The Scourge of Economic Nationalism, Again

by Don Boudreaux on July 19, 2011

in Myths and Fallacies, The Economy, Trade

EconLog’s David Henderson discusses further his e-mail exchange with Ian Fletcher – a fine discussion that gives me an opportunity to discuss further the confusions that a focus on ‘national economies’ injects into economic thinking.

Fletcher understands the importance of savings.  But the confusions that gush forth from the wide-open nationalist spigot in his brain drowns this understanding.

(Note: in what follows I presume – likely unrealistically – that Fletcher understands just why savings is important and that opportunities to save and invest are not fixed.)

To build (say) a productive new factory requires that some resources be diverted from satistying consumption desires today and used instead to builid the factory and to equip it (and, of course, to train workers) so that greater amounts of output will be available tomorrow to satisfy greater consumption desires tomorrow.

Consider three people: Jones, Smith, and Williams.  Each works and earns his or her separate income.  We can all agree that the greater the portion of the total income earned by these three people that is saved and profitably invested, the fewer will be the consumption desires that these three people, considered as a group, satisfy today, but the greater will be the consumption desires that these three peope, taken as a group, satisfy tomorrow.

We can should all agree also that there is no objective (hence, no objectively determinable) correct amount of savings and investment – either for each of these three people considered individually or for the three considered as a group.  One’s time preference is a subjective preference just as is one’s apple preference or one’s preference for having a pet dog.

We can should also agree that for each individual (say, Jones), he or she is very likely made better off the higher are the amounts saved and wisely invested by the other two considered as a group (in this example, Smith and Williams).  Higher savings means more capital investment and, hence, more total output and, hence also, more competition that drives real prices downward).  So even if Jones saves nothing, he is very likely made better off the greater is the savings of other people.

We can should agree that, just as Smith would increase his own material prosperity by working harder and longer, he would thereby also very likely increase the material prosperity of Jones and Williams.  Again, more total output (a ‘bigger pie’) and lower prices brought about by the competition to sell this greater output.

We can should agree that, even though Jones and Williams benefit the harder and longer Smith works (and, hence, suffer the lazier and less Smith works), Jones and Williams have no legally or morally enforceable claim on Smith’s work effort – meaning, Smith is and ought to be free to work as hard and as much, or as lazily and as little, as he chooses.  (Ditto, of course, for Jones and Williams.)

We can should agree that, what’s true for work effort is true for savings.  Even though Jones and Williams would benefit more the more Smith saves and wisely invests, Jones and Williams are neither legally nor morally justified in forcing Smith to save and invest more.  (Ditto, of course, for Smith with respect to Jones and Williams.)

Now suppose that Williams increases his savings and uses these saved resources to build a factory in town.  Jones and Smith very likely benefit even if they don’t save more or otherwise change their behavior (see above).

Questions for Fletcher and other protectionists: What does it matter if Williams is a resident of the town in which the factory is built?  Are the potential benefits enjoyed by Jones and Smith as a consequence of Williams’s increased saving and investment less if Williams lives not in the town where the factory is built (and where Jones and Smith reside) but lives instead in an adjoining town?  What if Williams lives on the other side of the country?  What if Williams lives in a different country?

If saving is good for Americans, the nationality or place of residence of the savers whose saved resources are invested in the American economy is irrelevant.  If saving is good for Americans, then given Americans’ saving rate, savings invested in the American economy by non-Americans are a blessing – a blessing that is bigger the greater is the amount of this foreign savings and investment in the American economy.

Yes, we Americans would be even wealthier materially if we Americans saved even more – wealthier materially both as a product of many or all of us having larger financial portfolios, and as a product of the economy of which we are a part having an even greater volume of total output.  But for this very reason we Americans are made wealthier also when foreigners save more and invest their savings here, regardless of how much or how little Americans save and invest.

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{ 168 comments }

Invisible Backhand July 19, 2011 at 10:13 am

“Fletcher’s solution, tariffs, by contrast, would reduce U.S. wealth.”

The wealth doesn’t go to the little people any more. As one of the little people, this leaves me unsympathetic to the mewlings of the rich. On the other hand, we have over 200 years of history using tariffs. They work. And the rich still somehow manage to remain wealthy.

Don Boudreaux July 19, 2011 at 10:17 am

You’d best study American economic history more carefully.

Subhi Andrews July 19, 2011 at 10:24 am

I have a feeling that’s mao_dung.

Invisible Backhand July 19, 2011 at 11:33 am

Thomm Hartmann studied Alexander Hamilton Industrial Policy, I can’t find a fault, maybe you can:

http://www.thomhartmann.com/blog/2008/12/alexander-hamilton

Slappy McFee July 19, 2011 at 12:18 pm

Thom Hartmann also believes that the Social Security Trust fund isn’t an accounting gimmick and that the 23 people that he hired for his “green tea distribution company” were not a by product of his risk taking and identifying a potentially underserved market.

Ken July 19, 2011 at 1:41 pm

IB,

Faults with Thomm Hartmann’s analysis:

“until Reagan began his now-28-year “Reagan Revolution” which has disassembled America’s industrial base and impoverished our nation.”

Americans are richer today than they were 28 years ago.

“we are the largest importer of other people’s industry, and the most indebted nation in the world.”

So? These two statements are made as if they just speak for themselves. They don’t. I am a net importer of EVERYTHING, except software, a little lawn care, and a little home maintenance, and am in debt over $500,000, yet no one would claim that my life is impoverished or even getting worse.

“his policies are exactly – EXACTLY – what Japan, South Korea, and China are doing today.”

This isn’t really a ringing endorsement of his policies. Both Japan and China are floundering.

“if I wash your car in exchange for your mowing my lawn, money is moving around, it’s a service economy, but no real and lasting wealth is created.”

This is completely wrong. Knowledge is the MOST lasting, and most hard to come by, and the main product created in a service economy. To think that a mowed lawn is any more lasting than a hamburger and the paper manufactured in which it was wrapped is to really not understand what in the world you are talking about.

And since I’ve all ready written so much and not even a quarter of the way through the article I’ll stop.

The article starts from fallacious assumptions and draws incorrect conclusions. The fact that you “can’t find a fault” merely means you have zero economic understanding.

Regards,
Ken

vikingvista July 19, 2011 at 11:53 pm

Did Hartmann really write those things? No the sharpest knife in the drawer, is he?

Ken July 20, 2011 at 5:50 pm

VV,

Everything in quotes comes directly from the article IB linked to. And no, not the sharpest by a long shot.

Regards,
Ken

muirgeo July 19, 2011 at 11:34 am

Our country grew up on tariffs and protectionism. I have to wonder what history books you are reading.

Backhand you are right… the wealth flows not to any nation or people but to a global corporate elite who care nothing of free trade or free market or competivie enterprise. They, by rigging a system , are gaining ever more unimaginable amount of wealth and power. This is king making in action and its supportors are vassels and apparent serf-wanna-be’s with a relgious zealotry of a belief in something that just doesn’t exist.

Martin Brock July 19, 2011 at 12:16 pm

I suppose you’re right, but if you expect Barack Obama, or anyone else you might elect from the Republicratic party, to solve this problem, you are totally out of touch with reality. The state is the very center of this king making. It was the center of king making in the Soviet Union as much as it is in the United States. Bill Gates doesn’t have the biggest corporate jet. Obama does.

vikingvista July 19, 2011 at 2:26 pm

“Bill Gates doesn’t have the biggest corporate jet. Obama does.”

I’ll be using that.

Sam Grove July 19, 2011 at 4:26 pm

And he has two of them at his disposal.

