AMERICA FIRST
Why Americans Must End Free Trade, Stop Outsourcing and Close Our Open Borders
by Paul Streitz
Copyright © 2006 Paul Streitz
All rights reserved
Published by Paul Streitz at Smashwords
Library of Congress Control Number: 2006930334
Oxford Institute Press
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About the Author:
Paul Streitz has an AB from Hamilton College and an MBA from the University of Chicago. He was a platoon leader with the 82nd Airborne in Vietnam. He was a candidate for the Republican nomination to U.S. Senate in Connecticut in 2004 and 2006. He is a founder of Connecticut Citizens for Immigration Control and served as a Minuteman on the Arizona border in 2005.
He is co-author of the musicals Oh, Johnny and Madison Avenue, the subliminal musical. He is the author of Oxford: Son of Queen Elizabeth I, a biography of the author behind the pen name “William Shakespeare."
For
Alexander Hamilton, Henry Clay,
Abraham Lincoln, Friedrich List,
John M. Culbertson and Pat Buchanan
Table of Contents
Free Trade: Ultimate-Outsourcing
AMERICA FIRST TRADE DECLARATION
AMERICA FIRST IMMIGRATION POLICY
1912 Republican Party Platform
The Genius of Alexander Hamilton
The Fallacy of Comparative Advantage
Destruction of the Workers’ Paradise
Great Britain Was Never A Free Trade Country
Protected, Slave, Communist & Free Trade Economies
Americans Don’t Want Free Trade
Protection Is the Government’s Business
Liberty Enlightening the World
The Impact of Immigration on African-Americans
Labor Unions Sell-Out the American Worker
H-1B’s, L-1B’s and Outsourcing
Tables, Charts, Illustrations
Destruction of the Workers Paradise
Manufacturing Wages in 1982 Dollars
U.S.A. Mean Household Income vs. Median
Connecticut Manufacturing Employment
USA Manufacturing Jobs in Millions
Displaced Workers Who Lost Full-Time Wage Jobs
Hourly Manufacturing Compensation in U.S. Dollars
Wealth Distribution—Slave, Communism, Free Trade
Wealth Distribution—Protected Economy
IQ—Profession, Learning Style, Life Skills
Trade Deficit by Country in Billions
Attitudes on Deploying Troops on the Border & Amnesty
U.S. Demographics 1965 vs. 2002
Number of Murders CA & NY vs. Six Low Immigration States
Cost of Sending Illegals and Children of Illegals to School
Wages for Software Professionals
US India Political Action Committee
Senator Joe Lieberman Labor Condition Applications
Companies Currently Outsourcing Work Abroad
Free Trade: Ultimate-Outsourcing
Americans understand that “outsourcing” is disastrous for the average American worker to the point that it has become an adjective and a verb. American jobs are “outsourced” and American workers have been “outsourced.”
In contrast, they believe that “Free Trade” is a positive. It conjures up the free market, free association and the right to do freely do business without government interference. Free trade is actually something far different because it allows manufacturers in a country to engage in business regardless of the impact on the workers of their country.
Free trade is the outsourcing of American white-collar jobs such as computer programming and customer service to a foreign country via the Internet and modern communication.
Free trade is the outsourcing jobs to imported workers from foreign countries. When American workers lose their jobs to unskilled workers at the low end or high tech workers on special visas, the Americans have had their jobs outsourced.
Finally, free trade is “outsourcing” when entire factories and industries are moved abroad. All of our computer manufacturing has been “outsourced” to China, while about half of auto manufacturing has been outsourced Many American companies keep only a sales and financial headquarters in the United States. The manufacturing jobs that go with these companies have been “outsourced.”
All of the above replace American workers with foreign cheap foreign labor. This inflates the profits of the companies using such labor and destroys the American middle-class who makes its living from its labor, not from its stock investments.
Free Trade advocates in academia, the press and political circles tell the American public that the benefits of Free Trade and outsourcing of America outweigh the losses. American workers that have been laid off, or reduced to lower incomes, know this is a lie.
America must restore the protected economy developed by Alexander Hamilton that served the United States well for over two centuries. This can be done. It must be done.
AMERICA FIRST TRADE DECLARATION
THE UNITED STATES SHALL CONDUCT FOREIGN TRADE TO IMPROVE THE LIVING STANDARD OF AMERICAN CITIZENS.
THE UNITED STATES SHALL BE A SELF-SUFFICIENT, PRODUCTIVE, WEALTHY COUNTRY.
THE UNITED STATES SHALL NOT CONDUCT ITS FOREIGN TRADE TO IMPROVE LIVING STANDARDS AROUND THE WORLD BY DESTROYING THE AMERICAN ECONOMY.
I. FREE TRADE IS A RACE TO THE BOTTOM.
II. PROTECT MANUFACTURERS. WORKERS WITHOUT JOBS CANNOT BE CONSUMERS.
III. PROTECT FARMERS. FARMERS DRIVEN OFF THE LAND CANNOT GROW CROPS.
IV. DO NOT IMPORT CHEAP FOREIGN LABOR.
V. DO NOT OUTSOURCE TO FOREIGN COUNTRIES.
VI. DO NOT PERMIT AMERICAN COMPANIES TO MANUFACTURE GOODS ABROAD WITH LOW COST FOREIGN LABOR AND IMPORT SUCH GOODS INTO THE UNITED STATES.
VII. PLACE TARIFFS ON IMPORTED MANUFACTURED AND AGRICULTURAL PRODUCTS, SO THEY ARE ALWAYS MORE EXPENSIVE THAN DOMESTICALLY PRODUCED.
VIII. DO NOT BE SEDUCED BY LOW PRICED FOREIGN GOODS. AS CONSUMERS CITIZENS MAY BENEFIT TODAY, BUT AS WORKERS THEY WILL LOSE THEIR JOBS TOMORROW.
