Mostly, economic theories, like all theories in all disciplines, originate to explain existing phenomena. Free trade is the way the market wants to work; it is not the invention of some economist or government.
For example, outside of the case for free trade, we have a system in the US that has allowed what is (imo) excess taxation of labor for about 20 years.
You blame economic theories for this? The root of cause of excess taxation is envy, our distrust of individuals, and our desire to do good.
Anyway when you allow free trade to displace these workers, which are essentially your economy's meal ticket- deficits arise
Deficits arise because we spend more than we tax. Since "free trade" is associated with an aggregate rise in domestic incomes and thus rising GDP, it cannot be blamed for increasing deficits.
dollar crashes and inflation follows.
The US is the most productive nation on earth. The real exchange rate is a result of productivity differences, thus a falling dollar, in real terms, implies only that our relative productivity has declined. Only if our productivity has declined in absolute terms is there a negative impact on GDP. You should not get nominal values and real values confused.
Nowhere in the free trade manual was stagflation mentioned
Why should it. They are not related. Stagflation was the result of trying to exploit an observed relationship between inflation and unemployment.
based on the free trade theory, Juarez which is a Nafta stronghold should be a booming prosperous town with a middle class.
Nope. Free trade theory only says that in the absence of artificial barriers, regions will specialize in those industries where they are the most productive. Therefore, a net gain in productivity will result. This is backed up by 300 years of observation. In fact, according to free trade theory, there is zero net job creation resulting from free trade, to a first approximation.
Edit:
I should add that there is no "free trade theory" per se. Only standard microeconmic analysis applied to regionally imposed constraints to optimization. |
