Week in Review
The typical argument for tariffs is that they will save American jobs. But the cost of the tariffs added on to the products costs us a lot more than the wages of the jobs they save. Because there are more consumers than producers. So tariffs help a small percentage of the population while hurting a much larger percentage of the population.
Also, the cost difference between the more costly domestic produced goods and the much lower priced imported goods invites crime. Because if you can get that lower-priced import and sell it at the higher tariff price you can make a lot of money. So much money that some people can’t resist breaking the law (see The Honey Launderers: Uncovering the Largest Food Fraud in U.S. History by Susan Berfield, Bloomberg Businessweek, posted 9/23/2013 on Yahoo! Finance).
Americans consume more honey than anyone else in the world, nearly 400 million pounds every year. About half of that is used by food companies in cereals, bread, cookies, and all sorts of other processed food. Some 60 percent of the honey is imported from Argentina, Brazil, Canada, and other trading partners. Almost none comes from China. After U.S. beekeepers accused Chinese companies of selling their honey at artificially low prices, the government imposed import duties in 2001 that as much as tripled the price of Chinese honey. Since then, little enters from China legally.
In September 2010… ALW perpetuate a sprawling $80 million food fraud, the largest in U.S. history… to illegally import Chinese honey…
…E-mails mention falsifying reports from a German lab, creating fake documents for U.S. customs agents, finding new ways to pass Chinese honey through other countries, and setting up a Chinese company that would be eligible to apply for lower tariffs…
ALW relied on a network of brokers from China and Taiwan, who shipped honey from China to India, Malaysia, Indonesia, Russia, South Korea, Mongolia, Thailand, Taiwan, and the Philippines. The 50-gallon drums would be relabeled in these countries and sent on to the U.S. Often the honey was filtered to remove the pollen, which could help identify its origin. Some of the honey was adulterated with rice sugar, molasses, or fructose syrup.
Another argument for tariffs is that they keep inferior and dangerous goods out of the country. Like this Chinese honey adulterated with ”rice sugar, molasses, or fructose syrup.” So the tariffs didn’t do much to keep this inferior good out of the country. It just made people pay three-times as much for this inferior product. While making the Chinese and American honey industry richer.
Tariffs never help consumers. They only help the businesses granted tariff protection. And criminals. While the consumers have to pay more for less. Just so a small percentage of the population can keep their high-paying jobs. Or sell their honey at three-times the market price.
Tags: China, Chinese honey, Consumers, domestic goods, honey, import duties, imported goods, tariffs
Week in Review
Today the political left attacks capitalism as being unfair. And mean. Whereas they laud government intervention into the free market. To level the playing field. And to redistribute income. To help those who can’t be as successful as others. They support unions. And oppose free trade. Because free trade lowers prices for consumers. By breaking up monopolies. And giving them choice. Free trade is an essential element of capitalism. But the fight to make people’s lives better with free trade wasn’t easy. As people who got rich with government-protected high prices opposed free trade (see Why did The Economist favour free trade? by C.R. posted 9/6/2013 on The Economist).
IN NINETEENTH century Europe and America, debates over whether tariffs or free trade produced the most economic growth dominated the political scene. Up until the early 1840s, protection appeared to be winning the argument. In Britain, high tariffs were imposed on agricultural imports in 1819, by legislation known as the Corn Laws. The ideas of Friedrich List, a German economist who argued that tariffs boosted industrial development through the protection of infant industries, were gaining ground, particularly in the United States. One Pennsylvanian legislator even joked in 1833 that the dictionary definition of man should be changed to “an animal that makes tariff speeches” so frequently were they heard.
Against this atmosphere, James Wilson founded The Economist in 1843 to campaign for free trade. His first target was to repeal the Corns Laws in Britain. He argued:
They are, in fact, laws passed by the seller to compel the buyer to give him more for his article than it is worth. They are laws enacted by the noble shopkeepers who rule us, to compel the nation to deal at their shop alone.”
The UAW got very generous contracts with the Big Three during the Fifties and the Sixties. Raising the price of cars. Which wasn’t a problem when they were the only ones making cars. But then came the imports. Which told the people how much more they were paying than these articles were worth. And started buying the imports. As they did those generous pay and benefit packages became more difficult to pay. So the Big Three lobbied for tariffs on those less costly imports. And got them. Raising the price of the imports. Forcing Americans to deal with the Big Three alone. And buy their more costly cars.
More people bought cars than made them, though. And the people who made the cars were better paid than most Americans. So these tariffs forced poorer people to spend more on a car leaving them less for their families. So richer people could have more. This is what tariffs do. They allow fewer people to have more. While more people have to do with less. So fewer buy more. While more buy less. Because there are more people who buy cars than make them these tariffs, then, reduce economic activity. And because the Big Three didn’t have to figure out how to give more for less to their customers they didn’t. Giving their customers ‘rust buckets’ in the Seventies. Something else that tariffs do. Lead to inferior goods. Because if the government forces people to buy from you then the quality of what you sell doesn’t matter.