AMERICA FIRST IMMIGRATION POLICY
THE UNITED STATES SHALL ADMIT IMMIGRANTS AT ITS DISCRETION FOR THE BENEFIT OF THE RESIDENTS OF THE UNITED STATES
1. Immigration moratorium for seven years.
2. Return to zero net immigration (no population growth due to immigration).
3. Rescind all H-1B, L-1, etc, visas.
4. Rescind all religious visas.
5. End all outsourcing via the Internet and telecommunications.
6. End anchor babies. Any child born of an illegal or transient in the United States is not a citizen of this country.
7. Deport illegal alien criminals now in State and Federal prisons to their home countries.
8. Revoke the citizenship and deport any naturalized American convicted of a felony.
9. Private citizens shall have the right to sue local, state and federal government for non-enforcement of immigration laws.
10. Establish English as the language of the United States. There shall be no federal requirements to provide documents in any other language.
11. Prevent any social security benefits for illegal aliens.
12. Expedite the removal of illegal aliens.
13. Eliminate the visa lottery.
14. End immigration through refugee status. Repatriate all refugees to their home countries.
15. Private citizens and employees shall have the right to RICO lawsuits against employers hiring illegals.
16. Illegal aliens of other countries entering the United States from Mexico shall be returned to Mexico (by force of arms if necessary).
17. Require the use of Federal Troops on the border.
The Myth of Free Trade
Much Bad News
100 Million Flags
More than 100 million foreign-made flags hit U.S. shores in the last three months of 2001, according to government trade data.
– Los Angeles Times
Where Can We Ship Your Job Today?
In a recent PowerPoint presentation, Microsoft Corp. (MSFT) Senior Vice-President Brian Valentine–the No. 2 exec in the company's Windows unit–urged managers to "pick something to move offshore today." In India, said the briefing, you can get "quality work at 50% to 60% of the cost. That's two heads for the price of one."
– Business Week
Who Needs An Extra $136 Billion In Wages?
"Over the next 15 years, 3.3 million U.S. service industry jobs and $136 billion in wages will move offshore to countries like India, Russia, China and the Philippines," Forrester analyst John McCarthy predicted in a report last year. "The IT industry will lead the initial overseas exodus."
– CNN
45 Cents Doesn't Go Too Far
The real median hourly wage in 1973 was $12.45 – measured in 2000 dollars. In 2000, it was about $12.90.
– Duluth News Tribune
760,000 Down, Only 10 Million More To Go
In one industry after another—clothing, furniture, light electronics—domestic manufacturers unable to match Chinese prices have gone out of business or shifted production abroad. A recent study done for a Congressional panel found that at least 760,000 U.S. manufacturing jobs have migrated to China since 1992.
– Los Angeles Times
Wipe Out
A connection? The number of manufacturing jobs in Los Angeles County fell in the decade to 587,000 from 861,000, a decrease of 32%, census data show . . . Los Angeles County's median income dropped from $45,600 in 1990 to $42,200 in 2000 when adjusted for inflation.
– Los Angeles Times
A Great New Service Economy Job
Rick Payne is working full time in one of those big home improvement stores. But he’s supporting a wife and four kids on $7.50 an hour. When we sat down with Payne, his wife Alexis and 12-year-old, Brandon, they had $17 to their name.
– 60 Minutes II
An Export Platform
About half of China's exports come from foreign-invested manufacturers.
– Financial Times
Accelerating The Race To The Bottom
“The majority of the jobs are going to be moved overseas in the next five years. There's just no way around it,” said Teresa Hartsaw, chief executive of ePerformax, a Memphis, Tenn., firm that operates its three call centers in the Philippines. Hartsaw said corporations can cut their costs by 70 percent by using offshore employees.
– The Denver Post
A Lose-Lose Situation
Wouldn't it be refreshing if our officials in Washington had the courage to admit what most voters have long figured out—that making goods cheaply in developing countries hasn't done much to raise the standard of living for most foreign workers, nor has it turned them into consumers of American products. Rather, in too many instances, global trade has meant soaring unemployment for low-skilled Americans who can least afford to lose their jobs.
– Charlotte Observer
Adam Smith on Trade
By trade, Smith meant precisely that. Goods produced within each country would be exported to pay for imports of goods from other countries. Smith did not cover the case that we experience today where U.S. firms relocate their capital and technology in China and India and employ labor in those countries to produce the products that U.S. firms sell in U.S. markets. This is not trade in the Smithian sense, and it is unclear what the gains are to the U.S. Shareholders and executives of global firms benefit from higher profits, and U.S. consumers pay lower prices until the dollar drops in value from the run-up in the trade deficit. Offset against lower prices is the loss of the jobs or incomes associated with the production that is moved offshore.
– Paul Craig Roberts
American Manufacturer Tells It Like It Is
"We are a small job shop in Arizona. Two years ago, we had 36 employees. We now have 12. Two of our customers have moved their source of supply offshore and have told us to expand into Mexico or lose them as customers due to labor costs. Good luck USA."
– Mike Kapel, American Precision Machining Inc., Phoenix
Apparel Jobs
Textiles have lost 220,000 jobs in the last decade, a third of the workforce. In apparels, 400,000 lost jobs, a 40% reduction. 148,000 textile jobs lost in the past year, more than 100 mills closed.
– Boston Globe
Average Salary in China
The average salary for factory workers in China is the equivalent of $73 to $75 a month in U.S. dollars, says Eddie Tsai, general manager for sales at Fu Sheng's Taoyuan factory.
– Copley News Service
It Matters Where It's Made
"When the United States exports 1,000 cars to Germany or Mexico, plants in this country employ U.S. workers in their production," writes the report's author, Robert Scott, an institute economist. "If, however, the U.S. imports 1,000 cars from Germany or Mexico rather than building them domestically, then a similar number of U.S. workers who would have otherwise been employed in the auto industry will have to find other work."