Slappy McFee July 19, 2011 at 4:42 pm

Not only does he have two, they always fly together. Why take 1 747 when you can bring 2.

muirgeo July 19, 2011 at 9:58 pm

You may be right… that there are no democratic solutions because our democracy is broke. I haven’t given up yet but I won’t be surprized that things could get bad enough that the old fashion non-democratic solutions of social revolt occur.

Sam Grove July 20, 2011 at 1:25 am

Muirgeo again demonstrates his inability to grasp the importance of systemic incentives.

Democracies break down for the same reason other forms of rule break down.

Ken July 19, 2011 at 1:25 pm

“Our government (not economy) grew up on tariffs and protectionism.”

I fixed your typo muirgeo. Your welcome.

Regards,
Ken

Jim July 19, 2011 at 8:07 pm

LOL.

In 20 years when every western European country is going through some version of Greece, we will still be having these conversations.

Does that make most social science a religion?

Craig July 19, 2011 at 6:18 pm

“Our country grew up on tariffs and protectionism.”

To a degree, that is true. But those tariffs and protectionism had the same effects of increasing costs to consumers and enriching political cronies that they do now. With no income tax or capital gains tax or inheritance tax, of course, many of those bad effects were overcome and the country grew anyway.

Josh S July 20, 2011 at 9:49 am

Hey, don’t knock muirgeo’s idea. The way I read it, he’s proposing going back to a time where the income tax was prohibited by the Constitution, government spending was below 10% of GDP, there was no Federal Reserve, federal borrowing was miniscule, and the overall share of the GDP appropriated in taxes was very, very low. I for one support this vision.

juan carlos vera July 19, 2011 at 10:16 pm

Throughout the world people use their ingenuity to prosper despite these scammers rulers we have to keep. Rulers are a chronic social disease…

Peter McIlhon July 20, 2011 at 4:25 am

Tariffs work? I didn’t realize Smoot-Hawley was such a resounding success.

morganovich July 19, 2011 at 12:38 pm

invisible:

i think you have this exactly backwards. tariffs favor the rich, not the poor. they inevitably damage the poor.

for every “job saved” more is taken from the lower classes through higher prices.

every tariff is negative sum. the amount we pay for sugar always goes up by more that the producer surplus gained by protected sugar producers. thus, the cost faced by consumers (many of them middle class and under) exceed the benefit to the producers (many of them rich).

this graph shows why this MUST always be so:

http://mjperry.blogspot.com/2011/03/econ-101-protectionism-for-dummies.html

if you want to support the lower classes, you need to support free trade. the rich can face higher prices much more easily than they can. the policies you champion result in less for everyone and a distribution of that smaller amount slanted more toward the wealthy.

if that’s you idea of “working” i hate to see what you consider failure.

morganovich July 19, 2011 at 12:42 pm

“Our country grew up on tariffs and protectionism. I have to wonder what history books you are reading.”

ah yes, smoot hawley, those were the days… our last experiment with protectionism was a disaster and greatly responsible for prolonging the depression.

do not mistake that fact that we were able to grow despite bad trade policy for causality. undergoing an industrial revolution is a powerful thing. it can overcome bad policy like protectionism just like you can still ride your bike with the brake rubbing against the rim.

that doesn’t mean you would not ride faster with your brakes off.

Bill July 19, 2011 at 4:53 pm

I like the bike riding analogy. I’ll be using it.

Jim July 19, 2011 at 8:11 pm

Carter. Don’t forget Carter’s little foray into controlling the economy.

Obama suggests we can price fix health care. He does not propose price fixing oil; he wants it to rise. He’s doing that.

Ken July 19, 2011 at 10:41 am

“As one of the little people, this leaves me unsympathetic to the mewlings of the rich.”

As someone who has worked since the age of 13 and full time since I was 20, busting my ass to save and build a life, I have very little sympathy for the mewlings of the greedy like Invisible Backhand who likely haven’t worked as hard or as long as me, but still thinks he deserves what I have.

Regards,
Ken

Krishnan July 19, 2011 at 11:32 am

Envy is what drives many. People who are lazy and do not have much, always want to grab what others have and earned through hard work – worse, they expect that the people they steal from will continue to work hard and not complain – so they will always have something to steal …

RC July 19, 2011 at 8:22 pm

Krishnan,

How can you be sure that Invisible Backhand has less money than Ken? Are you a clairvoyant?

Regards,
RC

muirgeo July 19, 2011 at 11:35 am

Ken… a serf-wanna-be…

ArrowSmith July 19, 2011 at 12:45 pm

You are already a slave in your mind.

morganovich July 19, 2011 at 12:50 pm

muirgo-

that was stupid even for you. he works hard and wants to keep the fruits of his labor.

that makes him a serf?

then what are you for wanting to live off of him?

the word “parasite” comes to mind.

ArrowSmith July 19, 2011 at 3:14 pm

Apparently opposing the welfare state makes one a serf.

muirgeo July 20, 2011 at 10:04 am

No supporting rules and policy and government that funnels massive amounts of wealth, power and control to an elite minority and being their cheer-leader at the same time to your own detriment makes you a SWB (serf wanna-be).

Ken July 20, 2011 at 9:51 pm

muir,

Like supporting Obama and the democrats, like you do, as they funnelled trillions of dollars from American tax payers to give to Wall Street Masters of the Universe, UAW bigwigs, automaker CEOs and executives, etc.?

Regards,
Ken

Dan J July 21, 2011 at 12:57 am

And, that is precisely what Obama did. He transferred billions from the middle class to his parties special interests and why the days of big govt must come to an end……..

Ken July 19, 2011 at 1:20 pm

muirgeo,

Why are you reading my comments again? I thought I was just fly over country for you.

Regards,
Ken

Greg Webb July 19, 2011 at 3:55 pm

Ken, George lives in fly-over country according to the political elite. He is just one of their “useful idiots.”

juan carlos vera July 19, 2011 at 11:29 pm

Take it easy Ken. It seems that muirgeo, IB, and nationalist were all forged in the same assembly line, they have the same totalitarian stamp…

Ken July 20, 2011 at 9:54 pm

Juan,

muir truly is funny. He actually wrote that libertarianism=tyranny.

And I will not take it easy. These fools need to be mocked and derided as often as possible. They refuse facts that deviate from their narrative and abandon logic at the drop of the hat. They deserve no mercy.

Regards,
Ken

Greg Webb July 20, 2011 at 10:00 pm

Ken, you are right, and you do an excellent job. Please keep up the good work. Statists everywhere should be mocked.

Ken July 21, 2011 at 12:48 am

Thanks, Greg!

Sam Grove July 19, 2011 at 4:29 pm

George believes serfdom is the inevitable lot of the masses, he just prefers that our serfdom be organized by collective agency wearing the trim of democracy.

Jim July 19, 2011 at 8:21 pm

Like

Bret July 19, 2011 at 11:14 am

Don is giving an economic answer to a political question. The fact that Fletcher is doing the same thing (though from the other side with flawed economic reasoning), doesn’t make Don’s rhetoric more insightful.

cmprostreet July 20, 2011 at 1:32 pm

Consider the following scenario:

A politician proposes purchasing and giving a Ferarri to each and every American citizen, because people like Ferarris and maybe they’ll vote for him. He proceeds to write up legislation to make it so, and it has a reasonable chance of passing.

Blogger A writes that this policy is wonderful, because although the cars are made elsewhere, the red paint is made in America and thus Americans will become richer by buying paint from themselves, and also getting free racecars.

Blogger B writes that this is a ridiculous waste of resources and goes on to explain how it would make Americans as a whole poorer rather than richer.

Then you come along and say that the responses from blogger A and blogger B are equally irrelevant because they use economics to evaluate a policy proposal.

