“Free Trade”: The Elites Are Selling It But The Public Is No Longer Buying

“Free trade”: The elites are selling it but the public is longer buying it. Look at the support for Democrat Bernie Sanders and Republican Donald Trump, especially in light of Sanders’ surprise 20-point comeback in this week’s Michigan primary. With primaries coming soon in Ohio, Illinois, Missouri and North Carolina, will Sanders’ trade appeal resonate again?

Voters See Free Trade Killing Their Jobs And Wages

Voters have figured out that our country’s current “free trade” policies are killing their jobs, wages, cities, regions and the country’s middle class. Giant multinational corporations and billionaires do great under free trade, the rest of us not so much.

Elites say increasing trade is always good. But when you close a factory here, then open the factory “there” and bring the same goods back to sell in the same outlets, you have “increased trade” because those goods now cross a border. The differential between wages paid here and there goes into the pockets of the executives and shareholders. Those unemployed American workers add to wage pressures on the rest of us. Inequality increases.

There are other bad consequences as the effects of free trade ripple through local economies. The stores and gas stations and restaurants where the workers shopped and dined have to cut back. The factory’s suppliers have to cut back and lay off, too. Property values drop in the neighborhoods where all of those workers lived. The local tax base erodes. Roads and buildings and downtowns deteriorate… (The old lead pipes going to the houses do not get replaced.)

On a national scale, these local effects add up to a tragedy.

The national industrial ecosystem collapses as well. The manufacturing “know-how” migrates out of the country. The schools that taught people how to do what the factory did drop those classes. The investors who know how to evaluate manufacturing proposals go away. The raw materials pipeline migrates away. Reviving the outsourced industries will require tremendous and nationally coordinated investment.

For decades we’ve been told all this is actually good for “us.” But people have come to understand that the “us” this is good for doesn’t include about 99 percent of “us” or our country.

Trade Behind Sanders’ Michigan Upset

Sanders’ Michigan primary upset was most likely driven by his repeated trade message. Michigan’s primary upset demonstrates again that voters have caught on that our country’s trade policies have sent millions of jobs out of the country, put tremendous downward pressure on wages, decimated regions of the country (Flint, Detroit, the “rust belt”) and are dealing a death blow to America’s middle class.

Watch this Sanders ad on the damage our trade deals have done:

While people talk about “NAFTA” (the North American Free Trade Agreement) the term is really used as a shorthand for all of our country’s disastrous trade policies, including the millions of jobs and tens of thousands of factories outsourced to China.

Dave Jamieson, Labor Reporter at The Huffington Post, writes about how trade contributed to Sanders’ upset, in “Why Bernie Sanders And Donald Trump Won The Michigan Primaries“:

The exit polling from Michigan indicates that most voters there are wary of free trade agreements — and that Sanders and Trump drubbed their opponents among those voters.

According to CNN, 58 percent of Democratic voters polled after casting ballots said they believe U.S. trade with other countries takes away U.S. jobs, compared with just 30 percent who said they believe it creates them. Among that group, Sanders won by a whopping 17-point margin: 58 percent to Democratic rival Hillary Clinton’s 41 percent. He won the primary overall by less than a 2-point margin.

[. . .] Trade — and resentment toward U.S. trade policy — has been the sleeper issue in 2016.  By eliminating trade barriers with low-wage countries, the North American Free Trade Agreement and subsequent treaties over the past two decades have encouraged U.S. companies to move jobs to countries where workers are paid less.

Sanders has made a point of pressing Clinton on trade throughout the Democratic debates, including just days ago. The Vermont independent has been a vocal opponent of the Trans-Pacific Partnership, a trade deal with 12 Pacific Rim countries championed by President Barack Obama. Clinton’s stance on the deal hasn’t beennearly as clear.

The New York Times reported in “Trade and Jobs Key to Victory for Bernie Sanders“:

Mr. Sanders pulled off a startling upset in Michigan on Tuesday by traveling to communities far from Detroit and by hammering Mrs. Clinton on an issue that resonated in this still-struggling state: her past support for trade deals that workers here believe robbed them of manufacturing jobs. Almost three-fifths of voters said that trade with other countries was more likely to take away jobs, according to exit polls by Edison Research, and those voters favored Mr. Sanders by a margin of more than 10 points.

