Free Trade

Free trade has been a hot topic in the blogs this week.

I'm not an economist, though I play one on this blog. But neither are a lot of the other blog commentators on this topic. So, what they hell?

Free trade as a problem, or "issue" is a symptom of a larger problem, namely inequality in the economic affluence of varying countries. If all countries existed in a more or less equal affluent environment, I think most of the concerns about free trade would disappear. Labor, material, and transportation costs would be roughly competitive. No real problems as incentives by businesses to make changes would be minimal. Other considerations, such as the local community needs and welfare, could play a role in business decisions.

But what happens when you have a highly affluent country vs. a poor nation? If you open the trade borders the markets are going to shift to "even" the playing field. Think of it like water. If you dam a river, there is a build up of pressure behind the dam. Remove the dam (free trade) which is a barrier to the water pressure, and water flows from the higher level to the lower level. Once the pressure equalizes, the flow stops and calm ensues.

In the above analogy it's important to note that there is a net loss and a net gain, depending on which side of the barrier you are on. When all barriers to free trade are removed, the affluent nations have a net loss of wealth while the poor nations gain. Note. I'm talking about the peoples of the nation, not the businesses. In a world with increasingly efficient transmission of information and materials, I think this leveling effect occurs at a quickening pace, and is amplified.

In general, I think this is a good thing mainly due to the fact that in the long run, everyone will benefit. But even if it's not universally beneficial, I also think it's inevitable and human nature. Even in controlled economies, illegal activity will seek to take advantage of disparities in affluence across national boundaries. This is exactly what I think is happening in the world economy now.

The U.S. has had a level of affluence that is unsurpassed, and dramatically different than many other nations. The disparity is really at the root of our problem with falling wages, loss of the middle class, immigration, and increasing difficulty with employment across economic class.

I take the stance that there should be free trade. Where I differ significantly with conservatives is that I believe that governments can play a role in softening the impact of free trade. To use my crummy analogy, government can play the role of releasing the water pressure in the dam carefully and preparing the landscape for the new water levels, mitigating the pain. Conservatives, on the other hand, seem to prefer to take an approach of blowing up the dam and letting the markets simply deal with the consequences, not unlike a conservative approach to most issues.

Thus, during the Bush administration the implementation of free trade has been dramatic, with the losses felt by Americans equally dramatic. By not providing government help for displaced workers who lose jobs, and by not easing price differentials gradually, the loss to the U.S. worker is dramatic. The people of the United States are suffering a strong net loss of affluence, while other countries such as China and India are experiencing a net increase.

But...hey. The business owners aren't nationalists. They don't really care about national well-being and are simply focused on the bottom line. And right now? The bottom line is lookin' real good. The Bush administrations mantra is simply that eventually the benefits of free trade will pass on the U.S. citizens. What they really mean is that eventually, the economics will equalize and we'll stop losing affluence.

It's sorta like the old saying about your head hurting because you keep hitting it on the wall. Once you stop, it feels so good.

Update: I rest my case.