– Des Moines Register
Japan Says No To U.S. Cars
Chevrolet led American car sales in Japan for April 2002 with 580, Chrysler sold 558 and Ford sold 337.
– Associated Press
Can't Wait For The Asian Market
Can't wait for that Asian market! Hyundai, South Korea's largest automaker exported 600,000 autos to the United States in 2000. GM exported 285 cars to South Korea.
– Reuters News Service
Does China Really Need The Help
Geoffrey Jackson, TDA's regional director for Asia, said the agency had awarded close to $10 million in grants to China this year. The average grant is about $350,000-$500,000, he said at a news briefing. One grant of $417,000 will go to China's Ministry of Foreign Trade and Economic Cooperation to establish an electronic learning program to educate officials and the public about the World Trade Organization.
– The Wall Street Journal
Even Knowledge Workers Aren't Safe
All kinds of knowledge work can be done almost anywhere. "You will see an explosion of work going overseas," says Forrester Research Inc. analyst John C. McCarthy. He goes so far as to predict at least 3.3 million white-collar jobs and $136 billion in wages will shift from the U.S. to low-cost countries by 2015.
– Business Week
1912 Republican Party Platform
We reaffirm our belief in a protective tariff. The Republican tariff policy has been of the greatest benefit to the country, developing our resources, diversifying our industries, and protecting our workmen against competition with cheaper labor abroad, thus establishing for our wage-earners the American standard of living. The protective tariff is so woven into the fabric of our industrial and agricultural life that to substitute for it a tariff for revenue only would destroy many industries and throw millions of our people out of employment. The products of the farm and of the mine should receive the same measure of protection as other products of American labor
[http://1912.history.ohio-state.edu/Tariff/Parties/republic.htm, September 2003. Quotes found at Trade Alert website, 2004, produced by The U.S. Business and Industry Council Educational Foundation.]
The Genius of Alexander Hamilton
Alexander Hamilton was the second son of Rachel Faucett and James Hamilton a Scotsman who had immigrated to the West Indies. They had cohabited for fifteen years after she had separated from her first husband, but the terms of the divorce did not allow her to remarry. Hamilton was born on the island of Nevis on January 11, 1757. His father eventually abandoned his mother, who opened a retail store that sold food and other items to local plantations on the island of St. Croix. While the exact duties of the young Hamilton cannot be precisely determined, it is very likely that he obtained an early practical lesson in the keeping of accounts and managing a business. At the age of eleven, his mother died. The young boy was taken in by Thomas Stevens the father of one of his friends. Hamilton worked for Becker & Cruger an import-export firm, and when Cruger took a trip to New York, he left the young Hamilton in charge of the business for several months. Hamilton was fourteen.
Most telling comments about Hamilton are in a biography by Forrest McDonald, where he described Hamilton as looking at economic problems from the bottom up. That is, Hamilton looked at economic problems through the lens of how it would affect the common man, the laborer and the farmer. While well read, Hamilton did not seem to have any overriding political or economic ideology. Rather, he seemed to have a series of astute observations about the workings of economies and the motivations of people. Perhaps this was because Hamilton was thrown into managing a business at an early age and saw how economic decisions affected livelihoods. He had the unusual combination of academic brilliance grounded in practical reality.
In the spring of 1772, a Reverend Hugh Knox arrived on St. Croix and organized plans for the young man’s education. Knox, a Princeton man himself, decided that Hamilton should depart for the Colonies and Princeton. Hamilton arrived in New York and began his preparation for college. In his application, he wrote that he wanted to advance from class to class as rapidly as his talents permitted, and not be bound to a formal schedule. His application was rejected. Hamilton was accepted at King’s College in New York (Columbia University) on his own terms.
When the Revolution broke out, he became an officer in the army. He was a captain of an artillery company and distinguished himself as fearless in battle. He came to the attention of General Washington and Hamilton joined his staff. His position would be described as a modern chief of staff with the rank of lieutenant colonel. As well as his intellectual powers, Hamilton was a soldier brave, to the point of recklessness. In the last battle of the war, Hamilton was one of the first officers over the parapet at Yorktown.
During the period between the end of the Revolutionary War and the establishment of the United States, Hamilton trained himself as a lawyer and become a self-taught financier. In preparation for his law exam in New York, he made a 177-page notebook from the many texts used to teach law at the time. His notes were made into a manuscript, which was later copied and used by other law students. This evolved into a published manual for New York lawyers. It should also be noted that Hamilton was one of the first lawyers who maintained that the judiciary had a right to review laws to determine if they were constitutional, one of the bedrock principles of American democracy. Among other things, he founded the Bank of New York, participated in the agreements that led to the New York Stock Exchange and was a founder of the New York Post, all still in existence.
Hamilton’s participation in the founding of the New York Stock Exchange was more than a way of financing companies; it was a radically different perspective compared to Thomas Jefferson and the Southern slave-owners. For them, business was done between trusted friends of limited number. It was a close circle of associates and relatives. Personal relations were paramount. Hamilton’s stock market was something anonymous. It allowed for distant trans-actions and investments by parties who did not know each other. They were subject to the business risks of the venture, but through the regulation of their investment by a set of laws and procedures, they did not have to rely on the personal assurances or character of anyone involved in the business. With his wonderful sense of finance, Hamilton laid the basis of the modern American corporation and its financial success, which resulted in the world’s most productive economy.
Hamilton was one of the first to call for a convention to form a more united government than existed under the Articles of Confederation. Hamilton had a long-range view of the potential of the United States and how to achieve it.
