Free Trade Doesn't Work - Ian Fletcher's Book

Ian Fletcher is a God Damn, *%$$%&*()!!* PROTECTIONIST. In his book Free Trade Doesn't Work, he makes no bones about promoting the T word, tariffs, as his solution for the United States trade deficit and job hemorrhage.

 

 

I've been hesitating in writing a review of Free Trade Doesn't Work, by Ian Fletcher, simply because I disagree with some elements in the book. Still, The Economic Populists who scream tariffs as a solution to our massive trade deficit will probably agree with Mr. Fletcher. By the book title alone, Fletcher is lookin' fer a fight. Pickin' one and takin' on the free traitors, that alone is good enough reason to love the book. Even more, Fletcher describes a hell of a lot of trade details, including the history of U.S. trade, with accuracy. The book isn't just a U.S. trade policy sucks diatribe, it's one with a lot of statistics and details to back up the case. Facts you ain't gonna read about in the New York Times either. To the main points:

Firstly while Mr. Fletcher claims Ricardo's Comparative Advantage is wrong, which I disagree with, he points out a host of assumptions which are ignored in the theory to make a trading relationship be a benefit to both countries.

Considering the religiosity we have of the free traitors rambling on about Ricardo (when they probably did not pass Algebra), it's nice to see all of the assumptions and variables amplified. Bad math isn't just equations, it is applying equations when the conditions are simply not valid that the model assumes.

Secondly, Fletcher has read Global Trade and Conflicting National Interests, which is an exceptional work on trade theory and also has a math head part and a verbal explanation part. Now I disagree with his suggestion that Gomory & Baumol strategic trade implications wouldn't work due to multinational corporations being Benedict Arnolds. The reason I disagree is because Gomory himself has pushed and testified for a change in corporate governance and executive compensation in order to align U.S. corporations to the national economic interest. The flaw in strategic trade is real which Fletcher has found: multinational corporations are little sociopathic beasts, hunting the globe, loyal to no one and nothing. Yet we need a hell of a lot more solutions than just trade policy reform alone to solve the U.S. job, middle class and economic bloodletting.

If you want a bible thumpin' (on the economics front that is) Populist rant on trade, one might just give you some guts to stand up to that jerky guy with the fictional statistics & graphs, you should read this book. Try as we might, it seems those facts, which are front loaded in this book, such as the United States trade deficit, (uh, we're obviously not winning here!) are just ignored or dismissed with fictional graph-o-rama. Most of the detailed information in the book is accurate and almost never mentioned, such as the lack of positive returns for many economies on trade, especially when one looks at the workers.

That is a fundamental question here, isn't a national economy for the benefit of the nation, in other words the workforce too and not for just a few powerful multinational corporations who happen to do business there?

There is much argument against Fletcher's solution, a flat tariff across the board, national. I believe national tariff will not work either and prefer a government trade agency that cannot be corrupted, loaded with computer models, equations, complete with an altruistic, Academically pure, bunch of eggheads, sworn to uphold the national interest; an economic war room if you will.

That said, Fletcher's point that lobbyists will get into that room come hell or high water, muck it all up and probably make things worse for the U.S. workforce and the national economy has been proved true on almost every legislative and policy effort to date. Lobbyists love abstruse, convoluted things, so many dark corners, so many places to hide loopholes and agendas.

A website for the book with more information, including taking on CATO is available here. This Huffington Post online debate is so amusing. Bernstein claims Armageddon will happen if we dare reform U.S. trade policy.

Even small tariff increases often lead to trade wars, and that trade wars can end in Armageddon.

If that is so, how come Armageddon hasn't already happened? Anyone look at China's tariff schedule or their average tariff being 9.8% lately?

Come on, check out the book.

Meta: 

Comments

On Ricardo's Comparative Advantage

I think the major flaw with Ricardo's Comparative Advantage is that it fails to take into account the social and cultural interests of a nation state. Let us look at entertainment as an example, an "industry" in which the U.S. has an unambiguous economic and trade advantage. Is it really in the cultural interest of any nation to import music and movies that celebrate nihilism or cynicism, the use of drugs, murder, casual sex outside a relationship, and so on?

Your idea of "Academically pure, bunch of eggheads, sworn to uphold the national interest" points in the general direction of the real, underlying problem - neo-liberal economic policies and prescriptions, including free trade, have swept aside such ideas as "national interest" "general welfare" and "common good" as archaic and "quaint" (to use a word that was infamously applied not many years ago to the international code of conduct for armed conflict). Instead, "market forces" are supposedly the best arbiter of what is in the nation's interest.

Take another example: military hardware, specifically assault rifles. The AK-47 is generally recognized as a more rugged and reliable combat weapon than the M-16. Should the United States have bowed to the concept of Comparative Advantage and ceased producing the M-16, and supplied its military and police forces with Kalishnikovs instead? The question, of course, is absurd, but it speaks directly to why Comparative Advantage may be an elegant theoretical construct, but has limited utility in actually helping decide what is in the national interest.

