Perspective on Trade

by Don Boudreaux on December 29, 2007

in Trade

Let’s clear up a misunderstanding that I sense in some of the comments to this earlier post (and this related one): I know of no serious economist who ever argued that free trade hurts no one in any way.  But let’s also be clear that this truth is supremely banal.  Of course freer trade almost surely reduces, at least for a time, the incomes of some producers, but such a downside is in no way unique to trade.  It is true of almost any economic change and of competition.  (See my earlier posts, here and here.)

When the population ages and buys fewer baby diapers and toy rattles, some workers in diaper and rattle factories are likely harmed.  When computers replace typewriters, some workers in typewriter factories are harmed.  When the latest fad diet sweeps the country, some producers and retailers of the newly verboten foods are harmed.

The genuinely deep thinker grasps at least two important prongs of wisdom on this front: First, the fact that economic change causes some immediate losses to some persons does not, standing alone, create a presumption in favor of skepticism, or even of agnosticism, toward economic change — a skepticism or agnosticism that mindlessly intones that the reality of such losses must in any real-world case be weighed against the benefits in order to "see" if economic change is good or not good.  Second and relatedly, the immediate consequences of economic change are not the only consequences; the long-run consequences are real and they matter; they, too, must be reckoned when we make claims about economic change and policies proposed to govern it.

About the second fact: I argued earlier at the Cafe that the longer the run, the more universal are the gains from free trade.  By being part of an open economy driven by entrepreneurs pursuing profits by searching for new and better ways to serve consumers (who, in turn, largely are free to spend their incomes as they wish), even those persons who lose today because of a change in consumer spending patterns almost certainly gain over the long run by being part of such an economy.  The very job that a worker today loses because of an increase in international trade might well have been created in the first place by international trade.  For example, the U.S. steel worker who loses his job today because American consumers are buying more steel from abroad might well never have had that job to begin with were it not for trade in the past that allowed foreigners to acquire dollars in order, in the past, to buy steel made in the USA.

About the first fact: In 1998 I met a gentleman from Jackson, Mississippi (whose name I regret that I forget), who discovered a new means of shipping automobile tires.  I don’t recall the details, but this creative entrepreneur devised a procedure that, unlike in the past, permits tires to be compressed during shipping without being damaged.  The result is that a truck or freight car carrying new tires can today carry ten times as many tires as before.  It’s quite likely that this invention has “destroyed” the jobs of a handful of truckers – persons not at the top of the heap of American income earners.

Would any economist today argue that “I’m no opponent of technological innovation and greater capital investment.  But those textbook theories that show that market-driven innovations and investments make society wealthier do not – contrary to what some people assert – show that everyone is made better off by such innovations and investments.  Some people are harmed.  So, again while I’m no opponent of technological innovation and capital investment, I am for an end to the finger-wagging accusations that those who worry that innovation and greater investment will hurt workers don’t understand economics.  Those who worry that innovations and greater investments will hurt ordinary workers have a point and deserve some respect.”?

Would any serious economist be sanguine about politicians who talk about limiting Americans’ ability to innovate and invest?

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raja_r December 29, 2007 at 1:15 pm

You are arguing that the economic changes/benefits due to technological change and the benefits/changes due to free trade are similar.

But I have learned from Lou Dobbs and Paul Krugman that they are different in some mysterious, magical way that you ivory tower economists do not take into consideration.

BoscoH December 29, 2007 at 1:38 pm

There is a tone to the Dobbs argument that just resonates with people even though the underlying argument is hogwash. I hear the same tone among those virulently against illegal immigration. Actually, my first memory of the tone was from a high school teacher telling me of my responsibility to set an example of having a good work ethic for the other students. It's a tone that doesn't invite challenge or questioning. It just states the case and expects that anyone listening will agree, or at worst go away. Our biggest challenge is to figure out how to deal with that tone of absolute authority.

jp December 29, 2007 at 2:13 pm

I was astonished when I learned a short while ago that Lou Dobbs has an undergraduate degree in economics from Harvard U. I have to assume then that the guy is not an idiot or ignorant of economics. Why do people like him (and Krugman) who should know better take positions on free trade comparable to creationists' on evolution? Is it the love of having an audience?

