The Case for Free Trade, Not Imperialism

0:00Let me start with free trade and then talk about imperialism. I'm not a big fan of Milton Friedman, I've criticized him a lot, many of us have, but I'd like to give you a statement of his that really meant a lot to me. And what Milton Friedman once said about free trade was, thanks to economists, all of us all put together ever since Adam Smith 200 years ago, Tariffs are now perhaps one-tenth of a percent lower than they otherwise would have been. But, with that, we've paid for our salaries a hundredfold. It sort of makes you proud to be an economist. It does. I mean, we're a few compared to the overall population, and our gains are modest.

0:48And here it's not just an Austrian thing, most economists are free traders. But to think that we paid for our total salaries a hundredfold or maybe a thousandfold sort of gives you a warm feeling, or at least it does me. I want to talk about free trade from the perspective of Canada. When the NAFTA first came in, I was in Canada and it was a very big deal. Now it's Canada, the U.S. and Mexico, but in those days it was just Canada and the U.S. And during that time there was this book put out by a left-wing group in Canada that said, this was the title of it, Canada Not for Sale, The Case Against Free Trade.

1:38Why you may lose your job, how the quality of your life will deteriorate, Why You May Lose Your Cultural Heritage, How Canada May Disappear as a Country, If Brian Mulroney Has His Way Brian Mulroney was the Prime Minister of Canada at the time. Ronald Reagan was the President. I warn you, this speech is not for the squeamish. There will be frontal nudity and sexual perversion because I'm going to illustrate my talk with cartoons from this book and in those cartoons they have these despicable kinds of things, so hold on to your hats. The Hollis scenario that was put forth in Canada was that if we had free trade, the US would out-compete us poor Canadians, they would export stuff to us, all the Canadian jobs would go by the board, we'd have vast unemployment.

2:33I'm reminded of a South Park episode where the people from the future come back to the The President and They Take Our Jobs, and there was a lot of play about They Took Our Jobs. And if you've seen that, you can empathize with that. Ross Perot talked about the giant swooshing sound of jobs disappearing down to Mexico. That was when we were thinking of adding Mexico to us, and the United States was afraid of that. But it was a big fright for the Canadians, and it's only because Canada has three parties and the two parties split the no vote that we got yes for the free trade so-called free trade it's not really free trade it's more of a customs union but that's another issue the situation first let's ask what is free trade well free trade is you know I trade you something for something you have the most basic elemental thing of it is border I trade or this pen for this time or buying and selling or renting or employment all of

3:42these things any voluntary commercial interaction is free trade it's usually for adults we're not talking about kids we're talking usually about the typical commercial goods and services not military secrets or nuclear power or anything like that now the case for free trade is can be divided into two one is On the moral background, we have a human right to engage in commerce. If I own something, if I own this pen, if I own this tie, or you own the other one, we each have a right to give it up for the other thing, because if we don't have that right, then we don't own the thing in the first place. So it's part of the human right to engage in commerce. Another point on the moral sphere is that Hans was talking last night about democracies not fighting wars.

4:35Well, I think I certainly agree with him on that point, namely that they do. But I would make the point that countries that trade with each other, that are commercially interlinked with each other, where you know the guy from the other country, where you've had him to your house, you've been his house, Other things equal this less likelihood of war when there's integration of an economic sort, so that would be the moral case for it. The economic case for it is that trade benefits both parties in the ex ante sense. Now it might be that the reason you're giving up this pen for this tie is you think that if you don't really like the tie, it's a lousy red tie, it's not even a Mises tie, but you'll take it anyway because you think I'll give you a good grade in a course. In the course, it might be for that reason, we don't hear your motive.

