Paper Principles

by Don Boudreaux on March 31, 2007

in Seen and Unseen, Trade

The danger to America posed by imports from China apparently has intensified.  Uncle Sam will now force American buyers of allegedly subsidized Chinese paper products to pay higher prices for these products.  (He’ll do so by raising the tariff he imposes on these imports.)

Of course, as this report from today’s New York Times reveals, labor-union leaders applaud this tariff hike because it helps "paper workers throughout the United States."  No doubt it does — that is what is seen.

What is not seen is the harm done by such protectionism, such as–

- Obliged now to fork over more money to buy paper, American consumers have less money to spend on other goods and services.  As demand for these other goods and services necessarily falls, firms and workers in those other industries suffer unnecessarily.

- Foreigners, now earning fewer U.S. dollars, will spend fewer dollars in the U.S.  Demand for U.S. goods, services, and assets will fall.  To the extent that demand falls for U.S.-made goods and services, workers in the industries suffering the largest declines in demand suffer the most.  To the extent that demand falls for dollar-denominated assets, potentially even more workers suffer because such a fall in asset demand means higher real interest rates.  In turn, there will be less investment and, hence, slower growth in worker productivity and real wages.

Of course, some of the fall in demand for dollar-denominated assets might be reflected in lower demand for debt issued by Uncle Sam.  The consequence here, too, will be higher real interest rates and a greater reliance upon Americans to lend to Uncle Sam.

As William Graham Sumner observed in 1881 (in his essay "The Argument Against Protective Taxes"):

Any favor or encouragement which the protective system exerts on one group of its population must be won by an equivalent oppression exerted on some other group.

Protectionism is the freakish poster-child for the failure to see the full range of consequences of a policy action.  This latest episode is no different.  Nothing at all about subsidies — real or imagined — to foreign exporters changes matters.

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{ 44 comments }

Stephen Reed March 31, 2007 at 3:49 pm

I couldn't believe it when I heard about the administration imposing this tariff.

Another negative is a slight increase in hostility with China. It could potentially lead to protectionist retaliation of their own against the U.S. or perhaps less cooperation on other international affairs.

howard March 31, 2007 at 5:00 pm

China manufacturers are thrilled at this- a pricing war will emerge in China and products using paper will be lower in price and help lead the way to more Chinese products- Imports from around the globe will dry up as the Chinese have world class paper machines which out pace any american machine by at least 25%- Great work American government- not the way to go

Ray G March 31, 2007 at 5:19 pm

I explained protectionism to my algebra students as putting some kind of restriction at one place within the human body. That one pinch point or restriction causes a domino effect throughout the body, etc.

Nadia March 31, 2007 at 7:13 pm

The saddest thing is that the vast majority of people around me(under the influence of propaganda and/or some other reason)feel that this is the way to go. American industries need protection to reorganize and some are even telling me that they are willing to pay for a slight increase in price. But they don't see that it goes far beyond that. Even more well-to-do persons reason in this [protectionist] way. But it gets even worse when I hear this type of knowledge from my professors. In response I hear that I'm still too young, or just read too much of the theoretical books.

This blog is a great thing, I check it regularly even before my email!

Kevin P. Camden March 31, 2007 at 9:30 pm

But this is the typical Union response, is it not? If it appears, no matter how superficial, that an American worker will be helped, the Union backs it. Never you mind the eloquent points set forth in the main post; other industries suffer and spending overall may well fall.

This is similar to the foolhardy arguments that the UAW used to peddle with "Buy American" years ago. Do not look at the quality of an import, pledge blind allegiance to American manufacturers. Where has that gotten the auto industry? Losing ground consistently to Japan because the Japanese (and Germans) make an infinitely higher quality vehicle. I digress.

The Unions in this country better realize soon that their antiquated, protectionist ways actually harm their workers and the American economy overall. Instead of providing training or education to increase productivity or quality, the Union's tug at the heartstrings of xenophobia.

