Hating people is like burning down your own house to get rid of a rat.
Harry Emerson Fosdick
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Foroohar, Free Trade vs. Managed Trade, and the Coalition of the Unwilling
After having already written a rant on another Foroohar piece, I was digging through a pile of mail and came across another Foroohar piece from an unread July issue; this one speculated on an odd coalition from the left and the right on various political causes, particularly on fast track and the Trans-Pacific Partnership.
A basic clarification: free trade basically allows the same kind of voluntary transactions (buying or selling goods/services) to take place across borders as within borders. There are no limits/quotas of goods sold; there are no arificial restrictions that have the effect of blocking the sale of foreign-made goods. Just to raise a simple example: when I lived in Wisconsin, there was a kerfuffle over "genuine 100% Wisconsin cheese", an ingredient in a prominent local brand frozen pizza; when a national brand food company sought to acquire the brand, there was concern that the food company would replace Wisconsin cheese of the pizzas with its own "inferior" branded cheese made elsewhere. Any kind of impediment to the sales of pizzas made outside of Wisconsin and/or requiring Wisconsin-sourced cheese, a discriminatory surtax on non-Wisconsin cheese, requiring the labeling of cheese source, etc. would violate free market principles.
When you get to managed trade, what is at stake might be allegations of dumped goods at artificially low prices, e.g., subsidies, low commodity labor rates and developing countries which do not adopt costly pollution control standards, which may allow a foreign producer to sell at lower prices in scale, allegedly driving the trader countries' own suppliers out of business. You have the bogeyman of "predatory pricing" (which I won't discuss here, but I believe that Mark Perry of Carpe Diem has discussed recently). The bottom line is that the US and/or other countries are trying to negotiate policies that impose higher costs on other countries to make competing products less competitive, while they continue to subsidize farming or slap punitive tariffs, say on Brazilian ethanol.
It really doesn't take a lot to have genuine free trade; you simply get out of the way of voluntary cross-border transactions--let the consumers decide. What's going on in TPP is a Kabuki dance of political posturing, so all the negotiating partners go home telling people they won conditions on balance favoring their own produced goods and services. The Hamiltonian protectionists won't be satisfied; neither will we free traders--but we choose to see it as a glass half-full.
I have issues that reflect a confounding of left vs. right-wing concerns:
What Brat’s victory really highlights is a quirk in our politics that is bringing the far right and far left into a series of unexpected alignments. In addition to being anti-Establishment, Brat’s speeches are often anti-immigration and antiglobalization. But when it comes to such economic-policy issues as taxes, free trade and corporate welfare, a lot of Democrats are, more or less, in agreement with him. (Brat’s office did not respond to interview requests.)I don't speak for Brat, but I'm fairly certain he would reject this characterization of his views. And Ms. Foroohar incompetently confounds free with managed trade and the Tea Party movement; we also need to distinguish between process and substance objections.
Brat, along with many members of the Tea Party and plenty of people on the far left, would like to see some bankers thrown into jail for their role in the financial crisis. These critics argue that corporations benefit unfairly from government subsidies. (Cantor was a booster of the Export-Import Bank, which Boeing’s foreign customers can tap for U.S. taxpayer–subsidized loans.) They believe the rules of free trade are no longer working when China and others can flout them without consequence. And they’d like to see a tax code that doesn’t explicitly favor the superrich.
Let's start with a distinction between pro-market and pro-business (e.g., Big Business). It is not true, as Foroohar attempts to suggest, "That’s another topic that the flanks in both parties largely agree on–the people who caused the pain of the past six years still haven’t paid for it. “Those guys [meaning financiers] should have gone to jail,” said Brat in the run-up to the Virginia primary. “Instead of going to jail, they went into Eric Cantor’s Rolodex.”" I think here Brat is simply trying to politicize TARP, a Bush initiative that Cantor as part of the House leadership had to support. In fact, the original idea was to use taxpayer money to purchase troubled assets, say bad subprime loans, and there was a bait and switch by Paulson after consultation with the Fed to shore up banks, most of which didn't want or need the money. In fact, most of the actual users of TARP were AIG, the GSE's and the car companies. But most of us from the right weren't demonizing bankers; we felt that if you made bad transactions, you should have been allowed to fail. We actually felt that Fed loose money policy and bad laws encouraging lending to riskier applicants had more to do with the housing bubble--not the populist conspiracy of the "plutocrats".
Now many of us see the corruptibility of government to be proportional to its size; cronyism is an artifact. Many Big Businesses will try to co-opt government's power and resources to their competitive advantage and protection. But many conservatives and libertarians don't subscribe to the Politics of Envy. It is true that we free market guys don't believe in what we see as protectionist policies, including the implicit subsidization of major exporters through the Export-Import Bank; this blog has repeatedly called for it to end.
As a free market guy I would argue for unilateral free trade; I do not like managed trades (with side agreements on, say, labor and environmental policy), which is really a form of neomercantilism. However to the extent trade between both sides is liberalized, I see it as win-win. I do believe most Tea Partiers want a more liberalized global environment:
We have two terms worth of voting records to help us understand the impact of the tea party on trade politics in Washington. The “tea party class” of House and Senate freshmen from 2010 voted strongly in favor of the last three trade agreements, along with the rest of the Republican caucus. More importantly, members most closely aligned with the tea party movement have been much more likely than other Republicans to support opening the U.S. market without the need for reciprocal trade agreements.There are conservatives (in particular, paleoconservatives, e.g., Pat Buchanan) who oppose free trade; they will attempt to characterize their position as "genuinely free" or "fair"--see this classification from the Alexander Hamilton Institute for International Trade; Hamilton, of course, was pro-industrial/mercantilist.
These members stood out last term for their principled opposition to popular bipartisan trade initiatives. Members like Tim Huelskamp, Justin Amash, Jeff Flake and Mike Lee broke with their Republican colleagues when Congress voted to expand subsidies from the Export-Import Bank, to impose tariffs on all goods from China under the pretext of currency rebalancing, and to exacerbate protectionist antidumping laws. They were joined by conservative groups like FreedomWorks and the Club for Growth that condemned these programs as harmful corporate welfare and economic interventionism.
Finally, some Constitutionalists, like the Pauls, oppose the process of fast track for its ceding too much power to the Presidency, the lack of transparency, and the nature of take-it-or-leave-it policy changes. Of course, you still need a super-majority two-thirds approval of the Senate.
Generally, the managed trade pacts, imperfect as they may be, are to the benefit of both sides, with lowered tariff and other trade obstacles, and I support giving Obama fast track authority.
Facebook Corner
(LFC). Criticisms against Austrian Economic methodology/epistemology. Discuss.
Does anyone want to take issue with Mises' failed policy prescriptions for Dolfuss during the Depression? http://fraughtwithperil.com/cholte/2009/11/29/von-mises-and-economic-anarchism/
As for critiques of Austrian theory, here is one blogger who has written dozens of relevant posts: http://socialdemocracy21stcentury.blogspot.com/p/blog-page.html
(National Review). Following a new ruling in California, religious clubs on campus cannot require their leaders to be religious.
When academia substitutes political correctness for freedom of expression and association, its undermines its own principles and integrity; academic freedom bcomes a sham. Academia finds itself hostage to special interests imposing what they can't win in a free exchange of ideas, a sophistic Trojan horse of victimology.
Proposals
Musical Interlude: My Favorite Vocalists
Barry Manilow & Dionne Warwick, "Run to Me". In a rare duet, Barry remakes my favorite Bee Gee's song.