Wilson believed that protectionism caused “war among the material interests of the world”, in other words, war between nations and classes. A high tariff regime was no longer economically “productive”; Britain was stuck in an economic depression in the early 1840s. In contrast, free trade produced “abundance and employment”. It was appropriate for Britain’s economy where “a large proportion of the population and property depended on commerce and industry alone”. On the other hand, List’s ideas about protection were dismissed as unnecessary “swaddling clothes” for a mature economy, such as Britain’s.
The Economist’s early views on free trade were strongly influenced by the classical economists Adam Smith and David Ricardo, as Ruth Dudley Edwards, a historian, has pointed out. Wilson, like Smith, realised that trade was a two way exchange. Countries needed to “increase imports to increase exports” to boost economic growth. Consumers, Smith argued in the Wealth of Nations, should buy products from where they were cheapest. All protection did was create monopolies, which were “a great enemy to good management”. Ricardo took Smith’s ideas further, arguing that all countries benefit from free trade by producing what they were best at relative to other countries.
That’s what the Big Three wanted. A monopoly on cars sold in America. And there is only one way to get one. The government has to create them. Hence the Big Three’s request for tariff protection.
David Ricardo’s comparative advantage said nations should make what they can make best and trade for those things they can’t. For example, if two countries can both make one thing but one can do so at lower costs they can make more of them for the same costs. Giving them a larger surplus to trade for other things. While the other nation will consume more resources to build the same quantity leaving less to make the other things they need. While having fewer things available for export. So if you try to make things you can’t make efficiently you end up consuming more resources to have less. Whereas the nation that makes only what it can make best ends up consuming fewer resources that are then available to make other things. And they have more things to trade. Leading to a higher standard of living. And if their trading partners do likewise they, too, experience a higher standard of living.
Free trade leads to greater economic activity. Which made Britain wealthy. Allowing them to extend their empire for another 70 years or so. Despite the warnings of the rich landowners who said repealing the Corn Laws would cause harm. Instead, repealing the Corn Laws led to greater economic activity. And less costly food. Allowing people to feed their families more easily. The only harm suffered was to the profits of the big landowners. Who lost their monopoly. And could no longer charge more than their food was worth.
Tags: Adam Smith, Big Three, Britain, capitalism, Corns Laws, David Ricardo, exports, free trade, imports, monopoly, protectionism, standard of living, surplus, tariffs, The Economist, trade
Week in Review
Keynesian economists, and those on the left, think there is nothing wrong with printing money. Because they don’t understand money. What it truly is. So what is money? It’s a temporary storage of wealth. It is not wealth. Doctors make a lot of money because they have learned great skills. Skills few people have. And doctors are willing to exchange these skills for money. The wealth is a doctor’s skills. The money temporarily holds this wealth until the doctor finds something to trade that money for. From someone else that has wealth. Who created something of value the doctor is willing to trade for.
All money did was make this trading of valuable things easier. So we could trade with anyone even if they don’t want anything we can make or do. A doctor doesn’t have to find someone who wants their gallbladder removed who has a television set if the doctor wants a television set. The doctor can just go to a store and buy one. Because of money. Making the exchange of goods and services far easier than in a barter system.
Those who think money is wealth and that we should just print it and hand it out to the people are missing one very important point. If you did this no one would have to work. Those on the left would applaud that. But if no one worked there would be no valuable things to trade. And if there are no valuable things to trade then your money is worthless. For if there is nothing to buy what good is having money?
North Korea has a lot of money. But their money is worthless. Because they just print it. While their economy contains no valuable things to trade. Not a big problem in a closed economy. And you make your people slaves. But it’s a problem if you want to trade with the outside world for the luxury items the lucky few in the ruling elite enjoy. For if you have no valuable things in your economy then you must trade for valuable things with hard currency. Money that isn’t worthless paper. So North Korea came up with a way to get hard currency (see How North Korea got itself hooked on meth by Max Fisher published 8/21/2013 on The Washington Post).
A new study published in the journal North Korea Review says that parts of North Korea are experiencing a crystal meth “epidemic,” with an “upsurge” of recreational meth use and accompanying addiction in the country’s northern provinces…
So how do people in North Korea, a country where markets are so tightly regulated that even video CDs can be considered dangerous contraband and where social controls are often beyond Orwellian, manage to get hold of meth..?
The problem actually goes back to the 1990s, when North Korea experienced a famine so devastating that virtually the entire world believed the country would collapse at any moment. But it didn’t, in part because Pyongyang finally decided to open up the world’s most closed economy just a small crack, by allowing a degree of black market trade across North Korea’s border with China. The idea was that the black market would bring in food, which it did, preventing North Korea’s implosion.
