Why the Left doesn’t like free trade.

Neil is guest-blogging on Ezra Klein. Congrats to him. He has a fun post about free-trade. If the benefits of free-trade to the third world are news to anyone (and hopefully they won’t be for my readers, I do repeatedly link to KickAAS after all), please go read it.

Free trade is in fact bad for American poor. The economists POV that free trade is universally good for the country, hinges on the idea that a certain trade policy decision is positive sum. If it’s positive sum, and there’s a sector that loses out but another sector gains more than enough to counter-balance, the solution is easy. The winning sector pays off the losing sector, and everybody wins by the new policy.

Imagine a scenario where a new trade policy causes 3 things:

1. Owners of capital get $6 increase in income.
2. Labor gets a $5 decrease in income.
3. Prices of products they both buy decrease $1.

Said trade policy, in a government that needs acceptance by both groups to make new policies, would pass when coupled with a $4.01 transference to labor groups. Labor groups would make 1 cent on the whole change, in terms of goods they buy, and capitalists would make $1.99.

You have to understand, this is how economists think. If there’s a path that benefits everyone, it will happen and should happen. If there’s a path that is positive sum in general, then the winning party can cover the opposing party’s losses. And I wish the world did work that way, and the reason we can’t reap easy benefits like that is because of inefficiencies and irrationalities on our side, not that the economics is wrong.

Nonetheless: the economics is wrong in end effect, and we do not do that. There is no transference from the capitalists to labor to make up for their loss.

Possible reasons:

1. We do not have a system where policies need the acquiescence of both sectors, only one.
2. Wealth transference is economically inefficient. The free trade economists say the inequalities can be fixed at the next level. But then the tax-economists say that wealth redistribution is ruinous to the economy, and we don’t support labor there either. On and on the buck gets passed, and the academic experts only focus on what’s efficient and good for surplus in there one model, ignoring the likely effects elsewhere down the line.
3. We ascribe moral value to earning money. The change from protectionism to free trade is a government decision, that actively gives more money to some groups and less to others, through its effects. To a good utilitarian, the policy change is no different than a handout. And yet, when we see the effects, the capitalists claim they are working hard for that money and generating surplus through their economic decisions, and it would be wrong on some level to take their hard-earned money.
4. Economics is really damn complicated and figuring out the best way to make these group decisions is hard. It’s much easier to say, just stop the damn bill from passing in the first place.

So if they’re not going to get paid off, a self-interested sector (say, manufacturer labor) has every reason to oppose free trade.

Now personally, I am convinced because free trade not only helps us but also the third world, and the benefit to American consumers at large shouldn’t be ignored. But American politics is not driven by altruism for the foreign poor, and if major parts of the Democratic party continue to get frelled by free trade, of course the Dem party will oppose it.

And there are more political/emotional reasons as well.

Free trade supposedly benefits the third world. In one particular way. Ideologues on the left have been fighting for many ways to help the world’s poor for a long long time. They are distrustful that the only way we can do this is by… giving corporations what they want. It sounds so opportunistic. Debt relief or more loans? No. Peacekeeping, more democratic international institutions? No. Immigration? No. Outright acknowledgement by governments that every person’s welfare in the world is morally important? No. Free technology sharing? No. All of these are opposed by those who run our government and the suburban middle-class, and strictly limited. But incredibly open laws regarding the exports and imports that make a ton of money for already profitable corporations? By all means, and this is the only way we can help the world’s poor according to our neocon friends.

A good utilitarian wouldn’t care about that rhetoric, and would be happy for anything that does help the world’s poor. So that’s what I do. But, the Left is not made up solely of god good utilitarian intellectuals, as Neil so eagerly agrees when he discusses the realpolitik of primary candidates. Having to play the game rich lobbying groups make, being condescended to about it, and seeing negative uncompensated effects of free trade in our homeland, is going to turn off many passionate voters and activists.

I find all this stuff about fair trade to generally be empty rhetoric. Enforcing such rules in third world countries is extremely hard. They don’t systemically solve our economic equalities, or try to work with the international institutions that could. But it is good rhetoric, especially for when you are trying to block free trade altogether. And I think there are enough clearly bad things (like agricultural subsidies) that I really wish we could just get rid of them first. But that’s not what is on the table these days, and should be differentiated from, say, expanding NAFTA to the entire Americas.

*Also: The post my roommate never through I would write.