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Monday, November 14, 2016

Steve Keen on the fallacy of free trade

Brainstormers will remember Steve Keen, the brilliant iconoclast who is breaking new ground in the field of economics. In Forbes, he points out that Trump's heretical anti-globalism is actually more economically sound than the fallacy of Ricardian free trade:
Globalization and Free Trade are good.

This belief is shared by almost all politicians in both parties, and it’s an article of faith for the economics profession.

You are right to reject it.

It’s a fallacy based on a fantasy, and it has been ever since David Ricardo dreamed up the idea of “Comparative Advantage and the Gains from Trade” two centuries ago. The best way to prove that (apart from looking at the bitter experience of the millions of once-were-factory-workers who voted for you) is to apply real-world scepticism to the original argument in favour of free trade.

When Ricardo wrote, England was the global economic superpower, and Portugal was its main rival. Ricardo was in favour of abolishing the “Corn Laws” that placed tariffs on grain imported from Europe. His opponents argued that, if the tariffs were abolished, Portugal would undercut England in all industries. Ricardo came up with an example that accepted that Portugal was better at producing everything than England was, but still “proved” that free trade was better than protection for both countries.

He assumed that England would need 100 workers to produce a given amount of cloth in one year, and 120 workers to produce a given amount of wine in a year. Portugal could produce the same amount of cloth in a year with just 90 workers, and the same amount of wine in a year with just 80 workers. So Portugal (read China for today) was absolutely better at producing everything than England (read the USA), but relatively better at producing wine.

Ricardo argued that free trade could nonetheless benefit both countries, if England devoted all of its workers to producing cloth, while Portugal turned all its workers into wine makers, because the total amount of wine and cloth produced by the two countries would be higher. They could trade the two commodities, and everyone would be better off than if trade didn’t occur. So specialization allows “gains from trade”. Drop the tariff barriers, and everyone will win—even the inhabitants of the weaker economy.

The argument might sound convincing, until you ask a simple question: “So how do you turn a wine press into a spinning jenny?”. Answer? You don’t.

Ricardo’s model assumed that you could produce wine or cloth with only labour, but of course you can’t. You need machines as well, and machinery is specific to each industry. The essential machinery for making wine can’t be used to make anything else, if its use becomes unprofitable. It is either scrapped, sold at a large loss, or shipped overseas. Ditto a spinning jenny, or a steel mill: if making steel becomes unprofitable, the capital involved in its production is effectively destroyed.

Ricardo ignored this little detail in his example, pretending that goods could be produced using labour alone. Later economists have made Ricardo’s example more complicated, and included the need to have machines as well as labour to make output. But they have been even worse than Ricardo, because they pretend that you can shift a machine (they call it “capital”) from one industry to another without loss.

That is simply nonsense.

The theory ignores the reality that, when foreign competition undercuts the profitability of a domestic industry, the capital in it can’t be “transformed” into an equal amount of capital in another industry. Sometimes it’s sold at a fire-sale price, often to overseas buyers. Most of the time, as ex-steel-mill workers throughout the Midwest know, it simply turns to rust.

Ricardo’s little shell and pea trick is therefore like most conventional economic theory: it’s neat, plausible, and wrong. It’s the product of armchair thinking by people who never put foot in the factories that their economic theories turned into rust buckets.

So the gains from trade for everyone and for every country that could supposedly be shared more fairly simply aren’t there in the first place. Specialization is a con job—but one that the Washington elite fell for (to its benefit, of course). Rather than making a country better off, specialization makes it worse off, with scrapped machinery that’s no longer useful for anything, and with less ways to invent new industries from which growth actually comes.

Excellent real-world research by Harvard University’s “Atlas of Economic Complexity” has found diversity, not specialization, is the “magic ingredient” that actually generates growth. Successful countries have a diversified set of industries, and they grow more rapidly than more specialized economies because they can invent new industries by melding existing ones.
So, globalization isn't merely a societally destructive infringement on national sovereignties, and entirely dependent on substituting debt for economic growth, it builds huge economic inefficiencies into the global trade system.

If you're still a free trader after everything you've seen, after everything you've read from Ian Fletcher, Steve Keen, and me, it is apparent that at this point, you're simply clinging to economic dogma you don't really understand.

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122 Comments:

Anonymous Rigel Kent November 14, 2016 5:06 AM  

I first started to question free trade when I read Patrick Buchanan's A Republic not an Empire. It had some actual examples of protectionism helping the economy.

But that just opened a few small holes in the wall. It took years for me to get over my belief in free trade. It can be hard to give up.

Blogger Bob Loblaw November 14, 2016 5:27 AM  

Ricardo argued that free trade could nonetheless benefit both countries, if England devoted all of its workers to producing cloth, while Portugal turned all its workers into wine makers, because the total amount of wine and cloth produced by the two countries would be higher.

The big problem with Comparative Advantage is it assumes unlimited demand for products. In the real world Portugal has enough labor to satisfy the worldwide demand for both cloth and wine, so the English make nothing until their poverty gives them a trade advantage. It's even more true now, with automation and containerized shipping, than it was in Ricardo's day.

A third of China still lives in abject poverty, and many of the people working are "underemployed". They have a well of idle workers to draw from that's bigger than the entire population of the US.

Blogger kh123 November 14, 2016 5:32 AM  

"Rather than making a country better off, specialization makes it worse off, with scrapped machinery that’s no longer useful for anything, and with less ways to invent new industries from which growth actually comes."

Of course, isn't it interesting that the only diversity being pushed... is demographics.

I suppose you can't have Lenin's monolithic helotry if too many men feel they have opportunities greater than the worker's paradise of "one nation, run as a post office".

"...As ex-steel-mill workers throughout the Midwest know, it simply turns to rust. It’s the product of armchair thinking by people who never put foot in the factories that their economic theories turned into rust buckets."

Now that is a spark to set the weeds ablaze. And the world.

Ulyanov was a fag.

Blogger Jew613 November 14, 2016 5:33 AM  

Of course free trade is a disaster, impoverishing the country as a whole but enriching those at the top. But it's going to take time to overcome decades of pro free trade propaganda.

Anonymous AlexT November 14, 2016 5:44 AM  

Ha Joon Chang also writes eloquently on this subject.

Anonymous AlexT November 14, 2016 5:52 AM  

Also, Steve Keen for Treasury Secretary.

Blogger VD November 14, 2016 5:56 AM  

Also, Steve Keen for Treasury Secretary.

No, he's far too debt-friendly. Give him Trade.

Blogger Sillon Bono November 14, 2016 5:57 AM  

""you're simply clinging to economic dogma you don't really understand.""

Old ideas do not get discarded, they die, but not because other better ideas replace them, but because their proponents physically pass away.

What never ceases to amaze me is how the "socialist" types always miss the human factor in whatever economic model they adopt (the point of the economy is in the end to help people lives).

Except when it comes to their own human factor as VD points out.

Blogger Lovekraft November 14, 2016 5:59 AM  

A massive shift in culture, beginning with education, is necessary in how the population prioritizes and values work.

The whole way we examine what is valuable to society is under review right now, witnessed by the crybully election protests of those who know their gravy train is drying up and they have to compete or die.
The gutter entertainment industry that promotes hedonism, self-indulgence, feminism is cancerous and mocks the k-selective long-term mindset.

Rabbits will breed without restraint, draining the capital and incentives of the producers, only filling the pockets of the shallow bauble-producers.

