Here’s a letter to the Wall Street Journal:
Nucor’s Ruth Kemmish wants to slap extra taxes on Americans who buy Chinese goods (Letters, Oct. 15). She justifies such taxes by asserting that “tariffs exist today to correct artificial imbalances, and this legislation [the Currency Exchange Rate Oversight Reform Act] would aid that effort.”
Never mind that the “imbalance” to which Ms. Kemmish undoubtedly refers – namely, America’s current-account deficit with China – is exactly offset by a higher American capital-account surplus. Therefore, examination of both accounts that only together are designed to capture the full range of international transactions reveals that these transactions are perfectly balanced.
Instead, focus on Ms. Kemmish’s underlying premise, which is this: if party B pays party C to offer especially attractive deals to party A – and if, in response, party A buys more from party C and less from party N – party N is justified in hiring party U to punitively confiscate extra sums of money from party A until party A significantly reduces his purchases from party C and increases his purchases from party N.
This premise suggests at least two questions. Why is party N entitled to party A’s patronage? And why is this entitlement that is claimed by party N superior to party A’s entitlement to spend his money as he wishes – including spending it in ways that enable party A to take advantage of the bounty made available to party A by party C?
Sincerely,
Donald J. Boudreaux
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{ 97 comments }
As always, another of your posts about trade is intentionally one sided.
Here’s another side of trade:
“Yes, the economic gains from trade outweigh the losses, but the winners rarely write checks to the losers. And the losers often lose badly. What consolation is it to a Maine shoe worker that trade with Vietnam will make the country as a whole richer? He’s poorer and probably always will be. I’ve gotten those emails too.”
Naked Economics, Charles Wheelan
well said
How’s the shill business treatin’ ya? Working hard, or hardly working? LOL!
Show me the money…where do I get paid?
You have to provide goods or services that are valued by consumers before you can get paid, Idiot Boy. Unless, of course, you are a political crony of a corrupt politician. In that case, you have to suck up, which, as a typical statist, you ought to be good at.
Greg Webb continues his streak of opining about things he knows nothing about. EF accuses me of being a shill. I point out that shills get paid and I’m not. I tell him I’d love to get paid, show me where to sign up. He can’t. But he’s been following my through threads calling a shill, and I still want to know where I can sign up to get paid. Do you? Be specific.
Invisible Backhand,
We took a vote, and have decided that you are no longer allowed to buy your groceries from anyone else but me.
The good news: I will sell you loaves of bread for $20.00 per loaf; eggs will be $5.00 per egg, $80 for a dozen; we’re having trouble getting local sources of sugar, so it’s $500 per pound.
Thank you for doing your part to ensure I earn a living wage.
Me, Smith and Wesson voted too, so we’re going to rob you imaginary store instead.
What a shock. You’re a violent thug.
Regards,
Ken
I fight back. it’s what Americans do. Read some history ca. 1776.
Showing up at a store with a Smith and Wesson intending to take things that belong to someone else isn’t “fighting back”. It’s armed robbery. However, you being the good little leftist you are, you see no difference.
Regards,
Ken
imaginary store
So you “fight back” at “imaginary store[s]“?
Regards,
Ken
There it is.
So I’m an imaginary violent thug?
No, Idiot Boy. You are the typical cowardly statist.
IB,
No you’re an actual weak minded fool who thinks it means something to say that you “fight back” at some imaginary place. And you’re stupid enough to broadcast such a dumb sentiment.
Regards,
Ken
What’s your real name and address, RegardsKen?
That shut his ass up.
My real name is Ken. Do you honestly think I’m going to give a violent deranged idiot my address? You are something else. Why don’t you post your real name and address for all to see?
Regards,
Ken
Screw the worker as consumer, eh?
You forgot some words, I Am Sam.
How true. Those elevator operators never got their jobs back because of automation, those typists lost their jobs because of computers, all those people who worked in farms lost their jobs because of automation and new machines. Automation and innovation have the same effect as trade with countries like Vietnam – people displaced from their jobs because of a) innovation or b) cheaper goods from somewhere else – someone able to make the same goods for less.
