Scarcity Isn’t Abundance

by Don Boudreaux on September 24, 2011

in Myths and Fallacies, Seen and Unseen, Trade

Mr./Ms. “AmericanProudly”

Dear Mr./Ms. “Proudly”:

Thanks for your e-mail response to my post explaining why Pat Buchanan is mistaken when he insists that “You cannot have a rising standard of living when your highest-paid production jobs are being exported overseas.”

You write that, unlike me, “Pat lives in the real world.”  You imply that economics is sophistry used to conceal truths that to persons such as Mr. Buchanan and yourself are plain enough in the absence of any serious pondering.

So let me make my point from a direction opposite the one I took in my post.  That point, you’ll recall, is that scarcity isn’t wealth, and (hence) government efforts to prevent goods and services from becoming less scarce retard, rather than promote, economic growth.

Suppose Dr. Evil Genius engineers, and unleashes on America, swarms of insects that extract oxygen from the air.  These insects attack randomly, killing a hundred or so Americans every hour.

The horror of these suffocations prompts American scientists and entrepreneurs to develop a device that, worn around the neck, protects each of its wearers from the insects.  This device, alas, is costly.  Yet to avoid suffocation Americans willingly buy these pricey devices.  And many Americans find high-wage jobs in factories producing these devices.

Evil Dr. Genius made breathable air scarce.  Producers responded to this situation by making it less scarce.  And they’re paid handsomely for their successful efforts.

Should we therefore conclude that Dr. Evil Genius has bestowed on Americans a benefit?  After all, he caused the creation of plenty of high-paid production jobs.  And should we lament it if foreigners eventually find ways to produce and sell this life-saving device to Americans at a fraction of the cost at which this device can be produced in the U.S.?

If you agree with Pat Buchanan, you must also agree that Dr. Evil Genius would be a genuine boon to America’s economy – and that anyone who devises a low-cost means of eradicating once and for all Dr. Genius’s swarming insects would be an economic curse that Congress should well and truly tax into inactivity before he or she succeeds in killing off the suffocating, but economically blessed, bugs.

Sincerely,
Donald J. Boudreaux

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{ 81 comments }

JoshINHB September 24, 2011 at 9:44 am

The issue that free trade advocate refuse to confront is that it is entirely possible for the aggregate material wealth of a free trading nation to increase but for the distribution of that wealth to be concentrated in a few hands so that a large minority, or even majority of people are worse off through free trade.

Further, that result would be likely when one side of the trade consists of an ever inflating fiat currency which provides primary benefits to those first in line.

American “free trade” policy over the last several decades consists of importing goods in exchange for fiat dollars is not “trade” in any conventionally understood since and in fact can alternately be described as a form of inflation tax that the US imposes on the world. The situation is analogous to the mid to late Roman republican era when the benefits of empire were simultaneously enriching the state and the oligarchs while impoverishing the masses.

Don Boudreaux September 24, 2011 at 9:46 am

You should better familiarize yourself with the data – and the literature – on trade.

JoshINHB September 24, 2011 at 9:57 am

What in particular?

I’m not a protectionist and recognize the inherent value of free trade.

I also recognize that international trade is not free but managed and as such creates winners and losers.

Ignoring that reality plays into the hands of actual protectionists.

Don Boudreaux September 24, 2011 at 10:03 am

A good place to start is Douglas A. Irwin, Free Trade Under Fire, 3rd. ed., (Princeton University Press, 2009):

http://www.amazon.com/s/ref=nb_sb_ss_i_1_12?field-keywords=free+trade+under+fire+third+edition&url=search-alias%3Dstripbooks&sprefix=free+trade+u

I also highly recommend Russ Roberts’s book The Choice (and even my book, Globalization) on the right-hand column of this blog.

JoshINHB September 24, 2011 at 10:43 am

Thanx for the reply and recommendations.

BTW I like this web site and your perspective in general.

kyle8 September 24, 2011 at 10:06 am

How is it possible for trade to cause wealth to be concentrated any more than any other economic activity? Can you explain that mechanism?

There may be disruptions to individuals because of being displaced by trade, but that is true also of people whose jobs are made obsolete by technology. Both, however advance productivity and the creation of wealth. That wealth will circulate and provide opportunity for those who are displaced.

Life is change, attempts to stabilize everything into some rigid structure will not only fail it will cause poverty.

JoshINHB September 24, 2011 at 10:27 am

How is it possible for trade to cause wealth to be concentrated any more than any other economic activity? Can you explain that mechanism?

Sure, the comparative advantage is created by government policies on both sides as opposed to market forces.

Specifically environmental, labor, land use, health and safety regulation on the part of American governments and mercantilist monetary policy on the part of certain trade partners.

Invisible Backhand September 24, 2011 at 10:14 am

JoshINHB, you might also try
“Free Trade Harms America”
http://www.wnd.com/index.php?pageId=310377

Don, I didn’t see the original letter, but in this post it looks like you changed the subject from comparative advantage to broken windows?

Fearsome Tycoon September 24, 2011 at 2:24 pm

I went to McDonald’s yesterday and imported a Big Mac Value meal from across property lines instead of making it myself inside my own property. Woe is me! I am so sick of restaurants stealing the food-making jobs from ordinary Fearsometycoonians. If we didn’t have this menace of free trade, where I can just import whatever I want at low cost from people who live on other pieces of property than my own, I would have so many more jobs to do in my house.

