International and Intranational Free Trade and Protectism, Are There Really Any Differences?
Here's an excerpt from an excellent post from Cafe Hayek's Don Boudreaux, arguing in favor of free trade, both international and intra-national, and against protectionism, both international and intra-national:
"If it’s true that theory and evidence in favor of protectionism are sufficiently strong to warrant economists abandoning their conclusion that free-trade policy is generally sound, then why shouldn’t economists — led by [free trade skeptic] Dani Rodrik — also start exploring the potential benefits of intra-national protectionism? Surely a scholar not benighted with the free-trade "faith" ought to take seriously the possibility that, say, Tennesseeans could be made wealthier if their government in Nashville restricts their ability to trade with people in Kentucky, Texas, Rhode Island, and other states?
Indeed, such an objective scholar should be open also to the possibility that residents of Nashville can be made wealthier if their leaders restrict their ability to trade with people in Knoxville, Memphis, Chattanooga, and other locales in that state.
I suspect that if someone proposed to Dani Rodrik [or Ian Fletcher] that he explore the wealth-creating potential of state-level protectionism, he would refuse. He would likely (and correctly) say that it’s ridiculous on its face to suppose that such protectionism would make the people of Tennessee as a group wealthier over time. If my suspicion is correct, then to what would Rodrik himself attribute his out-of-hand dismissal of the notion that Tennessee tariffs might well make Tennesseeans richer?
Would he realize to his chagrin that he is a benighted, faith-based non-scholar? Or would he instead understand that the case for an extensive, market-driven division of labor is so strong — and that the political border that separates Tennessee from other states is so economically meaningless — that it would be as pointless for a serious economist to explore the economic potential of Tennessee protectionism as it would be for a serious oncologist to try to cure a patient of cancer by bleeding that patient with leeches."
70 Comments:
I think Ian Fletcher addressed this in the excerpt I quoted from him in the previous post's comment thread:
"As Ian Fletcher noted in this excerpt from his book, "laissez faire hasn’t been taken seriously in America’s domestic economy for well over 100 years". He didn't offer this as a specific example, but it seems clear to me that the federal minimum wage is an example of the lack of laissez faire domestically -- Clay County can't offer a minimum wage 1/10th as large as Loudoun County, for example. Fletcher's point was that if unrestrained laissez faire doesn't make sense domestically, why would it make sense when it comes to international trade?"
it seems to me that there are numerous very interesting test cases for this theory.
let's take one of the most heavily regulated type of interstate commerce (one that is all but banned): health insurance.
i defy anyone to tell me how Massachusetts citizens are made better off by their inability to buy the kind of health insurance available in connecticut or california.
we think in terms of national trade balance ONLY because we are used to using national borders as an "us vs them" demarcation, but i completely agree that they are as totally irrelevant as state borders, or those of towns or neighborhoods or households.
it amazes me that the same "economists" that can see so obviously that each individual should not make all his own goods and grow all his own food can then argue that there is some scale at which this stops being true.
why would such a thing occur? there is no even remotely valid reason.
this whole argument is based on xenophobia and subsidies to special interests.
Dave, I can understand how restricting production can benefit society, but how does restricting free trade benefit society?
International and Intranational Free Trade and Protectism, Are There Really Any Differences?
Not really. Trade is simply a transaction between two parties that have decided that the transaction would make them better off. Interference with that transaction by a third party harms one or both of the sides and cannot be justified on moral or ethical grounds.
We allow a "State-Subsidized" Chinese Textile Industry to put our own textile plants (just to give an example) out of business, and then we give unemployment, medicaid, and various other transfer payments to the, now unemployed, workers. Right.
Unrestrained "Free Trade" would only make sense in a country that had no Social Security, Medicare, SSI, Medicaid, Food Assistance, etc.
To, in our case, let China, Inc. pick off our industries, one by one, would be economic suicide.
Rufus II, yes, China is committing economic suicide, like Japan before it.
