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Tuesday, June 19, 2012

An Austrian case against free trade

Not long ago, Gary North wrote a column with some rather incendiary claims entitled "Free Trade: The Litmus Test of Economics". In it, he relied on the 18th century arguments of David Hume and Adam Smith, both of which have been refuted by me, Ian Fletcher, and numerous other skeptics of free trade. Is our skepticism based on what North calls "trust in state power"? Is it really "faith in the economic productivity of men with badges and guns"?

Of course not. One of the interesting things about myopic free traders like North is that they stubbornly refuse to pay any attention to economic history or the observable consequences of their logic when it is tested by real world application. This is why they are constantly retreating to oft-refuted arguments that are more than 200 years old rather than attempting to defend their position on the basis of the post-NAFTA performance of the US economy or the economic state of the European common market now known as the European Union.

As an aside, I note that the European Union is one of the most fascistic, illiberal, intrusive, and centralized state powers in the world and it was largely constructed upon free trade-based arguments. Contrast North's superficial and outdated polemic with Pat Buchanan's WND column today which observes some very recent results of the latest experiment in free trade.
“The entry into force of the U.S.-Korea trade agreement on March 15, 2012, means countless new opportunities for U.S. exporters to sell more made-in-America goods, services and agricultural products to Korean customers – and to support more good jobs here at home.”

Thus did the Office of the U.S. Trade Representative rhapsodize about the potential of our new trade treaty with South Korea. And how has it worked out for Uncle Sam? Well, courtesy of Martin Crutsinger of the Associated Press, the trade figures are in for April, the first full month under the trade deal with South Korea.

And, surprise! The U.S. trade deficit with Korea tripled in one month. Imports from South Korea jumped 15 percent to $5.5 billion in April, while U.S. exports to South Korea fell 12 percent to $3.7 billion. Suddenly, the U.S. trade deficit with Seoul surged to an annual rate of $22 billion.

Shades of NAFTA. When it passed in 1993, we had a $1.6 billion trade surplus with Mexico. By 2010, our trade deficit with Mexico had reached $61.6 billion.
Verdict: Buchanan brutally kicks North's ass. North's only response to this would be to celebrate the growing trade deficit because "the world is richer than it was in 1973". Regardless of whether that is true or not, the more relevant fact is that the United States of America is considerably poorer than it was in 1973, with lower wages, higher unemployment, and reduced net wealth. While there is no question that North's ideological heart is in the right place, his intellectual limitations in the field of economics become readily apparent when one sees how he praises Henry Hazlitt's hapless attempt to justify free trade:

"Henry Hazlitt's classic little book, Economics in One Lesson, so completely destroys the arguments of the tariff supporters that there is nothing left of their position; still they keep coming. For two centuries their position has been intellectually bankrupt; still they keep coming."

I found this statement more than a little amusing, of course, because it was trivially easy to show how Hazlitt's book not only fails to completely destroy the anti-free trade case, but is a remarkably incompetent argument when examined in detail. I say this because I identified no less than 13 specific errors in his chapter on free trade in the first and second parts of the Hazlitt International Trade Challenge. Like most conventional - if not mainstream - economists, North is handicapped by his failure to pay any attention to debt. The following pair of charts show why North and other free traders feel their position is supported by the macroeconomic statistics, then show why their position is absolutely and utterly untenable.

This chart shows the free trade case. Since 1960, the trade deficit has gone from +3.5 billion to -494.7 billion while GDP/Capita has grown from $2,935.49 to $47,790.09. The growth in GDP has increased much faster than the population growth, therefore it appears to be obvious that the trade deficit is not only making the world richer, it is making the United States richer. However, this does not tell the entire story. As I mentioned previously, both the classical and the conventional free trade cases, like the Neo-Keynesian case for government intervention, completely fail to take debt into account.

Notice how adding the overall debt level of the economy completely changes the picture and makes it obvious how the trade deficit is impoverishing the USA despite the increase in GDP. GDP that does not account for debt is a terrible measure of wealth and every bit as misleading as GDP that does not account for inflation, as it is nothing more than a metric intended to track national income. Whereas per capita wealth, measured by GDP/capita - debt/capita was only -$1,417 in 1960, it has increased by two orders of magnitude to -$120,014. Debt that could once be paid off in 17 months would now require 42 months.

The prosperity that North and others claim free trade has brought the USA is nothing but a mirage and is the simple result of Americans borrowing to buy those foreign goods and services with money they will have to pay back from a smaller industrial base competing against much more serious competitors than they faced 50 years ago.

The case for free trade was always logically flawed, and on the empirical level simply cannot survive the incorporation of debt into the equation, as the historical statistics clearly demonstrate the intrinsic falsity that was always apparent to the sufficiently careful economic analyst. Free trade has not made the USA more wealthy, any more than buying giant houses with no-money down mortgages during the housing boom made those individuals who bought them rich. It hardly amounts to "state worship" to note that debt is not wealth. And it should be clear that by depriving the local consumers of their jobs and their ability to pay for imported goods and services, free trade necessarily requires either a decline in living standards or a constantly increasing debt load for countries on the red side of the trade deficit.

An so, as strange as it may sound, this observation points towards the legitimate possibility of developing the apparently oxymoronic Austrian case against free trade.

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203 Comments:

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Anonymous FrankNorman June 19, 2012 5:42 AM  

First comment?

Problem here is that the playing field is uneven, given that someone wanting to run a manufacturing-for-export business in North America has to deal with all sorts of socialistic regulations which his South Korean counterpart does not.

Anonymous FrankNorman June 19, 2012 5:45 AM  

Here in South Africa, some of our local industries have been driven out of business by cheap made-in-China exports. "Free Trade" has elements of Social Darwinism to it - by definition, that game is one where most of the players lose.

Anonymous TheExpat June 19, 2012 5:52 AM  

"In theory there is no difference between theory and practice. In practice there is." -Y.Berra

Blogger Berend de Boer June 19, 2012 5:54 AM  

Hong Kong does not have any import tariffs. Doesn't seem th be a problem...

Blogger Berend de Boer June 19, 2012 5:59 AM  

FrankNorman: your local industry might be better off, but would you rather support the local unproductive, praying-on-the-consumer capitalist, or the consumer? Because the consumer is definitely better off with low prices.

Why oh why would lobbyists be in favour of import tariffs (or tax breaks, same thing)?

Anonymous Roundtine June 19, 2012 6:09 AM  

I don't think you need anything more than the mobility of capital argument, when I bring that up with free traders they are shocked that the Ricardo model rests upon it. The major assumption underlying support for free trade is that capital will redeploy to other sectors of the economy, while savings from trade are put back into other sectors of the economy (comparative advantage). If the capital leaves, it's just a drain, not unlike when a factory leaves Michigan for South Carolina. What's left behind is Detroit.

The U.S. great advantage is its free and open internal economy. Whenever the US signs a free trade deal, it is by definition getting a bad deal overall because it is the best market. At the very least, the U.S. should demand access fees along with free trade deals.

Anonymous Jegolan June 19, 2012 6:21 AM  

Question: Ive been led to believe that all voluntary trade id beneficial to both parties. Can someone please enlighten me why a trade deficit is bad? Didnt both parties trade something they value less for something they value more?

Anonymous Rantor June 19, 2012 6:35 AM  

Jegolan,

simply put: I live in Virginia, when I buy a US made product, I support US workers, US business, US GDP. When I buy a foreign made product, I ultimately support a foreign worker, a foreign business and foreign GDP. If I support the foreign business enough, I eventually destroy a US job and eventually a US business reducing US wealth while making the foreigner rich.

Anonymous Jegolan June 19, 2012 6:51 AM  

Rantor, thanks. You made the foreigner rich because he now has more money, but youre richer as well because you have sonething you value. Now the foreigner has your $$ which he can use to save, spend, or invest, but won't it eventually go back to the US to buy US goods or invested in US companies, into the hands of an American? In any case, I'll wait for VD's post. Thanks again.

Anonymous bob k. mando June 19, 2012 6:51 AM  

Berend de Boer June 19, 2012 5:59 AM
FrankNorman: your local industry might be better off, but would you rather support the local unproductive, praying-on-the-consumer capitalist, or the consumer? Because the consumer is definitely better off with low prices.



this is such a hilariously bad characterization of reality that i'm tempted to ask if you're also a Freudian.

1 - what, besides Debt, do "consumers" create?
2 - if "consumers" create debt and "capitalists" are "unproductive" where has the 20th century explosion in wealth come from? are you asserting that it's ALL just paper inflation?
3 - the term you are attempting ( so poorly ) to use is "preying".
4 - even China has gotten onto the 'capitalization' of industry as the only way to become 'productive'. given that Capitalism seems to be, by far, the most effective economic method for maximizing the productivity of Labor ( and therefore, the wealth produced by Labor ) why do you display so much hate for Capitalists?

Blogger Vox June 19, 2012 6:52 AM  

In any case, I'll wait for VD's post. Thanks again.

Instead of doing a separate post, I simply added the two charts here. Feel free to ask questions if you don't understand them.

Blogger Vox June 19, 2012 6:54 AM  

Because the consumer is definitely better off with low prices.

Not if it's only cheaper if he's buying it on credit and is going to have to pay back the debt with the money he earns from a nonexistent job.

Anonymous FrankNorman June 19, 2012 6:55 AM  

Berend de Boer June 19, 2012 5:59 AM

FrankNorman: your local industry might be better off, but would you rather support the local unproductive, praying-on-the-consumer capitalist, or the consumer? Because the consumer is definitely better off with low prices.



I would rather have our local capitalists competing with each other, and providing jobs for our local people, than all the money going to the not-local capitalists, and our local people having no jobs.

See, those low prices aren't any good if the customer hasn't any money...

Anonymous the abe June 19, 2012 6:56 AM  

Is there any rule of thumb that distinguishes predatory trade from symbiotic trade?

Anonymous FrankNorman June 19, 2012 6:58 AM  

And in most cases, the made-in-SA stuff is better!

I'd much rather pay a bit more for locally-made clothing that fit properly, than for made-overseas clothes that don't.

Anonymous the abe June 19, 2012 6:59 AM  

BTW, just like to thank Vox for discussing this issue. I had come to intuitively understand free-trade was flawed before Vox began posting on it. But as most libertarians still reject considering otherwise, it was difficult to find anyone other than Pat Buchanan's passing thoughts on it to flesh out my inklings.

Anonymous Rantor June 19, 2012 7:05 AM  

Jegolan, why would the foreigner buy US goods when his own goods are cheaper? Nothing compels the Chinese to buy our goods and when it comes to foreign goods, the Chinese want them made in China. They allow limited imports, but eventually demand that the big companies build their factories in China. When a Chinese buys a Caterpiller, BMW, or Mercedes, it has a high likelihood of having been made in China. So if free trade is so good, why do the Chinese avoid it and why do their people profit from domestic production of supposedly foreign goods?

The trade imbalanes are proof that the foreigners are not buying a lot of US goods

Anonymous Daniel Hewitt June 19, 2012 7:08 AM  

Is there any rule of thumb that distinguishes predatory trade from symbiotic trade?

Yes. The non-agression principle. Voluntary trade is always symbiotic, due to comparative advantage. Which, as Vox exemplifies, is difficult to grasp. I can't believe I am saying this, but Vox is wrong and Paul Krugman was right about comparative advantage. (This was the old Krugman, way back when he was an economist).

http://web.mit.edu/krugman/www/ricardo.htm

You can find more literature on comparative advantage from more friendly sources; start with the Mises Institute. Gary North is a good guy, and his heart is indeed in the right place, but Vox is picking an easy target.

Anonymous TLM June 19, 2012 7:11 AM  

NAFTA proved Perot a prophet, but there are some areas of the market that would benefit from true free trade. And our women wouldnt be so fat and soft drinks would taste better. Sugar. And contrary to those new corn industry commercials, the body does not process high fructose corn syrup the same as cane sugar. A new American revolution hang the Louisiana tariff loving sugar cane lobbyists, stop all subsidies for the corn fags, and maybe my eyes will get a break from all the walking moo cows i see every day.-

Blogger Vox June 19, 2012 7:13 AM  

I can't believe I am saying this, but Vox is wrong and Paul Krugman was right about comparative advantage.

