Free Trade Addendum

"Free trade is good for all the people all of the time." No serious economist denies this. The strength of the comparative advantage theory, supplemented by real world experience, is overwhelming. Further, "producing more widgets" is of the utmost importance in our world, as it means less children dying, less people starving, and democracies being more stable (which is another point entirely). But some specific counterarguments should be addressed because of their validity:

Trade can't make every person better off:
When the U.S. removes steel subsidies, steel workers lose their jobs...and ghost towns full of tumbleweed can result. Indeed, it is the power of these domestic groups as compared to the diffuse consumers that prevents the elimination of trade barriers in the first place. Real people lose real jobs. Consumers gain more in the aggregate, but they do not feel this gain as intensely as the workers feel their lost jobs. It is only with an acceptance of a long-term view and with the presence of an institution that accounts for this frictional unemployment through welfare support and retraining that this complaint can be rebutted.

National Security:
If there is a war, a country wants to make big guns and feed its army. If it relies on trade for these goods, then there is an argument that it should foster domestic production for these times of war. The retort is that a better short-term solution would be stockpiling "war goods" at the cheaper prices created by trade and that all war will have radical results. On a deeper level, Kant stated that for perpetual peace, "The Law of World Citizenship Shall be Limited to Conditions of Universal Hospitality." There is no better way to pursue this noble goal than by making our world interdependent. The human race will be brought together by trade, directly through constant negotiations in international institutions, and indirectly through subconscious interdependence and gradual acceptance and awareness of other cultures. This might seem a stretch, but remember that no two democracies have ever gone to war against each other. Trade makes countries richer, which makes democracy securer. All of this, of course, is made possible by technology and communication, but a world institution promoting free trade will play a critical role if our world is to become one less inclined to war.

Other complaints fall generally into social realms - human rights, labor, environment, etc. These objections, however, are not objections to free trade itself. Rather, they are about the implications that naturally follow any capitalism. Free trade is as noble a goal as we can have for the world's development, but it must be harnessed as with any form of capitalism. Fair markets and competition, on a global level, will lead to a healthier and culturally richer world.

Will this make the world a happier and better place? The only way you can say no to this is to say that the Native Americans lived better lives than we do. On that point, you might be right, but Hegel would be disappointed if there isn't any historical progress.

Trade Policy Redux

...speaking of David Hume and Adam Smith; those two individuals are responsible in large part for the well-reasoned beginning to the modern debate over "free trade" between countries.

FREE TRADE
The classic statement of liberal trade policy goes something like this: If you have many countries trading without restriction, some of them will be 'good' at some activities, while others will be 'good' at other activities. That is, a given country X will have an absolute advantage in coal mining over all the other countries in our hypothetical trade bloc (or the world). If X has an absolute advantage in mining, producing, manufacturing, and converting goods or services of every type, then most people have an instinct to say, "Why should X trade with anyone? They do everything better than everyone!" But classic liberal trade theory says that this is incorrect. X can reach a higher level of consumption (which for classic liberal economists roughly equates to 'welfare') by trading on those things for which it does not have a comparative advantage and specializing in those things in which it does have a comparative advantage. A comparative advantage exists where country X mines coal more efficiently than it, say, processes raw goods into coffee grounds. The argument runs that X should then mine coal, and some other country should process coffee grounds, because the net outcome will be a higher 'surplus' (welfare).

Classic liberal economic theory takes this idea and essentially applies to everything, and that hasn't stopped (nay, it has increased) as we have evolved our understanding of economics. Now these same sorts of principles (derived normatively from 'utilitarianism') are applied to contract law, microeconomic theories of the firm, and public policy analysis. Behind all of these economic disciplines lies the idea of maximizing 'welfare' -- which often means, quite simply, producing more widgets.

IMPLICATIONS FOR TRADE
Basically, the free trade argument takes what we have said a step further and says that if all countries, all the time, and without legal or informal restrictions -- specialized their activities and only produced or manufactured those things or services that it had a comparative advantage in, then the net welfare (or output) would be at its highest level at any given time. Also, the argument goes a step further than that: the net welfare of the world would progress faster (faster productivity gains and diffusion/spread of technology) and to a higher level under free trade policies than under any other policies.

You may notice something perplexing about this strict utilitarian-backed, economic analysis. It doesn't talk about the distribution of 'the pie' (the sum of a country's welfare, or of the world's welfare). In fact, mostly these theories are not concerned with questions of distribution but merely with questions of maximization of social surplus. To the extent that such theories analyze distributional effects at all, they tend to be conclusory, stating that the 'natural' distribution of the free market is the one that gives the best incentives for innovation, productivity, and overall growth.

