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Friday, June 02, 2017

Mailvox: disproof vs positive claim

RS asked about tariffs and wages:
In your second presentation on Free Trade you said that Hazlitt was erroneous in claiming that tariffs would reduce wages in America and you pointed to the fact that wages have reduced since 1973 event though tariffs have largely been eliminated. In any event, I think that the reduction in wages for American workers since that time is due to the large scale importation of foreign workers which seems orthogonal to tariffs.
It is false to claim that tariffs reduce wages. While it is true that the two primary reasons for reduced American wages are a) twice as many women working than before and b) the importation of foreign workers, the fact is that reduction of tariffs has not increased wages. Perhaps more to the point, wages in China have risen from 445 CNY to 67569, most of this prior to the relaxation of tariff rates in 2010.

It is difficult to separate the various effects, but the point is that we do not see the inverse tariff/wage relationship upon which Hazlitt in part bases his case.

Meanwhile, DH found himself troubled by the thoughts my previous Darkstream raised:
Your recent dark-stream is quite thought provoking. I had difficulty putting my mind at rest enough to fall asleep until way past my usual bedtime. The points you made resonate with me as true, however the argument is left begging for more.

Your reaction to comments stood out as thought provoking as well. While I do not consider myself to be particularly bright on an absolute scale, I have no idea what my I.Q. is. I find it does not require a great deal of intelligence to be frustrated with and isolated from most of those around me.  I relate to your frustration, though I wish it didn't keep you from completing your thoughts.

Even if we could distill all the best aspects of every "ism" into one best of all "isms", it would not be accepted upon pain of death either by the elites or their devoted subjects.
The point that I am making is not that communism is good or desirable. It is merely that global free markets and individual sovereignty is incompatible with the survival of both nation and family. It is not an accident that so many globalists are childless individuals with unusual family situations; even the modestly successful expat communities tend to be mostly populated by rootless transients upon whom one can hardly expect to successfully build a society, let alone a civilization.

What passes for global society is intrinsically parasitical, if not downright predatory, and therefore cannot possibly serve as a sound foundation in itself. Globalism requires that cows first transform themselves into wolves, and then, after that impossibility is successfully accomplished, learn to eat grass.

Labels: ,

60 Comments:

Anonymous Looking Glass June 02, 2017 6:51 AM  

Beyond all of the technical arguments, the biggest issue is that "Free Trade" just didn't work, unless you work on Wall Street or D.C. For everyone else, it's been a disaster. We've got over 20 years since NAFTA at this point to show it simply didn't help most of the country. The EU has let Germany pretty much pillage the rest of Europe for rapidly approaching two decades, to the point that Greece is now a territory of the New German Empire.

It didn't work, but admitting that is to admit you don't know what will work. The Rhetoric, also, really hits a soft-spot for the Anti-Christian faction.

Blogger Desillusionerad June 02, 2017 7:02 AM  

By what mechanism would raising tariffs ever reduce nominal, or even real (inflation adjusted) wages? I get why they could reduce purchasing power, but I see no way possible for them to reduce the actual wages?
Am I just divorced from context here?

Anonymous Rocklea June 02, 2017 7:08 AM  

You Got Job!
I laughed when I read that in Nick Cole's Ctrl Alt Revolt. But what will you do when your job is offshored, automated, or AIed? Contemplate the nature of the universe? Take up a trade? Do some gardening? None of these; they will be done for you and your apartment will not have dirt. Basic bitch Income.

Idle hand are the devils work. Didindu says "Burn this bitch down", is he wrong? What does an elite think of such beings once voting is no longer necessary?

Blogger Desillusionerad June 02, 2017 7:08 AM  

My bad there.

Anonymous basementhomebrewer June 02, 2017 7:14 AM  

Beyond all of the technical arguments, the biggest issue is that "Free Trade" just didn't work, unless you work on Wall Street or D.C. For everyone else, it's been a disaster.

The thing I have been struggling with is the weird relationship between stockholder/ investment bank and a corporation itself. It is presented as the stockholders wanting the best for the business but it frequently results in behavior that is the opposite. I have personally had a front row seat to two instances of this being the case.