So you're going to note that WARNING: DANGEROUS GROUND sign with the giant flashing neon letters and then simply blow right past it, are you? Are you serious or is this just the Platonic Form of Voxbait on display?

Never mind, it worked....

Blogger tz June 19, 2012 7:18 AM  

Excellent summary and argument.

The worker wants higher wages, but when he leaves work wants lower prices as a consumer.

I have a slightly different view - free trade as being good in the Ricardian sense presupposes gold (or a common currency one sovereign can't devalue to create a tarriff and subsidy like within the united states), and a common set of laws and cultures. Everything is cheaper when you get it from a shoplifting ring but some libertarians consi=der that too as free trade, but I do not. Their position is theft and fraud are the Chinese victim's problem

North's problem is a bit more general. Harry Browne used to say the government breaks your legs, then shows its charity by giving you a crutch. Libertarians like North cheer taking away the crutch but leaving the leg broken. Then calls a sprint against a chinese athlete using dope 'fair'.

OpenID ZT June 19, 2012 7:20 AM  

Vox,

So are you insinuating that debt is caused by free trade? That doesn't make since. I might be able to agree that "debt + free trade = bad for country" but "debt = bad for country" as well.

South Korea has very low public debt and has a fairly good per capita GDP.

As far as I know South Korea has fairly free trade.

I'll admit I could be wrong but first glance is that South Korea is doing free trade with little debt. Where as the US is doing free trade with debt.

Blogger Dan Hewitt June 19, 2012 7:22 AM  

I fully concede that "Vox right, Krugman wrong" is a valid assumption 99% of the time. Or maybe 99.9%!

This was the old Krugman. He's very much a Nationalist now.

Blogger Vox June 19, 2012 7:23 AM  

So are you insinuating that debt is caused by free trade?

Yes, if you're on the red side of the trade deficit and your standard of living does not decline. With regards to South Korea, does it run a trade deficit or a trade surplus?

Blogger Vox June 19, 2012 7:24 AM  

I fully concede that "Vox right, Krugman wrong" is a valid assumption 99% of the time. Or maybe 99.9%!

Well, we'll certainly put this one to the test. Your cunning plan worked. Throw in the Dennett reference and I had no hope of offering any resistance.

OpenID ZT June 19, 2012 7:29 AM  

My current thinking is that free trade is good however it's an all or non between countries. If our trade is to be free with China then they should be free with us as well. But problem is they are not free. They are government subsidized in many cases which blows the money curve.

China can have near slave labor if it wants where as the US cannot. That doesn't mean the US doesn't have it's own subsidized industry issues but it does show that when many people look at "free trade" they seem to stop at the tariff part and forget about the subsidies part.

Also which "free" are we talking about? Are we talking about no government cost added to trade or no government regulatory limits put on ability to trade?

Blogger Dan Hewitt June 19, 2012 7:30 AM  

Throw in the Dennett reference and I had no hope of offering any resistance.

I should have mentioned Sam Harris to really get you going.

Blogger Dan Hewitt June 19, 2012 7:35 AM  

ZT, a trade deficit itself is not harmful. For example, my family has an enormous trade deficit with Walmart, but we're both better off. My employer has a trade deficit with me, but we're both better off. The benefits of trade do not disappear at a higher level.

OpenID ZT June 19, 2012 7:42 AM  

@Vox,

Me: So are you insinuating that debt is caused by free trade?

Vox: Yes, if you're on the red side of the trade deficit and your standard of living does not decline. With regards to South Korea, does it run a trade deficit or a trade surplus?


South Korea has a trade surplus. However is the USA's debt really an issue of free trade or the failure of America to compete and deal with regulatory requirements? IE is the theory of free trade wrong or do we truly have free trade and not some bastardized notion of it?

I would argue we haven't seen true "free trade". Which you may be quite right, the notion is nice in principle but not readily attainable in reality or at least just never seen. This is one problem free market/trade economics. All parties must be free or none can be free.

Anonymous Jegolan June 19, 2012 7:48 AM  

"Instead of doing a separate post, I simply added the two charts here. Feel free to ask questions if you don't understand them."

Thanks, Vox. I understand the charts, and how the picture changes when debt stats are factored in, but are free trade and debt necessarily intertwined as they have been as shown in the charts? I guess what Im getting at is this: Isnt the culprit debt and not free trade per se?
Rantor:
Jegolan, why would a foreigner buy US goods when his own goods are cheaper?"

He would if the good or service doesnt exist i his country. Things like know-how that exists in an American's brain. But like I said, doesnt the $$ eventually return to the US. It is $$ after all. The $$ end up in a bank where they are used to invest in American companies. There is a time lag of course, since $$ are a global currency, but eventually it'll be used to invest in America?

Thanks.

OpenID ZT June 19, 2012 7:53 AM  

@Dan Hewitt, a trade deficit itself is not harmful. For example, my family has an enormous trade deficit with Walmart, but we're both better off. My employer has a trade deficit with me, but we're both better off. The benefits of trade do not disappear at a higher level.

Yes, but you are forgetting the debt component. You trade as a whole is not a deficit because you are not in debt. You make more money due to trade of your skills with your business/employer. You spend money on trade with Walmart, but at the end of the day still have more then what you traded away.

The USA on the other hand is a debtor and spends vast amounts of money on trade while leaving the question of do we obtain more wealth from the trade or are we crushing or own people to get cheap goods from other locations. My contention with Vox is that I don't see free-trade as the progenitor of the debt issue. In fact don't think the world has ever seen a true "free trade" implementation anywhere and would be more likely to argue that all this talk of "free trade" is a misnomer.

Anonymous VD June 19, 2012 7:54 AM  

Isnt the culprit debt and not free trade per se?

No, because it is clear that the debt is being incurred, in part, to pay for the free trade. Free trade is only one facet of the debt problem, but it is a real and substantial part of it. Keep in mind that even according to Keynesian/Samuelsonian economic theory, debt is not a problem so long as it is not owed to foreign debtors. But obviously, anything bought on credit from a foreign provider of goods and services will be owed to a foreign debtor.

And, of course, both Keynes and Samuelson were wrong and internal debt is absolutely a problem as well.

Blogger Nate June 19, 2012 7:57 AM  

Why is it surprising that when a rich person starts trading with a poor person... that the rich person will buy more than the poor person?

Its a given that the poor person has something the rich person wants... and vice versa... since transactions are in fact happening.

So why isn't this out-come exactly what should be expected?

Anonymous VD June 19, 2012 7:59 AM  

For example, my family has an enormous trade deficit with Walmart, but we're both better off.

Are you sure about that? Do you really think you are better off if your trade deficit with Walmart is on your Walmart-issue credit card and you owe Walmart 3.5x your annual income?

My contention with Vox is that I don't see free-trade as the progenitor of the debt issue. In fact don't think the world has ever seen a true "free trade" implementation anywhere and would be more likely to argue that all this talk of "free trade" is a misnomer.

Irrelevant. The same logic applies because we're not discussing ideals here, but rather, if protectionism would benefit the US economy versus the current status quo. The evidence is quite clear that it would. More jobs, lower trade deficit, higher wages, and less debt.

OpenID ampontan June 19, 2012 8:06 AM  

Subtract one:

"3. Hazlitt erroneously assumes that the British will buy more from the USA because they will be forced to buy more American goods due to their possession of dollars. This is untrue because the dollar is the world's reserve currency and is often utilized for trade between foreign countries; the British are no more forced to buy American goods due to their possession of dollars than the Thebans were forced to buy from Athenian goods due to their possession of silver talents."

Except Hazlitt was not talking about dollars and pounds specifically, he was talking about units of exchange between nations, regardless of which ones they are. He used those two because they would be most familiar to an American audience.

And even if the dollar was the world's reserve currency at that time, and the British used dollars to buy something from Brazil, the dollars overseas are ultimately redeemable in the United States by someone. It would be hard to see how that doesn't eventualy work in the favor of the U.S.

As for the issue at hand, dang those Koreans for manufacturing stuff that Americans want to buy at prices and/or quality better than those for native American products, thereby stretching the purchasing power of Americans, both individually and in the aggregate.

I note with interest that Mr. Buchanan does not link to the AP article, the statistics in question cover only one month, and he does not mention exactly what was bought and sold, and by whom.

We live in an age when five of the top ten American-made cars according to one website have a Japanese nameplate, and Chevrolet sources many of its parts from China (as do Japanese automakers). Yet all Mr. Buchanan provides is two throwaway sentences about unexamined trade stats before launching a rant. Do better if you can.

Yes, Americans have gone deeply into debt, but that's their fault and independent of the principle.

I also note that the trade deficit started cropping up around 1980, which is around the time American workmanship started to become a problem compared to the rest of the world. In other words, it literally went to pot. I was living in the Bay Area of California at the time, and often listened to the rants of a supervisor at the GM plant in Fremont who wanted to fire workers who spent all day drunk or high but couldn't, because the union wouldn't let him. I do not think that is a problem with German, Japanese, or Korean automakers.

Interesting that you don't see this, for all your insight into other cultural problems in the U.S. Remember when they called Detroit the Motor City? What do they call it now?

Once you're done with Hazlitt, you might move on to Bastiat and "If goods don't move across borders, then armies will."

Anonymous Mike T June 19, 2012 8:07 AM  

I would argue we haven't seen true "free trade".

ZT, this is a trollish argument. You're relying on a No True Scotsman fallacy. It's a fact that NAFTA has increased the economic liberty of those parties that want to do free trade, therefore it has made trade freer. If free trade were sound (without the negatives like freedom of labor movement associated with it), then the liberalization of those rules would have resulted in some of the benefits theorized by free traders.

As it currently stands, the demonstrably freer relationship in North America has not resulted in higher material prosperity except for some parts of the Mexican working class. In general, the American and Canadian public has lost far more than they have gained.

Anonymous Mr Green Man June 19, 2012 8:08 AM  

I'm always amazed by the clinging to the theoretical: Didn't that debt argument show data -- with pretty simple and generally-accepted numbers and measurements -- that the GDP growth has been illusory? That it has all been debt fueled -- more so, that the debt growth rate has been greater than the GDP growth rate, so that we have a form of internal rot going on and we have passed our economic zenith some time back? Don't let data get in the way of a good theory!

So, people throw out these theoretical argument -- trade is always mutually beneficial, for example -- and the answer is -- it has not been for the United States. Here are the bullets loaded in the gun for national Russian Roullette:
1) The GDP is not growing as fast as our borrowing for the last many decades
2) Some time in the last decade, we surpassed the mark where the debt as even majority internally held. The new debt is externally borrowed.
3) We have giant foreign account deficits from trade going one direction -- money out, goods in
4) But we are borrowing that same money externally, so we're running up a huge bill
5) Even with knee pads, our secretary of state has had trouble getting the Chinese to continue to buy the bonds and loan us money, so the day of the credit limit is coming

When you take your Sears card, and you go borrow $5,000 from Sears to buy $5,000 of things that you immediately consume, you still owe Sears the $5,000 plus some usurious rate of interest. That trade did not make you wealthier. Don't let the data presented get in the way of pet theories on trade always being positive or the nation state being an illusion and all that matters is the global market. The global market doesn't much care about your individual freedom to worship, own a firearm, or be left alone.

Blogger Dan Hewitt June 19, 2012 8:13 AM  

Are you sure about that?

Yes. I valued the goods purchased more than I valued the money on hand, so I am better off.

Do you really think you are better off if your trade deficit with Walmart is on your Walmart-issue credit card and you owe Walmart 3.5x your annual income?

The problem you're getting at is debt, not voluntary economic exchange. And what enables debts of this magnitude to be accrued is our fiat monetary regime. I seriously doubt that in a true free market, consumers would be handed this much rope to hang themselves with.

Anonymous cherub's revenge June 19, 2012 8:15 AM  

From North's article:I was on the staff of Ron Paul. At the meeting, there was a man I had never seen before. He was an oaf. The group got into a discussion of free trade. Here is what he said:

"I will tell you what free trade is. It is when I put the barrel of my .45 at the head of some gook and tell him: "We are going to trade, and we're going to trade on my terms."


