Thursday, May 20, 2010

Trade Doublespeak

Talking from both sides of the mouth

President Obama has recently made two announcements of interest regarding trade policy. These announcement again confirm "Sowell's Rule" which states that the first law of economics is that resources are scarce and that the first law of politics is to ignore the first law of economics.

President Obama's first illogical statement is that the best trade policy is one of "free and fair trade". Free trade and fair trade are polar opposites and are not compatible policies. Free trade means laissez-faire and let the market decide with the consumer (everyone) winning through cheaper goods available in the market. Fair trade is protectionism where the government decides what special interest groups should get preferential treatment in trade policy. In a Democrat administration this means distorting the market towards industries which hire labor-union members, labor of course being big donors to the Democratic Party and to the individual campaigns of Democrats running for office.

In fact the Oxford Dictionary of Economics states under "fair trade",

International differences in labour protection laws or in the regulation of the environmental externalities are sometimes cited as unfair advantages, which call for intervention on 'fair trade' lines. 'Fair trade' is basically an emotive term for protectionism.

The point is is that free trade is not fair trade and fair trade is not free trade, thus the President's pronouncement is thus by definition Orwell's doublespeak, pretty scary stuff coming from the erstwhile leader of the free world...

Illogical trade policy number two is that the President would like to see exports double within five years in order to create jobs. This one is really filled with doublespeak. Of course the government can create exports by distorting the market, just as China does by holding down the value of the yuan, reducing the purchasing power of the nation's 800 billion peasants in order to gain monopoly rents for exporters and more hard currency for the People's Bank. It's easy, just devalue the dollar by printing more money or give money directly to manufacturers to subsidize (make cheaper) their exports.

In fact this is exactly what is happening, witness the $20 million in stimulus spent in Ohio to upgrade an obsolete manufacturing cluster, which of course then creates over-priced labor-union jobs, crowding-out real job creation that doesn't need a handout to be productive. The government can only take money from productive business people and then give it to less productive business people. This doesn't create jobs, it takes resources from where they would be more effective and actually create real jobs which are sustainable without a handout and gives resources to areas where they are less effective (less effective economically let's say, but more effective politically) creating phony unsustainable jobs.

Command-and-control economies are a joke. The Soviet Union did this, stating for the record that the nation's income was increasing at something like 10% a year. In fact, yes it was. It was creating stuff that nobody wanted to buy absent force and had to buy because imports were limited. And the ruble devalued at roughly the same rate as the economy grew, eventually becoming virtually worthless. Is this what we want for the USA?