Energized by Free Trade

by Don Boudreaux on April 29, 2011

in Seen and Unseen, Trade

29 April 2011

Mr. “Mikiesmoky”

Dear Mr. “Mikiesmoky”:

I don’t know how I got on your e-mail list; perhaps you wish to convert me to your protectionist creed.  If so, you’ll fail as long as you write things such as the following: “When a consumer, within the U.S., expends energy by purchasing a television for $1,500, about $1,000 of that energy is transferred to China.  When this energy is transferred offshore, it results in a reduction of our national energies.”

Nonsense.  Imports don’t ‘reduce’ our ‘national energies’ by ‘transferring’ them to foreigners.  Instead, imports conserve our energies and channel them into more productive uses.

Are your ‘household’s energies’ reduced when you buy food from Safeway rather than grow food yourself?  Do such purchases ‘transfer’ your ‘household’s energies’ to Safeway?  Of course not.  By importing food into your household from Safeway, you save ‘energy.’  You then have more energy available to produce other things – things whose production consumes less of your ‘energy’ per unit produced than would the food you’d produce yourself if you foolishly stopped importing food into your household from Safeway.

So your story is backwards.  Free trade conserves our ‘national energies’ so that they can be used where they are most needed, namely, producing goods and services that foreigners cannot produce as inexpensively as we can.  Protectionism wastes those energies, making us poorer.

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030

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{ 37 comments }

Slappy McFee April 29, 2011 at 12:04 pm

Since its friday, I will play the role of the silly protectionist.

Is Earth better or worse off because we are not trading with aliens?

*I have convinced myself that both yes and no are acceptable answers.

vikingvista April 30, 2011 at 1:48 pm

If Earthlings were being forcibly prevented from trading with aliens, then those Earthlings would be worse off. So would those aliens.

Benj April 29, 2011 at 12:08 pm

Someone, please cut off that guy’s left hand–or else it would trade with the right hand and flush away the fruit of its labor.

Matt April 29, 2011 at 12:48 pm

LOL! ‘energies’

Mao_Dung April 29, 2011 at 12:51 pm

I think that flows of “energy” is probably not the best analogy. Obviously non-exploitative, fair trade is a good thing. But an ongoing experiment is underway of failed Republican trickle down theory, that will end in economic defeat for the U.S and China, etc. in my opinion. When the bulk of the consumers in the U.S. become tapped out and stop buying domestic and foreign consumer goods then all economies will falter, and a chronic lowered standard of living or a depression will befall us all. The U.S. is becoming more like 3rd World Mexico. That’s a terrible thing. Even a feel-good Royal wedding in England won’t help get us out of the doldrums except for a moment in time.

Ken April 29, 2011 at 1:17 pm

Dung,

“non-exploitative, fair trade”

Please define this and how it’s different from free trade.

“When the bulk of the consumers in the U.S. become tapped out”

The government being broke does NOT mean Americans are broke.

“The U.S. is becoming more like 3rd World Mexico. ”

How? Do you have any evidence of this? Or are you just blathering like the idiot that I know you to be.

Regards,
Ken

Mao_Dung April 29, 2011 at 1:21 pm

You must be self-employed. I can’t imagine anyone hiring a jerk like you.

Ken April 29, 2011 at 1:39 pm

Dung,

If by “jerk” you mean demonstrate what an ignorant, dishonest, and violent fool you are.

Also, you must not be able to read as I have said many times before that I work for a company.

Mostly, though I noticed you are completely unable to define “non-exploitative, fair trade” and provide evidence that “The U.S. is becoming more like 3rd World Mexico.” I knew you would be incapable of doing either because you are a giant dumbass unable to do anything other than read wikipedia and talk about your violent revenge fantasies on your betters, which is everyone.

Regards,
Ken

Sam Grove April 29, 2011 at 1:43 pm

Way to get to the heart of the argument. /sarcasm

Randy April 29, 2011 at 3:20 pm

Ken: “The government being broke does NOT mean Americans are broke.”

My thoughts exactly. They are not us. And I don’t even give a crap if holders of US Treasuries take a hit. They invested in a political enterprise. They deserve to take a hit.