Stone Glasgow September 24, 2011 at 10:46 am

Josh, you are correct regarding managed trade benefiting the politically connected, but please realize that unmanaged trade is the goal, and even regulated trade benefits avg people more than no trade at all.

Also, a concern for “concentrations of wealth” assumes that the amount if wealth in the world is constant. Wealth is infinitely available to mankind. If ten men are alone on an island and all are harvesting salt from the sea, and one manages to harvest much more than the others and accumulates the salt-wealth in his hut, should that be a topic of concern for the others? Is he a danger to the island society?

JoshINHB September 24, 2011 at 11:40 am

Josh, you are correct regarding managed trade benefiting the politically connected, but please realize that unmanaged trade is the goal, and even regulated trade benefits avg people more than no trade at all.

It is the latter point that I am wondering about. Especially when government policies discourage or outright prevent economic activity, which is the situation in America today.

Herman September 24, 2011 at 1:12 pm

Wealth is potentially infinite, but that does not solve the issue. The problem with wealth concentration is that relative wealth represents relative power, and a too lopsided power dynamic is unhealthy for a society. To understand this, learn the meaning of the old saying, “money is better than the things it buys.” Relative power is power over scarcity and power over other people.

What economists so often miss is that maximizing the production of doodads is not the sole goal of a society.

Seth September 24, 2011 at 2:24 pm

Herman – Wealth does not represent relative power.

You are missing a step.

Wealth can be used to buy power from political organizations to hamper competition. Without the ability to buy political power to restrict competition, wealth is pretty harmless. You grow wealthy by giving the consumer what they prefer. If you can’t do it, your competition will.

Stone Glasgow September 24, 2011 at 2:37 pm

“The [man] who simpers that he sees no difference between the power of the dollar and the power of the whip, ought to learn the difference on his own hide.” -Ayn Rand

JoshINHB September 24, 2011 at 3:22 pm

Also, a concern for “concentrations of wealth” assumes that the amount if wealth in the world is constant.

Not at all.

Consider a simple example of 2 people that each have $1,000. After two years of economic growth the 1st person has $2,000 and the second has $8,000. We cay say that in that example that:
a) Both people are wealthier than they wer at the begining of the example
b) The wealth distribution changed from 50-50 to 80-20

The classical liberal response is So what, both people are better off. That rational response ignores the fact that people judge their well being relative to others in their social group. It is entirely possible that person 1 in our example would envy and resent the success of person 2 instead of celebrating their own success.

That natural tendency towards envy is reinforced by the socialist mind set that predominates in our primary and secondary educational establishment and is exacerbated by politicians.

g-dub September 24, 2011 at 3:36 pm

JoshINHB> That rational response ignores the fact that people judge their well being relative to others in their social group.

It doesn’t “ignore it.” The following response is “then buck up and compete,” thus driving more wealth.

JoshINHB> That natural tendency towards envy is reinforced by the socialist mind set that predominates in our primary and secondary educational establishment and is exacerbated by politicians.

I don’t know how much “natural envy” there is. I have little, while recognizing a valuation of appearances, and readily acknowledge and behave under the precept that “appearances matter.”

I agree with you on the sickening politics of envy, or reinforcement of it by socialists and politicians.

Economic Freedom September 24, 2011 at 9:33 pm

Also, a concern for “concentrations of wealth” assumes that the amount if wealth in the world is constant. Wealth is infinitely available to mankind.

Bingo.

Herman September 25, 2011 at 1:01 am

Wealth is infinitely available over infinite time. In the present, some resources are scarce and finite (thus, a free market to allocate them, remember?).

A concentration of wealth provides a few people with great advantages over scarcity compared to the rest. When what is scarce is concert tickets and yachts, no problem. When what is scarce is food, medical supplies, and bee-prevention devices, you have a big problem in your society.

tdp September 25, 2011 at 11:53 am

Also, Johan Norberg points out that in third world countries that have liberalized their trade policies, the distribution of wealth has become more EVEN, as people other than those connected to the government can now make money.

Stone Glasgow September 25, 2011 at 2:17 pm

The most disturbing part of all this is that men who become very wealthy can only do so by helping others. The wealth Bill Gates’ created is distributed to the homes and businesses of citizens all over the world. He retains well under 1% of the value he created.  He was only able to accumulate billions by providing a better life for each person who decided to trade some of what they had for what he produced; each individual judging that life would improve with the trade. Each dollar Gates’ owns is a symbol of that life, improved by voluntary trade. 

Envy is borne of both ignorance and the desire to take; to steal to acquire what you need and want, and it has no place in a civilized society. Civilized men respect each other and admire the accomplishments and productivity of their neighbors. They understand that a man who works hard to accumulate wealth is actually in the service of others, and is not moved to violence and coercion, does not foam at the mouth or stomp his feet in tantrums of jealous rage. He toils endlessly to make the lives of others better, and rejoices in seeing men better at this than he, because he knows they are making his life easier with every improvement and innovation.

Stone Glasgow September 25, 2011 at 2:46 pm

Josh, if jealousy and envy are legitimate concerns and should be corrected, should we not recommend disfiguring beautiful people? Shortening the legs of tall men, lobotomizing geniuses and permanently injuring gifted sports-stars?

To demand that one’s jealousy be removed by harming others; stealing instead of improving one’s own life… has no place in civilized society.

JoshINHB September 25, 2011 at 4:23 pm

Josh, if jealousy and envy are legitimate concerns and should be corrected, should we not recommend disfiguring beautiful people?

I never prescribed redistribution as as a way to redress jealousy and envy.

