Re: The Fallacies Which Underly the Arguments of Proponents of Free Trade

On Mar 3, 1:19 pm, Alan Lichtenstein <a...@xxxxxxxxx> wrote:
mg wrote:
On Mar 2, 11:16 am, Alan Lichtenstein <a...@xxxxxxxxx> wrote:

mg wrote:

On Mar 1, 10:25 am, Alan Lichtenstein <a...@xxxxxxxxx> wrote:

Many of us have seen the arguments regardingfreetradeboth pro and
con.  However, each side seems to neglect basic fundamentals in
professing and rationalizing their view.  While the arguments of those
who opposefreetradetend to rely more on the emotional consequences,
the arguments of those who support unrestrictedfreetraderely more on
fallacious underlying assumptions.

Capitalism measures costs of production of goods and services by labor,
materials process efficiency, proximity to markets, taxes and such.  In
the olden days, because labor costs were low, it really didn't matter
where one set up shop, so proximity to markets and raw materials were
more critical than labor costs.  As workers demanded more through
collective bargaining, labor costs outweighed proximity to markets and
raw materials, as these costs remained relatively low in comparison to
labor, as technology and communication made shipping more cost
effective.  Technology also served to reduce labor costs through
machined industrialization.  Machines don't demand raises, health
benefits and pensions, and they can work 24-hour days without overtime.

But we've reached a point where we can't achieve sufficient economies of
scale with further technological improvements.  So, outsourcing to
countries where labor costs, even for a far less mechanized operation,
still reduce expenses and increase profits, is the name of the game.
And this is the crux of the problem.

Basic capitalism demands some relationship between labor and capital.
Outsourcing permits capital to flow across artificial national
boundaries relatively unimpeded, but labor cannot do the same.  Those
artificial national boundaries create real boundaries to labor and
create an imbalance between the natural forces of labor and capital,
giving a distinct advantage to capital at the expense of labor.

The proponents offreemarkets arguments all rely on maintaining that
imbalance, because without it, there is no real benefit to outsourcing.
if labor costs were the same regardless of where the factory was
located, then the original basis for factory location, that being
proximity to raw materials, transportation and proximity to markets
would govern.  A further underlying fallacy is thatfreetradeincreases
wealth in other countries. If wealth is increased in other countries, it
must come at the expense of someone else.  In short, the increased
wealth of the Chinese, Indian and Indonesian workers, for example, comes
as a result of a decline in wealth of American workers.  the fallacy is
the underlying ignoring of the fact that a gain in wealth must be
balanced by a loss somewhere else.  Adherents of unrestrictedfreetrade
would have people believe that such does not occur.

Karl Marx, in his Communist Manifesto recognized that imbalance, but was
misplaced in assuming that it could be eliminated by eliminating
capitalism and mandating egalitarianism( workers of the world unite )..
Marx erred in assuming that human nature and the competitive sprit could
be quashed by a government required egalitarianism( dictatorship of the
proletariat ).  We see that failure in the fall of the Soviet System for
those very reasons.

So, where do we go from here?  A good start would be that we recognize
the underlying fallacy of unrestrictedfreemarkets andfreetrade, that
being the imbalance between labor and capital, and place limits on that
until there is a geographic balance between labor and capital.

I'm going to indulge myself and ramble on for a moment because on the
one hand your post is the most interesting, but on the other hand, it
probably has no good answer. I'm not claiming my rambling will make
any sense, by the way.

Ramble on.  Isn't what my post was?  But 'such 'ramblings' represent
exercises in intellectual cognition, and are therefore, interesting as
discussion topics.

Let's suppose we are on a space ship going nowhere created billions of
years ago stuffed with an enormous amount of supplies created by dying
suns even more billions of years ago. On the front is an organic scoop
which automatically dumps whatever it finds in an incubating soup.
After several billion years, a creature crawls out of the soup with an
extra big brain. The big-brain creatures multiply at a phenomenal rate
and begin ravenously consuming the supplies.

Since there are no pre-written instructions anywhere in the ship and
no way of enforcing them if there were, the default rule is that the
supplies belong to whoever opens the box. Soon people build tools to
open the boxes faster. The first ones to learn to open the boxes sell
the materials to those who haven't learned to open the boxes yet.
Eventually everyone learns to open the boxes efficiently, but the fast
box openers stay ahead temporarily by learning how to combine
materials to make useful products and then they sell those to others
(and loan them the money to buy them). Eventually, however, everyone
learns to combine materials. In the meantime the supplies are being
consumed at a rapid rate and the box opening and combining and
consumption has resulted in some people become very rich and some
people remaining very poor and the spaceship has accumulated a lot of
garbage in the process.

So, where do we go from here?

Interesting.  I considered adding a second thing to where do we go from
here, regarding the finite availability of raw materials, but decided
against it, as that would introduce another variable, which while valid,
as you point out, would make this discussion too open-ended.  But you're
right regarding the basic raw materials analogy.  Of course, your
analogy has the shortcoming in that it does not necessarily account for
national boundaries which place unnatural restrictions on the cause and
effect scenario you suggest.  But I don't dispute the effect.  So, do we
now agree to share our wealth with those who were less able, but
somehow, due to artificial boundaries negate the differences that the
'natural selection' of capitalism produces?

I think the American economy has always been based on gimmicks. So,
its difficult for me to hypothesize a solution, since it seems like
any solution simply involves substituting one gimmick for another.