Should we also ignore math, logic, data, history, and technology when responding to political arguments?

muirgeo July 19, 2011 at 11:29 am

It’s a simple question to ask the “free trade” proponants to point to ONE country that arose to be an advanced economy by embracing free trade from its natal state and watch the discussion fall silent. Choose carefully my friends.

Again please read Bad Samaritans, The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang to see this non-sense laid bare.

This debate is actually all but settled but real world policy upheld by old professors teachings with lives and jobs and philosophies and peer pressure all built on this house of cards will not let go too easily. They will still lecture surrounded by the ruins of their ideas not easily seen obscured by the wealth of the rentiers procured in their capital state.

morganovich July 19, 2011 at 12:49 pm

singapore did.

so did hong kong.

so did many freed eastern block countries.

you are confusing the time at which nations underwent industrialization with what would have been best for them.

remember smoot hawley? remember what it did to the economy?

no country practices perfectly free trade, but they would be better off if they did. look at the rich nations vs the poor ones. the rich countries tend to have freer trade. i have a scatterplot of it somewhere.

rather than reading chang’s drivel, you need to go get an actual education muirgo. his is the failed dogma of the 17-18th centuries.

repeating the same foolish rant over and over does not make it any more true, it just makes you look increasingly ignorant.

ALL tariffs create a deadweight loss (see graph linked above). how can the creation of deadweight losses lead to prosperity?

muirgeo July 20, 2011 at 12:40 am

Singapore is basically a city state that heavily subsidized strategic foreign investment. Likewise Hong Kong is a city state that grew to prominence under British protectionist policies.

MWG July 20, 2011 at 2:03 am

You don’t know much about British policies regarding Hong Kong, do you?

brotio July 20, 2011 at 3:13 am

MWG,

You could have saved yourself some time, and just wrote, “You don’t know much”.

MWG July 20, 2011 at 4:10 am

@brotia

Touche.

Greg Webb July 19, 2011 at 3:54 pm

George, you said, “This debate is actually all but settled but real world policy upheld by old professors teachings with lives and jobs and philosophies and peer pressure all built on this house of cards will not let go too easily.” This sentence, by itself, is essentially correct. Most old university professors are Keynesians who do not understand economic reality and they have assisted politicians like FDR and their political cronies in building leviathan government and this wrecked economy.

Don Boudreaux July 19, 2011 at 4:03 pm

Actually, Muirgeo is wrong even here. The vast majority of economists – even Keynesians – support free trade. Perhaps Keynesians do so not as ardently as do non-Keynesian economists, but there has long been, and there remains, a significant consensus among economists that tariffs and trade restrictions are generally counterproductive.

I add quite sincerely that a consensus among economists (as any consensus among any experts in any field) doesn’t prove that the ‘consensusly’ accepted proposition is correct, but it does create a legitimate presumption in its favor – the consensus puts a heavy burden of proof upon those who dispute the proposition. Quoting pro-tariff lines from the likes of Jamie Galbraith and William Greider is hardly sufficient to meet the burden.

James N July 19, 2011 at 7:08 pm

“It’s a simple question to ask the “free trade” proponants to point to ONE country that arose to be an advanced economy by embracing free trade from its natal state and watch the discussion fall silent.”

A classic fallacious argument, “Absence of evidence is not evidence of absence”.

muirgeo July 20, 2011 at 7:45 am

“Absence of evidence is not evidence of absence”

Oh look…. it’s the libertarian motto!! Wait I thought it was, “Correlation does not mean causation”.

Greg Webb July 19, 2011 at 11:14 pm

Thanks, Don. I stand corrected. And, I’m relieved to know that George is consistent. I was getting worried that his being right about something might be a sign of the coming apocalypse.

brotio July 20, 2011 at 12:38 am

:D

juan carlos vera July 19, 2011 at 11:53 pm

Yes Greg. In Argentina, for example, Keynesianism is a sort of educational cancer so difficult to fight because all students wash compulsive and coercively their head, from the initial school, with rotten ideas of Keynesianism. These students then become political leaders and commit robberies. And also become ridiculous men, as muirgeo…

muirgeo July 20, 2011 at 10:08 am

And what policies lead to Argetina’s default and which pulled it to success? I do not know the history but I’d bet it doesn’t support neoliberalism…

MWG July 20, 2011 at 2:34 pm

“I do not know the history…”

You should have stopped right there.

juan carlos vera July 20, 2011 at 6:13 pm

The tragedy and misery of Argentina is that since the 1930′s have been applied all sorts of interventionist and totalitarian policies implemented by governments as scammers as “the kirchner” who are now in power…

muirgeo July 20, 2011 at 12:25 am

Greg,

My position does need clarification. From a theoretical standpoint I understand that most reasonable economist support free trade. I can even see the argument for free market capitalism with enough assumptions about the real world factored in. But we live in the real world and the assumptions do not hold. Thus the application of simplistic thinking to the real world is often irrelevant and dangerous.

Note that I usually try to put quotes around “free trade”. It’s a silly notion that sounds great. And the idea here is to make people who question the validity of free trade theory as charlatans assuming that is what we have in the real world IS free trade when it is nothing of the sort. Just the promotion of the idea used to marginalize those opponents of our trade policy and to benefit those who manipulate trade to their benefit.

I do argue what IS a settled argument is the history that shows no developed nations became that way by embracing free trade. Its a myth. Again supported by its promoters who benefit from its propagation.

The idea being to let them think we have free trade while we manipulate the crap out of it to our benefit and to the detriment of nations and the people in them.

So it might be right to claim that tariffs are counter productive once your nation used them to attain market specialization and an advanced economy but after that kick the ladder away for other developing nations and insist they’d be better off submitting to free trade.

Don’s position is one of nationalism from a “Bad Samaritan” perspective. But even here it’s hard to call it nationalism…. these corporations transcend nations themselves. They are in effect themselves corporate nations practicing corporate mercantilism. And that’s why the issue is settled.

Greg Webb July 20, 2011 at 12:56 am

George, you should make sure that your malpractice insurance is all paid up because I foresee lots of malpractice claims coming your way if your understanding of pediatrics is as good as your understanding of economics and history.

muirgeo July 20, 2011 at 7:55 am

Greg,

That’s not an exlpaination. It’s more of a personal attack. Try deconstructing my points.

I’ve only had one law suit brought up against me in my whole career. Fortunatly , it was a military case from when I served in the Air Force. Thus, it was not a jury trial and I was allowed ulimited explainations to the judge. I made a damn fool out of their lawyer and the case was dismissed. It was truly a thing of beauty.

All I could think was how these lawyers have unlimited time to prepair to make us look bad when the actions we have to take need to be made often in a split second…. and I still kicked his ass.

muirgeo July 20, 2011 at 7:57 am

So Greg do you think our trade agreements are free trade or is there heavy manipulation of policy by interested policies?

Greg Webb July 20, 2011 at 11:15 pm

George, given your inability to grasp reality, I doubt seriously that you kicked anybody’s ass in a debate. And, the proposed free trade agreements will create freer trade. It’s not the optimal choice, but it’s better than what exists now.

Dan J July 20, 2011 at 1:56 am

But we live in the real world and history has shown, repeatedly, that govt abuses power and centralized planning is an absolute failure.

brotio July 20, 2011 at 3:16 am

That’s because the Russians, Cubans, and NorKs are stupid. The fine, brilliant people of the Bay Area would never elect central planners who would outlaw Happy Meals.

muirgeo July 20, 2011 at 8:00 am

Yes govenment like private enterprise can abuse power and centralized planning of the communist or socialist variety is mostly a failure… but China is the most rapid growing economy. And the planned economies of the social democracies our the most effecient ever. I wish there were actual libertarian economies to compare results with but none exist in the real world.

MWG July 20, 2011 at 2:35 pm

“I wish there were actual libertarian economies to compare results with but none exist in the real world.”

