Here’s a letter that I sent recently to the Wall Street Journal:
Attempting to defend protectionism, Clyde Prestowitz asserts that “The unilateral free trade the Journal propounds is only beneficial when there are no economies of scale, and markets are perfectly competitive” (Letters, Sept. 23).
Nonsense.
Suppose that citizens of Seneca, SC (a small town), become stupidly obsessed with buying only goods and services made in Seneca. Would this obsession make it wise for citizens of Clemson, SC (a neighboring small town), to thereby stop shopping in Seneca? Real-world markets are never perfectly competitive, and being small, Seneca and Clemson each likely have several businesses with the potential to take greater advantage of economies of scale. Yet Clemsonians would make themselves poorer if, in response to Senecaians’ misguided economic notions, they refuse to shop in Seneca. The best course for Clemsonians always is unilateral free trade, even with economically imprudent neighbors.
Changing “Clemsonians” to “Americans” and “Senecaians” to “Chinese” does not change the essence of the matter.
Sincerely,
Donald J. Boudreaux
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Is there anyone that will read this that really honestly believes that people trade with one another to make themselves worse off? Of course, too many people will try to view this from something other than the individuals’ perspective and will then point to the dislocation (for some) caused by new trading patterns forgetting that 1) consumer choice is the driver and 2) all those people that wouldn’t be better off if their choices available were somehow restricted or altered through government.
Well it’s possible to be concerned about dislocation without mistakenly thinking that government resetrictions on choice would be an improvement. You’re not really knocking down a straw man if you just replace it with a new one of your own.
>>You’re not really knocking down a straw man if you just replace it with a new one of your own.<<Maybe it’s because you believe that the discussion is revolving around you and the argument that you might make — I don’t know, this might be a strawman on my part however I did qualify it — but don’t kid yourself into thinking that someone IS NOT making the very same arguments that I sought to point out above.
Not at all LCJ – I was specifically responding to a point you made. Specifically that “too many people” who point to dislocation will forget that “all those people that wouldn’t be better off if their choices available were somehow restricted or altered through government.”
It has nothing to do with the discussion revolving around me – I was responding to something YOU brought up.
“Suppose that citizens of Seneca, SC (a small town), become stupidly obsessed with buying only goods and services made in Seneca.”
Since we are supposing, let’s extend that out to another dimension.
Suppose in their stupidity the Senecaians realize that to satisfy their fellow Senecaians they can not sell to Clemsonians because their locally made stocks do not extend to that reality. They must therefore concentrate on selling strictly to Senecaians.
Would this not mean that more and more Senecaians devote themselves to local production using available local resources. How long is this going to last before it collapses and everyone starves to death before the outside world finds out?
Even hermits eventually figure out this one out.
BTW, LCJ.
Yeah there are people who will read the post by Don, who do actually believe that making themselves worse off is a good thing. I know you have to be familiar with, for instance, the idiots who push for Fair Trade Coffee beans, in which they pay more for beans from “where ever” so those people can earn more in line with a U.S.A. wage. God bless them in their stupidity. It never occurs to them that the people in “where ever” are making wages in line with the value of their labor in “where ever”; and, an increase in line with USA wages severely distorts their local market and hurts more people than it helps.
I never got the fury over fair trade coffee beans. It’s not just wages – it’s often working conditions, business organization, and cultivation methods too. People want to buy that product because they want to know their coffee was made that way, and they’re willing to pay more for it. How is that stupid.I don’t even want to get into this whole “buy local” argument again – but the inconsistency of telling someone that buying a product they prefer is going to impoverish them is still baffling to me. There is a very good reason why a product made by your neighbor is more valuable to you, holding all else equal, than the same product made far away. And nobody can tell anyone else that it’s not allowed or not possible to be more valuable to them. And they certainly shouldn’t have the hubris to call them stupid over it.
>>…but the inconsistency of telling someone that buying a product they prefer is going to impoverish them is still baffling to me.<<You can fully expect to see this quote of yours again if ever you step of its reservation in any future arguments that you may make against Homoeconomicus — reserving the right to substitute any word for ‘impoverish’.
