Free Trade vs. Free Trade Agreements

I came across an older article from November after learning of the University of North Dakota College Libertarian Blog about how Free Trade and Free Trade Agreements are very different.

A recent editorial rightly takes Sen. Byron Dorgan, D-N.D., to task for failing to embrace trade.

Surprisingly however, after having read the critique, I was left feeling that the senator actually deserved a qualified defense.

First, there is the issue of free trade versus “free trade” agreements. The last time I checked, there was no good reason for mercantilist policies (unless you represent a producer who wants government protection at the expense of fellow citizens). Free trade agreements, of course, amount to government-managed trade and, thus, it’s not surprising that they contain hundreds of pages of special-interest legislation, complete with newly created international commissions and bureaucracies.

In contrast, genuine free trade exists between North Dakotans and the citizens of the other 49 states in the union and between the citizens of Grand Forks and the citizens of Fargo. Notice also that Fargo officially could boycott Grand Forks businesses, yet it still would not be in the best interests of Grand Forks’ citizens for the Grand Forks government to legally ban them from shopping in Fargo.

The Herald is hardly a consistent voice for genuine free trade.

Second, the editorial fails to address Dorgan’s argument about spending in the economy. The senator’s argument essentially is this: Spending on consumer goods drives the economy, but with more “cheap labor” employed “overseas” (at the alleged expense of employment opportunities here in the United States), there will be less spending here, and the U.S. economy will implode.

But Dorgan fails to appreciate that the demand for goods really is what drives the economy. This demand drives people to produce (work) and trade with each other in the first place; and only after a consumer good has been produced by someone can it be consumed by anyone.

The problem of wealth creation is, therefore, not a problem of maximum “spending,” but of maximum production. As a result, any reduction in the costs of production furthers the goal of increasing production – so “shipping jobs” to where they can be done for less makes it possible for increased consumption (increased wealth).

A final point: Dorgan absolutely is correct about the yearly deficits and the total debt (though, ironically, his consistent votes for more spending obviously contribute to their existence).

The Herald, citing an economics textbook no less, forwards a basic fallacy that government deficits don’t matter. I beg to differ. It’s hardly comforting to know that governments have the ability to print (legally counterfeit) money in order to pay for their activities, but that is the “proof” the Herald offers as to why we shouldn’t care about hundred-billion-dollar deficits.

Well, I have news for the Herald: Many governments already have used the printing press to get themselves out of financial trouble, and they went bankrupt anyway (think about Germany after World War I).

In contrast with the Herald, I conclude that any “Econ 101” student should know that as the supply of money goes up, the “price” or purchasing power of money generally goes down. Destroying the value of the dollar is an entirely dangerous and outrageous cost to impose upon the American citizenry and, as such, it should not be looked upon as any kind of real solution to the government’s financial woes.

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