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The Libertarian Delusion That "Real" Free Trade Would Work

Politics / US Politics Jan 22, 2011 - 04:20 AM GMT

By: Ian_Fletcher

Politics

In the angry responses to my recent blog post, "Libertarianism, the new Anti-Americanism," one argument came up again and again:

"The problems with free trade that we see today are not the result of true free trade; they are the result of the bastardized version inflicted on us by treaties like NAFTA and the proposed Korea free trade agreement, and if only we had true, authentic free trade, all these problems would go away."


This is an attractive position for libertarians and other free-market true believers, because it enables them to simultaneously complain about the obvious trade problems we do have while preserving their faith in the ultimate supremacy of free markets. It reminds me of how Trotskyite communists used to be some of the toughest critics of Stalin while remaining convinced that real communism was the answer.

While there certainly are plenty of treaty-specific problems that have nothing to do with free trade per se -- like allowing foreign judges to overrule our democratically-made laws -- there is no way one can lay all the problems free trade causes at the door of imperfect implementation. That is to say, free trade on its own, in the purest possible form, would still be a disaster for this country.

Witness the fact that, despite NAFTA and all the other legal impedimenta, America's trade (on the import side) basically is free. The Commerce Department reports that our tariff collections are now well under 1% of the volume of our imports.

Granted, there are non-tariff barriers (though not many in the U.S., compared to other major developed nations). But unless someone can explain how these barriers are responsible for the problems of free trade, then we are forced to the conclusion that whatever problems 99%-free trade is causing, 100%-free trade wouldn't be any better.

So it's time for libertarians et al to stop taking ideological refuge in an ideal world we don't live in. The problems of free trade in the real world cast doubt on their ideology, and they can't hide from that by complaining that the real world isn't perfect enough.

Ian Fletcher is the author of the new book Free Trade Doesn’t Work: What Should Replace It and Why (USBIC, $24.95)  He is an Adjunct Fellow at the San Francisco office of the U.S. Business and Industry Council, a Washington think tank founded in 1933.  He was previously an economist in private practice, mostly serving hedge funds and private equity firms. He may be contacted at ian.fletcher@usbic.net.

© 2011 Copyright  Ian Fletcher - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Jive Dadson
23 Jan 11, 14:05
Economic freedom

The libertarians are right, although your straw man is not.

The so-called "free trade" agreements and tariffs are not the main impediments to free trade. The Federal Reserve is. By manipulating the money markets, the Fed creates huge market dislocations that result in mal-investment and consumption without replacement of capital, or outright abandonment of capital equipment. Visit Detroit or any once-industrial city in the Rust Belt to see the effects of money market intervention.


Ancaps
23 Jan 11, 16:21
Free Trade

The only delusion here, unbacked by any evidence, is this:

"...free trade on its own, in the purest possible form, would still be a disaster for this country."

And from here: http://www.freetradedoesntwork.com/

"Absolutely free trade, 100 percent of the time, is an extremist position and is not [justified]."

Arguing against something on the grounds that it is "extreme" is invalid.


anonymous
25 Jan 11, 01:06
free trade

The problem with free trade is that we do not have free trade.

It is interesting that Fletcher wants to replace "free trade" but you cannot replace something we do not have. He may want to replace regulation, central planning, and soviet style central controlled banking with alternative regulations, central planning and soviet style central controlled banking, but that is not free trade. To replace free trade we must first have free trade, and we do not.


John Brown
25 Jan 11, 19:15
free trade

Ian Fletcher's faith that "pretend" free trade will work is the real delusion here.


NPR
27 Apr 11, 11:32
Free Trade Libertarian Delusion

Free trade already exists... within a nation. You have perfect mobility of labour and capital in addition to practically zero trade barriers between for example New York and Massachusetts.

How is this the case? I am not American so please correct me if I am wrong, but the American constitution prohibits tariffs and other trade barriers between American states. It also centralises certain powers to your Federal government so that it may enforce aforementioned constitutional restrictions. The intent of the commerce clause as I understand it, is to grant the Federal government the power to strike down tariffs erected between American states. I recall that is how President Madison interpreted it.

That the Federal government may use the commerce clause for other unintended purposes is immaterial to this arguement (and perhaps suggests the wording of such a clause needs to be more absolute and restrictive, as Madison intimated).

I want to elaborate on what I mean by 'perfect mobility of labour and capital' between New York and Massachusetts. If for example the wages paid by New York manufacturing firms are thrice that of Massachusetts firms (making NY firms relatively uncompetitive), workers from Massachusetts will be enticed to move to New York thus increasing the supply of labour and driving DOWN its price in NY. The exodus of labour from Massachusetts will reduce the supply and thus drive UP its price. With this adjustment process of wages, manufacturing firms in New York are now able to compete again with Massachusetts firms, because the wage differential has been dramatically reduced, if not equalised. [This of course assumes that wage rates are not sticky; not subject to collective bargaining and other such laws stalling its adjustment. It may be reasonable to discard this assumption for the long-term].

Next is capital (this is a weak explanation, I am not as confident here in explaining): if there is a significantly larger supply of capital in Massachusetts, granting their manufacturing firms a competitive advantage over New York firms, then surely the rate of return on capital investments in Massachusetts relative to New York shall be driven down? If there is an underlying larger supply of savings in Massachusetts, would this not lower the rate of interest on loanable funds available for capital investments in Massachusetts? Thus with the rates-of-return differential on capital dramatically reduced/equalised, can we not conclude that investors will shift their funds to New York in order to chase a higher return? This will in turn increase the supply/stocks of capital investment in New York, allowing them to once more compete with Massachusetts firms.

Can you intuitively grasp how immigration policies, which all nations possess, restrict the mobility of labour and thus prevent the adjustment mechanism on wage differentials materialising? For example, masses of Chinese workers simply cannot move to the U.S. to work for a higher wage rate.

So we've established that free trade exists within a nation and there are many other examples of countries where there are no trade restrictions within/between the States/Municipalities constituting said country.

So why does free trade work WITHIN a nation? Because the State possesses a legal monopoly over the use of force, allowing it to enforce the principles of free trade. But can free trade work between two or more nations?

I tend to think not because in this situation there is no longer a supreme monopolist of force. Now there are several competing states (competing oligopolies of force) with no central authority (i.e. in this scenario a world government) to enforce the principles of free trade.

How can one guarantee that a given trading partner will play fair and not attempt to erect trade barriers, or induce currency/monetary distortions to benefit their own export sector? The answer in my mind is that only a world government could provide such a guarantee. We do not have a world government and whether it is desirable is an entirely different arguement.

So although I am fascinated with the libertarian point of view, don't you think it is rather damning that examples of ‘real’ free trade between multiple nations don't exist according to your own criteria?

I do read essays and books at mises.org, however I am disappointed at the lack of content on free trade and its effects. I am disappointed that the Mises crowd and other libertarian organisations have seemingly ignored the fact that free trade has created economic interdependence between nations (globalisation, it has been called by some). Isn't interdependence of nations contrary to their independence and thus a threat to their liberty? I thought interdependence was also contrary to individualism.

Finally, is it possible for a libertarian to favor protectionist measures (i.e. be against free trade amongst nations) such as tariffs, without compromising their values/principles?

Wow that was quite a lengthy post. I know I've asked seemingly a lot of questions, which is quite indulgent of me. However if anyone has the patience to critically analyse what I've written, I would be most appreciative!


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