Book Review: The Great Betrayal

The ongoing globalization of economic life leaves many Americans nervous and suspicious. According to a Business Week poll taken last fall, 56 percent of Americans believe that expanded trade will destroy more jobs than it creates, and 40 percent think that more trade means lower wages, compared to only 17 percent who believe the opposite.

Pat Buchanan has played to this anxiety in two presidential campaigns and is now preparing to do so a third time. To that end he has written The Great Betrayal, a root-and-branch rejection of free trade in favor of a "new nationalism." Consider this book a preview of his 2000 campaign strategy.

Buchanan advances two distinct and contradictory lines of argument in The Great Betrayal. On the one hand, he defends protectionism as sound economic policy. According to Buchanan, tariff barriers promoted American prosperity throughout much of our history, while their progressive elimination in recent decades has begotten industrial decline and falling living standards. At the same time, he lambastes free trade "ideology" for exalting economic efficiency over concern with flesh-and-blood people--specifically, the people whose lives have been disrupted by foreign competition. Buchanan calls upon "conservatives of the heart" to embrace protectionism on the ground that there's more to life than economics.

So which is it: Is free trade inefficient or too efficient? Neither position is tenable, and by flipping back and forth between the two, Buchanan manages to get the worst of both worlds.

First, let's look at Buchanan's claim that import barriers promote economic vitality. His chief evidence is historical: Throughout much of its existence, the United States maintained high and consciously protectionist tariffs while experiencing rapid growth and development. True enough, but what of it? In all countries at all times, governments have hampered markets with ill-advised restrictions on freedom, and yet the creative power of markets has persevered to deliver the goods. That's no proof that the restrictions helped. The fact that I can carry a bag of cement up a hill doesn't mean it's making me go faster.

And Buchanan neglects to mention that despite the existence of protectionist tariffs, Americans continued to enjoy other kinds of unregulated international trade. Although foreign goods were often kept out, foreign money wasn't: British investment in particular played a major role in bankrolling American canals and railroads during the 19th century. And while we blocked the products of foreign labor, we didn't block the foreign labor itself: Mass immigration supplied the manpower--and much of the brain power--for the new mass production economy that propelled the country to affluence. These points hardly square with Buchanan's thesis that America's rise was based on independence from foreign influence and protecting "good jobs at good wages" from foreign competition.

In any event, it's no good to argue that the historical coexistence of protection and prosperity demonstrates a causal connection between the two. This is the post hoc, ergo propter hoc fallacy: The rooster crowed, the sun rose, so therefore the rooster caused the sun to rise. To get anywhere, you have to have some analytically convincing explanation for why the one leads to the other.

Unsurprisingly, Buchanan fails to come up with any such thing. Space constraints prevent me from cataloging and responding to all of the butcheries of economic reasoning contained in The Great Betrayal. Let me focus instead on the nub of the matter. "Here is another fallacy of free-trade theory: what's best for its consumer is best for a country," Buchanan declares. He continues: "Putting consumption first goes against the grain of common sense, as well as inherited wisdom. Before consumption comes production. Before production, investment. Before investment, savings. And before savings, income--the reward for work. Before a family consumes bread, a farmer must plow the ground, sow the seed, till the field, wait and watch....As Aesop's fable of the ant and the grasshopper teaches: he who puts consumption first has put his foot on the road to ruin."

Buchanan here trips on the root misconception of protectionist thinking: that production, not consumption, is the end of economic activity. The notion sounds superficially plausible, which is why two centuries of railing against it by economists have failed to put it to rest. Of course production is what it's all about; how silly of those ivory-tower economists to say otherwise.

But the economists aren't denying the centrality of production; they are defining what production is. Specifically, production is economically meaningful only if it is of value to someone--that is, only if there's a consumer out there who wants to buy it. You can show all kinds of determination and grit while digging holes and filling them back in, but that's not production; it's a waste of time.

Thus, the bedrock principle that consumption is the end of economic activity is not a call to hedonistic self-indulgence, as Buchanan charges. On the contrary, putting the customer first is a fierce discipline that the market imposes on producers. Work as hard as you want, but unless you're creating more value than you're expending, you're wasting resources and will eventually go out of business. It is this relentless discipline that drives producers to create more and more value for less and less effort--in other words, to make us richer.

The primary benefit of free trade is that it further tightens the screws of market discipline by expanding the realm of competition. Industries that face import pressure must become more productive or give way; industries that can take on the world's best are able to export and expand. International commerce thus shifts a country's resources away from less productive industries and toward more productive ones.

