Free Trade and Inclusive Development

By Suranjana Nabar-Bhaduri

One of the central elements in the development of any country is the creation of economic activities that transform the production structure by significantly increasing labor productivity, or the amount of production per worker. By helping to absorb more people into quality employment, the creation of such activities helps to generate a more inclusive and sustainable path of long-run economic growth. While economists and policy-makers accept the necessity of this transformation, there are differing views on the policies that developing countries should follow to achieve this transformation.

Many Western countries and institutions, such as the International Monetary Fund (IMF) and the World Bank, argue that minimizing the role of the State in economic activity, and opening up the economy to external markets is vital to achieving this transformation. But other economists (e.g., Prebisch 1959, Cimoli and Correa 2002, and Ocampo 2005) stress that active industrial and employment generation policies are also essential ingredients for this transformation, and that it is necessary to complement liberalization with such policies.

Read the rest here.

Free Trade Again

So I've been writing a bit more than often on trade issues. One important conclusion of a paper I co-authored a few years ago was that: "absolute advantage, determined ultimately by low costs of production and/or depreciated currencies, seems to be far more important than comparative advantage in the determination of trade patterns. Developing countries that pursue 'neo-mercantilist' policies to enhance the competitive position of their firms may in fact be doing something rational, leading to higher rates of growth and higher levels of productivity that would imply higher living standards for their population. Also, the avalanche of financial crises in the 1990s, shows that the prescriptions of pop liberals were unfounded; and that balance of payments disequilibria are seldom benign and self-adjusting. Crises are cumulative and the costs of adjustment severe. The Asian crisis and the more recent one in Argentina make the point very clear." Interestingly enough since the Argentine crisis in 2001-2, developing countries have grown considerably faster, and rebounded from the Great Recession pretty fast. It has been the advanced economies, that should not have problems with their balance of payments that got stuck. But the causes for that are fundamentally political. The full paper is here (the title should have said only Principle in the singular). Another paper with similar arguments here.

Rethinking Trade and Commercial Policy at the University of Utah

Peter Ho, from the University of Denver, gave a nice and stimulating talk based on his recently published book. He tries to rethink classical political economics views on trade, reviewing the contributions of Smith, Ricardo and Stuart Mill, and the trade policy advise that derives from it. Without having read the book, the presentation suggests a sort of institutionalist approach to the critique of the mainstream.

One thing that did strike me out as peculiar to the presentation, but which may not be reflected in the book, was the critique of the mainstream view of trade on the basis of Ricardo/Mill rather than the Heckscher-Ohlin (HO) model. Note that comparative advantage in the HO story is associated to full utilization of resources and relative prices determined by scarcity (for a critique see here). That's clearly not the case in Ricardo.

Also, the Ricardian (properly understood as part of the surplus approach) story is less about the benefits of trade in general, and more about which social class benefits and which one loses from protection (see my discussion here).

One last point about the talk, that I would have liked to discuss with Peter (I had to leave for a defense) was on Mill. He was a peculiar author in-between classical political economy and marginalism, and his contributions are more problematic to properly understand than authors like Ricardo and Marshall. In fact, Mill is a key author to understand the break between the surplus approach and marginalism. As noted by Krishna Bharadwaj, what was Ricardian in Mill's theories does not appear in Marshall's work, and what is proto-Marshallian in Mill's ideas was not part of Ricardo's views of political economy. In that sense, while I'm comfortable with a Smith/Ricardo approach to trade, I'm less keen about adding Stuart Mill to the mix.

PS: I should have noted that his discussion of trade policy builds on Hamilton, List, Prebisch, Myrdal, Singer and others, like the work of Ha Joon-Chang. A paper of mine on a similar subject is the entry on Export Promotion for the International Encyclopedia of the Social Sciences, edited by Sandy Darity (here).

Commercial Policy in Latin America

Last week I taught my Raúl Prebisch class, in my Latin American Economic History and Development course, dealing with Import Substitution Industrialization (an annual thing now). The classic paper in English was published in the American Economic Review of 1959. The masters' students have to read the original paper. This follows my two previous posts (here and here) on trade. A few things that are important to notice.

Prebisch clearly says that industrialization (and hence the expansion of domestic production) is an inevitable part of the process of development, something that has been often forgotten as if strategies based on services or intensive agriculture are alternatives to industrialization. We still live in industrial societies (not post-industrial ones), and industry remains the main source for productivity growth (something that was referred to as Kaldor's Second Law of development).

Second, even if there is strong growth of productivity in the primary sector, these tend to be passed to prices and benefit the consumers, mostly in developed countries, whereas at least part of the increases in productivity in the other two sectors are retained by workers in the form of higher wages. So the problem of industrialization is associated to the ability to keep in the developing countries the fruits of technological progress, and not with protectionism for the sake of domestic special interests. Further, the workers expelled from the primary sector (if productivity is to grow there) must be incorporated in the other sectors, and as a result a preoccupation with what he calls (following Lewis) 'surplus manpower' (p. 255).

Last but not least, it's worth again emphasizing on the question of protection (since Prebisch is seen often as the Devil by Free Traders*), that Prebisch (p. 259) notes clearly that: "protection by itself does not increase productivity."

* The typical attitude is I did not read it, and I did not like it. The aversion of the mainstream to Prebisch is so strong that Dani Rodrik confesses in his Prebisch Lecture (see the irony?!) that a month before he had not read any of his works. Basically he found out that Prebisch: "did not favour indiscriminate protection. He anticipated his later critics by recognizing that trade protection on its own would not lead to increased productivity in manufactures, and that it might even resuit in the opposite."

More on "free" trade

In a recent post I promised to develop the critique of the dominant trade model, the so-called Heckscher-Ohlin-Samuelson (HOS) theory. While the Ricardian concept of comparative advantage is based on the labor theory of value (and is compatible with modern versions of that theory, as developed by Sraffa), and its results hold if the assumptions are realistic (limited capital mobility, and a fixed level of employment, the latter could result from domestic demand policies), the HOS is an application of the marginalist theory of value and distribution and it suffers from that theory's inconsistencies.

The HOS theory says that a country exports the goods that are intensive in the use of the factor of production that is abundant in the country. A country with lots of workers, and according to theory cheap labor, would produce goods that are labor intensive and export them, while importing capital intensive goods. The graph below illustrates the argument.

If there are two goods (a and b), and one (a) is always more capital intensive (bigger capital-labor ratio) than the other (b), and in both goods we have that as capital intensity increases (larger K/L ratio) the rate of interest falls, then as the rate of interest falls the relative price of the capital intensive good with respect to the labor intensive one falls too. In other words, in a capital abundant country, capital intensive goods would be cheap, and specialization would be guided by the relative prices.