A. Murray December 29, 2007 at 2:34 pm

This is a fine argument against Krugman's point, Prof. Boudreaux. I agree with it entirely. I only wonder why you did not present it in your letter to the New York Times and in your recent blog posts, but instead chose to present Krugman's own argument from the '90s which a) did not even contradict his column and b) had already been addressed by Krugman in the column.

The issue, as usual, is the clash of short- versus long-run perspectives. You rightly point out that people at all strata of society gain in the long run from participation in a dynamic economy. Yet that very dynamism implies all sorts of short-run costs and potential fluctuation in people's economic well-being. Krugman is interested in relieving these short-run pains, which even you must admit can seriously disrupt people's lives.

The proper response is to argue, as you do in this blog post, that relieving the short-run pain of trade (or other economic changes) is not worth the long-run costs that might be incurred. But the initial response to Krugman basically attacked his analysis and his understanding of trade theory, rather than his values judgements in applying it. This was not a good response because it is the values judgements, not the theoretical analysis, that may be flawed.

G December 29, 2007 at 2:55 pm

Don,

I think you missed the mark on this one. In the article I was reading, Krugman was arguing for an increased "social safety net" to deal with those made poorer by trade, not any barriers to trade itself.

Jasper December 29, 2007 at 3:47 pm

Why do people like him (and Krugman) who should know better take positions on free trade comparable to creationists' on evolution? Is it the love of having an audience?

When has Krugman taken any such position? I'm not aware of any (heck, maybe I'm missing something). I know he has argued that workers vulnerable to the vicissitudes of a market economy ought to be protected by stronger social insurance than is generally provided in the US. But this is a very different thing from arguing for full-throated, Lou Dobbs-style trade barriers and wall building.

Sam Grove December 29, 2007 at 4:37 pm

Well, obviously then, what we need is total stasis, then no one will be harmed by change.
Of course then, no one will benefit either.

A. Murray December 29, 2007 at 5:32 pm

I suspect that Krugman would argue that the choice between economic dynamism and 'total stasis' is a false one; even if there is a trade-off between long-run dynamism and a strong safety net to protect workers against short-run economic insecurities, it is not self-evident that we must settle at one extreme or the other.

You may respond by asking, "But how could Krugman know the proper balance?" Of course he cannot. As a practical matter, though, it would be hard to argue that attempting to approximate this balance would lead to economic disaster or 'total stasis' since government intervention has always and everywhere been the rule rather than the exception and yet economic growth continues to putter along.

I'm not saying I advocate for the same things that Krugman does. But I think it is wrong to characterize this as a strict choice between libertarianism and 'total stasis.'

John Kozy December 29, 2007 at 6:59 pm

Economists have strange ways of looking at things. No one wants to eliminate trade or innovation, even though both cause dislocations that are hard for the losers to bear. But distinctions are important. In Greenspan's "The Age of Turbulence," he discusses two examples–the demise of the telegraph industry when telephone came into being and the demise of the steel industry when Japan introduced newer ways of making steel. But the two cases are completely different. The telegraph deserved to go; the steel industry did not. It went because American steelmakers were unwilling to make the capital investment needed to compete with the Japanese. Likewise few would dispute that the manufacturing of some items should be off-shored because of the benefits their lower prices would bring. It is something altogether different to off-shore huge amounts of manufacturing in a relatively short time merely to take advantage of lower labor costs. The former is a benefit; the latter a disaster.
And these sentences packs a pile of nonsense: "the longer the run, the more universal are the gains from free trade. By being part of an open economy driven by entrepreneurs pursuing profits by searching for new and better ways to serve consumers (who, in turn, largely are free to spend their incomes as they wish), even those persons who lose today because of a change in consumer spending patterns almost certainly gain over the long run by being part of such an economy." Driven by whom to serve whom? A large number of different nouns can be substituted for both "entrepreneurs" and "customers." Some of those possible substitutions would bring the citation closer to the truth. And "the longer the run" and "over the long run" may mean that the losers never benefit at all, because if the run is long enough, they are all dead. Try justifying this principle by telling the losers that although they will not benefit, perhaps their great, great, great grandchildren will. Who would take you seriously?

jp December 29, 2007 at 7:45 pm

1. Why do people like him (and Krugman) who should know better take positions on free trade comparable to creationists' on evolution? Is it the love of having an audience?