The more egregious one is when I worked for a fully integrated oil company. It owned significant share in both upstream, downstream and gas stations. The investment bankers came along and argued that it was too difficult to value the company because of the varying natures of the businesses. They recommended that the company split itself into 2 companies. The upstream and then the downstream and gas stations. To my dismay, from sitting in a position in the downstream the upstream (which had all of the management for the total business) was listening to the bankers. This was 2008-2009 time frame and oil prices were at record highs. As a short lesson high oil prices = losses for downstream oil business and big profits for upstream. The inverse is also true. As a lowly entry level employee I was saying "this doesn't make sense, oil prices are going to fall again and they are going to need the downstream to bolster their upstream operations". Never the less they pushed forward with the split at which time I left the company because I decided the management was poor. They split some years ago at this point and since then, oil prices have fallen. The upstream company has now gone through several cycles of lay-offs and asset sales. Remember, this was all due to the investment bankers not being smart enough to value the company and stockholders going along with it. There is something fundamentally rotten in that system.

Blogger VD June 02, 2017 7:37 AM  

What's rotten is that the investment bankers make their money off churn. Win or lose, it makes little difference to them. The important thing is that there is delta. Delta means the bankers get paid.

They claim to be seeking alpha, but what they really want is delta, which pays them a percentage no matter what happens. It is a con artist economy.

Blogger Johnny June 02, 2017 7:37 AM  

Desillusionerad wrote:By what mechanism would raising tariffs ever reduce nominal, or even real (inflation adjusted) wages? I get why they could reduce purchasing power, but I see no way possible for them to reduce the actual wages?

Am I just divorced from context here?


What it can do is to cause a shift in the job market. In the US manufacturing paid a lot better than service industries and this is usually the case. In our implementation of the low tariff global trade thing, we ended up shifting away from manufacturing. Not exactly lowering wages as shifting employment into lower pay categories. Not a big union guy, but the global trade thing has been a disaster for the unions.

Blogger seeingsights June 02, 2017 7:39 AM  

'In your second presentation on Free Trade you said that Hazlitt was erroneous in claiming that tariffs would reduce wages in America '

Tariffs do not necessarily reduce wages. For example, in late 19th Century America, tariffs existed, yet wages of Americans went up.

On a related note, I find it interesting that in late 19th Century to turn of the century America, while tariffs existed, there was no personal income tax, nor the Federal Reserve.
I'm inclined to think that the absence of an income tax and the Federal Reserve enabled personal savings to increase at a higher rate than we have now. A worker could save up money and then use the savings to start a business. Today many workers, some say a majority of them, live paycheck to paycheck.

Anonymous Shimshon June 02, 2017 7:49 AM  

Arguments lime this make me consider that Israel's ardent socialism early on may have had some benefits nationally if not economically.

Blogger Johnny June 02, 2017 7:52 AM  

basementhomebrewer wrote:The investment bankers came along and argued that it was too difficult to value the company because of the varying natures of the businesses. They recommended that the company split itself into 2 companies. The upstream and then the downstream and gas stations.

What may be the argument behind the argument here is that if two different types of operations are tied together in one company and one of the two has variable earrings, the combined company will get a risk discount in the stock price. Split the two and the lower risk company will pick up a rise in the stock price. It is putting the stock price ahead of other general business considerations. Potentially a return for stockholders if they choose to sell, and the management types who hold stock options will do well.

When I get to rule the world I am going to shift business finance in a way that encourages stockholder returns more through dividends than through price changes in the stock market.

Anonymous basementhomebrewer June 02, 2017 7:52 AM  

What's rotten is that the investment bankers make their money off churn. Win or lose, it makes little difference to them. The important thing is that there is delta. Delta means the bankers get paid.

I guess I knew that it was the short term thinking kind of like I knew the real reason for the split was the extra potential profits for the upstream at the time when refining was being slaughtered by the high prices.

My question really is how to avoid the con game without removing the ability of true innovation to get seed money. I suppose that, like so much in life, is impossible because the perfect system cannot be crafted.

I do love the seeking delta rhetoric.

Blogger JP June 02, 2017 8:02 AM  

VD wrote:What's rotten is that the investment bankers make their money off churn. Win or lose, it makes little difference to them. The important thing is that there is delta. Delta means the bankers get paid.

They claim to be seeking alpha, but what they really want is delta, which pays them a percentage no matter what happens. It is a con artist economy.


I recall reading a 100 year old book stating this is deliberate.

Anonymous Athor Pel June 02, 2017 8:13 AM  

"5. Anonymous basementhomebrewer June 02, 2017 7:14 AM
... The investment bankers came along and argued that it was too difficult to value the company because of the varying natures of the businesses. They recommended that the company split itself into 2 companies. The upstream and then the downstream and gas stations. ... They split some years ago ...
"



Several oil companies have done the same.
I was told that wall street wanted pure upstream or downstream investment plays. I haven't heard anything about them not being able to value the company.