Choosing to buy locally grown tomatoes or coffee from a grower paying higher wages or apples grown without pesticides is not protectionism. Forbidding or taxing other tomatoes in local supermarkets is protectionism. Choice is fine. Protectionism limits choice, so it can only increase costs.On the other hand, herding people into concentration camps and dropping nuclear weapons on civilians also limits choice and increases costs. States do destructive, and self-destructive, things. They embargo trade. They subsidize particular goods for export. They manipulate exchange rates.Few people advocate passive resistance to a nuclear attack (although I might). Maybe Clemsonians do benefit from trade with Senecans in Don’s scenario, but suppose Senecans decide, out of stupidity or malice, to impoverish themselves by subsidizing their milk sales to Clemsonians, effectively driving Clemson’s dairy farmers out of business.The Senecans aren’t winning any market competition here. Their cost of producing milk could be higher, but they deliberately sell it at a loss by effectively taxing Senecans. We can’t simply assume that Senecans wouldn’t behave this way. Just look at the trillions we’ve blown in Iraq and Afghanistan.So is it really in Clemsonian’s best interests to buy the cheap milk from Seneca while Clemson’s dairy production withers, until Seneca decides to stop subsidizing its milk?What if Seneca has five times Clemson’s population and can effectively drive all of Clemson’s domestic producers out of business by impoverishing Senecans for a while? Maybe all Senecans aren’t being impoverished, only a portion of them. Maybe the other Senecans become richer as a consequence. Maybe the policy moves the much smaller population of Clemsonians into the same boat with the poorer Senecans.Is this scenario less possible than herding millions of people into concentration camps?
“Choosing to buy locally grown tomatoes or coffee from a grower paying higher wages or apples grown without pesticides is not protectionism.”
Or is it? Suppose a great many people decide to go ‘organic’ and only buy organic produce. Will this not favour organic farms over standard farms? Will it in turn see less food being grown because of the inefficient use of farming land? Wouldn’t these actions in the long run hurt the poor? Is it in some cases almost be considered that organic food-eating people are initiating coercion against the poor?
My opinion:
It cannot be protectionism as long as the choice is retained by the consumers instead of the choice being altered by government policy. It can be labeled other things such as xenophobic or an ideologically driven fad but it cannot be protectionism.
Yes. If people choose automobile tires over wagon wheels, this preference favors automobile tires over wagon wheels.
We have an obesity epidemic in the U.S. Why shouldn’t people value less organic food at a higher price over more inorganic food at a lower price?
No. The poor (and anyone else) may continue buying more efficiently grown food at lower prices. This choice doesn’t prevent the transfer of farmland to organic forming, because organic farmland only serves the growing market for organic food. That’s the beauty of market organization. It’s not a one-size-fits-all system.If more people choose to buy Chevrolets over Fords, are people who prefer Fords forced to buy Chevrolets? No. That’s the opposite of what’s happening, insofar as the market is free.
Organic food eaters could be coercive, but market organization doesn’t imply it.
Choice is consumer driven and imposed on no one, protectionism is producer driven and is imposed on everyone.
These arguments only reinforce the point that Karl Popper held to be essential in any argument, namely “you can’t have a rational argument with irrational people”.
Suppose the leader of Seneca decided to execute one of his own citizens for every gallon of mike Clemsonians exported to his country, sooner or later that entire market would disappear, should Clemsonians stop exporting.
If the Senecan state executes Senecans for importing Clemsonian milk, thus eliminating the market for Clemsonian milk, Clemsonians stop exporting milk to Seneca for want of a market.But that’s beside the point I make in my post. I suppose the Senecan state taxes Senecans to subsidize exports to Clemsonians, at least temporarily. The Senecan state turns Senecans into slave laborers serving Clemsonians. It doesn’t kill them, because it wants their enslaved labor. It want’s simply to give the fruits of this labor ot the Clemsonians.States will certainly enslave their own people this way, and if Clemsonians consume the produce of Senecan slaves, why do they bother producing themselves? They become a nation of shopkeepers instead, until their economy is weak enough for subjugation by the Senecan state.Does this process make everyone poorer, except possibly a few Senecan statesmen? Sure it does. So what? The question is political not economic. Can the Senecan statesmen accomplish this impoverishment of many for the benefit of a few?If Senecan statesmen cannot accomplish this goal, then libertarians may simply bow out of politics, because our liberty is inevitable and opposing it is impossible. Maybe that’s true. That’s the question.I’m a free trader and a non-interventionist myself. I don’t even mind the “isolationist” label, as long as we don’t confuse “isolationism” with “protectionism”, but I’m not oblivious to the leaps of faith involved in my position.”To found a great empire for the sole purpose of raising up a people of customers may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers.”Adam Smith, Wealth of Nations
“How is that stupid?
Duplicitous Kuehn,
It figures you’d ask that question, only a stupid person could over look what came immediately after my statement about stupidity.