2. When has Krugman taken any such position? I'm not aware of any (heck, maybe I'm missing something). I know he has argued that workers vulnerable to the vicissitudes of a market economy ought to be protected by stronger social insurance than is generally provided in the US. But this is a very different thing from arguing for full-throated, Lou Dobbs-style trade barriers and wall building.

If I could edit my earlier post, I'd take Krugman out. Hasty composition. I have issues with what he writes (and whether he really believes any of it), but "full-throated, Lou Dobbs-style trade barriers and wall building" is not among them.

Jon Biggar December 29, 2007 at 8:18 pm

Of course the American steel industry "deserved" to go under. If they refused to invest the capital to compete, then they don't deserve to remain in business, because they aren't providing any value to the market.

As for "some losers may not ever ever benefit in the long run", who are we to decide to reduce our children's and grandchildren's standard of living just to protect a few displaced workers today? Isn't our progeny's claim on the benefits of a society made richer by free trade worth considering too?

The Dirty mac December 29, 2007 at 11:28 pm

"Try justifying this principle by telling the losers that although they will not benefit, perhaps their great, great, great grandchildren will. Who would take you seriously?'

Some of my family members were hurt badly when they lost their jobs hauling ice. OTOH, (1) their country had the economic strength to not lose WW II, (2) they had refrigerators themsleves within a couple of years and probablt ate better/safer food because of it (for example, not died of food poisoning), (3) they ultimately attained better jobs, (4) they lived to see their children become white collar workers. The "long run" benefit did not take generations to be realized.

The Dirty Mac December 29, 2007 at 11:30 pm

I admit my typing skills are not well suited to the new economy.

brotio December 29, 2007 at 11:40 pm

Jon Biggar,

You're exactly right, but it wasn't exactly "because American steelmakers were unwilling to make the capital investment needed to compete with the Japanese" as John Kozy suggests, but because the cost of labor imposed on American steelworkers was so outrageous.

One of the benefits of being a union steelworker up to the early '80s was: 14 weeks paid vacation every fifth year for anyone who has 20+ years (that's right – FOURTEEN) and 5 weeks every other year.

Another goody was tonnage bonuses paid on made steel rather than sellable steel, so even if the stuff rolling out of the mill couldn't pass quality-control and had to be sent back to the furnace the guys making that crap still got their tonnage. Tonnage bonuses were pushing guys well past $50,000 per year in 1979.

BoscoH December 30, 2007 at 1:05 am

John Kozy: So why should we distinguish between the job/business being lost to foreign competition from the one being lost to domestic competition? It seems to me that in each case, the worker or the businessman can't hack it. Why prop them up when consumers would get a better deal from the better competitor and the loser could do other more meaningful work? I don't get it.

bw December 30, 2007 at 8:00 am

John Kozy:

An old limrick says in part: "Good advice is oft confusing, but example is always clear."

Can you point to a country today that has very limited trade [no free trade] that is wealthier than countries with free trade?

Explain North Korea for instance, a virtually closed country where the smart politicians decide everyhting.

Sackerson December 30, 2007 at 8:01 am

But how free should free trade be? Should the rate of change be managed, or should all the lock gates on the canal be opened at once?

jp December 30, 2007 at 9:17 am

But how free should free trade be? Should the rate of change be managed, or should all the lock gates on the canal be opened at once?

IMO, that's an idle question, because the lock gates will never be opened at once. It's just not going to happen.

save_the_rustbelt December 30, 2007 at 9:52 am

Hey Don, this is pretty well written. However… no real solutions for the losers.

You should check in with Mark Perry in Flint, where the unemployment rate is 17% and going to climb.

The losers (to the probable dismay of your colleauges) if they still have a home address, do get to vote. Come to think of it, even the ones who have already been
through foreclosure get to vote.

Do you want a Congress full of Sherrod Brown type politicians? Will that be good for the trade agenda?

This new gilded age has a 24/7 news cycle. The free traders need to think about politics, other than when they are paying off politicians.

Per Kurowski December 30, 2007 at 10:41 am

Of course is not innovation that produces harm, it is probably good down to its last drop, but it is more the way how the innovation gets transmitted down the economic chain that could be harmful, either when a displaced worker cannot easily find another job at a low reemployment transaction cost, or the savings from the innovation are captured and do not flow freely back to the market.

