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"All of their models assume full employment," Baker said. "But we don't have full employment,"
This is astonighing. Someone writing about the cost/benefit of trade and actually recognizing its fundamental assumption. Adam Smith argued that free trade creates winners and losers. Those who can produce for less win. Ricardo argued the opposite. That due to comparative advantage two Countries can trade and both be winners even if one produces everything at a lower cost than the other. Free Traders love to quote Ricardo. What they ignore is that the first assumption to comparative advantage working is that both Countries must be at full employment. Economists tend to ignore this because in the long term economies always tend to return to full employment. But with growing mega-population Countries like China and India, they won't be at full employment for centuries. Without full employment in both trading Countries, the high cost producer loses. That is why free trade will drag the US down to the living conditions of the third world. In the end, both Smith and Ricardo were right.
These trade agreements are like turning back the clock to the 1890's when there were no labor laws and companies polluted at will. Continuing to enter into agreements that make it possible for US multinationals and other US corporations to exploit cheap labor overseas and in South America while utilizing lax environmental oversight simply guts US manufacturing. It is also immoral. Regulations, trade restrictions, protections for labor and environmental law make the United States a better place to live. They are also required to keep capitalism from destroying the middle class which is the end result of unfettered unregulated greed. The benefits of free trade agreements have never materialized for the United States while the export of jobs and profits has. That end result of full employment and a retrained workforce we keep hearing about is, and always has been, simply fantasy.
Thank you, thank you Eric for this voice-of-sanity article. The number of Americans who seem to believe that we can sustain our former standard of living by simply doing the things we used to do and erecting trade barriers is simply frightening. Witness the effects of the Smoot-Hawley Act, which few Americans today seem to recall (and probably never studied, given the state of our schools). Our fundamental problem is the problem of all established societies: Americans have become lazy and complacent. Most have not trained themselves to offer services that would command high wages in the modern world, and yet they somehow expect to be paid as if they had.
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