The capital controversy showed that there is no reason, in a world with multiple capital goods, to have a monotonic decreasing relation between capital intensity and the remuneration of capital. One way in which that effect could be represented would be with a capital intensity reversal in the production of goods a and b, as shown below.

In that case, as the intensity of capital increases (K/L goes up) at first, as before, a is the capital intensive good, but now there is a switch and b becomes the capital intensive good at lower rates of interest. The consequence is that for a part of the process as the capital-labor ratio increases the price of a with respect to b increases, but after the switch, the other part of the process, it decreases. The relative abundance of capital and labor is not a guide for relative prices anymore, and as a result, neither can it determine patterns of specialization.

 

As a result it is not generally true that trade depends on comparative advantage based on relative scarcities of factors of production. This suggests (as the critique of the Ricardian version of the model) that absolute advantage, lower costs, might be more important than conventional wisdom suggests. Also, it implies that history and institutions are central to understand patterns of trade specialization.

The seminal work in this area was done by Ian Steedman, extending the ideas of Sraffa to foreign trade. The classic papers have been collected in Steedman's edited book Fundamental Issues in Trade Theory.

On 'free' and managed trade

In one my last posts I promised to talk about "free trade." As I said the name itself is a misnomer, much like "free market." Not just because it suggests that those that oppose it are somehow against freedom, but mostly because it vaguely indicates that trade and markets are like natural phenomena, which would spring out if only government restrictions were eliminated.

In fact, it is well known, at least since Polanyi's classic, that the key markets in capitalist economies (those for land, labor and money) were slowly created by the interplay of social conflicts articulated through the political process and that their very existence results, in part, from the power of the State. Thus, simplistic and manicheistic views on the relation between the State versus the 'free' market miss the point of how States and markets co-evolved historically.

For example, the Bank of England, created in 1694, obtained the monopoly of money creation only after the Bank Charter Act of 1844, something that resulted from the victory of the City (financial interests) over the country banks (closer to commercial interests). The money issuing monopoly would be impossible without the backing of the government (and its monopoly of violence). The same can be said about international trade transactions. For example, it is well known that the period of the so-called first globalization (1870-1914) saw a significant increase in the volume of world trade. However, several regions actually became more 'protectionist,' i.e. increased the tariffs on trade (see Paul Bairoch for a good discussion on the topic).

In Latin America the higher tariffs allowed government revenue to increase, which, in turn, created the conditions for national armies to reduce domestic conflicts, and centralize administration, provide guarantees for foreign lenders, and fund the construction of railroads and ports. Without tariffs and higher government revenue the integration into world markets would not have been possible.

That does not mean that everybody in Latin America (or in other regions for that matter) did benefit from the increase in international trade during the period [it's worth remembering that in Mexico, towards the end of the period, peasants did revolt against the Porfiriato in the so-called Mexican Revolution of 1910]. It was not 'free' trade that produced growth, but the management of trade to produce commodities for the center (a particular project supported by local elites and international financial and commercial groups) that led to growth (with high levels of inequality).

A more logical discussion, for all these reasons, should not be about 'free' trade versus protectionism, but about what type of managed trade a given society wants, and who benefits from the different trade arrangements. For example, in current discussions about bilateral and multilateral trade agreements the issues of investment and property clauses are essential. The dispute is mostly about those that want to protect the interests of corporations (e.g. property rights, access to foreign courts, elimination of financial regulations forbidding sending profits abroad, etc.), and those that might have alternative interests (e.g. protecting domestic jobs, creating national capacity for industrial innovation, the environment, etc). In fact, for specific cases, like defense or sanitary and phytosanitary rules, it is well established that trade should be regulated, i.e. not 'free' but managed (for discussions of some current problems with the 'free' trade agenda see here and here).

But the problems for the defenders of 'free' trade are not limited to the inconsistencies of their policy positions. In fact, despite the general agreement on 'free' trade by academic (mainstream) economists, the theoretical foundations for their position are very shaky. The basis for the argument harks back to David Ricardo's Principles (and also to the parallel work by Robert Torrens). Ricardo argued that if England and Portugal traded without imposing tariffs it would be mutually beneficial, even if Portugal was better at producing both goods being traded, cloth and wine. The reason is simple. Even if Portuguese workers were more productive than their English counter-parts at producing both goods, they might be better at producing one of them (say wine) and would still benefit from putting all their efforts behind the activity at which they excelled.

In other words, the argument for trade without tariff or other restrictions was based on the the idea that trade is equivalent to access to better technology. The Portuguese could specialize in what they are better technologically, and obtain through trade the things that they do not produce. The English would have also access to better wine. Both would get cloth even if the English were less effective at producing it. The message is: specialization is the wealth of the nations.

However, what is often missed in the discussion is that the Ricardian argument for comparative advantage, as it is the case with all economic models, depends upon certain special assumptions, and that those premises responded to Ricardo's own political views. First, Ricardo assumed that all workers that were employed in wine production in England would find jobs in cloth production, and that all workers in the cloth sector in Portugal would be able to work in the wine sector. Say's Law of Markets, that suggests that general demand crisis do not take place domestically was extended to external markets too. Workers are always employed by definition (not necessarily full employment for Ricardo). Further, Ricardo assumed that capital was immobile, that is, even if it was cheaper to produce from Portugal (given its higher productivity and lower costs) and export to England, English capitalists would prefer to maintain their capital in England and produce in the home country.

Note that if any of those assumptions is violated Ricardo's argument falls apart. In other words, if workers in England and/or in Portugal in the displaced sector cannot find jobs in the other sector, it is unclear that all benefit from 'free' trade. Also, if capitalists can and do move from country to country (interestingly enough Ricardo descended from a family of bankers emigrated from Portugal to Italy, then to the Dutch Republic and finally to England) then in his example the lower costs (absolute advantage) of Portugal would determine that both cloth and wine would be produced there. England would be in a difficult situation importing both goods and condemned to grow at a lower pace, which is exactly the opposite of the historical situation (for an analysis of Anglo-Portuguese trade after the Methuen Treaty of 1703 that allowed Portuguese wine to be exported to England free of taxes and the same for English textiles into Portugal see Sandro Sideri's Trade and Power).

The reasons for Ricardo's special assumptions are very well-known. Ricardo represented financial and industrial interests, and was a harsh critic of the Corn Laws, the tariffs on imported grain imposed after the Napoleonic Wars, that favored the landed and aristocratic classes, defended by his friend Robert Malthus. Ricardo assumed that wages were at the subsistence level, and that tariffs on the importation of grain would lead to the use of more and less productive land in England for their production, increasing the rent accrued by the landowners. For a given output, and fixed wages, the higher rent would necessarily reduce profits, and capital accumulation. In other words, the special assumptions (which Ricardo thought relevant for the particular case of England in that particular historical context) were instrumental in his argument for the elimination of tariffs on grain imports. His was a progressive argument for industrialization and against the agrarian aristocracy (for a discussion of Ricardo's political views see Milgate and Stimson's Ricardian Politics).

