Quotulatiousness

August 25, 2018

Mediterranean trade in the Iron Age

Filed under: Economics, Europe, History, Middle East — Tags: , , , , — Nicholas @ 03:00

Jan Bakker, Stephan Maurer, Jörn-Steffen Pischke, and Ferdinand Rauch look at the relationships between trade and economic growth around the Mediterranean during the Iron Age:

Economists often point out the benefits of trade, yet empirical evidence for these benefits has been hard to come by and tends to be recent. This column goes back to the first millennium BC to analyse the growth effects of one of the first major trade expansions in human history: the systematic crossing of the open sea in the Mediterranean by the Phoenicians. A strong positive relationship between connectedness and archaeological sites suggests a large role for geography and trade in development even at such an early juncture in history.

The effects of free trade inspire a lot of public debate these days, and policies to restrict trade are gaining in prominence. Economists since Adam Smith and David Ricardo have typically pointed out the benefits of trade. Yet empirical evidence for these benefits has been much harder to come by and is much more recent. In particular, empirical economists have tried to demonstrate that more open economies or more integrated markets see faster growth. The relationship between these two variables is not much disputed; the more difficult question is whether this is due to trade causing growth or richer economies being more open.

[…]

To analyse whether this increased trade also caused growth, we exploit the fact that open sea sailing creates different levels of connectedness for different points on the coast. The shape of the coast and the location of islands determineshow easy it is to reach other points, which might be potential trading partners, within a certain distance. We create such a measure of connectedness for travel via sea. Figure 1 shows the values of this measure on a map and demonstrates how some regions, for example the Aegean but also southern Italy and Sicily, are much better connected than others.

We use this measure of connectedness as a proxy for trading opportunities.

Figure 1 Log connectedness at 500km distance

Note: Darker blue indicates better connected locations.

Measuring growth for an early period of human history is more difficult as we have no standard measure of income, GDP, or even population. We quantify growth by the presence of archaeologic sites for settlements or urbanisations. While this is clearly not a perfect measure, more sites should imply more human presence and activity. We then relate the number of active archaeological sites in a particular period to our measure of connectedness.

We find a large positive relationship between connectedness and archaeological sites. The effect of connections on growth in the Iron Age Mediterranean are up to twice as large as the effects Donaldson and Hornbeck (2016) found for US railroads. Although these results are unlikely to be directly comparable, the magnitudes suggest a large role for geography and trade in development even at such an early juncture in history.

August 17, 2018

QotD: TINA

Filed under: Cancon, Economics, Politics, Quotations, USA — Tags: , — Nicholas @ 01:00

I believe, and I have alluded to this several times, that we must anchor all our policies in North America. We are, I have said, again more than once, bound by what some wag called TINA²: we are Trapped In North America and There Is No Alternative. (TINA X TINA = TINA²) That’s the crux of it … no matter what some romantics might wish we are and must remain for generations anchored in North America. We are not big enough and rich enough to be powerful enough to face the world on our own, treating the USA as just another great power ~ as, arguably, Australia does. Geography, economics, personal issues ~ we are kith and kin ~ and the power imbalance make us dependent upon America to a degree that some, including me, find unhealthy.

But, until we can grow our population to 100 million, until we can grow up and appreciate that we need substantial hard (military) power in order to promote and protect our vital interests around the globe, until we can become a global free trader, and until America’s decline is more marked then There Is No Alternative … we are Trapped In North America ~ trapped in Donald Trump’s America, for now, anyway.

Ted Campbell, “Anchor, cornerstone or stumbling block?”, Ted Campbell’s Point of View, 2018-07-17.

August 7, 2018

“[Trudeau’s] ideology is jeopardizing 20% of the Canadian economy”

Filed under: Business, Cancon, Economics, Politics, USA — Tags: , , , , , — Nicholas @ 05:00

Brandon Kirby on Prime Minister Justin Trudeau’s failing efforts to negotiate with the United States on trade:

Trade with Canada constitutes 2% of America’s GDP and trade with America constitutes a whopping 20% of Canada’s GDP. My home province of New Brunswick finds 50% of its private sector exporting to the U.S. – NAFTA is of vital importance to our economy.

