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Samizdata quote of the day But the kind of protectionism that Trump appears to crave creates even more – including the very people it is intended to help. Consumers pay more for goods. Less wealth is created. The arteries of exchange, of innovation, of prosperity, become choked.
To her great credit, Theresa May grasps these truths – hence her refashioning of Brexit this week as a chance for Britain to turn its face to the world. To his great discredit, Donald Trump does not. (Although there are any number of CapX articles that could enlighten him.)
In that farewell address, America’s first President expressed his faith “that the good sense of our countrymen will guard the public weal… and that, although we may be a little wrong now and then, we shall return to the right path with more avidity”.
On many issues, Donald Trump has yet to choose his path. But on trade, it is crystal clear that he is going down the wrong one.
– Robert Colvile
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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True – Protectionism is NOT the answer. But something must be done – neither the people of the United States, or the people of the United Kingdom, can just carry on borrowing vast sums of money to pay for imported consumption goods.
There has to be massive improvement in American, and in British, manufacturing.
The article said that Theresa May mentally grasped something. This is obviously meant to be satire.
Your second point does not follow from your first point (which I agree with). Are you not a believer in the whole notion of comparative advantage?
Trying to take on Asia at manufacturing seems unwise. What is so special about money earned from manufacturing?
I think Trump is hoping that keeping manufacturing in US will protect jobs, not worrying about the balance of trade.
Trump may well make some bad decisions, but what his supporters are hoping is that once a decision is seen to be bad it will be reversed, in contrast to the standard socialist procedure of doubling down.
Do a google search for “false theory of comparative advantage” to learn how it doesn’t work in the real world, at least internationally.
In the long history of bad economic ideas, protectionism (including its close relative, mercantilism) is the most thoroughly discredited. Yet it refuses to die, because it appeals to the economically ignorant and provides a superficial justification for the actions of politicians seeking power. There is much that I like in Trump, but his approach to trade is not on that list.
No Boxty, you need to at least present the TL’DR version of your argument or your comment is a waste of pixels. Moreover Googling something and ‘learning’ are rather different things. Comparative Advantages change but they are real enough.
I have long accepted the anti-protectionism argument (along with a possible exception for certain defense industries) but have come to have certain doubts.
What happens when you do not have a comparative advantage? I know, I know, that’s not supposed to happen… but it *appears* to be happening in the US at the moment. In theory we should be producing something (not necessarily manufactured) here better than it can be produced elsewhere or at least cheaply enough to encourage others to buy it from us even if they can do it better… but what we seem to have is just persistent unemployment combined with under-employment in the least tradeable areas (retail and fast food primarily)
Secondarily, assuming we come up with something we can do more cheaply than others, what happens to our standard of living when we do?
I very much want to believe in gains from trade and the expanding pie, it makes a lot of sense at the micro level. But, if we are going to trade for something from, say, China, we can’t trade them a local hamburger. Sure, maybe we could trade them, say engineering services, but… India is doing that now. So what do we offer? The main answer *appears* to be “nothing, just buy it on credit.”
The experience of many folks around me at the moment is: “Wow, look at how cheap you can get a Mig welder from Harbor Freight! If I ever get back to work I’m going to pick up one of those…”
Tell me I’m wrong, I want to be wrong, but I can’t see how it all fits together.
Certainly offering the consumer the choice of a foreign made good with elevated price due to a tax, or a domestically made good with elevated price due to inefficient manufacturing does not seem a good deal for the consumer, and consequently for America.
However, it might be a price needing to be paid for the benefits of a less leftie government, and consequently lower taxes, lower regulations, lower government spending and more sane government spending. Governments are always a package deal.
And perhaps something worth saying is that “free trade” deals are often about a lot more than the freedom to trade, they are often about new layers of bureaucracy and regulation, the EU being a shining example of this. Let’s face it a real free trade deal takes one sentence, not a thousand pages: “We won’t charge duties on your exports, and you won’t charge duties on our exports.” The stuff in the other 999 pages can really mess you up, and certainly is nothing to do with “free trade.”
AS to Trump’s talk, I’m not sure though. Trump is a slippery fellow. Everything he says is a negotiating position. He is the art of the deal. I think I am going to just wait and see what the end game is rather than all the bluster and talk. If he can open up Chinese markets to American goods, deal with some of the IP issues (insofar as IP is even a good idea) and the tariffs are just a benign shot across the bow, perhaps it’ll turn out all for the good.
But just call me Pollyanna.
RlJ:
President Truman, I believe, is supposed to have said (when asked about how sure he was about some policy) “This is America. We are going to try it, and if it doesn’t work, we will try something else.”
Dear John.
You’re wrong.
I’m leaving you to marry Jody Rockmetaller.
Jody is in the business of exporting American software, entertainment, machine tools, tourism, financial services, petrochemicals, agricultural products, weapons, aircraft and many, many, other things.
He also sells overvalued American real estate assets to Japanese people then buys them back for peanuts after a downturn. There seems to be gigantic demand for American real estate. Jody knows why, but apparently you don’t. So sad.
Dear sweet John, you seem unable to count your blessings, so Farewell, and God Bless. I hope you find a nice Democrat to marry. I understand Bernie Sanders was left waiting at the altar. Give her a call.
Yes. He’s also partially looking to where in our economy the gains go from the various trade scenarios.