Generalizations of the Ricardian argument can only be defended if his assumptions (including that displaced workers do find jobs and there is no capital mobility) are also thought to be generally valid. More modern arguments for 'free' trade rest on the so-called Heckscher-Ohlin-Samuleson (HOS) model, that is fraught with logical problems, and even less defensible than the generalization of Ricardian views, but I'll deal with those in another post.

PS: My paper "What Do Undergrads Really Need to Know About Trade and Finance" might provide a more detailed discussion of some of the issues above. Robert Vienneau has posted here elements of the Sraffian critique of the HOS model.

The Colombia FTA again

If you missed my piece on the Colombia Free Trade Agreement, then you can read it at Triple Crisis; it is posted with a link to the original at NACLA.

The Colombia FTA: Only Corporations Win

Trade has been a contentious issue in U.S. politics for a very long while. In recent times, free trade agreements have been promoted as essential by the cheerleaders of globalization, and as a threat to good jobs with decent wages and benefits by those who are skeptical about the advantages of the global economy. President Obama, a man of broad views, seems to represent both opinions. On February 12, 2008, candidate Obama made the following argument on this issue:

“It’s a game where trade deals like NAFTA ship jobs overseas and force parents to compete with their teenagers to work for minimum wage at Wal-Mart. That’s what happens when the American worker doesn’t have a voice at the negotiating table, when leaders change their positions on trade with the politics of the moment, and that’s why we need a President who will listen to Main Street—not just Wall Street; a President who will stand with workers not just when it’s easy, but when it’s hard.”

The previous year, Senator Obama had opposed trade deals with Colombia, Panama, and South Korea, while favoring one with Peru. Facing several critics, even before he won the nomination, Obama clarified that he did not intend to unilaterally revise NAFTA, but would be favorable to having a dialogue about the costs of free trade agreements (FTAs). Once in office, however, Obama seems to have made a 180-degree turn.



Read the rest here.

Economists Shocked, Shocked: We Really Are Losing Jobs to China!

Ian Fletcher

Activist Post

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.  It’s entitled The China Syndrome: Local Labor Market Effects of Import Competition in the United States, by David Autor, which can be downloaded if you are curious.

The bottom line here probably won’t be all that surprising to most ordinary Americans, though it will annoy the living daylights out of most academic economists and our political establishment.  In the authors' own words:

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. 

In ordinary language, we’re getting scr*wed, folks.  “Welfare,” in this context, doesn’t mean welfare checks; it is the economists’ term for, roughly, “economic well-being.” And the “substantial changes” mentioned are not for the better.

 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 not 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.  As the authors put it:

"Growing import exposure spurs a substantial increase in transfer payments to individuals and households in the form of unemployment insurance benefits, disability benefits, income support payments, and in-kind medical benefits."

 Quite. But don’t think the butcher’s bill is paid for by all this welfare-state generosity.  The authors conclude that all this government assistance doesn’t cover the harm done by free trade:

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. 

Now here’s the real kicker: the authors calculate that the economic efficiency lost due to increased transfer payments is quite likely big enough to cancel out all the supposed gains in economic efficiency due to trade with China!

Our estimates imply that the losses in economic efficiency from trade-induced increases in the usage of public benefits are, in the medium run, of the same order of magnitude as U.S. consumer gains from trade with China. 

In other words, the blithe assumption of conventional economics that “Sure, free trade has its costs, but the benefits are infinitely larger” doesn’t hold up. We’re either not winning out, or winning only peanuts.

Finally, for any readers who have been smugly assuming that because they don’t personally work in manufacturing, none of this affects them, bad news.  The authors report that:

Our analysis finds that exposure to Chinese import competition affects local labor markets along numerous margins beyond its impact on manufacturing employment. In particular, while growing exposure to Chinese imports reduces manufacturing employment in a local labor market, it also triggers a decline in wages that is primarily observed outside of the manufacturing sector. Reductions in both employment and wage levels lead to a steep drop in the average earnings of households. (Emphasis added.)

 So don’t think there’s anywhere to hide from the China threat.

Make no mistake, people: the case for free trade is inexorably crumbling. 

 

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank founded in 1933 and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

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The Theory That’s Killing America’s Economy—and Why It’s Wrong

Ian Fletcher

Activist Post

I wrote in a previous article how America’s disastrous embrace of free trade is ultimately based on a false theory of how the global economy works: the so-called Theory of Comparative Advantage. This is what economists, from the government on down, believe in. This matters.

But I didn’t explain why the theory is wrong—which it is. Understanding its flaws is the price of admission to serious criticism of free trade, so it’s well worth getting a grasp on them. Economic theory can be a tough chew, but it’s worth the effort, if only to gain the intellectual confidence not to be intimidated by the so-called experts.  So… let’s take a look at some of that machinery behind the wizard’s curtain, shall we?

The theory’s flaws,  which are fairly well known to economists but mostly ignored, consist of a number of dubious assumptions upon which the theory depends. To wit:Dubious Assumption #1: Trade is sustainable.
The problem here is that the theory of comparative advantage pays no attention to the long term.  So it can quite easily recommend a trade policy that gives us the highest possible living standard in the short run—but by way of selling off our country out from under us.

This is what happens when a nation runs a trade deficit, which necessarily means that it’s either sinking into debt to foreigners or selling off its existing assets to them.

The theory of comparative advantage is blind to this problem because it treats people’s time horizons as a given.  So if a nation wants a short-term consumption binge followed by long-term decline, the theory says “OK, no problem. You wanted it, you got it, what’s not to like?”

A saner theory of trade (and of economics generally) would advise people that it’s not a good idea to engage in decadent binges, regardless of how good it feels right now.  It would recommend protectionist restraints on imports to force trade into balance, not free trade.
  
Dubious Assumption #2: There are no externalities.
An externality is a missing price tag. More precisely, it is the economists’ term for when the price of a product does not reflect its true economic cost or value.

The classic negative externality is environmental damage, which reduces the value of natural resources without raising the price of the product that harmed them. The classic positive externality is technological spillover, where one company’s inventing a product enables others to copy or build upon it, generating wealth that the original company can’t capture.

If prices are wrong due to positive or negative externalities, free trade will produce suboptimal results.