In 1780, long before the American victory in the war was assured, the young immigrant from the West Indies, Alexander Hamilton, sat down to compose his thoughts on a suitable government for a new, independent republic. In a long letter to his friend James Duane, Hamilton called for a strong national government, able to rein in the individualism and localism of the states, with powers to tax and regulate commerce and the military and naval power to win the respect of foreign nations. Perhaps Hamilton found it easier to “think continentally,” for, though he had settled in New York, he had no deep family roots in any state. Indeed, several of the men who rallied early to Hamilton’s cause were born abroad or had moved from one region to another. For others, their national identity had been forged through long years in the Continental army. But Hamilton’s unshakable confidence that the right government could serve as midwife at the birth of a new economic and political challenger in the family of nations cannot be explained by his recent arrival in America. More clearly than most, he saw the potential of the young Republic, and, more quickly than anyone, he dismissed the Confederation as a faulty blueprint for a dynamic nation. [Carol Berkin, A Brilliant Solution, Inventing the American Constitution, New York, pg. 23.]
He engaged in long arguments to assure the passage of the Constitution and the formation of the United States. Hamilton believed the former Colonies would devolve into colony-states similar to the city-states of Italy. This would result in their inability to effectively defend themselves and further they would set up trade barriers to each other that would collectively impoverish them. To secure the approval of the Constitution, Hamilton, along with James Madison and John Jay, presented these views in a series of newspaper articles and letters-to-the-editor, later named The Federalist Papers.
After Washington became President of the newly formed United States, Hamilton was the first Secretary of the Treasury. In this position, Hamilton did three things that assured the success of the new nation. First, he consolidated the collective debt of the states and individuals due to the war and made it the responsibility of the federal government. This insured that foreign creditors would be paid. This quickly established the credit of the new country. The southerners agreed to this. In return, the capital of the country would be situated in the South, not in Philadelphia or New York.
The second was that he established a national bank to facilitate commerce. Given the importance of banking in our current life, the ability of the average citizen to both deposit money for security and to earn interest, (not to mention credit cards and debit cards), it is difficult for us to imagine the resistance of many in the south to such an institution. Nevertheless, their fear of moneylenders from the northern states was an obstacle that Hamilton had to overcome.
The last major policy was to establish a system of tariffs for the new country. Hamilton did this for two reasons. Tariffs provided a source of income that was both reliable and indirect. Hamilton realized that direct forms of taxation such as on land or on income would meet fierce resistance and be difficult to enforce. Such taxes invited all types of manipulation and they would be difficult to adjust upwards, if conditions called for it. In contrast, a tax on imported goods was indirect. The importer who collected the taxes could pass along the tax in the form of higher prices. Ultimate customers had the tax incorporated in the overall price of the goods and hidden. Thus, slight rises in the tariffs could be more easily implemented.
He observed that the United States had only one ocean border to guard, the eastern seaboard, which made enforcement far easier than in Europe. He also saw that tariffs were a benefit to protect native industry and believed that thriving industry would be the key to prosperity. Always the pragmatist, Hamilton realized that tariffs could be too high, and hence encourage smuggling.
Hamilton’s policies might be described as the mercantile school, but a better definition might be that they were pragmatic. He saw that humans were fallible and that one had to plan, not for the best behavior of men under all circumstances, but for the worst. But, most important and most differentiating from current economists, is that Hamilton was an American patriot. He realized that he could not change the whole world, but he could influence policies and laws within the United States. He did not consider the wealth of a few industrialists or planters, but the aggregate wealth of the nation. The prosperity of the tradesman or average worker was the key to the prosperity of the emerging nation. He had seen firsthand that making a few wealthy slaveholders even wealthier was not a prescription for a great nation. His economics might be described as from the bottom-up or blue-collar economics.
A functioning economy as Alexander Hamilton saw it must not only be good for the educated elites sitting atop the social pyramid. An example of this was Thomas Jefferson’s with his aristocratic view of a stagnant, agricultural society. Jefferson remained a slave owner until the day he died. In contrast, Hamilton saw that an economic system had to provide for the laborer, the workman, the farmer and the green grocer. A system that only provided for the elites, such as slavery, would eventually fall through resentment, chaos and revolution. Wealth was not return on investment to stockholders, although that was part of it. Wealth was something that the nation cumulatively produced by productively engaging all its citizens at various levels of skill, education and talent.
In a modern world of banks, ATM machines, credit and debit cards, it is hard to imagine a Colonial America with no consistent money system. Farmer bartered with merchants and made payment in livestock or produce. Merchants had to calculate a number of different moneys of any transaction from English pounds to Spanish doubloons. Tobacco farmers used warehouse receipts for tobacco as money or collateral for loans.
Alexander Hamilton created the banking system and a stable currency that permitted commerce to expand in the fledgling United States to grow. Modern economists have always acknowledged this but ignored Hamilton’s much more profound understanding of the importance of money in making a modern economy.
Ron Chernow’s brilliant biography, Alexander Hamilton, captures Hamilton’s profound understanding of monetary issues. As Chernow relates, Hamilton spent much of his time at Valley Forge and Morristown reading economic texts. In a letter, Hamilton explains the dramatic decline in the value of the Continental, the money issued by the Continental Congress.
The quantity of money in circulation is certainly a chief cause of its decline. But we find it is depreciated more than five times as much as it ought to be…. The excess is derived from opinion, a want of confidence. [Ron Chernow, Alexander Hamilton, pg. 137.]
In brief, Hamilton knew the value of money was dependent upon its perceived value, and if the perception sank, then receivers of money would expect more and the currency would devaluate.
Hamilton also understood the complex notion of the velocity of money. That is, that the total money supply depended both on the amount of money in circulation and the number of times transactions are performed with it. A dollar in New York City might be exchanged many times in the course of a week, while a dollar in Montana might be exchanged but a few. Hamilton then related this to the ability of a government to raise money through taxes.
The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of money in circulation and the celerity with which it circulates.” Ron Chernow, Alexander Hamilton, pg. 254
The more times a dollar is exchanged, the more times it is taxed, either as a sales tax, excise tax or income tax.
Strangely, but not so strangely, Milton Friedman in his opus, A Monetary History of the United States, does not list Alexander Hamilton in his index. This is not surprising because Friedman and the other free trade economists wish to wipe Hamilton’s success from the pages of history and substitute their disastrous and logically unsound free market theories
Forrest McDonald has this to say about the difference between Hamilton and Jefferson.
