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.

An Economic Conundrum?

Well, we might be on the brink of a depression, and, then again, we might not. What depresses me is how people are talking about some "New Economics" as if things had really changed in how numbers add up, overnight. This little bit of blather is not here to propose any radical new calisthenics, only "thinking out loud," to try and put my finger on the problem.

Perhaps everyone has that nagging sense that things aren't quite right with the current model. I saw Michael Kinsley (pushing his new book, Creative Capitalism: A Conversation with, etc.) talking about our policy being a paradoxical "spend, then save, then spend" on Charlie Rose the other night. I haven't read the book yet, so I don't have any criticism in my mind, but the economics in this book is, Michael Kinsley will be able to make some scratch when other journalists are out of work, or merely blogging for nothing (ahem...).

I don't think that Economics, in and of itself, can be "re-invented." Simply stated, economics is the flow of goods and services throughout the population/world/universe. We can measure it; we can (and do) make some rules about how goods and services can flow, and who gets what, whether bridges or hospitals or monuments to Great Statesmen are built; but these are not economics - they are politics, and power. The "economic model" that we call Capitalism is, in fact, a set of political rules on how the flow is managed. Who gets what, and when.

Most folks like to call ours a "market economy." What is a market economy? Well, it depends on what channel you are tuned to, but it appears to be one where people are free to make choices about the things they need and want. I can live in a dump and buy a BMW, or live in a mini-palace and walk. Folks (consumers) get "votes" and go out and "vote" for the stuff that they want. People who have what they want (suppliers) get "votes" for the stuff they provide. All this voting stuff is done with money.

Now, what is an example of non-market economics? You have been seeing and complaining about several good examples - war (pick one); the bank/mortgage bailout; the Big 3 automotive bailout. What characterizes these economic decisions is that they are (usually) made by a few people, with a lot of "votes" in the bank. Mostly, these are decided with tax dollars. There are more subtle non-market decisions to be made, like health care, welfare, transportation, parks, libraries, zoning regulations, environment. If Mr. Gates makes a decision to try and beat AIDS in Sub-Saharan Africa and to ignore water projects in North Africa, this, too, is a non-market decision. I am not here to argue for or against them as a group, I'm just describing them.

What is actually wrong today? What is hidden, and what is visible? Where, in fact, is the problem? We seem to have enough things, enough food. There are hungry children, according to charities that help them, but we have food enough to give; no breadlines. The shelves are not empty. We are not in Dickens' England. In fact, we have plenty, and at pretty good prices. Most middle-class households might take a good look at their closets & storage bins and decide that they had too much. I definitely could lay back on the clothes buying for a few years, and the holiday accoutrements in FX-ville are crowding out of their alloted space under the stairs. If I got any new toys, I would have to stop playing with the perfectly good ones that I haven't broken. I don't have enough leisure time to own more stuff. My neighbor has rebuilt his kitchen three times over the past 10 years.

In spite of all of this, the little tickets we use to measure the market economy (money) are finding themselves, like salmon, swimming upstream against a powerful current, to get where they need to be. There is something wrong, but we are having a heck of a time figuring out precisely what it is. The government wants us to spend like mad on the one hand, but then we have to save like misers on the other. Like Michael Kinsley hinted, we seem to be being forced to have our cake and eat it, too, and we just can't do the math.