Suzanna A



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First Draft

Suzanna A. Greco

Empire State College

Professor Castelo

17 March 2008

The Economy and Free Trade.

In his book The Choice: A Fable of Free Trade and Protectionism, Russell Roberts takes the reader on a time-traveling journey and let us ease drop on the conversations between Ed Johnson (a fictional CEO of the Stellar Television Company) and David Ricardo (a nineteen century English economist.)Together they travel to the future, back to the past, and through alternate timeline to demonstrate why free trade makes us better off. And why restraints on trade make us poorer (1).

Roberts uses It’s a Wonderful Life, as a plot device. Ricardo in the court of heaven argues the removal of his status as a wanderer. His request is granted to intervene in human affairs in 1960’s America, as the country is about to embark on a course of total protectionism (5). While on earth, Ricardo corrects some critical mistakes in economic theory; such as the ‘zero-sum theory’, misconceptions on the nature of supply and demand, the role and meaning of wages and ‘real’ wages, the mythical “dangers” of a trade deficit, what imports and exports really are, and most of all, dismisses the myth that trade with other countries hurts the American worker overall (which he admits, in a smaller sense, it sometimes does (60).)

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Roberts’s book provides a framework for explaining the merits of free trade that I had not considered. “The Choice” gives powerful examples that helped me better

understand the benefits of trade. Such as foreign workers having jobs much better than what was available before. Affordable products are now accessible to everyone. And the

displaced worker is freed to pursue other opportunities that might pay more or be more rewarding (79).

Roberts acknowledges that Free Trade hurts some people. When jobs are lost because of free trade, the humiliation and pain of unemployment is real. Through Ricardo, he argues that by allowing trade, it leads to the greater good. Goods are cheaper, quality is higher, opportunities are expanded and the people as a whole have more options open to them to determine how they should live their lives (89).

Through out the book, Roberts strives to make the reader understand that by being self-sufficient, America did not provide the avenue for Ed’s children to be all they could be (109). He uses Ricardo to show Ed what his children’s lives would be like in an America that is self-sufficient. Without free trade Ed your children’s lives are going to be different. Due to the lost opportunities of free trade, your children’s choices are limited and somewhat poorer than they might have been (110).

Outsourcing a Threat to American Prosperity

Roberts’s concept of outsourcing is that some foreigners can provide services at a lower rate than Americans, and American companies can then decide to hire them or buy the product they make. Employing foreign workers at lower costs allows U.S. companies to be more efficient and productive, permitting them to create the same amount of goods

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with fewer resources. As a result, U.S. consumers receive goods and services at a lower price. It also enables U.S. companies to be more competitive in the global market.

Through out the book, Roberts reminds us that trade doesn’t change the total number of jobs but rather the kind of jobs people do (31).”

On the surface, Roberts’s opinion on outsourcing seems to make sense. However, upon closer investigation and research Paul Craig Roberts’s article, “A Greater Threat Than Terrorism Outsourcing the American Economy” validates my views that outsourcing Americans jobs in the long run might take away America’s super-power status.

I have concerns that America’s competitive advantage may be undermined in outsourcing to foreign countries such as China and India. American workers are now forced to compete head-on with foreign workers. In my opinion, America is giving away our technologies thus leaving ourselves open on the national security front.

Paul Roberts believes that outsourcing has brought about record unemployment in many fields. There has been a major decline in university enrollments in technical and scientific disciplines. He states that “Economists speak of new and better jobs for displaced workers, but they do not name these jobs.”

Outsourcing can also lead to a multitude of other problems directly and indirectly related to the bottom line such as:

• Security: The potential loss of intellectual property and business process secrets. China, in particular, lacks laws to protect companies' intellectual assets and is suspected of having a major espionage program targeted at U.S. technology firms.

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• Business continuity: Large terrorist networks exist in the Middle East and Southeast Asia, where many U.S. companies look to outsource IT labor. A political situation, such as armed conflict could shut down offshore operations.

• Fear: Americans need reassurance that their data is safe, especially in an unstable nation.

Protectionism

Protectionism refers to policies or doctrines which "protect" businesses and "living wages" by restricting or regulating trade between foreign nations (Webster’s Dictionary).

The example used in “The Choice” regarding protectionism on some level was disturbing to me. Dave surmised that if Americans are good a making hamburgers because of their low skill, then they will make hamburgers. But by the banning of imports, computers software, and offering those jobs to hamburger makers in the end would make American poorer, not richer (111).

Dave further states that “the real choice is between a dynamic world and a static world--a world of encouraging people to dream and acquire the skills to make those dreams come true and a world of encouraging people to be content with what they have and to dream less.” Jobs that are outsourced have left many displaced workers with no options and unemployable. It is not just low skilled American workers whose jobs have been outsourced many white collar workers, like myself, are left struggling to find new employment opportunities (113).

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The U.S. should be competitive and participation in free trade. However, our government needs to re-design federally funded programs to assist the displaced American worker train for a new career. By placing fewer restrictions on eligibility for

school grants and loans might help the unskillful and untrained American worker achieve a higher education and make them competitive in today’s global work market.

Embargos

Embargo is the prohibition of commerce and trade with a certain country in order to isolate it and to put its government into a difficult internal situation, given that the effects of the embargo are often able to make its economy suffer from the initiative (Webster’s Dictionary).

Embargos is usually used as a political punishment for some previous disagreed policies or acts, but its economic nature frequently raises doubts about the real interests that the prohibition serves.