Blogger Stilicho November 14, 2016 6:03 AM  

"Free Trade" works out quite well for you if you are a manufacturer or retailer who can have your goods made more cheaply overseas as long as you can keep your prices and margins sufficiently high and until your foreign allies decide you aren't necessary and start their own manufacturing there then their own retail operations here and replace you. Of course, financing all this activity pays well until the foreign competition has accumulated enough capital to finance it's own expansions into your (former) markets and you are replaced... puts the Learned Elders of Wye in a new perspective, doesn't it.

Anonymous Johnycomelately November 14, 2016 6:04 AM  

The Soviet Union pretty much put the 'advantage of specialization' theory to rest, Central Asian cotton industry was an absolute disaster.

The next step is to put this theory to rest in agriculture.

Blogger JACIII November 14, 2016 6:07 AM  

Sillon Bono wrote:""you're simply clinging to economic dogma you don't really understand.""

Old ideas do not get discarded, they die, but not because other better ideas replace them, but because their proponents physically pass away.



Add to this that the reason to have an economist at all is to justify government action re: trade and Keynesianism starts to look like Global Warming.

Blogger Boko Harambe November 14, 2016 6:12 AM  

As someone commented at le Chateau, the age of ideology is dead. All we care about now is what is good for our people. It is clear, has been clear for years, that free trade is not good for our people. It lifts up only the few who were already floating and safe.

Baubles, Lovekraft. Absolutely right. There is a trend towards minimalism among millenials. Whether they unconsciously sense some impending collapse or are just fed up with stuff or can't see any reason to spend their money on useless things, I don't know. But their purchases, or rather lack of them, and the shift in which retail outlets they frequent, mark a change in social mood on this topic. Growth does not go on indefinitely. Something is going to crash very hard.

A hard reset won't throw us into old customs overnight, but it might do something to put people to work so worry over The minutiae of fashion and children's birthday parties and gluten free diets might fade somewhat.

Blogger Jamie-R November 14, 2016 6:24 AM  

I haven't got my head around all the ideas you've espoused here Vox, but you're really good at pinpointing the men in history whose ideas have shaped the modern narratives of our times.

I'm thinking that the central banks pursuit of preventing bank runs at any costs has been the spanner in the works to separate the currencies to better isolate trade issues and deal with them. The cheating on currency has to stop, Environmental Marxism is getting legs from the oversupply the fake stimulus is producing and straining nature. It's coming from Asia, where the biblical implication to have honest weights & measures goes in one ear and out the other, something Europeans & (honest) Jews at least assume. Asia has to be reckoned with. Australia is losing too much industry to cheats. Globalism here is clear, our wages and working rights are getting undercut.

Blogger Sillon Bono November 14, 2016 6:27 AM  

@""As someone commented at le Chateau, the age of ideology is dead. All we care about now is what is good for our people. It is clear, has been clear for years, that free trade is not good for our people.""

I have been saying this for years, a bridge is nor right wing nor left wing, but necessary to cross to the other side of the river.

I wonder if we should meme the expression "Free trade" into what it really is, free profit based on "Foreign slave-wage economy".

What do you guys think:

Socially Poisonous foreign slave-wage economy.

Blogger Bill Halsey November 14, 2016 6:30 AM  

"Successful countries have a diversified set of industries, and they grow more rapidly than more specialized economies because they can invent new industries by melding existing ones."

Not to mention that specialization comes at the cost of economic resilience. Making the economy far more vulnerable to external supply shocks with all the implications for autonomy and national security that implies.



Blogger residentMoron November 14, 2016 6:57 AM  

I will posit that this:

"This belief is shared by almost all politicians in both parties, and it’s an article of faith for the economics profession."

... is one big fucking clue.

I have never seen or heard anything, that everyone believed, that wasn't wrong.

Anonymous Dyskord November 14, 2016 7:00 AM  

@13
Its not that millennials are minimalists or rather not by choice.
Everything they had before working came from their parents, the new Tv, Laptop, car, clothes etc when they started earning salaries/wages, well it becomes a question of necessity. I can't afford to attend that concert if I buy that suit. I cant afford a new TV so I'll have to buy second hand or borrow one from family/friends.
In fact the choice becomes utilitarian. can't afford a new TV or cable just get a laptop/PC and WIFI and Pirate.
Can't afford new clothes and this months car insurance, either skip the insurance or buy clothes once or twice a year(Winter/Summer clearance sales)
When you or everyone you know is living at home @ thirty buying new furniture, Painting, Installing a Porch or a backyard BBQ or any home improvements become moot, especially if you still hope to get a place of your own.

Millenials are a generation born within a financial depression. Things previous generations took for granted are not within their reach.

Anonymous SciVo de Plorable November 14, 2016 7:01 AM  

Is economic heterodoxy a tenet of the hard right? I'm curious how many have read Mike Shedlock. I haven't read him in years, but I learned a lot back in the day, on his mishedlo forum on the Motley Fool, where he promoted (in different words) a focus on the understanding that the terrain is what really matters, and powerful people were trying to trick us into looking at the map instead for their own benefit.

Blogger residentMoron November 14, 2016 7:04 AM  

"Not to mention that specialization comes at the cost of economic resilience. Making the economy far more vulnerable to external supply shocks with all the implications for autonomy and national security that implies."

OK, but let's not get carried away. Such arguments are grossly simplified extremes used to illustrate a principle. Nobody expects or wants Japan to make only cars, just because Japan was for a while the best global manufacturer of cheap cars.

The Japanese HAVE perverted their entire economy via mercantilism, in order to favour the car makers, but they haven't made any move to specialise in making only cars, and they haven't made much progress in terms of allowing the "free trade" they've profited from amongst their victims ... er, trading partners.

Free trade is a moral argument not an economic one. The problem is that much like the tolerance and diversity arguments it is most often made by people who neither believe nor practice it, but want you to do both, essentially robbing yourself to their advantage, so they're not forced to go to all that messy trouble of smacking you upside the head with a four by two.

Blogger Sherwood family November 14, 2016 7:14 AM  

One of the problems with the free-trade argument in our current economic conditions is that it does not take into account the costs associated with a labor force that has been discharged due to being undercut by cheaper labor elsewhere. In other words: wage slaves in China create welfare enrollees in Milwaukee.

So even if you save buying that piece of crap from China at the local Wal-Mart, you are still paying for it because your taxes now have to fund the welfare to support someone because their job got offshored. Besides the welfare costs are the uptick in costs for law enforcement, social services, etc. that inevitably come into play because unemployment causes personal, family, and community dysfunction. All so you can buy something cheaper from the Chinese.

Anonymous DJF November 14, 2016 7:19 AM  

The standard definition pushed by the “free traders” is that it is trade where there is no quotas or tariffs involved. This means that it includes these large communist owned corporations.

https://en.wikipedia.org/wiki/List_of_government-owned_companies_of_China.

Under the standard definition if the Chinese secret police sell executed political prisoners body parts to the Cuban state owned medical system then that is free trade as long as they don’t have any quotas or tariffs.

It would also include a crony bailed out bank like Goldman Sachs who would be happy to broker the deals if they thought they could make a profit off of it

My definition of free trade is trade between free people, but that is a much more limited activity and would be condemned by the free traders.

Blogger pyrrhus November 14, 2016 7:27 AM  

Yet another demolition of Ricardo's model...Ricardo also assumed a gold standard or its equivalent, immobility of labor and immobility of capital.

Blogger VD November 14, 2016 7:30 AM  

My definition of free trade is trade between free people, but that is a much more limited activity and would be condemned by the free traders.

Irrelevant. It's still potentially bad. Free trade is usually advantageous to the poorer economy and disadvantageous to the wealthier one.

Blogger Fenris Wulf November 14, 2016 7:30 AM  

I tend to think that laissez-faire is the best policy. But I've learned that liberalization (in the original sense of the word) has to be systematic. Partial deregulation of the economy can easily make things worse.

