Sunday, February 19, 2012
The “Free” Trade Fallacy
A widened gap of wealth, between bankers who cannot efficiently unload these properties, hoarding them with no need to sell them at more affordable prices because they are kept in business via bail-outs by Western governments, and a class of semi-permanently, structurally unemployed, whose future is constantly kept at bay because the Fed and their cadre of fellow central bankers never allow interest rates to adjust to natural market levels which would force a renewed reallocation of resources to more efficient uses, such as on-the-job retraining, is the result of the pursuing of the pseudo-elite’s notion of “free” trade. Record unemployment is the result, as opposed to the benign effects of Ricardian exchange, which would otherwise lead us to a state of fuller employment. Does Mr. Casas-Zamora honestly have to wonder why what his institution advocates is “increasingly unpopular in the US and even more so in much of the developing world, certainly in Latin America?”
“The perception that the whole discourse and architecture of international trade smacks of double standards and hypocrisy,” as Mr. Casas-Zamora words it, is not mere perception. And the “serious economic and social disruptions” that accompany pseudo-elite sponsored “free” trade, which Mr. Casas-Zamora would parlay into an excuse for his colleagues in government to manage further tax-payer hand-outs to other similarly situated lackeys, are an inherent part of the very liberalization of capital flows that the interests Mr. Casas-Zamora represents covet. Indeed, Mr. Casas-Zamora goes as far as to admit that the policies of the ‘Washington Consensus’ are “seen as an orgy of corruption.” Perhaps if Mr. Casas-Zamora would open his eyes, he would see as well.
Second, we must address another theoretical façade used by the academic apologists of the pseudo-elite to help cover for why the gains of “free” trade are never realized by the typical citizen. Even with the misallocation of resources that comes with a free flow of capital based on the current Western model, such policies as decreased tariffs should indeed lead to gains in standards of living for all those affected. But why are these gains never felt sufficiently as to increase the public preference for increased legitimate free trade policies?
The human mind is often a very efficient estimator and is largely capable of seeing how a diffuse benefit to all may be worth a specific expense to an individual. Why is it then that academics speak of a ‘collective action problem’ in the case of free trade, arguing as Mr. Casas-Zamora does, that “the winners of trade liberalization – consumers, for instance – tend to be dispersed and unorganized?” If such academics had even a basic grasp of economics, they would realize the entire market edifice is created and governed by consumer preference. So well organized are consumers that they dictate the rise and fall of corporations, products, and even industries. Why would such savvy consumers be rendered unable to perceive the enormous benefits that follow from increased free trade of the Ricardian variety, even if, as in the case of the bankruptcy of Kodak, progress does impinge on the most immediate comfort of a few members of the consumer class?
Once again, as we have argued elsewhere, gains in overall productivity do consumers very little good if the Fed, through the creation of additional money supply, does not allow such gains to be realized by the public at large. If the money supply were fixed and due to a increase in actual free trade, resources are allocated more productively such that total output of an economy increases by a certain percentage, one would expect prices for such output to decrease by a corresponding percentage. In short, as supply increases, prices will fall. However, if this increase in abundance is met with an overall increase in the supply of money, given to such wealth-consuming entities as federal bureaucrats via the purchase of treasury bonds by the Fed, then the additional wealth generated will be bid away and consumed before it reaches consumers at large, leaving consumers paying inflated prices, feeling like the benefits of free trade are nonexistent.
The only collective action problem then is the collective actions of those in the pseudo-elite who prefer to corral the benefits of free trade for themselves alone.
The third point is an elaboration of what we asserted earlier in this essay, the “free” in “free” trade is reserved only for those already entrenched in the existing corporatist apparatus. Let’s say I wanted to start a bank or an insurance company amongst my friends, free from regulation by established interests. Aside from the many laws that prohibit such unregulated (read: unapproved by the pseudo-elite) financial arrangements and the unnecessary compliance expenses that present an artificial barrier to free entry into this industry, I would most certainly not be allowed to offer my banking or insurance services across the border, regardless on any “free” trade agreement in place.
However, “free” trade does make room for Monsanto to foist questionable products on unsuspecting foreigners and genetically modified foods on the world’s consumers.
free trade will be doomed to live dangerously…prevailing in scholarly debates and in little else."