The dwindling efforts of Trudeau’s cabinet to negotiate a deal with the Americans could become his government’s greatest failure. With tariffs already being imposed on steel and aluminum, NAFTA is potentially unraveling before our eyes and along with it, the Canadian economy.

Trudeau’s American counterpart isn’t known for his vocal support of trade and yet he handed Canada everything on a silver platter at the recent G7 summit. He offered to remove all tariffs and subsidies on imports and exports, provided Canada did the same. This is about as fair an offer as one could expect. Trudeau retaliated by insisting Canada had been insulted.

The trouble with Trudeau is precisely that. He was given a talking point. He developed rhetoric rather than substance. Akin to Marco Rubio’s disaster of a debate performance, who refused to go off script even when he was being called out for scripted answers, Trudeau had a talking point. It was a good one, Canadians and Americans died together in the mountains of Afghanistan to bring justice for Americans who died on September 11th. Trump alluded to our tariffs on their dairy farmers as a national security threat. But when Trump acquiesced, Trudeau kept to his talking points and refused to go off script, even when his talking points no longer made sense.

The initial renegotiation began with Trudeau’s government attempting to include a chapter on gender. The Americans weren’t enthusiastic about devoting a significant portion of their time at the negotiations to discussing an unenforceable chapter of the deal, but Trudeau pressed on.

The liberal rationale in the briefing notes was leaked, “Think back 20 years and remember the early discussions of labour and environment in the context of trade agreements.”

Environmental and labour standards were included in the negotiations of decades past because a country that has humane labour standards is at a trade disadvantage to countries that neglect their workers and their environment. Gender doesn’t have any bearing on trade. His ideology is jeopardizing 20% of the Canadian economy.

July 31, 2018

QotD: Hostility to international trade

Filed under: Economics, Quotations — Tags: , , — Nicholas @ 01:00

Much suspicion of, and hostility to, international trade is akin to atavistic superstitions that raised in some peoples suspicions of, and hostility to, mating with individuals outside of those people’s ethnic or racial or religious groups. “Only We are worthy of your seed or your womb – They are not!” “Corruption of the purity of Our race is the inevitable result of your conjugal mixing with Them!”

Or only slightly differently: protectionism is much like in-breeding. Like in-breeding, protectionism weakens the economy that practices it. Like in-breeding, protectionism causes the group that practices it to become ever-more stupid, uncreative, fragile, and vulnerable – a population of pathetic misfits destined to be weaker and poorer than are their more-cosmopolitan and open neighbors.

Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-09-14.

July 27, 2018

“Tariffs are the classic example of government interventions with concentrated benefits and dispersed costs”

Filed under: Cancon, China, Economics, Europe, Politics, USA — Tags: , , , , — Nicholas @ 05:00

Robert Higgs on what he describes its supporters as “waging the trade war to end all trade wars”:

… even as Trump spouts venerable fallacies to justify and seek support for his destructive trade policies and related ad hoc actions, he and his supporters have sometimes offered a strange defense of their tactics: they purport to be seeking, at the end of the game, universal free trade, a world in which all countries have abandoned tariffs, quotas, subsidies, and other government intrusions in international exchange. In Wilsonian terms, they claim to be waging the trade war to end all trade wars. The idea is that by raising U.S. tariffs, they will induce other governments to lower and ultimately eliminate their own.

Of course, this rationale may be nothing more than wily claptrap, tossed out as a rhetorical bone to Republicans who favor freer trade. The administration’s actions to date certainly give no indication that it is aiming at global free trade. On the contrary. So the Wilsonian gambit may consist of nothing but hot air.

But if Trump and his trade advisers actually take this tactic seriously, they are deluding themselves.

First, and surely obviously, U.S. tariff increases will not induce other governments to lower their own, but to raise them, as the EU, China, Mexico, Canada, and other trading partners have already demonstrated. That’s why it’s called a trade war — because the “enemy” shoots back. History has shown repeatedly, most notably in the early 1930s, in the wake of the Smoot-Hawley Tariff Act of 1930, that such trade wars only spiral downward, choking off more and more trade, despoiling the international division of labor in accordance with comparative advantage, and thereby diminishing real income in all the trading countries.