Free trade MAY be beneficial under conditions of total economic freedom. That means no central banking, no compulsory unionization, et cetera. We would have to commit to total laissez-faire, and carefully weigh the consequences.

Since laissez-faire isn't on the table, I'd rather have leaders who are unapologetically nationalist and populist.

Anonymous CarpeOro November 14, 2016 7:36 AM  

"apart from looking at the bitter experience of the millions of once-were-factory-workers who voted for you" you can definitely add IT and accountants that have been out-sourced to that. Sure, getting out sourced a second time I am hopefully doing a final interview Friday with a new company, but I have had to become mobile to an extant that is wearing on my wife. This is likely true of many Americans. I'm also reaching the age where age may disqualify me if I have to go searching again. I'll pass on the will-of-the-wisp of free trade.

Anonymous DJF November 14, 2016 7:38 AM  

Also has anyone else noticed that “free trade” is brought up almost exclusively when dealing with foreign trade? Even though according to their own theories that domestic trade is part of free trade. Cutting a domestic sales tax is just as important to free trade as cutting a tariff . And me trading my garden tomatoes for my neighbors garden onions is just as much a legitimate trade as some international deal. Though this is frowned on by both the banksters and government since neither get a cut of the action

However much of the free trade propaganda is pushed by international finance who have managed to increase international trade in the US from around 8% GDP in the 1970’s to over 30% today, and thereby increasing the percentage of the economy that pass through their sticky little fingers.

When was the last time you heard any of these international financiers and their puppet academics/ politicians talk about increasing domestic trade?

If they could get away with it they would have Idaho buy all of its potatoes from Ireland and Ireland buy all of its potatoes from Idaho to maximize the international trade that they handle.

Anonymous Ammianus Marcellinus November 14, 2016 7:50 AM  

Isn't an argument against trade similar to an argument against technology? I.e. with protection England produces wine with labour + grapes as variable inputs (as well as some fixed-cost investment), with free trade England produces wine with cloth as the variable input instead. In Ricardo's example free trade for England is identical to introducing a technology where cloth is transformed into wine. Is the argument that technology in general is bad (when its labour saving) or only trade?

Blogger wreckage November 14, 2016 7:54 AM  

So, we should see stellar results from isolationist economics.... but we don't. It just never happens. Why?

Blogger Bodo Staron November 14, 2016 7:59 AM  

But didn't Ricardo put in an important caveat in his theory? He only supported "free trade" if capital could not move across borders.

http://www.econlib.org/library/Ricardo/ricP2a.html
On Foreign Trade 7.18/19.

Or is my understanding of old English not good enough?

Blogger wreckage November 14, 2016 8:06 AM  

Capital mobility isn't really an issue, but labour mobility is. That part of Vox's argument is clear to the point of being irrefutable.

Free trade is useful as long as it's useful, the libertarian ideological approach to total population fluidity (trying to make humans as liquid as cash)is clearly broken. Even from a purely economic point of view, different capital classes have different liquidity. Land is not people is not cash.

But Vox takes that to refute what he calls "free trade", and I can't find a simple correlate to that, except "free trade as clearly false pretense for dissolving nations and national borders", as proclaimed by anarcho-capitalists.

My position, and the classic free trade position, is that a free people and a free nation should enjoy the freedom to buy, sell or trade as they see fit. To my mind that is an argument FOR nations; in fact the strongest indicators for wealth are stable laws and matching traditions (ie, Nations with strong non-clannish cultural identity), followed closely by cheap energy.

Anonymous Homesteader November 14, 2016 8:08 AM  

Calvin Coolidge, Correspondence to Dwight Morrow, March 10, 1920

“For over a generation each protective tariff has changed the basis but enlarged the market for imports. Of course, some lines may have been injured and others compelled to come in on a rate more fair to the United States standards of wages and living. That is not saying the new tariffs promoted or retarded the increases. But the fact is higher rates did not decrease the former imports. The most reasonable explanation seems to be that protection encouraged business and a more prosperous people bought more goods abroad. Instead of being disturbed at the tariff foreign nations should know that our general imports will be large so long as our business is good.”

Blogger wreckage November 14, 2016 8:12 AM  

I don't think any mainstream economic wisdom from the decades leading to the great depression are likely to be especially sound, unless you buy the utter propaganda that the GD was purely a matter of a market crash.

Markets go up, markets go down, and nothing happens. The massive write-offs in dollar values are just the investing class losing prestige relative to each other. For grinding unemployment and a shortage of goods to occur, you need a problem in the machinery of production.

Blogger wreckage November 14, 2016 8:16 AM  

... and I'm talking "alt economics" here, not the current demand model bullshit. See Steve Kates, who has been all-in for Trump from the outset, and who is hated by the establishment economic model fetishists:

https://culturalpolicyreform.wordpress.com/2010/11/06/dont-study-economics-at-rmit/

His various thoughts, including utter terror that Trump would lose, here:
http://catallaxyfiles.com/author/steve-kates/

Blogger dc.sunsets November 14, 2016 8:21 AM  

@2 In the real world Portugal has enough labor to satisfy the worldwide demand for both cloth and wine, so the English make nothing until their poverty gives them a trade advantage.

Exactly.

All of this is based on the assumed morality that if Portuguese people can do something better than your English kids, your kids belong in poverty because "it's only fair."

Whether it is a teacher's aid who takes the teacher's pencil off the teacher's desk to give to a student, or a Harvard economist who supports opening IT jobs in the USA to India's and China's best and brightest, Leftism is a disease characterized by taking something that ISN'T YOURS, handing it to someone YOU deem deserving and basking in the dopamine rush you receive from your exhibition of (false) moral superiority.

Free trade, as explained and as practiced, is not my neighbor and me deciding to swap a drill for a rake. It's just another leftist rejection of rights to property secured by prior appropriation and nurture.

BTW, aren't both Monetarist and Keynesian theories both guilty of "assuming" capital into existence, and don't the both ignore capital's heterogeneity and the time structure of production? More proof that smart people are just better at constructing exquisitely complex rationalizations for the idiocy they believe.

Blogger Stilicho November 14, 2016 8:28 AM  

@29 1) "not free trade" does not equal "no trade". 2) it's a shame the US economy sucked so bad before the advent of "free trade" a few decades ago, why children were starving in the streets of Peoria before NAFTA

Blogger Francis Parker Yockey November 14, 2016 8:29 AM  

"different capital classes have different liquidity. Land is not people is not cash."

1. I believe the term you're searching for is "factors of production.

2. Understanding that "cash" and "capital" are not synonymous would help you greatly.

Blogger Duke Norfolk November 14, 2016 8:33 AM  

This is indeed a sticky wicket. I have been wrestling with this lately, as have a lot of disaffected libertarians (of which the alt-right has a lot of, to my understanding). I'm still working on the purely economic argument, but I think the social argument is pretty irrefutable.

Even if free trade indeed makes us all more wealthy (not saying it does, just going with it here), it doesn't necessarily make our lives better.

A lot of people have been coming to that conclusion over the last couple of decades, realizing that the cost to our culture, communities, families, and overall social well being is not worth the boost to our economic position. In other words, yeah maybe I can buy more cheap electronics and have a bigger house, etc. (and that's not counting the many who have just been crushed, of course), but if that means that I have to uproot my family every few years, go through an endless churn of jobs, have my extended family scattered to the four winds, etc., etc., then is it all worth it? Happiness is not keeping up with economic indicators, and the “experts” wonder why (many of whom are comfortably ensconced in tenured positions at universities, of course).