5:23All we know is that if you're willing to trade the pen for the tie, you value the tie for some reason more than the pen. So you gain a profit of the difference to you between the value you place on the tie and the value you place on the pen. I, on the other hand, if I am taking your pen for my tie, value the pen more than the tie. And I also gain. So trade is not a zero-sum game and it doesn't hurt either one or the other. It's a mutually beneficial thing, so it benefits people in the ex-ante sense. Now here is a cartoon that depicts the left-wing Canadian view of free trade. The way they see it, free trade is, here's the USA, a big fat kid, and here's a Canadian kid with a little maple leaf.

6:12I don't know if you can see the maple leaf, but the little Canadian kid says, Free Trade is a mutually beneficial interaction where both parties gain, in the ex-ante sense. and the X-post sense afterward, usually there's a benefit. Every once in a while you regret your trade, but the reason you did it in the first place is to gain, and both people did. Well, look, we're on the wrong side of the Garden of Eden for there to be a guarantee that every action we take will always be met with a positive, sometimes not.

7:01But the benefit of it is that there is this mutual gain. Another thing that the Canadians were afraid of is that Canada was for sale. The United States would buy something in Canada, but this assumes that the Canadians are stupid and that they would sell at a very low price. If they're so stupid that they're going to sell out to the US interest for below market prices, why do we give them the right to vote in the first place? So you have a sort of a contradiction here. If they're smart enough to vote, they're smart enough to know whether they should sell some land or a bicycle or whatever it is that the evil US people, the imperialists from the US are going to come buy. See, it's not really imperialism, it's just free trade. Here is another depiction of free trade.

7:52This is Ronald Reagan, he's carving up the free trade turkey. And Brian Mulroney, he's got a very big chin, so they always accentuate his chin. Brian Mulroney is going off, off, pant, pant, you know, give me some free trade turkey. In other words, it's just the same motif that free trade benefits the US and hurts Canada. Another fear was that we would be tenants in our own house. So when I introduced this to my classes, I said, well, which would you rather be, a tenant or a landlord? And they always say, oh, the landlord. But obviously, the right answer is it depends upon the price. I mean, if you can be a tenant forever for a penny a month, and you can sell the thing for, you know, A gigantic amount. It pays to sell, put the money in the bank and pay a penny a month rent.

8:43There's nothing wrong with being a tenant in your own house. It doesn't mean anything except it's a commercial deal. It doesn't mean that we somehow lose something. In order to see the benefits of free trade more clearly, let's assume that no free trade is allowed. No free trade, not only with the nation, or the state, or the county, or the city, but in individual. Each individual, I mean, if free trade is so evil, if it's so exploitative, let's make a mental experiment and say, well, let's not have any of it. And if we don't have any of it, each of us has to be totally on our own. We have to produce everything that we need. We have to produce the shoes, we have to produce the medical care, we have to produce the food.

9:32Well, under such a regime, probably 99% of the Earth's population would die. Because we wouldn't have division of labor, we wouldn't have specialization, we wouldn't have economic efficiency. Most of us are incapable of doing things like that. Well, that means that 99% of us owe our very lives to free trade. So how bad could free trade be if it's keeping us all alive? We'd have to be a jack of all trades, a master of none. Life then would really be nasty, brutish, and short. But it's the same thing for the individual as for the city or the state. I mean, if free trade is so bad, why should Alabama trade with Texas?

10:21Those evil Texans, they're taking our jobs away or something. We shouldn't trade with them. and, you know, why should people from one city, Birmingham, Alabama, trade with people from Mobile, Alabama? We should keep all the jobs to ourselves, and then you get back down to the individual level if you go that route. It just doesn't make any sense. Here's another way that we illustrate free trade. Notice the... Here's the free trade apple. The beaver is the Canadian symbol, whereas the eagle is the U.S. symbol. And notice that there's a hole in the beaver, right in the middle. And he's telling Ron, this is Brian Maloney, the Canadian beaver, he's telling Ron, aim a little higher.

