Mikah's International Trade Thread Revised
Page 1 of 1 [ 4 posts ]
27 Nov 2020, 10:58 am
Since I've apparently been causing moderator headaches by copying entire articles to WP rather than excerpts, I'm remaking my trade thread in the proper fashion. Apologies to those few who read it all and left comments.
Part 1: Ricardo’s Vice and the Virtues of Industrial Diversity, Steve Keen
https://americanaffairsjournal.org/2017 ... diversity/
Steve Keen wrote:
The theory of comparative advantage would lead you to expect that in a world with very low trade barriers—basically the modern globalized world—most countries would have specialized trade profiles, so that they would score low in both ubiquity and diversity. This proved to be true of underdeveloped economies like Ghana, in which the top three exported products—fuels, precious metals, and cocoa—make up 81 percent of its exports. But it was not true of advanced economies like Germany, where the top three products account for only 46 percent of its exports. Nuclear reactors and boilers accounted for 18 percent of Germany’s exports, but Germany also exported a wide diversity of goods—including “pearls, stones, precious metals, imitation jewelry and coins” at almost 1 percent.
The message that comes through loud and clear in this empirically grounded analysis is that, for countries to succeed at both growth and trade, specialization is essential at the individual level, and diversity matters at the level of the nation-state
The message that comes through loud and clear in this empirically grounded analysis is that, for countries to succeed at both growth and trade, specialization is essential at the individual level, and diversity matters at the level of the nation-state
Part 2: Rebuilding British Industry: A Plan for the Post-Brexit Economy, Jerome Douglas
https://americanaffairsjournal.org/2019 ... t-economy/
Jerome Douglas wrote:
This situation gives rise to an irony that is not much noticed in British policy circles: net-net, trade with the EU is a bad thing for the British economy, at least from a macroeconomic perspective. Less trade with the EU is, then, from a purely macroeconomic perspective, probably better for Britain’s long-term stability. This fact contradicts almost everything we hear. Policymakers typically characterize any diminishment of trade between Britain and the EU as a bad thing. From the point of view of a British consumer who wants French cheese or Greek yogurt, a reduction in trade certainly is bad. But from the point of view of macroeconomic stability, a diminishment of trade is essential.
Let us step back and think this through for a moment. How could it possibly be a good thing for British consumers to have less access to the goods from the EU that they want? Consider what would happen if we completely cut off trade with the EU tomorrow: Consumers would not have access to EU goods. But they would then have to spend this money elsewhere and some of this—probably most of it—would flow back into the domestic market.
Let us step back and think this through for a moment. How could it possibly be a good thing for British consumers to have less access to the goods from the EU that they want? Consider what would happen if we completely cut off trade with the EU tomorrow: Consumers would not have access to EU goods. But they would then have to spend this money elsewhere and some of this—probably most of it—would flow back into the domestic market.
Part 3: Nationalist Economics and the New Right, Vox Day
https://voxday.blogspot.com/2019/12/nat ... omics.html
Vox Day wrote:
It is one of the great ironies of modern politics that free trade and economic globalism have somehow become identified as not only right-wing policies, but right-wing dogma. This was not historically true, though, as from the very start, free trade has generally been a hallmark of the LEFT side of the political spectrum. If you recall, the infamous mercantilists attacked so furiously by Adam Smith in The Wealth of Nations were, almost to a man, royalists, not revolutionaries, while the great prophet of the Left, Karl Marx, openly advocated free trade on the grounds that it would help bring about world socialist revolution and the emancipation of the proletariat.
In the 240 years since Adam Smith triumphed over the mercantilists, the question of free trade has generally revolved around whether it is good for the nation concerned. However, this is not actually the right question to ask, as the more fundamental one is whether free trade and nations are even compatible. And, as it turns out, the answer is no.
In the 240 years since Adam Smith triumphed over the mercantilists, the question of free trade has generally revolved around whether it is good for the nation concerned. However, this is not actually the right question to ask, as the more fundamental one is whether free trade and nations are even compatible. And, as it turns out, the answer is no.