So yes it was for wall street's convenience.

Blogger Johnny June 02, 2017 8:15 AM  

basementhomebrewer wrote:My question really is how to avoid the con game without removing the ability of true innovation to get seed money.

Part of the problem is that we are set up to encourage return through stock sales rather than dividend return. Dividends are double taxed and stock sales turn up as long term gains with lower tax rates. Plus there is the ability to avoid tax completely. Bill Gates, Warren Buffett, and the Zuckerman guy took in tens of billions (yes tens of billions not millions, not puffing on the numbers here) by selling the stock and putting the money into a charity. Now we need to reward innovation and effort, but not to the tune of tens of billions of tax free dollars.

As for charity funds, they become a kind of piggy bank to spend on whatever you want. Or a criminal enterprise under the Clinton's Canadian charity. Gates makes social policy with his money by pushing the Common Core education stuff and other similar projects, and Zuckerman wants to send butterflies into outer space (or something).

Anonymous Mark Auld June 02, 2017 8:19 AM  

I am reminded of a poem by R.Brautigan from the 60's happy era "All watched over by machines of loving grace".It sums up the attitude of lefties,just substitute bureaucrat for machine and their Eden is found.

Blogger Johnny June 02, 2017 8:21 AM  

JP wrote:I recall reading a 100 year old book stating this is deliberate.

I don't know dates and the laws, but the stock market got improved a lot in the first half of the twentieth century through public interest legislation. Now we seem to be slipping back into the old insider, should be criminal type stuff. Plus currently banks get a real sweet deal at the expense of the general public.

Anonymous Looking Glass June 02, 2017 8:21 AM  

@5 basementhomebrewer

There's a lot going on, but, mostly, it's there to pillage the company of Value for itself. That, sadly, is the point of Financialization. It's the reason the Savings & Loans all blew up. It's the reason the Dot Com bubble blew up. And the reason the Housing Bubble blew up.

It also doesn't help that Upper Management makes their money, now, by driving up the Stock Price. They aren't focused on the long-term health of the company. All of the post-Dot Com financial regulations have actually made Upper Management really focused on fluffing the stock price.

Anonymous basementhomebrewer June 02, 2017 8:55 AM  

Johnny wrote:basementhomebrewer wrote:The investment bankers came along and argued that it was too difficult to value the company because of the varying natures of the businesses. They recommended that the company split itself into 2 companies. The upstream and then the downstream and gas stations.

What may be the argument behind the argument here is that if two different types of operations are tied together in one company and one of the two has variable earrings, the combined company will get a risk discount in the stock price. Split the two and the lower risk company will pick up a rise in the stock price. It is putting the stock price ahead of other general business considerations. Potentially a return for stockholders if they choose to sell, and the management types who hold stock options will do well.

When I get to rule the world I am going to shift business finance in a way that encourages stockholder returns more through dividends than through price changes in the stock market.



The problem is both sides had variable earnings. It's a fairly simple equation. High oil prices = big profits for E&P and big losses for refining. Low oil prices = high profits for refining and losses for E&P. There is a separate underlying market inefficiency here involving unrefined oil being worth more than a refined usable product but that is a separate discussion. The problem investment companies and stock holders had was not being able to anticipate the exact size of the losses vs the offsetting gains in the business. This situation works great from the company's perspective because they are hedged against either type of oil market. It works poorly for investors because they can't look at the oil market and know what the profits for the company are going to precisely look like. As someone else said, it's easier to look at the oil market and then invest in an upstream or downstream company based on that.

In a macro economic sense this makes no sense as eventually both industries will be slaughtered by the commodity market and there eventually will be only a few of each type of company.

Blogger OGRE June 02, 2017 9:03 AM  

@17 I think thats exactly right. The role of a stockholder has been transformed from that of an equity investor into simply a financial investor. An equity holder has a vested interest in that which he owns; he wants it to grow and thrive and bear fruit. A financial investor cares only about the market value of the stock itself; its a tradable commodity not an ownership interest in a business. And when all the stockholders only care about driving up the market value of a stock, they put in a Board who cares about the same thing, who then installs a management team with those same interests. Its not hard to see how that becomes a massive systemic problem. Market value for a stock is based on the perceived value to potential purchasers of the stock, and the things that will increase this value can be wildly different from that which will actually help a businesses survive and thrive--and can even be quite detrimental to a company's well being. Its parasitical in the extreme, and thats without even considering how much this structure is geared toward extracting maximum value from the company's employees; labor becomes an expense and not an investment.

