Free Trade Free for All: Market Romanticism Versus Reality

Jamee K. Moudud – 

The drama surrounding President Trump’s decision to impose import tariffs on steel and aluminum has roiled the Republican Party and wide swathes of the corporate elite. The tariff decision comes on the heels of political bluster about the US being treated “unfairly” by other countries. This accusation of “unfairness” when it comes to US trade deficits is well worn. In a previous era, Japan was the alleged culprit of “unfair” trade practices because of its persistent trade surpluses with the U.S.

This type of political theater draws on a romanticized view of international trade and its persistent conflict with empirical reality. As an explanation of global trade relations,  the Heckscher-Ohlin-Samuelson (HOS) model of foreign trade relies on both of the standard neoclassical assumptions about “efficient” markets. First, it assumes perfectly competitive markets, composed of many, small firms, each without any  ability to set prices. Second, it assumes that there are zero externalities to economic transactions, meaning that transactions do not have any un-priced, third-party effects. And of course, the model assumes the economy  is fundamentally based on barter, according  no roles for money, credit, and effective demand. The absence of money implies that there is no possibility of an increase in liquidity preference (a term coined by Keynes to describe the desire to hold cash rather than illiquid assets) in uncertain times and thus no possibility of shortfalls of effective demand. Together, these propositions of the HOS model predict that a legal framework of “free trade” will produce balanced trading relationships on the international level and full employment in each domestic economy. Significantly, assuming that there is perfect competition implies that firms in each country, regardless of its level of industrialization, have access to the same technology needed to produce goods for the international market. Perfect competition implies that no firm injures others, a point of view that has been challenged by many authors. (See the edited volume by Moudud, Bina, and Mason Alternative Theories of Competition: Challenges to the Orthodoxy). The core aspect of the broad alternative perspectives is that firms do seek to damage each other by attempting to take away market shares via price-setting and cost-adjusting processes. This has nothing to do with either “perfect” or “imperfect” markets.

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The Crisis of Progressive Neoliberalism

Nancy Fraser –

How should we understand the crisis of the current moment? Is the election of President Trump a temporary aberration or does it reflect deeper political trends—both in the United States and elsewhere?

In a recently published essay in American Affairs, I argue that the defining features of Trump’s agenda did not come out of nowhere. What enabled his ascent was first, the rise, and then, the unraveling, of what I call progressive neoliberalism. Progressive neoliberalism tied a finance-centered political economy to a progressive politics of recognition. Grafting neoliberal economics onto mainstream liberal currents of apparently egalitarian social movements, such as feminism, anti-racism, multiculturalism, and LGBTQ rights, it forged a hegemonic bloc that dominated American politics for several decades. Beyond the United States, progressive-neoliberal formations governed many other liberal democracies through center-left parties that made similar deals with bankers and bondholders to gain or maintain power.

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Progressive neoliberalism’s main competitor was what I call reactionary neoliberalism, which tied an exclusionary politics of recognition to the same neoliberal political economy.While reactionary neoliberalism was defeated by progressive neoliberalism, it offered no alternative to the latter’s project of Goldman-Sachsifying the US economy. Absent any organized opposition on a national scale, progressive neoliberals from Bill Clinton to Barack Obama were free to promote policies that metastasized finance and gutted manufacturing.They eviscerated unions and drove down real wages, proliferated precarious service-sector jobs and promoted predatory debt to enable the purchase of cheap stuff produced elsewhere. The result was to dramatically worsen the life conditions of the bottom two-thirds of Americans, especially (but not only) in rustbelt, southern, and rural communities, even as soaring stock markets fattened not just the one percent but also the upper reaches of the professional-managerial class. In due course, many harmed by these policies came to reject not only neoliberal political economy, but also the more inclusive view of recognition they associated with it.

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