Part 4: Trade War: What is it good for?, Vox Day
https://www.youtube.com/watch?v=v0YBVimohJY
(Video, Length: 5m13s)
Part 5a: The Famous (and Almost Never Understood) Theory of Comparative Advantage, Ian Fletcher
https://www.huffpost.com/entry/the-famo ... v_b_845930
Ian Fletcher wrote:
You can read about the free trade controversy for months and never hear about it. But in the minds of real economists, it's there all the time, and it's big. I'm talking about the so-called theory of comparative advantage, the theoretical linchpin--in the view of free traders and protectionists alike--of the case for free trade. It has an unfortunate reputation for being too technically tricky for non-economists to understand, but I think this is a shame, because this myth tends to shut ordinary concerned citizens out of the debate. Therefore, I'd like to take a shot at explaining this theory.
The theory is ultimately wrong, for reasons I spent half a book discussing. And in a future article, I'll explain why. But for now, let's just get clear on what it says. That's the price of admission for engaging in serious debate on the issue.
The theory is ultimately wrong, for reasons I spent half a book discussing. And in a future article, I'll explain why. But for now, let's just get clear on what it says. That's the price of admission for engaging in serious debate on the issue.
Part 5b: The Theory That's Killing America's Economy -- and Why It's Wrong, Ian Fletcher
https://www.huffpost.com/entry/the-theo ... -_b_846452
Ian Fletcher wrote:
I wrote in a previous article how America's disastrous embrace of free trade is ultimately based on a false theory of how the global economy works: the so-called Theory of Comparative Advantage. This is what economists, from the government on down, believe in. This matters.
But I didn't explain why the theory is wrong -- which it is. Understanding its flaws is the price of admission to serious criticism of free trade, so it's well worth getting a grasp on them. Economic theory can be a tough chew, but it's worth the effort, if only to gain the intellectual confidence not to be intimidated by the so-called experts. So... let's take a look at some of that machinery behind the wizard's curtain, shall we?
The theory's flaws, which are fairly well known to economists but mostly ignored, consist of a number of dubious assumptions upon which the theory depends. To wit:...
But I didn't explain why the theory is wrong -- which it is. Understanding its flaws is the price of admission to serious criticism of free trade, so it's well worth getting a grasp on them. Economic theory can be a tough chew, but it's worth the effort, if only to gain the intellectual confidence not to be intimidated by the so-called experts. So... let's take a look at some of that machinery behind the wizard's curtain, shall we?
The theory's flaws, which are fairly well known to economists but mostly ignored, consist of a number of dubious assumptions upon which the theory depends. To wit:...
Part 6: Sorry, but Trump is Right: the Trade Deficit Matters, Ian Fletcher
https://www.huffpost.com/entry/sorry-bu ... b_13954410
Ian Fletcher wrote:
Here's how trade works:
Step 1) Nations engage in trade. Americans sell people in other nations goods and buy goods in return. "Goods" in this context means not just physical objects but also services.
Step 2) One cannot get goods for free. So when Americans get goods from foreigners, we have to give them something in return. These things are represented by tickets called "dollars," but it's ultimately the things we trade.
Step 3) There are only three things we can give in return:
a) Goods we produce today.
b) Goods we produced yesterday.
c) Goods we will produce tomorrow.
This list is exhaustive. If a fourth alternative exists, then we must be trading with Santa Claus, because we are getting goods for nothing.
Here's what a) - c) above mean concretely:
a) is when we sell foreigners jet airplanes.
b) is when we sell foreigners office buildings in the U.S.
c) is when we go into debt to foreigners.
b) and c) happen when America runs a trade deficit. Because we are not covering the value of our imports with a) the value of our exports, we must make up the difference by either b) selling assets or c) assuming debt.
Step 1) Nations engage in trade. Americans sell people in other nations goods and buy goods in return. "Goods" in this context means not just physical objects but also services.
Step 2) One cannot get goods for free. So when Americans get goods from foreigners, we have to give them something in return. These things are represented by tickets called "dollars," but it's ultimately the things we trade.
Step 3) There are only three things we can give in return:
a) Goods we produce today.
b) Goods we produced yesterday.
c) Goods we will produce tomorrow.
This list is exhaustive. If a fourth alternative exists, then we must be trading with Santa Claus, because we are getting goods for nothing.
Here's what a) - c) above mean concretely:
a) is when we sell foreigners jet airplanes.
b) is when we sell foreigners office buildings in the U.S.
c) is when we go into debt to foreigners.
b) and c) happen when America runs a trade deficit. Because we are not covering the value of our imports with a) the value of our exports, we must make up the difference by either b) selling assets or c) assuming debt.
