Archive for September, 2009

Free Trade or Beggar Thy Worker?

September 17, 2009

The following post was on the Cafe Hayek site

Free Trade, Unilateral by Don Boudreaux on September 15, 2009 in Trade

Free trade is justified regardless of the trade policies followed by other governments.  A foreign-government’s restrictive trade policies or subsidies or high taxes or low taxes or screechy national anthem does not justify your home government restricting the freedom of you and your fellow citizens to trade as you choose.

Your government should take other governments’ trade and economic policies as given, much as we take consumer tastes and preferences as given.

If your neighbor offers to mow your lawn for free because his psychiatrist recommends such mowing as a sure cure for his depression, should you refuse his offer?  If your neighbor offers to mow your lawn for free because he is convinced by some silly book of the wacky notion that exports are good and imports are bad, should you refuse his offer?

If your neighbor chooses to become utterly self-sufficient, refusing to consume anything produced outside of his own household, you might properly regret (1) that he and his family will likely become much more materially impoverished than your neighbor realizes, and (2) that you and other people in the economy will be deprived of the additions to total output that your neighbor would have added had he chosen not to cut himself off from the larger economy.

But ultimately it’s none of your business.  You have no right to insist that, in the interest of a larger GDP, your neighbor must integrate himself more fully with the outside economy.

Now suppose that your self-sufficient neighbor, still refusing to consume anything not produced by his own household, offers to sell to you — say, in exchange only for a friendly smile from you — some tomatoes from his garden.  You examine his tomatoes and determine them to be first-rate.  Should you refuse to accept your neighbor’s tomatoes in exchange for a quick smile, on grounds that your neighbor will not, in exchange for his tomatoes, really purchase anything from you or from the outside economy?  Would you make yourself richer by refusing his offer?

You may legitimately question the wisdom of your neighbor’s policies.  But regardless of what you conclude, your best course of action will always be to trade freely with him, and with everyone else.

 

From RedSt8r:

This post by Professor Don Boudreaux (Don) is one of several wherein he extols the benefits of “Free Trade”. Please note that I consider myself a capitalist, a firm believer in markets, and a proponent of international trade, limited government, low taxes, etc. Given all that, and as one commenter noted, I’m about to go off the reservation. I submit that the case noted above is as big a straw man as any ever lit at Burning Man. Worse, it demeans any rational (I am being presumptuous that others will consider my rants as rational) discussion about “Free Trade”.

In theory Don’s position is appropriate. If our neighbor chooses to beggar themselves to provide us with goods or services at foolishly low prices we should not insult them by refusing to accept their largess. Today though I want to focus on that third word, “… neighbor …”. A common definition of that word suggests one who lives if not next door then within a very short physical distance. A slightly expanded definition might include as a “neighbor” one who lives removed but who shares many traits.

In the case of nations it suggests an adjacent country. It could also mean a nation that shares sufficient traits with the US so as to be considered a friend. In any case it is a reasonable assumption that a “neighbor” shares certain traits with our selves. Now for the most part the US and Mexico do not share language, culture, history or economic status but only a border. True, those states actually bordering Mexico have a much higher degree of commonality than in states far removed. In contrast the US and Canada share language (for the most part), economic status, border, history and culture (again for the most part).

However, I submit that the two most populous nations of the world, China and India, share little with the US. Even less than Mexico does. No common language, no shared culture, no border and most importantly, vastly dissimilar economic status on a per capita basis. The nations of China and India are important economic beings on the world stage but are quite poor, per capita compared to the US. I ask, “Can we establish ‘Free Trade’ when the economics of the relationship are so vastly dissimilar?”

Don writes:”Free trade is justified regardless of the trade policies followed by other governments.”

But if the other government does not permit imports or severely limits them (via regulation or tariff) there is no trade. A largely one way transfer of goods or services in exchange for money is not trade. It is simply merchandising.

Don writes:”If your neighbor offers to mow your lawn for free because his psychiatrist recommends such mowing as a sure cure for his depression …” and he also writes:”Should you refuse to accept your neighbor’s tomatoes in exchange for a quick smile, on grounds that your neighbor will not, in exchange for his tomatoes, really purchase anything from you or from the outside economy?”

In both cases Don’s answer is to accept the free goods and services as it “… would not make you richer by refusing his offer.” This is a Clintonian answer to his rhetorical question. That is, technically accurate but not helpful. A one-time event, a limited person to person (neighbor to neighbor) exchange, a small scale transaction is usually not harmful. Extend the same event to a much larger scale and great harm can transpire.