Second, the prospect of the U.S. government’s ever abandoning tariffs is slim to none. Tariffs are the classic example of government interventions with concentrated benefits and dispersed costs. This character makes them attract great support from protected special interests and little opposition from the general public — including other producers — when they are enacted or extended. They are easy for politicians to put in place and diabolically difficult for anyone to eliminate. Although the costs are great — much greater than the benefits for the economy as a whole — hardly anyone’s costs are great enough to justify mounting a potent political attack on the tariffs.

People who get tariffs put in place to protect them in the first place are well positioned to marshal strong opposition to any political attempt to eliminate these taxes on consumers who buy from competing, foreign suppliers. Consumers rarely know anything about why foreign goods are priced as they are, and producers, in general, are usually not affected enough by tariffs on imported raw materials and components to justify well-funded politicking against them.

June 25, 2018

Differences between the United States and the “idealized” United States of Europe

Filed under: Bureaucracy, Europe, Law, Liberty, USA — Tags: , , , — Nicholas @ 03:00

Tim Worstall, in the Continental Telegraph:

There are those who think – urge, wish for perhaps – the European Union is or should become the United States of Europe. Lots of central bureaucratic control, the nation states left as just the remnants of once independent countries like the US states are these days. In some ways the two systems are very much the same already. No US state has any control at all over trade across its own border. Nor does any EU one. Trade is an issue solely the competence of the central organisations, respectively Washington DC and Brussels. Equally, both systems use this central control of trade and trade only to expand that central control.

In the US there was a case that Federal control of trade meant that the Feds got to decide who could grow wheat where and when. The usual sort of planning idiocy led to the Feds telling farmers who could grow how much and when. One farmer claimed he was only growing for his own consumption and this shouldn’t be limited. The centre (the Supreme Court) disagreed, the crux being that if he didn’t grow for his own consumption he would buy, this affected inter-state commerce, he had to obey the Feds. The EU takes this a step further. The Single Market rules are nominally about trade. Anything legal to be buying and selling in one place is such in all is a reasonable explanation of the nub of the matter. Sure, exceptions and all that. But this then smuggles into all law that continental (Roman Law really) idea that what is legal to do is something that the legislation defines. Instead of that Common Law idea that legislation, the law even, defines what it is illegal to do all other things being legal.

Once this is accepted then of course the next step is that there must be regulation of all things so as to tell people what it is legal to do. In this manner all sorts of things get smuggled in. Vacuum cleaner motors must be limited to a certain size or power. Because those whose lives are unfortunate enough that they’ve time to spare to be concerned about legislation on such matters note that they can be and thus incorporate their trivialities into legislation. The extent of this reach is larger than you think. The underlying legal, not political, justification for recycling targets is that some countries – Holland, where digging a hole gains nothing but wet boots – don’t have space for landfill. This would put them at a disadvantage if other countries do have the space, therefore all must recycle.

Giving the centre power always, but always, means an extension of the centre’s power. The two systems aren’t so different then.

June 23, 2018

QotD: The protectionist two-step, Alberta craft-beer variant

Filed under: Business, Cancon, Economics, Quotations — Tags: , , , , — Nicholas @ 01:00

Economic protectionism has two classic rationales. Sometimes, as in the case of Alberta’s clumsy attempt at an interprovincial tariff on craft beer, it is undertaken in the name of defending small, emerging “infant industries” that a government wishes to give time to establish themselves in its territory. And sometimes, as in the case of Canadian dairy supply management, it is done to defend “strategic” industries that have existed forever and that allegedly create an irreplaceable quantity of employment and profits.

Give yourself a gold star if you spotted that these canonical pretexts for trade barriers are contradictory. The inherent promise of protection for “infant industries” is that they will grow up and leave the nest. But, oops: by the time they reach adulthood, they may have become too “strategic” to expose to market forces. Heads, the favoured firms win; tails, the consumer loses.

