Sunday, February 1, 2009

The American Problem: When is free trade not "free?"

The USA has been, for umpty zillion years, the single greatest proponent of Free Trade. Yet, under the New World Order that has been evolving, we have discovered that we are bigger losers under Free Trade than gainers. Yet, nobody wants to fiddle with this particular Nail in the cross of Capitalism. So, what happened?

Now the notion of "free" trade sort of implies that "freedom" exists on both sides of the trade fence, doesn't it? Just like "free markets" mean that everyone is free to make their own decisions about rice or wheat, wool or cotton, luxury sports cars or 6,000 square feet of housing on 5 acres.

What if one of the parties to a free trade agreement had workers with no real choice, as in southern 18th century America? People forced to make a living for subsistence wages only. People who, perhaps, did not have the right to own currency; who could not purchase and had no conceivable use for the refrigerators, barbecues, and automobile radios they built? People who had extraordinarily limited "free" choices about what they could purchase? What if they also had little say in the quality of the air they could breathe, or their water, or food, and it was systematically being poisoned all in the name of lower costs of production?

Is it right that they should suffer so that others can get cheap shirts and toasters? There's a moral question here. The theory of "Free" trade is that they will become more affluent, and everybody's wage will rise to some balance, isn't it? But perhaps, if they are not "free" in an economic sense, they cannot express their market decisions for higher income or more-and-better stuff.

Moral questions aside, what does that do to the rest of the world economy? Next, what if they produced enough stuff for the rest of the entire world to use? What sort of distortion of the economies of the other parts of the world would occur?

Well, for one thing, that sure puts a hurt on your minimum wage, doesn't it? Those workers are effectively priced out of any kind of market for their labor. Not everyone is able to get the education required to move out of that bracket - and even so, who are all of those college-educated managers going to manage, if nearly everything is made somewhere else? Is the "service" industry that big? Didn't we pretty much get rid of "servants" with our automatic dishwashers, snow blowers and whatnot?

Now, take a quick glance at the capital markets in those countries that are hopelessly undersold. What industrial investments (that employ workers) can be made? What business could be started, that would not immediately be undersold by lower cost imported knockoffs almost as soon as they found a foothold in the market? First, investments (capital) will flood to investments perceived as the next great thing, creating "bubbles." Think dot-com, here. Then, folks will start looking for investments of the mattress-stuffing variety, such as collecting valuables. The affluent will start buying more real-estate than they really need or can use, like 5 acre plots and 6,000 square foot cottages for two. As the money rushes into these markets, more bubbles form.

Pretty soon, the whole thing is just frothy with bubbles. A little more like beer than champagne, I should think.

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