Published November 22, 2008 on

Buy American? Sell American!

by Barry Loberfeld

The sundry voices that still drone on about the allegedly unacceptable "costs" of free trade only remind us of the price of free trade: eternal vigilance against economic sophisms.

Before we look at one of the newest (read: oldest), bear in mind that current "free trade" policies are in fact regulated — "managed" — trade policies. (Don't believe me? Just look at the voluminous regulation manuals, i.e., "free trade agreements.") When we speak of "freedom of religion," we speak of religion free from government interference — laissez faire. If we regulated religion the way we regulate trade, Americans United for Separation of Church and State would be screaming that the country has turned into a theocracy. And "free speech"? It means that government leaves people alone when they trade ideas, not that it rewards some traders and penalizes others based upon their national origin (or anything else).

Call it Mises' Law: People of the most widely divergent views nonetheless always converge in condemning "free market" capitalism for whatever they believe wrong. Particularly relevant is its derivation, Loberfeld's Law: In a mixed economy, it's the market element that takes the blame. (See BAILOUT.) Statism is eternally innocent.

Now then, what is this repeddled challenge to free trade? "Economic nationalism," the new label for the centuries-old nostrum of the mercantilists:

In the view of this group, exports were blessings, imports calamities; money should not be permitted to leave the country; a "favorable" balance of trade should always be maintained; wages for labor should be low and hours long; high tariffs must protect home industries; a strong merchant marine was essential; and any measures which aided the mercantilists ipso facto were assumed to benefit the nation as a whole. [Robert B. Downs, Books That Changed the World (New York: New American Library, 1956), p. 41.]

Today, "economic nationalists" hail corporate protectionism as the germinator of national prosperity, strength, and greatness, in contrast to the necrobiotic effects of "our free trade policy." The fact that our tangled trade policy, with its protectionist element, makes mush of any empirical basis for their ideas doesn't dissuade these pro-tariff patriots from sounding the alarm about invading goods.

The Protectionist Polemicist

Pat Buchanan has arisen as the Paul Revere of the movement. A self-christened "conservative of the heart," Buchanan believes he has good historical "evidence" that protectionism increases a nation's prosperity:

Behind a tariff wall built by Washington, Hamilton, Clay, Lincoln, and the Republican presidents who followed, the United States had gone from an agrarian coastal republic to become the greatest industrial power the world had ever seen — in a single century. Such was the success of the policy called protectionism that is so disparaged today.

This is the corollary of Loberfeld's Law: In a mixed economy, it's always the statist element that gets the credit. How does Buchanan know that it wasn't early America's much greater economic freedom, including free trade between the states, that was responsible for its remarkable growth? How does he know that it isn't contemporary America's much greater economic regulation that is responsible for retarding growth? All he does know is that we had tariffs then and we have "free trade" now. Again, mush — which he regurgitates perennially in hardcover.

(Since Buchanan is so taken with historical analysis, he might care to put down his pen and consider that of economist Frank Taussig, who concluded that "[l]ittle, if anything, was gained by the protection[ism] which the United States maintained" in its early years. Quoted, along with Buchanan, in Bruce Bartlett, "The Truth About Trade in History.")

The theoretical component of his argument is the exaltation of production over consumption. The former is championed as the creation of wealth; the latter, vilified as its decadent destruction. Translated into human terms, CEOs are now ipso facto the lifeblood of our nation, while consumers — you and I — are merely parasites. (That's right: Those seeking subsidies and quotas are the producers, while those who actually pay for what they want are the parasites.) This only exemplifies what Adam Smith centuries ago noted about protectionism: "it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce."

In a review of Buchanan's The Great Betrayal, Brink Lindsey virtually filleted this fallacy:

[P]roduction is economically meaningful only if it is of value to someone—that is, only if there's a consumer out there who wants to buy it. You can show all kinds of determination and grit while digging holes and filling them back in, but that's not production; it's a waste of time.

Thus, the bedrock principle that consumption is the end of economic activity is not a call to hedonistic self-indulgence, as Buchanan charges. On the contrary, putting the customer first is a fierce discipline that the market imposes on producers. Work as hard as you want, but unless you're creating more value than you're expending, you're wasting resources and will eventually go out of business. It is this relentless discipline that drives producers to create more and more value for less and less effort—in other words, to make us richer.

The primary benefit of free trade is that it further tightens the screws of market discipline by expanding the realm of competition. Industries that face import pressure must become more productive or give way; industries that can take on the world's best are able to export and expand. International commerce thus shifts a country's resources away from less productive industries and toward more productive ones.

Protectionists like Buchanan get all of this backwards. They believe that wealth consists of particular domestic industries with high-paying jobs; they want to defend those industries and jobs from foreign competition. But high-paying jobs don't just fall from the sky; they emerge from the process of market discipline that encourages ever-increasing productivity. By shielding producers from market discipline, protectionists interfere with and undermine the wealth-creating process that ultimately produces high-paying jobs.

But the fundamental failing of Buchanan's manufacturers-good/consumers-bad theory is that it contravenes the primary dictate of sound economics: Focus not on one party in the short run, but on all parties in the long run. We are not all the CEO of GM, but we are all consumers — including GM's CEO.

A Modest Proposal

So now the question becomes: Why does "economic nationalism" demand sacrifice from you and me but not Mr. CEO? Why not have an "economic nationalism" that really puts the American nation — i.e., American consumers — first?

People often say that tariffs are "taxes," but another way to look at it is that protectionism is price control. So, instead of controlling prices to make foreign products less affordable, why not control them to make domestic ones more affordable? In another words, instead of forcing our country's consumers to "buy America," i.e., pay higher prices, why not force its companies to sell American, i.e., charge lower ones? That's how you fight "cheap imports" — with cheaper domestics, not expensive ones.

And the objection would be what — production costs? If we can blank out the factors that determine whether you or I can afford to purchase a product, why can't we instead blank out the factors that determine whether a business can afford to make it? And since those include labor, here's the best part: When American products are priced (by the coercive state, not the free market) lower than imports, all the jobs at GM — from company head to company janitor — will be protected. Honestly, what's not to love?

The bottom line is this: If GM isn't going to give each of us a free car, there's no reason why we should give GM a free ride, i.e., a "level playing field" where their competition is priced out of our reach. Let's not have any nonsense that that car represents impoverishing "consumption," while that ride constitutes enriching "production." If American CEOs don't consider it their patriotic duty to charge lower prices, then it's damn well not our duty to pay higher ones.

Considering how thoroughly tariffs have been refuted economically, perhaps we shouldn't be too surprised that patriotism is exploited as the ultimate refuge of protectionist scoundrels. But as an opponent of flag desecration, Mr. Buchanan should have the decency to stop wrapping himself in it.