Part 7: America Aping Britain's Historic Decline Through Free Trade, Ian Fletcher
https://www.huffpost.com/entry/america- ... i_b_735967
Ian Fletcher wrote:
One of the most inexcusable things about America's ongoing economic decline by means of free trade is how clear the historical portents are. For example, we are today treading the same path trodden by a nation that Americans know reasonably well: Great Britain. It is easy to forget that until about 1850, Britain, not the U.S., was the world's leading economic power. But then, of course, they blew it. There were, of course, many causes of this decline, but free trade was undoubtedly a major one.
Britain, like the U.S. and every other developed nation, initially rose from agricultural backwardness by way of mercantilism, the opposite of free trade. As late as the beginning of the 19th century, Britain's average tariff on manufactured goods was roughly 50 percent, the highest of any major nation in Europe. And even after Britain embraced free trade in most goods, it continued to tightly regulate trade in strategic capital goods, such as the machinery for the mass production of textiles, in order to forestall its rivals. Even the famed Adam Smith -- who made his living as a customs collector! -- was only in favor of free trade after Britain had consolidated its industrial power through protectionism.
Britain, like the U.S. and every other developed nation, initially rose from agricultural backwardness by way of mercantilism, the opposite of free trade. As late as the beginning of the 19th century, Britain's average tariff on manufactured goods was roughly 50 percent, the highest of any major nation in Europe. And even after Britain embraced free trade in most goods, it continued to tightly regulate trade in strategic capital goods, such as the machinery for the mass production of textiles, in order to forestall its rivals. Even the famed Adam Smith -- who made his living as a customs collector! -- was only in favor of free trade after Britain had consolidated its industrial power through protectionism.
Part 8: Why Free Traders Have It All Wrong, Ian Fletcher
https://www.huffpost.com/entry/why-free ... b_12691254
As noted the first time I posted this, the Bold highlighting (representing the words of pro-free trader Don Boudreaux) is off is missing in places. Careful attention needed to avoid confusion.
Ian Fletcher wrote:
I participated in a panel on free trade at the Free Market Forum in Atlanta last week, and got to debate the topic with Prof. Don Boudreaux of George Mason University. With his permission, here's a copy of his remarks (unedited except for mechanics) with my responses inline.
As the reader will see, free traders a) simply ignore huge facts of economic history, and b) love to make arguments that are internally consistent but ask the wrong questions. Publicizing these facts, and forcing them to ask the right questions, is therefore the key to refuting them.
As the reader will see, free traders a) simply ignore huge facts of economic history, and b) love to make arguments that are internally consistent but ask the wrong questions. Publicizing these facts, and forcing them to ask the right questions, is therefore the key to refuting them.
Part 9: The Waterloo of Market Fundamentalism, Ian Fletcher
https://www.huffpost.com/entry/the-wate ... b_12976620
Ian Fletcher wrote:
So market fundamentalism is finished internationally, its last redoubt. Domestically it's been finished for a long time. Neither Thatcher, nor Reagan, nor Newt Gingrich nor George Bush actually reduced the size of government. The U.S., like all developed nations, has a mixed economy: about 40% government, maybe 20% heavily regulated capitalism, and less than 40% "pure" (or nearly so) capitalism.
Free-market purists may sob over this reality. Students of America's real economic history will be unfazed, as they will know that America's real economic heritage is Hamiltonian, i.e. focused on making markets serve the national interest, however corruptly defined at any given moment.
Free-market purists may sob over this reality. Students of America's real economic history will be unfazed, as they will know that America's real economic heritage is Hamiltonian, i.e. focused on making markets serve the national interest, however corruptly defined at any given moment.
Part 10: Economists on the Run, Michael Hirsh
https://getpocket.com/explore/item/econ ... on-the-run
Michael Hirsh wrote:
Paul Krugman and other mainstream trade experts are now admitting that they were wrong about globalization: It hurt American workers far more than they thought it would.
Paul Krugman has never suffered fools gladly. The Nobel Prize-winning economist rose to international fame—and a coveted space on the New York Times op-ed page—by lacerating his intellectual opponents in the most withering way. In a series of books and articles beginning in the 1990s, Krugman branded just about everybody who questioned the rapid pace of globalization a fool who didn’t understand economics very well. “Silly” was a word Krugman used a lot to describe pundits who raised fears of economic competition from other nations, especially China. Don’t worry about it, he said: Free trade will have only minor impact on your prosperity.
