Free Trade, Income Redistribution...A Hit Piece

That is the sum total of this piece on free trade from Business Week. Very few things have been demonized more in the last decade or so more than free trade. Free trade has been used by opportunistic politicians to prey on naive voters who don't have enough sophistication to realize that most of their rhetoric is nothing more than demagoguery.

I first believed in the benefits of free trade after my third week of Macro Economics 101 in high school. Free trade allows each country to focus on what they do best and then import that good and service that is less plentiful from those places where it is plentiful. It also allows companies to expand to markets they normally wouldn't have. The problem is this. Most people don't see the benefits of free trade, but they do see its consequences. Everyone has heard of job outsourcing but most people don't realize just how many jobs foreign companies have created in the U.S. According to the U.S. Chamber of Commerce here are some facts that demonizers of free trade don't mention.

Exports support an added ten million jobs in the U.S.

An extra 6.4 million jobs are created through foreign investment

Tens of millions of additional new jobs are indirectly supported by two way trade and America's and America's participation in the world wide economy.

These stats are lost on those that demonize free trade as some sort of evil force that only takes jobs done by Americans and moves them overseas. Of course, those stats are also not as obvious as a factory moving overseas.

This brings me back to the Business Week piece. The hit job begins here...

No one is suggesting that trade is bad for the U.S. overall. According to estimates by the Peterson Institute and others, trade and investment liberalization over the past decades have added $500 billion to $1 trillion to annual income in the U.S.

Yet concern is rising that the gains from free trade may increasingly be going to a small group at the top. For the vast majority of Americans, Dartmouth's Slaughter points out, income growth has all but disappeared in recent years. And it's not just the low-skilled who are getting slammed. Inflation-adjusted earnings have fallen in every educational category other than the 4% who hold doctorates or professional degrees. Such numbers, Slaughter argues, suggest the share of Americans who aren't included in the gains from trade may be very big. "[That's] a very important change from earlier generations, and it should give pause to people who say they know what's going on," he says.

Now, it is interesting that the article proclaims that trade isn't bad for the U.S. overall because it then proceeds to try and convince the reader that it is bad. There are several misleading and improper statements here. First, income is not down and it hasn't been down. What has been stagnant is wages, and that is because people more and more are being paid in things other than wages: bonus, stock options, commissions, etc. Second, even if income, wages, whatever are down, there is no reason to believe that this has anything to do with free trade. Trade has been around since the U.S. were colonies. These numbers go back forty years. Whether they are true or not, no link has been made to attach them to free trade.

The article continues...

Blinder warns the pain may just be starting. He estimates that eventually up to 40 million service jobs in the U.S. could face competition from workers in India and other low-wage nations. That's more than a quarter of the 140 million employed in the U.S. today. Many of the newly vulnerable will be in skilled fields, such as accounting or research—jobs U.S. companies will be able to move offshore in ever greater numbers. "It will be a messy process of adjustment, with a lot of victims along the way," Blinder says.

This is nothing more than socialist rhetoric. Since when was competition something that we should treat as a bad thing. If that is true, then all the better. We want our American workers to face as much competition as possible. Competition is the life line of a health capitalistic society. Here we have an economist proclaiming that workers will face competition and then turning around and proclaiming that a bad thing. Furthermore, the protection necessary to keep the competition away is not without consequences. If we close our job market to the people of India, that country will retaliate. That country, and its nearly one billion people, will be closed to our businesses. The jobs and all the revenue associated with losing that money isn't mentioned. It's like we can protect our own jobs from overseas and face no consequences for doing it.

Finally, after the article is done slamming free trade, it gives its fixes, and the fixes are nothing more than class warfare...

What to do? Blinder argues for a big expansion of unemployment insurance and a major overhaul of the poorly performing Trade Adjustment Assistance program (TAA), which retrains manufacturing workers whose jobs disappeared. More vocational training and wage insurance, which would partially reimburse displaced workers who take new jobs at lower pay, also figure in his proposals. Both Clinton and Obama—and even Republican Senator John McCain—have similar ideas.

That's not enough, says Slaughter. He sees a need for some form of income redistribution to spread the gains from free trade to more workers. In a controversial article Slaughter co-wrote last summer for Foreign Affairs, he proposed "A New Deal for Globalization" in which payroll taxes for all workers earning below the national median income level would be eliminated. Slaughter has talked with campaign advisers in both parties. So far, he has no takers. But it's one more sign of how far the trade debate has moved.

So, what we have is socialistic government welfare, income redistribution, and targeted tax cuts. This whole entire article is a study between those like me that believe in free anything, trade, markets, etc., and those that want to turn our country into a socialist state. Using class warfare to sell socialism is nothing new. Marx sold his own form of communism through similar class warfare. It is amazing that the failed policies of the past can be resurrected through the exact same means.