There's a man who gets it. That's what a Great Power uses its clout for, not teaching goat herder broads to read and vaccinating cannibals Get this man a commission as Secretary of Commerce.

OpenID ZT June 19, 2012 8:18 AM  

@VD

Irrelevant. The same logic applies because we're not discussing ideals here, but rather, if protectionism would benefit the US economy versus the current status quo. The evidence is quite clear that it would. More jobs, lower trade deficit, higher wages, and less debt.

It's not irrelevant when you start the topic essentially saying "free-trade is bad" when you are arguing "protectionism is good".

To which I say "more jobs, no deficits/debt, and higher wages". Now how can we attain that?

Also you said "lower trade deficit" so are you still saying we should have a trade deficit? Or do you just mean that we should be generating more wealth then what we are losing to our deficit?

Anonymous VD June 19, 2012 8:20 AM  

Except Hazlitt was not talking about dollars and pounds specifically, he was talking about units of exchange between nations, regardless of which ones they are. He used those two because they would be most familiar to an American audience.

Irrelevant. It still explodes that aspect of his argument for free trade insofar as it applies to the USA.

And even if the dollar was the world's reserve currency at that time, and the British used dollars to buy something from Brazil, the dollars overseas are ultimately redeemable in the United States by someone. It would be hard to see how that doesn't eventualy work in the favor of the U.S.

It's not hard at all and you didn't read enough of what I wrote. I specifically dealt with that objection and it demonstrates your ignorance of both Eurodollars and the refusal of even American corporations to repatriate their dollars for decades. The fact is that even though those dollars theoretically could come back, in practice, a lot of them don't. What good does it do a worker today to know that in 40 years, there might be a job created from capital that is exiting the country now? Hazlitt's argument - rather surprisingly for an Austrian - doesn't take time preferences into account. This is amusing since Hazlitt criticizes Keynesian for that very failure in other aspects of economics.

Yet all Mr. Buchanan provides is two throwaway sentences about unexamined trade stats before launching a rant. Do better if you can.

That is infinitely more than North provided, and it was North who was ranting and casting silly aspersions. Your description of Buchanan's column as a rant is simply false. Be more intellectually honest if you can.

Anonymous cherub's revenge June 19, 2012 8:24 AM  

the abe:Is there any rule of thumb that distinguishes predatory trade from symbiotic trade?

If your potential trading partner's surname contains the name of a precious metal or a gem stone, you're probably best off taking a pass.

Anonymous VD June 19, 2012 8:25 AM  

It's not irrelevant when you start the topic essentially saying "free-trade is bad" when you are arguing "protectionism is good".

Only amateurs and idiots argue if real world free trade is really, truly free trade or not. The pure free trade argument cannot be considered empirically because it does not exist, has never existed, and it has already been blown away logically. Since we're dealing with actual trade figures and the performance of practical predictive models, your argument about the insufficient purity of real world trade is obviously irrelevant from the start.

If you don't accept this retarded sort of argument on behalf of communism or Keynesian stimulus, you can't accept it on behalf of free trade either.

Blogger Dan Hewitt June 19, 2012 8:29 AM  

Hans-Hermann Hoppe on Buchananism:

They even want to expand the "social" responsibilities of the state by assigning to it the task of "protecting," by means of national import and export restrictions, American jobs, especially in industries of national concern, and "insulate the wages of U.S. workers from foreign laborers who must work for $1 an hour or less."

In fact, Buchananites freely admit that they are statists. They detest and ridicule capitalism, laissez-faire, free markets and trade, wealth, elites, and nobility; and they advocate a new populist—indeed proletarian—conservatism which amalgamates social and cultural conservatism and socialist economics.

[…]

Hence, it is necessary to combine the economic policies of the left and the nationalism and cultural conservatism of the right, to create "a new identity synthesizing both the economic interests and cultural-national loyalties of the proletarianized middle class in a separate and unified political movement." For obvious reasons this doctrine is not so named, but there is a term for this type of conservatism: It is called social nationalism or national socialism.

OpenID ZT June 19, 2012 8:30 AM  

@Mike T,

I would argue we haven't seen true "free trade".

ZT, this is a trollish argument.


I disagree. I'm seeking a clarification of terms. If we are going to continue to use "free trade" in it's misnomer form them fine. We'll use it that way. I raise this issue because VD is arguing the failure of reality where as Hazlett argued the theory. I would agree with VD's assessment for the most part. "free trade" has not been accomplished and we have only come up with this psudo freer trade option that is a failure. Could "free trade" the theory possibly work? Maybe when we send people to colonize Mars and they tell the earth to f-off. But until then I don't think free-trade theory can work on a national scale. Small scale, maybe.

Free trade needs a level playing field. We can have free trade between states in the US because they are all stuck with the same rules. We cannot have free trade with the rest of the world because they all have different rules. If all had the same rules then we would have a one-world government and that would be bad for us all.

Blogger swiftfoxmark2 June 19, 2012 8:32 AM  

I'm wondering if there were no labor and trade regulations, no welfare state, and a commodity-based monetary system, if the free trade argument would hold more weight. Right now, free trade cannot work in our favor because of these factors.

I suppose that it would still not work in our favor because even if we removed all the wonderful, wealth destroying policies of the government, a wealthier nation would still be overdone by a country with less wealth.

Anonymous VD June 19, 2012 8:32 AM  

Yes. I valued the goods purchased more than I valued the money on hand, so I am better off.

Then you're stupid and short-sighted, much like all those idiots who bought houses during the housing boom. The money on hand can't be the issue, for the obvious reason that you didn't pay anything for it. Like Wimpy, you're valuing a hamburger today more than the money you will have to pay for it tomorrow. All this reveals is that you're shortsighted and possess immediate time preferences.

The whole "voluntary exchange means you're better off" is totally ridiculous anyhow. If I pay $50 for a prostitute and acquire penicillin-resistant gonorrhea, I am not better off. And it doesn't matter that I didn't know I was getting a two-for-one deal. The idea of the rational consumer is an intrinsically flawed one because it requires perfect knowledge that no one has. The existence of buyer's remorse alone suffices to destroy it.

Anonymous VD June 19, 2012 8:36 AM  

I raise this issue because VD is arguing the failure of reality where as Hazlett argued the theory.

No, VD is also arguing that the theory is simply wrong. If you base your theory on the premise that X must happen, and it can be shown that X does not necessarily happen, the theory is wrong. Hazlitt erroneously believed that the money had to come back in a time scale short enough to be meaningful. It doesn't. He was wrong.

And that doesn't even get into what can happen when it's not money per se being paid, but rather debt, which can be defaulted.

Anonymous VD June 19, 2012 8:39 AM  

Hence, it is necessary to combine the economic policies of the left and the nationalism and cultural conservatism of the right, to create "a new identity synthesizing both the economic interests and cultural-national loyalties of the proletarianized middle class in a separate and unified political movement." For obvious reasons this doctrine is not so named, but there is a term for this type of conservatism: It is called social nationalism or national socialism.

That's incorrect. There is nothing socialist about it. Buchanan openly describes it as economic nationalism, but since there is no distributive element involved or government ownership of anything, it is simply incorrect to describe it as socialism, much less national socialism.

Clearly I'm going to have to write that book on national libertarianism one day....

Blogger Nate June 19, 2012 8:42 AM  

"If you don't accept this retarded sort of argument on behalf of communism or Keynesian stimulus, you can't accept it on behalf of free trade either."

Not entirely true... as interstate trade in the US is pure free trade no?

All we have to do is track the data now... wait till the US splits... then track the data when the new nations limit trade... and compare.

10 years from now we should have an experiment going for the first time.

OpenID ZT June 19, 2012 8:44 AM  

I raise this issue because VD is arguing the failure of reality where as Hazlett argued the theory.

No, VD is also arguing that the theory is simply wrong. If you base your theory on the premise that X must happen, and it can be shown that X does not necessarily happen, the theory is wrong. Hazlitt erroneously believed that the money had to come back in a time scale short enough to be meaningful. It doesn't. He was wrong.

And that doesn't even get into what can happen when it's not money per se being paid, but rather debt, which can be defaulted.


Agreed, Hazlett's theory fails. The world and human nature have been unkind to it. However is it irrecoverable and should never be tried? Could it be corrected to work? It seems to work inside the US boarders between states though I will be the first to admit I don't know the inner workings of interstate trade.

Protectionism is desirable when we look at nations. But is that good within states as well or is "free trade" possible/desirable inside the states?

Blogger Nate June 19, 2012 8:47 AM  

but hold on... can't we already test this whole trade deficit concept already?

We have free interstate trade in the US... so why not compare the state trade... examine the states... and see if these trade deficits are bad?

How hard can it be? West Virginia ships an aweful lot of coal... so if we find that many states have huge trade deficits with WV... yet WV is poor... what do we conclude? Anything?

Blogger Vox June 19, 2012 8:51 AM  

It seems to work inside the US boarders between states though I will be the first to admit I don't know the inner workings of interstate trade.

That leads us to the pernicious aspect of the free trade argument. It points inevitably to either debt or globalism. That is precisely the argument that the EU elites are making now. They are claiming that the failure of the monetary union is justification for forcing political union of all the Euro member states.

Free trade is every bit as dangerous in its own way as communism. It sounds good, but the devil is in the application. It promises heaven on earth if you'll only turn over all power to a single central authority.

Blogger Nate June 19, 2012 8:52 AM  

I suppose my point is... before you use trade deficits as hammer to blast away at free trade... one must first demonstrate that trade deficits are in fact bad.

Anonymous Difster June 19, 2012 8:54 AM  

The entire American economy is fueled by debt. We collect and trade debt instruments (FRNs) for the things we want. As we borrow more to pay the interest on the money we borrowed to pay the interest on the money we borrowed (...) our debt instruments secure less of the goods and services we want.

So in a fiat economy, free trade is a losing deal for whichever side imports the most stuff.

But what about a gold based economy trading with other gold based economies. Debt doesn't really enter in to the picture. Since it's gold, currency repatriation isn't really an issue. It seems to me, in that instance, free trade works out better for everyone.

Trade deficits would like be far more balanced assuming things were actually being produced because as gold left one country, the money supply would shrink and prices would drop. The country the money flowed in to would see inflation and eventually, the flow would be reversed.

I don't think this is a "gotcha" or anything, I'm just trying to distill it down to get to the heart of the real problem with free trade (which I concede is not beneficial under the current system).

Anonymous Jegolan June 19, 2012 8:54 AM  

Will getting rid of the USD's status as global reserve currency alleviate some of the problems with free trade? Would a system of competing currencies be better?

BTW, Im not American. Im from a 'third world' country that has the US as its biggest trading partner.

Blogger Nate June 19, 2012 9:01 AM  

" It promises heaven on earth if you'll only turn over all power to a single central authority."

This is counter intuitive to a small degree... but yes... because there will always be protectionists... and for free trade to work... someone will have to put a gun to their head and forbid it.

Thus the libertarian conundrum.

Will you, as a libertarian, put a gun to someone's head and tell them they must participate in your free trade utopia?

Anonymous VD June 19, 2012 9:03 AM  

It seems to me, in that instance, free trade works out better for everyone.

What is the problem with you people? The logic has been exploded. The empirical evidence is clear. And yet many of you are desperately trying to come up with some impossible and nonexistent metric that would somehow justify it.

It's not that hard. Hazlitt was wrong. Mises was wrong. Krugman was wrong. Ricardo was wrong. Want to try to defend free trade? Great, stop babbling about what "seems" or "could be" and go find a nation with a growing trade deficit that has simultaneously reducing its debt. That would be a defense against the empirical case I've presented here.

Otherwise, you might as well go try to convince people that communism would work if it was only implemented properly.

Anonymous James Dixon June 19, 2012 9:03 AM  

> As an aside, I note that the European Union is one of the most fascistic, illiberal, intrusive, and centralized state powers in the world and it was largely constructed upon free trade-based arguments.

A very similar statement could be made about the US federal government.

