Story by Joseph Ford Cotto
This is mostly a new year – we are, after all, only 20 days in – with an indisputably new presidential administration. Today, of course, is its genesis.
What should we think about at a time like this? Inauguration balls? Cabinet picks? Senate confirmation hearings? How about whether the entertainment industry will ever forgive those who dared share Donald Trump’s company?
All of this is important – the first one less so than others, hopefully we can each agree – but there is a matter which evades public attention. It does not have to do with Internet clickbait or talk radio callers, but cold, hard cash.
Prominent economists and politicians often say that free trade will benefit America in the long run. Many Americans disagree strongly. This is not just a casual disagreement, but one of the conflicts which give definition to contemporary politics.
“There is no such thing as ‘America.’ There are of course, ‘Americans.’ How will free trade affect them? As consumers, all will benefit,” Dr. Walter Block tells me. He is the Harold E. Wirth Eminent Scholar Endowed Chair in Economics – how is that for an accomplished title? – at Loyola University New Orleans’s J.A. Butt School of Business.
Block is also the author of Defending the Undefendable, a bestseller from 1976 which conservative journo Marcus Epstein said portrays “pimps, drug dealers, blackmailers, corrupt policemen, and loan sharks as 'economic heroes'.” In more flattering terms, John Stossel claimed it introduced him “to the beauties of libertarianism. It explains that so much of what is assumed to be evil – is not.”
As Block is an Austrian School economist with solid anarcho-capitalist cred, not to mention a senior fellow at the Ludwig von Mises Institute, and an uncompromising individualist, it is unlikely that he cares about what the peanut gallery has to say concerning his philosophy.
The Doctor continues: “As producers, some will benefit, others will lose out. Let us consider sugar. The price within the U.S. is some 5 times that which is available through trade. This of course is due to tariff ‘protection’ of US sugar manufacturers.
“Suppose these protections were eliminated, as would have been the case, presumably, had Ron Paul, or, even Rand Paul, maybe even Gary Johnson, become president. Well everyone, including sugar producers, would gain from lower prices, as consumers. But sugar producers would have to find another use, or uses, for their land and capital equipment. Their wealth would decrease. This is so since their entire incomes, we may posit, derives from sugar, while they, like most consumers, spend only a small portion of their budget on such items.
“There is an important aphorism I should mention: ‘free trade benefits all market participants.’ How can this be, when we have just said that sugar manufacturers are likely to be losers from this change, on a net account. We can say this because while the tariffs were in effect, these producers were indeed part of the market; but afterward, they were no longer able to participate in it, so they could no longer benefit from it. A similar analysis applies to the people in the horse and buggy industry. Before the advent of the automobile, they were market participants, and gained thereby. Afterward, they were no longer able to participate in the market, at least not in the horse and buggy industry.”
Whichever view you might hold on the ever-controversial matter of trade policy, there can be no denying that America is in a state of economic transition. Not only is technology changing what is manufactured – irrespective of whether the assembly line is in Bangor or Beijing – but how items themselves are made.
In the long run, automation promises to leave many factory workers out of a job. If this promise is not made good on them, it will surely impact future generations.
This brings us to a different – though not totally unrelated – matter: Libertarian economic theorists tend to believe that trade deficits are of minimal importance. Do these deficits really have a great impact on America's economy?
“I object to the phrase ‘libertarian economic theorists,’” Block says. “I hate to be so fussy, but libertarianism is a normative discipline (what is right, what is wrong, what should the law be?) while economics is a positive one (what causes what? If you do X, what will happen?) But, of course, I’m only being difficult (hey, if I didn’t do this, they’d kick me out of the professoriate!); I know full well what you mean: economists who also are libertarians.
“Now to answer your question: I have a gigantic deficit with Wal-Mart; I purchase several hundred dollars worth of groceries from them every year, and they buy nothing whatsoever with me. On the other hand, I have a great surplus with my employer, Loyola University New Orleans. They pay me a very decent salary, and I purchase from them only a few items, mainly from their bookstore, sometimes cafeteria. They, in turn, of course, have a big trade deficit with me.
"Is any of this problematical? Of course not. Nor would it be if instead of mentioning me, Wal-Mart and Loyola U, I discussed three countries. So, no problems here. As the cops say, ‘Keep on moving; nothing to see here.’”
There is plenty more to see in our discussion, though. Check back Monday for a frank exchange about the mother of extant commerce deals – the North American Free Trade Agreement.