Trade Policy & Jobs
by
James Kroeger
A 'pure' Free Trade Policy (no trade
barriers of any kind) would actually provide the vast majority of America's Working Class
with wonderful benefits if Congress were to
create and maintain a domestic Labor Shortage. In
a Labor Shortage Economy, workers would enjoy the best of all
possible economic worlds. Jobs would still be lost, but it
wouldn’t matter. New jobs would be easy to find. Market
forces would put constant upward pressure on wages & benefits.
Employers would discover that they'd
have an incentive to treat their employees
with respect. They might even want to try to create a
pleasant work environment for their employees. Some may
find themselves more eager to go the extra mile to try to solve the
problems of their marginal employees (or even enlist the state's
help in that effort). Labor reps would discover that they'd
have negotiating leverage they could never have imagined
in their wildest dreams. With such leverage, they would
be able to produce the kind of negotiating results that would make
them very popular with The Rank & File. Even unskilled workers
would be able to experience negotiations success.
Still, Free Trade poses a special threat
to those workers who face the prospect of losing good-paying jobs
that they might not be able to replace, even in a Labor Shortage
Economy. This can be quite tragic for those directly affected,
but the news is not all bad. Ultimately, the problem with Free
Trade is not
that it eliminates jobs; after all, firm investments in machinery do the
same thing. How do investments in machinery benefit us?
Well, when fewer people were needed on the farm to produce the food
we needed, more people became available to produce cars and
refrigerators and airplanes. More desirable things are
produced and become available for our consumption. As they
become more plentiful, they become less expensive, more affordable.
Market prices will drop to levels that more people can afford
to pay.
So
even though some skilled workers may lose their jobs to either engineering
innovations or overseas workers, society-as-a-whole benefits from
more things being produced. Looking back over our economic
history, it's just not possible for us to rationally dispute this
fact. However, that benefit cannot be enjoyed unless
all those who lose their jobs to foreign competition are re-employed in
other efforts to produce Real Wealth. Unfortunately, we cannot
count on The Marketplace to make that happen, not when there is an
ongoing conspiracy between [mostly Republican] politicians and
financial leaders to create and maintain a labor surplus.
The good news is that we can always elect a Congress that would stop
this madness.
If Congress were to act to maintain a labor
shortage in the face of continuing job losses to foreign producers,
it would be able to increase the total amount of Real Wealth that Americans are consuming and enjoying. The goods & services that Americans
used to produce would still be available for consumption, only
they would not be produced by Americans. Displaced American
workers would be producing something else that would enhance
our lives, like a modernized infrastructure and improved public services.
More generally, displaced factory workers would quickly obtain jobs working for
either the government or the private sector at a time when both
sectors are offering higher wages to fill their staffing needs.
There’s just one problem. The financial
sector of the economy is infected with an irrational fear of
inflation. I won’t go into an exhaustive discussion of
inflation right now, but let me just make a couple of important
points. First, no matter how grave the warnings you may hear about
the “evils of inflation”, the ultimate truth is that inflation
is always and everywhere harmless when it comes to the purchasing
power of consumers (there are a few exceptions, but they are
remarkably easy to fix). The extra costs that controlled,
moderately-high inflation [in the
5%-19% range] would impose on society—above and beyond the
costs that are already imposed on us by the low-inflation rates we
normally experience—are a mere “headache” compared to the extra
costs that are imposed on society by unemployment.
There are many
irrational fears and distorted perceptions-of-self-interest that are
aroused by increasing inflation rates, but most of these concerns
are attributable to Money Illusion. This is a psychological
problem that can be effectively addressed. It would be very
helpful, for example, if the Fed's Chairman and Board Governors were
to actively seek to reassure the public that higher inflation rates
are not really harmful to the economy in any real sense.
If they are not inclined to give this reassurance because they are
in the banking industry, then Congress can give control of the
nation's money supply to the Treasury Department, instead.
This just might be a better idea anyway. Politically,
an administration either manages the economy well, or it doesn't.
At least the executive branch would have all of the tools it needs
to produce results.
The benefits of sustained,
moderately-high inflation—one consistent with a sustained
labor-shortage—are at the top of the chart. If we focus our
attention on the real economy, on what people are actually producing
& consuming [and forget about abstract calculations of “rate of
return”] it soon becomes clear that a chronic labor-shortage would
create an outcome that is true economic perfection. All
those who are able-bodied & able-minded would be producing something
of value. In such an economy, the production & consumption of
wealth are optimized. Investment is optimized. When production &
consumption & investment are all at optimal levels, society gets to
experience an ideal economic achievement. That’s
quite a benefit to stack up against the list of “headache costs”
that are so often mentioned by those who describe inflation as a
thoroughly horrifying prospect.
Any sober analysis of the costs &
benefits of moderately-high inflation would lead us to warmly
embrace it, since the perceived costs of inflation are mostly
imagined, generated by money illusion and a misunderstanding of
how
markets function.
There is one more point I’ll make at
this time re: inflation. There is a popular misperception promoted
by Wall Street & financial institutions that inflation is somehow
able to take on a life of its own at a certain point, that it will
drive us relentlessly to the horrifying Pit of Hyperinflation. This
fear is absolutely groundless. We should remember well Milton
Friedman’s statement that: “Inflation is always and everywhere a
monetary phenomenon.” He was/is absolutely correct. There is
actually a zero percent chance that a moderately-high inflation rate
could ever balloon into hyperinflation in any economically advanced
nation that is willing to impose intelligently-designed credit
controls. If banks are allowed to lend
only a fixed quantity of money in particular loan categories, then
it is categorically impossible for a moderately-high inflation rate
to blossom into a “runaway” hyperinflation event. A true cap on the
inflation rate can thus be achieved through intelligently designed
institutional restrictions.
At the cost of some higher inflation
rates (that are essentially harmless), we can enjoy all of the
benefits that Free Trade has to offer while also providing America's
Working Class with all of the benefits of a chronic Labor Shortage.
It is insane to pursue any other option...
_______________________________________________
Related Economic Analysis:
MEASURING SAVINGS AND
INFLATION
UNEMPLOYMENT: OUR GREATEST ENEMY
ARE INCENTIVES NEEDED TO
ENCOURAGE INVESTMENT?
DO TAX CUTS STIMULATE THE ECONOMY?
UNIVERSAL HEALTH CARE
