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Endgame for the Fed? – Article by Ron Paul

Endgame for the Fed? – Article by Ron Paul


Ron Paul
September 25, 2019
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The Federal Reserve , responding to concerns about the economy and the stock market, and perhaps to criticisms by President Trump, recently changed the course of interest rates by cutting it’s “benchmark” rate from 2.25 percent to two percent. President Trump responded to the cut in already historically-low rates by attacking the Fed for not committing to future rate cuts.

The Fed’s action is an example of a popular definition of insanity: doing the same action over and over again and expecting different results. After the 2008 market meltdown, the Fed launched an unprecedented policy of near-zero interest rates and “quantitative easing.” Both failed to produce real economic growth. The latest rate cut is unlikely to increase growth or avert a major economic crisis.

It is not a coincidence that the Fed’s rate cut came along with Congress passing a two-year budget deal that increases our already 22 trillion dollars national debt and suspends the debt ceiling. The increase in government debt increases the pressure on the Fed to keep interest rates artificially low so the federal government’s interest payments do not increase to unsustainable levels. President Trump’s tax and regulatory policies have had some positive effects on economic growth and job creation. However, these gains are going to be short-lived because they cannot offset the damage caused by the explosion in deficit spending and the Federal Reserve’s resulting monetization of the debt. President Trump has also endangered the global economy by imposing tariffs on imports from the US’s largest trading partners including China. This has resulted in a trade war that is hurting export-driven industries such as agriculture.

President Trump recently imposed more tariffs on Chinese imports, and China responded to the tariffs by devaluing its currency. The devaluation lowers the price consumers pay for Chinese goods, partly offsetting the effect of the tariffs. The US government responded by labeling China a currency manipulator, a charge dripping with hypocrisy since, thanks to the dollar’s world reserve currency status, the US is history’s greatest currency manipulator. Another irony is that China’s action mirrors President Trump’s continuous calls for the Federal Reserve to lower interest rates.

While no one can predict when or how the next economic crisis will occur, we do know the crisis is coming unless, as seems unlikely, the Fed stops distorting the economy by manipulating interest rates (which are the price of money), Congress cuts spending and debt, and President Trump declares a ceasefire in the trade war.

The Federal Reserve’s rate cut failed to stop a drastic fall in the stock market. This is actually good news as it shows that even Wall Street is losing faith in the Federal Reserve’s ability to manage the unmanageable — a monetary system based solely on fiat currency. The erosion of trust in and respect for the Fed is also shown by the interest in cryptocurrency and the momentum behind two initiatives spearheaded by my Campaign for Liberty — passing the Audit the Fed bill and passing state laws re-legalizing gold and silver as legal tender. There is no doubt we are witnessing the last days of not just the Federal Reserve but the entire welfare-warfare system. Those who know the truth must do all they can to ensure that the crisis results in a return to a constitutional republic, true free markets, sound money, and a foreign policy of peace and free trade.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

 

Both Lincoln and the Confederacy Were Awful – Article by Tom Mullen

Both Lincoln and the Confederacy Were Awful – Article by Tom Mullen

The New Renaissance Hat
Tom Mullen
September 3, 2017
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21st-century Americans shouldn’t pick a side in the Civil War. 

We’re fighting the Civil War again. Whenever both major parties drop any pretense of addressing the real problems facing American taxpayers, their constituents revert to having at each other in “the culture wars.” And no culture war would be complete without relitigating what should now be settled history: the reasons for the Civil War.

Americans sympathetic to the Union generally believe the war was fought to end slavery or to “rescue the slaves” from political kidnapping by the slave states, that seceded from the Union to avoid impending abolition.

“No,” say those sympathetic to the Confederacy. The states seceded over states’ rights, particularly their right not to be victimized by high protectionist tariffs, paid mostly by southern states, but spent mostly on what we’d now call corporate welfare and infrastructure projects in the north.

That the states seceded for a different reason than the war was fought seems to elude everyone.

States’ Rights, Tariffs, or Slavery?

There is plenty of secondary literature presenting evidence on both sides, which is why Americans are still arguing this tired point over 150 years after the war ended. But there is a pretty simple way to clear the air. Just read the primary sources and take everyone at his word.

Many of the Confederate states published declarations explaining their reasons for seceding from the Union. The problem for those making the tariff argument is only a few of these declarations even mention the tariff, and then only in passing. The declarations of South Carolina, Mississippi and Texas don’t mention taxes or economic policy at all.

But what all the declarations state loud and clear is the seceding states’ objections to the federal government not fulfilling its constitutional duty to execute fugitive slave laws, the election of a president who campaigned saying the Union could not survive “half slave and half free,” and their belief that the Republican Party’s determination to keep slavery out of new territories would eventually lead to abolition of the institution in their own states.

The passage which is perhaps most damning to the tariff theory comes from Georgia’s Declaration, which reads:

The party of Lincoln, called the Republican party, under its present name and organization, is of recent origin. It is admitted to be an anti-slavery party. While it attracts to itself by its creed the scattered advocates of exploded political heresies, of condemned theories in political economy, the advocates of commercial restrictions, of protection, of special privileges, of waste and corruption in the administration of Government, anti-slavery is its mission and its purpose. By anti-slavery it is made a power in the state.