For example, goods from a nation with lax pollution standards will be too cheap. So its trading partners will import too much of them. And the exporting nation will export too much of them, overconcentrating its economy in industries that are not really as profitable as they seem, due to ignoring pollution damage.

Positive externalities are also a problem. If an industry generates technological spillovers for the rest of the economy, then free trade can let that industry be wiped out by foreign competition because the economy ignored its hidden value. Some industries spawn new technologies, fertilize improvements in other industries, and drive economy-wide technological advance; losing these industries means losing all the industries that would have flowed from them in the future. 

Dubious Assumption #3: Productive resources move easily between industries. 
As noted in my original article, the theory of comparative advantage is about switching productive resources from less-valuable to more-valuable uses.  It’s about putting our economy to its own best use.

But this assumes that the productive resources used to produce one product can switch to producing another. Because if they can’t, then imports won’t push our economy into industries better suited to its comparative advantage. Imports will just kill off our existing industries and leave nothing in their place.

When workers, for example, can’t move between industries—usually because they don’t have the right skills or don’t live in the right place—shifts in an economy’s comparative advantage won’t move them into a more appropriate industry, but into unemployment.

In the United States, because of our relatively low minimum wage and hire-and-fire labor laws, this problem tends to take the form of underemployment, rather than unemployment per se. So $28 an hour ex-autoworkers go work at the video rental store for eight dollars an hour.

The same goes for other inflexible factors of production, like real estate.  That’s why the shuttered factory rivals the unemployment line as a visual image of trade problems.
 
Dubious Assumption #4: Trade does not raise income inequality.
Even if free trade expands the economy overall (dubious), it can tilt the distribution of income so much that ordinary people see little or none of the gains.

For example, suppose that opening up a nation to freer trade means that it starts exporting more airplanes and importing more clothes than before.  Because the nation gets to expand an industry better suited to its comparative advantage and contract one less suited, it becomes more productive and its GDP goes up.

So far, so good.

Here’s the rub: suppose that a million dollars’ worth of clothes production requires one white-collar worker and nine blue-collar workers, while a million dollars of airplane production requires three white-collar workers and seven blue-collar workers. So for every million dollars’ change in what gets produced, there is a demand for two more white-collar workers and two fewer blue-collar workers. Because demand for white-collar workers goes up and demand for blue-collar workers goes down, the wages of white-collar workers go up and those of blue-collar workers go down.

But most workers are blue-collar workers—so free trade has lowered wages for most workers in the economy!

This is not a trivial problem: Dani Rodrik of Harvard estimates that freeing up trade reshuffles five dollars of income between different groups of people domestically for every one dollar of net gain it brings to the economy as a whole.
 
Dubious Assumption #5: Capital is not internationally mobile.
The theory of comparative advantage is about the best uses to which America can put its productive resources, what economists call “factors of production.” We have certain cards in hand, so to speak, the other players have certain cards, and the theory tells us the best way to play the hand we’ve been dealt. Or more precisely, it tells us to let the free market play our hand for us, so market forces can drive all our factors to their best uses in our economy.

Unfortunately, this relies upon the impossibility of these same market forces driving these factors right out of our economy. If that happens, all bets are off about driving these factors to their most productive use in our economy. Their most productive use may well be in another country, and if they are internationally mobile, then free trade will cause them to migrate there.

This will benefit the world economy as a whole, and the nation they migrate to, but it will notnecessarily benefit us.

This problem applies to all factors of production, but the crux of the problem is capital. Capital mobility replaces comparative advantage, which applies when capital is forced to choose between alternative uses within a single national economy, with absolute advantage. And absolute advantage contains no guarantees whatsoever about the results being good for both trading partners.

Capital immobility doesn’t have to be absolute, but it has to be significant and as it melts away, trade shifts from a guarantee of win-win relations to a possibility of win-lose relations.

David Ricardo, the British economist who invented the theory of comparative advantage in 1817, actually knew about this problem perfectly well, and wrote about it in his book on the subject. So there’s no excuse for modern economists to ignore it.
 
Dubious Assumption #6: Short-term efficiency causes long-term growth. 
The theory of comparative advantage is what economists call “static” analysis. That is, it looks at the facts of a single instant in time and determines the best response to those facts at that instant. But it says nothing about how today’s facts may change tomorrow. More importantly, it says nothing about how one might cause them to change in one’s favor.

So even if the theory of comparative advantage tells us our best move today, given our productivities in various industries, it doesn’t tell us the best way to raise those productivities tomorrow. That, however, is the essence of economic growth, and in the long run much more important than squeezing every last drop of advantage from the productivities we have today.  Economic growth is ultimately less about using one’s factors of production than about transforming them—into more productive factors tomorrow.

The theory of comparative advantage is not so much wrong about long-term growth as simply silent.

Analogously, it is a valid application of personal comparative advantage for someone with secretarial skills to work as a secretary and someone with banking skills to work as a banker. In the short run, it is efficient for them both, as it results in both being better paid than if they tried to swap roles. (They would both be fired for inability to do their jobs and earn zero.) But the path to personal success doesn’t consist in being the best possible secretary forever; it consists in upgrading one’s skills to better-paid occupations, like banker. And there is very little about being the best possible secretary that tells one how to do this.
  
Dubious Assumption #7: Trade does not induce adverse productivity growth abroad.
When we trade with a foreign nation, this will generally build up that nation’s industries, i.e. raise its productivity in them. Now it would be nice to assume that this productivity growth in our trading partners can only make them ever more efficient at supplying the things we want, and we will just get ever cheaper foreign goods in exchange for our own exports, right?

 Wrong. Consider our present trade with China. Despite all the problems this trade causes us, we do get compensation in the form of some very cheap goods, thanks mainly to China’s very cheap labor. The same goes for other poor countries we import from. But labor is cheap in poor countries because it has poor alternative employment opportunities. What if these opportunities improve? Then this labor may cease to be so cheap, and our supply of cheap goods may dry up.

This is actually what happened in Japan from the 1960s to the 1980s, as Japan’s economy transitioned from primitive to sophisticated manufacturing and the cheap merchandise readers over 40 will remember (the same things stamped “Made in China” today) disappeared from America’s stores. Did this reduce the pressure of cheap Japanese labor on American workers? It did. But it also deprived us of some very cheap goods we used to get.

And it’s not like Japan stopped pressing us, either, as it moved upmarket and started competing in more sophisticated industries.

Oops!

When Nobel laureate Paul Samuelson— author of the best-selling economics textbook in history—reminded economists of this problem in a (quite accessible) 2004 article, he drew scandalized gasps from one end of the discipline to the other. But nobody was able to explain why he was wrong.

They still haven’t.

