We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

Imposition of tariffs hurts the poorest in society, who spend a larger proportion of their income on food. To quote Daniel Hannan’s new Institute For Free Trade, in regards to industries that have been artificially propped up by government, “we must not shy away from the fact that some people lose out from free trade. But it is vitally important to clarify the scale on which this occurs. Many more people lose out from protectionist policies. The overall effect of an open trading environment on the economy is undoubtedly positive.”

In sharp contrast, Jones laid out his vision of post-Brexit Britain as follows: “What we can’t do is have free-trade deals that deliver cheaper goods in Britain but end up with us exporting jobs to somewhere else.” Like many protectionists who have come before him, Jones ignores both jobs lost to protectionism (more expensive inputs lead to more expensive outputs) and the very concept that for the last two hundred years has made his own nation prosper: comparative advantage.

Alexander Hammond

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11 comments to Samizdata quote of the day

  • Paul Marks

    Good post. Free trade is the correct policy.

    Although Credit Bubble monetary policy to fund the vast import of consumption goods is not sustainable.

    Over the long term a nation must produce at least as much as it consumes – printing I.O.U.s (no matter how cleverly packaged) will not do. Nor is the expansion of credit-money a substitute for Real Savings (contra Keynes – credit expansion is NOT “saving – as real as any other form”).

    As for our position with the European Union – we have a trade deficit of some 70 billion Pounds a year, they are in no position to make threats in trade.

  • John B

    ‘…but end up with us exporting jobs to somewhere else.”

    By ‘exporting jobs’ to poorer Countries either by buying what they produce because it is better/cheaper than home produce or companies relocating production to those Countries, provides an incentive for economic migrants to stay home, which they would prefer to do, because they can get a job there instead of going to the UK to get one. This means more people get richer and have more money to spend in their economy, which increases economic activity… more jobs, more stay at home, immigration decreases.

    Buying in, because it is cheaper/better makes us richer and we spend more in our economy meaning more jobs are created to replace jobs ‘lost’ to exports.

    As for trade deficits… Pounds sent abroad to pay for exports MUST resturn to the UK either to purchase goods made in the UK or in the form of inward investment. Either way this stimulates UK economic activity which makes everyone better off.

    I wonder when folk will stop misunderstanding Trade Balance and start understanding Balance of Payments. If trade deficit increases, capital inflow goes up to ‘balance’ and of course if trade deficit decreases so does capital inflow. A trade surplus means there is an net outflow of capital. It also means we are using less of our resources for our benefit but instead for the benefit of people in other Countries. Why anyone would think this desirable and a benefit defies logic.

  • Laird

    @ John B: “I wonder when folk will stop misunderstanding Trade Balance and start understanding Balance of Payments.” They won’t because it is not in the interest of those in power to explain it to them. Your comment about capital flows is 100% correct, and has been known by competent economists for at least 200 years (at least since Ricardo), but it is not self-evident to shallow thinkers or the economically illiterate (which, frankly describes almost all of the electorate).

    While it is demonstrably harmful to the vast majority of people, economic protectionism benefits certain powerful interests and has a superficial logic. Like communism, it is an idea which won’t die no matter how many stakes are driven through its heart.

  • Regional

    Is the E.U. threatening to stop exporting to Britain?

  • I think some of the previous posters are not considering a substantial supporting argument of protectionism – it offers a protection against the Lowest Common Denominator Problem. Its persistence is not just due to established business interests protecting their market.

    This, as always, is just IMHO.

  • Laird

    What exactly is the “Lowest Common Denominator Problem” and why should I be concerned about it?

  • Insert “I am not an Economist” here

    The Lowest Common Denominator Problem is that a business will locate its operations where they have the highest margin of profit on their investment. If running a factory with unionized workforce that demands significant holidays and perks and where the locals insist that the waste products be dealt with then the business can close their shop and move to another place where they pay very low wages, have no benefits, and any byproducts of their production are dumped in a nearby river or land fill. *cough*China*cough*.

    The classic example is the US Garment industry. Labor is a high part of making garments. Once the machinery became easily available overseas all the garment industry factories moved to Taiwan, then China, then the other cheaper nations. This happened in the 1960s. Massive unemployment in factory towns was never replaced. For a more UK version: how many ships are built in Portsmouth today? None. This even applies to services, not just manufacturing. Had a nice business in the UK being a plumber? That Polish guy does it for one half the price!

