Thursday, September 1, 2011

Economy In Crisis

by Craig Harrington
Economy in Crisis 

Economics is the study of the allocation of resources that are scarce. It is at its core the simplest of the social sciences. The simplicity of basic supply-demand theories allows most elected officials to draw conclusions that they think are based on sound economic principles.

Unfortunately, these conclusions are often misled. The economic theories that we learn in the classroom rarely apply to real world conditions. The simple dynamics of supply and demand, price equilibrium and comparative advantage are skewed by national and corporate interests who seek to reshape international commerce for their own benefit.

As a social science, economics must deal with the so-called “free rider dilemma.” The free rider problem in trade goes like this: if one country lowers its barriers while another trading “partner” does not lower its own, the country with the low barriers is taken advantage of by the country with higher barriers.

This is the problem facing the United States.

In the last 30 years Washington has tried to lead by example in international trade. America would lower nearly all of its trade barriers in exchange for the promise that other nations would do the same. The intent was to sucker other nations into lowering their protections so as to become easier targets for American multinationals. In practice the exact opposite has occurred. American corporations can still take advantage of less developed countries, but the developed world in turn takes advantage of the United States.

We opened our borders while Europe, Japan, South Korea, China and others kept their barriers intact. The result has been a flood of money out of the American economy and into the economies of every other developed nation on this planet – including neighboring Canada.

Free trade has not created jobs for Americans, it has taken jobs away. It has not created prosperity for Americans, it has taken prosperity away.

Free trade has opened new markets for American goods, but these goods are not American-made. General Motors can only sell in China if it builds in China. Microsoft is welcome in Japan so long as the computers that run its software are also built in Japan.
Enormously profitable and powerful multinational corporations can use America's open trade borders to come and go as they please while small and mid-level producers get forced out.

The champions of “capitalism” say that this survival of the fittest creates the best possible products for consumers, but this is not necessarily true. American consumers are left with choosing between the lesser of two evils: purchasing from an American company that shipped jobs overseas and laid off workers in the United States, or pruchasing from a foreign company that takes all of the profit from its sales out of this economy to re-invest in its own.

This is the truth of “free” trade, yet very few in the media or government are paying attention. Making matters worse, much of the media, and nearly every elected official in Washington, are in favor of the current system.

Most politicians, including President Obama, believe that “competition” with the rest of the world is good for American producers, workers and consumers. They wax poetically in campaign speeches about how American workers never back down to the challenge of free market competition.

Meanwhile, they ignore that we are not competing in a free market. China's market is not free, neither is Japan's, Korea's or Europe's. Every other nation in the world has robust legal and social protections in place to put domestic producers and domestic workers before anyone else.

The United States remains the only country in the world that is blindly pursuing free trade at all costs. It is the only country in the world that completely overlooks the increased hardship of its own population in pursuit of cheaper televisions and sneakers.

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