Except here in the US where it’s responsible for all the ills of our current economy, right muir?

Dan J July 22, 2011 at 5:53 pm

If I take a barren land and erect a house…. That would qualify as having been thee most rapidly increased advancement on the planet… Going from nothing to something. China has admitted some minuscule form of capitalism to go from oppressive third world to oppressive second rate nation. This is a testament to even the smallest amount of freer market allowance.
With Chinese land and human population, they could be the superpower economy. But, their own love of control and power will keep the nation below our own, should we be able to hold on to freer markets. Govt suppresses an economy thru misallocation, hubris, and malfeasance of arrogance as self-interested individuals in govt hamper the seeking of happiness by millions for govt individuals own personal glorification and gratification.

juan carlos vera July 20, 2011 at 4:31 am

Dear muirgeo: we live in a real world full of interventionist and totalitarian rulers who are responsible for violating all sorts of rights and prevent human progress in a sustained way… From what I see, you do not understand the true meaning and implications of economic freedom. You also have a perverse notion of the consequences of restricting the freedom to: act, produce, choose, trade, etc… You must read the Broken Window Fallacy of Bastiat…

muirgeo July 20, 2011 at 8:04 am

Oh I understand the implications of economic freedm as professed by the libertarian… its a world were a few wealthy individuals own all the land and all the means of production and everyone else works for them… it’s called serfdom.

Have the debate with me and I back you into a logical corner from which you can’t escape. What you profess is ultimatly SERFDOM whether you know it or not.

You are fortunate to live in a social democracy where you can believe stupid things and still have the protection and benifits of the state and more liberty then almost all people whho have cme before you.

juan carlos vera July 20, 2011 at 6:28 pm

muirgeo:
Debate with you …? Read your own contradictions dear friend. You can not write even one sentence that is not self-contradictory. Their logic is entirely fallacious…

Greg Webb July 20, 2011 at 11:19 pm

George, please look at your own blog for our debate about liberalism leading to serfdom. Since you have not replied In so long, I assumed that you forfeit the debate.

gregworrel July 20, 2011 at 8:12 am

” “free trade”. It’s a silly notion that sounds great.”

Yes, how silly it is that some of us actually think we should be free to buy and sell from whomever we please without interference from corporate protectionists and their useful idiots such as Fletcher and Muirgeo.

“So it might be right to claim that tariffs are counter productive once your nation used them to attain market specialization and an advanced economy but after that kick the ladder away for other developing nations and insist they’d be better off submitting to free trade.”

How is that market specialization working out for places like North Korea? Why is it that international sanctions often include blockades and trade restrictions? Are we inadvertently helping those countries?

James N July 20, 2011 at 8:57 am

“Yes govenment like private enterprise can abuse power and centralized planning of the communist or socialist variety is mostly a failure…”

Explain how “private enterprise” is able to abuse power, absent willing participation from government.

Then we get these two gems.

“its a world were a few wealthy individuals own all the land and all the means of production and everyone else works for them… it’s called serfdom.”

“I wish there were actual libertarian economies to compare results with but none exist in the real world.”

So, according to muirgeo, there exists no “libertarian economies” but he knows what the outcome of them would be if they existed. How do you argue with an individual that sets the parameters of the debate, ignores empirical evidence and then makes sweeping declarations, while at the same time contradicting himself? Nice work if you can get it.

muirgeo July 20, 2011 at 10:12 am

No Greg it’s not silly that you think free trade might be a good idea. It is extremely silly that you think our trade is free and not manipulated massively by those who control so much of the means of production and government policy to benifit themselves over the vast majority.

Slappy McFee July 20, 2011 at 12:37 pm

Muirgeo –

I’ll give you the chance. Who shouldn’t I be allowed to trade with and why does that restriction benefit me?

muirgeo July 20, 2011 at 2:47 pm

“I’ll give you the chance. Who shouldn’t I be allowed to trade with and why does that restriction benefit me?”
Slappy

You should not be allowed to trade with those that use slave labor… the reason is so that you and the rest of us do not become slaves.

You are free to move to any country you want and live and trade their of your own free will. But go to hell if you think people benifitting from the rules that make this society civil should be able to circumvent them so YOU can benifit from communist or slave labor.

You may be willing to compromise your principles for personal gain but as a country we should not be lowering ourselves to the level of dictators ad allowing scum bagss to profit from their lack of principles.

juan carlos vera July 22, 2011 at 2:00 am

muirgeo: Do you realize your contradictions?

I see that a society is submitted to the domestic tyrants when their members are not free to produce and exchange goods with people around the world. Free trade is the best system of global cooperation. Free trade is the cheapest way to fight world poverty and injustice. Free trade is the best way to defeat the domestic tyrants.

tdp July 22, 2011 at 5:19 pm

muirgeo- Please provide empirical evidence to prove that free trade is bad for poor people and for economic growth. Please provide empirical evidence that poor and middle class people’s standards of living are dropping while rich people’s is rising. Please provide empirical evidence that the absolute wealth and purchasing power of the poor are going down while those of the rich are going up. Please provide empirical evidence that countries with more economic freedom are poorer and less politically free than countries that do not. Please provide empirical evidence that free trade leads to people being murdered and oppressed and to political corruption.

If you can do all these things, and somehow overcome the fact that these arguments are not only counterintuitive from both economic and logical standpoints, and manage to explain away the reams of data and studies that show the complete opposite of these arguments, then you will convince me to oppose free trade. Otherwise, GTFO and quit spewing your Marxist bilge about the rich oppressing the poor and wealthy corporations running the world. You never once support these claims and to the extent that poverty, suffering, corruption, and abuse of power exist, they are bought and paid for by your beloved Left and its army of corporate rent-seekers, special interest groups, paternalistic, overspending welfare-staters who wreck the economy by taxing and deficit spending it into the stone age, and greedy thugs looking to make a quick buck through coercion. What you support makes prices higher, growth slower, quality of goods poorer, unemployment higher, and upward mobility by the poor all but impossible. Not only are you dead wrong about everything, you are also the biggest hypocrite I have ever encountered.

Dan J July 21, 2011 at 1:06 am

The problem with your statement is that the ‘free trade’ embraced, as in ‘ no restrictions’, may be difficult to point out as the ‘natal states’ are authoritarian and that power and oppression is only relinquished by force. The authoritarians have only slighty loosened their grips because they have acquiesced to the enormous economic strength gained from more open trade. But, all states that have reduced restrictions and opened up their markets more, have made huge advancements. No…… Absolutely, no economy has made economic gains from closing the doors on trade.

I_am_a_lead_pencil July 19, 2011 at 11:31 am

Fletcher notes:
“…it’s obvious that America is better off with American-financed investment, as then Americans will own the assets and receive the returns they generate.”

You can also call lower prices from cheap imports “returns generated” from free trade. A tariff would reduce these returns. Even if you accept his conclusion (I don’t) he doesn’t make the case that the NET result is economic decline.

Don Boudreaux July 19, 2011 at 12:49 pm

Another instance in which Fletcher assumes that investment opportunities are fixed in number, rather like little boxes, each one of which spits out regularly scheduled payments to whomever owns it.

An absurd, if commonplace, view.

I_am_a_lead_pencil July 19, 2011 at 2:45 pm

Also, if the returns from any foreign-financed investments are in US dollars – just like returns from American financed investments – then any investment return received will also need to be put to work buying additional US investments and/or goods.

The result is the same – no matter who gets the investment return or who owns it.

juan carlos vera July 19, 2011 at 3:23 pm

Yeah. All exchange earnings lost by protectionism is a net loss of wealth…

juan carlos vera July 19, 2011 at 3:30 pm

And… all profits earned by the band of protectionists is a redistribution of wealth from consumers to that band…

Nationalist July 19, 2011 at 11:35 am

“Fletcher’s solution, tariffs, by contrast, would reduce U.S. wealth.”

