The Cafe’s own Russ Roberts hits a home run in today’s Wall Street Journal, with an op-ed entitled "Protectionists Never Learn." Here are the final few paragraphs of Russ’s op-ed:
Yes, China holds a lot of our bonds. But Japan holds
more. Yes, we run a big trade deficit with China. But that lets us buy
lots of inexpensive stuff instead of having to make it for ourselves.
Yes, there are more than a billion Chinese. I guess that means they can
take all of our jobs four times! But our economy keeps growing. We have
more jobs than ever before. And contrary to popular belief, the
American standard of living and the American middle class are thriving.
We were told that at a minimum China (and India with
its own billion-strong population) would take all our high-tech jobs.
But the high-tech sector bounced back from its downturn (a downturn
that had nothing to do with outsourcing) and is growing again, partly
because we can get some of the simplest database and programming tasks
done so cheaply by Indians and Chinese.
So why can politicians still make China scary? Why
didn’t Americans learn from the previous sky-is-falling episodes? The
simple answer is that if you don’t understand economics, you might be
convinced by a politician who says that trade with China is bad for
America.
The next time you find yourself losing sleep over
China, remember that you were worried about Japan and Mexico and
everything turned out OK. Then ask yourself if America would be a
richer country if China cut itself off from the rest of the world.
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I'm sorry, but you couldn't be more wrong, as Peter Schiff makes abundantly clear in this interview:
http://www.netcastdaily.com/fsnewshour.htm
As for protectionism, no less a free-trader than Lew Rockwell agreed with me in an email awhile back that if the US sealed itself off from the rest of the world, effectively pretending it didn't exist, and returned to sound money and limited government — i.e., retreated from the welfare-warfare colossus it has become — its 300 million people would propser as never before.
Instead, the fiat money free-for-all assures that the Mother of All Bubbles will eventually burst, the only question being when. And as it will only be worse the longer it's perpetuated, shame on you for helping to do so.
Obviously David and Lew Rockwel never heard of the depression of the 1930's brought about the Smoot-Hawley trade "restriction" act.
David comes out of the woodwork and proves the point that Russ Roberts makes.
thedaddy
The simplest and most compelling argument I have ever heard in support of free and open trade was based on individual work specialization and trade.
If it is OK for me, as an individual, to freely trade my skills, expertise, time, property, etc. with another individual for his/her skills, expertise, time, property, etc. What makes countries different? Perhaps I am naive or ignorant or simplistic or even stupid, but I do not see a fundamental difference.
My point was a hypothetical one intended to make it clear that if our country were truly free, our 300 million people would have no need of the outside world. Of course, if the rest of the world were truly free, all the better, as trade would abound that much more, and so would prosperity. The problem, however, is that our country and the rest of the world are held hostage to the fraud of irredeemable fiat currencies, precisely as Sir Alan Greenspan, back when he was a lowly but principled 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
The fact that we've essentially been able to export our inflation only means that when China has finally had its fill of our paper IOUNothings, inflation will return with a vengeance and the economy's books will be balanced accordingly.
This is what Peter Schiff is talking about and why those who don't take heed — i.e., the vast majority of the American people — will have hell to pay.
Anyone notice how David White slipped "… and returned to sound money and limited government — i.e., retreated from the welfare-warfare colossus it has become — ". I wonder how much of the new found prosperity would be due to this aspect alone and not protectionism.
No slip at all, as it would ALL be from the return to sound money and limited government, the protectionism merely making the point that our 300 million people are more than enough to create a highly prosperous society.
What we have today, however, is protectionism of a different sort — i.e., of the global banking cartel protecting itself from having to compete in a truly free market.
After all, theft is so much easier than work.
Hear hear! I grew up in Michigan so I can remember well the Japan bashing that went on back then. China is not unique.
If China cut itself off from the world, the first thing that would happen to the local economy in Milwaukee is that P&H, currently in constant need of skilled workers, would slide back into bankruptcy. They have other large orders, including North American oil sands, but it is Chinese coal mining which has them booming.
Anyone over the age of 36 (coincidentally, my age) who can't remember the Japan bashing and worrying and see the parallels to the current round of China bashing deserves a lifetime ban from WalMart. Talk about brain dead.
"My point was a hypothetical…"
More than you know. If a surgeon could hypothetically cut out the tumor without affecting the healthy tissue… If the drinking water didn't have any mineral impurities that promote cell damage… If pigs could fly…
Let's stick to the concrete. At the policy margins of the world in which we actually live, increased protectionism would hurt our country, increased freedom of trade would help. Any comments?
I'm a debtor, so bring on the inflation.
David,
We can be a prosperous nation if we cut off trade to the outside world. Or we can be a VERY prosperous nation by opening our borders freely. I don't understand how you can argue that we would 'prosper like never before' if we cut off our cheap supply of foreign labor. How do you define “prosper”?
I also don't understand the gold-standard argument; what gives gold value? The same thing that gives dollars value- other people accept it in exchange for goods and services. That is the ONLY reason.
David,
Hypothetically, if the USA closed its borders, I would have a personal problem giving up a few things. Coffee, tea, silk, and certain spices come to mind.
Call me a mindless consumer, I guess, but I actually like the assortment of coffees available to me at the corner Starbucks.
I'm also not sure, hypothetically, that others would benefit from your scenario. Certainly not exporters who are out of business. Certainly not our trading partners who would also have to go it alone. In case you hadn't noticed some of our trading partners (Japan comes to mind) need to trade just to feed their populations. I wonder what the sudden elimination of US grain exports would do to for world hunger, not to mention world peace?
Not a particularly pretty hypothetical picture you've painted.