Topical Cream 1: Free Trade

Why Topical Cream as a series title? Multiple reasons: 1. I'm going to cover topical subjects, 2. Topical cream is often intended to improve your health in some way and 3. Economics makes me feel creamy. Confusion over.

I was going to cover immigration, but got side tracked on it's base in free trade. So I'll do the post (that I promised to do anyway) on free trade first, then I'll use it for my immigration argument later on, so you have to pay attention, dammit. Doesn't this sound absolutely entitilating? Here's a nifty little thesis statement for you to use as a gauge of how interesting this post is going to be, because if you agree with the thesis, I don't recommend reading the post:

Claim: Outsourcing and free trade are extraordinarily beneficial to the U.S. and the world.

The only reason you're inclined to think otherwise is because of bad politicians, U.S. labor groups and/or a misunderstanding of economics.

I'm assuming most people don't agree with those statements. I'm also aware, though, that most people didn't sit through countless hours of International Trade Theory lessons, so I'll be a pally and share the beef:
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The benefits of outsourcing, programs like NAFTA and free trade in general:

Lowering the price of goods by allowing lower costs on the producer's side benefits citizens of our country MORE than creating artificial limits on who is allowed to work a particular job and the price at which the good can be produced. In the simplest possible terms I could possibly deem possible: We are better off when goods are cheaper, and more workers are better off when they are offered the "market wage." - The loser in free trade is the former employee, in this case an American. However, the negative fact that a very vocal minority of citizens lose their jobs pales in comparison to the benefits of the amount of money left in the system.

The thing to remember is that, when it comes to policy decisions, we have a choice between

A) No free trade: Goods are produced, Americans work the jobs, goods are priced "normally."
-or-
B) Free trade: The same goods are produced, other people have these jobs, goods are cheap.

The only difference - to 99.9999%+ of the U.S. and world population - is that they have more money in their hands in option B.

As a little example, if computers are made $100 cheaper by outsourcing their production to India (as is the case now), Americans save literally billions of dollars per year while purchasing the computers we require. Of course, this comes at the loss of potentially thousands of jobs in the U.S, but these employees are now forced to use their resources and skills in other areas, further depressing other jobs' wages and multiplying the benefits to the country as a whole. The wealth saved and redirected in the U.S. is always greater than the wealth lost through outsourcing - and the wealth gained in the other country is always greater than simply the purchase price of the goods they are now producing.

To put it even more simply, every time one job is lost to free trade, more than one job worth of resources, money and products is freed up or created by the transaction.

So what about the "victims" of outsourcing - jobless Americans?

Even if the relatively few out of work Americans have trouble finding work immediately, the excess money created by the added efficiency will create new businesses and new opportunities. At the very least, the fact that the process of trade liberalization creates wealth would allow the country (government) to temporarily support the few that become unemployed, which, in fact, is exactly what the U.S. does. If you're the guy who lost his job due to outsourcing, the worst case scenario would be this: Everybody else in the U.S. gets richer, the poorer people from the trading country get wealthier, and you are supported (hopefully only temporarily) by government unemployment/welfare, until you get a job - or gain the skills necessary to get a new job.

While the U.S. government is free to tax the wealth added by free trade and redirect the money to free trade's losers (e.g. U.S. factory workers) - and they are constantly tempted to do so - it would not be as beneficial to the economy, nor to those who've lost their jobs. If the government is reasonably patient and leaves the added wealth in the hands of those that originally earned it, we'll end up more "first world" jobs - more high tech, higher skilled jobs - to replace the ones that went to the third world. Over time, the country will evolve (already has, actually) to a more educated country and workforce while the third world countries around the world will do the hard, labor-intensive jobs that we used to do. Some day, China will start outsourcing jobs to Africa, and then the Chinese will be the ones sitting in cubicles, complaining about their excellent opportunities and great wealth while the Africans make all the cars and computers.

So, since the free trade / jobs evolution happens relatively rapidly - as it is happening now - we get a very large and very vocal push against globalization. People who lose their (usually lower skilled) jobs to free trade will try to demonize the whole process.

A huge number of these lower skilled jobs are unionized, so they have disproportionate political clout, thus the vocal and political push against free trade (or immigration, as I'll cover some other day). If you remember the last election - and I'm sure it's already come up during this one - outsourcing is a huge topic for the Democrats and not so much for the Republicans. If you can show me a large union that supports the Republicans, I'll be happy to explain this political anti-outsourcing sentiment some other way... As I just implied, the Republicans' anti-outsourcing sentiment occurs via "immigration reform," which will be a later post, so don't think I'm attacking just the Democrats.

Free trade can be blamed (correctly or otherwise) for a huge number of our woes, including rising income inequality and the loss of "middle class jobs." The trick, though, is that each of these problems is, in at least some important way, the necessary result of increasing total (world-wide) wealth at the expense of obvious and conspicuous victims (like GM and Ford employees). If the benefits were equally obvious and didn't require long and boring economics lessons, we'd all be cheering the multinational corporations and booing the politicians.

...And one more very important thing: When I say total, world-wide wealth, I mean the poorest poor people from the poorest poor countries in the world are huge winners in free trade. While their work might be hard and incredibly low-paying, it's the same (basic) work that an American was doing before the job was outsourced, but for less nominal money. In my opinion, taking a job away from ANY American and giving it to ANY Indian, Chinese or other third-world worker is exactly like robbing the rich and giving to the poor. Americans, no matter the wage (read the post "Have You Met the Poor?") are incredibly, shockingly, unbelievably wealthy in world terms, and it's only our lack of perspective that prevents U.S. factory workers, or GM employees from realizing that losing their job is one of the most noble and charitable things they will ever (unwillingly) do.

The best thing about this Robin Hood story, though, is that in the case of freer trade, robbing the rich makes the rich even wealthier, and giving to the poor involves not only literally giving money to the poor, but also giving the poor the ability to make money indefinitely.

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There. If I didn't explain any of that very well, or if I failed to include necessary points, let me know - To date, that's the best I've ever done at staying on topic while discussing free trade, though I probably should have broken the tirade with some Special Blog Bulletins to keep it entertaining...

Now go tell your friends to stop being unpatriotic socialists when you hear them complain about their tech-support guy's Indian accent. And if you ever feel like bashing Wal-Mart, remember that you're arguing in favor of the United States and the rest of the world accepting lower incomes and fewer jobs just so Mom & Pop can own their own inefficient store. I think if Mom & Pop understood the true implications of the world's Wal-Marts and General Motors Mexican auto factories, they'd voluntarily put themselves out of business and happily accept low-paying Wal-Mart jobs.