If the neighbor offers to mow all the lawns in the city – for free – then lots of lawn service workers and companies will be out of work and may lose their companies. Is such “free trade” still a good idea? If the neighbor grows thousands of tomatoes and gives them all away for a smile then the grocers and farmers will not sell any. This will cause them to take severe economic loss.

Yes, the neighbor will purchase fuel and parts for his lawn mowers, seed and fertilizer for his tomatoes. But his labor is free. And therein lays the crux of the “Free Trade” debate. Again I ask, “Can we establish ‘Free Trade’ when the economics of the relationship are so vastly dissimilar?” As a proponent of trade I admit to be struggling with this question. Schumpeters’ “creative destruction” is all well and good for those of us who can suffer destruction and rise again. But where and how does the 25 year furniture assembly worker rise again? Where and how does the carpenter/framer rise again?

Economic transactions with China, India and any of the “low cost” nations has, to a large extent been a one way transaction. These nations sell us low cost goods and/or services but do not purchase nearly as much from us. China, the poster child for this process has amassed a trillion dollar reserve out of this so-called, “Free Trade”. But what is actually being traded? It is not greater efficiency, or intellectual design or even any particular invention it is solely low cost labor. Doesn’t “Free Trade” require “comparative advantage” to be valid? That is, if I can produce bread better and easier than someone else who can build ovens really great then we can trade bread for ovens using money as a medium of exchange. But low cost labor is not, or should not be the sole comparative advantage. Should it?

What troubles me is that in the guise of “Free Trade” all that is being traded is the living standard of our working class (and to a growing degree the professional class) in exchange for cheap goods and services from China, India, et.al. In effect, we beggar our workers in order to improve the economic status of workers in these other nations. We beggar our workers in exchange for cheap goods in the name of “Free Trade” so we can all pretend to be richer.

I expect to be rhetorically pounded for this position especially as a capitalist etc. What I’m asking though is (a) is it really free trade when all we do is beggar our workers to improve the lives of workers in other nations? and (b) how can we manage trade with low cost labor nations so that we don’t beggar our workers?

War Against AGW?

September 3, 2009

From an email sent July 2, 2009 

Recently (serendipity is swell) Paul Krugman had an article that blatantly accused those of us who “deny” anthropogenic global warming (AGW) with “…treason against the planet”. (http://www.nytimes.com/2009/06/29/opinion/29krugman.html?_r=1)

In a subsequent paragraph he stated what he believes is the outcome of AGW. It is my presumption that most AGW proponents (if not all) have a similar expectation hence their willingness to traumatize the US economy to reduce the US carbon emission levels.

Krugman:  “The fact is that the planet is changing faster than even pessimists expected: ice caps are shrinking, arid zones spreading, at a terrifying rate. And according to a number of recent studies, catastrophe — a rise in temperature so large as to be almost unthinkable — can no longer be considered a mere possibility. It is, instead, the most likely outcome if we continue along our present course.”

 It is my understanding that part of Japan’s logic in attacking the United States in 1941 was the US cutoff of energy – oil – which greatly threatened Japan. Japan of course was a major importer of raw materials. Their logic was that cutting off the supply of oil was an effective declaration of war. Whether this is totally accurate or not isn’t really my point. My point is that an economic sanction of one sort or another could be considered as an act of war.

 If Krugman and cohorts are correct then worldwide carbon emissions are the causative element of AGW, not just the US emissions. What happens if the US reduces its emissions as AGW proponents desire (we could include much of Europe as well) but the major developing countries (BRIC – Brazil, Russia, India, China) do not do so?

 It seems eminently reasonable to expect that so-called developing countries will not reduce their emissions. In fact, they are explicitly stating that they will not do so. This is their rationale for being excluded from the Kyoto treaty. Their position is that the first world developed countries created the carbon emission problem so they should shoulder the responsibility to fix it. At the same time these countries are demanding the right to use carbon based energy to develop their economies, presumably to first world status. So what happens to the planet if the Western and developed nations reduce emissions but the combined efforts of the remaining countries obviates that effort and total world-wide carbon emissions continue to grow?

 If the planet – not just the United States – is in peril from AGW and if developing nations are not curbing their carbon emissions doesn’t that give the US (and feckless Europe) the right – a self defense right – to use military force to curb carbon emissions in the offending countries? Yeah sure we can try moral suasion but that doesn’t seem to have as much impact as one might think. At least, it hasn’t so far in human history. And as for economic sanctions? See Japan above.

