Monday, September 01, 2008

Internatinal Trade and World Squalor

Today's topic in my list of areas where I expect a Democratic administration and legislature to fail us during the next 4 years is the area of international trade.

The term, in this case, sounds boring – ripe for a reader to shrug and say, "Nothing going on here" then clicking off to some other site. Yet, what I am talking about here is a policy that demands that half of the population live in squalor – a state of extreme poverty and disease with few options and even less hope.

While many Democrats complain about the Republican policy of refusing to teach family planning and promoting the use of condoms and other forms of birth control in the developing world, they are simultaneously putting just as much effort into making sure that nobody hands out jobs in those same parts of the world.

Companies are exporting American jobs overseas. Gasp! Horrors! Next thing you know they will be buying food! Obtaining medical care! Building an infrastructure to provide clean water and sanitation!

Of course, the policies that I am referring to are wrapped in a prettier package than I am presenting them here. “For the sake of the poor exploited people of the world, you must provide them with $10 per hour plus medical benefits, or you must give them nothing at all!” This would be great if people then got the $10 per hour plus medical benefits. However, the vast majority of the people end up with nothing at all. As I said, it is a policy that condemns the bulk of the Earth’s population to squalor.

And it does so for a reason. It does so for the sake of eliminating competition, so that those who do have access to jobs can charge something closer to a monopoly rate for their labor. The more people that we can condemn to poverty and disease, the more those of us who are available to be hired can charge for our services.

Of course, it is not the intention of those who complain about companies ‘exporting jobs overseas’ to have the rest of the world live in squalor. It is simply a known side effect – known in the sense that a person would have to be mentally incompetent not to at least ask the question, “If those people are not doing these jobs, then what are they doing?”

However, in this case, the benefits are an illusionary. In fact, these types of protectionist policies make American workers worse off. To somebody who merely glances at the surface of this issue, it appears that a company that closes a call center in the United States to open one in India is enriching Indians at a cost to Americans. This on-the-surface illusion is what Democratic leaders who complain about these policies are counting on – that they can generate a powerful enough impression that these policies do harm that they can get people to vote for Democrats.

Some times some Republicans attempt to point out that American workers benefit from these policies, but the boos and hisses of shallow-thinking individuals give the political points to the Democrats whenever Republicans speak the truth on this issue.

However, let us assume that you have a store. You manufacture widgets and you offer them for sale. So, tell me, are you better off trying to sell widgets to a population living in poverty and disease, or are you better off trying to sell widgets to a population that has money to spend?

Of course it is the latter.

Increased prosperity in other parts of the world does not harm America. It gives American business more markets that they can sell to. It increases the ability in other countries for them to purchase American goods.

Another benefit that comes from these policies is that the price of goods is cheaper. Americans who purchase these less-expensive goods and services then have money left over to buy other things as well, and in purchasing those other things generates the demand for job in those other industries.

A third benefit is that the bulk of the stockholders in these companies – to the degree that the move actually turns out profitable – are Americans. Much of the profits themselves flow back to America – flow back to the American economy.

A Republican is not socially permitted to say these things without being booed off of the stage. However, a boo is not an argument.

I want to provide you with another illustration of how we benefit from trade. I want you to become self-sufficient. You are going to grow your own food and process it. You will manufacture your own clothes after growing your own cotton or raising and sheering your own sheep. You are going to build your own house, which includes mining and smelting the copper to make the wiring for the electrical outlets. Of course, you will also build your own generator – from raw materials. If you want a computer, you will have to build that, too.

You are going to have a lot of work to do. In fact, I think it is quite fair to say that you have no hope of maintaining the standard of living that you enjoy today.

The smart thing for you to do is to start shipping some of those jobs ‘overseas’ as it were. You should ship the food-growing job to the farmer, and the cloth-making job to somebody who does textiles. You should ship the copper mining and smelting jobs over to people who do copper mining and smelting, and the generator manufacturing jobs over to the generator manufacturers.