Harold Cockerill April 30, 2011 at 7:40 am

Randy,

The problem all along has been the investors don’t take the hit. That’s what all the bailouts were about. The only investors I know that really got hurt were the GM bondholders and that was done so the UAW could get paid off.

vikingvista April 30, 2011 at 10:32 am

The hit would have to extend to beneficiaries of Social Security and Medicare. I still agree with you.

Slappy McFee April 29, 2011 at 1:44 pm

Moe —

What does non-exploitive, fair-trade look like?

Hasdrubal April 30, 2011 at 9:48 am

I’m more curious about who defines “exploitive” and “fair” than about the actual definitions.

Hanna May 1, 2011 at 6:17 pm

I agree, as I am very interested in knowing what “fair” means. My understanding of economics is that we speak from a positive view of what is and not what should be. Thin, crisp economic views have no room for normative views for what is “fair” . As economist our views are meant to offer an understanding of choosing “a” may result in “b” or “c” occurring, and not we should pick … ! Furthermore, who rightly has the power to say what is “fair” ? ( and fair to whom? ) Is it our legitimized monopolizing governing powers ?

Seth April 29, 2011 at 2:44 pm

“But an ongoing experiment is underway of failed Republican trickle down theory, that will end in economic defeat for the U.S and China, etc. in my opinion.”

So, first it brings about the most widespread prosperity the world has ever known, then it goes down in flames. Interesting.

kyle8 April 29, 2011 at 5:30 pm

LOL that’s right, since most of the nations of the world have liberalized thier trade laws starting in 1981, and a lot of them have also lowered taxes overall. We have had, since that time the greatest movement of people out of poverty than ever before in history, and the largest gains in the number of people in the world moving into the middle class.

That also went along with greater poltical liberalization as well.

In fact, the entire world is incredibly better off today than it was in the 1970′s by a large amount no matter how you measure it.

A great book about it is: The Improving State of the World, by Indur Golkany

Ken April 29, 2011 at 12:51 pm

It’s the “national energies” that is the giveaway: Like so many, Mikiesmoky (consciously or otherwise) reifies a collective into independent existence. Nations don’t have energies, nor opinions, nor actions, nor honor. People have energies, opinions, and take actions…

…and when someone starts in on the “requirements of the national honor,” remember that it’s usually some strutting popinjay like Dugout Doug. Like the Whiskey Rebellion before it, the wrong side won the Bonus March.

Simon April 29, 2011 at 12:53 pm

These people insist that the nation must protect its national markets from cheap foreign goods, which would otherwise damage national economy. If I understand it correctly, they believe that other nations can produce better goods and services at cheaper prices in every single (imaginable) area of production. And they call themselves patriots?

Retardo April 29, 2011 at 12:55 pm

The shorter Mikiesmoky:

The Chinese sense his power, but he denies them his life-essence.

Ken April 29, 2011 at 1:20 pm

Heh.

Ryan Vann April 29, 2011 at 1:43 pm

That’s some Zen magic mixed with Sun Tsu tactics. I wonder if he can throw chi-balls?

Ken April 30, 2011 at 1:55 pm

Double heh. We should adapt that to the presidential campaign. Th campaign would be more entertaining recast as an episode of “Dragonball Z,” and the results would be no worse otherwise than what we have.

Ken April 29, 2011 at 3:26 pm

His precious bodily fluids!

Don April 29, 2011 at 1:01 pm

This is an argument that I’ve heard many times, and I’ve begun to wonder why these folks just don’t get it. A thought has come to me. People see the obvious (money going oversees) in the “trade deficit”, and then the see the obvious problem that there their money doesn’t have the purchasing power it once had, and they confuse the two as cause and effect.

I think most everyone here would agree that the later effect is from intervention by our own government, and the former is actually a good thing because it means we are using our resources more wisely.

Now I wonder, if somebody like The Donald gets into a position to put restrictions on such imports, and the inevitable economic problems ensue, what would be the next excuse? That the Chinese are in a price war with us by RAISING their prices (because clearly, prices would rise across the country)?

