Sunday, July 24, 2011

Quote of the Day: Understanding Mercantilism

"No politician ever gained power by not interfering in the market, and no special interest ever sponged off the rest of society by competing in the free market. That's all the analysis you need to understand mercantilism."

~Geoih in a comment on this April 14, 2011 CD post

20 Comments:

At 7/24/2011 11:37 AM, Blogger Highgamma said...

Free markets take power away from politicians and give it to the market participants. Competitive free markets are even better since the consumer ultimately reaps all of the benefits.

No self-respecting politician would ever put up with that.

 
At 7/24/2011 12:53 PM, Blogger Buddy R Pacifico said...

"No politician ever gained power by not interfering in the market..."

Does not the constitution mandate interference in the market to uphold property rights; both real and intellectual -- a cornerstone of capitalism?

Geoith might argue against this BUT Adam Smith did not. Here is a quote from Mr. Smith given in his lecture on December 24, 1762:

" We may observe that not only property but all other exclusive rights are real rights. Thus the property one has in a book he has written or a machine he has invented, which continues by patent in this country for 14 years, is actually a real right. During that time he can claim restitution, or shew for damages from any one who prints his book or copies his machine, so that he may be considered as having a real right to it."

Trade between nations should not acquiesce property rights. It is the role of government to uphold property rights thus, requiring interference to squash the "the breaking of fences" from illegal seisure. Theft of intellectual property rights by foreign nationals, that are parties to agreements against such seizure, requires government interference.

 
At 7/24/2011 1:16 PM, Blogger Buddy R Pacifico said...

Adam Smith's On Jurisprudence lecture on December 24, 1762 link.

 
At 7/24/2011 2:29 PM, Blogger Benjamin said...

Yet the mercantilist nations (China, S. Korea, Taiwan) are thriving, and are not over-indebted like the USA, Greece, Italy etc.

Even vast political power is coming with China's mercantilism, as it becomes the largest trading partner of every nation in the Far East and SE Asian region.

We have aircraft carriers and Detroit.

In 20 years, the argument will be over--China will have easily trumped the USA without firing a shot.

 
At 7/24/2011 3:31 PM, Blogger arbitrage789 said...

Benjamin @ 2:29

“In 20 years, the argument will be over--China will have easily trumped the USA without firing a shot”.

I’m afraid that you may end up being correct, although people used to say this about Japan in the mid-1980’s.

For sure though, the U.S. share of the world economy will continue to decline, and likely at an accelerating rate.

 
At 7/24/2011 5:03 PM, Blogger Ron H. said...

"For sure though, the U.S. share of the world economy will continue to decline, and likely at an accelerating rate."

This means the world economy is growing at an increasing rate, which is a good thing, right?

It means fewer poor people in other parts of the world.

 
At 7/24/2011 5:50 PM, Blogger Benjamin said...

Arbitrage-

According to a study by the Hong Kong Monetary Authority, China's central bank leans towards growth rather than fighting inflation.

Japan's central bank has successfully fought inflation--even brought about mild deflation--for 20 years. Of course, the yen has doubled against the dollar and the Japanese economy has suffocated in that same period. Equities and real estate values have fallen for a generation.

Would China make the same mistake? Unknown, but doubtful. They seem too growth oriented, and not likely to let a curious and anal fixation with inflation get in the way.

The USA appears to be going down the Japan path, but without the saving grace of Japan's culture. It could get ugly here.

If you can migrate assets to the East you may wish to do so. I have land in Thailand.

Unless the Fed goes to a different policy, we may see the S&P 500 lower in 10 years than now--and we are now lower than 10 years ago. And still, people will cower before inflation. That is called doing a Japan.

The question facing the USA today is: Are low inflation rates worth 10 more years of economic rot as we glacially deleverage?

Meanwhile, China's economy and trading relations will flourish.

 
At 7/24/2011 6:21 PM, Blogger geoih said...

Quote from Buddy R Pacifico: " Theft of intellectual property rights by foreign nationals, that are parties to agreements against such seizure, requires government interference."

Intellectual property in an invention of the state. It is not tangible. It is a political concept for granting arbitrary special privilege (why 14 years?). Why would other countries (different political entities) have any duty to recognize it.

 
At 7/24/2011 6:41 PM, Blogger geoih said...

Quote from Benjamin: "Yet the mercantilist nations (China, S. Korea, Taiwan) are thriving, ..."

The power elites are thriving, at the expense of their own people. There are simply more table scraps left over for the masses under their present system than under their old communist and fascist systems.

Mercantilism was/is not sustainable for Europe or America. Asia will be no different.

 
At 7/24/2011 6:53 PM, Blogger Hydra said...

There are reasons that the constituency of politicians insist they interfere in the free market.

 
At 7/24/2011 6:53 PM, Blogger Buddy R Pacifico said...

Geoith states: "Intellectual property in an invention of the state. It is not tangible. It is a political concept for granting arbitrary special privilege (why 14 years?). Why would other countries (different political entities) have any duty to recognize it."

The England during the time of Adam Smith had patents and copyrights. It was obvious to most that people must have rights to thier inventions and writings.

Geoith would grant monoploly power to those that steal property inventions and copyrights; no close substittutes need be purchased. Geoith would absolve comparative adavantages of intellectual property rights thus, granting greater mercantilist status to thieves. Thieves who have their property rights fully protected in England, America and most trading countries.


