12/23/16
I sent the below letter to the Wall Street Journal early this month. The Journal
published it, in condensed form, about a week later. I thought my readers might like to read the
original, longer version of my musings on the consequences of the slavish
devotion to the dogma of free trade that permeates the economics profession and
much of the thinking of federal trade officials.
In my opinion, this is one of my best pieces; I hope you
enjoy it.
Blessed Christmas and Hanukkah, and a happy and
prosperous new year, to all of you.
12/2/16
The Journal makes
some very cogent arguments against the Trump administration’s interference with
the decisions that a private sector company must make in the interests of its
shareholders. (“Trump’s Carrier
Shakedown,” Review & Outlook, 12/2/16)
The Journal’s arguments,
however, ignore the most fundamental of economic laws, that of supply and
demand, in this case, for labor.
The $30/hour jobs Messrs. Trump and Pence saved were to
be replaced with $11/day jobs in Mexico.
Why? Because labor is cheap and
abundant in Mexico. Indeed, labor is
cheap and abundant throughout the world due to a number of titanic developments
that have taken place on the international stage over the last 30 or so
years: the emergence of China and much
of the “Third World,” the fall of the Soviet Union, the population explosion in
developing countries, etc. Given the
relatively newfound abundance of cheap and abundant labor internationally,
Americans will be forced to work for a world wage dictated by that abundance of
labor if the United States does nothing to protect the wages of its workers. While
that world wage would be a boon for workers in the developing world, it would
be a tragedy for American workers, forcing them to accept a standard of living
far lower than the one they have experienced for generations.
That world wage, by the way, is not limited to unskilled
workers, whom free trade dogmatists seem to write off as mere casualties of
globalization. Without some form of
protection, that same abundance of labor will drive down earnings throughout
the entire pay scale, unless one assumes that Americans are somehow endowed
with superhuman powers that make them far more productive and capable than workers
elsewhere. The evidence for such
superpowers is scarce. The productivity
edge that free trade zealots assume will save us is largely the result of the
application of capital and technology to the manufacturing process, but that
capital and that technology, even if developed in the United States, is easily
exportable. Improving the skills of our
labor force is also a laudable idea, but one at which, so far, we have not been
very successful; look at the typical American student’s math and science scores
against those of his overseas counterparts.
And even if we did manage to reinvigorate and reorient our educational
system, the Chinese, Indians, Germans, etc. can do the same thing and either
catch up to, or remain a step ahead of, us.
Again, the supply of labor has suddenly become more abundant throughout
the pay continuum; not only is there a surfeit of unskilled labor throughout
the world, there is also an abundance of skilled, and potentially skilled,
labor throughout the world.
Free trade is a wonderful principle that has brought much
prosperity to the world and to our country; hence, it is a laudable idea and a
tenet of practical and effective economics and economic policy. But when free trade goes from being a
principle to being unchallengeable dogma, as it seems to have become throughout
much of the economics profession, we become faced with consequences, such as
much lower wages and permanently lower returns to labor, that most practical
minded people are unwilling to accept.
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