Jefferson as an intellectual dilettante and frequenter of salons—which the labor of his slaves permitted him to be—he liked to talk of revolution and the abolition of privilege so that a natural aristocracy of the virtuous and wise could govern the affairs of mankind. In fact, even in advocating revolution, he was seeking a mechanical, mathematical, mathematically definable, and predictable social order comparable to a Newtonian physical order; and the only privilege he ever seriously opposed was privilege that threatened the security of his own little world. Hamilton having grown up as the victim of a similar world, despised it and, as a true revolutionary, devised a program that would ultimately destroy it. [Forrest McDonald, Alexander Hamilton, A Biography, pg. 212.]
While Secretary of the Treasury, Hamilton recognized that if trade were limited to a one-way flow of manufactured goods from Europe to the United States, this would eventually lead to the impoverishment of the citizens of the United States.
The regulations of several countries, with which we have the most extensive intercourse, throw serious obstructions in the way of the principal staples of things. (The Napoleonic Wars.)
In such a position of things, the United States cannot exchange with Europe on equal terms; and the want of reciprocity would render them the victim of a system, which should induce them to confine the views to Agriculture and refrain from Manufactures. A constant and increasing necessity, on their part, for the commodities of Europe, and only a partial and occasional demand for their own, in return, could not but expose them to a state of impoverishment, compared with the opulence to which their political and natural advantages authorize them to aspire. [Alexander Hamilton, “Report on Manufactures,” Writings, pg.668.]
Hamilton’s now quaint 18th Century prose, “expose them to a state of impoverishment,” is another way of recognizing the impact of the negative balance (“only a partial and occasional demand for their own, in return,”) of trade foreign goods. In today’s terms, he would fully understand the applicability of the statement, “The Race to the Bottom.”
It is worth remembering that the cause of the war was the Colonialists’ objections to their treatment by mercantilist England. Its policies favored England and injured the economic well being of the Colonies. In their view, England was trying to have it both ways. The Colonies were English; therefore, the English throne. At the same time, they had to accept taxation and trade policies that were injurious to their economic health and welfare.
She strove for commercial supremacy, and felt that of two countries maintaining Free Trade between one another, that one would be supreme which sold manufactured goods, while that one would be subservient which could only sell agricultural produce. In her North American colonies, England had already acted on those principles in disallowing the manufacture in those colonies of even a single horseshoe nail, and, still more, that no horseshoe nails made there should be imported into England. [ Friedrich List, The National System of Political Economy, pg. 42.]
England was showing that it did not regard the Colonies as an equal part of England, but rather as territory to be exploited for the economic gain of the homeland. This discrimination is what precipitated this most unusual revolution of middle and upper class businessmen. They realized that England was never going to allow the Colonies to prosper at the expense of England.
Never in his wildest dreams would Hamilton imagine a tariff-free world in which any company could import products into a country that would do harm to its native manufacturers. Hamilton also realized that all the Colonies must be protected from imports from England. England had more efficient industries compared the Colonies and for years, it kept the Colonies from manufacturing their own goods by restricting trade and importing lower cost goods to compete against the less efficient colonial manufacturers.
Economists have interpreted this to mean that Hamilton only wanted to protect American industries in their infancy, not when they were established. Yet, Hamilton says no such thing. He knew that industries must be protected from low cost foreign goods no matter what the situation, but the situation he was facing and commenting on was the situation of America at the time and he limited his persuasive arguments to that situation. This is the fundamental mistake and misreading of Hamilton by free trade economists. They take license with Hamilton’s ideas and turn them into something that Hamilton would never have countenanced, a country at the economic mercy of others, destroying its economy because of allegiance to some abstract utopian principles of universal economic parity.
John M. Culbertson, an anti-free trade economist, explains Hamilton’s intention as “areas of harmonious trade.” In the Colonies, an area of “harmonious trade” would encompass all of the individual Colonies because of the geographic, language, cultural and political ties. As other economists, Hamilton knew capital and manufacturing would tend to flow from high-wage areas to low-wage areas, thus over time equalizing wages. For example, citizens of the United States might see the moving of industries from the industrialized northern states to the unindustrialized southern states as a positive good for the “entire” country by equalizing wages. However, the northern states and its workers might not be so sanguine about the matter. Nevertheless, the citizens of the country shared equal responsibility for taxes and defense, thus the free flow of goods and services between different areas was and is seen as beneficial to the overall welfare of the country. This is quite different than declaring that Red China, a communist regime, a potential threat to the United States and a totalitarian state, should be regarded as within an area of harmonious trade for the United States.
Europe is now undergoing an attempt to transform the entire continent into a Free Trade zone. Again, this sounds wonderful in theory, but what happens when high priced German or French workers go on unemployment because of imports from low-wage Romania or Bulgaria. The entire unification of Europe pits the benefits of a larger area of harmonious trade against the real effects of averaging wages and living standards between very wealthy and very poor nations. The result will not be determined until the impact of the negative effects begins to dawn on workers in the wealthier nations.
From 1792 to the 1980’s, the United States built the world’s strongest economy with the highest wages behind Alexander Hamilton’s tariff policies. Hamilton realized that importing any manufactured goods because of low prices would destroy the American economy. His advice was followed for a century and a half and the United States prospered like no other country. The United States was a high wage, full-employment economy with high prices. That is what made it so attractive to others. With free trade, the United States is moving rapidly toward becoming a Third World economy with low prices, high unemployment and enormous population growth (entirely driven by illegal Mexican invaders).
