Friday, May 1, 2015

On Trade

There are plenty of reasons why a person may end up deciding that “free-trade” agreements like NAFTA and the Trans-Pacific Partnership (TPP) are a good idea, just as there are plenty of reasons why a person might end up thinking that they’re a bad idea. Personally, I believe that if people voted according to their informed self-interest, 99.99% of Americans would opposed these deals, and 00.01% would be heartily in favor of them. But that’s just me. 

Now, apart from carefully studying the fine-print and thinking about the direct and indirect consequences of “free trade” agreements, here are some reasons why a person might end up favoring them:

Now, there are some shortcomings in each of these reasons. Please bear with me as I explain them.

Party Loyalty

Mr. Clinton was a big supporter of NAFTA and signed the deal, and Mr. Obama is struggling tirelessly in support of TPP. They’re both Democrats. But it’s interesting to see that NAFTA and TPP get a lot of support from BOTH parties. 

Oh, maybe it is heartening to see bipartisanship every now and then. It’s certainly a refreshing change of pace. But to me, it’s a bit disturbing that NAFTA would have been signed into law regardless of whether Mr. Clinton had won the election of 1992 or if George H.W. Bush had won. Bush had been, after all. I’m with George Carlin on this one: “The word bipartisan means some larger-than-usual deception is being carried out.”

The occupant of the Oval Office would be supporting TPP right now even if Romney had won (for evidence of this, go HERE). If Romney had won, there’d be debate about “fast track authority” in the media and in Congress. The only difference would be that – just maybe – there would be members of the progressive wing of the Democratic Party who would be more vocal in airing their concerns. 

Free Market Fandom
I suspect that a lot of people who support free market capitalism get a warm fuzzy every time they hear the word “free,” and this goes a long way in explaining why they like the way “free trade agreement” sounds. Without going into a long explanation of the technical definition of “free market,” it will suffice to say that if special deals are being struck with a short-list of countries like Mexico and Canada (in the case of NAFTA) or Singapore and Brunei and a few others (in the case of TPP), then the government is heavily involving itself in trade. These deals go on for hundreds of pages and contain thousands of line-items for things like corn, cars, quinoa, and computers.
Government intervention in the economy used to be frowned on by conservatives. Back in the day, when there was a thing called the U.S.S.R., conservatives would relentlessly criticize the Soviet “planned economy.” And the fact is, even though the Soviets liked to call themselves “communists” there were always a few privileged heads of industry that made huge profits from the Soviets’ planned economy. And, as it happens to turn out, those privileged few spent a lot of time with Soviet political leaders, eating caviar in various luxurious dachas overlooking the Black Sea.'

It’s the same story when we look at U.S. trade policy. There are heads of certain privileged heads of industry that always have a spot at the negotiating table. Back in the time of NAFTA, a spokesperson for General Electric went before Congress in support of the deal. 

“We are looking at another $7.5 billion in potential sales over the next 10 years. These sales could support 10,000 jobs for General Electric and its suppliers. We fervently believe that these jobs depend on the success of this agreement.” Michael Gadbaw, General Electric, before the House Foreign Affairs Committee, 10/21/1993.
Here, the important point is NOT that Mr. Gadbaw was either (a) lying to Congress or (b) woefully misinformed. In fact, after NAFTA was passed, General Electric laid off thousands of American workers and hired Mexican workers to replace them. No, the important point is that General Electric took such an interest in the deal that it was willing to donate the talents of its Public Relations team.
The promise of free market economics is that it opens the door to innovation. Any small business owner can build a better mousetrap and compete against the Big Guys. But that’s not what we are talking about here. General Electric isn’t interested in what’ll help the little guy succeed. It is interested in increasing its own advantage at the expense of competitors big or small. 

Automobile Manufacturing Capacity: Bad news for Detroit
Trust In Experts

There are plenty of economists who will swear up and down that “free trade” agreements boost the U.S. economy. That’s fine for what it’s worth. But there are some points that a skeptical inquirer should bear in mind: (a) economists have been known to be wrong (remember when they were saying that the boom of the 2000’s could keep going on indefinitely?) and (b) what they consider “boosting the economy” might not be the same thing that you would consider “boosting the economy.” 

So, it is possible (as many economists claim) that a “free trade” agreement will not increase unemployment. They may say, “There might be a loss of some low-skilled jobs, but that will be made up for by an increase in higher-skilled jobs.” Even if this were true, it leaves a lot of low-skilled Americans out of work. Those people could go back to college and learn new skills, provided that they have money for tuition after they’ve lost their low-skilled jobs, and provided that they have the free time to do so. However, their time might be consumed by, oh, a desperate life-or-death scramble to bring in income to support their families. And maybe the reason they never went to college is because the public schools they’d attended weren’t that good.
Michigan spends more on correctional facilities than on education.

