Sen. Ted Stevens (R-Alaska), who once threatened to resign if Congress stripped funding for the infamous Bridge to Nowhere, was indicted yesterday on seven felony counts for failing to disclose gifts from an Alaskan firm. Meanwhile, across the Atlantic in Geneva, international talks aimed at ushering in a new era of free trade collapsed over World Trade Organization member nations’ unwillingness to end farm subsidies. These events are not unrelated. They are examples of how big government inherently breeds powerful special interests that leverage government power to create policies for a narrow benefit over the nation as a whole.
Free trade has been a strong engine for economic growth in the United States. Over the past decade, open trade has boosted job growth by more than 13% and has helped to raise U.S. GDP by nearly 40%. The benefits go not only to workers and entrepreneurs in export industries, but also to consumers of imports. Free trade has delivered a greater choice of goods for Americans — everything from food and furniture to computers and cars — at lower prices.
While some jobs have been lost due to trade, many more are created each year. America is now the top exporter of services, consistently recording trade surpluses since 1970. As 15 million jobs do go away each year (most due to technological advancement, not trade), another 17 million are created. And the new jobs pay better. During the 1990s, average earnings in manufacturing industries that showed net declines in employment were $10.63 per hour. During the same period, wages in expanding service-providing industries were $11.26 per hour, or about 6% higher.
Lowering world trade barriers, as the WTO talks aimed to do, would have benefited Americans even further. The Institute for International Economics has calculated that moving from today’s trade environment to one characterized by perfectly free trade and investment would generate an additional $500 billion in annual income for the United States, or about $5,000 per household each year. A University of Michigan study concludes that reducing agriculture, manufacturing and service trade barriers by just one-third would add $164 billion, or about $1,477 per American household, annually to U.S. economic activity. Completely eliminating trade barriers would boost U.S. annual income by $497 billion.
Contrast these gains with the parochial interests that U.S. agriculture subsidies serve. Nearly 90% of all subsidies go to growers of just five crops (wheat, cotton, corn, soybeans and rice), while the vast majority of farmers specializing in livestock, fruits, vegetables and all other crops flourish in a free market without subsidies. Furthermore, two-thirds of subsidies are distributed to the wealthiest 10% of farmers. According to a 2004 Organization for Economic Cooperation and Development study, U.S. farm programs resulted in higher food prices and had the effect of transferring more than $16 billion from American households to domestic farmers over and above what the farmers received from direct government assistance.
Congressional hypocrisy on free trade and parochial protectionism is rampant. Instead of supporting comprehensive trade agreements with other nations, many members of Congress limit their support of free trade to narrow special interests. In 2005, various members of Congress introduced more than 250 specific bills to waive tariffs that harm their constituents. In 2006, Sens. Ted Kennedy and John Kerry (D-Mass.) introduced no fewer than 17 “suspension of duty” bills that directly lower tariffs paid by some state businesses, including rubber and synthetic basketball and volleyball makers.
Fighting for Massachusetts volleyball manufactures while ignoring the wider benefits of free trade is exactly the attitude that led Stevens to fight for his Bridge to Nowhere while ignoring the nation’s wider infrastructure needs. These big government attitudes need to go. Farm subsidies should be eliminated, tariffs need to be lowered, and transportation funding decisions must be returned to the states.
Quick Hits:
- Around 3,000 blank British passports were stolen from a vehicle on its way to the printers near Manchester, England, yesterday.
- Earlier this month, a top CIA official confronted Pakistan with new evidence about ties between the country’s powerful spy service and militants operating in Pakistan’s tribal areas.
- With U.S. troop deaths in Iraq at an all-time low, July is set to be the first month that casualties in Afghanistan outnumber those in Iraq.
- According to Rasmussen Reports, 50% of Americans prefer a tax policy focused on economic growth compared to 43% who prefer tax policy based on fairness.
- The housing bill passed on Saturday includes a sweeping provision requiring credit and debit card firms to report the transactions of small businesses to the IRS.
