have read of the various arguments pro and con leaves me with little reason to believe that the pro-tariff side has won the argument, had the others wit enough to follow it. For example, the historical argument: that all prior examples of large nations making great strides forward in industrial & economic development took place with protectionism - seems at the very least to suffer from minimal sample size, so that "all" of the 5 or 6 examples put forward could actually be special cases, or that the wrong cause it noticed. I gave an aspirin to 6 people suffering from heat exhaustion headaches, and they all felt better. I may have attributed it to the aspirin, whereas it was really attributable to the water with which they took the aspirin.

In any case, I would like to see protectionists shy away from arguments like "and the government could use the revenue for all sorts of goods" as a particularly dangerous argument. If the tariff is naturally beneficial to the economy, it should be beneficial even if the proceeds went somewhere without the government's year-by-year budgetary decisions. That is to say, because the government spending money on "programs" is almost by definition an economically INefficient way of providing a good or service, (with the exception of sheer defense and law enforcement), there should be a way of showing that the natural economic benefit accrues from a tariff not from providing the financial support for such programs, but separately.

I regret that I am unable to follow the advanced math with which economists purport to prove their more abstruse theses, but I have read enough economics to know that other economists dispute the conclusions of such proofs enough to take all such with a large grain of salt. Economics seems to be the only science which has trouble predicting even the past accurately. "Hindsight is 20-20" does not seem to apply. Which leaves us relying at arguments made in more concrete terms, in which I have not heard a convincing principled position for tariffs as a general good.

Tony, yours are all good remarks. I can hardly find fault with them. Provisionally, I would accept your recommendation regarding which of the two lines of protectionist reasoning is the sounder.

The only remark of yours with which I might take issue is this:

If the tariff is naturally beneficial to the economy, it should be beneficial even if the proceeds went somewhere without the government's year-by-year budgetary decisions.

I think that this is probably right, but that it inadvertently tends to conflate separate issues. The one issue regards what the government will fund—generally the less, the better. The other issue regards how the government will fund it. I assume that, if a tariff is not collected, then an income tax or some other tax—or deficit spending—will have to fill the difference. So, it's not that I like tariffs because I want another new federal program; it's that I like tariffs because (among other reasons) I want to balance the budget and/or slash the income tax.

So, in that sense, it is relevant that tariffs flow into the Treasury—in the same sense that it is relevant that income taxes flow into the Treasury. Free traders who are not professional economists and are not you have been very apt to commit the elementary blunder of supposing, implicitly, that income taxes flowed into the Treasury but that tariffs somehow did not. So, if you are a protectionist, you have to point this out: the one tax substitutes partly for the other.

Unfortunately, in reality, the U.S. federal budget deficit is so large that a Trumpian tariff would fill less than half of it (I would cite the figures if anyone asked; but with a spreadsheet and a bit of arithmetic, they're not too hard to look up). So, as an accounting matter, regrettably, Lydia is quite right: the income tax is doomed not to be reduced at all; the tariff would just be an additional tax.

But this is because we childish citizens demand that our government spend more than Croesus could afford, and because we let our leaders hurl us into so many ghastly expensive foreign wars.

I have not, of course, given a full reply to your remarks. For instance, you still have the question of why individual U.S. states should not collect tariffs; but no one reads blog comments that long, and (unlike Paul) I am not witty enough a writer to hold readers' extended interest; so let me leave it there for now.

I'll try to answer specific points if anyone asks. Or really, Tony, if you ask, because one supposes that you and I lack much of an audience now, 143 comments down into the thread!

Tony, I have just thought of a briefer way to put it.

If sound policy regards the huge U.S. domestic market as a precious, strategic national resource—a resource not to be wasted on the project of building up Chinese manufacturers—then you have at least two ways to afford domestic producers an advantage within the home market: [a] subsidize domestic producers, at cost to the Treasury; or [b] tax foreign producers, at gain to the Treasury.

Congress has been doing [a]. Since [a] is funded by income taxes, since some of us think that that is a poor use of income-tax revenue, and since the beneficiaries of [a] seem too often to be politically connected crony caplitalists, some of us would prefer that Congress instead did [b].

Jeffrey would, I believe, argue that both [a] and [b] were wrong. Puzzled as to why any American would be indifferent to the success of American over foreign manufacturers generally, I disagree with Jeffrey on this; but one doubts in any case that many here would argue that [a] were preferable to [b], if those were the two choices. Yet, [a] is more or less what we now have, is it not?