Of course, on the level of fine detail, the arguments for trade barriers are manifold and complicated. (If you get into a quarrel about dairy, and take the free-trade side, you will find them being changed by your interlocutor every 30 seconds.) Alberta’s program for supporting small brewers has an unclear, touchy-feely small-is-beautiful justification. By design, the tariff applies only to businesses that have no intention of attaining industrial scale. It’s right there in the term “craft brewing,” isn’t it? Whatever the esthetic merits of craft beer, this is surely the deliberate encouragement of what the urbane left likes to calls “precarious” jobs that could be flung into disarray by a bad season, a shift in fashions, or a supply problem.

And, also, it’s illegal.

Colby Cosh, “A court refuses to swallow Alberta’s thinly disguised craft-beer tariff”, National Post, 2018-06-22.

June 17, 2018

Conrad Black – Trump’s not bluffing

Filed under: Business, Cancon, Economics, Government, Politics, USA — Tags: , , , , , , — Nicholas @ 03:00

In the National Post (but linked from his personal website), Conrad Black warns of the danger of assuming that Trump is just blustering on his trade threats:

Justin Trudeau struck just the right Canadian note of our gentle nature but refusal “to be pushed around,” and he predictably will reap the short-term reward for standing up for the country opposite the ideal American bogeyman, the blustering billionaire president who has been a Garry Trudeau caricature of the Ugly American for 25 years. (It is a very incomplete picture, like most caricatures, but it works for Trump and he often cultivates it.) The boycotts of American goods and holidays will be a bonus to Canada economically and the anti-Trump American media will be along within two weeks to lionize doughty Canada like “Gallant little Belgium” in 1914 and “Plucky Israel” in 1947, and it will strengthen Canada’s always fragile self-regard opposite the United States.

On the other hand, Trump isn’t just a blowhard; all his career he has known how to go for the jugular and his reference to 270-per-cent Canadian tariffs on butter is a valid complaint that threatens to tear the scab off this egregious payoff to the comparatively small number of Quebec dairy farmers who mainly profit from it. The same issue was hammered hard by Martha Hall Findlay when she ran for the federal Liberal leadership in 2013 and by Maxime Bernier when he ran narrowly behind Andrew Scheer for the Conservative federal leadership last year. The issue died down after their unsuccessful campaigns, but if Donald Trump is incited to hammer that theme, he will roil the domestic Canadian political waters and English-French relations in the country generally.

Presumably our trade negotiators will not become so intoxicated by the prime minister’s peppy talk and spontaneous popular boycotts of the U.S. that they forget the correlation of forces. An aroused American administration could do serious damage to Canada’s standard of living, and it could be a tempting tactic to expedite more important negotiations with Mexico and the principal Asian and European powers. The United States is now enjoying three times as great a rate of economic growth as Canada (4.8 to 1.5 per cent), has lower tax rates, 11 times as great an economy, and more unfilled jobs than unemployed people.

Behind the peeling façades of Norman Rockwell and Walt Disney, the United States is a monster, and not always an amiable monster. If Canadians are blinded by their visceral dislike of Donald Trump, as the antithesis of Canadian criteria for likeable public figures, they will be exposed to the ruthless pursuit of the national interest that in his own career propelled him from technical insolvency to immense wealth and celebrity and then, against all odds, to control of a great political party and to the headship of the most powerful country in the world. If these talks blow up, the U.S. doesn’t have to settle for WTO rules; it can impose outright protectionist measures. Justin Trudeau has been agile, and the country has responded admirably. But Canadian policy-makers must understand that they are playing for almost mortal stakes with potentially dangerous protagonists who have no sense of fair play and no interest in what Canada thinks of them.

June 14, 2018

The economic idiocy of Canada’s supply management system

Filed under: Cancon, Economics, Politics — Tags: , , , , — Nicholas @ 10:03

Andrew Coyne, who finally seems to have weaned himself off the PR voting jag, explains the Canadian government’s idiotic yet deeply entrenched supply management bureaucracy:

How did supply management, of all things, come to be at the centre of everything?

