What went wrong with the economic theories of free trade?
In my previous post I stated I would explore some “what ifs” of the NINE TRILLION DOLLARS trade deficits. Not to look back in folly of what could have been, but to the following statement of why history is relevant.
Understanding the Differernces Between a Proverb and a Theory
A proverb is a timeless truth in the form of a simple illustration that exposes a fundamental reality of life. Proverbs are practical (not theoretical), easy to memorize and imminently applicable to real life situations.
An economic theory is a well substantiated explanation of some aspect of the natural world, an organized system of accepted knowledge that applies in a variety of circumstances to explain a specific set of phenomena
What is My Point?
A proverb is based on truth, and practical reality.
An economic theory will only work if certain phenomena is in accordance to what the theory states will occur. If someone intervenes to alter the circumstances the theory is based on, even the best theory will fail.
For example, the economic theory of the laws of supply and demand did not work because OPEC intervened to restrict oil output supplies to raise up the price.
Another example is the economic comparative value theory of free trade will not work when a country manipulates its currency.
A skilled negotiator understands, practical realities of life in the same context as a King Solomon proverb. He or she understands that an agreement need to include contingencies to assure an agreement is practical, realistic, and will be adhered to by both parties.
For example, if a seller bases his price on a quantity that a buyer claims he will buy that has been purposely inflated and therefore not realistic, the seller may not profit.
Our US free trade agreements have no contingencies to control harmful effects to US workers because of unbalanced trade. The result is the US has accumulated a trade deficit of NINE TRILLION DOLLARS.
Do Not Look Back
The purpose of this post is not to dwell on thinking what the nine trillion dollars could have been spent on in the USA instead of in other countries. Forget about all the lost opportunities such as repair of our nations crumbling infrastuctures, education, health, etc., they have been squandered and now we must live with and pay back twenty trillion dollars in our National Debt we have acquired. .
What to Do? In my opinion,
- Forget about all the cut taxes proposals that will supposedly inrease exports. No matter how low our export prices for certain commodities, the US will never be able to compete and manufacture certain products that require human laborers. That is because a US worker cannot compete with a foreign laborer who is paid $200 a month and a US laborer had to pay $800 a month rent.
- Pay off our debt and instead of paying interest on US Government Bonds to mainly foreign owners of the Bonds that total one half trillion dollars a year. Reducing taxes will not pay off debt. Instead it will accrue more debt.
- Renegotiate all trade agreement to control trade imbalances as recommended by Warren Buffet. There is no other way to do it because we have no real control of monetary policies of foreign governments.
- Put restrictions of sale of US farmland same as our NAFTA trade partners so US dollars are returned to the US to buy products instead of US Bonds and farmland.That is what the economists told Congress would happen when they presented the merits of free trade instead of what is shown HERE
In my Next Post
I will explore how, in my opinion, how we should renegotiate trade agreements to achieve a non-adversarial win-win proposition to achiev free and fair trade agreements for both trade partners.
Regards and goodwill blogging.
Post One HERE
Post Two HERE
Post Three HERE
Post Four HERE
Post Five HERE
Post Six HERE
Post Seven HERE
Post Eight HERE
Post Nine HERE
Post Ten HERE
Post Eleven HERE
Post Twelve HERE
Post Thirteen HERE
Post Fourteen HERE
Post Fifteen HERE
Post Sixteen HERE