> ...but won't it eventually go back to the US to buy US goods or invested in US companies, into the hands of an American?

Historical evidence indicates that at most a portion of it will. A significant percentage (as far as I know, no studies have quantified exactly how much) will not. Most of what does make its way back nowadays seems to be in the form of buying our government bonds, which is hardly beneficial.

> IE is the theory of free trade wrong or do we truly have free trade and not some bastardized notion of it?

With politicians involved, do you really have to ask?

> Free trade needs a level playing field.

Exactly. But none of the people arguing for "free trade" are arguing for a level playing field.

Anonymous James Dixon June 19, 2012 9:10 AM  

> West Virginia ships an aweful lot of coal.

How much of that coal is owned by West Virginians? :(

Some people need to keep in mind that there is the abstract concept of free trade and then there is "free trade" as the world practices it. The two aren't the same thing, and arguments in favor of the abstract concept don't necessarily apply to the practiced version. Vox is arguing against what is actually being practiced, not against the abstract concept.

Anonymous Jegolan June 19, 2012 9:20 AM  

i want it to work. I want, for example, to be able to send workers, both skilled and unskilled, to prosperous industrialized countries. Wokrkers who are willing to work longer hours for lesser pay because even with those conditions, what theyll get is a lot better than what is available to them otherwise. I'd like to think the host countries would be better off with them too, especially if theyll be working on jobs that nobody wants to do but employers need. Having been a long time reader of this blog, I also know VD's position on that. Maybe Europe would be a better option, what with their population decline and increasing secularization. Im sure that behind closed doors, theyre considering importing labor from Christian nations, will offer them a chance for full citizenship to stem the rapid growth in population of the Islamic citizenry there. ;-)

Anonymous the abe June 19, 2012 9:27 AM  

It's been discussed here before, but the idea of the Constitution's free-trade element as hallmark of the benefits of free-trade is fact erroneous. One need only drive through the rusty carcass of fly-over country, and find only Wal-Marts and strip malls. to realize the net effect applies in the microcosm as well as the macrocosm.

The utter backwater in France where the Missus' family is from has a higher standard of living than a lot of "middle class" areas of the Anglo-Saxon world. This is due in no small part to the fact capital/wealth is reinvested in each community in the form of mom and pop stores, and licensing restrictions that keep one-stop shop corporations from deluging small buisinesses.

Anonymous the abe June 19, 2012 9:29 AM  

The ultimate trouble with free-trade is one size DOES NOT fit all situations.

Anonymous RedJack June 19, 2012 9:30 AM  

Vox,
Part of the problem is both libertarians and conservatives have been taught that "free trade" is ALWAYS good. It is part of the core of the belief system.

So no matter what reality says, those who self identify as libertarians will lean to free trade. It is a blind spot.

Anonymous Noah B. June 19, 2012 9:33 AM  

I hope I don't butcher this too badly, but the free trade situation reminds me of the story of the Wall Street trader who jumped off the top of a skyscraper. As he passed his friend on the 40th floor, he shouted, "So far, so good!"

As our society searches for ever more ways to pile on debt, resorting to every conceivable manner of fraud and deception in the process, we come ever closer to the moment of coming into contact with the relentless forces of reality.

Anonymous Mark Call June 19, 2012 9:35 AM  

VD - while I appreciate your arguments, I was a bit surprised you didn't hammer on the fatal flaw of 'free trade' --

WHEN IT IS BASED ON DISHONEST EXCHANGE!

What is "free" about dishonest weights and measures, anyway?

I see that only the Difster has yet broached the key issue above. An economy of fiat cannot be "free," and the inevitable result(s) is what you have noted. Without a basis in the real (like gold or silver) a system based on debt will only collapse.

The Bible had it right, too. Dishonest "weights and measures" are in fact worthy of being called "abomination".

Anonymous Vidad June 19, 2012 9:45 AM  

So... basically... on a simplistic level... here's how it works between me and Walmart.

I get a Walmart card with a huge amount of credit on it, then go and get some corn chips, Velveeta and salsa to make Super Gutbuster Cheese Dip. Later, realizing I don't need to stop there, I get beer. Then a big above-ground pool and a raft to float on. And some Pepto-Bismol. And some more beer. Then, next week, thrilled by my previous bargains, I get a flatscreen TV, a few cases of sardines, furniture, etc. etc. until I've spent, spent, spent myself into the ground and owe Walmart multiple times what I can ever pay them... along with interest.

All this was voluntary, of course. Walmart gave me the credit line and the cheap goods. I shopped there until I was fat, drunk and broke.

In the long run, despite my abundant supply of stuff, I've also run myself into the ground financially.

So... I would've been better off without the "advantage" of cheap credit and cheap goods made by slave laborers.

I guess the argument is that: Free Trade is attractive, since it appeals to our baser desires, but quickly leads to behaviors that sink the consumer? Meaning we should be protected from ourselves, for our own good?

Anonymous Clay June 19, 2012 9:45 AM  

"FrankNorman June 19, 2012 6:58 AM And in most cases, the made-in-SA stuff is better!"

Rather OT, but, Frank....just what the hell DO they make in S. Africa? I don't remember seeing "Made In S. Africa" on anything.

Those annoying horns the blow at futball matches? Shrunken heads? What?

Anonymous Jegolan June 19, 2012 9:47 AM  

BTW A nation with a growing trade deficit that is reducing its debt.

Anonymous Rantor June 19, 2012 9:52 AM  

Clay,

BMW makes many of their 3-series cars in South Africa...

Blogger SarahsDaughter June 19, 2012 9:55 AM  

"BTW A nation with a growing trade deficit that is reducing its debt." - Jegolan

I wonder if the Philippines includes the sale of their daughters to sex slavers into those figures. Somehow I doubt it so the true value of their exports is not being considered.

Blogger Nate June 19, 2012 9:57 AM  

"Great, stop babbling about what "seems" or "could be" and go find a nation with a growing trade deficit that has simultaneously reducing its debt. That would be a defense against the empirical case I've presented here. "

Argentina is a grand counter example. 1980-81... they opened up trade... and what happened?

They were murdered. Debt sky rocketed.

Another point about Argentina as a lab rat... they defaulted on their debt... and in just a for short years... have a trade surplus and for the first time... actually have industrial growth in critical areas like technology.

Anonymous Josh June 19, 2012 9:59 AM  

you can't have free trade while at the same time having fiat currency systems...or massive state interference in the economy...

Anonymous Josh June 19, 2012 10:01 AM  

my biggest problem with protectionism is the prohibition of individual economic liberty...and you can't have an anti free regime without such prohibition...

Blogger Nate June 19, 2012 10:02 AM  

"I guess the argument is that: Free Trade is attractive, since it appeals to our baser desires, but quickly leads to behaviors that sink the consumer? Meaning we should be protected from ourselves, for our own good?"

This is the problem with the free trade philosophy: it ignores the value of self-reliance.

We need domestic access to certain industries. Yes... it is nice to not have to spend the money developing what you do not already have... but that's what growth is. Growing hurts some times. spend money to make money and all that.

Free Trade says, "You're not good at making cars... leave that to the germans... grow your corn."

its a false temptation. The answer is... GET GOOD at making cars... so you can export both cars AND corn.

Anonymous FUBAR Nation (Ben) June 19, 2012 10:09 AM  

Vox, I don't understand why you want to blame free trade when Ian Fletcher himself stated in his book that the Bretton Woods system of fixed exchanged rates worked to fix trade imbalances between nations. If you take a look at your own chart you'll see that after 1971 trade deficits and debt started to explode. Is that a coincidence? Ian Fletcher explores the monetary aspect of the problem but you don't for some reason.

On a philosophical note, you decry free trade because people are selling their assets and going into debt to buy foreign goods. Isn't that their right to do such a thing? Don't you have a right to be an idiot? If not, where does it stop? Shouldn't you be supporting bans on soda like Bloomberg because people are too stupid to know what not to eat or drink?

Blogger Vox June 19, 2012 10:11 AM  

BTW A nation with a growing trade deficit that is reducing its debt.

First, that's only external debt. Second, and more importantly, an increase from $52 billion to $63 billion is not a reduction in debt.

my biggest problem with protectionism is the prohibition of individual economic liberty...and you can't have an anti free regime without such prohibition...

Does the prohibition of individual economic liberty involved in not letting every Mexican and Chinese citizen purchase homes and live in the USA similarly bother you? I don't think you've actually thought through what is involved in individual economic liberty.

Blogger Nate June 19, 2012 10:14 AM  

"On a philosophical note, you decry free trade because people are selling their assets and going into debt to buy foreign goods. Isn't that their right to do such a thing? Don't you have a right to be an idiot? If not, where does it stop? Shouldn't you be supporting bans on soda like Bloomberg because people are too stupid to know what not to eat or drink?"

This is an entirely different topic mate.

You're asking if the government should have the authority to regulate trade. The topic is... is free trade good or bad economically.

Anonymous Mike T June 19, 2012 10:15 AM  

ZT,

I disagree. I'm seeking a clarification of terms. If we are going to continue to use "free trade" in it's misnomer form them fine. We'll use it that way. I raise this issue because VD is arguing the failure of reality where as Hazlett argued the theory. I would agree with VD's assessment for the most part. "free trade" has not been accomplished and we have only come up with this psudo freer trade option that is a failure

True free trade has not been accomplished, but it is demonstrably false that trade has not been liberalized substantially. Therefore, we ought to see some of the predictions coming true. If we had to wait until an ideology were 100% implemented to specification to falsify it, then there would be no basis to say Communism or Socialism don't work.

Anonymous E. PERLINE June 19, 2012 10:16 AM  

If you own a big ship you'd better have it registered in Panama or some other foreign place. The US Maritime Unions will not allow you to compete.

The day you could take a factory and load it on a wide-bodied jet, that was the day the Buy American jig was up.

Blogger Vox June 19, 2012 10:19 AM  

I don't understand why you want to blame free trade when Ian Fletcher himself stated in his book that the Bretton Woods system of fixed exchanged rates worked to fix trade imbalances between nations.

Because free trade is both logically fallacious and empirically harmful.

If you take a look at your own chart you'll see that after 1971 trade deficits and debt started to explode. Is that a coincidence?

No, of course not. It exacerbated the problems intrinsic to free trade. It's not a coincidence that trade to China was opened around that time either.

On a philosophical note, you decry free trade because people are selling their assets and going into debt to buy foreign goods. Isn't that their right to do such a thing?

No more than it is their right to buy houses in Singapore or live in Israel. How can you have any rights outside of your citizenship? What is the institution protecting those rights? The Biblical God certainly doesn't endow anyone with the right to buy anything at any time from anywhere. What is the basis for this purported "right"?

Shouldn't you be supporting bans on soda like Bloomberg because people are too stupid to know what not to eat or drink?

Soda bans are not an appropriate matter for government. Tariffs and import-export limitations most certainly are. Have you never even looked at the U.S. Constitution?

Anonymous Josh June 19, 2012 10:21 AM  

Does the prohibition of individual economic liberty involved in not letting every Mexican and Chinese citizen purchase homes and live in the USA similarly bother you? I don't think you've actually thought through what is involved in individual economic liberty.

if an individual wishes to sell a house to another individual, that is none of the government's business.

As to your question, how would the entire population of china and mexico afford to buy houses here?

You keep trying to conflate free trade with individuals and open borders/free movement of people.

Anonymous Jegolan June 19, 2012 10:21 AM  

How about public debt? And from a debtor nation, this year, the Philippines started lending out money this year. That's pretty significant. (I dont think the data has factored inflation in but I could be wrong.)

Anonymous Jegolan June 19, 2012 10:23 AM  

Missed the public debt link. Here http://www.indexmundi.com/g/g.aspx?c=rp&v=143

Blogger Vox June 19, 2012 10:25 AM  

You keep trying to conflate free trade with individuals and open borders/free movement of people.

It's not a conflation, it's part of the definition. Free trade involves the free provision of services. There is no difference between free trade with individuals and open borders/free movement of people. That's why it was enshrined into the EU laws. If you don't permit the free movement of labor, you don't have truly free trade.