Anonymous Rocklea June 02, 2017 9:10 AM  

" labor becomes an expense and not an investment."
This in spades.

Anonymous Isidore the Farmer June 02, 2017 9:25 AM  

Ask not what billionaires and multi-national corporations can do for you. Ask what you can do for billionaires and multi-national corporations.

Anonymous basementhomebrewer June 02, 2017 9:31 AM  

Question/thought. Would the elimination of the C-corp and replacement with S-corps and partnerships make a significant improvement in the system? In the S-corp, ownership is both limited to a certain number of investors and since it is not publicly traded, a new investor would have to be approved by the other investors. This would help with both vetting new investors to ensure they are interested in the long-term health of the company and would put a large damper on the "churn" strategy since entry and exit from ownership would be much more difficult.

Just a thought, it would still make getting investment money to scale an operation harder for a start-up but it would also do a lot to ensure that company makes more k-selected decisions.

Blogger Josh (the gayest thing here) June 02, 2017 9:35 AM  

Would the elimination of the C-corp and replacement with S-corps and partnerships make a significant improvement in the system?

No

Anonymous BBGKB June 02, 2017 9:41 AM  

It is not an accident that so many globalists are childless individuals

They sure do order a lot of hot dogs and pizza for childless individuals.

Didindu says "Burn this bitch down", is he wrong?

Make sure to burn the one drilling holes in the boat not the water flowing in.

There is something fundamentally rotten in that system.

The system counts an illegal alien using an ambulance as a free taxi being a higher contributor to the GDP than any day an average white man works.

churn...I recall reading a 100 year old book stating this is deliberate.

Martin Luther wrote his book in 1543

Anonymous Looking Glass June 02, 2017 9:41 AM  

@22 basementhomebrewer

You've already seen the trend of big companies going private. Obviously, Dell is the largest example, but the rise of the Vampire Class has simply corrupted the entire situation. It's far beyond a structure problem. The point of the Stock Market is to eat up inflation from all of the "money printing".

Money for expansion is generally available these days. The real big problem is there's actually almost no where to Invest your money for a decent return, since everything is so badly mispriced.

Anonymous kfg June 02, 2017 10:02 AM  

". . . learn to eat grass."

https://images.kglobalservices.com/www.specialk.com/en_us/product/product_4508681/prod_img-198168_spk-original-pkgshot.jpg

A picture of the box suffices, because it is literally made of the same stuff as what is inside it. The grass marketing industry is closed loop.

Blogger Matamoros June 02, 2017 10:20 AM  

From Jim Stone's site:

Wanna keep trolls off your forum? Here are some great IP addresses to start with:

http://www.jimstone.is/ipbanlist.html

Blogger DJ|Bonky June 02, 2017 10:25 AM  

Couldn't this be easily done by changing taxation policy re: capital gains vs. div/int/income?

Blogger wreckage June 02, 2017 10:32 AM  

"The thing I have been struggling with is the weird relationship between stockholder/ investment bank and a corporation itself. It is presented as the stockholders wanting the best for the business but it frequently results in behavior that is the opposite. I have personally had a front row seat to two instances of this being the case."

Yeah, it's a broken model. I can see Vox's point there regarding capital markets, and his point regarding the presumed fungibility of human capital is right on.

Blogger Abdul June 02, 2017 10:38 AM  

I see Quebec is wasting no time after Trump's NAFTA announcement. Such is life on the fake boat CANADA.

Anonymous Bellator Mortalis June 02, 2017 10:42 AM  

My financial observations:
Zero interest-rate policy (ZIRP) has the effect that money chases fewer and fewer "big stocks", while choking off the availability of money for small companies. Amazon - stock price is 188x earnings. Salesforce - stock price is 450x earnings. Netflix is 215 PE ratio.

Tesla is NE - it is what happens when there are no earnings at all. Earnings per share is a negative number, and Tesla could not exist without the government subsidy. With the withdrawal from the Paris Treaty, that subsidy will be going away and Tesla will go out of business. In fact when the whole multi-government subsidization of "green companies" vanishes, and it will, a large number of "carbon tax dependent" companies will shut their doors.

