Opinion

The Great Debate

Starting a trade war with “Buy America”

June 19, 2009

diana-furchtgottroth

–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

When Congress inserted “Buy America” protectionist provisions that required some goods (such as steel, cement, and textiles) financed by the stimulus bill to be made in America, our government invited a trade war with important economic partners.  Now China and Canada are imposing their own protectionist regulations, potentially destroying well-paid American jobs in the export sector.  Other countries may follow suit.

This week China reported that the government now requires stimulus projects to use domestic suppliers when possible, even though in February it promised to treat foreign companies equally.  The Chinese $585 billion stimulus package has resulted in a World Bank growth forecast of 7.2% for China this year, far above other industrialized countries.

And on June 6 the delegates at the Federation of Canadian Municipalities passed a resolution calling on “local infrastructure projects, including environmental projects such as water and wastewater treatment projects, [to] procure goods and materials required for the projects only from companies whose countries of origin do not impose trade restrictions against goods and materials manufactured in Canada.”

The tragic losers of “Buy America” are free trade agreements and potential job growth in the American economy. Seductively, “Buy America” promises workers they can have it all — cheap goods from China, oil from Canada, as well as protection from global competition. But real life just doesn’t work that way.  In reality, “Buy America” is shorthand for fewer jobs as other countries retaliate.

Many markets no longer have national boundaries but global reaches. America sits at the center of global markets for technology, equipment manufacturing, finance, banking, fashion, and advertising — to name but a few. When international markets expand, America grows. When barriers are erected to trade, jobs — and also wages —shrink.

Trade creates jobs not just through investments of foreign companies at home, but also by increasing employment at exporting firms. This effect, though less obvious, is far more significant. That’s why “Buy America” hurts employment.

Andrew Bernard, a professor at Dartmouth College, together with economists Bradford Jensen and Peter Schott, find that firms that trade goods employ over 40% of the American workforce. They conclude that approximately 57 million American workers are employed by firms that engage in international trade.

They analyze American imports and exports using customs documents that accompany shipments of goods crossing the border, along with reports of firms’ employment. The resulting information provides the most precise picture available of the employment effects of American trade.

Back in February, Caterpiller spokesman Jim Dugan declared, “Our position is that, while ‘Buy American’ may sound good, in fact we’re very concerned that if this stimulus legislation contains the ‘Buy American’ provision, other nations and regions of the world would follow our lead and pass similar provisions.”  He was right.

Trade also benefits millions of families who cut their shopping bills by buying low-cost imports. To take just one example, the amount that Americans spend on clothing has declined by 21% in real terms over the past 20 years, yet our closets are fuller than ever.

The benefits of free trade, such as increased employment, higher economic growth, and lower prices, are often taken for granted. But the disadvantages of free trade — such as the occasional instances of shuttered plants and lost jobs where American firms are not as efficient as international competitors — are all too visible.

Trillions of international dollars pass through America each year not because we are isolated, but because we are the hub of the world. Terrorists twice attacked the World Trade Center because the building symbolized international trade. They destroyed a building and murdered thousands of innocent Americans, but they failed to vanquish world trade. Sadly, politicians who erect barriers to trade are hostile not only to trade but to our country and to our jobs.

Comments
64 comments so far | RSS Comments RSS

Do economists really think this stuff flies? How can free trade help America when America imports far more than it exports. What good are cheap products if no one has a job? All this free trade was going to help America’s economy, seems it only helped CEOs who could ship jobs overseas. I’m sure Americans want this stimulus money to boost other country’s economies. The reason why it’s hard to see the benefits of free trade is that they are pseudo scientific nonsense. Ask how much free trade helps the average American, not the muckety mucks who benefit from cheap labor and cheap products while downsizing American workers.

Posted by Frank Castle | Report as abusive
 

Dear Mr. Castle,

When America had a 4.4% unemployment rate, in December 2006, the trade deficit stood at $68 billion. Now, the unemployment rate is 9.4% and forecast to rise higher, and America’s trade deficit stands at around $29 billion. Almost everyone would agree, especially the unemployed, that people were better off with a higher trade deficit and lower unemployment. Should we also be concerned about trade deficits between individual states, such as Maryland and Virginia?

Diana

Posted by Diana Furchtgott-Roth | Report as abusive
 

It’s going to take a lot of work to reprogram voters into understanding reality over protectionist propaganda. People see imbalances in the American economy and assume free trade is a net negative.

It doesn’t mater that nearly no economist is against free trade. It doesn’t what the numbers say. People will not understand.

It doesn’t help that the issue has been politicized either. Protectionism has always been an easy sell, and irresponsible politicians don’t have any incentive to do anything other than get reelected.

Posted by justin | Report as abusive
 

I agree wholeheartedly with Mr. Castle. The end result of this program has been to enrich the upper echelon of corporations in America. Of the diversely educated and located of my 5 siblings, 3 have lost their jobs to outsourcing, and exhausted their savings, retirement plans, and assistance benefits over the last 3 years. Of course a corporation will outsource if it can; it’s common “sense” to them. They are chopping off their own roots. A productive & entrepreneurial America is a good thing, but our country must and should be of, by and for the PEOPLE, not of, by, and for the COMPANY. Things have been upward facing for far, far too long.

Posted by Elizabeth Morrow | Report as abusive
 

While the trade deficit that is so often quoted is accurate – people do need to keep in mind that merchandise trade (trade in goods) is not the only thing American companies sell or do globally.

With exports of intellectual property or services (such as IT, the finance sector or insurance or EDS), the true value of trade becomes much more equitable to the US.

It’s in the nature of business that labor intensive occupations will always flow towards the places able to provide the lowest possible costs, but at the same time economies have to strive to improve and move up the value chain.

You cannot expect to beat a hammer and get competitive wages as other developing nations move upwards that are also able to “beat the same hammer” for less.

As India and China are today – in the next 10 -15 years labor costs there will rise parallel to their costs of living and industries needing cheap labor will once again migrate elsewhere in the world to, say South America or Africa.

And finally in the far future when “cheap” human labor is no longer available, no doubt there will be a paradigm shift and man will replaced entirely by automation / robotics. You can’t stop progress, not matter how good your intentions are.

Posted by Paul M | Report as abusive
 

Hmm when did the trade deficit decrease and unemployment increase.. because of protectionist actions? Or because economically “sophisticated” people ran the economy into the ground? You can try to spin it anyway you like it and blame it on people being too dumb to understand free trade. Yet it seems that for all the talk of NAFTA benefiting America why were good jobs disappearing here to be replaced by lower paying service sector jobs. The reason protectionism sells is because it works.
First off “free trade” isn’t really free when other countries don’t play by the rules. Second, unless there is some magic involved trade is a zero sum game, and “free trade” benefits the fat cats here and countries with lower wages.
The great part is American’s understand that, no matter how you try to sell your corporatist syndicate to them. They see who gets enriched by “free trade” and it’s not the ordinary American, unless the corporate bug wigs are who you are talking about. Ask couples with two good jobs how they think “free trade” is benefiting them while they live paycheck to paycheck and wonder how they can educate their kids and what they will leave to them.
“Free trade” sounds good because hell free sells, but explain to the people who don’t have jobs how great it is that their tax money is helping China and India maintain their growth and how great that prices are low at Wal Mart so they can make their unemployment check go farther.
Economists are much like religious fanatics with their irrational belief in free trade and the market. Look where that’s gotten us. We’ll stay ignorant about economics like you stay ignorant of reality. Free trade works in theory, sadly you can’t abstract away reality like you can in a textbook.