The Wal-Mart situation is demonstrative of the Union's gang mentality. If Wal-Mart was so inherently evil, the market would sort it out. Yet, Wal-Mart continues to grow. Why? People like lower prices? Why should I buy American when the cost is higher, the societal value is questionable, the very union member I am supporting may well drive a foreign car, and the quality is not there?

As in all things, the market has spoken and should be heeded. However, the AFL-CIO has found a niche in funding Congress, has it not?

Kent Gatewood March 31, 2007 at 10:33 pm

So subsidies are only bad if Americans do them?

Nadia March 31, 2007 at 10:51 pm

I think subsidies as a means in achieving competitive edge is a fallacious short term remedy (remedy especially the governments' way of looking at it). No matter who subsidizes, Americans or Chinese it will bring about distortion and inefficiency. But such interference with the market can not be sustainable. I might be wrong though, because I'm just learning and my knowledge is extremely limited.

True_Liberal March 31, 2007 at 11:13 pm

Two secondary effects not yet discussed:

There will be more emphasis placed on "paperless" operations in the US – presumably moving us toward more productivity.

AND…

To the extent that paper consumption worldwide is reduced, fewer trees may die. The Greens should be absolutely delighted!

M. Hodak March 31, 2007 at 11:20 pm

Kent,

Yes. And if you can't understand why enough to ask such a question, just consider whether you'd rather mail me some money or have me mail you some. Can you tell the difference?

Sam Grove April 1, 2007 at 12:43 am

So subsidies are only bad if Americans do them?

American subsidies are bad for most Americans, Japanese subsidies are bad for most Japanese, etc.
Subsidies are favors to special interests with the cost socialized among taxpayers.

John Salvatier April 1, 2007 at 12:53 am

So subsidies are only bad if Americans do them?

Subsidies are bad for Americans only if the American government does them. Chinese subsidies are actually good for Americans.

tarran April 1, 2007 at 2:32 am

I remember a conversation I had with a friend regarding E.U. subsidies for Airbus.

His comment: "If Jaques Chirac wants to rob the elderly in France so that I can fly more cheaply, it's fine by me."

In the end, a retaliatory subsidy or tarriff are merely forms of robbing Americans. Robbing our countrymen in retaliation to a foreign government robbing its subjects is really insane.

David P. Graf April 1, 2007 at 10:10 am

As a "worker-bee", I suspect that there'd be less sentiment for protectionism if there was a bit more protection for American workers. When you can see your entire life turned upside down and for the worse, then it's a bit hard to embrace the economic policies that made it all possible.

David White April 1, 2007 at 10:36 am

What a joke. All China needs to do to put an end to this nonsense is to dealing in OUR paper, i.e., the billions of US Treasuries that China buys to keep the US government,US consumer, and thus the US economy afloat.

Oops, I fogot that deficits don't matter. Right, Dr. Boudreaux?

Ubermensch April 1, 2007 at 10:48 am

"Oops, I fogot that deficits don't matter. Right, Dr. Boudreaux?"

David,

Let's hear your argument for why deficits matter.

save_the_rustbelt April 1, 2007 at 10:53 am

This is nothing serious.

It is just a insincere gesture by the Bush administration to mislead the American people into thinking Bush cares about somebody but the wealthy.

Like the sudden burst of immigration enforcement, it is a hoax to cover the real Bush agenda.

Bush is still determined to transfer as much of the our income and wealth as possible to his rich supporters, and nothing has really changed.

Martin April 1, 2007 at 11:00 am

"Obliged now to fork over more money to buy paper, American consumers have less money to spend on other goods and services."

Let's revisit this question in six months.

Until then, your argument is predicated on the evidenceless assumption that prices will automatically rise.

"As demand for these other goods and services necessarily falls, firms and workers in those other industries suffer unnecessarily."

As above.

"Of course, some of the fall in demand for dollar-denominated assets might be reflected in lower demand for debt issued by Uncle Sam. The consequence here, too, will be higher real interest rates and a greater reliance upon Americans to lend to Uncle Sam."

As above – and no bad thing as well.

"Any favor or encouragement which the protective system exerts on one group of its population must be won by an equivalent oppression exerted on some other group."