If China wants to give away the store, to the U.S. consumer, why stop it?
Americans have better things to do than slave in an obsolete factory.
A friend once said to me, "I'm so broke that if fish cost a quarter all I could do was stand on the dock, and say *ain't them fish cheap?*"
PT, "cheap" is good if you have a job. Don't mean much, otherwise.
Rufus II, is a country better off with more goods and fewer jobs or fewer goods and more jobs? Similarly, would you rather work more for less or work less for more?
PT, I imagine that 9.4% of our citizens that are Unemployed would just like a job.
And, since I'm paying their Unemployment, Food Aid, and Medicaid, I think I agree with them.
"...then we give unemployment, medicaid, and various other transfer payments to the, now unemployed, workers. Right"...
Maybe its time to put a stop to those constitutionally questionable 'nanny state programs' that extort from the productive in order to give it to someone else Rufus...
"And, since I'm paying their Unemployment, Food Aid, and Medicaid, I think I agree with them"...
Well Rufus this is all kinds of work out there going wanting for a lack of people willing to do it...
Job Openings and Labor Turnover – October 2010
Yeah, we could be like Mexico. They only collect 9% of GDP in taxes, and do without all of those "nanny state" programs. Sound good?
Oh, and they have "free" trade agreements with just about every country on earth. How's them apples?
"Yeah, we could be like Mexico. They only collect 9% of GDP in taxes, and do without all of those "nanny state" programs. Sound good?"...
Why yes sir! It sure does sound good to this 'non-socialist'...
Dave,
"Fletcher's point was that if unrestrained laissez faire doesn't make sense domestically, why would it make sense when it comes to international trade?"
Why are you assuming that laissez faire doesn't make sense domestically? Just because there's a federal minimum wage exists, for example, doesn't mean it's a good thing. I can't think of a single restriction on interstate trade that helps consumers. The same is true of international restrictions.
"Fletcher's point was that if unrestrained laissez faire doesn't make sense domestically, why would it make sense when it comes to international trade?"
I don't doubt Mr. Fletcher is being consistent. Unfortunately his premise is 100% wrong, therefore his conclusion is 100% wrong. Laissez faire, or rather the lack of violent intervention in the free market, does make sense and at all arbitrary political divisions. It makes 'sense' if sense is understood to be prosperity for all.
Mexico sounds great, Rufus, too bad it isn't true. Their federal spending alone is 27% of GDP, higher than the US, and that's not even counting state and local. As for jobs, the European states with protectionist policies are happy if they "only" have 9.4% unemployment, as France averages 9-10% unemployment over the last 25 years. We're in a period right now where we have more people than work to do, that'll change as we find something else. I'm one of many that thinks another tech boom is on the horizon, that'll float all boats like it did last time and be more sustainable this time around.
You want a glimpse into your future under Unrestrained "Free" Trade.
Check out the "Rare Earths" industry.
Now, imagine that was the "Steel" industry, and the "Automotive" industry. Your various "high tech" industries.
Same forces at play.
We allow a "State-Subsidized" Chinese Textile Industry to put our own textile plants (just to give an example) out of business, and then we give unemployment, medicaid, and various other transfer payments to the, now unemployed, workers. Right.
If the Chinese choose to subsidize our clothing purchases we would benefit from those subsidies. There are very few American textile workers because even without the Chinese competition they would be unable to compete with workers from other countries. That means that Chinese subsidies would hurt very few workers directly. But all of us buy clothing. That means that the Chinese are subsidizing all of us by allowing us to buy for less than we would otherwise pay.
The same logic holds for whatever other example you may choose to bring up. Of course, China is not a rich country so it is unlikely that it could 'subsidize' my clothing purchases or anything else for very long. Selling stuff to other countries at a loss is not a path to prosperity so you are unlikely to find people dumb enough to try it for very long.