But for you, sonny, here it is again:
“in which they pay more for beans from “where ever” so those people can earn more in line with a U.S.A. wage. God bless them in their stupidity. It never occurs to them that the people in “where ever” are making wages in line with the value of their labor in “where ever”; and, an increase in line with USA wages severely distorts their local market and hurts more people than it helps.”
People are stupid when they think they can wave the magic wand of socialism and make everything in the world just like their own lovely government guaranteed privileged life here in the USA, and not have it cause severe problems in those places where they magic one part of an equation and then walk away smug in their superiority.
See, young DK, 1 + 1 = 2. Do you ever think before your auto-response mode kicks in? Ai Yi Yi, yes I know, the answer is in the question.
Re: “People are stupid when they think they can wave the magic wand of socialism and make everything in the world just like their own lovely government guaranteed privileged life here in the USA, and not have it cause severe problems in those places where they magic one part of an equation and then walk away smug in their superiority.”I’d be interested in hearing you explain to me how millions of people choosing to buy fair trade coffee is socialism or a reliance on government guarantees. Don’t you ever think before your knee-jerk socialism responses kick in?
The socialism in it is obvious to anyone who knows what socialism is and knows what it looks like in action. It isn’t just having government take over industries and making them state owned.
Socialism is about that faiiiiiiirness and eqqqqqquality (said in the nasal thin whiny voice). Your fair trade coffee is coffee that is bought at artificially jacked up prices which came about in response to pressure brought by those who just have to impose faiiiiiiirness and eqqqqqquality to the whole world and to do it now, so they can feeeeeeeel good about themselves. It doesn’t matter to those socialist fools that conditions are different in various places and flooding money into an area that has an established economy will just cause pain, envy, jealousy, and disruption to those areas.
But, hey, what hell the fools who push this socialist shit don’t have to live with their results, they live in cushy good ‘ole USA. But, they can feeeeeeeeel so good about themselves.
People like DK.
Similar to this previous post, Don’s latest post is missing the standard economic argument for unilateral protection. The choice isn’t between stopping trade with Seneca and free trade with Seneca — it’s between imposing a small tariff on Seneca and free trade with Seneca. If Clemson has market power and can use the tariff to reduce the prices Seneca merchants receive (i.e. pass off the cost of the tariff), then Clemson can benefit overall if the gains from tariff revenue outweigh the losses from the higher prices paid by consumers. This is the argument I’m sure Clyde has in mind. That said, there are plenty of reasonable arguments for unilateral free trade to counter Clyde’s model (e.g. no one has the knowledge necessary to pick this theoretically constructed optimal tariff, government will spend the tariff revenue inefficiently, the tariff will result in retaliation, the tariff causes dynamic distortions not modeled), so I don’t see the need to resort to Don’s flawed argument here.
“If Clemson has market power and can use the tariff to reduce the prices Seneca merchants receive (i.e. pass off the cost of the tariff), then Clemson can benefit overall if the gains from tariff revenue outweigh the losses from the higher prices paid by consumers.”
Wouldn’t the next question be along the lines of, so you assume that tariff revenue benefiting and empowering the state benefits its citizens/consumers?
And what about all the secondary businesses and secondary users? Not only do the consumers pay more for the product directly affected by the tariff, they pay more for all other products connected to that product. Bush tried this in his first term with the steel industry to pay it back for its support during the election. All other industries that relied on steel had to raise their prices too. So myriad small businesses, like metal roofing companies were adversely effected – I knew of two just in my little town that went out of business. Bush and Congress later rescinded the tariffs. I’m not sure the total extra costs to consumers would ever be covered by the tariffs. The “unseen” effects of these types of maneuvers are rarely even talked about, are they?
The most important losses are never seen: the opportunity costs not readily visible. Some of these include: the loss of conumer surpluses that would have been had, had the price not been manipulated; those surpluses that were not spent on other things (creating more economic activity); those that were priced out of the market and spent money within their altered budget constraint on their next best alternative; the loss of innovation that would have occured [a phenomena that develops to control costs while still trying to please the customer] had the competition not been artificially limited; and the income-earning opportunities that never come to be for second generation members of the workforce because labor was stagnant and was never pushed into its most productive and value-adding alternatives because the previously listed effects are now absent.
I agree with the previous comments. The “dynamic distortions” I had in mind are what Lowcountryjoe specified. That’s exactly my point. There are good arguments that can made against the optimal tariff theory. One just needs to make them. Don’s letter did not, because it only argued against reverting to autarky.
“Yet Clemsonians would make themselves poorer if, in response to Senecaians’ misguided economic notions, they refuse to shop in Seneca. The best course for Clemsonians always is unilateral free trade, even with economically imprudent neighbors.”