The US as a nation, and the world at large has become poorer and poorer since the start of industrialization and trade amongst nations. If only we can go back to those days when we were self sufficient in what we needed to live and there was simply no way for countries, states, cities to trade with each other – goods and services that each could provide more efficiently – we all would be far, far more richer.
Makes so much sense, my head hurts.
Indeed. Our demise really began with the invention of the spear – which displaced some hunters from their formally necessary tasks.
Oh, it goes back farther than that. I think it was crafting a twig to stick in a rotted log and gather some yummy termites for breakfast. It put the monkeys out of business.
Bring back the glory days!
Gives new meaning to the word “progressive”.
Late to the party as usual, but I don’t spend a lot of time on the Nets.
So IB, you realize that the logic of Mr. Wheelan and yourself implies that not only should we not increase trade because someone might lose their job, but that we should also not allow technological advances. To paraphrase Mr. W, “What consolation is it to a Maine shoe worker ‘that the new Shoemaster 2000 will make shoes far cheaper and thereby’ will make the country as a whole richer? He’s poorer and probably always will be.” Of couse, that last sentence is bullcrap, unless of course you think we’ve gotten poorer because we moved away from the mule and plow?
Same logic this way:
“Yes, the economic gains from trade outweigh the losses, but the winners rarely write checks to the losers. And the losers often lose badly. What consolation is it to a Maine shoe worker that trade with Vermont will make the state as a whole richer? He’s poorer and probably always will be. I’ve gotten those emails too.”
The other side? Seems like the same side to me. I don’t think anybody denied some folks lose, but as Wheelan points out, the gains outweigh the losses.
Also, the losers only lose in the short run. The shoemaker in Maine now spends less on his shoes (as does everyone else) and there is now more surplus wealth in the economy which will be expressed as demand for other things. The shoemaker now has to find out what “other things” people want and try to enter that field. Why would that be any more difficult than entering the shoe-making business in the first place?
What consolation is it to a Maine shoe worker that trade with Vietnam will make the country as a whole richer?
What consolation is it to the rest of the US that it must be made poorer by trade protectionism in order that it not hurt the feelings of a shoe worker in Maine?
It shouldn’t be too difficult for the shoe worker in Maine to find some other occupation, since, as Charles Wheelan admits, the US is made richer because of free trade with Vietnam — the US spends less for shoes and now has more surplus wealth to spend on other things.
It is absolutely the case that the “Maine shoemaker” might lose if the United States establishes free trade with countries like Vietnam; but his/her loss is offset by cheaper shoe prices for every person in the country. Also, I’d have to ask what the fundamental difference is between a “Maine shoemaker” being undercut/outperformed by a Vietnamese shoe company as opposed to a Texas company? The “winner” in that scenario doesn’t write a check or compensate the loser, but once again the vast majority of people benefit. Cheaper goods means that people have more money to save, start a business, hire employees, etc.
Defense of Liberty here is the false statement in your argument:
but his/her loss is offset by cheaper shoe prices for every person in the country
this is true in theory but has never been show to be true in fact. No one has ever attempted to measure the total cost of lost employment but when you look at the social costs, alone, families shattered, children losing hope, drugs, alcohol, failed schools, cities, etc. the observable evidence is overwhelming that trade has been horrible for the United States
Last, where are all those Chinese financed jobs Don keeps talking about. We haven’t seen any around here.
There appear to be two great myths. Stimulus jobs and Chinese financed jobs.
Oh Dis Manibus! What tripe!
Mises analyzed it in freaking Human Action decades ago!
When the price of shoes goes down because a lower cost producer enters the market,
1) Shoe buyers have more money to satisfy other wants that would otherwise be unaffordable,
2) Production that uses shoes as an input or a capital good (for example steel toes workboots for workers in a steel mill) becomes cheaper, reducing the market clearing price and expanding the market clearing production capacity.
3) As a second order effect, once significant amounts of money are released to satisfy unmet wants, entrepeneurs seeking this money create new industries that didn’t exist before to satisfy these needs; for example lasik eye surgeons.