The black market trade into China has remained that little bit open ever since, either because Pyongyang authorities can’t close it now or because they see some trade as beneficial, probably both. Some provinces along the border have seen their economies liberalize a tiny, tiny bit — most notably North Hamgyung, which is named in the North Korea Review report as particularly blighted by meth addiction.
In the years after the border with China opened that little crack, two other things have happened that led to the current meth crisis. First, medicine ran out and the once-not-terrible health system collapsed — more on this later. Second, North Korea started manufacturing meth in big state-run labs. The country badly needs hard currency and has almost no legitimate international trade. But it was able to exploit the black market trade across the Chinese border by sending state-made meth into China and bringing back the money of Chinese addicts.
This is where things started to spin out of control for North Korea. The state-run meth factories and the cross-border black market trade started to mingle. And some of that meth ended up migrating back across the border and into North Korea, through the black market trade that brings in Chinese rice and DVDs and the like.
This is where the collapse of the North Korean health system becomes relevant. As Isaac Stone Fish reported in a great 2011 Newsweek story, many regular North Koreans started using meth to treat health problems. Real medicine is extremely scarce in the country. But meth is much more common, which means that the prices of medical drugs are artificially inflated, while the price of meth is artificially low. In a culture without much health education and lots of emphasis on traditional remedies, people were ready to believe that meth would do the trick for their medical problems, and many got addicted.
Poor Chinese. First the British got them addicted to opium. Then North Korea got them addicted to meth. It appears the Chinese people are nothing but pawns in the game of international trade.
Back in the days of mercantile Britain trade was all about who collected the most hard currency. Basically gold and silver in those days. The British loved Chinese tea. And were filling ships full of the stuff to bring it back to Britain. The problem was that the Chinese didn’t want anything the British were selling. So Chinese goods were flowing to Britain. But no British goods were flowing to China. And without having exports to offset imports Britain was forced to trade the only thing they had that China wanted. Their hard currency. Their silver. So Chinese goods flowed out of china. And Britain’s hard currency flowed out of Britain. So China was accumulating piles of hard currency while Britain saw their piles diminish. Which was the exact opposite mercantile Britain wanted. So they did something about it. Thanks to India.
India was part of the British Empire. And she grew opium poppies. Something some Chinese did want. So the British used this opium demand to stop the flow of hard currency out of the empire. And traded Indian opium for Chinese tea. This solved the trade deficit problem. But it created a lot of addicts in China. The addiction problem got so bad that it spawned two wars. The Opium Wars. Which did not end well for China. And things did not get better in the century or so that followed. And now here is North Korea. Turning Chinese into addicts to get hard currency out of China (and into North Korea). Just like the British did. Of course, North Korea is nothing like the mighty British Empire. So one would believe that China is allowing this addiction problem to happen. As it is probably a smaller price to pay than the refugee problem should North Korea collapse. And they may like that North Korean buffer between them and South Korea. Japan. And the United States.
North Korea is everything the left would like to have in the United States. Tightly regulated markets. National health care. No rich people accumulating private property. Where they frown on profits. The even put people before profits. Just like liberals want to do. There’s no talk radio. No Rush Limbaugh. No Fox News. No free trade. No low-cost imports to undermine union manufacturing. No obesity. Because there is no junk food. And no 32 ounce sugary beverages. And a government that can do what is right for the people without having to worry about a Tea Party challenger in the next primary election. North Korea is liberal nirvana. Yet life there is horrible and wretched. Because it’s everything liberals want. But nothing the people want.
Liberals want to keep expanding government. To have more government intervention into the free market. But where does it end? How far do they want to take things towards North Korea before they say they have enough? And why anyone should worry about this is because as horrible and wretched life is in North Korea, those in the ruling elite have it pretty darn good. Because the people in charge of these regimes never suffer like the people outside of the ruling elite. So the farther they move towards North Korea the less they have to worry about an election taking away their comfy life. This is why we should worry about a government growing larger. For throughout world history life like that in North Korea has been the norm. While life like that in the United States has been the exception. And the United States has only been around for 225 years (counting from the ratification of the U.S. Constitution). A crazy new fad the entitled ruling elite (i.e., liberals) would like to do away with. So they can rule like they did in the good old days. Much like they do today in North Korea. Where the supreme ruler, Kim Jong-un, has an obesity problem. One of the few in North Korea that isn’t gripped with a gnawing hunger every minute of every day. This is life in a country where the ruling elite hates capitalism. And puts people before profits. This liberal nirvana. Those in power live well. While everyone else suffers.