The policy, under which farmers in a number of sectors — milk, cheese, eggs, poultry — are organized into government-approved price-fixing rings, enforced by a complex system of quotas and protected by prohibitive tariffs on imports of the same goods, has been in place since the early 1970s. It affects fewer than 15,000 farmers nationwide, who between them account for less than one per cent of Canada’s GDP.

Yet it has somehow become the central issue not only of our domestic politics, but of international trade talks. It was the pretext for Donald Trump’s decision to impose tariffs on imports of aluminum and steel, and is his most-cited grievance with Canadian trade policy. As such, it has become the rallying cry of preening political patriots, each of the parties seeking to outdo the others in defence of a policy whose avowed purpose, let us remember, is to make basic food items more expensive for Canadians.

It has also become a source of deep division within the Conservative Party. It was already, of course, thanks to last year’s leadership race, in which Maxime Bernier made its elimination the central plank in his campaign, as Andrew Scheer made its retention the key to his. Indeed, Scheer’s narrow victory was directly attributable to the votes of thousands of Quebec dairy farmers, who took out party memberships for the sole purpose of ensuring Bernier’s defeat. It is even possible the Scheer campaign encouraged them in this endeavour.

[…]

There is no serious case for supply management — a policy that is is as unjust, inasmuch as it imposes the heaviest burden on the poorest families, as it is inefficient; that locks out new farmers and deters existing farmers from seeking new markets; and that makes us look utter hypocrites in free-trade talks, not only with the U.S., but the rest of the world — and no serious person whose livelihood does not depend upon it would make it.

And yet every member of every party is obliged to swear a public oath of undying fealty to it. That all do, but for one, is a sign of the institutional rot in our politics. For they do so not in spite of its awfulness but because of it — because the willingness to say two plus two equals five has become the ultimate test of loyalty.

On other issues, that might be because of genuine agreement. But a willingness to sign onto a truly hideous policy like supply management — that’s certain proof an MP is a “team player.”

June 13, 2018

Imagine … a tariff-free world

Filed under: Economics, Government, Politics, USA — Tags: , , , — Nicholas @ 04:00

Danny Chabino on what he calls “Trump’s G7 Surprise”:

In what I consider a brilliant move on the part of Trump and his team, instead of initially discussing what tariffs he would increase if x,y and z didn’t happen or if whichever nation wouldn’t reduce tariffs on whatever industry, he simply raised the simple question of why don’t we just not have tariffs at all? It’s brilliant in the sense that it not only shut down all the anticipated arguments, but also placed the world’s leaders in a position of having to awkwardly defend the very idea of tariffs (and subsidies), and they knew they couldn’t really do that. It highlighted the true intentions of the world’s leaders as representatives of the authoritarian nature of almost every existing government in the world today.

Now, please don’t misunderstand this article as me beaming with a Trump glow. In fact, Trump knew full well no one would take him up on such an offer. I do believe if they had he would have followed through, but his next moves will be ones that I believe are the wrong ones. He will seek to raise tariffs, which has always done more harm to the nation raising the tariffs than it has done good that nation. Trump will do just as he has threatened and hurt his own country;’s economy with new tariffs.

What I do enjoy, though, is that all of the world’s major leaders had to essentially admit that they don’t want their people and their economies to be better off. At least not on their own. They want their people and economies to be dependent upon their leadership and their governments. While everyone at the summit knew that the greatest of outcomes would be for all the world’s most powerful nations to exercise free trade, and that this would benefit the entire world in great proportions, that really wasn’t their aim. Their aim was to gain greater power. What an incredible admission!

When given a golden opportunity to end tariffs and increase freedom and prosperity for most citizens of the world, the world’s leaders instead chose to cling hard to their own designs. The world’s leaders know full well that tariffs hurt their own citizens, but they don’t care. Tariffs have never served the function of creating market efficiency, and they have never helped protect a nation’s economy. Instead, they have always been a means for governments to exercise control over huge parts of their own economies, and where there is control, there is power. Politicians and world leaders seek power. It’s like their drug of choice, and they can never get enough of it.