DB
Isn’t this simply a statement of opinion? There’s no proof here. Just a commandment to be believed. Then countering this claim is our REAL WORLD experience. It’s just not looking so peachy and there is no shortage of experts who claim the trade imbalance is a big factor in our failing economy.
Now say Clemson and Seneca have only 2 industries. They each make marbles and jelly beans.
Seneca has a super wealthy individual who subsidizes the cost of production of both industries undercutting the cost of both products produced in Clemson with no rich guy subsidies.
Clemsonites buy cheaper and cheaper marbles and jelly beans but their factories shut down. Now they have no jobs and they can’t even afford the cheap Senecaian marbles or jellybeans.
The town of Clemson files for bankruptcy. Its flood of workers move to Seneca and the owner hires the extra workers and pays them even less. Now the free trade x-Clemosonites have lower wages and can afford fewer jelly beans and marbles. And many of them also have cancer because Seneca sold its toxic waste to landfills in Clemson which was desperate for money as their industries revenues were crumbling. The ones who lost their jobs are now homeless and beg on the street for marbles and jelly beans.
>>Isn’t this simply a statement of opinion? There’s no proof here.<<
Not BSing here, muirgeo, I read that from you and — not joking — laughed out loud. There was no one else in the room either.
Can I make a recommendation to you? Read Russ Roberts book The Choice in its 3rd edition. I’ll even pay for it and send it to your work or home. It’s less than 120 pages and broken down into a story with thought provoking dialogue between its characters.
On second thought, I rescind the offer. Rather than erase this comment, let it serve to remind me just how much nothing has broken through your idolization-of-the-state barrier.
You are positing an unreal theoretical model.
If there are only two industries making marbles and jelly beans, there is going to be severe malnourishment and the only activities available outside of work is playing marbles for jelly beans.
Where do they get the ingredients and equipment to make jelly beans?
Where do they get the energy and equipment to make marbles?
How did the wealthy individual get wealthy?
What does it mean, in two towns with only two industries, to be wealthy?
The only way these two towns could survive with only two industries is to have intimate connection with the rest of the world.
And gradually the super wealthy individual has given all his money away to the workers and people of Seneca, who eventually decide to move back to Clemson because there are more opportunities there.
In reality your world has 3 industries, the third being money creation The only way the wealthy individual has a lasting effect on industries is if he collects taxes from the people of Clemson and injects them directly in Senecas economy. But last I checked China does not collect taxes in America.
No. The super wealthy Senecan subsidizes its produce for Clemsonians by imposing rents on Senecans. After annexing Clemson, it also imposes rents on them. It wants an expanding flock to fleece for these rents.
China needn’t collect rents from Americans for this scheme to work. It only needs to tax the consumption of its own people below the level of consumption of untaxed Americans. The Chinese state compels its own people to accept less than a market wage for their produce and temporarily shares the value of its slave labor with Americans, because it wants to expand its rentier’s dominion.That’s the theory anyway. I’m not saying that China operates this way. I’m only saying that it could operate this way first and foremost. Maybe the U.S. state operates this way more at this point.Of course, China does collect the promise of future rents imposed on Americans. i.e. it buys U.S. Treasury securities. It arguably does so by taxing the consumption of its own people, by simply giving its own currency away to American consumers by exchanging it, at a discount to the market rate, for U.S. dollars with which it buys the securities.Sellers of Treasury securities are happy to go along with this scheme, because it benefits them. If it doesn’t benefit common Americans in the future, and if the exchange rate manipulation doesn’t benefit common Chinese now, who cares?
Can’t Clemsonians just sell to Senecans, or even better, buy the cheap stuff from the subsidized Senecans and re-sell it back to them? And why can’t another shop open up in Seneca to sell to Senecans, since the business man must charge high prices to offer low prices somewhere else? This example makes 0 sense. In the event that Senecans decide to ban all imports, pay much higher prices for their own goods, grant a monopoly to a random wealth guy, and subsidize the export of goods to Clemson, the Clemsonians are just getting marbles and jelly beans for free, and since these are the only two goods in this theoretical world, they are free to spend all their time on leisure while the people of Seneca work twice as hard to get by.
[palm-to-forehead slap]
David Ricardo
You think Ricardo is on your side?
As I understand he had 3 requirements for comparative advantage to work;
- full employment
- capital not allowed to cross borders
- trade basically equal
We are not observing any. Lillte harder head slap this time!
I suggest you gain a deeper understanding of Comparative Advantage. It works under all those less than ideal situations and more.
