The Commerce Department (whose idea was that?) said recently that 2006 was another record year for the U.S. “trade deficit.” The value of imports beat the value of exports by $764 billion. That makes five record years in a row. China’s trade surplus with us hit $233 billion.
Ordinarily, I would ignore this nonstory because, as Adam Smith wisely said, “Nothing . . . can be more absurd than this whole doctrine of the balance of trade.” And how many times must it be pointed out that the current-account deficit is a mirror image of the capital-account surplus? (Accounting 101: if everything is counted, everything is in balance.)
But in thinking about the announcement and the Smith quote, I’ve come away with a new appreciation of what the old Scotsman was saying. Concern about imports and exports really is ridiculous.
What is an export? What is an import? These words are defined in reference to political boundaries of only one kind: national boundaries. If there were no such boundaries, there would be no exports or imports. But political boundaries are just that. They are not economic boundaries. To the extent that they can, people go about their business as though those boundaries weren’t there. People cross the Canadian-American and Mexican-American borders to transact business every day. If they give them a thought it is only because governments put up barriers patrolled by armed guards who make them wait in line. People learn early in life that they can gain immensely from trade, and with that understanding comes the insight that it doesn’t much matter on which side of a Rand-McNally line your trading partner lives.
So the very concepts of imports and exports are founded on an arbitrary construct that has little practical consequence for people’s economic activities. Back in the 1980s, when neomercantilists feared Japan’s economic success at selling us stuff (seems a little crazy now, no?), I used to ask what would happen to the trade deficit if Japan were made the 51st state. Obviously, the deficit would have disappeared because we don’t reckon trade imbalances between states. Why not?
In reality, then, there are no imports and exports. There is only what I make and what everyone else makes. Few people would want to live just on what they themselves could make. Frédéric Bastiat pointed out that each of us daily uses products we couldn’t make in isolation in a thousand years. Talk about solitary, poor, nasty, brutish, and short! “What makes this phenomenon stranger still is that the same thing holds true for all men,” Bastiat wrote. “Every one of the members of society has consumed a million times more than he could have produced; yet no one has robbed anyone else.”
This is just another way of saying that the case for free trade is conceded the moment someone eschews self-sufficiency. After that, we’re just haggling over the size of the trade area. But if free trade (read: division of labor) is good, then the bigger the free-trade area the better. Globalization should be the worldwide removal of all barriers to the exchange of goods and services—rather than trade managed through state capitalism and multinational bureaucracies. Unilateral, unconditional free trade—a.k.a. individual liberty—is the smartest policy.
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People claim to dislike dense and “unguided” urban and coastal development, but do they stop to think what powers government would have to have to prevent it entirely? Moreover, do they realize how government encourages what they say they don’t like? Timothy Terrell has been thinking about it.
Ludwig von Mises famously showed that state socialism must fail because the tools of economic calculation—market prices—are forbidden. But what about calculation in a mixed economy where government buffers corporations from the winds of free competition? Kevin Carson sees signs of planned chaos.
If freedom is indispensable to creativity and innovation, why do so few employers allow it on the job? In this first of a two-part classic reprint, C. L. Dickinson critiques the traditional boss-worker relationship and argues for libertarianism in the workplace.
Former FEE president Hans F. Sennholz died recently. In his memory we reprise three of his articles.
Critics of the freedom philosophy make four common mistakes based on their misunderstanding of markets and government. George Leef shows where these critics go wrong.
In the columns department this issue, Richard Ebeling remembers Hans Sennholz. Donald Boudreaux discusses three articles that influenced his view of the market process. Burton Folsom contrasts the thinking of two presidents—Wilson and Coolidge—on the meaning of the Declaration of Independence and the Constitution. Walter Williams reminds us that America is not—or wasn’t supposed to be—a democracy. And Jude Blanchette, reading the claim that we have enough globalization, ripostes, “It Just Ain’t So!”
Books coming under the microscope explore Nazi socialism, the corporate state, income inequality, and the Sarbanes-Oxley Act.