Milton Friedman labels Buchanan view 'fallacious'

The Economy

March 04, 1996|By Jay Hancock

SO THIS IS HOW economic history restarts.

A few months ago, the economic certainties were: death, taxes, the futility of central planning, the virtue of free trade and the eternity of "Hogan's Heroes" in syndication.

Free trade may have required more faith, like Mrs. Clinton's explanation of how the Whitewater bills got lost inside her house. But if anyone still wondered whether free trade had been admitted to the canon of conventional wisdom, Ann Landers removed the doubts.

Last September, "Annemarie in Philadelphia" wanted Ann to save U.S. jobs by asking everybody to boycott imports. Ann responded: "If Americans refuse to buy products made in other countries, those countries will most certainly refuse to buy ours."

So there. As a matter of public debate, trade policy doesn't rank with how the toilet paper should hang. But Pat Buchanan has gotten some mileage out of it by challenging the group think.

Mr. Buchanan would like to reverse five decades of open-market momentum and slap a 10 percent tariff on Japanese imports, a 40 percent tariff on Chinese goods and a "social tariff" on other third-world imports. The idea is to give U.S. consumers an economic incentive to buy American goods and generate American paychecks, not Indonesian ones.

Nobody paid attention until Mr. Buchanan won the New Hampshire Republican presidential primary.

Now, in a healthy exercise of democracy and the idea bazaar, the tower of economic doctrine is quivering. Slightly.

Two days after the New Hampshire primary, the Wall Street Journal ran a measured, sober story on "Buchananomics" and the former free-trader's intellectual road to Damascus.

Before the primary, pundits sometimes placed Mr. Buchanan in the political company of mid-century European dictators. Now, "Buchanan has a lot in common with Teddy Roosevelt," said Alfred E. Eckes, former chairman of the U.S. International Trade Commission, in the New York Times.

One thing hasn't changed. Mr. Buchanan scares the pocket protectors off most economists. Finding an economist who agrees with him is like trying to buy an American-made TV at Circuit City.

Finding one who disagrees, and caustically so, is a matter of randomly flipping the Rolodex.

Let's start with the dean of free markets. The lord of laissez-faire.

"The arguments that Buchanan makes are patently fallacious," fumed Nobel Laureate Milton Friedman. "The overwhelming bulk of economists have always been free traders."

Testing trade policy requires a step into the lab of economic history. Each theorist has her favorite experiments. Mr. Friedman's are Hong Kong and Britain.

"After World War II, Hong Kong was a miserable place, with a small population and no natural resources except a small harbor," said Mr. Friedman, who's 83 but not too old to get on the phone and preach the gospel.

"Hong Kong has outdone the U.S. and Britain in terms of growth." Why? "It had no tariffs, no restrictions on trade whatsoever. Low government spending. Low taxes. In 1960, the average per-capita income in Hong Kong was one-third of Britain's," which shielded domestic industry. "In 1994, it was a third higher than Britain's."

Mr. Friedman's response is predictable. Less so is that of Mark Eaker, a business professor at the University of Virginia's Darden School and a self-described liberal Democrat.

Mr. Eaker's historical evidence comes from the once-Communist countries of Eastern Europe, whose trade ministers happen to be in Baltimore today for the fourth annual "Muenster" tutorial on capitalism.

Hungary, Poland and the rest were "a model of protectionist, closed societies," Mr. Eaker said. "They were built on a policy of essentially no free trade, no markets. And they imploded."

But Mr. Buchanan has his own evidence. He has studied Singapore, the 19th-century United States and Britain and other developing countries to extract the lesson that protectionism works. By shutting out imports, he argues, we can reclaim our factory jobs, re-employ the underclass and speed economic growth.

Wrong, wrong, wrong, chime the economists. Ann Landers, too.

Our trading partners would surely retaliate, crippling U.S. exporters, they say. This isn't 1820, when the country's industry was small enough to thrive on domestic consumption alone.

If you think Boeing's workers in Seattle have had a tough time, wait until Boeing has to live on sales to U.S. airlines only, economists argue. BMW and Honda might stop building factories here. And the jobs that would multiply under protection might not be the kind we'd want.

Peter Morici is former economics director of the U.S. International Trade Commission and now a business professor at the University of Maryland.

"I had grandparents who worked in the apparel factories in New York City," he said. "Both my grandfather and my father-in-law worked there and died in their 60s, and their widows received no pensions and no health benefits.

"If we choose protectionism, we're going to have a large percentage of our workers in low-wage industries. The new marketing opportunities created by free trade tend to be in industries that pay high wages and offer good benefits."

So goes the debate. Mr. Buchanan now will be pressed to clarify his views.

For example, does he think the toilet paper should hang from inside the roll or outside?

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