Ask Auntie Pinko
September 18, 2003

Dear Auntie Pinko,

What do you think about the whole free-trade-versus-jobs argument? I personally think free trade is okay, if it does not take away jobs. But is there a way we can have both free trade AND more jobs in the US? Also, do you think NAFTA should be repealed?

Democrat in Freeper Country

Dear Dem in FC,

If by "free trade," you mean a totally unregulated capitalist free-for-all, then, no, there is no way you can balance "free trade" with job growth in the USA. The market is blind to human efforts to build economically stable, environmentally sustainable, socially and politically equitable communities. The completely "free" market is based on the maximization of profit, an orientation that naturally produces a race for the bottom in labor costs, wild boom/bust economic swings, short-term gains over long-term growth, and many other conditions that don't make for very pleasant societies.

Fortunately there are few, even among the most economically libertarian buckaroo types, who advocate totally unregulated trade. Most people recognize that some level of regulation is not only necessary but desirable. The question is where to draw the line, and no matter where you draw it, people on the wrong side of that line will continue to contend that what is needed is genuine "free" (that is, less regulated) trade.

There is no question that a less regulated economy offers greater opportunities for individuals to accumulate wealth. The problem with building economies around this goal is that enabling a comparatively small number of individuals to accumulate a disproportionately large amount of wealth can only take an economy so far. The real key to a strong economy is twofold: a reasonable opportunity for any individual to accumulate great wealth (incentive) combined with sufficient regulation to ensure that a substantial majority of the community is assured of a certain minimum level of prosperity.

It would be nice if there were a magic formula or an instruction book that would lay out all the steps needed to produce those two conditions. But since they are (to some extent) antithetical, it is a very delicate balancing act with so many complex, interwoven variables that it is not possible to derive a reliable model for realizing this ideal. The degree to which trade between nation-states is regulated is itself a very complicated subset of variables.

Most people think of tariffs, import/export controls, 'most favored nation' incentives, etc., when they think of trade restrictions or regulations. And these are the most obvious and direct interventions. But there are hundreds of other things, from currency manipulations, to interest rate fluctuation, to domestic labor laws, taxes, etc., that affect how "free" trade really is.

Auntie Pinko would not jettison NAFTA wholesale. I think there are many aspects of the trade pact that are producing clear economic benefit for both America and our neighbors. And some that may be having a shorter-term negative impact on America, but are providing a badly-needed boost to the Mexican economy. I don't like the (hopefully) short-term negative effects here, but I think in the long run we will all be better off with a stronger Mexican economy. I don't see it as a zero sum equation at all.

But I think that in some areas we have already realized most of the productivity and competitiveness gains that NAFTA enabled, and we are now harming rather than strengthening our economy. To use a fitness analogy, we are no longer burning fat, we are burning lean muscle mass, and that will have disagreeable consequences. We need to re-examine the conditions under which American companies may take advantage of NAFTA. We must ensure that the greater profits they may realize from free trade are balanced by an investment in the American economy to provide jobs that produce prosperous households, and by an investment in the economies of our trading partners that will ensure a continuous upward lift in the standard of life for their workers.

This may entail renegotiating some aspects of NAFTA, and it may involve changes in how American companies are regulated and provided with incentives and disincentives here at home.

The goal of trade should be to produce economies that spread benefits broadly among their communities, rewarding labor and promoting participation in capital for many, rather than concentrating large amounts of capital in the hands of a few. I think it is possible to achieve this goal with a very high degree of trade freedom, if we look beyond our narrow short-term self-interest. Thanks for asking Auntie Pinko, Dem in FC!

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