The Lie of Free Trade.

[Birthmark]

It has been stated on this board and elsewhere that globalization is of benefit to the American worker. Frequently, new, high paying jobs and cheaper consumer prices are cited as the two most important benefits to us. The truth is that neither has materialized.

The average hourly salary for American workers in January 1994 was $7.54/hr. In 2004, this had risen to $8.27/hr. This is an increase of about 9.7%. At first blush, this looks like a vindication for free trade, but it is not. The fact is that the disparity between the wages of management and workers has grown. I don't know how much of that 9.7% is attributable to management pay, but it is certainly a factor.

Further eating into this seeming wage increase is a steady increase in the Consumer Price Index (CPI). This immediately belies the promise of the lower prices that we were told would be a benefit of so-called free trade. The fact is that the CPI has risen from 146.2 in Jan. 1994 to 185.2 in Jan. 2004. This is a whopping 26.7% - or nearly three times as fast as the increase in wages.

So much for the benefits of free trade.

[yella_dawg]

1. An even bigger lie.

The free-trade advocates are absolutely right. Completely unfettered trade is an extremely powerful and efficient entity. But it is an entity that doesn't scale well. In a frontier village, small and isolated, free trade is necessary. Every customer of a business is well aware of the basic dynamics of a business. If the business owner mistreats his employees, irritated relatives can put pressure on the businessman to straighten up. If the business is damaging the local environment, the locals can see the problems and force change.

But as the free trade model expands beyond local, and even national boundaries, questionable business practices are hidden from the customer. At that point, proxies for the customer (the government) must take on the responsibilities of dealing with abusive business practices. This model has never worked well, but it has managed to reign in some of the most damaging activities. Now we are told that such oversight is a burden on business.

Tough shit.

[Birthmark]

2. Effecient? In what way?

The only way free trade is efficient is by measuring price. It is a one-dimensional analysis and as such leaves out other important factors. You allude to some of these issues in your post, but I wanted to say this straight out. :)

[yella_dawg]

5. Efficient in that

in a very restricted environment, it is more efficient for balancing supply and demand than, say a price control board. The point of my post was that free trade may be desirable in a theoretical sense, but that free trade cannot exist in any meaningful modern economy. Hence any call for free trade is foolish and / or deceitful.

[cprise]

6. Sounds like communism

Works well on a small scale (communes) but sucks as a whole economic system.

I think both it and free-market capitalism are forms of economic extremism.

[lams712]

3. "Free Trade" is more a religious ideology....

....than a practical public policy. The sound economic theories first posed by Adam Smith and David Ricardo on which free trade theory is based no longer apply in our modern economy.

Our economy is no longer made up of numerous independent firms, none of which are large enough to have any influence on the market. There are very few modern economies that are anywhere near "full employment" (an important assumption that is taken for granted in free trade theory). Modern trade has more to do with large corporations having an easier time to move capital around the world in order to take advantage of lower labor costs, lax environmental standards, etc. (in fact, most of what is called "international trade" actually takes place between different divisions of multi-national corporations).

The textbook examlpe of "free trade" does not exist in this modern monoploy/oligopoly corporate dominated economy. Any solution to address the problems of trade have to first let go of the ideological underpinnings of trade theory.




On edit: EDITED FOR SPELLING

[Sorwen]

4. Just curious

What is the source of your salary data?

[Birthmark]

7. Bureau of Labor Statistics.

I'd link you, but for some reason links to the wage charts won't work for me - which is odd considering that the CPI and unemployment link normally? <shrug>

[Sorwen]

8. I must be looking at different tables

This is what I'm looking at. The BLS has data available on their website from the National Compensation Survey. You can search for compensation data by region and industry. The survey, however, began in 1997, so data prior to that must be obtained from a different source.

According to these data, average nationwide hourly compensation increased from $15.09 in Sept 1997 to $17.18 in July 2002. During that same period, hourly compensation increased from $12.36 to $14.51 for blue collar workers, from $18.59 to $21.09 for white collar workers, and from $30.85 to $34.75 for executives and managers.

When corrected for inflation, wages are still increasing, though the increase is not that great. With a CPI base year of 1982-84, average real wages increase during the '97-'02 period from $9.36 to $9.54.