I merely pointed out that they are real component of human nature and that it is foolish to ignore or wish away the effect that they have on people. Or the ability of other people to use those to further their own political ends.

You are also incorrect that the only way that people acquire wealth is by serving others through voluntary exchange in free markets.

In today’s America the easiest path to wealth is through political connections and that often is a zero sum game.

As Don points out in a subsequent post, you almost never see retired politicians operating successful non political businesses.

JoshINHB September 25, 2011 at 4:27 pm

I do think that jealously and envy can be minimized through education and social structures.

muirgeo September 25, 2011 at 10:24 am

“I also recognize that international trade is not free but managed and as such creates winners and losers.”

See the deferral clause… protected by lobbyist for multinational corporations. For a libertarian to claim and support what we have as free trade is to should be heresy to the cult… a lapse of principle… a sign of poorly thought out positions….

http://www.law.cornell.edu/uscode/26/usc_sec_26_00000409—A000-.html

brotio September 25, 2011 at 6:31 pm

For a libertarian to claim and support what we have as free trade is to should be heresy to the cult – Cardinal Yasafi Torquemuiduck of The Church of Anthropogenic Global Climate Change

Tonight is the measure of whether the country begins, in the state of Wisconsin, a national drive to push back, or whether we have more to go to build a movement of resistance. But resist we much . . . we must . . . and we will much . . . about that . . . be committed – Rev Al Sharpton of The Church of Kill Whitey

vidyohs September 24, 2011 at 10:35 am

In reality the reason that so many do not benefit to the maximum from free trade, as some do, is because the many do not participate to the extent that some do. The ones who benefit the least from free trade are the ones who are content to live on the crumbs (jobs) from the tables of the participants.

Trading, wealth creation is risky and the many aren’t willing to risk, so they live on the crumbs. When interference of government regulation reduces the amount of crumbs, the many bitch and moan as if the few eating less is somehow something they do willingly.

Instead of the many bitching about the reduction of crumbs (jobs), I suggest to them that they begin trading and wealth creation and load up their own table.

The age old question rephrased is: “How can you expect to benefit from free trade if you don’t trade?” And, if you don’t trade, shut up about the amount of crumbs available.

JoshINHB September 24, 2011 at 10:51 am

In reality the reason that so many do not benefit to the maximum from free trade, as some do, is because the many do not participate to the extent that some do.

Many people aren’t participating or have been priced out of the market as a direct result of government intervention. This fact is rarely addressed by free trade advocates.

Trading, wealth creation is risky and the many aren’t willing to risk, so they live on the crumbs. When interference of government regulation reduces the amount of crumbs, the many bitch and moan as if the few eating less is somehow something they do willingly.

Ironically, the largest group of beneficiaries from the last twenty years of increased free trade have been those associated with various governments. Which should tell you that something is amiss.

Christopher Renner September 24, 2011 at 11:03 am

Josh, what evidence do you have that the largest group of beneficiaries have been associated with governments? Not asking rhetorically.

JoshINHB September 24, 2011 at 11:37 am

Look at the total growth in government spending, employment, wages and benefits for those employees over the last twenty years and compare that growth to any substantial sector of the private economy during the same period of time. There are a few specific businesses such as Apple that have done better, but not many. There is simply no large group that has seen its employment and remuneration increase to the extent that government employees and various beneficiaries have.

Is this really a point that libertarians would contest?

Christopher Renner September 24, 2011 at 12:11 pm

I don’t think any libertarian would contest that the government has outgrown the private sector in the past 20 years. But what does that have to do specifically with free trade agreements?

JoshINHB September 24, 2011 at 3:14 pm

It is not directly related to free trade agreements but is a sign of the larger economic environment that those agreements are a part of.

International trade over the last several decades has largely consisted of the US trading financial instruments for physical goods from the rest of the world.

muirgeo September 25, 2011 at 10:27 am

Christopher,

Are you familiar with the deferral clause?

http://www.usatoday.com/money/perfi/taxes/2008-03-20-corporate-tax-offshoring_N.htm

To call what we have free trade ad not see it for the rigged blatant protectionism that it is should be considered blasphemy in libertarian circles but apparently as I see again and again there are no real consistent guiding principles of the libertarian philosophy.

brotio September 25, 2011 at 6:40 pm

To call what we have free trade ad not see it for the rigged blatant protectionism that it is should be considered blasphemy in libertarian circles

Hypocrite.

No libertarian or minarchist at this Cafe has ever asserted that what we have is free trade.

But you have.

I see again and again there are no real consistent guiding principles of the libertarian philosophy.

Says the guy who claims to oppose corporate welfare, while supporting corporate welfare for ADM, Chrysler, GE, GM, and Solyndra.

Hypocrite.

vidyohs September 24, 2011 at 2:22 pm

“Many people aren’t participating or have been priced out of the market as a direct result of government intervention. This fact is rarely addressed by free trade advocates.”

Actually it is addressed every time one of us says free trade, what part of the word free is it that you don’t understand?

Fearsome Tycoon September 24, 2011 at 2:26 pm

Yeah, I sure hate having a computer and a car. Free trade only benefits the politically connected!

vidyohs September 24, 2011 at 7:35 pm

“Ironically, the largest group of beneficiaries from the last twenty years of increased free trade have been those associated with various governments. Which should tell you that something is amiss.”

And, just what free trade would that be?

