Posted by
Dave on Monday, May 05, 2008 7:09:22 PM
A favorite activity of the government is confiscating money and property from one group of people with the purpose of redistributing it to some other group. Typically, some concept of "fairness" is invoked, or some insult or injury on the proposed recipient is blamed on the group from which the property is being taken. Rarely is the action considered in terms of government imposition on individual liberty; rarer still is the action considered in terms of overall economic efficiency or standard of living.
A favorite rhetorical nemesis during the current campaign for the US Presidency is the concept of free trade agreements. With its advantages and benefits well established from Adam Smith's Wealth of Nations, through various of the Federalist Papers, to the writings of Friedrich Hayek and Milton Friedman, concepts such as comparative advantage and economy of scale inherent to freer trade with less government intrusion on the marketplace are well explained and the benefits well documented.
Free trade agreements serve to remove government-imposed barriers on transactions between consenting individuals – commerce and trade in which participants willingly engage because it brings to each some benefit or advantage. NAFTA lowered government-imposed barriers to trade among Mexico, Canada, and the United States, thus increasing choices, lowering costs, and promoting innovation that benefits the consumers in each. The nature of that benefit is evident in the increase in imports and exports among the three countries, the scores of millions of jobs created, the increase in economic output in each country, and the price stability – all benefits that have been examined in previous articles by this author.
Because the preponderance of evidence overwhelmingly supports lowering the government-imposed intrusion on trade and commerce (tariffs), politicians seeking to denigrate free trade focus instead on anecdotal evidence of harm caused by the agreements. Lowering tariffs on imported steel can indeed lead to closing of a particular steel mill in, say, Pittsburgh if that steel can be made more efficiently in, say, South Africa. Closing that particular steel mill certainly isn't good news for those whose livelihood previously depended on the mill, so playing to the crowd in Pittsburgh might involve criticism of the deal that allowed cheaper steel into the United States. Such criticism, however, ignores the greater benefits of the more efficient allocation of resources; cheaper steel means that anything made from steel is also now cheaper, meaning that construction and equipment are now more economical. Less expensive construction and equipment leads to a greater demand for these things, creating jobs in construction and manufacturing in other areas, as well as cheaper products for consumers. With the extra money those consumers save on various products and services, they in turn may choose to put the money into a savings account (earning interest), invest in companies providing some new good or service (and possibly a dividend or capital gain), or perhaps save the money for retirement or a child's college fund (leading to a higher standard of living). Whatever the case, the economy has gained as a whole.
Technological progress works similarly. Development of the automobile assembly line meant that cars were suddenly more economical to consumers and that transportation of goods was more economical than previously. As people began purchasing cars, their standard of living increased, and the resulting increase in demand for automobiles created not just a demand for assembly line workers but also for more steel for the body of the cars, rubber for the tires, etc. – a ripple effect through the economy that increased prosperity for individuals. Yet to apply the free trade example of focusing on the lost jobs at a particular steel mill in Pittsburgh would be to focus on the impact of the rise of automobiles on workers at a horse buggy factory whose services were decreasingly needed. The rise of refrigerators meant job losses for ice delivery personnel. Even new vaccines can cost jobs for specific groups – one economist I recently read noted how polio vaccines reduced jobs for people who manufacture wheel chairs and crutches -- while improving the health and quality of life for individuals.
Opposing free trade agreements based on anecdotal evidence is tantamount to proposing a moratorium to a cure for cancer because that could cost jobs to people who work for companies that manufacture chemotherapy drugs and syringes or advocating a government-imposed moratorium .. phones to save the jobs of workers who make land-line phones. A free market based on individual choice, not government intrusion, best promotes technological innovation and progress. The government should stick to its true purpose: protecting individual liberty.