The first thing George Washington said upon taking office was “send me a tariff.” Which is the first thing the congress did. The forefathers were all for tariffs, and the country survived just fine on them until the advent of the income tax. I’d take a tariff over an income or other tax any day of the week.

As to the nationalist bashing, what’s next – isolationist bashing? I think the problem with the country is far too few nationalists, not too many.

As to mewlings of the rich vs. mewlings of the greedy, I’d submit that these two groups are one and the same, and the first item I’d submit would be the trillions in bailouts they received in taxpayer money. It isn’t Invisible Backhand that thinks he deserves what you have, Ken. Cast your gaze a little further up off Main Street and towards Wall Street.

Slappy McFee July 19, 2011 at 12:06 pm

I’ll just go ahead and edit for you

“As to the racist bashing, what’s next – fatist bashing? I think the problem with the country is far too few racists, not too many.”

You see, deciding economic policies by invisible lines in the dirt is just as silly as deciding them by race, girth or gender.

Don Boudreaux July 19, 2011 at 12:08 pm

Well said.

Nationalist July 19, 2011 at 1:18 pm

An ad hominem attack that also contains a misspelling is “well said?”

Ken July 19, 2011 at 1:45 pm

Nationalist,

What Slappy said was NOT ad hominem. Learn your logical fallacies dipshit. You look dumber and dumber as you expose your deep and wide ignorance.

Regards,
Ken

morganovich July 19, 2011 at 2:35 pm

he’s got you there nat.

there was no ad hominem there at all.

that was reasoning by analogy.

yet another Dave July 19, 2011 at 2:52 pm

Slappy’s comment was not ad hominem – you should look up terms before you use them so you don’t embarrass yourself.

And please tell me what this misspelling you refer to might be. I suspect I know what you think is misspelled – if I’m right it indicates only that you didn’t read very carefully.

Slappy McFee July 19, 2011 at 4:44 pm

I am going with fatist is misspelled. Maybe fattist?

Richard Stands July 20, 2011 at 2:29 am

Probably should have used “extra-big…ot”. Or anti-zeppelinite. Or corpulentolerant. Or anti-avoirdupoisist. Or tubbyphobe.

morganovich July 19, 2011 at 1:04 pm

that’s such a compendium of nonsense it’s difficult to know where to start.

our forefathers were supporters of slavery and opponents of women’s right too. shall we follow those dictates?

George washington was many things, but an economist was not one of them.

your comparison of tariffs and income taxes is just silly. to impose tariffs that raise 18% of GDP would be impossible. sure, we need far less spending, but an income tax of equivalent size to our possible tariffs would be hardly noticeable and less dirruptive than a tariff . you are making an bad comparison.

third, your anti wall st rant is based on bad facts.

they paid the money back. it was a loan, not a bailout. the bailouts went not to wall st but to the states, unions (though gm and c), and the the government sponsored enterprises like frdedy and fannie.

tarp allocated 410bn. all but 25bn has been paid back despite the $150 bn still outstanding to freddy and fannie. that means that the “wall st” part of the program has been a profit center, not a cost. and recall that many of these firms were FORCED to take federal money and repay it at interest against their will.

repaying a loan in full with substantial interest is nothing like a bailout.

for that, cast your gaze away from Manhattan and toward michigan.

you are just making up facts and using flawed logic and appeals to authority. none of it is convincing.

juan carlos vera July 19, 2011 at 10:30 pm

Dear Friend, you look like an specimen of the pleistocene…

juan carlos vera July 19, 2011 at 11:57 pm

I was referring to Mr. Nationalist…

W.E. Heasley July 19, 2011 at 11:48 am

The U.S. has been very successful over the years in attracting foreign capital. Why? One of the major reasons is the-rule-of-law. However, in the past several years the-rule-of-law has been selectively circumnavigated e.g. abrogation of contracts for Chrysler bondholders.

Moreover, the certainty-of-uncertainty, the impediment of economic agents by a relentless second public policy [shadow public policy] in the area of regulation, has caused foreign capital to reduce its flow into the U.S. and simultaneously has caused capital to flow out of the U.S..

Hence economic agents are impeded by the failure of the-rule-of-law to be applied equally as well as the certainty-of-uncertainty. Result? Markets do not clear.

“But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims“. – F.A. Hayek

Chucklehead July 20, 2011 at 3:33 am

“However, in the past several years the-rule-of-law has been selectively circumnavigated e.g. abrogation of contracts for Chrysler bondholders.”
You may include BP as well.

Martin Brock July 19, 2011 at 12:05 pm

To build (say) a productive new factory requires that some resources be diverted from satistying consumption desires today and used instead to builid the factory and to equip it (and, of course, to train workers) so that greater amounts of output will be available tomorrow to satisfy greater consumption desires tomorrow.

I agree that entreprenurial, productive organization of resources, seeking to profit by satisfying free consumers, is important, and I agree that opportunities to organize resources this way are not fixed, but I’m not sure why you describe this process with “saving”.

I “save” all the time, but much of my saving has absolutely nothing to do with the process you describe. It is completely independent of the process. My saving decisions do not signal information into this process in any way, because the security of my “saving” and any “interest” I earn is entirely a matter of statutory fiat and exists regardless of any productivity.

I invest outside of “saving” accounts, so a bit of my investment arguably contributes to the process you describe, though it’s hard to tell these days; however, the vast majority of “savers” are completely divorced from the process.

What you label “saving” here is what I call “investment” and carefully distinguish from “saving”. I emphasize the distinction, because words mean what people commonly mean by them, and common “saving” is not investment at all. Common saving is refraining from investment by holding a cash equivalent, like a Treasury bill or an FDIC insured accounting entry.

In the U.S. monetary system, cash equivalents are the furthest thing imaginable from the entrepreneurial organization of productive resources. They are entitlement to political rents.

Don Boudreaux July 19, 2011 at 12:10 pm

I don’t follow you. SOMEONE (or some group of someones) must defer using resources today for consumption purposes in order that those resources can be used for investment purposes. It’s true that the person who does the investing need not be the same person who does the saving – in fact, such division of labor, as we might call it, is quite common. But someone must save.

Martin Brock July 19, 2011 at 12:44 pm

Someone defers consumption to organize resources productively, but I’m doing that when I deposit money in an FDIC insured account or when I buy a Treasury note.

Bankers accepting my deposits arguably invest to profit as you describe, but this assumption is increasingly debatable, and their investments are unrelated to my saving anyway, because my interest in my saving is independent of the success of their investments. Some bankers have more deposits than others, but as far as small deposits (less than the FDIC insurance threshold) are concerned, they might as well draw lots for these deposits.

In a freer banking system, without FDIC insurance or a state selling entitlement to tax revenue or a central bank conducting open market operations in these entitlements, I don’t deposit my savings in just any bank in my neighborhood, as I do now. I instead heed market signals, so my saving decision does influence the organization of capital, even if I outsource most of the detailed decision making to specialists. As it is, I might as well give my money directly to Uncle Sam, because any specialist lending my money is superfluous.

Banks don’t need depositors (of my sort) anyway. They only need people with real productive resources willing to extend credit (and to share the inevitable risk of extending credit). My money is not a real productive resource, and I’m not sharing the risk.

If I want to buy a house on credit, a homeowner can extend credit to me directly, through a “rent to own” arrangement. A banking business enables creditors to pool their risk. Since the homeowner needs no “depositor” to extend me the credit, a bank doesn’t need one either. To offer the homeowner a valuable service, a banker only needs a lot of different people seeking credit, so he can spread out the risk.

