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Samizdata quote of the day

Unilateral free trade benefits us all and even benefits the poor more than other groups in society. Just what we learned 169 years ago with the repeal of the Corn Laws. Further, as they say, tariff protection makes all poorer while also weighing more heavily upon the poor. This is not an argument in favour of trade protection.

Unilateral free trade it is then, eh?

Tim Worstall

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27 comments to Samizdata quote of the day

  • Johnnydub

    Lets hope so.

    I fear with May at the controls, we’ll end up paying a fortune for a shitty deal.

  • Sam Duncan

    The trouble is that politics isn’t economics. It’s politics. So, almost immediately, you’d hear complaints that “we” have to pay tariffs to export to other countries while they don’t have to pay them here, and it’s not faaaaiiir. Which, being politicians, the politicians would listen to.

    Given the effects Tim refers to, the WTO maximum would be even more politically awkward, but I think zero is too much to hope for.

    Of course, once we’re out, we could abolish VAT altogether. Instant 20% price cut on everything except food, and a massive bureacratic weight off the back of businesses. I can’t see a downside. If the boost to the economy doesn’t offset the loss of revenue (my heart bleeds… and wasn’t it supposed to pay for the EU contributions we won’t have to make any more anyway?), replace it with a simple sales tax at a lower rate.

  • terence patrick hewett

    @johnnydub

    I also.

  • Laird

    Sam, have you ever known a tax to be repealed? And a VAT is too enticing to politicians because it’s completely hidden. A sales tax shows up on the register receipt, so people have it rubbed in their faces with every purchase. Not so a VAT. It’s probably the most pernicious form of taxation there is, which is why it’s so important that countries without one (such as the US) remain that way.

  • Lee Moore

    Unilateral free trade benefits us all

    No it doesn’t. Free trade benefits most people, but it doesn’t benefit everybody, and the case for free trade is not boosted by exaggeration. People currently in jobs that are protected by trade barriers, who are likely to lose their jobs or get pay cuts may in time recoup their losses from lower consumer prices, and/or new job opportunities; but some of them, particularly the non-young will not. Exactly the same applies to licensed taxi drivers objecting to Uber.

    Trump voters in rust belt States are good examples. When the TV reporters occasionally ventured, equipped with deerstalkers and phrase books, out into America, Trump voters would say things like “it’s got so bad, we’ve just got to do something. I want Otis” – cut to 8 year old Otis – “to have a future.” And the sad truth – unguessed at by either voter or reporter – is that Trumpist protection might actually help the parents cling to their jobs for a while longer, but probably wouldn’t be good for Otis’ future.

  • Mr Ed

    Laird,

    VAT isn’t completely hidden, when I buy fuel for my car, I always ask for and get, a VAT receipt so that my work mileage claims can have VAT accounted for, which illustrates the greater truth of your point. In the main, the massive complexity of VAT is hidden, the VATberg, if you like, and the feeding down of VAT in the chain of supply with the various inputs, ratings and so on is hidden, as well as subtle distinctions between biscuits and cakes, and horse and bovine semen. I pointed out at the last General Election here that no one in the campaign was talking about abolishing VAT, or even tinkering with it, it was perhaps literally inconceivable, a sort of Brezhnev Doctrine for tax (the same for the independence referendum). Whereas in Portugal recently, where the Italian disease of shoving receipts at a consumer for everything bought has taken hold, I noticed that the shocking headline rate of VAT there, 23%, versus our 20%, did not apply to all items on a menu and some had a much lower rate, but quite what was not clear. It would be possible to lower VAT on items like hotel and restaurant bills, but there is no political appetite to even discuss the issue, not even the industry hacks seem to want to mention it.

    When I used to go to Starbucks in the UK, the till flashed up the tax on a purchase so that the customer could see it, a nice touch, I thought,but perhaps it was tax virtue-signalling rather than flagging up the cost.

    How hard is it to get people to understand that paying tax makes you poorer?

  • According to John Mills’ book ” Britain’s Achilles Heel” , the removal of import tariffs is the equivalent of up-valuing the currency. The Victorian obsession with free trade allowed the upcoming economies – Germany, USA etc – access to our market and sucking in imports without the quid pro quo of access to theirs. Arguably it speeded up the relative decline of British industry.

    The Liberal landslide of 1906 was largely based on a policy of cheap, unrestricted food imports, rejecting the Tory policy of tariff reform and imperial,preference which would have made the empire into the world’s largest “Common Market” with a degree of protection from others.
    ” Your food will cost you more” was a powerful,Liberal slogan. which put paid to it then.

