The "Fair-Trade" Myth; S. Kamath

The common thread linking frictional and struc tural unemployment is their origin in individual liberty, to wit, the liberty of the job seeker as he balances forgone opportunities against the possi bility of better options yet to be discovered, and the liberty of consumers as they choose among goods and services and therefore among the many types of labor implicitly embodied. Thus, some unemployment is both inevitable and useful in terms of other human goals. Other types of unemployment are less salutary. Various government policies cause "induced" or artificial unemployment. Foremost among them is the minimum wage, which prevents the employment of low-skilled workers whose expected productivity lies below the legal mini mum. The Social Security payroll tax, various safety and health standards, and other policies are likely to have similar unemployment effects. 277 "Cyclical" unemployment results from macro economic mismanagement-in particular, exces sive swings in monetary growth-by the federal government.

Once someone becomes unemployed "involun tarily," unemployment is likely to be viewed in a completely negative light. But the decision to par ticipate in an economic system offering the bene fits and risks of unemployment is a decision made before the fact, conceptually identical to deciding at the beginning of the year whether to buy life insurance. Greater expected wealth often accom panies a higher risk of involuntary future unem ployment, but any person may end up with great wealth and little unemployment or with great unemployment and little wealth. Fairness requires that people be free to choose among occupations with alternative combinations of prospective wealth and unemployment risk, and then take their chances. That not all such combi nations are available is due not to the nature of capitalism, but to our existence in a world of limits. Market processes in fact offer a broad range of such choices, as many occupations offer greater security in exchange for smaller incomes. If we are to allow individuals to make choices among such alternatives, and if consumers are to be allowed to indulge their preferences, some unemployment, harsh though it is, must be seen as an adjunct of human freedom. D The "FairTrade" Myth by Shyam J. Kamath T he siren song of managed "fair" trade is once again in the air as the 1992 election nears. Cries of "buy American" fill the newspapers and TV news programs. Japan-bash ing is in; free trade is out.

The common argument advanced in favor of "fair" trade is that trade deficits (excesses of im ports over exports) cost American jobs. But this is Professor Kamath teaches economics at California State University at Hayward. a myth. Over 15 million new jobs were added between 1982 and 1989 as the U.S. ran up huge trade deficits. And the majority of these jobs paid rather well, contrary to the "McJobs" myth. Job growth was mainly in those sectors that were large ly unprotected against foreign competition: com puters and data processing, telecommunications, petroleum and chemicals, pharmaceuticals and health-related areas, scientific and photographic equipment, entertainment, leisure and recreation, 278 THE FREEMAN • JULY 1992 hospitality and tourism, and the service industries. Meanwhile, protectionist measures were failing to save American jobs. Quotas against Japanese autos (euphemistically called "voluntary" export restraints) imposed in the early 1980s didn't pre vent the loss of over 200,000jobs in the U.S. auto industry, and General Motors recently announced massive new layoffs. The record in steel, textiles, dairy products, shipping, and meat packing is much the same. These industries shrank whilepro tective tariffs and subsidies were lavished on them to save jobs.

Another common myth about "fair" trade is that Japan severely restricts imports. In fact, Japan's formal and informal trade barriers are lower than those in America and other industrial ized nations. For example, Japan's average tariff on industrial products was 2.9 percent in 1987, compared with 4.3 percent in the U.S. and 5.8 percent in the European Community. Nontariff barriers in Japan such as quotas and licenses were found by a World Bank study to be no more significant than those in the United States. Japan was the world's third largest importer in 1990,taking in $235billionworth of goods and ser vices. Imports have grown 85 percent since 1985. In terms of imports per person, the average Japanese spent $372 on American products in 1990 while the average American spent $357 on Japanese products. During 1986-91,U.S. exports rose by 91 percent, while Japan's exports grew by only 17 percent. American exports to Japan were especially strong during this period, doubling to $46.1 billion by the end of 1990.

In fact, it can be argued that the United States is the unfair trader. James Bovard points out in The Fair Trade Fraud (reviewed on page 282 of this issue) that America has over 8,000 tariffs, 3,000 clothing and textile import quotas, and a variety of quotas and other nontariff barriers for steel, autos, sugar, dairy products, peanuts, cotton, beef, machine tools and other industrial products. For example, America limits imports of ice cream to the equivalent of one teaspoon per person each year, and foreign peanuts to two per person. Such restrictions reduce competition, raise prices, decrease variety, and cost American consumers $80 billion per year, or $1,200per family. The strongest argument against "fair" trade is the existence of globally integrated multinational corporations such as IBM, AT&T, and Procter & Gamble, and the interdependence of the inhabi tants of our "global village." It is estimated that over 40 percent of world trade is carried out by more than 2,000 multinational corporations that have no national identity and that produce and dis tribute through a globally integrated network.

Today, anyone wishing to "buy American" may have to buy a car with a nameplate like Honda or Mazda rather than Chevrolet, Dodge, or Ford. Logic and hard evidence dictate that we resist the calls for "fair" trade if we wish to maintain and enhance our standard of living in an interde pendent world. Free trade is still the best option for promoting American prosperity. "Fair" trade can only lead to an ever-escalating cycle of retal iation and counterretaliation, putting the world trading system at risk. Our future depends on keeping our borders open and the goods and ser vices flowing. 0 Student Activity Fees by Thomas C. Klein A report in Insight magazine recently revealed that the City University of New York (CUNY) student government incurred the following expenses: $13,011 for car service, $24,000in salaries for the sister and close friend of the student senate chairman, $2,209for an electronic beeper service, and $49,000for a lob bying trip to Albany to convince legislators not to raise tuition. The expenditures are funded by an 85-cent per semester student activity fee.