Quotation of the Day…

by Don Boudreaux on December 2, 2011

in Myths and Fallacies, Seen and Unseen, Subsidies, Trade, Uncategorized

… is from Mark Perry’s most-recent essay in The American:

If you wouldn’t object to China sending products to the United States for free, then on what basis would you object to currency “manipulation” that allows you to purchase undervalued Chinese imports at a huge discount and great bargain?

Read the whole thing.  It’s brief and spot-on.  Unless and until someone offers a compelling explanation of why Bastiat was wrong here, recognition that the burden of any government export-promotion policies falls overwhelmingly on the taxpayers and consumers in the export-promoting country should calm fears that exports priced artificially low harm the economies of those countries receiving such exports.

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{ 258 comments }

Randy December 2, 2011 at 9:35 am

Question: How is it determined that the prices even are “artificially low”? That seems like a completely subjective assessment, and the only assessment that matters is that of the people who set the price. They have their reasons, and I don’t care what they are. The price is the price.

Don Boudreaux December 2, 2011 at 9:50 am

IF Beijing is printing yuan to use as funds to buy dollars on the foreign-exchange market, and then hoards the dollars that it buys, then the price of the yuan relative to the dollar falls below whatever level it would achieve in the absence of such actions by Beijing.

With the yuan’s value made lower, Chinese products are less pricey for Americans (and American products are more pricey for the Chinese). But such a policy sparks inflation in China. As the newly minted yuan circulate, nominal prices rise throughout China, offsetting the lower dollar-price of the yuan. Such a policy by Beijing, therefore, cannot long keep Chinese products priced at artificially low levels.

Josh S December 2, 2011 at 10:04 am

Here’s another question–how is it “currency manipulation” when China devalues to boost exports, and “monetary stimulus” when the Fed does the same thing? Are we supposed to believe that only American monetary policy is legitimate?

Jack Fraser December 2, 2011 at 10:14 am

I strongly doubt a pair of Austrian economists would stand happily behind the Federal Reserve’s Quantitative Easing programs. Especially since they look quite like a happy nudge to the American financial sector, which both have claimed enjoy too much protection from the Federal Government. :)

surfisto December 2, 2011 at 12:25 pm

Josh or Anyone,
I blame journalists, but that aside, when does the dollar start to be devalued? So the fed uses open market operations and buy notes. Does that action devalue the dollar or do we have to wait until the inflation actually shows up? Both?

vikingvista December 2, 2011 at 1:06 pm

“Does that action devalue the dollar”

Yes–for anyone wanting to buy notes. That is because it bids up the price of notes, reducing the notes purchasing power of dollars on the market, without reducing demand/prices of anything else on the market. Other prices aren’t lowered, because these dollars are created de novo rather than being pulled from other purchasing decisions. Thus, average prices rise, relative to what they otherwise would’ve been.

Devaluation/inflation is always heterogeneous, and necessarily spreads as a wave of increased demand bidding up prices on the inflation front, without that purchasing decision dropping prices anywhere else. It has to start somewhere, and in this case starts with notes.

Josh S December 2, 2011 at 2:47 pm

It was a rhetorical question.

Randy December 2, 2011 at 10:08 am

So if and when the manufacturers are impacted by the inflation they will have to raise the price of their products to compensate. If they haven’t yet, then the price is the price. And when they do, the price is still the price.

Shidoshi December 2, 2011 at 2:19 pm

Vikingvista,

@Vikingvista – I don’t get what you mean by that. How does a note have purchasing power again? I think the OMO lowers/raises interest rates, which obviously has consequences on the price of everything with the fluctuation in businesses’ cost of capital.

It’s my understanding that the demand for Treasuries is high enough that we won’t feel the inflation until investors lose confidence in Treasury notes or find better investments else where.

surfisto December 2, 2011 at 2:35 pm

Vikingvista,
@Vikingvista – For some reason we can´t reply to your post.
Two questions now. The fed buying T-Bills will pump money into the market lowering interest rates which will make the PV of bonds higher. So yes anyone wanting to buy more bonds will have to pay more, but that is not inflation. Or a devaluation of the dollar overall?
My main question I was getting at is the action of the fed “cutting” interest rates usually results in the dollar dropping in comparision to other currencies, on the forex for example. Since the fed has been “cutting” rates down to zero, is the devalutation built into the “price” of the dollar. Is to say, once inflation starts will the dollar continue to fall in relation to other currencies or inflation will result in the “raising” of interest rates in which the dollar should rise against other currencies?
Not sure if I am clear.

vikingvista December 2, 2011 at 3:15 pm

The price of the dollar with respect to other currencies depends upon what is happening to those other currencies. Some people like to think inflation can be reasonably measured by comparing the dollar to a basket of other currencies, but since all currencies in the basket are today manipulated in much the same way as the USD, it doesn’t work.

So, your question depends upon what other central banks choose to do, as well as what the US central bank chooses to do now and in the future. Too many uncertain variables (although we can make a reasonable assumption based on history and incentives).

The same problem really exists when looking at the prices of goods and services, as Dr. Roberts has explained at length. Relative prices change for many reasons not having to do with inflation. Considering mere “price” conflates many mechanisms.

So the only certain way to understand if inflation is occurring, is by understanding its underlying mechanism. This is not the first time theory trumps empirics in understanding economics.

Or, you could just *define* inflation as the increase in average price of a certain basket of goods and services. And that may be a reasonable approximation at times. But looking indiscriminately at prices ignores the mechanisms and consequences that most people are thinking of when they use the word “inflation”.

vikingvista December 2, 2011 at 3:31 pm

“I don’t get what you mean by that. How does a note have purchasing power again?”

By “notes purchasing power”, I was referring to the ability of people to buy notes using dollars. It’s a too concise grammatical form that I use too often in many contexts, given its obvious ambiguity. Sorry.

However, since you mention it, anything traded can be considered to have purchasing power. It’s just, that’s not what I meant by that phrase in this case.

“I think the OMO lowers/raises interest rates, which obviously has consequences on the price of everything with the fluctuation in businesses’ cost of capital.”

OMC activities do have other effects, as you say, but surfisto was here specifically asking about USD devaluation.

“It’s my understanding that the demand for Treasuries is high enough that we won’t feel the inflation until investors lose confidence in Treasury notes or find better investments else where.”

Whether or not someone will “feel” it is a different issue. As an unrelated example, imagine if the economy was becoming more productive over a series of years. Given a fixed money supply (e.g. a gold standard), this would result in steady deflation, say 2% against the fixed dollar. But if instead there was a fiat money being deliberately inflated by 1%/year, dollar appreciation would only be 1%. You have inflation perpetrated by the central bank, but you still “feel” only deflation.

The problem is in teasing out the effects on price of all the different factors at play. It is hard, maybe impossible, to do empirically. But we know the mechanisms at play with some of those factors, so theoretically we can say with confidence what the direction of effect is from those understood factors.

And with inflation, it is all about bidding up prices without simultaneously bidding down prices elsewhere. It starts with the central bank making use of newly created money.

kyle8 December 2, 2011 at 5:43 pm

Or to sum it all up, the central banks of the world have been playing with phoney baloney money for so long we are swimming in quicksand.

vikingvista December 3, 2011 at 4:05 pm

Does anybody know the relative contribution of Chinese central bank policies on prices? Does anyone even know if it is significant? Or is this just assumed?

Greg Webb December 2, 2011 at 9:48 am

The term “artificially-low prices” is used by those who can’t compete to demand government intervention so that they won’t have to compete.

Invisible Backhand December 2, 2011 at 10:04 am

If you wouldn’t object to China sending products to the United States for free, then on what basis would you object

Don Boudreaux again pretends we’re too stupid to know what predatory pricing is.

In business and economics, predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors.

http://en.wikipedia.org/wiki/Predatory_pricing

Iff’n y’all r bored somtime you could google “china” and “rare earth metals”.

Randy December 2, 2011 at 10:11 am

Explain “predatory pricing” to me, then, if you actually understand it. What is predatory pricing? I mean, when I set a price it is with all considerations in mind, and certainly competition is one of those considerations. The idea of “predatory” only makes sense if the idea of “competition” is not allowed – and I see no reason whatsoever to not allow the idea of competitition.

Invisible Backhand December 2, 2011 at 10:50 am

I drew you a picture:

http://i.imgur.com/XYJZn.png

Randy December 2, 2011 at 10:54 am

I don’t go to links from untrusted sources. Maybe you can describe it to me.

Invisible Backhand December 2, 2011 at 11:39 am

I don’t go to links from untrusted sources.

For a ‘software engineering manager’ you act a lot like grandpa when it comes to the internet.

Randy December 2, 2011 at 12:27 pm

I’m not an engineering manager, just a tech guy – and I have an experienced fear of malware.

Invisible Backhand December 2, 2011 at 12:56 pm

I’m not an engineering manager, just a tech guy

Not much of one.

Randy December 2, 2011 at 1:53 pm

Hey, they pay me. You’re a troll, so you’re not a trusted source. Sometimes you have some interesting ideas, but you’re still a troll.

lamp3 December 2, 2011 at 2:43 pm

IB, you can’t get more predatory a pricing scheme than by giving things away for free.

Ubiquitous December 3, 2011 at 12:10 am

@ lamp3:
you can’t get more predatory a pricing scheme than by giving things away for free.

Yep. It’s so predatory and unfair of the sun to give us free light and warmth, don’t you think? We should take collective action and do something about it! That’ll surely stimulate the economy getting all those additional American producers to hire additional workers to make additional shutters, lightbulbs, heaters, and power plants.

anthonyl December 2, 2011 at 11:26 am

Predatory pricing doesn’t exist. It harms the “predator”, is barely a speed bump to competitors, and is always good for the buyer. If you play the scenario out and the “predator” eliminates all the competition with low prices then raises prices, competitors will come back to the market with lower priced goods. There has never been a case of predatory lowering of prices that worked out well for the “predator”. Just because Wikipedia defines it, doesn’t mean it happens.

Jon Murphy December 2, 2011 at 11:32 am

Right. Also, it implies consumers will automatically rush for the lower prices. If the incoming good were of inferior quality, then rational people would stay with the higher but quality goods.

Invisible Backhand December 2, 2011 at 11:41 am

Predatory pricing doesn’t exist.

http://www.ftc.gov/bc/antitrust/predatory_pricing.shtm

MWG December 2, 2011 at 12:00 pm

Fantastic. Now of you could be so kind as to cite an example of a company who used predatory pricing to knock it competitors out of the market and in the end raise it’s prices as the sole monopoly.

anthonyl December 3, 2011 at 11:44 am

No examples exist! Not even the government can make the case!

Rugby1 December 2, 2011 at 12:19 pm

@ Invisible Backhand

I understand what predatory pricing is, my question to you. Can you show me a specific example of where a firm has used predatory pricing to gain and then hold (that is key) marketshare while continously pricing other providers out. I will not get into profit margins, just provide something that fits the example above.

Thanks.

Invisible Backhand December 2, 2011 at 1:01 pm

Can you show me a specific example…

Yes, the link I provided you. Would you like me to change your diaper too?

