Free Trade Versus Fair Trade

Our idiot-in-chief, Obama, has proposed a Pacific Partners Trading Agreement.  Trade agreements are nothing new, there have always been trading agreements since governments began collecting tariffs on imports from other cities, states, and countries.  Smuggling is one of the oldest professions and tax dodges know to mankind.  I was reading one of the financial and economic blogs I follow every day and I see one author has declared that Free Trade is the only way to go and that the first country to totally eliminate tariffs and or duties will win in the end.  He cited the observation of Adam Smith that no master of the farm or business would make, construct, or manufacture what would be cheaper to buy from someone else.  Smith had a good point, for if you or I attempted to build that modern automobile in our garage or living room (don’t laugh, I know some males who use that room for such work as rebuilding automotive engines, something about being able to set a beer can down and find it still there two weeks from now) I do believe we would pay fifty percent more in the parts even with our free labor.  On the other hand, if all I want is transportation I think I could make my own cheaper.  But why buy a four hundred dollar mixer for making cake batter when a thirty nine dollar variable speed drill works just the same?  All things are never equal in the long run.

One of the tenets of modern economic study is comparable advantage.  Now simply put, an geographical economic area may have a comparable advantage over another geographical economic area.  If we are talking about growing wheat or rye, a relatively flat terrain, good soil, and regular moisture provides the comparable advantage over rugged mountainous terrain or flat expanses of desert where the soil is thin or non existent and regular moisture does not occur.  Thus, for those who live on mountains or in deserts should consider buying their grains from the farmer with flat terrain, good soil and plenty of rain.  This is a natural comparable advantage since turning a desert into grain fields would take considerable and perhaps even more labor.  It would also require irrigation.  Of course not all public works projects are feasible.  But comparable advantage can be manipulated.  Slavery is seen as a manner to capture a labor advantage.  The idea is that such work is non paid.  But is it?  A slave owner must buy or capture slaves and that incurs an expense right there.  Then they have to be fed and housed at the minimum that will sustain their use.  But their productivity will not be equal and will vary from day to day and over the course of many years.  If the American cotton and tobacco plantations had properly accounted for the cost of using slaves as labor the owners might have found that the productivity was marginal.  Of course the industrial revolution would have put an end to slavery anyway with the machinery for planting, picking, sorting, and other methods of production.  Indeed, almost all farm work is automated to one degree or another.

Of course what I am pointing out is that not all costs of production are accounted for in the manufacture or provisions of goods and services.  We still have large deposits of iron and copper ore in this country as well as the coal and other raw materials to make steel, copper, and aluminium.  Aluminum also takes a massive amount of electricity to smelt, and of that we have quite a supply.  But if we opened the trade doors to cheap foreign made steel, our metal providers would scream in horror.  How is it that China or Korea can make steel and copper and aluminium so much cheaper?  Certainly it can’t all be labor costs.  Free trade assumes that comparative advantage will win out and that it is a “natural” occurrence.  Well, China must import both coal and iron ore to make steel.  We have iron ore and coal here.  So there is the cost of mining both coal and iron ore.  One of those costs is labor, another is the capital costs, that is, how much did the land and mineral rights cost.  Then there are government mandated costs.  Perhaps the local and or national government imposed a severance tax on the minerals extracted.  Perhaps the local and or national government imposes working conditions that insure the safety of the workers.  Perhaps the local and national governments impose operating conditions that insure environmental safety is provided.  Then there are the transportation costs that often have many of the same conditions imposed, such as labor, safety, environment, and other such regulations.

As you might have guessed, what was once a free market economy has become a severely regulated market economy, thus making free trade a kind of oxymoron.  Without a free market, free trade can’t exist.  Natural conditions that accommodate comparative advantage are limited.  What does happen, in fact, is manipulated advantage, one ignores many of the costs associated with production of goods and services so as to under price those very goods and services.  One might also manipulate a currency exchange so as to keep one’s currency value below its normal rate.  But ignoring the incidental costs of environment protection, worker safety, mandated low wages, and many other associated costs only means borrowing from the future.  The industrial pollution in China is so severe that the money gained in trade will not pay for future cleanup efforts.

But there is always that other side to the story of Free Trade.  If the developed nations lose their manufacturing and services industries to the underdeveloped nations, how will they be able to buy those imported goods and services?  Yes, the number of transportation jobs might increase until robots become the cheaper source of labor and retail jobs might increase as more low wage jobs are needed to stock and sell these goods and services, but what gets exported outside of currency and capital?  That homeless person on the street begging for money is doing so for the obvious reason that he or she has no regular employment and needs money to buy the food or booze they want and need.  If our foodstuff industry is so greatly automated that we need very few people to farm and raise cattle, to process beef and wheat, and otherwise provide those with incomes the goods and services at prices they will pay, then what do the rest of our people do?

Ah, the crisis has come.  Free trade can only exist if there are free markets.  I won’t add to the complexity of our collective stupidity by talking about debt, but debt also undermines free markets and free trade in a most artificial and deadly manner.  Thus, we live in a world made extremely complex by our own making.  Now is the time to talk about Fair Trade.  Oh, god, I just lost half of you.  No, NO, No, it’s not what you think.  No touch-feely crap here where we talk about the rights of man and pseudo-communist distribution crap.  Corporate ownership of large tracts of coffee plantations is wrong and I will get to that.  What I imply when using Fair Trade is the idea that all costs should be accounted for in the selling price.  I mean, if we have to make steel under environment protection laws, then those costs should be included in the price of foreign steel.  That is, you, the foreign steelmaker, can’t sell a pound of steel in this country if you do not pay for your own environment protection and cleaning.  We will collect such payment for you as a tariff payment.  Maybe we will give it back to your government, maybe we’ll keep it and clean up our own mess at your expense.  I see no reason why we should subsidize your environmental pollution.  Your product is cheaper for a reason, you cut too many corners.  But, But, But, the Free Traders say, we end up paying a much higher price than we should.  Do we?  How do you know that China’s and India’s pollution will not cost us severely in the future?  Look at Fukushima and that pollution fiasco.  That episode is not over by a long shot and we have not even heard what the future costs may be because we have no way of dealing with the present contamination condition.  But more than that, Free trade wouldn’t be half bad if it weren’t for the concentrations of wealth in the business community and concentrations of authority in the government community.  Most Americans have not noticed that we are in history where are great grandparents were in their history.  The move from agrarian society to industrial society saw a new concentration in wealth.  The great plantations were broken up in the south and replaced with smaller farms.  And as our industrial capacity grew so did the concentrations of production.  The big trusts and the big combines were the scourge of the country.  Unfair or monopolistic pricing, concentrations of manufacture and artificial monopolies were springing up.  Restraint of trade, or fair trade if you like.  People, we have that now.  Corporations here in this country own or control or partly control what is produced world wide and at what price to be sold.  Look at how much of the global food industry Warren Buffett now controls.  Does he have the consumer’s best interest in mind?  Oh please, that robber baron?  Just how large is Nestles corporation and what does it control?  People, the world wide concentration of industrial, financial, and healthcare industries is astounding.  This economy of scale is good only for the corporations and their need for more and more money.  It won’t do a damn thing for you.  We no longer have free markets, free trade, true competition, or free choice.  In fact, we may be on our way to losing free will.  It is time to vote all the democrats and republicans out of office.  They have become multimillionaires at your expense.  Get rid of all public service unions.

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