Last Wednesday, when the Dow dropped 360.92 points, 132 members of the House of Representatives—116 of them Democrats, including a majority of committee chairmen and three fourths of the party's freshmen—voted to protect America from Peru's economic might. That country's GDP ($186.6 billion) is smaller than Connecticut's ($204.1 billion); its $8.8 billion worth of exports to America are an imperceptible drop in the enormous bucket of America's $13 trillion economy.
The stock market's current palpitations are not caused by Democrats—who might win the presidency next year and probably will control Congress throughout the next presidential term—voting against free trade. Other causes are sufficient—the price of oil almost hitting $100 a barrel, GM announcing a $39 billion third-quarter loss, a Chinese official intimating that his country might begin dumping some of its mountain of dollar-denominated assets.
Although the House passed the Peru agreement, Democratic opposition shows the growing strength of a long-term fever: A majority of congressional Democrats opposed the North American Free Trade Agreement in 1993. For the first time since the 1920s—which were followed by the grim 1930s—one of the parties is protectionist. Opposition to liberalized trade has become liberal or, as is now said, "progressive."
John Edwards, the shrillness of whose progressivism is inverse to his standing in the polls, urged Congress to reject the Peru agreement. This, although during his single Senate term—his entire governmental experience—he voted for the Andean Trade Preference Act, under which Peru has almost entirely free access to U.S. markets. The agreement he opposes would give U.S. companies reciprocal access to Peru's market.
Edwards would require Peru to adopt more stringent labor and environmental standards than the pact requires. This, in spite of the fact that the pact's standards were negotiated by two very liberal House Democrats (Charlie Rangel and Sander Levin), have been endorsed by the AFL-CIO and are stronger than those in the Chile and Singapore agreements for which Senator Edwards voted. Hillary Clinton, who vows to undo the damage done by what she thinks has been George W. Bush's overbearing unilateralism in dealing with other nations, promises to re-evaluate all existing trade agreements to pressure nations to adopt domestic polices more pleasing to us. Free trade, crucial to the growth of wealth globally since 1945, is in peril. People are playing with fire at a moment when there is economic gasoline spilled all over the place. But overstating problems can be its own form of fire: Recent polls, taken just before the announcements that third-quarter growth was a robust 3.9 percent and that 166,000 jobs were created in October, showed that up to 46 percent of Americans think the economy is in a recession.
Granted, the rise in oil prices, which will soon produce higher gasoline prices, comes at an inopportune time. Consumer spending is 70 percent of economic activity. Americans are driving slightly more than they were a year ago, so more costly gasoline will crimp other consumer spending just as the decline in housing values is ending the "wealth" effect, whereby rising values made people feel flush and enabled them to borrow against housing equity to keep their consumption brisk. All this on the eve of the Christmas season, which is crucial to retailers, who are already reporting disappointing sales.
Still, crude oil prices have been here before (in 1981 they reached $93.48 per barrel, in 2007 dollars), and a long expansion began the next year. Today the U.S. economy uses half as much energy per unit of output as it did then. Furthermore, today's rising oil prices are driven not by politically motivated restrictions on supply but by surging worldwide demand, which is a reflection of a healthy global economy. Disparaging lenders has been a favorite pastime down the centuries, and not long ago American lenders were being faulted for not lending enough to borrowers who were only marginally qualified. Today those borrowers are called "subprime" and the lenders who gave them loans are called "predatory." The Wall Street Journal reports, however, that about 80 percent of subprime loans are being repaid on time and another 10 percent are only 30 days delinquent.
GM seems to have seen a tunnel at the end of the light. Its $39 billion loss was partly the result of an accounting decision. It shed deferred tax credits because they were to be used to offset taxes on future profits, and it now seems to think that profits may still be far in the future. So, the economic picture is mixed. So what?
Presidential elections are always epidemics of economic illiteracy and hysteria, for two reasons: The party not holding the White House has an incentive to talk gloomy nonsense, and the media, for whom the phrase "good news" is an oxymoron ("We don't report the planes that land safely"), love crises. In 2004, Democrats spoke of "the worst economy since Hoover" and "Benedict Arnold CEOs." Republicans will, in time, have their wilderness season for spouting nonsensical pessimism.
That can, however, be self-fulfilling: Worried people curtail consumption, wary businesses defer investments. Everyone should remember the witticism that the stock market has predicted nine of the last three recessions.