Tags: addiction, black market, Britain, British Empire, China, Chinese addicts, Chinese tea, hard currency, India, Indian opium, Keynesian, liberal, liberal nirvana, meth, meth addiction, money, North Korea, opium, Pyongyang, ruling elite, silver, trade, wealth
Week in Review
Does the Obama administration have a spending problem? Or a revenue problem? Well, according to an article in the Examiner, since Obama has been president the food stamp program (SNAP) has “increased at 10 times the rate of job creation, the annual spending on SNAP has doubled, and one in seven Americans now participates in SNAP.” The USDA even sent a Spanish-language flyer to the Mexican Embassy “advising Mexicans in the U.S. that they do not need to declare their immigration status in order to receive financial assistance.”
The Obama administration is giving away so much food assistance that the treasury will soon be unable to borrow money fast enough to pay for it. Showing a real spending problem. And a love for illegal immigrants living in the country. Or who would like to live in the country. Basically throwing open our southern border. While at the same time President Obama wants to make Mexicans and Canadians crossing the border legally pay a toll (see U.S. Senate nixes planned U.S.-Canada border tolls by Paul Koring posted 5/10/2013 on The Globe and Mail).
Obama administration plans to impose a toll on land travellers crossing the U.S. borders with Canada and Mexico were scrapped Thursday.
The proposed toll, which sparked angry responses on both sides of the borders, was blocked in a rare show of bipartisan unanimity by Democrats and Republicans in the U.S. Senate…
It effectively killed a Homeland Security suggestion contained in Mr. Obama’s proposed budget that tolls on pedestrian and vehicular traffic crossing the Canada-U.S. and Mexico-U.S. borders be considered as a means of raising revenues for the cash-strapped federal government.
When the president wants to make people pay for the privilege of crossing our border to spend their money in our economy it’s time to admit you have a spending problem.
It is interesting that the Department of Homeland Security wants more money to secure the border when they continue to refuse to secure the border. Which seems to be more of a policy decision than a cost factor. Especially when the USDA is telling illegal immigrants that they can get food assistance without being able to speak English or prove that they are a legal citizen.
Bridges and tunnels need maintenance. Which is why we charge tolls at river-crossings. But we don’t charge tolls at land-crossings. To do so would add a tariff to cross-border trade. Violating the North American Free Trade Agreement. As well as defeating the purpose of a free trade agreement. To encourage cross-border trade.
The problem is with America’s southern border. Making Canadians pay for the problems at our southern border would be unfair to say the least.
President Obama has a spending problem. And he needs to fix that problem by cutting spending. Not by raising taxes everywhere and on everyone. Higher taxes and a less friendly business environment destroy economic activity. And he should know this. As he had a front-row seat for his destructive economic policies that have created the worst recovery since that following the Great Depression. And yet all he ever comes up with is more of the same failed policies of the past. It’s as if he just tries them one more time they will have a different outcome. Which is either a sign of insanity. Or of someone that puts politics before all else.
Tags: Canada, cross-border trade, food assistance, free trade, illegal immigrants, Mexico, Obama administration, President Obama, secure the border, SNAP, southern border, spending problem, toll, USDA
Week in Review
China created a booming economy thanks to a healthy export market. In part because of their cheap labor. An in part by keeping their currency weak. For when you buy goods from China you first have to exchange your currency for theirs. If your currency is stronger than theirs is you will get a lot more of theirs in exchange for yours. Allowing you to buy a lot more Chinese goods with your stronger currency. This is why China likes to have a weak currency. And takes actions to keep it artificially weak. Something her trading partners don’t like. For their weaker currency tends to make the net flow of goods in international trade with China flowing from China to everyone else. Thus giving China a healthy export market. At the expense of everyone else’s export market.
But China is a developing economy. Things change when you become an advanced economy. Because you don’t have impoverished masses filling your factories manufacturing goods for export. You have a thriving middle class. With a high standard of living. With good jobs giving them disposable income. And few of them work in the export economy. So despite all the talk about unfair trade practices of China most people in an advanced economy don’t worry that much about trade deficits. For they’re buying a lot of imported goods. From smartphones to coffee beans. And a weak currency makes these items more expensive.
So there are two sides to the value of your currency. If you have impoverished masses filling factories to build export goods a weak currency is good. It lets the state sell more of those export goods. In an export-dominated economy. And provides a lot of low-paid factory jobs. If you have a thriving middle class a strong currency is good. For it lets the people buy a lot of stuff. Creating a lot of better paying non-factory jobs. In a non-export-dominated economy. Basically the difference between free market capitalism. And mercantilism (see Is the World on the Brink of a Currency War? by Michael Sivy posted 2/21/2013 on Time).
Currency wars – and trade wars generally – have their origins in a 17th and 18th century economic theory known as mercantilism. The idea was that a country’s wealth comes from selling more than it buys. A colonial empire could achieve this positive balance of trade by acquiring cheap raw materials from its colonies and then ensuring that it exported more finished goods than it imported. This was usually accomplished with tariffs that made imports very expensive.