If total USA GNP drops some, but “the working people” gain a bit in wages while the loss is more than taken up by the banking/arbitrage sector, Trump’s constituency temporarily wins.
Sure, total global flow increases as barriers drop, but barricading one country off from the globe makes it easier to even out the flow within that country, at least until those barriers come down again.
I don’t think he’s concerned about the global economy, or even maximizing flow to the U.S. I think he’s pursuing class warfare in the U.S., at the behest of his supporters.
Dear John
After my last letter, and even though my heart is now with Jody, I felt I must write again to help you through your difficult loss.
Did dear sweet Bernie return your call?
John, dearest, even though I wrote of the many exports from America, I fear you do not understand that exports are a cost, an expense and something all sensible Americans must seek to reduce while increasing imports. Consider me, dear John, my exports to you have never been very great, and yet you have willingly given me many lovely things, diamonds, gold cold hard cash and plenty of it. You got laid just exactly once and I am several million bucks up.
Dear John, your balance of payments or trade or whatever the silly thing is called were quite unbalanced in my favour. You do most of the exporting in exchange for what are quite negligible exports from me. I have a large supply of such exports and my supply of promises for such exports is infinite.
I have long found that my ideal export position is to export large promises and to import from as many men as possible actual tangible things I absolutely must have: Mansions, clothing, jewels, money, fine cars, and most important dear John, handsome, firm, younger Jodies, and plenty of them.
When the men call on their promises I shall laugh, and laugh, and laugh and offer my aged self to them as payment in full. I expect they will groan, accept their loss and go find younger and less clever exporters.
I have heard hints that President Trump prefers bi-lateral trade deals to multi-lateral ones, one great advantage appears to be that you do not get any parasitic, multi-national bureaucracy with rights or claims to supra-national sovereignty tagged on to the deal, and you get a faster resolution too.
Can you imagine that former UK to EU ‘Ambassador’ trotting up to Trump and bleating that a deal will take 10 years? He’d probably be told ‘You’ve got 10 weeks, get out and get on with it.‘.
‘Wow, look at how cheap you can get a Mig welder from Harbor Freight! If I ever get back to work I’m going to pick up one of those…”
That’s fine, as long as no one ever actually needs to make a living with a Harbor Freight ANYTHING.
It’s ALMOST as if the shoddy knock offs from China made an EXTRA effort to export products (sheet rock, pet food, baby formula, pharma, “cheep” tools) that were DESIGNED to fail, and/or cause harm, to “others”.
Good luck with the Harbor Freight “brands” of welder, it’ll be useless to repair the substandard/ under gauge/ contaminated sheet steel of the OTHER Chinese knock off “tools”, lawn mowers, wood chippers, meat grinders, automotive parts, washing machines, kitchen appliances.
It’s kinda like the current “Expert Economist”/Cutting edge IT (Look it up on Wiki!!!! I Swear!!!)approach to
American Patient Protection, and Affordable Medical Care.They LOOK just like the REAL THING!…
on the catalogue page.
So where have all the unemployed due to “free trade” gone? Into government jobs or on the dole. The money being saved by consumers due to Korean TVs and cars goes for taxes and bigger government. There’s a place for free trade, but there are limits to everything and it’s been exceeded.
Unlike Paul, I do not hold manufacturing to be any more important in the larger scheme of things than any other industry, whether the goods/services produces are “physical” or not. That does not mean though that manufacturing jobs that left the US would not have stayed there, absent government meddling. By government meddling I mean the pervasive regulation of the labor aspect of manufacturing (through things like minimum-wage requirements), of the production aspect (through federally mandated safety requirements – hello, OSHA), environmental-protection laws, and possibly other areas of regulation that evade me at the moment. The only way to find out whether the US does have a comparative advantage in manufacturing is to lift, or at least significantly ease these laws and regulations, and let the free market sort itself out. Punishing the little guy in some factory in China for the US-government meddling in its domestic manufacturing is not going to solve the problem, and will create new ones.
That aside, I agree with the points made by both Fraser and Bobby (no, they are not contradictory).
Freeing America from state thieving and meddling would do as a massive start. Along with abolishing all the poxy Alphabet gangs at the stroke of a pen. And the Fed.
After that protectionism would be far less of an issue.
Exactly, Mr. Ecks.
Mr Trump has promised to repeal regulations. That would help Trade. He’s also promised tax cuts.
Whether these two are enough to outweigh the promised protectionism, and how much of any of them actually get done is open to question.
So the solution to bloated government redistributing other people’s tax money via the dole and more government jobs is more government restrictions on trade? Yeah, solving bloated government via more government regulation of the economy should do the trick 😆
Pat, the point is for these steps (if taken) not to outweigh the damages of protectionism, but to render protectionism unnecessary in the first place – by eliminating/reducing the problems protectionism would attempt to solve (which it wouldn’t anyway).
A (say) 10% tariff imposed on all imported goods – is just a tax on foreign made things (and the US users of them). It’s exactly the same as a sales tax imposed on all goods, or a VAT (value added tax).
It is a tax. We don’t like taxes, true, but we have to live with them.
It’s not worse than any other tax – for example – raising the income tax or property tax to pay for the dole.
So, while protectionism (total prohibition of imports) is clearly wrong, a low and universal tariff is just a tax – not worse in principle than any other tax. If Trump (for example) imposes such a tariff and at the same time reduces other taxes (like the corporate tax) – that would be a reasonable trade-off.
