Tuesday, September 20, 2016

Milton Friedman’s Morals

As Trump and Clinton bang the drums for tariffs and renegotiated deals, where’s the popular voice for trade?


By William McGurn
The Wall Street Journal
September 20, 2016

Whether it’s Donald Trump complaining “we don’t win on trade” or Hillary Clinton vowing to appoint a “chief trade prosecutor,” our two main candidates for president are both campaigning on the idea that government needs to protect us from any foreigner who would sell us something at a better price than we could get at home.

Where’s Milton Friedman when you need him?

In 1980, the Nobel Prize-winning economist brought the message of free markets and free trade into the homes of ordinary Americans via an extraordinary public television series called “Free to Choose.” He did so without apology, without a prepared script and in plain language—moral as well as practical—that you didn’t have to be an economist to understand.

He also did it against the prevailing mood that while free markets might be nice in theory, in reality what America needed was a healthy shot of protectionism: e.g., “voluntary” restrictions on Japanese cars, stronger anti-dumping statutes and greater enforcement of state “buy American” laws.

Is it so much different today? In an age when the global economy has helped lift billions out of abject poverty and put in the pockets of our children iPhones with more processing power than the computers NASA used to put a man on the moon, trade has become a dirty word.

The negatives of trade seemed to be confirmed by a now-famous 2012 graphic by economist Branko Milanovic, which plots how much real income has grown between 1988 and 2008 by income percentiles of the global population. Called the “elephant chart” because of its shape, it appears to prove the Trump-Clinton critique: that the winners from trade are foreigners and our top 1%, while the losers are the working and middle class in the developed West, including the U.S.

But the London-based Resolution Foundation has now re-crunched the numbers to adjust for factors including population growth and the collapse of the U.S.S.R. When it did, it found that though income growth for the U.S. working and middle classes was smaller than for their peers in other Western economies, it was not stagnant.

In a recent Financial Times story, Resolution Foundation director Torsten Bell sounded a distinctly Friedmanite note: “Although globalisation brings a range of challenges for lower income families, we need to be clear that weak income growth generally is rooted in domestic policy, and blaming globalisation takes the pressure off governments.”

What might such pressure look like? Well, Harvard economist Edward Glaeser suggests we might, for example, consider the way well-intentioned government programs can boomerang by discouraging work—everything from minimum-wage hikes that make low-skilled young men more expensive to hire to the huge marginal tax rates that kick in when, say, a single mom using some government benefit gets a job.

No one denies that Americans can lose jobs when an industry abroad is selling a good or service at a better price. But the high-employment, mass-manufacturing economy of the postwar years is not coming back no matter how high tariffs are or what we do to countries who manipulate their currencies. Even more interesting, the Resolution Foundation study reports average real income growth for lower- and middle-class workers in the U.K. was much higher than for their American counterparts, even though the U.K. has an economy that is more, not less, dependent on trade.

For his part, Friedman would ask by what right should an American be prevented from buying a lawful good or service if he found a better price from someone overseas? Where’s the morality of keeping a worker from selling the product of his labor to someone who happens to live in another country? And the following was Friedman’s response on “Free to Choose” when a union official challenged him on his bid to eliminate all tariffs over five years:

“The social and moral issues are all on the side of free trade. And it is you, and people like you, who introduce protection who are the ones who are violating fundamental moral and social issues.

“Tell me, what trade union represents the workers who are displaced because high tariffs reduce exports from this country, because high tariffs make steel and other goods more expensive, and as a result, those industries that use steel have to charge higher prices, they have fewer employees, the export industries that would grow up to balance the imports, tell me what union represents them? What moral and ethical view do you have about their interests?”

It’s still a good question. Because here we are, seven weeks out from an election in which the Republican and the Democratic nominee are trying to outdo each other in their opposition to trade. And neither appreciates the irony that the very definition of a bad trade deal is one that inserts the heavy hand of government between a voluntary exchange that leaves both Citizen of Country A and Citizen of Country B better off.


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