Tuesday, October 11, 2011

Free Trade

As an undergraduate in Finance, I took a class in International Trade, and I have to admit that all the theories that support the argument for free trade sounded good at the time.  Those theories point to the "fact" that "society as a whole will be better off with free trade."  On a global basis, I think an argument can be made that society as a whole is better off.  But I am not actually a citizen of any imaginary global society, I am a citizen of the United States, and as such, I am not concerned with how much better off the world is.  I am concerned with how much better (or worse) off the citizens of the U.S. are.  And based on my personal observations, I have to say that I think the citizens of the U.S. are worse off "as a whole."

To make a long story short, I'm just going to cut to the chase.  While free trade may have contributed to increasing global wealth, and even increasing wealth here in the U.S., it hasn't actually increased the utility of that wealth.  Here is a simple example of what I'm getting at:

Suppose I take a dollar from a middle class person, but give a rich person two dollars.  Clearly, as a whole, these two are better off since between the two, they have increased their combined wealth by a dollar.  The problem is that the utility of that dollar to the middle class person is much higher than even the utility of two dollars to the rich person.  Consequently, the two are in actuality worse off, since their combined utility is actually decreased.

This, in effect, is what is happening here in the U.S.  The middle class is disappearing, and the disparity in wealth between the rich and the poor is increasing, resulting in a decrease in total utility, even while the total wealth in this country is increasing.  I think it's time to rethink whether free trade is really such a great idea.