Rossputin.com Rational Thinking About Our World

David Sirota is guilty of the same intellectual error as many on the left are when it comes to economics. They assume that anything they expect should happen or anything they wanted to happen did in fact happen. A great example is Sirota’s anti-free trade assertion that because of NAFTA, “left for dead, of course, is a place like Ohio”, an assertion utterly belied by the facts.

Again, I am not saying that there are no losers in free trade or any other competitive system. But Sirota and friends argue that the losses from free trade are in aggregate much larger than the gains to the nation. I do not know of one serious economist or one serious economic study which demonstrates anything other than free trade being a substantial net winner for the nation which participates in it…even if its trading partners trade less freely!

But the subject for today is the economic death of Ohio, something which didn’t happen despite the fondest wishes of anti-free traders and anti-capitalists. Sure, they can find workers who lost their jobs. But do you think they take even a moment to look for workers who found new employment, or the creation of new jobs which caused new workers to move to Ohio for the opportunities? Of course not, because they know the facts would contradict their deep desire for free trade to produce uniformly bad outcomes. Unfortunately for these tools of organized labor, they’re entitled to their own opinion but not to their own facts.

First, let me start with a macro concept. Sirota and others might argue that NAFTA has killed our manufacturing base. If that were the case, then you’d expect the balance between goods and services production in the US to have shifted far more dramatically than the balance in countries which didn’t join NAFTA.

But the following chart from the Bureau of Labor Statistics shows something very different. It shows that from 1965 to 2005, the United States’ shift in output towards more services and fewer manufactured goods was not remarkable compared to 6 other modern economies, including European countries not known for free trade. Yes, the chart covers a much longer period than the years since just before NAFTA, but nevertheless I would have expected the US to look like a serious outlier if our manufacturing base had been wrecked by free trade treaties which other nations were not participants in.

Let’s move on to some interesting facts about Ohio.

Here’s a chart of Ohio’s labor force (people in jobs, not unemployment rate) from 1980 to today:

Now here’s another chart. For the moment I won’t tell you what the data series is.

Would you agree that these charts are exceptionally similar? Look at the dips or flat areas around 1983, 1991, 1995, and 2003.

OK, here it is again, properly labeled:

What does this tell us? It tells us that Ohio’s unemployment is directly correlated with the nation’s economy, not that Ohio is somehow worse off than the rest of the nation. If you look at 1994, when NAFTA was implemented, onward, there is no evidence that Ohio has underperformed the national economy. Indeed, Ohio seemed to have done slightly better during the economic weakness around 2002 than much of the rest of the nation.

Here’s another pair of graphs for your perusal:

First, Ohio’s unemployment rate from 1980 until now, and immediately following is the national unemployment rate over the same period.

Ohio’s unemployment rate in December, 1993, the month before NAFTA came into force, was 6.5%, which was the lowest it had been for about two years. In January, 1994, Ohio’s unemployment rate dropped an impressive 0.4% to 6.1%. As of May, 2008, Ohio’s unemployment rate had NEVER AGAIN reached as high as 6.5%. So much for “left for dead”.

In the four years after NAFTA’s enactment, Ohio’s unemployment rate dropped MORE than the national unemployment rate. Indeed, as you can see from the charts, Ohio has done as well or better than the rest of the nation in unemployment rate during almost the entire span of this chart, except for a couple of years from roughly 2005-2007, which I doubt even David Sirota would try to blame on NAFTA. (Actually, I don’t doubt it.)

In case you still don’t believe that free trade is good for Ohio, let me give you another comparison, this time to Colorado (which I choose simply because I live here.)

According to the International Trade Administration, based on 2006 data (the latest available), “Export-supported jobs linked to manufacturing account for an estimated 3.6 percent of Colorado's total private-sector employment. Over one-sixth (18.6 percent) of all manufacturing workers in Colorado depend on exports for their jobs.”

Now the same info for Ohio: “Export-supported jobs linked to manufacturing account for an estimated 6.7 percent of Ohio's total private-sector employment. Nearly one-quarter (23.1 percent) of all manufacturing workers in Ohio depend on exports for their jobs.”

Here’s more about Ohio: “In 2005, foreign-controlled companies employed 213,800 workers in Ohio, the eighth largest total among the 50 states. Major sources of Ohio's jobs in 2005 included Japan, the United Kingdom, Germany, France, and Switzerland.

Almost half of these jobs (45 percent, or 95,400 workers) were in the manufacturing sector in 2005. Foreign-controlled companies accounted for 11.7 percent of total manufacturing employment in Ohio in 2005 (more than one of every nine manufacturing workers).

Foreign investment in Ohio was responsible for 4.5 percent of the state’s private-sector employment in 2005.”