Thus you acknowledge that Wall Street's protection of its own interests by practicing offshoring and encouraging mass immigration is in fact 'oppression exerted on some other group' – in this case American workers.

Nice work, Don. Keep chanting the mantras.

Nadia April 1, 2007 at 11:38 am

This sounds like a complete denial of economics, Mr. Kelly.

Ray G April 1, 2007 at 12:19 pm

Those with a strictly populist view of the economic world will simply not bow to reason or fact. They argue from emotion; what feels good or what "ought" to be.

It seems that someone passionate enough to pursue debate in mildy hostile lands would be passionate enough to also be open to learning. But alas, it's not so.

Ryan Fuller April 1, 2007 at 12:30 pm

"As a "worker-bee", I suspect that there'd be less sentiment for protectionism if there was a bit more protection for American workers."

France has some of the most protected workers in the world, which is why so few of them find employers willing to risk hiring them in the first place. Keep on fighting the good fight and maybe if you're successful you'll find yourself a nice spot on the dole.

"It is just a insincere gesture by the Bush administration to mislead the American people into thinking Bush cares about somebody but the wealthy."

That's ridiculous. Bush doesn't care about your opinion, so why would he go about trying to change it with some cheap subterfuge?

Bush does this because he's one of the ignorant people who thinks that protectionism is a good thing for America. Lets just bring back Smoot-Hawley and throw our whole economy in the garbage, then be done with it. Protectionist paradise.

"Let's revisit this question in six months.

Until then, your argument is predicated on the evidenceless assumption that prices will automatically rise."

Duh, Mr Martin? Forcing higher prices on the cheapest producer will drive prices up. If it *didn't* then what would the point of the tariff be in the first place?

"Thus you acknowledge that Wall Street's protection of its own interests by practicing offshoring and encouraging mass immigration is in fact 'oppression exerted on some other group' – in this case American workers."

Protectionism by tariff is not the same thing as private individuals protecting their own assets. You're getting hung up on the word "protection" and assuming (rather comically) that moving one's assets to a safer jurisdiction is somehow the same thing as the government fiddling around with other people's prices.

Government acts by force and does not produce wealth; it merely redistributes it. The government cannot grant benefits to one party without extracting them from someone else. The private sector acts by production, persuasion, and making a deal. That is why the government can only grant benefits by taking them from others, and also why the private sector faces no such restriction.

M. Hodak April 1, 2007 at 1:52 pm

Nadia – It is a complete denial of economics. Martin should begin his posts, "Contrary to economic logic…"

David – The wording of your post strongly implies that China buys our paper as a favor to us. What if they were buying it because it were the best deal for them? What if the decline in the value of our bonds (which would result from the start of a sudden sale) were something they DIDN'T want to have happen? What would that do to your premise about what "China needs to do."

David White April 1, 2007 at 3:24 pm

Ubermensch and M. Hodak:

Try these for starters:

http://www.abc.net.au/worldtoday/content/2005/s1446716.htm

Excerpt:

The US right now is absorbing 80 per cent of global savings. Well when you hit 100 per cent, the music stops and leading figures, people like Paul Volcker, the former Chairman of the US Federal Reserve, people like George Soros, the great speculator, have all made statements that they fear a major financial crisis within the next five years because the system is unsustainable. There are a lot of different scenarios, but the problem here is that everybody is holding too many dollars, so as soon as one player begins to sell, everybody starts rushing for the door. So you could get a cascade effect.

Actually for me, the real nightmare scenario is that nothing happens, because what that means is that US debt continues to mount. We're now adding to our international debt at the rate of about $700-billion a year, so in a very short time at that rate, US international debt is equal to GDP or maybe even exceeds GDP. So effectively this is a mortgage on the future of American kids and my kids and my grandchildren in particular, which suggests a dramatically reduced standard of living for Americans in the future and suggests a dramatically diminished position of power and influence in the global affairs in the future for what we think of as the world's only superpower.

http://www.financeasia.com/article.aspx?CIaNID=48819

Excerpt:

What is terrifying to me is that our foreign debt increases at the rate of one trillion every 15 months," [Investment guru Jim]Rogers said. The upheaval that would accompany the change in the dollar’s reserve status would be similar to that which accompanied sterling’s change in status some 60 years ago.