As I’ve stated before, the problem I see with economics is that anybody who can balance a checkbook fancies themselves as knowledgeable in the discipline. Personally, I feel much like a babe lost in the woods, and I see many around here heading in a particular direction and I’m trying my best to keep up :^). Thank you all for the education.

Seth April 29, 2011 at 4:14 pm

It’s intuitive on a personal level where the opportunity cost is easy to imagine, but not on an aggregate level where it is disbursed. Politicians often run and are elected on the seen, not the unseen.

kyle8 April 29, 2011 at 5:24 pm

My guess is that Trump knows that protectionism is a loser, but just like the birth certificate, it is a cheap and tawdry, but useful vehical to get him into the limelight.

Craig April 29, 2011 at 7:19 pm

“My guess is that Trump knows that protectionism is a loser”

Nah, he doesn’t understand the ramifications of protectionism.

He’s like the store owner who knows that his business would increase if people spent more and thus favors government demand stimulus. Trump understands that if the government added a surcharge to his competitors’ prices, he could under-bid them.

He extrapolates that to include the American economy. Fallacy of composition, I’d say.

John Dewey April 30, 2011 at 4:39 am

Trump was educated at Wharton, so I’m pretty sure he started out with some economics knowledge. But that was over 40 years ago, and he’s probably “learned” a lot more since then. Which is why the Trump line of clothing is manufactured in China. And why Trump has partnered in U.S. real estate deals with Japanese investors – investors who contribute to the U.S. capital account surplus/current account deficit through their investments in America.

vikingvista April 30, 2011 at 1:52 pm

I used to think graduates of America’s most prestigious institutions received educations too.

Ryan Vann April 29, 2011 at 1:40 pm

Energies? Sounds like some sort of New Age Economics, where the currency consists of spirtually endowed quartz crystals from Atlantis, and monetary policy is dictated by super sentient dolphins.

Seriously Don, how in the world did you wind up on this spam list?

Michael Orlowski April 29, 2011 at 4:52 pm

Reduce our “national energies?” That’s a new one.

kyle8 April 29, 2011 at 5:21 pm

I had some kids in my class today ask me why does it seem that so many things are made in China?

My answer is that a lot of low end consumer goods, electronics and textiles are made in China, that is what most people see so it seems that everything is made there and nothing here. But those things are products with very low profit margins. Furthermore, the actual production is not the part that gets the largest share of those small profits.

On the other hand, we still produce high end products, industrial products and automobiles. We ought not want to produce the low profit consumer goods, that would mean that our nation is poor.

NotHere April 29, 2011 at 6:39 pm

Sometimes it is difficult to tell whether someone is for real or simply a spoof, Mao_Dung is a good example. If he is for real, then his name is a well chosen one, because the real Mao also wanted to shut his country off from the rest of the world, and look how well that went.

Garth April 30, 2011 at 9:45 am

I use a similar argument when confronted with people against free-trade: If it is economically damaging to trade across contry borders, than it is likely also economically damaging to trade amongst the states. Then I ask them to imagine a situation where each state needed to produce their own cars, their own computers, and their own entertainment. Pretty quickly it becomes apparent that there either would need to be a lot less production of each particular product and utility would decrease dramatically.

Garth April 30, 2011 at 9:47 am

Please excuse my horrable grammar in the last sentence: Pretty quickly it becomes apparent that there would need to be a lot less production of each particular product and utility would decrease dramatically.

TheSouthernLibertarian May 2, 2011 at 8:31 am

Indeed, I (as most libertarians are) am a hardcore supporter of free trade. Open the borders for goods, let them flow in any direction. It is not the government’s business to protect your business, if you cannot compete!

The problem, however, is that right now, there is a huge income disparity, because Americans are not buying goods from “Chinese companies” They are buying them from the Chinese government, which sets wages and price controls..

Such trade isn’t free in both directions, which is what is necessary for “Free Trade”. There is really only one way to handle it….

Lead by example! Show the rest of the world how to trade, how to open your nation to other markets, and how to make them prosper!

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