These days many people talk about free trade. In this essay, I will cover some background about free trade and show how government introduces many problems into free trade.
Free Market is the free flow of goods and services between different people in the society. Free trade is the free flow of goods between political jurisdictions. The free market benefits the consumer because it makes multiple producers compete to offer goods and services offering the consumer the best possible price. Free trade expands the market to include foreign producers as well as the domestic ones. Free market benefits the consumers and the efficient producers and punishes the inefficient producers. Producers who don’t offer good value end up shutting down and freeing their resources such as capital and labor for other uses in the economy and this creative destruction ensures the proper distribution of resources.
On the long run countries in a free trade system will specialize in certain products that they produce more efficiently. The same way individuals specialize in the areas of production they are the best fit for according to their comparative advantage. On the short run, there may be a trade imbalance between different countries but on the long run, any trade imbalances will be resolved through currency relative prices. For example, if country A exports less than it imports that means that its trading partners will end up with a surplus of country A currency. This surplus can be used by the trading partners either to invest in country A assets, keep the currency as a reserve, or they will trade that currency out. If the trade partners sold their access country A currency, this would push the currency relative price down and the raise the price of imports for country A which will on the long run forces it to consume less imported goods and create a trade balance.
Free trade works like the free market when we let the market process work and respect the outcomes. The role of government in the market should be limited to protecting property rights and resolving disputes between private parties. Problems arise when the government expands its role and select winners and losers.
The first problem is that the inefficient producers don’t go down quietly, instead, they use the political system to gain protection. They ask for tariffs and restrictions on imports to protect them against the foreign competition. This is similar to anti-trust laws on the national level that mainly protect the inefficient producers and penalize efficient ones. These laws end up creating inefficiencies in the market and protecting the well-connected companies and sectors and leaving other sectors out.
The second problem is that free trade exposes the problems with each country’s economic, legal and regulatory systems. If these systems impose extra costs on some or all areas of the economy these areas will be at a disadvantage against foreign competition from countries that don’t have similar costs. If country A has regulations that cause cars to be 25% more expensive, then equivalent foreign cars that don’t suffer the same regulation cost will be cheaper as long as they are priced less than the domestic producer even if they are not cheaper without the regulation overhead. These producers will have several options:
- Work for a political solution to reduce government-imposed overhead through tax, regulation, and legal reform.
- Join the inefficient producers and lobby the government for protection.
- Relocate their production to foreign countries and import their products afterward to their home country.
The third problem is the whole notion of a trade agreement. Governments pretend that the only way to have free trade is through complicated agreements that include 2 or more countries. Free trade doesn’t require complicated agreements, a commitment to remove tariffs or reduce them to the same level on all products should be enough. By looking at NAFTA or TPP as examples, we can see that all of these trade agreements come with thousands of pages of tariff schedules, exceptions, procurement rules, and regulation mandates. These agreements are examples of corporate welfare where connected firms get their products access to foreign markets or prevent foreign competition through exceptions and quotas.
Free trade, like the free market, has a very limited role for government and any deviation from this role cause imbalances and negatively affect the whole market. Government overreach cannot be solved without citizens holding the politicians accountable and vote them out of office for crossing the boundaries. We have made the mistake of relying on electing free market advocates to government and hoping to make a change. The better approach is to work on spreading true economic knowledge and expand the liberty movement to more people and only then we can hold the politicians accountable and turn the country around.
I am writing this post in the wake of the horrendous terrorist act in Orlando, Florida where 49 innocent people lost their lives at the hands of a terrorist. Within hours of this tragedy, politicians raced to declare that the United States needs to enact gun control laws to prevent terrorists from obtaining guns. Many lies are being told every day about guns in the United States. I will not spend much time refuting those lies but I will instead focus on the right to bear arms and the fallacies of gun control.
The Constitution of the United States was written to create a federal government limited to enumerated powers, many people expressed worry during the ratifying conventions that the federal government may get too powerful so the first congress passed and the states ratified a set of ten amendments to protect some core individual rights such as free speech, owning arms and trial by jury in addition to asserting that all rights not delegated to the federal government belong to the people and the states. The right to bear arms is a fundamental right because it allows people to defend their life, liberty and property. The United States wouldn’t have been a free country if people didn’t own guns comparable to the guns owned by the British army that allowed us to gain our independence.
In the wake of tragedies like Orlando’s or Newtown’s shootings, it is easy to let emotions lead us to agree to laws that do little to enhance our security while reducing our liberty. In reality, most of these proposals are made by politicians who live and move under armed guard so they don’t think about the security needs of the normal citizen. Before we think about giving up our liberties we need to see if what is being proposed can actually help us.
One of the main proposals discussed now is to prevent people on the no-fly list or the terror watch list from buying guns. This proposal sounds good on the surface until you ask the fundamental question, why aren’t these people in prison? if the government really thinks that these people are dangerous then the government ought to prosecute them. Why aren’t they charged with crimes and brought to justice? why are they living among us? The answer is that all the people on the watch list either don’t live in the United States in the first place or the government don’t have evidence that they are actually dangerous. One of the main concepts in our constitution is that people shouldn’t be deprived of their liberty without due process. We have seen the IRS used against groups because of their politics, do we really trust government bureaucrats to maintain a list that denies people their constitutional rights without due process? What should come next after using a list to deny people their right to bear arms? should we have a no speech list? a no jury list?