Ken December 2, 2011 at 3:51 pm

Comprehension, argumentation, and character (quelle surprise that) fail. The link to FTC does not provide a specific example.

Invisible Backhand December 2, 2011 at 4:53 pm

The link to FTC does not provide a specific example.

I know.

Invisible Backhand December 2, 2011 at 6:31 pm

Did you figure out it was the wikipedia link, not the ftc link yet, Rippa Dese Pants?

Invisible Backhand December 3, 2011 at 2:05 pm

And if you don’t like that picture, I drew you another one:

http://i.imgur.com/E9KcU.jpg

vikingvista December 2, 2011 at 1:20 pm

Randy,

He couldn’t explain in his own words what he means by “predatory pricing”, or anything else for that matter, because he doesn’t have any words of his own. He doesn’t have a brain of his own.

His wiki quote is a perfectly reasonable one–”predatory prices” are simply “lower prices”. That is, predatory pricing is a fundamental characteristic of the wealth-producing features of a free market economy. It is a pejorative used by those who hate both free markets and the consumers who benefit from those markets.

I recommend that free market advocates embrace and diffuse the phrase by openly proclaiming themselves champions of the virtues of predatory pricing.

Randy December 2, 2011 at 1:59 pm

Good idea.

vikingvista December 2, 2011 at 3:32 pm

defuse not diffuse

Darren December 2, 2011 at 3:38 pm

he doesn’t have any words of his own.

I see no problem using others’ words if they can more clearly express the idea in question.

vikingvista December 2, 2011 at 3:52 pm

Merely copying a quote, even in context, is a superb way of masking the superficiality of your own understanding. Randy asked for an explanation, and IB was unable to give one, thereby confirming the depth of his understanding.

anthonyl December 3, 2011 at 11:46 am

Like!

Josh S December 2, 2011 at 2:48 pm

“Predatory pricing” is another word for “competition.”

Methinks1776 December 2, 2011 at 3:34 pm

Which is just a mean way to live. You know, Josh, not everyone is as smart as you and they can’t achieve what you achieve. It’s just not fair.

Josh S December 2, 2011 at 10:50 pm

If anyone else achieves what I’ve achieved (thirty and still in grad school), don’t say I didn’t warn them…

Chris Bowyer December 2, 2011 at 10:33 am

I love that selling things cheap is “predatory.” And selling them higher is price-gouging. You’re open to one criticism or the other unless you hit some arbitrary sweet spot determined not by the sellers or buyers, but by some politician or activist.

Don gave testimony on the danger (or lack thereof, actually) of so-called anti-competitive practices to the Dept. of Transportation back in 1998 that takes on this exact notion:

http://cei.org/outreach-regulatory-comments-and-testimony/comments-department-transportation-statement-enforcement-

Invisible Backhand December 2, 2011 at 10:54 am

“We strongly urge DOT not to adopt the proposed policy statement. While the statement is intended to guard against predatory behavior by large airlines toward new entrants, history, economic analysis and legal precedent show that such behavior is rarely successful.”

So, how has that worked out? How those new entrants doing?

http://flowingdata.com/2010/09/29/charted-history-of-airline-mergers/

RM December 2, 2011 at 11:42 am

You assume that predatory pricing or some other factor unrelated to market forces is keeping new entrants from entering.

Starting an airline is damn near impossible not because of predatory pricing, it’s that the market is extremely competitive. Which of the now 3 major carriers is earning a profit?
Assuming you wished to enter a market as a start up, against 3 competitors, would you look for a market where only 1 of the 3 were earning a profit?
If you saw a market like that wouldn’t you begin to think those firms need to get their houses in order?

Airlines are a highly competitive market now – what value would another competitor bring? Lower prices? Possibly, but if you’re an entrepreneur you don’t enter a market to lower prices. You enter to make a profit. If you see an unprofitable market, why enter?

Assuming we do punish these firms for predatory pricing, it’s possible they’d be in much worse shape than they are. Let’s consider a trip I took recently, where I paid a phenomenally high price to travel out West. My plane was half full. If I viewed that price as “predatory” (it wasn’t, I booked late and it’s a poorly traveled route), the gov’t could potentially fine the airline and force them to lower prices so new competitors could travel that route – right?
Wrong. New competitors may appear, and quickly disappear. The ‘gains’ would be illusory.

Jack Fraser December 2, 2011 at 11:45 am

Shouldn’t really be surprising. Airlines are a volume business, not a high-margin one. Considering they offer a commodity service with a number of capital lease obligations, it’s not hard to see why they would consolidate.

I would point out that selling your business for cash (not airline stock, my lord) makes a lot of sense as a new entrant, and ostensibily provides value for the acquirer. Going independent can suck, just as Groupon. By the end of the year, I’ll bet they’ll wish they’d sold to Google for 6B. While I probably share your concerns at some level regarding the competitive landscape in the airline industry, I’m not sure increased M&A activity in the space is clear proof of anything..

Pete December 2, 2011 at 2:33 pm

A number of budget airlines were founded in the 1990′s and 2000′s. Not a majority, true, but new ones spring up all the time. They seem to be the ones raking in the air travel profits with their predatory pricing.

Mesa Econoguy December 3, 2011 at 11:45 am
kyle8 December 2, 2011 at 5:48 pm

Great comment, and so true, if you charge too much you are an evil greedy corporatist, and if you charge too little you are a predator.

Of course there need be no logic or consistency when your views are on the left.

Jon Murphy December 2, 2011 at 5:51 pm

All this is assuming there is an equilibrium price we can 1) know and 2) measure. Neither of which are correct.

Thomas Bayes December 2, 2011 at 10:59 am

You object, then, to a government that provides goods and services at a cost to the consumer that is below the cost to the provider?

Is our president’s promise of ‘free health care’ an example of predatory pricing?

Is a call for ‘free education’ for all of our citizens a call for predatory pricing?

When many American citizens benefit from the Chinese government’s extortion of goods from its people we call it predatory pricing, but when many American citizens benefit from the United States government’s extortion of goods and services from its own people we call it The Great Society. Right?

anthonyl December 2, 2011 at 11:33 am

Thomas, you have made a tremendous point. It is government and only government that sets up predatory-pricing schemes, sets up monopolies and gouges people with artificially high prices. Yet no seems to see that.
Post Office, monopoly
Health Care and Education, predatory pricing
Military, price gouging

Nuke Nemesis December 2, 2011 at 12:21 pm

I think the government having a monopoly on the military is a good thing. Besides, the price if entry is very high. Ever priced a stealth bomber?

vikingvista December 2, 2011 at 1:48 pm

Why does entry require the purchase of a stealth bomber? Are there not less expensive services the military offers? Did Sears Roebuck enter the retail market by building the Sear’s tower?

But even so, a stealth bomber costs $1 billion–about half what the Google IPO raised, and had development costs of $45 billion, about half of what Exxon paid for Mobile.

Of course, this doesn’t even address the issues of whether or not there SHOULD be a stealth bomber, or whether it would cost as much if financed by a competitive enterprise.

Hal December 2, 2011 at 4:00 pm

How many people have been killed by a stealth bomber and how many have been killed by an AK47?

Price of a B-2: ~$1,500,000,000
Price of an AK47: ~$1000

Which is more cost effective?

Also, the whole purpose of a “well regulated militia” was that of defense, of the individual and of the nation, would be in the hands of the people, not some segregated sub-population termed “the military”. The constitution explicitly recognizes that the federal government should not, nor any level of government, have “a monopoly on the military”. Meaning that people who think long and hard about defense, at all levels (individual up to national levels), knows that such a monopoly is not good.

vikingvista December 2, 2011 at 4:11 pm

Well said, Hal!

anthonyl December 3, 2011 at 12:00 pm

Taliban fights with pea shooters! They’re still around. Vietnamese are still around! In Cambodia I think socialist ideas killed more people than carpet bombing!
It is never a good thing for government to have a monopoly on anything. The military is in competition with other militaries that are themselves government monopolies. Of course there will always be escalation of military force. What else is there to do with a sector that is highly over allocated?

RM December 2, 2011 at 11:47 am

Agreed.
The old pricing models of the airlines (which WERE predatory) from the 1970′s were the direct result of too much regulation. Deregulation has brought us lower prices and more routes.

The concept that you MUST have lots of new entrants to a market to ‘prove’ the market is working is incorrect. That happens when there are transitions in a market. Consider media. 3 networks in 1980, then close to 30 by 1990, due to cable. Today, we’re back to about 15 networks, with 5 major ones, several mid size, but few entrants.
When the internet went full steam in 2000, we suddenly saw many new entrants to the media game.

Today, if you define TV as broadcast, there are 5 ‘networks’. If you define it as broadcast and cable, there are about 15 due to mergers and acquisition. If you define it as all video – I can’t count the total video outlets….

Many competitors doesn’t mean a market is working. It CAN. It’s not necessary, though.

Nuke Nemesis December 2, 2011 at 12:19 pm

Obamacare is an unworkable behemoth that is doomed to fail. When it fails the answer will be a taxpayer-funded “single payer” system. The answer won’t be to throw it all out.

Yes, Obamacare is designed to put the private health care industry out of business. Everybody in health care will work for the government, except those few who work in the few remaining private clinics and hospitals that cater only to the wealthy.

Michael December 2, 2011 at 1:48 pm

+1

Josh S December 2, 2011 at 2:49 pm

No, it’s not “predatory pricing” when the government does it because politicians are noble and just. Businessmen are conniving and wicked.

Sam Grove December 2, 2011 at 12:21 pm

Jeez Mr. Boring, I had that in jr. high school.

Who conjured up that theory anyhow?
Oh, it was businesses that were being outdone by Standard Oil. Unable or unwilling to adapt, they instead appealed to gov’t and popular sentiment to bing Standard Oil to heel at the expense of consumers.

Rugby1 December 2, 2011 at 1:36 pm

So I guess you are not super bright?

First let’s take your link, the one from Wikipedia, that highly trusted source of arcane information.

Did you notice this statement that preceded the examples provided;

“Examples of alleged predatory pricing”

Alleged means unproven genius. Sorry you were unaware of that.

Let’s take the number one example of Standard Oil. Were you aware that when Standard Oil was finally broken up, their market share was on the decline? Why? Competition. Long before the Sherman Anti-trust act had taken hold competitors had started to chip away at their market share. How is having a declining market share a monopoly?

Microsoft and IE argument? Funny outside of work I have never, ever used Internet Explorer and most of the tech people I know have not either. There have always been other browsers available.

Wikipedia provides a total of ten, alleged examples, over the last 100 years of worldwide commerce. Examples that are easily destroyed and that is what you use to state your case?

I am actually shocked that is all you have. Your intellect is like a candle among spotlights. Maybe hang out in the basement more, and post less.

Thanks for proving my point. Monopolies, unless provided by the government, do not exist.

SmoledMan December 2, 2011 at 6:57 pm

How could Microsoft be predatory pricing with IE when all web browsers were free? Nobody ever charged for web browsers.

Rugby1 December 2, 2011 at 8:07 pm

@ SmoledMan.

You got me. I only responded to what was written in the wikipedia link that IB referred to.