Rogers said that as it was US policy to debase the currency there would come a time when Asian countries, which were among the world’s biggest creditors, would start to get out of dollars and put them into real assets that stood to appreciate such as oil, gold and other commodities.

The US dollar was currently being propped up by Asian central banks, which continued their support partly because it was government policy to do so, and partly from bureaucratic inertia.
__________

In other words, China buys our debt to essentially vendor-finance its US exports, and as soon as this becomes a losing proposition (it is already, actually, but they're not quite ready to pull out yet), the Fed will have to step in to make up the difference, else Leviathan can't continue to function. When it does (creating money ex nihilo to do so), inflation will roar and bond yields will soar. Interest rates will then follow, delivering the knockout blow to housing, which will in turn will choke off the consumer spending upon which 70% of GDP depends. Result: a hyper-inflationary depression.

Either this scenario or something like it, the point being that this massive credit ponzi — The Mother of All Bubbles, if you will — is on the verge of collapse and will be all the worse the longer it's delayed. But count on our fearless leaders — Bernanke, Paulson, and the rest of the lying liars in Rome-on-the-Potomac — to delay it to the last possible moment, at which time they'll the ring in the amero to paper over the dollar's collapse — http://www.amerocurrency.com — and use it to grease the wheels of a north american superstate — http://www.thought-criminal.org/2007/02/09/the-north-american-union-exposed-a-presentation-on-the-destruction-of-america — that will effectively naturalize the Mexican workforce and lock up Canada's vast natural resources.

Meanwhile, what's left of the land of the free and the home of the brave will finally pass into history. And the government's corruption of money — and its ruinous deficits — will be to blame for it all.

Deficits matter.

Stephen Reed April 1, 2007 at 4:28 pm

What is really distrubing is that this kind of protectionism is happening in a relatively good economy. Can you imagine the protectionist pressure that is goign to happen during a recession? Think what might happen if a democrat gets elected in 2008 and the democrats continute to control both houses, and a recession happens sometime in 2008 or 2009.

David P. Graf April 1, 2007 at 4:37 pm

Ryan,

I noticed in your response that you pointed to the example of France. However, why can't we come up with something better? I'm not arguing for a socialist cradle to grave society which squelches individual initiative. Neither am I in favor of ordinary people becoming roadkill on the globalization highway.

Regarding your comment that government does not create wealth, I suspect that some of our liberal friends would point to how government has made some groups and businesses very wealthy. From my perspective, government can create the opportunities for people to become wealthy by protecting the nation from its enemies and taking the steps (i.e., public works) to ensure that the infrastructure is in place. It can also help its citizens go as far as they are able in terms of education.

pinus April 1, 2007 at 5:37 pm

David White: And I always thought that debt is an instrument that requires one counterparty to deliver in the future. So while government deficits create debt (the government is required to deliver dollars in the future), trade deficits do not – since the goods have been paid for to China or whatever country in dollars.

Of course, you may argue that the dollar banknote is also a promise to pay… but since the U.S. don't have a gold standard anymore, what will be delivered… oh, wait, again, one dollar! Not much of a change for the creditors.

You may call the current trade deficit a wealth transfer (since the U.S. citizens are are obtaining current consumptions and sacrificing future consumption), but not a debt.

If China decides to dump all the dollars on the U.S., it may indeed create inflation, but this could be to a great extent outweighed by the Fed. So Fed, contrary to your illogical claim, would _decrease_ the rate of creation of money to accomodate the inflow of dollars (this shouldn't be too difficult, since today's monetary policy is quite expansionary). Even if it didn't succeed to accomodate it fully, and _nominal_ interest rates would increase, this does not really matter, since it is _real_ interest rates that influence the economic activity.

Even then, a substantial depression is unlikely, since the Chinese would like to get some physical goods for their dollars. In that moment, demand from abroad (and thus exports) would soar, and the trade deficit would reverse to a surplus.