Such an approach couldn’t work in the modern world. Countries don’t get cheap raw materials from colonies anymore. They have to buy them – especially oil – on the open market. So while currency devaluation makes exports cheaper for foreign buyers, it also makes essential imports more expensive. For Europe in particular, which imports so much of its energy, devaluation isn’t necessarily a plus…
The Federal Reserve’s quantitative easing – buying bonds to swell the money supply – is aimed principally at stimulating domestic demand. European advocates of a cheaper euro currency, meanwhile, are hoping to make national debt easier to finance, not trying to pump up exports. In fact, the continent’s greatest exporter, Germany, is the country least amenable to currency devaluation…
So forget all the talk of a currency war. What’s going on has nothing to do with trade and everything to do with debt and growth and inflation. If the global economy is in danger of reliving the past, it will not be a repeat of the 1930s. Rather, it will be a repeat of the 1970s, when the Federal Reserve expanded the money supply to offset the economic slowdown caused by the oil crisis – and ended up encouraging double-digit inflation.
The double-digit inflation of the Seventies really devalued the currency. Raised prices. Greatly limiting the amount of stuff people could buy. Even though printing money then didn’t work these nations believe it will work now. Because it will make their exports cheaper for foreigners to buy. Despite making everything more expensive inside their own country.
But there is another reason they love to print money. It lets them spend more. And it makes old debt easier to pay off. We call it monetizing the debt. For example, if a nation has a GDP of $1 million and a debt of $500,000 that debt is huge. It’s 50% of GDP. But if we turn on the printing presses and devalue the currency to one tenth of its original value that GDP is now $10 million ($1 million divided by 1/10). Making that outstanding debt only 5% of GDP. And a whole lot easier to repay. But what is one person’s debt is another person’s retirement savings. So not only does inflation increase prices it destroys our retirement savings. And all this just so we can boost the small sliver of our economy we call exports.
If this is so bad on so many levels why do governments print money then? For one simple reason. To get people to vote for them. Because all the people see is the free stuff the politicians are giving them. The damage it causes comes later. And they can always blame that on Republicans. Who refuse to raise tax rates on rich people to make them pay their fair share.
Tags: balance of trade, capitalism, cheap labor, China, currency, currency devaluation, currency wars, debt, double digit inflation, exchange, export economy, export market, free-market capitalism, impoverished masses, increase prices, inflation, mercantilism, middle class, prices, retirement savings, weak currency
Week in Review
If you ever traveled to a foreign country you know what you had to do before buying foreign goods. You had to exchange your currency first. That’s why they have currency exchanges at border crossings and airports. So people can convert their currency to the local currency. So they can buy stuff. And when traveling people liked to go to areas that have a weaker currency. Because a stronger currency can get more of a weaker currency in exchange. Allowing your own currency to buy a lot more in that foreign country. And it’s the same for buying exported goods from another country.
The weaker a country’s currency the more of it people can get in exchange for their currency. Allowing importers to buy a lot more of those exported goods. Which helps the export economy of that nation with a weak currency. In fact having a weak currency is such an easy way to boost your exports that countries purposely make their currencies weaker. As they race each other to see who can devalue their currency more. And gain the biggest trade advantage (see Dollar Thrives in Age of Competitive Devaluations by A. Gary Shilling posted 1/28/2013 on Bloomberg).
In periods of prolonged economic pain — notably the 2007-2009 global recession and the ensuing subpar recovery — international cooperation gives way to an every-nation-for-itself attitude. This manifests itself in protectionist measures, specifically competitive devaluations that are seen as a way to spur exports and to retard imports.
Trouble is, if all nations devalue their currencies at the same time, foreign trade is disrupted and economic growth is depressed…
Decreasing the value of a currency is much easier than supporting it. When a country wants to depress its own currency, it can create and sell unlimited quantities. In contrast, if it wants to support its own money, it needs to sell the limited quantities of other currencies it holds, or borrow from other central banks…
Easy central-bank policy, especially quantitative easing, may not be intended to depress a currency, though it has that effect by hyping the supply of liquidity. Also, low interest rates discourage foreign investors from buying those currencies. [Japanese] Prime Minister Shinzo Abe has accused the U.S. and the euro area of using low rates to weaken their currencies.
“Central banks around the world are printing money, supporting their economies and increasing exports,” Abe said recently. “America is the prime example. If it goes on like this, the yen will inevitably strengthen. It’s vital to resist this.”
So a cheap and devalued currency really helps an export economy. But there is a downside to that. In some of these touristy areas with a really weak currency it is not uncommon for some people to offer to sell you things for American dollars. Or British pounds. Or Eurozone euros. Why? Because their currency is so week it loses its purchasing power at an alarming rate. So fast that they don’t want to hold onto any of it. Preferring to hold onto a stronger foreign currency. Because it holds its value better than their own currency.