Stone Glasgow September 24, 2011 at 11:18 am

Taking a job is a trade. The worker trades time and labor for dollars. Starting even the smallest business now requires so much time, money and licensing that the avg worker is correctly upset; regulations have made it virtually impossible for an avg person to start a legal lemonade-stand.

vidyohs September 24, 2011 at 7:33 pm

Yes SG, you are one of the rare ones that understand that reality. When I said there are those who do not participate in trade I was including the ones who just go do a job and never try to make it their business; therefore, they do not participate in the free market, they just take what comes from it. They do not try to control the trade they are performing with their labor for compensation, they have been enculturated to think of themselves as helpless, victims of the trade instead of the master.

Stone Glasgow September 25, 2011 at 2:23 pm

Well said. I agree.

Martin Brock September 24, 2011 at 12:24 pm

You have a point, Josh, and no one here is addressing it. Don tells to you to look for the answer elsewhere without telling you what the answer is. When you ask a question and receive only silence or obfuscation in reply, you should always be skeptical.

Like you, I don’t want any protectionism. Acknowledging that protection exists and benefits vested interests is not advocating protectionism. Advocating more protectionism to protect the victims of existing protectionism does advocate protectionism, but I haven’t seen you doing that.

Much U.S. trade policy simultaneously increases international trade among established proprietors and discourages domestic entrepreneurship. Internationalization of patent monopolies and the adoption of international patent standards, like first to file, is a premier example that this blog largely ignores. Trade in entitlements to tax revenue is another example.

Bryan September 24, 2011 at 12:52 pm

Josh, your question is a fair one. We have a paper that will be out in a week or so and based on the data we looked at, countries with lower trade barriers have less poverty and less income inequality than those with high trade barriers. Perhaps in countries with high trade barriers, “the rich” are able to get the government to protect them from foreign competitors at the expense of “the poor,” but that’s just speculation on my part.

JoshINHB September 24, 2011 at 3:08 pm

We have a paper that will be out in a week or so and based on the data we looked at, countries with lower trade barriers have less poverty and less income inequality than those with high trade barriers.

That intuitively seems true to me.

My point which was poorly expressed in my original comment is that the international trade between the US and other countries that exist today is not free trade but managed trade. The government interventions in the form of monetary policies and regulatory policies that manage international trade create artificial winners and losers.

When one of those “losers” complains about “free” trade, it would serve the cause of freedom to point out that government created distortions are more likely to be the cause of the loss than increased efficiency resulting from true free trade. Telling the complainant some version of “suck it up and take on for the team” is offensive and counterproductive.

Beyond that, “free trade advocates” that defend the status quo of managed trade and breezily dismiss the distortions caused by government intervention while highlighting the benefits are engaging in a de facto endorsement of those interventions, whether that is their intention or not.

A J Nock September 24, 2011 at 5:20 pm

Josh, I THINK I agree with what I THINK you are getting at…

Managed trade and government distortion is the reality we live in.

There is no good reason why a city dweller should have any less land rights than a rural one.

No good reason that Pattaya Thailand capitalism or New Amsterdam fur trading is forbidden and Silicon Valley capitalism is subsidized.

Once Western capitalism takes root in an area and is secure from whatever savages or slaves once ruled, I see no economic justification for its dogged determination to pursue complete destruction of everything else.

This pursuit of a monoculture protocol for free markets brings scarcity to all and ends up being the opposite of a free market.

Stone Glasgow September 25, 2011 at 2:50 pm

Josh,

Most libertarians do not complain about “losers” when it comes to free trade. Complaints are aimed directly at laws that block voluntary and peaceful trade in any form, regardless of who stands to win or lose.

Stone Glasgow September 25, 2011 at 2:59 pm

Josh,

I think you are correct in stating that free-market advocates often quickly blame the creative destruction of competition when a business fails, but it is a moot point. Even if regulations caused the failure, the solution is never to make new regulations or to bail out the dead firm.

A complainant who asks for help from the government that caused their demise should be specifically asking for deregulation — not financial assistance or new regulations that may help them stay alive.

JoshINHB September 25, 2011 at 4:37 pm

A complainant who asks for help from the government that caused their demise should be specifically asking for deregulation — not financial assistance or new regulations that may help them stay alive.

Yes they should be asking for deregulation.

But our socialistic educational establishment indoctrinates a form of government worship in most students in high school and beyond. Most of the victims of regulation aren’t even aware of the regulations that have caused their problems or have been brainwashed into believing that the would be slaves of worse without those regulations and so blame the seen source of their problem (foreign competition) and not the unseen government policies that disadvantage them.

The general public is economically ignorant, completely mis-educated. Their level of understanding is actually worse than it would be if they were uneducated.

The Sisyphean task of free market advocates is to explain the cause of their problems to those victimized by government action.

muirgeo September 25, 2011 at 10:21 am

Can anyone say “deferral clause”. To advocate “free trade” here as Don does but never to mention the deferral clause is the economic equivalent of medical malpractice.

http://www.usatoday.com/money/perfi/taxes/2008-03-20-corporate-tax-offshoring_N.htm

SweetLiberty September 25, 2011 at 10:41 am

I agree that we should abolish the incentive for corporations to defer bringing overseas profits back into the United States. We can do this easily by substantially reducing or eliminating the 35% corporate tax. Agreed?

Methinks1776 September 25, 2011 at 10:50 am

Oh no, no, no. ‘Tis far better and more effective to use force. More effective in driving companies out of the United States entirely, that is. But, corporations are evil anyway, right? We don’t need those stinkin’ things exploiting our labour. But, we need jobs. Which exploit people. But we need jobs….wait.