I think the argument goes that because IE was included in Microsoft operating systems it became a defacto monopoly as Netscape (the main competing browser at the time) could not compete.

I am not saying I agree with that, just that is the argument, fallacious as it may be.

txslr December 2, 2011 at 1:54 pm
Invisible Backhand December 3, 2011 at 4:23 am

Of course, in the interest of full disclosure and fairness, “predatory pricing” is also the very essence of just simple competition.

If you click on the Wikipedia link I provided, you’ll also see that there are precisely zero actual cases of a phenomenon called “predatory pricing.” The few cases listed are alleged only. That’s how the Wikipedia article categorizes them, and that’s what they are: ALLEGED.

(I can’t wait to try out all my new Gravatars! I’ve created a whole bunch of new emails just for the occasion! This was especially clever on my part because it will put a stop to whoever is trying to imitate me and make me look bad.)

LowcountryJoe December 3, 2011 at 1:28 pm

Don Boudreaux again pretends we’re too stupid to know what predatory pricing is.

I think that you are ascribing way too ugly of a picture as to Don’s motives for making posts and provoking thought. Aside from that, let’s not pretend that some of ‘us’ here aren’t just too stupid to grasp certain things. Perhaps this is yet another case of you being sensitive to your own limited capacity to noodle through ideas about how the world works.

Methinks1776 December 3, 2011 at 1:34 pm

You realize you just threw darts at a cement wall, don’t you?

Ubiquitous December 3, 2011 at 2:17 pm

Except a cement wall actually has a purpose.

muirgeo December 2, 2011 at 10:06 am

Um maybe I object because I am a person who believes in liberty and not communism. Maybe I object because I am a principled person who thinks my actions should be consistent with my words and that I am not willing to sell my soul for a price. Maybe I object because I actually believe in markets that are truly fair and competitive.

Randy December 2, 2011 at 10:14 am

Markets aren’t “fair” in the way that the left uses the term. They are competitive – and competition is fair.

muirge0 December 2, 2011 at 8:50 pm

Randy,

Is it fair that a few mega banks get $7 trillion dollars of basically interest free loans while we pay 25% for loans we make from them?

Did you miss this minor fact? $7 trillion Randy… that’s where very ones attention should be and the progressives and the OWS crowd have been way out ahead of this while Don focuses multiple post on the 0.005 trillion lent to Soleyndra oct the 0.0005 lent to GM.

Randy December 2, 2011 at 10:23 pm

Muirgeo,

How many times do I have to remind you that it was your political organization that gave them the money. I don’t remember that anyone here was in favor of it. And I’m pretty sure that all of the regulars have told you that many times. Seriously, you’ve got to start listening.

As for the the 25% you pay (for me its about 6%), that’s up to you. Nobody forced you to borrow money.

muirge0 December 3, 2011 at 2:43 am

Oh BS Randy….my “political organization” is out in the streets protesting it and the most socialist of all senators was the one who pushed for the fed audit.

The people who were in favor of it are the new who want money to be free speech and corporations to be people and the banking system to be unregulated. When MY people were in charge , BEFORE REagan and Tatcher…. this etchings were NOT happening.

The picture is it is NOT fair and it needs to be fixed. You stupid claim that markets are not fair is irrelevant in light of such things.

Randy December 3, 2011 at 5:00 am

And BS to you. You have been proclaiming the virtues of your social democracy as long as I have known you, but when it does something enormously stupid you find someone else to blame.

My statement that markets are not “fair” in the way that your people think of the term is a simple statement of fact. The bailouts, the epic fail that resulted, and your response to it, are all symptoms of a failure to deal with the truth.

Nikolai Luzhin, Eastern Promises December 3, 2011 at 7:14 am

Nobody forced you to borrow money

The statement of an idiot, since we all benefit when people borrow money and loose when no one borrows money

Randy December 3, 2011 at 3:48 pm

Nik,

Credit is often a good thing, but not always. The point is that it is a choice.

g-dub December 3, 2011 at 1:29 am

Wow. A zero comes up short on zeros. Sort of ironic.

muirge0 December 3, 2011 at 2:43 am

and a dumbshit ignores the big picture…

Greg Webb December 4, 2011 at 12:16 am

“and a dumbshit ignores the big picture…”

That right, you dumb shit.

Dan J December 3, 2011 at 1:47 am

Ha… Diminish the cronyism of Obama with Solyndra and GM?
Next, we will be hearing about how we should emulate Chinese governmental directed economic models.

Methinks1776 December 2, 2011 at 10:28 am

Or maybe you’re just really stupid.

Greg Webb December 2, 2011 at 1:02 pm

George is really stupid.

muirge0 December 2, 2011 at 4:16 pm

Greg… the guy who was to rise above the name calling…. See what I do to people.

Methinks1776 December 2, 2011 at 4:21 pm

Again, you conflate “name calling” with diagnosis.

Presumably, a “doctor” would know the difference. I mean, if you called one of your pretend patients “a diabetic”, would you expect them to start whining about name calling? Of course not.

You have long ago been diagnosed with a condition called “idiocy”. You may also be insane. The jury is still (mostly) out on that.

Greg Webb December 2, 2011 at 11:40 pm

George — a guy who calls people silly names, then complains when when they do the same unto him.

muirge0 December 2, 2011 at 4:15 pm

Yeah because I am the one trying to convince my readers how great free trade in the middle of a massive economic depression that seems to have had it’s onset 10 years after signing onto our “free trade” agreements….SEE LOOK….. ISN”T THIS WORKING SO GREAT!!! Yeah… it’s hard to keep up with all the smart people here.

Mesa Econoguy December 2, 2011 at 8:24 pm

Let’s channel my inner Austan Goolsbee/Chris Romer/Jared Bernstein/Bobby Reich:

YES, IT IS A LOT BETTER THAN IT WOULD HAVE BEEN OTHERWISE, SEN. SMOOT AND REP. HAWLEY.

muirge0 December 3, 2011 at 2:45 am

It’s Friday night again… Mesa hitting the bottle heavy already… alcoholism is a terrible thing and a sign of a failed miserable life.

Mesa Econoguy December 3, 2011 at 12:26 pm

Exceptional!

muirge0 December 3, 2011 at 2:45 am

Fucking moron.

Happy holidays, dumbshit!

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2011/10/full_retard.jpg

Mesa Econoguy December 2, 2011 at 7:54 pm

Correct answer.

But here’s the twist: Georgie is delusional, so he believes he believes in liberty, markets, etc., but he’s too much of a simpleton to actually understand those terms and concepts.

So we’re left with a cognitive science experiment: if a box makes intelligent noises and sounds, and gives the appearance of cognition, but shows little evidence of intelligence, is that box truly Paul Krugman’s fluffer?

Sorry, is that box truly sentient?

Nikolai Luzhin, Eastern Promises December 3, 2011 at 7:15 am

So we’re left with a cognitive science experiment: if a box makes intelligent noises and sounds, and gives the appearance of cognition, but shows little evidence of intelligence —
that box would be Newtie

Mesa Econoguy December 3, 2011 at 11:38 am

Interesting.

You seem to be new to the field of logic.

And spelling and punctuation (see below).

I recommend tutoring by muirge0 or Visible Horseshit. They’ll set you “strate”.

Dan J December 3, 2011 at 2:48 pm

Won’t be long now….. Muirgeo and the trolls will be marveling at the wonders of Chinese directives in their economy and how free markets need to find their appropriate place on the trash heap of history. How am I to know this? Andy Stern’s recent Op-Ed in WSJ, amongst other publications. Stern was an official advisor to White House. Due to some revelations and the bad PR Mr. Stern brings in, he had to become a back door advisor. The Marxist threw caution to the wind to see what the backlash shall be and if the democrats can begin their cautious use of words to entice citizens into authoritarianism.

anthonyl December 3, 2011 at 12:15 pm

Damn, I can’t write good ones like that.
Sentinet, just retarded with difficulty speaking with mouth full!
Thanks Mesa!

RM December 2, 2011 at 11:50 am

Who is the arbiter of ‘fair’? You? Some panel of judges? What if I become the arbiter and you disagree with my definition of ‘fair’?
That’s one HUGE flaw in your view. You don’t see it, you can’t define it, but you’ll disagree with me anyway because I’ve responded to you before and you lack the insight to recognize logic.

What is “unwilling to sell my soul for a price” mean? So if I believe in capitalism, I sold it for money? But if you sold it for statism, you sold it for power? What’s the “price” you fail to sell for? Just money? Maybe it is power? Maybe it is recognition? Fame?

I don’t believe you’re unwilling to sell your soul for a price. Maybe a MONEY price. But you’re willing to sell it for other things. Because you have already.

MWG December 2, 2011 at 12:02 pm

“Um maybe I object because I am a person who believes in liberty…”

No you don’t.

Captain Profit December 2, 2011 at 12:16 pm

Is it your belief in liberty that makes you want to take some of it away from American consumers? Or does equal oppression for all fall under your belief in fairness?

(And don’t worry, nobody’s willing to buy your soul…)

Louis Cipher December 2, 2011 at 8:37 pm

I am.

muirge0 December 2, 2011 at 8:58 pm

No it’s my belief that companies that are given tariff and monetary protection and tax advantages for moving their plants overseas should NOT be getting such advantages. It’s pretty simple. Does that not make sense? I am the one who is being consistent here. You guys are the ones who seem to be OK with protectionism as long as its done by foreign counties protecting our companies that have moved overseas. YEAH that makes a lot of sense…WTH?… but again you guys can always point to how great the economy is doing to back your positions up…???

Shit , seriously… am I arguing with 4 year olds here or what?

Greg Webb December 3, 2011 at 12:30 am

No, you are pretending at knowledge again.

Mesa Econoguy December 3, 2011 at 1:46 am
anthonyl December 3, 2011 at 12:24 pm

Not supporting it, just don’t need to do anything about it.  It’s not a proper USA government problem because it is not harming the US.  It’s just harming certain government-connected crony capitalist US producers of stupid green-technologies.  That is what the issue really is.  But they cloak their crony dealings in consumer protection garb.

Invisible Backhand December 2, 2011 at 1:19 pm

I love how these randroids think there is a free market. Free markets only exist in textbooks. A free market has never been spotted in the wild. Watch them stop shopping for a diamond on their apple ipad to furiously rebut that claim.

Neoliberalism. Not even once.
http://i.imgur.com/r1fB9.png

Randy December 2, 2011 at 3:32 pm

Not true. There are free markets and all wealth is created in them. The fact that there is also significant exploitation of them by political organizations does not mean that they do not exist.

Invisible Backhand December 2, 2011 at 8:21 pm

This coming from a guy afraid of url’s.

Randy December 2, 2011 at 10:25 pm

I’m afraid of url’s from untrusted sources, which is completely rational behavior. You, on the other hand, seem to be afraid of the truth.

Mesa Econoguy December 3, 2011 at 1:47 am
Invisible Backhand December 3, 2011 at 2:52 pm

Personally, I’m afraid of gurls, not urls.

I cut down trees, I skip and jump,
I like to press wildflowers;
I put on women’s clothing, and hang around in bars.