Is it truly in the national interest to yield to Comparative Advantage and allow U.S. manufacturing to wither, and let millions of jobs be moved to other countries? We have actually conducted that experiment for the past three decades, and it is time to face up to the consequences, and the answers they indicate.

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comparative advantage

To me is a mathematical equation that needs to be optimized as well as integer mathematics need to be used to get a correct result and as Fletcher noted, trade is not a static, time is involved in a trade equation.

But yeah, the people utilizing it should be thinking of the national economy, national interest.

Another point is the mathematics show America will lose the way it's going. Paul Samuelson also proved that in 2004 and it was amazing the blow back he got. But I looked over the mathematics at that time and that's all he did was apply the mathematics and of course (him being the Godfather of Modern Economics and all) it was correct.

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I wasn't aware that Samuelson had panned free trade

and it is especially interesting that he got flak for doing so. The whole story would be a great article, making the point that economic neo-liberalism is enforced just like a mafia. Remember the article Christopher Hayes did on economic heterodoxy a couple of years ago?
http://www.thenation.com/doc/20070611/hayes

So, even the mathematics of Comparative Advantage itself, shows that the U.S. is losing out?! Which means that the enforcement of free trade policies is not being done in obeisance to a theory, but simply because free trade is benefiting someone, and that someone has the political clout to impose free trade policies despite the fact the mathematics behind the theory shows that U.S. national interests are being harmed. Or, what are called free trade policies, because some have pointed out that NAFTA and GATT and so on are not really free trade at all, but a means of managing global trade relations to benefit multinational corporations.

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he used the equations

of comparative advantage to prove "offshore outsourcing is not good for America" which was the claim being touted.

Samuelson to me was no protectionist or anything, it would be interesting to locate his opinion on things like the WTO, NAFTA and so on, which to me, have little to do with theoretical trade theory.

I didn't read the above article, which seems to be talking about the payout and politics.

I just try to read the hard core theory and especially focus on the mathematics and models. I'd say, for a large part, I find the ones claiming "all things free trade" also seem to be mathematically disabled. Sometimes it looks good, but when one digs into their mathematics, it's like large gapping holes of nonsense to me.

I can say the same on a few things I've seen that have been "coming from the left" that just do not add up.

I've been trying all day to find a topic. A bunch of hearings but writing up yet another bogus hearing with lots of denials and refusal to accept any responsibility in this obvious con job called the financial sector, I'm so sick of this and want someone to just write up a real policy, get all of the bloggers even to write up a bill themselves, put it online and get all of America behind it to pass it.
Put these cats in jail if they can and if they cannot, pass laws so the next ones will be put in jail.

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write up a real policy

"write up a real policy"

Great idea. Why not start here? Ian Walsh had a great list of financial reforms a year or more ago, which I diaried on DailyKos. Of which, more tomorrow.

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yeah, I've written up previously

reforms needed. There is argument/debate, even among the blogs/financial experts (who are on the up and up) but there is strong consensus on a host of points. I think I could put together the consensus points.

(sticking points are Glass-Steagall, and a host of differing views on various derivatives.

On derivatives, I believe everything should be regulated and financial institutions cannot release a new "product" that doesn't make sense, hasn't been evaluated as well as analyzed for system risk. then, all derivatives should be traded on public exchanges. I think for those which are not, such as legitimate hedging, by some commodities companies, they should figure out something different, or maybe a unique license to buy such things, based on business criteria.

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Screwin' the little guy

I've never met anyone who HAS to shop at WalMart who supported the notion that raising tariffs on imports, which translates directly into higher prices for the customer, would be a good idea.

Sure, I'm met (and debated) dozens who dream of bringing manufacturing jobs back to the US from China, but none who could explain why the Brazilians, Indians, Bangladeshis, Vietnamese or Mexicans wouldn't simply take up the slack.

In short, protectionism is anti-poor: it screws the little guy, under the guise of "protecting" his interests.

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Wall Mart Shoppers

We the WalMart shoppers would actually like to go shopping with our dollars that aren't being devalued daily. Read Taxed. Just so we can practice so called Free Trade. Free Trade is pure BS. Wake up and look around. We are subsidizing the Chinese and Indians for cheap goods until they take over the lead. Free Trade my ass.

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Ian Fletcher makes much more

Ian Fletcher makes much more sense than your polemical, bumper sticker analysis of his book. Slogans are propagandist and Orwellian. Do you really want to defy George Orwell's warnings, as your neighbors are foreclosed and empty industrial and commercial space grow by orders of magnitudes (you know, facts that fly in the face of your monopolist FoxTV regressive political economy?

Adam Smith had no conception of David Richardo's "comparative advantage", so it's insulting to suggest to an audience of American voters, as has been done by Reagan's apologists that Adam Smith makes a good poster boy for the vast corporate corruption, profiteering, NAFTA's sucking sound, and the Ronnie Donnie Reagan Regan-Bush/Clinton Express that's has brought us decades of America decline.

Milton Friedman doesn't work for your Joy Division either, since he lamented how all nations need to play fair for free trade to work, which they clearly do not, and it does not.