The mind of a liberal.

Martin Brock September 25, 2011 at 1:47 pm

You’re wasting your time with muirgeo, but I’ll agree with you. A corporate earnings tax only delegates taxing authority to rent seeking corporatists, who often may impose taxes less transparently. If all taxes fall directly on individuals, people at least have a better idea of what they’re paying.

Stone Glasgow September 25, 2011 at 3:00 pm

LOL Methinks. Brilliant.

muirgeo September 26, 2011 at 12:20 am

“We can do this easily by substantially reducing or eliminating the 35% corporate tax. Agreed?”

We HAVE reduced corporate taxes;

http://www.ritholtz.com/blog/wp-content/uploads/2010/08/component-tax-revenue1.png

And that is supposed to make our economy boom. How’s it working? And note… corporate profits were at record levels the last two quarters… so what’s going on?

Chucklehead September 24, 2011 at 6:30 pm

Lets play spot the fallacy.
“An experienced economist and a novice economist are walking down the road. They come across a pile of dog shit lying on the asphalt. The experienced economist says to the novice, “If you eat it I’ll give you $20,000!” The novice economist runs his optimization problem and figures out he’s better off eating the shit, so he does and collects the money.
Continuing along the same road they almost step into yet another pile of dog shit. The novice economist says to his friend, “Now, if you eat this pile of shit I’ll give you $20,000.” After evaluating the proposal, the experienced economist eats the dog shit and takes the money.
They continue on. The novice economist starts thinking and finally says to his friend, “Listen, we both have the same amount of money we had before, but we both ate shit. I don’t see us being better off.”
The experienced economist answers, “Well, that’s true, but you overlooked the fact that we’ve just been involved in $40,000 of trade.”

Greg Webb September 24, 2011 at 6:36 pm

Factor in taxes, and they are really screwed.

g-dub September 24, 2011 at 7:12 pm

I love the game.

I digress. Apparently shit eating economists have time preferences like everyone else.

Economic Freedom September 24, 2011 at 9:57 pm

Nice!

That explains why economists like Christina Romer, Larry Summers, Alan Krueger, and Paul Krugman, always seem to have a shit-eating grin. I originally mistook that for a character flaw: shiftiness. Nope. I was wrong. They actually ate shit . . . and liked it!

anthonyl September 25, 2011 at 8:49 am

Of what value is the eating of shit? What did each gain by the transaction? One guy got $20,000 but had to eat shit. The other… what? got some pleasure out of watching the other eat shit? Trade is when two consenting people enter into a transaction that benefits both. They both come out of the experience enriched. The question of it being good for the economy of entire country is clearly a controversy but maybe the point is that no one should have the right to limit those transactions. This is not the real world situation but the question is should we be working toward a goal of more barriers or toward one of fewer barriers? From the perspective of liberty I’d say fewer.

Stone Glasgow September 25, 2011 at 9:01 pm

A brilliantly piece of post-hoc sophistry.

Two idiots paying each other to eat shit tells us nothing about rational adults trading with each other to improve their lives. Further, if a man pays $20,000 to watch another eat shit, the shit-eater has been productive in the eyes of the man making the payment. Each of us is our own assessor; there is no objective measure of value.

Economic Freedom September 24, 2011 at 9:52 pm

The issue that free trade advocate refuse to confront is that it is entirely possible for the aggregate material wealth of a free trading nation to increase but for the distribution of that wealth to be concentrated in a few hands so that a large minority, or even majority of people are worse off through free trade.

Advocates of free trade refuse to confront it because it cannot occur, does not occur, and never has occurred, in a free market. Under a system of laissez faire, a person becomes rich when he serves the market — consumers — better than his competitors. If consumers voluntarily give their wealth to Lady GaGa because they feel entertained by her, then they are better off AND she is better off. It isn’t the case that she is better off and they are worse off. The same applies to all other kinds of voluntary exchanges — i.e., trades — in a free market.

Further, that result would be likely when one side of the trade consists of an ever inflating fiat currency which provides primary benefits to those first in line.

The free market is not responsible for the production of fiat currency. The problem here is government intervention. The free market would never voluntarily choose paper as its medium-of-exchange. And historically, it never has.

American “free trade” policy over the last several decades consists of importing goods in exchange for fiat dollars is not “trade” in any conventionally understood since and in fact can alternately be described as a form of inflation tax that the US imposes on the world.

I agree that the Chinese must be pretty stupid to send us cheap goods in exchange for American fiat currency — pieces of paper with engravings of dead statesmen. Therefore, don’t you think your posts are better directed at a Chinese audience than an American one? Wouldn’t it be smarter of you to navigate to some Chinese blog on Chinese trade policy and post something like: “Hey, dummies! Don’t accept depreciating paper dollars from the US! Only trade your products for a commodity like gold or silver!”

I’m sure China would appreciate your advice.

The situation is analogous to the mid to late Roman republican era when the benefits of empire were simultaneously enriching the state and the oligarchs while impoverishing the masses.

Except that the mid-to-late Roman republican era was in no way a capitalist economy, or even a “mixed” economy. In the US today — as Don has shown over his past several posts — the middle class and the poor have higher standards of living than they did a few decades ago. That’s due to the normal operation of the market, and not to governmental redistribution schemes.

JoshINHB September 25, 2011 at 9:44 am

The problem here is government intervention. The free market would never voluntarily choose paper as its medium-of-exchange. And historically, it never has.