    Now as a proponent of Free Markets, I understand that cheaper goods are returned and overall wealth is increased. Fighting with subsidies makes sense only politically. Why should the US spend so much subsidizing sugar production when Mexico does it better and cheaper? I also understand less obvious free market examples such as the US production of cotton – a crop that should be grown in subtropical nations but the US has highly efficient, automated systems for its production. Your Zimbabwe 20 acre cotton farmer hand-picking the boils cannot compete with a 2400 acre Texas cotton farm, even when the crop is alien to the area and has to be supported with massive infrastructure like irrigation.

    But in the end the problem with the Lowest Common Denominator is that not all nations are the same. A repressive nation run as a prison camp can be highly profitable for businesses to locate there. The LCD problem assumes that all other nations will have to do the same, driving wages lower and lower to match them. This also applies to Capital – it will seek out high rates of return based on risk.

    Now I am being overly simple here, but you should have a basic idea of why the LCD is a problem that needs to be understood and dealt with by Free Market advocates. When you advocate Free Markets, you must address the inevitable question of “where did my livelihood go?”

  • Laird

    I understand your point, but I do not accept that it is a “problem”. Moving production to another country is no different than moving it to another state. And if that other country has different laws, or permits dumping of waste into rivers and the air, that is a matter for its own citizens to remedy. Not my problem.

  • Mr Ed

    ZilWerks,

    Wages may fall, but if costs fall too, clothing being more varied, plentiful and cheaper, that does not necessarily equate to living standards falling. What would the computing power of a smartphone have cost 20 years ago, never mind ease and scope of use? The progress of failing prices and rising quality is best seen in electronic goods, except instances where say, Apple have sabtaged their own charging cords by removing PVC for political reasons.

    The welfare state has also corrupted the work ethic and allowed the feckless to prosper.

    As for shipyards, culture matters. I recall elderly acquaintances talking of the thieving and unionised culture in a British shipyard in the 1960s. Items were routinely purloined, driving up costs and devouring profits and capital, and in South Korea things were run better. It seems that every time you hear of massive lay-offs (sackings) of staff at establishments in the UK, up pops the Union which has contributed to the situation, bemoaning reality.

  • Being a Free Market myself, I do concur with the summary Mr. Ed, such as clothing as become more varied, etc. My point is that the LCD is a problem, both real and more importantly, perceived, and it needs to be addressed better by Free Market advocates such as myself and probably the majority of posters here.

    You, me, and anybody else who has read Hayak, Popper, read about Austrian Economics, have been convinced of the wonderful nature of Free Markets. Most advocates are not zealots, and understand the necessity of public goods via government. We do have lively debates on just how much “public goods” need to be from the government, some being Laissez-Faire and Free Markets purists while others take a moderate approach via government laws and consumer protection acts, while some are borderline socialists. Such is the debate.

    I want to point out that when arguing the case of Free Markets, it is a public perception that the words “it will get better” are a terrible political tactic. We convince no-one. The old ship dock wielder has no job, and let’s be honest here – is not going to get one. Retraining has some success, but far to many rust belt towns in the US and similar in the UK still show the economic dislocation after decades. Decades! When the old worker yells the South-Park inspired “they took are jobs!” they are speaking the truth. The ships once built in Portsmouth or Newport are now built in Seoul. (yes, South Korean government subsidies, not the point here).

    We Free Market advocates need better arguments for the public (John Q. Public USA, John Bull UK, etc.) to understand. I am of the opinion, based from my readings and experience, that the LCD problem is A) Real, and B) poorly argued against by Free Market advocates. I am not sure of a good Free Market solution to that. Government retraining is of limited success, generous welfare is destructive, and relocation is also of limited success. The cry of “more free market” is not working, or at least not working fast enough.

    All it takes is for former industrial workers to look at smog ridden, unsafe shops in China to see the LCD problem at work.

    This, as always, is just IMHO. Thank you for the responses and criticisms.

    Append: What would be the equivalent of John Q. Public in Canada or Australia? I assume that for Scotland it is “no true Scotsmen ever” 😉

  • Alisa

    The cry of “more free market” is not working, or at least not working fast enough.

    It is not working because it is not happening: it is just a ‘cry’, as you put it in – i.e. mere talk. In spite of what this or that person may be saying or thinking, we are decidedly not getting “more free market” (no, trade agreements between states are not a feature of free markets, quite the opposite). I agree with the rest of your comment though.

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