The passage is accurate. The Republican Party was indeed comprised of a coalition between abolitionists and former members of the Whig Party, like Lincoln, who still sought to implement Henry Clay’s “American System” of protectionist tariffs, “internal improvements” (viz. “infrastructure”) and a central bank. But the Georgia Declaration dismisses this as merely an incidental observation and emphasizes the party’s opposition to slavery. One cannot help but conclude that Georgia, while objecting to the American System, was willing to tolerate it, but would not tolerate any threat to slavery.

It is true that not all states eventually part of the Confederacy seceded at the same time. Four seceded only after Lincoln called for volunteers from state militias to put down what he considered a rebellion. Arkansas, in particular, cited the Union’s attempt to coerce it into making war on the seceded states as its reason for seceding itself. Nevertheless, none of this would have happened had the first seven states of the Confederacy not seceded for their stated reason: fear of the eventual abolition of slavery.

It is after presenting this airtight evidence that advocates of Lincoln and the war commit their grand non-sequitur: namely, that because the lower southern states seceded over slavery, Lincoln must have fought the war to abolish it. But just as the tariff or states’ rights theories are belied by the seceding states’ own words, so, too, is the abolition theory belied by Lincoln’s.

Lincoln’s Motives

In his first inaugural, Lincoln reassured the seceded states he had no intention of seeking abolition of slavery where it already existed and that he fully acknowledged the constitutional duty of the federal government to uphold fugitive slave laws. He even goes so far as to say those laws will be upheld as “cheerfully” as any others under the Constitution.

What Lincoln says he will not tolerate is secession itself. Contrary to the plain words of the Declaration of Independence, Lincoln claims “no government proper ever had a provision in its organic law for its own termination.” And he goes on to state clearly why he will later prosecute the Civil War.

In doing this there needs to be no bloodshed or violence, and there shall be none unless it be forced upon the national authority. The power confided to me will be used to hold, occupy, and possess the property and places belonging to the Government and to collect the duties and imposts; but beyond what may be necessary for these objects, there will be no invasion, no using of force against or among the people anywhere.

Stay off federal property and pay your taxes and I won’t invade. That was Lincoln’s message to the seceded states. Not only did he not insist they free their slaves, he wrote each of the governors promising his support for the Corwin Amendment to the Constitution, which would guarantee the “rights” of the slaveholding states to continue the institution in perpetuity.

Some Lincoln apologists offer the theory that Lincoln’s motivations changed over the course of the war and that he came to view freeing the slaves as the primary reason for fighting it. Again, Lincoln’s own words contradict this. In a letter to Horace Greeley, written just a month before he issued his first Emancipation Proclamation, having already discussed it with his cabinet a month before, Lincoln wrote:

My paramount object in this struggle is to save the Union and is not either to save or to destroy slavery. If I could save the Union without freeing any slave I would do it, and if I could save it by freeing all the slaves I would do it, and if I could save it by freeing some and leaving others alone I would also do that. What I do about slavery, and the colored race, I do because I believe it helps to save the Union; and what I forbear, I forbear because I do not believe it would help to save the Union.

It doesn’t get any plainer than that.

Stopping Picking Sides

There is no reason to doubt Lincoln’s personal, philosophical opposition to slavery, but it wasn’t the reason he fought the Civil War. We know this because he said so, repeatedly. And it is by no means a leap, based on his lifelong political beliefs and what he said himself during his first inaugural, that the reason it was so important for him to “save the Union” was because he couldn’t pursue his big-government agenda without the seceding states’ taxes. That’s quite a poor reason to start a war in which 600,000 to a million Americans are killed by their fellow Americans.

While Lincoln may not have fought the war to end slavery, there is no doubt it directly led to abolition, something every other civilized country achieved peacefully. But it also had permanent, negative effects on the American republic. It destroyed the view of the United States as a voluntary union. It set precedents for expansion of executive power which would be cited again and again by future presidents seeking new ones. And it forever associated limiting federal power and secession with slavery and racism.

21st-century Americans shouldn’t pick a side in the Civil War. Much like the brawl between the White Supremacists and Antifa in Charlottesville, Va., it was fought by two tyrannical powers for mostly evil purposes. The best we can do today is understand what really happened and work to rehabilitate the bedrock American principles of limited, decentralized government and the natural right of secession, good ideas given a bad name by Lincoln and the Confederates alike.

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? and A Return to Common  Sense: Reawakening Liberty in the Inhabitants of America. For more information and more of Tom’s writing, visit www.tommullen.net.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author. Read the original article.

Protectionism is All Around Us – Article by Daniel Gold

Protectionism is All Around Us – Article by Daniel Gold

The New Renaissance HatDaniel Gold
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In political speak, a protectionist is someone who is against free trade. They want to protect American businesses, and indirectly American workers, from cheap labor offered abroad.

The underlying argument is that American workers require protection from competition.The underlying argument is that American workers require, or benefit from, protection from competition.

This same argument is used to restrict many other liberties.

Crusaders against immigration lament that low wage earning immigrants steal jobs from, and drive down the wages of American born workers.