Posted by Frank Castle | Report as abusive
 

Dear Diana,

I could cry, I could cry………..If there is one point that causes me to despair about your country, it is the attitude of your so called enlightened president. All throughout the campaign I got the distinct impression that he was well above the general mob sentiment at least intellectually. However seeing him lately posturing with his queen bee Pelousi and displaying his determination in carrying the ” buy america ” banner in front of him, simply destroys, in my mind, once and for all the ” green shoots ” of hope that came out this spring,to that effect.
The big U.S. int’l corporations must also be crying….GE…CAT. and so on. Is it that hard to figer out these days that your only hope to straighten the economy is to reactivate solidly exports, consequently international trade !!. Thank god your american dollar is getting lower, that is the only ace you’ve got left in your hand to get out of this mess.
In 2009 the clout and stature of the American empire has been cut to size, thanks to the financial mess it has created. The almighty U.S.A. does not have the clout nor does it inspire int’l players to pay them as much attention as in the heydays of the 1950′s. These days maybe, just maybe, the rest of the world could very well get along without the U.S. I really don’t know if the converse is true ?.
Mr.Obama talked so much about change!!!… remember ??.
I think that he missed out on this one !!!. Like a typical American president he wants the whole world to bend, to change, to accomodate the U.S.. However, he has not grasped as of yet the notion that if you still want to impose that philosophy (somewhat outdated !!) to other countries, you should start by overhauling your image and start considering immediately others as equal………. partners !!. After all it’s a question of respect, when you come to think of it, right ??.

Maurice F. Mimoun
Longueuil, Qc.
Canada

Posted by Maurice F. Mimoun | Report as abusive
 

It’s too late to shed tears over the industries that are gone overseas. They can’t be resurrected. The reasons why they are gone, and who’s to blame – it’s quite a different topic that deserves a separate discussion.
It’s quite another matter to try and save the industries that still can be saved. Hint: the compensation in these industries is determined by the market, not “Collective bargaining” or whatever is the term for what would be deemed extortion if done by someone other than unions. These industries tend to produce services rather than tangible goods – and the “Buy American” clause seems to be all about goods.
Even if “Buy American” covered services, the American origin of these services is something hard to define. Is it really American when most of labor is imported on H1 visas, or telecommutes from across the globe, and only management is US-based? That’s where “Buy American” should be focused instead of banning Canadian steel and Chinese textiles from participating in publicly funded projects.

Posted by Anonymous | Report as abusive
 

Imagine that we, and all workers of the world, got paid in gold for everything we did. Now imagine that we in America get paid more gold for the same work or making the same products as others in the world. Why would anyone in the world pay more gold for the same product?
Now imagine what I said is really true.
That is the real issue here. We really don’t have anything to export that the world wants to pay more for. Until we do, our economy and debt are going to slide. Our wages are destined to go lower because of lack of demand for our products.
So how can we subsidize our high priced houses….Our house prices and cost of living have to go down.

Posted by bill | Report as abusive
 

On a simpler note, without going into CEO’s based in the U.S. and their factories and workers based in other countries, etc., Americans are not generally in favor of the “Buy America” scheme simply because there’s not much to buy that’s made in American that doesn’t fall into the junk category. Look at GM products, for example. Point made.

Posted by Frank | Report as abusive
 

It’s time to wake up and smell the roses, people. Globalization isn’t the panacea that our (failed) economic leaders would like us to believe. It matters little whether you live in Manhattan, or a small village in the rainforests of the world. The more self sufficient you are, the less expensive life is. If Americans provide for Americans, and Chinese provide for Chinese, and the African Bushmen provide for African Bushmen, all three groups profit. None owes the other group for some trade imbalance. Those trade imbalances are what powers the wealthiest 2% of the population around the world. Every time America imports or exports anything, the (failed) economic leaders make a little profit. Everyone in the world should buy local, whenever possible. When it is not possible to do so, only buy what is necessary – NOT what the marketing industry wants you to believe that you need. Let’s get back to basics, and the economy will begin healing itself.

Posted by Paul | Report as abusive
 

The world is already not buying our stuff. Long before “Buy American” we had a trade deficit about the size of the stimulus package each and every year. How does a trade deficit nation USA not become a big time winner in a trade war? The only things the world buys from us is what they can not get elsewhere. They would continue to buy from us without free trade.

Trade is a net job loser for USA. One of our largest exporters is Boeing. But much of Boeing’s aircraft production is outsourced. No jobs for Americans. Indian companies invest here and create jobs but not for Americans. They bring in their own citizens on H-1B visas. If the trade deficit were spent here we would get jobs here.

What families are benefiting from low cost imports? Comparing the 1973 basket of goods and services used to calculate inflation with today’s basket the average American has to work 12 percent MORE man-hours to buy the goods. Excuse me but prices relative to wages have risen.

The history of US trade protection has been written by advocates of free trade and surprise, surprise protection comes out as a bad thing. According to the free trader story the world collapsed because the US introduced the Smoot-Hawley tariffs in 1930.

But blaming Smoot-Hawley for the Great Depression is a misreading of history. Smoot-Hawley was not a shift to protection but more of the same. At the time it was proposed the US was already the world’s most trade protectionist nation and had been for more than a hundred very prosperous years. The Smoot-Hawley tariffs were not the highest tariffs the US ever had. Nor did they last very long. Passed in the summer of 1930 they became effective the following year and began to be reduced after 1932 by the Roosevelt administration. When the Depression got worse in 1937 tariffs were already back to the pre Smoot-Hawley levels. While trade did decline by two-thirds it was two-thirds of a small number. Trade declined from 6 percent of GNP to 2 percent while the nation remained a net exporter.

Posted by James | Report as abusive
 

Well Well, I see a few CDN posters with attitudes. Go to that hot place. I am conservative, I am a patriot, and I am a CDN by birth – American by choice. CDNs think that just because they have a spokane cable channel they are experts on the US. I eally don’t care what CDNs or anyone else thinks. I am tired of everyone selling to us but then they refuse to buy from us. Too bad, I am done buying more “STUFF” So what if my closet is full of clothes? with millions of americans out of work what is so good about it? As far as the buy America act….this is money (50%) borrowed and has to be paid back. The money should be spent in America!

Posted by S. Baker | Report as abusive
 

Ms. Furchtgott-Roth states, “The benefits of free trade, such as increased employment, higher economic growth, and lower prices, are often taken for granted. But the disadvantages of free trade — such as the occasional instances of shuttered plants and lost jobs where American firms are not as efficient as international competitors — are all too visible.”

Occasional instances of shuttered plants? Firms are not as efficient? Really? Our esteemed economists really need to get out more. The U.S. is positively plastered with shuttered plants. And we have an enormous trade deficit to prove it.

Free trade has not lived up to it’s promises, at least for the United States. Middle class prosperity has been decimated by the sell off of the U.S. manufacturing sector in favor of low cost offshore plants. This trend enriched investors at the expense of wage earners. It’s time to back away from free trade and implement protective tariffs or an onerous value-added tax — at least until our foreign competitors institute the same union wages, health-care insurance, worker safety, and environmental protections that we earned at our plants through over a hundred years of hard-fought labor battles.

read more: http://cyclopsvue.blogspot.com/search/la bel/free%20trade

 

Note I am a Canadian and I still do not understand why so few of you people do not understand the whole idea of free trade.The above article covers it quite well.If you create trade barriers you can be sure those other countries will create trade barriers to you as well guaranteeing you will have less work.
Somewhat neglected in the above article is probably in need of emphasizing, is how do you pay off trade deficits, you make goods to sell, and so why would you want them to charge you a tax in the form of tariffs on repaying them.

Also not pointed out in the above article is one of the main reasons for free trade is its just so severely expensive to manufacture complex goods like DVD players without large markets, because of the investments needed for robotics etc.Without larger markets people can easily go back to such things as hand blown glass picture tubes for tvs and they would cost hundreds and with higher prices you cannot compete with others who do use automation.This can create a spiral where higher prices for hand made goods sell less and so must be even more expensive causing less to be sold raising prices more and more etc.I do not want to see 500 dollar DVD players and a 10,000 $US only version of a computer.Imagine how much less new technology would disappear from the US and the world as well with such trade restrictions indirectly self imposed against it.

By the way look into recent history with Margrethe Thacher in Britten as they were on their way to becoming a third world economy over it all when protecting local unions by trade barriers.Its was leading them to disaster.