I recommend [b].

(My preference would be that the discussion not return hence, circularly, to the point that tariffs raise consumer prices. You wouldn't take the discussion back there without cause, Tony, Jeffrey or Lydia, but someone else always does. Tariffs do raise prices; no one disputes it, but that's mostly because the raised price includes a tax you'd have had to pay anyway, as income tax or otherwise. Cutting a price by five dollars saves me nothing if you instead take the five dollars from my paycheck! It's six of one against a half dozen of the other, as the saying goes.)

I think that this is probably right, but that it inadvertently tends to conflate separate issues. The one issue regards what the government will fund—generally the less, the better. The other issue regards how the government will fund it. I assume that, if a tariff is not collected, then an income tax or some other tax—or deficit spending—will have to fill the difference.
So, in that sense, it is relevant that tariffs flow into the Treasury—in the same sense that it is relevant that income taxes flow into the Treasury. Free traders who are not professional economists and are not you have been very apt to commit the elementary blunder of supposing, implicitly, that income taxes flowed into the Treasury but that tariffs somehow did not.

HH, that's fine so far as it goes. I assumed that the tariff would go into the Treasury.

I tried, a couple different ways, of writing up that I am not opposed to considering the tariff as a tax (and, thus, revenue to the Government) speaking generically, but ran into trouble each time in saying what I was getting at. I am not sure how to convey what I mean by "naturally" when the tariff "naturally" improves the economy, trying to eliminate UNnatural government operation in that improvement. Obviously, any tariff would be spent, somehow. But if it must be spent by the government, and indeed must be spent by the government on _generic_ broad-based government-type spending programs, then (it would seem) it must then suffer from the inherent government-type inefficiencies that attend such spending (as compared to private market spending to produce comparable benefits, that is). And, indeed, if the tariff tax were not to be sequestered and allocated specifically for "economic purposes" (whatever that might mean), it seems (to me) almost impossible that taking a new tax and simply putting it generically into "government spending" - into new roads, new help-the-poor programs, new tobacco subsidies, new Voice of America programs - could possibly "benefit the economy" simply as new government spending.

On the other hand, if the government were to drop other taxes in equal measure, and simply replace the income (or property, or wealth, or capitation) tax with a tariff, and only spend on what ought to be spent for government regardless of the source of the tax money, then THAT IT COMES FROM TARIFF would not seem, per se, to be the cause of the "natural benefits to the economy" from a tariff as a specific form of revenue.

I guess I was trying to separate "benefits" that come from imposing an increase in costs to the consumer on imported goods, from the "benefits" from government spending the tax revenue on what are not specifically economic measures. For, "to impose a tariff" seems wholly separable from "to spend government money on programs to support the economy". The latter can be good whether the money comes from tariff or other sales tax, (a tariff is a kind of sales tax, at least in a manner of speaking). The principled claim for tariffs in general does not seem to depend specifically on that the government use the revenue in a certain manner, so the benefits cannot be, in principle, due to the government putting the revenue into "benefit the economy" measures. That's what I was trying to narrow down.

All that said, what would you say to a "tariff" whose revenue by-passed federal hands and went more or less directly into a specified purpose / fund / account which by its nature was some sort of "for the economy" fund or purpose? Something which could be supported by government funds, but is not of necessity a government entity (like police and courts). Say, tuition credits for vocational schools (preferably, private). So that the "benefits to the economy" of the tariff could NOT be located in government spending as a whole.

Tony:

Your last post achieves excellent clarity regarding what many intelligent people find to be an opaque point. I could not have said it so well.

So, now that we have that established, my argument for tariffs is comparatively brief (and is briefly rebuttable), as follows. You need not credit all the points, but only some of them, to begin to doubt the wisdom of free trade.