For instance look at your “shipping automobile tires” inventor. If the invention is turned into a common good then all will benefit and the savings will flow back to the economy and your former tire-chauffeurs will have perhaps even more opportunities to transport goods. But, if the inventor gets a patent and thereafter pockets all the savings except that one cent that is required to be competitive on the margin, well then things might not turn out to be that rosy. In this case whose fault is it, the inventor’s or the unregulated and unlimited intellectual property protection’s?

I know, this is a very delicate subject, but before you really dare to make the issue of the not-really-free-market-rent-capturing a more transparent part of your economic analysis, I am not sure you’ll get somewhere… and the same thing might be happening with the whole free trade issue…there are intermediaries out there capturing an unreasonable large portion of its benefits just because their free trade is not really our free trade or a free trade at all.

vidyohs December 30, 2007 at 12:16 pm

STR,
Sam Grove and I think so much alike on so many issues, he could be a kinder and gentler long lost cousin.

1979, jobs were plentiful in Utah, especially the SLC area. I went through the Philly Naval yard to be processed out of the Navy for retirement.

I met a recently retired black CPO on a base bus. He told me he was on the way to the PX (NEX to me) to apply for a job, and he complained about the low pay. I asked him why he was applying. He said it was all he could get.

I told him that the want ads in SLC Tribune were just huge and there were jobs at much better pay. I asked him why he didn't go out there and look for work.

He told me, "I can't do that, all my family is here in Philly."

He couldn't and wouldn't change his location to do better for himself and his family. His choice, it wasn't imposed on him.

The fact of the matter is that if a man refuses to change when all around him is changing, he will have to live with his self imposed poverty. He has no right to demand or even ask for the world to stop changing and impose his preference on everyone else.

In further support of Don's argument I again quote (paraphrase) myself.

In the 1980s computers were capable of being mounted on the last car of a RR train and replacing the conductors. Replacing the conductors saved the RRs a good chuck of change during a hurting time. The conductors were union. The union challenged the RRs in court to try and force them to keep the conductors. The unions lost and you don't see a caboose on a train anymore.

What did the conductors do? Something else, at least the nonwhiners and thumbsuckers did, but I am sure there were some that carried their whine to their grave and lived off their savings until they were gone and then became Walmart greeters. Thank God for Walmart, eh?

It reminds me as well of the young guy standing on the street corner in Boston waving a sign at President Bush in 1990 as his motorcade went by. That sign said, "Why should engineers be pumping gas?"

Tough huh? Poor engineer, no one wants to hire him as an engineer so his solution is the implied use of government to force someone to hire him.

Humans are inventive, innovative, and individual in all respects (mental, physical and spiritually). Nature is consistent only in the fact of change. Humans in nature make it certain some will always suffer setbacks when change hits, but most will surge ahead in virtually aspect of their life. The ones who suffer the setback have the option to redirect or retrain and move on, or they can sit and suck their thumb and whine.

vidyohs December 30, 2007 at 12:20 pm

"there are intermediaries out there capturing an unreasonable large portion of its benefits just because their free trade is not really our free trade or a free trade at all.

Posted by: Per Kurowski | Dec 30, 2007 10:41:37 AM"

And your solution is? More restricted trade, more regulated trade?

Or more deregulation and the achievement of the worlds first actual genuine free trade?

I am curious, which way does PK want to go? Which does PK think will have the most ultimate long term benefit for the most people?

Python December 30, 2007 at 12:55 pm

Rustbelt,

I was born in Flint. I don't live there anymore. That was my dad's solution. Our family's unemployment rate is 0%. I don't mean to sound cold-hearted, but that place is backward in its thinking. The majority of people that I met still are waiting for the auto industry to turn it around, yet they blame their problems on the auto industry. (It's like the abused wife syndrome.) You know you are in trouble if you need your "abuser" to change.

Speaking of my dad, he was in an industry (printing) that died while he was in it. Rather than moan about how innovation had taken his paycheck, he adapted and never went long without a job even while print shops all around San Diego were closing.

Bill December 30, 2007 at 12:58 pm

As I read Don's comments, I couldn't help thinking of David Friedman's likening of trade to technological advance, and his illustrating this idea by proclaiming there are two ways for the U.S. to produce automobiles: (1) combining steel and other materials and turning out cars in places like Detroit. (2) Growing wheat in Kansas, and sending it to Japan, where it is shipped back as cars. This latter method is what Russ refers to in "The Choice" as the "roundabout method of production."