No, if you think about it, you're a weak dollar short and 5 years late. So wake up Jackass!

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hello misplaced rage

I'm recommending his book, if you didn't realize it. I simply disagree with some of his analysis, and solutions due to my own understanding of trade theory, esp. on Gomory and Baumol.

If you read this site you will see hundreds of posts and articles for trade reform, articles on how U.S. agreements are not "free trade", overviews on solutions, including VATs, pulling out of the WTO, and yes tariffs.

So I think you are just doing some friendly fire here.

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The error is not in the math, it's in the model

I have read Fletcher's book cover to cover twice, and have scribbled numerous notes in the margins. I'm working on a precise review in my spare time (but since I have none, don't hold your breath). For my part, Fletcher comes up with the right conclusions for the wrong reasons. There is even a section where he hints at attributing the Exceptionalism of the 20th century U.S. to race! (a conclusion with which I vehemently disagree -- Tsk tsk).

Getting into the gist of the book, Fletcher lists a set of assumptions employed by the proponents of free (lunch) trade, and then proceeds to attack those assumptions. He does not directly attack the math of free (lunch) trade proponents (most likely because there is probably nothing wrong with it). He concludes that the Ricardians fail to include "Scale economies" in their analysis, and that tariffs most keenly protect such "scale economies," and for that reason, tariffs must be employed to protect them. As I stated, I agree with the conclusion, but not the reasons behind it.

I was disappointed to see that one assumption he left out is the most fundamental assumption embodied by free traders (perhaps because he may agree with that assumption): that economics transcends politics - that they operate independently and that one may be considered without the other. In my writings I argue that this is impossible, however, it cannot be denied that this "economic transparency" is an implicit assumption of free (lunch) trade.

With respect to the "T word," I have this to say:

My mathematical toolkit is limited to that which suits an average physical and software engineer, so I am a little light on the statistical modeling concepts needed for economics. However, as a former software engineer, I am keenly aware of the concept of "garbage in, garbage out." All of the devotees of David Ricardo, Henry George, etc., dismiss tariffs by mathematically modeling the scenario of tariff versus no tariff, and conclude absolutely that no tariff is better. To that I say... DUH!

The analysis of tariff versus no tariff is indistinguishable from the analysis of higher general tax versus lower general tax! It doesn't matter how elegent the equations, since there is nothing wrong with the math. It's the underlying assumptions that are out to lunch! It's important to take extreme care when translating reality into an equation. Therein lies the greatest danger of grievous error. I can see that even here on this site, there is a knee-jerk tendency to jump right into the math, but in the end that resolves to a mere shell game.

The question of tariff versus no tariff is a non-starter -- it's meaningless. A tariff is nothing more than a tax. Even I can see that any serious analysis of the economics of tariffs on imports MUST begin from the standpoint of being REVENUE NEUTRAL! Show me a model that shows that a revenue neutral tariff reduces welth for the imposing nation, and I will listen. Without that, you have an experiment without a control group, and any conclusion drawn holds no water. At best, Fletcher hinted at that concept, but did not expand on it.

Tariffs have been successfully employed too many times to dismiss that success as merely "post hoc ergo propter hoc" (as does Henry George, and by extension, David Ricardo). Just because a model (with all it's unexamined assumptions) says otherwise doesn't make it so. When theory is pitted against history, history wins. Science uses repetition to distinguish between causality and coincidence. The amount of repetition in history suggests that the proponents of coincidence are on thin ice.

TD

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Who are you TD?

You should consider registering and joining the site. I disagreed with large sections of the book, but his heart is in the right place, namely we must do something about the trade deficit, these bad trade deals hollowing out the country and manipulation of trade often through cheaper national economies. You have some excellent points!

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I am a taxi driver

Thanks, for the kudos. I really am a taxi driver, and have been since 2003. For the fourteen years prior to that, I was a software engineer, and for six years before that, I was a hardware tech. Now my best customers are Indian software engineers who are not U.S. citizens, who go to the airport every week.

I haven't joined this site because I prefer to discuss policy rather than news. If the site is discussing news, then the underlying assumption is that the policy status quo is already accepted. If this site had a section to discuss policy, I would join.

I posted this time because I had high hopes when I first opened Fletcher's book. Although I agree with his conclusion, it was nonetheless founded on many of the assumptions that I generally argue against. It's difficult to know how to feel about an author who comes up with the right conclusion for the wrong reasons.

TD

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taxi driver

This site does discuss policy and then economic reports, economic related news/events, because they can tell what's really going on. It's an all thing $$ related, economic site.

Your story is the type of thing I've been writing about for some time, perfectly good and highly trained/skilled Americans getting labor arbitraged out of their careers, jobs income due to offshore outsourcing and the use of guest worker Visas.

No, the status quo is not acceptable at all, in particular on trade and global labor arbitrage practices. The problem is we have both parties controlled by multinational corporations. I've been pounding enormously on China's currency manipulation simply because of any trade related bills in Congress, it has the most co-sponsors and I think with enough public pressure it has a chance to pass.

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