Difference between revisions of "Debate:Does "free trade" increase wealth rather than simply redistribute it?"

Revision as of 19:38, March 17, 2007

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yes...

Free trade stimulates the economy. A better economy increases demand for a wider variety of goods. In order to meet demand, people will labor to produce more goods. The result of this labor is an increase of wealth; Labor + raw materials = more valuble product. Ben

From a global perspective, free trade certainly increases the overall amount of wealth in the economy. By eliminating barriers to trade, governments encourage members of the economy to specialize in doing whatever they do best and then trading to fulfill their wants and needs. When trade is efficient, a firm can focus its production capability entirely on the area in which it has a comparative advantage. Thus, opportunity costs are minimized and each firm is as productive as possible. Production will be greater, and production costs will be lower than they were without free trade. However, it is crucial to realize that this analysis is from a global rather than national point of view. Free trade certainly does redistribute wealth, and it is quite possible that free trade will benefit the economy as a whole, but harm a specific nation by redistributing wealth away from that nation. Free trade can put industrialized nations such as the United States at a disadvantage relative to less developed nations. Businesses in the United States are heavily restricted by health, labor, and environmental regulations. This often makes production in less developed nations less expensive than production in the US. While free trade is optimal from a worldwide perspective, it may be very dismal from our point of view. EWJ

Mr. Schlafly's arguments carry great weight from a global perspective. The People's Republic of China is a prime example both of Mr. Schlafly's defense costs argument, and of EWJ's argument about the effects of varying levels of regulation in different countries. However, within a stable society wherein all commercial entities are bound by the same regulations, free trade is increases the wealth of all financially competent members of society. In fact, free trade increases wealth by redistributing it to parties who can make more effective use of it. As an example, let us begin with the production of crude oil. The employees of a crude oil company can only utilize an infintesimal portion of thier total productions for thier personal needs. Thus they sell it to a power plant for standard currency, thereby creating wealth for themselves. The workers at the power plant only need a tiny portion of the power they produce, so they sell the power to individual homes and businesses. Each of these homes or businesses uses the power to create wealth either in the form of personal enjoyment or industrial production. All parties involved in this series of transactions end up wealthier than they begin. Obstacles to free trade would only hinder this creation of wealth. Chris J.

REPLY: Chris makes an excellent case for trade and division of labor. By increasing efficient use of labor, overall wealth does seem to be promoted perhaps simply by reducing inefficiencies.

But the increase in overall wealth is not shared equally, particularly when the example shifts to trade between nations. In fact, the benefits of trade may be virtually enjoyed entirely by one nation. If that nation is an enemy, it will use that increased wealth against the other nation that is enriching it. Should Carthage have enriched Rome at the time when Rome was determined to destroy Carthage? Would it have made sense for the Allies to enrich Japan or Germany in the late 1930s? I don't think so.

Note also that most of the increase in overall wealth is due to a more efficient division of labor. When we are considering increasing free trade between countries have hundreds of millions of workers apiece, there seems to be little to be gained by dividing labor further. --Aschlafly 00:33, 21 January 2007 (EST)

Reply about the above Reply Is it always the case that two countries benefit highly unevenly with regards to mutual trade? Refrigerators provide a case in point. A Chinese company, Haier, makes refrigerators and many similar products and wanted to sell them in the United States. However a mixture of tariffs and the expense of shipping bulky things like refrigerators compelled Haier to build a factory in South Carolina. The current arrangement is for Haier to make the parts in China, ship them to South Carolina, and have American workers build the final products, which tends to be the most complex and hence highest-paying set of jobs. By using the division of labor that Chris mentioned Chinese workers turn out huge numbers of parts and American workers turn out huge numbers of cheap refrigerators. Since so many units are being built many American workers are employed in the better paying jobs, and American consumers get cheaper refrigerators. Simultaneously some very poor workers in China get to make a living. The automobile industry shows similar characteristics, with many American automakers importing the parts that go into American-built cars. When it comes to enriching a country's enemies, obviously an odious regime like Nazi Germany shouldn't be supported. At the same time two countries might be kept from fighting each other if they trade a great deal, and increasing trade might make China an increasingly capitalist country, which is all to the good. It just seems to me that everyone getting richer and less likely to fight each other is better than people being poorer and more likely to fight. --WOVcenter 02:51, 9 March 2007 (EST)WOVcenter