The misallocated investment in Amazon alone is around a half trillion dollars. If that money was available to "main street" imagine how many small businesses could expand and hire employees, causing a boom in invention and driving a rise in wages. Small companies in the USA literally CANNOT expand and CANNOT pay higher wages. The money is simply not there because it is tied up in massively overvalued stocks for a small number of companies.

We are headed for a massive crash folks. A great depression style crash, not just a stock market crash. And after that occurs, I predict we will see global war. Not all at once, but multiple local conflicts expanding to regional wars, and then to global war.

Blogger Josh (the gayest thing here) June 02, 2017 10:51 AM  

The misallocated investment in Amazon alone is around a half trillion dollars. If that money was available to "main street" imagine how many small businesses could expand and hire employees, causing a boom in invention and driving a rise in wages.

Amazon hired 110k employees last year

Blogger Josh (the gayest thing here) June 02, 2017 10:58 AM  

Small companies in the USA literally CANNOT expand and CANNOT pay higher wages. The money is simply not there because it is tied up in massively overvalued stocks for a small number of companies.

Angel investors made 24 billion of investments in 2015 and 2016.

Blogger wreckage June 02, 2017 11:15 AM  

@31, In other words, the misallocation of production causes recessions. Have you heard of a guy called Steve Kates?

https://www.bookdepository.com/Free-Market-Economics-Steven-Kates/9781782547969

Consistently pro-Trump from the get-go, I told him he was an idiot, I was wrong:

http://www.connorcourt.com/catalog1/index.php?main_page=product_info&products_id=406#.WTGBBdwlGpo

Blogger RobertT June 02, 2017 11:29 AM  

Economic theory is one of those areas that I have little or no knowledge other than common sense. Which of course adds immensely to my confidence ... But it seems completely, thoroughly & totally obvious to me, and probably anyone with half a mind, that tariffs will increase wages. That's why & how they've been used historically, i.e. China. Knowing nothing about the context, my guess is Hazlitt's statement was politically motivated. Just like the Paris Accord which did nothing to address global warming but did plenty to rearrange the deck chairs of the global economy. My opinion is that economic theory has been weaponized by Marx et, al and today is used to keep the masses under control. Scare the people, organize them, get them marching in order, then march them into the showers and euthanize them. Freedom & liberty play no role in economic theory.

Anonymous Gen. Kong June 02, 2017 11:34 AM  

I was really quite amazed at the number of people who thought VD was somehow advocating communism. All he did was to point out that a serious argument could be made that it is less poisonous to nations than the what is commonly referred to as free-market capitalism. The reasons for the fact that Russia, China and other nations who lived under communist systems have survived as nations are certainly not intrinsic to anything found in the theories of policies of Stalin and Mao. Communism is a racket whose lies are obvious to more of those unfortunate to live under it. The debt-racketeering and counterfeiting casino which is called the free-market (as noted by several, a utopian notion in its own right) is a faster poison which works a more systemic destruction upon its host nations.

Anonymous Jack Amok June 02, 2017 12:20 PM  

Couldn't this be easily done by changing taxation policy re: capital gains vs. div/int/income?

We would certainly be better off if we flipped things and taxed capital gains as regular income and dividends at a special lower rate (of course we'd be even better off if we ditched the income tax altogether, but...). Encourage businesses to run in a manner ensuring cash flow rather than encouraging speculative growth would make a lot of problems better.

But in the end, nothing gets better without taking a hatchet to the parasite professions. The financial industry needs to be cut back at least 90% in terms of size, profits and influence.

Anonymous Jack Amok June 02, 2017 12:32 PM  

It works poorly for investors because they can't look at the oil market and know what the profits for the company are going to precisely look like. As someone else said, it's easier to look at the oil market and then invest in an upstream or downstream company based on that.


And that's the fundamental parasite problem - "investors" are looking to game the system by arbitraging cycles rather than looking to invest capital in potentially profitable ventures.

Investing capital where it can help a company with future potential expand and run is a valid part of an economy. Arbitrage is not.

Blogger Duke Norfolk June 02, 2017 1:21 PM  

There is very little ability out there to dispassionately think about and debate a topic, putting aside prior opinions. Combine that with the inability to really listen to what's being said instead of jumping to conclusions, and this is what you get.

We've been taught to do this by our politicians and media. And not taught to really think critically in school.

People are generally terrible at communicating; on both ends, listening and talking/writing. I see it all the time, people "talking" right past each other, round and round. It's maddening.

