Thursday, April 28, 2016

Free Trade and the American People: It's the Science, Donald

Everyone is against free trade, except an occasional economist, and you can see why. Free trade, in domestic affairs or foreign affairs, means that everyone surrenders to the market, and does not try to use force to alter the verdict of the market.

So when Donald Trump announces that
The nation-state remains the true foundation for happiness and harmony. I am skeptical of international unions that tie us up and bring America down, and will never enter America into any agreement that reduces our ability to control our own affairs.
That sounds good, because it is dealing in power, which is what politics is all about. But then there is this:
NAFTA, as an example, has been a total disaster for the U.S. and has emptied our states of our manufacturing and our jobs. Never again. Only the reverse will happen. We will keep our jobs and bring in new ones. Their will be consequences for companies that leave the U.S. only to exploit it later.
Well, no president can promise to "keep our jobs and bring in new ones." Why? Because capitalism is innovation, it is a constant process of creative destruction of old jobs and their replacement with new ones. Put it this way. First the jobs in the candle industry were demolished when the candle industry was replaced by the illuminating oil lamp industry. Then the jobs in the lamp industry were destroyed by the electric lamp industry. Then the government decided to destroy all the jobs in the incandescent lamp industry and replace them with the CFL lamp industry. And now it looks like the CFL lamp and its mercury poision is going the way of the buggy industry to be replaced with the LED lamp industry.

The point is that nobody can promise to "keep jobs." In fact, I would suggest that anyone that uses government power to "keep jobs" is probably destroying a lot more jobs that he keeps. Because the kind of jobs that get kept are usually the jobs of politically powerful interest groups, such as union jobs or Florida sugar plantation jobs.
Under a Trump Administration, no American citizen will ever again feel that their needs come second to the citizens of foreign countries.
Well, I'm all in favor of that.

The question is: what can the government actually do to deliver on the promise to make the needs of America come before the needs of foreigners?

I'd say that the first thing to do is to get the government out of crony capitalism and "saving" jobs. Then, I'd say that it would be a good thing to limit unemployment benefits and welfare so that people cannot molder away for years in a town where the industrial plant left and the jobs with it. It is a lie to say that "good jobs at good wages" can last a lifetime.  Good jobs last as long as a product or an industry lasts. And then they are gone. That is the way of capitalism, or "innovism" as Deirdre McCloskey calls it. The basis of our prosperity is that, time and time again, the old ways have been disrupted and replaced with new ways that have radically improved our standard of living. But not for the folks displaced by the new ways.

So what do we do for the folks displaced by the new ways?

First, I'd say that we have to propagate a new national meme: no job is forever. There are no guaranteed jobs, no guaranteed pensions, no guaranteed anything. When things turn south, as they do in any life, then we have to get on our bikes, or get in our U-Hauls, and go find another job in another city.

Second, let's stop blaming foreigners. The reason we are losing jobs to China and India is that China and India finally got a clue and started going capitalist. So, just like Britain 200 years ago, and the US 140 years ago, people are coming off the farms and working for low wages, starting with simple assembly jobs. Your fancy iPhone costing hundreds of dollars was made in China. But Apple's for the 1%, not for the likes of me. My modest Motorola Moto G 2nd Gen cost $100. Also made in China. It is just not possible to make iPhones for a few hundred dollars a copy in the US at US wages. And for the rest of us, those outside the magic circle of iPhones, what about our $100 knockoffs?

Third, let's not pretend that government can help. The question is not whether free trade works or whether the US is being taken for a ride by foreigners. The question is rather whether government could possibly help, or more likely, screw things up. A lot of the things that government does screws things up. That's because force is very rarely the answer to our problems. Social Security? A system of generational injustice. Welfare? Condemns generations to drink and drugs. Education? A disaster for poor Americans. Tariffs and regulations? End up benefiting powerful special interests at the expense of ordinary people. Labor unions? Benefit a few aristocrats of labor for a while at the expense of workers in general. Affordable housing? Crashed the global financial system with bad loans at Fannie and Freddie.

The thing about capitalism, or innovism, or "trade-tested betterment" is that we barely understand it, even now. It seems to be based on the paradoxical idea that, in order to prosper in the future, you have to have the courage to step away from the past.

But most of us insist of holding onto the past with a death grip. Until we die.

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