Anonymous Josh June 19, 2012 10:25 AM  

we can't prohibit the importation of illegal drugs in the united states, but we can effectively keep out other foreign made products?

Blogger Joshua_D June 19, 2012 10:26 AM  

Vox, have you ever written on the topic of goods vs. services? It seems to me that many people assume these are the same, but I don't think so. It also seems that people often assume we can import goods and export services and that is somehow equivalent. But again, I don't think they are.

It seems to me that services are secondary to goods, and seeing as how we are producing fewer and fewer goods here in the USA, we are getting poorer and poorer.

Anonymous Josh June 19, 2012 10:31 AM  

Free trade involves the free provision of services.

they don't have to physically move here and acquire citizenship to provide services. economic activity and political participation don't have to be the same thing

Anonymous cherub's revenge June 19, 2012 10:32 AM  

we can't prohibit the importation of illegal drugs in the united states, but we can effectively keep out other foreign made products?

Little bit different risk/reward analysis on prison in a 4000% margin versus a 12% one ain't there?

Anonymous Clay June 19, 2012 10:32 AM  

Like a remora, or maybe a lamprey, the "Jones Act" fits in this discussion, (somewhere). Most folks don't even know it exists, but, it causes me a pain in the ass quite frequently:

"The Merchant Marine Act of 1920 (P.L. 66-261) is a United States federal statute that regulates maritime commerce in U.S. waters and between U.S. ports. Section 27, better known as the Jones Act, deals with cabotage (i.e., coastal shipping) and requires that all goods transported by water between U.S. ports be carried in U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. The purpose of the law is to support the U.S. maritime industry.[1]

In addition, amendments to the Jones Act, known as the Cargo Preference Act (P.L. 83-644), provide permanent legislation for the transportation of waterborne cargoes in U.S.-flag vessels. The Merchant Marine Act of 1920 has been revised a number of times, the most recent and thorough revision was the re-codified version of 2006."


Been around for almost 100 years now.

Blogger Dan Hewitt June 19, 2012 10:33 AM  

What is the problem with you people? The logic has been exploded. The empirical evidence is clear.

Economics is not a science where one can run controlled experiments. For example, in the period in which you’ve provided data for, the US dollar was made non-convertible.

Hazlitt was wrong. Mises was wrong. Krugman was wrong. Ricardo was wrong.

Respectfully, you should consider that there is a non-zero possibility that you do not understand comparative advantage.

Anonymous Josh June 19, 2012 10:40 AM  

um, dude, I'm pretty sure vd has a good grasp of comparative advantage in theory and in practice...

Blogger Nate June 19, 2012 10:42 AM  

The only problem I note with the anti-free-trade argument is that debt isn't necessarily caused by trade. Well fare state expenditure... war expenditure... these things must be considerate major driving factors in the debt increase.

Blogger Nate June 19, 2012 10:44 AM  

"Respectfully, you should consider that there is a non-zero possibility that you do not understand comparative advantage."

I don't think that says what you wanted it to say...

Anonymous Josh June 19, 2012 10:44 AM  

Like a remora, or maybe a lamprey, the "Jones Act" fits in this discussion, (somewhere). Most folks don't even know it exists, but, it causes me a pain in the ass quite frequently:

The issues of regulation, taxation, fiat currency, fractional reserve banking, industrial subsidies, etc are so entwined with trade that you cannot just limit the theoretical discussion to tariff rates

Blogger The Aardvark June 19, 2012 10:45 AM  

What is confusing about North's stance is that as a Dominionist, he *should* have some very clear awareness and understanding of debt. Blind spot.

Anonymous Jegolan June 19, 2012 10:46 AM  

VD| "If you don't permit the free movement of labor, you don't have truly free trade."

So free trade doesnt exist. At least not between the US and the Philippines (or some other third world country). We can't test the empirical case so we only have the logical case left, I think.

Anonymous cherub's revenge June 19, 2012 10:47 AM  

Josh:if an individual wishes to sell a house to another individual, that is none of the government's business.

Then I'll start taking you free traitors seriously when I see you guys foaming at the mouth and going hammer and tongs on the Civil Rights Acts like you do on tariffs.

Blogger Nate June 19, 2012 10:51 AM  

"We can't test the empirical case so we only have the logical case left, I think."

We can test free trade within the united states. There is freedom of movement of people, and of goods.

We don't even track the state to state trade deficits.

I am wondering if trade deficit is even something that should be tracked at all. Vox makes a strong case... but I'm not convinced either way.

Blogger Dan Hewitt June 19, 2012 10:52 AM  

I don't think that says what you wanted it to say...

That would not be the first time the words came out wrong. What I saying is that Vox subscribes to a sort of absolute advantage paradigm, where one actor can benefit only at the expense of another.

Anonymous Shild June 19, 2012 10:52 AM  

The link in the chain that I still don't understand is debt.

Is the argument that a free trade situation or a national trade deficit causes the increase in debt? If so, then by what mechanism does this occur? Isn't the debt already available prior to the free trade and/or the trade deficit situation?

Anonymous Stilicho June 19, 2012 10:52 AM  

Comparative advantage could only work if a comparative advantage actually exists in relatively equal quantity, other things being equal. Further, a trade deficit is largely self-limiting if actual savings are used to purchase goods. When the buyers' savings are depleted they can produce more to increase their savings, purchase less, or some combination of the two. The pendulum swings and seeks equilibrium. When a trade deficit is fueled by debt, the only limits are the amount of debt the purchaser is willing to take on and the amount of credit the producers are willing to extend.

Of course, this could all be a clever plan by TPTB to acquire lots of foreign goods on credit, then default and keep the goodies, but I suspect that such a course of action would end in a major war.

Anonymous FUBAR Nation (Ben) June 19, 2012 10:54 AM  

I don't think Vox has thought through all the implications of the policy he proposes. This is coming from someone that agrees with Vox's analysis of free trade.

If one of you're problems with free trade is that people cannot be trusted with their finances, you have just opened a huge can of worms. Where does it stop? Should the government place hard caps on how much debt people and corporations can carry? Since free trade is the cause of debt, then you should be in favor of the government meddling in people's lives in order because MPAI, right? Don't cite the constitution because we are talking in general terms about free trade.

Anonymous Josh June 19, 2012 11:01 AM  

Then I'll start taking you free traitors seriously when I see you guys foaming at the mouth and going hammer and tongs on the Civil Rights Acts like you do on tariffs.

of course the civil rights act was a massive abomination

and I never said anything about prohibiting tariffs

Anonymous III June 19, 2012 11:30 AM  

We really are a miserable peoples. That we no longer see debt as being servant to the lender.

While they promise them liberty, they themselves are slaves of corruption; for by whom a person is overcome, by him also he is brought into bondage.

Free(dom):

All things are lawful for me, but all things are not helpful. All things are lawful for me, but I will not be brought under the power of any.

Blogger Joe A. June 19, 2012 11:33 AM  

I am hoping to see an update where Gary North reads this post and responds, however unlikely that may be.

Blogger Vox June 19, 2012 11:35 AM  

they don't have to physically move here and acquire citizenship to provide services. economic activity and political participation don't have to be the same thing

They don't have to... but they have to have the right to physically move here in order to provide their services. However, you're right in that they don't have to be permitted to vote or be given citizenship. They do have to have the right of free and unlimited entry and exit, though.

Respectfully, you should consider that there is a non-zero possibility that you do not understand comparative advantage.

Of course there is, remote though it might be. But there is a 100 percent probability that the others have gotten it wrong. I've already shown how Hazlitt committed 13 errors and I'm not done with him yet. I've gone over Mises as well and he's not much better. Krugman... well, you can read that for yourself soon.

The only problem I note with the anti-free-trade argument is that debt isn't necessarily caused by trade. Well fare state expenditure... war expenditure... these things must be considerate major driving factors in the debt increase.

Absolutely. I'm not even saying free trade is the primary or secondary component in the debt explosion. I am merely pointing out that debt necessarily funds such deficits.

Anonymous Roundtine June 19, 2012 11:41 AM  

my biggest problem with protectionism is the prohibition of individual economic liberty...and you can't have an anti free regime without such prohibition...

There are two ways to limit trade: quotas or tariffs. Then there's the issue of who gets limited: specific industries or a blanket tax. It wouldn't even be anti-free trade to pass a 25% or 50% tax on all imports. It would be no different than what the government does with sales taxes, income taxes, capital gains taxes, etc. It would be more popular and probably even more efficient if the U.S. passed a tariff and abolished the income tax.

Anonymous Josh June 19, 2012 11:41 AM  

if debt is what fuels the trade deficit, wouldn't the better solution be to eliminate the fiat currency and fractional reserve banking rather than imposing a new bunch of government regulations?

Blogger Pietraman June 19, 2012 11:49 AM  

"There are two ways to limit trade: quotas or tariffs. Then there's the issue of who gets limited: specific industries or a blanket tax. It wouldn't even be anti-free trade to pass a 25% or 50% tax on all imports."

Hmm. I have to pay 25% or 50% more for the things that I import? Sounds like a great deal to me. Hey, let's just hike income, sales, and property taxes by 500%. Maybe we can't borrow our way to wealth, but maybe we can tax our way to wealth.

OpenID ZT June 19, 2012 11:51 AM  

It seems to work inside the US boarders between states though I will be the first to admit I don't know the inner workings of interstate trade. (said ZT)

That leads us to the pernicious aspect of the free trade argument. It points inevitably to either debt or globalism. That is precisely the argument that the EU elites are making now. They are claiming that the failure of the monetary union is justification for forcing political union of all the Euro member states.

Free trade is every bit as dangerous in its own way as communism. It sounds good, but the devil is in the application. It promises heaven on earth if you'll only turn over all power to a single central authority.


I agree with your assessment. So is it agreeable to say the free trade at the national level is a failure?

Is it also a failure at that state level?

And to Nate's question is a trade deficit really an problem? I would contend a deficit is bad if it depletes your wealth faster than you can make it. "Deficit" in the way it's used in free-trade is that I import more than I export. Which is only a problem if my income at home is not enough to compensate for the imported goods, especially if they are not capital goods.

China sales us electronics which may last 5 years. They turn around and buy gold, minerals and food stuff. Their mineral purchase is a far smarter buy as they are not buying cheap crap from the US.

Now if we were trading crap for crap we might be ok to have a deficit. Would be better to trade valuable goods for crap dollars in which case our deficit would ultimately be a benefit.

Anonymous Josh June 19, 2012 11:51 AM  

It wouldn't even be anti-free trade to pass a 25% or 50% tax on all imports. It would be no different than what the government does with sales taxes, income taxes, capital gains taxes, etc. It would be more popular and probably even more efficient if the U.S. passed a tariff and abolished the income tax.

I would support a tax scheme like that, as long as the personal and corporate income taxes were eliminated.

My biggest concern is with prohibitions, because they infringe on human liberty and create criminal classes that run black markets

Blogger Josh June 19, 2012 12:05 PM  

I emailed Gary North asking if he would respond to this post. He said, "Tomorrow."

Anonymous Clay June 19, 2012 12:11 PM  

I emailed Amanda Marcotte, telling her she could sleep with Vox, if she wanted.

I didn't know you could actually spell the puke sound.

Anonymous Stilicho June 19, 2012 12:16 PM  

if debt is what fuels the trade deficit, wouldn't the better solution be to eliminate the fiat currency and fractional reserve banking rather than imposing a new bunch of government regulations?

That would certainly help make trade imbalances more self-regulating since the pool of available capital would help limit purchases of imports. Nothing would stop the Chinese from extending credit directly though (much like Germany extending credit to other Eurozone countries to enable the purchase of German manufactured goods).

As it stands, the dollars spent to purchase Chinese goods are often sent back to the U.S. in exchange for Treasuries. In fact, an argument could be made that the U.S. consumer has enabled the expansion of the gov't balance sheet and the commensurate expansion of gov't with every purchase of Chinese imports.

Anonymous Josh June 19, 2012 12:17 PM  

pick a new handle

Blogger Vox June 19, 2012 12:18 PM  

I emailed Gary North asking if he would respond to this post. He said, "Tomorrow."

