New Zealand attacks America for Subsidizing and Protecting their Farmers

Posted by PITHOCRATES - June 16th, 2012

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.

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The Fed to Buy $600 Billion in Government Bonds

Posted by PITHOCRATES - November 5th, 2010

The Fed’s $600 billion government bond Purchase may Worsen the Recession

The Fed is preparing to buy some $600 billion in government bonds.  They call it quantitative easing (QE).  The goal is to stimulate the economy by making more money available.  The problem is, though, we don’t have a lack of money problem.  We have a lack of jobs problem.  Unemployed people can’t go to the store and buy stuff.  So businesses aren’t looking to make more stuff.  They don’t need more money to borrow.  They need people to go back to work.  And until they do, they’re not going to borrow money to expand production.  No matter how cheap that money is to borrow.

This isn’t hard to understand.  We all get it.  If we lose our job we don’t go out and buy stuff.  Instead, we sit on our money.  For as long as we can.  Spend it very carefully and only on the bare necessities.  To make that money last as long as possible to carry us through this period of unemployment.  And the last thing we’re going to do is borrow money to make a big purchase.  Even if the interest rates are zero.  Because without a job, any new debt will require payments that we can’t afford.  That money we saved for this rainy ‘day’ will disappear quicker the more debt we try to service.  Which is the opposite of what we want during a period of unemployment.

Incidentally, do you know how the Fed will buy those bonds?  Where they’re going to get the $600 billion?  They going to print it.  Make it out of nothing.  They will inflate the money supply.  Which will depreciate our currency.  Prices will go up.  And our money will be worth less.  Put the two together and the people who have jobs won’t be able to buy as much as they did before.  This will only worsen the recession.  So why do they do it?

Quantitative Easing May Ease the Global Economy into a Trade War

A couple of reasons.  First of all, this administration clings to outdated Keynesian economics that says when times are bad the government should spend money.  Print it.  As much as possible.  For the economic stimulus will offset the ‘negligible’ inflation the dollar printing creates.  The only problem with this is that it doesn’t work.  It didn’t work the last time the Obama administration tried quantitative easing.  As it didn’t work for Jimmy Carter.  Of course, when it comes to Big Government policies, when they fail the answer is always to try again.  Their reason?  They say that the government’s actions that failed simply weren’t bold enough.

Another reason is trade.  A cheaper dollar makes our exports cheaper.  When the exchange rates give you bushels full of U.S. dollars for foreign currency, those foreign nations can buy container ships worth of exported goods.  It’s not playing fair, though.  Because every nation wants to sell their exports.  When we devalue the dollar, it hurts the domestic economies of our trading partners.  Which they want to protect as much as we want to protect ours.  So what do they do?  They fight back.  They will use capital controls to increase the cost of those cheap dollars.  This will increase the cost of those imports and dissuade their people from buying them.  They may impose import tariffs.  This is basically a tax added to the price of imported goods.  When a nation turns to these trade barriers, other nations fight back.  They do the same.  As this goes back and forth between nations, international trade declines.  This degenerates into a full-blown trade war.  Sort of like in the late 1920s.  Which was a major factor that caused the worldwide Great Depression.

Will there be a trade war?  Well, the Germans are warning this action may result in a currency war (see Germany Concerned About US Stimulus Moves by Reuters).  The Chinese warn about the ‘unbridle printing’ of money as the biggest risk to the global economy (see U.S. dollar printing is huge risk -China c.bank adviser by Reuters’ Langi Chiang and Simon Rabinovitch).  Even Brazil is looking at defensive measures to protect their economy from this easing (see Backlash against Fed’s $600bn easing by the Financial Times).  The international community is circling the wagons.  This easing may only result in trade wars and inflation.  With nothing to show for it.  Except a worse recession.

Businesses Create Jobs in a Business Friendly Environment

We need jobs.  We need real stimulus.  We need to do what JFK did.  What Reagan did.  Make the U.S. business friendly.  Cut taxes.  Cut regulation.  Cut government.  And get the hell out of the way. 

Rich people are sitting on excess cash.  Make the business environment so enticing to them that they can’t sit on their cash any longer.  If the opportunity is there to make a favorable return on their investment, guess what?  They’ll invest.  They’ll take a risk.  Create jobs.  Even if the return on their investment won’t be in the short term.  If the business environment will reward those willing to take a long-term risk, they will.  And the more investors do this the more jobs will be created.  And the more people are working the more stuff they can buy.  They may even borrow some of that cheap money for a big purchase.  If they feel their job will be there for awhile.  And they will if a lot of investors are risking their money.  Creating jobs.  For transient, make-work government jobs just don’t breed a whole lot of confidence in long term employment.  Which is what Keynesian government-stimulus jobs typically are.

We may argue about which came first, the chicken or the egg.  But here is one thing that is indisputable.  Jobs come before spending.  Always have.  Always will.  And quantitative easing can’t change that.

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