Sprewell, not the same thing. You're counting income (and, expenditures) from the *Government Owned* oil industry.
Using Slave labor to accumulate $2.7 TRILLION in Cash just might be a way to "prosperity," though.
BTW, how much CASH does Your Government have in the bank?
Ummmm, I think we Tennesseans might warm to the idea since Jack Daniels is distilled in Lynchburg.
Think we might get rich like an oil-producing country and become a trust-fund type citizenry by hoarding our whiskey?
To be fair to the protectionists, there is a difference between foreign and intrastate trade: Tennessee is not about to attack Kentucky anytime soon. The protectionist/mercantilist argument is essentially a descendant of an earlier war-prone time generations ago, when one country benefiting more from trade than other, like the US benefits more than China from free trade today, was considered dangerous because we might use that economic strength to attack China someday. However, with war becoming a relatively rare occurrence after WWII, this jingoistic outlook makes little sense today, as there's almost zero chance of the US using its great strength to invade China these days. Most of the lefties making protectionist arguments won't usually come out and say this, as they like to think of themselves as peaceniks, but they essentially argue for idiotic trade tariff wars to replace idiotic real wars.
"Using Slave labor to accumulate $2.7 TRILLION in Cash just might be a way to "prosperity," though"...
Slave labor?!?!
Who has slave labor rufus?
"BTW, how much CASH does Your Government have in the bank?
"...
Well rufus 'if' you're talking about Uncle Sam I do believe that there's something like $14 trillion in IOUs in his/our bank, right?
Still think those 'nanny state programs' are a good idea?
Unrestrained "Free Trade" would only make sense in a country that had no Social Security, Medicare, SSI, Medicaid, Food Assistance, etc.
That makes no economic sense. Free trade lowers waste as products are made by those that use the fewest inputs at the lowest costs. A country that had a big government and a great deal of waste benefits from free trade because the unsustainable system tends to last longer than it otherwise would have.
Without access to cheap Asian goods and cheap credit the US system would have broken down a long time ago.
A friend once said to me, "I'm so broke that if fish cost a quarter all I could do was stand on the dock, and say *ain't them fish cheap?*"
PT, "cheap" is good if you have a job. Don't mean much, otherwise.
You are mixed up. We live in an era where poor people suffer from obesity, own computers, cell phones, and flat screen TVs. Cheap is good because it means an abundance that allows you to survive.
PT, I imagine that 9.4% of our citizens that are Unemployed would just like a job.
And, since I'm paying their Unemployment, Food Aid, and Medicaid, I think I agree with them.
There are so many jobs around that your country depends on illegal immigrants to do them. I would suggest that if the 17% (not 9.4%) that are underemployed really wanted jobs they would have them. Most adults are not unemployed because they can't find jobs. They are unemployed because they want to be paid more than what the market judges that they are worth.
Yeah, we could be like Mexico. They only collect 9% of GDP in taxes, and do without all of those "nanny state" programs. Sound good?
While 9% is still too high it would be a very good start. Let people keep their own money and let them purchase their own goods and services from an unhampered market.
By the way, you may want to educate yourself. Mexico does not have a free market.
Well rufus 'if' you're talking about Uncle Sam I do believe that there's something like $14 trillion in IOUs in his/our bank, right?
?
Are you saying that owing $14 Trillion is the same as "having" $14 Trillion?
And, tell me Vange, what "free market services" would you purchase in Northern Mexico to keep yourself safe from the Drug Gangs if you were a small businessman, there?
Rufus, you're right: there's nothing different between trade in rare earths and steel or any other commodity. And if the US government decides to make domestic steel production cost-prohibitive like it did with rare earths production, and if US voters decide to keep that government in power, then we'll be dependent on other countries for our steel.
Of course, just like rare earths, if foreign steel producers eventually decide to restrict their steel exports, then the US price of steel will eventually become higher than the artificial production costs imposed by the US government, and domestic production will reappear - just as it is doing now with rare earths producer Molycorp. And if the foreigners don't restrict their steel exports, then the US will have a plentiful source of relatively cheap steel and its citizens can allocate their labor and investment capital towards more efficient and profitable industries.