Those little supply/demand curves in introductory micro courses tell the freaking story, and there are plenty of econometric studies that back them up.
a) this is theory—has never been proven in fact
b) Mises gave no consideration, none, to the “costs” of trade.
again, show us the facts—any credible actual reach that shows that we are ahead, after considering all costs, from trade with China
show me the China jobs
1) Because economics can’t be analyzed through falsifiable experimentation, facts are whatever the theory states they are, provided the theory is intellectually rigorous and derives its conclusions from a priori knowledge an unassailable logic. Whether those hold true of a given economic theory is debatable – a debate we are having here. If you have an alternate theory of human action, go for it.
2) The only costs of any relevance to trade are the comparative opportunity costs of manufacture of various goods in various locations. Far from ignoring those costs, Mises and indeed all economists note that the cost of a domestic industry at a comparative disadvantage exceed the costs of pursuing one’s comparative advantage.
3) So far as “show me the China jobs” goes, how can you rationally deny they exist? If domestic corporations hold extra money because of Chinese investment, or if domestic consumers hold extra money because they spend less on imports, where do suppose that money goes if not into the creation of alternate industries with alternate jobs creating alternate goods for Americans to consume with their extra money? Do you expect us to believe that we just sit on it and do nothing? Even the Keynesian only believes that can happen in non-normative economic times, and fortunately most are at least smart enough to realize you don’t adjust trade, which is a long term phenomenon, to accommodate short term cyclical downturn.
this is theory—has never been proven in fact
This is fact — Austrians easily account for it in terms of theory.
Mises gave no consideration, none, to the “costs” of trade.
Seems you’ve never read Mises (or any other Austrian for that matter). Any trade has a necessary cost associated with it called an “opportunity cost.” All costs are opportunity costs.
I have no idea if it offsets the the job losses, but because things like PCB’s, IC’s, Metal-casting and plastic molding; have become incredibly cheap chinese imports. There are many small companies that can create custom products for very niche consumers. Also, firms that are US based are able to react very quickly to customer needs and charge a premium for doing so. The company I work for makes control solutions for industrial products. This work requires very quick response, with lead times in weeks from idea to product. It wouldn’t be cost effective without VERY cheap parts. I think there will be a shift toward this kind of thing in the US.
Abraham Lincoln was once advised buy cheap iron rails from Britain to finish the transcontinental railroad.
“it seems to me if we buy our rails from England, then we’ve got the rails and they’ve got our money. But if we build the rails here, we’ve got our rails and we’ve got our money.”
And Lincoln, the deep thinker he apparently was, understood quite well that the money itself, came from trees, and so he didn’t have to consider how much of it he spent, or what toil would have been expended in exchange for the rails. Bravo.
Can you translate that into sober?
Yes. gamut, please translate that into idiot so Irritable Bowel can better misunderstand you.
You should go clean up.
Sight. We already know you’re a violent thug with a rich fantasy life which substitutes for real human interactions because actual humans find you repugnant. There’s no need to remind us on every thread. Except for Muirdiot, everyone who regularly reads the blog already figured out ages ago you’re semi-human waste.
This is why I will make my next suit. After all, if I buy one from the Men’s Wearhouse, then I’ve got the suit and they’ve got my money. But if I make my own suit, I’ve got my suit and I’ve got my money.
P.S. I think that the Lincoln anecdote is apocryphal. Based on a quick Google search, it seems to come from Tom Harkin in the early 90s.
“Most internet quotes are made up.”–Ben Franklin
This only shows that Lincoln wasn’t much of an economist. I believe he was better known for other things.
Such things as buying land at a possible rail head and then directing the direction of the railway. Good old Honest Abe.
I know of 650,000 Americans who stopped knowing him during his term.
I didn’t mean to imply that he was known for GOOD things, just that he was also a poor economist.
Bingo Paul…. That’s a bingo.
Nations do not obtain greater wealth by producing less and trading on credit. Don repeatedly feeds this assumption ( basically that we are better off buying cheap stuff on credit than making it ourselves) to his readers and most of them eat it down like baby birds hungrey for more and without questioning it any further.
There is a comparative advantage if you are producing something else of equal value more effeciently. We obviously have not been doing that for the last 10-15 years and workers are idle not producing anything. Its bizarre how they say these things and believe them like gospel. Especially when you look at our economy.
every single thing you have just wrote is completely false. It is unbelievable how absolutely ignorant you are.
