Wednesday, July 28, 2004

Trade: Free Markets and TINSTAAFL

I find it curious that people continue arguing about "who will support free trade".

One of the key factors behind my indecision over who to vote for is that I don't know which candidate will have the better trade policy...

Sigh. I should be used to being out in the political wilderness on these issues. But that doesn't mean I have to like it.

I'll close with a link to Brink Lindsey's great July 2004 cover story in Reason, "10 Truths About Trade", which nicely debunks a lot of the horses#&@ that masquerades as policy debate on this topic.

Dan and Brad seem to be of this opinion that what is going on out there is in fact "free trade" or something approaching it. I agree that it is trade. Adding the prefix of "free" is somewhat more problematic. Then going further and suggesting that it will is inevitable, infallible, and beneficial simply smacks of utopianism. Even the site "debunking" the myths against free trade merely uses a great deal of slight-of-hand with numbers.

That's the theory. These are the facts, as reported by the NYT.
Some African countries demanded over the weekend that the United States agrees to eventually eliminate its cotton subsidies, revisiting an issue that helped destroy talks last year in CancĂșn, Mexico.

At the same time, a small group of 10 of the world's wealthiest countries, including Switzerland and Norway, were trying to block attempts to rein in their protections of special agricultural products in their countries, like rice for Japan.

The European Union also came under criticism - even as it won praise for offering to cut all of its nearly $3 billion in export subsidies - for trying to protect too much of its agricultural market as special products. Delegates wondered whether complaints from France would eventually undercut the European offer.

Yet all the factions said they understood that if no compromise is reached this week, the Doha round of trade talks to help the developing world could well be ruined, which seemed to make some more determined to reach a pact. After raising serious objections to farm subsidies of developed countries at a news conference, India's minister of commerce, Kamal Nath, nonetheless said: "I'm looking at the next three days with optimism. It is possible to make improvements."

Of course, if asked about these agricultural subsidies any of the "free trade" proponents would problem cluck and say "Yes, but isn't that terrible. Those should be removed!" This is something akin to a Bolshevik reacting to stories of the KGB's actions while supporting Stalin. The entire economic system as it exists is stabilized by these agricultural product subsidies.

If developing countries were allowed to flood the market with cheap food, the agribusiness complexes of rich countries would founder. The agribusiness model of the developed world depends on genetic control of the seed crop. In addition its profits derive from passing off costs to consumers through vertical integration of production and processing. The artificially enhanced economies of scale would not be possible without the subsidies.

In addition, the agricultural subsidies serve another purpose. While they produce food cheaply if not as cheap as the poorer nations could possibly do so, they stabilize the price of food. Ironically dispensing with agricultural subsidies would lead to increased uncertainty and price variations in food supply. The uncertainty would have to be compensated by people creating a greater savings margin, or increasing their credit line. To either save more, or finance more debt service, people would have to be paid more. Food price fluctuations would seriously undermine passivity in the face of stagnant wages while real cost of living increases real inflation fater than the nominal CPI "inflation" rate.

It is not an accident that as food prices have risen in the past year, that many commentators have begun muttering about the stagnation of wages.

Furthermore cheap and stable food prices are essential to the public passivity in the face of economic transformation. Employment insecurity is tolerable only in the face of food security. The greater the food insecurity, the more employment insecurity from the "economic transformation" of globalization would be tolerated. Again it is higher real inflation especially in food prices and increasing food insecurity that has by no accident increased unrest regarding the effect of employment security from globalization.

The simple truth is that Brad and Dan are living in a dream. It is a pretty shiny dream, but it is a dream. Just as the KGB acted to support the regime of Stalin, and the often boisterous Stalin could not exist without his secret police and its regime of terror, so too globalization and "free trade" could not be tolerated in advanced countries without a cheap stable domestic food source. Agricultural subsidies being the sacrificial price of such an economic agenda, they cannot be distinguished as some sort of ugly step child.

As a matter of fact, they are the sine non qua of the very heart of the process that Dan and Brad accept as inevitable, infallible, and beneficial. Genuine free markets have volatility as supply, demand, and liquidity all surge and fall in response to information and market moving events. It is impossible to conceive of an agricultural food base that would not be subject to such price volatility in a genuine free market.

Such "shortages" however intermittent however generate a human psychological need to compensate by seeking more stability elsewhere. At the very least, there is no such thing as a free lunch. The very "job churning" and "reducation" has a price. The populace accepts such a thing if they can buy food cheaply. Even in foreign countries this is the case. Cheap chicken in Ghana for instance produced by agricultural subsidies in Britain, is a prerequisite for people in Ghana to accept the globalization agenda.

How long ago was it that in America, a politician promised "a chicken in every pot."?

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