Just more of the "modern" world's misguided dogma being refuted and rejected.

Blogger Stilicho November 14, 2016 8:34 AM  

Free trade is the US building a state of the art stadium then letting third worlders who don't understand indoor plumbing use it for free.

Blogger dc.sunsets November 14, 2016 8:41 AM  

Almost no one blames the 1930-32 collapse on an inevitable contraction in the money supply baked into things by the credit binge that fueled the Roaring '20's.

Often, what we hear is "Smoot-Hawley," "Smoot-Hawley," as though it was protectionist tariffs that caused the Great Depression. If Trump's Admin succeeds in ripping up NAFTA, et.al., I guaranteed all you'll see in the news will be "Smoot-Hawley."

This is true despite the FACT that bond prices already appear to be in retreat. Temporal correlations are usually lacking when the Talking Heads assign a scapegoat.

The USA (and world) was able to borrow-to-sustain-Nirvana far longer than any educated observer prior to 2000 would have believed. The magnitude of debt (promises of future cashflows) now in existence is simply beyond imagination.

Sooner or later (possibly the inflection point is behind us even NOW) borrowing will entail paying a higher interest rate than before. My suspicion is that very few people appreciate just how much of a PHASE CHANGE this represents.

If there is about a quadrillion dollars of debt now in existence, and if (for the sake of argument) we assume it has an average duration of 10 years, and if we further assume that its implied yield mirrors the 10 year T-note, then the pop higher of interest rates LAST WEEK (!) destroyed approx. $47 trillion in bond values, about 2.5 times US GDP! If rates just go to 6%, almost half of the "wealth" people thought they "owned" in all that debt simply EVAPORATES (about 10 times WORLD GDP!)

I call this Armageddon Math, and it came into being for the first time in history during the last 35 year orgy of borrowing. The most astonishing part of this is that people CONSENTED to piling up this Krakatoa-sized volcano of debt-destruction in their figurative back yards.

Blogger VD November 14, 2016 8:44 AM  

So, we should see stellar results from isolationist economics.... but we don't. It just never happens. Why?

We do. You're not looking in the right places. The historical US economy was heavily isolationist; international trade was trivial.

Anonymous Bellator Mortalis November 14, 2016 8:58 AM  

Robotics introduces a 3rd factor - similar to slavery. In effect, robots = slaves. As countries like China automate, they replace their own workers. But it is less expensive for the USA to produce goods with our own robotic factories than to pay for goods produced in Chinese robotic factories plus the cost of shipping.
Robotics plus effective automated business processes will over time reduce most trade to raw materials where those materials are not available within a nation.
However robotics plus AI will also make most of the left hand side of the bell curve unemployable.

Blogger Elizabeth November 14, 2016 9:04 AM  

There's another issue: David Ricardo was born Jewish, but married a Quaker and converted. Paul Johnson in A History of Jews(?), quoted by Kevin MacDonald in one of his books, pointed out that Jews are prone to dream up crackpot ideologies. Ayn Rand, Karl Marx and David Ricardo are examples.

Anonymous JB November 14, 2016 9:10 AM  

I've already recommended ‘How rich countries got rich, and why poor countries stay poor‘, by Erik Reinert, and will do so again: he deals precisely with this very question in a comprehensive manner accessible to laymen.

Blogger James Dixon November 14, 2016 9:19 AM  

> I'm also reaching the age where age may disqualify me if I have to go searching again.

Welcome to the club. :(

Blogger James Dixon November 14, 2016 9:22 AM  

> So, we should see stellar results from isolationist economics.... but we don't. It just never happens. Why?

You need to re-examine your understanding of American history. We had protectionist tariffs for most of our history.

Blogger Elizabeth November 14, 2016 9:22 AM  

@26 CarpeOro - Like you, I am looking for a new job and posted my resume on several online job sites. I was contacted by both e-mail and phone by many recruiters, almost all of them Indians. At least two of them used very British names, but I could tell from their accents that they were Indian. I wonder if any of them were H1B visa holders?

They all had accents and I could not understand some of them because their accents were so thick. I politely said that the phone connection was bad and could we communicate via e-mail.

I also googled their names and saw that a number of them were located in India. Only two recruiters that I spoke to were American - based in North Carolina.

Blogger dc.sunsets November 14, 2016 9:23 AM  

@43 Elizabeth, this is a good example of what Jayman's HBD blog discusses; he goes into relatively good detail about how the high levels of abstract thought found particularly in Scandinavian countries seems to create a tendency to generalize to other people attributes that simply aren't shared.

People here have oft discussed the notion that what makes people of mostly Northern European and English ancestry uniquely capable of producing the essential institutions and conditions of modern success also makes them chronically ill-prepared to interact with clannish, low-trust peoples who predominantly populate the planet.

The high-trust, low-nepotism, low-corruption culture of Northern European people that generates what we now take for granted is extremely self-destructive when it allows entry of low-trust, high-nepotism, high-corruption peoples. Today is the Poster Child for this axiom.

Blogger dc.sunsets November 14, 2016 9:34 AM  

@45 @47 Misery loves company. Unless one has a very specialized set of skills and a very specialized CV/resume, the moment you get >48 you become unemployable. I was able to land contract work (same job, 1/2 pay) for a few years after my initial layoff, but even that has dried up. Good thing I spent a decade in preparation for long-term unemployment.

The willingness to use H1-B's or off-shore workers (e.g. in Hyderabad) is IMO another artifact of today's "running on fumes" economy. Two of my sons work in IT for a major household name corp, and one of them supervises a team that includes a bunch of off-shore "help." Both state unequivocally that 1) low level programming "scut-work" is off-shored, but foreigners (no matter how bright or skilled) simply don't understand Western systems that (heritage) Americans simply live and breathe, and so 2) for important jobs, off-shoring is not cost effective.

This informs me that industry across many fields is off-shoring jobs (or hiring H1-B's) as a means to cut costs that shouldn't be cut, akin to a marathoner beginning to burn muscle for energy in order to just keep moving one foot ahead of the other.

A world economy built on debt is also a world economy built on cutting costs below the level that sustains output or quality. We are coasting into an apogee of such altitude that the ride downward will not be fun in any way.

Anonymous Eric the Red November 14, 2016 9:35 AM  

Do you want capitalism or do you want free enterprise? The two are not the same.

Do you want free trade or do you want fair trade? The two are not the same.

Blogger Teri November 14, 2016 9:38 AM  

He's still out there and I read him last week.

Blogger Stilicho November 14, 2016 9:46 AM  

Re: job searching, three words: networking networking networking.

It's never too late to start and far more bang for the buck than online searches or any but the best headhunters. Never ask for job, ask people you are networking with for advice and where you should look, who else you should talk to, etc. Help THEM when you can!!! Lather rinse repeat.

Blogger Jack Ward November 14, 2016 9:46 AM  

41. VD November 14, 2016 8:44 AM

So, we should see stellar results from isolationist economics.... but we don't. It just never happens. Why?

We do. You're not looking in the right places. The historical US economy was heavily isolationist; international trade was trivial.

This is very interesting. More discussion with examples would help clarify the idea. I believe this one statement might be one of the best jewels of wisdom VD has ever offered.

Blogger Neutrinoide November 14, 2016 9:47 AM  

Projection

Blogger wreckage November 14, 2016 10:04 AM  

@41; OK, that gives me a frame of reference. Can you narrow down the period?

@37; no, the term I am looking for - two terms, in fact - is capital, and liquidity, exactly as stated.


"2. Understanding that "cash" and "capital" are not synonymous would help you greatly."