Perry – my second point does (not does not) follow from my first point.
There is no “comparative advantage” in borrowing money for consumption goods. David Richardo’s theory was about making different things (“Mr X is better at making steel than at farming – so he should leave the farming to Mr Y, even though Mr X is also a better farmer than Mr Y”).
Blowing Credit Bubbles is not producing useful goods or services – David Ricardo was a City man all his life, but he understood that very well. Indeed he had nothing but contempt for the Credit Bubble antics of the Bank of England (during the Napoleonic Wars – and after) and the people in the City who played this game. Although, yes, he played it himself.
For a person to say “I am better farmer than manufacturer” is totally different from saying “I am better at book keeping tricks – so I will stick to that”. Yes a thousand times yes a money lender of Real Savings for productive investment is a good thing (not a bad thing) – but that is not what the system is about any more.
There is no long term economic good in Credit Bubbles (whether created by the government printing press or private book keeping tricks) – Comparative Advantage in fraud (even “legal” fraud) can not be the basis of a society of some 60 million people (the United Kingdom) or some 300 million (the United States).
In short President Trump is correct about the problem – those American factories have to start producing again (like David Ricardo, Donald Trump knows what “Wall Street” actually produces – Credit Bubbles). Bubble economics is fine for a few individuals (as long as they cash out before the bubble bursts) but it is utterly useless for a nation of some 300 million people.
Where President Trump is wrong is not about where he wants to get to (those factories in the “rust belt” running again – and the people productively employed rather than dying in heaps from drug abuse, more-Americans-in-these-States-now-die-from-drug-abuse-than-from-car-accidents), where President Trump is wrong is in how-he-thinks-he-can-get-there.
Certainly people (academics and others) who go to dying industrial towns and cities and say “behold the the prosperity of Wall Street – become merchant bankers” (the Economist magazine actually did that – it published a book review about someone from a coal mining family in West Virginia who became a merchant banker in San Francisco, as if this was a real option for 99.9% of people) are not being helpful.
And even those rich people in Wall Street (and in California – the other side of the United States) better “cash out” very soon.
The Bubble Economy is the economy of Hillary Clinton – as is what is offered to the majority of the population.
“You can have lots of Pubic Services and government income support – money you can use to buy drugs to ease your misery in no longer being productive human beings”.
That, translated into English, was the message of the Economist magazine and the rest of the Clinton Progressive Campaign (headed by John Podesta – long time head of the arch Progressive “Centre For American Progress”).
“Do not worry that you are not making things you can be proud of anymore – we are creating (from nothing) lots of money that you can use to buy imported goods, and you can have lots of welfare money to buy recreational drugs for yourself and your children (if you are foolish enough to have children) to make you forget about things”. And when the people die (as they are dying) the problem is “solved”.
As the heaps of (drug induced) dead men, and dead women, and dead children grew – even in once conservative (and virtually crime free) States as New Hampshire (so much for it being a racial problem – not many non whites up there).
People need productive employment they can be proud of – not “Public Services” and welfare money. And there is no, productive, Comparative Advantage in Credit Bubbles and Book Keeping tricks – which is what Wall Street really is.
YES (a thousand times YES) the lending of Real Savings for productive investment in farming, mining and manufacturing is a good thing (not a bad thing) – but that is not what most of Wall Street is about any more.
Most of Wall Street (and the City in Britain also) is an extension of the Central Bank Credit Bubble.
Mr Trump understands the problem (being part of the Credit Bubble economy himself – via his property speculation), the trouble is that I do not think he offers a real solution to the problem.
Protectionism will NOT work.
Alisa, one critical differentiation of impact between “manufacturing jobs” and other types of work is, where within society that money goes.
Tech tends to benefit the college-educated, as does basic IP work. We can export pure design work, and work in the sciences, but they also bring back money mostly to the upper-middle-classes. The old-school sloggy factory work that is learnable by the unschooled, and that used to pump so much money into the lower-middle-classes, has all but disappeared, along with a whole slough of similarly-aimed jobs in ag, food prep, and meatpacking. (We didn’t export these jobs – we imported new labor.)
Our political problem has more to do with large swaths of the population being dumped out of the national economy lifeboat in a relative, intramural sense than it does with a lack of total national income. Manufacturing may well be less efficient for us as a whole, but Trump doesn’t need to worry about the whole so much as the lower-middle class.
Jacob, a tariff is indeed a tax on imports and when we tax anything we get less of it. We want imports, plenty of them and we want them for free, or at least as cheap as possible, which means we want maximum imports and minimum exports.
I also expect you believe the fairy tale that the government would use this tax revenue to alleviate the lot of those who lost their jobs to more efficient foreigners. No, the displaced horny handed sons of toil will get nothing, and jobs will go to smarmy bullshit artist sociology graduates, bogus climate change “scientists” and lawyers – and secretaries with big boobies for the higher ups.
That exports are in most ways a bad thing is a difficult concept, but on careful consideration of the national books it is clear they are a cost, an expense, an outgoing, double plus ungood.
Another difficult concept is that of doing nothing. The situation will work itself out much sooner than if government intervenes, for surely that will fuck things up for years, centuries even.
Perry wrote,
IMO, it’s not a matter of belief, as it’s a proved fact. David Recardo is one of the world’s few economics that knew enough about what he’s talking about to make himself a millionare in the process.