(Hey, everybody! What do you think of my new Gravatar? I’ve been creating all these free email accounts so that I can display lots of different Gravatars at the same time. That makes me cool, and it also adequately protects me from impostors. I’m so clever.)

Dan J December 3, 2011 at 2:49 pm

Black markets!!! Free as free can be.

Automatic December 2, 2011 at 10:03 pm

If there are no free markets then how are they responsible for all of our problems, as you so often suggest?

Randy December 2, 2011 at 10:26 pm

Another good way to make the point.

muirgeo December 3, 2011 at 2:29 pm

I actually believe in markets that are truly fair and competitive.

But don’t misunderstand me! “Fair” is not defined according to the interests of the buyer and sellers voluntarily involved in trading amongst themselves. “Fair” is defined by me — because I am a person of high ideals, great integrity, and (if you haven’t noticed) humbling modesty.

You can all learn from me.

Karl Smith December 2, 2011 at 10:16 am

The short answer is that it contracts the US money supply.

The “badness” of currency manipulation has little to do with trade per se and nothing at all to do with trade bilateral trade.

Trade is simply the mechanism through which the capital account balances. However, it is the changes in the capital account that matter.

anthonyl December 3, 2011 at 12:27 pm

Explain your statement in more detail for us dummies.

Ubiquitous December 3, 2011 at 2:32 pm

The explanation is that there’s nothing wrong, per se, with contracting the money supply, because it increases the value of the remaining monetary units. (Which is an alternative way of saying that purchasing power goes up, or that prices go down.)

Dan J December 3, 2011 at 2:52 pm

I believe that common accepted theory has determined that deflation must not be allowed to occur, and that is one of the first directives of the Fed. I disagree with this notion and that deflation serves a good purpose as do recessions in a market.

Dances with Wolves December 2, 2011 at 10:53 am

As a supposedly decent fellow, why would you not be angry or disturbed that the Chinese government is pursuing economic policies that harm Chinese taxpayers and consumer? Why should Americans unfairly benefit at their expense? I think that the right thing for you to do is to complain vociferously about the Chinese policies that harm millions of Asian people. Since when have you become such a great patriot that you want American consumers to get all the goodies at someone’s else expense?

You are not a stupid man, therefore I must conclude that your argument is specious, pandering, and immoral. Are you trying to foment revolution in China by mocking their self-destructive policies? Should not the American consumer feel guilty about benefiting unfairly at another groups expense? What is guilt, but a second-hand emotion? What happened to the argument that a free market is not a zero sum game and a rising tide lifts all boats? When will you, and Mark Perry, stop contradicting yourselves?

khodge December 2, 2011 at 11:36 am

So many narrow-minded governments and government policies, so little time and resources. What exactly is one supposed to do to change a foreign government’s policies? Are not words the only weapons Don (or Mark Perry) have? Is he not using them? Were the Chinese reading Don’s or Mark’s posts are they too stupid to figure out what is being said about them? Clearly the target of Don’s posts are the US Government. How effective has he been at changing internal policy?

Dances with Wolves December 2, 2011 at 12:25 pm

You asked 5 question, and I asked 8. When I get an answer to a few of mine there will be time enough to deal with yours.

khodge December 2, 2011 at 12:30 pm

You have more question marks, therefore you win? For the record, my questions were largely rhetorical and, therefore, do not count as questions. The score is DwW 5 kh 0. big deal.

Dances with Wolves December 2, 2011 at 12:42 pm

Thank you for clarifying that you don’t want answers to your questions. I want answers to mine. Please.

khodge December 2, 2011 at 12:56 pm

I see The Other Eric’s point, below. Sorry I wasted my time responding to you.

Dances with Wolves December 2, 2011 at 1:06 pm

If you see “The Other Eric’s point” there is no hope for you. I’m sorry you waste your time on this blog. Please try not to troll.

khodge December 2, 2011 at 1:11 pm

My college years were replete with people too slow to understand that rhetorical questions were a legitimate teaching device and too distracted to think. I didn’t especially like them then, either.

Dan J December 3, 2011 at 2:58 pm

Aside from warring with China to ‘free’ the people, a less wasteful means is to out grow and advance faster than them, forcing the hand to adopt capitalistic principles. Phase one complete. Now, thru capitalistic principles, that the people become a little more accustom to, it will be very difficult to pull the rug out from underneath without upsetting the billion people and causing uprisings. Slowly, Chinese peoples lives become better and better, while making it ever more difficult to retreat from some of those granted liberties. Chinese autocrats cling to their power, but will eventually lose it. The Chinese GOVT greatest ally, in keeping control, is the US
GOVT.

Jon Murphy December 2, 2011 at 11:38 am

Where is the contradiction? We are talking about a free market. Chinese producers price their goods at a lower level than American ones. This gives Americans more choice and American producers more competition. That is a free market. Additionally, if China is manipulating their currency, it is a self-inflected measure. Mark Perry, Don, and the rust of us do not believe we have the right to tell other countries what to do. How would we react if China came in and said “Your currency is over-valued. We demand you weaken it.”

No one here has argued this is a win-for-us-lose-for-China type of situation. No clue where you are getting that from. China must benefit from this in some manner or they would not be trading with us (specifically they get finished and luxury goods from us).

The Other Eric December 2, 2011 at 11:44 am

Jon, you lost him at your use of the term “free market.” To Prancer this is an evil, not a beneficial concept.

Dances with Wolves December 2, 2011 at 11:52 am

You are a glib fool, but not as abusive as some other fools and trolls around here. You wouldn’t know what a free market is if it slapped you in the face.

Dances with Wolves December 2, 2011 at 12:14 pm

I constantly get the feeling that you compose comments as though you were doing a homework paper for an elective class that you’re taking. You are fortunate that you’re not getting your paper back with a low mark on it. Where did you go to school, what was your major, and what was your GPA? I would also like to see the results of the Standford Binet IQ test and the MMPI test. Something is wrong with you besides being dull normal.

http://en.wikipedia.org/wiki/Minnesota_Multiphasic_Personality_Inventory

Jon Murphy December 2, 2011 at 1:55 pm

I’m sorry you find my argument inconvenient, but personal attacks doesn’t change anything.

El Diablo December 2, 2011 at 1:59 pm

“I try not to resort to name-calling . . “

Try harder.

The Other Eric December 2, 2011 at 11:42 am

You couldn’t make an argument if it were constructed with Lego blocks.

Who “wants” the government of China to do anything here? Please quote that comment. Your questions are vapid, but I’ll follow your method;

You actually are a stupid man, and seem to have some type of guilt, why are you foisting it on others?

Dances with Wolves December 2, 2011 at 11:55 am

I don’t respond to non sequiturs and ad hominem arguments. You are also a rude, mental case troll without any logic at all, and you’re not capable of any, I believe.

khodge December 2, 2011 at 12:26 pm

I think that this qualifies as a response.

The Other Eric December 2, 2011 at 1:37 pm

*Like*

Dances with Wolves December 2, 2011 at 12:19 pm

People who are incapable of feeling any guilt are sociopaths. I would put hunters in that category. You are a sociopath, and perhaps a hunter as well.

vikingvista December 2, 2011 at 5:05 pm

“People who are incapable of feeling any guilt are sociopaths. I would put hunters in that category.”

Well, Dances with Wolves, given their disproportionate numbers of hunters, your people of the Great Plains are the most sociopathic population to inhabit this land.

anthonyl December 2, 2011 at 11:43 am

Only the Chines people can and should do something about it. Kind of hard when you live under a communist government. Don is just pointing out the fact . Don’t worry, nobody in China is going to read Cafe Hayek. It is filtered out and blocked by the communist party servers.

Methinks1776 December 2, 2011 at 12:17 pm

DwW,

Do you also, on the same grounds, oppose income redistribution? Why should anyone benefit at the expense of anyone else? Do you complain vociferously about those subsidies? After all, you don’t want people receiving goodies at someone else’s expense.

Unless you do, I must conclude that you are immoral. After all, as an American citizen (I’m only assuming you are), you have far more (if still very little) control over the United States government and NO control over China.

You, of course, created a complete strawman argument. Don Boudreaux and Mark Perry nowhere ever argue that the Chinese policy is, on the whole, a good thing. They both merely point out, with regularity, that it is wrong to claim that China’s Mercantilist policies hurt America and the American consumer – a meme of politicians and other slobbering idiots.

Sam Grove December 2, 2011 at 12:34 pm

I venture to suppose that all politicians are familiar with “The Prince”.

In any case, most successful politicians have an instinct for manipulating crowds by constructing threats to the crowd, and China is a handy object for such a construction.

That’s what it’s all about.

That some of us have not surrendered to the fear mongers is confounding to the frightened.

Randy December 2, 2011 at 2:02 pm

Great book.

vikingvista December 2, 2011 at 6:22 pm

_The Discourses_ were much better, and would not have generated the common misreading of “ends justifies the means” that came out of _The Prince_.

Randy December 2, 2011 at 10:28 pm

Personally, I think that the ends do justify the means. But its necessary to consider all the ends – not just the immediate objective.

vikingvista December 2, 2011 at 11:33 pm

Some people do think that the ends justify the means, but Machiavelli absolutely did not. He did, however, consider it practical advice to any tyrant to realize that depending upon what ends he achieved, people would or would not consider his means justified.

Dances with Wolves December 2, 2011 at 12:36 pm

Yes, of course, I’m in favor of moral income redistribution. I wouldn’t make a poor person pay sales tax for instance. I don’t believe in extreme poverty or in extreme wealth. I find them both repugnant, unnecessary, and immoral. Hunters, especially wolf hunters, are repugnant, unnecessary, and immoral. If hunting is allowed to persist, then it should be down without any technology such as guns. If you want to kill a grizzly bear for some unfathomable reason then go into the woods and fight him in hand to hand combat. May the best bear or man win. Using a high-powered to shoot the bear in the back of the head should not be permitted. Hunting for commerce such as what trappers do, should also be stopped.

Methinks1776 December 2, 2011 at 1:06 pm

Then you believe in using one man for the purposes of another and you have a grandiose delusion of omniscience, which is required to know exactly how much wealth anyone must have. Your own immoral position and delusions of grandeur do not put you in a position to question anyone’s morality. Certainly neither Perry’s nor Boudreaux’s.

Dances with Wolves December 2, 2011 at 1:16 pm

I try not to resort to name-calling, but sometimes I succumb to the temptation. Anyway, stick and stones …

Methinks1776 December 2, 2011 at 1:53 pm

Yes, I can see your really strained yourself refraining from name-calling.

Greg Webb December 2, 2011 at 1:20 pm

“. . . why would you not be angry or disturbed that the Chinese government is pursuing economic policies that harm Chinese taxpayers and consumer?”

I am. But, it is up to the Chinese people to change their government. I would not want the Chinese people to try to change my government even if I disagree with it.

“Why should Americans unfairly benefit at their expense?”

They should not. But, the Chinese government is implementing policies detrimental to the Chinese people. They are doing so to keep people busy so that they do not overthrow the Communist Party of China. I hope the Chinese people realize what their government is doing to them and change the government and its policies. But, the military and state security forces are strong so the government is unlikely to be changed, except with violence and that will likely be worse for the Chinese people.