Now Krugman has come out and admitted, offhandedly, that his own understanding of economics has been seriously deficient as well. In a recent essay titled “What Economists (Including Me) Got Wrong About Globalization,” adapted from a forthcoming book on inequality, Krugman writes that he and other mainstream economists “missed a crucial part of the story” in failing to realize that globalization would lead to “hyperglobalization” and huge economic and social upheaval, particularly of the industrial middle class in America. And many of these working-class communities have been hit hard by Chinese competition, which economists made a “major mistake” in underestimating, Krugman says.
Paul Krugman has never suffered fools gladly. The Nobel Prize-winning economist rose to international fame—and a coveted space on the New York Times op-ed page—by lacerating his intellectual opponents in the most withering way. In a series of books and articles beginning in the 1990s, Krugman branded just about everybody who questioned the rapid pace of globalization a fool who didn’t understand economics very well. “Silly” was a word Krugman used a lot to describe pundits who raised fears of economic competition from other nations, especially China. Don’t worry about it, he said: Free trade will have only minor impact on your prosperity.
Now Krugman has come out and admitted, offhandedly, that his own understanding of economics has been seriously deficient as well. In a recent essay titled “What Economists (Including Me) Got Wrong About Globalization,” adapted from a forthcoming book on inequality, Krugman writes that he and other mainstream economists “missed a crucial part of the story” in failing to realize that globalization would lead to “hyperglobalization” and huge economic and social upheaval, particularly of the industrial middle class in America. And many of these working-class communities have been hit hard by Chinese competition, which economists made a “major mistake” in underestimating, Krugman says.
_________________
Behold! we are not bound for ever to the circles of the world, and beyond them is more than memory, Farewell!
27 Nov 2020, 11:00 am
To celebrate the new thread, here is part 11. A video interview (18:35), specially for a certain skunk who doesn't like reading. It's Ian Fletcher, the author of the Huffington Post articles posted previously.
_________________
Behold! we are not bound for ever to the circles of the world, and beyond them is more than memory, Farewell!
10 Jun 2022, 10:47 am
Been a while since I posted in this one. Here is an article from the Atlantic in 1993:
Part 12: How the World Works, James Fallows
https://www.theatlantic.com/magazine/ar ... ks/305854/
James Fallows wrote:
...
The Anglo-American system of politics and economics, like any system, rests on certain principles and beliefs. But rather than acting as if these are the best principles, or the ones their societies prefer, Britons and Americans often act as if these were the only possible principles and no one, except in error, could choose any others. Political economics becomes an essentially religious question, subject to the standard drawback of any religion—the failure to understand why people outside the faith might act as they do.
To make this more specific: Today's Anglo-American world view rests on the shoulders of three men. One is Isaac Newton, the father of modern science. One is Jean-Jacques Rousseau, the father of liberal political theory. (If we want to keep this purely Anglo-American, John Locke can serve in his place.) And one is Adam Smith, the father of laissez-faire economics. From these founding titans come the principles by which advanced society, in the Anglo-American view, is supposed to work. A society is supposed to understand the laws of nature as Newton outlined them. It is supposed to recognize the paramount dignity of the individual, thanks to Rousseau, Locke, and their followers. And it is supposed to recognize that the most prosperous future for the greatest number of people comes from the free workings of the market. So Adam Smith taught, with axioms that were enriched by David Ricardo, Alfred Marshall, and the other giants of neoclassical economics.
...
The Anglo-American approach assumes that the ultimate measure of a society is its level of consumption. Competition is good, because it kills off producers whose prices are too high. Killing them off is good, because more-efficient suppliers will give the consumer a better deal. Foreign trade is very good, because it means that the most efficient suppliers in the whole world will be able to compete. It doesn't even matter why competitors are willing to sell for less. They may really be more efficient; they may be determined to dump their goods for reasons of their own. In either case the consumer is better off. He has the ton of steel, the cask of wine, or—in today's terms—the car or computer that he might have bought from a domestic manufacturer, plus the money he saved by buying foreign goods.
In the Friedrich List view, this logic leads to false conclusions. In the long run, List argued, a society's well-being and its overall wealth are determined not by what the society can buy but by what it can make. This is the corollary of the familiar argument about foreign aid: Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for his life.