  1. I do not really know what the economy is. Therefore, I do not seek its benefit. I do not say this to be flippant, but because I really don't know. Do you? More than once, I have heard policymakers confusedly argue (directly or indirectly) that lower wages reduced costs, increased competitiveness, and, thus, were good for the economy. But if a good economy is an economy that lowers wages, then who needs a good economy? Is it wage earners that need it? Whom, exactly, is the economy supposed to benefit?
  2. In Pat Buchanan's words, "Who owns the orchard is more essential than who eats the apples." I trust economic analyses that focus squarely on production. By comparison, competition, demand and consumption are ancillary, relative factors. Production is what chiefly matters in my estimation. If you have strong production, then you have time and resources with which to address the other factors; if you lack production, then you have nothing. Production, not consumption, is key.
  3. Not always, but too often, arguments for free trade are really arguments for market fundamentalism. The unjustified premise is imposed that what the market decrees must be right. There is a whole side conversation one could have about this point; but few blogs have already done so much to explore this point and related points than W4; so I need say no more of it here.
  4. Engineering ultimately follows production. New technical expertise is grown by solving the manifold practical problems that arise within the plant that manufactures a thing. Production abroad equals huge quantities of lost knowledge at home.
  5. Monopolies are extremely profitable. (This confuses some libertarians who find the concept of monopoly revolting, but I offer no opinion on the concept.) If a global monopoly in the manufacture of an important new technology is bound to arise, then we really, strongly want the monopoly to arise here within our country.
  6. The most profitable elements of supply chains follow major technologies. It is much easier to supply, say, windshields for cars when the car engineer can comfortably pick up the phone and chat with the windshield engineer, talk about baseball and fishing, develop an easy rapport, quickly understand what is being asked, trust the other enough to quickly sketch an idea with his pencil and e-mail the sketch, decipher bad handwriting, decipher badly written tech manuals, etc. When it comes to engineering, informal, moral, networking factors can dominate. As an American engineer, you don't want the network's nexus to be in, say, Taiwan. Ohio on the other hand is a very good place for it.
  7. You don't hear much about it any more, but for many decades, the Smoot-Hawley tariff was infuriatingly, repeatedly, dishonestly and/or cluelessly invoked as a standard incantation against tariffs. This New Deal incantation was the Global Warming/Climate Change argument of its day.
  8. Free trade is imprudent on the face of it. What patriotic American, untutored in (and therefore unconfused by) the abstract niceties of Ricardian economic theory, would let Japan and China strategically sack whole American industries?
  9. Free trade is again imprudent on the face of it. Self-reliance, even partial, imperfect self-reliance, is worth rather a lot.
  10. If the U.S. manufactures most of its own widgets, and something (bad policy, a natural disaster, a fire, a war, a strike, etc.) should disrupt the domestic supply of widgets, we can always import widgets from abroad to tide us over the emergency. If however the world's entire supply of widgets comes from, say, South Korea, and that supply is disrupted, what then?
  11. Legislative logrolling is a regrettable fact of life. Without tariffs, logrolling benefits specific American or foreign companies. With tariffs, logrolling tends to benefit whole American industries at foreign expense.
  12. The argument (hardly made here, but often elsewhere advanced) that the U.S. risks losing a "trade war" is fairly absurd. Almost by definition, when we run a trade deficit, this means that we win the trade war. We hold all the cards.
  13. Another way to put the last point is that Americans stand to gain more by capturing domestic markets than to lose by surrendering foreign markets.
  14. Besides, many of the foreign markets are already protected against us. Even Canada imposes some not insignificant nontariff barriers. Foreigners will not buy stuff from us because they wish to treat us fairly, but simply because they want our stuff. Realistically, over the long term, in my estimation, we need to get over ourselves: why would the tariffs we charge on U.S. imports be the chief concern of some foreigner who, for whatever reason, wants the stuff we sell? One can quibble with the details of this point, and I don't want to write (and you don't want to read) an essay about it now, but—if we Americans relax and unwind a bit, and stop regarding ourselves as the center of the universe—then does this point not hold in the main?
  15. When the differential equation of free-trade theory contradicts the intuitive sense of the thing, one should think long, long and very hard before venturing to credit the differential equation. Every experienced engineer knows this. The wise will not suffer mere abstractions to sit the saddle, as it were.
  16. Even in pure theory, the net Ricardian benefit the standard Heckscher-Ohlin-Samuelson model predicts is meager. My opinion follows Ian Fletcher's: the theoretical arguments for free trade are not wrong; they are merely weak.
  17. They (may I say, "they"?) misled us, purposely or otherwise, when they sold us NAFTA and WTO on the ground that these would reduce trade deficits. Later, once trade deficits had ballooned, they inverted the argument to chide us that trade deficits didn't really matter, or were perversely a sign of strength. Some of us are not impressed.
  18. I am unwilling that the global economy should absorb my country. Our national economy was not to be melted down, recast as so many cogs of the global machine.
  19. Most importantly, free trade is a monstrous national-security risk. No one knows what is actually in the 10 million cargo containers that annually enter the U.S. Also, our defense supply chains now depend on probable future foes.

