My friend Ross Kaminsky recently posted a letter of mine at his excellent blog, Rossputin.com. The Australian chap who prompted my letter responded at Ross’s blog with this comment:
Well, hallo again Don,
How about another irony… Bearing in mind the self-evident disaster which economic geniuses like you had recently visited upon the American people, isn’t it high time for economics lectures to be delivered into American universities via live videoconferencing links from abroad, Asia for example?
Surely, Asian academics couldn’t possibly create a greater economic mess then that which your own bunch of bright sparks had brought about.
Keep it up fella…
Sincerely,
Mark Gendala
Melbourne, Australia
www.ssotu.com
Author of “re-industrialization of America: (R-O-A)
P.S. By the way – when you have a minute to spare, please look up the trading definition of “export”
Some of my reactions:
(1) Judging from his claim to be author of “re-industrialization of America,” he is apparently under the misconception that America is in need of re-industrialization — that America is currently under-industrialized.
He’s flat wrong.
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(2) What evidence is there that open trade is the cause of the recent economic turmoil? None. (Mr. Gendala: if you have such evidence, I’d really appreciate your sharing it with me.)
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(3) Neither I nor any of the economists whom I admire has had much impact on policy — at least not since the administration of Calvin Coolidge. Some impact, to be sure (not by me, but by economists far better than me) — for example, slowing the growth of the money supply starting in late 1979; deregulating part of the airline industry; deregulating much of surface transportation; deregulating banking somewhat; freer trade (at least until very recently). But the common interpretation of the last 30 years as being some sort of grand experiment in anything even close to laissez faire economics is absurd. It is The Most Convenient Lie for persons grasping for reasons, however flimsy, to invest government with greater control over our lives and pocketbooks.
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(4) Mr. Gendala apparently believes that I don’t know the meaning of the word “exports.” He’s mistaken — and his mistake stems from the pernicious effect of nation-based economic thinking. Nations do not trade; only individuals trade. Some of this trade happens to be across political boundaries. If those boundaries are ones that separate one country from another, the goods and services traded across those borders get special names: “imports” and “exports.”
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But there’s nothing at all significant about these names; these are special names signifying nothing special about the objects to which they are attached — although, because such internationally traded goods and services are blessed with special names, these goods and services are made to appear special to uncritical minds.
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If I buy a ham from my neighbor, I import that ham into my household. If in exchange for this ham I cut my neighbor’s lawn, I export from my household to his household a service (lawn-mowing). The essence of the matter — the crux of the economics of the matter — is not altered one iota if a political border runs between my neighbor’s house and my house. Nor is it changed if my neighbor is much richer or much poorer than me.
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Here’s a challenge to Mr. Gendala: explain how Smith’s trading with fellow American Jones is different than if Smith and Jones trade but live in two different countries.
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{ 45 comments }
There are differences if the two different countries have very different forcible propriety. Smith may be much freer within his own country than Jones is within his. This asymmetry could have many effects on both Smith and Jones, as well as Smith’s countrymen. It’s just not true that trade between Smith and Jones affects only Smith and Jones. Forcible proprieties can and do couple the Smith/Jones relationship to others, in the way that electro-magnetic induction can couple apparently “independent” electric circuits. Statecraft is all about creating parasitic interdependencies.
That is true wherever states manage trade.
I think Don is referring to elemental principle of trade in opposition to state management of trade, rather than ignoring political effects upon trade.
So he’s talking about trade as it wold exist in Libertopia. But we’re interested in real world things… since we live here… in the real world and since China keeps its currency undervalued and does other things like that.
The point is that we are arguing for the ABOLITION of all that “forcible propriety”. We are arguing to CHANGE the real world, by abolishing all the political nonsense that interferes with two people making a voluntary exchange. I would think that would be obvious to anyone capable of rational thought, but then I noticed I am responding to muirgeo.
It’s hard not to respond to muirgeo. First, he’s so wrong. Second, he’s a typical leftist: all emotion, no thought. Third, it’s just SO satisfying to put an idiot in his place.
