Trade Agreements Not So Effective

Paul KrugmanThis morning, Paul Krugman maked a general argument following from what was, frankly, a rather technical article that Dean Baker posted yesterday. It has to do with the widely held belief that free market treaties are just great for the economy. For the record, my belief has always been that these treaties are great for business owners, but when it gets down to actual workers, it is not good.

Let’s look at it this way: inputs and outputs. A free trade agreements does indeed increase exports. But it also increases imports. The only way that such agreements can help workers in general, is if unused worker resources are used. Thus, the perhaps 6% of the labor force in the United States that wants to work but can’t find a job could be put to work. But a free trade agreement is only going to take advantage of a small part of that potential. In Baker’s article, he showed that a free trade treaty with the European Union would increase GDP by less than 0.1%. Note that history shows that this increase in GDP would probably not go to workers.

To me, this is easy. The best way to fill that 6 percentage point hole (or 2.5 or 3.5) is through government stimulus. Not only would this put people to work directly, it would be a direct stimulus to the economy. The only reason to be against it is for ideological reasons, like (to take a totally not random example) you want to destroy the government.

Krugman says that free markets don’t do much one way or another:

There’s an especially strong tendency to mythologize the power of free trade. Not that open world markets are a bad thing; they’re definitely a force for good, especially for small, poor countries. But my experience is that the less somebody knows about international trade, the more likely he or she is to imagine that modest moves toward or away from protectionism will have huge effects.

But one thing is clear: these treaties can be very disruptive to the economy and thus to workers. The question is naturally raised: what are we making worker jobs more insecure for? We know that it isn’t because it will have a great effect on the economy. I’d say it is because it would have a great effect on the bank balances of the super rich.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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