Opponents of Uber and AirBnB claim that hotel owners, and taxi drivers, need to be protected from cheap competition offered in the sharing economy.

Even advocates of the minimum wage are protectionists. They feel that workers need to be protected from other workers who would offer to sell their labor at a lower price. This was evident in the first debate over the minimum wage, when white workers felt they needed protection against cheaper, African-American labor.

The minimum wage was first implemented in the United States nationally in 1931 by the Davis-Bacon act. During the debate in the House of representatives, Rep. William Upshaw (D-Ga.) complained of the “superabundance or large aggregation of Negro labor.” Rep. Miles Allgood (D-Ala.) said, “That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.”

Opposition to immigration, trade, the sharing economy, and a wage set by the market is all the same tired argument, rebranded to hide its proven failure.

It’s Always Anti-Competitive

Protectionism fails because the harms of protectionist policies are guaranteed to exceed the benefits. Any benefits transferred to the producers are passed onto the consumer in the form of higher prices. However, because less exchange takes place at a higher price, there is a deadweight loss to the economy as a whole.

Protectionism is propped up by a political system of concentrated benefits and dispersed costs that make it difficult to defeat. Imagine you own a hotel, and a bill is sitting on your legislator’s desk to ban AirBnB.

You will make it known to your legislator, that your support for him, and the support of 100 other hotel owners like you, depends on him signing the bill. Meanwhile the hundreds of thousands of consumers who are hurt by this bill, care more about other things.

The Damage Adds Up

The individual consumer may not care much about the hurt she suffers from a more expensive hotel, but it adds up. Hundreds of thousands of goods are more expensive because of tariffs or quotas. Hundreds of services become more expensive for everyone because of occupational licensing laws.

Because of the incentives within the system, this will be one of the most difficult economic problems to fix. It requires vigilance, it requires us to call our representatives while they consider protectionist laws, it requires us to vote for non-protectionist candidates. If we do all this, we can rid ourselves of the largest drag on our economy.

danielgold
Daniel Gold

Daniel Gold is a student at Carleton College.

This article was originally published on FEE.org. Read the original article.

Will Trump Boycott Grocery Stores for Their Unfair Trade? – Article by Edward Hudgins

Will Trump Boycott Grocery Stores for Their Unfair Trade? – Article by Edward Hudgins

The New Renaissance HatEdward Hudgins
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Donald Trump’s stump thump against Mexico is that it runs a $58 billion annual trade surplus with the United States. Trump somehow thinks this leaves America the poorer.

He claims that it is out of that money, presumably sitting in some giant vault in Tijuana, that Mexico will pay for the border fence he wants to build to keep immigrants from entering the United States illegally. Trump’s pronouncements only demonstrate how he keeps facts and reason from entering his thoughts and, how he would keep Americans from making their own free choices in a free market.

International free trade is win-win
Trump’s very language reveals a glaring error concerning trade. Mexico and America do not trade. Mexicans and Americans do. Mexicans have $58 billion more in cash (pieces of paper with George Washington’s picture on them or the equivalent credits on bank ledgers) and Americans have $58 billion more in goods (electrical equipment, Trump-themed apparel).

And Trump doesn’t bother to ask, what are those Mexicans supposed to do with those pieces of paper? If they don’t spend them in America, they’ve got nothing but useless paper. So the Mexican trade surplus also means that Mexicans are investing an equivalent amount in America, helping the U.S. economy grow.

Further, the fundamental nature of trade between individuals is a win-win situation. Someone who buys an orange Donald hat for $20 to show his support for the former host of “The Apprentice” values the hat more than the twenty. And the manufacturer in Mexico who has a warehouse full of said head gear prefers the $20.

If The Donald slaps a 30% tariff on all goods coming from Mexico, maybe his starry-eyed supporters would shell out $26, the higher cost of the hat. But a poor mother with five kids seeing the price of a pair of shoes jump from $20 to $26 might be hard-pressed to afford the extra $30 she’d need to cover the feet of all her five little ones. But Trump doesn’t care. He wants to get rid of that pesky trade imbalance and what better way than to discourage that mom from buying Mexican-made shoes for her family! On the other hand, maybe he will notice when Mexican investors pull out of his latest golf resort or skyscraper projects, because his policies have destroyed their profits.

Trump’s grocery store trade deficit
If Trump is so against trade deficits, he should have a serious problem in his own household. Trump no doubt runs a huge trade deficit with his grocery store. He gives them piles of money when he buys food—no doubt top-priced cuisine—but the store never buys anything from him. Maybe he should boycott it. Maybe we should all boycott our local grocery stores lest we be victims of a trade deficit. Maybe if elected president, Trump will slap a 30 percent “grocery tariff” on everything that those stores try to sell to us poor, exploited schleps until those stores start purchasing stuff from us.

Trumps versus liberty
Trump poses as a friend of the people, but he wants to use government to prohibit the Americans from purchasing goods from whomever they wish—including Mexicans. The Donald presumes to know better what individual Americans should buy with their own money and at what price than they do. He’s determined to drive up the prices for Americans buying from Mexicans to teach those Mexicans a lesson. So what if American consumers and businesspeople are collateral damage.