Blogger maniacprovost June 02, 2017 3:26 PM  

It is merely that global free markets and individual sovereignty is incompatible with the survival of both nation and family.

In principle, if nations ceased to exist because of global free markets, and the resulting brazilified milieu was stable, Christian and libertarian, that would be fine.

Sadly that's not the case.

Blogger maniacprovost June 02, 2017 3:42 PM  

I see youse guys are trying to fix the system. A real detailed essay should start with what are the problems, their immediate causes, the conditions that perpetuate them, and the structural contradictions leading to those conditions, but I'll just throw out the answer since no one will agree anyway.

1) eliminate corporate taxation. It's vastly inefficient and encourages fewer, larger conglomerates

2) raise top income tax rate temporarily to make up some of the deficit

3) All income- ordinary, dividends, inheritance, and total sale price of investments, is taxable as ordinary income. This will enervate the aristocracy.

4) Total purchase price of investments is deductible

5) IRAs, HSAs and 401ks are now redundant

6) Eliminate all current tariffs and controls except safety checks. Replace with a uniform percent tariff on export of cash. This will have the same effect as a tariff, while also encouraging repatriation of cash and domestic investment.

7) massive federal spending cuts

8) establish a profitable imperial system. charge client states for locating our military bases in their countries, defending them, and providing nuclear power.
-Reduce our commitment to DOD funding commensurate with new income

9) Destroy the banking sector. Drastically deregulate while also removing artificial supports so that small banks can compete but credit inflation is limited. Transition to fiat currency, followed at some point in the future with free banking.

Blogger Snidely Whiplash June 02, 2017 3:54 PM  

@41
You left out step 10
1) Accept your fetters.

Anonymous Bob June 02, 2017 4:23 PM  

Where is this mythical land of voluntary exchange? A free trade agreement would have three lines. Country A sends Country B Goods & services. Country B returns agreed compensation. Repeat the other way. Calling fascism freedom doesn't make it true.

Blogger Snidely Whiplash June 02, 2017 5:05 PM  

This comment has been removed by the author.

Blogger wreckage June 02, 2017 9:51 PM  

"We would certainly be better off if we flipped things and taxed capital gains as regular income and dividends at a special lower rate"

Thus tax-advantaging "investors" and parasites over actual businessmen. No, no, no; this will achieve the exact opposite of what you want.

Anonymous Jack Amok June 02, 2017 11:26 PM  

Thus tax-advantaging "investors" and parasites over actual businessmen. No, no, no; this will achieve the exact opposite of what you want.

No, you don't understand what dividends are. They are what the business pays its owners. So the founder, instead of needing to forgo a salary (taxed at top rates) and later hoping to cash in by taking his company "public" and selling his shares can instead take his profits at a tax-advantaged rate.

He can pay himself without needing the banksters to create his tax haven.

Blogger Shawn Hetherington June 03, 2017 1:15 AM  

I don't know how one can claim that the effect of reduced tariff the fact that Chinese wages increased more before the reduction of tariffs than afterwards demonstrates that reducing tariffs does not cause average wages to be increased(this does not follow logically). There's no a priori reason why average Chinese wages couldn't have gone down if the tariff rates had remained unchanged(such a scenario would be consistent with the reduction in tariffs increasing average wages).

Blogger Shawn Hetherington June 03, 2017 1:34 AM  

Also, just so it is clear, it seems to me that there are quite a bit clearer examples that do demonstrate the increased tariff - decreased wages relationship - Smoot-Hawley being the most famous example.

Blogger VD June 03, 2017 5:32 AM  

Smoot-Hawley being the most famous example.

Except the Smoot-Hawley effect can't have affected wages much because trade was such an insignificant aspect of the American economy then.

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Blogger Shawn Hetherington June 03, 2017 12:46 PM  

@49, Respectfully, it doesn't follow that because trade is a small portion of the economy that impairing it won't adversely affect the economy at all. Devastating a small sector of the economy can cause ripples out into the rest of the economy.
It is pretty difficult to tease out actual relationships btw the elements of the economy but it seems to me that Smoot Hawley is at least as good as(I would say better than) the Chinese example you mention above for doing so.

Anonymous starret June 03, 2017 2:05 PM  

@51: If you oppose Smoot-Hawley, you must propose an alternative tax levied on some other sector of the economy that would have raised the same amount of money. Or you must propose a specific cut in government spending to account for the shortfall in government revenue. And you would have to show that your alternative was less harmful for the economy.