    Imperial or Comminweahlth preference, along with devaluation of sterling, was part of the National Government’s policy in the Thirties – a package of measures which mitigated some of the harshest effects of the depression . But it was rather late in the day and did not reach sufficiently into what would now be called the “rust belt” industries.

  • bob sykes

    The free trade policies of the US have led to substantial economic growth over the last 40 years or so, but the Ruling Class has captured every cent of that growth and more besides. Middle class incomes have stagnated over that period, and the working class has actually lost income. This is what has driven support for both Bernie Sanders and Donald Trump.

    Working class problems have been aggravated also by women entering the work force, legal and illegal immigration, off-shoring manufacturing and automation. One can argue the relative importance of all these factors. The important point is that all of them are libertarian policies, and their effects on the working class belies the claim that unilateral free trade benefits the poor.

  • ” Your food will cost you more” was a powerful,Liberal slogan

    And they were entirely correct: the Empire had stopped making economics sense long before.

  • Paul Marks

    It is indeed true that free trade is a good thing.

    However, it is not true that BORROWING to finance CONSUMPTION is a good thing.

    “I will sell you ….. which I am good at producing, and you will sell me…. which you are good producing” is how free trade must work – NOT “I will buy lots of consumption goods from you – and borrow the money to pay you”.

    The Bank of England in the United Kingdom and the Federal Reserve in the United States have created an unsustainable Credit Bubble position. A position of unsustainable consumption – in the future (the neat future) people in Britain will be much poorer as consumption is forced back in line with their production.

    This is nothing to do with whether we leave the European Union or not – although, doubtless, the economic collapse will be blamed on independence.

  • Paul Marks

    As for the European Union.

    We should stop paying them money – stop now, today.

    And we should stop obeying their regulations – not “incorporate them into British law” (Mrs May) just allow them to be void, like the regulations of Oliver Cromwell upon the Restoration in 1660. The Common Law is quite enough for commercial matters – and has been since Lord Mansfield finished incorporating private “Law Merchant” into the Common Law (a process started by Chief Justice Sir Edward Coke and continued by Chief Justice Sir John Holt).

    We have a massive trade DEFICIT with the European Union – so they have nothing to threaten us with.

    Will an end to paying the European Union money and an end to obeying their regulations prevent the Credit Bubble economic collapse in the United Kingdom?

    No it will not – but it will make it less bad than it otherwise would be.

  • Paul Marks

    Laird – the situation in the United States where the people who take most government spending do not pay taxes (or pay very little in tax) can not continue, you know this.

    However, I agree with you – “VAT” is madness. Unless there is a revolution in government spending in the United States – the rolling back (ending) of the 1960s spending programs, then a Federal Sales Tax is the logical move. As most people do not pay the Federal Income Tax.

    Of course Americans believe a Hollywood version of the world – that most government spending is on “the military” (not true for many decades) and that “the rich” and “big business” pay little tax (actually they pay almost all Federal taxes). The utterly distorted view of reality that Americans have been fed (by the lies of the education system and the lies of the “mainstream” media) makes bankruptcy, in fact even if not in law, inevitable.

    We both know what the “Debt Clock” looks like (especially the unfunded mandates) – the American fiscal and monetary situation is hopeless.

  • Laird

    Lee Moore, you are incorrect. Free trade does benefit everybody, although admittedly not at the same time or (necessarily) to the same extent. Someone who loses his job as a result suffers some harm initially, but he will nonetheless benefit from the lower overall prices for everything he buys, and sooner or later he will find another job. And our relatively generous unemployment benefits will help alleviate the short-term pain. It’s a win-win for everybody.

  • Thailover

    Laird is correct. Tariffs result in perverted price signals and lower Total Economic Surplus for the entire nation. Tariffs on, cars say, results not only in increased prices for imported cars, (reduced supply for a given demand), but also increased prices for domestic cars, (increased demand for a given supply), and thus, in turn, increased prices for used cars…oh, excuse me, they’re called “certified pre-owned vehicles” now. (Again, increased demand for a given supply). The entire segment of the economy called “cars” becomes increasingly more expensive. So, this is the trade-off we get for offering protection for a few jobs that SHOULD go the way of the buggy whip, and, as aforementioned, results in a net reduction in Total Economic Surplus for the nation. In other words, consumers are hurt more than production (including job seekers) are helped. This is basic economics.

  • Bruce

    Unilateral free trade?

    Is that like a “unilateral gentlemen’s agreement”?

  • Is that like a “unilateral gentlemen’s agreement”?

    No, Bruce, it is more like deciding not to bleed yourself with leeches in order to ward off bad weather, even though your neighbours are doing so and will think you a bumpkin if you demur.

  • Lee Moore

    I agree with Thailover’s analysis, which has to do with the aggregate rather than the individual.