Boxty wrote,
That’s nonsense.
Fred Z, the bogus Trade deficit idea isn’t that imports are good and exports are bad, it’s that imports are bad and exports are good, which is all complete and utter nonsense.
In a GOOD TRADE, the opposite of what Trump has point out are bad trades, (which is what you get when you mix politics with anything), is win-win. Costa-Rica trades bananas to Canada in exchange for maple syrup because it aids both nations to do so compared to each raising banana trees (really an herb) and maple trees in environmentally controlled “hot houses” and not trading. Win-win is NEVER “bad”, nor does it create a “deficit” of any sort. “Trade Deficit” thinkers are stuck in the merchantile age of trade where the world was considered zero sum and people traded the “hunted and scavanged”, i.e. tree logs for fruit, etc.
Yes, being even partially protectionist will be good for domestic producers and will create jobs, but it will result in a total loss of economic surplus. And it will cause higher prices…period.
Id like to add re: the subject of trade, it doesn’t matter if one is talking about imports or exports or whether the item being traded is cash or a service or a good/value, as long as what you are receiving is worth more to you than what you’re handing over. And that goes for both sides, the tradee and trader. In other words, as long as its’ win-win, it’s a rational trade. In this context, imports and exports in actual trade, ARE THE SAME THING.
Bobby:
Not true. I know many people in the tech and IP industries, most never saw college, some barely finished high school. Some of those who did go to college wish they never did, seeing it as a waste of time and money. Of course there are those at the engineering level in these industries, but the same is true with traditional manufacturing.
In any case, my point is not about manufacturing vs tech vs services vs whatever – rather, it is about unemployment being caused by the government interference destroying comparative advantages. Traditional manufacturing may have been the most vulnerable to this so far – but give politicians time, and they will destroy American hightech, American science, and American everything else, just as they did with manufacturing.
Free trade benefits – society cost = Trump
Scenario 1:
Bob has a ballcap making company. He produces and sales X number of hats at $14 each, and employs Y number of employees.
Little Tony would love to buy a hat, but he’s strapped for cash and instead buys groceries. Steve though, happily buys a hat for $14 and goes about his way.
Scenario 2:
Bob imports ballcaps and redistributes them in the American market. He sales 20X number of hats and has 4Y number of employees (sales people, office staff and warehouse employees) and sells hats for $4 each. Both Little Tony and Steve can afford to buy a hat and have money left over to trade with the American Butcher’s, Bakers and Candlestick makers, which stimulates and creates American jobs.
Which is better, scenario 1 or 2.
Let’s put this in more domestic terms.
Apple, at least as of a few years ago, had or has 20,000 Asian workers and 40,000 domestic workers. If we “brought those jobs back home”, and manufactured apple products in the states, it would increase in price of apple products at least 50%, losing market share in the process, resulting in a net loss of jobs so that the projected number of jobs would be less than 40,000 total.
‘Losing Asian jobs, losing American jobs, higher priced items, i.e. higher cost to the consumer…it’s hard to argue that “bring those jobs back home” is intelligent economics for anyone, including the tax man.
Trade is trade, whether it’s with someone in the next country, the next state, the next county, the next city or town or next door.
It simply makes sense to buy widgets of higher quality and lower price/widget offered by someone mass-producing and specializing in widgets than to try to make them yourelf. You can use your time and expense resources not making your own relatively more expensive widgets and do something more producive and effecient with those resorces instead.
The idea that making your own more expensive, lower quality widgets keeps your family busy (employs their time) is not a sound economic argument. They could be doing something more sensible with their time.
Remember we can “create jobs” by creating less efficiency at any time. ‘Just ban the use of backhoes and have people dig construction holes with shovels, or better yet, with spoons. But the cost of construction jobs would skyrocket and there would be less of them, and the ‘shovelers’ would be out of a job. Better stick with the use of backhoes where one man can do the work of 20 in 1/100th the time. Those other men can do something else more constructive with their time and effort since there will be more construction contracts to fulfill.
We don’t know what Trump is going to do: he might, for instance, go in for ‘fair trade’, where we apply the same barriers to country X’s exports as country X applies to ours. The ideal outcome of that move would be for Country X’s markets to be opened to us, not our markets to be closed to them; real free trade, in other words.
We can but wait and see; at least he won’t keep us in suspense for long.
Because jacking up prices with protectionist measures has no “social cost”?
Do people think it works like this, I wonder?
1. Trump uses tariffs to discourage imports into USA by making them way more expensive to American buyers
2. To avoid the tariffs, companies set up in USA and make more toasters, toothbrushes, shoes and vibrators in USA, employing vast numbers of unemployed Americans who are just dying to work in a factory rather that getting stuff made cheaply by a bunch of Chinese working stiffs in China.
3. K-Mart is now full of American made toasters, toothbrushes, shoes and vibrators, rather that Chinese ones made by people making about 25% of what a US factory worker might get paid.
4. But because the tariffs make the Chinese goods as expensive or more so than the similar US made goods, K-Mart Shoppers now buy the expensive American ones instead.
5. America is Great Again.
What the hell could go wrong with that? 😆
Trump’s immediate trade-restriction target of consequence would appear to be China. Some kind of political confrontation with China seems overdue – like many other tasks that were on Obama’s plate – and trade might get more of their attention than blowing up their artificial islands (of course, Trump could do both). There may be a political argument for aggressive trade attitudes towards China for a few years – Trump’s (first?) term say.