That should be interesting. I'll be fascinated to see if he can present something I haven't seen before. I hope it's more than the customary hand wave at Ricardo that suffices for most free traders.

Blogger Nate June 19, 2012 12:18 PM  

"Absolutely. I'm not even saying free trade is the primary or secondary component in the debt explosion. I am merely pointing out that debt necessarily funds such deficits."

by your own admission then the deficit is an effect... not a cause.

And again... what evidence is there that demonstrates that trade deficits are bad?

We can go with... free trade creates an easy way to buy stuff.. so you buy stuff instead of making it... so you borrow money to buy stuff...

But you borrow money to make stuff to.

Look... I'm with ya on the utopian aspect and the whole "free trade hasn't been done" straw man... but I have yet to see why a trade deficit between the US and the world matters... but a trade deficit between WV and the rest of the US doesn't.

Anonymous bw1 June 19, 2012 12:23 PM  

I still don't see how the performance of the US and EU economies, which are statist/socialist-compromised in myriad ways having nothing to do with free trade, serves as a basis for condemning free trade.

There seem to be far better candidates for the independent variable, be they regulation, taxation, government spending, laws favorable to unions, the welfare state, failing public education, etc. In such an economic/political climate, where can one find any basis for condemning free trade in the context of a hypothetical free (as defined by libertarians) country?

Blogger Nate June 19, 2012 12:23 PM  

"And to Nate's question is a trade deficit really an problem? I would contend a deficit is bad if it depletes your wealth faster than you can make it. "

That doesn't indict free trade... it just says you're a crappy trader.

Anonymous The One June 19, 2012 12:24 PM  

I really don't see how you can support free trade with different weights and measures. When one gov. uses slave labor and another does not, this is not free trade. The solution the elites provide of course is to have the whole world under one legal/political system, what a surprise.

Anonymous Ginja June 19, 2012 12:28 PM  

Josh, sorry about that. But I like your name.

Anonymous Josh June 19, 2012 12:33 PM  

it's a good name

Blogger Vox June 19, 2012 12:35 PM  

I still don't see how the performance of the US and EU economies, which are statist/socialist-compromised in myriad ways having nothing to do with free trade, serves as a basis for condemning free trade.

Then you obviously know nothing about the history of the EU and your opinion is worthless. I suggest you begin reading about the European Common Market on Wikipedia. Although if you can't figure out how the consequence of free trade agreements and removing protectionist measures indict free trade, no amount of reading is likely to help you.

Blogger Vox June 19, 2012 12:38 PM  

Look... I'm with ya on the utopian aspect and the whole "free trade hasn't been done" straw man... but I have yet to see why a trade deficit between the US and the world matters... but a trade deficit between WV and the rest of the US doesn't.

That's easy. The labor can move from WV to chase the jobs. That's required by the whole balancing theory. It's tangentially related to the problem with the Euro. Before, Greece could simply devalue. Now they can't. If you can't find work in WV, you can simply move to PA. But if you can't find work in the USA, you cannot move to Australia even if you want to do so.

And the cure is worse than the disease, as the various migrations in the USA and Europe are demonstrating.

Blogger Nate June 19, 2012 12:39 PM  

"I still don't see how the performance of the US and EU economies, which are statist/socialist-compromised in myriad ways having nothing to do with free trade, serves as a basis for condemning free trade. "

Argentina. 1980 - 1981.

Research... and see the woe that befell the free trade utopian types when they tried it.

Anonymous Josh June 19, 2012 12:39 PM  

so, your argument is that, at present, the united states economy would be improved by levying a tariff on imported goods, even without addressing the structural flaws in the economy?

Blogger Nate June 19, 2012 12:42 PM  

"That's easy. The labor can move from WV to chase the jobs. "

The problem with that... is it doesn't actually happen much. Large migrations chasing jobs around really doesn't happen in the US.

It should.. but humans are not rational and do not do rational things regularly.

Thus the cure never happens in a wide enough degree to matter.

The only way to make people move is with guns... or to offer them free stuff.

Anonymous Stilicho June 19, 2012 12:47 PM  

Thus the cure never happens in a wide enough degree to matter.

The only way to make people move is with guns... or to offer them free stuff.


Why move to Texas or North Dakota for a job when the nanny state will subsidize your inertia through welfare of one sort or another? The federal gov't helps smooth this process by robbing TX and ND a little more and transferring that wealth to WV.

Blogger Nate June 19, 2012 12:49 PM  

"so, your argument is that, at present, the united states economy would be improved by levying a tariff on imported goods, even without addressing the structural flaws in the economy?"

no. his argument is.. all things being equal... free trade countries go into debt faster than protectionist countries.

Anonymous Josh June 19, 2012 12:53 PM  

no. his argument is.. all things being equal... free trade countries go into debt faster than protectionist countries.

what kind of debt? public, private, corporate, financial, household?

and debt increases because of central bank policy...when you create asset bubbles, the money has to flow somewhere...

Blogger Nate June 19, 2012 12:55 PM  

"Why move to Texas or North Dakota for a job when the nanny state will subsidize your inertia through welfare of one sort or another? The federal gov't helps smooth this process by robbing TX and ND a little more and transferring that wealth to WV."

This is why I say Vox's case is not convincing. The debt is not the result of trade... its the result of psycho entitlements.

Blogger Vox June 19, 2012 12:59 PM  

The problem with that... is it doesn't actually happen much. Large migrations chasing jobs around really doesn't happen in the US.

Actually, there is quite a bit of internal movement inside the USA. In the US Census Department's 2010 mobility survey, 38,582,885 said they were living in the same state as one year ago, while 6,743,229 were living in a different state. That's 14% movement every year. If there were a comparable amount of international movement of free labor, 46 million Americans would leave the country every year.

Blogger Vox June 19, 2012 1:07 PM  

Why move to Texas or North Dakota for a job when the nanny state will subsidize your inertia through welfare of one sort or another?

Lots of people are moving to North Dakota. The mobility survey found 4.5 percent of North Dakota residents were new residents compared to the 2.2 percent national average. California, on the other hand, had 1.2 percent new residents and a net loss with 1.6 percent of its residents leaving.

Note - don't compare the numbers here to those in the comment above. On this one, I'm comparing survey to actual population, above is survey to survey.

Blogger Nate June 19, 2012 1:08 PM  

"Actually, there is quite a bit of internal movement inside the USA. In the US Census Department's 2010 mobility survey, 38,582,885 said they were living in the same state as one year ago, while 6,743,229 were living in a different state."

Not good enough.

For all of that motility the populations of the states don't change that much. Thus the net effect is mitigated.

20 people move to TN... 20 people leave TN... 40 people move... population stays the same... thus... no effect in terms of the price of wages.

West Virginia's population should be shrinking... as people flee to better wage rate states... but it isn't.

Blogger Vox June 19, 2012 1:10 PM  

The debt is not the result of trade... its the result of psycho entitlements.

It's both. We already know it's not just the result of trade. The trade numbers simply aren't big enough to account for the debt. The $738 billion in the annual trade deficit is about equal to two quarters of the increase in federal government debt alone. But to the extent it matters, it makes things worse.

Blogger Nate June 19, 2012 1:11 PM  

Look from 1990 until 2012 the WV population has been barely fluctuating at all... but growing ever so slightly. Over that period the state has the poorest population in the country... and the lowest wages... and very high taxes.

People should be moving. they are free to move. But they do not move.

Anonymous Josh June 19, 2012 1:11 PM  

I would be ok with 46 million unemployed americans leaving the country

Blogger Vox June 19, 2012 1:13 PM  

For all of that motility the populations of the states don't change that much. Thus the net effect is mitigated.

Incorrect. You're assuming that the quality of population doesn't make a difference. California is demonstrating otherwise in real time. These things are connected, as the productive chase jobs while the unproductive chase benefits.

Anonymous Josh June 19, 2012 1:14 PM  

ND has had explosive population growth because of the bakken shale

Blogger Nate June 19, 2012 1:17 PM  

If trade deficits cause people to move why don't the populations of the US states fluctuate more?

It doesn't work. Its a reasonable prediction... but it doesn't happen in reality apparently. Unless I am wrong and there are large fluctuations.. in which case I will concede the point. But given that WV is the poorest state... and over 20 years the population actually grew a little in spite of the lowest wage rates in the nation... I am skeptical.

Blogger Nate June 19, 2012 1:20 PM  

"These things are connected, as the productive chase jobs while the unproductive chase benefits."

And here we learn that Vox not only sets traps... he sometimes can be baited into them.

You'll understand if I chuckle and crack my knuckles while Vox has to figure out a way to explain why adding high quality productive people to a country would be a bad thing.

Anonymous Josh June 19, 2012 1:25 PM  

because Nate, they would be taking american jobs and voting in big government and more taxes and other bad stuff!

Anonymous The One June 19, 2012 1:25 PM  

It's irrelevant if people move or not, it's the point that they can if they want too within the US. But they can not move to South Korea, etc, the choice is taken from them or the barrier to entry for that choice is very high compared to movement within the US.

Anonymous 11 B June 19, 2012 1:28 PM  

vox wrote, "It's not a conflation, it's part of the definition. Free trade involves the free provision of services. There is no difference between free trade with individuals and open borders/free movement of people. That's why it was enshrined into the EU laws. If you don't permit the free movement of labor, you don't have truly free trade."

Vox, I always thought Free Trade included the free movement of labor. However, recently I have seen people trying to argue that labor is not part of free trade, but rather part of a common market.

A couple of months ago, I watched a guy get pilloried by others on iSteve for arguing that free trade would lead to open borders. He referenced Buchanan by stating that free trade, as practiced in the USA among our states, was the goal of globalists and would lead to open borders. The other commenters said that the USA is a "common market" and free trade has nothing to do with a common market, and thus, it has nothing to do with the free movement of labor.

I then went to wikipedia and noticed that someone had changed the Free Trade article and deleted the references to free movement of labor and capital. The editor wrote that, "The movement of capital and labor isn't free trade. That's a single market."

If you go back to January 11, 2012, the wiki entry on Free Trade includes the free movement of labor between and within countries as a feature of free trade.

However, after the edit on Jan 12, 2012, that reference has been removed.

I am not an econ major and never made this distinction between a common market and free trade. Is this a legitimate argument, or is it a way for the free traders to try to avoid unpleasant facts since many are growing weary of third world immigration and this resistance might lead to a push back against free trade?

Blogger Nate June 19, 2012 1:29 PM  

"It's irrelevant if people move or not"

No... it isn't. Its one of the pillars Vox's case is built on... as we see in his defense.

We can show that they don't move much even when they can... then we can show that the threat of third world migration is not really realistic.

Blogger Nate June 19, 2012 1:39 PM  

Lets sum up...

US Rich... Trades with 3rdWorldHell (3WH) poor.

US: high wage rates. 3WH: low wage rates.

US companies move to 3WH... while 3WH citizens move to the US.

US gets poorer... 3WH gets nominally richer... but not much.

This is neat and tidy but it faces several assumptions.

1) Acceptable quality can be had in 3WH.

2) Title Law is stable in 3WH and the govenment won't just steal the factory (seriously... ask Beretta bout investing in Brazil.)

3) Regulation in 3WH is acceptable

Pissing and moaning over free trade is pointless. You can't put a high enough tarrif on US imports to make up the comparative disadvantage the US is putting on domestic companies through regulations.

US companies aren't leaving because of wage rates. They leave because of regulations and legal liability.

If Vox's point is... when you're a psycho indebted well-fare state regulating your economy into the crapper... you better have some tarriffs...

Then fine.

I agree. You'll still be doomed... but it will help.

Anonymous Josh June 19, 2012 2:10 PM  

it's like looking at someone who is suffering from a cut, cancer, aids, and diabetes, she putting a bandaid.on the cut...

Anonymous Josh June 19, 2012 2:17 PM  

regarding the desirability of high wages, does this mean we should support labor unions?

Blogger Lemmenkainen June 19, 2012 2:22 PM  

My employer has a trade deficit with me, but we're both better off.

If you aren't providing more value to your employer than they are giving to you in wages you won't probably be employed there very long.

