Is Free Trade worse than Communism?

The crux of his argument is that communism is superior to free markets, because the latter necessitates the forcible migration of people, thus dissolving families, nations, and communities. For example, if a Mexican in Mexico earns $10/hour to build a house and an American earns $30/hour, under globalization and free trade it’s advantageous for the Mexican to move to America to sell his labor at a higher price–such as maybe $20/hour–but this puts the American out of work. It sounds good on paper, but there are some problems with this theory.

It’s not a pure 1-1 relation (one job lost for every job created). A job lost in one industry can be replaced by a new job in another industry. Some immigrants create jobs, all immigrants consume goods, and cheaper labor lowers prices and raises profit margins, thus increasing demand and production and hence more hiring. All of these factors to some degree cancel out the job loss from immigration.

Consider California, which since the 80′s has seen a large inflow of Asian and Hispanic immigration:

For Vox’s thesis to be true, we should expect during periods of economic hardship for employers to substitute cheaper Hispanic labor over Whites, but between 2007-2010 the unemployment rate for Hispanics and Whites tracked each other. There was no evidence of substitution:

But what abut undocumented labor? Even illegal immigration fell during the financial crisis, which we wouldn’t expect if there was a labor substitution effect:

From Hispanic Employment in Construction

Hispanic construction workers earn less than non-Hispanic, regardless of union status:

And the percentage of Hispanic employees in construction, rose from 9% in 1990 to 25% in 2008:

But during the 2007-2008 housing downturn, there was no substitution effect:

This decrease is particularly evident when assessing monthly employment data. Using the employment numbers for January 2007 as the baseline, Chart 2 shows that construction employment started declining in early 2007. Labor market outcomes for Hispanic workers appear to be worse than those for non-Hispanic workers. In construction from 2007 to 2008, Hispanic employment dropped by 16.7% from 3 million to 2.5 million, while non-Hispanic employment decreased 11.5% from 8.7 million to 7.7 million. Compared with the peak of employment in 2007, about 500,000 Hispanic workers left the construction industry by the end of 2008.

This suggests workers are not fungible, so a $30/hour construction worker cannot be readily substituted with a $20/hour one.

Does this mean Vox is wrong about immigration and free trade? Not necessarily. At the individual level, job loss exacts a toll on communities and families. I agree with Vox that economists are overly optimistic about the ability of unemployed workers to learn new skills.

If pure nationalism (or specifically, protectionism) is superior, why is there so much emigration from communist countries? The Berlin wall was not built to keep Western Germans from coming in; it was built to keep East Germans from leaving. The empirical evidence shows in the case of communist countries that people choose migration over poor living standards and no job opportunities. It would seem like an obvious way to prevent people from leaving is to make living standards high enough that people won’t want to leave. If conditions are so poor that the government must build a wall to prevent people from leaving, that’s a failure of government. It doesn’t matter how much nationalism or ethno-homogeneity there is.

He also conflates nationalism with protectionism…the two are not mutually inclusive. Nor must free trade oppose nationalism. Go to a baseball game…you see American flags and hear recitations of the pledge of allegiance and national anthem…that is nationalism. Look at the election of Trump, along with all the flags and MAGA baseball caps: that was an act of pure nationalism. Consider China…they embrace free trade, yet an enormous mural of Mao overlooks the entrance of Red Square.

Vox mentions how Marx supported free trade–in order to hasten the demise of nations and capitalism, yet Marx wrote that in 1850 and obviously America has not collapsed despite nearly two centuries of trade and accelerating capitalism.

In creating a dichotomy between either pure nationalism (specially, protectionism) or pure globalism, this leaves no possibly of an optima between either extremes. That seems to be the case with most developed countries, such as China, that have both free trade and nationalism. Also, free trade does not imply open borders.

Vox would argue that America’s demographic change is evidence of its collapse and demise. As explained in an earlier post Collapse, that’s just moving the goalposts. Collapse means economic collapse. It means the stock market falling 80+% and never recovering. It means a permanently lower standard of living and America being dethroned of its economic and political global hegemony. We’re nowhere near that happening…all the evidence shows the opposite happening, with America and its economy becoming increasingly powerful as the rest of the world stagnates.

The fact Vox was able to convince himself and the vast majority of his readers of this, is evidence of how infectious of an ideology communism is…it did’t nearly conquer the 20th century for no reason. The allure of communism (along with postmodernism) is that it shifts the burden and accountability from the individual to the collective.