CAFTA NAFTA SCHMAFTA

I was brought up believing in free trade. The logic is pretty clear: if you let the markets sort it out, then each country will produce what it's best at producing. They call it the law of comparative advantage. So, if Brazilian farms can produce soybeans cheaper than US farms, then let Brazil do the soybeans and we'll concentrate on something we do better, like making new software or something. If we do this, both countries benefit: Brazil's GDP goes up, because it's growing more soybeans, and our GDP goes up, because we're producing more software. Everyone gains. Win-win.

That's the orthodox economic thinking on the subject, at least as it was taught when I was in school.

I've just been reading this book I found in a thrift shop, Locked In The Cabinet, by Robert Reich, who was Labor Secretary under Clinton in 1992 and for a few years thereafter. (It is a fantastic and hugely entertaining book, by the way -- read it!). He has an interesting view on this:

Just because both countries' GDP goes up doesn't mean that it's a win-win-win-win for everybody. The trouble is this: US farmworkers don't know how to design new software.

In other words, it's fine for the US in the macro sense that its GDP goes up. But if you think of GDP as being composed of Profits + Wages (just to simplify it), GDP is going up because profits go up more than wages go down. From the point of view of the US farmworker, it's a lousy deal. From the point of view of the guy who owns the software company, it's a great deal.

So, fine for NAFTA and CAFTA, but to make it fair on everyone and genuinely a good thing, you need to take a substantial portion of the extra profits and plow them into improving the lot of the disadvantaged (in this case, the US farmworker). How? Well, you could use the money to train him in software engineering.

So before this CAFTA thing goes through the House, let's all call our congressman and make them redress the balance. They can have CAFTA, but only if they increase funds for education of the jobless. GDP gains are all very well, but only if everyone benefits.