A recent Huffington Post article really tore into Ron Paul’s economics. It accused Paul of being disingenuous and perhaps a bit ignorant. The article accuses Paul of being an incurable ideologue when it comes to practicing free trade.
Claim #1: “So Rep. Paul is in favor of free trade in theory, he’s just not in favor of free trade as actually practiced.”
As other commentators have noted, Ron Paul is a notorious opponent of Free Trade Agreements (FTAs) like the North American Free Trade Agreement (NAFTA). Paul gives lip service to free trade, but fails to practice free trade when given the opportunity.
Perhaps the author is onto something. Communists defend the failures of the USSR and Cuba because they were not really Communism; Ron Paul defends free trade against FTAs because they’re “managed trade.” A fair point, but this accusation has merit only if Ron Paul never supported any free trade policy and only if FTAs were the sole method of having free trade. Neither, of course, is true. To wit:
“Free trade requires no treaties. All that is needed is to remove (unilaterally or multilaterally) artificial barriers to trade: England did this in the mid-nineteenth century, Hong Kong in the mid-twentieth century. In 1789, the Constitution of the United States needed just fifty-four words to establish free trade among the states. NAFTA, the “free” trade agreement between Canada, Mexico, and the United States has two thousand pages, nine hundred of which are tariff rates.”-Not A Zero-Sum Game by Manuel Ayau.
If you’re wondering what sort of policies Ron Paul does support, start by looking at his proposed budget and the tariffs, quotas, and other barriers to trade he wants to eliminate. Incidentally, free trade exists without 2,000 page laws.
Ian Fletcher, the author, then goes on a tangent about how a real free trade policy, properly run by Congress, would inevitably be protectionist. True, Paul does not support FTAs because they are passed unconstitutionally. But that does not mean it is the only reason for not supporting FTAs. It’s safe to say Paul and other free traders would oppose even an FTA passed constitutionally.
The article continues downhill:
Claim #2: “[H]ere’s the problem: if we’re going to fix the problems caused by free trade — like massive trade deficits — we’re going to do it by having managed trade, not by avoiding it.
“For example, we’re going to have to tell China, quite bluntly, that they only get to sell us $1 billion of stuff if they buy approximately $1 billion back from us. But we’re never going to solve our problems by having more “free” trade, because if China isn’t confronted with this kind of deal, it will just take advantage of us and run surpluses against us.”
Thankfully, we’ve dealt with this sort of fallacy before. China selling us lots of cheap stuff raises our standard of living. If Fletcher is serious about this sort of policy, why don’t we sink ships with Chinese goods above the 1 billion dollar quota? Obviously, we’d impoverish ourselves with either quotas or sunken ships.
“Cheap goods don’t only give us cheap immediate consumption, they also deplete our capacity to produce goods ourselves when their importation destroys domestic industries. And without domestic industries, where do we earn the money to buy imports?”
Fletcher’s point proves too much. If true, then it is also true when I buy cheap food from a farmer in another state I’m robbing my home state of domestic industry. Worse, when I buy cheap food at the grocery store, I rob my house of its domestic food market. States that mostly import food (Rhode Island, for example) have not gone to the Stone Age because their domestic industries collapsed. Similarly, when I buy food from outside my house, I free up my time so I can specialize in working at a single job.
Fact is: when people buy cheaper goods they make money available for new goods. Americans can spend massive amounts of money on technological innovations precisely because we buy cheap manufactured goods from China.
Fletcher makes an incomplete argument. The problem he poses–losing the ability to buy foreign goods–is only a problem if buying cheap goods abroad forces us to lose all domestic industry. This is not the market process. The market system funnels this saved money into new and other industries. Much to Fletcher’s consternation, the money and resources do not simply disappear.
Fletcher’s final incredulity is that Paul bases his economic beliefs on the idea that all voluntary trades are mutually beneficial.
Claim #3: “Here Rep. Paul has slipped in that ancient laissez-faire canard that any voluntary transaction must be beneficial to all concerned — or, after all, why would they engage in it?
“Because you might as well ask whether it’s a good thing for a starving man to sell his shoes.
“Voluntary transactions may be beneficial in the instant, but this edits out of the picture how the parties to the transaction arrived at the bargaining position they found themselves in when they did the transaction.”
This is a common complaint that markets are exploitative. It makes some sense, but what is the alternative? Regardless of where people find themselves or how they got there, they choose the best way out of the situation. Unfortunately for the starving man, his choice is between dying or having cold feet.
Do we really make the situation better by criminalizing trade with him? We’re forcing him into a worse scenario. Now the man is starving and can’t do anything about it. The same argument goes for people who want to eliminate sweatshops. The alternative to working in a sweatshop is not a cushy 9-5 office job with benefits, but unemployment, subsistence farming, or worse.
To be clear, I think there is a role for charity to help people out of really bad situations. I also think governments make things worse by robbing people of the tools they have for leaving poverty.
Fletcher argues nothing new against free trade. Unfortunately, he does a worse job than his mercantilist forebears. Not only does he commit several logical errors, he fails to convince the reader that his system (state capitalism/mercantilism) is the obvious replacement for free trade. Worst of all, he throws genuine economics under the bus without a second thought.