Heck, I'm a LAWYER, and even *I* can figure this stuff out!
p.s. While national security is a perfectly acceptable theoretical justification for trade protectionism, in reality the justification is almost always a complete canard. See, e.g., here: http://www.freetrade.org/node/239 with respect to the US steel industry.
You want a glimpse into your future under Unrestrained "Free" Trade.
Check out the "Rare Earths" industry.
What about it? The US companies, which had a big part of the market could not compete because of the very high regulatory burden placed on them. So they idled their mines and we got what we needed from the Chinese, which had around 90% of the market. Now that the Chinese have run into trouble and can't (or won't) export we need to find other reliable sources. Those of us who saw the problem coming and invested in the sector should make some decent profits as we solve the problem and provide what the market demands. Given where we are the Chinese are doing us a favour because they are ensuring that the government will not get in the way and become very unreasonable, at least for a while.
Now, imagine that was the "Steel" industry, and the "Automotive" industry. Your various "high tech" industries.
You would need a great deal of imagination and a suspension of logic for that to happen. The simple fact is that the Chinese can't afford to subsidize the world's consumers because they are not very rich. That is something that you seem to have a problem understanding. When your typical Chinese consumer is paying $10 for a cup at his Beijing Starbucks he gets a bit pissed off when he is asked to subsidize my purchase of wind turbines, automobiles, or clothing.
then the US price of steel will eventually become higher than the artificial production costs imposed by the US government, and domestic production will reappear
And, THAT is the fatal flaw of many "laissez faire" arguments.
TIME.
Your economic model can't model it; but the average man understands that by the Time all that "comes to pass" we could well be "Deader'n a doornail."
Wait, I thought you said he WAS subsidizing my purchases through his low wages. Which is it?
"Are you saying that owing $14 Trillion is the same as "having" $14 Trillion?"...
Well you know rufus considering what the 'actual' worth of today's greenback is you've made a pretty good description of what $14 trillion really is for us...
Sprewell, not the same thing. You're counting income (and, expenditures) from the *Government Owned* oil industry.
But isn't that a valid approach? If we ignored state owned industries and looked at the taxation of the 'private sector' even North Korea can be said to be a low tax, free market oriented regime.
Sprewell is a lot closer to the truth than you are. But your question is still a good one. Yes, a tax rate that only took 9% of GDP would be a very good start and would make the US a far better place to work and live in.
Look, I'm just saying we have to use a little common sense in this "Free Trade" argument.
A country of a Billion, plus, people working for peasants wages, subsidizing their industries with never-to-be-repaid loans, manipulating its currency, egregiously, stealing intellectual property at will, with $2.7 Trillion in the bank can't be taken lightly.
There Has to become a time when you say, "time out, let's think about it."
Using Slave labor to accumulate $2.7 TRILLION in Cash just might be a way to "prosperity," though.
What slave labour? Slaves make poor workers and offer no return on capital investments. If slave labour were the key to prosperity Cuba, North Korea, Mao's China, and Stalin's Russia would have been economic powerhouses.
BTW, how much CASH does Your Government have in the bank?
A trick question. The government can get the Fed to print all of the CASH it wants.
We also *COULD* be attacked by laser-wielding dragons some day, but I'm not willing to be impoverished to protect against that extremely remote hypothetical.
I'll take voluntary prosperity based on economic and historic reality over forced poverty based on paranoid delusion any day, thanks.
To be fair to the protectionists, there is a difference between foreign and intrastate trade: Tennessee is not about to attack Kentucky anytime soon.
It is far more likely that Tennessee will try to invade Kentucky than it is that China will try to invade the US.