That was one of my points, that “free trade” as it exists today is far from free and has perverse results caused by government intervention.

I agree that the Chinese must be pretty stupid to send us cheap goods in exchange for American fiat currency …I’m sure China would appreciate your advice.

I think that we wold both agree that China’s policies harm their consumers. Our difference is that you see the ‘stupidity’ of China’s government as an unalloyed positive for American consumers, while I see that it gives advantage to the US government and it’s parasites. I assume that you would agree that inflation benefits the latter two in general, so why would it not when the inflation is ‘exported’?

Advocates of free trade refuse to confront it because it cannot occur, does not occur, and never has occurred, in a free market. Under a system of laissez faire, a person becomes rich when he serves the market — consumers — better than his competitors.

All true and irrelevant because the US is very far from laissez faire.

Look,
Let’s say I want to build a factory in an economically depressed area, maybe Detroit, to produce low cost goods to compete with Chinese imports.

I would be unable to build the factory where I wanted to because of land use regulations. I would be unable to hire employees at a mutually agreed price because of minimum wage laws. I would be unable to manage the factory in the way that I wanted because of “health and safety” regulations and environmental regulations. And all of the inputs that I would need will cost substantially more because my vendors will be dealing with all of those same distortions.

How can that situation be described as laissez faire in any way? With those constraints how can I and by extension, my future employees, engage in free trade?

Absent fiat currency and it’s acceptance by the government of my competitors, the domestic governments would be incentivized to relax and or eliminate those restrictions, if for no other reason than the lack of economic activity cuts into their tax base and therefor their power.

Will September 24, 2011 at 10:28 am

The point that politicians and most of the media miss is the comment made on the last post related to this subject where it was stated that when a good costs less because of free trade, Americans have more money to spend on other goods and services thus improving their lives. The problem is this does not occur over night whereas the immediate individuals who lost their jobs in the transition do have votes and watch the news which is more immediate and temporaty. The problem is that politicians and the media live in the now and prey on short sighted fears to won elections and sell the news.

vidyohs September 24, 2011 at 10:37 am

Now, if Krugman announced that Dr. Evil Genius was actually the spearhead of an Alien Invasion, would that news effect the conclusions Don laid out?

brotio September 25, 2011 at 1:04 am

:D

Karl Smith September 24, 2011 at 12:06 pm

So I read Buchanan’s essay and I’ll address Don directly.

There are some issues with Buchanan’s argument, which I may get to, but his core thesis is more or less correct.

To put it in terms that are perhaps more palatable to the authors of this blog:

In the 1950 and 60s the government inside the United States at various levels: federal, state and local was operating a cartel system that subsidized the labor of US High School educated white men at the expense of higher educated people, lower educated people, people of color and women.

Since, that time a series of reforms has broken down this cartel and led to a stagnation and indeed fall in the real income of High School Educated White Men. This has led to a rise in the wages of foreigners, the well educated, women and minorities.

However, these are not groups Buchanan is sympathetic to. Why he asks shouldn’t his group – which is still the political majority, exert its power to rebuild the cartel that it once had.

Now, however, you *feel* about what Buchanan says, the core question is whether his line of reasoning is incorrect. I think he is missing some detail but that the thrust of his argument is right.

Krishnan September 24, 2011 at 3:16 pm

Re: Karl Smith. Yes, that is what Pat Buchanan really wants to say – but he does not put it that way. Yes, he wants the Government to impose whatever rules/laws that HE thinks it ought to so HIS people will do better.

Of course, I do not believe that on the aggregate HIS people have done worse because of the break up of the cartel – if anything, on the aggregate, HIS people have indeed done very very well BECAUSE of the minorities, people of color, foreigners working to make things the white people want.

Pat Buchanan does refer to the “culture” issues and how things have changed and blah blah blah – when what he means (IMO) is that this country now has people who are not like him and so his kind is diluted.

Yea, I know – a particularly cynical summary of what Pat Buchanan really means when he spews venom about trade and immigration.

Karl Smith September 24, 2011 at 9:07 pm

I don’t think its particularly cynical. At least in the sense of attributing low or sinister motives to Buchanan.

I think he genuinely in his heart believes this and believes other people should believe it too.

A racist and a sexist are things that someone can genuinely be. They are not just insults or another way of saying “bad person.” There are very good and honest people who are hardcore racists.

I don’t think Pat is a hardcore racist or sexist. I think he is softcore racist and sexist as demonstrated by his racist and sexist statements. For example:

“There were no politics to polarize us then, to magnify every slight. The ‘negroes’ of Washington had their public schools, restaurants, bars, movie houses, playgrounds and churches; and we had ours.” (Right from the Beginning, Buchanan’s 1988 autobiography, p. 131)

“integration of blacks and whites — but even more so, poor and well-to-do — is less likely to result in accommodation than it is in perpetual friction, as the incapable are placed consciously by government side by side with the capable.”( reported by Washington Post, 1/5/92)

“There is nothing wrong with us sitting down and arguing that issue that we are a European country.” (Newsday, 11/15/92)

“Rail as they will about ‘discrimination,’ women are simply not endowed by nature with the same measures of single-minded ambition and the will to succeed in the fiercely competitive world of Western capitalism.” (syndicated column, 11/22/83)

Now, this – in my mind – doesn’t make Pat a bad person. It does, however, demonstrate that he is a softcore racist and sexist and further that he believes that most people should share his perspective.

