Wednesday, October 26, 2016

Bill Mitchell — The case against free trade – Part 1

Like many aspects of mainstream economic theory – free trade – is one of the concepts that sounds okay at first but the gloss quickly fades once you understand the basis of the theory and how it derives its seemingly ideal results. In practice, the textbook ‘model’ is never attainable in reality and so what goes for ‘free trade’ is really a stacked deck of cards that has increasingly allowed large financial capital interests to rough ride over workers, consumers and undermine the democratic status of elected governments. Further, even within the mainstream approach the terrain has moved. The old perfectly competitive ‘models’ of free trade, which go back to the Classical economist David Ricardo and were embodied in the so-called Heckscher-Ohlin and were used to disabuse notions of government intervention (protection, tariffs, import duties etc), have been surpassed in the literature. This blog is Part 1 in a two-part (might be three) series on why progressives should oppose moves to ‘free trade’ and instead adopt as a principle the concept of ‘fair trade’, as long as it doesn’t compromise the democratic legitimacy of the elected government. This is a further instalment to the manuscript I am currently finalising with co-author, Italian journalist Thomas Fazi. The book, which will hopefully be out soon, traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. This segment fits into Part 3 which focuses on ‘what is to be done’.…
Bill Mitchell – billy blog
The case against free trade – Part 1
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

3 comments:

Ramanan said...

Great.

That's quite a different stand from "exports are costs, imports benefits".

The motivation to oppose free trade is that it constrains policy. MMT has been saying that external trade doesn't constrain and so on and till now has only given muted critiques of free trade and taken the opposite position "exports are costs, imports benefits".

Matt Franko said...

Throw in "non-zero rates are welfare for the rich!" too....

But here Bill's observation: "By allowing these competitive forces to work, the free trade is beneficial for all citizens in both countries, who gain access to more consumption possibilities at the lowest possible price."

Mankind would only come up with this in the first place if they thought munnie was scarce... i.e. Gold standard /"out of money!" thinking....

Today people (all but the 1,000 or so of us) still think we are "out of money!" so this concept of Comparative Advantage can make a lot of sense to people...

Another thing is that CA assumes general equilibrium and we have been in general surplus ever since the flood....

Neil Wilson said...

"That's quite a different stand from "exports are costs, imports benefits"."

How is it?

MMT talks about things in real terms. Quite clearly in any sort of international trade between competitive countries you want to give up as little of your stuff for as much of their stuff as possible.

Because real exports are a cost and real imports are a benefit.

So ideally you want no real exports at all - which is what happens when foreigners hold your currency.

People have been saying you have got hold of the wrong end of the stick for a while. Perhaps once Bill has gone through this series you'll realise why that is.