Your prosperity actually depends on shipping huge amount of the labor that you would otherwise do over to other people to do the work for you. And you trade with them, doing for them (or, at least, some of them) some of the things that they cannot do for themselves.

See, in the same way that it pays you to ship some of your work over to them, it also pays them to shift some of their work over to you. They cannot prosper by doing all of their work themselves any more than you can.

It does not matter whether some of those people are on the other side of some arbitrary border. That is an irrelevant variable.

Let’s say that you are in a state of self-sufficiency (a fairly wretched state, I might add), and you have one more person to trade with. The two of you can be better off than either one of you by yourself.

Now, let’s increase this community to four people. Again, this will give all four of you the opportunity to be better off than you would be in a community of two people.

It would be absolutely absurd, in a community of two people, for you to say that you going to draw an arbitrary line in this community and say that you are going to limit your trade to only one other person – and he is going to trade only with you. If you take your community of four people, and turn it into two communities of two people each who do not interact with each other, all four people are going to suffer for it. The smart thing to do is to open up trade with the people on the other side of these artificial boundaries, to increase as much as possible the number of people in the trade community.

However, the policy that many Democrats are advancing is actually a policy of dividing the trade community into subgroups and blocking trade between members of different subgroups. It is advancing this proposal as if it has a chance of making our subgroup better off than it would otherwise have been.

In fact, reality is much different. It is a policy that promotes squalor in other parts of the world – that condemns billions of people to poverty, disease, and hopelessness. At the same time, it does harm to America on the whole as well, and American workers in particular. To see this, just imagine yourself all alone, with nobody to trade with, having to do everything yourself. Imagine what these Democrats are arguing for taken to their logical conclusion.

8 comments:

anton said...

Alonzo:

Another insightful post that supports the validity of the US approach to International Trade.

For the rest of the world, we see your comments as "what makes sense in US America!" In the meantime, the rest of the world gets exposed to the less moral US Americans who desire to "cash in" on the ignorance, anguish or squalor. Many of them do not show up with any altruistic thoughts. They are out to make as much money from the ignorant foreigners as they can. When anyone protests about the inequity or "lawlessness" of the US American invaders, America sees it as an attack on America, not on the greedy, ruthless types that represent US America who deserve it. I believe Irag provides enough examples to fill many blogs and books.

A parallel is found when the Christians perceive any attack on ANY Christian group as an attack on themselves . . . or at least, they do little, if anything, to reign in those who say they "represent" Christianity.

If we were natives on a desert island and the first "white men" savaged our island, raped our women, stole our wealth, etc. we would be more than inclined to mistrust the next arrivals of white men. Which brings me to my point. "If it wasn't for Yankee dollars, how many countries would welcome US Americans?"

There are millions of great Americans. Unfortunately, they are not the first invaders.

Anonymous said...

AE,

Yes, we must raise the standard of living of the entire world. Never mind overpopulation which is already destroying the planet. Everyone must have A/C, an SUV, big screen TV, and eat steak and sushi once a week, like us. <\snark> Sorry. Krugman (doesn't he qualify as a Dem in your book? He does in mine) regularly takes the pro-free-trade line, and I'm still not impressed.

The fact is, free traders have won, and have had their way since (take your pick) Reagan, Clinton, NAFTA, DupedYa. Free traders, like neocons, are sore winners. What do we have to show for decades of the stuff? A declining standard of living (go read Krugman's blog - he links to the proof - but he'd deny that it is catalyzed by job exportation). ~80% of all wealth going to the top 1%. Environmental destruction. A once brave, intelligent, free nation reduced to playing Lotto, distracted by reality TV, surrendering habeas corpus with nary a whimper, cowering whenever the neocon right broadcasts their ridiculous terrorist orange alerts, dutifully mouthing free-trade and supply-side propaganda to prove their intellectual bonafides to lackeys of plutocrats, and lusting for one last trip to Disneyworld before it all caves in on them. In a rational world, this would be called failure, and it's proponents laughed off the stage. Yes, sadly, even Krugman.