At The Washington Post, David Weigel and Lydia DePillis write in, “Voters skeptical on free trade drive Sanders, Trump victories in Michigan“:

The salience of trade, in a state where unemployment had tumbled more than half since the start of the Great Recession, blindsided a Democratic Party that has struggled to find coherence between its labor base and its neoliberal leadership. It also worried Republicans, whose leaders and donors are resolutely in favor of free trade.

“There has been a bipartisan conventional wisdom that the damage done to working-class jobs and incomes are simply part of inevitable changes, ones we cannot and should not challenge,” said Larry Mishel, president of the left-leaning Economic Policy Institute. “Even President Obama is blaming inequality problems on technological change, which is not even a plausible explanation for post-2000 America. People correctly understand that many elites simply believe that wage stagnation is something we cannot change.”

… In Michigan, exit pollsters for the first time asked voters whether they thought trade created or took away American jobs. The “take away” faction made up 55 percent of the Republican primary vote and 57 percent of the Democratic primary vote. Trump won the GOP faction with 45 percent, and Sanders won the Democratic side with 56 percent.

Trump, Too

A YUGE part of Donald Trump’s appeal is his position on trade. A new poll shows that 66% of Republican voters oppose TPP.

Last week’s post, Trump Taps Into Economic Anxiety Resulting From ‘Free Trade’ noted that “Trump is tapping into an economic anxiety felt by many, many Americans. Our trade policies are at the root of this anxiety, and Trump knows it and says it, and people nod their heads.” Here is Trump speaking after the “Super Tuesday” primaries:

Our nation is in serious trouble. we’re being killed on trade, absolutely destroyed, China is just taking advantage of us. I have nothing against China, I have great respect for China but their leaders are just too smart of our leaders, our leaders don’t have a clue. And the trade deficits at 400 billion dollars and 500 billion dollars, are too much, no country can sustain that kind of trade deficit. It won’t be that way for long, we have the greatest business leaders in the world, on my team already, and believe me we’re going to redo those trade deals and it’s going to be a thing of beauty.

Trump has been sounding this message throughout his campaign. Here is Trump on trade from last November:

Trump on Sanders:

“I’ll tell you, there’s one thing that we’ve very similar on,” Trump said during a town hall hosted by MSNBC’s Joe Scarborough and Mika Brzezinski. “He knows that our country is being ripped off big league, big league, on trade.”

Elites Getting The Message

The country’s elites might just be getting the message. The D.C. insider newsletter Daily 202 agrees, in “Six explanations for Bernie Sanders’s surprise win in Michigan“:

1. A message of economic populism, particularly protectionism, is much more potent in the Rust Belt than we understood.

Most Michiganders feel like they are victims of trade deals, going back to NAFTA under Bill Clinton, and they’re deeply suspicious of the Trans-Pacific Partnership. Outsourcing has helped hollow out the state’s once mighty manufacturing core.

Trump and Sanders both successfully tapped into this.

Six in 10 Michigan Democratic primary voters said international trade takes away U.S. jobs, and Sanders won these voters by roughly 20 points, according to preliminary exit poll data reported by CNN. Only 3 in 10 thought trade creates jobs; Clinton won that group.

One-third of voters said Clinton is too pro-business. Sanders won more than four in five of them.

… Clinton, after speaking supportively of the TPP, flip-flopped once the agreement was signed.

Similarly, D.C.-insider Politico, “5 takeaways from Bernie’s Michigan miracle“:

4. Free trade is Clinton’s albatross. Just as the cable networks were calling the shocker for Sanders, an email popped into my inbox from one architect of Obama’s 2008 triumph, who was travelling overseas. “Americans really hate free trade,” he wrote. “Don’t know how else to explain it. Same thing running through republican race.”

Clinton … has the burden of schlepping the albatross of NAFTA with her throughout the Midwest. This is where voters’ lack of trust and her core belief in the value of open markets for American manufacturers collide: When Clinton questions free trade nobody really believes her; Sanders’ thunderous anti-free trade talk taps a vein of deep grievance, his cash advantage allowed him to saturate markets with word of his opposition to TPP and NAFTA – and his debate-stage answer on the topic was pithier and more convincing than Clinton’s.

