A free economics lesson for London Councillor Josh Morgan

Lee Friday – August 12, 2017

The North American Free Trade Agreement (NAFTA) was on the agenda of the City of London’s Corporate Services Committee meeting on July 18th. The committee passed a resolution, stating

That the Government of Canada BE SUPPORTED by the City of London by providing information, data, and analysis to inform any trade negotiations with the United States of America, and the City of London’s municipal, community and business partners BE ENCOURAGED to participate in this important endeavor.

Councillor Josh Morgan was quoted in the London Free Press:

“We have a significant supply chain connection with the U.S., the more information the federal government has, the better it will be to negotiate on behalf of London and Southwestern Ontario,” said Coun. Josh Morgan, who raised the issue at corporate services committee.

NAFTA has nothing to do with ‘free trade’, and when the ‘agreement’ is renegotiated, it will still have nothing to do with free trade. As I have written elsewhere,

Many countries negotiate Free Trade ‘Agreements’, but this is a misnomer. If politicians wanted genuine free trade, such agreements would be redundant. It is important to remember that countries do not trade with each other, individuals do. Politicians enact these agreements on behalf of specific individuals within special interest groups, not on behalf of consumers.

Free Trade ‘Agreements’ between (and among) countries do not contemplate free trade, but rather ‘managed’ trade. These agreements are lengthy, complex documents, and the devil is in the detail. The largest beneficiaries are multi-national corporations, and the biggest losers are consumers who pay higher prices. The division of labour is suppressed, and political power becomes more centralized.

Josh Morgan completed a Combined Honours Degree in Economic and Political Science at Western University.[1] According to his 2014 campaign website, he also taught Economics and Policy Analysis in Western’s Local Government Program. It sounds like Morgan should know a thing or two about economics. So, he must be aware of how the system works. He must be aware that ‘free trade agreements’ favour special interest groups i.e. politically connected producers, at the expense of consumers. He must be aware that if politicians were really interested in free trade, a one-page document with two short sentences would suffice: “People are allowed to trade freely. Governments will not interfere.”

PROTECTIONISM

Many Canadian industries are protected by government-imposed import tariffs. Canada’s dairy market is a prime example – high import tariffs protect inefficient Canadian producers at the expense of Canadian consumers who must pay higher prices at grocery stores because they are denied access to cheaper foreign products. If NAFTA was really intended to facilitate ‘free trade’, American producers would be exempt from these tariffs. But they are not exempt, and Donald Trump has repeatedly demanded greater access to Canada’s dairy market.

Inefficient producers like tariffs because they fear foreign competition, but consumers do not fear foreign competition:

Canada’s supply management system has been in place since 1971 and is designed to control the price consumers pay for eggs, milk, cheese, chicken and turkey. The policy is a blend of set pricing, supply control and limited competition from foreign producers.

However, about two-thirds of Angus Reid Institute [Poll] respondents favoured lower prices over supply management. Two-thirds of respondents said they’d rather pay less for milk and cheese without a supply management system, while 70 per cent favoured cheaper prices for eggs or chicken breasts over the current system.[2]

So, consumers want lower prices. Obviously! We don’t need a poll to tell us something a ten-year-old can understand. For those who didn’t already know, the poll proves that majority rule is a myth – a majority of voters want lower prices, but the government ignores their wishes. The government does not care about the wellbeing of consumers, which would be greatly enhanced by the lower prices which would arise in a genuine free market in all economic sectors. Politicians care about getting elected, period. So, the government crafts legislation which favours special interest groups – including the powerful dairy lobby – who in turn provide political support to the government. Average voters don’t complain because they are mostly unaware of the costs they absorb.

There are thousands of laws (regulations) favouring special interest groups. The benefits of each law are concentrated in the hands of a small group of people – a special interest group – while the costs of the law are disbursed among millions of individuals. The cumulative effect on each one of us is enormous. It is reflected in higher prices for goods and services, as well as legally prohibited opportunities to earn higher incomes. I have summarized the detailed research on this topic elsewhere. The economic impact is expressed in dollars, on an annual per capita basis. You can read about it here, or here. Poor yourself a drink before you read it. If people were aware of the extent to which they have been economically deprived, this would generate sufficient pressure on the government to repeal these regulations. Then we would have free trade.

The government is the most discriminatory institution on the face of the planet. ‘Special interest group legislation’ generates higher revenue for the favoured groups, at the expense of consumers. Consumers are discriminated against. Moreover, the poor are hurt the most by higher prices for goods and services, legally manipulated higher prices. We don’t need government programs to reduce poverty. We need the government to stop creating it. As the great economist Ludwig von Mises wrote:

It is highly probable that the funds of the charitable institutions would be sufficient in the capitalist countries if interventionism were not to sabotage the essential institutions of the market economy. . . . The greater part of those assisted by charitable institutions are needy only because interventionism has made them so.[3]

WHAT  IS  COUNCILLOR  MORGAN’S  OBJECTIVE?