So, what rights does the US have if AGW is in fact a threat to the entire planet? A corollary is what steps are the proponents of AGW willing to take if they truly believe AGW is a global threat? Does the US have the self defense right to use military force to curb carbon emissions if the planet is at risk? And will AGW proponents have the political courage to execute such a war? This all assumes moral suasion fails of course.

Note to self – how long do we try moral suasion before we attack?

Existential Funk

September 1, 2009

This is extracted from a letter sent to a “virtual buddy” (aka “VB”) on July 15, 2009.

(From Wikipedia)

 Existentialism: Philosophical movement or tendency, emphasizing individual existence, freedom, and choice, that influenced many diverse writers in the 19th and 20th centuries.

Existential Crisis: Derived from existentialism, it is a stage of development at which an individual questions the very foundations of their life: whether their life has any meaning, purpose or value; whether their parents, teachers, and loved ones truly act in their best interest; whether the values they have been taught have any merit; and whether their religious upbringing may or may not be founded in reality.

 Hi “VB”

Sorry about the lack of contact. I really do enjoy the intellectual jousting and I learn from it, which is a bonus. And, thanks for the compliment on my writing. Hopefully I keep you interested at least a little bit.

For a number of weeks I’ve been ensconced in an existential funk of sorts. (And that about uses up my big word quota for the week.) I haven’t posted on my blog in a long time. And I haven’t added any comments to the various blogs/posts I read. I did read your comments on KBH’s web site regarding the risks of deflation though. (Topic for another day.)

It seems obvious that blogs exist to complain. Not too many – at least in the economic / political / financial spheres – contain positive news. That’s okay of course. But after months and months of reading a repetitive series of complaints on a variety of blogs I’ve begun to wonder what’s the purpose of all this? Do we ever accomplish anything other than a circular venting of frustration? That’s not all bad I suppose. For those of us who actually pay attention maybe we need an outlet for our collective anger. But in the larger sense what is actually accomplished?

Is it enough to just complain or do we/I need to step out and try to change the situation? In my life I’ve volunteered for my country (Army), my community (volunteer firefighter – really enjoyed this), and for my politics (Reagan nationally as well as local candidates). I’ve written numerous letters to my Senators and Congressional reps and to a variety of newspapers. I’ve made small donations to political campaigns, posted signs in my yard and stickers on my car and cajoled relatives endlessly.

Nothing has changed.

One post on Yves Smith’s “Naked Capitalism” blog asked, “… when will the middle class revolt?” Reading comment after comment about how they surely will revolt and getting guns and revolution and yeah, go for it, I finally exploded (pun intended) and asked, “Who will get in front?” I pointed out that no revolution will begin unless someone gets in front. And the person(s) in front need to risk life and limb, home, family, job, savings, everything. I’ve been shot at by professionals. Bloggers and commenter’s who blithely agitate for revolution, typically have no intention of ever getting in the front lines.

Maybe I should get my concealed carry permit, buy some guns and go lead the revolution? Now, that’s tongue in cheek. The letter I wrote asking about “War” on AGW? Not so much actually. Since I lack the scientific knowledge to usefully debate the data (trying to read Alan Carlin’s EPA report) I have to fall back on a crude, street level logic. To wit:

  • climate change will ultimately cause apocalyptic damage to the earth
  • climate change is caused by global warming
  • global warming is caused by excessive CO2 emissions
  • excessive CO2 emissions are caused by human activity

Therefore we must take steps today to reduce human caused CO2 emissions even if it means traumatic damage to our economy. And we must be willing to unilaterally traumatize our economy in an effort to reduce global CO2 emissions even if the actions of other nations obviate our efforts.  People say this with a straight face?

How do I as a scientific illiterate (relatively speaking) evaluate the seriousness of the AGW situation and the proposed solutions? Given the claimed global apocalyptic outcome I ask, “Will you go to war to prevent global climate change?” If the answer is “no” or even worse, if it is ridicule then I interpret this response to indicate that the seriousness of the AGW situation is overstated and the proposed solutions not appropriate. In fact, based on the response my conclusion is that (a) AGW is not serious enough to warrant unilateral trauma to our economy OR (b) the objective is not to prevent apocalyptic climate change but something else. Note that I do not advocate war as the first step but surely, if AGW is as apocalyptic as is claimed then war must, as a self defense mechanism, be on the table as a last resort. And to be effective it should be publicly noted as being on the table.

 And, so it goes with my little – insignificant actually – existential funk. In street terms, I’m bummed.