Rethinking Free Trade

This is a longish piece from the Atlantic Monthly, published in 1993, that looks at the work of German economist of the 19th Century, Friedrich List, as an alternative to Adam Smith on the issue of free trade. Some is agreeable, and some not so much.  That said, every great power seems to have engaged in protectionism during its rise to greatness.  And greatness depends in large part upon having a strong, advanced, production-oriented economy.  Economists largely don’t care about national power and are indifferent about one nation’s power vis a vis another, just as they are indifferent to aggregate wealth maximization, even when it all flows to one nation over another. I am not indifferent to these things, nor am I indifferent about whether my neighbors are employed at high wage jobs.  I want them to be as much as possible.

I did particularly like this quote, as well as the author’s historical approach:

What America actually did while industrializing is not what we tell
ourselves about industrialization today. Consumer welfare took second place; promoting production came first. A preference for domestic industries did cost consumers money. A heavy tariff on imported British rails made the expansion of the American railroads in the 1880s costlier than it would otherwise have been. But this
protectionist policy coincided with, and arguably contributed to, the emergence of a productive, efficient American steel industry. The United States trying to catch up with Britain behaved more or less like the leaders of Meiji (and postwar) Japan trying to catch up with the United States. Alexander Hamilton, dead and unmourned, won.

 

Thomas McCraw says that the American pattern was not some strange exception but in fact the norm. The great industrial successes of the past two centuries—America after its Revolution, Germany under Bismarck, Japan after the Second World War—all violated the rules of laissez-faire. Despite the obvious differences among these countries, he says, the underlying economic strategy was very much the same.

I notice outside of DC, lots of conservatives are nationalistic and mildly protectionist. At the same time, Free Trade is an article of religious faith among economists and certain social classes, but it’s not clear how empirically supported it is. Indeed, much of economic “science” consists of a priori deductive reasoning based on hypothesis of how people behave and why they can be viewed artificially as mere consumers and not also as citizens, potential soldiers, countrymen, enemies, potential welfare cases, etc.  At the most basic level, people are both producers and consumers. They need to earn and make wages to consume.  So it matters if our consumption temporarily goes up while our productive capacity goes down. 

We also face competition in other areas of life with our free trade partners, such as China, and may find we’ve built up their wealth only to empower their military expansion. It’s notable that the most vociferous supporters of free trade often work in jobs little impacted by global competition, or that are otherwise supported by substantial protections.

Romney is worrisome in this regard, as he appears to have the cosmopolitan businessman’s view of this. He also has the skills to be a potentially very useful president. I believe our president should behave like the CEO of Walmart, driving extremely hard bargains with all of our trading partners in order to benefit Americans as a whole. And we should hobble communist countries like China and slowly strangle them economically, as they are hostile nations.  Their growth has done nothing to liberalize them and much to endanger us.  At the same time, it has also done much to weaken us and impoverish our formerly high wage industrial workers. 

Our nation is too important and the writing on the wall too apparent to allow the ill supported ideology of free trade to stop us from taking sensible measures to strengthen ourselves relative to our global competitors.

About these ads