I think when you notice economies in communist nations where they don't have free trade, you have a higher poverty rate. Communism tries to control prices and control the market, as opposed to free trade when the invisible hand is moved by supply and demand and not some government. However; I would say, that it also depends on the tax rate and interest rate on how wealth is increased. During the JFK years, the wealthy had a 87% tax rate, and wealth had not increased much even if the market was free in the USA. If the government has high taxes on the wealthy, the wealthy are less likely to invest it or spend it, which distributes wealth to the middle-class and poor in the form of jobs, dividends, and buying from small companies so they can employ more people. It is the banks that increase the wealth, because they give out loans and keep 10% of the money deposited in their vaults, which creates the wealth. If the wealthy aren't able to put their wealth into banks, because they are highly taxed, then wealth does not increase. --Orion Blastar 23:19, 9 March 2007 (EST)

All voluntary transactions create value. It's not a zero sum game. In many cases that value can be converted to wealth through the productive use of the assets being traded. For example, let's say that I agree to sell you my old lawn mower for $20. The fact that I am willing to sell it for $20 means it is worth less than $20 to me (or else why would I sell it at that price>). That you are willing to buy it means it is worth more than $20 to you (or else why part with your $20?). Perhaps you'd have been willing to pay $30, or $40. For productive assets, the value you ascribe to it will be at least equal to the present value of the cash flows that asset will generate. Free trade allows assets to more easily make their way to the highest valued use because it removes barriers that might otherwise have prevented the transfer. By funneling assets to their highest values use creates more wealth (obviously) than funneling them less highly values uses. --JesusSaves 19:56, 13 March 2007 (EDT)

no...

Free trade is mostly the redistribution of forms of wealth from buyer to seller. The sellers, for example, receive the primary benefit of compensation for their capital and labor. The buyer must perceive a benefit also to induce him to enter into the transaction. But that relative benefit can be, and often is, very small. A one-cent reduction in price brought by increased "free trade" can be the total amount of the benefit to the buyer.

What the seller does with his large benefit can end up cost that buyer more than one cent. The restribution of wealth through free trade to an enemy of the United States can result in the money being spent on missiles directed at the United States, which then has to spend money (perhaps more than one cent per buyer) in defending against those missiles.

Bottom line: Free trade primary redistributes wealth rather than creating it.

Mr. Schlafly

Free trade is wage arbitrage. Free trade is Bill Gates saying raise the H-1b level to 300,000 further depressing American salaries. So far free trade has resulted in continuous trade deficits. A continuous trade deficit is money that ceases to circulate in the USA.

I am a Pat Buchanan Conservative so have your counter-arguments make economic sense.

Properly designed/regulated open trade would create wealth more efficiently and for more people than a system of pro-business free trade that allows companies to exploit poverty stricken workers, prevent organization of labor, and ignore environmental standards by moving to third world nations. Bad practices lead to collapse of established working economies and a worsening of conditions for locals and the movement of jobs to this new country leads to lowered wages and employment in their nation of origination and prices don't actually fall because the company wants to increase their profit margin. Basically, costs don't fall. Labor costs fall and management costs rise. Although this is not necessarily the result of free trade, free trade could possibly act to redistribute wealth from the laborers to the owners of capital and not to actually create more wealth. Thorn969 01:30, 14 March 2007 (EDT)

Well, here are some economically sensical arguments for Thorn. First, competition forces firms to lower product prices when factor costs such as labor fall, so free trade does rapidly decrease prices. Happy Meal toys would be rather more expensive if produced in the United States. You ignore that many skilled positions in advanced economies lack sufficient workers, which prompts entrepreneurs such as Bill Gates to call for more skilled immigrants to fill labor shortages. And obviously some people do lose out in the long run, but that can be answered either with graduated taxes/unemployment relief or recourse to personal savings. Finally the trade deficit argument fails on two counts. First, if any country is a net exporter at least one other country must be a net importer. Also a basic accounting reality is the following equation; Exports-Imports=Savings-Investment. Essentially if Americans and foreign individuals or firms want to invest more in America than Americans want to save the result will be a trade deficit. Since investment is a good thing a trade deficit isn't the end of the world, although the current American one is abnormally large due to excessive federal deficit spending. --WOVcenter 16:12, 14 March 2007 (EDT)

NAFTA seems to be working out well for the US. I don't think Canada or Mexico is quite so enamored of it, though - except for the small group that does profit by it - notably the big business moguls. Fred Canuck and Jose Mexicano aren't getting such a good deal out of it.Niwrad 01:13, 17 March 2007 (EDT)