The protectionist/mercantilist argument is essentially a descendant of an earlier war-prone time generations ago, when one country benefiting more from trade than other, like the US benefits more than China from free trade today, was considered dangerous because we might use that economic strength to attack China someday.
No. The mercantilist argument comes out of self interest by producers or ignorance of economics.
However, with war becoming a relatively rare occurrence after WWII, this jingoistic outlook makes little sense today, as there's almost zero chance of the US using its great strength to invade China these days.
LOL. The US is losing in Iraq and Afghanistan. It is in no position to invade China or anyone else with a decent sized population and a strong economy.
Most of the lefties making protectionist arguments won't usually come out and say this, as they like to think of themselves as peaceniks, but they essentially argue for idiotic trade tariff wars to replace idiotic real wars.
The lefties are economically ignorant. The fact that they prefer peace is one of their good points.
And, tell me Vange, what "free market services" would you purchase in Northern Mexico to keep yourself safe from the Drug Gangs if you were a small businessman, there?
Mexico has not free market services. In a free market there would be no drug gangs because there would be no laws against drug use. There would be no need for protection just as there is no need for me to protect myself from the local drug store owner.
p.s. While national security is a perfectly acceptable theoretical justification for trade protectionism, in reality the justification is almost always a complete canard. See, e.g., here: http://www.freetrade.org/node/239 with respect to the US steel industry.
Great article. Thanks.
Non Sequitors, Vange. I could say, "if *unrestrained* free trade led to prosperity Mexico would be the Richest Nation on Earth."
Not a trick question. Our Government has NO cash, regardless of how much has/will be printed, and China has $2.7 Trillion. Nothing "tricky" about that.
Your economic model can't model it; but the average man understands that by the Time all that "comes to pass" we could well be "Deader'n a doornail."
Nonsense. If the government gets out of the way investors can build modern steel mills with state of the art equipment fairly quickly. When it comes to steel mills there certainly aren't nearly as many hoops to jump through as you would need to build nuclear power plants or refineries and there are plenty of mechanical engineers who have skills that can be utilized in rapid fashion. We already have a lot of low cost of steel mills that the unions or local regulators have failed to destroy so both the skill sets and capital would be available to scale up existing operations.
Well then, Vange, what if the drug gangs became "Extortion" Gangs. Who would protect you then?
Look, I'm just saying we have to use a little common sense in this "Free Trade" argument.
How ironic. You have no common sense and imagine things that don't exist yet expect others to accept your delusions in order to show that they have common sense.
A country of a Billion, plus, people working for peasants wages, subsidizing their industries with never-to-be-repaid loans, manipulating its currency, egregiously, stealing intellectual property at will, with $2.7 Trillion in the bank can't be taken lightly.
But if it is what you claim it to be, it can be taken lightly. Peasants have no way to subsidize wealthy consumers. And how can you be worried about $2.7 Trillion in the bank if there are so many 'never-to-be-repaid loans'? If the loans are not repaid the money is not there.
There Has to become a time when you say, "time out, let's think about it."
Think about what? Adopting a failed economic argument because we are too lazy to learn something about economics? Why not take some time and learn so that you don't have to keep embarrassing yourself by advocating mercantilism and an even more intrusive state?
I could say, "if *unrestrained* free trade led to prosperity Mexico would be the Richest Nation on Earth."
But Mexico has never had 'unrestrained' free trade so you could not say it without being wrong.
Our Government has NO cash, regardless of how much has/will be printed, and China has $2.7 Trillion. Nothing "tricky" about that.
