February 5, 2009

More on "Buy American" Proposals

Paul Krugman, Princeton economist and Nobel Prize winner has previously written about trade wars. Unfortunately, he claims that a trade war is one where no one can win. Krugman claims that a trade war is one where both countries use their ammunition to shoot themselves in the foot, with the lower standards of living than inevitably result from decline in trade. To put it another way, British Prime Minister recently said that "protectionism protects nobody, least of all the poor."

In todays Wall Street Journal, Princeton Economist Burton Malkiel, writes about the negative, unintended consequences that a trade war would have.

Malkiel writes: "This Buy American momentum is bad economics, and by threatening to destabilize trade and capital flows, it risks turning a global recession into a 1930s-style depression. Asked about Buy American on Tuesday, President Barack Obama told Fox News that "we can't send a protectionist message." He said on ABC News that he doesn't want anything in the stimulus bill that is "going to trigger a trade war." He's right.

Suppose that we did not allow free trade between the 50 American states. Citizens like me in New Jersey would be far worse off if we could not buy pineapples from Hawaii, wine and vegetables from California, wheat from Kansas, and oil from Texas and Louisiana while we sell pharmaceuticals to the rest of the country. The specialization that trade makes possible allows all of us to live better.

The situation is the same with respect to world trade. Both we and the Chinese are better off if we can import inexpensive clothing from China and sell them large-scale computers and data storage equipment.

To be sure, such trade does not make everyone better off, and that is why free trade is often a tough sell, especially during times of hardship.

If I am a textile worker whose job is lost because Chinese imports have caused my factory to close, I feel the pain far more acutely than consumers feel the benefits of cheap clothing. The pain tends to be localized while the benefits are spread broadly. No one person's benefit can compare with the loss felt by the textile worker. But the total benefits do exceed the costs. And competitive markets have spurred the innovation revolution that has made the U.S. the economic powerhouse that it is.

The solution for the displaced worker is job retraining and adjustment assistance, and to improve the safety net available to displaced workers during the transition period. We also need to revamp our educational system so that it prepares workers for the jobs that are available today -- and imparts the flexible skills that make our citizens ready for the future jobs that we cannot even imagine."

1 comment:

tapsearcher said...

ooWe need to define terms before comparing anything with the past.

First of all Free Trade as it exists today is not trade as historically defined and practiced.

It primarily about making production portable ready to be moved again and again for the sake of cheaper and cheaper labor with the main commodity being human beings as workers who are put on a world trading block to compete with each other for the same jobs. If any comparison is possible with the past, then the slave trade can be used as an example.

Free Traders also like to use the Smooth Hawley trade act as a cause of the Depression. The act wast passed in 1930 a year after the stock market crashed. During the roaring twenties, the stock market ruled the game - the U.S. used many variations in trade.

The Smooth Hawley act never really took effect because it was not really about tariffs it was about a money crisis. President Roosevelt was elected in 1932 and a new trade bill was passed in 1934 giving Roosevelt to lower or raise tariffs. This did not affect much either. (see our most popular ezine article which has been copied on many blogs and by ezine publishers - Lend Lease was real Free Trade and not chop liver as in the Globalist World- at http://ezinearticles.com/?expert=Ray_Tapajna

President Roosevelt, noting the worldwide money crisis, he said he was not going to let the dollar sign stand in is way and he instigated the Lend Lease Act. He start shipping goods and foods to the allies without concern about when the U.S. would get paid.

Then world war 2 kicked in the most awesome industrial might the USA has ever known.

Following this the Marshall Plan duplicated this success in local value added economies in Europe and Asia.

Free Trade came and discounted the value of workers an labor. This value is a real tangible asset and acts as a money standard backing up paper money which is an intangible value and its money standard it the what any country represents in terms of money values. Now if you deflate workers and labor, this deflated value eventually impacts the money products.

This is the core of our economic crisis today and Federal Reserve Chairman Ben Bernanke hit on this when he told Congress during the past stimulus package debate - the best way to stimulate the economy is to buy "domestically produced goods". This does not only apply to the USA but to all countries in the world because values can be added in local balance settings from raw product up through several levels to the retail or end user stage.

See http://www.bizarrepolitics.com/free-traders-protectionism-myths
http://tapsearch-global.blogspot.com ( attention getter : note Rush Limbaugh could have saved the world