Will Sanders’ Trade Position Resonate In Upcoming Primaries?

There are primaries coming soon in Ohio, Illinois, Missouri and North Carolina, and there are signs that a fair trade message is breaking through. The Alliance for American Manufacturing took a look at one of these states, Ohio, writing in,” Ohioans Love Manufacturing — and Favor Getting Tough on China Trade“:

And a new statewide poll of likely Ohio voters finds trade will likely be a dominant issue in the March 15 primary, as vast majorities of respondents worry that the United States has “lost too many manufacturing jobs” and think it would be effective to “crack down on foreign countries that violate their trade agreements.”

… Conducted Feb. 27 to March 2 by Public Opinion Research and The Mellman Group, the poll looked at voter opinion on trade, manufacturing and the presidential candidates. Researchers discovered that while support for American manufacturing is nearly universal, majorities of respondents are worried about a shrinking middle class and the impact of manufacturing job loss.

Most participants are also concerned about foreign trade, including with China. Ninety-one percent agreed that it’s time for crack down on countries that violate trade agreements, and 83 percent said that it is important that China is officially declared a currency manipulator.

… Other key findings:

● 93 percent of participants worry that the U.S. has “lost too many manufacturing jobs in this country.”

● 74 percent of participants have unfavorable views of “manufactured goods made in China,” including 77 percent of “conservative” respondents.

● 96 percent of participants are favorable of “manufactured goods made in America,” including 98 percent of “conservative members of the GOP.”

● 92 percent of participants think that “too many jobs are being shipped overseas” and 86 percent are worried they “don’t seem to manufacture anything here in America anymore.”

Illinois, Missouri and North Carolina have also been hammered by outsourcing of jobs caused by trade policies and likely have similar sentiments.

There Is A Better Way To Do Trade

Current U.S. trade policies are written by representatives of multinational corporations with the intent of locking in their dominance while driving wages and environmental costs down. The resulting agreements are clearly in their interests and not the rest of us. Our country’s enormous, humongous trade deficit is a metric for understanding the damage being done to our country.

Now that the public is clearly rejecting the current trade approach, there are alternatives available. Just having non-corporate stakeholders including representatives of labor, consumer, human rights, environmental and other groups at the table would bring about a more fair and just trade regime.

The Congressional Progressive Caucus has released “Trade Principles that Put Workers First in Trade Agreements.” Click through for details, but summarized:

● Protect Congress’ Authority to Set Trade Policy
● Restore Balanced trade
● Put Workers First
● Stop Currency Manipulation
● Expand Buy America Procurement Practices
● Protect the Environment for Future Generations
● Prioritize Consumers above Profits
● Protect Nationhood Rights
● Secure Affordable Access to Essential Medicines and Services
● Respect Human Rights
● Provide a Safety Net for Vulnerable Workers

The 2013 AFL-CIO convention passed Resolution 12: America and the World Need a New Approach to Trade and Globalization, calling for a “people-centered trade policy” that will:

● Create shared gains for the workers whose labor creates society’s wealth.
● Strengthen protections for the environment. Companies must not use trade rules to pit one country’s environmental rules against another, as they seek the lowest-cost place to produce.
● Protect the freedom to regulate in the public interest.
● Set rules for fair competition. Workers of a nation must not be unduly disadvantaged by unfair economic competition resulting from choices about how to organize their economies.
● Include strong rules of origin so that trade agreements are not merely a conduit to ease the global corporation’s race to the bottom.
● Not provide extraordinary privileges to foreign investors.
● Effectively address currency manipulation.
● Retain the ability for all nations to stimulate their economies through domestic infrastructure and spending programs.
● Protect the right of governments to choose the scope and level of public services to provide.
● Protect intellectual property (IP) in a fair and balanced manner.
● Protect the unique U.S. transportation regulatory and legal structure.
● Protect the right of governments to secure the integrity and stability of their financial systems.
● Be negotiated in an open, democratic and accountable manner.
● Be flexible and responsive.

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.