You don't understand how make-believe money works, do you? The US government can decide to print a $3 trillion note tomorrow if it wished and would have more 'money' than the Chinese. And if you think that the Chinese believe that they will get $2.7 trillion of purchasing power you are deluded. They know that the US will try to devalue its currency by printing as much as it can get away with, which is why they are building all that infrastructure with borrowed dollars and buying up natural resource companies with a lot of debt on their books. One day they will announce that they are not buying more treasuries and the USD will collapse. While their UST holdings will lose market value the real infrastructure will remain as the debt that financed it melts away. And the loss in the UST portfolio will be offset by the gain in the market value of the companies as their debt also melts away. The real gain will come when the RMB goes up in value against the USD and Chinese consumers see a decline in inflation as their purchasing power explodes. As Marc Faber says, that is the time when your children seek jobs as nannies and maids for rich Chinese families who are looking to have their children improve their English language skills.
Peasants have no way to subsidize wealthy consumers.
Of course they do. Through their Cheap Labor. They've been doing it for 10,000 years, plus.
And how can you be worried about $2.7 Trillion in the bank if there are so many 'never-to-be-repaid loans'? If the loans are not repaid the money is not there.
huh? That $2.7 is Cash in the Bank. That's there whether those loans get paid back, or not.
Well then, Vange, what if the drug gangs became "Extortion" Gangs. Who would protect you then?
Private security services. In a free market security services will stick to what they are paid to do. You won't see police hiding in bathrooms trying to trap people looking for sexual partners or hiding behind bushes looking for speeders in areas specifically designed to raise revenues for the city or county by catching speeders.
And, who's going to protect your family from drunken, speeding drivers?
Or, come put out the fire when your neighbor's house goes ablaze (threatening yours?)
Who's going to inspect the food before it gets to your local Kroger? Or operate the Court System? Or maintain the roads, and bridges?
Rufus, our govt doesn't have $2.7 trillion in investments- it's not cash the Chinese are primarily holding- only because we are not so stupid as to let dimwit politicians invest our money, unlike the Chinese. We elect politicians like Bush to put in tax cuts to send that cash back to us, so we can invest it best. What we do have is double their net worth, around $45-50 trillion once you take out govt debt, despite having less than a third of their people. It is because you are so rich that you're whining about losing even a little bit in average wages and employment, which would be inconceivable wealth to the average Chinese person.
But then, I'm deluded, and have no "common sense."
VangeIV: "One day they will announce that they are not buying more treasuries and the USD will collapse."
I don't know,vange. The data I've seen say otherwise.
From Oct-2009 to Oct-2010, U.S. public debt increased from $7.48 trillion to $9.06 trillion. That's an increase of $1.58 trillion. Yet China decreased it's holdings of that debt from $938 billion to $906 billion.
U.S. borrowing increased significantly while China stopped lending to the U.S. government. Yet the dollar has not collapsed.
These figures are available at the websites of the U.S. Treasury Department and the U.S. Federal reserve Board.
Do you have other data about Chinese purchases of Treasury securities?
Of course they do. Through their Cheap Labor. They've been doing it for 10,000 years, plus.
Let us go to your steel example to show your ignorance of the issue.
When I look at some of my numbers I find that not long ago, the price of steel in the global markets was running around $250 per ton. The cost of labour ran to around $30-$35 because in the modern mills it takes very little labour to produce each ton of steel.
The cost of shipping steel from China to the US was around $80 per ton, more than twice the labor cost.
This means that Chinese workers are not subsidizing Ford's and GM's steel use and there is no way for you to come up with a narrative that would make it so.
Now you could argue that the Chinese government does not tax its companies sufficiently, that it provides cheap loans not available to domestic manufacturers, or that it offers some kind of break to offset the transportation costs incurred by producers. But as I said, China is not a very rich country and is not capable of subsidizing Western consumers for very long.
huh? That $2.7 is Cash in the Bank. That's there whether those loans get paid back, or not.
You have no idea what you are talking about. China does not have $2.7 trillion in cash in the bank. It has loaned that cash to the US treasury by buying its bonds and to Chinese industries that you claim will never be able to pay back the loans.