If the goal of U.S. policy toward Cuba is to help its people achieve freedom and a better life, then the economic embargo has completely failed states Daniel T. Griswold, Director, of the Center for Trade Policy Studies. Its economic effect is to make the people

of Cuba worse off by depriving them of lower-cost food and other goods that could be bought from the United States. It means less independence for Cuban workers and entrepreneurs, who could be earning dollars from American tourists and fueling private-sector growth. Meanwhile, Castro and his high ranking leaders enjoy a comfortable, insulated lifestyle by extracting any meager surplus produced by the Cuban worker.

If history has taught us anything, it is that Economic sanctions rarely work. Burma, North Korea, and Iran are prime examples of Trade and investment sanctions that

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have failed to change the behavior of any of those oppressive regimes; sanctions have only deepened the deprivation of the very people we are trying to help.

The Cato Institute confirms that “trade and globalization tills the soil for democracy.” Nations open to trade are more likely to be democracies where human rights

are respected. Trade and the development it creates give people tools of communication-cell phones, satellite TV, fax machines, the Internet-that tend to undermine oppressive

authority. Trade not only increases the flow of goods and services but also of people and ideas. Development also creates a larger middle class that is usually the backbone of democracy (Russell).

It seems to me that embargos are more political than humanitarian.

Tariffs

A tariff is a tax on goods upon importation. Customs officers inspect the contents and charge a tax according to the tariff formula (Webster’s Dictionary).

One must ask the question do tariffs protect American jobs or do they hurt our economy? I believe it does a little bit of both. Currently, many jobs performed by

American workers have been outsourced to foreign nations that violate labor and environmental standards.

As American consumers, we have a right to know if corporations have moved jobs overseas or are engaged in abusive environmental and labor standards. It is the responsibility of American corporation to ensure that their manufacturing partners are not using enforced labor or the use of children in their factories. Corporations must specific rules designed to safeguard human rights, worker health and safety, and the protection of

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the environment. If compliance is violated, their contracts should be immediately terminated.

Quotas

A quota is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time. Quotas,

like other trade restrictions, are used to benefit the producers of a good in a domestic economy at the expense of all consumers of the good in that economy (Webster’s Dictionary).

Trade Deficit

The trade deficit is the amount by which a country's merchandise exports exceed its merchandise imports (Webster’s Dictionary).

Is American on the road to ruin as a result of importing more than we are exporting? In Chapter 11 of “The Choice”, Dave explains to Ed that foreign nations harm themselves when they keep out American products. In doing so, they are spending unnecessary resources, people, materials, and capital to produce goods they could import at a lower price. Would it benefit America if we imposed the same practices? No, it would not. As long as foreigners want to buy American assets and Americans wish to buy

foreign assets, the U.S. will run a trade deficit even if every country in the world welcomed American products (70).

The 1998 Congressional Testimony of Daniel T. Griswold, Associate Director, Center for Trade Policy Studies maintains that America has become a net importer of

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capital. For the reason that Americans do not save enough to finance all the available investment opportunities in our economy (Giswold).

This enables us to pay for imports over and above what we export. Griswold infers that the trade deficit is a larger macroeconomic reality that investment in the

United States exceeds domestic savings. In order to change the U.S. trade deficit Americans must increase the rate at which we save and invest (Giswold).

In April of 1998, the Cato Institute addressed four myths about the U.S. trade deficit. The first myth is that the overall U.S. trade deficit is caused by unfair trade

barriers abroad. Senator’s Clinton and Obama have spoke about getting tough with China because of unfair trading practices that enable China to sell their products cheaply (Russell).

Senator Mitt Rommey argues that trade is good because exports benefit the average American. Politicians talk about the necessity of other countries’ opening their markets to American products (Russell). Why is it that they never mention the merits of opening U.S. markets to foreign products? It is my understanding that America does not exports to create jobs, we export so we can have money to buy goods that are hard for us to make or make cheaply.

Free Trade

Free trade allows American workers to specialize in goods and services that they produce more efficiently than the rest of the world and then to exchange them for goods and services that other countries produce at higher quality and lower costs. Economic

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growth is particularly important because eliminating the large federal budget deficit requires growth to generate revenues or something even harder to cut spending (Webster Dictionary).

Zero-sum Theory

Zero-sum describes a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant(s). It is so named because when the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero (Webster Dictionary).

Conclusion

Roberts’s style of writing is informative and entertaining considering the subject matter. He has taken the concept of free trade and made it understandable. The insight I gained in reading “The Choice” has given me a broader view of how free trade helps and

sometimes hinders our economic growth. I believe that free trade is essential to America’s prosperity, yet I can not help but feel that the ones that truly benefit from free trade are the U.S. Government, politicians, and corporate business (Roberts).

The U.S. Government having their own agenda is then able to use their muscle in influencing foreign nations to do what they want, politicians protect their interests and that of the interest of the campaign contributors, and corporations get richer in their worldwide expansion. Free trade in many ways has given American companies carte-blanche to treat their most available asset, the American worker, like garbage. It is all about lining their pockets.

Some say the current outsourcing trend is an example of a natural job-market shift and is to be expected in a capitalist society. The lost U.S. jobs, some say, will eventually

be recovered by a combination of natural-market forces and the improved economy, which will result from companies' saving money.

One can only hope!

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Works Cited

Roberts, Paul Craig. “Greater Threat Than Terrorism: Outsourcing the American Economy.” Prison | 20 Apr. 2005. articles/april2005/200405outsourcingtheeconomy.htm - 42k -

Griswold, Dan. “Why We Have Nothing to Fear from Foreign Outsourcing” 30, Mar. 2004. No.10 bios/griswold.html - 20k -

Roberts, Russell. The Choice A Fable Of Free Trade And Protectionism. New jersey: Parson Prentice Hall, 2001.

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