Naked Capitalism has the article Picking Apart One of the Biggest Lies in American Politics: “Free Trade”.
In the 1960s, Korea was an undeveloped nation whose major exports were human hair (for wigs) and fish, and their average annual income was around $400 per working family. Today it’s a major industrial power with an average annual per capita income of over $32,000, and it beats the US in its rate of college attendance, exports, and lifespan.
South Korea did all this in a single generation by closing its economy and promoting its export industries. A decade earlier Japan had done the same thing. Forty years earlier Germany had done it.
In July, 2009, with no evident irony or understanding of how South Korea went about becoming a modern economic powerhouse, President Obama lectured the countries of Africa during his visit to Ghana. As the New York Times reported: “Mr. Obama said that when his father came to the United States, his home country of Kenya had an economy as large as that of South Korea per capita. Today, he noted, Kenya remains impoverished and politically unstable, while South Korea has become an economic powerhouse.”
In the same day’s newspaper, the lead editorial, titled “Tangled Trade Talks,” repeated the essence of the mantra of its confused op-ed writer, Thomas L. Friedman, that so-called “free trade” is the solution to a nation’s economic ills.
The previous post Wolf Richter: It Starts – Broad Retaliation Against China in Currency War makes a nice complement to this post. If free trade closes off all the options to giving privilege to local industry, then one of the few options left to governments is currency devaluation.
As in all things economic, policy decisions are not binary decisions. A example of a binary decision would be the choice between having completely unhindered free trade or having no free trade at all. Another binary decision example would be to forbid the use of currency devaluation as a policy tool, or to engage in indiscriminate currency devaluation in order to get the most benefit for our exports.
In all such matters, there may be value in the use of a little bit of a policy, but it becomes toxic when applied in too large a dose. We need to discard our attitude that if a little bit of something is good, then a lot more of it has to be much better. Such careful thought is not promoted by jingoist media and a population that falls for such hype. Careful thought is also lost when individual legislators get hell bent on promoting a lot of some remedy without any thought to measuring how much is good, and how much is too much. It is about time Congress realized that this type of legislation is highly technical, and we should not use seat-of-the-pants techniques for applying them.
This also applies to tariffs and other protectionist measures. We should only apply them when they can be seen to be beneficial, and we should stop increasing them at the point where they become harmful. The measure of benefit and harm should include measuring the impact on the international situation. When we see that the policy is leading to a world wide race to see which country can be the most extreme, then we have probably passed the point of benefit and gone into the territory of harm.
With our current focus on income inequality, it may be time to realize that balance is what we seek in most things. Not too much of anything, and not too little.