Free Trade and the ‘Cheap Goods’ Delusion

American Greatness ^ | June 22, 2019 | Spencer P Morrison

[Thalean]

Between 1348 and 1352 a monstrous plague—the Black Death—ravaged Europe. The disease struck young and old, men and women, saint and sinner alike. Half the population died. Whole cities disappeared. Western Civilization was on the brink of collapse.

What caused this plague? Bad smells. Foul odors. The stench of decay. This was considered unequivocal, scientific fact—that is until we invented the microscope and discovered that an entire world of miniature animalcules existed right under our noses. In time we realized that these creatures caused illness: germ theory was born, and with it died the centuries-old miasma theory of disease.

Received wisdom—no matter how venerable—should always be treated with a healthy dose of skepticism. This is especially true when it comes to economics, as money brings out hucksters who sell snake-oil bottled as genuine emollients.

Bluntly: many economists are crooks and liars.

The biggest lie they tell us is that international free trade makes stuff cheaper. It doesn’t. It simply enriches the white-collar gangsters who run our banks—the very people who so often fund “libertarian” think tanks. Go figure.

[cba123]

Good post.

[babble-on]

stupid post

[brownsfan]

I can’t even begin to tell you how much time was spent here at FR fighting over this issue. Back then I was in the minority, and was often invited to go “back to the DU”.

Interesting to watch things change.

[econjack]

Technology, not labor specialization, is what drives long-run economic growth.

Well, yes and no. Why haven't the Third World countries experienced the growth that most of the rest of the world has enjoyed? After all, even the author admits that the technology is mobile. Part of the explanation is labor specialization. Many of those countries lack a labor force sufficiently specialized (educated) to attract foreign investment. Technology doesn't occur in a vacuum. Labor creates the technology, labor embodies the technology in a new productive process, and labor uses that new process to produce goods and services that the market wants. If labor does not play a part in economic growth, the author needs to explain the existence of Third World countries.

[bigbob]

Hard to believe the much dumbness could be packed into one article.

I suppose if people who actually understood economics tried writing about medieval history they would make as little sense as this lawyer-blogger does.

[mjp]

Because free trade has nothing to do with long-run economic growth, it necessarily has nothing to do with long-run reductions in consumer prices. As such, the entire “freer trade means cheaper goods” argument is nothing but a myth perpetrated by jesters and charlatans.

When the price of a good depends on the costs of production, then the price of a good will be cheap here if it comes from a country with low labor costs, and there are no tariffs here.

[nathanbedford]

I agree with your analysis.

Labor does not mean only drones doing repetitive tasks on an assembly line, labor means a pool of talent which can perform the nearly infinite number of tasks required to make, for example, a graphite pencil.

In this sense a competitive advantage arises when a country has an abundance of coal, as did Great Britain at the inception of the Industrial Revolution, or when a nation has a combination of coal, iron and transportation as the United States had around the Great Lakes.

Today, we face China which has a very intimidating comparative advantage in its talent pool. First we know that their universities are producing multiple times stem graduates than we are producing in America. Beyond that, there exists an infrastructure of firms that go into making, for example, an iPhone that is astonishing in its complexity and one of the main reasons why it is not so easy to transport that entire chain of various firms whole to America to make an iPhone. This chain, these relationships, have adapted to one another, are within easy access of one another, have created a culture that is very efficient.

On top of all of this, the Chinese are surging in in the race over artificial intelligence and robots. They unquestionably have the capital they need. Whichever element that suggests a country will increasingly prosper, China has it.

Our problem is to identify what weapons we have to fight and win an existential war on a mercantilist stage? Simply slapping tariffs on some Chinese goods does not translate into creating a whole talent infrastructure in America. The margins have to be just right, the incentives have to be long-term, the educable talent potential has to be available.

Finally, there has to be a national will to wage and win a mercantilist war.

[grey_whiskers]

(Pats troll on the head.)

You are taking for granted the absence of intellectual property theft; quality control; honest production and process and unit testing; product lifecycles long enough to allow transoceanic shipping; the lack of dumping; and ignoring the tendency of support functions for the physical plant, and many higher-level design functions, to be pulled closer to the source of production.

As well as the displacement of the workers (in the US many of these workers had a lower standard of living, despite liar Neutron Jackoff Welch's promises of "lifetime employability"), and the higher social costs of welfare and other payments, and the tertiary effects of broken homes and such due to the loss of breadwinners.

But go ahead and continue fellating yourself in public if you insist.

[Harmless Teddy Bear]

Why haven't the Third World countries experienced the growth that most of the rest of the world has enjoyed?

You need three things for prosperity.

A respect for property, simple legal steps to get the property and a judiciary who supports the ownership of property.

All of those things are missing in the third world.

[grey_whiskers]

You also need an impartial government not run by nepotism and bribery; a decent educational system; enough food; and decent transport and power distribution systems.

As well as a lack of massive sectarian violence.

Non-confiscatory policies (as well as low enough taxes) help to; as does suppression of monopolies.

[central_va]

Bluntly: many economists are crooks and liars.

Many? I would say that is an understatement.

[central_va]

Your post is stupid.

[central_va]

Nobody ever discusses the effect on a countries war making ability when all of its industry is off shored TO HOSTILE FOREIGN POWERS NO LESS!!!

[central_va]

Future generations are going to be so glad that our generation took such a short term view of economics and stood idly by while the WTO and the rest of the world practiced brutal mercantilism against the USA. /sarc

[central_va]

When the price of a good depends on the costs of production, then the price of a good will be cheap here if it comes from a country with low labor costs, and there are no tariffs here.

If you can accept the social welfare costs, the push for socialism and higher taxes this begets, then well yes. But only marginally so. Manufacturing IS NOT labor intensive, even if made in the USA. We are talking pennies on the dollar.

[central_va]

Most third world countries have an average IQ < 90. That is the core problem.

[central_va]

This is a great article on trade.

Trade, the Left, and Trump

[Harmless Teddy Bear]

All of those things arise out of the three things I mentioned.

[Harmless Teddy Bear]

I read that book too. It is a bunch of baloney pushed by people who did a very poor job doing research.

Funny but when the three things I mentioned show up suddenly the IQ apparently soars. When they vanish the IQ drops. Amazing how that can happen in just few decades.