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The Great Flaw in the Free Trade Theory And Other Vain Beliefs, Hoaxes, and Follies

ilene's picture




 

As always, when Jesse discusses economic theory and politics, he clearly and concisely explains why the currently popular mind-numbing theories haven't worked, and will not work.  The time spent debating the existing models could be better spent constructing a new vision of how society can best be served by the government and the financial system - not the other way around. - Ilene  

The Great Flaw in the Free Trade Theory And Other Vain Beliefs, Hoaxes, and Follies

Courtesy of Jesse's Cafe Americain 

There are several economic models and political memes that rely on an underlying belief in the natural efficiency and goodness of 'free trade' and 'efficient markets.' One can question whether these ideas promoted certain behaviours, or if certain parties promoted these theories to serve as justification for their policy objectives. 

Whatever the case may be, let's take a look at the theories that seem to underpin the virtue of 'free trade,' meaning international commerce with very light national regulations and a centralized semi-autonomous authority as arbiter. 

One of the theories in favor of free trade is the idea of comparative advantage, that is, that one country might have a natural advantage which they can exploit for their own benefit and the general benefit of the world. I am sure we all learned this in business school. I myself was quite a fan of Michael Porter in my day.

This theory is a universalisation of the idea that the naturally gifted pottery maker, for example, has an inherent talent that can be exploited, and can create and exchange pots for food, let's say, from a farmer who has the advantage of owning suitable farm land and has the talent and tools to exploit it.

Makes common sense does it?  Everyone does what they do best, and through the free exchange of  products the aggregate good is increased.

But the fallacy that is repeated over and over by the non-scientific thinker (like too many economists and politicians for example) is that one can extend things that might make sense anecdotally into general principles writ large on the face real world, or more properly OVER the face of the real world, that at the end have little real fundamental connection with reality. 

This was Mandelbrot's great criticism of the neo-liberal school of economics, notably the Chicago School, for example. Their broad assumptions crushed the reality out of the math, and the application of their theory made the markets inherently unstable by miscalculating the risks which were allowed to grow to enormous levels, and then crash at the under-expected event, colloquially known as 'a black swan.'

There is some validity to this. Some nations, for example, are blessed with great natural resources such as coal and oil, and they can sell these items to other countries and regions in exchange for items like food, for example.

But like most efficiency arguments, most notably the efficient market hypothesis, these ripples in distribution or market anomalies are quickly exhausted, and in the classic impetus and peril of successful capitalism, the players start to create monopolies and other artificial advantages, such as frauds, which they can exploit more fully.

So for example, a nation such as China can devalue its currency substantially in the 1990's against the world's reserve currency, and thereby set up a set of artificial import barriers and export subsidies, simply by manipulating their currency.

By the way, this is basic math. There are plenty of people who were denying it, and most of them stood to benefit from this charade. But it is true. Anyone who travels internationally and changes money understands it. 

The underlying basis of the currency wars is the ability to artificially manipulate one's currency, or even establish a pseudo-monopoly, for the advantage of one to the disadvantage of the others.

There are other methods to accomplish this and they are usually lumped under the title of industrial policy or mercantilism. A country has a set of laws and regulations that foster a certain stance towards issues such as worker's rights, environmentalism, savings and consumption, wealth distribution and even human rights.

The more trade becomes independent of public policy and regulation, the greater the movement of all countries to the least common denominator of the broader policy stances of the mercantilist nations.

In a very real sense, if you control the issuance and terms of money, you care not who makes the laws locally. And the exchange of trade mechanism is a subset of the control of a medium of exchange, which is the trade system, both international and domestic, the who and how people can buy or sell.

This principle seems to be the basis of the inclusion of gold and silver in the money system essays written by my friend Hugo Salinas-Price, and the age old understanding of the balancing mechanism of a harder standard of exchange to manage the tendencies of various participants to 'cheat.'

Anyone who believes that believes that markets and society do not require clear laws and impartial referees because people are naturally inclined to know and do the 'right thing' has obviously never driven on a modern American freeway.

If, for example, we were in a gold standard system for international trade, and the governance had allowed China and its multinational capitalist friends to game the system as they are doing now, eventually the flow of gold from the US to China would compel the US to devalue its currency against the Yuan, and thereby persuade China to release more of its reserves as gold back into the system by purchasing other things. If they used it to buy US debt for example, the dollar would continue to devalue in a cycle which would hamper and ultimately defeat the currency mercantilism.

It would have also restrained the US from manipulating the world by 'owning' the world's reserve currency and the 'exorbitant privilege' therein. It would have curtailed unfunded wars, and the exporting of jobs and production in favor of a 'service economy' that consists largely of pushing the reserve currency around the plate, and skimming the greatest portion for an elite group of policy leaders. No standard is perfect, and there are ways to subvert some external standard like gold, but it is more difficult to do, and it is more easily seen and exposed if the standard is resolute and robust.