I hope that the promised bonfire of regulations and freeing up of the private sector will restore enough comparative advantage before any Trumpian protectionism turns from the (large) issue of China to affect trade with the rest of the world to any significant degree. One may hope.
Not really. Where in your excessively long comment do you explain why specifically “here has to be massive improvement in American, and in British, manufacturing“…? I agree that there needs to be an end to the credit bubble madness, but that does not mean Britain needs to try and compete with China in (for example) circuit board, cabling or electric tooth brush manufacture. There is nothing special about manufacturing.
@FredZ (Huh? ya know, that was opaque and kinda creepy… it did shed some light on Trump’s popularity though.)
@Paul Marks (? sorry if misidentified)
I’m not convinced that manufacturing has some special place in things but I am still concerned about the economic and political fallout of the current situation.
Much of this discussion (I’m thinking specifically of the criticism of the welder example and the ballcaps importer analogy) reminds me of the arguments about the minimum wage. It leaves out the fact that the minimum is always zero. The alternative isn’t something better, the alternative is nothing.
What does a person do when they no longer have anything to trade to others? What does a group of people (town, nation, etc.) do when a substantial percentage of the population is in that spot?
It also reminds me of the open borders idea. The principle makes a lot of sense, and in an ideal world it should work, but… can you have open borders and A. still maintain a culture which values them, and B. maintain the social welfare state we have? I’d be perfectly happy to see the social welfare state vanish, but the fact is we have it, so we have to deal with it.
Perhaps, just maybe, we need protectionism *because* we have all the cruft Alisa refers to choking the economy…
In the end though, I’m convinced. Tariffs are not the way to fix it.
Most convincing to me were Alisa’s remarks and Perry’s. You can’t really expect to get less gov interference by asking for more of it. Fraser Orr’s remark that it might be a price which must be paid has merit, but on the whole I’m now of a mind that it is best to stick with principle and deal with the consequences the best we may.
Perry the “credit bubble madness” is what most of the “financial industry” is based upon.
Cities such as London and New York do not even look right – cities of this size should not be dominated by bank buildings and so on. They were not in the 19th century (when banking and financial services were, if anything, already too important rather than not important enough), even if I knew nothing about economics a glance round “The City” or Manhattan would show me that something was horrible wrong – this stuff should not be this physical size, it is a physical manifestation of its own financial bloating (of a distorted capital structure).
“We do not have to compete with China in….” XYZ.
If a nation of 60 million people which does not export much in the way of primary goods (food and raw materials) can not even produce manufactures (if it has to import all these consumption goods – in return for “IOUs”) that nation is in terrible trouble.
We can not just carry on writing IOUs for all these consumption goods – countries the size of the United Kingdom and the United States (in population) have to MAKE THINGS – that is why “manufacturing” is so important.
Was not automation supposed to reduce the importance of law wages and rotten working conditions?
If even with automation we are unable to “compete” with China (in the basic sense of making our own basic stuff – rather than buying most things with IOUs. endless credit) then this country is finished.
Whatever the many and grievous faults of President Donald John Trump – at least he understands this in the context of the United States.
He does not go around like the Economist magazine – telling unemployed factory workers to go and become merchant bankers. Or to just accept endless welfare payments – to buy drugs with till they die.
Part of my “very long comment” was pointing out that people in the United States are dying of drug abuse – dying in their tens of thousands, vastly more than ever before. People who turn to drugs because they have no hope of a productive life.
Why does no one, other than Donald Trump, care about this?
Of course Protectionism is wrong – but saying “we do not have to compete in manufacturing” is worse. Of course we (in the West) have to compete in manufacturing.
Then endless importation of consumption goods, paid for with I.O.U.S (“paid for” on the “never-never” as the saying used to be) just can not be sustained.
Today America (let alone Britain – which is too depressing to think about) does not even seem to be to sustain itself in farming – let alone manufacturing.
Look what is happening to farming, ranching and mining (for example “Rare Earth” mining) – it is in a mess.
This is not economic evolution to a better society – it is cultural collapse, or rather the warning signs of cultural collapse.
At least President Trump understands the problem – even though he may NOT have the solution.
The desire to get things back is still there – things are not yet hopeless.
Look, for example, at the television series “American Guns” (before the liberals had the television show crushed) – a business that makes products (firearms) using skill – and is sometimes paid in physical gold.
Or look at “Forged in Fire” – people trying to show skills to actually do something worth doing.
But it is on too small a scale – economies of scale are real.
The factories need to be rolling again – new factories. The cities need to stop rusting and start making things again. When Mr Trump was young these were the most advanced industrial cities on the planet – now they are just dens of drugs and murder, with the people living on “Food Stamps” (which did not even exist before 1961).
Now you are going to say you still do not understand.
Fair enough. If you do not understand that manufacturing needs to be restored there is little point asking you how this should be done.
I am no fan of President Trump (certainly not) – but he understands the problem. I would not need to have explained it to him once (let alone twice) – he has seen the cities and towns. As rich as he is – he has noticed that everything is fallen apart, and he was pointing this our long before he was running for office.
I think that is how he won – ordinary people in their desperation remembered that this person has been saying that things were terrible (and had been saying so for many years), whereas the establishment was telling them that things were going well and that it did not matter that the stores were filled with Chinese goods “paid for” on credit, while the factories in town collapsed into wasteland.