Krishnan September 24, 2011 at 9:34 pm

Re: Karl Smith – To paraphrase Ayn Rand – Pat Buchanan practices the “lowest, most crude, primitive form of collectivism” because he believes that men are to be judged not by their character, but by the characters and actions of a collective of their ancestors (“We are a European Country”).

Oh no, you are being way too kind to Pat Buchanan. There is something particularly vile about him – when he speaks about immigration and trade.

What is distressing is that Pat Buchanan is not alone. On the immigration issue, I have heard (and read) vile comments from both today’s Liberals and Conservatives – the “left” as we know it are terrified that someone better than them will come and demonstrate to the market that they can do a better job – ergo, they hate immigrants – skilled OR unskilled – yes, they speak as if they want immigration, I do not believe they do. Yes, I am simplifying it greatly, but the left is terrified of immigration also and do not have the guts to challenge the right on their stand.
“Let our people find jobs first, let us eliminate poverty here first” – even as we pour money down the poverty hole and things get worse.

I digress. Yes, Pat Buchanan is vile and an ignoramus on trade and general economic issues – the problem is that he is not alone and it is distressing to watch the US become hostile to people that do not look like those that came here years ago. Yes, hostile.

Greg Webb September 24, 2011 at 9:45 pm

Agreed!

anthonyl September 25, 2011 at 8:59 am

I think you are getting to the core issue! The rationalle behind so much anti-trade rhetoric.

Ken September 25, 2011 at 1:18 pm

He sees himself as a Man on Horseback, waiting for his time to come ’round.

Martin Brock September 24, 2011 at 12:10 pm

More plausibly, Dr. Evil Genius patents the insect repelling device before releasing the insects. He becomes wealthier, while everyone purchasing a device, or suffocating without a device, becomes poorer.

Herman September 24, 2011 at 1:23 pm

Don, this example is quite poor.

The actual response to your scenario would be decided socially, not by economics. Our society would deem it unfair that the rich have access to the devices while the poor do not. The government would place massive orders for those devices – as fast as they could be produced – and would control their distribution.

Private enterprise would respond, but would use traditional means to manipulate government contracts.

It would be argued that the devices could not be purchased overseas due to a lack of quality control oversight, plus the national security interest in having a domestic source of device production.

Any progress toward technology that could eradicate the bees and thus elininate demand for the devices would be crushed by securing collections of patents in that field in order to halt or attack research.

Finally, as the number of US citizens involved in the production and sale of those devices matured, it would be argued that offshoring and new efficiencies were destroying US jobs. Those employed or enriched by this sector would agree, and would vote accordingly.

This is what would actually happen.

anthonyl September 25, 2011 at 9:03 am

Funny! So true. Bunch of socialist traps.

MWG September 24, 2011 at 1:30 pm

“Pat lives in the real world.”

It was muir, wasn’t it? I’d recognize that smarmy SOBs writing anywhere.

Just kidding.

Krishnan September 24, 2011 at 2:44 pm

It is useless. Buchanan and those that like what he stands for are indeed resistant to reality and what actually happens in the real world. They live in a fantasy world where the world is made up of people like them (“culture”), look like them, speak like them and earn high wages because they are THEM.

India is an excellent example of what happens when the economy/businesses are indeed allowed to trade with anyone in the world using whatever comparative advantages such businesses/people may have. In a short span of about 10 years, Indians now enjoy a market place that provides an astonishing number of items – and adjusted for inflation many of the things available today are CHEAPER than they were 10 years ago.

A single datum. A clothes washing machine bought 10 years ago cost 13,200 (rupees) and in 2011 it cost 12,000 – adjusting for inflation, the washing machine was cheaper by 50%. And thus today, even the “poor” in India enjoy buying items/things that only the “rich” used to. Oh yes, these machines are indeed manufactured in India – with parts perhaps made elsewhere – in India, China, the US – wherever they were cheap to make.

But as I said – there will be no convincing Buchanan and those that seem to like what he writes and the venom he spews.

Darren September 26, 2011 at 1:52 pm

The problems crop up when the comparative advantages of ones own nation are neutralized by its government.

Economic Freedom September 24, 2011 at 10:08 pm

You imply that economics is sophistry used to conceal truths that to persons such as Mr. Buchanan and yourself are plain enough in the absence of any serious pondering

Thomas Sowell once commented on old John Ruskin’s quip that “economics is the Dismal Science.” “Dismal”, in this context, did not mean boring. It referred to the fact — well understood by socialists like Ruskin — that the study of economics (Smith, Ricardo, and Mill, in Ruskin’s day) would lead to the puncturing of holes in one’s fantasies about social engineering and government’s attempts (led and advised by a group of superior elites like Ruskin) at creating Utopia.

Mark September 25, 2011 at 11:10 pm

We should put a tariff on costa rican bananas.

because costa rican bananas are threatening the viability of american banana plantations.

John Donnelly September 26, 2011 at 6:56 pm

Cogent argument Dr. Boudreaux. I love how the commenter accuses you of not living in the real world and you give him right back oxygen sucking insect swarms. That is classic economics!

john werneken September 29, 2011 at 7:51 am

Gross inequality of wealth, income, and influence is a POSITIVELY GOOD THING for human beings are grossly unequal. So if it were the case that trade per se made such differences worse, that fact alone is not a problem and may even be a benefit. But why would trade do that? Is it because it’s quicker to change purchasing decisions than to change careers or areas of investment other than what skills or connections one cultivates? Well duh of course it is. And besides, it SHOULD BE. Purchasing is inherently a choice. A career is a choice undertaken in order to accomplish something else, such as income, wealth, influence, the full exercise of one’s skills, whatever.

