Thursday, April 14, 2011

"Free Trade" Or "More Gummint"?

The growth of Federal and State governments since 1940 (or so) has occurred largely because of increased regulation. The cost of that regulation has amplified the overall cost of Government. Taxation has also risen, to pay for Governmental regulators AND for various social programs.

Now Ian Fletcher argues that "Free Traders" are perfectly comfortable with that--but it is a losing proposition. He mentions an M.I.T. study:

There's a nice new academic paper just out by an MIT economist and his friends that gives some hard data to back up everyone's suspicion that the U.S. is losing jobs to China.

Our study suggests that the rapid increase in U.S. imports of Chinese goods during the past two decades has had a substantial impact on employment and household incomes, benefits program enrollments, and transfer payments in local labor markets exposed to increased import competition. These effects extend far outside the manufacturing sector, and they imply substantial changes in worker and household welfare.

So where's this "Big Government" thing? Right here:

One key discovery of this study is hard data to back up the idea, which I have personally argued for years, that free trade is a small-government policy. In reality, free trade tends to expand government, by increasing the demand for social services and transfer payments (unemployment, welfare etc.) needed to mitigate its social costs.

Citing the study:

Nevertheless, transfers fall far short of offsetting the large decline in average household incomes found in local labor markets that are most heavily exposed to China trade

The conclusion of the study is that the welfare/transfer costs arising from job-losses are equal to the 'benefits' in price-reduction.

We are in the Great Recession for a reason, folks.

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