No, he’s referring to economic principles. Why do you have to be safi?The arguments proffered against free trade do not accord with economic principles with results predictable by those principles. If opponents wish to make valid argument against free trade across borders, then they first need to understand fundamental economic principles.The most valid concerns about free trade so far are aimed at the wrong target.
“explain how Smith’s trading with fellow American Jones is different than if Smith and Jones trade but live in two different countries.”
Dr. Boudreaux, I am in complete agreement with your conclusion that individuals, no matter what country they live in at present, should be free to exchange goods and services with anyone else inside or outside that country, and that the exchange has no inherent deleterious effects on other people due to it being an exchange across artificial political boundaries.
That said, I believe you’re leaving out one critical component of present international transactions. When A in the US buys some product from B in the UK, A must first sell dollars to for British Pounds to purchase that product. I think very real complications can occur in international trade due to artificial management of fiat currencies by the various governments around the world. Just recently the Swiss central bank has been trying to defend the exchange rate of their Franc against the Euro because with the drastic increase (in absolute terms) of the amount of Euros in the world (and also dollars for that matter) the Franc has become much more expensive in Euro terms, thereby harming Swiss exporters through no fault of their own. These complications make for fascinating reading, but they also represent very real harms to export oriented producers. But this all still points to blame the unintended consequences of state intervention and the state’s monopoly on the production of money.
I’m not sure if you view the current international monetary order as a complicating factor in international trade imbalances, but I personally fear that as the world markets become more and more integrated and the division of labor increasingly extended and intensified, that the global economic system will become more fragile because of the artificial limitations on the spread of a general common medium of exchange throughout the whole world. Though I am probably overestimating such a fear–capitalism is a remarkably resilient system, as our current standards of living can attest.
I do not comment much, so I also want to thank you for writing.
Interesting.
Problem: the difference between international trade and national trade is the currency involved. The “other” government might devalue/inflate it before the citizens of “our” country get a chance to redeem the currency.
Solution: Turn the tables on them! Our government should 1) lure in the citizens of other nations to buy American products, by lowering our prices through subsidy, then 2) dissuade our citizens from purchasing from other nations stuff then 3) devalue/inflate our currency by paying for the subsidy with borrowed money!
Brilliant!
and Ryan, my apologies for my half-humorous response. Your post seemed sincere, and I appreciate that.
So, a more serious response. Assuming that currency devaluation is the problem you suggest – what is an appropriate response? Reducing trade barriers, or raising them?
Ryanszabo,
“When A in the US buys some product from B in the UK, A must first sell dollars to for British Pounds to purchase that product.”
I am interested in this point you have brought up.
Do you think that there are also transactions cost associated with this that is affecting productivity? If two people trade from different countries, true they are both benefitting from the transaction, but say the purchaser only buys 1kg of apples because of the exchange rate, bank fee, transaction time, etc. If he did not have to do that he could of bought 1.2kg of apples. Or is the bank taking its slice with no loss of productivity or wealth creation?
Don understands that political trade policies affect trade across political boundaries.
His points are always to argue against the enactment of such policies that make trade across such boundaries very different from trade within such boundaries.
Don, my answer to your challenge to Mr. Gendala: there is no difference as long as we ignore the existence of government(s). Once we acknowledge their existence, then the two situations may be quite different and we should take into account how government(s) may affect the transactions.
I think Don’s overall point is that the state can only hurts trade. Even states that say they are “free trade” rarely are. How can the US say we are a free trade nation, when we put tariffs on imports?
And how can we be called a free people when government proscribes travel to Cuba, etc.?
“Nations do not trade, only individuals trade” Huh? The trade deficit in goods and services with China accounts for 58% of the of the U.S. trade deficit (not oil). The Chinese government still owns 40% of all industry in China and is a majority owner in many industries designated for growthg in the Chinese economy. This is obviously not an individual so does the U.S. just say oh well, free trade is supposed to be between individuals so we will ignore the government and hypothesize it is an indivdual instead?
