The standard liberal rejoinder to the Republicans’ claim to be the free trade party is that Bush and the Congress put through steel tarriffs and agricultural subsidies on a scale that surpassed much of what the Democrats could imagine for trade protectionism. In fact, the only substantial difference in the parties’ stances is the nature of their protectionism, with Republicans favoring measures benefiting specific industries and Democrats speaking of universal, abstract measures like an international minimum wage or environmentally-bound trade negotiation.
But there’s one argument against Bush’s free trade credentials that I think has been overlooked: the detrimental combination of low (negative) job growth with general, if modest, economic growth that his (and Congress’s) fiscal policies have encouraged. Let me start with Paul Krugman’s interview on CNN (warning, transcript a little messy):
All the arguments the are pro free trade start from saying, well, let’s assume that we have enough spending in the economy so that we have full employment. So that the actual limit on employment is not — that there isn’t enough demand but it’s that Alan Greenspan is afraid of inflation and so he raises interest rates if the economy is too strong. Which is the way it was during the most ’90s. In that situation, that’s not the issue. The question is if the jobs at take the place of the outsourced jobs are higher paying, or higher valued ad[ded] or what ever, then we’re in great shape. Under — right now, with the depressed economy and it’s very hard to answer that question. Right now, you take a job, you out outsource it, that means that it’s not replaced by some other job it is just gone. There are secondary impacts. This is all, you know, again, unless we can get the domestic economy moving, then the outsourcing is not a plus, except the only thing you can say is that, you know if we try to stop it, this is a zero some game. If we say we’re not going to import because it cost us jobs, then other countries will say well we’re not going to import from you because it costs us jobs and you’re going to end up with the whole world cracking down, which is what happened during the 1930s. So we don’t want to go there. But again domestic stimulus, job creation programs are the only answer to get out of these impossible sets of choices.
Here Krugman summarizes the dilemma succinctly: the protectionist measures of some progressives (and others, to be fair) have the danger of shutting down the global trading system, hurting all parties. But the Republicans’ tendency to point to economic growth from outsourcing or free trade misses the point that such growth is long-term productivity growth, and that such growth might not matter if we don’t meet the short-run problem of aggregate demand shortfall (i.e. our current growth recession).
Further, what strikes me in this passage is its suggestion that the current protectionist sentiment has not sprung from nowhere, but rather from a weak job market that undercuts any pragmatic possibility of steering a free-trade policy that’s genuinely popular. More than any farm bill, even, this has kicked the legs out from under the pundits and economists, left and right, who argue for free trade.
Of course another President might have chanced to inhabit the same circumstances. But we have an administration and a legislative branch which has not viewed the business cycle as a problem to be addressed with anything other than the same Supply-side Keynesianism that it would apply in the boom part of the cycle. Neither has risked any political capital to make the case for the benefits of free trade, and if you listen to Bush speak, it sounds like he’s confused on what exactly the benefits are. We need free trade for many reasons, but one of them is not making our economy sound. That’s the job of the Fed, Congress and the President himself.
No comments have been added to this post yet.