I just wish a better man had been known for pointing out the problem all these years.
Yes, yes, yes – there needs to be automation and a concentration on some industrial products (not an effort to do everything), but that does not mean that American towns and cities should like this – the wastelands they are becoming now.
They should more like towns and cities in Southern Germany – where people still make things.
And, Mr Trump, please note – the industrial development of Bavaria and Baden Wuttermberg over the last 70 years was done under FREE TRADE.
Of course the German government is doing its best to destroy Southern Germany.
The war on energy – forcing up energy costs. And the war on nuclear power and the “Green” energy taxes are very popular – as the population is brainwashed by the education system and the media.
The introduction of inheritance tax – to destroy family owned manufacturing business enterprises (the family owned enterprises that are the backbone of Germany – and are hated by the Financial Times and the Economist magazine).
And inviting in millions of Islamist “refugees” – the “refugees”” that mercenaries from Southern German fought (when hired by the Hapsburgs and others) for centuries, and whom Gladstone repeatedly warned about in the 19th century. Who will demand ever more benefits and public services – or just take things with their own hands (“what the right hand takes” as their first leader put it).
It is a deliberate plan to destroy the country?
Most likely NOT – most likely it is just the fashions of the “liberal” elite – stuff they pick up at university and then carry with them all their lives (putting on display in “Davos” and so on – a display of what Tom Wolfe called “Radical Chic” the “I am very rich – but it is O.K. because I am also a SJW”).
But it might as well be a deliberate plan to destroy the country.
Only in Bavaria does there seem to be any real resistance to it.
The part of free trade that continues to bother me is the effective exportation of pollution. In a libertarian society, pollution is prevented by the certitude of civil litigation over harm caused by that pollution. So the cost of goods and services that generate pollution bear that burden… effectively raising such costs to cover damages. But what if you can get your product from a country without the locals having recourse to such redress? Then the overall cost is lower, by virtue [sic] of the pollution cost being absorbed by those who cannot protect themselves. If such locals freely choose not to see that as a cost, then fine. But if they are prevented from seeking redress by a totalitarian government, then I have a moral issue with the situation. Saying that such thinking has abundant ramifications is to understate the case. I just don’t have a good handle on this, and would respectfully appreciate input from the Samizdatistas.
Myno, how does that differ from the situation where a corrupt and incompetent totalitarian government has depressed an economy to the point where ten cents per hour is the prevailing factory wage?
bobby b, I think there are a host of valid moral equivalences hidden under this hood. That’s what I meant by there being abundant ramifications. One cannot hope for a level playing field on all such measures, but I am pulled toward arguments that protectionsim has a role when foreign governments create artificial (non-market) conditions that have deliterious effects on competition. The obvious goal is less interference in markets world-wide, so that people are truly free to compete. But ought one stand back and blithely accept artificial foreign advantages to the detriment of one’s own citizens? Or should these be front-and-center arguments in trade negotiations? The trick is to use such negotiations to reduce artificial advantage, not to erect one’s own artificial barriers.
bobby b, Does that happen? The corrupt and incompetent governments I’m most familiar with spend a lot of time and effort these days trying to set the minimum wage at $15 per hour minimum…
Reading this thread, I suddenly had a possible story idea.
—————————————-
In two countries, their people lived very different lives. Country A built everything, supplied everything, at extremely low costs to Country B, even driving their people to near slavery to provide these goods. Country B incurred huge debts, but was always forgiven by Country A, and the debt rolled over.
Country B’s economy consisted mainly of academic papers revolving around transgender progressivism, Womyn’s Studies, green projects related to Climate Change, and media peddling fake news, which hardly ever got to Country A because of censorship.
After several generations, Country B was so wholly dependent on Country A that they couldn’t rebuild their industrial and agricultural base even if they wanted to. Country A decided to finally cut off the spigot and told Country B that if they wanted to eat, they had to submit as slaves. Country B had virtually nothing of worth to trade for, and what natural resources they had were owned by Country A. Country A had all the soldiers and all the equipment. Country B believed in soft power and a progressive military.
The obvious happens. Country B is conquered by Country A, its people reduced to slavery in perpetuity.
The debt? Who cares?
Story ends.
———————————
How do you deal with a problem like China? I think the core issue is, as identified earlier, how state intervention there is messing up the market by artificially lowering wage levels.
That said, I would not underestimate the competitiveness of US industry unshackled from the confines of regulation. Is Trump the man to do it?
Commodity markets, derivatives, global insurance… so… no, it is a little more complex than that once you get away from banking.
Please Paul, succinctly explain why the UK needs to compete with China’s vast low value added manufacturing. For the love of Adam Smith, why? There are other things people can do where being British and somewhat free give us a significant comparative advantage over China, but vast amounts of manufactured household goods are only going to get made in the UK if the walls go up to make people buy much more expensive local stuff, which would be a terrible idea. Britain will not be a markedly better place if your toothbrush is made in Bognor Regis.
There is a scene in (I think) Yes Minister, in which good ol’ Charlie, who knew Jim Hacker back when they were classmates at the LSE, and who has now (through a coup) assumed rulership of some small kingdom in Africa, is negotiating to buy ships from the Brits. The walla-walla is supposed to give a speech tomorrow about the wonderful friendship that will prevail between the two countries under this marvellous new order. It’s too bad that at one time the Empire trod upon the faces of the African Natives, but of course that’s past history … or is it? What if Charlie’s speech were to lean rather heavily on the fact of the earlier British colonialism? Tsk,’twould not be good, now would it.
