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.
The flaw in that argument is that even though we are getting more value in return for what we are paying, the fact is that we are consuming it/plowing it into items that rapidly depreciate in value.
We send them numbers and a few little green pieces of paper and they send us useful products. After that, the transaction is done. We’re not required to give them our stuff. We win.
Increased velocity of money within a country will generate wealth in that country more quickly than removing that money from the country by purchasing imports.
While wealth internationally might grow faster with free trade, wealth growth in a trade-deficit country, by necessity, must grow slower due to reduced capital available.
RE: We send them numbers and a few little green pieces of paper and they send us useful products. After that, the transaction is done.
If I owe you $1,000 dollars and cannot pay, I am under your mercy.
If I owe you a trillion dollars and cannot pay, YOU are under MY mercy.
First you have to have a job to send them those little green pieces of paper.We still need to bring back manufacturing jobs. Then we need to make sure those jobs are available to US citizens.
Ricardo. Bastiat. Von Mises. Hayek. Friedman. Sowell. Great men, all of them. But, in Economics, just as in science or medicine, theories are updated over time with new data. They never accounted for a colossus such as the United States where it had a comparative advantage in essentially everything or a democratic politics where fragments of citizens could band together as splinters and vote away the rights and pocketbooks of others. No doubt Austrians and the Swiss should stick to watchmaking, no doubt, But try and figure out what the USA should have stuck to after WW2. It did everything better than everyone else. Aggregate cost of goods and services is indeed cheaper in the USA. But, there’s no economy to support wages for the 1/3 of adults not working at all anymore. There is a gap in free trade theory that extends beyond the immediate lower cost of goods. There’s another gap that doesnt account for regulations and politics and taxation and the nanny state.
Wealth of Nations argued that the real wealth of a nation consists of its goods and services, not its gold supply.\They contradicted themselves hoping you're too stupid to notice.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.
"Its goods and services" doesn't include shit "available" from China unless China wants "its" (our) goods and services...But China instead got the (worthless?) gold
The American left is forcing jobs offshore through its policies relating to taxation and wages. While U.S. Companies are forced to pay artificially high wages and to pay destructive taxes, both costs are transferred into the price to the consumer, so foreign goods look cheaper.
We were able to win WWII because we were able to transform our factories from domestic products to war material.
When WWIII begins, where are the factories that we will need for the arms and ammunition? In China, in Mexico?
Shipping jobs overseas so we can buy cheap junk and the Multinational CEO get richer is going to end up costing us more in blood and treasury in the long run.
Exactly.
Trump has said repeatedly now that he’s a free trader—but that a country just needs to be smart about it.
And he’s right about that.
No doubt the surest way to regain the manufacturing advantage would be to destroy our competitors again. I think you're right noticing the level of nanny-statism, taxation and environmental arbitrage is what impels our manufacturing offshore. Only ridiculous bravado permits our government to continue to enact regulations and laws which intentionally hamstring our own economy.
Don’t give facts to free traitors, it messes up their cute little models.
Adam Smith said the real wealth of a nation is its goods and services, but I believe he meant the goods and services they produced, not borrowed money to buy.
Free trade can only work on a level playing field.
Right, which is really Trump’s point.
I suspect this economist would say we're 'richer' as a people of we don't befoul our countryside.
Not advocating for that. But it would be sensible to account for the disparity in our regulations with an appropriate tariff.
of = if
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