And as I said, the US government can decide to print a $3 trillion dollar note tomorrow and use it to buy back all of its bonds back from China even as it gives every US resident ten such notes. You seem to forget that you are not talking about commodity money but fiat money, which eventually becomes worthless. From what I can see there is no better trade than getting real and useful goods from China while we give the Chinese producers newly printed pieces of green paper to pay for them. If the Chinese wanted to use those pieces of paper they would have to invest them in things that the US was good at making and the US export market would do well. Of course the Chinese could do something stupid like burn the money or buy treasury bonds (its virtual equivalent). But what that would mean is that Americans get to purchase useful things that they want for depreciating pieces of paper that they do not want. Unless you are a saver who is stupid enough to hold USTs or USDs what is so bad about that?
Sure, it's just that it was "ALL The Other" workers subsidizing the Steelmakers (by way of their government's cheap loans, and their own low wages,) and not just the steel workers.
So you're saying Huge Fiscal Deficits are okay as long as someone is dumb enough to buy the bonds? Is that it?
Look, we're getting out into the weeds, here. I think the subject was "unrestrained" free trade. I feel like our trade policies should be pretty much like looking into a mirror. They protect, we protect. They cut tariffs, we cut tariffs. What's wrong with THAT?
And, who's going to protect your family from drunken, speeding drivers?
The people who own the roads and are liable if they allow their customers to harm me on those roads. The insurance companies that write policies to protect me.
Or, come put out the fire when your neighbor's house goes ablaze (threatening yours?)
The fire protection services that are paid to do so.
Who's going to inspect the food before it gets to your local Kroger?
The private company that Kroger pays to certify its produce. Who certifies my hairdryer today?
Or operate the Court System? Or maintain the roads, and bridges?
The private institutions that compete for those services. Many companies have already ditched the inefficient state courts and use private arbitrators. I already use a private toll road that is maintained by the operator. My $0.65 per liter of gasoline taxes can pay for my road usage and I'll still come out ahead. Most of the roads I use on a daily basis were not built by the state but the developers who built my area. Their maintenance is financed for by taxes that I pay.
But then, I'm deluded, and have no "common sense."
That is the first correct statement that you have made. It's a good start.
VangeIV: "One day they will announce that they are not buying more treasuries and the USD will collapse."
Jet: "U.S. borrowing increased significantly while China stopped lending to the U.S. government. Yet the dollar has not collapsed."
The key word above is ANNOUNCE. Once it is clear that China is no longer willing to support the USD the game will be over and no amount of Fed purchases of USTs will stop the momentum to the downside. You have to keep in mind that the US has been helped by the trouble in the Europe. The trouble in the PIIG countries have made the Euro weak and have added support for the USD, which was very unpopular before the Euro troubles became a big issue. Eventually the looming bankruptcies in many of the states and troubles in the muni market will undermine the USD's position and we will see a decline even without explicit comments from China.
For now the Chinese are very happy to be able to use the USD holdings to build infrastructure in Africa, support the European bond markets, buy commodity companies around the world, purchase futures contracts, etc. If we have noted one thing is that the Chinese can be very patient.
$0.65/litre?
Where do you live?
"Our Government has NO cash, regardless of how much has/will be printed, and China has $2.7 Trillion"...
Well if the Chinese have $2.7 trillion of our dollars then don't they have nothing too?
Hey rufus occassionally Professor Mark puts something on this blog from this site: International Liberty run by Dan Mitchell...
He also has good stuff...
Check this out and maybe you'll see the posting: A Two-Part Quiz for Libertarians and other Advocates of Limited Government
So you're saying Huge Fiscal Deficits are okay as long as someone is dumb enough to buy the bonds? Is that it?
I am not as unconcerned about deficits as Don and Mark are. But I agree with them that the money used to buy imports has to be reinvested in the US economy one way or another or it becomes useless to its holders.
My problem is that the US has a system that discourages capital formation. That means that eventually the deficits will destroy the purchasing power of the currency. While tragic for those that are naive or ignorant, the loss of purchasing power is not a bad event for those that pay attention and will benefit when the USD is devalued substantially. On the positive side, the drive towards statism will have to be resolved one way or another.