Jim and Sir Humphrey are not thrilled with this line. In the end, Charlie names his price. He’ll forget about the Colonialism, if the UK will lend him the money to buy the boats, say £ 50 million, such a deal for Jim & co. Resistance from the Brits…but name all the terms. “Oh, nothing out of the ordinary,” says Charlie. “I think a 10-year loan would be fine. Of course, there will be no interest charges.”
“Wait,” says Jim as he and Sir Humphrey are talking it over. “He’s talking about buying our boats with our money!”
It’s not in the story, but in real life the Djangolese or whomever they are are going to use what amount to British IOU’s (fiat money from the Central Bank) to “pay back” the £ 50,000,000.
Or maybe I completely misunderstand the basic sitch?
“Whoever they are,” not “whomever they are.” Yecch. [Bows head in shame]
Oh very well, a few minor corrections.
The country is Buranda (formerly British Equatorial Africa).
The objects to be purchased are off-shore oil rigs, not ships.
About 25 min. in, Sir Humphrey (not Jim) puts the matter succinctly. “They’re buying our oil rigs with our money!”
Since the Burandans will be paying no interest, the UK will take a net hit of … 2% x 50,000,000, which compounded over the 10 years works out to — £ 50,000,000. 😆
And Charlie will omit the bit about colonialism from his speech.
Paul Marks
Yes, absolutely right!
And just for Perry, Trump has got it right on Russia. Finally, the “Russia is the always the bad guy” schtick has been challenged.
And no, I’m still not a Russian troll, just a realist.
Iirc at some pont in the mid 1970s, the British Labour government decided to let Communist Poland acquire from the UK some civil patrol boats (perhaps fishery protection type boats). However, as with all the Eastern Bloc, the Poles had a chronic shortage of foreign currency, exporting afaics, mainly jars of gherkins and chocolate-covered ginger sponge cakes wrapped in brown translucent plastic, and they could not pay for the boats with money.
The Labour government’s solution was to gift the boats to Poland as ‘foreign aid’ and to pay for the boats themselves from that budget, providing work for a UK shipyard (unionised and probably nationalised to boot) and then to mark the ships down in the UK’s trade statistics (at a time when there was a constant, widespread anxiety about such matters) as exports.
Trump is opening a negotiation with trade partners where they get the worst of it. This is plainly obvious. They will have to come to the table and immediately make concessions or their economy will suffer. Why do ‘smart’ people insist on imagining Trump is ignorant.
Paul, I don’t know about London specifically, but I imagine that it is not unlike other big cities, where a huge building with the name of a Big Bank on it is only partially occupied by that bank or other large financial institution, and actually houses several smaller companies whose business may be very far from finance. So while I’m not arguing that London’s main business isn’t finance, I am saying that it may well not be its only business. I do know that NYC, which I know you think of much as you do of London, has a rather lively high-tech sector, although I haven’t checked its size compared to the finance sector in that city.
Both of these cities are large financial centers, and the financial industry in the US (and possibly in the UK) is bloated with funny money, and that is a serious problem. My point though is that not every modern building (ugly as you and I may find it) is based in a funny-money industry. Modern cities do look different from what they looked only 50 years ago, and that is not necessarily a bad thing. It is just another case of what is seen and what is unseen.
I for one am glad not to see factories spewing smoke into the air and sludge into the river. Technology made it possible for young people to make an honest living without the need to work on a production line for 8 hours a day – and no, they still don’t have to go into banking to do that. The fact that they do not or cannot do that, most likely has to do with the government strangulation of small businesses, and those small businesses that would have otherwise existed and thrived would not necessarily be what we traditionally think of as ‘manufacturing’.
That said, you may well be right in that absent government meddling, more old-style manufacturing jobs would have remained or maybe even created in the US and the UK – but again, there is nothing special about manufacturing in the larger scheme of things.
If any industry/productive sector is possibly special in that sense, that would be agriculture (which you did mention) and food production: you could argue that one can manage without a toaster or even a toothbrush, but not without bread and milk. But happily, and as over-regulated, over-subsidized, and overwhelmingly corporatist these two sectors are, in the US they are still sufficiently domestic as far as I’m aware (I have no idea about the UK).
You may well be correct, Mr. Black – time will tell.
I think he is wrong on trade (and surveillance and civil liberties), not ‘ignorant’.
I am a realist on Russia too. That is why I know Russia is always going to need to be opposed and contained and why I know European countries need to spend more of defence in order to do that. It is impossible to negotiate with Russia in good faith unless you have guns pointed at them too.
I dare suggest that your realism should perhaps not be juxtaposed with an unfortunate phrase implying you’re a prophet with knowledge of the indefinitely far future.
Perry,
Well, Russia did not “need to be opposed” in Syria, far from it. It was the USA which needed to be opposed with its policies of support for ISIS via Saudi Arabia.
But yes, always best to negotiate from strength, a dictum Russia well understands even given its present weakness.
On balance, I would say I am largely with Paul on this.
All things being equal, the theory of comparative advantage makes sense. I have no problem with Canada buying foreign bananas rather than establishing a sub-Arctic banana industry.