<i?"I think that the right thing for you to do is to complain vociferously about the Chinese policies that harm millions of Asian people."

I, and many others complain about the Communist Party of China and would like to see it changed. Preferably peacefully.

“Since when have you become such a great patriot that you want American consumers to get all the goodies at someone’s else expense?”

That’s just people. If the state government gave me $100 million for picking the right lottery numbers, I will take the money even though some would claim it is not fair to state taxpayers.

“Are you trying to foment revolution in China by mocking their self-destructive policies?”

The Chinese people are responsible for changing or not changing their government. I am spending my time trying to change the American government.

<i<"Should not the American consumer feel guilty about benefiting unfairly at another groups expense?"

No. It is the Chinese people’s responsibility to change their government’s policies if they object to them.

“What is guilt, but a second-hand emotion?”

I’ve seen a lot of people pretend at feeling guilty and begging for forgiveness. Some more famous ones have been TV evangelists, politicians, actors, musicians, etc. They did not really mean it. They were just mad that they got caught and exposed.

“What happened to the argument that a free market is not a zero sum game and a rising tide lifts all boats?”

The free market is a zero-sum proposition. And, economic growth helps us all. Too bad our government’s policies are working against the American people.

“When will. . . Mark Perry stop contradicting [himself]?”

I did not know that he was. Can you provide some specific examples?

Seth December 2, 2011 at 1:41 pm

Here are my recommended answers.
Q1: I see no indication that he isn’t.
Q2: It’s not a question of why they should benefit, it’s an observation that they are benefiting.
Q3: Again, I see no indication that this is case.
Q4: No.
Q5: Refer to answer to Q2.
Q6: ?
Q7: It’s still valid.
Q8: What’s the contradiction?

khodge December 2, 2011 at 2:40 pm

Seth: more patient than I.

Seth December 2, 2011 at 5:36 pm

Apparently it’s only interested in responding if you insult it.

lamp3 December 2, 2011 at 3:00 pm

1. I am angry and disturbed at how Chinese government treats its citizens; that is why I work against going down that road in USA.

2. Americans do not “unfairly” benefit — fairness can’t be determined. Chinese individuals sell to American individuals in a voluntary exchange. That some Chinese force other Chinese to give up property and well-being is not under my domain of action.

3. Patriotism has nothing to do with this, it’s examining consumer surplus given the existing government imposition.

4. This article probably tries to foment revolution within the minds of readers who believe the undervalued Chinese currency hurts Americans.

5. Whether or not individuals feel guilty about getting the most value for their money is not up to me.

6. Emotions are primarily felt by those who maintain them. “Second hand” is senseless.

7. Free markets are a positive sum game, due to trade. Those chinese citizens currently benefit from trade with the US — if americans did not trade with them, their lot would certainly be worse off.

8. This is very internally consistent. The US government works for us nominally, so when the discussion turns to advocating policy that harms US consumers, consumers in the US should crticially analyze it. When governments that ostensibly work for China seek to exercise similar, nominally beneficial policies for the average Chinese, Chinese citizens too should be conducting this analysis.

Hal December 2, 2011 at 8:52 pm

“As a supposedly decent fellow, why would you not be angry or disturbed that the Chinese government is pursuing economic policies that harm Chinese taxpayers and consumer?”

Don is pointing out his anger about the disturbing policies American politicians want to use to harm American citizens. This isn’t ignoring the damage the Chinese government does to its citizens. It’s pointing out that American politicians shouldn’t respond to Chinese policies that harm Chinese by harming American citizens.

“Why should Americans unfairly benefit at their expense?”

The Chinese benefit, too, though to a lesser extent than they otherwise would if the Chinese government weren’t so harmful. Preventing trade with the Chinese would be more harmful to them than actually trading with them.

“I think that the right thing for you to do is to complain vociferously about the Chinese policies that harm millions of Asian people.”

The complaints Don made as applies to all governments, not just the US government. Additionally, Don has on several occassions condemned the actions of the Chinese government. Not explicitly doing so in this post doesn’t imply he supports the Chinese government’s policies any more than your failing to condemn Robert Mugabe’s reign of terror in this post implies your support of that terror.

“Since when have you become such a great patriot that you want American consumers to get all the goodies at someone’s else expense?”

Why would you want to harm both American consumers and Chinese producers by preventing that trade? How does that make you a great patriot or even a good person?

“Are you trying to foment revolution in China by mocking their self-destructive policies?”

I can’t answer for Don, but the simple answer I give you is yes. Foolish policies should be mocked early and often. And revolution is often needed to over throw tyranny.

“Should not the American consumer feel guilty about benefiting unfairly at another groups expense?”

No.

“What is guilt, but a second-hand emotion?”

This is nothing but platitude.

“What happened to the argument that a free market is not a zero sum game and a rising tide lifts all boats?”

Nothing happened to that argument. In a free market, anyone engaging in trade benefits. And that rising tide does lift all boats. For example, barbers aren’t anymore productive today in the US than they were in 1900, yet their income is orders of magnitude greater today than in 1900 because other professions have produced such large benefits and increasing income so much that even those who aren’t any more productive than they used to be have larger incomes.

“When will you, and Mark Perry, stop contradicting yourselves?”

Don hasn’t contradicted himself. You’ve just read too much into his post and made all sorts of bad assumptions.

nailheadtom December 2, 2011 at 11:00 am

Are Americans somehow forced to purchase underpriced Chinese goods? If buying more expensive domestic products is advantageous for the country, why is it necessary to make that behavior mandatory? Couldn’t our incredibly effective educational system convince us that it makes more sense to squander our wealth on more expensive local products than cheaper imports? Is it normal for automobile shoppers to offer dealers MORE than is asked for a car? If we’re living in a “democratic” society, why not let the individual consumer decide (vote) with his dollars where to make his purchases?

Ken December 2, 2011 at 11:09 am

All we have to do is raise the minimum wage to $200,000 per year, and the price of a Chipotle burrito to $180,000. We’ll all be rich beyond our wildest dreams.

khodge December 2, 2011 at 11:38 am

From a Saturday Night Live sketch: I believe it was Garrett Morris who was all excited about inflation because he couldn’t wait to own a million dollar car.

Randy December 2, 2011 at 11:44 am

Just read this from the Bastiat “Petition”;

We come to offer you a wonderful opportunity for applying your—what shall we call it? Your theory? No, nothing is more deceptive than theory. Your doctrine? Your system? Your principle? But you dislike doctrines, you have a horror of systems, and, as for principles, you deny that there are any in political economy; therefore we shall call it your practice—your practice without theory and without principle.”

Practice without theory and without priniciple. What an outstanding definition of politics!

Jon Murphy December 2, 2011 at 12:03 pm

Bastiat did for economics what Twain did for literature: made it accessible for everybody!

vikingvista December 2, 2011 at 6:33 pm

Am I a heretic for saying that _Huck Finn_ was tedious and boring?

Jon Murphy December 2, 2011 at 6:55 pm

Nope. I agree. But I love A Connecticut Yankee in King Arthur’s Court.

Randy December 2, 2011 at 10:29 pm

Yep, another great book.

Mesa Econoguy December 2, 2011 at 8:07 pm

Not at all, had the same reaction.

beantrader December 2, 2011 at 11:53 am

Why do we trade with a communist country in the first place?
Can’t have it both ways.
When you start dealing in the gutter of humanity(communist)you have to play in the sewage.

RM December 2, 2011 at 12:03 pm

Because who you trade with shouldn’t matter.

If you hated your neighbor because he believes in things that are different from you, doesn’t mow his lawn, paints his house bizarre colors but really is letting it go to hell structurally, BUT he makes a killer Angel Food Cake at a reasonable price – would you buy it from him?

muirge0 December 2, 2011 at 9:10 pm

What do you meant doesn’t matter? If they used black slaves or slave children to make things even cheaper would you be OK with that? Where do you draw the line?

If you are saying it’s OK to trade with communist then maybe you have no argument to make with people who want our country to have socialized medicine or the rare nut job who wants us to be communist.

You are either against communism or for it… either you support competitive markets or you do not. There is no consistency to the position saying its OK to trade with communist when you claim to be a libertarian.

The people with big bucks have been so successful brainwashing our population into a faith like belief in their economic theories that benefit them and keep them in power. It’s just a new form of religion.

Jon Murphy December 2, 2011 at 12:06 pm

While I agree with your characterization of Commies, I’m wondering what you’re alternative to trade is? Even looking at China, since we’ve normalized trade relations with them, they’ve gained a middle class, have some semblance of property rights (granted, not widespread yet, but give it time) and we’re learning more and more about them.

khodge December 2, 2011 at 12:24 pm

We have real world examples of two approaches: China, which has policies that are starting to free its people and Cuba, which by all reports is living in the gutter with no hope of change. It can be argued that US policy is responsible for both situations.

Methinks1776 December 2, 2011 at 12:25 pm

1.2 Billion people are all “commies” the way, I guess you think everyone imprisoned behind the iron curtain were all “commies” too?

Over a billion people are “the gutter of humanity”? They are undeserving of your Klan superiority, undeserving of the benefits other humans take for granted because they happen to have been born in a brutally ruled country?

I think it’s very obvious who the sewage is.

Slappy McFee December 2, 2011 at 12:39 pm

Trade implies private ownership. Communism implies collective ownership. One cannot trade with a Communistic country for they wouldn’t own what was traded for.

Methinks1776 December 2, 2011 at 1:52 pm

I don’t think so. If an American chooses to buy something produced in a socialist country (there are no communist countries and never have been) by a state-owned factory, then how is that not trade?

RM December 2, 2011 at 2:05 pm

Capitalists don’t care if they are supplied by a small communal entity (several of which exist in the agricultural world here in the US – and are quite successful), or a large corporation.

Why does it matter what the organizational or belief structure of your trading partner is?

We’ve imposed embargoes many times on many countries. How many have worked?

Greg Webb December 2, 2011 at 2:10 pm

“Capitalists don’t care if they are supplied by a small communal entity (several of which exist in the agricultural world here in the US – and are quite successful), or a large corporation.”

People don’t care if they buy the goods and services that they need and desire from small communal entities or large corporations. People care about the availability, quality, and price of those goods or services.

“Why does it matter what the organizational or belief structure of your trading partner is?”

It does not matter.

“We’ve imposed embargoes many times on many countries. How many have worked?”

None.

ChrisN December 2, 2011 at 7:41 pm

“The crossroads of trade are the meeting place of ideas, the attrition ground of rival customs and beliefs; diversities beget conflict, comparison, thought; superstitions cancel one another, and reason begins.” – Will Durant

Automatic December 2, 2011 at 10:14 pm

Trade is the best way to spread ideas. History if littered with examples of this. If we believe that our culture and values are good, then those who lack them benefit most by trading with us.