Of course, the people who will be less well off will be the future Americans, but exactly for the reasons that you (and people like you) actually support and would like to see – although production will be high, and the U.S. will experience a trade surplus, a huge amount of the goods will be exported, and Americans will be left with less consumption and with more dollars received from the foreign buyers. In the end, they will again end up with more accumulated wealth in terms of dollars, having experienced a period of lower consumption.

Your about a catastrophic scenario lack economic intuition, and empirical evidence. Your explanations actually swap cause and effect. If you are afraid about your kids and grandkids, just sacrifice your consumption and create an internationally well-balanced investment portfolio which they will live of.

M. Hodak April 1, 2007 at 6:15 pm

David W.,

I think there is a confusion here about "deficits." Given the context of the original post, I thought the question was about trade deficits, not fiscal deficits. I don't think that anyone claims that fiscal deficits "don't matter," or that they aren't unfair to our progeny. Most economists think the current deficit presents some very difficult future choices (not necessarily Armageddon). I think the disagreement is over the importance of foreigners owning much our debt–a consequence of our desirability as a place to invest.

David G – What you are describing as roles of government are fairly within the norm of what many libertarian types might be comfortable with. Beyond that, however, on the protection of jobs, I think France is an excellent example of the consequences of labor protection, particularly because they aren't a "socialist cradle to grave society which squelches individual initiative" (not for lack of trying).

David White April 1, 2007 at 7:00 pm

To reply first to pinus:

To get to the root of your (to me) largely incoherent post, the simple fact is that Leviathan must eat and that if foreigners won't feed him, he must be "Fed" here at home, as taxation can only fill the void by collapsing the economy sooner rather than later. For again, like all ponzis, once there's not enough being paid in cover current expenses (think Social Security), the global credit ponzi — instigated and perpetuated by the US — must collapse, it only being a matter of time before it does.

Now M. Hodak:

There is ultimately no difference between the current account deficit and the fiscal deficit, since their source lies in the SAME deficit, that being the issuance of non-asset-based credit, precisely as Sir Alan, back when he was a lowly but principle commoner, well knew:

"Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion."

http://www.usagold.com/gildedopinion/Greenspan.html

That is, the deficit is inherent in the credit itself, REGARDLESS OF WHO THE CREDITOR IS, the only difference being that China can call in its loan at is pleasure, where as future generations of Americans, who were not party to the transaction, cannot.

And to put this fraud in its proper perspective, let me quote from Nobel Laureate Robert Mundell's 2000 acceptance speech:

“The main thing we miss today is universal money, a standard of value, the link between the past and the future and the cement linking remote parts of the human race to one another. The absence of gold as an intrinsic part of our monetary system today makes our century, the one that has just passed, unique in several thousand years.”

Several thousand years versus 36. You be the judge.

M. Hodak April 1, 2007 at 8:00 pm

If I'm to judge, these have been the finest 36 years in human history.

The flawed premise, here, is that money has be backed by tangible assets. It doesn't.
Notes and bonds, including those issued by governments, can derive their value by a simple promise to pay. Of course, government notes do have the added risk of inflation, as well, but that would be quickly reflected in the interest rates of the bonds of longer duration.

You can make value judgments about the desirability of non-asset backed notes if you like (I also would prefer gold notes for their fiscal discipline), but your judgment about the value of the notes themselves runs counter to what markets say. You believe in markets, don't you?

Well, the markets say that U.S. notes of every duration are the safest investment on Earth. The markets seem comfortable that our citizens will easily be up to the task of meeting its burden. You don't like the idea of that burden being borne by our progeny? Neither do I, but that's a different issue. You don't like that verdict by the markets about our ability to pay? Sell short U.S. bonds. You can be smarter than everyone, and, if you're right, your progeny will have no worries at all.

David White April 1, 2007 at 8:19 pm

M. Hodak:

"The flawed premise, here, is that money has be backed by tangible assets. It doesn't."

Money, in order to BE money, has to be both a medium of exchange and a good used for this purpose. Fiat currency fulfills the first requirement but not the second.

