It's Alive!!!

Have you ever watched one of those horror movies where everyone watching knows that there is something about come back from the dead except for that one guy who's about to have his head bitten off? You sit there screaming IT'S NOT DEAD YOU IDIOT!!! Well, I had one of those experiences in a different medium just a few days ago.

Unfortunately, I thought the "monster" was dead, and that monster is mercantilism. I feel like I've just woken up and several hundred years of economic history have just flown out the window, and it's making me feel uneasy.

The above picture is a satire of the policies of a certain Henry Clay who proposed an "American System" to get the American economy back on track. He's a great man in the American historical record, but I'm not too much of a fan. He wanted to go to war with Britain which led to the war of 1812 (where the White House was burnt down), opposed letting Texas into the Union, and was a rabble rouser for tariffs, infrastructure, and a central bank (the America System). He was also a diplomat that tried to avert conflict between the North and the South over slavery. I admire him for his intentions, but his record stands as a failure nonetheless.

While other issues such as antagonism with Britain, Texas leaving the Union, and slavery aren't such big issues anymore (or are they?), the every man for himself argument has not entirely been destroyed by economists who say that tariffs do nothing but harm. The above cartoon states, "Every one for himself at the expense of his neighbor!" which was the basic attack on that attitude. Sadly, the protectionist state can give more now than one that proposes free competition and free trade which promises trade down the road.

So, where is this mercantilist attitude now? Here are a couple pieces that promote modern day protectionism:

A Piece by the Economic Policy Institute
A Story by ABC about American Jobs Shipped Overseas
& A Chart Showing Jobs Shipped Overseas by State

As you can see it's not dead. Unions and labor institutions don't want to see their jobs shipped overseas, news organizations love playing the sad story of evil China stealing American jobs, and politicians will fight for tariffs because it leads to votes. In fact, the first thing Obama did was to put a tariff on tires coming from China.

While you might not think I'm an economic genius, take the word of Milton Friedman, recipient of the 1976 Nobel Memorial Prize for economic science who says in his case for free trade that:

It is often said that bad economic policy reflects disagreement among the experts; that if all economists gave the same advice, economic policy would be good. Economists often do disagree, but that has not been true with respect to international trade. Ever since Adam Smith there has been virtual unanimity among economists, whatever their ideological position on other issues, that international free trade is in the best interests of trading countries and of the world. Yet tariffs have been the rule. The only major exceptions are nearly a century of free trade in Great Britain after the repeal of the Corn Laws in 1846, thirty years of free trade in Japan after the Meiji Restoration, and free trade in Hong Kong under British rule. The United States had tariffs throughout the nineteenth century, and they were raised still higher in the twentieth century, especially by the Smoot-Hawley tariff bill of 1930, which some scholars regard as partly responsible for the severity of the subsequent depression. Tariffs have since been reduced by repeated international agreements, but they remain high, probably higher than in the nineteenth century, though the vast changes in the kinds of items entering international trade make a precise comparison impossible. (full piece here)

So, we must ask ourselves: are we mercantilists or free-market thinkers? Do we agree with Milton Friedman or Jean-Baptiste Colbert (a writer on mercantilist thought). Do we want to live hand in hand with the rest of the world or curl into a ball and "protect" our industries.