Hello all I am completely new to economics, and I'm taking my first economics course in college this semester. I have a few questions for you the answers to which are probably blatant to all, but I hope you will accomodate my ignorance. Since in theory free trade is supposed to be the best for the market and therefore society as a whole, why have we seen such dire consequences from NAFTA and similar treaties. I understand that if a product can be produced for a cheaper price somewhere else it will, and thus the American idustrial sector has been destroyed. Is this because of price floors in the form of minimum wage? If so would the abolishment of minimum wages recreate industry? How can nations whose industries have been affected by globalism, regain that industry without becoming protectionist?
The United States gained the most from NAFTA, because it used its political powers to erect barriers against the Mexicans, while the Mexican government took down many barriers against the United States. It simply expanded the American market into Mexico, but did not afford Mexican producers the ability to adapt to a new division of labor, because whatever goods Mexico had a comparative advantage in the United States would deny that advantage through the use of barriers. For example, Mexican trucks were disallowed to cross the border if they did not meet certain "green" requirements, which was a blatant attempt to limit transnational shipping by Mexican companies.
Industries which are "hurt" by globalization will probably cease to exist. The entire point of globalization is to the extend the division of labor to its maximum physical level. The closing of some industries and the expansion of others is a part of this adaptation to a new division of labor. Barriers are erected because politicians respond to monetary incentives, and those who work in industries affected by globalization rather not lose their jobs and learn a new skill, or accept a lower paying job. But, it's a reality, and over the long run free globalization will make all those who willingly accept its consequences wealthier (through cheaper goods).
Theophilus:Since in theory free trade is supposed to be the best for the market and therefore society as a whole, why have we seen such dire consequences from NAFTA and similar treaties.
Because it is managed trade, not free trade.
How Long Does a Free-Trade Agreement Need to Be?
"So the question remains, just how long should an all-encompassing, tariff-busting, labor-liberalizing FTA be? How about 16 words?
Regulated trade between the individuals, companies, and institutions within our respective countries will be illegal henceforth."
Assume that tomorrow all countries have entered into a non-managed trade agreement with eachother but a free one. When one country's workers lose an industry and become unemployed what is their recourse if that is the country's entire industry? What can and should be done to reemploy them?
Theophilus:If so would the abolishment of minimum wages recreate industry?
It's one step in the right direction. Also vital is
1. repealing the laws that give power to unions. These unfair laws destroy optimum market performance. In simple English, why do you think GM is bankrupt?
2. cutting taxes drastically. As a bisinessman, why invest my time and money in a business if my profits get taxed away? As a consumer, how can I buy things if I have no money?
3. repealing regulations. These are made not to benefit the public, but to quash competition from the small businesman who cant afford the impositions of the the regulations.
4. stop fiddling with interest rates. To build an industry you need money invested in it. This money comes from money people put in a bank, which then lends it out to the industry. But people wont put their money in banks if they dont get a good interest rate.,
5. stop printing money. Printing dollars makes all the existing dollars worth less.So that someone with money to invest won't invest it in a US company, because his money will lose its value. He will instead invest it overseas, or buy gold.
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Theophilus: Assume that tomorrow all countries have entered into a non-managed trade agreement with eachother but a free one. When one country's workers lose an industry and become unemployed what is their recourse if that is the country's entire industry? What can and should be done to reemploy them?
This has actually happened in Samoa. The US Congress passed a law imposing a minimum wage there. Instantly their only industry, 2 tuna factories, closed down. Suddenly the whole island of 30,000 [I think] is unemployed.
I have no idea what they will do.
What can and should be done is leave them alone. Because no one knows what should be done. Think of an ant colony that has been stepped on by a giant foot. Does any human being know what is best for the ants to do? They will do what has to be done if left alone. Any attempt to "help" them will just interfere.
Of course if someone [not a govt, who will haver a string attached, and will really be interested in some political agenda] wants to send them charity for a while, nothing wring with that.
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