Wednesday, November 7, 2007

Why The Rush On Trade?

Harold Meyerson, of The Washington Post, is wondering why Congress is in a rush to draft another trade bill. This Trade Agreement is going to be with Peru.

I can already detect everyone's eyeballs slowly fogging up with a glaze worthy of a 5 pound Bundt cake, just at the thought of reading something about a Peruvian Free-Trade bill. Read what he's got to say, and then try to get back with me....

Harold Meyerson - Why the Rush on Trade? -

Adam Smith wrote a book in the 1770's called "The Wealth of Nations". It became one of the founding documents in the history of Economics. Smith discovered that nations grow wealthy through trade, not through hanging onto their gold. We've known this almost everywhere for more than 200 years, except maybe at The Washington Post.

Let's assume that Harold Meyerson is running a Groblet factory, called "Meyerson Groblets, Inc".

All Groblets require three components: a Groblet frame, a Widget and a Sprocket. Mr. Meyerson can make the Groblet frames and the Widgets on his own, using material that can be found by digging around in the Meyerson yard. He also has employees who are great at all aspects of Widget manufacturing. Their parents and grandparents all made Widgets, which were always used on Meyerson Groblets.

Sprockets are different. Sprockets are made of a rare substance not found anywhere near the Meyerson back yard. Mr. Meyerson has always outsourced his Sprocket manufacturing to a factory in a neighboring city. This factory supplies Sprockets to almost every Groblet factory in the nation. They have the raw material for Sprockets in good supply, and the workers there just seem to have a way with Sprockets. We'll call this company "Sprocket USA".

But then a Peruvian company opens. They make great Sprockets. And they're cheaper. "Sprocket USA's" customers, including the Canadian, Mexican, and Haitian ones, all start buying their Sprockets from Peru.

Canada, Mexico, and Haiti have no Trade Barriers in place preventing them from purchasing Peruvian Sprockets.

So sales at "Sprocket USA" start to suffer. "Sprocket USA's" owner goes to Trent Lott and Nancy Pelosi, and bribes lobbies them to put protective tariffs in place against Peruvian Sprockets. Trent and Nancy not only do that, but they also put regulations in place stating that only a certain small percentage of our nation's Sprockets can come from Peru. That should take care of the problem, right?

For a moment, yes. Now all American Groblet factories, including Harold Meyerson's, have to buy Sprockets from "Sprocket USA".

But then American Groblet sales start to decline. The Canadian, Mexican, and Haitian Groblets are cheaper, since they don't come with artificially overpriced Sprockets.
After some investigation, Mr. Meyerson discovers that he too needs to bribe lobby Trent and Nancy, this time to keep out all foreign made Groblets.

Keeping out the Foreign Sprockets wasn't enough. It seems that his foreign competitors in the Groblet Industry can get their vital Sprockets cheaper from Peru, while he's stuck sourcing his from "Sprocket USA" at a much higher price.

Mr. Meyerson spends days and days trying to explain the difference between Groblets and Sprockets in Washington. Donations are made. Contributions change hands. Justice, Human Decency, Workers Rights, Apple Pie, and Motherhood are invoked. Trent and Nancy will do the same thing for all American Groblet companies that they did for Sprocket companies, right?

Unfortunately, Trent and Nancy don't need any more bribes lobbying. They've already gotten enough money from the Sprocket, Ethanol, and Sugar industries. The Fair Groblet Trade Bill languishes in a committee and then dies a quiet death.

Eventually, so does "Meyerson, Inc."

You can't protect one thing without hurting something else. It's called The Law of Unintended Consequences.

This is similar to what happened in the late 70's/early 80's, when the Steel Industry bribed lobbied Congress to keep out Foreign Steel, but Congress forgot to keep out products manufactured with Foreign Steel. Steel Manufacturing (where we did have a competitive advantage) took a nose dive, and we lost far more jobs in the steel manufacturing industry than we saved in the steel mill industry.

Here's an excerpt from the Meyerson's Washington Post article....

The Bush administration, of course, supports trade deals with just about anyone, as it has made clear by promoting an accord with Colombia, where murdering a union activist entitles the killer to a get-out-of-jail-free card.

A lot of the journalists writing on this subject like to bring up Bolivia, Columbia, and Peru, with their reputations for corruption and drug-trafficking. Yes, those countries have huge problems. But what's more likely to solve them? An open Free Market with the U.S., or isolating their people inside their borders with no market for legit products? And I realize that two wrongs don't make a right, but our American tobacco kills far more of them than their cocaine kills of us.
A truly just and loving God would use that one fact as a reason to keep our products out of every other nation in the world.

Back to the point. Trent and Nancy will never be able to legislate as perfectly as the market. They aren't fast enough, or accurate enough. The more they legislate, the more they're going to screw things up. And Lord Have Mercy, they could screw up a brass donkey.

Trent and Nancy, by even the most conservative estimates, cost us $400,000 for every job saved in the United States Sugar industry. The liberal estimate is that they cost you $826,000 per job saved in the Sugar industry. That's how much you're overpaying for sugar. Three jobs are lost in the candy factories for every job saved on the Sugar plantations.

Irony warning: The conservative estimates on this issue are usually made by liberals; the liberal estimates are usually made by conservatives.....

So what will these people do, those who used to work for Sprocket USA, or for Big Sugar, if Trent and Nancy don't keep out their competitors?

No one has any idea. Some retrain. Some retire. And unfortunately, some never make the change.

When the buggy whip factories shut down because of Henry Ford, those displaced workers didn't starve.

When Bill Gates almost single-handedly, selfishly destroyed tens of thousands of American jobs in the American typewriter industry, we somehow absorbed the losses. Far more of us have been helped than were harmed.

So, as Mr. Meyerson asked, "why the rush on a trade bill?" It's because the future won't be divided between the "haves" and the "have-nots". The next big split isn't between the rich and the poor.

It's between the fast and the slow. One million people a month are leaving poverty in China because of free trade and Globalization. We're better off because of it.

We just need Harold, Trent, and Nancy to get out of the way.

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