Free trade is justified regardless of the trade policies followed by other governments. A foreign-government’s restrictive trade policies or subsidies or high taxes or low taxes or screechy national anthem does not justify your home government restricting the freedom of you and your fellow citizens to trade as you choose.
Your government should take other governments’ trade and economic policies as given, much as we take consumer tastes and preferences as given.
If your neighbor offers to mow your lawn for free because his psychiatrist recommends such mowing as a sure cure for his depression, should you refuse his offer? If your neighbor offers to mow your lawn for free because he is convinced by some silly book of the wacky notion that exports are good and imports are bad, should you refuse his offer?
If your neighbor chooses to become utterly self-sufficient, refusing to consume anything produced outside of his own household, you might properly regret (1) that he and his family will likely become much more materially impoverished than your neighbor realizes, and (2) that you and other people in the economy will be deprived of the additions to total output that your neighbor would have added had he chosen not to cut himself off from the larger economy.
But ultimately it’s none of your business. You have no right to insist that, in the interest of a larger GDP, your neighbor must integrate himself more fully with the outside economy.
Now suppose that your self-sufficient neighbor, still refusing to consume anything not produced by his own household, offers to sell to you — say, in exchange only for a friendly smile from you — some tomatoes from his garden. You examine his tomatoes and determine them to be first-rate. Should you refuse to accept your neighbor’s tomatoes in exchange for a quick smile, on grounds that your neighbor will not, in exchange for his tomatoes, really purchase anything from you or from the outside economy? Would you make yourself richer by refusing his offer?
You may legitimately question the wisdom of your neighbor’s policies. But regardless of what you conclude, your best course of action will always be to trade freely with him, and with everyone else.
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I suppose I would feel bad if my neighbor had children and forced his children to work at lawn-mowing and tomato-growing for very low wages. But my response wouldn’t be to refuse my neighbor’s services. My response would be to encourage the children to move out and better their lot by becoming free-traders.
If your neighbor offers to mow your lawn for free, because he is getting his income by stealing from other of his neighbors (he calls it their tax subsidy), are you morally entitled to benefit from that coercion at one remove? If so, why not benefit from coercion directly?
I hope, then, that you are arguing for unilaterally banning ALL trade (imports and exports) with said country, and not just imposing tariffs on select imports.
Suppose that my neighbor disdains the freedom to trade and doesn’t much care for commerce and tries his best to lobby our government to limit these freedoms and commerce. In fact, he actually [and perhaps unknowingly because he lacks the wisdom] champions policies that would turn our own nation into one where neighbors — through governmnet — steal from one another and excercise the type of coercion that you write of; should I call him out for this? I mean if he’s calling me out for supposedly having it both ways, why shouldn’t I call him out for certainly wanting it both ways. Only one of us would be more correct in which offers up the most freedom to transact and the other is simply is asking for no freedoms.
To carry your analogy a bit further, if your neighbor offers to mow your lawn in exchange for an IOU, and you’d rather have your kid learn to mow lawns, you might not only reject the deal, but also ask him NOT to make the same offer to your kid.
And therein lies the perspective of big governments:
That people are children that need to be taught what’s best for them, lest they make decisions of their own accord.
Dagon, just out of curiosity…
Exactly why would you want your kid to mow lawns?
You can certainly train him on how to do so, and there’s nothing that says you can’t simply mow the lawn more often to provide training opportunity.
Time for Prof. Walter Williams’ “Shoot another hole in the boat” parable.
Google for “Q&A: Free trade zones in Africa” to find a BBC News article explaining free trade zones.
Amusingly, it says that the removal of tariffs is a way to “artificially boost” trade.
It also mentions that Kenya continued to pay export duties to Tanzania and Uganda for five years after the EAC union began, “to compensate for the fact that it was a more prosperous, diversified economy.” Sounds like a certain fictional tax on Colorado, doesn’t it?
As an export duty would be charged to Kenyan exporters, the exporters would have to put up prices for Tanzanian and Ugandan customers to compensate. So it’s just another way for the governments of Tanzania and Uganda to tax their own citizens.
How does that compensate them for the fact that Kenya has a head start? It would be truer to say that it punishes the people of Tanzania and Uganda for choosing governments which hold back their development.
I guess I have to wander off the reservation just a tad on this one.
I am uncomfortable with your reasoning vis-a-vis the neighbor analogy. Accepting actual services with marketable value because your neighbor, for what ever reason, extends an offer to perform them for good will or a smile, is not trade in my humble and backward opinion.
I know that in my heart that I can not tell my neighbor what to value, and perhaps he truly does value my smile that much, but, at the same time I can not erase my own knowledge of what is value and I would know that my smile is not equal to a yard mowing, or free tomatoes.
In order for me to enjoy my freedom I have to live my life by my understanding of standards, character, and morals, and those do not include allowing myself to participate in a conscious or unconscious rape.
I thoroughly understand what you’ve said above and have said in previous posts on the subject, and in principle I agree except in this one thing. I like your truth, just not your analogy. And, I don’t see how any of us would benefit from allowing another country to act as the neighbor in your analogy.
If someone is giving me a value of X, the I am going to return his value of X in the best manner I can. If he refuses to tell me what X he would be happy with or could use, then I will choose it and he’ll get it with no possibility of refusing it.
Maybe it is the dumb-ass street guy in me, but I don’t want to take advantage of anyone, and, sir, I do not want anyone putting me in the position of appearing to be taking advantage, or allowing myself to be a willing or unwilling tool of their own ignorance or inexperience and wind up in a position of being accused of deliberately taking advantage.