The systematic domination of industries and the piracy of intellectual property goods and services offers a strange opportunity to China under the guise of economics with no borders.
>>Huh?<<
Yeah, I know what you mean. My reaction to Don's post is the same; it's as if Don doesn't grasp the fact that every single transaction has the federal government of the U.S.A. being the middleman…hell, I thought every educated person knew that all exchange is done through national governments with privately-owned companies waiting to be instructed on what they'll be importing/exporting.
I like your comment, SeekingPermissionFromTheGovernmentToExport; that's why I just 'liked' it.
LowJoe, my argument was not that trade was done between governments but that trade with China is basically trade by individuals in other countries and the Chinese government. The U.S.-China Economic and Security Comm. 2008 report to the U.S. Congress spells out the industries of Chinese state ownership of and other government control many industries on page 24 of the report http://www.uscc.gov/annual_report/2008/annual_report_full_08.pdf.
For individuals that try to do business in China the Chinese government is the middleman and is the “individual” that foreign indivduals are attempting to compete with. I hope your dogma can be overcome and that you read the report. I am firmly on the side of free trade but I will not ignore the destruction of producers (individuals) in the international trade regime laden with with schemes to protect government producers.
Seekingexports,
I know Don said individuals, but is that just to simplify? I mean when I go to the grocery store I (a person) buys bread and hands my money to the cashier (a person) so the trade took place by individuals. In reality I traded my dollars for bread with a company (grocery store X). I think companies trade with eachother at the international level and can we include companies to mean “individual?” I think that is the idea, I could be way off, so anyone here please correct me.
If that is the case though, then if company A in USA trades with company B in China then its the same thing. Yes company B might be owned by the gov’t, but its not the same as the whole country of China. There might be a thin line there, but I think it is there.
surfisto in Chile, There is not a thin line between the gov’t in China and industry because the PRC owns 40% of all industrty outright and controlling interest in a substantial amount of the balance. The individual trading for the government is China is doing so for the “benefit” of the whole country whereas a private firm individual is doing so for the “benefit” of the firm.
I enjoy your perspective as a Latin American observor and commentator.
Seekingexports,
I have not studied China sufficiently to make any conclusions.
“PRC owns 40% of all industrty outright ”
Does that mean there are no competitors within certain industries creating a gov’t owned monopoly?
If the Chinese gov’t is involved in a competitive industry, I have different thoughts. I am sypathetic to the idea of gov’t own enterprises within a competitve industry.
No, E., Don’s point is that the only difference between trade that crosses a political boundary and trade that does not *is* the political boundary. Trade is trade is trade. Imports and exports only matter because the governments choose to hamper trade across that boundary.
And that’s a huge point because the reason we do have political boundaries is written through all the tyranny’s of history. And neglecting that is such an elementary massive colossal mistake that has enormous implications for his desired libertarian utopia.
We have a government and a defense that protects and allows people to accumulate wealth but the general consensus is we will be damned if we are going to send our sons to die in wars and to labor in communist conditions to they can amass great wealth only to enslave us again. THAT AIN’T HAPPENING again. We are hopefully done with that stage of history that Don’s ideology would like to deliver us right back into the hands of.
The claim seems to be a generic dislike of governments which is so silly when one looks at the obvious reason for government and realizes it’s purpose is to protect you from even worse governments.
“The claim seems to be a generic dislike of governments which is so silly when one looks at the obvious reason for government and realizes it’s purpose is to protect you from even worse governments.”
I’m encouraged. Muirgeo really does have a sense of humor.
You have a sense of humor. He doesn’t realize the laughable oxymoron he’s constructed.
>>We have a government and a defense that protects and allows people to accumulate wealth but the general consensus is we will be damned if we are going to send our sons to die in wars and to labor in communist conditions to they can amass great wealth only to enslave us again. THAT AIN’T HAPPENING again. We are hopefully done with that stage of history that Don’s ideology would like to deliver us right back into the hands of.
<<
You are all over the place in this paragraph. I'd just like to point out that Don's ideology is one of embracing liberty. Yet, it's your ideology that seeks to 'deliver us back into the hand of' tyranny. I cannot understand why you do not see it this way but, then again, I cannot understand most of the strange ideas you float here.
