Friday, December 11, 2009

Free Trade as a Stimulus Proposal – Little Bang

The Washington Post asks - How much bang would he get for the borrowed bucks? – in reference to the President’s latest stimulus proposals. This is an odd place to suggest that freer trade with Colombia and South Korea could represent “truly fresh thinking about job creation”. As Paul Krugman notes:
if you liberalize trade countries will export more. But they will also import more. If you’re worried about C+I+G+X-M, it’s a wash, because X and M rise equally … Even if the proposed trade deals with Korea and Colombia were remotely big enough to bear mentioning in the context of the crisis — which they aren’t — they wouldn’t be job creation measures.

Using this source, one can see that our exports to these two nations during 2008 were only $46 billion, while our imports from these two nations were $61 billion. Let’s say the “equally” part of what Krugman wrote isn’t quite right and that free trade increases our exports by 20 percent (some $9 billion) while imports rise by only $10 billion (some $6 billion). With GDP in excess of $14 trillion, even our generous estimate of this WaPo policy proposal has it adding a mere 0.02 percent to aggregate demand. Not exactly a big bang! Do the folks at the Washington Post know how to look up trade information?


TheTrucker said...

It can be seen that an increase in trade that is bilaterally equal is a big fat loser for the United States. We lose tax revenue, asset ownership, and jobs because of the trade imbalance and increasing trade simply increases the losses. It takes a neoclassical nut case sucking on a "comparative advantage" crack pipe to suggest more "free trade" as a solution to the wages problem.

Hint: Nobody wants a job. They do it for the wages. If you can figure a way to provide the wages to the common people without doing the work then that would be good. But that is probably not going to happen. So we need to make our own hula hoops and stop sucking up so much oil.

Lets see now.... We need more tax revenue to offset the spending we need to do to create jobs. HMMMMMM??? If we tax imports and use the money to pay people to make hula hoops then that would probably solve the problem. What's that you say? They will raise their tariffs on our exports? We win. They need us a lot more than we need them except for the oil.

But I thought you told me we needed to stop puking all that carbon into the air. Where's the downside on this deal???

Ken Houghton said...

Heck, let's be silly and assume the balance goes to equal, adding a net production of $15B (clearly not going to happen).

Works out to almost 0.1%. Or, as they likely would call it at the Census Bureau, rounding error.