RM December 2, 2011 at 11:55 am

Here is a legitimate question from a believer in the original premise. I’m not disagreeing with the doctor, I’m just posing a question seeking a response:

I am not opposed to anything free, and if China wishes to export $100 billion in free clothes, they are more than welcome to because it would benefit the US greatly. However, I am opposed to putting people out of work. If we are to assume China wishes to engage this policy, all US manufacturers will go out of business because there is no need to purchase US manufactured clothes.
China may be able to keep this policy up for an indefinite period – keeping the US out of the clothing game for many years. Let’s say 10 years. Then China is poor, has impoverished its tax base with inflation and subsidies, and suddenly raises its prices.
The US must reenter the clothing manufacture business. By now, however, most of the best clothing experts are out. The few left are uninterested in entering such a competitive market. The US must start from scratch, and without much capital to do so (since we have spent it elsewhere, presumably).

I know the answer to this, but I’d like the doctor to respond because this, at the crux, is why people are offended by China’s actions.

Jon Murphy December 2, 2011 at 12:23 pm

Your question is legitimate, but it assumes one thing: the economy is static. The economy is not. It is dynamic.

But let’s go back to the root: why do we trade? Trade occurs because, between two parties, there is comparative advantage (one person can produce something cheaper than the other and vice versa. Cheaper refers to opportunity cost). Each party specializes in one good/service and trades to the other person. Both parties are now wealthier than before.

So, let’s bring this back to reality. The US imports raw materials and some finished goods from China. In turn, we export finished goods, machinery and luxury goods to China. The goods America imports from China are things China does cheaper than us (labor intensive goods). What we export to China are things we can produce cheaper than China (capital-intensive goods). Because of this, we both benefit.

Are jobs lost during this trade? Of course. American textile jobs are lost. Chinese machine manufacturing jobs are lost. Those people are temporarily placed out of work. This is called frictional unemployment. However, with an ever changing economy, those people are now freed up to pursue jobs in other areas (maybe superconductor manufacturing?). They are freed up to get an education or invent new products. Of course, they must change their skill set, or acquire a new one, but that really is a small hurdle.

So, in summery, I’d agree with your concerns if the economy were static. If that were the case, we’d have extremely high unemployment (call it 60%) and only one economy could exist at a time. But as economies are dynamic, jobs are always being created and lost. Our unemployment rate is very low (compared to static economies like many African nations). With this most recent recession being the exception, people do not stayed unemployed for a elongated period of time. Sure, trade with China has “destroyed” XX million jobs. But our economy has also created new jobs to replace them (again, recent recession the exception). It’s easy to point to the 13 million unemployed American and say “China did this!” But it’s just not true. If we were to not trade with China, there’d be more people unemployed: prices would be higher, demand therefore lower, and less production.

I hope this helps?

RM December 2, 2011 at 12:35 pm

Well, I wasn’t looking for help, but thank you. That was what I recognize. I just think having the professor respond would add legitimacy (since I am not a professor). Of course, for those who disagree, there is no legitimacy they respect (except maybe Krugman).

Your response, however, would yield a follow-up question from Krugman admirers (of which I am not). What do those who lost their jobs do while they seek employment or how do they pay to educate or reeducate themselves? Frictional unemployment sounds nice, but it doesn’t put food on their plates while they look for work.

Again – I’m not arguing AGAINST. Trying to clarify so people like muirgeo can come to some level of understanding.

Personally, having been unemployed many times in the last 10 years, I can answer with how I’ve responded. I’m wealthier today (on a lower income) than I was 10 years ago. Humans have an amazing capacity to make things work……

Methinks1776 December 2, 2011 at 12:59 pm

RM,

Why do you need a professor to lend legitimacy to an argument? The strength of an argument is independent of the person who makes it.

What do those who lost their jobs do while they seek employment or how do they pay to educate or reeducate themselves?

This is a silly question and smacks of omniscience on the part of the hand wringer. Each of these people are unique individuals living in unique circumstances. The way one chooses to deal with the situation best may not be the best option for another. Statist use this showy “concern” for the unfortunate to create ill-fitting top-down solutions. How about government just get out of their way and stop providing disincentives for creativity? How about letting their community assess their individual needs? After all, the people who know them best are the best able to help them tailor a solution.

RM December 2, 2011 at 1:56 pm

Legitimacy does, partially, spring from authority. Professors are authorities.

I can claim that I am an authority, but as I am not published, nor do I have a Ph.D., it’s presumptuous for me to assume my answer is legitimate, particularly if I plan to answer my own thought experiment.

The strength of an argument is, to some degree, derived from its source. Whether you choose to accept that or not is up to you. If it weren’t, then I could teach at any university.

Methinks1776 December 2, 2011 at 2:26 pm

If I told you water is wet, would you accept that as a fact even though I don’t have a Ph.D in chemistry?

If I had a Ph.D in economics and told you that (except maybe for giffin goods) demand curves sloped upward, would my Ph.D make that statement ture?

Eric Hoffer had no education to speak of. Perhaps we should just ignore everything he wrote because he was not a recognized authority on anything.

In fact, appeal to authority is a logical fallacy. You seem awfully gullible.

Methinks1776 December 2, 2011 at 2:26 pm

ture = true

vikingvista December 2, 2011 at 4:09 pm

There are those who look for understanding, and then there are those who merely look for authority.

Greg Webb December 4, 2011 at 12:22 am

“true = true”

Not if you’re a statist. For statists, false = true.

Jon Murphy December 2, 2011 at 1:59 pm

What makes you think I’m not a professor? I’m not, though I am an economist.

To answer your frictional question, I have to agree with the overall sentiment of Methinks’ comment. I feel a top-down approach would not be viable. Each individual’s situation is different. It is best for each to plan on his own as opposed to a collective action.

RM December 2, 2011 at 2:55 pm

Wasn’t assuming YOU weren’t. I had, originally, asked for THE professor’s response as it’s his website.

At any rate, since Methinks took issue with my point on legitimacy – if you happen to review my point I said “to some degree”. My appeal to authority is not a logical fallacy.
I, too, am an economist. But I don’t expect people here (who don’t know me from a dog), to accept my POV straight up. That’s not only presumptuous on my part – but oddly ill informed on their part.

True is true when it comes to facts. I agree. You don’t have to be a chemist to have authority and say water is wet.
In matters of opinion and analysis of theory, however, there is a very different gauge used by people to determine if an argument is valid, and part of that validity springs from a position of authority.

If a homeless person repeated an opinion of Bastiat to me, I would not be wise to accept his views on Bastiat as meaningful. I know nothing about him, his background, or his education. He could be an unlucky Ph.D – but in all likelyhood he may not be. So his opinion, while it may appeal to me, would be foolishly accepted.

This is exactly what comment sections on the internet are like. Have you ever read “Up in the Old Hotel” by Joseph Mitchell? If you did, then you know the story of Joe Gould, who was writing the “Oral History of The World”. Joseph Mitchell, assuming more than he should have, thought Gould carried a meaningful message and followed him closely.

In the end, Mitchell was disappointed and left to understand Gould was a fraud. He took it on faith, and a strong argument by Gould, that Gould was a person of value whose opinion and point of view was worthwhile. Gould was, more or less, a homeless man who was at one point a man of means in some fashion.

Not knowing anything about Gould, and just assuming his POV was meaningful yielded empty results for Mitchell. This relationship is eventually what many believe lead to his writer’s block.

Appeals to Authority may sometimes be meaningless. On the internet comment pages – they are priceless. Particularly when it comes to issues which are not FACTS.

I’m sorry, while you and I agree on Economic Theory and Practice, I am not willing to say (and I’m sure others here would not be willing to say) that while we believe all this strongly that they are FACTS. They are opinions and theory which we support with some facts.

Methinks1776 December 2, 2011 at 3:25 pm

Face, meet palm.

muirge0 December 2, 2011 at 9:24 pm

RM,

Have you seen the air in China?… massive pollution. Should we get rid of our clean air rules so we can better compete or should we insist China play by the same rules? If the former then indeed we are running a race to the bottom with very clear goals to simply enrich a few at the top. Sure capitalist don’t care who they trade with… one standard for the capitalist but another standard for our workers.

Maybe WE should become communist and force our workers to adopt the same wage and working standards? Any problem with that? I mean I guess we could get rid of all the rules and see if our workers want to work and live like communist chinese middle class… but at some point a new revolution begins and rightly so.

Methinks1776 December 2, 2011 at 12:52 pm

all US manufacturers will go out of business because there is no need to purchase US manufactured clothes.

Why do you assume this is true? You can buy real leather belts, handbags and silk scarves very cheaply these days. Yet, Hermes is still in business. Why? Their products are differentiated.

Also, even if what we currently manufacture moves to China, so what? Horse-drawn buggy makers also disappeared, as did most kerosene lamp makers and corset makers. And whatever happened to payphone manufacturers? Did we ever mourn their demise? Human beings continue to innovate. They continue to find ways to fill their time in pursuit of the satisfaction of their insatiable wants and needs and that means they must first create something that someone else wants to buy.

Then China is poor, has impoverished its tax base with inflation and subsidies, and suddenly raises its prices.

The US must reenter the clothing manufacture business. By now, however, most of the best clothing experts are out. The few left are uninterested in entering such a competitive market.

This makes no sense. Presumably, you are afraid that Chinese manufacturers are a.) the only manufacturers of clothing in the accessible universe (not true by a very long shot) and b.) that they will raise prices to a point where they are earning excess returns. You describe monopoly pricing and then claim nobody wants to get into this “competitive market”. A competitive market and monopoly are mutually exclusive.

The excess returns will encourage competition (the manufacturers may have disappeared from the U.S. in your scenario, but the knowledge to do so still exists in the world). To compete with new entrants, Chinese manufacturers will have to lower their prices. Theoretically, once the competitor is driven out of business, the Chinese manufacturer can raise prices again to earn an excess return, again attracting competitors and having to reduce prices. So, in effect, the Chinese monopoly can never raise prices so long as their is no law preventing competitors from entering the market.

Even without monopoly pricing, the monopoly continues to be at risk of disappearing. If someone develops a manufacturing method that can manufacture the same clothing at a lower cost, the new competitor can drive the monopoly out of business because it can offer similar quality at a cheaper price.

The market is like weather in Nantucket. As the locals there say “if you don’t like the weather, wait a minute.”

RM December 2, 2011 at 1:34 pm

I posed a thought question – it’s not that I ‘believe’ anything I wrote. It’s a premise to suggest some clarity for those who may believe what I wrote.

People should learn to read original posts properly.

Methinks1776 December 2, 2011 at 1:49 pm

It doesn’t matter. I answered the question you posed in your original post (even though you specifically asked for the professor to answer). If you want to clarify that this is not the position you personally hold, then that’s fine. But, it’s a minor point. Presumably, you constructed this scenario because you know someone believes it.

RM December 2, 2011 at 1:59 pm

I like to be clear in matters of this nature. It is a minor issue, I agree.

But when you respond “you believe” to something I don’t necessarily believe, the answer doesn’t change, but the intent is problematic at a personal level.

Jon Murphy December 2, 2011 at 2:00 pm

You must forgive Methinks. We love her but she can be a tad…aggressive at times.

Greg Webb December 2, 2011 at 2:05 pm

I’m not sure that Methinks1776 is aggressive. I think of her more as “no nonsense.”

Jon Murphy December 2, 2011 at 2:10 pm

Po-tay-to, po-tah-to.