When a nation prints money it puts more of them into circulation. Which makes each one worth less. And when you devalue your currency it takes more of it to buy the things it once did. So prices rise. This is the flipside to inflation. Higher prices. And what does a devalued currency and rising prices do to a retiree? It lowers their quality of life. Because the money they’ve saved for retirement becomes worth less just as prices are rising. Causing their retirement savings to run out much sooner than they planned. They may live 15 years after retirement while their savings may only last for 5 or 6 of those years.
Printing money to devalue a currency to expand exports hurts those who have lived most responsibly. Those who have saved for their retirement. Making them ever more dependent on meager state pensions. Or welfare. And when that’s not enough to cover their expenses they have no choice but to go without. We see this in health care. Where those soaring costs have an inflationary component. With the government squeezing doctors on Medicare reimbursements doctors are refusing some life-saving treatment for seniors. Because the government won’t reimburse the doctors and hospitals for these treatments. Or doctors will simply not take any new Medicare patients. As they are unable to provide medical services for free. And with their savings gone seniors will have no choice but to go without medical care.
The United States, Britain, Europe, Japan—they are all struggling to provide for their seniors. As China will, too. And a big part of their problem is their inflationary monetary policies. Coupled with an aging population. The Keynesians in these nations have long discouraged their people from saving. For Keynesians see private savings as leaks in the economy. They prefer people to spend their money instead of saving it. Trusting in state pensions and state-provided health care to provide for these people in their retirement. Which is why the United States, Britain, Europe and Japan are struggling to provide for their seniors in retirement. A direct consequence of printing too much money. And not letting people take care of their own retirement and health care.
Tags: boost exports, central banks, currency, currency exchange, devalued currency, export economy, exported goods, foreign currency, inflation, inflationary monetary policies, interest rates, Keynesian, printing money, purchasing power, rising prices, saving, seniors, stronger currency, weaker currency
Week in Review
Capital punishment is a contentious issue. Some people enthusiastically support it. While others vehemently oppose it. While others do both (see Vietnam says it’s unable to execute its criminals because EU refusing to export lethal drugs by Associated Press posted 11/1/2012 on The Washington Post).
Vietnam says it can’t execute its hundreds of death row criminals because the European Union is refusing to export the lethal drugs used in the executions…
Vice Chairman of the National Assembly Huynh Ngoc Son was quoted as saying the EU is trying to pressure Vietnam to give up capital punishment.
The EU doesn’t want Vietnam to execute people. Presumably for humanitarian reasons. Yet they make the drugs that states use to execute people. Which isn’t very humane. So they are both for and against capital punishment. Interesting.
After Dien Bien Phu (where the Viet Minh massacred the French) you’d think the French would be all for selling lethal drugs to Vietnam. While on the other hand, if they harbor no ill will to the current generation for what happened more than a generation ago you’d think they would respect the sovereignty of Vietnam. Choosing not to interfere in their domestic policies. And sell these lethal drugs to Vietnam.
They could probably buy these drugs from the United States. For they use these drugs in capital punishment there. But perhaps relations haven’t normalized enough yet for that to happen. America’s involvement in Vietnam was a bitter one. As they were winning. Until the college protesters and Walter Cronkite defeated them from within. Allowing the Vietnamese to turn to a Fabian strategy. Staying in the war long enough until they made the US grow weary and quit. Much like the Americans did to the British during the Revolutionary War. But that was then. More than a generation ago. And the Vietnamese and the Americans are normalizing relations. So they could probably buy these lethal drugs from the United States. But if they’re talking about making their own drugs it doesn’t look like they’ve gone to the United States. Or the US already said “no.”
Perhaps it’s just collective guilt with outside involvement in Indochina. Who knows? It just seems strange that a manufacturer of lethal drugs refuses to sell what they manufacture. Which kind of defeats the purpose of making those drugs.
Tags: capital punishment, EU, lethal drugs, Vietnam
Week in Review
International trade can be a funny thing. For mercantilist ways of the past are hard to give up. Especially the misguided belief that a trade deficit is a bad thing. Some nations are better at some things than other nations. And have a comparative advantage. And it would be foolish to try and produce something another nation can produce better. It would be better for nations to do the things they are best at. And import the things that others are better at. Just as David Ricardo proved with his law of comparative advantage. Still everyone still wants to export more than they import. Still believing that their mercantilist policies are superior to the capitalistic policies that are characteristic of advanced economies. While mercantilist policies can rarely advance beyond emerging economies. Case in point Argentina (see Argentina says to file WTO complaint against U.S by Tom Miles and Hugh Bronstein posted 8/21/2012 on Reuters).