One could add further points (I'll probably think of three more as soon as I hit "post"). One certainly could polish the list as it stands. However, the way to treat the list is to cross off all points one doubts, consider at the points which are left, then decide for oneself whether one really still wishes to be a free trader.

If you believe that I am confused or muddled on one or more points, then no debate is needed: just strike out those points. See what points are left.

Myself, I believe that free trade is a terrible idea. The above are why I so believe.

Going in reverse order (why? Because I can. :) No, because it's less scrolling):

19. I agree that free trade has dealt us security risks. I see no objection to "no free trade for X, Y, and Z", in order to secure our vital defense needs.

18. I am unwilling that the global economy should reduce my country to just a part of the globe. I see no very long term prospect to a world with less than regular world wars, without the world having extensive trade (free or not), and this would seem to imply as a necessary result SOME diminution of local differences. Pope Benedict commented that globalization is damaging cultures, but offered no solutions, perhaps because no solution is available that isn't, effectively, isolationism. I don't think protected trade will avoid the problem.

17. Grrr, don't get me started on trade deficits and the nonsense of "no, it's good for us"

15. I am not an engineer, but I have done programming to get real results in business. To be successful, you have to expect to to SOME trial and debugging on your initial work: unexpected factors crop up in complex systems. Economics is VERY complex, you can't expect to get it right in a laboratory (or chalkboard) without testing for results.

2. Production is the more critical factor to promote, because consumption does not need promotion. However, if you are going to have a humane theory of economics (as opposed to a utopian one for either robots or Stalinesque monsters), your theory needs to reflect both production and consumption because a humane standard of production must integrate with a humane standard of consumption. I recommend you read "Redeeming Economics", which I reviewed here in Sept. 2013. It's pretty worthwhile, though it isn't about the free vs protected trade issues.

1. Good point. "The Economy" is almost too large a thing to either be "a" thing, or to take in all at one blow. Is a wife folding and putting away the laundry part of the economy - when it might be done by a maid or servant, for pay? Or it is just part of the "household economy", which is not really part of the economy outside the home? Still, I don't need to be able to define art perfectly in order to know that the Pietà is great art and that Mapplethorpe's junk isn't. One can speak of "the economy getting better" without the words being a completely null set of sounds. If the "better" pointed at is one set of actors (not yet so wealthy as to more than suffice for all plausible needs) becoming more wealthy without any offsetting decrease of wealth by others, that would be an example of the economy getting better, even if we don't know where the boundaries are. We all know the feeling of mental and moral pinch when your resources decline and your options diminish because fewer employers are hiring and more people are competing for the fewer jobs. It doesn't take an economist Ph.D. to say that when lots more people notice these pinching facts today than 3 years ago, the economy is doing worse.

The rest I don't have enough solid information to form definite arguments. I don't doubt, for example, that monopolies are immensely profitable - to the people who hold them. Not so much for their customers, though. I don't have the exact details in my head of what the NET effect is on the (internal) economy, balancing the profits to some and the not-so-profits to the others, but it seems unlikely that the stifling of innovation that typically happens with monopolies is good for the whole economy in the long run. But I can't prove it.

Hi Jeffrey S, Andrew E,

Thank you for your responses. There's only one other question I have for Jeffrey:

In your response to Andrew E, you state:

"But you and Ian Fletcher are crazy to think bureaucrats know how to direct private capital better than Wall Street, hedge funds, venture capitalists, etc. I mean, it's not like we have experience with all of the governments failures in trying to figure out where to spend money and on what (Solyndra, the F-35, Clinch River Nuclear Reactor, hydrogen vehicle development, etc.)"

Large monopolies benefit from scaling factors. Am I right to say that you believe that the inefficiency of large bureaucracies always outweighs the benefits of economies-of-scale?

The reason I ask is this: I don't take Andrew E to be claiming that the government invented the computer industry. I take his point to be that investing in early semiconductor research was a huge risk, one that only an organisation as big as the government could have taken without suffering a severe penalty due to its size. Once the groundwork was laid, then smaller companies and individuals with smaller risk appetites could take the technology and develop it. Governments may not know better than private companies where to invest, but their larger capacity for risk enables them to explore research smaller organisations won't.

Looking forward to your response.

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