That funny old dogma — Ian Fletcher’s ode to mercantilism

Max Borders | Editor, The Freeman

College kids have an excuse for being indignant about free trade. They’re largely ignorant–young idealists who’re still learning about the real world. They don’t realize, for example, that most “sweatshop” jobs in Central America pay more than prevailing wages in those countries. And, while these jobs are tough, they are less horrible than subsistence agriculture. In other words, third-worlders actually want sweatshop jobs. The alternatives may be prostitution, starvation or crime.

But I don’t think folks like Ian Fletcher have as good an excuse for their opposition to free trade. I realize mercantilism, that funny old dogma, can be tempting for people–particularly if you’re a UAW lobbyist, or your radio’s stuck on The Lou Dobbs Show. But Fletcher’s recent article in the Daily Caller isn’t so much a defense of mercantilism as a guerrilla assault on free trade launched from the thorny bushes of fallacy. Let me explain.

Fletcher’s “critique” employs three strategies that, when analyzed, can easily be exposed as Logic 101 no-nos. Consider:

Straw Man — Come up with five or six caricatures of free traders and their arguments, then beat up on those caricatures. But don’t use actual citations, because you won’t find any. Here’s one example of Fletcher’s supposed free trade argument: “Anyone who doesn’t believe this is stupid. Smart people not only understand that free markets are best, they like free markets, because free markets mean opportunities to get rich.” (Italics Fletcher’s.)

Wow. Okay, the first thing you should do when arguing against a position is to find people who actually making the claim you’re attacking. I don’t know anyone who makes such puerile assertions, much less gets get paid to. And while free markets do mean opportunities for people to benefit, free-traders really like the fact that borderless exchange offers opportunities for the world’s poorest people to survive and thrive.

Ad Hominem — If you can’t dissect the argument, attack the man: “Their fundamentalist sect is the old Ayn Rand cult, whose members call themselves ‘objectivists.’” The implication is that those who understand free trade are somehow dogmatic or cultists. We don’t reflect on our advocacy of open exchange, we follow it blindly. Like the tactics used by the Soros left, Fletcher’s shtick is not so much to argue at all, but to use innuendo and call names. Even the title, “Fakeonomics,” is meant to suggest free-trade advocates are either lying or being disingenuous. Attacking people reveals contempt, not substance.

Sans Evidence — Economics is an empirical science in most respects. So why doesn’t Ian Fletcher point to any evidence to support his claims? I suspect one of two reasons: either he is a lazy researcher who can’t be bothered with evidence, or he is being intellectually dishonest. Neither reflects well on him or his organization. (A third hypothesis is that he is simply using the platform to hock his book on protectionism, which he mentions both in the body and in the tagline. His book is published by a special interest group.)

Anyway, so much for rational discourse on free trade in “Economics vs. Fakeonomics.” I’ll try to do a little better in my response to Fletcher.

Despite all the fallacies and lack of supporting evidence, let’s be charitable to Mr. Fletcher’s position. With the following, I’ll directly address what Fletcher considers to be the “problems” of free trade.

“Free trade for America is one-sided, with most major foreign economies practicing managed trade of one kind or another.” So what? American consumers still benefit. Is Fletcher’s argument that because other countries shoot themselves in the foot with tariffs, the United States should as well? Countries like Hong Kong and Singapore practice unilateral free trade (and have scarcely any natural resources). Yet they are the wealthiest places on earth. That’s because trade freedom correlates very strongly with prosperity. (Here’s the evidence.)

“When free trade involves trade deficits, it may be optimal in the short run but is unsustainable over longer time horizons.” Actually, the reverse is true. Free trade works more over longer time horizons because the gains from trade are part of a dynamic, unfolding process of change and creative destruction. (Note: I’ve had a long-standing trade deficit with Target, but it looks pretty sustainable to me.)

“Even if it increases GDP, it has even stronger effects on income distribution and can thus harm many, or even most, of the people in the economy.” Even if this were true in the way I think Fletcher intends (the claim is vague), income is not the sole measure of prosperity. In other words, even if increases in GDP were zero-sum (they’re not) — i.e. if the rich got richer because the poor got poorer — that wouldn’t mean the poor have less purchasing power. Quite the contrary. The poor are better off now than they have ever been in human history–thanks largely to trade. (See Myths of Rich and Poor by Cox and Alm for plenty of evidence to this effect.)