Are you being deliberately obtuse, have you completely misread me, or are you out of your depth? I am talking about capital, not factors of production, to whit, I am talking about "human capital". Humans as factors of production are relatively liquid (concept analogue), or maybe fungible would be more precise, but human capital is not.

One warm body may be relatively easily substituted with another, creating an illusion of fluidity, but human capital - literate, honest, trained personnel, that gets you much closer to the individual, and the conceptual fluidity (if liquidity of human assets is discomfitingly imprecise) decreases.

As Vox has pointed out, real people, families, trades-passed-on, do not like to relocate. That means that AS ASSETS liquidity is concentrated in the very rich (who can FIFO) and the very poor (one of which is a substitute for another).

Even assuming I reject Vox's total view, you can see how cross-applying the concepts has brought us right up to the point here: totally porous borders in terms of human movement - human capital - disproportionately benefit the very rich, who are immune to the disadvantages, and the poorest poor, who have nothing to stay in one place for, but concentrate costs on the semi-skilled and working class, who don't get a pay rise, have a lot to lose in trying to adapt, and can't ignore the costs.



Blogger wreckage November 14, 2016 10:07 AM  

And that said, if I'm playing fast-and-loose with the terms, I still think it's pretty clear what I am getting at. I have a very basic education in economics, for what that's worth.

Blogger bob kek mando ( I are Spartacus ... and you can too! C'mon, give it a try, these crosses are way more comfy than they look ) November 14, 2016 10:12 AM  

1. Rigel Kent November 14, 2016 5:06 AM
It took years for me to get over my belief in free trade. It can be hard to give up.



here's the real question:
how did you become so emotionally wed to such an absurd idea?

think on that.

because if you don't fix THAT, your children will likely grow up being wed to even more obviously stupid ideas ... like AGW.

Blogger praetorian November 14, 2016 10:13 AM  

> So, we should see stellar results from isolationist economics.... but we don't. It just never happens. Why?

Like China? Like Germany? Like the US during its greatest growth periods? Or do the "free trade for thee, but not for me" mercantilist economies confuse you?

I'm glad to see Keen touching on the intrinsic and unmeasurable benefits of having the production chain in your own country with his sailboards example. This has always struck me as the most powerful argument against free trade. The U.S. give up semiconductor manufacturing to the asians was insane and people should be hanged for it.

And what a finish to the article!

Of course, specialization, and the trade it necessitates, generates plenty of financial services and insurance fees, and plenty of international junkets to negotiate trade deals. The wealthy elite that hangs out in the Washington party benefits, but the country as a whole loses, especially its working class.

Forget it folks, the party’s over. Go home.


Amazing.

Anonymous Full-Fledged Fiasco November 14, 2016 10:18 AM  

19th century writer against free trade

Anonymous Ironsides November 14, 2016 10:26 AM  

I must be dreaming.

The rise of white identity politics.

The rise of white nationalism.

And now, someone is finally calling out that destructive moron Ricardo?

If this IS a dream, I don't want to wake up from it.

Blogger wreckage November 14, 2016 10:38 AM  

@57, specific periods, please. I have an interest in economics and I have read a fair amount over the last 20 years. I am trying to understand Vox's view here, but it is difficult because I have a fairly complex mental model and USUALLY when people argue with me, on the subject, it's because they're idiots.

Vox is not an idiot. But I do not yet understand his model. I am trying to figure it out. To do that I need some specifics, if he can spare the time.

If not or if it's well-worn and he'd rather not go over it again, well enough.

But don't waste your time with rhetoric. Dialectic, please, and at a reasonable level of sophistication, if you understand Vox's model and can explain it for me. Specifics, detail, reasonable level of sophistication. I'm not trying for a "GOTCHA!", I'm trying to "get it".


Blogger l' Américain November 14, 2016 10:39 AM  

Also, from what I can tell, Ricardo's theory assumes away regulation and assumes that there are free domestic markets.

Also, diversity of an economy will provide much more stability for it.

God forbid a new form of transportation destroys an economy that is based off of producing cars.

Blogger Ingot9455 November 14, 2016 10:40 AM  

What I would add to all this and I'm sure I'm not the first to say it. ..

Free trade and free movement of labor also steals away the ability for a worker to climb the economic ladder.

A kid with no skills has to learn them. How to dress for a job, how to take orders from a boss, how to break down tasks and complete a schedule, how to operate the devices involved with whatever job, and so on. From more general to less general.

As our jobs leave, the pool of people with the skills to have jobs also leaves.

I worked on a factory floor doing light manufacturing when I was 14. I'll never use those machines again or touch those devices but I use the attention to detail and physical 3d manipulation skills I learned there every day.

Blogger Dave Narby November 14, 2016 10:44 AM  

I am ambivalent on free trade. I am adamant on honest government. here is why

http://www.zerohedge.com/news/2016-11-05/protectionism-vs-corruption-which-worse-economy

TL/DR Trade and per capita income = loose correlation, corruption and per capita income = tight correlation.

This is why we need to hold "God Emperor Trump" to draining the swamp. Among other things.

Remember, we won the election, but we haven't won the country back (yet). Press on.

Blogger James Dixon November 14, 2016 10:46 AM  

> @41; OK, that gives me a frame of reference. Can you narrow down the period?

Why don't you start with the basics? https://infogalactic.com/info/Tariffs_in_United_States_history

Blogger VD November 14, 2016 10:47 AM  

This is very interesting. More discussion with examples would help clarify the idea. I believe this one statement might be one of the best jewels of wisdom VD has ever offered.

It's hardly new. The foreign-trade component of the economy was only 7 percent in 1929. During the Great Depression, the US economy declined by THREE TIMES MORE than the total foreign trade sector.

Foreign trade has historically been relatively unimportant to most national economies, for obvious reasons. Wreckage clearly knows nothing about economic history.

Blogger VD November 14, 2016 10:49 AM  

Don't look at the tariffs, James. That's irrelevant. Look at the total amount of foreign trade as a percentage of the economy.

Blogger CarpeOro November 14, 2016 10:59 AM  

@49
The interview is for a specialized software skills I have that is slowly getting eliminated from the market, plus doing OS admin work that I haven't done in some time. Recruiter is actually an American for a change of pace and in the same state as the job. To supplement your son's experience, the first time I was outsourced they tried to replace me with 6 off-shore workers who didn't even have background in the software. It didn't go well. I contracted back there twice afterward for close to my employee wage for project work they just couldn't do with the off shore pool of "skills".

Present position, they brought in this CIO because of his experience with out-sourcing his workers at a previous company. Funny thing is, that other company is bringing people back in because of how badly it impacted them.

Blogger Austin Ballast November 14, 2016 11:35 AM  

It is clear specialization is good at some level. I do not want to grow and raise all my own food, for example.

I would like to see a very explanation of exactly where the concept breaks down. Anyone know of that?

Anonymous Brick Hardslab November 14, 2016 12:03 PM  

Steve did a bunch of posts a few years back about this. He would juxtapose a booming protected economy vs a moribund free trade econ. I always hated "free trade" as it just looked like crony's making bank and rent-takers sucking blood.

Anonymous Jack Amok November 14, 2016 12:17 PM  

Even if free trade indeed makes us all more wealthy (not saying it does, just going with it here), it doesn't necessarily make our lives better.

"All" is the key word there. Free trade does not make "all" of us more wealthy. It might - might, but might not - raise the average wealth of the nation, but it badly skews the distribution. It rewards a handful of winners at the expense of the majority. It also rewards a class of people - the import/export folks, the money-shufflers, the skid-greasers - who are not actually productive.

Ricardo's example of cloth and wine exchange claims greater efficiency, but he left out all the people who have to go to work in the shipping and finance industry.

