Kathleen Parker rightly criticizes Republicans for becoming a party of angry, fear-lathered excluders (“The GOP is becoming the party of exclusion,” July 31). But when she laments “the pitiless evolutionary march of globalization” not only does she reveal her own misunderstanding of the economy, she gives aid and comfort both to GOP excluders and to Sandersnistas who suffer many of the same misunderstandings.
In what way is globalization “pitiless”? Is it because it creates an ever-growing abundance of new goods and services that consumers choose to buy? Is it in the fact that it lowers the prices of food, clothing, furniture, electronics, communications, and (for example, by expanding the sizes of pharmaceutical-companies’ markets) medicines?
Is globalization “pitiless” because it allows many desperately poor workers in the developing world to earn incomes that enable them and their families to live above subsistence? Or perhaps globalization is “pitiless” because it obliges entrepreneurs and workers in the developed world – nearly all of whom are multiple times richer (thanks to globalization!) than are the foreigners about whom they complain they must compete – to adjust their actions to the choices of the consumers whom they serve?
Globalization is no more or less pitiless than is economic competition generally and what Deirdre McCloskey calls “market-tested innovation” – the same competition and innovation that over the past few centuries crafted our current high standard of living. So unless Ms. Parker believes that it is gentle and just for rich first-world workers to prevent poor third-world workers from improving their lives – unless Ms. Parker thinks it humane for consumers to be forced to accept whatever products are offered, and at whatever prices are demanded, by existing producers rather than motivate producers to work hard and creatively to please consumers – she should not describe globalization as “pitiless.”
Donald J. Boudreaux, letter to the Washington Post, 2016-07-31.
April 21, 2018
QotD: “Pitiless” globalism
April 8, 2018
QotD: Just and unjust profits
“Progressives’” hostility to free trade would be amusing were its consequences less baneful: deeply distrustful of the motives of business people, and convinced that profits are ethically suspect, Sandersnistas and many other “Progressives” are in the front lines of the troops who are intent on using trade restrictions to protect business people from competition and, thus, to enhance business people’s prospects of earning excess profits – profits that truly are ethically unjust because they are the fruits of the forced removal from consumers of choices on how they, consumers, may spend their own money. (Of course, the very same economically damaging and ethically unjust consequences spring from trade restrictions supported by Trumpkins and many other conservatives. The tales that each of these economically ignorant groups tell to each other to justify their mercantilist policies differ, but the policies and the harmful results are identical.)
Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-07-30.
March 15, 2018
QotD: The self-harming reality of tariffs
Unintended harm to American companies is a recurring problem with tariffs, even those meant to protect American jobs from competition that our government deems unfair. After Bush imposed steel tariffs, steel-consuming industries pointed out that they employed far more Americans than the steel industry itself, and argued that the net effect of the policy on jobs was negative.
Anti-dumping laws, which put tariffs on foreign imports that are supposedly being sold at too low a price, usually target intermediate goods and therefore make the downstream American producers that use them less competitive. Daniel Ikenson, a trade-policy analyst at the Cato Institute, notes that the government, perversely, is forbidden by law from considering the impact of tariffs on these producers before levying the tariffs.
Then there’s the question of costs. Gary Hufbauer and Sean Lowry, a senior fellow and research associate, respectively, at the Peterson Institute for International Economics, calculated [PDF] that Obama’s tariffs on Chinese tires cost American consumers at least $900,000 for every job they saved for one year. That’s before taking account of job losses caused by lower spending by consumers on other products and by retaliatory Chinese tariffs. This very high cost per job, they point out, is consistent with research on other instances of trade protection.
In an interview, Hufbauer notes that our efforts to protect industries from competition have typically not resulted in their revival and impose extremely high costs for any jobs they save. He cites the textile and maritime industries, both of which have been protected for decades, as examples of these disappointing results.
Ramesh Ponnuru, “The High Cost of U.S. Protectionism”, Bloomberg View, 2016-07-01.
February 25, 2018
QotD: Trade deficits
No economic statistic is reported more dolefully these days than the country’s trade balance.
Ever on the alert for signs of impending economic disaster, the press routinely couples reports of record monthly trade deficits with warnings of experts and Government officials of the dangers of the deficit.
Just what is so dangerous about receiving more goods from foreigners than we give them back is never actually explained, but it is often suggested that that it causes a loss of American jobs.