How many changes in taxation have there been in US history that were comparable or larger in size? tens? hundreds? thousands? Can anybody name any?

See also my critique on Hazlitt Chapter 11:
http://voxday.blogspot.co.at/2017/06/darkstream-free-trade-part-2.html#c2402568542942550763

Anonymous starret June 03, 2017 3:03 PM  

Let's dismantle Hoppe's case.

THE CASE FOR FREE TRADE AND RESTRICTED IMMIGRATION

Hoppe's argument for free trade is:
1. muh Ricardo.
2. an attempt at reductio ad absurdum.

Hoppe: Thus, if it were true that international protectionism could make
an entire nation prosperous and strong, it must also be true that inter-regional and inter-local protectionism could make regions and localities prosperous and strong. In fact, one may even go further. If the protectionist argument were right, it would amount to an indictment of all trade, and a defense of the thesis that everyone would be the most prosperous and strongest if he never traded with anyone else and remained in self-sufficient isolation.
This is wrong in so many ways, I don't even know where to begin with.

1. A case for _some_ international protectionism does not imply _total_ self-sufficiency on a personal level. You could argue that a case for _zero_ international trade would imply that. I think it is a slippery slope fallacy and a non sequitur in either case.

2. Inter-personal protectionism is perfectly normal and healthy. It's called family, friendship and neighborhood relations. Some amount of personal self-sufficiency (cooking, DIY, car repair, etc.) can make economic sense. You can turn Hoppe's "reductio ad absurdum" on itself. If _total_ free international trade is the way to go, then you have to engage in market transactions for absolutely everything as a completely atomized individual and never lift a finger for yourself.

3. The open borders crowd makes the exact same fraudulent argument. If national borders are okay, then so are regional borders and ultimately everybody would have to live in a walled compound and interact with nobody. Does not follow.

Hoppe himself points out that private groups can choose to not interact with other groups, even if it would increase their material income, because value is subjective.

Hoppe: Moreover, even if it were the case that one’s real income would rise as a result of immigration, it does not follow that immigration must be considered “good,”
for material wealth is not the only thing that counts. Rather, what constitutes “welfare” and “wealth” is subjective, and one might prefer lower material living standards and a greater distance from certain other people over higher material living standards
and a smaller distance.
Likewise the French can choose to levy tarrifs on wine and cheese in order to preserve their local culture, which is intrinsically tied to wine and cheese production, even if they have to pay a couple bucks more for wine and cheese. The French require a minimum of french music on the radio.

Hoppe's selectively ignores the implications of his own worldview and freedom of association.

Anonymous starret June 03, 2017 3:20 PM  

Let's dismantle Hoppe's case.
(second attempt, better formating, please delete previous comment)

THE CASE FOR FREE TRADE AND RESTRICTED IMMIGRATION

Hoppe's argument for free trade is:
1. muh Ricardo.
2. a an attempt at reductio ad absurdum.

Hoppe: "Thus, if it were true that international protectionism could make an entire nation prosperous and strong, it must also be true that inter-regional and inter-local protectionism could make regions and localities prosperous and strong. In fact, one may even go further. If the protectionist argument were right, it would amount to an indictment of all trade, and a defense of the thesis that everyone would be the most prosperous and strongest if he never traded with anyone else and remained in self-sufficient isolation."
This is wrong in so many ways, I don't even know where to begin with.

1. A case for _some_ international protectionism does not imply _total_ self-sufficiency on a personal level. You could argue that a case for _zero_ international trade would imply that. I think it is a slippery slope fallacy and a non sequitur in either case.

2. Inter-personal protectionism is perfectly normal and healthy. It's called family, friendship and neighborhood relations. Some amount of personal self-sufficiency (cooking, DIY, car repair, etc.) can make economic sense. You can turn Hoppe's "reductio ad absurdum" on itself. If _total_ free international trade is the way to go, then you have to engage in market transactions for absolutely everything as a completely atomized individual and never lift a finger for yourself.

3. The open borders crowd makes the exact same fraudulent argument. If national borders are okay, then so are regional borders and ultimately everybody has to live in a walled compound and interact with nobody. Does not follow. And so what? Hermits are fine by me.

Hoppe himself argues that private groups can choose to not interact with other groups, even if it would increase their material income, because value is subjective.

