Tuesday, February 19, 2008


Obama on NAFTA, as analyzed by Keith at Marginal Revolution: "Apparently Obama is to economics what Mike Huckabee is to evolutionary biology."

Anyway, free trade benefits those who produce efficiently and harms those who don't. Mexican unskilled labor is more efficient because it's cheaper. American corporations that employ Mexican labor are more efficient because they have lower labor costs. Obama is worried about inefficient producers within the US, the kind that are displaced by Mexican labor. The people who, despite coming of age in the most advanced economy in the history of civilization, are unable to contribute anything more to society than the picking of fruit and the assembly of unreliable automobiles.

Listen, China's financing our deficits. In the short run, we can keep up with rising debt by inflating our way out. Sooner or later though, the Chinese are going to get smart and start investing in Euros (or heck, their own booming economy!) instead. Once that happens, we're going to have to pay our bills. With what does Obama plan on paying? Unreliable SUVs and expensive fruit? Moral of the story be: if we want to hold our own in a global economy (a given considering that we owe money to half the globe), we'd better find something that we can do better than the Mexicans can. If, despite our advantages in deployed capital, credit, educational system, tradition, and rule of law, we can't manage that, no amount of protectionism is going to help.

If Obama really wants to promote positive change, maybe he could start by asking himself why the competition between US and Mexican labor is even close. Seek productivity gains, not rents.

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