Anonymous The One June 19, 2012 2:34 PM  

Nate, gov. incentives increase the internal migration rate (homestead act) or they decrease it (welfare). The fact remains it is still easier to move within the borders of a country, then to cross a border into another country.

Anonymous Noah B. June 19, 2012 2:35 PM  

"regarding the desirability of high wages, does this mean we should support labor unions?"

As long as union membership is not required or favored by law, there's nothing inherently wrong with unions.

Anonymous The One June 19, 2012 2:36 PM  

"My employer has a trade deficit with me, but we're both better off.

If you aren't providing more value to your employer than they are giving to you in wages you won't probably be employed there very long."

If your employer can force someone else to work for slave wages, the value you bring to the company is irrelevant. See Apple

Anonymous The One June 19, 2012 2:40 PM  

"1) Acceptable quality can be had in 3WH."

100% false. If you can produce a widget lasting 10 years for $10 and I can produce a widget lasting 5 years for $4, the consumer is still better off buying my widget.

Blogger Vox June 19, 2012 2:41 PM  

You'll understand if I chuckle and crack my knuckles while Vox has to figure out a way to explain why adding high quality productive people to a country would be a bad thing.

Again, quite easy. Californication. Those high quality productive people often voted for the very system they are fleeing.

Blogger Vox June 19, 2012 2:44 PM  

I am not an econ major and never made this distinction between a common market and free trade. Is this a legitimate argument, or is it a way for the free traders to try to avoid unpleasant facts since many are growing weary of third world immigration and this resistance might lead to a push back against free trade?

It is panicked free traders realizing the vast gaping hole in their theory. The free movement of labor is every bit as much a part of free trade as the free movement of goods or capital. The entire point of a common market is to permit free trade. They're just like the woman who declares she isn't a prostitute, but is willing to have sex for one million dollars. They don't believe in real free trade, they merely believe in setting the limits elsewhere than the admitted protectionist.

Anonymous camelite June 19, 2012 2:52 PM  

It seems to me, in that instance, free trade works out better for everyone.

What is the problem with you people? The logic has been exploded. The empirical evidence is clear. And yet many of you are desperately trying to come up with some impossible and nonexistent metric that would somehow justify it.

Even if you assume everything Vox claims about free trade is empirically correct and logically sound, he has not exploded the logic that free trade works out better for everyone. He's making the nationalistic argument that free trade damages America - which is fair enough on its own terms but yields the moral high ground to free trade proponents.

Anonymous Stilicho June 19, 2012 2:54 PM  

It doesn't work. Its a reasonable prediction... but it doesn't happen in reality apparently. Unless I am wrong and there are large fluctuations.. in which case I will concede the point. But given that WV is the poorest state... and over 20 years the population actually grew a little in spite of the lowest wage rates in the nation... I am skeptical.

WV population from census (millions):

1950 2.0
1960 1.86
1970 1.74
1980 1.95
1990 1.79
2000 1.8
2010 1.85

Interestingly, Mountaineers are dying at a faster rate than they are being born in recent decades( link ):

West Virginia's birth rate is shrinking rapidly. The state averaged over 46,000 births per year in the 1950s, compared with only 17,000 deaths. As time went by, resident deaths increased slightly. Births, on the other hand, have dropped substantially, from an annual average of almost 33,600 in the sixties, to 29,000 in the seventies, under 25,000 in the eighties, and just 21,400 in the nineties. West Virginia has, in fact, actually experienced more resident deaths than births every year since 1997, the first state to have a natural decrease.

Extensions in life expectancies along with loss of young adults to other states have certainly contributed to the graying of the state, but there has also been a net migration to the state in the last 2 decades that is more significant than the totals show if the out migration of talented youth continued over this period. There has certainly been hispanic migration to the state over that period, but I am not aware of the extent.

Anonymous The One June 19, 2012 3:01 PM  

What moral high ground?
American laws are to benefit Americans.
I run my house to benefit my family, not other families.
Even Jesus said it-

I pray for them: I pray not for the world, but for them which you have given me; for they are yours"
John 17:9

Blogger Vox June 19, 2012 3:34 PM  

Even if you assume everything Vox claims about free trade is empirically correct and logically sound, he has not exploded the logic that free trade works out better for everyone.

Totally true.

Anonymous James Dixon June 19, 2012 3:41 PM  

> West Virginia's population should be shrinking... as people flee to better wage rate states... but it isn't.

Because the WV economy is, like North Dakota's, heavily influenced by the oil and gas industry, which has been booming. I believe that up until the past decade, WV was losing population every year. Until the collapses in 2000 and 2008, from which WV was largely spared.

> Over that period the state has the poorest population in the country... and the lowest wages... and very high taxes.

High taxes? In comparison to what? 6.5% income tax, 6% sales tax, and some of the lowest property valuations in the country? Yes, corporate taxes are another matter, but...

And Mississippi consistently ranks lower than WV. :)

Anonymous cherub's revenge June 19, 2012 4:21 PM  

He's making the nationalistic argument that free trade damages America - which is fair enough on its own terms but yields the moral high ground to free trade proponents.

If you can make the case that taking care of your own is somehow immoral.

God's fine with it.

Anonymous cherub's revenge June 19, 2012 4:27 PM  

regarding the desirability of high wages, does this mean we should support labor unions?

Do you support limited liability, resources pooling, and collective contracting through the state privilege of incorporation for capital? Why not for labor?

Anonymous 11 B June 19, 2012 4:37 PM  

It is panicked free traders realizing the vast gaping hole in their theory. The free movement of labor is every bit as much a part of free trade as the free movement of goods or capital. The entire point of a common market is to permit free trade.

In the past I've argued that I was against free trade because it would lead to free movement of labor. Now that free traders say I am conflating a common market with free trade, I can modify my answer and say that I am against free trade because it will lead to a common market which will lead to free movement of labor.

Anonymous Johnycomelately June 19, 2012 5:06 PM  

Indentured servitude is more effecient than sovereign citizensship, so under free trade to compete one has to embrace slavery?

Anonymous Chad June 19, 2012 5:12 PM  

Couldn't the debt problems also be explained by the abandonement of the gold standard in 1971? The shift from reserve currency to fiat makes it highly plausible that your graph merely shows the effects of credit expansion under a fiat currency. If that were the case then personal debt would explode regardless of international trade conditions.

Anonymous cherub's revenge June 19, 2012 5:17 PM  

Couldn't the debt problems also be explained by the abandonement of the gold standard in 1971?

Somewhat. Certainly a country trading with another on a commodity currency can't run a trade deficit for very long as they'll soon run out of specie to conduct domestic business and to make installment payments to the creditor nation.

Anonymous cherub's revenge June 19, 2012 5:34 PM  

That's another thing about libertarians like North. They make no conditionals for the order of policy. North advises a true gold standard. He knows a country can't dig a hole for itself with trade like the US can on a gold standard, yet he makes no provisional for his other freedom advocacy.

He states no condition of "before A, you must do B" in order for it to work. To an ideologue like him any freedom policy is to be supported at any time, no matter the destruction that may arise from doing them out of order.

"220 volts is better for a motor under load than 110".

"Should I convert my table saw switch before I plug it in to 220"

"Didn't you hear? 220 volts is better".

Anonymous Boetain June 19, 2012 5:46 PM  

Vox:

Your formula for per capita wealth is hopelessly flawed. It should be assets/capita - debt/capita. Compare 1960 numbers to today and get back to us. Thanks.

Anonymous RC June 19, 2012 5:50 PM  

Couldn't the debt problems also be explained by the abandonement of the gold standard in 1971?

The gold standard had been long-abandoned prior to August 15, 1971; Nixon merely made it official because France was calling our long-standing bluff.

To your point though, an actual gold standard does provide accountability in trade, tending to naturally correct trade imbalances over time. But, short of implosion, it's near impossible to return to a true gold standard once the kids have broken into the liquor cabinet.

Anonymous III June 19, 2012 5:52 PM  

It's the "magic" word: Free. Freedom. Free Trade. Hell, everyone wants to be free. Right?

Maybe not.

Personally, I think I should be perfectly free to trade some FRN's for a fully functional Ak-74. But various governments around the world, including the uSA, by law, prevent that. We have not any semblance of free trade anywhere on this planet that is not controlled by some gov diktat in one form or another.

Anonymous boetain June 19, 2012 6:18 PM  

Looks like we have gone from 2 trillion to 55 trillion net wealth of US households and non-profits 1960- present. That's unadjusted for population or value of the dollar, but still does not look too bad on the face of it. So, Vox, you think we would be higher than 55 trillion net worth right now if we had started protectionist tariffs (i.e. trade wars) in 1960? What are you smokin?

Anonymous VD June 19, 2012 6:42 PM  

Your formula for per capita wealth is hopelessly flawed. It should be assets/capita - debt/capita. Compare 1960 numbers to today and get back to us. Thanks.

Don't be an asshole. Thanks. Also, it's not a formula for wealth - I'm hardly unaware of assets given that I keep track of what percentage of bank assets are fake - I was simply pointing out that GDP is income, not wealth, and therefore a poor metric as it is commonly used. I used the term "per capita wealth" because North was talking about how the USA had gotten "richer".

Looks like we have gone from 2 trillion to 55 trillion net wealth of US households and non-profits 1960- present.

And during that same period, we've gone from 780 billion to 54.6 trillion in debt.

So, Vox, you think we would be higher than 55 trillion net worth right now if we had started protectionist tariffs (i.e. trade wars) in 1960? .

Yes, almost surely.

Anonymous 11 B June 19, 2012 7:05 PM  

So, Vox, you think we would be higher than 55 trillion net worth right now if we had started protectionist tariffs (i.e. trade wars) in 1960? What are you smokin?

What is China's net worth from 1980 versus today? What about South Korea from 1953 versus today? Do you think those nations could have achieved that growth without mercantilists policies?

Anonymous VD June 19, 2012 7:19 PM  

I'll provide a more comprehensive post tomorrow. Short version:

Wealth calculated as (asset/capita - debt/capita) rose from $7,301.35 in 1960 to around $112,250 in 2006. ("Around" because I don't have the exact 2006 population, just 2000 and 2010). It then dropped to around $50,215 in 2007, and presently stands at $67,121.43 in 2011.

Translation: the wealth metric is poor because it simply tracks housing and stock market prices. It clearly isn't free trade that is making the USA "rich", but financial bubbles. The way 60 percent disappeared in a year shows that the wealth is illusory, while the debt remains.

Anonymous boetain June 19, 2012 7:19 PM  

Vox:

According to Fortune magazine June 7th, 2012, household assets were 76.4 trillion - 13.4 trillion debt (not your 55T number) = 63 trillion net worth.

Let's say your 0.78 trillion debt number for 1960 is correct. That would give approx. 3 trillion assets - 1 trillion debt = 2 trillion net worth in 1960.

So, household net worth has increased about thirty-fold in 52 years. Granted this is not adjusted for inflation or population.

How much more would net worth have increased under protectionist policies? What data would you use to prove it?

Anonymous boetain June 19, 2012 8:02 PM  

Vox:

Your current wealth/capita number of $67,000 is way off. If you use the Fortune mag numbers for total household wealth and divide by population you will get $200,794 per capita.

Regarding your comment about bubbles making the wealth figure more volatile: would you rather have a less-volatile net worth of $7,000 or a more volatile net worth of $200,000? And, if the volatility is too high for your taste, is that the result of "free trade" or things such as fiat currency, federal reserve, fractional banking, corruption everywhere, etc?

Anonymous cherub's revenge June 19, 2012 8:09 PM  

Greece’s ailing economy grinds to a halt

“It’s a terrible situation,” Mr Stamos says. “Everything is frozen. The economy is dead, and no one is paying anyone.”

Medical Service is but a snapshot of what is happening to businesses across Greece as the economy’s gears grind to a halt.
...

The cash crunch also appears to be forcing Greek companies to drop European suppliers and turn to Chinese competitors because they are willing to offer credit.


Chuckle.

Anonymous VD June 19, 2012 8:25 PM  

Your current wealth/capita number of $67,000 is way off. If you use the Fortune mag numbers for total household wealth and divide by population you will get $200,794 per capita.