Further there is no choice in purchasing without a means of prodding others to change THEIR investment decisions. Buy Chinese, Americans must invest differently or starve. QED.

When trade takes advantage primarily of differences in who pays for externalities and where Government force supports this or discourages that, then resulting dislocation is fundamentally the fault of the Government with the worst market rules and public policies, which is frequently the Government of the people complaining about the dislocation – nothing to do with trade at all.

Finally, when a State – such as the USA but honestly most of the others are far worse on these issues – is founded upon inherited privilege racism and similar oppressive systems, one ought not to be surprised that new wealth, whether from trade or otherwise, is ALSO allocated in a manner that cannot be reconciled with either freedom or with fairness.

Free trade is inherently good and should include trade in people moving where they damn please and in social and economic schools of thought as well, and in what Government you are a citizen of, without changing your residence. Unless we LIKE the traditional response to In Group Cohesion (I.E. a nation, a people, a barbarian thug gang aka a Government to enforce norms and patrol borders), which is inter-group conflict i.e. war, now rather too expensive at both the nuclear and the asymmetric ends of the spectrum (i.e. 911 and similar), we had better dump the idea of homogeneity and preference for people who look like us. Open the borders, allow people to pay taxes to and be citizens of whatever government they please…so long as people and governments retain the right to enforce mutually agreed obligations.
.

john werneken September 29, 2011 at 7:54 am

I think I like what Palin said at http://www.nytimes.com/2011/09/10/us/10iht-currents10.html There is no two party system, there are two interlocking oligarchies of Elected-for Life and of representatives of vested interests, economic ideological ethic linguistic racial religious etc. A rambling solution follows.

Voting and Government
Citizens Only and Indirect

Citizenship:

1. Honorable Discharge, Hour years, US Military
2. PASS High School Citizenship test:
3. Those graduating from four year college or university and achieving in the upper 1/3 of such graduates on the citizenship test over-all assumed to pass the citizenship test in total
4. Those in the top quintile of income OR wealth

Citizenship Test: Mastery (“B+”) in each broad area comprising the following disciplines. For over-all measure weigh 1-4 40% 5-7 40% 8-12 20% 13 is required PASS/FAIL.
1. Physics and astronomy
2. Chemistry
3. Biology
4. Mathematics
5. History, 75% US History 1756-forward, 20% last 30 years
6. Political Science / formal and informal modes of government
7. Economics
8. English Communication, reading with comprehension, writing and speaking with organization and clarity
9. Research: capable of delivering at least an oral presentation with organized written notes and citations, internet or alternative sources, in three of such areas as recent events, popular culture, biography, history, science, literature, art, philosophy and theology.
10. Public health
11. Geography and Geology
12. Comparative Cultures, languages, ideologies, and religions
13. Basic survival: clothing housekeeping food preparation transportation and purchasing: pass-fail

Indirect:
1.Referenda may be allowed as to approval of new means or higher effective rates of taxation; constitutional changes; recall from office. Not otherwise.
2. US Senator: by majority of all state legislators in an entire state every 8 years, half every 4; vacancy by Governor of State
3. Federal Reserve Board to be Regional Presidents only, stable currency mandate only
4. Standing to sue: for the enforcements of rights and obligations and the collection of damages under Constitution, Treaty, Property, Contract, and Injury
5. Elections: Every two years except President 4 US Senator 8; States may allow for terms of office of four years for executive officers and members of less numerous legislative branches.
6. Judges: By executive authority of the jurisdiction confirmed by simple majority of less numerous legislative branch
7. Extraordinary majority allowed only for adoption of constitutional changes. Applies to US Senate.
8. Keep current methods of selecting US President and of Amending Federal Constitution
9. General Election ballot by top two of primary election. Primary election non-partisan, single ballot.
10. Electoral Districts: Chief Judicial Body of jurisdiction to appoint Commission charged with setting Districts for each State or sub-division thereof, within 5% of citizen population from the average; reasonably compact and contiguous; community of interest can be considered but discrimination for or against groups of protected constitutional status prohibited
11. Election Campaign Finance: Public for candidates based on 20 year average of spending for comparable positions throughout the State of subdivision thereof in General, equal for each of two candidates. Primary: Same cap per race (2 x 20 year all-candidate average for like positions in State or subdivision thereof), every candidate polling 5% in primary gets equal share of cap. Each candidate not getting 5% may receive 1/20th of cap anyway if nomination endorsed in advance by convention of 1000 citizens of the district or petition of 1% of citizens of district. Funds to be a general public expense of the government of the District. Individuals may singly spend whatever they please independently and as individuals. NO CAMPAIGN CONTRIBUTIONS. Organizations (corporate, business, non-profit, institutional, labor, ethnic, political, etc etc) may make no political expenditures.

MISCELLANEOUS
1. Patents copyrights: not more than 70 years total, period.
2. Individual and class actions for damages and for divestiture for resolution of anti-competitive practices, as to firms unions professional certification bodies etc.
3. Absent a Declaration of War or a similarly adopted Declaration of Emergency, public budgets shall be in accordance with GAP accounting, unitary as to jurisdiction, and balanced over every period of 16 years. Public bodies except the national Government (and then only under a then –current Declaration) may not create unfunded liabilities of any kind whatsoever. No Declaration shall operate for more than seven years unless renewed.

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