You're willing to bet that a 36-year experiment in fiat currency that has led to trillions of "dollars" (i.e., unconstitutional Federal Reserve Notes) of trade and fiscal deficits amounts to "the finest 36 years in human history," and I and others — Volker Soros, Rogers, Schiff, the head of the Government Accounting Office, etc. — are saying that it's a disaster waiting to happen.

And I'm quite sure Hayek would too.

Nadia April 1, 2007 at 9:44 pm

Is there any way Dr. Boudreaux can comment on all said above? At least what seems nonsense and what makes some sense. Or comment section is only for readers? Sorry, I'm fairly new to this.

A. Siebert April 2, 2007 at 1:51 am

High theory indeed. Picking through the posts. Quite responsible. Me? Average guy.

Am wondering:, is it the imprecise, often pregnant with specialized understanding, or, tunnel visioned thinking of some economists (like, perhaps some of those from the University of Chicago), libertarians and free market advocates who have left the U.S. vulnerable to the unfair trade practices of the Chinese and other low cost, low environmentally conscious competitors?

There is clearly no trade reciprocity in that year after year the Chinese take in lots more of our purchase money than we do theirs. After awhile it builds up. As the Saudi's have also not exercised balanced free trade practices regarding our imports of their oil (as well as the Nigerians or Venezuelans). They both (Chinese and Saudis) buy U.S. bonds and securities with their excess funds. These are potential weapons

U.S. technical and fiscal assets disproportionately end up in the hands of our potential enemies who, in combination, can use them as threatened or delivered debt grenades against the U.S. in many ways. Who said economic competition is war in slow motion?

Is it in our national security interests not to try to keep our inflation rates low by importing human subsidized products from low cost producer countries and get little in return? The deficit as a percentage of GDP (I think) is well over 5%. Some sages say that this is very dangerous territory.

Which is the happier side of endemic economic imbalance (including the coming mushrooming in the bills for SS, medicare and medicaid and Bush proclaimed "war") the country that is stockpiling U.S. debt or the country that owes it?

I am told that it is the nature of debt that sooner or later it becomes due and all the "stuff" we bought from the Wall Marts, the local car dealers, and the outsourced and down sized U.S. jobs must be paid for. On their schedule not outs. Plus the fact that the Chinese and others have for decades endeavored to "obtain" U.S. technology by any means possible, puts China in an ever stronger position to oppose the U.S. certainly economically and potentially militarily. And successfully? Oh certainly the U.S. and they eschew such intentions.

The economic survivors are now being chosen. Here, they will be principally the overpaid corporate elites (at least they think so) who pocket hundreds of millions annually for their often mediocre efforts and whose economic decisions by now routinely underwrite (along with their purchased government representatives) a coming Chinese communist fiscal powerhouse.

Nadia April 2, 2007 at 2:19 am

Once again communists are coming. I was trying to escape them when I came here, but no.

So it appears that the solution to the problems mentioned in the post by Mr. Siebert is to spend all income on more expensive, and perhaps sometimes lower quality but DOMESTIC products and what's left over spend on bonds. That will prevent another evil empire (or several as the post suggests) from collapsing the economy. It was a powerful anti-free market post. In addition, the proposal to not try to keep inflation rates low is when I lost hope of understanding the logic of Mr. Siebert.

Martin April 2, 2007 at 2:28 am

Nadia,

You write,

"This sounds like a complete denial of economics, Mr. Kelly."

No. It is a suggestion that Don, who is a screaming ideologue and thus immune to the blandishments of facts, that he qualify his demands for ideological purity with a measure of caution.

Who knows, US paper manufacturers might use the cover of the tariff to Lafferise their product, cutting its price to encourage greater consumption. As outcomes go, that's a suggestion which has as much merit as merely shouting 'Prices will rise!'

And contrary to the belief held by a number of posters here, the Virginia School is not the sole custodian of truth in economics. Nobody is.