Trump’s policies would only add more instability to an already unstable world. Ayn Rand explained that “The essence of capitalism’s foreign policy is free trade—i.e., the abolition of trade barriers… the opening of the world’s trade routes to free international exchange and competition among the private citizens of all countries dealing directly with one another. During the nineteenth century, it was free trade that liberated the world, undercutting and wrecking the remnants of feudalism and the statist tyranny of absolute monarchies.”

When governments take away the liberty of individuals to pursue their self-interest by trading freely with other individuals—a win-win situation—they set the stage for conflicts and even wars between countries. Trump’s proposed trade war is really a war on the American people.

Dr. Edward Hudgins directs advocacy and is a senior scholar for The Atlas Society, the center for Objectivism in Washington, D.C.

Copyright The Atlas Society. For more information, please visit www.atlassociety.org.

Bernie Sanders’ Anti-Foreign Crankery – Article by Daniel Bier

Bernie Sanders’ Anti-Foreign Crankery – Article by Daniel Bier

The New Renaissance HatDaniel Bier
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A Vesuvius of Tribalism and Economic Illiteracy

At Sunday’s Democratic presidential debate, Bernie Sanders attacked American trade with Mexicans, Chinese, Vietnamese, and presumably all other foreigners who might try to steal our jobs. Sanders harangued Hillary Clinton,

NAFTA, supported by the Secretary, cost us 800,000 jobs nationwide, tens of thousands of jobs in the Midwest. Permanent normal trade relations with China cost us millions of jobs.

Look, I was on a picket line in early 1990’s against NAFTA because you didn’t need a PhD in economics to understand that American workers should not be forced to compete against people in Mexico making 25 cents an hour.

… And the reason that I was one of the first, not one of the last to be in opposition to the TPP is that American workers … should not be forced to compete against people in Vietnam today making a minimum wage of $0.65 an hour.

Look, what we have got to do is tell corporate America that they cannot continue to shut down. We’ve lost 60,000 factories since 2001. They’re going to start having to, if I’m president, invest in this country — not in China, not in Mexico.

First, let’s note his dodgy job numbers. As Dan Griswold noted in 2011, in response to a similar claim about jobs “lost” from the “trade deficit” with Mexico,

In the first five years after NAFTA’s passage, 1994-98, when we could have expected it to have the most impact, the U.S. economy ADDED a net 15 million new jobs, including 700,000 manufacturing jobs.

Behold, the horror unleashed on US manufacturing jobs by trade with Mexico:nafta-manufacturing

In fact, since NAFTA went into effect in 1994, total US employment has increased by 28 million jobs. Even if we buy the dubious claim that NAFTA “cost us 800,000 jobs” over the last 22 years, this amounts just 36,000 jobs a year.

As Griswold noted, even in good times, 300,000 Americans file for unemployment each week. The US economy creates and destroys more than 15 million jobs every year. This alleged displacement amounts to less than one day’s worth of job losses.

It’s true that, in the long-run, manufacturing jobs have been in decline in the United States. But this is not because manufacturing is in decline. The myth (promoted by the other nationalist blowhard in the race) that United States “doesn’t make stuff anymore” is not just wrong — it couldn’t be further from the truth.

Real US manufacturing output is the highest it has ever been. Simply put, the US makes more stuff than ever.

manufacturing-indexHow can this be? Because manufacturing productivity — the amount of value added per hour worked — has gone up dramatically in recent decades. Manufacturing employment is declining because of automation; a US factory worker today can add a lot more value per hour than one in 1970.

manufacturing-employees-output-per-hour

It’s simply not true that trade devastated the US economy and wiped out millions of jobs. Employment has shifted within the US economy, out of industry into service jobs, and manufacturing has shifted around the globe, aligning production with the comparative advantages of each country’s labor and capital markets.

The resentment stoked by nationalists like Trump and Sanders is based on a nonsensical proposition, a mirage of high-paying blue collar jobs stolen by conniving foreigners, which we could reclaim if only we had the will to wage a trade war.

But the machines and global production chains are here to stay, and the jobs being done in Vietnam and China for fifty cents an hour are on the extreme low end of the value-added chain — which should be obvious, when you think about it, since they pay so little. (On the back of every iPhone is a short economics lesson on this point: “Designed by Apple in California. Assembled in China.”)

Do we really want to “bring those jobs back”? Do we envision a future where the American middle class is sewing textiles in sweatshops for a dollar an hour? Of course not. Americans today likely wouldn’t do those jobs at any wage, but especially not at the wages paid to low-skilled workers in developing Asian and Latin American countries. Those jobs only exist at those wages; at higher wages, they are scarcer, higher-skilled, and more capital intensive.

True, we could make t-shirts and Happy Meal toys in the United States, but we’d be doing it with far, far fewer workers and a lot more capital. Instead of 30 workers at fifty cents an hour, it’d be one person with a machine for $20 an hour.

The real difference would be that everyone would be poorer as a result: consumers paying higher prices, foreigners working in worse conditions and for less money, and American resources being diverted away from where they are most productive.

This is where economic ignorance stops being morally neutral and becomes a real threat to the life and well-being of the poor, especially in the developing world.