The Sanders “Economic Plan” Controversy

“When you dare to do big things, big results should be expected. The Sanders program is big, and when you run it through a standard model, you get a big result.”
– James K. Galbraith

Democratic presidential candidate Bernie Sanders says he wants the American people to join him and “fight for a progressive economic agenda that creates jobs, raises wages, protects the environment and provides health care for all.” His website outlines a number of proposals toward this end, including increasing taxation of corporations and the wealthy and using the money to repair the country’s infrastructure, extending public education four years to cover college, extending Medicare to everyone, expanding Social Security and addressing climate change.

Gerald Friedman, a respected economist (and Clinton supporter by the way) took a look at Sanders’ proposals, ran the revenue and spending numbers through a standard economic model, and suggested that the very high level of spending would provide a “significant stimulus to an economy that continues to underperform, with national income and employment at levels well below capacity.” This stimulus could lead to several positive economic outcomes, including increasing gross domestic product growth to 5.3 percent a year, cutting unemployment to 3.8 percent and increasing wages by 2.5 percent per year. This, combining with the revenue proposals, would bring a budget surplus. Friedman wrote:

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The Infrastructure Cure For The Economy

Everyone understands that our (and the world’s) economy is underperforming. While U.S. unemployment is down, people are finding jobs that underpay and/or don’t provide enough hours. Regular people just don’t have enough to get by – never mind enough to drive consumer economies. The lack of pay causes a drop in consumer demand, which leads to economic malaise.

Economist Joseph Stiglitz puts it clearly: “The only cure for the world’s malaise is an increase in aggregate demand.”

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Must-Watch: Why Govt Debt Is OK

From The Guardian, David Graeber: debt and what the government doesn’t want you to know – video

There is one taboo of economics that the government is hiding from the public, argues David Graeber: it is the fact that if the government balances its books, it becomes impossible for the private sector to do the same. And, he claims, this inevitable debt often gets landed on those in society least able to pay it back

Will the TPP Increase Trade? That’s the Wrong Question

One of the selling points for the Trans-Pacific Partnership (TPP) agreement is that it will “increase trade.”

Here’s the thing. If you close a factory in the U.S., lay off all of the workers, devastate the surrounding community, and move the production to a low-wage country like Vietnam, bring the same goods back to the U.S. and sell them in the same stores, you have just “increased trade” because now those goods cross a border.

Plus you have the added bonus that executives and shareholders can pocket the wage difference (or park the money in the Cayman Islands). Hopefully they can also pocket the difference in environmental protection costs, workers safety costs, etc., because in places like Vietnam, good luck with ever getting those things.

Economists will tell you that moving the factory to Vietnam is an efficient allocation of resources. The workers and factory here in the U.S. can now be used for something that “we do better here in the U.S,” they might say, and the workers will be rehired at a better wage. The repurposed factory will sell higher-value things to the world that more than make up for the loss of exports of what the factory had been making.

Look around you. Is that what is happening as a result of our trade policies? No; we instead have a massive trade deficit. Entire regions of the country are shifting to third-world status, downtowns boarded up, foreclosed houses falling down, people feeling hopeless… and a few people get more and more wealthy at the expense of the rest of the world.

Regular Americans see their standard of living falling as a direct result of trade policies designed to break unions and increase the wealth and power of a few at the top. Many workers in other countries have few rights, the environment is not protected, government and self-determination are undermined…

If our trade policies were combined with policies that share the benefits from lower production costs, etc. with all of us on all sides of trade borders, then increased trade would be a good thing. That is not what is happening. The trade policies are designed to break worker power and to break governmental power.

So, yes, TPP will “increase trade.” Which means more and more jobs and production moving out of the U.S.

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.

Sanders’ Socialism Speech: America Is For All Of Us, Not Just Wealthy

“I don’t believe in some foreign “ism”, but I believe deeply in American idealism.”
– Senator Bernie Sanders

Sen. Bernie Sanders billed his talk Thursday at Georgetown University as a speech on “democratic socialism,” but it was immediately clear that what Sanders was really talking about were not the ideologies of a Cold War adversary but deeply American traditions of fairness that have been under attack by ideologues brandishing American flags.

Sanders anchored his speech as building on President Franklin D. Roosevelt’s 1944 “Second Bill of Rights” address. “Real freedom must include economic security.” he said. “That was Roosevelt’s vision 70 years ago. It is my vision today. It is a vision that we have not yet achieved. It is time that we did.”

