22 April 2008

McCain Gets Free Trade Half Right

Campaigning in Youngstown, Ohio, John McCain defended free trade, while still getting it wrong. Here's what he said.

McCain again defended free trade during a town hall meeting at Youngstown State University, but added that other countries have violated the principle at the expense of the U.S. interests. "We have to insist on fair and open competition," McCain told a man who protested Chinese "dumping" of cheap steel, crippling steel communities such as Youngstown.
McCain dangerously mixes the notion of "fair" trade with free trade, showing that he still doesn't really get it. Let's say China's not being fair, that they are "dumping" goods in the U.S., and not allowing U.S. goods in. Conventional wisdom, and McCain is wholly conventional here, says the U.S. is being hurt while China prospers. But, as so often happens, conventional wisdom is anything but wise.

The more goods and services you can buy, the more well off you are. So if China sells stuff to us super-cheap, we can buy more stuff, and we're better off. It also leaves us more money left over to buy other stuff, including American made stuff, like dvds of Hollywood movies, dinner at Applebees, Amish-made furniture, etc.

On the other hand, if China is really selling things below cost, then they are losing money, and their ability to buy goods and services is declining. And if they are really keeping American made goods out of China, then they're just depriving themselves of access to quality goods.

In other words, if China doesn't play fair, America gets richer while China gets poorer.

Unfortunately, too many people still think the basis of the good life is jobs, rather than goods and services. Jobs are merely the means to the end of acquiring lots of goods and services. It's an odd misconception to have, when you consider that most people's vision of paradise is having everything we need without having to work. Just think, if China really did "dump" goods on America, giving us everything we need for free, it would destroy millions of jobs--but we'd be that much closer to paradise.


James K said...

The question to ask yourself is "would you rather work without pay or get paid without work?"

Exports are work, imports are pay. Is seems truly remarkable to me how many people get that wrong.

James Hanley said...

Nice way to put it. I may steal that from you.

Scott Hanley said...

In this case, I think looking at the aggregate conceals more than it reveals. Goods are analog, while jobs are digital, i.e., prices rise and fall a little at a time, but a job you either have or don't have.
In a bad year, overall prices might rise 10%, but if you lose your job and have to take another at half the salary, you have personally just experienced 100% inflation. It's no wonder people get more excited about jobs than about prices.

James K said...

Scott: There is a distributional angle to consider, and may economists support the idea of some kind of transitional benefit to people who have lost their jobs (I'm lukewarm on the idea but can accept it for realpolitik reasons).

The important thing to remember is that free trade creates at least as many jobs as it destroys, and sine the country becomes a more efficient produces those jobs will, on average, be better paying.

James Hanley said...

"looking at the aggregate conceals more than it reveals"

I don't know about "more," but will agree that looking at the aggregate doesn't reveal everything.

Of course neither does looking at the individual cases, because looking at an individual case wholly obscures that the aggregate benefits of free trade outweigh the costs. It also obscures that the "saved" job has, with near certainty in every case, cost someone else a job (e.g., Bush's steel tariffs cost more jobs in steel-using industries than they saved in the steel producing sector).

Moving in close from the aggregate also obscures the fact that free trade produces enough wealth to take care of those whose jobs are lost--but that's a distributional issue, as opposed to a wealth/productivity issue.

Scott Hanley said...

My comment was meant as a response to "Unfortunately, too many people still think the basis of the good life is jobs, rather than goods and services." In our system, a good, reliable income is much more essential than low prices to a person's good life. So I would say those "too many people" aren't wrong.

James Hanley said...

Of course you have to take into account the jobs that are destroyed by protectionism, just as much as you're taking into account those jobs destroyed by free trade.

Free trade vs. protectionism doesn't have a real net effect on jobs, just which specific jobs are created and which destroyed.

So, again, the argument about jobs just doesn't work as an argument against free trade, unless you want to argue that one person's job should be proteced, and to hell with the other person's job.

And since free trade doesn't affect the net number of jobs, your argument is wrongly based and falls apart. Jobs with lower priced goods are better than jobs with higher priced goods (keeping "lower" and "higher" relative to wages).

Scott Hanley said...

I didn't make an argument that stands or falls on free trade. I'm objecting to the implication that people would be smart to stop worrying about jobs and just focus on prices.

James Hanley said...

But the argument is about free trade. My claim that people should stop worrying about jobs, but focus on prices, was in reference to free trade.

So I don't get the point of an objection that claims not to have anything to do with free trade.

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