Oh so nations get wealthier by producing less? THAT must explain why our economy is doing so great. Is that your point Kyle? Do you think your position and reality fit together good?
well of course because you do not understand a single thing, but yes indeed we have grown wealthier while the actual production of more and more mundane products have been moved to other places.
If an American company gets 90% of the parts for product x assembled elsewhere, but the value added of those parts is only 20% of the product, then the company still retains 80% of the profit here in the USA but the product is listed as a casualty of the “trade imbalance” when in fact all that has happened is that the company has become more profitable.
Time to ban trade with all countries outside of the US. When we send our money to other countries, they keep it and refuse to use it. Worse, they expect to get paid for their labor while our own people work for free. Each state in the US can decide that one way to increase their own wealth is to stop trading with other states – I mean, if Washington makes Airplanes and sends it to Texas in return for dollars, Texas may spend those dollars in NY and not Washington – a big waste. So, the way to wealth is self sufficiency in everything and no trade.
Lincoln was a big time railroad crony-man.
And what would Britain do with our money except spend it back here? They don’t accept US dollars in Britain, so either Britain spends the US dollars they’re holding back in the US, or they don’t spend them at all . . . in which case, why would they have traded their rails for US dollars in the first place?
In Lincoln’s time those dollars would have been exchangeable for gold, the universal currency.
Its a point, but I’m not a fan of the “greater good” argument from either side. To me its a simple matter of “free” trade. No one has a right to produce, and I have a basic human right to buy (or not) from whoever I wish.
To clarify, no one has a right to force me to buy what they produce. Everyone, of course, has a right to be productive.
If, party B pays party C to offer especially attractive deals to party A –
Don, why don’t we have accurate hypos, Like China, by putting a gun to the head of its people,
Lets also point out that China has no “comparative advantage,” it simply has about a billion people who have nothing so anything is an improvement.
Why not a level playing field—you have to pay the wages and benefits of the employees you are dislocating in the country into which you are importing, to your own people? IOW make it illegal to race to the bottom!!!!!!
Truth is, if you really believed in free markets, you would give up tenure.
Why do you need tenure, but not the shoe worker in Maine?
You have created a false dichotomy. The contract between Don and the University was voluntarily arrived at. The University offered tenure, because that attracts top talent, and Don accepted.
The Maine shoe maker has not entered into any contract of exclusivity with me. Unlike the university, with thinks that offerign tenure is a good deal for it – ie one that benefits it – me being forced to do business with shoemakers that I don’t want to buy stuff from is not to my benefit.
For Don to be involved in an equivalent situation, the people of that county would have to be forced to take classes from only Don and nobody else regardless of who they wanted to learn from.
HAHAHAHAHAHAHAHA!!!!
“Like China, by putting a gun to the head of its people,”
Your solution is for the US govenment to put a gun to the head of *its* people?
“Your solution is for the US govenment to put a gun to the head of *its* people?”
Do you mean another gun?
Yep.
Don, why don’t we have accurate hypos, Like China, by putting a gun to the head of its people,
Your “solution” is OUR government putting a gun to OUR heads.
Great minds…
no, my solution is no trade at all, until we get our house in order
and then, only on the condition that wages and benefits equal the cost of the manufacturer being replaced here.
And how is government going to “encourage” us not to trade? Hint: it has something to do with guns and heads.
Ever hear of Smoot Hawley? Didn’t work then and really won’t work now. Oh and a billion people is China’s comparative advantage.
Luzha,
I told you yesterday, you are free to stop trading anything you want until you get your house in order. Nobody is stopping you. It is fundamentally immoral for you to forcibly stop other free adults from trading with each other.
I realize such things are difficult for to understand for a leftist thug, but do at least give it a try.
OMG! M’lady……with your comment you reveal yourself as a bigot because you imply that all leftist thugs have a hard time thinking…….oh don’t let Rob or Greg C. catch you. For shame for shame!
That it is true is beside the point. We can’t write or speak obvious truths.
