This is a response blog to Seth Brake’s excellent post on the need for moderation in free trade. If you haven’t read it, take the time to do it because he makes some great arguments – and you won’t understand my post unless you do.
Seth’s post broke down into two main points: protectionism is necessary to ensure a stable economy during wartime and the economic power of America is a result of her strong military.
To the first point: the industries of agriculture, manufacturing, and entrepreneurial conquests must be protected. What Seth took us through was a general look at an economy and a marketplace. I’ll take us through a more detailed and specific description and then make my point.
People need to survive. If people are dead, we have no society. To live we must be able to eat. Therefore agriculture is the basis of society. No food = no society. We will consider agriculture to be the cornerstone of the marketplace. Let’s create a fictional society where everyone is a farmer and they all harvest enough food to feed themselves but no more. They are subsistent.
Once food is established, there comes a need for manufacturing. For instance, a farmer one day designs a tool that helps him harvest more corn. He can then grow more food than he needs. He can harvest enough food to last him a week in a single day. He does this, working one day and resting for six. However his neighbors see he has leisure time and want the same thing. So the farmer who made the tool decides to spend his six free days making more tools that he can sell to the other farmers. This business is so profitable he is able to spend all his time making tools, charging other farmers in corn for his product. In this way, he is fed while not working directly in an agricultural career.
Carry this concept out to the whole society and you really have something. Farming is no longer a job for each person to worry about because a few can produce enough for many. This frees people to manufacture tools or services they can sell for food so they can survive.
Here we have the general marketplace. There is the production of food, the ability to innovate, and the production of manufactured goods that increase capital. Seth’s argument in short, is that this process should be protected by a government. If any one link of this were broken, the economy, and therefore society, would fall apart. I agree with him that this is necessary, however I believe in America, the need for the government to be the protector is unnecessary. Allow me to explain.
We are the bread basket of the world. If you look at the logistics of America, we have more land mass that is agriculturally viable than any other country with the possible exception of China (not totally sure on that one). Because of this, our country has the natural ability to produce agricultural products (food) more efficiently than our global competition. We don’t need the government to protect this industry because it isn’t threatened by foreign competition.
Because our cornerstone of the market is inherently protected, we have a natural protection of manufacturing too. America is one of the richest land masses in terms of natural resources. We have fossil fuels, timber, precious metals, base metals – most all the resources needed for a diverse manufacturing economy. Our manufacturing in America hasn’t decreased because of our natural circumstances, but because we have allowed for legislation to gum up the works. We have labor laws that restrict work hours and force a minimum wage, or taxes that hinder production. When we are then subjected to a global economy that consists of countries that don’t have these restrictions, we lose out because we’re not the most efficient. It then becomes cheaper to ship products in from China than to make down the street, despite the added cost of shipping. By adding tariffs to “protect” our manufacturing, we’re just adding more barriers to an efficient economy. (See my post on tariffs for my views there)
So long as we have a marketplace that rewards innovation that increases capital, there is no need for protectionism in that sector either. If a business model is better than the status quo, it will succeed. Now, I must be clear when I talk about a business model. There have been businesses that on paper were more efficient than their competition and should have, by all rights, succeeded; but they didn’t. There are many factors that go into the success of a business. To name a few: market conditions, supply lines, marketing, public sentiment, branding. An efficient model can still break down somewhere along the line. But if it does, then it wasn’t the best model. Only the best survive. By protecting a new business you gum up this process and weaken the economy. Capital is wasted on products or businesses that are failing – capital that could be invested into a new venture that might work.
Now I approach Seth’s second point: our military involvement is necessary to promote our economy.
I absolutely agree with Seth on this one. He has laid out an excellent picture of how our economy works and how our naval superiority is integral to America’s economic dominance. However, there was an underlying assumption in Mr. Brake’s point – the system is working. You see, if the system were working, I’d have no place to complain about it. I agree that the system works the way he said it does – our military ensures a dollar hegemony that keeps our economy secure. But what was failed to be mentioned was the upkeep of such a system costs more than it produces. How can I say this? Because we have a debt of over $16 trillion dollars.
What I propose the solution is may not be what some of you think. I think there is an incredible need for military superiority. The problem with the use of our military is that our currency drives the need for such extensive coverage.
Let me take a step back. The dollar is a fiat currency. We all know that, but do we know how that shakes out in the global economy? Let me explain my understanding of it.
Much of the value of the dollar comes from people using it as the basis of trade. Spicer mentioned OPEC during his presentation. Well, OPEC trades in dollars. This is important because all industrialized countries buy oil from OPEC. That means the largest markets trade for one of the biggest commodities in U.S. dollars. This creates a hegemony, or controlling influence, for the dollar in the global market. This gives the dollar a theoretical backing. So long as countries are buying oil, the dollar will have value. So long as countries continue to trade in the dollar, it will have value. This is how Seth’s system works and why his point that we need a strong military to continue these lines of trade is correct. I like to take a step back and propose a system that can work without the need for as expensive a naval fleet.
It all starts with the currency. It’s why Ron Paul wants us to go back to the gold standard. If our currency were based on a relatively stable commodity, the trade of goods in the dollar would occur because of the economic soundness of the dollar inherent to its base, not because our military backs it. Furthermore, Americans would not be subjected to the whiles of the market as we do now. If gas prices increase, the dollar is weakened because fewer people are trading in the dollar. If the global marketplace hits a recession the dollar will be critically hit and inflation would be crazy (we’ve avoided that thus far because of Fed policies – I’ll talk about that come Oct. 2nd). Gold is hard to come by and it is universally valuable. That makes it hard to inflate and easy to trade.
The combination of a more secure currency and the natural economic advantage of America promotes a free market. Seth’s point on war is a valid one, however. If there were a war on American soil, the natural production power of America would be compromised. In this sense, we need some protection from the government. So instead of having out Navy spread throughout the world, we could just encircle the land mass of America so that no foreign threat could oppose us. In this sense, America is also uniquely positioned. In a sense we are an island. We only have two bordering countries and neither one of them represent a major threat to us (though our borders with them should be a major concern and must be defended). If we had a tight line of ships in the Atlantic and Pacific Ocean, as well as the Gulf of Mexico (coupled with a secure Southern border) we wouldn’t have the threat of a secret attack from the East, West, or South. Positive relations with Canada would help secure our Northern border (though a defense infrastructure is a good idea). People argue this is impossible which in the current system it is. But if we stopped spending money on building defenses for other countries half-way across the world, the project seems much more attainable.
This whole argument is applicable only to America. As I’ve said, we are naturally positioned to accomplish this feat. There are very few things manufactured abroad that couldn’t be manufactured in America, and I will leave the door open for the government to have minimal incentive programs to ensure industry in those limited sectors. I desire for America to truly be the leader of the world – politically, economically, and socially. We’ve allowed for the government to dampen the power of the collective public, but I believe there is a path we can tread that leads to greater prosperity.