    I don’t agree with Laird. There’s no economic analysis or theory anywhere that says everyone gains from free trade. It’s perfectly possible, in theory, for some individuals to lose more from free trade than they gain from it, just as it’s perfectly possible for some individuals to lose more than they gain from productivity enhancing technological change. And it happens in practice all the time. Laird’s panglossian “sooner or later” view doesn’t take account of the other “sooner or laters” involved. Sooner or later Mr Smith will be dead, or to old to work, or too stupid to learn a new trade. There are plenty of Mr Smiths whose initial losses will never be made up, because old age or death comes first.

    Moreover even for folk who do in time make good their financial losses, there’s an unadvertised cost – learning a new trade and acquiring experience and recognition in it. For the top 10% intellectually ( a cohort which I assume includes most Samizdata denizens) this is often no great labour and can even be fun. But for the less mentally agile it’s miserable. Some people are happy ploughing a well known furrow. They don’t want to cope with novelty.

  • tomsmith

    Lee Moore- trolling Worstall here again? I guess he already has some of you on his own blog, maybe that explains it.

  • Bilwick

    Tell it to the Dumb Trumpkins, pal.

  • Lee Moore

    trolling Worstall here again?

    Are you his Mum, or what ?

    I guess he already has some of you on his own blog, maybe that explains it.

    Are there some words missing here ? What is it supposed to mean ?

  • Laird

    Lee, you are falling into the same trap as so many others, which Bastiat called “that which is seen and that which is not seen.” Yes, some people may lose income (temporarily) as a result of free trade, but you completely ignore the benefit even to them of lower prices on all of their purchases, which certainly mitigates that loss. In the long run they will be better off.

    Frankly, I don’t particularly care if someone is too lazy to learn a new trade in the face of changing circumstances, or doesn’t want to “cope with novelty”; sometimes we all have to do things we would rather not. Tough. And I don’t accept your proposition that there are people who are absolutely incapable of learning a new trade; somehow they learned their current one, so clearly they are capable of that.

    But I do appreciate your use of the adjective “panglossian”!

  • Lee Moore

    No I assure you, Laird, I appreciate that there are infinite ripples. Nor am I ignoring the ripples of lower prices of which we are all aware. Nor do I fail to understand the overall benefits of free trade to the aggregate, and to most individuals. All I’m saying is that there’s no economic rule that everyone benefits. And since it is easy to point to examples of net losers, it is bad rhetorical practice for supporters of free trade to insist that everyone benefits. It makes refutation too easy for enemies of free trade.

    The fifty five year old worker who loses his job in a protected industry probably isn’t going to make up his income losses in lower prices and a new job. Especially if he dies at 63. Is he typical of all workers ? No. Is he non existent ? No.

    Moving on to the less banal argument about “tough” noogies……I’m not talking about tough noogies, I’m talking about profit and loss. If protection is lifted and your financial sums are :

    initial income losses from losing your job = -100
    gains from price reductions on your spending = 40
    higher future income from job you retrain for = 125

    financially you’re 125 + 40 – 100 = 65 better off.

    But that is not the full equation. There’s a missing term, which is the effort and hassle of learning your new trade. If you’d prefer to put in the effort and take the extra 65, then net net the free trade has benefitted you. If you’d prefer to do without the 65 and not put in the effort then the free trade has not benefitted you.

    Your subjective valuation of the extra effort is not just noogies. It’s an economic cost that needs to be taken into account in determining whether or not you’re better off.

  • Laird (October 24, 2017 at 4:46 am): “Frankly, I don’t particularly care if someone is too lazy to learn a new trade in the face of changing circumstances”

    I certainly don’t respect the one who is too lazy to do so. Lee (October 24, 2017 at 5:39 am) is not wrong to say that his example 55 year-old worker exists. That guy also votes, so we should avoid being ignorant that he exists, nor phrase our arguments to ensure he votes against us if better phrasing is possible.

    We should also be aware of some other motives than laziness. My grandfather’s work took him to sea. He loved it. He loved the natural beauty that it let him see. He loved (up to a point) the danger that made demands on him. A job that was less dangerous and less physically and mentally demanding would not have been liked by him, never mind the effect on his income. He was a moral man and could have been appealed to by arguments that change was better for others – which may make him a poor guide to electoral propaganda. I believe the same thing happened in the Royal Navy in the 19th century; many disliked the replacement of sails with steam despite the undoubted and obvious advantages. If you want to know why, talk to any yachtie about why they make their journeys under sail instead of just turning the engine on and (in most cases) getting there faster.

    The frequent refusal to notice even the existence of a downside to their policies is one of the left’s most gross characteristics. It’s why they never learn. We need not imitate them, even where we have good reason to expect the net upside of our policy to be positive.