But we love her

Methinks1776 December 2, 2011 at 2:31 pm

I am both and always have been. CHAAAAAAARGE!!!!!

Why are we still talking about what RM personally believes? I don’t care. I’ve got nothing against the poor fella’ and I’m not interviewing him to be my employee or my mate. I addressed the question. Can we all stop pouting about an accidental misattribution now?

Greg Webb December 2, 2011 at 2:34 pm

I love aggressive women! :)

Methinks1776 December 2, 2011 at 2:38 pm

But when you respond “you believe” to something I don’t necessarily believe,…

Whoever “you” is. I’m addressing anyone clinging to those beliefs. Okay?

IMO, the more important part is that we seem to have the idiocy of a scenario that is both a monopoly and a competitive market which leads to doom, apparently. Hello?

Methinks1776 December 2, 2011 at 2:38 pm

Hence the Latin lover :)

Greg Webb December 2, 2011 at 2:40 pm

:)

Jon Murphy December 2, 2011 at 2:58 pm

“I love aggressive women!”

Eh…women. :-P

There’s a reason I am single. I’m telling you Greg, celibacy is a blessing, not a curse.

RM December 2, 2011 at 3:03 pm

I can be aggressive.
But am rarely aggressive when I agree with people – why bother?

I find Methinks, no matter how much I agree with her on the finer points of theory, to border on anti-social. It is worthwhile to engage social niceties. I try to until people cross the line (such as muirgeo). At that point, all bets are off and aggressive behavior is fine.

Being aggressive toward people I am unfamiliar with, and in particular with whom I agree, is not only rude, but will sometimes undermine my point because it alienates people.

Took me years and maturity to finally understand this.

Not knowing Methinks, I won’t pretend to know age, background, gender or any such item. He/She could be older than me, more educated, wealthier, etc. But all I can tell is that the person lacks the ability to engage certain social conventions. He or She is off-putting.

Methinks1776 December 2, 2011 at 3:23 pm

Oh, Sweet Lord! Where did I offend your tender feelings in my response to you, RM? Give me an example of my naked aggression toward you in replying to the opinion that is not your own.

I don’t see the maturity. You wanted a response to your post. You got it. You can’t handle it. What’s up?

Greg Webb December 3, 2011 at 12:38 am

Jon, women are a blessing! :)

Jon Murphy December 2, 2011 at 4:33 pm

RM,

I owe you an apology. Had I read your whole post, I would have seen your request for Don’s answer. Then, in response to another post you made, I made a glib remark that was intended to be funny, but given the lack of emotion on the Internet, it probably was aggressive.

I hope my actions do not discourage you from posting in the future (I enjoyed your insights). Please accept my apology in the manner in which it is intended.

Methinks1776 December 2, 2011 at 5:00 pm

Don’t kid yourself. There is enough “emotion” on the internet. There are also plenty of humourless twits.

Jon Murphy December 2, 2011 at 5:03 pm

Regardless, Methinks, I must admit when I am wrong. Otherwise, my Catholic guilt gnaws at my gut.

Methinks1776 December 2, 2011 at 5:25 pm

You’re a good Catholic, Jon. You’re perpetually guilty and celibate.

Jon Murphy December 2, 2011 at 5:49 pm

Actually, I’m Protestant :-P My dad was Catholic, my mom was Protestant, so I have my dad’s guilt and my mom’s puritanical values :-P

Methinks1776 December 2, 2011 at 6:01 pm

So, you’re a guilty prude! Excellent :)

Ian December 2, 2011 at 12:11 pm

This argument has me wondering. Does the Chinese devaluing their currency have a similar effect as financial aid we provide to countries in Africa?

I have heard of some African leaders recently asking for the US to stop sending aid as it is destroying their local capability to compete. That is no one bothers to farm because they can get the free aid food.

Is currency devaluation just another form of “aid”? Is aid some times detrimental to those receiving it? Discuss. :)

anthonyl December 3, 2011 at 12:49 pm

Yes, it always is.

GiT December 2, 2011 at 12:20 pm

Perry’s argument relies upon the assumption that the US imports Chinese goods more than it competes with Chinese exports.

That’s fine to do, because the US does do that.

However, countries which do not import Chinese goods, but rather compete in exports in, for example, the US, do not benefit from Chinese subsidization.

By pricing out those competitors who would be more efficient if not for state subsidization, the competitiveness of the market in which China uses subsidies is harmed and technolgocial innnovation and cost cutting are discouraged.

If Chinese gifts are unsustainable, then the durable benefit which would ultimately redound to America because of competition in the market is replaced with a transient benefit provided by the good grace of the Chinese.

But the immediate point is that in the short term, whether Chinese subsidies are beneficial to a country or not depend upon whether that country chiefly competes with China over exporting goods or competes with various exporters over the goods subsidized by the Chinese.

So the US’s relation to Chinese subsidies, while likely on net benefitting ‘America,’ because more Americans import Chinese goods for use than compete with Chinese goods in foreign and domestic markets, nonetheless harms those Americans who compete with Chinese exports.

And on a world scale, given a long view, the net effect of Chinese subsidization is clearly a harm on the terms of those who post here – by misallocating the money of the Chinese people, the Chinese government negatively perverts the natural incentives for everyone, to the detriment of global economic efficiency. That’s merely to say that on net, the harm to those who compete with Chinese exports is greater than the benefit to those who buy Chinese exports. That the US benefits from this perversity is a contingent, not a necessary, fact.

Randy December 2, 2011 at 5:39 pm

Countries are irrelevant. “China” does not export to the “USA” because the so-called “leaders” of these “nations” decided to do so. Individuals living in the geographical regions trade because they have found it to be in their interest to do so. The role of the politicians is nothing more or less than interference.

GiT December 2, 2011 at 10:05 pm

Then why is Don arguing that Chinese policy benefits countries?

Randy December 2, 2011 at 10:32 pm

Chinese politicians are interfering.

GiT December 2, 2011 at 10:06 pm

Really, it helps if you read what I’m responding too before responding to me.

“calm fears that exports priced artificially low harm the economies of those countries receiving such exports.”

Randy December 2, 2011 at 10:33 pm

…and US politicians would like to as well.

vikingvista December 2, 2011 at 5:51 pm

DB wasn’t arguing that government subsidies or monetary inflation are good things. You need go no further than China itself to find people who are hurt by such policies. The point of this exposition is twofold:

1. Reveal the error of those who believe that such policies benefit the perpetrating nation at the expense of the nations they export to; and

2. Explain how action against the exporting nation, by the government of a country receiving those exports, hurts the receiving economy and abuses many of the the innocent citizens of the receiving country.

If the Chinese central planners commissioned DB to write a letter of advice to them, I seriously doubt it would recommend inflating their money and subsidizing their exports. It would likely read much the same as DB’s recommendations to US policy makers.

GiT December 2, 2011 at 10:18 pm

My point is that ‘which they export to’ is an important qualification, and that the treatment of it is overly simplified in Don’s account.

On 1, It’s not a matter of simply whether or not you receive exports from a country, it’s a matter of how much exports you receive relative to how much you compete with that country’s exports.

On 2, this point is inane. Yes, trade barriers are mutually hurtful. But a threat of trade barriers, if it induces a change in another’s behavior, doesn’t hurt oneself in the least. Talk is cheap. If the talk works, you don’t have to bear the costs of action. And, sometimes, bearing the costs of action is useful, and even economically efficient, if it means you’ll be able to use cheap talk in the future to get the same results you once had to use force to get.

vikingvista December 2, 2011 at 11:39 pm

“Talk is cheap.”

Particularly when everyone knows you won’t take action. And if you never have taken such action, that’s what they will believe. If you have taken such action, then you are most definitely an abuser.

But I would be delighted if all that politicians were capable of doing is talking. I’d say to them–”Spew anything you like.” But alas, that is not reality.

GiT December 3, 2011 at 2:37 am

And the reality of international politics is that nations use coercion, not mutual free exchange, all the time, and that, accordingly, threats sometimes work and coercion is a viable policy.

vikingvista December 3, 2011 at 4:13 pm

Viable does not mean advisable. War is always a viable policy too, and the reality is that war exists.

Nikolai Luzhin, Eastern Promises December 2, 2011 at 1:04 pm

Don:

1) Your premise is a false: China is not sending products to the US either free or below cost. China would not be accumulating all its Dollar Reserves (and other foreign currency positions) if that were true.

2) Second, even if true, any short term advantage has to be weighed against the short and long term adverse consequences.

For starters, China’s prices clearly hurt our producers and the cities and regions where they are located. This are direct and immediate and long term. The later may be very telling. For example, if we shut down a steel mill due to low prices, even if prices rise we may not be able to re-mobilize. I could do on, but you would not listen.

3) You disregard all of Drucker’s wisdom on pricing. I am not going to repeat because, again, it is obvious you have neither read Drucker nor do you appreciate his insights in any meaningful way.

4) Last, you totally disregard the political consequences of what you advocate. If we are benefiting, short term, from China’s exploitation of its people, is that in our long run best interest? It does not seem to me that the United States should ever deal with anyone except in a principled and non-exploitative way. You are obviously not educated in the moral component of conflict, but it is the key driver. Col. John Boyd, the leading strategic thinker for the US Military until he passed away, continually emphasized the moral component of conflict.

You still around, all the time, and write here about gov’t employees being short sighted in your views. Aren’t you being equally short sighted when you fail to consider that exploiting China’s people is opportunistic and amoral?

Julien Couvreur December 2, 2011 at 2:09 pm

I failed to see the logic in (1), so I’ll address (2): if your argument is correct, we should stop foreign aid to poor countries (say Haiti), as this disrupts their local economy.
Further, I’d say Haiti would suffer disproportionately more than the US from the foreign aid they respectively receive. While it is true that aid does affect what is the comparative advantage, the US is likely in a better position than Haiti to change its focus of production.

While I agree that moral principles are important, I failed to see your suggestion in (4). Are you saying we’re not helping the Chinese by accepting the help forced by their government? Maybe we shouldn’t accept that aid? Two problems with such arguments are: the case of Haiti (see above), and trade restrictions (even with bad people) can never improve the situation (ie. the chinese selling at lower price still benefits them, albeit less than otherwise, since they are voluntarily selling).

Nikolai Luzhin, Eastern Promises December 2, 2011 at 8:51 pm

Julien

It China’s prices are below cost, How could it still be accumulating US Currency, bonds, and currency and bonds of other foreign countries.

As for linkage with foreign aid, you have lost me. If I understand what you are saying, if we ship corn to Brazil, we could hurt local growers in Brazil. That seems pretty self-evident to me and one would hope aid programs are structured, taking such considerations into account.

May I suggest as to 4 that people forget favors and remember wrongs. Thus, when the Chinese people start settling up their grievances, my belief is that they will conclude about the US that with “friends like you, who needs enemies.”

In sum, a program sold on opportunism is just plain wrong.

Our worst enemies (Iran and Pakistan) used to be our “friends,” for just this reason.

Mesa Econoguy December 3, 2011 at 11:32 am

It [sic] China’s prices are below cost, How [sic] could it still be accumulating US Currency [sic], bonds, and currency [sic] and bonds of other foreign countries.

