Free trade and US new financial reform: myths

Buy American and exploits Americans: Myths

In brief: Economic arguments against free trade does not stand up to scrutiny, the U.S. financial reform could fail.

Financial reform is coming to the U.S.. To understand what happens let’s look back. Last year in New York held a debate entitled “Politics” buy American / hire Americans – two-edged sword “, was attended by several hundred people. Then the three defenders of free trade to the challenge of three known protectionists, who often flash across our television screens. Initially it was assumed that the outcome of the voting audience of supporters of free trade lose to a team: 45% to 55%.

However, the opposite happened. They won with an overwhelming advantage: 80% to 20%. As asserted by some voters after the debates, they have won, because each of their argument was supported by the facts, while their opponents have not offered anything other than allegations and accusations. It is obvious that the supporters of free trade is not the time to fall into pessimism and despair. Arguments protectionists, both new and old – many myths that can be successfully overcome. Consider the most striking examples. Myth 1: “The price of protectionism and its flip side, trading profit – are negligible. This, of course, means that if protectionism is useful from a policy perspective, do not grieve that it will harm the national economy. This is a very attractive position for many Democrats in the U.S.. Ironically, this myth has arisen on the basis of incorrect technique based on a study of outstanding teachers from Cambridge Harry Johnson. Since 1990, he became a favorite thesis of Paul Krugman. But, despite the fact that in Washington this topic is very popular, no serious scientist would not take her seriously because of the compelling rebuttal, published by Robert Feenstra, in 1992, the most gifted contemporary empiricists in the field of trade policy, as well as Paul Romer of Stanford in 1994.

Myth 2: “Free trade can promote economic prosperity, but it will affect the working class.” This statement is in great confidence with the trade unions, who believe that trade with poor countries to rich countries, an increasing number of beggars. For this reason, they advocate egalitarianism – that is, all the costs of competitors in poor countries should be increased by the introduction of the same labor standards that exist in rich countries. Use after Orwell’s term “fair trade” protectionist hides the essence of these actions, the purpose of which – to reduce competition from importers. Many economists believe, however, that the main reason for the stagnation of wages in the developed world – is profound and lasting technological changes aimed at saving labor effort, rather than trade with poor countries. In addition, a working profitable to buy cheap imported goods, particularly clothing or electronics.

Myth 3: “Free trade requires other countries to open access to its domestic markets.” This theme emerges again and again every time the White House changed owners. However, the facts are often fictitious and have no logical connection. U.S. auto companies in 1980 were convinced that Japan was a closed country, while the States is fully opened. However, it is the U.S. set a quota of 2.2 million units for Japanese cars and Japanese market was fully open, but not easy. Today, history repeats itself with China. Even if other economies are closed, open economy still win, adhering to principles of free trade. When Japan was a closed country, and the U.S. – open, many thought that Japanese companies were working on two markets, and the U.S. – only one. First, as stated, can reduce costs per unit of output. However, the problem in this case, however, as always, in the mistaken assumption that Japanese companies will always be as effective, in spite of protectionism.

Myth 4: “Paul Samuelson banned and free trade was the greatest economist of his time.” The last statement is no doubt true, but the first is debatable. Even Hillary Clinton, during his presidential campaign by mistake repeated this false conclusion. Samuelson said that any external change may harm the economy. He had not argued that the most appropriate response in such unfortunate situation, will a ban on free trade. Consider an example. If Florida has suffered from the hurricane, its Governor, will only aggravate the situation by introducing a retaliatory ban on trade with other states.

Myth 5: “Creating jobs in other countries would result in irreparable damage to rich countries.” This fear appeared in the unsuccessful presidential campaign of John Kerry in 2004, when the process of transformation of digitized X-rays carried out at the Massachusetts Hospital in Boston in India. None of the doctors, radiologists do not lose their jobs in the U.S., their incomes are not affected. Mobility services market has not led to an economic tsunami in rich countries. Often, jobs that would disappear in any case due to high costs in the U.S. and other highly developed countries, reappeared in countries with lower costs, thus preserving the scope of services, which under other circumstances would have been lost. Such well-known foreign alarmists, such as economist Alan Blinder, changed its view and now say that the growth of tradable services leads to the need for more active implementation of the long-standing program of assistance to low-profit areas. But supporters of free trade just do not have anything against it!

Ukrainian Globalist
2010-07-23 07:31, Economics.

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