And, I say that while standing firm on all my previous statements that no one has a claim on me or the fruits of my labor without an agreement or contract, nor will I allow them to impose on me through some kind of relationship established by regional residence.
wrong.”countries” dont benefit from trade tariffs. govts do.special interest lobbies which are vocal do.you make the classic mistake of considering country =govt
Word it however you like, dsylexic. Make yourself happy.
vidyohs,
The only time anyone voluntarily trades with anyone else is when both parties believe that they’re getting the better end of the deal. The grocery store where I shop believes that money has more value than food. They are silly enough to trade one for the other.
I’ve heard, though, that they think I’m gullible for trading perfectly good money for food.
It’s not usually silly from either point of view. They have excess food. You have excess money. Both of you understand one another perfectly.
I disagree. Thinking one has the better of the deal is not the only motive for completing a trade.
It may be a common motive, a popular motive, but not the only motive.
“Thinking one has the better of the deal is not the only motive”
It’s not even a common motive. In fact, it’s a relatively rare motive.
I understand that my perspective and my grocer’s perspective are different. I understand that if I had a store full of food, I’d be wanting to trade it for money too. I understand that both me and my grocer are getting a better deal by trading, because we start from different states with different needs.
And, I don’t see how any of us would benefit from allowing another country to act as the neighbor in your analogy.
V, I know that I’m preaching to the [your] chior on this one, but just think of the aid the U.S. taxpayers offer to other countries; and many times we get things much less than a smile for it.
Now, as far as real and everyday trade goes, I believe you understand the topic at hand, support free(er) trade, and are just speaking to you disagreement with the analogy — is that correct?
LCJ,Of course I support free trade. And, yes I just didn’t think the analogy held up vis-a-vis the neighbors offering free service or goods. I understand that I am in no moral or legal position to dictate what someone values. I also have a personal belief that trade involves the exchange of things of value; and, if someone wants to trade real labor for my smile I would know that he was cheating himself, and I would feel uncomfortable that he was using me do to so. Understand that in my eyes and my judgment what Don’s analogy involves with the neighbor is not trade but gifting.Gifting is also what I call the foreign aid you mention. We can’t even rationally call it buying because the USA (to our knowledge) doesn’t even ask for guarantees in the way of votes in the U.N., or special trade deals in most cases. Gifting is not trading, just as privileges are not rights. (and, I too, am not preaching to your choir here). This is why the analogy does not hold up.I have a lot of miles on my tires and I observed a long time ago that anyone who gifts another with value on a regular basis wants something, and it just isn’t being said what. It make take nature and ill fortune to bring out just what it was that the gifter wanted. Furthermore, if ill fortune does strike, the gifter will almost always be there expecting help and using the gifting as the basis for his expectations. That is when you find out what he wanted. However, the gifter’s problem is that the one receiving his gifts is under no real moral or legal obligation to aid him in any circumstance, and may well turn his back.I prefer to get things out in the open and negotiate my own deals and make my own obligations, that way I don’t fret that I have nasty surprises waiting down the road for me.
Correct me if I’m wrong, but it seems like you’re taking issue with the neighbor’s sanity or degree of understanding. What if we tweaked the analogy to mitigate that concern? Say that the current market value for lawn mowing is $10, and your neighbor appears perfectly rational but is willing to mow your lawn for $2 (clearly more tangible value than a smile). Assume the quality of work is similar to the $10 mower. Do you still pay your neighbor $10 for the service?
Sir,I am not taking issue with the neighbor’s sanity and it is very unlikely I am taking issue with the neighbor’s understanding, as that is something I have to take on face value.Using your analogy, if my neighbor offered to cut my lawn for $2 instead of the going market rate of $10, I would know that he is cheating himself, for what ever reason. That “whatever reason” would cause me concern as I have learned over the years that my neighbor has a reason, he just isn’t putting it on the table.Yes, I would refuse to accept his offer of $2 because I will not, if at all possible, put myself in a position of being obligated in some future unknown way to an implied contract I did not know the terms of.I personally am uncomfortable with gifts. And, Don’s analogy in my opinion involved gifting, not trading.Just give up on me, that’s the way I see it.
“Using him” is the entire point. He’s not in it to mow your lawn. He’s in it to give you something so that he feels happy. Now, I have a lawn to mow and he needs an opportunity. You have a trade.
–It is not for me to decide how that guy spends his time. All I ask is that he lets me fix his computer for free. No, it’s not just any computer. It’s gotta be his, with its atrociously slow performance and habit of crashing.
But we need to protect people from themselves, right?
Don’s parable assumes away all the motivation for why nations have incentive to pursue trade protection. One motivation is the standard optimal tariff argument, which says countries can benefit from tariffs if they cause trading partners to lower their prices, so tariffs aren’t fully passed on to consumers. So if your neighbor sells to you for free, then you can’t benefit from a tariff. Another motivation comes from imperfectly competitive environments, where trade policy can be used to shift profits or production to the country imposing the trade policy. Again, this possibility is assumed away when your neighbor is willing to sell to you for free, or if your neighbor chooses to be in autarky regardless of trade policy.
While I certainly agree imports bad / exports good is a fallacy, Don’s parable does not prove countries never benefit from unilateral trade policy. The main argument against such unilateral protection in the situations I described is that it leads to a prisoner’s dilemmas were all trading partners are worse off. The parable, while correct in the cases it discusses, oversimplfiies a more complicated problem.
The benefits never outweigh the costs, but that isn’t always obvious (which is why policies like this persist, among other reasons). There’s also the issue that losses loom larger than gains.