Now the real problem is with union workers getting 50.00 where everyone else only gets 10.00 for the same job and the only reason that the US got away with it is because of history.Its easy to see that such manufacturers as GM would only be in business as long as they were because they did outsource their work.The US would have been broke long ago otherwise.

I’m Canadian and we are better off money wise here and yet I still got almost all of my money in gold,silver and sleep better now.There is a risk here that you my yet commit financial suicide by not doing the same.Ironic that so many cannot sleep at night with no fire insurance yet would never buy gold or silver as financial insurance.

The job of a politician is to get votes and to keep getting votes.It is not necessarily his job to improve society.

 

It really seems people have odd ideas about all of this. There is so much talk of the middle class, their jobs and what they spend.

But not everyone is middle class! This may come as a shock to you all, but there are some people who make less money then the middle class now does! These people still need to buy things, drive cars to work etc etc.

So, you create an economy that allows the middle class to buy things, afford things and you do this buy raising the wages also of this middle class.

But what do those who make less do? How do they buy the now costly American made products you all push? How do they afford a car to get to work, when you push the American made, and more expensive, American made cars?

The reality is that it will be close to impossible for those who make less then the middle class does, to afford to buy American.

But the media and our political leaders never seem to mention this group of people, every policy, every discussion and every debate is about “the middle class”.

Posted by Heather | Report as abusive
 

Last week was the 20th anniversary of the Chinese government slaughtering it’s own people in Tiananmen Square. For those who have forgotten, all around the world were massive peaceful protests for democracy in countries all across the former Communist bloc where the leaders peacefully and for the most part gracefully (think Boris Yeltsin, Mayor of Moscow leading the citizens against the briefly attempted crackdown and shaming the soldiers off the streets) accepted the inevitability of the will of the people for the things we take for granted such as democracy, freedom of speech and free markets. Even the Berlin Wall, long a symbol of tyranny crumbled. In the wake of these successful and peaceful revolutions the Chinese people took to the streets to demand the same from their government. For weeks protests went on culminating in over 1,000,000 Chinese citizens peacefully gathered in Tiananmen Square in their capital city of Beijing.

Unlike the Soviet Union and elsewhere in Eastern Europe the Chinese government responded by sending in their 4th Army complete with tanks and machine guns to slaughter over 2000 of their own citizens in the streets of their nation’s capital. In the aftermath, whatever small freedoms that Chinese people had been allowed were withdrawn, there were massive arrests, imprisonment and executions. To this day, there has been no further political reform and China remains one of the most authoritarian countries on Earth. Interestingly, to this day the USA and EU maintain an arms embargo on the People’s Republic of China in response to this massacre.

While we maintain an arms embargo, it is an interesting contrast that the USA has deemed this very same, unreformed and unrepentant authoritarian China sufficiently trustworthy and sharing of our values to transfer our manufacturing base to them and become reliant on their goodwill to loan us money to operate our government. American businesses and businessman think it routine to move production and technology to China, inevitable really. We as citizens have become used to most things we buy to read “made in China” and nobody bats an eye when the Secretary of the Treasury goes to China to kow tow to their leadership and beg them to keep buying our bonds.

I don’t normally leave responses of this type but thought it right to honor the Chinese martyrs who gave their lives for freedom in Tiananmen Square by giving a little thought to how we in the Land of the Free, Home of the Brave have become the economic subjects of this very same government that would slaughter it’s own citizens in the streets. A very wise and very wealthy man by the name of Warren Buffet saw this day of our economic servitude coming and all the way back in 2003 published an article warning his countrymen and giving his own, what I think eminently sensible approach, to ensuring our economic wellbeing and freedom. I’ve attached a link to his article and hope everyone takes a minute to read and think about this subject that not only affects us but will impact the next generations as well.

http://www.pbs.org/wsw/news/fortuneartic le_20031026_03.html

Posted by Rick | Report as abusive
 

http://research.stlouisfed.org/fred2/ser ies/BOPBCA

The link above to the St Louis Federal Reserve website shows the USA current account from 1960 to present. One can see the bubble shape in the graph of the deteriorating and obviously unsustainable trade situation.

This graph corresponds with corporate America embarking in earnest on so called “free trade” involving the offshoring of the real wealth generating mechanisms of our economy. I say “so called free trade” because several of our largest trade partners do not practice free trade or even have free markets in their countries. I think it quite naive to think we are free traders when our trading partners manage their currency, create hidden structural impediments to trade and pile up our currency as reserves in the form of treasury bonds. In the end we allow the communist party in China to in fact manage our economy when we don’t protect ourselves.

The situation we find ourselves can only exist because of the aberration of having a sovereign currency used to settle trades. Prior to WW2 trades were settled in gold and unsustainable trends such as this couldn’t have happened as the scarcity of gold itself self limited the process. Ultimately the sovereign (USA) cannot resist the temptation of being able to print “gold” when other countries print paper. We in the USA do benefit from cheap foreign goods AND the ability to pursue a guns and butter economy that has never historically been possible.

The downside though is that a structurally over valued currency combined with mercantilist trading partners only too eager to allow us to transfer our real economy to them results ultimately in USA businesses and citizens not being rewarded to invest in USA production or the skillsets an advanced manufacturing economy requires. The day of reckoning will be when our trade “partners” cancel our charge card (change the world’s reserve currency) and we face a future of plumeting dollar value, imported inflation and a long road back reindustrializing.

We are living out the biblical tale of Esau and Jacob. The USA/Esau is only to eager to sell our birthright (the world’s most advanced manufacturing economy) for Asia/Jacob’s pea soup of cheap consumer goods and short term profits.

My apologies to our Canadian friends. I don’t believe there is any problem and there shouldn’t be any barriers to tarde between our nations. But with China, Japan, Korea? Absolutely.

Posted by Rick | Report as abusive
 

This article is total Bull Crap. We have had a negative trade balance in goods and services for about 30 years. This means that if we had traded with no other country we would have come out ahead. Instead we shipped jobs overseas destroying the engine of our economy; making recovery from the depression almost impossible. You can not spend your way out of a depression you must grow your way out, and for that you need the industry that we no longer have enough of.

The concept of Free Trade is a completely bogus idea designed to mislead people -while destroying their Jobs and growing World Government and International Corporations.

Our only hope for recovery now is to rebuild our manufacturing infrastructure and impose import taxes -to bring the jobs, industry and technology back home.

Posted by Dave | Report as abusive
 

Personally I like the concept of free trade and globalization. I don’t like the reality though where more and more of this trading and globalization is increasingly in the hands of fewer and fewer corporations and individuals. Quite how this can be reversed is hard to see as these organizations, which may look to be nationally aligned have in fact transcended national borders and aren’t under the mandate of any one government. Any pressure applied will just see them move to a different jurisdiction.
There is a lot of employment to be had in the less efficient model of times not so far gone, where individual companies had their own head and regional offices, accountants, lawyers, other employees and suppliers etc., rather than the group of companies model where so much of these functions have been efficiently eliminated.

Posted by Peter H | Report as abusive
 

Dave wrote:
Our only hope for recovery now is to rebuild our manufacturing infrastructure and impose import taxes -to bring the jobs, industry and technology back home.

There one main problem with that.If you impose import taxes against them, they will impose import taxes against you.
You will end up with the US being a poor place to invest in industry because of this.
There is less incentive to invest in industry that ends up in an isolated country.Would you invest in such a country unless the wages were less maybe.Industry will not come back unless every other country becomes equally bad.Its a catch 22.
On the other hand becoming competitive means getting rid of the extreme pay differences that has been due to unions and going back to something relating to supply and demand.
It wont happen, unions will starve us all before they allow that.

 

If you actually made time to study economics and history, you would understand the power of free trade. Free trade increases the welfare of all countries participating in it, because countries trade goods that have comparative advantages and collectively produce more goods overall, thus higher welfare. Additionally, free trade brings about more efficient economies. The dislocations in the markets are eliminated because labor and capital can more easily move. Part of the reason the great depression was protracted was due to “buy American” policy, the Smoot-Hawley tariff.