Not content to merely keep Mexicans from working in the United States (where, thanks to US capital and infrastructure, they could earn three or four times more than they make in Mexico), Bernie Sanders now objects to the right of Mexicans to work in Mexico, if they dare to sell goods and services to Americans — or, God forbid, try to compete with American firms.

For a champion of the poor like Sanders, there’s a double irony here, in that poor Americans are already much wealthier than poor Mexicans, and that tariffs also make goods more expensive for native consumers, disproportionately hurting the poorest Americans. Not only are poor Mexicans made worse off, by losing access to the US market and thus losing jobs, but poor Americans are also made worse off by having less disposable income, which is thus not spent elsewhere in the economy to sustain other American jobs.

And this is just the first order effects of closing off trade with Mexico. When the Mexican government inevitably retaliates, US exports to Mexico (which totaled $236 billion in 2015) will also be devastated and more jobs will be lost. And of course, simply multiply this orders of magnitude for China, Vietnam, and every other country on the nationalistic hit list.

Who gains from this? In the long run, nobody, which is why (after decades of gradual reform) we finally got relatively free trade with our closest neighbors, signed into law by a liberal Democrat. But in the short run, a few US corporations and labor unions would benefit from trade tariffs — at the expense of both poor foreigners and poor Americans as a whole.

(For those keeping score, this makes it an ironic hat trick for Sanders, whose tirades against free trade and open borders are laced with fear-mongering about “corporations.”)

Finally, let us ponder Sanders’ Alice-in-Wonderland solution to the imagined ills of free trade:

Look, what we have got to do is tell corporate America that they cannot continue to shut down. We’ve lost 60,000 factories since 2001. They’re going to start having to, if I’m president, invest in this country — not in China, not in Mexico.

Did I say Alice in Wonderland? I meant Atlas Shrugged. Ayn Rand was justly accused of having unbelievable, one-dimensional stereotypes, but sadly, American politics seems to have the same problem.

It’s anyone’s guess how Sanders imagines he could force factories not to close and order companies to stay in the United States, but the “you can’t shut down” solution is almost directly lifted from “Directive 10-289,” the order that Rand’s antagonists use to try to “stabilize” the economy:

All workers, wage earners and employees of any kind whatsoever shall henceforth be attached to their jobs and shall not leave nor be dismissed nor change employment… All industrial, commercial, manufacturing and business establishments of any nature whatsoever shall henceforth remain in operation…

Faced with economic decline, the government believed that the only option was to stop the decline, rather allowing people to go where they choose, buy what they choose, and make what they choose. “What it comes down to is that we can manage to exist as and where we are, but we can’t afford to move!” archvillain Wesley Mouch exclaims. “So we’ve got to stand still… We’ve got to make those bastards stand still!”

When Rand first published this in 1957, this was hyperbole about the fear of change, the reductio ad absurdum of the argument for keeping things as they are. Now, it’s an applause line for mainstream presidential candidates.

Daniel Bier is the site editor of FEE.org He writes on issues relating to science, civil liberties, and economic freedom.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Bernie Is Wrong: Trade Is Awesome for the Poor and for America – Article by Corey Iacono

Bernie Is Wrong: Trade Is Awesome for the Poor and for America – Article by Corey Iacono

The New Renaissance HatCorey Iacono
August 28, 2015

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The socialist senator is totally wrong about free trade

Sen. Bernie Sanders, the Democratic presidential hopeful, is no fan of free trade. In an interview with Vox, Sanders’ made his anti-trade position clear: “Unfettered free trade has been a disaster for the American people.”

He also noted that he voted against all the free trade agreements that were proposed during his time in Congress and that if elected President he would “radically transform trade policies” in favor of protectionism.

Sanders and his ilk accuse their intellectual opponents of promoting “trickle-down economics,” but that is precisely what he is advocating when it comes to trade. The argument for protectionism ultimately relies on the belief that protecting domestic corporations from foreign competition and keeping consumer prices high will somehow benefit society as whole.

However, the real effect of protectionism is to increase monopoly and consequently reduce overall economic welfare. In fact, according to a paper by economists at the Federal Reserve Bank of Minneapolis, “Government policies…such as tariffs and other forms of protection are an important source of monopoly” that lead to “significant welfare losses.”

In contrast to Sanders’ assertion that the expansion of free trade has been a disaster for the American people, there is a near unanimous consensus among economists that the opposite is true.

An IGM Poll of dozens of the most renowned academic economists found that, weighted for each respondent’s confidence in their answer, 96 percent of economists agreed, “Freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on employment.”

When the vast majority of economists of all sorts of ideological stripes agree that free trade is a good thing, maybe, just maybe, they’re onto something.

In fact, they surely are. Using four different methods, economists at the Petersen Institute for International Economics estimated the economic benefits from the expansion of technology that facilitates international trade (such as container ships), as well as the removal of government-imposed barriers to international trade (such as tariffs). Since the end of World War II, they generated “an increase in US income of roughly $1 trillion a year,” which translates into an increase in “annual income of about $10,000 per household.”

This result is mostly driven by the fact that foreign businesses produce many goods which are used in the production process at a lower cost than their domestic competitors. Access to these low-cost foreign inputs allows American businesses to decrease their production costs and consequently increase their total output, making the nation as a whole much wealthier than it otherwise would have been.

