I read a great article in Businessweek that I shared on the daily links. I noticed a comment on the article from “Roy Lawson” which is so fraught with misunderstanding I felt it needed to be corrected. Though, his comments were entertaining!
The bottom line is that we cannot run trade deficits in perpetuity, yet if we follow the advice of free traders that’s exactly where we are heading. Do you really believe that consumers can continue to pile on more and more debt to support trade deficits?
He is wrong, because, yes, we can. We can run trade deficits forever and there is nothing wrong with that. A trade deficit is merely a tabulation of who trades what. It is not an actual deficit, like the one our government is running. Lawson probably believes the oft-repeated false claim that the trade deficit is a representation of reduced aggregate demand in the U.S., which is baseless and a frequent (and wrong) view held by Keynesians and protectionists.
He makes a claim that consumer debt has some correlation to trade deficits. There is no direct correlation between consumer debt and trade deficits, which often occur independent of a country’s consumer debt. Either way, it’s up to consumers (not government) to determine whether or not they are willing to take a debt to finance whatever they desire to purchase, be it goods like televisions or services like a college education. Student loan debt represents a greater percentage of overall consumer debt than credit card debt, for what it’s worth.
One need only to look at Hong Kong to see how a place with a robust free-market economy, very free trade, its own currency, and practically zero natural resources, has succeeded in being economically successful.
Also worth noting, is that most U.S. imports are inputs and not finished consumer goods.
Free trade dogma prevents you from soliciting any real ideas on how to achieve sustainable trade, which should be relatively balanced trade. You will even be so bold as to claim trade debts are a good thing – the US Chamber of Commerce makes this claim.
First off, what is “sustainable trade?” Oh, he means “relatively balanced trade?” Why would we care to achieve this? Why should we? What economic benefits come from balanced trade? Can he explain them to me?
Keep in mind that people, not countries, do the trading. Let say I buy something from Wal-Mart that was made in China. I, as an individual, bought it from Wal-Mart, which bought it from a supplier that either bought it or had it made in China. Aside from any tariffs imposed or subsidies provided, the exchange took place with no governments doing the trading. (While subsidies are bad policies in general, I am skeptical of efforts to make things “fair” in trade if other countries are dumb enough to pursue those policies.)
Since individuals trade, is Mr. Lawson suggesting that we require through the force of government policies that individuals practice “balanced” trade? Does balanced trade mean that you can’t consume more of a good or service from someone unless they consume an equal amount of goods or services that you provide? Does Mr. Lawson practice what he preaches? I doubt it. I know I don’t, and I don’t care. I don’t expect the butcher department at Wal-Mart to accept my providing them advice on economic policies, marketing, or web-design.
Maybe Mr. Lawson can take his views on “balanced” trade to a micro level and practice them at home. If so, I doubt I’d see him at the grocer any time soon.
So how about for every “protectionist” idea you criticize you produce an idea that will lead to sustainable trade?
Is this what he thinks is a balanced trade of ideas? If so, I am getting a raw deal. You mean that we free traders can’t just criticize the silly views held by protectionists like Lawson with facts and history? We have our idea — free trade is fine and dandy. Why do we need to kowtow to his asinine view that trade somehow be “sustainable” in whatever vague way the term is described?
Free trade is desirable because it conserves our labor supply, resources, and capital — ensuring that those resources are put to the best and most efficient uses. Following any other policy than free trade would ultimately require the government to stop people from trading with other people.
This either: a.) reduces overall economic activity, and/or b.) promotes inefficient economic activity. America is one of the world’s largest and dynamic manufacturers — building difficult things like medical imaging devices to airplanes. Should our policies really divert resources away from that and into building little green army figures? Either way, retarding free trade makes us poorer.
Currently, the typical views pushed by free traders support rewarding countries that cheat and punishing countries that play by the rules. You get punished in the game of global trade for protecting the environment, paying living wages, having healthcare, not allowing forced or child labor, and so forth.