Posted by John | Report as abusive
 

What is in a word? Some people say “Protectionism”, and mean it in a bad way, they usually have “Globalization” as a goal, and can make more money with “Globalization” since slave wages are used in Tyrannical governments, and those who say “Protectionism” is bad, say it because their “Profits” will decrease since people will actually get paid.

They say “Protectionism” is call it “Self Sufficiency”.
Why can’t Wal-mart buy the crap it sells in America?
(Remember when Wal-Mart advertised “Made in USA”?)
I guess Wal-Mart said F U America, Wal-Mart is all about money, not about Loyalty to Country. Why else would they mistreat their employees and fellow countrymen so horribly?

Wal-Mart, now “Globalized” and using words like “Protectionism” so they can keep buying cheap products from China to sell to you for cheap, hoping that cheap product breaks, so you have to buy another one, so more money goes to China through Wal-Mart, and it does nothing but take money OUT of America.

Now picture all the Wal-Marts all over the world sending all that Wealth to China. What does China do with that money? Do they improve their country like America did with her economic Might after WWII? NO! They use it to spread Communism, and Undermine all Western Economies by flooding the Western Economies with Cheap Products while stealing Jobs, leaving America nothing but “Service” industry jobs, leaving Americans nothing but subservient Jobs to the Rich.

How is Wal-mart helping America, the Land Wal-Mart started in, the land Sam was born in.

Wal-Mart could help the globe, help all Western Economies if they simply bought locally manufactured products. Manufacturing Jobs would be created in every country Wal-Mart now finds itself in.

Wal-Mart will not do it though. They will keep saying such things are “Protectionism”, but really, Wal-Mart and other “Globalized” companies are only “Protecting” their profits, and paying Communists to do it.

Posted by C. D. Walker | Report as abusive
 

To: Diana Furchtgott-Roth,

“When America had a 4.4% unemployment rate, in December 2006, the trade deficit stood at $68 billion.
Now, the unemployment rate is 9.4% and forecast to rise higher, and America’s trade deficit stands at around $29 billion.”

We all know that between 2006 and today we had many major world wide events that affected both trade and employment. I wish you provide more details how foreign trade and employment related. So far you sound like:
if US gov will buy foreign goods worth $39 billions we will reduce unemployment by 5% :).

Here is another point of view that I hope you can prove wrong:
3rd world (China/India/Brasil) are going through Industrial revolution.
New agricultural technologies made 1,000,000′s small farm redundant. They cannot compete with big industrial farms and flood cities with cheep labor – 100,000,000′s farm workers.
Their governments more concern with providing these 100,000,000′s with meaning for today living rather than retirements money and health insurance :). US labor had advantage like better education and technology, but over last 30 yrs these 3rd world narrow these gaps. US labor just cannot compete. I heard 100′s story how free trade is good for 3rd world, I love to hear how it helps US/EU.
US Corporation enjoy benefits of US society while redirect investments to 3rd world undermining our future employment. US manufacturing is shrinking, technology is being outsourced, who is going to taxes to support our retirement in next 20-30 yrs? China or India?

Posted by Sergey | Report as abusive
 

Well it’s refreshing to see that the “free trade” propaganda hasn’t won over everyone. I was afraid more of the acolytes of globalism were going to come out and tell those of us who see the real results of their policies to steal our wealth for a select few or give it away to foreign governments. Lets see the statisticians argue the real facts as opposed to numbers they can manipulate. I’m sure some will come on to tell me how stupid I am, oh well we’ll see who wins out in congress and I’m going to say it’s not “free trade”.

Posted by Frank Castle | Report as abusive
 

Free trade is an inevitability. The benefits outweigh the loss.

It operates on the principles of efficiency and economics. You can argue the social effects, but not the economic ones.

If America seeks to participate in a globalised economy, then it must be efficient. If you coddle industries with protectionism, don’t be surprised when those industries can’t compete in the real world a decade later.

Congress can chose to take the protectionist path if it wishes. But sooner or later, the cost of such deadweight policies will be born by America’s citizens. And ultimately lead to the atrophy of America’s competitive advantages.

Economists know this very well. Which is why they rarely feel the need to argue the point, especially with those who have little or no economic knowledge.

But people have a natural rejection to information they don’t understand. After all, what would educated economists know about the economic forces behind the economy?

“My brother-in-law said they caused this fangled economic crisis, and that’s good enough for me.”

Posted by Anon | Report as abusive
 

The US exists in a world where self-sufficiency is an essential element of defense. Wholesale free trade, especially with potential enemies, with no planning or protection for vital industries is a stupid and suicidal approach. Vital industries include aircraft, construction and farm equipment, and auto manufacturing, food production, high tech industries, and even clothing and shoe production to meet our basic and emergency needs. The objective should never be to maximize trade, but to provide incentives for trade while ensuring long-term permanent capabilities of our vital industries.

Posted by Loren Furland | Report as abusive
 

Posted by bill
Imagine that we, and all workers of the world, got paid in gold for everything we did. Now imagine that we in America get paid more gold for the same work or making the same products as others in the world. Why would anyone in the world pay more gold for the same product?

Great post Bill you got it right.
For those that think free trade caused it all ask yourselves what would have happened if you did have trade barriers do you really think it would have helped if you are still not competitive.
Do I think that trade barriers could have helped you, well yes they probably could, but only and I say only if those other countries feel sorry for you and do not and I emphasize do not, impose equal barriers to your products.
Good luck with that one in today’s world.

Some of this whole problem may have something to do with the US dollar being the world reserve currency.Oddly I just read that this only came about due to the fact that the US got off the gold standard last if you could actually call it a gold standard.In the end they had to get off of it or lose all of the gold they had so ironically their may have still been something like inflation because fixing gold at 35.00 an ounce dose not necessarily guarantee that you money wont inflate making gold a better and better bargain.

By the way why is the US dollar still even used see c-gold and goldmoney as well as others to see why.
Would have loved to use then on ebay if it was possible but last time I read they would not allow them due to security not being good enough yet.But its much cheaper than wiring money and even cheaper than pay pal provided you can get anyone to accept milligrams or grams of gold ownership electronically transferred to them.No exchange fees either unless you convert to your countries currency.Those people must make a fortune off of us with about 2% each time I change US to Can dollars.Found out about it all when I could not qualify for a credit card and could not find a pre payed one offered here.
Loved the idea and will try them all and post what I learn on my web site.
Since gold is now used anywise someone please tell me why is the US dollar still used.I just do not understand.
Yes there is talk about getting off the US dollar but suspect most of this is hidden from the populace.

 

One thing that I failed to point out that everyone here should be aware of.
If the government goes with the printing of more dollars to lead to inflation this can also solve all of these trade problems.This is because while you cannot get anyone unions to accept lower wages at least not to the extent you need to, it is possible to inflate the money into less value making industries competitive again.Its funny how people get all extremely very upset if they look under their mattress and 1/2 the money is gone but only very irritated if prices go double.Most people still equate larger numbers of dollars with more wealth by a disproportionate amount.
But if they are going this route it will be very silent and may involve deals with others such as the Chinese so as to not get them angry.
Not sure what the government would need to do to keep the Chinese happy since so many of those US dollars are still in Chinese hands and they do not want the dollars value to go down by that much while they still hold them.
Not sure what they might be doing but a guess might be by kepping the value of gold down so they can buy more of it afterall that is what money is worth,its worth what it will buy.
Read somewhere recently about oil prices in US dollars depended on keeping the amount of gold it will buy up.In other words some Arabs see US dollars as foreign money anywise and only see the gold that the dollars will buy.To them its really only how many ounces of gold to so much oil even if dollars are involved in the middle and you only need to influence a small amount of the markets to influence whether you have shortages or surpluses and prices are influenced by that by a bigger amount than you might at first guess.
Article was old so its hard to say if its relevant today but it seams reasonable that it could.
This all effects trade gold and dollar values so I posted it here.

 

Yes “free trade” makes all countries better by balancing things out. Thus if you have a higher standard of living it’s going down so that lower countries can rise. That’s fine if you live in a lower standard country or are at the top of the food chain in the higher economy where you can take advantage. It’s a zero sum game, in order for others to rise some must fall, if you are interested in lowering your standard or living and that of your children then “free trade ” is for you, if you live in America. That’s why it’s called protectionism, and if protecting your children’s future is wrong then so be it.