They're clearly not subtracting the total debt. Given the number, I'd guess they're only counting the $13 trillion in household debt. The Fed figure for household and non-profit assets is $235,944.12 Less $168,822.69 total debt per capita gives $67,121.43.

Regarding your comment about bubbles making the wealth figure more volatile: would you rather have a less-volatile net worth of $7,000 or a more volatile net worth of $200,000?

The former because the $200,000 is wholly imaginary. You're failing to understand the point, which is not that "free trade creates all debt" but rather "free trade has not made us rich". If you simply compare the trade numbers to either GDP, assets, or debt, it's quite clear that it never had that capability. That's also why the idea that the Smoot-Hawley tariff caused the Great Depression is totally false.

Anonymous VD June 19, 2012 8:28 PM  

Of course, the situation is considerably worse than I've portrayed it, because the $55 trillion figure doesn't include all of the unfunded Federal mandates. But that can't be counted because it's not actually debt.

Anonymous boetain June 19, 2012 8:59 PM  

If you are going to include government debt then you should include government assets in the calculation. I believe this would put the wealth per capita even higher than the $200,000 figure.

Anonymous NortherHamlet June 19, 2012 9:10 PM  

VD,

Where are the charts for the same numbers for all the states that the US trades with?

Anonymous Jegolan June 19, 2012 9:32 PM  

Nate: "Lets sum up..."

American companies move to 3WH, 3WH citizens move to US.

Some 3WH citizens will, like theyre doing now, but if they have jobs in 3WH, I dont think youll see mass migration. In the case of the Philippines, the lack of jobs *forces* workers to leave. Theyd rather stay. Their families stay and they remit their eranings back home. (This btw makes me rethink the trade deficit data I posted. It's possible that it doesnt include labor remittances which would reduce the deficit. But still, Philippines has increased deficit dramatcially from 2010 to 2011, while reducing debt in the same period and moving from debtor nation to a creditor nation in 2012.)

But the assumptions you posted are generally correct. In the Philippines, uncertainty over what the government policy wouldbe regarding foreign investments has alwaysbeen the problem. The present govt is trying to correct that but who knows what the citizens would vote in next? We could get a Hugo Chavez.

Blogger Nate June 19, 2012 10:00 PM  

"Because the WV economy is, like North Dakota's, heavily influenced by the oil and gas industry, which has been booming. I believe that up until the past decade, WV was losing population every year. Until the collapses in 2000 and 2008, from which WV was largely spared."

False. according to the census WV population has going up since 1990 almost every year... but its a very very slight increase.

"High taxes? In comparison to what? 6.5% income tax, 6% sales tax, and some of the lowest property valuations in the country? Yes, corporate taxes are another matter, but..."

Yes.. the trouble is... each of the taxes aren't that high in and of themselves... but WV has lots of additional taxes that other places don't have. For example.. city and county dog tax.

When I was there in 2005 I remember WV having the third or 4th highest tax rate in the country.

Anonymous Anonymous June 20, 2012 2:15 AM  

The truth of Ricardo's argument DOES NOT, repeat DOES NOT, rest upon capital immobility. It is a logical fallacy to infer from the fact that Ricardo assumed capital immobility to conclude that the logic of the argument demands capital immobility. Guido Hulsmann has already refuted this: http://mises.org/daily/1433

Anonymous map June 20, 2012 4:11 AM  

Vox makes a good argument, but he misses a crucial element. Yes, free trade does not take into account debt. The problem is, the world economy is not a free trade system. People assume it is because they see hundreds of billions of dollars of goods trading over borders. This, however, does not imply that this trade is free.

World trade actually operates on a mercantilist model. Nation-states operate to increase their share of global exports while reducing their share of global imports. This started with Japan after WWII and was copied around the world, to the point where Germany, Japan and a dozen other countries boast about their "trade surpluses."

The problem is, it is mathematically impossible for every nation to generate a trade surplus, unless the Earth was trading with another planet. Furthermore, if every nation is exporting while restricting imports, then who is buying all of the exports? Worldwide trade surpluses depend on some other nation actually buying all of these exported goods.

That nation is the United States. The US itself is not a part of the global economy, it is the global economy.
Germany generates its trade surplus with the US because there is no other country that will take German output earmarked for the United States. If Germany could not sell to the US, they could not simply move that output in Japan, China or Korea, because none of those countries would allow that many German products to be imported inside their markets. What's worse, while German products are excellent, they are not unique. Duplicate devices are produced elsewhere, making, say, German machine tools hardly unique to the market. Furthermore, so many corporate entities within these mercantilist nation-states are so bound to the US market, that there is a severe first-mover disadvantage to be an early entity divesting from the US market. This is why the US can wrack up such a huge credit card debt to pay for all of these trade deficits. Foreign companies have no where else to go. They will even pony up money to keep the charade going.

So, really, who is in a better relative position? The US, which politically determines how much money Germany makes, or, Germany, where 20-30% of the economy is dependent on selling to one country? Remember the US Great Depression in the 30's? So dependent was the US on exports, that when those export markets disappeared, the result was breadlines. I don't remember reading about any breadlines in Europe.

I don't support the current system, even if it seems to benefit the US. It is too volatile. It creates too much poverty and it vastly increases the power of the US government, making the empire and the police state very real. But, just as Keynsianism and mainstream econ misses the role of debt, the Austrians seem to not understand why that debt is possible to begin with.

And Ricardo was wrong about comparative advantage.

Anonymous pdimov June 20, 2012 6:37 AM  

One problem I have with the "free trade doesn't work" line of thinking is that it doesn't show an alternative that would "work" better. Yes, free trade enables country A to have a trade deficit with country B. There is, then, something about those coutries that causes the deficit to run this way, and this something will not disappear if trade wasn't free.

And, surprise! The U.S. trade deficit with Korea tripled in one month. Imports from South Korea jumped 15 percent to $5.5 billion in April, while U.S. exports to South Korea fell 12 percent to $3.7 billion.

I wonder how did free trade manage to decrease US's exports.

Blogger Gerald Benard June 20, 2012 8:20 AM  

Vox,
Gary North has provided a response to your refutation of his article on his sight this morning. This could be a very interesting public debate. I am a daily reader of both of your sites and would love to see an all-out debate...

Anonymous pdimov June 20, 2012 8:50 AM  

It took me a while to find the response, so, for the benefit of others:

http://www.garynorth.com/public/9671.cfm

This is going to be fun.

Blogger Local Ale June 20, 2012 9:22 AM  

Vox;

You might want to check out Pat Buchanan's obit for Roger Milliken. Mr. Milliken funded Pat's American Cause, and wrote checks that supported the Austrian school sorts.

Rothbard affectionately called him an "anarcho-protectionist."

Anonymous Yorzhik June 20, 2012 10:04 AM  

"free trade necessarily requires either a decline in living standards or a constantly increasing debt load"

As if the small amount of free trade we have caused our debt load. Real world indeed!

Anonymous Boetain June 20, 2012 10:46 AM  

I've been inside Milliken textile plants in SC. Very few workers; Japanese machines churning out "made in USA" fabrics.

Anonymous 11B June 20, 2012 11:04 AM  

pdmiov wrote, "One problem I have with the "free trade doesn't work" line of thinking is that it doesn't show an alternative that would "work" better. Yes, free trade enables country A to have a trade deficit with country B. There is, then, something about those coutries that causes the deficit to run this way, and this something will not disappear if trade wasn't free."

If you read Buchanan's books, he points out that the British adopted free trade in the middle 1800s and went from being the dominant economic power to being surpassed by the US and Germany who had protectionist measures.

Here is a passage from Day of Reckoning:

If free trade is best for nations, how is it that every modern state that rose to preeminence and power - Britain before 1846. the United States from 1860 to 1914, Germany from 1870 to 1914, Japan after WWII, China today- was protectionist?...All adopted the economic nationalism of Alexander Hamilton. All four presidents on Mount Rushmore - Washington, Jefferson, Lincoln, Theodore Roosevelt - were economic nationalists. All believed in tariffs to finance the government, spur industry, and give the U.S manufacturing an advantage over foreign manufacturers in the American market.

So I don't know what you mean by no alternatives.

Anonymous Mark Call June 20, 2012 11:06 AM  

VD -

I don't think (in this thread, anyway) you ever addressed what I contend is the crucial question (stated as a postulate, in this case ;) :

"Free trade" is not possible in a system based on fraud --

dishonest weights and measures.
debt-based 'money'.
irredeemable paper, not 'real' exchange (like, but not necessarily limited to historic, even Biblical, things like gold and silver).

Anonymous James Dixon June 20, 2012 11:48 AM  

> False. according to the census WV population has going up since 1990 almost every year... but its a very very slight increase.

The exact figures were quoted by someone else. I agree the increase has been going on for longer than I thought. That doesn't change the fact that they were losing population for several decades.

> ...but WV has lots of additional taxes that other places don't have. For example.. city and county dog tax.

While that's true, most of the places I've been have unique taxes other places don't have. Maryland has the up to 50% county surtax on your state income tax, for instance. When we move to Virginia from Maryland, our taxes dropped significantly. When we moved from Virginia to West Virginia, they dropped again.

> When I was there in 2005 I remember WV having the third or 4th highest tax rate in the country.

CNN/Mondy says 8th, and that includes excise taxes. http://www.census.gov/govs/statetax/05staxrank.html

The census says 16th. http://www.census.gov/govs/statetax/05staxrank.html

The exact metrics used will give different results. But yes, WV's taxes are higher than they should be, but not as high as you make it sound.

Of course, I think anything over an over 1% local tax rate, a 5% state rate, and a 10% federal rate is too high, so people should keep that in mind.

Anonymous Boetain June 20, 2012 11:53 AM  

Looks like Gary North is also a staunch Calvinist. If these two had an all-out blog-war it could provide years of entertainment...

Anonymous pdimov June 20, 2012 5:17 PM  

11B,

If you read Buchanan's books, he points out that the British adopted free trade in the middle 1800s and went from being the dominant economic power to being surpassed by the US and Germany who had protectionist measures.

My question here is: how would protectionism help Britain remain the dominant economic power in this scenario? Protectionism only helps the domestic market, it cannot make a country more competitive on world's markets. (It can protect a nascent domestic industry from being destroyed by international competition while it's being developed, but this was not the case in this example, and is not the case with the US today.)

All believed in tariffs to finance the government, spur industry, and give the U.S manufacturing an advantage over foreign manufacturers in the American market.

Tariffs may well be the best (least harmful) way to finance the government, compared to the alternatives. This is a separate argument though.

Anonymous Anonymous June 20, 2012 6:15 PM  

They told me to go to RICK DARBY?
But it's the same NICE TRIP.
And " JOHNYCOMELATELY" is proof.
He's got it DOWNN- " slavery" to " Citizensship".
" SS" for PEDOPHILES and AUSTRIA and runs with LA and now " STARST" documenting what they got from " KILLA WATT".
You think it's a joke to be in VERYTRAF?
Wait till their movie - " KANSAS KINGS".

Anonymous 11B June 21, 2012 12:17 AM  

pdimov wrote, "My question here is: how would protectionism help Britain remain the dominant economic power in this scenario? Protectionism only helps the domestic market, it cannot make a country more competitive on world's markets. "

Protectionism alone probably would not have helped Britain because I don't think she had a large enough domestic market. Britain thrived off her colonies. She took in their raw materials and dumped her finished goods on them. So protectionism without her colonies might not have helped her remain number one.

Countries like the US and China have large enough domestic markets to enable them to thrive with protectionist measures. As the world's population grows, you'd think other nations, like Mexico [100 million plus], would be large enough to support domestic manufacturers too. But maybe Mexico has some demographic issues that prevents her from doing so.

Anonymous pdimov June 21, 2012 10:58 AM  

A large and protected domestic market can't make a country dominant, or help it remain dominant - for that she has to dominate other countries, which means that she has to be competitive internationally, and that's harder without free trade - protectionism works against it.

Thriving I could accept. It means, if I understand correctly, that the standard of living under protectionism would be higher than that without. Maybe it would be.

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