The benefits outweigh the costs for the government officials imposing the policies. That’s why they pursue them, not because they are forever oblivious to the costs. These policies protect their favored constituencies and shift money from consumers to govt. revenue in the form of tariffs. And even in the absence of those motives, a purely benevolent government can still have static incentive to pursue unilateral trade protection (granted, in this tire case, it’s the former motives that must be coming into play). So this is a problem, and assuming away all motives that cause the problem is not helpful in solving it.
“So if your neighbor sells to you for free, ”
Is that like free rent?
Nitpicky to be sure, but one either sells or one gives, one does not sell for free.
Nitpicky indeed, and in fact it’s confusing to think of giving away as a distinct concept from selling, when you want to evaluate whether the optimal tariff argument applies in this parable. Whether you call the transaction “selling” or “giving away”, the price your trading partner receives from the transaction does not fall when the tariff is imposed, regardless of whether the price is zero or your smile — and this implies there’s no motivation for a tariff in this parable.
Ok, I recognize your point, but we would need to know all the details in order to make your judgment.
If I contract to 2 months of free occupancy, and 10 months rent, and my rent is set at the same level as those who have been in the apartments for a long time, and which sum gives the owner the same profit and accrues the same expenses as the other apartments of the same quality and space, then I could make a case that my two months of free occupancy were free and not just covered by what I paid for the next ten months factored over the entire twelve months. However, I agree that typically my two months of “free” occupancy is really paid for by what the next ten months cost me.
But even so, free rent is an oxymoron as is selling for free. Tis funny language created to entice public school educated chilluns. (See my last to LCJ above about gifting. Tks much).
This is not how economies work. I understand the principle you are implying but protectionism changes this. To take the neighbour analogy further:Your neighbour decides to sell/give away tomotoes at, or below, cost. In doing so no other neighbours choose to grow tomatoes anymore. The neighbour invests in all the capital he can to make his the most efficient tomato growing operation in the neighbourhood.Neighbour, being a virtual monopoly in tomatoes, then decides to start charging. As soon as anyone else tries to grow tomatoes they find that they cannot compete on cost with the Neighbour and they will be priced out the market as the neighbour increases supply (due to efficient, capital-intensive processes) and can decrease the price to below anyone else’s costs while still making a profit. Any other neighbour who wishes to compete on price must invest in large amounts of capital to become a duopoly which is not a good return on investment, especially when the original neighbour has shown a willingness to suffer to create that monopoly in the first place.Thus, by not forcing the neighbour to engage with the neighbourhood economy you have made short-term gains (free/cheap tomatoes) but you have handed your neighbour a long-term near-monopoly on tomato production.In this instance the best long-term course of action is either for the neighbourhood to tax the cheaper tomatoes, or to subsidise all other neighbourhood tomato growers.
Keddaw, as far as I can tell, at no point in your story does the price of tomatoes ever rise above what the neighbors are willing to charge. Therefore, no harm ever accrues to consumers of tomatoes in the neighborhood. Producers of tomatoes (a “special interest”) are understandably upset, but I’m not sure the best policy is to cater to them. Note in particular that the result of your “best long-term course” is higher tomato prices for everyone. How is this beneficial? I would say the best long-term policy is to advise the other tomato growers to learn to grow zucchini.
-rpl
When the Neighbour has a monopoly position he can charge whatever he likes, probably a profit maximising price that would (almost definitely) be way beyond the price that would be charged if many people were growing tomatoes.
The capital costs involved for anyone else to enter the market (and be part of a duopoly, with the inherent lower prices) makes it unlikely anyone will even try.
Sure, other people may grow zucchini and the prices of zucchinis will fall, but unless that is a reasonable substitute for tomatoes then it doesn’t help the core problem which is the monopoly in the supply of tomatoes.
Monopolies tend to have higher prices and lower supply than an open market. So there are fewer tomatoes produced, fewer consumed but more is being spent on them, which also reduces spending in other parts of the neighbourhood.
monopoly? ah that old bogey. re-read bastiat’s candlemakers petition against ‘sunlight’ that dastardly monopolist.
Sunlight is free and has no cost.If sunlight started charging after all the candlemakers had de/re-skilled there would be a huge issue.
What I am arguing is that while protectionism* is overused it CAN be for the long term good of a country.
* Or any government action that would not otherwise be taken but for another country’s choices.
But the monopolist neighbor can’t “charge whatever he likes.” As soon as he raises prices to very high levels, other competitors will recognize the profit potential and will start producing tomatoes. They don’t have to scale up to a huge size in order to compete.
Under your scenario, the neighbor has a monopoly on Tomatoes because there is some type of barrier that prevents competitors from entering the market. You suggest that high capital costs are the barrier. If the problem is that high capital costs create a barrier to entry then trade policy has nothing to do with the existence of such a monopoly.
In the real world, there are very few industries where capital costs prevent competitors from entering a market.
My point was the original (foreign govt. subsidy) cheap/free supply of tomatoes discouraged anyone else from producing tomatoes or innovating production techniques. This left the path clear for the person who was giving them away to innovate and invest in capital. Once they had a technological lead they could start charging and anyone wishing to challenge would have to invest the same amount of capital but with no government subsidy as they are from a free trade country.The barrier to entry exists because the domestic suppliers deemed (correctly) not to produce tomatoes at a loss and changed over to produce other goods/services. Once this happens there is only one supplier to benefit from efficiencies of scale, added capital expenditure and any technological advances in tomato growing.
“In the real world, there are very few industries where capital costs prevent competitors from entering a market.”
Really?
How much did Microsoft spend trying to enter into the console market?
How much does it cost to set up a car manufacturing company?
Can anyone start an aerospace company?
Do you want to write a new Operating System to challenge Microsoft?