And the finance industry - well, what do they benefit from? Not steady economic output. Nobody running an established business with steady cashflow and a predictable outlook needs finance guys. The banksters make their profits on change, the bigger and more disruptive, the better:

The theory ignores the reality that, when foreign competition undercuts the profitability of a domestic industry, the capital in it can’t be “transformed” into an equal amount of capital in another industry. Sometimes it’s sold at a fire-sale price, often to overseas buyers.

Whatever transformation capital goes through, fire-sale prices or not, the finance industry brokers it and takes their cut off the top. The banksters have a class interest in undercutting and disrupting as many domestic industries as possible so that they can profit off the subsequent redistribution of capital.

Blogger Feather Blade November 14, 2016 12:29 PM  

This idea that specialization benefits everybody is why you have monoculture farming and ranching. Which means that every time there's a drop in the price of whatever plant or critter, your farm goes under or you have to take yet another loan from the bank to keep going.

As opposed to polyculture farming, where you have both sheep and cattle, or wheat and lentils, and when the price of one drops the price of the other is usually going up.

Literal stock diversification.

Blogger Austin Ballast November 14, 2016 12:32 PM  

Literal stock diversification.

True, but many of us will never raise our own food, so this is a limited application. Diversify crops, great, but that is not the whole picture.

Blogger szopen November 14, 2016 12:34 PM  

History of my country is an argument against free trade. POland exported grain and imported pretty much everything else. Year by year POland amassed huge surplus. It all went to nobility and magnates. Cities and manufactures went bankrupt, as foreign goods were cheaper, and besides - they were foreign and hence, fashionable.

As a result, Poland had no industry; in XV century we had thriving industry, mines, steel mills; by XVII century all we had was grain export.

Anonymous A Deplorable Paradigm Is More Than Twenty Cents November 14, 2016 12:44 PM  

@43


This is clarifying. It gives a clear explanation for why (((David Ricardo))) in theory favored the itinerant peddlers of the world over the neighbors down the lane.

Paul Johnson in A History of Jews(?), quoted by Kevin MacDonald in one of his books, pointed out that Jews are prone to dream up crackpot ideologies. Ayn Rand, Karl Marx and David Ricardo are examples.

Not All Crackpot Ideologies Are Like That, but it sure looks more and more that any really nutty, bad idea is (((rootless cosmopolitian)) based down near the foundation, maybe even all the way down.

Blogger Micchel Higgson November 14, 2016 1:07 PM  

What if I'm just OK with the lowest tier workers in America failing? I don't give a shit about protecting the rust belt's jobs, it was never about their jobs, it was about creating the service or product for the lowest possible price.

If you have no use in modern society, you SHOULD fail and not reproduce. We are running out of uses for low IQ menial laborers, let that bubble pop.

Blogger Big Griz Reno November 14, 2016 1:19 PM  

I have a question. I realize that capital is not necessarily transferable. But what about the problem of protecting old, obsolete capital. Many of the steel mill left to rust utilized very old technology. I have little faith that federal bureaucrats could tell the difference between undercutting prices due to predatory trade practices and undercutting prices due to superior technology.

Anonymous jacopo November 14, 2016 1:45 PM  

Free trade is code for labor arbitrage. It would be nice if companies benefitting from U.S. incorporation had to issue stock into the market at par value for every job that management outsourced. Then the owners could also experience the blessings of offshoring.

Blogger praetorian November 14, 2016 1:56 PM  

Free trade is code for labor arbitrage.

And moral arbitrage (e.g. environmental regulations, labor regulations, etc.)

Anonymous map November 14, 2016 1:58 PM  

I mean...Jesus...

Forget for a moment about how you convert a wine-press into a spinning jenny.

How do you convert a wine-maker into a cloth-maker? Even if you assume labor as the only input, that labor is not fungible because there are skills involved in each. How would a wine-maker in his 30's learn how to even run a spinning jenny, when children apprentice in guilds from an early age to do this work? Who pays to support the winemakers family while he learns cloth-making?

Then you have the supply shock of an increasing number of (skilless) people who have entered the labor force.

Ricardo's argument is madness even on its face.

Blogger praetorian November 14, 2016 1:58 PM  

What if I'm just OK with the lowest tier workers in America failing? I don't give a shit about protecting the rust belt's jobs, it was never about their jobs, it was about creating the service or product for the lowest possible price.

You are going to be very surprised to learn what people in the rust belt, in reciprocation, don't give a shit about.

Blogger Hal Gore November 14, 2016 1:58 PM  

I choose to buy eye glasses from Zenni Optical (China) for $75 a pair instead of paying my local optometrist $400 for a similar pair. Likewise I choose to make my own pizza and home made meals instead of patronizing local restaurants. How is this different than free trade? Lastly I have a huge trade deficit with my local supermarket, I give them dollars and they give me 'stuff' which I value more than my dollars. Tell me what I'm missing.

Anonymous Brick Hardslab November 14, 2016 2:09 PM  

Fucking right. You take away decent jobs you cut the core out of the nation.

Anonymous map November 14, 2016 2:16 PM  

Big Griz Reno,

"I realize that capital is not necessarily transferable. But what about the problem of protecting old, obsolete capital."

That capital was already paid off and the "older" technology has proven itself to be profitable.

Anonymous jacopo November 14, 2016 2:18 PM  

82, you're missing the concepts of "nation" and "commonweal," but those are often hard to grasp for people on the autism spectrum.

Blogger Thucydides November 14, 2016 2:48 PM  

Some observations.

I was smacked out of the Keynesian worldview by virtue of being taught economics at the end of the Carter Administration. While we struggled with introductory models of things like the Phillips Curve and the IL:SM model, outside the window was "Stagflation", which wasn't even conceptually possible under any Keynesian theories.

The shrieking of my teachers over the Reagan revolution was a very clear demonstration of observation trumping theory (which I am sure we will see again in the next 8 years!).

OTOH, Canada signed the NAFTA treaty during this time period, and once again, observation (in Canada) showed that Free Trade was actually a good thing for us, at least at first. Very inefficient industries which had been sheltered for decades were forced to innovate or die against American competition and Mexican labour costs, which led to an investment boom and pushed resources into more profitable endeavours. So initially, Free Trade looked like a great thing, and the proponents were vindicated and nay sayers left looking foolish. Fast forward to today, however.....

One thing which does give me hope, however, is the rise of technologies and institutions which promise to bring back economic growth and innovation at the lowest levels. One of the dire issues in most modern nations is the destruction of capital formation at low levels, which makes starting and sustaining innovative small business quite difficult (in addition to having to scale the cliff of taxation and regulations skewed against small business). Looking at things as diverse as Kickstarter and 3D printing technologies and the ability of people to buy professional grade equipment for many different types of industry at reasonable costs means that the barriers to entry and gatekeeping are falling. With any luck this sort of small business explosion will provide much of the power behind the economic growth we should see in the next 8 years.

Blogger Daniel November 14, 2016 3:06 PM  

Actually, for being the guys who control the world currency, you kind of screwed the damn hole thing

Blogger VD November 14, 2016 3:19 PM  

What if I'm just OK with the lowest tier workers in America failing?

Then we don't care if they kill you and take your stuff.

Anonymous Professor November 14, 2016 3:34 PM  

The economies that do well under free trade seem to be effectively mercantilist. China, Japan and South Korea don't have to publish discriminatory rules against American goods because the entire culture is against imports. The historical U.S. had a lower trade percentage and mostly traded with western Europe and Canda. Similar systems with similar rules and more or less balanced trade. Japan started to destroy the system and then came China. Mercantilist economies do fine.