If I'm not mistaken the American industrial revolution was kick
started with the gimmick of employing child labor in unhealthy and
unsafe working conditions. After that I think industry abused
immigrants to get cheap labor and then, of course, there was
slavery.

I was raised by a single mom who worked at a local hospital for
something like 50 cents an hour. Most of the people she took care of
were union workers from the local steel plant who made a lot more.
They had a gimmick and she didn't. I also worked at the local steel
plant when I got out of the army. I remember one time looking at some
want ads and I noticed that a new college graduate made less money
than the janitor sweeping the floor around my desk. I had a good
gimmick back in those days. When the steel plant got shaky, I went
back to school and got an electronic engineering degree. The company I
went to work for had cost-plus defense contracts. They had a good
gimmick (but their quality sucked). My wife and a couple of relatives
had (have) state/local government jobs. One of my relatives made very
good money and excellent benefits working for with a city power plant,
but then the city subcontracted the power plant operations to a
private company. His gimmick disappeared. I read somewhere that some
longshoremen on the west coast make $150,000/year. They have a great
gimmick.

If America's finite resources were valued more accurately by
considering the fact they are finite and the cost of disposal and the
cost of the associated pollution, etc., the cost might be 10 times
what it is now. If they were valued correctly and all Americans
received a share of that value, I think that would help to resolve the
labor/capital imbalance. Right now the corporations have a gimmick
since they basically get the materials for only the cost of
extraction. I have a brother-in-law who has a union job at trona mine
in Wyoming. I would guess he makes maybe $80K a year with a high-
school education. He has a good gimmick and will soon get a great
retirement package.

Right now, I think you could probably divide US workers into two
categories, those who have to compete with foreign workers and those
who don't. So, a knee-jerk solution would be to either change the
situation so that no one has to compete or change it so that everyone
has to compete. Neither choice is probably practical, but I believe we
could at least address the problem with some of the larger gimmick
groups. One big gimmick group is companies and consumers who take
advantage of the low wages of illegal immigrants. Another big gimmick
group is the medical industry. They have no foreign competition so
their prices and wages just keep going up and up.

In addition to doing something about the gimmick groups, I think we
obviously need to do something about gimmick government. If the
government hadn't have camouflaged the negative effects of free trade
with artificially low interest rates, which allowed such things as
home refinancing for example, and with huge deficits and borrowing
from our foreign "free-trade" suppliers, Americans would have been
able to see the natural consequences of free-trade and the destruction
of our manufacturing industries and respond using our democratic
system.

Interesting thesis.  I don't cotton much to your use of the word
'gimmick,' as it implies a pejorative sarcasm.  But then again, I
suppose my initial post was just as pejorative, to a degree.

The implication I get from your post is that capitalism, at least,
American Capitalism, implies that you either have a gimmick to game the
system, or you're out of luck.  I'm not going to comment on that, for
that's a discussion for another time.  My post simply assumed that
capitalism was the global economic system, and that capitalism in its
fundamental form is based on capital and the labor to make profits on
that capital, and that they form a relationship which is artificially
altered by the restriction of one.  Your implied solution, particularly
when you introduce the variable of raw materials is some kind of
egalitarianism.  I reject that as leaning towards Socialism.  Not
because Socialism is some kind of dirty word, as the small-minded
Reactionaries in this NG spew it out, but simply because it doesn't work
after a point.  I've said why a number of times, so there's no reason to
repeat my feelings on this.  Yet, I come away from reading your post
with an image that you feel the problem is either insolvable, or if it
is solvable, that we need to move to some kind of Socialistic economy.

I always considered myself to be more of a conservative until Reagan
came along and at a minimum I would say that I probably would fit
somewhere just to the right of center on economic issues. However, I
don't see nationalizing national resources as being all that
socialistic, especially when it comes to oil, for instance. I do
agree, though, that most contemporary "conservatives" would see it
that way.

One of the partial solutions that I offered would involve forcing one
of the biggest gimmick industries (the health care industry) to
compete on the world market. In other words, what they need is a big
dose of free enterprise. One way to work towards that would be to
tailor health insurance policies and Medicare so they pay cash based
on US costs and then let the patient go shopping in other countries
for major medical services. Hell if I had my way, I would let foreign
countries put a fleet of medical ships offshore.

The other partial solution would be to stop illegal immigration. My
basic philosophy is "what's good for the goose is good for the
gander". So, we should, as much as possible, work towards a situation
where we all compete against foreign workers or none of us competes.

I do tend to think the U.S. is missing the boat on recognizing the
importance of raw materials. Ultimately, I believe they are a very
large component in a country's wealth. While the US is resting
complacently with its idea that it can always prevail by building a
better mouse trap and letting private enterprise handle the problem of
raw materials, China is doing things like this, for example:

"Peru's 'copper mountain' in Chinese hands

By John Simpson
BBC News, Mount Toromocho

At 15,000 feet (4,600m), Mount Toromocho, 86 miles (138km) from Lima,
is comparable to any mountain in Europe.

It gets its name from its shape - The Bull With No Horns. And it is
composed almost entirely of copper ore: two billion tonnes of it.

It could become the most productive copper mine anywhere on earth. Now
it belongs, in effect, to China. . . ."

http://news.bbc.co.uk/2/hi/americas/7460364.stm
http://in.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idINN0540833920080505






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