FLORIDA, September 17, 2012 — The free market system is subject to a great deal of misunderstanding.
People all too often confuse the terms “free market”, “free trade”, and “fair trade”. As each of these are very different things, it is essential to learn which is which. Especially in our age of relentless globalism, little room is left for mistakes.
Thankfully, Don Watkins is here to explain the facts.
In his new book Free Market Revolution: How Ayn Rand’s Ideas Can End Big Government, which he co-authored with Yaron Brook, Watkins defends the idea of laissez-faire economics. Controversial as this might be, there is little doubt that there a pro-commerce trend has taken root in American politics.
Why is this? What could it mean for the future of our country?
From the legacy of free trade to the fall of California, and far too much to list in between, Watkins shares his opinions.
Joseph F. Cotto: Today, many people tend to confuse the concepts of free markets, free trade, and fair trade with one another. How would you describe each?
Don Watkins: “Free markets” refer to the economy of a capitalist system. A market is free when the government outlaws force and fraud but otherwise leaves individuals free to produce and trade. In other words: no regulation, no wealth redistribution, just freedom.
“Free trade,” broadly speaking, is the activity that individuals engage in on a free market. In common usage, however, the term refers to measures that reduce or eliminate coercive restrictions on international trade, such as government-imposed tariffs, subsidies, and quotas.
“Fair trade” is an invalid term made up by those who want us to view free trade as unfair. But if fairness means justice, then free trade is fair trade. What could be more fair than an interaction that is voluntary and mutually beneficial? All of the actual problems and injustices commonly attributed to free trade are in fact the result of restrictions on freedom. The actual solution is more freedom—and not, as “fair trade” supporters advocate, less.
Cotto: A growing number of economists and politicians are skeptical of free trade. They believe that it will not benefit America in the long run. You beg to differ. How come?
Watkins: Far from being skeptical of free trade, economists are overwhelmingly in favor of it—one recent poll puts the number at 83 percent. Ever since Adam Smith knocked down the mercantilist fallacies and David Ricardo explained the principle of comparative advantage, it’s hard to find a serious economist who thinks that restricting free trade improves an economy.
My primary reason for supporting free trade is not economic, however, but moral. I don’t believe anyone can benefit by coercively interfering with voluntary cooperation on a free market. If I own something—say, some coffee beans—and you offer to buy them from me at a price I think is acceptable, then why should government have the power to stop us, just because you happen to live in a different country? By what right?
The idea that politicians and bureaucrats (or central-planning economists) can restrict freedom based on what they feel will “benefit America” is un-American. The system the Founders established was rooted in an individualist ideal that said that your life and your wealth morally belong to you—not to the state. No one gets to sacrifice the individual’s wealth or freedom by claiming the group—“America” or any other collective—will benefit.
Cotto: Libertarian economic theorists tend to believe that trade deficits are of minimal importance. What is your opinion on the subject? Do these deficits really have a great impact on America’s economy?
Watkins: Trade deficits are only a problem when they are caused by government’s deficit spending. We’re in trouble today, not because we need to increase exports, but because Washington is spending us into bankruptcy.
Cotto: Since it went into effect during late 1995, the North American Free Trade Agreement has formed a trilateral commerce bloc between Canada, the United States, and Mexico. From your research, has this proven to be of benefit to our country?
Watkins: All of the evidence I’ve looked at says that NAFTA has made Americans more prosperous by loosening trade restrictions. But even a brief glance at the agreement itself reveals that cross-border trade, even if it’s freer than before, is still minutely regulated and far from the laissez-faire ideal.
Cotto: One of the reasons that the American economy consistently fails to emerge from the Great Recession is that it produces a decreasing number of material goods. What would you say can be done to reinvigorate our manufacturing sector? Honestly, is this even possible now?
Watkins: The issue is not how to “reinvigorate” this sector or that sector of the economy. In a free, progressing economy some sectors will expand while others will contract. If America had a truly free market, we might very well be getting richer while simultaneously manufacturing fewer goods at home (say, by specializing in product design and offshoring the physical production of goods, as Apple does with the iPhone).