Capital costs for most industries are huge and (usually) the fewer players there are in the market the harder it is to enter.
Free trade is justified regardless of the trade policies followed by other governments.
Free trade= labor arbitrage. Why should I a proud member of the working class support policies that places me at a disadvangtage in the global market place?
sure you wouldnt support being at the receiving end of the deal.thats why you would be the vocal special interest group. the beneficiaries,(those who buy your labour) dont protest because they dont see their losses.
again,bastiat’s ‘what is seen vs what is not seen’ logic is relevant
” A foreign-government’s restrictive trade policies or subsidies or high taxes or low taxes or screechy national anthem does not justify your home government restricting the freedom of you and your fellow citizens to trade as you choose.” DB
That’s baloney. We have labor standards, safety standards and environmental standards as well as standards regarding individual liberty and free speech, 40 hour work weeks ect…. Our workers DO have a right to ask for protection or at least a level playing field against communist countries and others that undercut those standards.
We are supposed to be the liberty seeking country. Don’s argument justifies communism and under cutting the “liberties and protections” of the American worker (and ultimately its consumers) for cheap plastic stuff made but communist workers with no rights of free speech. And all to concentrate wealth and power in the hands of the multinational corporations.
I see NO route to liberty in positions such as these. They are routes to serfdom and corporate rule. They are not even good arguments for economic efficient… just look around at our economy… the worlds economy. We are well on our way to corporate serfdom with 50% of Americans working for a corporation of 500 or more people. It is extremely difficult for anyone wishing to make a living independent of corporations or government. But indeed if anyone wants cheap plastic from China they should feel free to emigrate there. Of course most Chinese can’t even afford the cheap plastic their country makes.
“But indeed if anyone wants cheap plastic from China they should feel free to emigrate there”.
so dictator-for-life muirgeo gets to decide who should live where based on his whims and dislike for cheap plastic. nice.
corporate serfdom?.why dont you serfs get together and create your idyllic cooperative so that all the aristrocats in labor are employed and produce products that are better than cheap plastic producers
dont you understand that you CANT choose how your neighbors behave?. just because your neighbor spanks his son doesnt mean you should too.if ou have high moral standards good for you.that doesnt mean that i cant buy stuff from the mean guy next door.
trade is amoral when it is voluntary.time to get off your pseudo high horse and smell the cheap chinese plastic.
You can’t choose how your neighbours live, but if your neighbours start blaring music at all hours you may wish to redirect your income towards soundproofing.
Look at how the Cold War took spending away from its most productive uses solely based on what they thought the other country was spending theirs on.
wrong analogy. china is not playing blaring music.infact it is helping american consumers buy the soundproofing at a lower cost than that supplied by american labor aristrocrats.
why shouldnt you buy cheaper soundproofing?
The point I was trying, and failing, to make is that we do react to how our neighbours act.
e.g. 1. Consumers in country A can use their purchasing power (or govt A can ban) to stop country B using child labout to make products.
2. Country A can tax good X coming in from country B if there is a reason to either ensure the local manufacture of X (i.e. it may be a strategic necessity) OR if they have reason to believe country B is unfairly subsidising production of X with a view to driving country A’s producers of X to the wall.
IF, and it’s a HUGE IF, we could easily redirect the resources used to manufacture whatever a country is subsidising, thus producing producing more of whatever we have a comparative advantage in something, and then redirect those resources back… then we would be much better off if any country decided to tax or subsidise any product.
However, in the real world it takes years to re-use all the resources that used to manufacture steel in the US. If that is natural decline then sobeit, but if that is a forced decline caused by a foreign power flooding the market in order to later drive up prices then that is not good.
muirgeo, see Geoffrey Wood’s 2002 book “Economic Fallacies Exposed,” where (in the tradition of Bastiat) he takes on various economic fallacies (these are actually just a ‘best of’ collection from his regular column in Economic Affairs).Anyhow, on pg. 35 he takes on the fallacy that “Free Trade Should Be Fair.”The e-book can actually be downloaded for free from IEA’s website:http://www.iea.org.uk/record.jsp?type=book&ID=155(right under “buy now for £12.50,” there is a link to “download full publication”)
The analogy is true, as far it goes. In the real world, traders find themselves in a very different position relative to one another.
The government restricts trade rights for disfavored favored businesses. In the US, one of those disfavored businesses is the individual worker. The government secures trading rights for large businesses, but actively works to suppress the profits of individual workers. Big companies get free trade and the freedom to contract worldwide. Workers cannot access global labor markets, and are often legally restricted from free contracting where they can trade.
In the real world, by contrast with the state of nature Don describes, small business and individual workers get screwed by government favoritism. Don’s analogy fails to capture this aspect, the state preventing people from trading, rather than people choosing not to trade.
When faced with this onerous favoritism, there are three kinds of responses from workers and small enterprises. (1) try to protect small enterprises, transferring wealth from large businesses to smaller ones. (2) try to end the favoritism. (3) break the law with black markets.
As a practical matter, (2) will never happen. In global markets (3) is impractical or too risky, unless the profits are huge as in the drug trade. Then only (1) is left as a practical policy.
I’m all in favor of free trade. I wish option (2) were real. But where practical policy is made, protectionism is all there is for workers and small businesses.
“The government secures trading rights for large businesses, but actively works to suppress the profits of individual workers. Big companies get free trade and the freedom to contract worldwide. Workers cannot ”
ding ding ding we have winner here. At the ground level the lowly worker bees are in it for themselves. I have 20 yrs with a dow component company I have crossed 4 picket lines in labor disputes.My family comes first. Ideology, unions everything else is secondary. Money talks bs walks. Lots of bs here.
