Free markets, free trade, and the Tooth Fairy
Thursday, April 20, 2006 at 5:49PM I don’t believe in free trade, or free markets, or the tooth fairy, all for the same reason. None of these entities actually exist. None of them ever existed. I confidently predict that none of them will ever exist. All three are myths told to gullible individuals to facilitate an unfair financial transaction. The myth of the tooth fairy differs in that the person being lied to gets the better part of the deal. The tooth fairy also differs in merely being a myth, and not a logical impossibility.
Merriam Webster defines a market as: “a formal organized system enabling the transaction of business between buyers and sellers of commodities” Think about the three words “formal organized system” and the five words that follow them, “enabling the transaction of business.” The transaction of business requires rules. Consider the New York Stock Exchange, supposedly a bastion of free market principles. In reality, the NYSE is controlled by a welter of laws and a bureaucracy empowered to enforce those laws. Stock trading would be impossible without the confidence created by these laws and enforcers. When the laws or enforcers fail, catastrophic events such as the Enron collapse are the result.
Trade, in general, is the business of buying and selling commodities. In the expression “free trade,” it generally refers to trade across national borders. Therein lies the problem. The definition of a national border includes the control of what goes across it. International trade is defined by national borders, which are, by definition, not free.
So, if markets are, by definition, not free, and international trade, by definition, is not free, then what are the free market and free trade advocates actually talking about? They are talking about “lowering trade barriers,” “streamlining regulatory processes,” and “opening markets.” At least, that’s the jargon. They are really talking about reshaping the rules to reduce control by nations and the people of those nations over their own economies. “Let the free market rule” is the slogan, but the proper translation is, “Let the CEOs rule.” This transfer of sovereignty inevitably maximizes the profit of a particular class of businesses.
It’s a kind of economic heat transfer. Take two bricks, one hot and one cold, and press them together. Heat will travel from the hot brick to the cold one till they are both the same temperature. The bigger the difference in temperature, the faster the heat flows. Put insulation in between them and the heat flows more slowly. It is the same with countries and trade. Open certain trade conduits between a rich country with a poor one, and the manufacturing jobs and cash flow from rich to poor. More accurately, from the ordinary people in the rich country to the rich company with factories in the poor country. The cash flow continues until the rich country is almost as poor as its trading partner. The rules that govern trade can facilitate this process, or insulate against it.
In China today, as in the U.S. fifty years ago, protectionism is the key to economic expansion. It is an irony completely lost on the so-called “free trade” advocates that the fastest growing economy in the world is state controlled and highly protectionist. In contrast, Argentina succumbed to the lie of “free trade” and had its economy crushed. The United States has embraced “free trade” and has lost a huge percentage of its decent manufacturing jobs. We are on our way to economic parity with the third world. As a joker once said, “All we need now are colorful ethnic costumes.”
The practicalities of economics aside, I’d like to make a request for accuracy in writing and speaking. At the very least, I’d like journalists, pundits, politicians and economists to avoid the use of oxymorons. Let’s expunge the expressions “free market” and “free trade” from the public vocabulary. No glib alternative comes to mind, but then accuracy doesn’t generally lend itself to sloganeering. “Poorly regulated market” and “trade rules that infringe on national sovereignty” would be accurate, but wouldn’t serve the interests of those promoting the concepts.
The next time you read or hear the expressions “free trade” or “free market”, I encourage you to respond with a hearty use of the expression “bull shit!” It is less refined than “logical impossibility” or “financially motivated lie”, but it is accurate and it rolls off the tongue.