I don’t expect most readers to get all the above analysis the first time through.  But I do hope that everyone who’s read this far now understands that there is no good reason—regardless of what most economists say—to assume that free trade is necessarily best.  The economic logic of those who say it is, is riddled with enough holes to sink a container ship.

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Obama, Santos to clear way for free trade deal

Juan Manuel Santos
© AFP Stan Honda

AFP

WASHINGTON (AFP) - President Barack Obama and his Colombian counterpart Juan Manuel Santos are set to approve a deal Thursday removing the final obstacles to a bilateral free trade agreement (FTA), US officials said.

Ron Kirk, the US trade representative, said the plan will lay out steps to protect labor rights in Colombia, clearing the way for ratification of the trade pact later this year.

"We are now in a position to announce an agreement on an 'Action Plan Related to Labor Rights' that outlines a number of steps that Colombia has agreed it will undertake," Kirk said in a conference call with reporters.

Santos was in New York on Wednesday and was due at the White House Thursday, when he and Obama are expected to sign the action plan.

"We are very close to (reaching) a definitive agreement," Santos told reporters in New York. "If we do so tomorrow we will then have a concrete date for the presentation of the FTA to Congress, which was our goal."


The agreement should eliminate the final barrier to a free trade agreement signed by the two countries in 2006 during the administration of George W. Bush, but which has languished in the US Congress.

Santos noted that "Colombia has been waiting five years" for the FTA to become a reality, and that "in no way" would there be new negotiations on the treaty.

Democrats have blocked ratification of the FTA, raising concerns about attacks on union leaders in Colombia and demanding greater protections for labor organizers and labor rights.

Among other points, the plan requires a reform of the Colombian penal code by June 15 to criminalize actions that violate labor rights, and the assignment of 95 investigators to those kinds of cases by December.

Kirk said the plan "significantly expands the protection for labor leaders and union organizers, it bolsters efforts to hold accountable and punish those who have perpetrated violence against union members, and makes a number of important steps to strengthen labor laws and their enforcement."

Some steps must be taken before the administration sends the treaty to Congress, others before the Congress votes, and yet others over the course of the year, he said.

The White House said the free trade agreement will expand US exports to Colombia by more than $1.1 billion, giving key US goods and services duty-free access to sectors ranging from manufacturing to agriculture.

"It will increase US GDP by $2.5 billion and support thousands of additional US jobs," it said in a statement.

Top Senate Republican Mitch McConnell said an agreement would be "very good news for an economy that needs it."

"Republicans have been urging the administration to act on this critical trade deal for months," McConnell said on the Senate floor.

"This agreement would help American businesses compete on a level playing field with businesses overseas. It would help create American jobs. And it would help our relationship with an important ally in Latin America," he said.

Kirk would not discuss a timetable for FTA ratification, which officials said would involve two other FTAs awaiting approval -- one with South Korea and another with Panama.

The US administration, which did not push negotiations on those three fronts during its first two years in office, changed course late last year, when Obama said he wanted to reach a trade deal with South Korea.

Kirk announced an agreement with Seoul in December, and since early this year has reported major progress on labor and tax issues with Panama.

But Republicans, after taking control of the US House of Representatives, said the fates of the three treaties were inseparable, and that they all had to be submitted for ratification by July 1.

Tensions in Congress between Democrats and Republicans also led to suspension of other agreements, such as a system of trade preferences for Andean nations in effect since 2002, which benefited Ecuador and Colombia.

© AFP -- Published at Activist Post with license

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The Famous (and Almost Never Understood) Theory of Comparative Advantage

Ian Fletcher

Activist Post

You can read about the free trade controversy for months and never hear about it.  But in the minds of real economists, it’s there all the time, and it’s big. I’m talking about the so-called theory of comparative advantage, the theoretical lynchpin—in the view of free traders and protectionists alike—of the case for free trade.   It has an unfortunate reputation for being too technically tricky for non-economists to understand, but I think this is a shame, because this myth tends to shut ordinary concerned citizens out of the debate. Therefore, I’d like to take a shot at explaining this theory.

The theory is ultimately wrong, for reasons I spent half a book discussing.  And in a future article, I’ll explain why. But for now, let’s just get clear on what it says.  That’s the price of admission for engaging in serious debate on the issue.

To understand comparative advantage, it is best to start with its simpler cousin: absolute advantage. The concept of absolute advantage simply says that if some foreign nation is a more efficient producer of some product than we are, then free trade will cause us to import that product from them, to the benefit of both nations. It benefits us because we get the product for less than it would have cost us to make it ourselves. It benefits the foreign nation because it gets a market for its goods. And it benefits the world economy as a whole because it causes production to come from the most efficient producer, maximizing world output.

Sounds good.  Indeed, absolute advantage is a set of fairly obvious ideas. It is, in fact, the theory of international trade most people instinctively hold, without recourse to formal economics, and thus it explains a large part of public opinion on the subject. It sounds like a reassuringly direct application of basic capitalist principles. It is the theory of trade the great Adam Smith himself, founder of modern economics, believed in.

It is also false. Under free trade, America observably imports products of which we are the most efficient producer—which makes no sense by the standard of absolute advantage. This causes complaints like conservative commentator Patrick Buchanan’s below:

Ricardo’s theory...demands that more efficient producers in advanced countries give up industries to less efficient producers in less advanced nations...Are Chinese factories more efficient than U.S. factories? Of course not. (The Great Betrayal, p. 67.)

Buchanan is correct: this is precisely what Ricardo’s theory demands. It not only predicts that less efficient producers will sometimes win (observably true) but argues that this is good for us (the controversy). This is why we must analyze trade in terms of not absolute but comparative advantage. If we don’t, we will never obtain a theory that accurately describes what does happen in international trade, which is a prerequisite for our arguing about what should happen—or how to make it happen.

At bottom, the theory of comparative advantage simply says this:

Nations trade for the same reasons people do. 
And the whole theory can be cracked open with one simple question:

Why don’t pro football players mow their own lawns?
Why should this even be a question? Because the average footballer can almost certainly mow his lawn more efficiently than the average professional lawn mower. The average footballer is, after all, presumably stronger and more agile than the presumably mediocre workforce attracted to a badly paid job like mowing lawns. (If we wanted to quantify his efficiency, we could measure it in acres per hour.)

Efficiency (also known as productivity) is always a matter of how much output we get from a given quantity of inputs, be these inputs hours of labor, pounds of flour, kilowatts of electricity, or whatever.  Because our footballer is more efficient, in economic language he has absolute advantage at mowing lawns. Yet nobody finds it strange that he would “import” lawn-mowing services from a less efficient “producer.” Why? Obviously, because he has better things to do with his time.