Posted by Frank Castle | Report as abusive
 

Free trade should always be considered a means to an end rather than and end in itself. Consider the Philippines as a case example. This country once produced its own rice and had enough to export to other countries. I am sure somebody who took Economics 101 in college convinced the country to produce a high-value commodities since at the time cheap rice could be imported from elsewhere. Now rice is scarce and much more costly. The government has to control the retail price so the people do not starve.

I am tired of economists who praise the benefits of this monolithic abstract concept – free trade – as if simple academic concepts necessarily apply to real-life conditions. A nation that makes certain products might indeed be inefficient if we can import similar products at a cheaper price. The Smith family can buy all of its groceries from the local store since it does not make economic sense to produce vegetables in their back yard. But if the Smiths are unemployed, suddenly that back yard starts to look pretty good for vegetables.

The underlying truth is, we can have 100 percent employment for every person who wants to work if we have work for them to do. That’s the bottom line. We can easily create conditions where the work that they do directly and positively affects their ability to survive in society. Alternatively, we can entirely bet on the future of the nation on an economic model that depends on integration and a high level of consumer spending from high income levels.

Posted by Don | Report as abusive
 

America can take the protectionist route if it wants to. But only if the country can be efficient enough to justify it in the long term.

Otherwise, America’s future will be the loss of competitive exports, overly inflated domestic prices, lowered standard of living, falling currency values and economic stagnation.

And then any jobs gained from protectionism won’t be worth a dime. Not compared to the costs.

The irony is that if this all happens, the economists will probably still be blamed for it all. When non-economists are confronted by the failure of their great ideas, they tend to blame other people.

Posted by Anon | Report as abusive
 

I find that “trained” economists are the last people to ask about real world issues. Most of them have never held down a real job or ran a real company. Theory is fine in the abstract and in textbooks, not so much in the real world. I can’t honestly see how America’s standard of living would drop more due to protectionism than to losing all it’s jobs to the rest of the world. Anyways, apparently “free trade” is inevitable, lol, I don’t think that word means what you think it means. Is it inevitable like the rational market or some other such economic principle that works on paper but nowhere else? I’ve seen lots of inevitables fail so far, I’d put even money on outlasting this one too.

Posted by Frank Castle | Report as abusive
 

“I find that “trained” economists are the last people to ask about real world issues”

That’s interesting. I think the very same thing about non-economists and “untrained” economists. At least when discussing economic issues.

All economic principles apply in real life. In every single thing the market does, it can be partially or fully explained by economic theory.

In my reserved opinion most people who believe economic principles don’t apply to the real world are either:

1. Not familiar with economic principles, or
2. Not economists.

Posted by Anon | Report as abusive
 

To Dale & bill:
“…all workers of the world, got paid in gold for everything we did. Now imagine that we…”
Cool oversimplification. In attempt to grasp with issue you left huge pieces outside. Let continue with your line:
Imagine that all workers in world paid our taxes, insurances, educations, pension funds etc.

I just wondering why Free Trade Agreements tend to equalize prices for goods and materials while keep all other parameters outside of equation.
Here is a simple answer, because capital by its nature is only interested in return. Once we taxed Capital at West to boost our well being its flight to 3rd world. 3rd World provides less restricted environments to abuse less protected labor.
May be we should capture capital rather than follow fair tails about ‘Free trade’.

Posted by Sergey (SKV) | Report as abusive
 

Most educated people know that protectionism is self-defeating and therein lies the problem; a lack of education on basic economics.

Journalists both in print and on television should be clarifying the issue. Instead we get Lou Dobbs inaccurate nonsense and Keith Olbermann and Bill O’Reilly’s partisan drivel. On public television people hear actually socialists on Bill Moyers (progressives that advocate for socialism are by definition socialists) On AM radio people listen to drug addicts and Glen Beck moan about trade and immigration for 4 hours a day. No wonder people are confused.

Buy American is a horrible idea but when the economy gets bad people demand action; even if that action hurts America. We need for Fareed Zakaria and less William Greider and Lou Dobbs. Least Obama isn’t reopening NAFTA.

 

It’s a shame people continue to mistake education and intelligence. Do you know how to draw a supply/demand curve? Great that means you can draw a supply/demand curve, it doesn’t mean you know squat about how the real world works. The real world doesn’t go by simple curves and no matter how detailed an abstraction of reality you create it is still that an abstraction. Truly wise men know that they don’t know everything, the foolish think that they have a theory for everything. If the real world behaved the way economist say then why would we ever have any problems? It’s okay, the ivory tower crowd can talk about inevitabilities and efficiencies, those of us who are both educated and intelligent know that no theory survives contact with reality. but don’t let dissuade you, keep on thinking you’ve got all the answers. The rest of us will keep dealing with reality while you ideate or whatever it is you do to explain the inexplicable. It’s laughable that they call social sciences science, you can’t test them scientifically. But again don’t let the facts and evidence interfere with you theory.

Posted by Frank Castle | Report as abusive
 

More nonsense from the Davos global elite crowd. Where has Diana Furcthgott-Roth been the past 10 or so years when China dumped its cheap junk on U.S. shores while it simultaneously assessed sky-high tariffs on U.S. goods trying to enter Chinese shores? But suddenly *now* the cry of “protectionism!” sputters out of the mouths of the Cabernet Sauvignon economists. Spare us from your recycled “free trade” cliches, Ms. Furchthgott-Roth, and enter the real world of a United States made jobless by half-a$$ed deindustrialization.

Posted by Henry_Blankett | Report as abusive
 

To Diana Furchtgott-Roth,

I honestly trying to make sense out of free trade.
You refer to research that 57,000,000 US workers benefit from free trade. 2008 US workforce was ~ 155,000,000. Does it mean that ~100,000,000 don’t benefit from free trade?

I am not asking to building a wall around US and make everybody buy US goods. Car manufactures go bust because of wrong business model. Toyota & Honda won even on US soil. But it not the same when it comes to other industries like textile, building materials, mining, steel. China/Mexico/India abuse labor force and environment. Here competition is not fair!

You paint picture that US consumer benefit from cheep Chinese goods. US spend on clothing 21% less over 20 yrs. There is huge shift what used to be life long household items like knifes, appliances etc, being replace every 3-5 yrs becuse of low quality. Miser end-up paying twice!!! High quality goods today command huge premium. We end up spending more.

“When America had a 4.4% unemployment rate, in December 2006, the trade deficit stood at $68 billion.
Now, the unemployment rate is 9.4% and forecast to rise higher, and America’s trade deficit stands at around $29 billion.”

We all know that between 2006 and today we had many major world wide events that affected both trade and employment. I wish you provide more details how foreign trade and employment related. So far you sound like:
if US gov will buy foreign goods worth $39 billions we will reduce unemployment by 5% :).

Here is another point of view that I hope you can prove wrong:
3rd world (China/India/Brasil) are going through Industrial revolution.
New agricultural technologies made 1,000,000’s small farm redundant. They cannot compete with big industrial farms and flood cities with cheep labor – 100,000,000’s farm workers.
Their governments more concern with providing these 100,000,000’s with meaning for today living rather than retirements money and health insurance :). US labor had advantage like better education and technology, but over last 30 yrs these 3rd world narrow these gaps. US labor just cannot compete. I heard 100’s story how free trade is good for 3rd world, I love to hear how it helps US/EU.
US Corporation enjoy benefits of US society while redirect investments to 3rd world undermining our future employment. US manufacturing is shrinking, technology is being outsourced, who is going to taxes to support our retirement in next 20-30 yrs? China or India?

Posted by Sergey | Report as abusive
 

Free trade should be substituted by Fair trade. It is all too easy to sit in the Ivory Tower of the Hudson Institutes and pontificate over free trade and how it generates American jobs.