June 12, 2018

G7 minus one

Filed under: Economics, Europe, Germany, Russia, USA — Tags: , , , , , , — Nicholas @ 05:00

Justin Raimondo on the well-shared image of Angela Merkel and her associates apparently trying to browbeat Donald Trump at the G-7 meeting (this version from Raimondo’s article):

All the Very Serious People are tweeting and retweeting this “iconic” photo of Trump surrounded by the Euro-weenies, with Angela Merkel seeming to lecture the President while the rest of our faithless “allies” look on. It’s “America Alone” – the visual representation of the internationalist worldview: Trump’s policy of “America First” is “isolating” us, and, according to clueless leftists like Michael Moore, Merkel is now the “leader” of the “free world.”

This last is good news indeed, for if Merkel is the new leader of the “free world” then the stationing of 35,000 US troops in Germany – at a cost of billions annually – is no longer required and we can bring them home. This also means Germany, rather than the US, will be sending troops all over the world to fight “terrorism” – a move that is sure to cause consternation in certain regions with a history of German intervention, but hey, somebody has to do it!

The political class is screaming bloody murder over Trump’s performance at the G-7 meeting in Canada, where he reportedly spent most of the time detailing how much the US was paying for the defense of our vaunted “allies,” not to mention the high tariffs imposed on American goods. He then proposed a “free trade zone” in which member countries would drop all tariffs, subsidies, and other barriers to trade: the “allies” didn’t like that much, either. Nor did the alleged advocates of free trade here in the US give him any credit for ostensibly coming around to their point of view. Which reminds me of something Murray Rothbard said about this issue: “If authentic free trade ever looms on the policy horizon, there’ll be one sure way to tell. The government/media/big-business complex will oppose it tooth and nail.”

Of course the Euro-weenies don’t want real free trade: after all, they practically invented protectionism. What they want is a free ride, at Uncle Sam’s expense, and the reason they hate Trump is because they know the freebies are over. However, what really got the Usual Suspects frothing at the mouth was Trump’s insistence that Russia be readmitted to the G-8:

    “I think it would be good for the world, I think it would be good for Russia, I think it would be good for the United States, I think it would be good for all of the countries in the G-7. I think having Russia back in would be a positive thing. We’re looking to have peace in the world. We’re not looking to play games.”

The “experts” went crazy when he said this: our “allies” are being insulted, they wailed, while our “enemies” are being “appeased.” It’s sedition! Russia! Russia! Russia!

Eric Boehm says that the White House’s justification for imposing tariffs on national security grounds may have been undermined through Trump’s tweets hitting back after what he clearly felt was Justin Trudeau’s hissy fit (although Trudeau didn’t exactly break new ground or say anything radically different in his comments):

The Trump administration has spent months trying to construct a rather flimsy argument that steel and aluminum imports from Canada and other close American allies constitute a national security threat. More than a handy way to drum up public support for trade barriers, the “national security” claim is a crucial bit of the legal rationale for letting the president impose tariffs on those goods without congressional approval.

Then, as he was departing this past weekend’s G7 summit, Trump took to Twitter to air some grievences with Canadian Prime Minister Justin Trudeau. In doing so, the president may have significantly kneecapped that legal argument.

The last sentence of Trump’s tweet is the one that really matters.

The White House slapped a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum by invoking Section 232 of the Trade Expansion Act of 1962, which gives the president legal authority to impose tariffs without congressional approval when it’s for the sake of national security. That line of argument, outlined by Commerce Secretary Wilbur Ross in a February report, says that America needs aluminum and steel to make weapons of war, and that protecting the domestic steel and aluminum industries is the only way to ensure the country will be able to defend itself if attacked.

That is pretty weak, as I (and others) have written before. But as long as Trump makes that claim — no matter how strained the logic might be — the law seems to be on his side. Invoke “national security” and the president can do what he wants with trade.

Except now Trump seems to have admitted that it’s not about national security at all. His tweet plainly states that “our Tariffs [sic] are in response to his of 270% on dairy!”