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What Do Candidates Propose To Boost Stagnant Economy?

Thursday’s bad news: Third-quarter GDP lands with thud: just 1.5 percent growth. That is down from 3.9 percent growth the previous quarter. The economy appears to be slowing, partly because of the drag effect of our trade deficit and partly because of the drag on the economy due to austerity policies (federal spending cuts that take money out of the economy).

In the presidential campaign Republican candidates are proposing even more austerity as a solution to the lackadaisical recovery, combined with tax cuts for the rich and deregulation of Wall Street and the giant corporations. Democrats, on the other hand are proposing infrastructure investment and a number of other positive solutions.

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What Is This ‘Cadillac Tax’ Health Insurance Thingy?

You may have heard about the “Cadillac tax” health insurance thing. As with so much else involved with the health care/insurance discussion, policymakers have chosen wording that causes most people to tune out. Terms like “Cadillac tax” have little meaning to regular people because they convey very little information – or they evoke an image that masks its true impact.

When policymakers talk about a “Cadillac tax” on health insurance plans, what they are referring to is an upcoming tax on employers who provide really good health insurance plans that cover lots of things without requiring employees to pay large co-pays and deductibles when they get medical care. These plans cost more, so they are compared to luxury cars that cost more, hence “Cadillac.”

The tax was written into the Affordable Care Act with the consent of the Obama administration, which saw it as a way to limit federal government spending on health care reform. There are people who thing this tax is a good idea, and people who want the tax repealed.

Arguments In Favor Of The Tax

Those in favor of the tax are “market” economists who believe that people’s decisions, even about health care choices, are mostly driven by economic motives. They believe that people are “homo economicus” – a species of people who have good information and make rational decisions based on what will make them (or save them) the most money. These people are seen as “consumers” who respond to prices over other priorities in their lives.

They claim that with good health insurance, “consumers have little incentive to insist on cost-effective care and providers have little incentive to provide it.” The idea is that a tax on employers who offer good health insurance will benefit the country and:
1) create market forces that will reduce the country’s health care costs over time, and,
2) Translate as higher pay to employees because the employers are spending less on health insurance.

These economists believe that the better the health care plan, the more people will go to doctors and specialists when they don’t really have to. They believe people use high-cost medical procedures and drugs because they do not shop around for the lowest-priced alternatives. They believe that making people pay higher co-pays and/or deductibles and limiting which doctors they can see will cause them to “consume” less and stop “overutilizing” expensive medical care.

They say that setting high co-pays and deductibles, and limits on doctors, will make people put “skin in the game” and:

1) Stop knowingly using medical services needlessly. People know when they don’t really have to see a doctor but do so anyway because they don’t have to pay too much.
2) “Shop around” for the lowest-cost doctors (of those offered) when they do need medical care.
3) “Shop around” when a drug or procedure is needed, whether it’s for fixing a broken arm or treating cancer, and will choose the lowest-cost options.

The Argument For Repealing This Tax

That was the market economist side of the “Cadillac Tax” argument. They want the tax to take effect starting next year, as planned. The other side is people who want to repeal the tax. They want citizens to have more access to good health care, with low co-pays and low deductibles and a wide choice of doctors and care options.

On a conference call Thursday, Economic Policy Institute (EPI) Research Director Josh Bivens and Senior Economist Elise Gould outlined arguments against this tax. They explained that research (and basic common sense) shows that consumers are not equipped with information and knowledge that enables them to cut back only on unnecessary or ineffective care. In other words, people go to doctors to find out if they need medical care, because the doctors are the ones trained in medicine, not regular people.

With high deductibles and co-pays, people cut back on health care across the board. They don’t see a doctor when they need to, which can cause them to be sicker when they finally do see a doctor (which is more expensive and undoes the money-saving efforts) or just suffer, which should not be a policy goal (unless you are a conservative or a psychopath).

In EPI’s “Tax on Expensive Health Insurance Plans Could Cut Care Along With Costs,” Bivens and Gould write,

Evidence shows that making health care more expensive does induce people to consume less of it. But the same evidence shows that people do not cut back only on care that is ineffective or somehow luxurious; instead, they cut back across the board. Expecting sick Americans to decide on the fly in an opaque and uncompetitive marketplace what health care is cost-effective–and what is not–is an unrealistic and unfair approach to containing costs.