11:07Namely, what free trade is, is you shoot the guy. Either you shoot him or you bunk him over the head or something. It's just a glorious way that these lefties see free trade. You know, they say a picture tells a thousand words. Well, it's the same with these cartoons. This is where they're coming from. It's sort of economic ignorance to the nth degree. I mean, economic imbecility. I don't know how to describe it. They're nice cartoons, they're funny, but these people will seriously mean this stuff. It's just hard to understand. Okay, what I do sometimes when I illustrate this to my students, some people are numerate. It doesn't make sense what I've just said. It's all philosophy and, you know, BS. Well, sometimes I illustrate this with the following kind of a diagram.

11:55What I assume is that there are two countries, Canada and Costa Rica, two seasons and two products, bananas and maple syrup. Well, and I'm saying, suppose we have a situation where there's no trade initially, and we say, what's the Canadian situation? Well, the Canadian situation is, if we put half our labor in bananas, we'll get five bananas. How do we get bananas in Canada? Glass houses, you know, greenhouses. Maple syrup, we're pretty good at. I mean, you know, we can do maple syrup. You have to give that to Canadians. So we have a total GDP of 10,005.

12:40What's the Costa Rican situation? The Costa Rican situation is that they're very good at bananas. I mean, bananas grow like weeds. You put a banana in and you sort of have to rush back because, you know, the bananas will attack you. You're up to your armpits and bananas down there. So they can have 15,000 bananas. How do they get maple syrup? Gigantic refrigerators. They put a maple tree in the refrigerator. It's a little weird but you have to bear with me. And what's their GDP? 15,020. What's the total number of bananas in existence with no trade? 15,005, namely I'm adding 5 and 15,000. Everyone with me on these numbers?

13:26And what's the maple syrup amount without trade? 10,020. What's the total world GDP, the world consisting of these two countries? 25,025. Okay. So now that's the situation, poverty, specialization. No specialization. Each country does both. Now we introduce trade. And if there's trade, each country will specialize in what it has an absolute advantage in. Namely, Costa Rica will specialize in bananas and instead of devoting half of their time to bananas and half to maple syrup, they'll devote all of it to bananas and they'll produce two times 15,000 or 30,000 bananas.

14:11And I'm assuming that bananas and maple syrup are additive. You have to make a lot of assumptions. But sometimes numerical examples convince people. And the maple syrup situation is Canada doesn't bifurcate its labor force. It puts all of its effort into a maple syrup. And it produces 20,000, 10,000 times 2. And now we have a GDP of 50,000, which is virtually double. So this is the absolute advantage case. Okay, before I get into comparative advantage, which is a little more complex, one more, why is this so, oh, there it goes. Here we have the Canadian guy again, he's got the maple syrup, or rather the maple leaf on his hat, and they're playing poker, and the game is five-card free trade poker.

15:02Everything is wild, six-card draw. It's hard to have a six-card drawing, five-card poker, but what the heck? It's my deal, my cards, my rules, my game, and we play with your money. So it's just another way of saying what these lefties think about free trade. Okay, now we get to the more interesting case of comparative advantage. And again, we have two countries, two products, two seasons. See, the idea that most people fear from Costa Rica is that they'll work cheap, or the Mexicans will work cheap. What we fear from the Japanese is not that they'll work cheap, but that they're ubermenschen or supermen and that they'll be so efficient. But in any case, no matter whether it's Mexico or Japan or whoever it is, they're taking our jobs.

15:53So this is a different way of undermining that thesis. Okay, so what's the situation here? Notice that Japan is better than Canada in both things. It's twice as good at wheat, 80 to 35, and it's 33 times better at cars, namely 100 to 3. So the situation again before free trade is that Canada produces 35 wheat units, 3 cars for a grand total of 38 GDP. Japan produces 80 wheat, 100 cars for a grand total of 180. And there are 115 wheat units, 103 car units, the GDP is 218, very similar to the previous case.