This is the key to the whole thing. The theory of comparative advantage says that it is advantageous for America to import some goods simply in order to free up our workforce to produce more-valuable goods instead. We, as a nation, have “better things to do with our time” than produce these less valuable goods. And, just as with the football player and the lawn mower, it doesn’t matter whether weare more efficient at producing them, or the country we import them from is.  As a result, it is sometimes advantageous for us to import goods from less efficient nations.

This logic doesn’t only apply to our time, that is our man-hours of labor, either. It also applies to our land, capital, technology, and every other resource used to produce goods. So the theory of comparative advantage says that if we could produce something more valuable with the resources we currently use to produce some product, then we should import that product, free up those resources, and produce that more valuable thing instead.

Economists call the resources we use to produce products “factors of production.”  They call whatever we give up producing, in order to produce something else, our “opportunity cost.” The opposite of opportunity cost is “direct” cost, so while the direct cost of mowing a lawn is the hours of labor it takes, plus the gasoline, wear-and-tear on the machine, et cetera, the opportunity cost is the value of whatever else these things could have been producing instead.

Direct cost is a simple matter of efficiency, and is the same regardless of whatever else is going on in the world. Opportunity cost is a lot more complicated, because it depends on what other opportunities exist for using factors of production.

Other things being equal, direct cost and opportunity cost go up and down together, because if the time required to mow a lawn doubles, then twice as much time cannot then be spent doing something else. As a result, high efficiency tends to generate both low direct cost and low opportunity cost. If someone is such a skilled mower that they can mow the whole lawn in 15 minutes, then their opportunity cost of doing so will be low because there’s not much else they can do in 15 minutes.

The opportunity cost of producing something is always the next most valuable thing we could have produced instead. If either bread or rolls can be made from dough, and we choose to make bread, then rolls are our opportunity cost. If we choose to make rolls, then bread is. And if rolls are worth more than bread, then we incur a larger opportunity cost by making bread. It follows that the smallerthe opportunity cost we incur, the less opportunity we are wasting, so the better we are exploiting the opportunities we have.

Therefore our best move is always to minimize our opportunity cost. This is where trade comes in.

Trade enables us to “import” bread (buy it in a store) so we can stop baking our own and bake rolls instead. In fact, trade enables us to do this for all the things we would otherwise have to make for ourselves. So if we have complete freedom to trade, we can systematically shrug off all our least valuable tasks and reallocate our time to our most valuable ones.

Similarly, nations can systematically shrink their least valuable industries and expand their most valuable ones. This benefits these nations and under global free trade, with every nation doing this, it benefits the entire world. The world economy, and every nation in it, become as productive as they can possibly be.

Or so goes the theory…

Here’s a real-world example: if America devoted hundreds of thousands of workers to making cheap plastic toys (we don’t; China does) then these workers could not produce anything else. In America, we (hopefully) have more-productive jobs for them to do, even if American industry couldhypothetically grind out more plastic toys per man-hour of labor and ton of plastic than the Chinese. So we’re better off leaving this work to China and having our own workers do that more-productive work instead.

This all implies that under free trade, production of every product will automatically migrate to the nation that can produce it at the lowest opportunity cost—the nation that wastes the least opportunityby being in that line of business.

The theory of comparative advantage thus sees international trade as a vast interlocking system of tradeoffs, in which nations use the ability to import and export to shed opportunity costs and reshuffle their factors of production to their most valuable uses.

This all (supposedly!) happens automatically, because if the owners of some factor of production find a more valuable use for it, they will find it profitable to move it to that use. The natural drive for profit will steer all factors of production to their most valuable uses, and opportunities will never be wasted.

It follows that any policy other than free trade (supposedly!) just traps economies producing less-valuable output than they could have produced. It saddles them with higher opportunity costs—more opportunities thrown away—than they would otherwise incur.

In fact, when imports drive a nation out of an industry, this must (supposedly!) be good for that nation, as it means the nation must be allocating its factors of production to producing something more valuable instead. If it weren’t doing this, the logic of profit would never have driven its factors out of their former uses. In the language of the theory, the nation’s “revealed comparative advantage” must lie elsewhere, and it will now be better off producing according to its newly revealed comparative advantage.

Or so goes the theory, and it’s easy to see where it leads.  Next time, I’ll tell you why it isn’t true.
 

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank founded in 1933 and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

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Why Public Support for Free Trade Will Collapse Soon

Ian Fletcher

Activist Post

For once, some good news: public support for free trade will almost certainly collapse over the next few years.  On this issue, the public is way ahead of the political class in the quality of its thinking, and the average hardware store owner in Nebraska understands the real economics involved better than the average U.S. Senator.

Public opinion certainly continues to turn against free trade: an NBC-Wall Street Journal poll in September 2010 found 53% of Americans believing free trade agreements hurt the U.S., with only 17% believing them beneficial.  (The split had been 30%  vs. 39% in the dot-com boom year of 1999.)  86%  named outsourcing to low-wage nations the key cause of America’s failure to emerge fully from recession and create jobs, significantly outranking choices like the federal deficit. The turn against free trade was sharpest among the affluent and cut across boundaries of class, region, and political affiliation.

As of early 2011, there are four missing prerequisites for free trade to explode as an issue and collapse as a policy:

1.    Everyone is still preoccupied with the financial crisis, its aftermath, and recovery from recession, especially job recovery.

2.    There remains a residual sense in the minds of the public and the lawmakers that somehow free trade, despite all its problems, is still sound economics, and that perhaps we should just keep on eating our spinach because it will be good for us in the end.

3.    There is no obvious alternative policy on the table. There is instead a grab bag of issues, ranging from Chinese currency manipulation to the proposed Korea, Colombia, and Panama free trade agreements. This paucity of credible alternatives feeds the defeatist attitude that nothing fundamental can be done, which feeds apathy.

4.    A specific crisis has not happened to force the system out of its old way of doing things as the debacle in subprime mortgages upended our financial system in 2008 and made continuation of prior policy impossible whether anyone wanted it or not.

For the second prerequisite to be supplied, all it will take is sufficient public debate, between persons perceived as credible, for free trade to become established in the public mind as an issue with two legitimate sides to it. As the reader has hopefully gathered from my column by now, once one seriously scrutinizes the underlying economics of free trade, even if one is not disabused of the policy outright it becomes hard to deny that it is a legitimately controversial issue. The pure “100 percent free trade with 100 percent of the world 100 percent of the time” position is simply not intellectually serious. (Free traders will, of course, respond that none of them actually believe in literal 100% free trade. The reader may judge whether the various kinds of 99% free trade they believe in are significantly different.) 