In a sense, it is the battle of Alexander Hamilton versus Jefferson all over again. Jefferson saw the world as a member of the intellectual and financial elite whose wealth came from the labor of slaves. They could afford to live in luxury while their slaves lived in poverty. Jefferson’s economics were similar to the theories of the global economy, which maintain that those at the lowest economic wages in the world should work to manufacture goods for the wealthy in the United States. The financiers of Wall Street and those heading multi-national corporations see the world much as Thomas Jefferson did. The many must work at low wages for the benefit of the few. Those heading corporations receive astronomical salaries, while workers in foreign countries and the U.S. are paid barely a living wage. If that is not modern day slavery then what is?
The economic system of the past thirty years has produced exactly the system that Hamilton would have deplored. Today, there are wider disparities than ever between the elite managers and the workman on the assembly line. More amazing, the economists of today stand by their theories while Free Trade decimates the industries that made the United States strong and prosperous. Wall Street, as short sighted as ever, focuses itself not on the total prosperity of the American economy, but the short-term profits of the multinationals.
Alexander Hamilton’s place lies secure as the founder of the economic security and prosperity of the United States. The United States will either re-adopt the economic principles of Alexander Hamilton or continue on its current road to economic destruction.
The Gnomes of Chicago
Milton Friedman is the economist most responsible for the manufacturing disaster of this country and the subsequent decline of the American economy. He is a Nobel Prize winning economist in the area of monetary policy. His landmark work is A Monetary History of the United States, 1867-1960. Many other works of his are less academic investigations and more works expressing his political views. His most famous is Capitalism and Freedom, which has sold millions worldwide. These political works combined with his prestige in monetary policy and his Noble Prize have made his views of foreign trade the established truth, universally accepted among academics, scholars and economic writers and newspaper editors.
Freidman has given legitimacy to a set of views that in previous generations regarded as illegitimate, anti-American and economic foolishness. When examined carefully, Friedman’s views are unsound economic theory, a distortion of economic history and a denial of the empirical evidence as to the effects of free trade on any nation’s economy.
His defense of free trade is disingenuous at best. In his A Monetary History of the United States, he explains the causes of the Great Depression of 1929. He quite rightly and convincingly explains:
Each of those severe contractions (in the economy) was accompanied by an appreciable decline in the stock of money, the most severe decline accompanying the 1929-33 contraction. [ Milton Friedman, A Monetary History of The United States, 1867-1960, pg. 677.]
Nowhere in this book is there any reference to the Smoot-Hawley Tariff, nor any mention of tariffs whatsoever. However, when making an argument for free trade, Friedman says:
The United States had tariffs throughout the nineteenth century, and they were raised still higher in the twentieth century, especially by the Smoot-Hawley tariff bill of 1930, which some scholars regard as partly responsible for the severity of the subsequent depression. [Milton Friedman and Rose Friedman, “The Case For Free Trade” Hoover Digest, No. 4, 1997]
Here he makes the Smoot-Hawley argument but cleverly distances himself from it by attributing it to “some scholars.” If this were truly the case, why wasn’t Smoot-Hawley mentioned in his tome on the Depression?
It is not mentioned, because as he knows full well, it had nothing to do with the Depression. Friedman is willing to use an argument that he knows is false to advance his free trade ideology. He smears the benefits of protective tariffs with the brush of the Great Depression, although he knows that monetary policy, not tariffs, was the cause of this economic collapse.
His argument also ignores the fact that in America the high tariffs of the nineteenth century produced the world’s most dynamic economy. Those tariffs continued into the 20th Century, until the free trade policies instituted by Ronald Reagan became economic fashion and the U.S. manufacturing economy began its precipitous race to the bottom.
Friedman’s claims in Capitalism and Freedom are equally out of touch with reality:
Tariffs do not assist the Japanese worker to raise his standard of living or protect the high standard of the American worker. On the contrary, they lower the Japanese standard and keep the American standard from being as high as it could be. [Milton Friedman, Capitalism and Freedom, pg.73.]
Could anything be further from the observable reality of the contrast between America and Japan over the last thirty years? Japan has prospered behind high walls of protectionism. We import millions of cars, appliances and electronics from Japan. They import virtually inhabitants owed their fealty to the nothing from the U.S. The United States manufacturing worker suffered a stagnant and declining living standard, while Japanese workers continued to improve their standard of living. Its recent difficulty is its manufacturing has been undersold by even lower priced products from other Asian countries, principally China.
Milton Friedman is making such a fundamental mistake of logic that has become a mantra of Free Trade economists, that is, that “lower prices increase living standards.” Lower prices do increase the living standard of those who buy the imported goods, but they lower the living standards of those who would produce the goods within the country. The net is that imported goods always lower the gross living standard of a country.
Japan imports 747’s from the United States, only because it does not have a country large enough to support domestic airline manufacturer. Economic self-sufficiency and attaining the highest living standard for its people is the goal of the Japanese government and Japanese foreign trade policy. While giving lip service to ‘free trade,’ the Japanese never enter into a trade agreement that does not protect their workers and further their nationalistic agenda. This is the exact opposite of the United States, who gripped by free trade delusions, is determined to use free trade to drive the U.S. into international bankruptcy.
Friedman’s position is essentially an ideological position that has little relation to improving the living standards of any country in the world. Despite this, it is difficult to find any economist that disagrees that free trade is beneficial to both countries engaging in international trade. A notable exception to this is John M. Culbertson’s, International Trade and the Future of the West. This small out of print book succinctly demolishes Adam Smith and other Free Traders as having their economics based on wishes rather than observable political realities.
Paradoxically, after giving warning on hidden costs with their “no free lunches” maxim, these economists maintain that there are no hidden costs to “free” trade, or if so, that they are so insignificant that they can be ignored. Friedman’s position is straightforward:
Our market is open to you without tariffs or other restrictions. Sell here what you can and wish to. Buy whatever you can and wish to. In that way, cooperation among individuals can be worldwide and free. [Milton and Rose Friedman, Hoover Digest, 1997, No. 4.]