  • Julie near Chicago

    Think Ted Cruz and the Iowa farmer.

    .

    Further to Lee’s example, and to Niall’s excellent observations of October 24, 2017 at 7:59 am:

    It’s also entirely possible that your geographical area has been devastated by, say, the closing of one or more plants there, such as car companies, airplane builders, shipyards, mills, or of course in some areas smaller concerns.

    There are very few jobs to be had at all in your area.

    As a result of the loss of a manufacturing base that constitutes the support of the local (say within 100 miles) economy, retail stores are also hit and have to downsize or shut down entirely. This means even fewer jobs available, and also quite likely higher prices for consumer luxuries such as food and clothing. (Even WalMart closes a store that can’t make money in a particular area.) So those who can’t scratch out a living there leave — if they have the resources, and the motivation, to do so. Are we not all aware of “ghost towns”?

    Ah yes, the resources. Money; morale or motivation; psychological and intellectual resources.

    .

    It costs money to move, especially into areas with economies that are, if not booming, at least healthy enough to support its present workers and attract a few more besides; at the least, housing is likely to be more expensive there.

    Depending on your age and the state of your health, this can be a daunting or even an impossible task — for instance, if you are verging on becoming “elderly” and are in chronic poor health besides.

    It is quite possible that you can’t summon up the motivation to look for a new job, perhaps in an entirely new field, in a completely different geographical area. A situation like this is depressing in itself, and if you happen to suffer from clinical depression the situation may well worsen it; and with clinical depression, the first thing to go is motivation. It simply doesn’t do to write off as “lazy” your 60-year-old master cabinet-maker who no longer can support himself in that craft. And the simple fact is that he may not be able to find employment in any trade other than carpentry, at least not in a suitable geographical region and at a wage that will support him and any others for whom he’s financially responsible.

    .

    Niall writes above that

    “…even where we have good reason to expect the net upside of our policy to be positive,”

    we ought to be aware of many cases (though perhaps not the majority) where the net benefit to some individuals simply isn’t.

    . . .

    None of this means that I, or anyone willing and able to look at this side of things, am agin’ either free trade or personal responsibility for dealing somehow with what the fates and the state of one’s liver have handed out. Nor that I — we — think that the Gov or The State (meaning, of course, the rest of us, and as individuals we have no choice about forking over taxes required to support “welfare”). But we oughtn’t to go blasting that “anyone who can’t cope with this is a lazy irresponsible nogoodnik — I say heave ‘im over the side, and to ‘ell wit’ ‘im!”

    Because this won’t help. I suppose everyone’s heard it by now, but I remember the day my Honey came home with this quote:

    Daily beatings will continue until moral improves.

    Truer words were never.

  • NiV

    We employ several guys to go round smashing everyone’s windows with rocks, to encourage the glazing industry. It is of course, obvious that stopping them would not benefit everyone – it would leave several window smashers and quite a lot of glaziers out of business if we did. That they no longer got their own windows smashed would probably not make up for the loss in trade.

    But is it *bad* that people whose trade is to smash windows or to replace windows that a guy they employ has smashed lose their trade? Is your morality based on people’s *need*, or that what they contribute to society matches what society provides to them? Mercy or justice?

    Wouldn’t it be better to set up insurance against losing your trade, to spread the costs? If there is a *net* benefit to society, and the problem is *individual* impacts, then using insurance to spread costs and benefits should enable *everyone* to gain in truth.

  • We employ several guys to go round smashing everyone’s windows with rocks, to encourage the glazing industry.

    A perfect example of Keynesian stimulus, no? 😛

    Wouldn’t it be better to set up insurance against losing your trade, to spread the costs?

    I don’t know, would it be better? Seems like you need to see if this private insurance product you are suggesting has a an economically viable market.

  • Lee Moore

    NiV’s illustration neatly points out the difference between claiming that no one would lose from the removal of protectionist measures, and claiming that the removal of protectionist measures is a good thing even if some people lose by it. But if some people lose by it, and if this is easy to see, arguing for free trade with the first claim rather than the second may be counter productive. Voters may spot the porkie about nobody losing out, and take it into account when weighing the rest of the argument.

    Of course, if the total supply of goodies increases it is mathematically possible to compensate the losers. But such things work much better on paper than at t’coal face.

    I’m not sure insurance is really the answer. After all if the window smasher might seek insurance against a change in the law banning the trade of window smashing, then why wouldn’t the ballet dancer want insurance against a change in the law banning ballet dancing ? Und so weiter. Also insuring against a change in the law banning the window smashing trade is a dicey proposition for an insurer. All the claims come home to roost at the same time.

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