Why would other countries have a duty to recognize intellectual property such as patents and copyrights? They would do so only my mutual agreement and then if property rights are violated, the agreement is enforced or the agreement is void to the extent damages are mitigated.

 
At 7/24/2011 7:07 PM, Blogger Craig said...

Does not the constitution mandate interference in the market to uphold property rights

No. A market doesn't exist if property rights are being violated. The constitution is meant to preserve markets, not interfere with them.

 
At 7/24/2011 7:14 PM, Blogger arbitrage789 said...

Ron H. @ 5:03

“This means the world economy is growing at an increasing rate, which is a good thing, right?”

Good for some. For us in the U.S., I think that slow growth is more a problem of “opportunity cost”… How much better would our lives be if we had faster economic growth? Economic growth is an issue in a variety of ways, but in particular, I would point to job opportunities (for the unemployed, and the under-employed).

[And of course, eventually our share of global military spending will have to decline, but that’s a whole other issue].

 
At 7/24/2011 7:15 PM, Blogger Craig said...

Japan's central bank has successfully fought inflation--even brought about mild deflation--for 20 years. Of course, the yen has doubled against the dollar and the Japanese economy has suffocated in that same period.

I wouldn't be so sure about that. You're right that the BOJ has held the money supply steady and that has resulted in a proper deflation resulting from increased productivity. That does not mean the economy has suffocated.

Unemployment is 4.6% and living standards are as high as ever. Production has increased. The Yen's purchasing power has increased meaning the Japanese can purchase more with fewer Yen.

The Yen has doubled because traders recognize its strength -- only a stable money supply resulting in deflation could maintain Japan's export economy. Prices have dropped enough to counteract the Yen's appreciation. Trade takes place because of price differences. The Japanese are smart enough to realize that.

Only by the standards of the execrable GDP equation (which can only show growth with inflation) can Japan's economy be called stagnant.

 
At 7/24/2011 7:26 PM, Blogger arbitrage789 said...

Benjamin,

“…migrate assets to the East…”

“…we may see the S&P 500 lower in 10 years than now…”

^^^^^^^^^^^^^^

Migrating assets to the East: If I had to “buy and hold” an index of Singapore stocks or the S&P 500, I’d much prefer Singapore (or China or S. Korea). But of course there are other options (for example, you can get all the leverage you want with S&P futures)

The S&P 500 lower in 10 years: relative to gold, or to the CRB index, I would say yes. In nominal terms, probably not.

 
At 7/24/2011 7:29 PM, Blogger Jon said...

I don't know that this quote is true. Certain leaders have attempted to interfere in the market, such as Mossadegh, Ortega, Aristide, Arbenz, Minh, Castro. They are either replaced violently, or attempts are made to replace them violently, with leaders that promise not to interfere. Marc Bazin gained power in this way.

 
At 7/24/2011 7:39 PM, Blogger Benjamin said...

Craig-

Measured against all other major developed countries, and as fraction of global GDP, Japan is shrinking.

You realize the Nikkei Dow was at 40,000+ more 20 years ago, and I think today is 10,000. Real estate values had a similar dump.

Japan is a slow disaster, unfolding.

You know how Japan dodged the housing bubble of the 2000s? Easy, their house prices went down every year of the 2000s, and they did in the 1990s. No bubbles!

How does a bank lend on a declining asset? They don't--meaning assets decline more.

Sure, improvement in global technology help out japan just as they help everybody. If a better and cheaper way is discovered to make eyeglasses, they will benefit like everybody else.

But measured against even the USA, the Japan growth rate, even per capita, has been weak for 20 years.

Tight money is a proven failure--unless you own bonds at 1 percent.

That is the other danger of deflation. You get a huge bond holding class that is happier with no growth and no inflation than growth and inflation.

BTW, for the last 10 years, of 23 major stock exchange, Japan's were dead last.

Market Commentary 7200
June, 2011 Data:

Part 1: SUMMARY RETURNS & RANK Japan

Last Year . . . . . . . . . . . . . . . . 4.6% Rank: 23 out of 23
Last 5 Years -34.0% Rank: 23 out of 23
Last 10 Years . . . . . . . . . . . . -30.3% Rank: 23 out of 23

Really, is being dead last in equity returns high praise for tight money?

 
At 7/24/2011 7:51 PM, Blogger Buddy R Pacifico said...

"No. A market doesn't exist if property rights are being violated. The constitution is meant to preserve markets, not interfere with them."

Yes, but some interference is needed to protect property rights that are being violated in the marketplace.

 
At 7/25/2011 1:25 AM, Blogger Ron H. said...

"Good for some. For us in the U.S., I think that slow growth is more a problem of “opportunity cost”… How much better would our lives be if we had faster economic growth?"

Yes, a higher growth rate in the US would help reduce unemployment, but this is an internal problem. The rest of the world isn't growing at our expense. It's not a fixed pie.

Fewer poor people in the world isn't harming those who live in the US.

 
At 7/25/2011 6:07 AM, Blogger geoih said...

Quote from Buddy R Pacifico: "The England during the time of Adam Smith had patents and copyrights. It was obvious to most that people must have rights to thier inventions and writings."

Oh well, if it was a law in 18th century England, then it must be right.

Quote from Buddy R Pacifico: "Geoith would grant monoploly power to those that steal property inventions and copyrights; no close substittutes need be purchased."

Nice straw man. My being against your version of monopoly power does not make me in favor of a different kind of monopoly power.

 

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