Friedman sees free trade as a way to open markets and eliminate foreign aid to developing counties. For him, foreign aid only strengthens dictatorships and political elites. For Friedman, protection really means exploiting the consumer. Note that when Friedman talks about the subject, it is always the greedy "companies" that gain from protectionist policies,
In his view, the sum of all the individual consumption decisions will produce the maximum good. Any interference with free trade will harm individual consumers and hence the entire society.
Let us consider here for a moment the definition of “free trade.” For the public, “Free Trade” seems like any transaction that is voluntarily entered into by two individuals. The public extends this definition to two or more businesses or countries. If two individuals or companies agree to buy and sell something, it must mean that both parties are better off in the exchange. If two nations engage in free trade, then it would seem logical that both would be better off.
It seems illogical that countries would voluntarily enter into contracts that would grievously injure one of the countries. We don’t import products that would poison us or cause other such damage. Thus, free trade is almost synonymous with good trade or beneficial trade, but we will see that in the real world free trade means something the opposite. Free trade means trade between nations under conditions where one country is damaged by such trade.
Free trade for modern day economists means that companies in different countries can trade without restriction of tariffs, import quotas or any other restrictions. Obviously, private companies or individuals do have some limitations, so no trade is absolutely free. For example, one cannot make an agreement with a private party in another country to import three tons of cocaine for a given price. Nor, can one make an agreement to import goods that are against the environmental laws or pose health and safety threats to consumers.
Excluding such limitations, for the modern economist, “Free Trade,” means permitting private parties to engage in international trade, even though citizens in one country might be damaged. That is, one of the countries would trade knowing that such an agreement is detrimental to the economic well being of its citizens or a portion of its citizens. For example, the private agreement might be that a company would import low cost textiles for sale. The private company importing the goods would benefit by increasing its sales and decreasing its costs, but the overall impact on the importing country’s economy would be to unemploy thousands of workers in its textile industry.
The damages done by free trade are those done to the industry that suffers from the imported goods. It should also be recognized that the damages are not to some ethereal entities known as “companies” or “industries.” Rather, the damages are to the income and employment of thousands of people who are workers in those industries and factories. In this sense of accepting free trade that is damaging to native industry, the only country in the world that engages in free trade is the United States.
In a nutshell, here is Milton Friedman and the pro-free trade argument at its utopian best:
Suppose that, for whatever reason, Japan decided to subsidize steel very heavily. If no additional tariffs or quotas were imposed, imports of steel into the United States would go up sharply. That would drive down the price of steel in the United States and force steel producers to cut their output, causing unemployment in the steel industry. On the other hand, products made of steel could be purchased more cheaply. Buyers of such products would have extra money to spend on other things. The demand of other items would go up, as would employment in enterprises producing those items. Of course, it would take some time to absorb the now unemployed steelworkers. However, to balance that effect, workers in other industries who had been unemployed would find jobs available. (What jobs are there to find?) There need be no net loss of employment, (Friedman is either lying or delusional.) and there would be a gain in output because workers no longer needed to produce steel would be available to produce something else. (Like what?) [Milton Friedman and Rose Friedman, Free to Choose, pg.46]
His statement, “There need be no net loss of employment,” is economic delusion and stupidity to the point of delusion. Somehow, Friedman creates manufacturers and jobs out of thin air to support his utopian delusion of free trade. The thousands of empty factories throughout the United States, the ghost town that used to be Motor City and the empty G.E. factory of thirteen buildings in Bridgeport, Connecticut are living monuments to Friedman’s failed free trade.
Paul Krugman of The New York Times makes the same fundamental mistake of Friedman. He ignores that citizens are both consumers and workers.
The costs that tariffs and import quotas impose on domestic consumers almost always exceed the gains they provide to domestic producers. Nonetheless, if we didn’t have trade agreements, protectionism would usually win. Consumers don’t realize that they are hurt by steel tariffs or sugar quotas, but the steel and sugar industries know exactly what they are getting. [Paul Krugman, The Great Unraveling, pg. 386.]
This remarkably compact paragraph illustrates all the fallacies of the free trade argument. Krugman says, “Protectionism would usually win.” He is right. Citizens prefer an economy with high-paying jobs over low-priced goods, but no income to buy them.
His statement that “consumers don’t realize that they are hurt by steel tariffs,” is false in two senses. Informed citizens know they have lost jobs due to foreign competition and they would rather have higher steel prices and good jobs. They also know that steel prices might be higher, but that the steel workers are employed in American factories.
Finally, Krugman divides the world into two unequal groups. It is the “consumers” that are hurt by the high prices, but it is the “industries” that reap the benefit. Krugman, as Friedman, ignores that workers actually work in industries.
Ralph Nader proves to be a better economist than either Paul Krugman or Milton Friedman. Certainly, he is more aware of what is actually happening in the United States.
Millions of manufacturing jobs in this country have been shipped overseas. This transfer was supposed to be part of the "win-win" process of free trade. But 27 straight years of growing trade deficits makes one wonder: who's winning?
Someday the Pollyanna belief that the US economy always replaces the jobs it loses overseas with new jobs here, as we keep racing ahead of other countries with modern technology, may run into a contrary riptide that no set of spurious statistics can obscure. [Ralph Nader, In the Public Interest: "The Job Export Machine," Jul 9, 2003]
Alexander Hamilton would be proud of Ralph Nader and his views that self-sufficiency and bottom-up capitalism is the way for a country to increase the productivity of its citizens and the wealth of the nation. Nader goes on:
Far better for countries to focus on building domestic markets through land reform, microcredit for small businesses, use of local materials for housing and renewable energy solar-style. For developing countries, it is far better for bottom-up capital formation to encourage activities that are more job intensive—generating purchasing power—than adopting highly capitalized and chemical plantation type agribusiness with destructive technologies. [Ralph Nader “In the Public Interest” newspaper column Dec 7, 1999]
Friedman is an economist, but strangely, he conveniently ignores the basic laws of supply and demand. If workers in America become unemployed, the total size of the unemployed labor pool is larger. This has the effect of driving down wages in all industries. Free trade makes employment, unemployment and wages subject to the labor pool of the entire world!