16:41If you followed the previous numbers, you ought to follow these numbers. The point here is that even when one country is better than the other country at both things, horrors, you know, that's sort of a left-wing horror that the Japanese could be better at both. And the feeling is, well, if they're better at both, then they'll produce both, and we'll produce nothing. The interesting question is, well, how will we buy anything from them if we can't produce anything, but we forget about that. So now we introduce trade. And the point is that you specialize not in your absolute advantage, because Japan has got an absolute advantage in both, but you specialize in your comparative advantage. And comparatively, Japan has an advantage in cars.

17:27We have a relative or a comparative advantage in wheat, because we are half as good as the supermen Japanese in wheat, but we're only 1 3% as good in cars. So what happens is that they'll specialize in cars, we'll specialize in wheat. We will produce 70 wheats. They will produce 200 cars for a grand total of 270, and GDP goes up from 218 to 270. It's not as dramatic as before. You don't double it, but you do have an increase in GDP. Okay, I'm now ready to reduce the sexual perversion. So those of you who are squeamish, close your eyes and I'll tell you when it's over and you can open your eyes.

18:12Here is another way of depicting free trade. Notice that this is Brian Mulroney And notice that he's got his hands on his knees. So if you've got your hands on your knees, and he's puckering up. And imagine Ronald Reagan standing next to him. So here he is, like this, puckering up, and Ronald Reagan is... That's the perversion. OK, it's now safe to open your eyes again. OK, here is another way to make the point that even though one person is better than the other, It still pays the other person to trade with the inferior person, namely people can benefit from each other even if some people are supermen like Bill Gates or someone like that and other people are ordinary folk.

19:01Here is a numerical example that tries to illustrate that. A typist earns, a lawyer can earn a thousand a day. Can you see that in the back? Okay, the lawyer earns $1,000 a day, the typist earns $150 a day, when the lawyer trades, what the lawyer can do is spend two days lawyering, making two times $1,000, times $2,000, but has to pay the typist $150 times two days or $300 and ends up with $1,700. On the other hand, if the lawyer says, well, I'm not trading, I don't need any typist help because I'm Superman or whatever, well, then the lawyer spends one day lawyering and making a thousand and another day typing and making a hundred and fifty for a grand total of eleven fifty, which is roughly half or a lot less than seventeen hundred.

20:01So it's just another way of illustrating this kind of a point. Okay, now those of you who are squeamish again, this is the full frontal nudity case, so please close your eyes. And here we have the... What you have is Simon Reisman, who was the Canadian negotiator for NAFTA. And you have Peter Murphy, who was the American one. And you'll notice that Simon Reisman has no clothes. And if you look carefully, you'll see that Peter Murphy has got two suits, you see that? He's got a black striped suit, and he's also got a gray jacket, sort of colored like mine is. So the effect of free trade negotiations is that the U.S. guy grabs the Canadian suit.

20:51Okay now, for those of you who are squeamish, you can again open your eyes and we can get back to it. Okay, let me show you one more cartoon which is not from this book, but which is more sensible. And here is a wonderful cartoon, and what it says is that the average Canadian, and there's a picture of the average Canadian, Mr. and Mrs. average Canadian couple, and the guy is snoozing and they're watching TV. They watch Bill Cosby on Sony TV, and you know where Bill Cosby comes from, you know where Sony TV comes from. They eat Big Macs, Kentucky Fried Chicken, Chinese takeout, they wear Levi's and Calvin kinds, they walk on English wallabies with a Siberian Husky, they drive a Honda, they sit on Scandinavian furniture, they drink Bud Coke and Pepsi, and yet they think free trade will destroy the unique Canadian identity.

21:51Let me now talk a little bit about imperialism, the other part of my talk. In many parts of the world, what happens is that the U.S. government involves itself with third-world, underdeveloped countries, engages in land theft or supports land theft of the ruling class in those countries, or forced labor or monopoly privileges, namely monopoly The corporate capitalism of the sort that Gabriel Coco and Murray Rothbard wrote about so eloquently. And what these people think when they think of free enterprise or capitalism or markets is they think of exploitation and expropriation. For them, there is not the distinction as there is for us between laissez-faire capitalism on the one hand, which respects private property, and on the other hand, kleptocracy or klepto-economics The ruling class just steals stuff from the poor people in various ways and forms.