You mean like how it’s working so well for our economy?
muir–
CA is not some vague hand-waving argument. It can be quite simply laid out and understood mathematically with very basic noncontroversial assumptions.
If you have an MD, then I presume you have at least a linear algebra education in mathematics. It is quite easy to lay out the 2 person multiproduct case, and almost trivial to lay out the 2 person 2 product case. When you do, you will speak differently about CA.
This super wealthy Senecan is the Senecan state. No individual could exercise this much authority. Individuals have only two hands. Maybe this Senecan doesn’t call itself “the state”, but the effect is the same.
They still have jobs. They now work for the Senecan state. Maybe they’re producing Senecan marbles or jellybeans. Maybe they’re doing something else.
Why would the Senecan state want Clemsonians to move? Seneca annexes Clemson. Maybe it doesn’t call its action “annexation”, but the effect is the same.The historical precedent for this sort of thing is overwhelming.
Guys the simple muirduck answer is kill the super wealthy individual in the public square! Ding, ding, ding!!!!
And your answer is to succeed power to a wealthy elite ruling class.
Quite simple I believe my position is more economically efficient, more liberty producing and less likely to lead to concentrated wealth and power.
You guys seem quite comfortable supporting concentrated power and wealth. Maybe there is a flaw in my logic but the goals are clearly for a more just, efficient and equitable economy/society. Unregulated capitalism does not produce such results. It fails miserably on all 3 goals.
Let me know which of my 3 goals you do not support;
A) a more efficient economy/society
B) a more just economy/society
c) a more equitable/society
The ends justify the means. Gotcha.
Of course they do. How can you have an end result that is efficient, equitable and just with some sort of awful means as you suggest?
The means are simply having rules that prevent the massive accumulation of power and wealth.
In the end there will be no escaping Darwinism. But I’m of the belief that we are different from the other species in that we are able to plan for the betterment of the group and gain advantage by group planning. You all are of the belief that we got here via a system of anything goes, every man for himself rugged individualism and NO group planning is needed. America and the social democracies of the world are superior because we’ve group planned and cooperated better then the non-planning nations and civilizations.
Sure in Ethiopia the means of everyman for himself are intact as you might wish but the ends SUCK… even for those in power.
And your answer is to succeed power to a wealthy elite ruling class.No that is the inevitable result of YOUR answer. All political governments are oligarchies, or end up that way.The concentration of power in the state will always mean the domination of society by a relative few.In market societies this means domination by wealth.In democracies it means domination by wealth and interests.In a state communist society, it means domination by the most brutish sorts.In all cases, the existence of a political state means oligarchical rule.
Maybe there is a flaw in my logic
I think it more likely there is a flaw in your premises.
The real world simply proves you wrong. There are different degrees of success from one country to the next and even through time in the same country. Better policy away from your favored direction and towards mine has given better results.
Their were no fabulously wealthy Americans during the first 100 years of our nation and we grew just fine with out the “benefit” of concentrated wealth.
The modern European states and Canada have great success as well with far less concentration of wealth and power.
Sam, the current tariff on tires is not producer driven. It is labor union driven…
Labor is on the production end of the equation.
When it comes to market share, labor and business are in alignment.
Are tire buyers asking for higher tire prices?
I do doubt it.
Ironically, Boudreaux’s hypothetical is itself an attack at a straw man. Bourdreaux’s example does nothing to address the issues of economies of scale and monopolistic competition raised by Prestowitz. Instead, Bourdreaux’s letter presents the sort of fairy-tail that can make an open-market advocate look ideological rather than thoughtful.
Even taking Bourdreaux’s fanciful example seriously, there may be a benefit for the Clemson to threaten to not shop in Seneca: If, as a result of the threat, Seneca resumes a more rational shopping strategy, both Seneca and Clemson would gain. Thus, a retaliatory threat may result in lower overall trade barriers. GATT and WTO agreements have been negotiated through the exchange of reductions on trade barriers. The WTO’s enforcement mechanism is to allow retaliatory trade restrictions. These institutional mechanisms suggest that threatening to impose trade restrictions can actually be an useful means of decreasing trade restrictions.
In case anyone has the wrong idea, I generally favor freer trade and do not support the decision to increase tariffs on Chinese made tires. But I also do not favor silly arguments, such as the one made in Boudreaux’s letter.
