Posted on 08/26/2015 5:29:57 AM PDT by SeekAndFind
The quote of the day comes from pages 476-477 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:
At one time, it was believed that importing more than was exported impoverished a nation because the difference between import and exports had to be paid in gold, and the loss of gold was seen as a loss of national wealth. However, as early as 1776, Adam Smith’s classic The Wealth of Nations argued that the real wealth of a nation consists of its goods and services, not its gold supply.\
Too many people have yet to grasp the full implications of that, even in the twenty-first century. If the goods and services available to the American people are greater as a result of international trade, then Americans are wealthier, not poorer, regardless of whether there is a “deficit” or a “surplus” in the international balance of trade.
Yes. And it matters not how Americans (or, more generally, how denizens of whatever country is considered to be the “domestic” one) gain greater access to goods and services produced globally.
If the Chinese become zealous devotees of a religion whose doctrine requires that they serve Americans by shipping to Americans goods and services free of charge, then Americans are made better off.
If the Chinese innovate in ways that lower their costs of production — and distribution and, thus, enable them to sell goods and services to Americans at lower prices — then Americans are made better off.
If the Chinese invent new products and offer to sell these new products to Americans at prices that Americans find attractive, Americans are made better off.
If the forces of international competition oblige Chinese producers to lower their export prices to levels closer to their costs of production, then Americans are made better off.
If the Chinese government forces Chinese citizens to subsidize the production of goods and services sold to Americans so that Americans can purchase these goods and services at artificially low prices, then Americans are made better off (although Chinese citizens, other than those involved in the export trade, are made unjustifiably worse off).
If the Chinese monetary authority buys US dollars with newly created yuan in order to (of necessity temporarily) make Chinese exports artificially inexpensive for Americans to buy, then Americans are made better off (although Chinese citizens, other than those involved in the export trade, are made unjustifiably worse off).
The above reality is missed by people, such as Donald Trump (but hardly limited to him) who judge trade to be “successful” only if the jobs and businesses that it visibly — that is, directly — creates in the domestic economy are perceived as being greater than the number of jobs and businesses that it visibly destroys.
This error is among the oldest and most difficult to kill in economics — not only because this error is serviceable to domestic producers who greedily seek protection from competition, but also because it appeals to people who refuse to think beyond what is immediately and blindingly obvious.
A version of this post appeared at Café Hayek.
And government is exactly the organization that can create that level playing field!After all, and as everyone knows, when it comes to trade, government is responsible, reliable and capable.
If only we'd give government more control over the economy, then surely we'd be able to manage all outcomes to be equal. Individual people or companies cannot be trusted to make buying and selling decisions that benefit both parties. We need government to save us from ourselves. More big government conservatism is what this country needs!
Not quite. They take the little green pieces of paper and buy dollar-denominated assets. Those might include U.S. Treasury bonds, real estate, commodities like oil, U.S. companies ... Remember when the Japanese went on a buying spree in the late 1980s and early 1990s, buying the Pebble Beach Company, Rockefeller Center, etc.? Many of those investments later turned sour, the Japanese economy tanked, and the Japanese investors lost their shirts. History could repeat ...
I know you are being sarcastic, but gov’t could level the playing field by reducing regulations, taxes and labor laws over here.
Countries which export to the US must do something with the money (usually dollars) they receive for their goods and services. Much of it is used to buy dollar-denominated assets in th eUS, like Treasury bonds, real estate, companies, etc. Remember the Japanese buying spree of 25 years ago?
Always a tough call. Either by keeping production here or imposing tarifs we're increasing the cost of goods for our citizens. We may save/create some jobs but where is the breakeven point for our society as a whole?
Too many FReepers think that slapping a tariff on something is going to do something other than raise prices. Trump's proposed solutions are based on emotions rather than economic reality. The author of this article is correct.
Yes, we should balance our "too many regulations" with "higher taxes".
Pretty good discussion going on over here.
Currency manipulation does hurt our exports, but if our producers keep leaving the country because of the bad business environment, that won’t be a problem.
I've seen discussion that the Chinese have inflated their money supply much, much more than we have since 2008. And based on their fake economic stats, their currency may be as much as 50% overvalued versus the dollar.
If they truly floated their currency, to end their manipulation, it could tank instead of soar.
The "hot" portion of WWIII will last less than an hour.
And far too many seem to have no idea how many US jobs are completely dependent on imports. Tariffs will kill many of those jobs off long before any new, domestic manufacturing jobs can arrive to replace them.
ping
All consumer spending extinguishes capital; no matter where the product is made.
Wealth is created only through saving and investing those savings in production.
Mountains of stuff that is of dubious value even when it is new and is soon cast off to fill up landfills is not wealth .. unless we are saying our landfills are sources of future wealth/resources.
IIRC, Japan tried to export their way out of economic trouble back in the early 90's in the same manner and the result was 20 years of recession and deflation. My point is that Trump should be focused on taxes, regulations, unions, and lawyers, rather than currency. The former are better understood and more likely to help our economy, which is what he wants to do.
Cheap human capital here is no different than cheap human capital in a distant country. If the bottom-line is lowest possible prices for consumers, then all US-based industries should be free to compete using the cheapest available labor. And if there isn't sufficient available domestic labor, then competent foreign workers should be permitted to enter the job market freely to such an extent, that all employment demands are met, irrespective of the effects on the domestic US labor force.
Yes. Making your inputs more expensive is a policy only poor Willie thinks is a good idea.
My point is that Trump should be focused on taxes, regulations, unions, and lawyers, rather than currency.
I agree, if they want to overpay for their commodities to give us a lower price on their exports, they're doing it wrong.
tx!
I can absolutely push for lower taxes on imports while also insisting we build a wall and deport 12 million illegals.
Cheap human capital here is no different than cheap human capital in a distant country.
Cheap Mexican labor in Mexico commits less crime in the US than cheap Mexican labor here.
Cheap Mexican labor in Mexico is less likely to get drunk and drive the wrong direction down a US expressway than cheap Mexican labor here.
Cheap Mexican labor in Mexico doesn't commit us to educate the children of illegals as compared to cheap Mexican labor here.
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