Sorry again. Let me try again.

I'm not proposing protectionism (nor am I much interested even in defending the Dems. I'm more interested in the dynamics of Dem-bashing by their so-called friends.)

Pro-free trade argumentation is rearranging deck chairs on the Titanic; fiddling while Rome burns; pick a metaphor. It is silly talk when what really needs to be explained in unambiguous terms (to the whole world, not just to the US) is that we can't go on like we are. We either have, or soon will, reach the point of no return for climactic catastrophe. The world must stop worshipping growth (and its stalking horse, free trade) and start reducing now. Reducing population (the ultimate driver of all demand) is not a luxury. The earth will do it for us within about 100 years if we don't do it ourselves. We can be as gentle as our ethics and means allow us to be. Malthus says the alternative will not be so gentle. When 95% of all arable land is gone, and 50% of the world's population has nukes, well, you do the math.

But damn those Dems for not telling us the truth about free trade, eh?

OK. Back to your thesis. Let me try a simple thought experiment to explain why the math of equalizing income throughout the world (a natural tendency which is catalyzed by free trade) can't help the US for many, many decades. Let's say the Chinese and Indian workers (~1/3 of the world population, i.e. ~ 2 billion) earn 100% of US workers total income (which we'll say is $1T). Let's say we have 100M workers (1/3 of our pop) and they have 667M (1/3 of theirs). Wave your wand and make us equal tomorrow. Then we'd have 767M making 200% of total US worker's income. Basicly, we'd have taken a haircut from $10,000 a year ($1T/100M) average income to $2600 ($2T/767M). India/China would get a well-deserved pay increase, which I have no qualms with. But is that what the Dems are supposed to sell to their constituents? You must be joking. I believe the US is heading for a lower standard of living as we speak and will continue in that direction for decades whether we like it or not. Once we reach parity, then we can all go up together. But parity is much lower than our current standard of living. Yes, the Dems don't say that out loud. But why should Dems take the hit on it if Reps aren't willing to? Why is it only Dems who must ruin their chances of election by telling the inconvenient truth?

You may protest my oversimplified model. You may say the pie will grow and goods will be cheap and (insert your other arguments here) and so we will all benefit. Well, again, look at what's really happening - inflation at 10% (officially, who knows what an honest BLS would be reporting), real wages stagnating for over half a decade (again, go read Krugman), and wealth concentrated even more at the top. It's not what was promised by free traders. The track record is there, and until free-traders deal with it honestly, well, you'll pardon me for being impatient with them. The fact is, we are still far ahead of the India/China standard of living, and bringing that many people up to our standard of living is probably impossible given the world's resources (satellite power schemes notwithstanding, free trade or no). The best we can probably hope for is to meet somewhere in the middle in a few decades. It's a pipe dream to think that we can stand still while they catch up with us. As long as they can outbid us for resources and jobs (and we're just at the beginning of both of those trends) our standard of living will drop. Free traders always have reputable economists of all political stripes behind them. But why is it their models which prove how everyone benefits from free trade always assume that all trading partners start out equal? Because if you start with the current reality (massive disparity between partners) then you can't help but arrive at the conclusion that for some long period of time, both sides approach the same point, somewhere in the middle. And that won't sell. And Dems know it and are the ones being honest about that facet of free trade under the current circumstances, while free traders know it but are being disingenuous about it by ignoring or denying meet-in-the-middle arguments.