The United States and Japan assailed Argentina’s import rules as protectionist at the World Trade Organization on Tuesday, putting more pressure on the country to revamp policies that many trading partners say violate global norms.
The two complaints mirrored litigation brought by the European Union in May and triggered a swift reaction from Argentina’s center-left government, which vowed to challenge U.S. rules on lemon and beef imports.
Argentina is seen by many fellow Group of 20 nations as a chronic rule-breaker since it staged the world’s biggest sovereign debt default in 2002. It remains locked out of global credit markets and relies on export revenue for hard currency.
They have inflated their currency so much that it is nearly worthless. They can get little of foreign currency in exchange for it. So they depend on the foreign currency buying their exports for their money needs. For they can’t destroy foreign currency with their inflationary policies. Only the wealth and savings of those in Argentina who don’t have access to these foreign currencies.
In the old days the mercantilist empires brought gold and silver into their countries. They had their colonies ship raw material back to the mother country. The mother country manufactured them into a higher valued good. Then exported it for gold and silver. Today we don’t use gold and silver anymore. So Argentina just substituted foreign currency into the formula. While keeping the rest of it in place.
Argentina began requiring prior state approval for nearly all purchases abroad in February. Imports have since fallen compared with last year’s levels, boosting the prized trade surplus but causing some shortages of goods and parts and sharply reducing capital goods imports.
EU and U.S. officials say Argentina has effectively restricted all imports since the new system came into place…
On Monday, Argentina hit the EU with a separate WTO complaint, alleging discriminatory treatment by Spain against Argentine shipments of biodiesel.
“This measure, like others taken by the European Union and other developed countries for decades, effectively aims to keep our industries from rising along the value chain, limiting the role of developing countries to the provision of raw materials,” the Foreign Ministry said in a statement…
Latin America’s No. 3 economy relies heavily on a robust trade surplus, which is used to help fatten central bank foreign reserves tapped to pay government debt. The government has also moved to curb imports to protect local jobs, while imposing capital and currency controls to keep dollars in the country.
“Import growth has halted, which we should have done long before,” Foreign Trade Secretary Beatriz Paglieri was quoted as saying on the presidential website last weekend…
Argentina has also been criticized for a policy of “trade balancing,” which forces an importer to guarantee an equal value of exports. That has spawned offbeat deals whereby a car producer, for example, must ship a large amount of rice out of the country in return for a consignment of vehicle components.
Mercantilist to the core. Which will forever trap them into being an emerging economy. For they’ve been doing this for decades. And they’re still an emerging economy. Juan Peron rose to power with the same mercantilist arguments. He was a Justicialist. Today’s president is a Justicialist. President Cristina Fernandez. And little has changed since World War II. Argentina is still an emerging economy. Thanks to their mercantilist policies. If they’d only give capitalism a chance their economy would explode with economic activity. At least, based on history. For the most advanced economies today are NOT based on the current Argentine model. They’re based on the free trade of capitalism. And David Ricardo’s comparative advantage.
In countries with free trade people enjoy higher standards of living. Their governments give them this good life by doing as little for them as possible. Letting the free market shower them with wealth and happiness. Which brings us back to the funny part about international trade. The countries that try to do the most for their people by restricting free trade give their people a lower standard of living. Except, of course, for the few in power. Or for those connected to power.
Tags: advanced economies, Argentina, capitalism, capitalist, comparative advantage, David Ricardo, emerging economies, export, foreign currency, free trade, import, inflation, international trade, Justicialist, mercantilist, mercantilist policies, trade deficit, World Trade Organization
Week in Review
You’re probably not familiar with the Trans Pacific Partnership (TPP). But it’s a pretty big free-trade deal. Or an attempt at one. But few Americans have heard of this. Including members of Congress. Who can’t get any details out of the Obama administration about the current negotiations. Which are primarily held in secret. But they’re talking about it in New Zealand. And they are even less happy about these negotiations (see NZ must stay staunch on TPP by Matthew Hooton posted 6/16/2012 on The National Business Review).
The Americans want us to pay more for Nikes, entertainment and pharmaceuticals, weaken Fonterra and tinker with Telecom.
It’s a deal we’ll gladly do if they stop subsidising and protecting their farmers, and give us unfettered access to their market.
That, roughly, is the deal on the table for the Trans Pacific Partnership (TPP).
The risk is that our trade negotiators will buckle, conceding the former without gaining the latter.
Instead, they should walk unless New Zealand and our free-trade allies get everything we want.
The TPP began as a New Zealand and Singaporean-led initiative in the 1990s, privately encouraged by the Clinton Administration.
Its purpose was to provide a genuine free-trade path for those members of the Asia-Pacific Economic Co-operation (Apec) forum who meant it.