“The adjustment costs of declining industries—from unemployment checks to the rubble of Detroit—are huge and ongoing.” Ever considered the possibility that the “rubble of Detroit” might be the result of a host of other factors? How about massive welfare-state expansion? Demographic trends? High taxes? Industrial policy coupled with a lack of industrial diversity? Even if the recent bailing out Detroit helped with the “adjustment costs,” it’s not clear how that would have meant a net benefit to the country as a whole. We enjoy more prosperity and better cars at lower prices thanks to relatively free trade. (It’s also not clear how such protectionism will help Detroit become more diverse and competitive. But I digress.)

“It brings us cheap goods today at the price of building up economic rivals who will take markets away from us tomorrow.” Us who? Does he mean Americans? If Fletcher is truly committed to this idea, then California should slap tech tariffs on Texas. After all, Texas’s inexpensive hardware and software might be great, but California should protect jobs come what may. (Or is it that because Californians and Texans are both American, protectionism isn’t justified?) When you erase artificial boundaries, the absurdity of protectionism starts to show.

“It helps dirty industries move from environmentally strict jurisdictions to environmentally lax ones.” This can be true. It’s debatable whether environmental strictness is a good or bad thing on net. But let’s assume it’s good for rich nations and achieves goals like clean air and water. Developing nations can’t afford more stringent regulations. The only way for them to afford stricter regulations (or cleaner technology) is to develop. And the only way to develop is to grow wealthier. They are not likely to become more prosperous by trading only with themselves (just ask India, who tried this in the 1950s). Indeed, increased wealth makes environmental goods, even regulations, more affordable. (See “Environmental Kuznet’s Curves.” The poorer places on the planet are the dirtiest precisely because they are poor, or haven’t quite gotten through the curve.) Contrary to Fletcher’s claim, a lack of free trade is an impediment to environmental improvement. And contrary to Fletcher’s naked nativism, there are other people in the world who would like a chance to trade with us so they can make a life for themselves and their families.

“Even if it is efficient in the short run, efficiency per se has little to do with long-term economic growth.” So that must mean inefficiency isn’t a problem and might even be a good thing. Let me see: would Fletcher be richer or poorer if he wrote all his essays in longhand and mailed them to The Daily Caller? What if he grew all of his own vegetables instead of having a trade deficit with the grocery store? I know: what if Fletcher built his next house — himself — without the aid of any machinery, using only pop-sickle sticks? Would that help the economy grow in the long term? To say that there is no connection between efficiency and growth is just, well, incredible.

“The theory of comparative advantage—which supposedly proves that free trade guarantees win-win outcomes—doesn’t hold in the presence of capital mobility between nations.” Don Boudreaux tackles this point best: “Like other real-world happenings, capital mobility does indeed change the specific pattern of comparative advantage. It does not, however, nullify the principle. If it does … then the principle of comparative advantage would be useless for explaining the pattern of specialization and trade within national or local economies, where capital has long been mobile. Of course, comparative advantage has always helped to determine the pattern of specialization and trade between Brooklyn and Queens no less than it has always helped to determine the pattern of trade between America and other countries. And this helpfulness does not diminish as capital mobility increases. (See also this paper.)

Even if there were some rare instances in which free trade failed to create some sort of optimum social welfare dreamt up by the likes of Fletcher, government planners are simply not well-equipped to identify them, much less set policies to correct them. Economies are dynamic and ever-changing. Bureaucrats have limited knowledge. Policies are static and rarely go away. Markets, much more than meddlers, tend to self-organize for the benefit of everyone.

As we have dispatched with Fletcher’s talking points, it will be helpful for us to remember the most important point in responding to the merchantilist: Sometimes it’s not about whether or not free trade produces the ‘greatest social good;’ it’s about the fact that people should be free to associate with other people as they like.

Human beings have a right to trade with one another on their own terms. Exchange between consenting adults is not something to be manipulated by special interest groups or social engineers. It is a right that is justified in the same way free speech is justified: by appeal to the fact that failing to improve someone’s lot is not the same thing as causing him harm. In other words, trade is, by definition, an act of mutual benefit and mutual gain–whatever meddling third parties have to say about it.

Max Borders is executive editor at Free To Choose Network. He also blogs for Ideas Matter and MaxBorders.com.

Tags : ayn rand detroit economic ideologies economics free trade ian fletcher international economics international trade macroeconomics trade
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