Hoppe: "Moreover, even if it were the case that one’s real income would rise as a result of immigration, it does not follow that immigration must be considered “good,” for material wealth is not the only thing that counts. Rather, what constitutes “welfare” and “wealth” is subjective, and one might prefer lower material living standards and a greater distance from certain other people over higher material living standards
and a smaller distance."

Likewise the French can choose to levy tarrifs on wine and cheese in order to preserve their local culture, which is intrinsically tied to wine and cheese production, even if they have to pay a couple bucks more. The French also require a minimum of french music on the radio.

Blogger Shawn Hetherington June 03, 2017 4:38 PM  

@53, Do you have any actual numbers for the dollars "raised" by Smoot-Hawley? I am skeptical that it raised any *net* taxes for the government. IIRC, the SH tariffs caused a reduction of about two thirds in US exports - which would've had a substantial effect on taxes collected from the related industries and employees.
The relationships aren't linear, of course. A 2% increase in the cost of an import might cause a 100% bankruptcy(with the attendant loss of tax revenue) in a completely separate industry caught up in a trade war.

Blogger Shawn Hetherington June 03, 2017 7:14 PM  

@53, Just a follow up here - I found a Wikipedia link that backs up my contention in @55.
https://en.wikipedia.org/wiki/Tariffs_in_United_States_history
The link shows that not only did the SH tariffs not increase net collections by the government, they actually ended up *decreasing* the collections from the government for the tariff rates *increased under the SH framework*.

Anonymous starret June 03, 2017 7:22 PM  

@Shawn Hetherington:
"the SH tariffs caused a reduction of about two thirds in US exports"

The Great Depression was already in full swing. Industrial production started nosediving in mid 1929. The stock market crashed October 29, 1929. Smoot-Haley was signed into law on June 17, 1930.

Interesting historical graph from Wikipedia: Federal Revenue by Type
Taxation changes all the time. Sometimes drastically. This does not usually cause a giant economic collapse.

I doubt we will ever know which marginal effect - positive or negative - Smoot-Haley had, given the economic turmoil at the time and the wild fluctuations in various economic indicators.

I believe the main reason we have all heard about Smoot-Haley is that serves as a counter-narrative against the New Deal.

Blogger Shawn Hetherington June 03, 2017 10:28 PM  

@57,
"The Great Depression was already in full swing. Industrial production started nosediving in mid 1929. The stock market crashed October 29, 1929. Smoot-Haley was signed into law on June 17, 1930."

That's true but for 1930-1932 exports dropped about 3 times faster than the economy as a whole(~10% vs. ~30% per year over the three year period).

"I doubt we will ever know which marginal effect - positive or negative - Smoot-Haley had, given the economic turmoil at the time and the wild fluctuations in various economic indicators."
While I agree that it is difficult to definitively establish causation in these issues (that was my point in re: your China example). However, the circumstantial evidence is very strong IMO. There were lots of tariffs issued under SH but so far as I am aware there is not a single example of a positive outcome from it. Even under the Depression, some people were making money but I don't think any of them were "helped" by SH.

Anonymous starret June 05, 2017 9:29 AM  

@Shawn Hetherington:
The Great Recession of 2009 was a minor drop in GDP, yet exports and imports dropped about five times as much:

GDP
Imports
Exports

The Collapse of International Trade During the 2008-2009 Crisis:
In Search of the Smoking Gun

This occurred world-wide, yet there is no Smoot-Haley 2.0 to blame.

"Even under the Depression, some people were making money but I don't think any of them were "helped" by SH."
So you would have doubled their income tax instead?

Blogger Shawn Hetherington June 05, 2017 1:42 PM  

@59,
"The Great Recession of 2009 was a minor drop in GDP, yet exports and imports dropped about five times as much:"

First off, I'm not sure I like your link. I'm using the following one:http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS

This shows that there is quite a bit of noise in the yearly export signal. The 2015 % is less than both the 2008 and 2010 numbers.

IAC, I do believe that imports and exports are more sensitive than other parts of the economy such that they tend to grow and shrink faster than the economy as a whole. I don't think this means that something designed to limit imports (like SH) means that it has no effect on exports. Clearly, this is false. Imports and exports are broadly related to one another.

"So you would have doubled their income tax instead?"

First off, check out my response in #56, SH actually *decreased* the tax dollars raised, *it did not increase them*.

Secondly, and more broadly to your point. currently exports are about $0.80 for each dollar of imports. The taxes *collected* on that $0.80 are much higher than any plausible amount of taxes collected on imports IMO.

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