Another thing about experts is this: they only answer the questions they are asked. If you ask them about job loss, they will tell you that “free trade” agreements will not cause a net loss in jobs. But unless you ask, they are not going to discuss issues that have very little to do with the question that was posed to them. An economist can’t be relied on to volunteer off-topic information such as, “we may expect to see that in certain communities the loss of jobs will have a profound impact, and will almost certainly lead to increased crime and social disorder.” Economists are also timid when it comes to the worst-case scenario: back in the time of NAFTA, they might have been thinking, “it is possible that NAFTA will transform large cities such as Detroit to such an extent that entire neighborhoods will be abandoned and torn down, and the resulting empty land will be used to create gigantic drainage ditches.” Stuff like that is outside the scope of the macro-economic study of international trade. 

Trust in Government Statistics

For much the same reason, one should be wary when reading government statistics. These statistics are generated by economists. But there is an additional factor. There is a strong institutional pressure to interpret data in a way that supports the administration. So, if the International Trade Commission is asked to report on the balance of trade with Mexico following NAFTA, certain bureaucrats and functionaries may think to themselves, “What would happen if I were to report that the deal has been a disaster?” They might worry, looking up the chain of command at their immediate superiors and the persons to whom their superiors report, and if they look high enough they will see Bill Clinton or Barack Obama or Mitt Romney or whoever it is that happens to be president at the time. I am not suggesting that they would deliberately fudge the numbers (heaven forbid!). However, I am enough of a cynic to believe that the process of interpreting statistics is susceptible to unconscious bias. This also relates to the phenomenon of Groupthink, but I will refrain from expanding on that point.

Anti-Union Sentiment

Looking at United States history in the 19th and 20th centuries, relations between union-represented laborers and business owners have generally been antagonistic. This may only be a historical accident – meaning, it never needed to be this way. Labor became a loyal constituency in support of Democrat candidates and business owners became a loyal constituency in support of Republican candidates. Partisan politics may have inflamed union members’ antagonism to management, and management’s antagonism to unions. When partisan sentiments are inflamed, more money pours into the coffers of the party. The aim of a political party is to exert control over government and thereby perpetuate itself, and doing so requires a lot of money.

Was there a point when U.S. automobile manufacturers found it impossible to remain profitable because of excessive union demands? Possibly. But it is more common that, when a formerly profitable company is no longer profitable, poor management is to blame. 

Let’s take a moment to think about the devastating success of Japanese automobiles during the 1970s. There are at two reasons for the Japanese success that are worth mentioning here. 

First, Toyota and other Japanese firms took the advice of W. Edwards Deming. Deming told managers to empower their employees and work collaboratively with them to achieve a common aim of producing high quality products.

Secondly, President Jimmy Carter was faced with a choice between favoring protectionist legislation aimed at limiting Japanese imports, or pursuing a “free trade” ideology. Carter chose the latter. He was swayed by the advice of the U.S. trade representative that the better course of action was to encourage the Japanese to import a larger number of American cars, and balance out the situation that way. OF course, American cars were quite large and were gas-guzzlers, and the streets of Japan were quite narrow and the price of gas exceedingly high. So this plan made no sense and had no hope of succeeding.

Anti-Mob Sentiment

One may argue that unrest in Baltimore and elsewhere is the indirect result of trade agreements such as NAFTA. As already noted, a lot of manufacturing jobs have left the country. I respect the view held by many conservatives, centrists, and mainstream Americans that mob violence is terribly unfair to the victims of this violence. It is counter-productive. It is indecent. It is wasteful. It creates division when what is needed is a unity of purpose. 

But it is also true that, in a well-functioning democracy, every voter has equal say in political decisions. There are no well-organized, well-funded special interest groups lobbying Congress. Voters are well-educated and have access to objective information. Their elected representatives look out for them. By these standards, ours is not a well-functioning democracy. And when democracy fails, mobs happen.

Now, it's simply too convenient to indulge in "either/or" thinking. Either/or thinking goes like this: "either protestors exhibit good civic behavior or I will refuse to hear their grievances." This has a moralistic tone and Americans, it may be said, are a moralistic people. I will suggest that, if these were ordinary times, intolerance of violent mobs is appropriate. But these are not ordinary times. 


Elie Weisel said, “The opposite of love is not hate, it is indifference. The opposite of art is not ugliness, it is indifference. The opposite of faith is not heresy, it is indifference. And the opposite of life is not death, it is indifference.”

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