LowcountryJoe wrote:
I cannot understand why you do not see it this way but, then again, I cannot understand most of the strange ideas you float here.
I found it much easier to grasp the left once I grasped the fact that they have no rational arguments in favor of their positions on the issues — reality has refuted them all.
Marxism was refuted by the events of the 20th century.
Central economic planning has been an utter failure everywhere it has been tried.
Socialism did not “enrich the masses”, it starved them to death.
Here in America, our very own “War on Poverty” didn’t eliminate poverty — it, in fact, arrested the fall in the level of poverty that had steadily occurred from the end of WWII to the mid-1960s and froze the poverty level at its current level of 13% or so, where it has persisted for 30 years, despite us spending untold billions to eliminate it.
I could go on, but the point is clear: The left has to evade facts, not cite them.
So lacking any rational arguments, the left resorts to attacking those on the right with various fallacies, mostly ad hominem. The two most popular are the sneering accusations, “You are racist!” and “You are stupid!”.
Muirgeo’s tactic (one of them) consists of crudely conflating freedom with anarchy, so he can then leap to a statement like this:
We are hopefully done with that stage of history that Don’s ideology would like to deliver us right back into the hands of.
You see, it‘s just a cheap smear — just an attempt to make it seem semi-plausible that Don is actually an advocate of tyranny.
Of course it is utter nonsense, but I’ve learned not to expect reason from the left. Reason is their enemy — it leads to too much examining of the facts.
Muirgeo’s tactic (one of them) consists of crudely conflating freedom with anarchy…
Exactly.
Well put.
“…we will be damned if we are going to send our sons to die in wars and to labor in communist conditions to they can amass great wealth only to enslave us again. THAT AIN’T HAPPENING again.”
What the hell are you talkin’ about? We were enslaved by communists? You just sort of make up history as you go along…
Oh, and I suppose that your advice to women is to lie back and be raped, because if they resist they can be killed.
The problem with that advice is that the statistics show that you’re less likely to be raped if you resist. And I resist YOUR government’s intrusion into MY life.
We have a government and a defense that protects and allows people to accumulate wealth but the general consensus is we will be damned if we are going to send our sons to die in wars and to labor in communist conditions to they can amass great wealth only to enslave us again.
Sorry, what does this have to do with anything in this thread?
Nothing. Absolutely nothing. Please troll elsewhere.
“…the obvious reason for government… is to protect you from even worse governments…”
Otherwise known as a protection racket… but unfortunately true. Then again, I’m having a difficult time imagining a worse government than the one we have… or more precisely, the totalitarian state that it could easily become, and shows every sign of wanting to become.
This discussion reminds me of an exchange I had several years ago with a friend who is a strong advocate of Anarcho-Capitalism. I was an easy convert to AC as the natural evolution of a successful democracy in an educated society — but I never understood his passion to convert every opponent and to witness the glory of an AC world. In my mind, it’s a choice. AC does, and always has existed in the world.Some people think in economic terms, and others in political terms. Those who think in economic terms always pay close attention to politics — but those who think politically rarely think about economics. My friends problem was that he was trying to merge the two trains of thought.The disconnect between these two perspectives becomes most apparent when you factor in the shadow economy. People who think in political terms ignore the reality of an existing AC economy. The AC economy never ignores politics, because it represents opportunity. Economists often refer to these opportunities as “unintended consequences” — as if intentions had any real meaning. We live in an opt-in / opt-out AC world. Just think about the magnitude of the shadow economy in the former USSR. The more restricted the political economy, the more robust the shadow economy.As people who think economically — we should understand that political trade restrictions are simply opportunities. Those who depend on political currency will fare well, and those who live on opportunity will fare well. The only losers are those who opt-out of the AC option. These are commonly referred to as law-abiding citizens, or tax-payers. From the political view they’re voters. From the AC view they’re customers. Maybe the real options most people have are all degrees of slavery.