News reports sometimes even provide estimates of the number of jobs lost owing to every billion dollar increase in the trade deficit. Heaven only knows how these estimates are made, but presumably they are based on the assumption that imports deprive Americans of jobs they could have had producing domestic substitutes for the imports.
It almost seems tedious to do so, but it apparently still needs to be pointed out that buying less from foreigners means that they will buy less from us for the simple reason that they will have fewer dollars with which to purchase our products.
Thus, even if reducing imports increases employment in industries that compete with imports, it must also reduce employment in export industries.
Moreover, the notion that the trade deficit destroys domestic jobs is contradicted by the tendency of the deficit to increase during economic expansions and to decrease during contractions.
The demand for imports rises with income, so imports normally tend to rise faster than exports when a country expands more rapidly than its trading partners. The trade deficit is a symptom or rising employment — not the cause of rising unemployment.
That balance-of-trade figures are misunderstood and misused is not surprising, since their function has never been to inform or to enlighten. Their real purpose is to provide spurious statistical and pseudo-scientific support to groups seeking protectionist legislation. These groups try to cloak their appeals to protection with an invocation of the general interest in a favorable balance of trade.
David Glasner, “What’s So Bad about the Trade Deficit?”, Uneasy Money, 2016-06-02 (originally published in the New York Times in 1984).
January 28, 2018
QotD: Protectionism
All protectionism is rooted in the mistaken presumption not only that existing, domestic producers have a moral right – enforceable by the state – to the patronage of domestic consumers, but also that no future domestic producers have such a right as against current domestic producers. This right, were it real, implies that consumers exist to please existing domestic producers; it implies that continued or expanded production of that which is currently produced domestically is the end, while consumption is only the means of encouraging such production.
Only the widespread, if unthinking, acceptance of this presumption gives credence to the demands of domestic producers that some “unfair” practice by a foreign rival or foreign government justifies the imposition by the home government of punitive taxes on domestic consumers who purchase imports. Only a widely shared, if seldom articulated, belief that current domestic producers have a right to some minimum portion of domestic-consumers’ incomes explains the nodding of the heads of many people of all political persuasions when they hear some politician or pundit or preacher demonize foreign producers for selling wares to domestic citizens.
Don Boudreaux, “Protectionism”, Cafe Hayek, 2016-05-27.
January 27, 2018
The difference between being “pro-free market” and “pro-business”
It’s a distinction that really does make a difference, argues Jonah Goldberg:
One of the most difficult distinctions for people in general and politicians in particular to grasp is the difference between being pro-free market and pro-business.
There are many reasons for this confusion. For politicians, the key reason is that businesspeople are constituents and donors, while the free market is an abstraction. Also, because capitalists tend to lionize successful people, we assume they share our philosophical commitments. But it is a rare corporate titan who favors a free market if doing so is bad for his or her bottom line.
Adam Smith recognized this in his canonical 1776 work, The Wealth of Nations. “People of the same trade seldom meet together, even for merriment and diversion,” he wrote, without the conversation ending “in a conspiracy against the public, or in some contrivance to raise prices.”
This doesn’t mean that capitalists are evil; it means they’re human beings. Virtually every profession you can think of has a tendency to dig a moat around itself to protect its interests and defend against competition. A few years ago, the American Academy of Pediatrics came out against affordable health care for children. Retail chains like Walmart and CVS started opening in-store clinics to provide affordable basic health care like vaccinations. The pediatricians rightly saw this as a threat to their monopoly over kids’ medical care. Obviously, the pediatricians didn’t think they were villains; they simply found rationalizations for why everyone should keep paying them top dollar for stuff that could be done more cheaply.
Similarly, most teachers like kids, but that doesn’t stop teachers unions from doing everything they can to protect themselves from competition or accountability. Indeed, unions, by design, are conspiracies against the public to defend the wages and perks of their members. NIMBYism (Not in My Backyard) is another manifestation of this phenomenon.
[…]
Smith understood this too. After noting how people of the same trade conspire to raise prices, he added: “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.”
What both Smith and the founders understood is that such conspiracies can only last with the help of government. As the economist Joseph Schumpeter argued, in a system of free competition, monopolies cannot long endure without government protection.