The fact of the matter is that many of the countries that benefit from the transplantation of American jobs have horrible working conditions, are horrible polluters, and by in large exploit workers. Many American companies are moving their plants overseas to avoid the labor and environmental regulations of the US.

If you want to rebuild American manufacturing, measure the trade imbalance between the US and other countries. If they run a surplus, impose a corresponding duty that will be lowered when the country with the surplus buys more US manufactured goods. Limiting and reducing access to the American market will motivate other countries to buy American goods.

Posted by Bob | Report as abusive
 

It is incredible to see the amount of armchair economists who have suddenly appeared as a result of this crisis.

They begin with the assumption that recessions and free trade are ‘wrong’. And this makes them think economic theory must be ‘wrong’. And this makes them think that suddenly their opinion becomes valid.

But there is a problem with speaking about economic issues when you have no economic knowledge. The problem is that you are commenting on a system you don’t understand.

Your logic might be completely wrong. But as you have no economic knowledge, you will not be in a position to see that you might be incorrect.

And if an economist tells you that you are incorrect, are you going to listen to him? Nope. Because any argument he might provide you will be based on economic theory. And as you don’t understand economic theory, you will just dismiss his words.

So the economist will walk away shaking his head, while you remain confident in your own conceit.

Did you study economics at university? Do you work in big business? Did you even take economics-101 at high school?

Only YOU can know how much economic knowledge you have. And only YOU can know if you are speaking about things you know nothing about.

But here in cyberspace, everyone is an expert. Any economist who reads your words will be able to see your flaws quite easily. But who believes economists anyway?

Posted by It makes you think | Report as abusive
 

As a non-american, I find this debate very interesting. But first, a little background. Approx 80 of my country’s corporations are foreign-owned – almost all of them, except some of the car and electronic manufacturers are American. I’ve gotten fat at MacDonalds, KFC and Burger King. I drink way too much diet-coke. I buy Chinese crap at Walmart and Costco. I wish we had Targets here but alas have to wait to shop there during shopping trips – 2 or 3 a year. I buy stuff on ebay that’s unavailable here – usually from the US. I can speak Starbuck’s lingo surprisingly well – it took awhile but I got it eventually. I watch all kinds of American TV shows which are generally paid for by American corporate advertising. I watch Hollywood movies, way more than I admit to my urbane friends (and I suspect that they might do the same). Once in a blue moon, I’ll pick up and might buy a National Enquirer. When I smoked I used to smoke Camel Filters. Most people at restaurants here seem to drink either Bud or Coor’s light. I buy my gas usually from a large American vendor. I eat Haagen-Daz or Ben and Jerry’s, etc.
Now, you protectionists are telling me to turn my back on American products and become nationalistic? What the heck do you expect me to do? Its madness of course, but free trade is a hard path and it takes confidence every once in a while to get you through the hard times.

America, please don’t let this bump – and I know it is a very hard bump for many of you – but you know the whole world is feeling it – don’t let this bump lead you and the rest of the world into the beggar-thy-neighbor policies of the 30s that massively contributed to the last war to end all wars…

Posted by Anon | Report as abusive
 

How bad does our trade deficit have to get before you will admit you are wrong? We are giving away our wealth, and we’ve turned competitive advantages into disadvantages. The whole game of free trade hasn’t been about trade, but more about global wage arbitrage. You don’t need and econ degree to know (although I have one), that real wages are falling for the majority of Americans.

Posted by Wayne | Report as abusive
 

The US is quite simply being prepared to become a future Russia, in that the Army and supplying the Army is the only thing that matters, and that the rest of the populations are to be subservient to this state of affairs, employment be damned. As long as the Armed Forces are happy the rest can go to Hell.

Posted by Dan | Report as abusive
 

NAFTA and most other “free trade” agreements are merely a race to the bottom for American workers and their wages.

Trade with other nations IS a good thing, however, all to often, the nations with which we’re trading are not free, thus major manipulations occur and far worse.

How is it a good thing to shift our wealth to a communist, socialist or dictatorial setting?? They will only end up owning us in the long run.

Trade deficits really are going to be the death of us as a nation. I certainly don’t relish the thought of being owned by the Chinese or other similar regime; do you?

Posted by TheOldGuard | Report as abusive
 

I find it fascinating to read the faith based economics crowd that promote “free trade” regardless of what the facts in front of their eyes are. There is no “free trade” in the world. Every other country protects their own interests and manages their affairs as they see it to benefit their own country. As we did prior to WW2. It was only after that we were so rich by comparison to the rest of the destroyed world that we allowed other countries liberties with trade to enrich them. Now we have been so rich, so powerful, so entitled for so long we don’t see that we are in fact giving away our birthright and probably won’t see it until we are truly humbled by the world. I hope it doesn’t take that long for sanity to prevail. Anyhow, below is a tutorial on how to calculate GDP. Clearly one can see that two important components are the trade deficit that subtracts and if business investment is going into China and elsewhere in the world rather than in the USA it subtracts. In the USA, the gdp “growth” Diana speaks of is the consumer spending and government spending driven by foreign credit. The virtuous growth driven by exports and business investment is what drives our trade “partners” gdp and is what we need here. Not growth driven by credit. More people should educate themselves and they would realize that there is no way to justify with facts a structural trade deficit and every reason for countries like China to try and promote a structural surplus to enrich their country at our cost.
———————————————————
Tutorial: How to calculate the GDP

The basic formula for calculating the GDP is:

Y = C + I + E + G

where

Y = GDP

C = Consumer Spending

I = Investment made by industry

E = Excess of Exports over Imports

G = Government Spending

This formula is almost self-evident (if you take time to think about it)!

GDP is a measure of all the goods and services produced domestically. Therefore, to calculate the GDP, one only needs to add together the various components of the economy that are a measure of all the goods and services produced.

Many of the goods and services produced are purchased by consumers. So, what consumers spend on them (C) is a measure of that component.

The next component is the somewhat mysterious quantity “I,” or investment made by industry. However, this quantity is mysterious only because investment does not have its ordinary meaning. When calculating the GDP, investment does NOT mean what we normally think of in the case of individuals. It does not mean buying stocks and bonds or putting money in a savings account (S in the diagram). When calculating the GDP, investment means the purchases made by industry in new productive facilities, or, the process of “buying new capital and putting it to use” (Gambs, John, Economics and Man, 1968, p. 168). This includes, for example, buying a new truck, building a new factory, or purchasing new software. This is indicated in the diagram by an arrow pointing from one factory (enterprise) to another. In essence, it shows the factory “reproducing itself” by buying new goods and services that will produce still more new goods and services. NOTE: There is a money-flow relationship between personal savings, S, and investment, I, but this does not figure directly in calculating the GDP. See Exercise 3 below.
The next component is E, or the difference between the value of all exports and the value of all imports. If Exports exceeds imports, it adds to the GDP. If not, it subtracts from the GDP. Thus, even if a nation’s people work very hard to produce products for exports, but still import more than they export, the nation’s GDP will be negatively impacted. This is one of the reasons trade deficits are frequently a political target. Because the balance of trade can be either positive or negative, we can rewrite the equation, showing the components of E, using X for Exports and M for Imports:

Y = C + I + (X – M)+ G

You may see the formula for the GDP written this way, and it may be easier for you to remember in this format.

The final component is G. The government buys (with your tax money) goods and services (G). These purchases are a measure of those goods and services produced. Be aware that many people make the mistake of thinking that the money paid in taxes and spent by the government is “lost” and therefore subtracts from the GDP. Tax money may indeed be spent inefficiently but this fact has no bearing on the calculation of the GDP.

Posted by Rick | Report as abusive
 

It’s like I said economics is much like religion, the acolytes know and the rest of the unwashed masses must take their pontifications as gospel, despite evidence to the contrary. I know enough about economics to understand that there is theory and reality. Economists don’t seem to grasp the difference between the two.
The patent naivete of this article is evidenced by the title, this buy American push isn’t starting a trade war, it’s simply joining in a war that’s been raging and America has been losing.
I know far more about the reality of economics than any person who has been a professor or fellow and never worked in the real world. Theory is fine for books but rarely survives outside the rarified air of the ivory tower.
I understand that “free trade” does help the rich get richer and allows other nations to edge up on America and that’s apparently what some people want. Fortunately, the unwashed masses outnumber the acolytes of “free trade” and despite it’s “inevitability” free trade will need to wait until good times return to fool people with it’s false promises.