There is a problem with American manufacturing, but it’s not that we’re manufacturing less. (In fact, we actually manufacture far more goods in this country than at any time in history.) It’s that we would be manufacturing much more were it not for the huge burden of government intervention. For instance, pro-union laws drive up the cost of labor. Zoning laws, building moratoriums, senseless environmental restrictions, and a byzantine permit process make opening a factory an incredibly expensive nightmare. Start removing the chains and you will see a manufacturing renaissance.
Cotto: Throughout most of its history, the United States relied on an extensive tariff system to protect domestic business interests. This paved the way for unparalleled prosperity. Since most tariffs have either been reduced or eliminated, America has lost a staggering number of jobs. Doesn’t this prove that free trade is not, generally speaking, of a beneficial nature?
Watkins: Historically it simply isn’t true that high tariffs correlate to economic progress and vice versa. During the Clinton years, to take a recent example, trade became (somewhat) freer, the economy boomed, and unemployment declined.
But there is a much deeper problem with this question. It buys into the collectivist notion that the government’s job is to lord over an economy in order to promote the welfare of “society.” Any policy is on the table if central planners think it will protect “American business interests” or “American jobs” or “American prosperity”: a subsidy here, a tariff there, a few more taxes, a few less regulations—whatever Obama or Romney or Congress thinks will do the job.
That is all wrong. America is a collection of individuals united by a government whose proper role is to protect their freedom so they can pursue and achieve prosperity the only way it has or can ever be achieved: through production and voluntary trade.
Protectionism is just one particularly obnoxious collectivist-based pretext for interfering in individual freedom. Under capitalism, individuals can prosper together. Protectionism wipes out that harmony of interests: some individuals do get richer, but at the expense of everyone else.
Cotto: Many political forecasters are saying that the future of the American center-right belongs to libertarians; specifically those of the Ron Paul variety. Do you share this view? Regardless, from your perspective, would the U.S. economy fare well under strong libertarian influence?
Watkins: I don’t like the term “libertarian”—it’s too vague and imprecise—and I definitely don’t want to be associated with Ron Paul. By contrast, I stand for pure, uncompromised laissez-faire capitalism, which has meant the same thing since the term was invented in France in the nineteenth century: “Hands off!”
The U.S. economy would fare well under freedom. When people are free to produce, trade, and keep the results, prosperity results. It always has.
Cotto: Over the last few years, there has been a groundswell of grassroots activism for pro-enterprise public policy measures. What do you think caused this? What might it mean for the future of American politics?
Watkins: There are several factors. I’ll name two important ones. First, many Americans, such as the Tea Party activists, have seen that government control over the economy has been growing for the last decade and a half and they don’t like the results. They don’t like watching huge chunks of the wealth they’ve earned redistributed to a bunch of people who didn’t earn it, and they don’t like every aspect of their businesses being controlled by politicians who insistent they “didn’t build that.”
Second, millions of Americans have read and been influenced by Ayn Rand. Traditionally, moral idealism has always been harnessed by those who fight to expand government in the name of “the common good.” Rand turns that on its head: she puts idealism on the side of individualism and capitalism, giving supporters of free markets the moral high ground. That is what my co-author Yaron Brook and I talk about in our new book as Ayn Rand’s free market revolution. Rand is helping to change the debate and put statism on the defensive.
Cotto: What can the rest of America learn from California’s current state of fiscal affairs?
Watkins: You can’t eat your cake and have it too.
Cotto: Now that our discussion is at its end, many readers are probably wondering how you came to be a strong advocate for free trade. Tell us a bit about your life and career.
Watkins: My deep commitment to free trade goes back to my discovery of Ayn Rand when I was fifteen. Rand made a compelling case for laissez-faire capitalism. If the individual has a right to exist for his own sake, if he isn’t the servant of a king or a pope or society, then no one has the right to interfere with his desire to better his life.
Today that right is being interfered with all over the place. I wanted to change that. So in 2006 I joined the Ayn Rand Institute and soon began focusing in on economic issues. (My background is in business.)
The culmination of my efforts so far is the publication of my first book, co-authored with my colleague Yaron Brook, Free Market Revolution: How Ayn Rand’s Ideas Can End Big Government. In that book, we argue that to roll back today’s statist restrictions on trade—international and domestic—we need Rand’s moral defense of capitalism.
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