I know it's unwise to accept claims at face value. Checking claims is critical. In this post I want to present Chomsky's thesis regarding such people as Ronald Reagan and Milton Friedman offered here and then offer the results of the checks I've made regarding those claims.
First of all let me offer a basic free market claim that Chomsky would criticize, and I'll say that I came to understand this from Sowell. The claim is with regards to division of labor.
Suppose I'm an engineer and I put myself through college working in food processing. Suppose I was pretty good at food processing and could produce 10 lbs of food per day. But now also I'm an engineer and let's just say that I can output 2 designs per year.
Contrast me with a poor laborer. He can't do engineering at all. Suppose he can process food, but not as well as me. So one might think he's in really bad shape if we were to engage in trade. Let's assume if he had to design something it would take him 4 years with all of the errors and corrections that would be required, whereas he can process 5 lbs of food in a day.
Let's compose a hypothetical economy in a country called Jonistan. Jonistan is composed of 100 workers just like me. Good at processing food. Good at engineering. We have another country called Nicolombia. Not as good at either.
Let's suppose Jonistan needs to accomplish the production of 50,000 lbs of food every year to keep the population fed. The rest of the available time is devoted to engineering projects that improve technology and make life better. Here's how it would work assuming 200 working days in a year.
Jonistan would put 25 people to the task of producing food. 25 people x 10 lbs/day x 200 days/yr is 50,000 lbs of food per year. This leaves 75 people available for engineering. 75 people x 2 designs per year means 150 designs per year.
Suppose Nicolombia also has 100 workers and needs 50,000 lbs of food a year. They'd put 50 people to work on food (50 people x 5 lbs/day x 200 days/yr is 50,000 lbs of food). 50 would be available for engineering. They'd make 12.5 new designs/yr (50 persons x 0.25 designs per person/yr = 12.5 designs per year).
Total output is as follows:
Jonistan: 50,000 lbs of food, 150 designs.
Nicolombia: 50,000 lbs of food, 12.5 designs.
Total output: 100,000 lbs of food, 162.5 designs.
Now let's alter the work and assume Jonistan and Nicolombia engage in free trade. Let's put all Nicolombians to work producing food and all Jon's in Jonistan to work on engineering. A total of 100,000 lbs of food is required to feed both countries. But watch what happens.
Total output in Jonistan: 100 people x 2 designs per year = 200 designs/yr.
Total output in Nicolombia: 100 people x 5 lbs/day x 200 days/yr = 100,000 lbs/yr.
Everyone gets fed, everyone still works, but the total output has gone up from 162.5 designs to 200 designs. Nicolombia exhanges in free trade with Jonistan and offers 50,000 lbs of food for 25 new designs. Both sides are very happy and have more than they would have had if they hadn't engaged in free trade and exploited the comparative advantage. Free trade is really great, right? Who would oppose such things as NAFTA? Who would oppose WTO? This is the beauty of free markets that the Reaganites and Friedman types think is so important.
And now for Chomsky's response. Chomsky claims that in fact Reagan was a President that violated the above free market principles to a degree unsurpassed by any President since Herbert Hoover. When Reagan was President the Japanese were far more efficient at automobile production. Reagan saw that they could destroy the U.S. auto industry. So he simply enacted enormous tariff's on Japanese products while U.S. auto was instructed in the efficient Japanese methodologies. These actions destroy the beneficial effects of the free trade principles defined above. Yes, by pursuing a comparative advantage total output is increased TODAY. But what if I don't want to be a food manufacturer for all eternity? What if I would rather sacrifice output temporarily while I develop the technology that makes me a skilled laborer rather than an unskilled laborer? Should I let Japan destroy this important industry? Absolutely not. I will block them for now, then re-open trade when I've recovered.
But this is not how we treat others. Do we allow Mexico to block U.S. subsidized agri-business corn? No. We flood their market by force. And when a million poor farmers find themselves out of business we direct them to U.S. factories just across our border in Mexico that are paying pennies per hour. They make our flat screen TV's, which continue to drop in price while they live in homes made of card board boxes.
According to Chomsky this is a process repeated over and over. Take a country like Honduras. Prior to U.S. "free market" imposition this place is totally self sufficient. They make plenty of food and feed their population. But then free markets are imposed and they become a country that exports snow peas and beef to the U.S. due to their comparative advantage. GDP is up. Profits are up. And now child malnutrition is soaring and the population is generally starving. It's not acceptable when the free trade model would affect us badly, as in Japanese car imports. But it is imposed on others by force.
Chomsky made a couple of claims in this lecture that I wanted to check. The first was that Reagan was a protectionist. The second was that what Chomsky calls the "neo-liberal" economic policies of Friedman and others began to be imposed around the 1975 timeframe, and that the evidence is pretty clear by all economic measures that for the average American this is the time when things took a dramatic turn for the worse. Not for the wealthiest in America, but for the poor. So I checked these claims. Here's what I have dug up.
Was Reagan a protectionist? This source says yes.
What about economic indicators from 1975 onward for average Americans? Check the following:
- top 1% share of total wages here
- median family income here
- productivity vs median family income here
- income growth by quintile here
- income ratio here
- low, middle, and high income growth here
- bottom 99.5% share of total income here
What I've been able to check appears to be accurate. Something bad happened around 1975. What was it?