Chris Selley points out that up until this eruption, Canadian politicians were still carrying on as if nothing was really at stake (especially Conservative leader Andrew Scheer, who re-swore his allegiance to ultra-protectionist supply management at all costs, and damn actual free trade):

So utterly obsessed are Canadian politicians by the small differences between them that federal Conservative leader Andrew Scheer recently demanded Prime Minister Justin Trudeau explain what he meant when he suggested Canada might be “flexible” on the issue of supply management in the dairy industry, in the face of new demands from Washington. It’s preposterous: you can’t fit a processed cheese slice between the three major party’s total devotion to the dairy cartel.

Because, as we all know, what unites Canadians from coast-to-coast is our universally shared determination to pay significantly higher prices for dairy products, to ensure that Quebec farmers are not overly bothered by pesky competition from uppity foreigners who don’t even speak Joual…

June 5, 2018

QotD: Protectionism is a form of bullying

Filed under: Economics, Quotations — Tags: , , — Nicholas @ 01:00

Bullying and protectionism have a lot in common. They both use force (either directly or through the power of the law) to enrich someone else at your involuntary expense. If you’re forced to pay a $20-an-hour American for goods you could have bought from a $5-an-hour Mexican, you’re being extorted. When a free-trade agreement allows you to buy from the Mexican after all, rejoice in your liberation. To compensate your former exploiters is to succumb to Stockholm syndrome.

Steven Landsburg, The Big Questions, 2009.

June 4, 2018

The economic damage of tariffs

Filed under: Economics, History, Politics, USA — Tags: , , , , — Nicholas @ 05:00

Tim Worstall fisks a recent Pat Buchanan brain fart article on the glories of erecting tariff walls against foreign trade:

Pat Buchanan has been going on for decades about how wondrous tariffs are and if only they were brought back then things would be just peachy. Sadly, this all seems to be based on his not understanding trade, tariffs, nor apparently even history. That’s not a good set of recommendations for a policy about trade and tariffs, one that has been tried many a time in history.

Now, it is entirely true that if we returned to a more Hamiltonian policy era then we’d all be richer. But that wouldn’t be because we had tariffs which paid for government rather than an income or corporate tax. It’s because government would be confiscating a very much smaller portion of what we all produce to pay for itself. If the Feds took 3% of everything we do instead of the current 18% or so then sure, we’d all be richer. But that’s true however that tax is raised.

[…]

His argument is that, protected from foreign competition, American business was able to develop and grow into being world beaters. No, I don’t think this is true – I insist that behind tariff barriers companies stagnate. Indeed it’s standard economics that the medium to long term effects of trade are that the competition from foreigners is what makes the domestic companies stronger and more productive. But put that argument to one side. Assume that Buchanan is correct.

For his conclusion to be correct then it must have been true that the total costs of trade were rising in that time period. Total costs being tariffs plus transport. Only if the total costs were rising was protection rising. The tariffs are only part of the story. And as it happens total protection was falling over this time period. The falls in the costs of transport – for the US externally primarily the steam ship – were greater than the rises in the tariffs. Thus the US was becoming more open to trade at this time when industry was booming and growing to world class levels.

That’s not an argument in favour of trade protection now, is it?

    The U.S. relied on tariffs to convert from an agricultural economy in 1800 to the mightiest manufacturing power on earth by 1900.

Well, it’s also true that what the US was inside those tariff barriers was the largest free trade area in the world. I’m the guy insisting that free trade makes places grow, Pat the opposite. And the place with more free trade among more people than anywhere else grows fastest? That’s a point in my favour, no, not Pat’s? Remember, the US Constitution expressly forbids the individual states from having tariffs between them…..that regulation is left to the Feds who have never imposed them.

    How have EU nations run up endless trade surpluses with America? By imposing a value-added tax, or VAT, on imports from the U.S., while rebating the VAT on exports to the USA. Works just like a tariff.

No, a VAT does not work like a tariff. In no manner at all does it do so in fact. As every economist keeps trying to point out. Within the EU all goods and services, no matter where they’re made, pay the exact same rate of VAT. Well, OK, ladies unmentionables pay a lower rate than motor cars, that’s true, but all unmentionables pay the same rate, all cars. There is no difference made between domestic and foreign production. It’s entirely unlike a tariff therefore, the crucial component of which is that distinction made between home and foreign production.