I get the impression that some people won't be happy with the Dems until they commit ritual seppuku en masse on live TV (and they're the ones who always say they'll vote for them.) Seriously though. Political parties are created to win elections. Not to tell the truth (unless it helps them win an election), not to save the world (unless it helps them win an election), and not to advance free trade (unless it ... yada yada yada). The Dems have a little residual good will left over from the days when good will helped win elections. But it doesn't seem to help win elections today, so it is irrelevant to the continued existance of the party. Given that conservatives have successfully conditioned the majority to believe without question a whole raft of self-serving lies, and that they control the mainstream media with the iron grip of ownership, how does a purveyor of truth get elected? They have to calculate what lies must be told, and what truths can be told, and hope someone can do better in the future. Those of us who haven't swallowed the lies are left hoping that the partial-truth-tellers don't really believe or internalize the lies we know they have to tell just to get elected. We hate all lies, but we have to make our peace with political exigency.

Ed

anton said...

Alonzo:

Anonymous says it so much better then I! Our only problem is that US America does not have enough intelligent people to understand what he says!

Remember the farce movie The Russians are coming! The Russians are coming?

Maybe we can get the movie rights to The Chinese are coming! The Chinese are coming!

I think the start of this problem is that US spin doctors are only talking to US citizens, the majority of which neither understand or care that it is mostly bullshit! Then, several of these spin doctors are dispatched throughout the world to spread the word. If the US is lucky, it can even find foreign "experts" who can help add validity to their claims. We don't forget that it was a Canadian neo-con White House speech writer who coined the phrase "Axis of Evil". Now he is flooding our air-waves with more of the same!

And when those so-called experts don't make any sense to the rest of the world, their critics are summarily dismissed by US America who figure that we are just envious!

Its much like trying to warn someone boating down the river. He thinks that our "shouts" and "waves" are complements about his beautiful yacht when, in fact, we are trying to warn him that Niagara Falls is around the bend!

I wish it was as simple as saying, "Too bad, so sad!" but that would be immoral because they are a lot of unsuspecting, or ignorant, people on board!

nick said...

I agree with you about the wage. You said “For the sake of the poor exploited people of the world, you must provide them with $10 per hour plus medical benefits, or you must give them nothing at all!”.

Eneasz said...

Anton - I get the feeling that your intentions are good, but every progressive post makes less sense than the one before, and they often seem to have nothing to do with the original article. It seems to be decending into ranting, and I have a hard time understanding what your point is.

Anon - It is impossible to simply wave a magic wand and make everyone earn the same amount. Wealth is not a zero-sum game, it is created by making something of value. If the entire population of China made as much per-capita as the population of America, then they would also be producing as much per person as Americans do (on average). So they would be making that much more food, raw materials, finished goods, energy, TVs & sushi, etc. They would be producing enough to satisfy the demand (assuming no shortage of resources). I realize this is a big assumption, and I am of the opinion that the American standard of living will drop in the coming decades - based on current methods of measuring "standard of living". I think the measurement right now is flawed though, and I'm assuming that not long from now things like a lawn you can't care for and more living-space than you can realistically use won't be included in this measurement. I hope so at least.

Alonzo - what about the effect of responsible internalization of externalities? In the US we prevent our young from working and force them to be educated instead, have all sorts of worker-saftey regulations that prevent people from being maimed and killed, and have some limits on pollution and toxic waste dumping. All of these things raise the cost of doing business significantly. It is impossible to compete, in a pure-dollars way, with a country that doesn't care about their young, doesn't give a damn about how many laborers are maimed or killed on the job, and feels free to dump all it's waste into the enviroment regardless of the health of it's citizens. Shouldn't trade with such countries be restricted or severely tarriffed? By refusing to responsibly internalize the external costs of business they make the world much worse off for the sake of a few million dollars of profit.

anton said...

eneasz:

I apologize for getting into a rant but not for its reason. I am an old fart who has spent most of his life as an "effective activist" who, through health, can no longer be as active as he would like. What I am exposed to now is an ongoing debate that sounds good while accomplishing little. I have been listening to similar discussions for more than 50 years. They certainly are impressive, in an academic sort of way. Your claim that I am not making "sense" is actually demeaning because its a request that I "elevate" my terms of reference to the lofty world in which you live. I would imagine that your debate wouldn't be so lofty if you got your hands dirty once in a while and were "happy" about it.

