Greg Autry

Fighting for space, not over it.

Exposing the Free Trade Fairy Tale

Here’s an excerpt from my recent talk to the Eagle Forum Collegian’s Summit at the Heritage Foundation. I discuss the empirical result from our 30 year experiment with “Free Trade” (as it is currently defined), which to avoid technical terms is best described as “utter failure.” I then move on to the fundamentally flaw in the dominant economic current model, which is the naive assumption that “market forces” efficiently determine global production sites, when in fact it is active government policy that determines where most things are made these days.

Amusingly, I had the opportunity to teach Glenn Hubbard’s otherwise very fine Macroecon textbook (Pearson) this year and Hubbard chose the production of the iPad to demonstrate this theoretical economic principle underlying the “free trade” paradigm. Coincidentally, I just happen to have shot a video inside of Foxconn city where a Foxconn manager explains to me that the production location of the iPad was entirely determined by Chinese government subsidies designed to get Apple business. The Communist Party decides where your electronics are made, not “market forces.” The globalized economy is a command economy, not a “free market.”

The sad thing of courses, is millions of American kids are being indoctrinated in the Free Trade Fairy Tale, while their parents struggle to pay their tuition.

Greg Autry serves as Senior Economist with the American Jobs Alliance, Economist with theCoalition for a Prosperous America and is co-author (with Peter Navarro) of Death by China: Confronting the Dragon – a Global Call to Action. He blogs regularly at: http://www.gregautry.us/blog  and on the Huffington Post.

 

A Sign of the Times

Found this Fellow on Santa Monica Blvd., leaving a talk in Beverly Hills last week.

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Greg Autry serves as Senior Economist with the American Jobs Alliance and is the co-author of the book Death by China, now a documentary film directed by Peter Navarro and narrated by Martin Sheen.

Please follow Greg on Facebook at: http://www.facebook.com/gregwautry

and sign up for email updates at: http://www.gregautry.us/updates

What you See is, What you Get: On UFOs, Unicorns, Bigfoot, and Comparative Advantage

Sometimes I think it’s a sin, when I fell like I winnin’, but I’m losin’ again.

–       Gordon Lightfoot, Sundown

As a lecturer and a PhD student, I’ve taught David Ricardo’s theory of Comparative Advantage to hundreds of MBA students. This is the brilliant little economic model that demonstrates how when each nation focuses their resources on the work they are best at – even if they are not better than all others – production will be maximized and consumers will benefit. In its pure, abstract form, Comparative Advantage represents an unarguable truth. There is a beautiful, transcendental moment when a business student suddenly “gets” the simple mathematical model and sees the nearly magical benefits Ricardo’s model offers to “all trading nations.” It’s comparable to the experience of an undergrad sociology student encountering Karl Marx for the first time. Suddenly the world is brilliantly clear and the solutions are so simple, if only everyone could be compelled to embrace them.

As different as Ricardianism is from Marxism, the two economic theories share a common theme – they sound swell, but fail completely when faced with the reality of human behavior. The problem is that both of these grand ideas require that individuals or nations, respectively, repress their natural inclination to act in a self-interested manner, for the promise of a mutual beneficial outcome.

In the real world, we know this promise never works. Letting individuals pursue their own, inefficient, unplanned, selfish economic courses actually works out better than getting smart folks to organize them for the greater good – the free market has trumped socialism in every sad empirical test of Marx’s dream.

The ideology derived from Comparative Advantage that has erroneously been labeled “Free Trade” actually involves the same logic as socialism – that free nations subsume their national desires for control of their jobs and strategic resources to a greater global interest, which promises to benefit their consumers as well. Even more curiously, the strongest supporters of individual freedom are the first to villainize anyone who suggest “protecting” a domestic market for the benefit of their nation. They then invariably drag out the ghost of David Ricardo to explain to us simpletons that becoming the world’s trade bitch will be good for us. China’s 25% tariff on U.S. cars vs. our 2.5% tariff on their imports is no problem because American consumers benefit from low prices when American producers shut down!

However, the empirical evidence is again, perfectly clear: nations that pursue the acquisition of technology and capital, fight for high-value manufacturing jobs, and seek smart trade advantages increase their national wealth and individual prosperity. Naïve countries that actually practice, “free trade” spiral into decline and unemployment. There is no better example of this than 19th century Britain, the first nation to embrace Ricardo’s crazy idea.

After the brilliant theoretician sold Parliament on his simplistic theory, the UK went on a free trade frenzy. During the next century the United States, operated on Hamilton’s “American System” featuring very high tariffs, and an active industrial policy geared toward rewarding production, building infrastructure and developing markets. America gutted England’s manufacturing base. Despite controlling a third of the world’s resources Britain entered a slow decline. Only those Brits involved in investing capital elsewhere gained real wealth. Building a welfare state became unavoidable to avoid revolt. Meanwhile, the U.S. developed a vibrant middle class and rose to global prominence.