Per Kurowski December 30, 2007 at 2:10 pm

vidyohs asks: "I am curious, which way does PK want to go? Which does PK think will have the most ultimate long term benefit for the most people?"

Without the slightest of the doubts I would answer the free markets… of course when there is competition. We have lately created a lot of monopolies that obviously help to generate an economic growth which is good for some but has little chance to spread to all and so our redistribution burden grows and grows and already starts to exceed the realm of what is possible, within democracy. In these circumstances some global trustbusters and some type of regulations that would put some limit on the exploitation of intellectual property rights might be needed… at least have them cover the cost of enforcing those rights… but how to do it… well that is a completely different issue.

But let me return with a question myself. Which way does vidiohs want to go? Placing the decision of our investment and finance decisions more and more in the hands of some credit rating agencies or the regulators, or allowing each participant to be free to make their own credit evaluations? Which does vidiohs think will have the most ultimate long term benefit for the most people?

James Hanley December 30, 2007 at 5:57 pm

Nice post, Don. As a political scientist, one of the courses I teach is political economy. In this state especially-as some posters here give evidence–it's hard to help people understand this because all they see around them is the decline of the Big Three auto companies.

I like to use Bastiat's essay on "The Seen and the Unseen" to help explain why people have such a hard time with this. The harms are so very much more visible than the benefits that it requires effort to analyze the issue well.

Per, what do you mean by "We have lately created a lot of monopolies that obviously help to generate an economic growth which is good for some but has little chance to spread…" There are no monopolies in the U.S. economy except those created by government, the vast majority of which are patent monopolies, which are explicitly temporary (20 years mostly).

Are you arguing against patents? If so, how do you expect innovation if the innovators can't have time recoup their investments?

If not that, what are you arguing against? It doesn't seem to be that you've actually responded to the point of the post, which is that technological innovation is always an overall improvement, despite the temporary dislocations it causes for some.

vidyohs December 30, 2007 at 7:25 pm

Posted by: James Hanley | Dec 30, 2007 5:57:03 PM

Good post James Hanley.

Please don't mind if I beat the same drum in my response to PK.

vidyohs December 30, 2007 at 7:52 pm

Per Kurowski (I'll temporarily drop the "duck" assignment)

I don't understand you man. Look at this sentence you sent.

"Without the slightest of the doubts I would answer the free markets… of course when there is competition."

Well duh! What part of "free" are you still confused about?

Then you add this:

"We have lately created a lot of monopolies that obviously help to generate an economic growth which is good for some but has little chance to spread to all and so our redistribution burden grows and grows and already starts to exceed the realm of what is possible, within democracy."

Who is this "we" of whom you speak to begin your sentence? There are no, and can be no, monopolies in a free market. If a government does its job of providing equal justice to punish crime then there will never be a monopoly. It is only with government application of purchased force in favor of one over another that a monoply can exist.

And what the hell is this "redistribution burden" of which you speak? I see no burden, and I ask you where do you see a burden?……Oh shit, I am sorry yes there is a redistribution burden…it's called the IRS. My apologies, PK. Okay, outside of that burden imposed by a government with a voracious appetite for spending to buy votes, what "redistribution burden" do you see?

To close this direct response let me state this……redistribution/democracy…..do you see a connection between the two PK?
Redistribution/democracy, eh?

Maybe why our founding fathers explicitly avoided instituting a pure democracy and spoke against it in warning. Yes, they installed democratic vote, but it was restricted to landowners/business/owners….i.e. men of substance….definitely not paupers and debtors et. al.

So what does vidyohs want? I am an idealist for sure. If I must have government, and I recognize that such is a necessary evil,I want a government that enforces natural law, no more and no less.

I want a justice climate that says if a man seeks the public trust and then betrays the public trust, the public has ultimate right and duty to punish said public official without resorting to lengthy delays of adminstering justice due to "the cult of brotherhood" that exists today in our government, where such as Congressman Jackson of Louisiana is protected in his corruption by the very courts that should be guaranteeing us protection.

PK, I understand the word free and I know that as the word unique, it can't be qualified.

I am sick of being told by politicians, "Americans are the most free people in the world." or "Americans have more freedoms than anyone."