(All of these numbers are larger than the equivalent numbers for Colorado, including in percentage terms.)

And more: “Ohio's export shipments of merchandise in 2007 totaled $42.4 billion, up 42 percent ($12.6 billion) from 2003. Ohio recorded the eighth largest export total of all 50 states in 2007.” Ohio’s 2003-2007 increase was the 9th largest in the nation.

Besides NAFTA not “leaving Ohio for dead”, how about this NAFTA-specific information: “Ohio exported globally to 213 foreign destinations in 2007. The state's largest market in 2007, by far, was our NAFTA trading partner Canada, which received goods exports of $19.6 billion. This was nearly half (46 percent) of Ohio's total exports that year. Ohio's second-largest market was our other NAFTA partner Mexico ($3.0 billion), followed by Japan ($1.5 billion), China ($1.5 billion), and the United Kingdom ($1.4 billion).”

The Cleveland area exported over $8 billion in merchandise in 2006. Dayton was over $4 billion, Akron $3.5 billion, Columbus over $3 billion, and Toledo $2 billion.

If that’s “left for dead”, I wonder if anti-free trade and pro-labor activists will ever admit to an economic policy which increases competition against unions having been successful.

Gang of Four blogger David Sirota, the group's socialist, has been on a self-promoting (for his new book) tirade against free trade. I responded to an inane anti-NAFTA note of his, and he responded with a note calling me a "silly Limousine Libertarian" and arguing the economic equivalent of "black is white".

Here's my retort to his Orwellelian econo-nonsense:

Thanks to David Sirota for “breaking protocol” and actually interacting with other members of the Gang. It seems odd that your self-imposed protocol seems at odds with one of the best parts of a group blog, so I’m glad you’ve taken your muzzle off.

I have to say I couldn’t have asked for a better response. It’s sort of like getting a big fat fastball right over the plate when I’m at bat. So, here’s my swing, responding to your “silly Limousine Libertarian” note one paragraph at a time.

First, I am not a stock speculator and I am not, at least by my standards, wealthy (although I am also not poor.) Second, I don’t live in Boulder (well, I live in the county, but not the city, which is what I believe you meant) and I don’t live in an “enclave”. Third, I did not say “ignore the working class”. What I say is that the people who claim most to care about the so-called “working class” (as if people who make more than average wages don’t work) are the ones most likely to suggest policies that are antithetical to the interests of the “working class”. Opposition to free trade and to WalMart are perfect examples.

I should also make the point that the idea of “Limousine Libertarian” is rather ridiculous, if you understood what the point of “Limousine Liberal” is. You seem to be trying to insult me, but since one of my long-expressed ambitions is to get rich, and since I believe there is nobility in getting rich (legally), I am proud of being able to afford a limousine, although I haven’t been in one in years and think they’re gaudy and rather silly. Liberals, on the other hand, seem to think there is virtue in being poor, and therefore a liberal in a limousine represents hypocrisy where a libertarian or conservative in a limousine simply represents achieving stated goals. Let me clarify one thing before you misrepresent that as well: I am not saying that poor people are not or can not be noble. I am saying that there is not inherent nobility in being poor. And to be very clear, I am not saying there is inherent nobility in being rich, but I think there is in getting rich (again, legally and non-fraudulently.) As Adam Smith made perfectly clear, people can only get rich in a capitalist society by providing (directly, or indirectly through investment) a good or service that other people are willing to pay for. Anyone who can produce something that so many people want or need is probably worthy of admiration.

Your claims about what the BLS chart suggests make absolutely no sense. How can you possibly claim that a chart which shows a long-term trend of wage declines ending and reversing precisely at NAFTA’s negotiation and implementation (negotiation beginning in 1991) somehow shows that NAFTA is keeping wages down? Your thinking is remarkably Orwellian: White is Black, War is Peace. The chart does not definitely prove that NAFTA was the cause of the uptrend in real wages, but it certainly points that way. There is no rational way to interpret the chart as saying that NAFTA has had a negative effect on wages.

If you want to claim that free trade was responsible for the downtrend in real wages before NAFTA, go ahead and try to make that case. But arguing that the chart which shows the wage decline stopping and reversing precisely at the time of NAFTA somehow shows NAFTA as a culprit must strike even our more liberal readers as tremendously illogical.

I have to say that I read that claim of yours three times to make sure I wasn’t reading it wrong, because it’s so inane. Let’s put this in a sports analogy: Imagine a baseball team that had been great in the past but had been in steady decline for years. Then the team acquires one of the best players in baseball. His presence stops the decline, and the rest of the team improves around him, and the team regains much, if not all, of its former glory and success. You are arguing that that star player is to blame both for the team’s decline before his arrival and for the team’s not (yet) reaching its prior heights. Both arguments are ridiculous; the player’s arrival was uniformly positive, with the possible exception of the impact on the player he replaced on the team. On player got traded and the other players on the team were far better off. NAFTA was that star player in our economy, and remains one of the stars.