Your make an astute observation but it needs to be extended. Those in charge of the political economy have the wherewithal to declare those of the shadow economy criminals and the ability to incarcerate or execute them.
But don’t incarcerate me, good statesman. Incarcerate my competitor over there. He’s your real enemy. I only want to be you friend. Here, let me buy you beer.
I agree with the substance of your post, but Anarcho-Capitalism is an odd label for statesmen exchanging their forcible impositions. Why say that AC exists within or is intertwined with the state? Why not just acknowledge that the state is part and parcel of Capitalism and be done with it?
I marched under the “anarchist” banner once, after the fashion of Proudhon, but I eventually realized that anarchism is a chimera, that modernity and modern economics particularly is impossible without a state. I didn’t exactly make my peace with the state, but I did recognize it as inescapable, unless we want to return to the state of nature, which seems neither practical nor desirable to me.
I’m still a minarchist, but I don’t march under any banner. The state governing me is so far from anything I could enthusiastically support that I can only sit on the sidelines and take pot shots at everyone on the field. I occasionally advocate a political reform, but the reforms are so unrealistic that they hardly qualify as political rhetoric. I’m just a libertopian crackpot. So be it.
When I think of an AC world, I have visions of the Corleone family. People who pretty much ignore the state unless the cost of ignoring it is too high — then they simply negotiate with those who are running it. All people in the shadow economy are intertwined with the state, because the state is responsible for defining where the opportunities exist.
Why, Don, are you spending so much time on this guy from Australia? Surely you can frame your arguments without referring to an attention-seeking dipstick (aussie for idiot). I do hope knowledge of the exporting country does not significantly influence your view of the product. Would you perpetually remind your readers of the country-of-origin of opinionated garbage from USA, China, Germany, Canada, UK, etc.?
My reply at Rossputin;
Ross,
Don is pro:
-Tax cuts
-deregulating the banks
-deregulating in general
-against the Sherman anti-trust act
- destroying unions
-freezing minimum wage
-free trade agreements
- corporate personhood
- lobby for hire
- anti- democracy
All things that have been adopted in general as policy over the last 30 years. And here we are. You guys don’t want to take any responsibility and you want to blame it all on the government.
Well I know some communist you would like to put the blame of our government failure on to for our current mess. The thing is they’ve adopted the same defense as you. Since this wasn’t full fledged Communism they take no responsibility for the results… NONE.
True.
Analogy. Sure, we put poison in your food and you got sick. But, your food wasn’t pure poison.
Don, I get that silly comments like this get under your skin, but please don’t give this gentleman, or his peers, so much free press. I had never heard of him before, and to give him his due, I felt intellectually compelled to check out his site to see for myself if he is a crank or has some insight I am unfamiliar with to confront and integrate. So, sure, he is a crank, but he got my visit to his site.
My suggestion – deal with the argument, not the person – unless the person actually adds something valuable to the conversation.
My $0.02
obamagasm,
You can give me your $0.02 and I will give you a penny for your thoughts. Do we have a deal?
Greetings Don – I can see you’ve been up to no-good again…
Quote: “If I buy a ham from my neighbor I import that ham into my household”
OK, tell someone “I want half a pound of ham so I can import it into my household” and an average person could justifiably wonder what kind of funny cigarettes you’ve been smoking lately…
How come? Well, let me tell you a little “bad news / good news story -
BAD NEWS… Language that makes us human is so malleable that at any
stage of our development a “special interest” group can endow its most socially important words with “special interest” meanings that advance that group’s own agenda – rather then that of its society as a whole.
GOOD NEWS… Irrespective of that fundamental drawback, our distant ancesors would also have found that relying on the MOST FREQUENT meanings of words promotes the effectiveness of their communication,
enhances their social cohesion and increases theiir chances of success
in an endless battle for survival amongs rival linguistic groups.
We, the current survivors, are thus doing no more then perpetuating the semantic imperatives of our most successful predecessors.
Don, it is obvious that your example of using word “import” is not – for once I’ll try to be polite, consistent with the MOST FREQUENT meaning
of that word.