When you qualify the word free, it ain't freedom anymore. It is slavery at worst or involuntary servitude at best. Both are evil and degrading to the soul and spirit of a human.

Vidyohs wants all his associations to be as the result of agreement or contract, not assumption, presumption, or supposition.

PK, if you don't understand what I just said, God bless you in your ignorance. Resign yourself to your self administered collar and chain.

I don't know PK, maybe the "duck" suffix to your name is appropriate. Let's see how it plays out.

vidyohs December 30, 2007 at 8:03 pm

PK,
I am sorry, I didn't address this:

"Placing the decision of our investment and finance decisions more and more in the hands of some credit rating agencies or the regulators, or allowing each participant to be free to make their own credit evaluations?"

I don't know how this got into the mix, but I think investment and finance decisions should be left to the individual who has the finances or seeks the financing and the individual(s) from whom he seeks financing. If the seeker is too stupid to educate himself and gets into a bad deal, it is nature's way of saying "Hey buddy, there was some free education for you!"

I see no reason for government to be involved in anyway.

So vidyohs wants government to butt the hell out of my affairs. I want them to butt the hell out of your affairs.

vidyohs wants government to butt the hell out of everyone's personal affairs.

Protect a man from the folly of being a fool and you guarantee that you create a nation of fools.

vidyohs doesn't want a nation of fools, he is tired of dealing with fools and idiots.

Sound egotistical? Vidyohs couldn't care less, I have far too much experience in the real world to be bashful or backward about telling the truth.

Gil December 30, 2007 at 8:18 pm

No qualification? Doing what would you want unless it involves 'force & fraud' sounds like a qualification to me.

Python December 30, 2007 at 8:19 pm

It is hilarious and depressing when I read that those who want more government oversight give the existence of monopolies as a reason for needing more oversight.

It's like the old Far Side cartoon where the guy is sitting on his couch in front of a broken window. There is a brick on the floor that has freshly crashed through the window which says "Broken windows? Call 555-1212"

The government protecting the consumer from the monopoly that it created, oh boy. Anyway, outside of utilities, where are all these consumer-stifling monopolies? A patent isn't always a monopoly on a sector, because there are nearly always alternatives. Which patent effectively stifles competition?

But we digress, this thread is about trade. :-)

vidyohs December 30, 2007 at 9:14 pm

"No qualification? Doing what would you want unless it involves 'force & fraud' sounds like a qualification to me.

Posted by: Gil | Dec 30, 2007 8:18:13 PM"

Get back on the porch, puppy. You aren't "qualified" to run with the big dogs. Not when this is your best shot.

Per Kurowski December 30, 2007 at 9:18 pm

James Hanley: “Are you arguing against patents? If so, how do you expect innovation if the innovators can't have time recoup their investments?”

I am not arguing against patents but just stating the fact that we do issue patents that gives place to monopolies (temporary perhaps but frequently quite prolonged in time after the owner has used this period to build a position of strength) and we have nothing or very little that regulates how much rent could be extracted from it over the time that property right is valid and so, when you analyze the economy, it could be interesting for anyone to know how much of a country’s GDP is captured by the owner of these rights. That’s all I said

Of course the size of the “temporary dislocations produced by those technological innovations that will always long term lead to an overall improvement might be related to the type of protection we artificially have decided to give these innovations… if not why do we not give them 50 years protection… or only 5?

Gil December 31, 2007 at 5:22 am

Piffle!

vidyohs December 31, 2007 at 6:14 am

"Piffle!" ??

Gotta do something about that lisp, son. But if you must piffle, aim it off the porch so your mistress won't have to sop it up with a mop.

Python December 31, 2007 at 7:37 am

Per K.,

Please give us a list of monopolies created by patents that would illustrate a big enough portion of the GDP as to be worth discussing.

Per Kurowski December 31, 2007 at 9:15 am

Python: “Please give us a list of monopolies created by patents that would illustrate a big enough portion of the GDP as to be worth discussing”

Why should I? I don’t have the data, I am no University. What I say is that we as a society do not even know how much “extra” all those patent holders might be earning and maybe…just maybe we should know it. In the papers I read, your papers, there are for instance many complaints that the laboratories might be reaping extraordinary profits that do not arise from the free market, but much the contrary thrive in the non-free markets. Now if you believe that we are better of in blissful ignorance well that your prerogative.