Look, we're getting out into the weeds, here. I think the subject was "unrestrained" free trade. I feel like our trade policies should be pretty much like looking into a mirror. They protect, we protect. They cut tariffs, we cut tariffs. What's wrong with THAT?
What is wrong is that it is stupid from an economic point of view.
First, if the real wages of most people rise because someone wants to subsidize their consumption they are not worse off. And those that are doing the subsidizing are not better off. (See the master/slave relationship.)
Second, when we trade we exchange what we have to offer with what someone else has to offer. It is not the government that makes the purchase and not the government that makes the products. As such, governments have no business making it more expensive for us to buy what we want.
As was pointed out in another blog recently, the best argument for free trade was made by Robert Peel in the House of Commons when he explained why he was supporting the repeal of the "Corn Laws." They supported British farmers from foreign competition by providing a floor for grain prices while they hurt workers and industrialists. Peel said, "I am bound to say that it is our interest to buy cheap, whether other countries will buy cheap or no." I have yet to find an argument on the other side of the issue that is as clear, concise, or accurate.
So, you live in England?
$0.65/litre?
Where do you live?
I live in Ontario. The government gets around $0.31 per liter directly upon my purchase. But the price I pay before the excise and sales taxes already includes around $0.28 cents in taxes paid by the producer and passed on to me.
I am lucky because if I lived in Germany I would be paying around $6.30 per US gallon, not including the taxes paid by the producers.
Peak Trader,
"how does restricting free trade benefit society?"
I accidentally answered this question of yours in the previous post's comment thread,
"For starters, restricting free trade enabled the U.S. to develop a manufacturing base in the first place. Intelligent and limited restriction of free trade can also prevent a global race to the bottom in wages and working conditions."
Mark,
I recommend you consider switching to Disqus as a commenting system. It makes it much easier to follow comments (e.g., who is responding to whom) and commenters also can get e-mails notifying them of responses.
VangeIV: "The key word above is ANNOUNCE."
Right. Because even though the Chinese stopped increasing their holdings of U.S. Treasury securities over a year ago, no one is going to be paying attention until they ANNOUNCE that's what they are doing.
Right. Because even though the Chinese stopped increasing their holdings of U.S. Treasury securities over a year ago, no one is going to be paying attention until they ANNOUNCE that's what they are doing.
You are missing the point. The Chinese have kept saying that they support the USD and will keep holding treasuries. When they make it clear that is not going to be the case and that the recent changes are not just some simple rebalancing process the floor under the USD will be removed and the USD will lose at least half of its purchasing power in a few days. As I wrote before, the USD is benefiting from a weak Euro and money printing across the globe.
What people are missing is the huge amount of inflation in China and the lower real growth rates than what is being reported. Eventually the Chinese central planners will have no choice but to allow the currency to find its own level. When that happens we will see extreme volatility in the currency market and the beginning of the end for most fiat currencies. In order to stabilize the world economy we will likely see currencies linked to commodities again.
vangeIV: "the USD will lose at least half of its purchasing power in a few days."
Oh, come on! That's not going to happen. Be serious.
Oh, come on! That's not going to happen. Be serious.
We live in a very dynamic and non-linear world. If it can happen to other countries it can happen to the US.
I can't answer all these criticisms in a sound-bite. Please see my book Free Trade Doesn't Work for my responses. The website is at www.freetradedoesntwork.com.
I can't answer all these criticisms in a sound-bite. Please see my book Free Trade Doesn't Work for my responses. The website is at www.freetradedoesntwork.com.
Sorry but I do not have time to read books that advocate mercantilism and protectionism and protect the interests of inefficient producers who cannot compete. While I understand how increased prices will help some of the manufacturing companies that you represent it will not help the people who have to devote more of their incomes to buy the products that your clients make.
Post a Comment
<< Home