Methinks
“I told you yesterday, you are free to stop trading anything you want until you get your house in order. Nobody is stopping you. It is fundamentally immoral for you to forcibly stop other free adults from trading with each other.”
…or to force them to get their houses in order.
|> Lets also point out that China has no “comparative advantage,” it simply has about a billion people who have nothing so anything is an improvement.
You don’t understand comparative advantage. You’re confusing it with absolute advantage.
We should not require that people be paid typical American wages and benefits because the marginal product of a typical American worker is different from the marginal product of a typical Chinese worker, and therefore the market equilibrium price is different. Wages are set by supply and demand and cannot be manipulated without leading to misallocation of resources. Now if your goal is to make China a dysfunctional economy and keep its workers in poverty, that’s a great suggestion. Otherwise, the great depression showed us the consequences of trying to manufacture high real wages.
“if your goal is to make China a dysfunctional economy and keep its workers in poverty, that’s a great suggestion”. You don’t have to do anything to achieve that goal. The Chinese government is handling that.
Wages have gone up in China by a factor of 10 since the 80′s. This is an incredible achievement and one of the strongest arguments for trade.
They came off the world hunger list and have people (hundreds of millions of people) enjoying prosperity for the first time in at least a hundred years. All the benefits and growth in china is due to trade. Anyone who actually wants re-distribution of wealth should see that markets see where the real inequality is. The bottom 3rd of Americans live better than 70% of the world. The market understands that their complaints are nothing compared to that of a world yearning for freedom.
Lets also point out that China has no “comparative advantage,”
Snapping together plastic parts to construct a US-designed iPhone at hourly wages that are lower than those in the US is a comparative advantage in labor costs.
A Flamer’s favorite treat? Gasoline.
My names is Nikolai Luzhin, Eastern Promises and I have an inflated sense of self worth. I think am smarter than most and so secure are my arguments that simple and direct personal attacks are all I need to vanquish my foe. It sucks to be so alone and ingenious on this right wing blog.
I don’t know about the ingenious part but it’s obvious you deserve to be alone.
“My names is Nikolai Luzhin, Eastern Promises and I have an inflated sense of self worth.”
Did you think that was somehow hidden from us?
Your previous posts make that statement as redundant as it gets.
But, I will give you this, you’re definitely intellectually on par with muirduck and IB. Oh to be sure.
A better idea would be for the Chinese to, you know, allow market forces to dictate trade patterns like the doyen of laissez-faire Milton Friedman said.
The fact that China is suffering a higher level of inflation than it would otherwise along with a trade surplus, while the US has higher unemployment (and disinflation, even in the face of highly sticky wages and prices) and a trade deficit means that both countries need expenditure increasing (a negative increase for China) and expenditure switching policies.
And what is the best way to do this? Through a floating nominal exchange rate. However since nominal and real exchange rates have an extremely tight correlation, and China is pegging its nominal exchange rate (and hence real exchange rate), these expenditure increasing and switching policies occur via inflation in China and disinflation in the US in order to change the real exchange rate.
But this process is slow and imparts more pain of adjustment on the country with the current account deficit (The US). This policy is not nearly as bad when both economies are at full employment, but it’s a beggar-thy-neighbor policy which plays an important role in inhibiting a serious recovery for the US economy. So, in effect, China is hurting the US recovery and demanding that, instead of Beijing having to deal with the inevitable higher inflation, that the necessary real adjustments occur via a disastrous deflation in the US.
Once again Don Boudreaux manages to pedal Austrian style reasoning and partial equilibrium junk at a time when we need proper general equilibrium analysis of open economy macroeconomics.
–Pingry
It would seem to me to be more effective to reduce the uncertainty business feels such that they would invest more of the billions currently sitting on the sidelines. Business investment is what drives job creation and messing with China would just produce a trade war.
China is coming unglued anyway and we shouldn’t let them be able to point at us as the source of their problems. That’s what a trade war would do. You want to mess with China stop giving them a place to park their excess dollars. If we weren’t borrowing so much to cover our deficits the Chinese would have a lot more dollars than they wanted and the value of the dollar would fall versus the Remnimbi. The trade imbalance would decrease naturally.