Moreover, contrary to common conjecture, the benefits of international trade haven’t simply accrued to the wealthy alone. Low and middle income individuals tend to spend a greater share of their income on cheap imported consumer goods than those with higher incomes. As a result, international trade tends to benefit these income groups more so than the wealthy.

Corey Iacono Sanders ArticleIndeed, according to the President’s Council of Economic Advisers, middle income consumers have about 29 percent greater purchasing power as a result of international trade.

In other words, middle income consumers can buy 29 percent more goods and services as a result of the access to low-cost imports from foreign countries.

Low income consumers see even greater gains with 62 percent higher purchasing power as a result of trade. In contrast, the top 10 percent of income earners only saw an increase in purchasing power of 3 percent as a result of trade.

On top of that, international trade has provided benefits by bringing new and innovative products to American consumers.

According seminal research by Christian Broda of the University of Chicago and David E. Weinstein of Colombia University, the variety of imported goods increased three-fold from 1972 to 2001. The value to American consumers of this import induced expanded product variety is estimated to be equivalent to 2.6 percent of national income, about $450 billion as of 2014. That’s not exactly small change.

The spread of free trade has also made considerable contributions to environmental protection, gender equality, and global poverty reduction. As a result of the spread of clean technology facilitated by freer trade, “every 1 percent increase in income as a result of trade liberalization (the removal of government-imposed barriers to trade), pollution concentrations fall by 1 percent,” according to the Council of Economic Advisers.

The CEA also has found that “industries with larger tariff declines saw greater reductions in the [gender] wage gap,” suggesting that facilitating foreign competition through trade liberalization reduces the ability of employers to discriminate against women.

In regards to global poverty reduction, research has shown that in response to US import tariff cuts, developing countries, such as Vietnam, export more to the US, leading to higher incomes and less poverty.

Despite the large gains from trade America has already reaped, there is still room for improvement (contrary to Sen. Sanders’ accusations of “unfettered” free trade). The PIIE economists estimate that further trade liberalization would increase “US household income between $4,000 and $5,300 annually,” leading the them to conclude that, “in the future as in the past, free trade can significantly raise income — and quality of life — in the United States.”

Ultimately, the conclusion that most economists seem to reach is that, from being a disaster, the expansion of free trade has been a tremendous success, and that further trade liberalization would most likely make Americans, and the rest of the world, considerably better off.

Don’t let fear-mongering about foreigners and China scare you: free trade benefits everyone, especially the poor, while protectionism benefits only the politically powerful.

Corey Iacono is a student at the University of Rhode Island majoring in pharmaceutical science and minoring in economics. 

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

The Golden Age of Freedom Is Still Ahead – Article by Anthony Gregory

The Golden Age of Freedom Is Still Ahead – Article by Anthony Gregory

The New Renaissance Hat
Anthony Gregory
October 6, 2012
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Free enterprise is often associated with the past. This perception puts the market’s champions, seen as hopeless reactionaries, on the defensive.

A typical narrative follows: America had an insufficiently active government under the Articles of Confederation. The Constitution expanded the central government to meet society’s needs. In this climate, where property rights continued to trump the common good, the central government could not maintain national cohesion and ensure racial equality. During the Civil War, the federal government grew to preserve the Union, enable commerce through expansion of infrastructure, and abolish the ancient evil of slavery. During the late nineteenth century, laissez faire reigned supreme. Unchecked, robber barons exploited their customers and workers.

American society, so continues the narrative, overcame its laissez-faire history and embraced active government in the Progressive Era. Commerce, banking, monopolies, food and drugs, and labor conditions finally became regulated. The market was still too free, however, causing the stock market crash and the Great Depression, which the New Deal’s reforms finally addressed. Anachronistic free marketers resisted this progress.

A generation later the free market proved inadequate on race relations, education, poverty, social insurance, workers’ conditions, and the environment. New regulations, taxes, and programs arose in the 1960s and 1970s to address these deficiencies. Ronald Reagan’s election marked a conservative counterrevolution toward the free market, causing the savings-and-loan crisis, rising income disparities, and, ultimately, the 2008 financial collapse. After four consecutive reactionary presidents—Bill Clinton being a practitioner of neoliberal austerity—deregulation and market fundamentalism have again revealed themselves as outdated approaches to America’s modern problems.

This repeated recognition that the free market no longer suits society’s needs is a common theme of modern liberalism. Through experience the inadequacy of the unhampered market has forced enlightened observers to accept the need for more government.

One obvious problem with this narrative is the steadily changing definition of “free market.” The free market is said to have caused problems addressed in the Progressive Era, yet once again the market economy was blamed for the Depression.The New Deal is said finally to have abolished laissez faire, yet laissez faire has been the culprit in every crisis since. Thoughtful proponents of this narrative explain that the 1980s, for example, were somehow substantially more laissez-faire than the 1970s, yet they rarely present more than a handful of superficial examples of deregulation amid an overall trend of regulatory expansion.