M. Hodak April 2, 2007 at 10:36 am

Martin,

You're "who knows" hypothetical is pure rot and you know it. Paper prices are a reported commodity. If you have any conviction about what you say, would you entertain a bet about paper prices under the new tariffs? I would give you 10-to-1 odds. In other words, for every cent per hundredweight (or $/ton, you pick) in price drop of North American coated freesheet (the paper subject to tariff), I would give you ten times what you would pay me for an equivalent rise in paper prices. You can choose the duration of the bet, but the starting point must be the price on the date that the tariff goes into effect, and can't go beyond the date the new tariff goes away. What do you say?

Adam Malone April 2, 2007 at 1:50 pm

Wow Martin, I guess we are all lucky that we have you here to defend us from the likes of Drs. Boudreaux & Russell.

Anyway…it looks like the media has won the battle of the "twin deficits". They have convinced people that trade deficits matter. (Actual Deficits do matter, but that is another discussion.)

The idea that trade deficits matter is just a Xenophobic load of horse hockey. And I think I can illustrate why in a few short points:

1. The very idea that national trade deficits matter begs the question, "Why don't interstate trade deficits matter?" I live in Southern KY, about 22 miles from the TN-KY state line. Why doesn't the Bowling Green Daily News have frightful reports of Bowling Green, KY's mounting trade deficit with Nashville? Or why don't we hear reports of the trade deficits that MERCOSUR has with NAFTA?

Precisely zero people that read this blog believe that a trade deficit between California and say, Oregon, is something to care about. Yet for some reason when it becomes a patriotic issue (ie Buy American, American jobs) we suddenly care.

2. To say that the Chinese government is subsidizing spending through the purchase of T-Bills is a little outlandish. China holds less than 1% of the total T-Bills on the market.

Are you telling me that the amazing subsidizing of American spending amounts to less than 1% of the total?…which when you put that into inflationary/interest rate terms would mean that Chinese gov't is responsible for like .02 of the current 2% of the inflation rate.

3. There is little, if any, evidence that shows that trade deficits are bad. But their is a good bit of evidence that trade surpluses are definetly not good.

Ask Germany, they have had a trade surplus for about 40 years. Currently they have double digit unemployment.

Or go to the BLS and look at US trade deficits and economic growth. In our history they have actually gone together.

Or just consider this…it costs about 1/20th of a penny to create a One hundred dollar bill. If the chinese continue to accept my 100s for LCD monitors, Tshirts, Dvd players, etc but never do anything with that money. I effectively pay .0001 cents for each 100 dollars worth of goods.

That my friend, is a SWEET deal.

David White April 2, 2007 at 3:30 pm

Adam Malone,

"…it costs about 1/20th of a penny to create a One hundred dollar bill."

As opposed to an actual dollar, which the unrepealed Coinage Act of 1792 defines as a specified amount of silver. What you're talking about is the unconstitutional Federal Reserve Note, which is just a piece of paper with whatever number the Fed feels like printing on it, there being no real difference between a one dollar bill and a one hundred dollar bill.

Thus the ponzi scheme — http://www.libertydollar.org/ld/real-money/ponzi-debt-scheme.htm — that must eventually collapse, a growing number of whom think that it will be sooner rather than later — http://www.abc.net.au/worldtoday/content/2005/s1446716.htm

Adam Malone April 2, 2007 at 4:21 pm

Something tells me that you probably also believe that the Income tax is unconstitutional……

Ummm…the Coinage Act of 1792 almost bankrupted part of the government due to the bi-metallic portion of the standard. Not to mention that the coinage act of 1873 rewrote/revised all previoius legislation on the subject.

How have you determined that the Federal Reserve Note is unconstitutional?

Oh, and if you are going to take a stand against Ponzi schemes take a shot at Social Security.

David White April 2, 2007 at 6:07 pm

Adam Malone,

OF COURSE Social Security is a Ponzi, so no need to "take a shot" at it.

But the Ponzi is inherent in the corruption of money. I mean, if it costs the government the same to print a one dollar bill as a hundred dollar bill — or a thousand, a million, a billion, which is essentially what the Fed does day in and day out — are you going to tell me that there's nothing wrong with this? Are you going to tell me that wealth can be created ex nihilo and that work is therefore unnecessary?