Politically, there is no doubt that anti-trade candidates did better than free trade candidates in the last election, but other than in a few rust-belt or coal-belt districts, the correlation does not imply causation. It’s more simple than that: The country was tired of the GOP and their hypocrisy regarding government spending, as well as tired of the war, so they tossed the Republicans out. Whenever you elect more Democrats, you’re electing more anti-trade candidates (because Democrats are largely controlled by unions.) That doesn’t mean they won because they’re anti-trade.

I must say I laugh out loud at the term “fair trade”, as if it’s up to someone (like you, I presume) to determine what constitutes “fair”. The only trade that’s truly fair is trade that’s truly free.

As for your rather ridiculous last paragraph trying to make me look elitist: First, that snowboarding picture was from 7 years ago. Second, it wasn’t lavish, nor was it in Colorado, though it was great fun. Third, I’m glad there are “lavish” resorts and that I can afford to go there if I want to. Maybe I’d even take a limousine some day! And as far as “the floor of the stock exchange”, that picture was also 7 years old and it was the Chicago Board Options Exchange, not a stock exchange. It was of a guy who worked for me...one of about 100. How many jobs have you created in your lifetime, Mr. “I just want to help others”? I should note that I proudly have a book on my shelves entitled “In Defense of Elitism”, so trying to paint me as “elite” is sort of like tossing Brer Rabbit into the Briar Patch.

For the record, I have not been on the floor of an exchange other than as a visitor since 2002. But I’m very proud of my career at the CBOE and I’m proud to have helped quite a few young people get their starts in business...while making a little money for myself at the same time Again, how many people would say that about you? I helped build a company which had, at its peak, over 100 employees. What do you or most other anti-trade, anti-capitalists do other than talk about how those of us who actually help create wealth, not just for ourselves but for others as well, are somehow villains? Who do you think pays the taxes for your beloved welfare state?

Furthermore, if you got your way and our borders were closed to many imports, causing the prices of so many products we use every day to rise in price and/or decline in quality, whom do you think would suffer most? “Elites” like me (and you) or the “working class” whom you claim to care so much about? No, David, your economic views are, in my opinion, transparently political and in the service of organized labor. Either that or just sadly undereducated in an area you should understand if you’re going to write (non-fiction) books about it.

There is simply no way that an intelligent person who has done any research could believe that free trade is a net negative for a nation. I do not claim that there are no losers from free trade. There are. Free trade is often not a Pareto-optimal thing, but then almost nothing in the real world is. However, it is blindingly obvious if you read any objective studies that, on balance, free trade is a big winner for those who participate in it. Indeed, free trade can be a big winner for a nation even if the countries it’s trading with have more restrictions on trade than it does, but that’s a subject for another day.

As far as your suggestion to read “Bad Samaritans”, I simply don’t have time to read stuff about which even the liberal Washington Post says “Lamentably, the book gives short shrift to the debacles that show the pitfalls of industrial planning” and “heaven help Mozambique if the book is taken too seriously in Maputo.” Here are some other quotes from reviews of the book you’re recommending:

• “Chang isn’t advocating socialism, exactly—although he does offer up a long defense of state ownership of enterprises.”
• “Bad Samaritans is not ultimately convincing, particularly when it comes to the solutions it proffers. In part, that’s because Chang’s definition of what matters in an economy is strangely narrow, focused almost entirely on some Platonic notion of the “nation” rather than on the people who actually live in it.”
• (The book contains) “little acknowledgement of how developing countries gain from the West’s commitment to free trade.”
• (The book ignores that) “…the West's commitment to free trade is a fragile thing, and without it, developing countries could suffer.”

Of course, there are some positive things out there about the book as well, but it’s clear to me that the book is not a good use of my time.

Instead, I offer you something you can read in 30 seconds, these two quotes from William Cockran, writing in 1925:

“The essential difference between Free Trade and . . . Protection is, that under a system of Free Trade the excellence of the product is the only means by which it can secure a market; while under Protection an inferior article can dominate the market through the aid of legislation. The necessary effect of Free Trade is, therefore, to encourage efficiency in production, while the necessary effect of Protection is to encourage skill in corruption.”

and,

“Prosperity [is] an abundance of commodities. . . . The merit of any policy or system can be tested by its effect on the volume of commodities available for the use of the people.”

Both of these quotes, which I believe to be right on target, express how your anti-trade position is truly anti-liberty, anti-America, and antithetical to the interests of the vast majority of Americans, rich and poor alike, as well as an even greater majority in countries poorer than ours.