This is a manufactured (and false) claim. People who support free trade, and I mean truly free trade, don’t think there should be any barriers to global trade. None. By what “rules” are he saying countries play by? Aside from things like the WTO and the UN, each country sets their own rules. His contention that free trade rewards countries that cheat and punishes those that “play by the rules,” or as he later puts it: protect the environment, pay “living” wages, have health-care and don’t have child labor is laughable.
A few reasons, but first, a thought: Any person that is living and working makes a living wage. I’d recommend coming up with a better moniker for such leftist propaganda. Maybe you could call it the “self-righteous-American-imposed better living wage” which I am sure would result in tons of employment (sarcasm).
I see no problem with child labor in the broad sense. I worked as a child, even in a factory one summer when I was 18. Each country can come up with its own laws, presumably based on their citizens’ values, and each parent can decide what is best for his or her child and family. And that’s sensible. What’s nonsensical is Lawson imposing his worldview on other people halfway around the globe, especially if it makes them poorer.
Nike has a new loom-type machine that weaves shoes, and it will likely mean that shoe manufacturing will leave China and Vietnam and source closer to U.S. markets. Given the inventiveness of this device, lots of people over there will lose their jobs or have reduced hours, and thus, less income. Imposing Lawson’s world view — which is what you do under calls for “balanced” trade — requires others to conform to his perceptions of how they should live will have the same effect: it makes people poorer.
I’m not worried about them because it’s a global market and other people will have a demand for the services their laborers provide. Just as India is no longer the call center outsourcing capital of the world, economies and the world economy evolves. Better to let it happen by economic forces, rather than have people like Lawson dictate how it happens.
In the late 1800s, most Americans worked on farms. Today it’s less than 1%, and we produce infinitely more food than we did back then. Similarly, in the 1900s, many people worked in manufacturing, but now less people do and we produce far more than we did back then. And yet, we can still produce all of these things (most of which we ourselves consume) with health-care, a good environment, higher wages, and a low amount of child labor. Yet, back then, we had lots of child labor, lower wages, and a worse environment before we got to where we are today.
We can now afford these policies, and are willing to pay for them. But can China? Who is Lawson to tell them how to live? And who is Lawson to tell me how and what to buy?
I’ll suggest a solution and no matter what that solution is you will cry “protectionist”. So it’s time to put up or shut up. You tell me how to implement both balanced trade and free trade at the same time – or shut up already!
The problem with Lawson’s logic here is that he assumes us free traders want balanced trade. We don’t. We don’t care, and we shouldn’t. Remember when you learned about comparative advantage and specialization of labor in, I don’t know, fourth grade? You know, with the “this state’s people make apples” and “this state’s people make furniture” example, did your teacher inform you that in this example that the consumers in those states were required to “balance” their trade? What if the furniture makers want more apples than the apple makers want furniture? Should the government step in and tell them how to consume and produce? (Answer: Lawson’s teacher didn’t likely teach him that, and I doubt yours did.)
There’s no difference in that example if they are apple makers in Ohio or apple makers in Canada. That’s the point of free trade, the borders are merely arbitrary. If Lawson seriously believe in promoting (read: requiring) “balanced” trade, surely then he’d support measures requiring each of the U.S. States to engage in balanced trade. Why limit it there? Why not counties, cities, households, people? You see how silly this sounds, but it is what Lawson is espousing.
Any deviation from truly free trade is essentially the government telling consumers who they can buy from, and how much they can buy — either making consumers directly poorer or others indirectly poorer. This is probably why Lawson calls our devotion to the principle of free trade “dogma,” because we feel people like Lawson are, frankly, people who hold viewpoints heretical to basic economics.
I have a solution that will lead to both free trade and balanced trade. But I want to hear yours. What do you have for me?
That’s what I have for Mr. Lawson. I’m not terribly interested in his solution because anything that requires or compels “balance” (read: telling people how to live) is not free trade, and thus, not desirable.
Interesting read from Boudreaux.