(A more challenging hypothetical would be: Seneca and Clemson each have a software company that produce competing computer programs. It costs $1m to develop and market each program, but very little to distribute and sell additional units. Each program is, in general, equally useful, but have some different features different users prefer. If Seneca’s residents “irratoinally” support their home-town company’s program, or Seneca’s government restricts the import of Clemson’s program, what happens? Seneca will be able to sell its product in Clemson at a price that Clemson’s company cannot profitably match and the Clemson company would go out of business. The Clemson employees are displaced, competition is reduced, and a high-growth shrinks in Clemson. If Clemson was faced with a Seneca software-tariff, what is the appropriate response? Such a story probably does not have much application to a narrow market, such as tire manufacturing, but it may be important in some industries. )
World wide economic ignorance is a reality. They simply don’t teach it properly in high school. Imagine if people thought math and the other sciences were merely “respectable opinions”, as good as any other. Sadly, economics hasn’t been accepted as deductive logic yet.
I wrote a brief argument against protection that I will include here. The fallacy is to think we must pay more for something in order to “save jobs”.
“Protectionism:
Even greater wealth accrues to a society that trades with other societies. The division of labor within a society is no different than the division of labor globally. Protecting jobs in America from foreign competition is no different than protecting jobs in one city from being lost to another city. It is no different than protecting the original farmers from competition from those with more fertile land. Protectionism means to protect a company from failure by not allowing consumers’ choices to decide who should succeed and who shouldn’t. It is accomplished politically by distorting the voluntary exchange of property by tariffs, taxes, quotas, penalties and other compulsory measures.
Let’s examine what would happen if consumers changed their behavior in order for jobs to be saved. The first thing they would have to do is to buy everything at the highest possible prices. This would guarantee that inefficient companies would remain profitable and not shut down causing unemployment. But if we did that, we would discover that we couldn’t buy as many things as we do when we seek lower prices. We would have to make a decision of what not to buy that we used to buy before. Once everyone does this, fewer products are made for the society and people lose their jobs making those marginal products. In this case, man has taken a step to undo the division of his labor.
The remaining companies that manufacture essential products are no longer able to find in existence the myriad of marginal goods and services that saved them labor, so they are forced to employ people instead to do things manually. This causes the prices of what they make to rise. Once that happens, the consumers are faced again with making a decision not to buy something, because at the end of the day, they have less money left over than before.
If everything cost more to produce and we always paid the highest prices for everything we bought, we would continuously have to buy less goods and services than before. This process continues until man’s division of labor becomes completely undivided. Eventually, we descend to a tribal existence where each tribe is self sufficient in providing for their totality of needs without the assistance of trade and exchange. Nobody would have anything except their job producing bare essentials for themselves. But, thank God, we would have full employment!
By Americans being free to buy whatever and wherever they want, the savings experienced is the creation of wealth. New capital investment is then possible, and labor is increasingly divided to provide new goods and services. Those who advocate otherwise, advance a case for the creation of poverty instead.”
“The division of labor within a society is no different than the division of labor globally.”
This statement is false. Within a given society, there are different means of political control, different economic regulations (labor laws, pollution regulation, land use, etc.), different levels of human capital, different levels of initial wealth distribution, etc. And each society generally has public services supported by its citizens that provide benefits to its citizens. Now, all of these differences might not change your opinion regarding whether to support freer trade, but there are significant differences that make international trade more controversial than intranational trade.
“Let’s examine what would happen if consumers changed their behavior in order for jobs to be saved. The first thing they would have to do is to buy everything at the highest possible prices.”
This is silly hypothetical and the discussion that flows from it is not interesting or educational. Economics is not a science like math. Instead, most economists use math to create models to illuminate what might be happening in the real world. Unfortunately, the real world is messy, the models have often do a poor job of explaining what happens in the real world, and it is generally impossible to set up macroeconomic experiments to test economic theories. Based on your essay, I suggest you not accuse others of being ignorant about economics.
Economics is like math. Please study Von Mises to understand. It is all deductive logic based on a few axioms regarding human nature. The models you refer to are not economic principles, but econometric models that are something entirely different. You are correct regarding them. In particular, study the Law of Comparative Advantage.
Your entire first paragraph is irrelevant to the point I made. Despite any and all market interference, if their all still advantages remaining, then greater total wealth is produced for “both” the buying and selling nations then if the exchange was forbidden.
It’s a fact, but you need to study economics to learn it. I have forgotten more about economics than you’ll ever learn. You may want to try Bastiat or Hazlitt, since you are obviously lazy. You wouldn’t understand “Human Action” or Rothbard’s “Man, Economy, and State”.
In haste I wrote “If their all” but meant “If there are”.
Please understand that “free trade” creates maximum wealth. It does not matter if the trade is only partially free. The more interference, the less wealth produced, and vice versa. This is proven fact if you study theory. It is not opinion. Nor, as some here have mused, is it ideology.