While overall costs may be pushed down by the excise tax, this is a good outcome only if one believes that the health care squeezed out is merely the ineffective kind. But a lot of welfare-improving care may also be a casualty, and for some patients, cutting back on medically indicated care because of the increased cost-sharing could increase their overall spending. For example: some patients who cut back on low-cost pills to contain cholesterol end up in emergency rooms.

Cutting utilization is also a limited cost-containment strategy…

One more thing: the market economists claim that employers will pass along savings from lower-cost plans to employees as higher pay. What is the fat chance of that? What world do they live in? World economicus? I mean, really.

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.

The Wild Ride Gets Wilder – Only Government Spending Can Fix This

The world is out of balance. Everyone’s nervous. There is a glut of money floating around the world and no one offers a “safe place” to put it. The stock market is way up, way down, way up, way down – sometimes all on the same day. China’s currency is having dramatic swings while the U.S. has an enormous, humongous trade deficit.

Super-wealthy people are making and losing hundreds of millions (sometimes billions) in a day – none of it on making or doing actual things that matter. Inequality is soaring. (The top 25 hedge fund managers earn more than all kindergarten teachers in the U.S. combined.) And all around the world, there’s very little actual economic growth.

Meanwhile, most people barely (or don’t) have enough to get by.

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Trump: Don’t Make Corporations Pay Their Taxes

Republican economics has been stated a thousand ways by a thousand (always paid) voices. But the basic idea behind all the schemes has been hard to pin down. Finally Republican front-runner Donald Trump has spelled it out in a way anyone can understand.

Thursday’s Progressive Breakfast (you should subscribe, it’s free, it’s really good) contains a story in which Trump clearly articulates the Republican/Billionaire/Wall Street case for a low-or-zero tax on corporate profits: “because they don’t want to pay the tax.”

Trump Sides With Multinationals
Donald Trump backs repatriation in Time interview: “Pfizer is talking about moving to Ireland. Or someplace else … Do you know how big that is? It would wipe out New Jersey … They have $2.5 trillion sitting out of the country that they can’t get back because they don’t want to pay the tax. Nor would I … We should let them back in. Everybody. Even if you paid nothing it would be a good deal. Because they’ll take that money then and use it for other things. But they’ll pay something. Ten percent, they’ll pay something.”

There it is in a nutshell. The Republican case for low or no taxes: “because they don’t want to pay the tax.”

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When The Real World Confronts Trade Theories, The Real World Wins

I had a conversation over the weekend about the Trans-Pacific Partnership (TPP). She’s for it, because “more trade is always good.”

TPP covers a whole lot more than what we would think of as “trade.” Regardless, let’s look here at the idea that expanding trade is always good.

Trade Is Good

Trade is good. We all at the very least trade our time for our pay. We might make or grow or draw or write something that we sell (trade) for money. Trade is basic.

But how we trade always makes a difference. If we trade our time and get paid too little, is that a good thing because it was a “trade”? Obviously the way trade gets done – the rules/policies that are in place – makes all the difference. So the question to consider is whether our current international trade policies as applied under our current economic order a good thing or a bad thing for We the People of the United States.

Cross-Border Trade

“Increasing cross-border trade” sounds like a worthy goal. But if you close a factory in the U.S., move the machines and jobs to a low-wage country, then bring the goods back here to sell in the same stores, you have just “increased cross-border trade.” How should we look at this?

The people now making the goods are paid much less, the investors who own the factory are pocketing much more. Sounds bad, unless you’re one of those owners.

Economists will tell you this is good because fewer of the resources of your economy are being expended to obtain whatever that factory was producing. Those resources can now be applied elsewhere by the investors, toward more productive investment. Sounds good.

Theoretically those American workers will now be freed up to do more productive work, potentially at a better pay rate. Sounds good.

But the way our current economic order works, those resources (the difference between what the American workers were paid and the lower costs of making the stuff somewhere else) are more often applied to the offshore tax-haven accounts of the elite investors than toward “more productive” investments. Sounds bad.

And the way our current system is working, without this new investment those workers remain unemployed, competing with the rest of the people in the workforce, which drives down everyone’s wages except for a few at the top. The reality is that if people laid off due to trade find new jobs, it is at a lower rate of pay. Sounds bad.