By the way I have received some telephone bills here in the US that clearly tells me that some of your regulators are not doing their work right…but the again if you think your regulators are working all right then that is also your prerogative.

Oh and besides patents there are also many more out there capturing what seem un-proportionate shares of GDP… like for instance lawyers suing? Do you know how much of your GDP goes to pay for the catch keep and realease of the more than two million persons that you at this exact moment keep in jails or prisons?

There are many issues pending and perhaps you need to be more careful that the discussions about free-trade and immigration do not become the distractions.

Gil December 31, 2007 at 9:41 am

Just saying vidyohs that you and your friends aren't misty-eyed in a way that just because some say it's right not to use 'force&fraud' that you'd actually believe others would necessarily abide by them. I'm sure every Consie/Libber's favorite Amendment and the one that encapsulates Libertarian freedom is the 2nd one. The others are just window dressing or even destructive (cue 16th Amendment).

vidyohs December 31, 2007 at 10:09 am

Ahhh the cutesey obscurities of made up mod jazzy terms, such is life on the porch.

Com'on cutesy little one, tell me what a Consie/Libber is.

This is why you aren't qualified to get off the porch and run with the big dogs, your mind seems to be chock full of isms and cutesy little terms and words made up by you in your efforts to get attention.

Learn to debate in the English language and if you must use one of your funky cute little terms put the definition in parens immediately after the word. That way, while we may not understand or agree with the time wasting murkiness of your ideas, at least we will know what you are trying to say.

I'll wait with bated fingers until I get the definition of a Consie/Libber, and then may or may not spend the time addressing constitutional amendments.

Gil December 31, 2007 at 10:46 am

Aw I hope your fingers don't from all typing and rheumatism. Should I find funny if you have a favorited/bookmarked site where you can quickly check the price of gold 24/7? Or why not give a sermon that involves 'theiving tax collectors . . . the revolution is coming . . . from my cold dead hands . . .'?

vidyohs December 31, 2007 at 12:28 pm

LOL,
Gilduck,WTF are you putting in your pepsi?

Gotta go practice my beloved capitalism, Gilduck. You and muirduck are at the mercy of the rest of the bloggers. Thank you very much.

save_the_rustbelt December 31, 2007 at 1:11 pm

Interesting comments from Mankiw (Don take note, and happy new years!)

……Many economists who write about policy rarely, if ever, encounter actual policymakers. Instead, they prefer to sit in the comfort of their ivory tower offices. (I know I do.)

I wonder how different the economics profession would be if economists were expected to do a year of service outside of academia or, at the very least, if hiring committees rewarded a year of real-world experience as the equivalent of, say, a couple of academic publications. My conjecture is that the profession would be less creative but more useful.

Python December 31, 2007 at 1:46 pm

Per K.

"Why should I?"

Many times when people make claims they feel obliged to give the data/background to support their position. That might be why.

Per Kurowski December 31, 2007 at 2:58 pm

Python: “Many times when people make claims they feel obliged to give the data/background to support their position. That might be why.”

Let me then rephrase it. The absence of any important data about an issue that could seem to be important for the society, and which would be very difficult for any individual to acquire, might prove that the issue itself is such an important taboo that no one dares to investigate it.

Mesa Econoguy December 31, 2007 at 8:08 pm

Data (Brent Spiner) was a great Star Trek character – not sure there’s any need to justify him.

Python January 1, 2008 at 2:18 am

Per K,

Happy New Year.

Your answer is not acceptable. You said "Oh and besides patents there are also many more out there capturing what seem un-proportionate shares of GDP"

First you didn't answer the patents part. Then you jumped to another non-patent segment that somehow manipulates us. If you can't quantify either one's impact at all how could you be scared of it. At least you could give an anecdotal sense of scale to the problem.

It appears as if you are dumping many "problems" on this forum to help paint a negative picture of life/economy/US, but if you can't back it up with something meaningful then you are wasting time here.

Per Kurowski January 1, 2008 at 10:36 pm

It appears as if you are dumping many "problems" on this forum to help paint a negative picture of life/economy/US

Posted by: Python | Jan 1, 2008 2:18:52 AM

I sincerely believe that the US is sufficiently strong so that posing some general questions does not imply painting a negative picture of it. Besides look at the issues we discussing…are they exclusively US issues? I have no interest whatsoever in hurting the US, why should I? Frankly I am one of those who believe that the world is better served by a strong US than by a weak.