Posted by Frank Castle | Report as abusive
 

Both tendencies are present
1. ‘Free Trade’ creates some jobs
2. ‘Free Trade’ kills some jobs

Instead of general blah…blah…Blah… We cannot choose one other another without quantities things. I love to see numbers that prove any point. So far Diana oversimplified things to the point of no-sense. She claimed:

1. 40% of US workforce profit from ‘free trade’.

Does it mean that 60% of work force will benefit from restrictions?

2. ‘Free trade’ promotes free competition.
In most cases ‘Free trade’ doesn’t promote free competition because it focus on good’s price while leaving outside of the scope how goods were produced. West/US labor enjoy social benefits (good work environments/pension plans/health insurance/vocations etc) that drive up cost of our goods.

3. Cheep clothing from China. Price went down 21% over 20 yrs. 1-2% annual inflation should give us more that 21% over 20 yrs.

Posted by Sergey | Report as abusive
 

To Rick,
May be you and me are wrong.
But our decorated economists like preaching and don’t go down to little details to explain were our logic went wrong.
So repeat 20 times ‘free trade’ is good for US. Still didn’t get? repeat anther 100.

BTW She use China us example of growth in ‘free trade’ environment. She forgot mention that China imposes general tariff of 9.8% on all imports. According to Dina’s logic China should self-suffocate.

Posted by Sergey | Report as abusive
 

You are absolutely right Frank. Balance of trade means exactly what it implies. BALANCE! Large trade deficits and surpluses are undesirable. Japan has had stagnant growth for years as it could not maintain it’s trade surplus. The natural tendency is for currency to inflate when that currencies nation has over time sustained large trade deficits. Eventually the purchasing power of said currency is so weakened the imported goods they once purchased in mass become unaffordable. This in turn causes economic contraction for the exporting country.

The overwhelming motivator to ignore the principal of balance is greed. I can buy more if it is cheaper. I can sell more for less with better profit margins. I can bring more of another nations wealth to my nation if I export successfully and in quantity. Neither scenarios are ever sustained. It is all in the “Wealth of Nations” by Adam Smith printed in 1775.

Posted by anubis | Report as abusive
 

Frank Castle wrote:It’s like I said economics is much like religion, the acolytes know and the rest of the unwashed masses must take their pontifications as gospel, despite evidence to the contrary. I know enough about economics to understand that there is theory and reality.

I wrote:
Hi Frank.
Odd that I see anti free trade people as having a religious view.
I am getting tired of repleting myself that’s its not just theory its been tried repeatedly.For the best example do a Google search on Britain and Margette Thacher on trade.Her country was turning into a third world as a result of constantly protecting unions and keeping cheaper products out.
A lot of wealth was still in Britten but it was largely invested outside of the country and want to guess what one of the reasons might be.
I will give up event trying to reply unless someone shows they even listen.

AND Frank Castle also wrote: I know far more about the reality of economics than any person who has been a professor or fellow and never worked in the real world. Theory is fine for books but rarely survives outside the rarified air of the ivory tower.

Ya that’s easy to claim.I used to see this a lot when I hung around the news group sci.physics and yes sometimes the experts do get stuck on dogma.I used to hang there a lot testing my own theory of the mechanism of how time and space got created.Oddly I am probably right but yet the theory never caught on.Yes there is a web page on Incompetent and unaware and we all need to be careful not to fall into that trap.I was terrified that I had.Since no one here appears to actually read or remember any of the disagreements I post I wont bother to find that page link.Find my web site if you want to know more.To much like religion here.

June 24th, 2009 7:04 am GMT – Posted by Rick
I find it fascinating to read the faith based economics crowd that promote “free trade” regardless of what the facts in front of their eyes are. There is no “free trade” in the world. Every other country protects their own interests and manages their affairs as they see it to benefit their own country.

I reply:That’s one of the main points that if you do not get free trade why in the world would you want to give free trade to another country.Its possible that the politicians may have failed some and that’s something that would need to be fixed.

June 23rd, 2009 10:06 pm GMT – Posted by It makes you think
It is incredible to see the amount of armchair economists who have suddenly appeared as a result of this crisis.

I replied:Finally a bit of light at the end of the tunnel, thanks.

To add a bit more.
Remember one of the main reasons for wanting free trade is because of the way products today must be manufactured to be cheap.
When I first learned about manufacturing one of the first things you learn is that even the cost to make a door handle for a car was something like $20,000 years ago when the textbook was written.
So if you markets were small and you only made the 1 car or computer the costs would be astronomical and not much better if you built one for only one state.
If the US were to have 10005 import taxes and every one else applied the same costs to importing products from the US we wold all go back to horses and buggy days.Even tractors must be made in quantities to become cheap.We need the world more than the world needs the US now.

When everything was hand made anywise free trade was not so important.

 

It should be pointed out that today because of environmental reasons many mines are ether closed or not allowed to open and the difficulties of starting mines are a difficult thing just the opposite of Mexico.
I have read that minerals such as tungsten are not mined in the US due to these reasons and its mostly imported from China.Note its a strategic metal of critical nature so if you ever went to war with China you would be in a really bad situation.
And it was pointed out in the article that because of these policies the US is even less ably to pay off deficits in trade simply because they are not producing metals such as this.Really its almost as if the US wants to rune itself rather than upset any vocal minorities.

Actually I prefer the world becoming interdependent after all if you depend on China as much as they depend on you the chances for war are far less.
I really think if it was not the case it should be made into one.Great idea I would say to keep the world at peace.

 

Economics is not a religion. Quite the opposite. It is more like the theory of evolution:

1. It is a theory which can explain the observations of the world in a concrete testable manner.

2. Is feared by those who don’t understand it, and attacked by those who are not in a position to critique it.

3. It is supported by real world proof, as opposed to the alternatives which are disproved by world proof.

4. It’s critics realise that their position is irrational as long as Economics remains cohesive theory. So the only way they can argue against economics is to attack it, rather then support their own contrasting views.

5. It’s critics tend to be anti-intellectuals, who also tend to be reluctant to learn about economics for themselves.

6. The critics of economics seem to believe that just because they are in the majority in the forum, this means they are correct.

7. The critics of economics tend fall back on the ancient debating tactic that as they can’t possibly be wrong, this means the opponent *must* be wrong. AKA: “You’re wrong because I say so” argument.

Posted by Anon | Report as abusive
 

Economics is not a science it is a religion. It is more like the theory of intelligent design:

1. It is a theory which attempts explain the observations of the world, but it is not testable in a scientific manner.

2. Is feared by those who don’t understand it, and attacked by those who are not in a position to critique it.

3. It is unsupported by real world proof, as opposed to the alternatives which are obvious from real world evidence.

4. It’s proponents realize that their position is irrational and insist if you don’t agree you are too stupid to see it. So the only way they can argue for economics is to repeat empty mantras over and over until it seems to be accepted.

5. It’s proponents tend to be intellectuals, who also tend to be reluctant to accept that theory and reality often differ.

6. The proponents of economics seem to believe that just because they are in they have ideas that work in a theoretical vacuum that it also works in the real world.

7. The proponents of economics tend fall back on the ancient debating tactic that as they can’t possibly be wrong, this means the opponent *must* be wrong. AKA: “You’re wrong because I say so” argument.

Please why not post some quotes from the gospel of Adam Smith or Keynes or whatever secular saint you would have us believe over reality. You place your faith in empty mantras and theories, the majority will deal with reality. I wonder why it is the majority that fails to believe in your creed, I’m sure you’ll put that off on the masses being too stupid to grasp the wonders of your faith. It’s okay I’m very big on accepting people’s irrational beliefs, people have been inventing myths and religions for centuries, so don’t worry lots of people still believe in god, much like many still cling to the belief in free trade.

