FLORIDA, May 28, 2013 — Libertarian economists believe that free trade has benefited American households because it lowered the price for commonly purchased goods. What can be said about this idea?
One of the reasons the American economy has failed to comprehensively rebound is that it produces a decreasing number of material goods. Considering the rise of globalism, is it still possible to reinvigorate our manufacturing sector?
Should America adopt a modernized tariff system to protect its economic interests?
Paul Craig Roberts doesn’t engage in groupthink. As an assistant Treasury secretary under Ronald Reagan, he played a key role in formulating the Gipper’s now-legendary fiscal policy. As a journalist, he made no bones about reporting the facts as he saw them. Now, as a columnist, he shares his opinions about America’s turbulent sociopolitical climate.
In this first part of our discussion, he answers the questions mentioned above.
Joseph F. Cotto: Libertarian economists believe that free trade has benefited American households because it lowered the price for commonly purchased goods. What is your view on this idea?
Dr. Paul Craig Roberts: There is no evidence for this belief. Prices continue to rise, despite “reforms” that understate the official measure of inflation.
Statistician John Williams (shadowstats.com) carefully monitors official government data and its measurement. He reports that the current rate of inflation when measured by the official methodology of 1980 or 1990 is a multiple of the current rate as measured by the substitution methodology and the assumption that numerous price rises are not price rises but quality improvements.
Even if there were evidence of lower prices, that is only half of the equation. The other half is the lower incomes and joblessness of the Americans harmed by jobs offshoring, mistakenly called “free trade” by libertarians. The evidence is clear that real median family incomes and the labor force participation rate have been falling.
Jobs offshoring benefits the foreign workers who replace the American ones, and it benefits the shareholders of the corporations and the executives whose incomes are largely determined by performance based bonuses.
To make their case libertarians would have to provide convincing evidence that prices are lower than otherwise and then show that the gains from lower prices more than offset the costs of higher unemployment and lower real median incomes. They have provided no such evidence.
Cotto: One of the reasons the American economy has failed to comprehensively rebound is that it produces a decreasing number of material goods. Considering the rise of globalism, is it still possible to reinvigorate our manufacturing sector?
Dr. Roberts: In the US the loss of manufacturing and de-industrialization are so advanced that supply chains have been lost, manufacturing infrastructure lost, and manufacturing cities are in decay. The rise of manufacturing in China and of tradable professional services in India have given those countries the relative advantages that the US once had over the world.
Cotto: In your opinion, should America adopt a modernized tariff system to protect its economic interests?
Dr. Roberts: It is a fact that the US economic rise occurred in a protectionist era, not a free trade one. In those days when US manufacturing took place domestically, protection was consistent with the corporations’ economic interests.
Today, however, protection is not consistent with corporations’ interest. Tariff protection would adversely affect the profits of the US corporations that produce offshore for their US markets. When the goods and services are brought to the US to be sold, they enter as imports and would be subject to the tariffs.
In other words, the interests of large US corporations no longer coincide with the interests of the country.
Far-left? Far-right? Get real: Read more from “The Conscience of a Realist” by Joseph F. Cotto
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