List was not concerned here with the morality of consumption. Instead he was interested in both strategic and material well-being. In strategic terms nations ended up being dependent or independent according to their ability to make things for themselves. Why were Latin Americans, Africans, and Asians subservient to England and France in the nineteenth century? Because they could not make the machines and weapons Europeans could.
In material terms a society's wealth over the long run is greater if that society also controls advanced activities. That is, if you buy the ton of steel or cask of wine at bargain rates this year, you are better off, as a consumer, right away. But over ten years, or fifty, you and your children may be stronger as both consumers and producers if you learn how to make the steel and wine yourself. If you can make steel rather than just being able to buy it, you'll be better able to make machine tools. If you're able to make machine tools, you'll be better able to make engines, robots, airplanes. If you're able to make engines and robots and airplanes, your children and grandchildren will be more likely to make advanced products and earn high incomes in the decades ahead.
_________________
Behold! we are not bound for ever to the circles of the world, and beyond them is more than memory, Farewell!
20 Apr 2023, 6:31 am
Lucky Part 13: Against Free Trade, Contemplations on the Tree of Woe.
https://treeofwoe.substack.com/p/against-free-trade
A summary of Ian Fletcher's case against free trade.
Tree of Woe wrote:
For most of my adult life, I was a doctrinaire free trader. As a youthful disciple of Austrian economics, free trade was more than just an economic belief; it was a principle. Like most supporters of free trade, I relied on the fundamentally Ricardian analysis of free trade, which holds that free trade creates positive gain by allowing nations to specialize in areas where they have comparative advantage.
The book "Free Trade Doesn't Work" by Ian Fletcher awakened me from my blind loyalty to free trade. Fletcher offers numerous theoretical and empirical rebuttals of free trade and explanations of why tariffs work. To understand Fletcher’s argument, you first have to understand Ricardo’s argument. Since I don’t want to assume everyone is familiar with that, I'll briefly summarize the Ricardian view, and then proceed into Fletcher’s arguments against it.
...
Fletcher’s Anti-Free Trade Theory
Fletcher’s assault on Fortress Free Trade consists of five interlocking theoretical arguments and one empirical argument. He begins by undermining the assumptions at the foundation of Ricardian free trade theory.
- Labor and Capital are Mobile.
...
- Capital is Not Fungible.
...
- Capital Investment Experiences Path Dependencies.
...
- Resources Get Depleted.
...
- Not Every Industry is Equally Good for the Population.
...
...
Fletcher’s last argument is empirical, rather than theoretical.. It’s based on a close study of economic growth cross-indexed with economic policy. Using economic historical records, he makes a list of the nations in the world that have had the most remarkable economic growth, including the UK, US, Germany, Japan, South Korea, and China. He then divides them into two groups: the group that experienced hyper-growth from protectionist policies and the group that experienced hyper-growth from free trade policies. Here’s the list split into the two groups:
Protectionist Success Stories: UK, US, Germany, Japan, South Korea, China
Free Trade Success Stories: N/A
The book "Free Trade Doesn't Work" by Ian Fletcher awakened me from my blind loyalty to free trade. Fletcher offers numerous theoretical and empirical rebuttals of free trade and explanations of why tariffs work. To understand Fletcher’s argument, you first have to understand Ricardo’s argument. Since I don’t want to assume everyone is familiar with that, I'll briefly summarize the Ricardian view, and then proceed into Fletcher’s arguments against it.
...
Fletcher’s Anti-Free Trade Theory
Fletcher’s assault on Fortress Free Trade consists of five interlocking theoretical arguments and one empirical argument. He begins by undermining the assumptions at the foundation of Ricardian free trade theory.
- Labor and Capital are Mobile.
...
- Capital is Not Fungible.
...
- Capital Investment Experiences Path Dependencies.
...
- Resources Get Depleted.
...
- Not Every Industry is Equally Good for the Population.
...
...
Fletcher’s last argument is empirical, rather than theoretical.. It’s based on a close study of economic growth cross-indexed with economic policy. Using economic historical records, he makes a list of the nations in the world that have had the most remarkable economic growth, including the UK, US, Germany, Japan, South Korea, and China. He then divides them into two groups: the group that experienced hyper-growth from protectionist policies and the group that experienced hyper-growth from free trade policies. Here’s the list split into the two groups:
Protectionist Success Stories: UK, US, Germany, Japan, South Korea, China
Free Trade Success Stories: N/A
_________________
Behold! we are not bound for ever to the circles of the world, and beyond them is more than memory, Farewell!
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