Another idea is a ban on semi-automatic rifles, this proposal depends on the fallacy that terrorists and criminals will somehow decide not to commit terror acts if they cannot go to a store and buy a rifle. In reality all mass shootings are done by people who planned their crimes and took the time to study the target. Banning drugs didn’t make cocaine and heroin disappear, banning alcohol during prohibition didn’t make liquor disappear so why does anyone think that they cannot buy weapons from the black market? Or even use some other deadly weapon such as explosives. The Boston marathon and Oklahoma bombers used home-made explosives in their attacks. Who will really be affected by this weapon ban? law-abiding citizens are the ones who won’t be able to buy guns to defend themselves.
Another thing worth noting is the bad history of government failing to protect us against terrorist attacks and mass shooting using the powers they already have:
- The FBI investigated that terrorist that executed the Orlando attack several times and they couldn’t see that he is dangerous and capable of murdering people, will anyone be held accountable for that?
- The FBI was tipped about the Boston Marathon Bombers but they failed to follow the lead and stop them before they commit their crimes.
- The police in Orlando took 3 hours to enter the club and kill the shooter, is anybody going to be held accountable for the lives that could have been saved if they acted sooner?
- All of the mass shooting in the United States happened in gun free zones, is anyone going or were held accountable for denying the people the right to self-defense in those zones?
Some people claim that there is a balance between security and liberty, this is a false choice. If someone is dangerous then it is the government duty to make the legal case against that person and bring him or her to justice where a jury can weigh the evidence and decide whether the person is guilty or not. If the government is incapable of finding and prosecuting terrorists and criminals before they strike then they shouldn’t disarm law-abiding citizens and leave them defenseless against potential attacks.
One of the main positive aspects of the United States Constitution is the separation of powers between 3 different branches of government. The reason the framers agreed on that form of government is to prevent the concentration of powers in one entity. All laws have to be approved by majorities of both the senate and the house along with the president or two-thirds supermajority in both chambers to override a presidential veto. The law making process has a lot of room for people to pressure their representatives and senators to vote for certain bills or against certain bills. There are many examples of bills that were defeated in congress because people pressured the congress to prevent them from passing such as the gun control bills that congress tried to pass in 2013.
The lawmaking process is not designed to be efficient. It is designed to make sure that as many inputs were taken into consideration as possible. It is designed to make both the president and congress responsible in front of the people for the laws they pass. It is designed to have every elected official take a public position by voting for or against any bill. It is designed to allow public discussion of the bills and enable the people to petition their representatives to express their opinions.
There is no guarantee that the laws passed by congress and signed by the president will be good laws or even be accepted by the people. That’s why there are regular elections that allow people to choose their representatives, senators, and the president.
Around the beginning of the twentieth century, as part of the progressive movement, some people started to demand more fast government decision-making to tackle what they deemed important issues such as the environment and safe food. These are the people who believe in the ability of the experts to plan the lives of the common people. These ideas gained traction in both major political parties and over the years we started powers shift from Congress to the executive branch or to independent unaccountable entities such as the federal reserve.
The congress started to pass laws to create executive branch agencies with delegated powers to create rules governing certain areas of the economy such as the Food and Drugs Administration which has powers over all foods and drugs in the country, the Environmental Protection Agency which has powers over the environment and most recently the Consumer Protection Agency which supposed to protect the consumers against everything it deems dangerous.
These agencies are run by political appointees and employ many self-appointed experts who use their opinions to form rules that should be followed by people and businesses. Congress has very limited powers in controlling the rules these agencies make. The process that these agencies use to write these rules is opaque and doesn’t allow any public debates. The bureaucrats who work in these agencies are all government employees who are not accountable to anyone. Special interests like these agencies because they could influence them over time to write rules favoring the established businesses and prevent market entry by new businesses in what is called Regulatory Capture.
The Presidents from both parties as well started issuing executive orders to direct the agencies they control to interpret the law in ways they favor. In many cases, the president would fail to convince congress to pass a certain bill so he would just issue an executive order to the executive branch agencies expanding the interpretation of the existing laws to incorporate elements of the failed bill he liked.
Unfortunately, the judiciary branch in many cases approves the unilateral expansion of existing laws by the president. Even the delegation of law-making powers to the executive in the form of the regulatory agencies was upheld by the courts.
As Friedrich A. Hayek explained in “The Road to Serfdom“, totalitarian governments don’t usually start by a group of thugs or soldiers taking power by force. Instead, they start by promising the people that they will improve their lives through the implementation of efficient government programs, they then explain the failure of these programs by the inefficiency of the democratic legislature and demand more powers to carry out the government plans. This process is repeated until the people lose all of their liberties and gain none of the promised benefits.
It’s not too late for the United States to stop the march towards totalitarian government. We still have many people who believe in liberty and they should stand together and elect people on both the federal and state level who believe in limited government and the value of liberty.