22:50They don't see any difference. They see it all as fascism. Now, let me talk a little bit about the issue of sweatshops. Many companies like Nike and others produce goods in foreign countries. Kathy Lee Gifford goes into a Bangladesh or a Burma or some country in Bolivia and sets up a company. And there is this group, let me read from this article here, it's called United Students Against Sweatshops. On many college campuses you'll see the lefty students are up in arms, you know, we should not import from these countries It's an interesting story. A student of mine, Mitzi Helmer, had an article in the JLS of summer 2005.

23:48This essay started out as a term paper in one of my classes. I'm very proud of her that she got an article that started out as a term paper published in a referee journal. But she was a lefty, and I fought with her all semester long. But she was a lefty, and I fought with her all semester long, and I finally convinced her about the sweatshops, and she finally saw the point that the only way that Nike is going to be able to hire workers there, well, when they go into these countries, are they going to offer lower wages than what prevails? No. If they did, nobody would work for them. They offer higher wages. They offer such higher wages that people would give their eye teeth to get these jobs. So it must be that the sweatshops on net balance are doing a good job for the people.

24:40I was once in a debate with one of my colleagues at Loyola University and he said, well, but could Kathie Lee Gifford do more? Could she pay them even more? Because the wages are very low by U.S. standards. And I said, of course she could pay more. She wouldn't make as much profits, but she could. Well, therefore she is evil. And I said, well, no. She's improving their situation double or triple, so she's an angel, she's an improvement for the situation. This student of mine, Mitzi, finally saw the point. She agreed, she wrote very eloquently about the free enterprise point about sweatshops. However, what she then says is that we libertarians, and she criticizes me in particular here, I encourage my students to disagree, and she took this one up with alacrity, and what she said is, well yes, under laissez-faire conditions, sweatshops are great, however, we have imperialism, we have governments with land theft and forced labor and monopoly privileges and state monopoly corporate capitalism, which she was really into as a lefty student before she came to me as a student, and therefore all bets are off.

25:54Therefore, this group, United Students Against Sweatshops, is justified because of the forced labor aspect. And I try to convince her against this, but I couldn't. So let me try to convince you about this. The way I see the issue is that you have over here sweatshops and over here forced labor. And what we have is, the situation is, that what she's saying is that since some of the sweatshops engage in forced labor, which I'll take as a given, I don't know the history or the situation there, but she has good citations and we'll stipulate that that's true.

26:40And therefore, these student groups who are opposing sweatshops are right. Not because of the A part of sweatshops, but because of the B part, where the sweatshops overlap with forced labor. Namely, there are some sweatshops where the workers are not enticed, but are drafted by the government and forced to work in the sweatshop. And what I say is that this is a fallacy. and I'll be submitting an article to Roderick pretty soon, attacking this article of my former student, saying something like this. Suppose here we have crime and suppose here we have males.

27:27Do we attack males? No. We attack crime. This reminds me of a joke. There was this woman who was, her husband and her were out in a fishing boat and the husband went off and she's just sitting there with a whole bunch of fish. Along comes the sheriff and says, well, I'm going to have to arrest you. She says, why? Well, because you have fishing rods and you're in a no-fishing zone. And he says, but I'm not fishing, I'm reading a book. And he says, that's too bad. You have the equipment, so I'm arresting you. She says, well, if you arrest me, I'll accuse you of rape. And he said, what? Rape? Yes, males have the equipment, but that doesn't mean you attack males. Yes, there is forced labor, so you attack forced labor. You don't attack sweatshops.

28:23Because there are other things that the forced labor goes into besides sweatshops. Forced labor, people are forced on the farms. They're forced into prostitution, they're forced into forest, they're forced into whatever. Namely, you're not aiming exactly right. What you have to do is not attack sweatshops, but attack forced labor. That concludes my remarks. Thank you for your time.