It was 1949. Abraham Levitt and his two sons, William and Alfred, were about to sell their first ranch homes in the nation’s first suburb of Levittown, Long Island. The homes sold for $7,990 and were built on the site of a former potato farm. Thousand of middle class New York City residents eagerly lined up to buy what for them was a fabulous home with new appliances and green space.
On the prairies of America it was another story. Many areas were just, for the first time, receiving electricity. Not every home had indoor plumbing. Life was hard and living standards were comparatively harsh on the rural farms of America. But, it was these same hard working farmers who grew the food that eventually ended up in the new supermarkets that served the residents of Levittown.
Suppose in 1948, a resident of Long Island had argued as follows: Levittown should not be built. We are growing potatoes here on Long Island. If it is built, we will start importing potatoes from North Dakota and that just isn’t right. If we import potatoes, Long Island farmers will lose their livelihood.
The argument might continue with the assertion that competition from North Dakota farmers just isn’t fair. In North Dakota, living standards and environmental standards are less than our standards. Some families out there still use candles and outhouses. Labor is cheap; their children wake-up early to do farm work before they go to school. How can a Long Island farmer compete?
Precisely! Long Island famers couldn’t compete. That is why Levittown came into being. Long Island land was more suited for Levittown homes than it was for potato farms. Of course, there was never a possibility that North Dakota potatoes could have been banned from Long Island because no state can interfere with trade between states.
But nations can and do interfere with trade between nations. Yesterday, at the university where I teach, we were interviewing a candidate for a faculty position. During his presentation, a colleague explained why she was for free trade—but only if it is fair trade. Trade is not fair, she explained, when countries have lax environmental standards, pay their workers lower wages, do not provide health-care benefits, etc.
As I listened to her passionate denunciation of free trade, my mind flashed back to the Democratic debate last week. Both Obama and Clinton threatened to scuttle NAFTA if the agreement was not renegotiated to put in place stricter environmental standards etc.
The standard of living in much of Mexico is not much better than the standard of living was in North Dakota in 1949. To expect Mexico to adopt the environmental standards that the United States has in 2008, before their standard of living matches the standard of living of the United States in 2008, is far from fair. It will never happen. And if now, in 2008, the Mexican government did impose such environmental standards, the standard of living of their people would never reach that of the United States.
Many farms are now abandoned on the North Dakota prairie. Why? Rising standards of living in the cities attracted farmers. In a world of free trade, the lax environmental standards and the sweatshop factories that we see in many countries will also vanish just as soon as rising living standards increase the demand for a cleaner and safer way of life.
In a protectionist’s world, living standards fall. Falling living standards, in turn, increase the amount of environmental damage. Poor people worry about feeding their children; they do not worry about meeting American environmental standards. More than that, a poor world breeds war, and war is the ultimate environmental catastrophe.
Here is the bad news. To have both Clinton and Obama promising protectionism is a harbinger of a political trend. An intensifying debate that focuses on limiting free trade is a leading indicator of difficult economic times. Why? Bull markets call forth feelings of inclusiveness—a brotherhood of man so to speak. Bear markets call forth feelings of exclusiveness—with corresponding feelings of nationalistic pride.
Difficult economic times are coming. Fear increases during difficult economic times, and fear demands scapegoats. Politicians will be all too eager to supply scapegoats. Bet on free trade to be an early one.