A banker doesn’t lend out money gathered from depositors of money. He rather creates banknotes representing the value of collateral securing credit. Under a gold standard, bankers need enough gold in reserve to satisfy liquidity requirements, but the value of their banknotes ultimately has little if anything to do with this gold.

Don Boudreaux July 19, 2011 at 12:47 pm

Look, I’m happy to agree that the current banking and money-supply system in the U.S. isn’t ideal – it’s far from it. But you’re missing the essential point: a factory can be built and operated only with real resources – stuff, things, labor, all of which could be used instead to produce goods and services for immediate consumption. Someone forgoes that consumption in order that those resources can be used to build and operate the factory.

Martin Brock July 19, 2011 at 1:05 pm

I’m not missing your point. I’m only saying that what people commonly call “saving” is not what you’re describing. I’m addressing these common people more than I’m addressing you. You know what you mean by “saving”. You mean what I’d rather call “investment”. Even specialists in economics use these terms interchangeably, but we need to distinguish investment from the purchase of a T-bill or a deposit in an FDIC insured account, because the effects on economic organization are very different.

morganovich July 19, 2011 at 2:30 pm

“but we need to distinguish investment from the purchase of a T-bill or a deposit in an FDIC insured account, because the effects on economic organization are very different.”

not really.

you buy a t-bill, the government spends the money.

you put money in a money market account, the bank buys t bills, shares the interest with you, and the government spends the money.

savings and checking, yup, that gets lent on too, possibly to a business or a homeowner, or, quite possibly, to the government. banks own A LOT of US bonds. they are buying them with your money.

to pretend that putting money in a savings account is different from investing in a factory is to misunderstand how banking works. they don’t just put your cash in scrooge mcduck’s vault and sit on it.

the reason saving and investment are used so interchangeably is that, unless you keep your money in your mattress, they wind up being the same thing.

Martin Brock July 19, 2011 at 7:46 pm

I don’t at all believe that government expenditure is equivalent to entrepreneurial expenditure on a factory producing goods for sale in a free market seeking profit.

ettubloge July 19, 2011 at 12:12 pm

A miniscule tariff supporting the expenses of a relatively tiny federal government would certainly drive the economy of any nation, as it did throughout the 19th Century. Likewise, a miniscule income tax over the current (and higher ones being proposed) tax rates will drive entrepreneurship and extra effort of workers. The current regime’s policies will not lead to prosperity but will be used to fuel the Leviathan government. It will merely fund the welfare state (in the very short term, a la Greece) and satisfy the lust of too many Americans for what others have without providing for the future.

Bill July 19, 2011 at 12:28 pm

I’ve never understood the argument, “The nation has done well with tariffs in place, therefore tariffs do no harm, but are beneficial.” That seems to be the story we are being told by those who invoke George Washington, Alexander Hamilton, and the observation that for much of the country’s history, tariffs have existed.

Don Boudreaux July 19, 2011 at 12:36 pm

America prospered in large part precisely because the Constitution of 1787 turned it into a huge free-trade zone. Tariffs and other species of protectionism that would otherwise have arisen to block trade between the likes of New Hampshire and Massachusetts and between California and Texas never arose. The resulting freedom to trade promoted American economic growth and widespread prosperity.

It’s true that Uncle Sam relied heavily – indeed, chiefly – on tariffs during the late 18th and the 19th-century for revenue. This fact, of course, kept tariff levels lower than they might otherwise have been. And to the extent that tariffs were for “protection” rather than for revenue, the corresponding occurrence of American economic growth cannot simply be taken as proof that that growth was caused by those tariffs. No scientific method, and no economics, permits such a simplistic conclusion to be drawn in light of the fact that many other factors were in play and were changing.

One might – were this childish method of ‘theorizing’ valid – with equal justification conclude that U.S. economic growth in the 19th-century was caused by the fact that women couldn’t vote in political elections.

Doug Irwin, again, has done great work that reveals powerful evidence that American economic growth was not caused by tariffs imposed by Uncle Sam.

Bill July 19, 2011 at 12:52 pm

Thanks, Don. The idea of disentangling the separate effects of multiple forces seems to be a “foreign” concept to some. In a forum in our local newspaper, some have observed that since current economic conditions are unfavorable in the presence of comparatively low marginal tax rates (compared, for example, to the rates that existed during Clinton), these low rates must be the cause of the economic slowdown, and if we were to return to the day of higher rates, the economy would recovery. I see this nonsense as analogous to appeal to history as evidence that tariffs promote economic growth. Thanks for the Doug Irwin suggestion.

Subhi Andrews July 19, 2011 at 1:05 pm

This is a point that protectionists fail to understand. Somehow, the boarders around what we call the U.S is somehow important. Extending that free trade zone beyond those borders is somehow bad. I think it is xenophobia, not racism per se.

Don Boudreaux July 19, 2011 at 1:16 pm

I’m sure that in some cases it’s xenophobia, but I don’t believe that that’s most of what drives protectionism.

Protectionism is driven by the odious mix of politically powerful producer groups (seeking higher profits through government-granted privileges) with base economic ignorance. Most people – being naive Keynesians – believe that the worst fate that can befall an economy is a reduction in consumer demand. When these people, therefore, see money being spent abroad they conclude (for they typically trace the money no further than it being spent on imports) that higher domestic demand for imports means less domestic demand for domestically produced outputs and, hence, fewer jobs and lower incomes in the domestic economy.

The most ironically amusing feature of the debate over trade are all the many “Progressives” who argue against free trade, and, thus, argue in favor of granting government-given privileges to one of the things they hate most: private corporations. These economically illiterate “Progressives” – more economically illiterate, believe it or not, than are editorial writers for even the New York Times and Washington Post – are led by their utter ignorance to shill for the very corporations that they delusionally believe they are courageously fighting against.

Dan J July 20, 2011 at 2:08 am

Isn’t that ‘lack of demand’ the very idea that led the FDR policies down their mistaken paths of policies. They called it ‘underconsumption’ and made policies to ‘correct’ the problem. Of course, their policies led to great amounts of consequences, including but not limited to, price fixing, under production of agriculture, increased federal debt, prosecution of business men who did not comply with mandated wage and price fixing, bullying of avg men and women for campaign contributions, etc.,… To think that govt should intervene in creating more demand by artificially, and compulsory, increasing wages and prices was a disaster.

Nationalist July 19, 2011 at 5:08 pm

Yeah, I wonder where someone would get the ridiculous notion that “boarders” around what we call the U.S.is somehow important. Absurd!

MWG July 19, 2011 at 6:42 pm

“Yeah, I wonder where someone would get the ridiculous notion that “boarders” around what we call the U.S.is somehow important. Absurd!”

In the context of trade? It is absurd… and not only in terms of economics, but basic liberty. Why is it any of your business, or the government’s for that matter, where I buy my produce, clothing, cars, etc…? If it’s none of your business whether I buy pineapples from Florida or Hawaii, why does that suddenly change when I purchase them from Brazil?

IOW, I wonder where you get the ridiculous notion that the right to free association ends when money is exchanged for goods. THAT’S absurd!

juan carlos vera July 20, 2011 at 12:18 am

Nationalist, I have a question for you:
Do you live in Cuba?…

vikingvista July 20, 2011 at 12:55 pm

When a political border becomes imposed between trading partners, what are the economic changes that occur?

brotio July 20, 2011 at 12:47 am

Your inadvertent misspelling of borders reminded me of my favorite Foghorn Leghorn joke, “The boy’s so dumb, he thinks the Mexican border pays rent!”

Greg Webb July 20, 2011 at 1:05 am

That’s hilarious!