Now, if someone wants to defend free trade on moral or ethical grounds, that would be a different matter. That would be an ideological argument unrelated to the utility of free trade.
I don’t see how “no economies of scale” could possibly be required for free trade to work. It is often economies of scale that make free trade such a mutual benefit. If one company or country can provide the worlds supply of a good cheaper than anyone else, they should be the ones doing it. Everything from computer operating systems (Microsoft) to rare earth elements (china is the worlds primary supplier) utilizes economies of scale to make the world a better place.
As important and beneficial as trade is for the citizens, it can be detrimental to the ruling political elite. It becomes harder to use “us vs. them” conflict and threats of war to keep the citizens in line when you depend upon the target of your wrath for critical goods.
WallMart’s China trade has helped prevent out military industrial complex and China’s military complex of using each other to get drastic budget increases.
Your making two points. First the inevitable destruction of the Senica market, and secondly the halting of all production in Clemsonia. I do not see the dependence or the linear progression. I can have the first scenario without the second. If we lived in a world where there were only to participants the progression would still not hold. We have a saying on Wall ST., “you can’t kiss all the girls” or subsidize the entire export market. Your argumant fails in both theory and practice.
I don’t suppose the inevitable destruction of the Seneca market. That’s your scenario.Clemsonians don’t sell to Seneca, because Senecans act, temporarily, as if they are slave labor held by Clemsonians. Masters don’t sell produce to their slaves.Many Chinese laborers are as productive as American laborers but accept less entitlement to consume in exchange. That seems to be a fact. I understand the marginalist economic theory behind the lower wages in China, but China is a Communist party dictatorship, so I’m not sure how much these theories apply.All production in Clemsonia doesn’t halt. The process tends in this direction temporarily but never reaches this point. The Senecan state ultimately governs all means of production in Clemsonia. That’s its goal anyway. Enslaving its own people to feed Clemsonians is only a temporary tactic.
Well, you’re discussing your own scenarios here. I don’t say anything about Senecan statesmen punishing Senecans for importing goods from Clemsonia. Senecans can’t afford to import goods from Clemsonia, because the Senecan state effectively reduces them to property of Clemsonians.
If Seneca is five times the size of Clemsonia, I’m not sure it’s true that Seneca can’t subsidize the entire export market long enough to have the desired effect.
Clemsonians will have to produce to obtain the means to purchase Senecan goods. In this case as Says Law tell us production creates it’s own demand.
No law of nature prevents Senecan statesmen from seizing produce from their own people and giving it to Clemsonians (or selling it to Clemsonians at a discount). Say’s law doesn’t prevent this tactic. Say’s law applies to market organization, but I’m not discussing market organization.The difference between a market price for Senecan goods and the price Senecans actually receive is a rent imposed by the Senecan state on Senecans themselves. The Senecan state effectively uses the rent to buy rights to impose rents on Clemsonians as well.This process is not simply theoretical. Chinese monetary authorities actually do fix the yuan-dollar exchange rate. They fix this exchange rate by creating yuan, which are entitlement to Chinese produce, and exchanging the yuan for dollars at a rate below the market rate. They give U.S. traders yuan in exchange for nothing. That’s a fact.A fixed exchange rate must be below the market rate, because the rate is not fixed otherwise. If Chinese monetary authorities tried to fix a rate above the market rate, arbitrageurs would profit at a lower rate, so they would lower the rate to the market rate. In other words, Chinese statesman may give their people’s produce away, but they may not demand more for it than its worth.Why would Chinese statesmen do this? They say they’re directing Chinese development toward the production of goods that U.S. consumers already value, because the U.S. leads China along a developmental path blazed previously by market forces that China previously impeded. That’s a reasonable answer.But as they pursue this policy, Chinese statesmen do accumulate entitlement to rents imposed on Americans as a matter of fact. They purchase U.S. Treasury securities. They also push U.S. resources further down a developmental path, since these resources no longer produce previous goods competitively.Can they push the U.S. economy too far down this path, so far that the new U.S. organization is not sustainable when the Chinese subsidies cease? That’s the question.
Austrian economics says that excessively cheap credit from a central monetary authority can have this effect, so why can’t a Communist dictatorship, ruling a nation with five times as many laborers, do it? They’re increasingly our creditors, really.
Why is it a negative to have the Senecan Govt. hold Clemsonian Debt. Would it make a difference if all US or Clemsonian debt was held by its citizens. If it is beneficial for consumers to purchase Senecan prodicts at a discount plus rent, then so be it. It allows Clemsonians the ability to pursue other markets.