You sure hear a lot from the government about China’s unfair trading practices. Saying their idea of free trade isn’t fair trade. But ‘fair trade’ depends on one’s perspective. Apparently. For when the Chinese trade at an advantage to the Americans that isn’t fair. But it is fair to trade at an advantage to the New Zealanders. Funny how that works.
Free trade is good. Free trade is fair. Because of David Ricardo’s Comparative Advantage. Where countries produce what they can produce most efficiently. And trade for what others can produce more efficiently. Thus all countries use their available resources most efficiently. And create the greatest amount of wealth from their resources. Thus maximizing wealth creation for all trading partners. And increasing their standards of living. This is what free trade gets you. Even when it comes to the farm.
Some in Britain fought against the repeal of the Corn Laws for the longest time. Mostly the landed aristocracy who liked selling their crops at high prices. Because if their markets were open to U.S. farm exports pouring out of America that competition would force them to lower their prices. And they didn’t want that. They wanted the British to pay higher prices for their food. So they could earn more. But they eventually repealed the Corn Laws in Britain. And food prices fell. Good for the hungry. Bad for the landed aristocracy. But good for the British Empire. Which reached its greatest wealth and glory during the second half of the 19th century. Because of David Ricardo’s Comparative Advantage.
Interesting that after the British Corn Laws the Americans would be protecting their farmers. Less than a century later the Americans caused the Great Depression in part by trying to protect their farmers (the mechanization of the farm caused food prices to fall leading to the farm loan defaults, price supports, tariffs, etc.). And still are. Forcing Americans to pay higher food prices. By keeping less costly food out of the market.
People may attack free trade. As they may attack free market capitalism. But what we have isn’t really free trade. Or free market capitalism. It’s more rent-seeking mercantilism than the profit-seeking capitalism that replaced it. For awhile, at least. The progressives launched their attack on capitalism around the turn of the 20th century. And have been fighting it ever since.
Tags: capitalism, comparative advantage, Corn Laws, David Ricardo, fair trade, free market, free trade, free-market capitalism, New Zealand, TPP, trade, trading partners, Trans Pacific Partnership
Week in Review
BRICS are on the ascendant. Producing healthy economic growth while the old dogs who taught them everything they know are wallowing in economic despair. Then again, the old dogs aren’t what they used to be. For they are nothing like their former selves. Or BRICS. Who are embracing economic growth. Instead of worrying about income redistribution and environmental policies that are killing the old dogs. And these new dogs are looking to teach the old dogs a new trick (see Bank tops agenda at Brics summit of emerging nations posted 3/29/2012 on BBC India).
Brazil, Russia, China, India and South Africa (the Brics group) are proposing an alternative to the World Bank.
Leaders of the five nations, which now account for nearly 28% of the global economy, discussed closer trade links…
“The Brics countries have agreed to examine in greater detail a proposal to set up a South-South development bank, funded and managed by the Brics and other developing countries,” Mr Singh later said.
The Delhi Declaration expressed concern over the current global economic situation, especially in the euro zone…
The countries also resolved “to promote greater interaction among the business communities of Brics nations and easier visa facilities for businessmen”.
Mr Singh said the Brics group must speak with one voice on important issues such as reform of the UN Security Council.
President Hu said Brics nations should “enhance co-operation and intensify communication in international trade”…
The Brics nations have radically different economies and political systems and have often struggled to find common ground in the past.
But, they have been looking at ways to increase their trade links and decrease dependency on Europe and the United States.
Speak with one voice and improve international trade? To compete against Europe and the United States? Other than that part about Europe this sounds very familiar. Oh, yes. I remember. This is what the Europeans said when they set up the Eurozone. Which is struggling to survive. Because they can’t speak with one voice. For the individual nations may have surrendered their currency. But they won’t surrender their sovereignty. Which is why uber responsible Germany is continually frustrated by spendthrifts like Greece and Spain. Not to blame Greece or Spain. A common currency without a political unity was just a bad idea.
I suppose as long as BRICS don’t do anything foolish like try to set up a common currency to compete against the US dollar or the Euro they may do all right. Being as they have such “radically different economies and political systems.” But let’s just hope they don’t follow the “institutions of global political and economic governance created more than six decades ago” and ruin their emerging economies by turning them into social democracies. Perhaps they can take a lesson from the Chileans. Who have done a remarkable job embracing free market capitalism. Thanks to their Chicago Boys. And a little Milton Friedman. Even privatized their social security system. They’re doing pretty well now. Unlike the nation that helped create them. Spain. Who is struggling with riots in their streets as they try to implement austerity to get their social spending under control. So they can remain in the Eurozone. And save the Euro.
Perhaps BRICS will be able to help bailout the Eurozone, too. You know, as long as they don’t follow the Europeans down the Road to Serfdom.
Tags: BERICS, emerging economies, Eurozone, international trade, Spain, trade, United States, World Bank
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