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Free Trade Works, But It Looks Ugly Doing It


Bernie Sanders and his people have spent a lot of time talking about trade, but they seem to miss a very relevant point. As Vox explains:

“You have to have standards,” [Sanders] said. “And what fair trade means to say that it is fair. It is roughly equivalent to the wages and environmental standards in the United States.” …
 
“But there’s one big problem, according to development economists I spoke to: limiting trade with low-wage countries as severely as Sanders wants to would hurt the very poorest people on Earth. A lot.
 
“Free trade is one of the best tools we have for fighting extreme poverty. If Sanders wins, and is serious about implementing his trade agenda as outlined in the NYDN interview and elsewhere, he will impoverish millions of already-poor people.”
The left often argues that US wages have been stagnant and our middle class is being wiped out, blah, blah blah…  They fail to understand that the US middle class no longer exists. There is, due to an evermore global economy, now a world middle class, a world upper class and a world lower class. Unfortunately for both the middle and lower class workers in the US, the effect of globalization has been to open wide the opportunities for workers in other countries to join them. Consider this:
Screen Shot 2016-04-05 at 1.07.34 PM
That is a chart showing the decline in the poverty rate over time. That black line dropping precipitously is the poverty rate between 1981 and today. That is the drastic effect of capitalism and globalization reducing poverty for a staggering number of people in a VERY short time.
Sanders and his sycophants would have you believe that the US exists in some sort of bubble where nothing that happens in the rest of the world will impact our workers. In fact, as more of the world is lifted from poverty through free-trade, there will be more people vying for jobs that Americans previously performed precisely because the US workers have priced themselves out of much of the labor pool. Think of the world economy like a canal zone.
Imagine the US is the top right of that image, the richest country on Earth. Sanders would like to believe that the system of locks (call them tariffs, import taxes, whatever) is the most efficient way to get the people at the bottom up to our standard. In reality, capitalism is working by eroding the ground under the locks to lower the water to a common level. The unfortunate side effect for American workers is that they are the land underneath. They are going to be lowered so that the water levels even out. There is no way to protect our entire population from having to complete with the other 6.7 billion people on the planet. As they rise, some of our people will fall until we reach a global equilibrium. That is just the reality of the impact of global trade.
Sanders, is demanding that fledgling countries pay wages and benefits in line with US wages, and demanding they spend equal amounts protecting the environment and other commons. He is asking countries of the world to price themselves out of the labor pool they are now a part of because global companies have figured out they can manufacture goods locally in overseas markets as opposed to shipping them from the US after paying US salaries. The unskilled laborer in China who works all day stamping out sheet metal will do it for substantially less than the unskilled union member in the US. That is good for the labor market in China, but suddenly the US needs fewer metal stampers.
Sanders wants to jump directly to the equilibrium. He wants the water on both sides of the lock to suddenly be the same height without doing any digging. He wants to make the water flow uphill. He wants the Chinese (or Chileans, or whatever) to suddenly increase their labor rates to be the same as ours. If we suddenly demanded that India paid the equivalent of US minimum wage  (or worse, union wages) in order to be a trading partner, we would have a devastating effect on India’s poor.

When you consider that even the poorest Americans are still in or near the global 1%, you realize exactly how much better off our country is and has been. Trump and Sanders both want to pretend that we can have it both ways, that we can keep all of our population, regardless of how unskilled they may be, at that level. The reality is the dramatic reduction in poverty we have seen is creating a much larger middle class, and allowing more people worldwide to participate in the global market. You simply cannot lift that many people out of poverty without an averaging effect that reduces the quality of life for some Americans. That is what we are seeing in the “stagnant” economy. The economy is not stagnant for the middle class. It only seems that way because the net impact of the economy is not to lift all boats, but to bring all boats to the same level. They will all be at a level that is dramatically higher for most, but it’s going to be lower for some. That will impact US workers more simply because we have had it really good for a long time.



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Written by Turk


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