Seriously, are you going to tell me that wealth is a creaton of government and that as long as it can print money, it can create wealth ad infinitum?

Adam Malone April 2, 2007 at 10:51 pm

David,

I think you must be new around here. Very few if anyone on here believes that government creates wealth. I personally believe that governments in general are the biggest obstacle that most have when they attempt to build/create their own wealth.

My point was not that the government "creates" wealth when they print money. Rather, when the chinese (or anybody for that matter) accept dollar bills for goods and then hold the bills they are essentially accepting paper for LCD tvs and other manufactured goods.

The Fed isn't the absolute best answer to the money "problem" but in the recent history of our nation it has proven very effective. (Of course I do understand and blame the FED for a large part of the Great Depression).

But David, simply calling something unconstitutional because you don't agree with it is poor way to argue a point. There is a large body of case law that says that allowing a seperate corporation or body to print money is within the realm of the Federal gov't. For starters, check out McCullough v. Maryland.

Martin April 3, 2007 at 2:38 am

M Hodak,

I hope you don't feel any sense of victory if I decline your offer; but, like, as if I'm really going to give out my details out to a blog poster…

Come on…

As I've said, the time to revisit this argument is in six months.

Adam,

I lost interest when you used the word 'xenophobe' – the xenophile's trademark attempt to close down debate.

Adam Malone April 3, 2007 at 9:24 am

I enjoy debate and I was not attempting to "shut down" debate when used the word Xenophobic to describe a part of this issue.

Perhaps you should read the rest of what I said, it might explain the xenophobic part.

David White April 3, 2007 at 11:51 am

Adam,

Here's what your "very effective" Fed has wrought:

CLYDE PRESTOWITZ: The US right now is absorbing 80 per cent of global savings. Well when you hit 100 per cent, the music stops and leading figures, people like Paul Volcker, the former Chairman of the US Federal Reserve, people like George Soros, the great speculator, have all made statements that they fear a major financial crisis within the next five years because the system is unsustainable. …

There are a lot of different scenarios, but the problem here is that everybody is holding too many dollars, so as soon as one player begins to sell, everybody starts rushing for the door. So you could get a cascade effect.

Actually for me, the real nightmare scenario is that nothing happens, because what that means is that US debt continues to mount. We're now adding to our international debt at the rate of about $700-billion a year, so in a very short time at that rate, US international debt is equal to GDP or maybe even exceeds GDP.

So effectively this is a mortgage on the future of American kids and my kids and my grandchildren in particular, which suggests a dramatically reduced standard of living for Americans in the future and suggests a dramatically diminished position of power and influence in the global affairs in the future for what we think of as the world's only superpower.

http://www.abc.net.au/worldtoday/content/2005/s1446716.htm

As for constitutionality, the government will pass whatever law in want whenever it wants, my point being that for a currency to be money, it must be backed by a good of some kind, since money must also be a store of value.

History has spoken on this matter, having chosen gold and silver for millennia. The founders knew this and specified coinage in amounts thereof.

You, on the other hand, are complicit with the counerfeiters at the Fed in perpetuating a fraud for which we will soon have hell to pay.

David White April 3, 2007 at 12:11 pm

Adam,

For your additional reading pleasure, scroll down here — http://www.ramapo.edu/facultystaff/cbpp/pdf/Welfare_Warfare_State.pdf — and enjoy the lovely charts.

David White April 3, 2007 at 3:48 pm

And finally (for now), a noted economic scholar writes:

"Next to guns, irredeemable currency was the main tool of coercion of the totalitarian governments in the 20th century: soviet bolshevism and nazi socialism, before their downfall. It was utterly disgraceful and deplorable that Western democracies were willing, not to say eager, to stoop so low as to embrace such a tainted instrument with gusto. By now politicians are firmly wedded to the regime of irredeemable currency ─ in callous disregard of the constitutional issues involved such as the sanctity of contracts, the right of the individual to property and due processes of law and, last but not least, the ideal of limited government."

http://www.financialsense.com/editorials/fekete/2007/0402.html

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