There Ain’t No Such Animal!

One of Yogi Berra’s great, wise observations is that in theory there is not difference between theory and practice but in practice there is. At Bloomberg Noah Smith muses over what paradigm will replace “free trade”. Thankfully, he gets to one of the key problems with free trade as an objective quickly—there is no such thing as free trade:

The second problem is that actual trade agreements tend to bear only a passing resemblance to the idealized notion of free trade in an economics textbook. Thanks to lobbying by business interests, real trade agreements are tangles of rules and regulations that can restrain competition. One well-publicized example of this is the investor-state dispute settlement (ISDS) system, designed to shield intellectual property in international markets, which has been roundly criticized as a way to protect corporate profits over the interests of local populations.

IMO his remedy for such phony “free trade” agreements is fanciful—redistributive taxation:

At the very least, trade policy can be improved by increasing redistributive taxation and by removing corporate carve-outs from trade agreements.

for two reasons. The first reason is that we just don’t do that. What we actually do is redistribute from the rich to other, just slightly less rich people, paying them to perform services on behalf of poorer people. We don’t actually know whether that equalizes anything. We just hope it is.

The second reason is that the level of taxation that would be required to do that would be truly unimaginable. Take the steel industry, for example. In 1960 there were about 600,000 steelworkers in the U. S. Now there are 140,000. There are a quarter as many UAW members now as there were as recently as 1979. Add all of the other American industrial workers who’ve been displaced and a little back-of-the-envelope calculation tells you that to make up the difference in pay for the mostly minimum wage jobs available now and the wages they were receiving (in real terms) would take hundreds of billions of dollars. Said another way the effective tax rate would need to be half again what it is now. What would that take in nominal tax rates?

And, as Mr. Smith notes, a government paycheck is no substitute for a good job.

1 comment… add one
  • Greyshambler Link

    “Nominal rates “
    It would take more than the wealthy would pay. They would move on.

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