Nevertheless, here is Milton Friedman, with the hoary concept of “comparative advantage:”
Even if we were more efficient than the Japanese at producing everything, it would not pay us to produce everything. We should concentrate on doing those things we do best, those things where our superiority is the greatest. [Milton Friedman and Rose Friedman, Free to Choose, pg. 44.]
The almost racist assumption of Friedman is “where our superiority is greatest.” What makes him think that the Japanese, Chinese or Germans cannot quickly duplicate manufacturing methods of America and equal or surpass American technology? Friedman is writing in the 1960’s but living in a 1930’s world, where America could always be counted on to be more innovative, more imaginative, and more entrepreneurial than the rest of the world. Certainly, this is not a very sustainable proposition since World War II. The Japanese, the Chinese and others have shown great innovative capacity.
In addition, it seems unwise to hinge the entire economy on employing millions of people in the latest cutting-edge technologies. How many people can be employed producing software for computers as opposed to producing clothing? We have lost the steel industry, computers, home appliances, etc. Practically everything that is sold in Wal-Mart is made in China. It would be nice for professor Friedman to come up with a few new industries that will employ millions of workers. Could that be the dot.com industries? That does not seem to be the case. The entire U.S. operation of Microsoft is less than 20,000 employees in the U.S. So, what work are these people going to do?
Karl Marx recognized the destruction of economies and societies that is brought about by free trade and he welcomed it. For him, free trade would bring the destruction of organized society, capitalism and herald the “dictatorship of the proletariat.” Whether one agrees with his objectives or not, Marx was a total realist in understanding the effects of free trade. On the other hand, Milton Friedman and his followers are naïve, unworldly and refuse to see the effects of free trade in country after country.
Looked at another way, free trade and Marxism are only different sides of the same coin. Marxism posits that there must be chaos and the destruction of capitalism to reach the dictatorship of the proletariat. Similarly, but covertly, free trade agrees that there must be the destruction of successful organized wealthy societies to reach a dictatorship of the free market consumer. The result of unrestricted free trade is to reduce every society to the level of the lowest, poorest society on the planet. This is because this society will be the one that is always able to produce manufactured goods at the lowest world cost. Free trade opponents accurately define this effect, “Free trade is a race to the bottom.”
Here is Milton Friedman at his arrogant, intellectual-elite, utopian best:
Ever since Adam Smith there has been virtual unanimity among economists, whatever their ideological position on other issues that international free trade is the best interest of the trading countries of the world. Yet, tariffs have been the rule. [Milton Friedman and Rose Friedman, Free to Choose, pg. 39.]
The statement is true. There is virtually unanimity among economists, but this does not prove anything other than they all think alike. There was unanimity at one time that the sun revolved around the earth, but that did not make it true.
This criticism is minor compared to the major fault of Milton Friedman and the free trade economists, which is to accept utopian theory over practical experience. If “tariffs have been the rule,” maybe there was a good reason. Was not Alexander Hamilton wise enough and smart enough? Did not Hamilton’s tariffs work and give the U.S. a consistent source of revenue and enable the country to build the most prosperous economy in the world?
Free trade economists have abandoned the protectionist tariffs partly because they are all “multiculturalists” who are more concerned with the state of the world, rather than the economic state of the people who live in their country. Protectionism and tariffs are a difficult business that must be decided on a country-by-country basis. Whereas free trade is a panacea for the world that will instantly and surely raise the standard of living in every country worldwide according to the free traders. This hardly has worked out to be the case. The more free trade a country has, the more its economic situation deteriorates.
Japan adopted an activist trade policy and industrial policy like the one England had used in achieving its great rise to world economic leadership in the nineteenth century. Japan managed its foreign trade to achieve its economic advance by gaining for itself the rewarding, skill-building, high-income, success-making industries of the times. It accomplished this by taking over foreign markets for the products of these industries, particularly the uniquely rewarding market of the United States, while protecting from imports its own rewarding industries. Japan exported much more than it imported, particularly in its trade with the United States. Through this one-sided “trade,” Japan made a net take-over of desirable U.S. industries and jobs. …Japan’s policy was pursued forcefully and with realism, skill and effective organization. It was extraordinarily successful. Japan’s economic rise was meteoric. [John M. Culbertson, The Trade Threat and U.S. Trade Policy, pg.3]
In addition, it is worth noting that England eventually abandoned its protectionist policies. The result was that cheap grain flooded England before World War I and World War II. With no domestic production of grain, Germany’s U-Boats almost starved it to death. In addition, English manufacturers began bringing in cheap labor from Pakistan for its cotton mills because of a labor “shortage” and the first step were taken toward massive immigration into a country that had seen virtually none for six hundred years.
Does a country like China have any plans for improving its economic well-being by importing manufactured cars? The dreams of American manufacturers of “opening up” billions of Chinese to its manufactured products will always remain only pipe dreams.
Back in 1994, China designated autos as one of several sectors that would become “pillars” of its industrial development, and therefore eligible for special treatment. China’s 1994 auto plan is a blueprint for using high tariffs and other official carrots and sticks to create a domestic industry that can serve most of the Chinese market. Beijing has aimed to produce 90 percent of its auto demand by the year 2000 and to completely displace imports by 2004. [Alan Tonelson, The Race to the Bottom, pg. 212.]
Japan, China, Taiwan and other countries join the World Trade Organization (WTO) and other free trade associations. But, their purpose is not to engage in free trade as defined by American economists, but rather to the wrangle the best possible trading agreements for their countries. They want trading agreements that make their countries stronger and their citizens wealthier and if the United States economic system collapses, they know their countries will survive. American economists ignore the fact that other great economies such as Spain or the city-states of Italy collapsed and other economies, England and the United States, took their place. The Japanese will not shed many tears when the United States is reduced to an economic skeleton.