Take an analogy… Suppose someone has moved from East 22nd Street
a few miles across so Sycamore Street – can this be then desribed as an act of “emigrating”? It sure can, but not in a manner consistent with the
MOST FREQUENT meaning of word “emigrate”
That said, I must confess I have found your example far more revealing that you’d ever intend it to be -
Couldn’t it be argued that once a person uses word “import” in defiance
of its MOST FREQUENT meaning, that person’s intellectual grasp of the MOST FREQUENT social consequences of “imports” should, as a matter of course, be then viewed with serious reservations, if not utter disdain?
Further, what creadence should I attach to your pronouncements on economy, or indeed challenges that I prove some A or disprove some B,
when the words expressing it all had been cobbled together by a mental process that irresponsibly departs from their MOST FREQUENT meaning and usage?
Sincerely,
Mark Gendala
Melbourne, Australia
http://www.ssotu.com
“Re-industrialization of America” (R-O-A)
Um, your confusion illustrates Don’s point–that your definition of exports or imports is myopic and (and I loved the way he put it) that your definition of what goods/services constitute exports/imports is limited because of your uncritical mind. Stop pretending that lines on maps magically create “exports” and “imports” and that those definitions exist only when something crosses a political boundary.
Oh, and do you actually ever say anything? How about responding to any of the points raised here? Or better, explain why, if all of the economic talk here is so bad, why you’d want it “exported” at all, even at “10% of the cost”? lmao…
Mark Gendala wrote:
“Couldn’t it be argued that once a person uses word “import” in defiance of its MOST FREQUENT meaning, that person’s intellectual grasp of the MOST FREQUENT social consequences of “imports” should, as a matter of course, be then viewed with serious reservations, if not utter disdain?
Further, what creadence should I attach to your pronouncements on economy, or indeed challenges that I prove some A or disprove some B,
when the words expressing it all had been cobbled together by a mental process that irresponsibly departs from their MOST FREQUENT meaning and usage?”
Even if your criticism of Professor Boudreaux’s usage of the words export and import were valid-and I do not think it is-the questions I quoted above simply cannot be taken seriously. To see why, consider the following analogy:
Adam Smith held the labor theory of value to be true, and saw all economic activity through the lens of the LTV. Professors Boudreaux and Roberts, like the overwhelming majority of economists today, believe the LTV is invalid. Would it then be reasonable for them to view Smith’s economic analysis with serious reservations, if not utter disdain? What credence should they attach to Smith’s pronouncements on political economy? I think the answer to these questions is obvious when one considers that both Professors frequently quote Smith on this blog. And no, the fact that Adam Smith arrived at many of the same conclusions as they do on other matters of economic theory does not discredit my example; there are plenty of prominent economic theorists that they could cite who did not have a flawed theory of value, but they quote Smith anyway.
Your questions are no more than an amalgamation of logical fallacies. But more importantly, they are a conspicuous attempt to divert attention away from the fact that you failed to respond to Professor Boudreaux’s challenge.
Well, hallo again everyone – the economics comedians in particular…
Bearing in mind that all of you – Don included, are the genuine seekers
of truth, I now invite you to enter keywords “most frequent meaning” and “psycholinguistics” into Google.
What will come up is a series of studies, research papers and articles
on a subject that will surprise you all – mental illness. What has mental
illness got to do with economics?
Nothing, except that once an economist – or indeed a practitioner of
any discipline, unwittingly departs from the MOST FREQUENT meaning
of words, that person enters upon the same pathway that had already led countless ordinary folks towards a nuthouse.
A splendid subject, psycholinguistics – I really believe the world would
be a much better place if more of us took note of its conclusions.
Mark Gendala
Melbourne, Australia
http://www.ssotu.com
“Re-industrialization of America” (R-O-A)
P.S. Don, “MOST FREQUENT meaning” is just a fancy way of saying
the d-i-c-t-i-o-n-a-ry meaning of words. Man, if you can’t afford a dictionary, I’ll let you use my VISA.