Monday, June 13, 2016

Don't Call It Free Trade

There is a lot of noise going on right about now about "free trade." Donald Trump has come out against it. And here in The American Spectator Esther Goldberg is praising it with faint praise. The point is that:
When traders are purchasing and selling from different countries, the terms under which they may do so is established by Trade Agreements between their respective governments. These Agreements are complex because they have to accommodate a host of interest groups that have been lobbying for terms that will benefit their particular industry.
Actually, that is true about all economic activity. There are trade agreements "to accommodate a host of interest groups" wherever you look, only we usually call it regulation or consumer protection or labor law. Right now we are watching the battle of the special interests as Uber and Lyft elbow aside the taxi-cab industry and its bribed apologists in City Hall. In the middle of the ride-sharing vs. taxi-cab war there is an interesting question raised about fingerprinting. Uber and Lyft think that fingerprinting is unnecessary since their apps identify everyone, driver and customer. And former Attorney General Holder says that, anyway, fingerprinting is racist. But the taxi-cab drivers have been regulated and fingerprinted by City Hall, and they want, as the mom-and-pop shopowners in Zola's novel about department stores, Au Bonheur des Dames, wanted, to continue the ancien commerce. All the way to their eventual extinction.

But I think that the best place to start is with this argument. If you are not going to permit market pricing, just what is your brilliant idea, genius?

Let's look at the manufacture of iPhones, recently analyzed by MIT and announced in the MIT Technology Review by Konstantin Kakaes. Right now, iPhones are assembled in China and Brazil.
According to IHS, a market analyst, the components of an iPhone 6s Plus, which sells for $749, cost about $230. An iPhone SE, Apple’s newest model, sells for $399, and IHS estimates it contains $156 worth of components.

Assembling those components into an iPhone costs about $4 in IHS’s estimate and about $10 in the estimation of  Jason Dedrick, a professor at the School of Information Studies at Syracuse University. Dedrick thinks that doing such work in the U.S. would add $30 to $40 to the cost. That’s partly because labor costs are higher in the U.S., but mostly it’s because additional transportation and logistics expenses would arise from shipping parts, and not just the finished product, to the U.S.
So yeah. You could assemble iPhones in the US and they wouldn't cost that much more. Hey, what's $30 to $40 marked up to retail? (My $100 smartphone plus $30-$40 would cost a lot more, percentage-wise.) But you can see that you would immediately get into a regulatory minefield. That's because pretty soon you would be issuing regulations about how much of of the components in each iPhone could be manufactured abroad. And then you would need an inspectorate to make sure that nobody cheated. And what would happen when the smartphone industry switched to another business model that was not covered by the carefully regulated iPhone manufacturing accords?

The point is that you can talk glibly about free trade and protection and regulation and consumer protection but you are always really talking about how much clunking fist can the marketplace tolerate before it turns into Venezuela.

And then there is Deirdre McCloskey's Great Enrichment. We are talking about per-capita improvement in 200 years from $3 per day to $100 per day and very likely more. How did it happen? It happened because the machine spinners put the cottage spinners out of work. And the machine looms put the hand-loom weavers out of work. And the oil industry put the coal miners out of work. And the diesel factories put the Baldwin steam locomotive workers out of work. Right up to the present day when the smartphones put the mainframe computer and the minicomputer and the desktop computer and the laptop computer workers out of work. And then there is Amazon.

All this happened, the enrichment and the extinction of ancien commerce, because innovators innovated and nobody succeeded in stopping them.

We humans have a dream of eternal life, of endless perfection in the heavenly arms of God. It sounds good, except that to try and implement it on Earth means government and force and the forcible prevention of innovation and young people "having a go."

And yet the fact of human life and of the institutions we create is that we and they are born, we and they grow, we and they may reproduce and bring our progeny to adulthood, and then we and they grow old and die. We can't live forever, and neither can our jobs. And neither can our corporations. And neither can our governments. And neither can our civilizations.

The ideology of protection and regulation and consumer protection and government is to regulate and limit everything by force. It is not the way of life. It is the march of death.

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