January 15, 2018
The postwar “international order”
Niall Ferguson on the notion of a post-1945 international liberal order:
The phrase international order reminds me of the phrase Western civilization. As Indian independence icon Mahatma Gandhi wittily replied when asked about Western civilization, “It would be a good idea.” The notion that international order exists or has ever existed seems highly questionable to me. The notion of a liberal international order is even more questionable because it is neither liberal, nor international, nor very orderly.
It is often claimed by political scientists that the liberal international order came into existence in 1945. The argument goes that American and British statesmen, having learned from the terrible mistakes of the 1930s and 1940s, decided to make the world anew by creating a series of remarkable international institutions: the United Nations, the International Monetary Fund and later the World Bank. According to this narrative, Donald Trump’s election as US president in 2016 was a wrecking ball directed at the liberal international order created by the generation of 1945.
Yet this is a fairy tale. For one thing, there was nothing very liberal about the economic order that was established in 1945. It was devised by people – notably John Maynard Keynes – who had repudiated classical liberal economics and believed that international trade should be limited and capital movements controlled.
It was also not a truly international order. After 1945, it very quickly became a bipolar order that divided the world. There was nothing international about the Cold War. It was a battle between two empires and two ideologies, and the rest of the world’s nations had to choose sides.
In short, the notion of a liberal international order, born in 1945, is a historical fantasy. The reality is that it was only in 1991 when the Soviet Union collapsed and the Cold War ended that it was possible to create a liberal international order. The era of truly free trade, truly free capital flows and large-scale migration across borders did not begin until the 1990s.
December 9, 2017
The Trudeau sideshow in China
Colby Cosh on figuring out why Justin Trudeau’s trip to China didn’t end in the glory he and his handlers were clearly anticipating:
My favourite part of the fair has always been the sideshow. And when it comes to Justin Trudeau’s official visit to China, the sideshow definitely turned out to be the most interesting part of the proceedings. Interpreting the outcome of the visit involves a certain amount of old-fashioned Kremlinology, applied to both sides, but it seems fairly clear that Trudeau was gulled into providing Chinese leadership with some celebrity glamour in exchange for a big pile of nothing on Chinese-Canadian trade.
He came to China with hopes for progress on a future trade deal that would involve China accepting new labour, gender, and environment standards. But he collided with the newly aggressive Xi Jinping doctrine — a change in the official Chinese mood that insists on the country’s superpower status. China-watchers know that over the past year, in a process that culminated at the 19th Chinese Communist Party Congress in October, China has become more explicit, and more chauvinist, in claiming to pursue an independent, indigenous alternative model of economic and social progress.
[…]
Western commentators on China have, for a long time, had an implicit vision of a re-emerging bipolar world, with China in the old place of Russia as an ideological challenger to Western democracies. Xi is taking them at their word. China’s aspirations are no longer to follow or imitate the West, but to out-compete it on its own terms, without any of the untidy, politically dis-unifying elements of Western life — independent universities, newspapers that aren’t trash, multiple political parties, and the like.
Given this background, Trudeau arguably arrived in China at exactly the wrong moment. Formal talks on a China-Canada free trade agreement would have been the first ever between China and a G7 country. It turned out that there was more value for Xi in slapping the hand of friendship. The Global Times, an organ of the party’s People’s Daily newspaper network, published a cranky English-language editorial in the midst of Trudeau’s visit.
The editorial attacked the “superiority and narcissism” of Canadian newspapers, as an alternative to jabbing the prime ministerial guest in the eye personally. But it is easy enough to read between the lines. “Trade between China and Canada is mutually beneficial, more significant than the ideology upon which the latter’s media has been focusing,” wrote the tabloid’s editor, Hu Xijin. “When Canada imports a pair of shoes from China, will Canada ask how much democracy and human rights are reflected in those shoes?”
If Trudeau had been hoping to wipe away memories of his embarrassing stunt at the TPP negotiations by a Pierre-Trudeau-like Chinese breakthrough, the Chinese government clearly saw him coming a few thousand miles away and ensured that no such PR coup would be allowed.
November 5, 2017
QotD: Explaining comparative advantage
Actually, it’s dead easy. No math, no arithmetic. It is in fact the soul of common sense. But you have to understand that comparative advantage is the principle of cooperation, as against competition. The word “advantage” gets us thinking of competition, which is perfectly reasonable in our own individual lives — we do compete with other businesses or other writers or whomever. But the system as a whole, whatever it is, does well of course by cooperating, in business or science or family life. It’s not all we do, admittedly. We also compete. But within a household or a company or a world economy the job is to produce a result in the best way, cooperatively. If you are running a household or a sports team or a world economy, you would want to assign roles to the various contributors to the common purpose sensibly. It turns out to be precisely on grounds of comparative advantage.