Economic theory confronts the reality of America’s current economic order and falls short. The elites use rigged “trade” deals to knock down labor costs. Instead of applying the gains toward investment in our economic future and higher wages for America’s workforce, they apply it to their bank accounts.

Comparative Advantage

The idea of comparative advantage says that countries (regions, etc.) should do what they are good at and trade with others for the things the others do better. Some countries are good at growing bananas and they can trade them for things they can’t grow or make.

But what counts as a comparative advantage?

A few years ago The New York Times took a look at the shift of manufacturing (and associated jobs) from the U.S. to China, in the report “How the U.S. Lost Out on iPhone Work.” The report is known for the Steve Jobs quote, talking to President Obama, saying, “Those jobs aren’t coming back.”

The reason Jobs said those jobs are not coming back was that in China the workers sleep in dormitories, 12 to a room, and can be rousted out of bed at any hour to complete “rush” jobs. They can be made to stand all day, work with dangerous chemicals, are paid very little, cannot organize unions, cannot even vote for a government that would make their lives better.

In other words, China offers a “comparative advantage.” That advantage is that they are not a democracy, workers have no rights and no voice. China is very “business-friendly.” So why would a company like Apple use American workers when they can use workers kept in these conditions?

Our democracy is a comparative disadvantage in world trade. Sounds bad.

Again economic theory confronts the reality of America’s current economic order and falls short. America had factories, China offered low-wage workers and the opportunity to freely pollute. Elites moved the factories to China. Elites use “trade” to attack democracy, turning government of, by and for We the People into a comparative disadvantage in world markets.

Click to see a video of Ian Fletcher talking at, of all places, the Heritage Foundation about his book, “Free Trade Doesn’t Work.” At 21:06 to 25:47 minutes he takes a very good look at the idea of comparative advantage in the real world. In sum:
1) Absence of externalities is not a competitive advantage. The pollution is still there, the workers are still exploited.
2) Capital mobility means you are allocating your capital outside of your own economy.
3) Comparative statistics look at a snapshot, a fixed point in time. If China doesn’t already have a factory making X it is not comparative advantage to go open one there. It is not the best move today if the other country is not already producing the thing for less.

Economies Of Scale

When trade is “opened up” across a border it doesn’t mean that new customers suddenly appear, anxious to buy goods and services produced by America’s small businesses. It’s not like there were no producers and suppliers on the other side of that trade border. The goods and services of an economy were likely already being supplied by someone.

Acme Widget, based in the American town of Plainville, is not suddenly going to get orders from small towns all across the new trading partner Tradonia. Tradonia already has suppliers of widgets. Those suppliers will just as easily come sell their widgets in Plainville.

Economists will say that “opening up” trade across a border increases competition, which benefits consumers. But this is not how it actually works. What has really opened up is a larger playing field with more opportunities for big companies on both sides of trade borders to dominate a larger market than the one they had been dominating, with a resulting decrease in aggregate employment.

In our current economic order big companies have advantages because of their size, and unfortunately rules are made based on which companies are ready to shell out the cash to influence how the rules for competition and domination of industries are made. Larger companies dominate and remove smaller competitors. One or two of these companies will get most of the business in both countries and become very large; the others will be gone. Due to economies of scale the overall widget manufacturing employment will decrease. The new monopolies and near-monopolies will then have the ability to charge what they want.

Once again economic theory confronts the reality of America’s current economic order and falls short. Opening up trade borders is more likely to bring further consolidation of giant companies, not more competition.

Reality Wins

These are just a few examples of the problems of academic trade and economic theory confronted with the realities of what actually happens in actual countries.

Another economic theory says that trade will balance as a result of currency adjustments. Supposedly when a country is running a surplus its currency rate will increase and things made in those countries will cost more, so purchases will shift back to the country that had a deficit. But in the real world, the United State competes with real countries that don’t play this way. Our country has an enormous, humongous trade deficit and has run continual trade deficits every single year since the late 1970s when “free markets” and “free trade” ideology came to dominate. This is because we follow an economic theory ideology, and other countries look at reality and adjust. So they win.

Reality trumps economic theories and ideologies – Every. Single. Time.

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.