Free Trade: Really?

http://economix.blogs.nytimes.com/2011/02/18/how-convincing-is-the-case-for-free-trade/?emc=eta1

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"The thing that lies at the foundation of positive change, the way I see it, is service to a fellow human being." (Lee Iacocca - creator of the Ford Mustang, former president of Ford, former CEO of Chrysler)

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Economics, of course, is the dismal science and there's a reason for that. But, sometimes economists come along and do a good job of getting their point across and relating that point to the real world.

Greg Mankiw wrote an excellent post in "Economix" that was published on Sunday: "Emerging Markets as Partners, Not Rivals." Mankiw always makes sense and that article was no exception: every country gains by unfettered international trade. Even when I disagree with him, Mankiw writes with imagination and style.

Uwe Reinhardt was kind enough to come along today and disagree with Mankiw by posting a response on "Economix." First, he restates the "... truth that economists hold self-evident: Relative to a status quo of no or limited international trade, permitting full free trade across borders will leave in its wake some immediate losers, but citizens who gain from such trade gain much more than losers lose. On a net basis, therefore, each nation gains over all from such trade."

Reinhardt goes on: "Economists assert that over the long run, the owners of businesses that lose their markets in international competition and their employees will shift into new economic endeavors in which they can function more competitively. Skeptics [that would include me], of course, often respond with the retort of John Maynard Keynes: 'In the long run, we're all dead.'"

Reinhardt's position on all of this is very similar to mine and is reflected in Reinhardt's use of Alan Blinder to state the other side of the arguement for him: "... offshoring of service jobs from rich countries such as the United States to poor countries such as India may pose major problems for tens of millions of American workers over the coming decades. In fact, I think offshoring may be the biggest political issue in economics for a generation."

Blinder has estimated that 30 to 40 million jobs in the United States are potentially offshorable. Blinder gets the point that if economists keep saying "free trade is good for you" to people who know that it's not, economists will quickly become irrelevant to the public debate.

It's helpful to those of us who have some experience out in the business world to see someone like Reinhardt use Blinder to help him state a more realistic position on what is called "free trade."

What most economists that disagree with Blinder and Reinhardt don't get in this situation is that there is a cost to lost generations of workers here in the U.S. Our auto industry used to sell 16 or 17 million cars in the American market - now that market has shrunk to 11 or 12 million cars. What does the age 40 plus auto worker who's been laid off over the past ten years do for another job? We say we have retraining - we don't. So, what's the cost to the American economy of losing 250,000 auto workers? Economists look at the end game and the overall advantages but they don't calculate the near term "costs" to people in terms of career earnings and retirement, to governments in terms of tax receipts. Their calculations lean in the direction of products or services that will cost less because they're made overseas. Certainly that's logical but it ignores near term costs to people, governments and the fabric of our social structure.

So, "free trade" isn't really "free" and the quantitative "proofs" for it to exist don't consider the real costs.