Nalrus,
This discussion is about what is good in general, for the country. In an individual case it may of course be advantageous to go on strike, cross picket lines, whatever. What is logical for an individual stuck with the reality of trade unions, tariffs, etc. is different from what policy is logical in general for the country to pursue.
Also, worker do benefit from worldwide trade anytime they buy something. Flat wages are perfectly fine if you can buy an iPhone or a better tire today than you could yesterday.
“This discussion is about what is good in general, for the country”
“Flat wages are perfectly fine if you can buy an iPhone or a better tire today than you could yesterday.”
This must be good for the country then…
Today, the Wall Street Journal reports the sobering news that, since 2000, real wages have fallen for every educational group in America except folks with professional degrees (doctors, lawyers, and the like). All other groups, even those with master’s degrees and Ph.D.’s, saw declining wages over this period. The WSJ piece is based on recently released Census data (you can find the most recent Census Bureau report on income and earnings
to blame it on free trade is absurd.you might as well blame it on global warming. what about the spending/bingeing spree the american consumer has been on since the last 20 years thanks to greenspan’s loose monetary policies?. what about the increased levels of debt and drive to purchase unreal estate?. what about nonexistent savings rates?
James point was that falling wages don’t matter if they lag falling prices. That is not what the WSJ article was saying–since 1913, prices are almost always rising, by design.
I want to know if I have this thought correct.So China is “buying” the US in form of treasury bills. In this analogy the t-bills are the smile because when inflation hits, the bills will become much less valuable maybe to the point of free. China should have purchased goods instead?
right.but if the chinese are idiots to keep buying those treasury bills,is it the US’s business?
Depends if you think taking the tomatoes or lawn was morally wrong and will affect future trade. Personally I think the Chinese are well enough informed of those risks so they are entering into a mutal agreed upon transaction and there is no cause for action.
Yes, because it enables anti-productive US Federal spending.
It looks to me like the pirates in Washington are in cahoots with the dictators in Beijing–the former to increase their power over us, the latter to increase their power over Washington.
China is buying US IOUs in the form of treasury bills.
The T-Bills are worth less due to inflation, but the US cannot simply infflate its way out of debt (although it is trying). If China gets annoyed at US policy it could flood the market with T-Bills leaving the US with no source of funds and the currency collapses as does the economy.
China cannot buy goods as goods are not durable. This is why they have sovereign funds buying up the means of production instead.
Keddaw,3 Questions:1. China is buying foreign means of production or their own?2. If China buys the t-bills, this is equivalent to the Treasury selling t-bills which should decrease money supply raising interest rates. Then the gov’t turns around and spends the money putting the money back into the money supply negating the previous effects?3. So if China floods the market with t-bills they would be selling t-bills taking $ out of the money supply like the treasury? Or when selling it now releases the IOU and the money comes into the total supply because the gov’t has to print the money to make good on the IOU?
Basically where does the currency collapse come from?
“Basically where does the currency collapse come from?”
When nobody wants to have anything to do with dollars anymore. Foreigners cash out their dollars (by trying to buy things in America), but Americans don’t particularly want dollars either, raising the dollar price tag of the things foreigners want to buy.
1. China is buying foreign means of production (and service companies too, e.g. huge investment in Citibank). Since they already own their own means of production there is no need to buy those – the advantages of communism
2+3. Not exactly, T-Bills are on the open market as well as the US government selling new ones when they need funds. When demand for T-Bills risies it means the government can sell them with a lower rate of interest (*simplification) which equates to cheaper. If supply of T-Bills outstrips demand, either from a lack of demand or from China dumping T-Bills, then the effective rate of interest the US government has to pay rises significantly. This can be viewed as a total lack of confidence in the currency – either people think they may default (unlikely) or the currency will drop in value. Either way they require a much larger risk premium to take on any government debt.
The currency collapse comes from a market expectation of a fall in the currency. As the government cannot sell its T-Bills the only other option it really has is to print more money which obviously will devalue the currency.
“Your government should take other governments’ trade and economic policies as given, much as we take consumer tastes and preferences as given. If your neighbor offers to mow your lawn for free because his psychiatrist recommends such mowing as a sure cure for his depression, should you refuse his offer?” Tax-based subsidies are not “trade and economic” policies. They are not like tastes and preferences. They are anti-market coercion. If your neighbor can afford to mow your lawn for free, because he is getting his income by stealing from other of his neighbors (he calls it their tax subsidy), are you morally entitled to benefit from that coercion at one remove? If so, why not benefit from coercion directly?
This might be a can of worms, but are you suppose to check how he received his other income(s). Whether you are once remomved or twice, etc from the “dirty” money is the can of worms. I would say we all have dirty money in our pockets in that case. If you knew that it was once removed; however, then I personally could not accept the free service, at least I hope.
Good reply, sufisto. One’s only obligation, I should think, would be not to evade the fact that one is profiting from coercion. Then it is a question of how much coercion and how badly you need the good. If you are starving, and your farmer-neighbor is employing slaves, you might have to say, “Too bad for them.” If you’re merely saving a few cents on a week’s grocery, it would be a different matter. But the second question is: What about free-market farmers who are being harmed by the coercively lowered prices of the slave master? Are they morally entitled to stop the harm to themselves by stopping the slaver’s trades from taking place?
Yikes,
I think I need to go back to ethics class and pose these questions. It would have been a good opportunity then, I just sat there every class.