A major problem market proponents have in confronting this narrative, whatever its shortcomings, arises because they themselves sometimes accept it implicitly, often complaining about the liberties lost over the years. The significant kernel of truth is that the national government has unmistakably grown well beyond anything imagined in 1789 or even the nineteenth century. And surely, for every argument statists have defending this growth, compelling historical and economic counterarguments are available.

Yet we must be careful before conceding this premise that the past was laissez-faire. By celebrating the political economy of yesteryear, we risk associating our ideals with the past’s many injustices. We can and should avoid this baggage entirely.

Slavery: The Opposite of Free Enterprise

No libertarian defends the horrid institution of slavery. The problem comes in how free marketers sometimes describe slavery as a mere exception to the rule of early American freedom. In fact this exception virtually swallowed the principle whole.

Progressives love contrasting the pro-liberty, anti-tax rhetoric of the founding generation with the slavery that they tolerated or championed. Robin Einhorn’s American Taxation, American Slavery is a sophisticated contribution to the argument that those loudly protesting taxes were often the very people who clung to human bondage. This argument indicts the rhetoric of property rights, which is foundational to free enterprise and, in a warped form, the “right” of one person to own another. Infamously, the Supreme Court found in Dred Scott v. Sanford (1857) that the Fifth Amendment protected a white man’s right not to be deprived of his slave without due process. Given this association between America’s slave-owning generations and the rhetoric of liberty, it is crucial that free marketers explain, emphatically and intelligently, how slavery was the very negation of the free-market system.

The subjugation of slaves would undermine early America’s status as a free country even if slaves were a tiny minority. They were not. Slaves amounted to 18 percent of the population at the time of the Constitution’s ratification and 12.6 percent on the eve of the Civil War, at which point there were nearly four million.

Libertarians should study the brutality of this system. Historians estimate that hundreds of thousands of slaves were forced to migrate in antebellum America’s internal slave trade. Children were frequently ripped from their families. Beatings and rape were ubiquitous, and torture as punishment was hardly unusual.

Even slaves with relatively humane masters lacked the freedoms that most of today’s Americans, living under the modern leviathan, take for granted.

Peter Kolchin, in his seminal American Slavery: 1619–1877, sums up the reality:

Slaves could hardly turn around without being told what to do.They lived by rules, sometimes carefully constructed and formally spelled out and sometimes haphazardly conceived and erratically imposed. Rules told them when to rise in the morning, when to go to the fields, when to break for meals, how long and how much to work, and when to go to bed; rules also dictated a broad range of activities that were forbidden without special permission, from leaving home to getting married; and rules allowed or did not allow a host of privileges, including the right to raise vegetables on garden plots, trade for small luxuries, hunt, and visit neighbors. Of course, all societies impose rules on their inhabitants in the form of laws, but the rules that bound slaves were unusually detailed, covered matters normally untouched by law, and were arbitrarily imposed and enforced, not by an abstract entity that (at least in theory) represented their interests, but by their owners. Slaves lived with their government.

I thank God I don’t live with my government! For many years the pro-market tradition saw slavery as a grave violation of its principles. Kolchin writes:

Early political economists—including Adam Smith, whose book The Wealth of Nations (1776) remained for decades the most influential justification for the principles underlying capitalism—believed that slavery, by preventing the free buying and selling of labor power and by eliminating the possibility of self-improvement that was the main incentive to productive labor, violated central economic laws.

Although critics blame market exchange for the rise of slavery, this criticism is grossly unfair. The slave trade was indeed a market of sorts—unfree, unjust, and regulated—but the most fundamental relationship in slavery was not a market at all. Kolchin explains:

Slave owners engaged in extensive commercial relations, selling cotton (and other agricultural products), buying items both for personal consumption and for use in their farming operations, borrowing money, and speculating in land and slaves, but the market was conspicuously absent in regulating relations between the masters and their slaves. In other words, relations of exchange were market-dominated, but relations of production were not.

The slave power dominated political life in the South and enjoyed federal support through the Fugitive Slave Clause. Slavery was a major government program, its enforcement costs socialized through law. “The chief way that the South’s slaveholding elite externalized the costs of the peculiar institution was slave patrols,” writes Jeffrey Rogers Hummel in Emancipating Slaves, Enslaving Free Men. These slave patrols were “established in every slave state” to enforce black codes, inflict punishment, and suppress insurrections and were “compulsory for most able bodied white males.” Slave patrols, necessary to slavery’s maintenance, were a flagrant violation of the free economy.

The destruction of the Indians, the restrictions on women owning property, and many other antebellum policies also illustrate that the United States hardly had a free market before the Civil War. Slavery best makes the point. The conflation of a slave society with free enterprise is an obscenity.

Protectionism, Nationalism, and Corporatism

Outside of slavery nineteenth-century America often fell far short of the free-market ideal. Protectionism was a perennial problem, from the nationalist Tariff of 1816 to the sectionally biased Tariff of 1824 and the infamous Tariff of Abominations in 1828, from President Andrew Jackson’s threat to invade South Carolina to enforce the Tariff of 1832 to the Morrill Tariff of 1861. In 1870 the average tariff rate hit 44.6 percent. High tariffs financed the corporatist arrangement of federal subsidies for waterways, canals, and railroads during the Civil War, a war that defied market principles dramatically through its taxation, conscription, militarization of society, massive inflation, and inauguration of new government bureaus.