Blogger Micchel Higgson November 14, 2016 4:11 PM  

"Then we don't care if they kill you and take your stuff."

Why don't we also placate the masses of Marxists who want all this social justice? They'll kill us if we don't give them some favorable policies. I didn't know your entire argument boiled down to "might makes right".

My point is, you can't say I have an incoherent argument for free trade like you can for all the libertarians who claimed it would be peaches and roses for everybody. Sometimes labor is misallocated, and some people no longer serve a function for society.

Your ideas of protected trade are dysgenic, you should at least admit that.

Blogger Bob Loblaw November 14, 2016 4:20 PM  

I don't give a shit about protecting the rust belt's jobs, it was never about their jobs, it was about creating the service or product for the lowest possible price.

I don't think it's reasonable to expect people with sub 100 IQs to compete with foreign labor that makes a bit more than $2 per day. Even if you were willing to work for those kind of wages you couldn't survive in the US. I'm not a big believer in the idea of a "social contract", since it's used by people on the left to demand all sorts of things to which they aren't entitled. But if you want people to behave in a civilized manner, you have to make sure civilization provides them some benefit.

You think you're going to be better off by just ignoring these people. What you're actually proposing is civil war.

Blogger Yorzhik November 14, 2016 4:23 PM  

"This belief is shared by almost all politicians in both parties"

If that were true we'd have free trade.

Blogger Tom Kratman November 14, 2016 5:04 PM  

Do not be overly surprised if the enemy, the tranzies and other globalists, do not pull out all the stops to make pure free trade look considerably better than it is, and any protectionism to look like what we and socialism together did to Cuba. This is life and death for them and for everything they believe in; they will show no restraint or principle.

Blogger The Rambler November 14, 2016 5:57 PM  

The argument for Free Trade does not rest on Ricardian or neo-Ricardian grounds. Here's why.

1. All voluntary trade is mutually beneficially ex ante otherwise the two parties would not have traded at all. Thus a prima facie case for free trade exists (no restrictions on voluntary association- tariffs and quotas are a particular instance of intervention).

2. Now of course ex post one or both parties could realise their decision to trade was a bad one and thus be worse off. However this can happen between individuals within the same country and within individuals between countries. To make a case against freedom of association between countries you'd have to make a case that somehow such errors are systematic between individuals in different countries but just unsystematic within them. You could say it is more likely between countries due to a knowledge issue but this would have to weighed against the perceived gains to both parties relative to just trading within their country.

3. Now let's suppose that the two parties are better off ex post we'd have to take into account the issues of externalities, the classic here being pollution. The original two parties could well be better off, the factory owner and his textile customer, but that the smoke causes cancer to a third party. In such as case this just a case of tort law in which full liability should be incurred (not at this point the government legally privileges corporations with third party limited liability laws). You could though say that the creation of the new car factory outside the country harms (in terms of profitability) the older manufacturer within it but this would case the same problem to this firm if the new firm were started within the country. So again there's no case for specific tariffs or such like between countries unless you make for within it.

4. Let's suppose however that a rigorous and enlightened intervention could improve utility of the home country. The question arises how does one achieve this in practice? It requires taxation and decision making by a legal monopolist. Let's suppose we gave the legal monopoly to Converse to producing shoes (no other competitor could enter the market), they would produce bad shoes because you can't go elsewhere. Thus we can have no confidence in a monopolist providing intervention to aid the utility of the country - further, like all government institutions it will make justifications for it to grow and work beyond it's original remit. So even in the worse case for free trade any attempt at intervention will likely make the situation worse not better and this is without considering the moral issues of intervention.

5. Therefore there is no case against free trade.

However today's trade is far from free. The main culprit here being central banks and legal tender laws. In addition all types of licensing and regulation (be it health and safety or environmental) and the crazy tax system. "Free Trade" agreements are just managed deals which entrench special interests (one of the main points of TPP was to export the lunatic US intellectual property laws).

Note, that government encourages more overseas trade and migration than it otherwise would via the huge subsidy to infrastructure projects not just by cash but underwiritng of insurance contracts so the taxpayer foots the bill if things foots wrong (this also aids large corporations since the natural advantage of small firms of having lower transport costs is significantly diminished). Obviously migration is subsidised via the welfare state in addition to the transport subsidies.

Thus any problems with free trade are not problems with free trade pe se but merely highlight the evisceration of the economy by the ruling class which is obviously going to screw over the little man. The question is strategically, how can we best move towards a situation of genuine free association (free trade).

Blogger Tom Kratman November 14, 2016 6:02 PM  

You didn't notice that your 2 impliedly refutes your 1? No, if 2 is possible than the absolute "all" of your 1 is no longer a given.

Blogger The Rambler November 14, 2016 6:10 PM  

The ex ante (before or at the point of trade) is a categorically different to the ex post (after the trade). To say that trade is ex ante always mutually beneficial does not necessarily imply that all trade is beneficial ex post. There is no contradiction between point 1 and 2.

Anonymous Marvin Boggs November 14, 2016 6:37 PM  

Bob Kek Mando asked Rigel Kent why he'd become wedded to the idea of free trade. That's an excellent question that I had to ask myself.

It boils down to the fact that I grew up in a country under a heavy-handed government and, as a result, I really hate seeing government intervention in the economy. Not a sensible position, and one I'm working on toning down. I always had questions about free trade, but they were largely drowned out by my distaste for having the government's paws in the batter.

Anonymous JimR November 14, 2016 7:06 PM  

No, all trade is *not* mutually beneficial ex-ante. Though you can assume that both parties may *think* it so, that doesn't *make* it so.

Blogger Tom Kratman November 14, 2016 7:07 PM  

In the real world, no, there isn't. If you want to make your first statement true, you would have to modify it to read something like: "All voluntary trade _appears_ mutually beneficial." This, however, is a very different thing from "_is_ mutually beneficial" (emphasis supplied), and undercuts your thesis still more.

Blogger Tom Kratman November 14, 2016 7:11 PM  

"It boils down to the fact that I grew up in a country under a heavy-handed government and, as a result, I really hate seeing government intervention in the economy."

This is one of the potential pitfalls of controlled, limited, or protected trade, that we give the government thereby far too much control over our economy, which we can reasonably expect them to fuck up through incompetence or sell out through personal greed.

I don't have a solution to that, by the way. Anyone? How do we let the government limit, charge for, or otherwise control trade without giving the bastards too much power?

As an aside, has anyone noticed that, on a blog that excoriates Lincoln, praises, if only sometimes impliedly, Thomas DiLorenzo, and shits on "The American System" so regularly, we are also advocating "The American System"?

Blogger James Dixon November 14, 2016 8:30 PM  

> Don't look at the tariffs, James. That's irrelevant. Look at the total amount of foreign trade as a percentage of the economy.

That's quite a bit harder to find, Vox. But it looks like you can find some of the basics at https://www.census.gov/history/www/programs/economic/foreign_trade.html

Blogger James Dixon November 14, 2016 8:58 PM  

> What if I'm just OK with the lowest tier workers in America failing?

I see Vox beat me to the only reasonable response to that question.

> All voluntary trade is mutually beneficially ex ante otherwise the two parties would not have traded at all.

But that's not the "free trade" that's being implemented (as you yourself note). And tariffs don't stop that kind of trade, they merely (if done properly) add a reasonable societal cost to it, just the way sales taxes do within states.

Blogger wreckage November 14, 2016 11:15 PM  

Thankyou all, you're giving my more to chew on.

I am concentrating for now on labour, and seeing a policy/legal disparity at the domestic/international boundary. It seems to me the most intractable problems of free trade arise when the nation-state is dysfunctional.