Consider Mum and 12-year old Oliver, who are to spend Saturday morning tidying up the garage. Oliver is incompetent in everything compared with Mum. He cannot sweep the floor as quickly as she can, and he is truly hopeless in sorting through the masses of rubbish that garages grow spontaneously. Mum, that is, has an absolute advantage in every sub-task in tidying up the garage. Oliver is like Bangladesh, which is poor because it makes everything — knit goods and medical reactors — with more labor and capital than Britain does. Its output per person is 8.4 percent of what it is in Britain. So too Oliver.
What to do? Let Mum do everything? No, of course not. That would not produce the most tidied garage in a morning’s work. Oliver should obviously be assigned to the broom, in which his disadvantage compared with Mum is comparatively least — hence “comparative advantage.” An omniscient central planner of the garage-tidying would assign Mum and Oliver just that way. So would an omniscient central planner of world production and trade. In the event, there’s no need for an international planner. The market, if Trump does not wreck it, does the correct assignment of tasks worldwide. Bangladesh does not sit down and let Britain make everything merely because Britain is “competitive” absolutely in everything. And in fact Bangladesh’s real income has been rising smartly in recent years precisely because it has specialized in knit goods. It has closed its ears to the siren song of protecting its medical reactor industry. It gets the equipment for cancer treatment from Britain.
Comparative advantage means assigning resources of labor and capital to the right jobs, whatever the absolute productivity of the economy. It applies within a single family, or within a single company, or within Britain, or within the world economy, all of which are made better off by such obvious efficiencies. Following comparative advantage enriches us all, because it gets the job done best. Policies commonly alleged to achieve absolute advantage lead to protection — that is, extortion, crony capitalism, and the rest in aid of “competitiveness.”
Dierdre N. McCloskey, “A Punter’s Guide to a True but Non-Obvious Proposition in Economics”, 2017-10-16.
November 2, 2017
QotD: Free trade versus modern “Free Trade” agreements
Once upon a time, free-trade agreements were about just that: free trade. You abolish your tariffs and import restrictions, I’ll abolish mine. Trade increases, countries specialize in what they’re best equipped to do, efficiency increases, price levels drop, everybody wins.
Then environmentalists began honking about exporting pollution and demanded what amounted to imposing First World regulation on Third World countries who – in general – wanted the jobs and the economic stimulus from trade more than they wanted to make environmentalists happy. But the priorities of poor brown people didn’t matter to rich white environmentalists who already had theirs, and the environmentalists had political clout in the First World, so they won. Free-trade agreements started to include “environmental safeguards”.
Next, the labor unions, frightened because foreign workers might compete down domestic wages, began honking about abusive Third World labor conditions about which they didn’t really give a damn. They won, and “free trade” agreements began to include yet more impositions of First World pet causes on Third World countries. The precedent firmed up: free trade agreements were no longer to be about “free” trade, but rather about managing trade in the interests of wealthy First Worlders.
Eric S. Raymond, “TPP and the Law of Unintended Consequences”, Armed and Dangerous, 2016-04-12.
October 1, 2017
Deirdre McCloskey on the rise of economic liberty
Samizdata‘s Johnathan Pearce linked to this Deirdre McCloskey article I hadn’t seen yet:
Since the rise during the late 1800s of socialism, New Liberalism, and Progressivism it has been conventional to scorn economic liberty as vulgar and optional — something only fat cats care about. But the original liberalism during the 1700s of Voltaire, Adam Smith, Tom Paine, and Mary Wollstonecraft recommended an economic liberty for rich and poor understood as not messing with other peoples’ stuff.
Indeed, economic liberty is the liberty about which most ordinary people care.
Adam Smith spoke of “the liberal plan of [social] equality, [economic] liberty, and [legal] justice.” It was a good idea, new in 1776. And in the next two centuries, the liberal idea proved to be astonishingly productive of good and rich people, formerly desperate and poor. Let’s not lose it.
