Friday, March 03, 2006

Isolationism Ho!!

This morning, as usual, on my way to work I was listening to CSPAN radio, which was doing a program on isolationism. In light of recent events such as the Dubai ports deal, the moderator, Brian Lamb, was asking the question; are we becoming more isolationist? Surprisingly, at least to me, the response appeared to be almost universal, or at least broke down into one of three categories. First, respondents, both Democrats and Republicans, many who self-described themselves as “average Americans” (what ever that means), argued that we were not currently sufficiently isolationist. The second group said, no were not isolationist at all, but we should become so, and quickly. Finally, the third general group declared that we’ve always been isolationist and that it has only been recently that we’ve adopted the evils of “globalization.” There proposed solution; we should get our heads screwed on straight, return to our roots, and protect American jobs as soon as humanly possible.

Wow. Where to start? There is so much here for me to discuss, but so little time. I think this topic might be good comment fodder, so I’ll be brief, but I wanted to throw a couple of common arguments out there against globalization and then refute them, if I might. Click Read more, as usual.

The first common argument usually takes the form of “we don’t make anything anymore.” This is often followed by citing evidence such as the fact that Americans, by and large, purchase Chinese textiles, Japanese cars, Italian designer clothes, and other foreign products. My response; so what? Just because we have seen a decline in manufacturing does not mean that we do not “produce” economically valuable things. That said, however, this critique is, at least in part, factually accurate, we don’t make things any more, at least not tangible things (okay, well we do actually make things, for example, most “foreign cars” are actually assembled here in the US, (Toyota, Honda, etc) but the factories are owned by the foreign parent companies). So, if we don’t make things anymore, how does one explain our approximately 9+ trillion dollar gross domestic product (which is the sum of the values of all the goods and services produced in a year)? Simple, we have become a “SERVICES” based economy as opposed to a manufacturing based economy. Services are valuable economic commodities, in many cases more valuable than goods. We produce and export, legal services, accounting services, commercial services, financial services, technology services, communications services, and my favorite “consulting services” all over the world. These firms and businesses are American owned, hire mostly American workers, and generate billions for the American economy. Oh yeah, by the way, don’t forget our agriculture sector, we may not manufacture things anymore, but believe you me we still grow things, lots of things, like food, arguably the most valuable commodity on the planet.

Second common argument “we’ve become a debtor nation, we export jobs and sell off companies to foreign government and they buy Treasury notes and other forms of US debt.” Again, true, to some extent, albeit oversimplified, but so what? There has been little evidence to suggest that this is a serious long-term economic problem. Is our national debt a concern? Yes, it is. Is our current trade imbalance a bad thing? Sure, it likely hurts somewhat in some sectors of our economy. Should we do things to improve the situation? Of course, but that depends on what things. While we may have a lot of debt, we also have a lot of foreign investment in this country. How do you think the other countries have that money? Simple, they buy our debt and invest it here in order to make a profit. How? Again, simple, despite our ills we are still the most stable profitable wisest investment choice in the world, the second place contenders, likely either Japan, Canada, or Great Brittan, depending on whom you asked, isn’t even close. Admittedly, I’m grossly oversimplifying things to make a point. There simply is nothing intrinsically wrong, from an economics perspective, with being a debtor-nation.

Finally, I’ll conclude with this: Free trade and other “globalization” techniques are far more beneficial to our economy than isolationism could ever be, it’s really that simple. You can believe Ross Perot, Pat Buchanan, and other NAFTA, CAFTA, and WTO haters if you want, that’s fine, but they are simply wrong as a matter of economic theory. Exporting jobs is not a net bad thing. Of course it hurts those directly affected, and we should do more, far more, to help those people, but it doesn’t hurt the economy. In fact, it probably strengthens it, as it forces the reallocation of resources to more efficient and profitable enterprises. I know strange things to hear coming out of one of this blog’s two resident liberals, but I can’t argue against the truth, and the numbers simply don’t lie. I’ve said before that the economy is a massive living organism and you can’t simply look at one part of it in order to understand it all. Most economic writing in the media focuses on too narrow a perspective. If the story is interest rates that’s where the news turns it’s attention; if its inflation rates rising or unemployment figures being released, that’s the media focus; taxes, well they are always good for filling column inches. Rarely, if ever, is there a comprehensive look at how all these things work together to produce the effects that they do. Do I agree with all of the Administration’s current economic policies; no, I don’t. That said, however, I agree with this one. Free trade and open foreign investment is good economically and isolationism in what ever form you want to take it is bad, very bad and calls for it to return will be regretted, by everyone.


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