Wow. The stupid runs unusually strong in you.

See, Nicki shoe-banger, China is what we “normal” people call a “command economy” which is a bastardization of Western economics, where they can pretty much invent money on the fly.

In fact, we (westerners) do that too, which explains the price behavior of gold over the past 2 years.

Adam Smith December 2, 2011 at 1:24 pm

Chinese capitalists are our kindred spirits. I’ve been reading this excellent Beijing Paper since the WSJ mentioned its daring editorial about China’s Hukou system. A dozen major papers in China carried it as their top story right before China’s annual legislation meeting. The former editor who wrote it, Zhang Hong, is a “freelancer” working elsewhere now, but this is still a great read with top notch English translation.

This article from the economic saviours of the world is one of countless that speaks fondly of the irreplacable Steve Job who is irreplacable in their world of Mao Type Geniuses.

http://www.eeo.com.cn/ens/2011/1024/214202.shtml

Julien Couvreur December 2, 2011 at 2:01 pm

The parallel of currency devaluation with foreign aid is very astute.

But does that make it a good thing?
The devil’s argument: foreign aid is known to have bad effects on the economic development of the targeted country. The US aid in Haiti has negative effects on the local agriculture and economy.
In the end, it is true that any economy can turn to produce whatever is its comparative advantage. I’d say the US is in a better position to do so than Haiti (it’s wealthier to start with and pretty flexible).

vikingvista December 2, 2011 at 4:04 pm

This is a point being addressed to US policy makers. So the question is simply this: Are Americans worse off or better off if the US government intervenes against China? It isn’t about what is the best thing for everyone in the world to be doing.

SaulOhio December 2, 2011 at 2:04 pm

If I understand correctly, Don is not defending China’s currency devaluation. Obviously, it is a bad policy which he would rightly criticize.

Its just that he is trying to make the point that it is not a policy that is harming America’s consumers or economy. It is more damaging to China’s economy, and as an attempt to stimulate China’s economy, it is misguided.

And it is also miguided to try to protect America’s economy from such policies in China. China’s actions distort the markets. It is a bad idea to try to fix the problem by distorting them more with protectionism.

Grinless December 2, 2011 at 2:40 pm

In short : he is arguing (and rightly so) that China Policy is none of our business….

nailheadtom December 2, 2011 at 3:50 pm

Wait a minute. China’s currency manipulation is a “bad policy” but it’s OK for the US and the EU to fool with their own money? The financial mandarins must chuckle when they hear stuff like that.

SaulOhio December 2, 2011 at 4:02 pm

Who said fooling with money was good for ANYONE?

vikingvista December 2, 2011 at 3:55 pm

Your last paragraph nails it.

Nikolai Luzhin, Eastern Promises December 3, 2011 at 7:11 am

idiots

if you are unproductive, you have no choice but to lower the value of your currency.

this fact is what is driving the European Debt crisis. The South is unproductive compared to Germany. All economic activity is moving to Germany. The only step forward for the South is to devalue but this is impossible due to the currency union

Martin Jacomb, Financial Times:

But it is, at the very least, equally important to focus on how the poorer countries can regain their ability to become competitive once more. This is vital for the success of the EU as a whole – including the UK. Since half our foreign earnings come from trade, visible and invisible, with the rest of the EU, the success of the eurozone economy is vital to the UK. This is no time for schadenfreude.
Regaining competitiveness is bound (as it always does) to involve a temporary reduction of labour costs and living standards and, in practice, the only way this can be done with relative harmony is through devaluation. We ourselves in the UK have been reminded of this very recently. As our own currency has depreciated over the recent past, we have regained competitiveness.
Accordingly, unattractive, expensive and messy though this is, dismantling the euro is the least woeful course of action. Otherwise social as well as economic trouble lies ahead and the economic future of the EU itself will be threatened

http://www.ft.com/intl/cms/s/0/17223564-a64f-11e0-8eef-00144feabdc0.html#axzz1fTMjQrrw

GiT December 2, 2011 at 3:57 pm

It’s not harming american consumers.

It is harming certain american producers.

Whether it’s damaging our economy depends on whether it helps American consumers (and producers who use Chinese products as intermediate goods) more than it hurts Americans who compete with Chinese exports, both at home and abroad.

It may be (and probably is) the case that the benefits associated with consumer and producer goods outweigh the losses for those who deal in finished products that compete with Chinese products.

But that doesn’t mean that the policy is of no concern and that it doesn’t harm the American economy. It harms some parts and helps others.

Mark Anthem December 2, 2011 at 4:52 pm

Sounds like schizonomics, where everything must be related. What if today we read that…

World markets suspended the trading of BHP Billiton indefinitely after an approximate 70000% world record rise in price occurred today.

The stock rose due to leaked youtube videos of the launch of World Trade Vehicle I from a Virgin Galactic Spaceport in Australia six years ago.

The resulting windfall has been set aside in a trust fund to provide self insurance and regulatory cover from the expected responses of international authorities.

CEO Marius Kloppers released a short confirmation of the venture which also named Dubaiworld as a third partner in the venture.

Unconfirmed details include a crew of 4 septuagenarian ex-cosmonauts, over 500 unmanned mining drones, and various hightech ore refinery equipment. The space engineers and mining drones have been busy in low gravity modifying the entire surface of the 17km diameter asteroid 233 Eros to include a heat resistant ceramic finish and trajectory-altering boosters enabling it to land intact near Wilkesland, Antarctica.

The mineral value of this approaching near-earth object is estimated to be $40 Trillion in aluminium, $7 trillion in gold, and roughly $300 trillion dollar value in platinum, silver, palladium, zinc and other base and precious metals. The stony object is believed to contain more heavy minerals than have ever existed within the entire Earth’s crust.

A $20 trillion dollar fund has been announced and various internet users worldwide are scrambling to get a grant or loan from WTMission.AQ which is releasing funds after a successful landing in early 2012.

Jon Murphy December 2, 2011 at 4:55 pm

Actually, GiT, you’re not wrong. But that can be said for every type of trade. There is no reason why this is any different

GiT December 2, 2011 at 10:02 pm

There’s not a difference between trade that is profitable because it is subsidized and trade that is profitable because of its ability to control costs?

vikingvista December 2, 2011 at 6:16 pm

“Whether it’s damaging our economy depends on whether it helps American consumers (and producers who use Chinese products as intermediate goods) more than it hurts Americans who compete”

You were right that with any government intervention, there are those who benefit and those who lose.

You are wrong here, however, where you think you can quantify one person’s loss against another person’s gain. Values being subjective, there is no such objective quantification. You can only claim it relative to one person’s values–for instance yours. But who are you to judge someone else’s loss against another’s gain? Not everyone suffers the same from the loss of one dollar, or one hour work, or one hour of leisure.

The most you can do to quantify an objective benefit, is tally the number of people who perceive benefit for themselves relative to those who perceive loss.

But even this has no meaning without a context, and the context is whether or not this is good or bad. That is, although we claim to judge collective economic growth as good, almost none of us would judge the economic growth of a Bernie Madoff or Willie Sutton as good.

Therefore, we must also judge in each case if the perceived benefit or loss of an individual is good. This requires judging as good or bad all relevant economic activities, including subsidies, bank robberies, murder, theft, friendly persuasion, peaceful trade, etc.

So a good economy would be one in which the tally of those perceiving benefit far surpasses the tally of those who perceive loss, but also, all such benefits and losses are judged as good.

For anyone who judges good vs bad based upon whether two people act voluntarily in peace vs one using violent tactics against the other, the appearance of a good economy can only mean one thing–widespread beneficiaries in a free market.

Empirically we know those beneficiaries exist in great numbers. Theoretically we know they must, since left alone, individuals only act in their own self-interest.

GiT December 2, 2011 at 10:03 pm

I may not be able to quantify personal utility but I can quantify dollars.

vikingvista December 2, 2011 at 11:44 pm

Yes. But a $100 gain to Bill Gates does not balance out a $100 loss to my janitor brother’s 12-year-old.

And that’s not because of a difference in wealth, but because of the inescapable difference in perception and values. Comparing one man’s loss to another man’s gain is like comparing meters to seconds.

GiT December 3, 2011 at 2:46 am

Hm, sounds like a pretty good argument for redistribution.

In any case, if it’s not possible to actually evaluate how countries are affected by changes in their wealth, then Don can’t sustain the argument that any given policy helps or harms America.

If it is possible to say that we can talk about how countries are affected by changes in wealth, then we can talk about how other aggregates are affected by changes in wealth, and as such we can, at least in theory, arbitrate between whether a given policy has a larger effect on those who consume Chinese exports or those who compete with Chinese exports.

vikingvista December 3, 2011 at 4:18 pm

Redistribution? Seems like that would be a direct contradiction of my argument. Maybe you still don’t comprehend the implications of the fact that values are subjective. Explain how you can argue redistribution from that.

Ubiquitous December 3, 2011 at 12:00 am

Whether it’s damaging our economy depends on whether it helps American consumers (and producers who use Chinese products as intermediate goods) more than it hurts Americans who compete with Chinese exports, both at home and abroad.

And that’s also true of all that free sunlight and sun-warmth we import every day.

Sure, it helps American consumers, but it also hurts certain American producers; those who could be producing lots of additional heavy shutters, lightbulbs, space-heaters, and electric power — and hiring lots of additional workers to do it. The sun is clearly costing us jobs!

Of course, whether or not free light and warmth from the sun is damaging our economy depends on whether it helps American consumers more than it hurts American producers who would (in the absence of sunlight and sunwarmth) otherwise compete with the sun.

Wouldn’t you agree?

Jon Murphy December 2, 2011 at 3:19 pm

Wow…this blog post has blown up. Trade talk always seems to cause controversy.

Greg Webb December 2, 2011 at 3:45 pm

And, it always will. No one wants to compete. Competition is no fun!

Ken December 2, 2011 at 4:14 pm

I tell my students (I teach marketing at a state university) that competitive markets benefit customers. They discipline businesses. Actually, in the long run they benefit businesses too, but in the short run it’s all pain (exaggeration to illustrate a point), and business people don’t like pain.

anjie December 8, 2011 at 3:27 am

but only competition can makes us go forward

Jon Murphy December 2, 2011 at 4:36 pm

I’d like to propose a question.

Let’s assume China does not manipulate its currency to keep their exports low priced. Let’s assume the US manipulates our currency to keep our imports cheap.

Does that change the situation?

In other words, does it matter who is doing the trade manipulation? I believe everyone here knows my answer to this question, so I’ll refrain from posting myself. I am interested in hearing other’s opinions.

vikingvista December 2, 2011 at 6:30 pm

Nope. There is nothing inherently good or bad in any particular price distribution. Good and bad are what one person does to another. Whether you are inflating or deflating your money, it is wrong to use violence to force someone to use it. It is also wrong to use violence to interfere with the peaceful voluntary trade of two individuals, regardless of which way the goods are flowing.

renee December 3, 2011 at 3:07 pm

Honest question about the hypothetical posed by Mark Perry:
Wouldn’t free Chinese goods be nice for a while until we became completely dependent on them (Like the conservative critique against welfare)?

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