Thursday, November 08, 2007

Adam Smith's Tone was Not Indifferent to the Effects on Labourers While they Adjusted to New Trading Arrangements

Sally James in a publication from the Cato Institute writes: “Trade Adjustment Assistance no longer serving any purpose - Study advocates ending a flawed welfare program”

The expiration of the current Trade Adjustment Assistance program at the end of this year is an ideal opportunity to sunset a misguided policy, according to a study released today by the Cato Institute.

It is not clear that Americans overall should be especially concerned about trade-related unemployment, especially when unemployment is so low, writes author Sallie James. Since 1996, the American private sector has added a net 15 million jobs, hardly evidence of a national crisis necessitating a federal response.
In Maladjusted: The Misguided Policy of Trade Adjustment Assistance, the author examines the various arguments advanced by supporters of special assistance for workers who are laid off because of competition from imports and finds that current circumstances are especially unfavorable for reauthorization, let alone expansion, of the program.

Unemployment creates hardship for all laid-off workers and their families, no matter what the cause. What, then, explains the different treatment in favor of trade-affected workers?, writes James. Moreover, TAA promotes the fallacious idea that trade creates ‘victims’ that are special. ‘While some workers will lose more than they gain from trade liberalization, at least in the short term, their numbers are small. Other factors domestic competition, and changing tastes and technology are a far more important source of change.’

The study also finds that the political reasoning behind the program is no longer relevant. The author concludes: ‘Through much of the post-war era of trade liberalization, trade adjustment assistance was a compromise between organized labor and free-traders: lower tariffs would be accompanied by welfare benefits for people who lose their jobs because of import competition. This deal, however, is no longer effective at mollifying the opposition, as the Democratic majority continually stalls on trade agreements, or refuses outright to pass them.’
The study can be found here.

Adam Smith was not what today we would call an ideologue. He wrote Wealth Of Nations as a commentary on the mercantile political economy of his day which had directed British economic policy since the 1500s and featured protectionism, a false obsession with the ‘balance of trade’, large doses of 'jealousy of trade' (which saw trading partners as the ‘enemy’ best dealt with by regular wars instead of expanding trade with them to mutual benefit), false doctrines on wealth as gold and silver bullion (needed to fight continental wars), local monopolies, tariffs and colonies.

If he had examined the history of state policies since 1790 to today, he would not have to alter the main themes of Wealth Of Nations much, both in the absence of free trade (in Britain, the rest of Europe and North and central America), nor in today's jealousy and morbid fear of major trading partners (for example, China).

He would have had to caution exponents of free trade who disregard the effects of sudden changes in trading policies on the labouring people concerned.

Those interested in his actual views on the need for careful adoption of free trade on the domestic economy and on those affected by such measures, which reads different in tone from the apparent proposal of Sally James to do away with welfare support while the adjustments take place, should turn to Wealth Of Nations, page 469 and thereafter (WN IV.ii.40-45).

His main point is that ‘Humanity may in this case require that the freedom of trade should be restored only by slow gradations, and with a great deal of reserve and circumspection.

Adam Smith had to great concerns: persuading the legislature and those who influenced it to understand the damage which their mercantile policies inflicted on the whole economy, rich and poor alike, in lower rates of growth, and to argue the case for removing the specific impediments to prudent and productive growth as swiftly as possible, consistent with not imposing upon the poorest majority of the population further burdens of trying to manage on subsistence incomes.

The balance between ‘progress to opulence’ to relieve the labouring order of their dreadful state (as had been the case for this order for millennia) and the rate of change that would bring about that ‘progress’ which could worsen their plight if the pace is other than ‘slowly and gradually’, comes through in Wealth Of Nations very clearly.

Ideologues who favour instantaneous change and ideologues who oppose all change were twin burdens borne by humanity in Adam Smith’s view.

I think, respectfully, that Sally James should re-read Wealth Of Nations through and note Smith’s tone: he was impatient with legislatures and people who influenced them (‘violently’ so, he admitted in his correspondence), but was never indifferent to the sufferings of those affected either by the mercantile status quo or, potentially, by the indifferent rush to the ‘utopia’ of perfect free trade.


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