Nationalist July 20, 2011 at 12:54 pm

You’re so dumb you think it was my misspelling. I was quoting one of your butt-buddies, asshole. It’s called reading-comprehension. Learn it.

As to juan carlos vera, no I don’t live in Cuba. You’re name sounds Cuban though.

There’s nothing going on at this website but a pissing contest between a bunch of tribal, coolaid drinking assholes. Not my cup of tea (or, coolaid rather), so I’m outta here. Jack your own dicks, people – you don’t need involvement from outsiders here.

Ken July 20, 2011 at 6:37 pm

Nationalist,

You’re so dumb you failed a survey.

You’re so dumb you took a ruler to bed to find out how long you slept.

You’re so dumb you stared at an orange just container because it said “concentrate”.

You’re so dumb you asked for a price check at the dollar store.

You’re so dumb when you heard 90% of all accidents occur at home, you moved.

You’re so dumb when someone tells you it’s chilly outside you run outside with a bowl.

Regards,
Ken

Henri Hein July 19, 2011 at 10:43 pm

There is a good example from the Jefferson’s administration. The embargo act of 1807 was motivated by diplomacy, not economics. Therefore, it was implemented in isolation, unlike many other embargoes and tariffs, which are commonly part of a larger program.

The effect of the 1807 embargo was a 10% reduction in real income.

http://www.studybuddy.org/picture.asp?picture=120

A pretty strong counter-example to the claim that tariffs are good and free trade is bad.

muirgeo July 20, 2011 at 10:20 am

“America prospered in large part precisely because the Constitution of 1787 turned it into a huge free-trade zone.” Don

And if trade between nations was backed by the same rules (labor, environmental, tax ect… ) that back trade between states THEN you would have a point. But they are not and you clearly have a bogus position that compares apples to oranges. You consistently ignore real world realities in favor of your theoretical preferences. You need to learn to seperate the two.

Ken July 20, 2011 at 8:10 pm

muirgeo,

“And if trade between nations was backed by the same rules (labor, environmental, tax ect… ) that back trade between states THEN you would have a point.”

Why? So free trade is only superior to protectionism, restricted liberty, and reduced choice when it’s as free as that in the US? It’s absolute freedom or complete servitude. Is that your position?

“But they are not and you clearly have a bogus position that compares apples to oranges.”

Wrong. Increased freedom in ANY place increases choice and efficiency.

“You consistently ignore real world realities in favor of your theoretical preferences.”

Coming from the man who refuses to believe the completely easily verifiable fact that Hoover dramatically increased spending and unprecedentedly intervened into the US economy during his presidency.

Regards,
Ken

Don Boudreaux July 20, 2011 at 8:21 pm

Muirgeo would be correct if the goal of trade – and economic activity more generally – were to serve producers. He is incorrect, though, because the goal of economic activity is to serve consumers. Producers’ interest should “be attended to” (as Adam Smith said) only insofar as doing so serves the interests of consumers.

Ken July 20, 2011 at 9:58 pm

Don,

“Muirgeo would be correct if the goal of trade … were to serve producers.”

Of course, this is his MO. That’s why he supports protectionism, high regulation, etc. He’s interested only in protecting producers and has no regard for consumers.

And it’s unclear to me how he could be correct even if the goal were to serve producers. Can you explain that to me?

Regards,
Ken

Josh July 19, 2011 at 12:32 pm

There is a glut of worldwide capital relative to the needs of the economy. We have an over supply of factories, homes and office space. There is a deficiency in aggregate demand which would be helped by looser monitary policy and or more stimulus.

Dan J July 19, 2011 at 3:38 pm

Ha! What garbage!

Greg Webb July 19, 2011 at 3:46 pm

That is nonsense. The markets need to correct for the huge mal-investment in residential real estate caused by inappropriate government incentives and subsidies to the residential real estate industry and expansionary monetary policy, which created the classic case of too much money chasing too few good investments. The economy will benefit by the government getting its fiscal and monetary policies in order and stopping the stupid “war on business” rhetoric.

Jim July 19, 2011 at 8:19 pm

And I see that more ‘pundits’ are beginning to say what I was saying when they first began talking about TARP; if you force the taxpayer to help delay the repricing of those mal-investments, especially the debt, you will have stagflation or worse until the market clears.

And it may easily happen that the banks go under again before the market clears, for the banks are still bankrupt; see their CDO pricing them at junk and their loan portfolios a collection of crap even as they hide behind Gerry-rigged FASB and SEC rules which allow them to look profitable. If anything is scarier than the national debt, it is what is still occurring inside the large banks.

Greg Webb July 19, 2011 at 9:14 pm

Jim, TARP was merely a “bum’s rush” scam by Hank Paulson to obtain funds to bail out crony capitalists. As Anna Schwartz said, “Let them fail.”

Chucklehead July 20, 2011 at 3:40 am

What is needed is prices to fall so markets may clear, there would be no glut and capital would be put to new uses. Re-inflating the bubble does neither.

vikingvista July 20, 2011 at 1:21 pm

A glut means that there exist both buyers and sellers who would trade if prices were lower. So the key question is, why aren’t prices being bid lower? Could it be that demand is actually artificially HIGH, thereby bidding prices up? What is the effect of Federal Reserve and Federal government spending on prices? What happens to the cost of private investment capital when government borrowing depletes its supply? Additionally, doesn’t the cost of sweeping but deliberately vague regulations function effectively as a tax, reducing economic activity?

River July 19, 2011 at 12:45 pm

Protectionist policies, of which high tariffs are a part, lower living standards for my 77 year old mother so I see them as evil. She has a small social security check $700 and lives mostly on a bit of investment income. She shops at Walmart, Target and Dollar Stores and before they came to her small town, she had very poor options to buy necessities and food. These policies adopted by interventionists hurt her several ways, two of which are increasing necessities and increasing inflation which eats into her meager savings. These people are all about protecting and enriching the few politically connected such as crony capitalists and unions and robbing the many which includes widows and orphans.

ArrowSmith July 19, 2011 at 3:16 pm

Your 77yo mother should buy expensive locavore food to be more PC.

Dan J July 19, 2011 at 3:37 pm

More free trade policies can be adopted and economic activity can be stagnated or fall, but this does not mean the less restrictive trade policy is to blame. There are far too many dynamics of the economy to correlate the policy to stagnation.
Muirgeo is the king of fallacious Compositions.

SheetWise July 19, 2011 at 4:07 pm

“Consider three people: Jones, Smith, and Williams. Each works and earns his or her separate income. We can all agree that the greater the portion of the total income earned by these three people that is saved and profitably invested, the fewer will be the consumption desires that these three people, considered as a group, satisfy today, but the greater will be the consumption desires that these three people, taken as a group, satisfy tomorrow.”

But their action will generate greater consumption — right? It’s private savings that actually triggers a “multiplier effect” as fractional reserve requirements leverage the available funds. In what context — other the “mattress” scenario — could private savings slow economic activity?

muirgeo July 19, 2011 at 11:35 pm

“…We can all agree that the greater the portion of the total income earned by these three people that is saved… ”

http://www.creditwritedowns.com/2010/02/chart-of-the-day-u-s-savings-rate-over-last-60-years.html

Don… you don’t get to make the assumption we are saving. We are not… well we were not leading up to the boom and bust. We were not saving because we were not producing and wages went stagnant and savings went to zero in large part BECAUSE of our trade policy all leading to the feds push of cheap money and increasing debt…

Please try again because this position is a failure. Always keep reality in mind when you push what you believe to be theoretically correct.

Also stop assuming trade between states with equal rules is the same as trade across national borders. Again you confuse the way you think things should be with the way they are out there in the real world.

tarran July 20, 2011 at 12:02 am

George,

When one of your patients presents with symptoms of cancer, do you refer all the following patients you see that day to an oncologist?

