Congress' Cheap Date: A Father-Son Conversation

Some extended thoughts on international trade, from an e-mail exchange. (I'm the verbose one, my conservative dad is the foil.)

Feel free to ignore...

Dad,

The definition of a free trade agreement with 2^nd and 3^rd World countries: We give you our jobs; in return we get cheaper junk that sells for pennies at Walmart – perfect product for our now-unemployed population.

[The extension of this: We can’t afford to wean ourselves off of free trade agreements once they go into effect, because our Middle America population (including those now-unemployed) can no longer afford the higher price of the old Made-in-USA product. Camera pans to Bob, a retired or laid-off steel worker in Cleveland, who says, “My Colombian socks are only 99 cents a pair at the Dollar Store. I can’t pay $3 a pair!” Politicians then rally around Bob.]

Meanwhile our ever-patriotic American companies make greater profits on Wall Street by outsourcing our jobs. So, um, I think there’s some trickle-down to Middle America from that revenue, right? It’s just not trickle-down of jobs. It’s trickle-down other stuff – products that are more in line with your reduced-income family…

Slowly more cynical,

Matt

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If only economics was as simple as a 30 second sound bit by a politician from any party. And while Wall Street and self-indulgent corporations are easy targets, I find it interesting that unions are rarely subject to the same criticisms.

Dad

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I don’t think econ is that simple either. But it makes for a good point. The point in his quote being that, in Colombia, fighting for worker’s rights is a deadly proposition. (Side note: I loathe unions in a developed industry in a developed country. However they are VERY essential for the bourgeoning economies in the 2^nd and 3^rd World, where the employers have carte blanche when it comes to employee treatment.)

Before Annie went into labor, I was having an interesting conversation with Ezra. We were talking about international trade and “American” multi-national companies. I have been in a bit of a philosophical conundrum since listening to Pat Buchanan’s book on CD. Everything on it I either very much agreed with or very much disagreed with, except one issue. As you know, he’s virulently pro-American and populist in a blue collar sort of way. The one issue he brought up, which I hadn’t thought about, was the idea of questioning our support (financial/political/tax-wise/etc.) of American companies when they do not always act in ways that benefit America.

While I’m not ready to go protest in Flint, Michigan, there is something that Buchanan said that struck a cord. I guess for me it started with the realization that, oh yeah, the government has hundreds of ways in which is tries to benefit corporations. These benefits, mostly in the forms of specific legislation, are a GOOD thing. However they should be offered only to companies that prove themselves GOOD to America – rather than to any “American” company that happens to have an HQ in the States and a big enough lobbying arm to get it’s needs met in government.

My basic change in philosophy is this: Instead of giving benefit to any company that had it’s start in America, we should give benefit to companies that give benefit to America. Since this is a philosophy, it must be grounded in practical application. This is where I hit a rut. How do you quantify a company that is “good” to America and one that is not? The simple answer is to give NO benefit to any company. But that doesn’t make sense. As a government of the American people, the government SHOULD try to give some competitive advantage to American companies. That’s nationalism. But right now we’re in a situation where the standard of what qualifies as an “American” company is so blurred that, for example, we could give heaps of benefit to a company that does all it’s manufacturing outside our borders and only “benefits” the American public through a) stock dividends and b) the selling of cheaper goods to the American public. (Is B really a benefit?)

Matt

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Got to run for plane so I'll read this later, but if you can find it, there was an interesting article on the President of Peru and what he's done with the Peruvian economy. Saturday's WSJ.

Dad

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Interesting interview with the Pres of Peru. Sounds like they are heading in a direction that any 2^nd or 3^rd World country should try to follow. I think this is a perfectly wise and logical direction for a country in such a position. And personally I like the idea of an economic conservative who came from a liberal background. It makes me think he’d be close to my ideal: true compassionate conservatism.

But how does Peruvian progress bode for America? I mean it feels good to see/help desperately poor people pull themselves up by their own bootstraps; but America can by NO MEANS compete with Peru in any sector that Peru is capable of creating an industry in: textiles, manufacturing, agriculture, etc. So is what’s good for Peru good for America?

I guess the good ole neo-Smithian argument would be: Let America focus on the industries that it can dominate in. And let Peru become competitive in the industries it can compete in.

My difficulty with this idea is that there is too much of America – too many people, too much bounty in the land. What I mean by that is, if we only focus on, for example, white collar jobs, technology, entertainment, etc., (our industries where we have a clear competitive advantage), we can’t possibly a) employ our entire population and b) use our natural resources to their greatest advantage. I’m imagining a future where, there are enough Perus around the world that we no longer can afford to grow any of our own crops. [This reality has already hit for Midwestern agriculture. I’m waiting for it to hit the Central Valley, now that Mexico and Chile are giving us all those delicious, CHEAPER fruits.]

The important distinction I need to make at this juncture is: I’m not saying we blindly support all dying industries. However there are some industries that it makes sense for us to support – those which make America less reliant on foreign powers, and those which capitalize on our bounteous natural resources.

A perfect example is agriculture in the Midwest (and I argue ag in the Central Valley too, within the next 20 years). While a true free markets believer cringes at farm subsidies (“Inefficiency!!”), what do we do with the entire middle of our country otherwise? Just let it grow back into the plains? Tell everyone in every small town to move to Chicago, Kansas City, St. Louis, Minneapolis, or Rust Belt cities? We would be squandering millions of acres of our land, just because Peru has a lower cost of living. Then what happens if/when Peru’s economy implodes or Peru decides it hates us and won’t sell to us?

There are other natural-resources-related industries where this is increasingly apparent: oil, natural gas, mining. Imagine if we managed to wean ourselves off of foreign oil? A pipe dream, I know - pun intended. But it could happen if we use basic economics: decrease our demand (invest in clean technology, public transportation, fuel economy) and increase our supply (drill in Alaska more, invest in turning the Midwest shale into oil, invest in ocean exploration, reopen the oil drills in Oildale).

In all of these industries we have to decide: Take the Smithian stance and let other countries produce it for us, thereby increasing our dependence on OPEC, etc.; or take the Buchanan stance and always do what’s makes America less dependent on foreign powers.

As I’m prone to do, I believe the middle stance is best: Be open to trade, but always with an eye on what’s TRULY best for America. (I say “truly” because “cheaper goods” is not justification enough.) I envision a foreign policy where we always ask: Is this trade overall better for America? How are we balancing our independence with our interest in these imported goods?

Right now our materialism has got the best of us. With foreign trade we let free markets rule. A Chinese importer can bring us an even cheaper widget and we just say, “Good. It’s cheaper. We’ll take it.” [A whole side conversation could be had about the quality of the product (e.g. leaded toys, tainted pet food, pesticides on produce) and the quality of production (e.g. child labor in Dongguan , mining disasters in rural China).] Added to that, we have some large economically-depressed regions across the country where people can now only afford the cheapest good – the “Walmart products” in shorthand.

So there’s my mini-essay. What are your thought?

Matt