Friday, February 22, 2008

Obama and Free Trade

I forced myself to watch the Democratic debate last night, well part of it. I watched long enough to see Obama promote two conflicting economic policies within ten minutes. He condemned free trade agreements (specifically NAFTA) that send American jobs to Mexico. A few minutes later, as the topic switched to immigration, Obama argued that one way to ease the problem of illegal immigration was to promote job growth in Mexico. Hmmm.

Obama's arguments against free trade are typical of much of the Democrat platform - they are based on emotion and not on fact. Almost all economists agree that free trade benefits all countries that take part. Unfortunately, free trade does hurt some sectors of the economy (while benefiting the whole) and politicians see an opportunity to win votes by showing that they care.

It is sad whenever someone loses a job. However, abandoning free trade is not the answer. Free trade allows different countries to do what they do best, which benefits the global economy. Cheap labor in foreign countries allows us to purchase goods at lower prices. We then spend the money we saved on other things, which stimulates job growth. Our economy evolves, replacing manufacturing jobs with more productive jobs. This raises the standard of living for us and for the countries we trade with. If the Democrats had their way on this issue, there would be tariffs in place on all sorts of products to "protect American jobs." This "evens the playing field" as more American companies' prices are now competitive with imports. The loser is the American consumer who now pays higher prices.

Milton Friedman (probably the most influential economist of the 20th century) argues for additional benefits of free trade:

Few measures that we could take would do more to promote the cause of freedom at home and abroad than complete free trade. Instead of making grants to foreign governments in the name of economic aid--thereby promoting socialism--while at the same time imposing restrictions on the products they produce--thereby hindering free enterprise--we could assume a consistent and principled stance. We could say to the rest of the world: We believe in freedom and intend to practice it. We cannot force you to be free. But we can offer full cooperation on equal terms to all. Our market is open to you without tariffs or other restrictions. Sell here what you can and wish to. Buy whatever you can and wish to. In that way cooperation among individuals can be worldwide and free.

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