Protectionists like Buchanan get all of this backwards. They believe that wealth consists of particular domestic industries with high-paying jobs; they want to defend those industries and jobs from foreign competition. But high-paying jobs don't just fall from the sky; they emerge from the process of market discipline that encourages ever-increasing productivity. By shielding producers from market discipline, protectionists interfere with and undermine the wealth-creating process that ultimately produces high-paying jobs.

In the end, the only economically literate case for protectionism comes down to the claim that, under certain circumstances, government decisions about how resources should be allocated (i.e., which industries should be protected) will produce better outcomes than the market process. It's a theoretical possibility, of course, but so is hitting it big at the roulette table by playing your lucky number. Over the long term, neither is likely to be a winning proposition.

Turning from the past to the present, Buchanan contends that the U.S. "free trade era"--which he dates from the conclusion of the Kennedy Round of GATT talks in 1967--has been an economic catastrophe. Here he trots out familiar statistics about our ballooning trade deficits and eroding manufacturing base--all of which figured prominently in the "declinist" literature of the '80s and early '90s. Times have changed, though, and now this Cassandra routine comes across as stale. Put aside for a moment all the hype about our own economic performance, and just take a look around: With Europe stuck in the mud and Asia falling off a cliff, exactly whom are we in danger of falling behind?

Perhaps sensing that it's no longer the New Hampshire winter of '92, Buchanan does not stick too firmly to the old declinist rant. Or rather, his focus is elsewhere. The emphasis in The Great Betrayal is not on America's standing relative to the world but on some Americans' standing relative to others: "We are now the `two nations' predicted by the Kerner Commission thirty years ago. Only the dividing line is no longer just race; it is class. "On one side is the new class, Third Wave America--the bankers, lawyers, diplomats, investors, lobbyists, academics, journalists, executives, professionals, high-tech entrepreneurs--prospering beyond their dreams. Buoyant and optimistic, these Americans are full of anticipation about their prospects in the Global Economy....

"On the other side of the national divide is Second Wave America, the forgotten Americans left behind. White-collar and blue-collar, they work for someone else, many with hands, tools, and machines in factories soon to be hoisted onto the chopping block of some corporate downsizer in some distant city or foreign country."

Here at last, Buchanan strikes a nerve--even if he uses a meat axe to get to it. Free trade, while broadly beneficial, does have its human cost. Some Americans have lost their jobs and seen their prospects diminished because of foreign competition.

But there is nothing distinctive about international trade in this regard. What about mom-and-pop stores displaced by Wal-Mart? What about Eastern and Braniff and Pan Am (the first one, anyway)? What about IBM's eclipse? What about the market share Big Steel lost to Nucor and other minimills? What about merger waves and the resulting "downsizings"? What about new management gurus and their jihad against middle managers? What foreigners are to blame for any of this?

The fact is that we are living in a time of sweeping and convulsive economic change. This change is creating vast new wealth and breathtaking new opportunities; at the same time, it is claiming some victims and fraying more than a few nerves. Foreign trade is a part, but only a part, of that overall picture.

Accordingly, if you wish to side with "Second Wave America" against "Third Wave America," you can't stop at trade policy. A true "protectionist," one who would defend the economic status quo against all comers, must declare himself an enemy of change itself, and the open and dynamic market system that endlessly foments it.

Buchanan flirts with this kind of full-fledged reactionary stance: "What is wrong with the Global Economy is what is wrong with our politics; it is rooted in the myth of Economic Man. It elevates economics above all else. But man does not live by bread alone.

"To worship the market is a form of idolatry no less than worshipping the state. The market should be made to work for man, not the other way around."

But Buchanan can follow this line only so far, since ultimately it conflicts with his economic nationalism. After all, why does it matter that free trade is bad economics if economics itself is bad? If protectionism really would make our economy grow faster, that just means the pace of change would accelerate and the toll of disruption increase. Why would a true-blue reactionary support that?

Economics bashing also makes a hash of Buchanan's reading of history. What sense does it make to champion the Americans left behind by "Third Wave America," while at the same time totally ignoring all the Americans left behind by "Second Wave America"? Buchanan identifies the period between the Civil War and World War I as a golden age of economic nationalism, yet that was a time of economic dislocation similar to, if not more turbulent than, our own. Buchanan, however, does not castigate the Gilded Age for its market idolatry; he sides with the big-business elitists and their "cross of gold."

So Buchanan tries to have it both ways. His heart bleeds for the victims of change, but only when foreigners can be made to take the rap for it. Buchanan's book proclaims sympathy with two conflicting public sentiments--the desire for economic dynamism and the aversion to disruptive change--and reconciles the two by blaming their conflict on an unpopular scapegoat. Politically, it's an elegant straddle. Intellectually and morally, it's shameful demagoguery.