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 Richmans' Trade and Taxes Blog

Prof. Boudreaux's Simplistic Ideology of Free Trade
Raymond Richman, 7/27/2011

In the Pittsburgh Tribune-Review of July 27, 2011, George Mason University’s Prof. Donald J. Boudreaux defends economists who qualify their counsel by saying “but on the other hand”, causing Pres. Truman to quip that he longed for a one-armed economist. Social reality is complex, he argues, and economists are unable to make precise predictions as those in the physical sciences can. Unfortunately he chooses to illustrate his thesis by making an argument for “free trade”, using the history of tariffs in the U.S. as an example. He writes,

      "Protectionists today are fond of pointing out that U.S. tariffs in the 19th century were high by modern         standards, and that economic growth during that century was also impressively robust. From these two facts, protectionists dive into the conclusion that America’s 19th century growth was promoted by tariffs. Protectionists then assert that if we would raise tariffs to heights not seen in generations, today’s economic troubles would be diminished. Reality, though allows no such simplistic conclusion."

Boudreaux raises a “straw man” in his argument that “If free trade discourages economic development, it’s difficult to explain the economic growth that took place in the 19th century among the tariffless U.S. states spanning a huge continent.”  But that does not deny that our high tariffs facilitated the growth of American industry in the 19th century.

We know of no economist who advocates protective tariffs or who argues that free trade impedes economic growth. These are “straw men” and easy to knock down.  We have no hesitancy in saying that the 19th century tariffs did contribute to the robust growth of the American economy just as China’s  and Japan’s barriers to imports and subsidies to exports and adoption of other mercantilist policies, contributed to their robust growth in the 20th and 21st centuries.

We are in full agreement with the good professor that the Constitution’s clauses  that prevent the states from levying tariffs and from impeding the free movement of workers and capital  made an enormous contribution, making us a tariffless economy domestically. Of course, our “comparatively laissez-faire” economy to economic growth were important to the growth of the U.S. economy. But that does not deny the contribution of our protective tariffs.

But Prof. Boudreaux appears to believe simplistically that “free trade” is the only  policy needed in a world of nations that impose barriers to imports and subsidize exports, and pursue other mercantilist policies. China’s rapid economic growth during the past three decades and Japan’s economic growth  in the decades following WWII when they pursued mercantilist trade policies have been at the expense of American manufacturing jobs, weakened the dollar, and worsened the U.S. distribution of income.

Our solution is not protective tariffs but single-country-scaled tariffs that apply only to countries with which we have substantial chronic trade deficits and which vary in scale, the tariff rate falling when trade becomes more balanced and rising when the trade deficit worsens. We believe, moreover, that under the rules of international trade, all countries are legally entitled to take such action to bring trade into balance.  

Prof. Boudreaux simplifies reality too much. Prof. John Maynard Keynes, a believer in free trade wrote that he would protect English workers from being victimized by the beggar one’s neighbor policies of Britain’s trading partners. He wrote that he was a free trader until he realized that mercantilist policies had enormous benefits for countries employing such policies and were capable of producing irreparable harm to their trading partners. Prof. Boudreaux has faith that there must be free market forces that prevent large trade surpluses and deficits. But, “on the other hand”, no one has discovered them as we pointed out in our 2008 book, Trading Away Our Future (Pittsburgh, Ideal Taxes Assn.)

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Comment by Bruce Bishop, 7/29/2011:

In 2007, Patrick Buchanan wrote that, "The U.S. - China relationship cannot truly be described as trade.  It is rather the looting of America by China and its corporate collaborators in the United States." (P67, "Can American Manufacturing Be Saved," Michele Nash-Hoff)

Shipping U.S. dollars, or IOU's, to a criminal enterprise in exchange for cheap goods is not what David Ricardo had in mind when he spoke of "free trade." 

Our liberal/progressive government, supported by our leftist academia and a compliant, leftist mainstream media, are selling us down the river.  The liberal/progressives hate commerce in general and manufacturing in particular because of its uneven distribution of wealth.  They are secretly cheering for the destruction of our manufacturing base. 

Nothing will change unless the Tea Party movement is successful in replacing our professional politicians with accomplished, effective fiscal conservatives who will pursue the interests of the American people rather than their own greedy interests.  Our greedy government is the problem.

Response to this comment by Raymond Richman, 7/29/2011:
So far, no leading politician of either party has recognized the damage done to the U.S. economy by the trade deficits. You are right that we are in the process of becoming de-industrialized. Sarah Palin and Don Trump have recognized the problem but no one has addressed our solution, single-country-scaled tariffs. Easy to limplement and bound to be effective and while doing its work would provide substantial revenues to help balance the federal budget. Thanks for the comment. Raymond Richman
Response to this comment by Bruce Bishop, 7/30/2011:
Dr. Richman, Thank you for your response.  I have read your book, "Trading Away Our Future," and I am in total agreement that your plan for balanced trade is simple, clean and do-able. Since my career opportunities in manufacturing disappeared over ten years ago, your blog has given me the first ray of hope that, maybe, something can be done to bring our jobs back. What we lack is a Congress and a president with the will and the backbone to stand up to China.  I would vote for Palin or Trump, because I believe that they both "get it."  I don't expect either of them to actually run.  I am somewhat hopeful that Rick Perry, who seems to be jumping out in front, will live up to the conservative principles he presented in his book, "Fed Up."  Another ray of hope was provided on my local Tea Party website in the form of a link to  Tim Cox, a former Dell Computer systems designer, has designed a program to replace the entire U.S. House of Representatives with "citizen legislators," in 2012.  Mr. Cox is funding this effort himself -- not begging for money -- and I believe that his plan is plausible.  Goooh stands for "Get Out Of Our House."  What Mr. Cox is proposing is exactly what our Founding Fathers had in mind -- legislators as servants to the people, not as permanent parasites. It's a cinch that nothing is going to change unless we find a way to dislodge the career politicians who have attached themselves like leeches to the cushy lifestyle and the power and perks of Washington; and are sucking the life blood out of our country.

Comment by vhhjbk jkih, 7/29/2011:

It looks like our briliant economists and most promonent politicians should be send to China to learn how to grow economy. Once uppon a time JFK said "It is not what the country can do for you, but what you can do for your country"and people really believed it. As a result US was able to win the Cuban Crises and shortly after we landed on the Moon. And nobody even thought about free trade. Now everything has been reversed. The global economy is being worshiped and the Regan's "Fellow American Citizen" has been reduced to "Joe the Six Pac" and/or "Joe the plumber". The American Democracy has been high-jacked by free traitors. Time to wake up Fellow Americans!  

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]