Free trade is good for us

Over at the Gang of Four blog, socialist David Sirota has written a piece called “Why NAFTA Is An Anger Point Fueling The Uprising”. It’s a remarkable demonstration of an utter lack of understanding of economics by a guy whose main goals seem to be to attack trade and help unions (just as most Democrats in Congress seem to want to do.) Sirota used to work for Bernie Sanders, so it’s not hyperbole to call him a socialist. Sirota is plugging his new book, “The Uprising”, the subtitle of which is “An Unauthorized Tour of the Populist Revolt Scaring Wall Street and Washington” in which Sirota hopes and dreams of a populist insurrection which isn’t happening despite what the media and Sirota would like to make us believe. It’s almost funny to read who wrote the “editorial reviews” on Amazon. The list includes such leftist wunderkinds as Thomas Frank, Tom Hayden, Joe Trippi, and Naomi Klein. If ever there were a group of people blinded to reality by their ultraliberal views, it’s this gang. I wasn’t going to read the book because I can just imagine what it says, and after reading Sirota’s latest posting on the Gang of Four, now I’m really not going to read it. Sirota starts by quoting a New York Times article by Roger Lowenstein, former WSJ reporter and the author of “When Genius Failed” as well as other books about finance and financial markets. Sirota, who apparently never met a capitalist or free market he didn’t dislike, has the temerity to call Lowenstein “insulated”, and says that Lowenstein’s arguments about free trade benefiting low income workers through lowering consumer prices (a claim that is obviously true) is “fact-free rhetoric.” Almost everything Sirota says in this piece of leftist propaganda is not just wrong, it’s blatantly wrong. Let’s take one thing at a time: First, he says that “ordinary workers are losing out in the ‘free’ trade deal”. There is no doubt that some workers’ wages get pushed down when they have to compete against foreign workers. Some might even lose their jobs. On the other hand, many workers get jobs in export businesses, more than making up for those losses in the aggregate. Just as with immigration, the majority of Americans are benefited by free trade and even workers whose wages drop can be better off if prices drop more. So, David Sirota wants to argue that NAFTA has killed wages for Americans. Unfortunately, for the anti-trade crowd, while they are entitled to their opinions, they are not entitled to their own facts. The chart below, which was created on the Bureau of Labor Statistics site, is quite an eye-opener. Series Id: CES0500000031 Seasonally Adjusted Super Sector: Total private Industry: Total private NAICS Code: N/A Data Type: AVERAGE WEEKLY EARNINGS, 1982 DOLLARS Serious discussions about a trilateral trade pact between the US, Canada, and Mexico began in 1991. Those discussions led to NAFTA, which was signed at the end of 1992, approved in both Houses of Congress in November, 1993, and took effect on January, 1994. 1991, the beginning of the NAFTA discussion, was the end of a multi-year down-trend in average constant-dollar weekly earnings. And other than a brief dip downward in 1995, the negotiations and implementation of NAFTA correspond precisely with the beginning of an uptrend which took real average weekly earnings back up to levels not seen since the early 1980s. In my view, the greatest expression and implementation of free trade in America is represented by WalMart. The most recent study I can find of WalMart’s effects on the economy focuses on that bane of the liberals. Global Insight, who did the study, did an update to capture data from 1985-2006. Its findings are fascinating, and not surprising to someone who is capable of believing that free markets work. Here are some highlights: • Global Insight found that the expansion of Wal-Mart over the 1985-2006 period lead to a cumulative 3.0% decline in overall consumer prices as measured by the Consumer Price Index for All Items. (This price index includes prices for both goods and services.) This estimate is in line with other researchers' estimates of Wal-Mart's price effects The 3.0% estimate is a cumulative total over the 1985-2006 period and corresponds to a 0.15% reduction in the annual inflation rate over the period. • The updated study concludes that the reduction in the price level due to the presence of Wal-Mart translates directly into savings for consumers amounting to $287 billion in 2006. This corresponds to savings of $957 per person and $2,500 per household. • [You can read the technical econo-speak preceding this conclusion on the second page of the article.] Wal-Mart's presence in the economy has led to an increase in the inflation-adjusted or real wage rate. The higher real wage rate, combined with higher employment levels, increased consumers' real purchasing power by $118 billion in 2004 dollars and an estimated $129 billion in 2006. This is the reason that the left is so dramatically unsuccessful in winning elections by running against free trade, WalMart, and capitalism, with the small exception of a few heavily unionized districts in the rust and coal belts. People realize that trade does indeed benefit them. Another WalMart note: If they were such a terrible employer, why would there regularly be so many more job applicants than jobs offered at new stores, even when our unemployment numbers were below 5%? Last November, a WalMart in Cleveland had over 6,000 applicants for 300 jobs. In early 2006 in Chicago, a new WalMart had 25,000 applications for 325 jobs. (Of course, a local union said that the 25,000 number was a “PR stunt” by WalMart. Yeah, right…) Sirota talks about imports coming from “environment-destroying competition”, something he gives no evidence for (which is strange considering just a few paragraphs earlier he says that Lowenstein “offers no actual facts to back up his assertion.” Sirota tries to argue that “slave labor” in China is forcing down wages faster than prices. Not only does the WalMart study make that claim appear highly dubious, it should also be pointed out that only a small percentage of Americans work in manufacturing or other jobs which can be directly affected by foreign manufacturing competition. Don’t read that to mean that the US is manufacturing less than it used to. We’re not…the US manufactures more than it ever has, and it’s percentage of total world manufacturing in dollar terms has only barely dropped from its high. It’s just that we do things much more efficiently now. It’s similar to how we produce far more food than we ever have in our history with the smallest number of farmers we ever had. Although Americans are more suspicious of free trade than they have been in a generation or more, it’s because the mainstream media is filled with people who, like David Sirota, have no understanding of economics. In my view, they don’t actually want to understand because the facts clash so drastically with their deeply-held world views about the evils of capitalism and liberty. They are trying to create the uprising which Sirota has written a book about. I trust that the uprising is just a leftist pipe dream. However, if enough people listen to Lou Dobbs, David Sirota, and other purveyors of econ-nonsense, and some sort of mass opposition to free trade does arise and gain support in Congress, the recession that follows will make any economic downturn of my lifetime look like a day at the beach. It’s an amazing thing about liberals: They don’t learn from history. They believe they have the right ideas…if only a smart enough person were implementing the ideas. And of course, most liberals believe they’re the one smart enough to organize everything for the rest of us. History is full of dead economies (and millions of dead people) where world views like Sirota’s have been attempted. Anti-free trade views, calls to repeal NAFTA, and attacks on capitalism are not just misunderstandings of reality, they are truly dangerous threats to our way of life.
  • Norman Gleason
    Comment from: Norman Gleason
    06/21/08 @ 07:59:12 am

