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On trade, Sanders and Trump are peas in a rotten pod

2016 president | @SheldonRichman | Support this author on Patreon

Neither Bernie Sanders, the self-described democratic socialist, nor Donald Trump, the self-described terrific businessman, knows squat about economics. If their polices were enacted, regular working people would be harmed.

This is most clear with trade. Sanders and Trump are flaming protectionists, which means they peddle perhaps the oldest, most-thoroughly discredited economics doctrine ever spoken. (An older fallacy may be that an economy can grow by creating purchasing power from thin air.)

Observe: what Sanders and Trump seek to protect us from is low-priced useful products made outside the United States. Crazy, right? Our living standard depends on the ease with which we can choose from a growing array of products that make our lives better. Products, then, are an odd thing to promise protection from. In 1886 Henry George exposed the demagoguery inherent in protectionist appeals such as those from Sanders and Trump:

“Trade is not invasion. It does not involve aggression on one side and resistance on the other, but mutual consent and gratification. There cannot be a trade unless the parties to it agree, any more than there can be a quarrel unless the parties to it differ.”

Note two points: first, trade is voluntary cooperation — nowadays between perfect strangers across great distances, a good thing; and second, when government interferes with trade, it wrongs both parties, who would not be trading if they did not expect to benefit.

George put it even more pithily: “What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.”

Exactly. So how dare Sanders and Trump propose to interfere with trade! If they don’t want to buy from people outside America, they don’t have to. But, please, leave the rest of us alone.

Sanders, Trump, and their worshipers in the electorate will say that free trade hurts third parties by taking “our jobs” and creates damaging trade deficits because we send billions of dollars to China and other countries.

Balderdash!

Trade doesn’t take “our jobs” because America doesn’t own jobs. Non-Americans are people too, and if they wish to accept whatever job offers come their way, that is their right. (If the governments they labor under are oppressive, they will have to find a way to change that. Starving them through trade wars won’t help.) Trade, like technology and fickle consumers, does bring change, but this comes in the form of shifting employment, not unemployment (unless government stands in the way). It is true that far fewer Americans work in manufacturing, but this is not because “we don’t make anything anymore.”Manufacturing output is historically high; diminished employment is the result of technology — far fewer workers can produce far more goods today than just a short time ago.

Factory jobs now done in developing countries are low-skilled jobs (using inputs made everywhere) that by their nature wouldn’t pay high wages if they were done here. In America those jobs have been replaced by an expanding variety of high-tech and service jobs. At any given time, labor and resources are finite, but our desire for goods is infinite — alas, we will never run out of work. Don’t blame trade for what the government-induced Great Recession and ill-conceived “recovery” policies have wrought.

The benefit of trade, driven by comparative advantage, is that when the market process (i.e., people cooperating through commerce) directs labor and resources to their most lucrative employment, all of us have more goods and services available at the lowest possible prices — in a word, we’re richer.

And don’t worry about the “trade deficit.” When we buy goods from abroad, sellers have only three things to do with their dollars: buy American goods and services, invest here, or buy their own country’s currency, in which case the new holder of dollars faces the same options. No wonder Adam Smith said, “Nothing … can be more absurd than this whole doctrine of the balance of trade.”

Government trade agreements are bad not because they free up world trade, but because they empower bureaucracies and impose stifling intellectual property laws on poor foreign workers. Don’t let Sanders, Trump, and misleadingly named free-trade agreements sour you on real free trade. Trade makes peace and wealth. Protectionist politicians threaten trade wars and strife. Where do your interests lie?

   
Discussion
  • wigglwagon

    Apparently, it is not only politicians who do not know “squat about economics.”

    Prices are not determined by the cost of production. Prices are determined by ‘what the market will bear’. When new cars are not selling good, the manufacturer lowers the price by offering rebates. Employers do not pay lower wages so they can give you a discount on their products. They pay lower wages to their workers so they can pay higher bonuses to their bosses.

 
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