Let us suppose that your neighbor is the biggest government in the world and it is communist. Let us further have the following suppositions: At his point in time this neighbor still directly controls 40% of his counrty’s economy. The direct control is over seven industries regarded as critical to national security and PROSPERITY. The seven industries are Coal, Armaments, Power Generation, Oil and Petrochemicals, Telecommunications, Power Generation and Distribution, Civil Aviation and Shipping. Let us further suppose the neighbor has government oversight of joint private/government firms in the “heavyweight” industries of: Machinery, Automobiles, Information Technology, Construction, Iron, Steel and Non-ferrous metals. (From U.S.-China Economic Security Commision 2008 Report to the U.S. Congress)
Let us further suppose that by subsidising exports that this neighbor has accumulated two trillion dollars (and growing). I don’t need to suppose that competition for the market in this neighbor’s house is likely any more. I also don’t need to suppose that subsidising exports doesn’t pay because two trillion plus dollars does a lot of talking.
Does Obama’s tariff on tires consitute a broken campaign promise? A tariff is a tax, and part of that tax will be paid by the U.S. consumers of Chinese tires. Since Chinese tires tend to be lower-priced, it’s fair to assume that the buyers of these tires are primarily, or at least partially, lower income citizens. So these lower income citizens are paying part of Obama’s tire tariff. But didn’t he promise to NOT raise taxes on lower and middle income Americans? You lied, Mr. Obama!
Instead of “If your neighbor offers to mow your lawn for free because his psychiatrist recommends such mowing as a sure cure for his depression, should you refuse his offer?”
A more apt analogy would be: “If you have a lawn mowing business, and your neighbor offers to mow your customers’ lawns for free because his psychiatrist recommends such mowing as a sure cure for his depression, should you intervene?”
How about: “If you have a lawn mowing business, and your neighbor uses stolen money (he calls it taxes) to pay your competitors to mow your customers’ lawns for free, should you intervene?”
I posted a longer version of this comment on my blog.
http://redst8r.wordpress.com/2009/09/17/free-trade-or-beggar-thy-worker/
Don writes:”Free trade is justified regardless of the trade policies followed by other governments.”
But if the other government does not permit imports or severely limits them (via regulation or tariff) there is no trade. A largely one way transfer of goods or services in exchange for money is not trade. It is simply merchandising.
Don writes:”If your neighbor offers to mow your lawn for free because his psychiatrist recommends such mowing as a sure cure for his depression …” and he also writes:”Should you refuse to accept your neighbor’s tomatoes in exchange for a quick smile, on grounds that your neighbor will not, in exchange for his tomatoes, really purchase anything from you or from the outside economy?”
In both cases Don’s answer is to accept the free goods and services as it “… would not make you richer by refusing his offer.” This is a Clintonian answer to his rhetorical question. That is, technically accurate but not helpful. A one-time event, a limited person to person (neighbor to neighbor) exchange, a small scale transaction is usually not harmful. Extend the same event to a much larger scale and great harm can transpire.
Doesn’t “Free Trade” require “comparative advantage” in order to be valid? Can low cost labor be the sole comparative advantage? Especially when economic relationships are so vastly dissimilar?
What troubles me is that in the guise of “Free Trade” all that is being traded is the living standard of our working class (and to a growing degree the professional class) in exchange for cheap goods and services from China, India, et.al. In effect, we beggar our workers in order to improve the economic status of workers in these other nations. We beggar our workers in exchange for cheap goods in the name of “Free Trade” so we can all pretend to be richer.
I expect to be rhetorically pounded for this position especially as a capitalist etc. What I’m asking though is (a) is it really free trade when all we do is beggar our workers to improve the lives of workers in other nations? and (b) how can we manage trade with low cost labor nations so that we don’t beggar our workers?
“A largely one way transfer of goods or services in exchange for money is not trade. It is simply merchandising.”It’s the same thing. I’d rather have B than A. Whether B or A are dollars, donkeys, shares of Google, plumbing services, Renmibi, Euros, gold coins, vacation time, Monopoly money, or poetry readings, makes no difference.And you might ask yourself what they are going to do with the dollars you trade to them. HINT: they aren’t used as kindling.”Extend the same event to a much larger scale and great harm can transpire.”Then it behooves you to explain how, not for us to blindly accept that you can logically bridge such a leap.”Doesn’t “Free Trade” require “comparative advantage” in order to be valid?”Free trade only REQUIRES that the traders be left alone. If by “valid” you mean mutually beneficial, that only requires that both parties are self-interested and free to trade or not trade. Comparative advantage SHOWS how free trade can be mutually profitable. Comparative advantage can ALWAYS be found, unless you are trading with yourself.”Can low cost labor be the sole comparative advantage?”That doesn’t even make sense. Comparative advantage means that *I* am more productive at doing A than *I* am at doing B, and and in a different ratio than you are. So the absolute cost of your labor has nothing to do with it. The relative cost of your labor doing one thing versus your labor doing something else has everything to do with it–so long as it differs from me.”all that is being traded is the living standard of our working class”Since that is literally impossible, I presume you are trying to be metaphorical. Again, you need to explain how you think that happens, then I can tell you where you are wrong.”is it really free trade when all we do is beggar our workers to improve the lives of workers in other nations”That doesn’t happen. If my family is doing A and B, and your family is doing A and B, who is being “beggar”‘d by having my family do only A and yours only B? Your daughter may have to stop doing A, but that is only because by switching to doing B, she meets a demand and makes herself wealthier. And again, we’re talking “free” trade. If your family doesn’t want to stop doing A, you have a veto in every free trade arrangement you consider. So, your family switches tasks because…1. It makes you wealthier (in your judgement), and 2. You WANT to.What you are missing is that with free trade, as explained by comparative advantage, there is more productivity in the world (and for each trading party) to buy more things. That means demand for production increases. It may not be demand for the things you were producing yesterday, but it will be demand for something, and more demand than previously.Free trade CAN ONLY make a nation wealthier, NEVER poorer.
the crux of the anti -freetraders angst lies in the fact the ‘ the daughter cant move to doing B if she knows only how to do A’. ie unemployment albeit temporary if the daughter is motivated to learn new things will hurt.
freetraders need to find ways to make this transition less painful or allow free labor movement ie the daughter goes to the neighbor’s house to work.
