Wednesday, January 2, 2008

Many problems from 'free trade'

One of Santa's biggest surprises this Christmas has been the storm over unsafe toys for children. Should we have been so surprised? Don't we know why? I guess when people get bombarded with certain words by the media day after day, we become immune and don't really hear.

The words I am thinking of are "free trade". And I guess one shouldn't be too surprised. Any phrase with "free" in it can't be all bad. Can it? If you look in any book about economics, you will quickly find that the theory of "free trade" centers on the theory of comparative advantage. The idea is that each country will produce the products that it has "an advantage in" (as in lowest cost).

Then the standard of living will rise because all goods will be produced at their cheapest cost.

Now, anybody with a functioning moral compass would assume that this theory would work just fine if the countries involved were relatively equal in terms of wages, benefits, and health and safety standards for workers.

If they weren't, then capital would flow to the country with the lowest wages and standards -- while high-wage and high-standards countries would suffer losses.

In other words, we are looking at "unfair trade".

And that is exactly what has happened.

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