However, in the last century smart leaders in Japan, Korea, Taiwan and others have followed the American System to perfection, while giving “free trade” the appropriate lip service for a senile America. The results were absolutely predictable to anyone with common sense.

In most ways, China’s rise has been no exception. It isn’t that the Communist Party has been run by brilliant new thinkers (the last really new thing out of China was probably gunpowder), it is simply that they steal good ideas and have belatedly copied a proven economic formula. China’s leaders have followed a policy of pure self-interest while mumbling all the right words in public as they dance their way through the free trade tango with skill. If they’d actually had good sense they would have done this fifty years earlier and spared the Chinese people decades of misery.

The exception with China is, of course, that the Communists never have any concern for personal misery. Their goal is nothing but building greater power for those at the top of the Communist Party dog pile and economic planning is just a tool to achieve that. That’s why handing over the torch of global leadership this time is a very different thing than it was with the UK-U.S. transition last century. Supporting the U.S. to Communist China power transfer is tantamount to endorsing a new Dark Ages for humanity.

In my next posting, I’ll address the theoretical weaknesses that cause comparative advantage to backfire in the real world. In the meantime, understand that counter-intuitive economic theories are always the rage with academics and pundits that need to sound cleverer than the average citizen. Remember, these are the folks that sold us the “we can borrow and spend our way to prosperity” theory under the label of Keynesianism. When something looks like economic slight of hand to you it probably is; and whenever you encounter an ideology-driven economic theory fiercely supported by a cadre of closed-minded, true believers run!

Empirical evidence should trump theory. When medical researchers see that an experimental treatment appears to be actually killing their patients they halt the research and re-evaluate, regardless of how good the thing looked on paper. This common sense protocol should apply to U.S. economic policy – where we only have one patient. If the theory is obviously not delivering economic benefits STOP! Instead, while we congratulate our self on the victory of free trade our trade deficit soars, unemployment skyrockets, GDP plummets, and a staggering debt accumulate. The true believers tell us to close our eyes and stay on course, because the enormous Chinese market is just about / very soon / any day now going to usher in a new generation of prosperity. Sure, right.

In my next post, I’ll address the theoretical problems with Comparative Advantage.

 

Greg Autry serves as Senior Economist with the American Jobs Alliance and is the co-author of the book Death by China, now a documentary film directed by Peter Navarro and narrated by Martin Sheen.

Please follow Greg on Facebook at: http://www.facebook.com/gregwautry

and sign up for email updates at: http://www.gregautry.us/updates

 

 

 

 

 

 

 

 

 

 

 

 

We have forgotten the lessons of Tiananmen

 

We have forgotten the lessons of Tiananmen

 

 

From the San Diego Union Tribune, June 16, 2011

http://www.signonsandiego.com/news/2011/jun/16/we-have-forgotten-the-lessons-of-tiananmen/

 

 

Twenty-two years ago, millions of people gathered in public places across China to demand the respect of their government. As thousands jammed into Beijing’s Tiananmen Square, one of us was there in the crowd as the other watched fascinated from the other side of the world. Unknown to each other at the time, we were connected by the common exhilaration of the moment as free people stood up to claim both their natural rights and a nation’s rightful place in the world order. It should have been a glorious moment as well as a new basis for a true partnership with China’s natural ally, the United States.

Of course, we all know what did happen that June 4. Though one of us was lucky enough to just miss the gunfire by returning to lead protests in Changsha and the other remained safely behind a television screen in America, we shared the horror, disgust and disillusionment of that day. We wept, shook our heads, cried out, “Why?” and reached the same, frankly obvious conclusion: The Chinese Communist Party is a murderous regime that couldn’t be trusted and America’s policy of engagement had failed.

History tells us that engagement with totalitarians has been a proven dead end since Napoleon used the 1801 Treaty of Amiens to consolidate his regime of fear and to prepare for war, and the lesson for democracies has been the same from Hitler to Gadhafi: Bad guys don’t change and they do not honor agreements.

Two decades of failure since have made clear that fake smiles aside, Hu Jintao and Wen Jiabao are no different from the rest of history’s rogue’s gallery. It’s no surprise that China’s dictators continue to lie, cheat and steal their way through domestic politics, international affairs and business engagements.

What is surprising is that America’s business leaders, politicians and pundits continue to pander to this particular group of thugs against all reason. Decades after Tiananmen, we ask those Americans just how many artists, peacemakers and religious practitioners must China lock up before America opens its sleepy eyes? How many millions of women need be subjected to forced reproductive control? How many executions must there be? To what degree must China’s cities, rivers and seas be polluted by a perverted state capitalism that keeps Communists in power?