Stuff made in the EU and sold in the US pays no VAT. Stuff made in the US and sold in the US pays no VAT. Again, we’ve no distinction by source or origin, this is entirely and completely unlike a tariff.

May 11, 2018

QotD: Protectionism is by nature, zero-sum

Filed under: Economics, Quotations — Tags: , — Nicholas @ 01:00

A Protectionist is Someone Who… is so hopelessly – indeed, comically – confused about trade that he assumes that Americans who support free trade do so only out of a willingness to sacrifice the welfare of fellow Americans in order to improve the welfare of people in poorer countries. The protectionist does not grasp the fact that voluntary trade occurs only when each party to each trade believes that he or she will be made better off by the trade. The protectionist, unable to escape from the antediluvian superstition that trade is a zero-sum exercise, self-righteously – if ridiculously – accuses free-traders in rich countries of discounting or disregarding the economic well-being of their fellow citizens. The protectionist is an intellectual prisoner of his silly presumption that if people in poor countries gain from freer trade, people in the rich countries must thereby lose.

In short, a protectionist is someone who denies the reality of gains from trade.

Don Boudreaux, “A Protectionist is Someone Who…”, Café Hayek, 2018-04-09.

April 22, 2018

The balance-of-trade hobbyhorse

Filed under: Economics, Government, Media — Tags: , , , , — Nicholas @ 03:00

Don Boudreaux doesn’t have much sympathy with people who agonize over or — worse — set their national economic policies based on the balance of trade:

No concept in economics is responsible for more confusion and policy mischief than is the so-called “balance of trade.” The many fallacious beliefs about a trade deficit include the notion that –

– aggregate demand drains from each economy that runs a trade (or current-account) deficit, thus causing overall employment to fall in each country that runs a trade deficit;

– the GDP of a country that runs a trade deficit is lowered by that trade deficit;

– the denizens of a country that runs a trade deficit spend too much on consumption and save too little;

– a trade deficit is evidence of poor policy in any country that runs such a deficit;

– a country’s trade deficit would be ‘cured’ if only the people of that country were to save more or to buy fewer imports;

– a trade deficit in the home economy is evidence of ‘unfair’ trade practices by that country’s trading partners;

– a trade deficit means that each country that runs one is “losing,” and that to “win” at trade means running a trade surplus (or, at least, to not run a trade deficit);

– a trade deficit run by the home economy means that that economy’s trading partners who have trade surpluses are being enriched at the expense of the people in the home economy;

– a trade deficit necessarily makes the citizens of any country that runs one more indebted to foreigners;

– a trade deficit involves a net transfer of capital or asset ownership from citizens of each country that runs a trade deficit to citizens of countries that run trade surpluses;

– each dollar (or each yen, or each euro, or each peso, or each pound, or each you-name-the-currency) of a country’s trade deficit today means that the people of that country must sacrifice that much consumption sometime in the future;

– bilateral trade deficits have economic meaning and relevance;

– a trade deficit is something that should be “fixed” – that is, reduced or eliminated – through government policy, including especially through trade restrictions.

None of the above-listed beliefs about trade deficits is supportable. None. Not one. Not in the least. Each and every one of these beliefs is easily refuted with either basic economics or, in many cases, with simply a clarification of the definitions of terms and concepts used in national-income accounting. And yet these – and no doubt other – false beliefs about trade deficits (and about the so-called “balance-of-payments” generally) are widespread and spill daily from the mouths and keyboards of politicians, pundits, professors, and propagandists.

The belief that trade deficits cause economic problems in countries that run them – and that trade deficits necessarily reflect poor policies or profligacy by the people of those countries – is the economic equivalent of, say, the belief that the world is ruled by sorcerers who ride fire-breathing dragons and who marry their daughters off to centaurs. Both sets of beliefs are pure madness, yet one of them serves as the basis for real-world policies.

« Newer Posts — Older Posts »

Powered by WordPress