The Paradox of Free Trade and the Left.

What caught my eye in this particular WSJ article on McCain's free trade focus is this quote coming out of the Obama camp: "If he wants to highlight trade, he should be doing it here in Ohio and Michigan and the states that are most affected by trade." This reflects the standard, but misguided, view of international trade. We import more things, pushing some people out of jobs, and we see those jobs disappearing. And sure, this hurts those whose jobs are lost. But while the sound bytes reflect only this effect, there are many more effects that will occur, all positive, which actually create more value than is being lost when jobs disappear. Despite the left's close ties with labor, I still find it paradoxical that the left should be so anti-free trade.

The reason these jobs disappear is because Americans are importing goods that were previously produced domestically, and the shift from domestic production to imports happens because the price of the imported goods are lower. Lower prices mean American consumers are able to acquire more goods and services with their incomes than they otherwise would. Walmart has built an empire on the business model of buying inexpensive imports and selling them at dirt cheap prices to working class Americans. And herein lies the paradox. To a political ideology so centered around the plight of the poor, free trade should appear to be a good policy. The poor are able to import products that are less expensive than those produced domestically, thus allowing them to buy more stuff in total.

If they really care about the poor, shouldn't they want more free trade, not less?

Thoughts on Democracy

As I suspected months ago, Mugabe did not go gentle into that dark night. After placing second in the initial run off election, he has been accused of doing everything within his power to ensure victory in the main election, which he has won with nearly 85% of the popular vote. Rightly, most of the western world has rightfully identified this election as being pretty much a sham. The question is why.

It takes a case as extreme as the Zimbabwe election to highlight the difference between democracy as an end and democracy as a means. Properly viewed, democracy is a means. It is a device that countries can use to generate policy outcomes. Generally speaking it is a fairly good means; when elections are fair and transparent, the resultant policies have a strong tendency to be better than those chosen by other means, such as dictatorship or theocracy. This is not to say that democracies cannot generate bad results, or that other means cannot produce good results, but rather that democracy tends to be far more robust. The problem with the Zimbabwe election, then, is that means by which Mugabe was re-elected are not those means that are likely to generate good outcomes, or ends, which are the things that we as individuals or society actually want.

Of course this all seems rather obvious. But I think one of the major flaws in modern civil society is that, in cases not nearly as extreme as the Zimbabwe election, democracy is viewed as the end itself. Most people seem to have the general notion in the back of their minds that there is some inherent justice in outcomes produced by the democratic process. That is, because democratic processes generally lead to good policies, any policy chosen is inherently good. And if a policy is obviously bad (i.e. the Mugabe re-election), that policy must necessarily be the result of something other than democracy. There are obviously logical fallacies here (the appeal to probability and no true Scotsman fallacies are the ones that spring immediately to mind), but the result is that democracy becomes the end. Society could use a little more Churchill, who famously said that "democracy is the worst form of government except all those other forms that have been tried from time to time." Just because it is better than everything else doesn't make it perfect.

Please, Keep Your Money?

As free traders appear to be winning the argument over trade v.
protectionism, I think that the protectionism of the future will look a lot more like this case, where the Australian Government has put the kibosh on Chinese mining firm Sinosteel's attempt to acquire a large portion of Australian Murchison Metals. I would imagine that, to the non-economist, there would not seem to be much similarity between restricting trade in goods and services and restricting corporate ownership. I would argue that the two are one and the same.

Why would one firm buy another one? The standard intuition is that the purchaser believes he can make a greater profit than the current owner can make, and the current owner will only sell if he is offered more than he believes he can earn in profit. How can the purchasing firm take the exact same set of resources and generate more profit? By having a better plan, or a better business model, or better corporate structure. So in the case of allowing a foreign firm to take over a domestic one, we should simply view this the domestic country importing a better plan or a better model, which is good for their economy. Increased profits will generally lead to some combination of increased output, lower consumer prices, and/or higher wages for workers in the firm.

So what is the upshot of all this? We should treat foreign investment in the exact same way as we treat international trade, meaning the less restrictions on it the better.

Warden's Recommendation

Interesting tidbit here, John McCain's "warden" at the Hanoi Hilton has endorsed his candidacy for president. I was quite amused by the last line, where the jailer disputes McCain's accusations of torture, saying "He lies to American voters in order to get their support for his presidential election.”

Just on the one issue? I think it was Orwell who told us that "politics ... is a mass of lies, evasions, folly, hatred and schizophrenia."

Tobacco Villification Has Reached a New Level of Absurdity

The Netherlands government has passed a new law banning smoking indoors. I suppose that, by now, smokers are used to these sorts of laws. But this one has an interesting twist: marijuana smoke is exempt from this legislation! Now, I'm not one to argue for restrictions to be placed on either drug...but this law really drives home the notion society has gone beyond protecting the health of second hand smokers to a simple all-out war on tobacco, never mind the costs and benefits.

Boumediene

I'm amazed that people are faulting the Supreme Court's decision in the Boumediene case...how can you fault forcing the executive be able to demonstrate to someone (other than itself!) that somebody might in fact be an enemy combatant?

Alcopop Tax Folly Redux

About a month ago, I predicted that the alcopop tax would simply lead to a substitution away from premixed drinks into other alcoholic beverages. Looks like I was right. This article in the Sydney Morning Herald cites a recent industry study, finding that while alcopop sales dropped 38% as a result of the tax, the sale of 700ml bottles of spirits rose by 21%. And the industry is speculating that when one factors in other alcoholic beverages, total alcohol sales may have actually risen in the past month!