So when public debate finally cracks open, free trade will lose its innocence very fast.

Once protectionism is perceived as a legitimate choice, it will become the actual choice of large numbers of people whose protectionist instincts have been held back by the belief that it is somehow an ignorant position to take. They will not need to master the details of why it is legitimate; they will only need to know that it is legitimate.

Sen. Sherrod Brown (D-OH), one of the leading opponents of free trade in the Senate, reports that ever since he came to Congress in 1993, every free trade vote has been accompanied by predictions by the White House of economic disaster if it was not passed. Trade wars, stock market decline, and recession were predicted every time. The power of this rhetoric to intimidate is going to end. “Protectionist” will cease to be a canard and become just another policy option.

The third prerequisite above (no obvious alternative) can emerge overnight if some major political figure launches a tariff proposal that captures the public’s imagination. Or the myriad individual issues that currently comprise the opposition to free trade could force the soldering together of an omnibus proposal on the floor of Congress.

The fourth prerequisite (a sudden crisis) is difficult to predict as to time, but we can rely securely upon the fact that unsustainable trends are always, in the end, not sustained. At some point, America’s giant overdraft against the rest of the world must come to an end. Although our government is trying to postpone the day of reckoning as long as possible, this day will come. Secretary of State Hillary Clinton flying to China to beg its government to keep buying our bonds (as she did in February 2009) won’t make much difference in the end.

Once protectionism is conceded to be a valid political position, it will eventually win the public debate, if free trade’s unpopularity continues to mount at the pace it has been mounting over the last 10 years. And this pace is, if anything, likely to accelerate.

When this happens, the status quo will be sustained only by the tacit bargain of the American political duopoly, in which the two parties agree not to make trade a serious issue, whatever tactical feints they may deploy. This corrupt bargain will hold as long as the benefits of keeping it, which mainly consist in keeping the corporate backers of both parties happy, exceed the benefits of defecting from it, which consist in winning votes.

Once one party defects, protectionism will, if rationally designed and competently implemented, almost certainly be sufficiently successful in practice (and therefore popular) that the other party will have no choice but to follow. The alternative, if one party insists on handicapping itself by clinging to an unpopular position on such a major issue, is an era of one-party political dominance like 1860-1932 or 1932-80.

Make no mistake: we are heading for a big economic paradigm shift here.

[Minor note: the 2011 edition of my book http://www.freetradedoesntwork.com just came out.]

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank founded in 1933 and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

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10 Reasons Obama is Just As Bad or Worse Than Bush

Activist Post

George W. Bush was clearly a mentally-challenged puppet of the military/banking/oil elite.  The policies put it in place at breakneck speed after 9/11 were provably predetermined by think tanks well in advance. Not that other presidents were any less controlled by this hidden agenda, but there was a noticeable in-your-face quickening of corporate-government tyranny under Bush.

These policies like wars of aggression, illegal surveillance of Americans, torture of detainees indefinitely held without formal charges, unfair "free trade" agreements, and bank bailouts rightfully enraged many progressives during the Bush years.  Yet, not only have these policies accelerated under Obama, even more of the draconian playbook is unfolding.After 8 years of Bush's reign that ended with a record low presidential approval rating in the low 20s, Obama's promise of hope and change inspired many beyond mainline progressives.  His campaign speeches were so powerful that they landed him the Nobel Peace Prize without having done anything for world peace except to offer the idea in order to get elected.  As a Constitutional law professor and attorney, Obama appeared to have a greater understanding of rights and the balance of power than did flunky Bush.


Although policies being implemented under Obama's leadership exhibit the continuation of Bush's tyrannical agenda, his stunning betrayal of populist and Constitutional principles in support of these actions makes him the ultimate hypocrite.  Additionally, because Obama is a much more influential orator than Bush, his service to the puppet masters is far more dangerous to the American people he's supposed to serve.

There have been many articles written about Obama's unkept promises and outright lies, but here are 10 actions that prove Obama is just as bad if not worse than Bush:

Tax cheat Geithner
AFP image

Bank/Corporate Bailouts: Although the Troubled Asset Relief Program (TARP), otherwise known as the bankster bailout, occurred on Bush's watch, Obama fully supported it as necessary.  Obama then followed up this massive wealth grab with a gargantuan stimulus bill which has basically been absorbed by the financial crisis as well.  All said,Bloomberg and others reported the taxpayer guarantees for Wall Street are upwards of $23 trillion. Additionally, the best part of Obama's cabinet and appointed czars are directly connected to big banks like JP Morgan and Goldman Sachs. Furthermore, Obama and Democratic leaders gave the Federal Reserve even more regulatory power over the economy. The Administration hails the Financial Reform bill as a big political accomplishment, but the bill never addressed the three major problems:  doesn't break up or reduce the size of too-big-to-fail banks, doesn't remove the massive government guarantees to the giant banks, and it won’t even increase liquidity requirements to prevent future meltdowns.  The inmates are too clearly running Obama's asylum.

AFP image

Betrayal of the Poor: Bush never pretended to give a damn about the poor and the systematic mechanisms that keep them poor; openly calling the "haves and have mores" his "base." But Obama has been portrayed as different, mainly because the Democratic party is viewed as more empathetic to the poor.  Obama promised affordable healthcare, to create new jobs, and to increase access to a college education.  However, the mandated healthcare bill has proven to actually hurt the poor, the "jobs" bill HIREwas nothing but a smokescreen to pass capital controls, and college loans are increasingly worse than useless since record numbers of students can't find work to pay them off.  So far he only seems to be helping the poor by extending food stamps to a record number of needy Americans -- which is currently on the spending cut chopping block by the way.  Obama also extended Bush's tax cuts to the wealthiest Americans while the poor suffer the dramatic effects of inflation and the approaching austerity cuts demanded to prevent a government shutdown.

Expansion of Free Trade: Obama excoriated NAFTA, GATT and other so-called "Free Trade" agreements that were put in place under Clinton and Bush (with CAFTA). One of Obama's campaign mailers to Ohioans read "one million jobs have been lost because of NAFTA, including nearly 50,000 jobs here in Ohio."  And Obama told unions that "he has always opposed NAFTA, and said the trade deal should be amended and renegotiated."  It is abundantly clear that free trade agreements have not done well for American manufacturing and its workers (just like Obama told us during his campaign).  These free trade agreements are designed to only help the multinational corporations who wrote them, and who Obama now works for.  In contrast to being "opposed" to such agreements, the government moves forward with many new similar agreements.

