Monday, July 25, 2016

Let's Get a Few Things Straight About "Free Trade"

Everyone seems to be ganging up on "free trade" right now, from Donald Trump to alt-right chappies like Vox Day.

They are arguing that the market is soulless, and doesn't care a whit if communities are hollowed out when the market moves on or when cheap products produced by low-wage Chinese take American jobs. Here is Day quoting SF old master Jerry Pournelle:
But do understand, what is conserved is lower prices. Nor social stability. Not communities. Not family life. Indeed those are often disrupted; it’s part of the economic model. Under free trade theory, it’s better to have free trade than community preservation, better to have ghost towns of people displaced because their jobs have been shipped overseas; better to have Detroit as a wasteland than a thriving dynamic industrial society turning out tail finned Cadillacs and insolent chariots and supporting workers represented by rapacious unions in conflict with pitiless corporate executives.
First of all, we don't have completely free trade, never have. Secondly, as Deirdre McCloskey makes very clear in her Bourgeois Era books, the Great Enrichment of the last 200 years is founded not on accumulation, not on "free trade" but on innovation.

Wait, she was wrong. It was not "innovation" that did it but the failure to block innovation.

You can have all the capitalist accumulation, the freest trade in the world, and the world full of innovators. But if you allow the ruling class and its supporters to block innovation -- and they will if you give them half a chance -- then you are back to the good old days of economic stasis.

When the innovators are allowed to sell their innovations then you get disruption, because the folks doing stuff the old way are going to have to accept lower wages and even get put out of work. We humans hate that and will do anything to block the innovators and continue to enjoy our customary way of life and income.

I would argue that the history of the last 200 years is the history of the failed attempts to block the innovators. They tried to stop the machine spinners. They went in for machine wrecking in the Luddite riots. They forced automobiles to a speed limit of 6 mph. They licensed labor unions to prevent management from changing working conditions. Communism is an attempt to return to the Eden of perfect community before its disruption by Modern Industry. Fascism is an attempt to return to the Eden of blood and tribe. Environmentalism is an attempt to return to an Eden of an unspoiled Earth, and that is why environmentalists want to block the innovations of fracking and GMO foods.

Yes, Jerry Pournelle is right. Unblocked innovation means an end to social stability. But you can't have that social stability unless the rulers have the power to block innovation. And we are to understand that in the days when the ruling class had the power to block innovation society practiced a downward mobility where second sons of the nobility shoved aside the middle class and the second sons of the middle class shoved aside the lower class, who just had fewer babies and died faster than the higher classes. You can have your stability, but it comes at a price that is paid by the traditionally marginalized.

And let us not forget what happened in Detroit. It wasn't free trade that killed Detroit but political power. The ruling class gave the auto companies and the labor unions special privileges that allowed them to jack their prices and wages way up above the market. It was great fun, for the workers and the managers, while it lasted.

You can say if you like that it was free trade that killed Detroit. But what would it have taken to save it? 15% tariffs on imports, or 50% tariffs? What about a suspension of labor laws to force wages down? And what about if and when the import car companies started building cars in the non-union South?

The point is that the argument about "free trade" misses the point. The point is that reality always wins in the end. You can take your pick. Do you want to surrender to market prices and let overpriced and overprivileged Detroit go to the wall? Or do you want to wait for a Great Depression or an invasion? That's the way things used to be settled. If your ruler wasn't up to the mark then sooner or later some warrior lord would invade and loot and plunder his good rich acres. These days we do it metaphorically. We fail to keep up with the market at our peril. But our modern peril is not the old peril where all the men are killed and the women sent away into slavery. The peril is that we must accept the verdict of the market and work for less wages that in the past.

And there is more. The campaign against "free trade" makes a rather big assumption. It assumes that politicians and regulators can engineer a better social outcome than market prices. Really? I'd say that the record is pretty clear. It is that politicians and regulators suck at delivering anything except dividing the electorate and promising free stuff to their supporters.

Why in the world, in the decade after the real-estate meltdown and the Obamacare disaster, can anyone suggest that monkeying with the market is going to produce a good outcome for America and American workers?

I have a better idea! Let's unwind some of the government programs that make it difficult for workers to get jobs. Let's abolish the minimum wage, credentialism, child labor laws, payroll taxes and their unjust pension programs. Let's make it easy for employers to hire workers and let's make it easy to fire them. Let's encourage workers to save for a rainy day and for their retirement without the government getting in the middle.

In the old days, before the welfare state, in the dark and savage days of the 19th century, almost every worker, high and low, belonged to a fraternal association or a mutual-aid society. These organizations sprang up, starting in the 18th century, when the dispersion of people across the wide world encouraged them to create an artificial notion of brotherhood beyond the boundaries of blood kin. So they imagined themselves in a brotherhood of Masons, who were not manual workers; Elks and Eagles, who were not beasts of the field. And they created a virtual community, so that an itinerant worker could find a friend wherever he showed up, and also buy insurance against death and a helping hand for his widow. But the welfare state put all that out of business.

Let's get things straight. It is utter folly to bet against the market. The market is today's economic reality and the only thing we know is that the reality and the prices will change tomorrow. The way to preserve community and family is to preserve community and family, which were and are the best bulwarks against the cruel winds of change.

The only certain thing is that if you let government start messing around with the market process it will screw things up and make them worse. Deteroit's problem started when the government repealed the laws against combinations and allowed the auto cartel to flourish and jack its wages and prices into the stratosphere. Without that very unfree trade policy then maybe Detroit wouldn't have crashed, but only declined into an impecunious old age.

Still, if we didn't have economic ruin and collapse what would government do then, poor thing?

1 comment:

  1. Dear Mr. Chantrill,

    Well. . . I'm not "wrong" exactly, though you put the correct argument well that it's refraining from putting hooks and chairs in the way of trade-tested betterment that did the trick. The refraining came from the liberal idea ("liberal" in the deep sense, a la Adam Smith and the eighteenth century). My books, especially the most recent, Bourgeois Equality: How Ideas, Not Capital or Institutions Enriched the World, give over hundreds of pages to saying what you say here: refraining from the books and chairs, now proposed by Donald and Bernie and even wayward Hillary. Not by Gary Johnson!

    Deirdre McCloskey