Washington Post's "Free-Trade" Zombies Discover New Form of "Protectionism"

What do you call it when a government takes over a bank teetering on the brink of collapse, pumps truck-loads of public funds into it, and then asks it to, you know, maybe make some loans to the families and businesses whose taxes financed its rescue in the first place?

Like me, you'd probably call it a fairly commonsense policy. But if you were the kind of mindless "free-trade"-worshiping zombie who writes for the Washington Post, you'd probably call it "protectionism in the 21st century." Like this:

EDINBURGH, Scotland -- Once as rooted in the Scottish soil as this city's famous castle, the Royal Bank of Scotland ventured far during the era of globalization -- pumping billions of dollars worth of credit overseas as it expanded into markets as diverse as Kazakhstan, China and Rhode Island.

But just as RBS came to symbolize the free flow of credit across borders, the worldwide financial crisis has turned it into a leading example of the reverse: protectionism in the 21st century.

The government took majority control of the venerable bank four months ago after it suffered the worst corporate loss in British history. Authorities promptly issued a fresh directive: RBS, which had been in private hands since 1727, would have to sharply boost lending to British companies and home buyers stung by the global credit crunch -- effectively curtailing lending to its equally hard-hit customers overseas. As RBS prepares to comply with the government order to pump billions of dollars more into British credit markets, it is retrenching in at least 15 countries, moving to sell off branches from Vietnam to Romania.

Even the WaPo writers know they're torturing the definition of protectionism, as illustrated by this ass-covering graph:

World leaders gathering for a major economic summit in London next week are vowing not to repeat the trade wars of the 1930s by imposing the kind of protectionist tariffs on butter, steel and other goods that deepened the Great Depression. But while their promises center largely on avoiding classic forms of trade barriers -- such as higher taxes on imported cars -- the rise of financial protectionism poses a far greater threat to global recovery.

The short response to this ridiculous stretch of the concept of "protectionism" is fairly straightforward: RBS was no longer capable of functioning as a private institution. It made bad bets. It was going to go belly-up, but was deemed "too big to fail," so it was nationalized by the UK, not by the governments of Vietnam or Romania. And it's clearly not a form of "protectionism" as the Brits didn't do anything to hinder or regulate the flow of capital in and out of the UK -- they imposed conditions on a single institution, which the government happens to own.

But I think the more interesting thing here is the ever-expanding definition of a "trade barrier."

Let me take a brief moment to tease out the crucially important distinction between "classic forms of trade barriers," and screaming "protectionism" about anything that in any way impacts international commerce. We'll need a bit of background.

Most people still believe that discussions of "free-trade" are about ships full of bananas or ball bearings or high-tech widgets crossing oceans. Understanding why that's just a small part of the issue is key to grasping the difference between "free trade" and what these deals we've been signing for the last 30 years are really about -- a corporate power grab.

Prior to World War II, trade wars were common, and they often led to shooting wars. In the mid-1940s the General Agreement on Tariffs and Trade (GATT) was created to foster world peace. Many of its authors were FDR liberals. They had high ideals.