Posted by Frank Caslte | Report as abusive
 

To Dale,
Wow!! You are the only ‘Free Trade’ supporter who actually answer questions. Thank you!
I hope you fogive my english :).
Here are few questions:

1. ‘Free trade’ claims -> that protectionism is bad. Including improt tariffs.

China imposes general import tariff of 9.8% and still doing fine.

2. You made the point that capital was running out of Britain to chase higher profits from unrestricted trade.

You were right but you missed bigger picture.

Capital running away from regulations, taxes and chasing higher return associated with cheep labor and few laws.
It is not about ‘free trade’.

As long as 3rd world countries allow abuse their labor capital will flow there. On top of this 3rd world quickly closing education & technology gap. As long as West enjoys orderly society and benefits of retirements/health care/etc our labor will cost more than in 3rd world. Instead of addressing this disbalance ‘free trade’ concentrates only on final cost. Make 3rd world countries provide benefits to their citizens and US can compete.

Posted by Sergey | Report as abusive
 

I wold imagine that I am quite a bit younger than the majority of bloggers concerning this issue, but I will be praying that when I solidify my expertise I will not be as close minded as many of you economical ‘experts’. There are many different arguments posted, but I think that this issue needs to be looked at as a possible future problem. Wisdom would require foreseeing problems that very possible could occur. People do not need to fly of the handle at any remark that imagines the possibility of US crisis. The facts are stated…’Buy American’ weakens foreign trade, many countries economically idolize American ingenuity, therefore other countries could follow suite which would create less global trade. Diana states and cites that 40% of the US workforce is employed by world trade (57 Million Americans), and the decline in free trade would significantly diminish an already unstable job-market. Personally I do not believe that any country is prepared to run itself independent of foreign trade so all of you hot heads…calm yourself. Acknowledge the possibility of a problem and understand the America is obviously not the super power it once was, so preparation is priceless.

Posted by Spock | Report as abusive
 

Nice try, Frank.

Economics is testable. Every theory from demand, supply, share market prices, interest rates, utility, opportunity cost, inflation, free trade, tarrifs, waste and economic growth are all based on data observation from the real world.

These theories are all able to be linked to reality, and are based on real life observations. So to claim they are not testable, or do not apply to real life, is incorrect. And almost laughable to anyone with even basic economic knowledge.

Every time economic statistics come out, you can see the relationship between that number, and other factors in the economy.

Real people, in real business, make decisions based on economics every day. And they make decisions which comply with economic theory. They see with their own eyes that economics does apply to the real world.

Even this recession is explainable in economic terms, and complies to economic theory.

Yet you can dismiss all of this proof with a wave of your hand, and simply claim economic theory does not apply. Just because you don’t like the idea that an inefficient American industry can get chucked out on it’s ass if it can’t compete with the real world.

Economics has more in common with science and psychology then it does with religion. Why not read some economic theory Frank? See for yourself.

If you do, and suddenly become an economist, it is no different from reading a science book and suddenly learning about the laws of physics.

Posted by Anon | Report as abusive
 

Nice try, but you fail on so many levels it’s laughable. If these theories are testable in a scientific manner where do you conduct the controls? Oh you don’t mean they are scientifically testable, you mean if you abstract enough reality from the data you can produce a nice curve that in the abstract simulates reality. I really don’t think social “scientists” understand what science means.
Let’s see how many CEOs or entrepreneurs are economic professors or fellows, hmm seems the only jobs these people get are professor and fellowships, but you keep thinking that real business people go to the ivory tower intellectuals. It’s the same reason why physicists stay in schools and think tanks and engineers actually do the real world work of advancing technology.
It’s not that intellectuals have no value, it’s they work well in the normative world where you can abstract reality into something manageable as opposed to the ugly real world. You need theorists, but you don’t simply rely on their ideas without recourse to reality. Anyone with a basic knowledge of business knows that, but sadly most economic fellows don’t have that.
Free trade works only in the normative world, so while it may appear inevitable there, it’s not working in reality. Primarily because there is no real “free trade”, because all nations cheat. In a perfect world it would work, sadly we don’t live in a perfect world. So keep on repeating that free trade is the way ..can I get an AMEN!

Posted by Frank Castle | Report as abusive
 

To Anon,
It doesn’t look like you have practical experience with modeling. There is only one science that pretend to be strict and logical – math. All other sciences use math as tool to build mathematical/quantitative models. Every model uses many assumptions and conditions to accommodate real world scenarios.
Once you done with assumptions and conditions your perfect model produce perfect numbers, but while they match your perfect model they may be far away from real world.

I used to do financial models and saw may of them falling apart well before last recession.

1. Tell me about at least one model that can reliably forecast economy for 2-3 yrs ahead.

2. Tell me why nobody used it in 2006…

Here is another simple example:
Everybody tells protecting market is bad for economy, country will self suffocate. Look at UK in 1970′s (That is your ‘black box’ model :)

Look at China today that have general import tariff of 9.8% and enjoys 8% growth (That is my ‘black box’ model :) ).

Opppsss…

Posted by Serey | Report as abusive
 

“If these theories are testable in a scientific manner where do you conduct the controls?”

The economy.

“if you abstract enough reality from the data you can produce a nice curve that in the abstract simulates reality.”

Economics is more then simple curves. It is also linking the relationship between factors. It is about looking at what is happening *right now*, figuring out why, and what led to it. That is how the theories were developed, much like science.

“how many CEOs or entrepreneurs are economic professors or fellows, hmm seems the only jobs these people get are professor and fellowships”

Very few business men are economics professors. But most will have some knowledge of economics. And even if they didn’t, it doesn’t stop them from making decisions which fit with economic theory. The law of supply and demand will apply, whether you know about those laws or not.

“physicists stay in schools and think tanks and engineers actually do the real world work”

Very few people who study economics become those ivory tower intellectuals you dislike. Most go on to become financial advisers, businessmen, bankers ect. Some even become CEOs.

“they work well in the normative world where you can abstract reality into something manageable as opposed to the ugly real world.”

The next time you hear the guy on business news doing that jibber jabber about the interest rates and the inflation whatsits, think back on your words. It’s all economics.

“Anyone with a basic knowledge of business knows that, but sadly most economic fellows don’t have that.”

Do you have a basic knowledge of business, then?

Posted by Anon | Report as abusive
 

Yes our closets are full. They’re full of clothes sewn by children working in sweatshops, made from pesticide-contaminated cotton and that fall apart at the seams after a few washings.

How much plastic do we have to eat before we start making a bonfire out of globalists and stock analysts?

Posted by Jeff Griffin | Report as abusive
 

Diana,
Unemployment rate was higher than 5% and probably reached 9 or 10% in the 1970s but the trade deficit as a proportion of the US GDP was high as well and probably equivalent to the number you have quoted for 2006.
I am not too sure that there is a statistical correlation between unemployment rate and trade deficit. Unemployment rate is more likely a holistic effect of national and international trade, national and international consumer spending and government spending.
Kalahasti

>>>>>>>>>>>>>>
Dear Mr. Castle,

When America had a 4.4% unemployment rate, in December 2006, the trade deficit stood at $68 billion. Now, the unemployment rate is 9.4% and forecast to rise higher, and America’s trade deficit stands at around $29 billion. Almost everyone would agree, especially the unemployed, that people were better off with a higher trade deficit and lower unemployment. Should we also be concerned about trade deficits between individual states, such as Maryland and Virginia?

Diana

 

How many American goods did the Bangladeshi people buy?

Posted by MarkusR | Report as abusive
 

You want to protect a small number of jobs that pay more than $100,000/year. It’s a reflection of who you are and your view of America.

In short, you’re clueless. The last time America was a good place to work was during the Johnson administration. Many factory workers had vacation homes. Jobs were plentiful, NOTHING made in mainland China was for sale in the United States, we made T-shirts here in America.

Sadly, you won’t lose your job protecting a small number of wealthy people’s income, but if you don’t get a clue, you won’t succeed in doing it.

Posted by Randy Cunningham | Report as abusive
 

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