After slavery’s abolition and before the twentieth century, American economic liberty in some senses achieved a peak, but not without many qualifications. Immediately after the Civil War, state-level black codes kept nominally free blacks in a form of extended slavery, indenturing them to employers and criminalizing “vagrancy.” The U.S.  government began enforcing Reconstruction in the conquered South through military rule. Reconstruction counteracted State-imposed rights violations but also fostered a rise in government education and infrastructure projects financed through federal subsidies and considerable hikes on state-level property taxes. Government schooling became much more prevalent in the South, and by the end of the century 75 percent of the states had compulsory attendance laws.

The banking system—fundamental to any modern economy—was regulated by the federal government for most of the nineteenth century. There was a National Bank from 1791 to 1811 and again from 1816 to 1832.The Civil War birthed a new federal banking system that quickly grew, eventually culminating in the creation of the Federal Reserve in 1913.

In the late nineteenth century Benjamin Tucker identified four federally created monopoly powers that robbed Americans of their liberty—the land monopoly, money monopoly, patent monopoly, and tariff monopoly. These mostly involved federal privileges, but the heavy hand of government was also felt locally. Nineteenth-century state governments, at times working with federal authorities, displaced and killed American Indians; regulated various professions, labor relations, consumption goods, and businesses; and implemented social programs.

All in all, the U.S. regulatory state, explains Roderick Long, was not a twentieth-century innovation, but rather was “deeply involved from the start, particularly in the banking and currency industries and in the assignment of property titles to land. (Even such land as was not stolen from the natives was seldom appropriated in accordance with any sort of Lockean homesteading principle; instead, vast tracts of unimproved land were simply declared property by barbed wire or legislative fiat.)”

In substantial ways the economy of the late nineteenth century was freer than today, although some groups were heavily controlled, not least of all the southern blacks persecuted by Jim Crow laws, to say nothing of whites restricted by segregation from freely associating with these blacks.

Even nationally the twilight of the nineteenth century was a mixed bag. Veto-happy Grover Cleveland was probably the most laissez-faire president in half a century and ever since. Yet Cleveland’s terms had nontrivial blemishes: He used U.S. Marshals to quell the Pullman strike and enforce the Sherman Antitrust Act, supported the Dawes Act’s aggrandizement of presidential authority over Indian affairs, strengthened the Chinese Exclusion Act, begrudgingly acquiesced to an income tax to offset reduced tariff revenue, created the Interstate Commerce Commission, and despite a largely anti-imperialist record, threatened and used military force to assert dominance in Latin America against European influence and in favor of U.S. banking interests.

Shifting Definition

The market’s defenders often mimic its opponents in moving the benchmarks to describe historical periods as “laissez-faire.” This dangerous game does not stop with the nineteenth century.

American life before the New Deal was certainly freer in important respects, but we must be cautious in defending the 1920s. Putting aside the bloated bureaucracies lingering from World War I, the Fordney McCumber Tariff of 1922, the Immigration Control Act of 1924, and the calamity of alcohol prohibition, it was 1920s credit expansion that Austrian economists credibly blame for the boom and 1929 crash. We lose credibility in carelessly praising the pre–New Deal Era while blaming the Depression on policies enacted in that time.

Less ambitious free marketers idealize the 1950s—the decade of top marginal tax rates exceeding 90 percent (and, for the poorest Americans, 20 percent); the FCC’s puritanical regulation of the airwaves and maintenance of the telephone monopoly; the booming military-industrial complex; and the growing regimentation of industry, farming, and higher education. The transformative Great Society was in many ways an expansion on Eisenhower-era precedents more than a qualitative break from the past.

Even more desperate acts of nostalgia glorify the Reagan years. Although some government impositions were curtailed on the margins, Ronald Reagan oversaw growth of the New Deal–Great Society regime, as deficit spending exploded, Social Security and protectionism expanded, and foreign aid and bureaucracies ballooned.

None of this sober reflection backward should prompt us to see our history as an inexorable march toward liberty. There have been major advances in modern times—abolition of the draft, strengthened free-speech rights, and greater legal tolerance for minorities—but even in areas like racial oppression and personal freedom, many matters have worsened. Over two million Americans are behind bars. The drug war has devastated African-American communities. Last year the national government deported more immigrants than ever before. The war on terror has shredded basic rights. Washington’s run-of-the-mill economic interventions—in the name of health, equality, environmentalism, and fighting poverty—have escalated.The national debt and entitlement state have seen an unprecedented boom.

Neither today’s dismal state of affairs nor past oppression should make us nihilistic. History can teach us a lot about liberty. Certain areas of American life were freer in the nineteenth century than today and others were not, and the social blessings arising from relative conditions of liberty are worth identifying and understanding. Economics shows that free markets serve the masses by elevating workers’ productivity and smashing the old order of privilege and oppression. Both experience and economic science demonstrate the superiority of liberty to statism.

The golden era of freedom and free markets is not now and it’s not behind us. It is still ahead of us. This is reason to rejoice. We can happily envision a much better future.

Anthony Gregory is a Research Fellow at the Independent Institute.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.