Because you sure seem to think like that regarding behavior in the economic realm.

Dan J July 20, 2011 at 12:26 am

Isnt it Amazing, how far George has traveled down the Unicorn hole.

muirgeo July 20, 2011 at 12:54 am

Oh… I thought you might want to address the reason for decreasing savings that the graph which I linked to shows. But instead you tell me I am the one who doesn’t like reality…. You guys are unable to discuss it because it so conflicts with your beliefs.

You are a sell out and you need to put up a facade to fake your own mind out from every recognizing that because then all the money seems so useless. I mean whats the point of life if you can’t take the money with you and it doesn’t make you like or respect yourself anymore.

You are a corporate sellout incapable of truly earning a living on your own and needing the power of kings and rent seekers and lobbyist and all sorts of other despicable hypocritical people to help you survive by swindling the hardworking people of America who actually do make productive contributions to the world… it’s not too late dude. I’m here to help you redeem yourself… to save you from yourself. Why not get into 3rd world micro-financing or something you’ll feel good about. Trust me… the monies not gonna help…. break free…..

muirgeo July 20, 2011 at 12:44 am

Pediatricians are planners… we know that prevention and planning are far more cost effective than most treatments… we’d do well to look at our economy along these lines as well. Free market parenting doesn’t work to well…. the kids tend to Boom and Bust.

Greg Webb July 20, 2011 at 1:02 am

George, we know that protectionism parenting does work because the kids turn out pale, weak, and unable to compete dependents.

muirgeo July 20, 2011 at 10:24 am

Greg,

Pick a country any country and you’ll see the successful ones used to be protectionist. My history can beat up your politics!

Greg Webb July 20, 2011 at 11:25 pm

George, you’ve already lost one debate. Do you really want to have another. You really need to study economic history.

Scott July 20, 2011 at 3:27 am

You can’t trust the free market.

I can’t trust politicians.

muirgeo July 20, 2011 at 8:08 am

I can trust a proper bit of both. And the real world supports my position.

Ken July 20, 2011 at 10:02 pm

muir,

You keep talking about the real world as if you’re familiar with it. Perhaps you can tell me about how increased spending by Hoover is actually decreased spending is “the real world”, or how the massive intervention of Hoover is laissez faire represents “the real world”. You know that words have actual meaning. To exist in the real world you have to recognize those real meanings.

Regards,
Ken

Dan J July 20, 2011 at 2:18 am

Every place on earth that has taken a sliver of the capitalism pill has advanced more in a decade than the decadeS…… Thats with a capital S….. That preceded it. Unfortunately, many still incorporate too many controls and interventions giving them positive results but mired in some difficulties. Each one of their difficulties is the result of meddling. Our current setback was result of govt meddling.

Chucklehead July 20, 2011 at 3:46 am

Those damn meddling kids………..Timmy, stop playing with the t-bills.

muirgeo July 20, 2011 at 10:26 am

But see Dan history and the real world do not support your claims. The most succesful economies are NOT always the ones that govern the least.

MWG July 20, 2011 at 2:39 pm

“The most succesful economies are NOT always the ones that govern the least.”

It’s good to hear you finally admit that some of the least governed economies are also the most successful.

muirgeo July 20, 2011 at 2:50 pm

I’m am for minimalist government but my definition of thaty is different then yours. Pushing further in the directio of less government will not be good for our economy… it HAS not been good…look around. The debt/deficit is a result of a poor economy not the cause.

MWG July 20, 2011 at 3:11 pm

“I’m am for minimalist government but my definition of thaty is different then yours. Pushing further in the directio of less government will not be good for our economy…”

Wrong as always. Think Taiwan vs. mainland China. Think Chile vs. the rest of Latin America, etc…

“The debt/deficit is a result of a poor economy not the cause.”

Sorta like how my credit card debt isn’t caused by my excessive spending.

Dan J July 21, 2011 at 2:59 am

The most successful countries have been the one’s who interfere less.
The current economic atmosphere HAS been from govt interference.
Absolutely, beyond a shadow of doubt, govt tinkered with the market on housing. That tinkering led to a boom and bust.
This is irrefutable. This is absolute.
You can blame whomever you wish being the biggest perpetrator, but without govt to interfere and skew the market, we do jot have this calamity in the form it took.
Moral hazard: without knowing of a bailout, lenders do not overextend themselves
Without an entity like Fan/Fred, lenders will not loan to high risk LMI borrowers.
WILL NOT HAPPEN!
And I have news for you…….. A majority of the population is on to this. Only, on a blog site will anyone attempt to refute govts role. Muirgeo, your obstinence is akin to arguing against the earth orbiting the sun.

brotio July 22, 2011 at 12:39 am

your obstinance is akin to arguing against the earth orbiting the sun.

Why would you think Yasafi is aware of this fact? After all, on another thread, Yasafi informed us that CO2 was the primary warmer of the Earth. If he’s unaware that that big yellow ball in the sky generates heat, why would he be aware that the Earth orbits it?

:D

Scott July 20, 2011 at 3:14 am

With the incessant discussion of why trade with China is not bad and that a diminished manufacturing base is irrelevant, it makes me wonder if Don is being paid by the chicoms. Certainly this can’t be the case, but the theme here is always the same.

In the end, what matters is tangible goods. To not see this is to miss the forest for the trees. Sure, person A can make goods faster and cheaper which can enrich persons B and C, but only if persons B and C create value that person A wants to trade for. Person A making more goods does not automatically enrich persons B and C just because they’re great fellows. What happens when the lack of value being created by B and C catches up to their accelerated borrowing and consumption and their currency (which provides them value because it is A’s reserve currency) loses its reserve currency status?

gregworrel July 20, 2011 at 8:35 am

Person A has no choice but to sell his goods at a price B and C can afford. So yes, Person A making more goods DOES automatically enrich persons B and C.

River’s 77 year old mother (mentioned above) produces nothing and lives off the remnants of a corrupt social security system and a lifetime of savings. You don’t think that the production of more of the goods she buys enriches her, no matter where they are produced?

You didn’t mention it here but I am sick of hearing about the declining middle class because the interventions designed to “save” the middle class invariably hurt those with lower incomes. They also hurt most of those in the middle class who are not in the protectionist bubble.

vikingvista July 20, 2011 at 1:50 pm

” but only if persons B and C create value that person A wants to trade for.”

So, person A is just giving his values away to B and C? I guess the “A” is for “Altruistic”.

Scott July 20, 2011 at 9:10 pm

You obviously didn’t read my post.

vikingvista July 20, 2011 at 9:33 pm

I read it. You don’t realize that the only reason A trades to get dollars (borrowed or otherwise) is because the proverbial persons B and C *DID* create value that person A wants to trade away dollars for.

B & C are, and long have been, busy creating a tremendous amounts of value. If B & C are Americans, they have been creating more value than anyone else in the world.

DG Lesvic July 20, 2011 at 4:29 am

I notice that this whole lengthy discussion was conducted without any mathematical methods.

See, I told you it could be done.

Now watch Viking and Greg go crazy.

Greg Webb July 20, 2011 at 11:36 pm

That’s hilarious, DG! lLike George, you continue saying the same fallacious things despite having been whipped in debate after debate. Don provided the example you requested, and you weaseled out of your promise to leave Cafe Hayek forever. George is uneducated in economics, history, and law, and has an obvious bone to pick with Wall Street. That makes him a crank. What’s your problem?

Greg Webb July 20, 2011 at 11:39 pm

Also, can you say “non sequitur”? You sure use them a lot.

tdp July 22, 2011 at 5:27 pm

Just because you can explain something in economics without numbers does not mean you cannot explain it with numbers.

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