Business does not have uncertainty with regards to their investments. They are certain that American tax policy and Chinese protectionist policies make moving plants there and investing there a far better investment then investing here.
Milton Friedman said many times that nation A’s protectionist and subsidizing stupidities do not justify nation B following suit or otherwise denying itself the benefits of nation’s A’s poor policies. And Milton Friedman was emphatically no Austrian.
And, Mr./Ms. Pingry: your position implies more than perhaps you realize it implies. You should also – given that the U.S. today has a higher-than-normal rate of unemployment – endorse government policies to prevent the introduction of labor-saving technologies. Do you endorse such policies? And do your general-equilibrium models advocate government restrictions on, say, people doing more do-it-yourself chores and repairs at home given that the adjustments might be long and painful for the likes of JiffyLube employees and carpenters-for-hire?
Moreover, I believe that my approach is more fully consistent with general equilibrium – properly conceived to include politics – than is yours. I explained this broader perspective here:
http://cafehayek.com/2011/10/how-should-government-a-respond-when-government-b-adopts-policies-that-damage-the-economy-of-b.html
One last point: personal consumption expenditures in America have recovered to pre-slump levels. So your assumption that the U.S. trade deficit is in fact a drain on aggregate demand in America is – for this reason, and for several others – questionable.
pedal?
Not a typo, but a product of modern education.
The word you want there is “peddle”, as in “to sell”, not a bicycle part.
Again, basically Don is an advocate of protectionism. As long as it is for American comoanies producing in China and through protectionist policiies by the Chinese government and not our own… then… it is ok.
” The great multinationals are unwilling to face the moral and economic contradictions of their own behavior – producing in low-wage dictatorships and selling to high-wage democracies. Indeed, the striking quality about global enterprises is how easily free-market capitalism puts aside its supposed values in order to do business. The conditions of human freedom do not matter to them so long as the market demand is robust. The absence of freedom, if anything, lends order and efficiency to their operations.”
W Greider
Muirgeo,
What would be the goal of shutting down Chinese production? Do you seriously want to bring a few million $3/hr jobs to the United States?
Thinking about my college age daughters who are taking their time getting through school, will probably spend their working lives in a service job of some sort, and then retire in relative comfort and reasonable health at some point in their 60s. How exactly do you imagine that they would be better off to spend their lives as sub-minimum wage factory workers?
What do you have against Chinese workers?
Do you wish them to remain in poverty?
“if party B pays party C to offer especially attractive deals to party A …”
Where does party B get the money to pay party C to offer good deals to party A, and why are they doing it, and what is the long-term economic impact of such “strange” behavior.
I suppose C must pay extortion (taxes) to B to enable B to pay C to lower its prices to A. Party C could instead extort less from B, couldn’t it?
It seems to party HoC (me) that party C is manipulating the currency as an extension of its fiscal policy. I’m not sure what is really going on here because no one invited me to the party. Please explain. Thank you.
Party B is the subsidizer, and party C is the subsidizee. Somewhere in the middle of that I think you got the two parties confused, as first you suggested C was paying extortion to B, and then suggested that C was the extorter, and that C was manipulating monetary policy, instead of B.
It seems to me that the Chinese businessman, entrepreneur, industrialist, etc. (party B) is doing rather well by the Chinese government’s (party C) quasi-capitalist policies. If anyone is paying the price for this it must the Chinese worker, consumer, etc.
Now, if party A (the American consumer) is making out like a bandit, are there other parties not mentioned in your alphabet soup narrative that may have been left out that are being negatively impacted by party C’s odd behavior? How about the American worker, the American entrepreneur, etc.? I think that a more comprehensive analysis may be needed here, and more letters and parties may need to be added to the complete your narrative.
Reread the post.
Maybe I got the letters mixed up. This is the problem with giving an alphabet soup analysis. It gets confusing very quickly. I still don’t think Don’s analysis covers all relevant parties that some people refer to as the stakeholders. Shareholders aren’t the only stakeholders, even if you say it’s so.
That’d be party N. And their complaint is the crux of the whole post.
Maybe I got the letters mixed up.
Maybe you don’t know the alphabet.