. . . a lawn you don't care for and more living space than you can realistically use would't be included in this measurement. I hope so at least!

Are you joking? Lets see, now! We cover up thousand of acres of farmland so we can park our cars at the malls to purchase goods that other countries can grow and produce because their land has not YET been covered up with parking lots.

. . . they make the world much worse off for the sake of a few million dollars of profit

From what I hear, the guys making the most money are the middle men who arrange the economic marriage between the haves and the have nots and the retailers. Are you aware of the percentages that apply to retail trade? The retailer tries to make at least 40%, the wholesaler at least 20%, the US agent at least 10%, the foreign agent at least 10% which leaves 20% to cover the cost of goods, labour and profit for the foreigner.

If you notice, I have not used any analogies. I am not being sarcastic when I ask if you can understand these comments.

Eneasz said...

Hello Anton! Sorry for the delayed response. And more importantly, I apologize for what I said. It was not my intention to offend you, I was honestly perplexed by some of your comments and how they seemed to go into unrelated terrain. I don't know if I could have said it in a less offensive way, but I should have tried.

I respect the work you've done. You have no doubt done far more in your life than I ever have, I almost never get my hands dirty. I've spent too much time in ineffectual talk and not nearly enough in solid action. I hope I can change that.

If you notice, I have not used any analogies. I am not being sarcastic when I ask if you can understand these comments.

I do understand your comments, but in the face of the reality of the world, what can we do? It seems that the only viable option is tax those who concentrate this wealth into their hands (either through tarrifs or through direct taxation) and help redistribute it through social programs such as universal health care. And with the government currently as corrupt as it is, it seems this solution will be almost as bad as the problem until we can get people to care about honesty and integrity in politics. Not as buzz-words, but as actual concerns.

And that seems nigh unto impossible, for all the classic reasons.

anton said...

eneasz:

No problem!

What can we do

We can start in our own communities and confront the little things that are not moral. Like local "not-for-profits" that are nothing more than money-makers for some of the immoral members of your community. I "do in" at least one a month. Most of them are church related, or at least, church endorsed. They scream and holler when they get confronted, usually legally. (I often use the revenue service. The smart ones, unfortunately, know enough to pay taxes on their ill-gotten gains so you are left without any enforcement agencies to give a damn if the "not for profit" is being misused.) I will shortly have to move to a larger city to continue with my project because I am running out of "not-for-profits".

I have found that the most fruitful thing to fight is immorality. I use the phrase "shame on you" often.

If effect I have set out to show that Atheists are moral and that many of the immoral have their reserved pews. The most notorious "international" trader still resides in a community. When you start to make it uncomfortable for him at home; when you make it uncomfortable for his family; you will have a greater effect than any visit to his/her boardroom! He/she has skills to deal with you at the office. When you make his family aware that his "actions" are shameful, he starts to pay attention.

A part of our group problem is that the "bad guys" and the "other guys" have had thousands of years perfecting their skills and talents for successful implementation of their agenda. (Money really is the root of all evil). Meanwhile, Atheists have been bound up with debate for a couple of thousand years and so blinded by their "cause" that they don't understand that the really bad guys don't give a damn about religion. And while we get into debates with their priests and pastors, the bad guys are cleaning out our pockets!

If you want to get really active, the first step, if possible, is to come out! If enough Atheists come out, they might bump into each other in the dark once in a while and then four hands can set about doing the "right things". And, before you know it, maybe there will be eight hands!

As I have said many times, I live in a city with at least 30,000 Atheists . . . and you would never know it!

Why should the newspaper publish any "letters to the editor" regarding the Atheist cause? I was heavily involved in the media business and I never ever got a communication from an Atheist! I would have been flabbergasted if I ever got one, let alone one that had three or more signatures!

Try a "letter to the editor" with more than one signature. It gets a lot more attention, especially when it comes from an "identifiable group!