Some rambling economic thinking :re free trade

[Ponderer]

Let's assume the supply for the domestic labor market in Industry A is almost perfectly elastic. Lets assume the demand for the domestic labor market is perfectly inelastic.

Let's now assume that the world price of labor in Industry A is significantly lower because of monopsonies in the foreign countries.

Some of these assumptions are blatantly false (foreigners are not more productive per wage than Americans are), but I'm trying to create the circumstances that protectionists claim there are.

Let's also assume that the minimum wage is an effective price floor (considering that McDonalds now pays $6.25 starting, this is not true either).

Let's assume that all corporations want to maximize profit. The old wage of the workers before free trade is $6. Minimum wage is $5.

Therefore the workers are producing greater than $6 an hour for the company. (Since the markets are assumed to be fair domestically by protectionists before free trade, total long term profits approach zero and each company's goal is to break even after paying the CEO and all that.)

Now lets assume the world price of labor in Industry A after free trade becomes $3. Of course, everybody in Industry A domestically becomes initially unemployed because labor supply is elastic as well as there is the minimum wage.

Now let's assume that all of the small domestic companies merge to form one large monopoly in the foreign country.

This would then be the problem. You can throw out all my other assumptions now. If the companies were performing initially in a competitive fashion and then decided to become a monopoly without any longarm FTC regulation, quantity of labor hired would decrease as a result. The gains from free trade, ceteris paribus, may or may not offset the secondary result of this major merger.

Of course, I believe the FTC does have long arm jurisdiction to make sure multinational companies are not acting in a monopolistic way, since that would then make them a monopoly domestically.

However, the whole worker's safety issue is another argument. I would argue that this has the same effect as minimum wage now. It is noneffective and workers are already productive enough to get safe working conditions as part of terms of employment.

Therefore, the monopoly argument is infinitely stronger to oppose free trade than the minimum wage and regulations argument. Of course, neoconservatives blame all unemployment on the minimum wage.

This in turn would define fair trade. Free trade is the best course of action assuming ceteris paribus (everything staying the same). However, fair trade takes into account secondary consequences and tries to mitigate them.

It does not dispute the benefits of comparative advantage and specialization of trade, but it does acknowledge the incentive to create OmniCorps and excessive market power. Since economies of scale is one argument that free trade supporters use, the idea of the creation of unregulated monopolies as a result is not too farfetched.

[Maple]

1. Do you have ANY

idea what you're talking about, or did you just miss the lounge?

[BeatleBoot]

2. By Its Sheer Premise...

...you exclude metaphysics?

Zoiks!



on edit: you cannot have fair trade without first having free trade, but I think you already agree...

[leftyandproud]

3. ...

"What the hell did you just say?"

[Name removed]

4. Deleted message

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[Name removed]

5. Deleted message

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[pmbryant]

6. Locking

The fellow who started this thread has been banned and there doesn't appear to be much discussion going on in this thread anyway.

pmbryant
DU Moderator