Well into the 1800s most thinking people, such as Henry David Thoreau, were economic liberals. Thoreau around 1840 invented procedures for his father’s little factory making pencils, which elevated Thoreau and Son for a decade or so to the leading maker of pencils in America. He was a businessman as much as an environmentalist and civil disobeyer. When imports of high-quality pencils finally overtook the head start, Thoreau and Son graciously gave way, turning instead to making graphite for the printing of engravings.
That’s the economic liberal deal. You get to offer in the first act a betterment to customers, but you don’t get to arrange for protection later from competitors. After making your bundle in the first act, you suffer from competition in the second. Too bad.
In On Liberty (1859) the economist and philosopher John Stuart Mill declared that “society admits no right, either legal or moral, in the disappointed competitors to immunity from this kind of suffering; and feels called on to interfere only when means of success have been employed which it is contrary to the general interest to permit — namely, fraud or treachery, and force.” No protectionism. No economic nationalism. The customers, prominent among them the poor, are enabled in the first through third acts to buy better and cheaper pencils.
[…]
Indeed, economic liberty is the liberty about which most ordinary people care. True, liberty of speech, the press, assembly, petitioning the government, and voting for a new government are in the long run essential protections for all liberty, including the economic right to buy and sell. But the lofty liberties are cherished mainly by an educated minority. Most people — in the long run foolishly, true — don’t give a fig about liberty of speech, so long as they can open a shop when they want and drive to a job paying decent wages. A majority of Turks voted in favour of the rapid slide of Turkey after 2013 into neo-fascism under Erdoğan. Mussolini and Hitler won elections and were popular, while vigorously abridging liberties. Even a few communist governments have been elected — witness Venezuela under Chavez.
August 4, 2017
Harry Potter and the Economic Segregation of Muggles
Published on 3 Aug 2017
Harry Potter contains a ton of incredible lessons about society, authoritarianism, and the power of love and individualism in the face of people who would exclude others based on group identity. But something people don’t think about as much are some of the economic lessons that we can draw from a world segregated into wizards and muggles.
On this episode of Out of Frame, we take a look at what the world might look like if magic and non-magic people were actually allowed to trade and interact with each other without the Ministry of Magic obliviating and arresting people for it.
For a transcript of this episode and more engaging content, visit:
www.FEE.org
July 19, 2017
“The Economics of Trade” | THINK 2017
Published on Jul 17, 2017
What exactly is Free Trade and is it always the best policy?
Professor Don Boudreaux of Cafe Hayek discusses the morality of capitalist exchange and its inherent advantages.
June 26, 2017
“Ah, the Comeau case. Schwisberg says it could change everything – knock down all the barriers”
It’s ridiculous that 150 years into Confederation, and we still don’t have free trade within Canada:
If you’re on vacation abroad somewhere this summer and find yourself explaining to people over dinner what makes Canada so unique and special, use the story about Gerard Comeau and his beer run back in 2012. There is no more Canadian story than that.
Comeau is a Canadian who, looking for the best bargain he could, drove to a Canadian town a few miles from his home in Canada, bought 14 cases of beer and three bottles of liquor from Canadian beer and liquor stores, then returned to his home. In Canada.
A squad of plainclothes Mounties with binoculars, it turned out, had him under surveillance, according to his lawyer. On his way home from the Canadian town to his Canadian home, he was intercepted and handed a ticket for $292.50 by uniformed Canadian officers who then seized all the alcohol he’d purchased.
His Canadian crime: his beer run had crossed one of Canada’s internal borders. He’d driven from New Brunswick into Quebec. As far as New Brunswick was concerned, that made him a smuggler.
Sixteen other people were charged that day in the same sting operation, but Comeau had more spine than most and fought the ticket. Some smart lawyers from Ontario and Western Canada got involved, and – my god, I love it when things like this happen – he won.
A New Brunswick judge ruled that the province’s law against importing alcohol from other provinces violated the Constitution Act, Sec. 121, which states: All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.
The ruling shocked New Brunswick and most of the other provinces, which consider Sec. 121 to be one of the most horrible and un-Canadian sentences in the Canadian Constitution, something that should be ignored at all costs.
May 7, 2017
Canada-US trade relationship, visually
With all the talk (mostly from President Trump) about abandoning existing trade relationships like NAFTA, it’s worth looking at just how closely related the US and Canadian economies are (below the fold, because the graphic is yuuuuuge):