Growth, in short, leads to more social wealth to pass around. More social wealth, in the long-run, leads to new technology that gets spread around, easier living, less labor, and more opportunities for solving social problems (say, curing cancer). Not all economists make these arguments, and not all economic theorists believe the case is so simple. But the free market fundamentalists of the world certainly do. "Free trade is good for all the people all of the time."

PROBLEMS
The foregoing explanation of free trade leaves something to be desired. The last quote of the preceding section essentially states the absolutist argument for free trade, and it relies on several assumptions:

1. The distributions that result from free market policies encourage growth: it is assumed that they do, because if they do not, it challenges the whole enterprise. That is to say, if country X can erect some trade barriers or redistribute some of its wealth by favoring some industry in country X, and the 'World GDP' (or whatever measure chosen by the policy analyst) actually goes up, then free trade absolutists are in trouble. Also, if country X ends up dedicating its workforce to producing low-cost tee-shirts to sell to other countries because that is its comparative advantage, what happens if all the major tee-shirt producers that operate in X are multinational corporations (MNCs) based in another, richer, country? The workers' productivity gains may never 'trickle down' to them in this case, and X will not benefit from the 'welfare gains' as it is extracted and transferred abroad. Unless, of course, X taxes production-for-export goods -- but that would be a violation of free trade principles.
   
2. In transition economies, free trade is the best way to get off the ground: another assumption is that free trade works well in countries recovering from communist or authoritarian rule. If at least some countries such as these show a strong track-record of success by closing their borders to a significant degree, then this rebuts the conclusion of the free trade absolutists. Furthermore, if they then argue that free trade for those countries -- while stalling its individual growth -- might have benefited the 'World GDP' more than closing its borders, it raised the question of nation-state autonomy. That is, can we really expect (or should we) national leaders to take actions that are detrimental to their country but beneficial to the world overall?

Scottish vs. French Enlightenment

One distinction I had not heard of was opened to me when I read an article about the differences between the Scottish-British-American "enlightenment" and the French-German-Continental "enlightenment." Of course, this particular article presents the continentalists in a terrible light, making them responsible for botched revolutions, communism, statism, and totalitarianism in the 19th and 20th centuries. It then purports to show how the modern left wing of American politics draws its inspiration more from the continentalists than from the Anglo-Americans.

Of course, the right wing is supposedly the repository of Anglo-American enlightenment goodness, and the article repeatedly emphasizes the accommodating treatment of religion in politics and society that the Scottish Enlightenment envisioned, along with the moderate social change advocated by most of its key figures. This is all well and good, but of course America was built on a combination of both these two separate but related "enlightenments," and for any given founder we can find references to both. Thus, even if modern conservatives are the inheritors of the Anglo-American enlightenment, that is not to say that they are closer to the vision of the founding.

Hence, we have erstwhile libertarian Thomas Jefferson, who couched so much of his vision for the country in terms familiar to the French Enlightenment, and in particular to thinkers such as Rousseau and Montesquieu. Jefferson famously (and perhaps a bit capriciously) advocated a revolution every generation or so, perhaps with the idea that constitutions would not become stale and valueless. But that is just one case study, and you could do more with different founders.

My general take on this matter is that revisionist historians of a particular political stripe may well think the modern right wing of America draws inspiration from the gentle, reasonable men of David Hume and Adam Smith's calibre. However, that does not make it so -- many modern right wingers draw their inspiration from figures such as Joseph McCarthy, religious leaders, or Ayn Rand. Indeed, oftentimes the first and the last members of that list are quoted directly to support some policy proposal, though libertarians generally use Rand quotes. Both conservatives and libertarians are essentially right wing for most major policy issues, with the liberals rounding out the left wing and quoting intellectuals such as Rawls.

Of course that is where the aforementioned article goes horribly wrong: most modern American liberals do not quote or invoke Marx, Hegel, or Rousseau, though those writers are frequently studied in the academy. Nay, only the far left, marginalized in political discourse, quotes Chomsky, Marx, Derrida, or Sartre to support its policies. This far left is different because there is no far right in this country anymore -- the right wing has incorporated all the radicalism and reactionary ideals of what was once the far right, of what once lost elections (see Goldwater, Barry).

So the left is stratified into pragmatists who draw a lot of inspiration from both enlightenments, and far leftists who are indeed beholden to French and German philosophers -- with all of their nihilism, existentialism, and many other "isms" that dominate many areas of academic study in this age. Meanwhile, the right wing is mostly anti-enlightenment, if anything, with the exception of the more moderate libertarians and some moderate Republicans.

At least that is my contention.