In Australia we had years of wealth and growth with a rational state, relatively free trade, and rational immigration. At the same time, protected industries, which seem to be the definition of "trade only in the national interest", failed anyhow, often doing massive collateral damage during the protected phase.

More recently, late c20th, domestic free trade reforms worked very well. Then,leading up to present, dysfunctional government began to grow again, immigration controls began to slip, and the benefits of free trade haven't been realized.

So, at the broad-brush level, I can partly agree with these formulations:

If domestic free trade is stymied,international free trade only enables the parasitic class.

Massive people movements destroy the economic incentives of the working class.

A strong and stable nation-state, in terms of borders and laws, is more important than nominally "free trade".

Strong and stable protection of domestic property rights, economic development, and trade, is more important than nominal "free trade" treaties.

All of these seem compatible with pre-Keynesian economics, wherein production is wealth, and trade is directly or by proxy in physical goods or services, with cash considered more or less illusory.

Anonymous Jack Amok November 14, 2016 11:38 PM  

We are running out of uses for low IQ menial laborers, let that bubble pop.

The real bubble we have is smug assholes who think think shuffling paper around is vital enough to the rest of the country to put them on the top of the financial heap.

We've got a YUUUGE surplus there. When a sub-100 IQ guy digging a ditch would be a net productive benefit to society over your six-figure bankster job, you are the bubble, and you're about to pop.

Blogger wreckage November 14, 2016 11:50 PM  

@104 with online, on-demand AI piped to every house, those smug arseholes are going to be automated out of existence in a couple of years. Hole diggers still can't be automated.

The future will be well-heeled ditch diggers saying to their phones

"Siri, yall check muh legals and how mah avestmen's goin'?"

"You are in compliance with all searched legislation and legal precedents. Your retirement fund is yielding a steady 6%. I have invested the surplus in a sheltered workshop for former financiers, who are knitting beanies for construction workers."

"Attagirl, Siri."

Blogger Feather Blade November 14, 2016 11:57 PM  

We are running out of uses for low IQ menial laborers, let that bubble pop.

If they can count in base 32 (i.e. read a measuring tape) there are apparently 6 million skilled trades jobs that are expected to go unfilled next year.

This Old House thinks it's such an urgent problem that they're offering trade school scholarships.

Blogger Micchel Higgson November 14, 2016 11:59 PM  

"The real bubble we have is smug assholes who think think shuffling paper around is vital enough to the rest of the country to put them on the top of the financial heap."

I would have no problem with anyone who is useless to society losing their job, paper shufflers included. All bubbles need to pop, let automation happen.

I didn't know so many on the alt right were fans of dysgenics.

Blogger Micchel Higgson November 15, 2016 12:03 AM  

"There are apparently 6 million skilled trades jobs that are expected to go unfilled next year."

I agree with you, there are still some opportunities for low IQ laborers, but there just aren't as many as before, and they need to be culled down.

We can at least hold their feet to the fire to find new work in those trade fields. It's dumb to artificially protect their old jobs that they aren't competitive in any more. Let them move their labor to where it's more useful.

Blogger Snidely Whiplash November 15, 2016 1:47 AM  

@Michael Higgson
Someone composed of 50kg of edible protein should think long and hard before relegating a large percentage of the population to starvation.

Blogger Snidely Whiplash November 15, 2016 1:52 AM  

@Elizabeth
NEVER work with recruiters who are offshore. A friend of mine had to write off months of work, over $50,000, because the contracting agency was based in India.

If they decide to screw you, you have no effective legal recourse.

Personally, I won't work with Indians in this country either. The have a heavy tendency to unethical behavior and lying.

Blogger wreckage November 15, 2016 2:07 AM  

@110 one of the adjustments people are making lately is to the fact that a lower prima facie dollar cost does not equal a better deal. The legal and cultural structures of the West are worth a substantial dollar premium. The only way around that is to spend years building a relationship with the offshore provider. Again, that costs money.

But onshoring is a real thing now. Trumps other trade and industry policies should accelerate that; a sharp drop in corporate tax plus a sharp drop in energy costs should see the US economy perk up no end.

Blogger The Rambler November 15, 2016 2:30 AM  

@Jim and Tom-

Yes, you could make the case that trade in the mind of the traders is mutually beneficial but is in fact not and you'd know this at the point of trade. For example, me paying a guy to chop my hand off. Fair enough, but to use this against freed trade would be covered by my later points.

@James- why do you need to add a "reasonable societal cost" to transactions? BTW sales taxes are preferable to an income tax but land duties are by far the cheapest and simpest to introduce.

Blogger Tom Kratman November 15, 2016 8:54 AM  

It's not necessary to know it at the point of trade. People delude themselves all the time.

Blogger The Rambler November 15, 2016 9:51 AM  

But why would the two parties be more likely to make an error when trading between countries than within it?

Blogger Tom Kratman November 15, 2016 10:00 AM  

Stay on point. Will you or will you not note the difference between "is" and "appears"?

Blogger The Rambler November 15, 2016 10:12 AM  

Both parties believe (rightly or wrongly) that any trade will make both better off, otherwise they would not have traded. They can of course be wrong which they will realise only ex post. I was very clear on this at the beginning. My first point just gives a prima facie case for trade (they both believe they're better off).

So to the crucial point in this context, why would the two parties be more likely to make an error when trading between countries than within it?

Blogger Rez Zircon November 15, 2016 12:46 PM  

@27 "If they could get away with it they would have Idaho buy all of its potatoes from Ireland and Ireland buy all of its potatoes from Idaho to maximize the international trade that they handle."

Or, why the US is not only an oil importer, but also a major oil exporter. Same with wheat, steel, and no doubt many more than haven't come to my attention.

Someone once explained it to me as "we use import and export of the same commodities to level supply" but what my cynical little voice heard was "we use that to make said commodities pass through more middlemen".

I don't know about other products, but an example I do know about -- up to 80% of the retail price of specialty dog food is middleman markup.

Blogger Tom Kratman November 15, 2016 1:09 PM  

No, by your use of "is" rather than "appears" you were _not_ clear on it. Now that you seem to be accepting that only the appearance is a foregone conclusion, however, it should not be a great leap for you to accept that, appearances being sometimes or often dead wrong, no, free trade is not always beneficial.

Blogger Tom Kratman November 15, 2016 1:09 PM  

No, by your use of "is" rather than "appears" you were _not_ clear on it. Now that you seem to be accepting that only the appearance is a foregone conclusion, however, it should not be a great leap for you to accept that, appearances being sometimes or often dead wrong, no, free trade is not always beneficial.

Blogger Rez Zircon November 15, 2016 1:25 PM  

@100 "This is one of the potential pitfalls of controlled, limited, or protected trade, that we give the government thereby far too much control over our economy, which we can reasonably expect them to fuck up through incompetence or sell out through personal greed.

I don't have a solution to that, by the way. Anyone? How do we let the government limit, charge for, or otherwise control trade without giving the bastards too much power?"

My notion is to restrict government revenues to *export* tariffs. That way gov't only gets money if the country is prosperous enough to have an exportable surplus.

Since we're a big country and can use most of what we produce, this would also starve the beast into submission.

Blogger Snidely Whiplash November 15, 2016 1:31 PM  

@Zircon,
That's just retarded.

Blogger The Rambler November 15, 2016 2:17 PM  

Tom answer the question, why is trade between countries likely to lead to more errors than trade within countries?

Also even if we assume that most of the population do not know what their true interest are, how can we have an confidence in a monopoly improving the situation by wise intervention when in all other circumstances monopoly leads to bad products and services?

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