Clemsonia’s state securities are not market debts. They are entitlement to Clemsonia’s tax revenue. If Senecan statesmen extend credit to voluntary borrowers in Clemsonia, if these borrowers use the credit to organize resources more productively, that’s one thing, but we aren’t discussing this market credit. We’re discussing Senecan statesmen buying entitlement to tax revenue from Clemsonian statesmen. There is no market mechanism involved. There are no entrepreneurial investors borrowing to organize resources more productively.
Who holds the debt is not the issue. How the credit is expended is the issue. Clemsonian statesmen selling the state securities don’t invest the revenue. They consume it. They couldn’t invest it effectively if they wanted to.
That’s the question. The answer is not obvious to me. At some point, the discounts cease, and when they cease, Clemsonians must reorganize to produce goods now produced by Senecans, and they owe the Senecans all of these rents. Clemsonian statesmen are no help because they’re closer to the Senecan statesmen than to their own people, just as Senecan statesmen are closer to Clemsonian statesmen than to common Senecans.
I can assume then that you do not put much credence in Ricardo’s comparative advantage in trade related matters.
I put plenty of credence in comparative advantage, but I’m not discussing market arrangements here. I’m discussing Senecan statesmen and Clemsonian statesmen ruling both populations for their benefit. Common Chinese do not fix the yuan-dollar exchange rate. Common Americans do not issue Treasury securities. Comparative advantage is not a theory describing effects of these state policies.
I do not see where Clemsonian statesmen are at the table, and as for Senecan statesmen trading commodities for promissory notes doesn’t seem like a winning strategy.
Their were no fabulously wealthy Americans during the first 100 years of our nation
Riiiiight. Same for Canada and “modern” European states. There’s no concentrated wealth there.
You aren’t aware of it, so it must not exist. Is that how it works?
muirgeo: “Their were no fabulously wealthy Americans during the first 100 years of our nation”
What causes you to make such assertions on this blog without even the tiniest effort to validate your assumption? Why do you continue to make such untruthful statements?
If you want to know anything about concentration of wealth during the first century of this nation’s existence, just go to Google and type in any one of these names:
John Jacob Astor
Cornelius Vanderbilt
Stephen Girard
Alexander T. Stewart
Stephen Van Rensselaer
Results don’t flow from intentions, or “goals”, no matter how good they are.
I want World Peace(tm). According to you, it’s perfectly acceptable to kill every human being to achieve that.
I suggest you check yourself in your local psychiatry ward. Your megalomaniac tendencies are tiresome.
“Sure in Ethiopia the means of everyman for himself are intact…”
You sure about that?
http://en.wikipedia.org/wiki/Economy_of_Ethiopia
Wait a minute – I don’t follow. Who is imposing something on somebody?
You’re taking an unusual amount of interest in my purchases, vidyohs.
RE: “It doesn’t matter to those socialist fools that conditions are different in various places and flooding money into an area that has an established economy will just cause pain, envy, jealousy, and disruption to those areas.”
So what would you propose, vidyohs? Preventing “these areas” from commanding as high a price as they can because you benevolently want to spare them “pain, envy, jealousy” etc. etc.? I’m not sure why getting paid more will cause all that pain. If you really think so, you can feel free to mail half your pay check to me.
Absolutely. I have a cheaper, higher quality car, computer, tv, wood floor, clothing, shoes, dishes and just about any other capital expenditure that tangibly improves my day to day life. I have more efficient windows, doors, insulation in my house, investments that have all paid for themselves in just a couple years. I feed my dog high quality, slightly more expensive food that has given her a noticeable improvement in her older years. There are very few places I would say I’m paying more in. Perhaps diesel for my car, but accounting for inflation, I’m still paying relatively low prices for the amount of value I get in a single gallon of fuel, and plan to make my next car a plug in hybrid so I can avoid the impending price increases in oil.
Markets are essentially solving all the problems liberals have devoted their lives to forcing people into with governments, while the rest of us are actually enjoying the relative ease at which capitalism has given to our lives.
Ethiopia has – almost uniquely in Africa – virtually no private sector business at all.[1] There are no Patent Laws in Ethiopia.[2] Many government owned properties during the previous regime have now been transferred to pro-government enterprises in the name of privatization.andFurthermore, the Ethiopian constitution defines the right to own land as belonging only to “the state and the people”, but citizens may only lease land (up to 99 years), and are unable to mortgage, sell, or own it.[3] Various groups and political parties have sought for full privatization of land, while other opposition parties are against privatization and favor communal ownership.Muirgeo – you’ve been punked and pwned.