A NAFTA Post

Michael Mink would like a NAFTA post and since he represents our readership (by himself) we would do well to say "yes!" when he asks for something. Michael Mink has great powers. But that's a post for another time.

NAFTA
a post
by
Mike M.

It's really difficult to post about NAFTA because the issue was picked to death when it became law in the 1990s and because it's clear a decade later that both its adherents and its detractors were wrong. It did cost American manufacturing jobs. But it created jobs in other industries including shipping, retail and high tech. Some of those jobs are not as good as the jobs that were lost, some are better. Most people say it's a wash. One of the tough things that Clinton and Obama have had to deal with is that if you're campaigning in Texas, people tend to like NAFTA. If you're campaigning in Iowa, not so much. NAFTA didn't represent a loss or gain of wealth so much as a transfer of wealth or a transfer of opportunity if you prefer.

The ability to import cheap manufactured goods allowed our economy to grow like gangbusters during the 1990s without sparking inflation. Cheap goods are deflationary. We're partly in trouble now because our falling dollar is making cheap goods less cheap. That's why everyone's so worried about inflation now. The price of oil is going up partly because the dollar is so weak and people are using other competing currencies to buy it. Still, cheap goods are deflationary. If we didn't have access to them right now, the economy would really crater.

Now this is a mixed bag but on the subject of NAFTA and trade in general -- it's somewhat good that we send our dollars away in exchange for cheap goods. It really does help people improve their lives. India and China and Brazil are really developing middle classes because of this. Less so in Mexico, though. Because it is a mixed bag. Some countries get middle classes. Some countries get to make cheap goods while being treated as virtual prisoners in sweat shops. And don't get me started about the environmental impacts of low cost production facilities.

Which means that NAFTA and all trade agreements need labor and environmental standards. This is a no brainer. Unfortunately, these standards are never implemented in trade agreements. Ever.

I believe that international trade is good. I also believe that you have the right to purchase goods from outside of the US. I am drinking an Argentinian wine right now. That's a good thing. It's tasty and a good deal. Yay for me.

But having that right doesn't mean we should let the invisible hand take over. We have a tremendous amount of influence because we are the world's largest customer.

Take Michael Mink, this blog's only reader. He wanted a post on NAFTA. He got a post on NAFTA. He has tremendous influence as he is this blog's largest customer. My big mistake was waiting for days to fulfill his request. It really was a mistake. I might have lost his loyalty. That's not good.

The US is the same way. Our trading partners might complain but in the end they really will meet labor and environmental standards if it's their only way to get our money. They will do it. Everyone knows it. Problem is, it's the multinational corporations that are based here in the US (or Bermuda, for tax purposes) who don't want us making an issue out of that. Heck, most of the time that we find companies behaving badly in other countries (putting children to work in factories or dumping sludge in rivers) those companies are either subsidiaries of US multinationals or working to fulfill contracts to US multinationals.

Will labor and environmental standards make cheap goods less cheap? No. That's where the market really will come into play. Clever business types throughout the world will find ways to make their products cheaply without abusing their workers or the planet. They simply will. Capitalism is not a system that hates regulation. It dies without it. Capitalism actually loves regulation. It loves rules. Because it can generate the most efficient solutions only when the rules are known and enforced. Capitalism tells you how to best make Y out of X under rule Z.

Because a capitalist is not the same think as a free market adherent.

So there you have it. NAFTA and trade in general is largely the moral thing to do, largely a good thing to do, but needs to be implemented according to clear and intelligent rules. Labor and environmental standards would be a start.