The problem is that when the theory was first advanced, money was an actual thing, either silver or gold, and it was possible to run out of it. If you had spent all your gold on bananas, then you could not have any more bananas until you had earned more gold. Now the Federal Reserve creates “money” at its whim. Foreign suppliers accept payment in these collections of ones and zeroes for the time being, and all the while the USA falls deeper and deeper into debt. Under Obama the debt doubled. Under Bush the debt doubled. How many administrations can keep going by doubling the national debt before the whole thing keels over?
I can see why central banks hate gold. The first time anyone asks to be paid in gold rather than electronic ones and zeroes, the whole house of cards will collapse, and what will America have? Empty shopping malls, waiting for the stuff from China which isn’t coming any more.
If Russia had not backed the mass murderous Assad family, the problem would have sorted itself out internally whilst some of the secular opposition were still alive. And actually it was Turkey who was the early prime enabler of the Daesh in Syria (before they predictably lost control) rather than the idiots in the CIA.
I broadly agree with Perry (except that I am less certain that an absent Putin in the early days would alone have seen the problem sort itself out).
Putin has spent the last months of Obama achieving his own goals in Syria, neglecting Daesh, so that now Trump is in office he can offer to help solve the problem of Daesh, with everything else a fait accompli. I do not envy Trump or Tillerson having to decide on that particular mess that Obama has left on their plates.
Obama spent his last months in office achieving “own goals” too, in his own inimitable way.
@Perry de Havilland (London)
> Commodity markets, derivatives, global insurance…
I agree, the financial industry is important and should be large notwithstanding its many sins and cozy in bed relationship with the cash printing industry in government.
Imagine this if you will. Imagine the only industry in Britain was venture capital. Through two hundred years of empire Britain had accumulated a vast amount of capital and, instead of making things they simply invested this capital in various new ventures around the world. They reaped the reward of these new companies building new and valuable things.
The entire economy would be in the financial sector, not a tchotchke would we make. Yet could anyone seriously argue that such a British economy would be worse than a shoe and T shirt economy like Vietnam? Would anyone argue that such a business was not extremely productive and innovative?
Not that I’d advocate such a narrow economy, but the point is that “financial business” does not mean “vampire parasites.” Not necessarily so.
Please forgive me for not wading through all the comments, but i have noticed that there have been plenty of mentions of China, and 2 mentions of mercantilism — but not within the same comment.
My understanding of why the US trade deficit with China is a problem, is that China pursues a “neo-mercantilist” policy: they sell stuff to the US and buy US Treasuries with the proceeds. As Glenn Reynolds is wont to say: what cannot go on forever, won’t.
What will happen when the inevitable correction comes? is the US going to default on its debt? Leave aside the injustice to lesser holders of US Treasuries; leave aside that a sovereign default always leads to problems for the people of the defaulting country. The real issue is: how is it going to play out when a nuclear-armed government defaults on its debt to another nuclear-armed government?
A soft default, in which the US makes concessions to China in return for rolling over the debt, has its problems too.
Perry,
Ah yes, the mass murderous Assad family which caused millions of Syrians to flee the country…oh, err…apparently not.
And no, of course, the USA never backed ISIS via Saudi Arabia, that 40 tons of ammo was just mistakenly dropped in the wrong place….
And yes, the secular opposition were so strong they could have beaten ISIS and kept the peace….
In any event, the whole mess is not the business of the UK.
Rather than the reality, or otherwise, of comparative advantage, isn’t this all about the differing American and British experiences with manufacturing?
In America, a factory job was a good job. A man working in a factory earned enough to buy a car and a house. In Britain, by contrast, none of those things was true, so factory work tended to be seen as a bit of a last resort. (I know. My grandfather worked in a factory. He was determined that my father and uncle would not.) Thus, when a lot of British factories closed, people were not that upset, aided by the fact that Britain seems to have adapted to a post-industrial world better than America. I grew up in an industrial town in the English Midlands. Things got grim in the early 1980s, right after the factories closed, but now, when I go back, the place looks pretty prosperous and most people have jobs. By contrast, deindustialisation has utterly devastated many American towns, depriving people of the only well-paid job they ever had.
Hence the difference. Donald Trump got elected president in no small part by promising protectionism. By contrast, trade in the UK seems to be a non-issue. Indeed, one post-Brexit option is (was?) unilateral free trade.
Schrodingers’s Dog… I would agree with that. Manchester transitioned to being post-industrial far better that Detroit, that is for sure.
What’s true for India may yet be true for blue-collar workers in developed nations too. Lee Kuan Yew once commented that the biggest advantage conferred by manufacturing was that it ‘mopped up’ labour and minimised unemployment.
As Mark Blythe added on later, it was assumed that when manufacturing moved to countries with cheaper production costs the laid-off workers would end up in decent post-manufacturing jobs.
Can this be explained by stifling regulations, demographics, culture? I seem to remember reading somewhere that Pittsburgh also transitioned quite successfully to a post-industrial condition.
Pittsburgh did indeed make such a transition (I lived there for many years). Today there isn’t a steel mill within 20 miles of the city, and the few in the area are high-tech specialty “mini-mills”. The difference between Pittsburgh and Detroit (in addition to relatively more competent local government) is a willingness by the people to make the change, rather than living in the past. (I can’t speak to Manchester, though.)