Let me go back to the patent issue. We (in a foreign country, so you don’t feel bad about it) award patents and invest money in defending these rights and which is all a very right thing to do. Now, how can we be sure that we are not being unjustly exploited by the owner of such patent? Should he be able to extract as much as he can? Perhaps yes and perhaps not but why are so few discussing this issue?

Happy New Year to you too!

brotio January 2, 2008 at 12:27 am

"Should he be able to extract as much as he can?" – Per Kurowski

Of course he should!

Unless I missed the part where the patent holder has a gun to your head and is insisting you buy his product, the only power said patent holder has over you is his ability to persuade you that you need his product at his asking price. If you don't like the price, you're free to say, "no thanks".

How can there be any unjust exploitation in that?

Martin Brock January 4, 2008 at 4:35 pm

Patent holders don't point guns at the heads of consumers. They point guns at the heads of competing producers. Redirecting the gun toward consumers is an incredible, diversionary non sequitur. Patents harm consumers by limiting competition. They're justifiable only insofar as they attract capital to a productive enterprise that otherwise could not attract it, and I'm not sure they do much of that.

The whole idea granting a forcible monopoly over a whole category of production, rather particular goods and services produced, is highly debatable. Titling a state's decree "property" doesn't make it useful or productive. We should worry in this country about the explosion of patents granted in recent decades, particularly the new and innovative (for patent lawyers) software and "business process" patents. If we'd had software patents in the eighties, we probably wouldn't have Microsoft Windows today. God knows what we won't have a couple of decades from now because we have too much of the wrong sort of state monopoly today.

SamG January 5, 2008 at 2:02 am

It seems to me that Mr Krugman's article is rooted in current reality while Mr. Boudreaux's column is rooted in economic theory. In the text-book economic model there is free trade between nations and there is also free trade in currencies. In such a world Ricardo's explanations of comparative advantage make perfect sense. All countries benefit from the trade and yet no country becomes too large of an importer. Free trade in currency prevents that for happening. Most importantly, everyone acts freely in their own self interest. The state does not interfere unduly.

Let's contrast this with the economic system in China – one of the main low-wage exporters that Mr. Krugman's article focuses on. China forces it's exporters to sell dollars at a fixed exchange rate to the yuan. This means that China's exporters work very hard, but do not get to enjoy the fruits of that labor in terms an increase in their buying power in the international market. When the Chinese government buys up the dollars, it does not print yuan. That would fuel inflation. Instead it issues sterilisation bonds that it forces banks to accept in lieu of their dollar deposits. These bonds have very low yields but the banks, which are state-owned, can't do anything about it. They are then forced to offer low interest rates to their depositors. So, the poor exporter is not only forced to exchange his dollars for yuan at an artificially low rate, but he is then forced to earn a low return on those yuans as well.

This happens because the Chinese government does not care about text-book models. It's more interested in maintaining high employment in it's manufacturing sector. Of course this is a form of socialism that takes from the rich (exporters who are typically entrepreneurs) and re-distributes it to the poor (workers) but that's precisely the desired outcome of this policy.

Another outcome is that it allows Chinese exporters to gain dominant market share and put producers in other nations out of business at the same time. The same could be achieved by selling their goods at very low prices but that would be expose them to complaints about dumping. Manipulating the exchange rate achives the same effect, but camouflages the dumping. Some will argue that this policy allows Americans to buy really cheap goods. But to me that doesn't make the policy right. It's just the flip-side of the enforced low wages in China.

In the long-run, a policy like this may end up harm China more than it does other nations. But, in the short run it causes siginificant harm to workers in other nations. This is not the harm which Mr Bodreaux explains, is a natural consequnce of free trade. This is a harm caused by economic policies that are the very opposite of free trade. I think that if Mr. Krugman expresses concern about these workers, he is justified.

If China were to engage in real free trade that would be wonderful for the world. China would continue to grow and as it's people gained more buying power thru a free currency, other nations would export to it and grow more prosperous as well. China's prosperity would not come at the expense of others. The benefits of free trade that Mr. Bodreaux describes would truly be achieved by all nations.

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