    Please don't call them liberals call them "Progressives" attaching that wonderful history ala "LiberalFascism"

  • Bob Agard
    Comment from: Bob Agard
    06/22/08 @ 09:49:47 am

    Thank you for presenting these facts. It is an important topic, and I don't see many people writing about it, especially from a pro-liberty, pro-capitalism perspective. Where did I purchase my bedding plants this year? 5% from the wonderful high-quality-but-expensive Tagawa Nurseries, 65% from WalMart, 30% from markdowns at King Soopers.

  • Canada
    Comment from: Canada
    06/22/08 @ 01:53:49 pm

    Fuck NAFTA. You guys lied to many times about it.

  • Comment from: Rossputin
    06/22/08 @ 01:56:54 pm

    "Canada", That's just the sort of fact-based intellectual argument which gets so much support for your views. Keep it up. I dare you to refute ONE fact in my article. Rossputin

  • James Hanley
    Comment from: James Hanley
    06/26/08 @ 12:53:45 pm

    Just a few comments. 1. It's not just in export businesses that the loss of jobs is offset. By saving consumers money, it leaves them more to spend or invest elsewhere, so jobs are created in all sorts of different market niches, but it's impossible to track carefully enough to say where. This is what Bastiat meant when he talked of the seen and the unseen. UInfortunately, the job losses are easily seen, and the gains, being so dispersed, are unseen, which is what gives the arguments of Sirota and other anti-free traders so much populist appeal. 2. Nothing demonstrates the lower price/greater wealth effect more effectively for me than to compare the amount of toys/clothes I had as a kid (pre-NAFTA, WTO) and what my kids have. If anything, I'm sometimes tempted to oppose free trade because it makes things to cheap, and the grandparents won't stop buying my kids stuff! 3. While I stand firmly opposed to liberals on this issue, I always have to protest against statements like "liberals don't learn from history..." Conservatives have their fair share of blindpoints, too, adn are far from any kind of monopoly on wisdom or truth. Also, there are some conservatives (e.g., Pat Buchanan) who also oppose free trade.

  • Comment from: Rossputin
    06/26/08 @ 01:01:07 pm

    James, Thanks for your note. In response, a point at a time: 1. You're right about the Bastiat-like argument about what is seen and what is unseen. But I would add that people like Sirota claim much more to be seen than actually is seen. 2. I couldn't agree more. 3. Just because conservatives are far from perfect doesn't change the point that liberals don't learn from history. And as far as Pat Buchanan goes, I don't know what he is but if you call him a "conservative", that's certainly a bit of a black mark for conservatives. For the record, I consider myself a slightly conservative-leaning libertarian. Ross

  • Derick Jones
    Comment from: Derick Jones
    07/13/10 @ 05:52:54 am

    The bullet points and that graph speak volumes. They just don't seem to learn.