A rose by any other name would smell just as sweet. In the same frame of mind, a turd by any other name would smell just as awful. What is today passed off as a new way of economic thinking is nothing other than more of the same policies tried for hundreds of years, always resulting in failure to deliver on its stated ends.
Steve Bannon has long called for what is termed as “economic nationalism”, a phrase that sounds new, but has its roots in the draconian mercantilist policies of 18th century Britain; the same policies that Adam Smith wrote against in the Wealth of Nations in 1776. Sadly, many people have been taken with Bannon’s expert salesmanship of economic protectionism, corporate cronyism, and anti-free trade policy positions.
In the minds of many-a nationalist, foreign trade is not a zero-sum game. America’s trade deficit is seen as an evil, a drag on the U.S. economy, and a net loss for the average working man. However, as has been pointed out time and again, by both mainstream and fringe economists, protectionism benefits the few at the cost of the many.
“In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it the cheapest. The proposition is so very manifest that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common-sense of mankind.”
Even though Smith thought his position was clearly the sensical one, it seems now we must again take pains to prove it. There are a number of avenues to travel down when arguing against tariffs, trade restrictions, regulation, and protectionism in general.
First, there is the historical case to be made. Economic nationalism is nothing new, and thankfully there are plenty of real world measurable examples of how it has failed in the past. Second, there is the economic case to be made, which has been stated by economists ranging from Adam Smith, David Ricardo, Frederic Bastiat, and Jean-Baptiste Say, to Joseph Schumpeter, Milton Friedman, and many others. Thirdly, there is the political argument, which is to say, “what is the role of government?”. Does the government of a free society have a legitimate role in saving certain domestic industries from foreign competition?
On the first point, historically protectionist policies have helped the industries they were intended to help but in the greater scheme of things they made little sense. Smith used an example of his own time – when Britain installed tariffs on wine imported from France, in order to protect the wine industry in Scotland. He pointed out that although grapes could be grown in Scotland, because of the way they were grown it would cost 30x more to produce wine. The solution was not to over-tax imported French wine, but instead to trade France for something Scotland had an abundance of such as wool.
Tariffs on imported French wine led to higher prices of wine for the people in Great Britain, but benefitted no one other than the wine producers. Instead, free trade offered jobs to the Scots in the wool industry, and allowed for the trade of wool for wine with France. This provided France with the wool it needed, Britain with the wine it wanted, and lower prices for everyone involved.
Economically speaking, the case is clear. The goal of any society is to provide for the average family the most goods and services at the lowest price. This ratio is commonly known as the “Standard of Living” or “how far a dollar goes.” What is best for the average person is for his money to buy as many goods as possible, leaving him with more time and money to enjoy leisure.
Sadly, in the process, some industries will go out of business. In America, cheap Chinese goods have put domestic producers out of business by offering the same (or better) products at lower prices. Yes – this costs some workers their jobs. However, as Henry Hazlitt points out – the difference between a good economist and a bad one is that a good economist observes effects of policies on all people in the long term, while a bad economist observes the effects on a small group of people in the short term.
The great economist Joseph Schumpter coined the phrase “creative destruction”. As new products or methods for production come into the world, other products are destroyed. An example of this is the typewriter. Laptops came into the world and offered far superior uses than an old fashioned typewriter. In the process, fewer people used typewriters, and the industry was virtually killed off. Is this a bad thing? Should government have stepped in to “save” the typewriter industry? Of course not!
Thirdly, we have to question what government’s role is in our lives. For the majority of those on the right, government’s role is simple – to protect our rights.. The question not asked often enough is – what are “rights”? In John Locke’s view, humans are given natural rights by God; those of life, liberty, and property. Government is here to protect our life, our liberty, and our property.
Quite frankly, a job is not a right, nor does an industry has the right to exist. Just as it is not government’s role to extinguish the coal industry to force Americans to look for cleaner alternatives, it is not government’s role to subsidize coal to protect the industry from competition. In time, market forces will prevail. The market is far wiser than a small group of bureaucrats that seek to “save” or “kill off” industry X, Y, or Z.
The effects of government interference in the market is always shortages, either of supply or of demand, resulting in the consumer being left worse off in both cases. It is the job of government to protect our liberty, and in doing so, should allow consumers to buy whatever goods at whatever prices are offered to them. The free market has proven to work better than central planning, and interfering with international free trade is central planning, just by a different name.
Hopefully, history, economics, and good old fashioned Lockean philosophy will win out. In fact, there is no way they cannot win out – the case is too clear. The choice now is whether America will embrace free trade and prosper, or bow to pressure from special interest groups to protect them from competition. Will America side with consumers, or with crony capitalists?
Tim Preuss is CEO & Founder of Preuss Media.