Councillor Morgan wants to provide the federal government with more information so it is better able “to negotiate on behalf of London and Southwestern Ontario.” Presumably Morgan wants to facilitate job creation by identifying (a) London businesses that want export trade barriers to be reduced, and (b) London businesses that want import trade barriers to be increased. These two issues are at the heart of all free trade ‘negotiations’.

All trade barriers should be eliminated. There is no economic justification for any of them. Consumers always lose. As such, I am in favour of reducing any import or export barrier, and I am opposed to increasing any import or export barrier. Any action which is not consistent with this view takes us further away from free trade. If he knows anything about economics, and his background suggests he does, Morgan should take the same position, and he should explain the economic benefits of the position. Adopting this position does not require Morgan to gather any kind of information from the local business community. Therefore, it appears he is not adopting this position, but instead, he wants to be part of the process of picking winners and losers – which businesses will be protected, and which will not.

It sounds like Morgan looks forward to a renegotiated NAFTA, where he may have the opportunity to say something like, “I am honoured to have been a part of the process to protect London jobs.” Politicians love to say they have used the power of government to protect jobs, but they avoid discussion of the negative effects of their policies.

Any form of government protection for a particular industry or company – tariffs, subsidies etc. – is economically counterproductive. Competition is coercively suppressed and consumers end up paying higher prices. The inefficient producers stay in business, which means they continue to waste resources. These producers should be allowed to fail. Their assets would be sold to the highest bidder(s), who would have the opportunity to utilize these scarce resources – thus creating jobs – in a more efficient manner as they seek to satisfy the preferences of consumers. This is how the free market operates when the government does not intervene, and it is the only method of ensuring the planet’s resources – land, labour, raw materials – are allocated to their most highly valued uses. This maximizes our standard of living. In the absence of government intervention, consumers control this process through their decisions to buy, or to not buy, any product or service.

Everyone likes to have government job protection, but as consumers we fail to understand that this generates losses which far exceed any gains we may have received as workers, managers, and business owners. So, we look to the government to protect us, and our standard of living suffers.

The government should not interfere with the free market. The market will decide which jobs to protect, which means consumers will decide. Those who lose their jobs will have to transition to new jobs. That’s life. It is not the responsibility of consumers to support inefficient workers and poorly managed companies.

The economic case against protectionism is rock solid, and Councillor Morgan should know this because he has studied, and taught, economics. However, it is also true that most economics students are subjected to a steady stream of fallacious economic theories by university professors. The typical university – largely State influenced – inculcates in its economics students a doctrine completely indecipherable to others. A degree is awarded after the student has successfully completed a course of study which includes numerous convoluted theories, infinite amounts of arcane jargon, and many useless mathematical graphs and formulas. Many of these graduates accept jobs with governments, central banks, commercial banks, universities, and mainstream media outlets. Such positions provide them with a platform which they use to support government policy, and make policy recommendations. But most of them lack genuine economic knowledge, and their minds have been so warped by the intellectual garbage they were fed that it would be near impossible for them to attain such knowledge. As author Nathan Lewis wrote:

A rocket scientist with an interest in economics once mentioned that monetary theory is more difficult than rocket science. . . .  Actually, monetary theory could be grasped by a dedicated student in less than a year, which is about nine years less than the time required for rocket science – unless, of course, that student already has an advanced degree in economics, in which case it may take a lifetime, if he or she is lucky.[4]

CONCLUSION

It appears Councillor Morgan is in favour of government intervention to ‘protect’ London jobs. Perhaps he is not trying to deceive us in order to win votes. Perhaps he is genuinely unaware that such policies are economically counterproductive. If this is the case, I hope he reads this article, because economic ignorance can be cured. Josh, my suggested reading list – no textbooks – can be found at the end of this short essay.

Related articles:

Does CIBC CEO Victor Dodig Believe In Free Trade, Or Just The Illusion Of Free Trade

Bombardier Bailouts – By Definition – Are Economically Regressive

 

[1] https://www.london.ca/city-hall/city-council/Pages/Ward-7.aspx

[2] http://www.bnn.ca/canadians-willing-to-leverage-supply-management-in-nafta-talks-poll-1.820309

[3] Ludwig von Mises Human Action, A Treatise on Economics (first English publication in 1949) (Ludwig von Mises Institute, 1998) p 834

[4] Nathan Lewis GOLD The Once and Future Money (John Wiley & Sons, Inc., 2007) p xvi

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