The Dogma of Free Trade

We are told that International Trade raises all boats. Hecksler and Ohlin, Ricardo, and even Krugman with his theory of monopolistic competition, all make an argument for the benefits of free trade.

Of the many assumptions that these theorems hold, one of them that remains fairly consistent is the realization that certain sectors will be helped and others hurt by free trade. If your country is relatively abundant in a factor, according to H-O, you will focus on the abundant factor and will increase wages and employment in that sector to the detriment of the less abundant sector. (Read, white collar services vs. manufacturing.) Or as Ricardo puts it, there will be a comparative advantage in production of one good versus another and the country in question will focus on producing that one good. But what happens if you no longer produce goods in one sector that used to employ millions of your citizens?

Occasionally, the elites who teach the budding elites-to-be these “truths” will mention that something has to be done about the collapse of entire sectors and the re-allocation of wealth to another sector. In the United States, where high-skill work and services are the beneficiaries of trade liberalization it is not easy to see who would be its most vocal proponents.

What is a society supposed to do about all the old blue-collar workers? The question is indeed occasionally raised within the classrooms of the elite universities in the West. Invariably, the answer is this: they must be re-educated and acquire skills that are necessary in the new free trade economy. Nonwithstanding the difficulties of re-educating middle-aged and older generations of workers, and assuming that this can indeed be done on a mass scale, who will pay for the re-education?

Here's the thought process:

A: Why, the government of course. Q: And who will support them while they are being re-educated? A: The government must step in, of course. Q: Won’t this all cost money? A: Yes, but the government will pay for it. Q: Using the benefits accrued from engaging in international trade in the first place? A: Now you’re getting it! Q: Won’t someone have to be taxed or some wealth redistributed then? A: No, no, no, we don’t want to tax the job creators out of the country! Q: …So who will pay for all these unemployment benefits, and re-education programs? A: Why not just borrow some money now and hope that it gets better down the road!

The entire free trade theory willingly recognizes that there will be winners and losers. But the net benefits we are told, will clearly outweigh any costs. But the costs are there, and often times will not be counted as easily as units of coal exported and units of cheap chinese junk imported. Unemployment leads to depression, destruction of the nuclear family unit, mass relocation, ghost cities, and disproportionate strain on different sectors of our society. And only the elites and (the token scholarship minority) who get the top tier education can get their foot in the door of the lucrative booming “services” sector of the economy (read: consulting, finance.) It is precisely these folks who are told all throughout school that international trade is GREAT, outsourcing is SUPER, and that a rising tide lifts all boats. “By engaging in international trade we are actually helping all the brown peoples of the world!” – In case you had any doubts that altruism lay at the heart of the trade liberalization trend. Perhaps one of the most interesting paradoxes of the ruling liberal intelligentsia is their complete lack of empathy for their own kind, and their bleeding heart tendency to identify with just about every other culture that isn’t White. Their hatred for “the fly-over states,” the “red-necks,” their fellow, less well-off and more socially conservative Whites is a strange phenomenon and one worth delving into in another post.

But the fact that the educated classes of these less well-off countries who engage in free trade tend to lose out at the expense of relatively modest gains among the abundant sectors (almost always low-skilled labor) tends to be blotted out. This is a well known truth, first widely mentioned in the Stolper-Samuelson theorem, (a widely known and academically accepted theorem, part of the Hecksler-Ohlin Model) so why is it not mentioned more? (While the gap between rich and poor gets smaller worldwide, it is partly because many of the middle class get squeezed out of their non-efficient non-abundant sector jobs, while the vast underclass gets a small increase in living standards from opening up entirely to trade.) Perhaps because it doesn’t fit in with the convenient vision laid out by the proponents of free-trade. And the numbers should alarm you, economist Alan Blinder (who by no means is anti-free trade or outsourcing) estimates that somewhere between 22% and 29% of all U.S. jobs are or will be potentially offshorable with in a decade or two...Which begs the question: what is the end goal then, what will this veritable end-game garden of Eden that we are barreling full speed towards, look like?

I would venture to say that it would look something like this; rich enclaves of white collar workers who’s stock’s soared with the increase in international trade and its attendant drop in short term costs for companies in the way of wages, benefits and environmental standards. ...And an ocean of ghettos surrounding the gated compounds of the lucky elites who made it, with the lower class living on the government dole until one of their kids is lucky enough to make it into a top twenty school and go off to Wall St. and work to pay off those federal loans that they were so fortunate to receive. Just a guess.

But I have some news for you. Are you White, middle-class, with both your parents still together, and no disabilities or cherokee blood to speak of? Well, congratulations then! You are somehow privileged and therefore you will be the recipient of the least amount of financial aid of any other group of students in the United States. State school is the only viable option for you, and you will constantly be told by the same class that sold the future of the middle-class down the river, that you are in some way responsible for the colonial history of your country and that you are inherently an oppressor who needs to check his privilege…

There is only one privileged class in this country and it is the class that “makes it” to the top-tier universities and then to one of the sectors that hasn’t been absolutely gutted by proponents of “the free market is always right” cult of economics. If you have the smarts and play by the rules, they’ll let you into their club, just always remember to toe the party line.