“freetraders need to find ways to make this transition less painful”
1. That applies much more to high cost labor like physicians, attorneys, pilots, etc., who most people making the argument don’t really care about, than it does to low cost labor, who are relatively inexpensive to retrain.
2. The most important factor to relieving this anxiety is to decrease barriers to new employment–payroll taxes, unemployment taxes, employer-provided benefits, unionization, tort, minimum wage. All of those things make it harder to get a new job, or more costly to lose an existing job. They unnecessarily tie workers to existing employers and reduce their ability to nimbly move between them. They also, in themselves, involve government intrusions into free trade. Disincentives to save for interemployment transistions–like confiscatory tax rates and a deliberately inflationary monetary policy–are other ways that antifreetraders chain workers to existing employers.
In other words, free trade DOES make it “less painful”.
I submit the cost of retraining is reversed. True story: a relative was the plant manager for a small manufacturing company that employed dozens of machinists. Hearing about a training seminar that would vastly improve their productivity (and wages, a win – win) he approached the union rep. The request for the training was denied. Why? Because most of the machinists could not read! They used individual crib sheets to setup their machines and did their jobs well but that was their limit. A doctor, pilot etc. can actually retrain themselves. Not so with many of our working class.I am in hearty agreement that reducing barriers to new employment is the best choice for improving our national wellbeing. Kudos.
1) “… what are they going to do with the dollars you trade to them.” If it truly is trade they will use them (directly or by proxy) to purchase goods and services from me. However, China buys Treasury securities which provides little employment opportunities.
“Free trade CAN ONLY make a nation wealthier, NEVER poorer.” I submit that this is the conventional wisdom. I am challenging that conventional wisdom and doing so from a capitalist, market oriented perspective.
2) “… extend the same event …”. If I mow the lawn of my elderly neighbor I’m a good neighbor. If I’m retired, bored, love to mow lawns and start mowing all the lawns in the area I might put several lawn service guys out of a job. Aid to a neighbor in temporary distress is charitable. Writ large it becomes welfare and destroys communities and cultures.
3) “Free trade requires only that traders be left alone.” I appreicate the sentiment but there is no such beast. The issue is never “free” versus “non-free” but always “how regulated” or where to draw the regulatory line.
3-a) “… valid …”, yes I mean “mutually beneficial”. If trade is not mutually beneficial what is its purpose?
4) “Comparative advantage SHOWS how free trade can be mutually profitable. Comparative advantage can ALWAYS be found, unless you are trading with yourself.” I’m not sure I understand the point. Comparative advantage is necessary for trade to occur. Without it there is no point to trading.
4-a) “Comparative advantage means that *I* am more productive at doing A than *I* am at doing B, and and in a different ratio than you are. So the absolute cost of your labor has nothing to do with it. The relative cost of your labor doing one thing versus your labor doing something else has everything to do with it–so long as it differs from me.” Actually I think that makes my point. The “lowest cost in the world” worker is less productive than a US worker but their absolute cost is so much less that the lower productivity is acceptable. The end result is that the US worker is now competing against the “lowest cost in the world” worker on an absolute basis.
5) “all that is being traded is the living standard of our working class”. I believe this is literally what is happening. Sure a $15/hr US worker might not have to go down to $1/hr but to be cost competitive they might have to go down to say $7.50/hr. (These are made up numbers.) In effect the US worker’s standard of living is driven down towards that of the “lowest cost in the world” worker while theirs is simultaneously being driven up towards the US worker. That transition is extraordinarily painful, disastrous in fact for the US workers. [With a chuckle, thanks for being willing to tell me where I'm wrong.]
6) “is it really free trade when all we do is beggar our workers …”. Dropping the argument (a polite and respectful one to be sure) down to an individual level alters the point. On a larger scale, like a business, competing against the “lowest cost in the world” means laying off the higher cost worker in the US. That worker had no say in the matter. If I choose to change my employment (as I have multiple times) then your point is quite valid. When the choice is made irrespective of the individual then the example is no longer appropriate.
7) “What you are missing is that with free trade, as explained by comparative advantage, there is more productivity in the world (and for each trading party) to buy more things. That means demand for production increases.” In theory I am in complete agreement. I am a capitalist and believer in markets. However, in practice what I see happening today is that with the vast improvements in transportation and communication the ability to outsource production to the “lowest cost in the world” worker has far outstripped the ability of the displaced “higher cost” worker to adapt. The increased demand you speak of requires (or assumes) that those workers adapt (and secure other equivalent employment) and thus the demand for the increased production is fulfilled. I don’t see that happening as well as it might have decades ago.