Escalating Wars of Aggression:  Whoever thought it couldn't get worse than Bush in regards to wars of aggression -- especially by a Nobel Peace Prize recipient -- have been proven dead wrong. Obama has now unilaterally attacked more countries than Bush, notably bombing inside Pakistan, Yemen and now Libya without Congressional approval. Obama is worse than war-mongering Neocons because he moved the war bar from requiring a real or manufactured threat to justify American military intervention, to vague humanitarian justifications. In other words, if a secular dictator is stamping out a handful of jihadists that threaten his regime, we will now bomb the dictator and support the jihadists when it serves corporate interests. By all counts Obama is serving the same military/oil masters no matter what labels or excuses are given.  It is truly a hideous display to watch progressives support Obama's wars as if they're more righteous than Bush's.

Dees Illustration

Torture and Sport Killing: Bush accepted some blame for the Abu Ghraib torture debacle. Rightly so, as it was his Administration that set forth more enhanced interrogation permissions down the chain of command that ultimately resulted in such disgusting behavior.  Obama used the notion of closing Guantanamo prison to score political points and to appear as "anti-torture."  Not only does Guantanamo remain open two years into his presidency, the detainees have less rights than they did under Bush.  Additionally, Obama has allowed the torture of American soldier Bradley Manning simply for being a suspected whistleblower.  If he allows this type of treatment to an American citizen, we can only imagine the tactics that are still being used against enemy detainees.  If it's fair to blame Bush for Abu Ghraib, then it seems fair to blame Obama for allowing an environment where the U.S. military is engaged in sport killing of innocent civilians -- which also seems to negate his calls for humanitarian purity in other nations.

Illegal Domestic Surveillance:   It seems the monster surveillance-industrial complex that was kicked off under Bush remains in full swing under Obama.  Obama voted for the Bush/Cheney FISA-telecom immunity after vowing to support a filibuster of it while he was a Senator.  Glenn Greenwald reported: "So candidate Obama unambiguously vowed to his supporters that he would work to ensure 'full accountability' for 'past offenses' in surveillance lawbreaking.  President Obama, however, has now become the prime impediment to precisely that accountability, repeatedly engaging in extraordinary legal maneuvers to ensure that 'past offenses' -- both in the surveillance and torture/rendition realm -- remain secret and forever immunized from judicial review." And Carol Rose added, "The link between secrecy and surveillance is critical: in effect, our government is increasing its power to watch its citizens, while diminishing the power of citizens to watch their government – the very antithesis of democracy."  It's telling how out of control illegal surveillance has become when private foreign companies are hired to spy on American environmental activists.  This is in addition to the TSA's roll-out of naked body scanners and intrusive pat-downs selectively enforced at airports and fiercely defended by Obama's DHS.

Rule of Law is Dead: The Rule of Law is an ancient concept that means a society is governed by rational, objective written laws, as opposed to the personal whim or arbitrariness of some king. Under this pretext, no one is above the law, not even kings.  Yet, we have seen this concept steadily erode from reality over many decades, but not so blatant as under George W. Bush whose team permanently subverted the rules in favor of the elite. Under Bush and now Obama, the corporate elite clearly get away with massive crimes against humanity and overwhelming fraud, while the little people are still routinely punished for all minor offenses.  With not even a hint of punishment, banks can openly loot and defraud the public, the government can spy on Americans, the TSA can grope our private parts, while large corporations continue to poison us and the environment with impunity.  The Feds, under Obama, have even raided legal medical marijuana dispensaries and private organic cooperatives.  In addition, Obama signed an Executive Order to indefinitely detain "terror" suspects even after acquittal -- while other lawmakers seek to remove Miranda Rights.  Who is prosecuting these crimes and injustices?  When the criminal corporations with their government partners continue to run the system, there will be no rule of law, or justice.

Dees Illustration

Free Speech Restrictions: Bush mainly used fear, intimidation, access and fake reporters to control the establishment message.  He and the media cartel acted in concert to sell gigantic lies to the public.  Now, as more people replace their television service with the Internet, "news" has been more difficult for the establishment to control.  As the global awakening takes place, the crackdown on free speech intensifies under Obama.  The crackdown has been most obvious on the Internet (see next section) and on peaceful protesters.  In a comically hypocritical moment that exemplifies how tyrannical this administration has become, Hillary Clinton was giving a speech about supporting the right of peaceful protesters while her security thugs violently removed a "veteran for peace" from the audience for standing in silent protest.  Additionally, there was an absolute police state put in place during the 2009 G20 meeting in Pittsburgh to shut down peaceful protests.  Finally, we know what direction the current Administration is headed in terms of free speech, given the recent White Papers revealing their desire to "outlaw" or "tax" conspiracy theories, and to make it a felony offense to share copyrighted information even when no money is involved.

Internet Rights Eroding: The open and free Internet is under full assault under Obama's leadership.  It has become obvious that there has never been much in the way of Internet privacy, especially since the Patriot Act went into full effect. But now, free access to information via the Internet is the target of legislation such as The Protecting Cybersecurity as a National Asset Act, aka the "Internet Kill Switch" bill, and the Combating Online Infringement and Counterfeits Act (COICA), aka the domain "Blacklist" bill.  The free Internet is also being threatened by market-based "net neutrality" agreements, civil lawsuits, technical censorship via search engines, and yes, blogging taxes too.  Finally, the DHS has been arbitrarily seizing domain names, which is clearly unconstitutional.  Given that Obama is completely in bed with Google and others in the corporate information cartel, you can bet he will show his support for these endeavors even if only by remaining silent as they are debated then implemented.

Obamacare Fascism:  Even many progressives view Obamacare as a purely fascist policy. When a progressive tries to defend Obamacare these days, the best argument they can give is "at least Obama tried to fix the problem." It's their way of subtly deflecting blame to Bush for ignoring it because he was too busy "smokin' turrurists outta their holes".  Healthcare reform was meant to increase competition and affordable coverage for all Americans. Yet, the private insurance monopolies remain and citizens are mandated to buy from them under penalty of jail, while 1000 of the most connected corporations are exempt from the law.  Furthermore, the FDA remains under the full control of Big Pharma/Chemical giants and the giveaways to the drug companies have only increased.  Finally, when there are huge profits involved in deciding if people live or die, and budgetary rationing of services, you will always have "death panels."  So, yes, the corporate government healthcare merger is complete with for-profit "death panels." Folks, if you want to know what the modern-day definition of fascism is, you just read it.

We can sense the hate mail is coming from die-hard "team blue" fans here, but America doesn't stand a chance without an honest assessment of what she represents and where she is heading under the policies outlined above.  The Bush-Obama evolution is as blatant as it gets that the current two-party system has morphed into one that would more properly be labeled The Corporatist Party.  We might do better to look beyond the two teams that so many root for, and realize that there is one central clubhouse from which they both operate.

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