If human rights no longer carries weight with America’s free traders, then we ask how many American jobs need to be sacrificed to China’s blatantly manipulated currency, sad labor conditions and abuse of World Trade Organization rules? How many American firms need to be destroyed by intellectual property theft, forced technology transfer, “partnership” requirements, tariffs and export restrictions? How badly do our most promising new companies, like Facebook and Google, have to be cheated by market-restricting censorship and government-backed cyber attacks?

Before he was oddly silenced, Jeff Immelt, the CEO of General Electric, commented to the Financial Times, “I really worry about China. I’m not sure that in the end they want any of us to win, or any of us to be successful.” Of course they don’t. Why would a government whose very name – “The People’s Republic” – is a lie and that uses its own constitution – which guarantees freedom of speech, religion, and assembly – as a doormat honor any partnership with your company or America – the embodiment of the principles it despises?

Finally, if you find repression and economic warfare an unwelcome distraction from consumption of cheap goods, please consider this before you fill your shopping cart: China is building a massive, high-tech military force that grows faster than its breakneck gross domestic product. A rising armada of naval power, missiles, stealth aircraft and space weaponry is aimed squarely at our allies in Asia, U.S. armed forces and the heartland of America. Is this the kind of regime we should be doing business with?

Over the years we have become very familiar with the argument that U.S. policy should remain forever frozen regardless of how outrageous Beijing’s behavior becomes, because any action in support of our principles would either prove futile or worse, resulting in economic retribution. The former argument may be true, but has not altered our approach toward China’s good friends in Iran, Zimbabwe or Sudan, while the latter simply makes it clear that we are falling into the Communist Party’s web of intimidation. That is exactly the reason we must make a stand sooner rather than later.

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Autry is the co-author of “Death by China” and teaches macroeconomics at UC Irvine. Tang was a student leader in China in 1989, still works for Chinese democracy, and is the co-author of “My Two Chinas: The Memoirs of Chinese Counter-Revolutionary.”

Economic Karma

[Our Customers] are running out of money.”

– Wal-Mart CEO, Mike Duke

Well, Mr. Duke, if you’re looking for who killed the consumer, start with your predecessor, Lee Scott, that criminal mastermind of American job genocide. Ruthlessly driving prices down at all costs and demanding “The China Price” rather than “Made in USA”, Mr. Scott chucked the last of Sam Walton’s “Buy American” campaign and brought us “Zombie-Mart.” A nightmare on main street where every time you push a cart of “Always Low Prices” junk out the door, one of your neighbors joins the ranks of the living dead – the underemployed. As a bonus nightmare you also fund the engine of Chinese worker exploitation, environmental degradation, civil repression and military expansion.

That’s how the Win/Win of so our called “free trade”* relationship with China has been running over the last decade. Long after you’ve run out of money and the crap you bought at Wal-Mart is broken, the factory you funded in Chengdu will still be there, though its counter-part in Ohio will be a fenced-off brownfield. And that Jin Class nuclear missile sub you helped the Boys from Beijing buy will be locked and loaded.

Mr. Duke’s moaning also brings to mind McDonald’s big announcement that they were hiring 50,000 workers in one day! Judging for the media photos, most of these weren’t college students or retirees, but prime age workers who should have been getting real jobs actually making something. However, rather than holding down a shift in a factory that enriches our nation and earns them a salary big enough to buy a house and raise a family, these folks are joining the “service economy.” You know, that mythical world where we somehow create increasing standards of living by selling stuff to each other – stuff made somewhere else, of course. We never dirty our hands with actual production; we just keep driving up the consumption component of the GDP equation to greater and greater heights while ignoring that cumulative net-trade leakage.  And where has this economic mass delusion gotten us?

Ben Bernanke recently tried to calm inflation worries with the dubiously comforting comment that “wages are not increasing.” Well Mr. Bernanke, I’ve got news for you: Wages ARE increasing – in Shanghai. Prices of finished goods in America will be determined by a supply curve defined elsewhere and commodities will be priced by a demand curve defined elsewhere. What Americans (and Europeans) get to do now is sit back and watch their wages stagnate, prices go up, businesses close, and government tax revenues collapse.

Want to know who stole our market power Ben? Track down Lee Scott. He did more damage than Osama bin Laden, and will be much easier to find. Send in Seal Team Six while we still have a defense budget. I kind of hope he “resists.”

–       Greg Autry teaches Macroeconomics at the Merage School of Business, UC Irvine and is co-author (with Peter Navarro) of the new book “Death by China” www.gregautry.us

*We are, by the way, big fans of real free trade. However, unlike a lot of American pundits, we know the difference between engagement and date rape.