“What troubles me is that in the guise of “Free Trade” all that is being traded is the living standard of our working class (and to a growing degree the professional class) in exchange for cheap goods and services from China, India, et.al. In effect, we beggar our workers in order to improve the economic status of workers in these other nations. We beggar our workers in exchange for cheap goods in the name of “Free Trade” so we can all pretend to be richer”
Lots of fallacies here. First of all,by keeping your comparitively overpaid labor employed, you are beggaring the rest of the country.Why dont you seethe against that unfair act. When you buy a product from China or elsewhere, it is not because the milk of human kindness is welling up in your bosom, rather it is because you are interested in your own wellbeing in procuring a good deal.
how to manage trade with low cost labor nation? – answer: move on to more productive work. make aircrafts or race car engines instead of rubber tires. i am sorry just because certain buggy drivers are going to be unemployed doesnt mean that i’ll stop using cars.i didnt ask the buggy driver to do what he does for a living.i am NOT responsible for his state of life. i can,privately,out of sympathy,help him learn to drive a taxicab etc.but dont expect me not to buy cars.
if you are worried about the workers that are going to be laid off, help them get skills that are more productive.try to break barriers that prevent people from transferring skills learnt at one job into another.
on moral grounds,just because one is born in X country which in general is richer than country Y, doesnt entitle the citizen of X to special privileges.
1) “… comparitively overpaid labor …” begs the question of compared to what? Other US workers, Canadian workers or Chinese peasants? Of course I’m interested in my own wellbeing as are most people. My question is more suggestive of, “is my wellbeing dependent upon causing another to become unemployed?”. Is my wellbeing dependent upon a US worker competing not against other US workers (or workers of similar economic status) but against the lowest paid worker in the world?
2) “… move on to more productive work.” Easy to say and quite correct according to economic theory. But that “lowest cost in the world” worker can also build aircraft and race car engines and whatever else there is to make. Many professional software developers have found that their work, as well as that of North Carolina furniture makers (and many others) can be exported to that “lowest cost in the world” worker.
3) “I didn’t ask the buggy driver to do what he does for a living.” True enough nor do I suggest we outlaw cars to protect buggy drivers. I am far more interested in your much more reasoned suggestion to “Try to break barriers that prevent people from transferring skills …”. But suggesting the the buggy driver is at fault for failing to pick a better industry is both cold and disingenuous.
4) Consider that the BDTU (buggy drivers trade union) is now going to merge with the CMA (carriage makers amalgamated) along with the BWWU (buggy whip workers united) and they will all join with the AFSCME and UAW and Teamsters and will elect leaders who will pass laws and regulations that will make your car ownership very, very expensive. That, (with some sarcasm) more closely resembles the real world.
5) “… doesn’t entitle the citizen of X to special privileges.” Again, true enough. But why does it demand that such citizen be relegated to the living standard of the “lowest in the world” worker? We can have competition (e.g., “free trade”) amongst our citizens as well as with those of similar economic status.
6) I do not believe “lowest price” is the end all, be all of life. No one would suggest we outsource production of our nuclear submarines to China or India yet they would do it for far less cost.
i would like to hear of a real life example where a ‘foreign power first banished local industry to oblivion and then later jacked up prices having thus unfairly having become a monopolist’.
i cant seem to recall one valid example wrt china or india or any of the low cost producers. kindly give me an example and we can see how to address that fear
“i would like to hear of a real life example where a ‘foreign power first banished local industry to oblivion and then later jacked up prices having thus unfairly having become a monopolist’.”
Don’t hold your breath… but let’s just say for the sake of argument China IS trying to crowd out US steel. Once they’ve done that, what next? Well, they’d have to crowd out the Brazilians, the Russians, the Indians, and any other country with a significant steel industry. Such a costly and risky strategy could only come about by govt. “planning” indeed.
Steel appears to be the most obvious example, I will try to find some other examples too.
http://contractormag.com/piping/cm_newsarticle_836/
http://www.encyclopedia.com/doc/1A1-D8UHGRM80.html
http://www.aseanaffairs.com/indonesia_wary_of_chinese_steel_product_flooding_local_market
The supply and investment in alternative energy has been retarded by OPECs control of the oil supply. As long as OPEC keep energy prices slightly below the level that makes alternative sources viable then no-one (without govt. subsidy) will make any great inroads into that market.
The EU, through the Common Agricultural Policy of huge subsidies to farmers, has created a huge glut of butter, wine and many other products that place any country trying to import those into the EU at a huge disadvantage. The EU tries to counter this by not allowing ‘all’ the produce onto the market and instead hoards it in great ‘butter mountains’ and ‘wine lakes’ but this does not alter the fact that supply is much higher than it otherwise would be and so artificially depresses prices within the EU.
I could keep going, but I have work to do…
We’re looking for examples where foreigners have flooded the market to push out domestic producers AND therefore were able create a monopoly AND “JACK UP THE PRICE”.
The Chinese do not have a monopoly in steel.
The price of oil has fallen significantly over the last year.
In the case of EU agriculture, you directly contradicted your previous statement.
“If that is natural decline then sobeit, but if that is a forced decline caused by a foreign power FLOODING THE MARKET in order to later DRIVE UP PRICES then that is not good.”
Then as an example you refer to EU agriculture…
“but this does not alter the fact that supply is much higher than it otherwise would be and so ARTIFICIALLY DEPRESSES PRICES within the EU.”
I’ll post dsylexic’s question again:
“i would like to hear of a real life example where a ‘foreign power first banished local industry to oblivion and then later jacked up prices having thus unfairly having become a monopolist’.”
The car industry.
The Japanese subsidised their car makers for many years allowing them to compete with the Europeans and Americans otherwise they would have gone out of business.
Once they were more efficient than American producers they could stop the subsidies and compete in the American market to the point we see now where the US manufacturers have not been able to react to a shifting market and had to go crawling to the government for help.
You do not need to aim for a monopoly to destroy domestic producers – any reduction in competitors increases profits for everyone who remains in the market.
Also, you do not have to jack up prices, if you have a capital intensive production process that leads to much lower unit costs at volume then you can set the price low and still be making serious profits – again the Japanese cars in the US are good examples of this.