We see a similar principle in action in the theory supporting efficient markets. On paper they sound good, but they are deeply flawed because of the nature of the assumptions they make about people and their rationality and selflessness.

As most gardeners can tell you, there is rarely such a thing as a naturally beautiful and weed free garden, especially the ones that look 'natural.' It takes a great deal of forethought, adjustment, and continual work to make anything sustainable in this world of ours. And so it is with markets, both local and international.

There are those, like former Fed Chairman Greenspan, who argue that the fiat regime of the Federal Reserve works if the Fed 'acts like a gold standard,' that is, with an unapproachable virtue.  A similar theory underpins the World Trade Organization's function in international trade.  But like all human systems, they tend to fall to the great truth observed by Lord Action some years ago, that "where you have the concentration of power in a few hands, all too frequently men with the mentality of gangsters get control. History has proven that."

I am not promoting a gold standard per se and understand the problems inherent with it, and do not wish to discuss that here. 

But what I am attempting to do is expose some of the fallacies of the zombie economic theories that have led the world to the place where it is today, with too much discretionary power concentrated in too few hands, with a propensity to act in secret and with an excess of latitude behind the cover of those artificial constructs known as 'corporations.'

This notion that government and regulation is the problem is true only to the extent that government has become weakened and corrupted by gross abuses. Effective government takes planning, continual hard work, and the adjustment of renewal and reform.

Human constructs, if not continually managed and repaired and occasionally renewed, tend inevitably into disruption, dysfunctionality, and corruption.

To say, let's just get rid of it and things will somehow become naturally good is to attempt to build a castle in the clouds. It will not and has never worked to promote a harmonious and productive society on a large scale, ever, in all of human history. It is the law of the jungle. But it has its continual appeal to sociopaths, misfits, the naive, the frustrated, and psychopaths.

It is a tool of the false dialectic of extremes, that argues that the choice is between no government and bad government, and that if government is not perfect it is inherently evil. Because they are driven to extremes, those who argue this cannot see the great middle ground, of an imperfect government that nevertheless is capable of maintaining justice and order within the context of freedom.  Failure is only certain at the extremes, of authoritarianism and anarchy, when by two different paths one turns society over to the wolves.

The longer this artificial construct of natural goodness and perfect rationality is maintained, the greater the forces against it will build, until countries and nations explode into revolution and wars, as a consequence of folly.  

The model in my forecast says that meaningful reform to the status quo will not be readily accepted by the power elite.  They will promote a 'new normal' which will span a leisurely 'five to ten years' for economic recovery, while they are comfortably standing above it all on other people's necks.  The ability to set oneself aside and apart, as separate and above, from the rest of humanity is served in many ways and by many things. It is a dangerous delusion to feel naturally privileged for whatever reason. It can only be maintained through power, and power is a deadly narcotic.

We can be thankful that other crackpot theories have not become mainstream, such as eugenics, or the marginalizing and then disposal of the weak, the disabled, and the different to serve the economic advancement of the state. Or groupthink, and profound belief in national or racial exceptionalism that tends to lead groups to quick utilitarian solutions and Pyrrhic ends. So there is some room for optimism.

Change may not come until the powerful are standing in ashes, and therein lies a tragedy yet to unfold. Let us work on with hope that reform comes well before then.

 

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Tue, 09/13/2011 - 23:43 | 1666324 chinawholesaler
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Sun, 08/14/2011 - 15:56 | 1559405 tradewithdave
tradewithdave's picture

Another solution for your consideration... "and the Government will be on His shoulders..." courtesy of Isaiah.

Dave Harrison
www.tradewithdave.com

Sun, 08/14/2011 - 16:35 | 1559522 Bob
Sat, 08/13/2011 - 17:46 | 1557548 malek
malek's picture

...devalue its currency and thereby set up a set of artificial import barriers and export subsidies
Can't you easily put together a list of countries where such an approach didn't work out so well? (What did you say about assumptions crushing out reality? )

the movement of all countries to the least common denominator of the broader policy stances of the mercantilist nations.
Once again, are people nowadays working as true slaves in China, and dying young from suppression, exhaustion, and pollution??

...the balancing mechanism of a harder standard of exchange to manage the tendencies of various participants to 'cheat.'
So in other words we are now reaping what Nixon sowed.

I say it in very neutral terms: Christianity got pretty far with a belief in natural goodness.

As the first thing effective government, just like any other form of organization, needs accountability of each entity involved.

Fri, 08/12/2011 - 20:59 | 1556105 g
g's picture

More drivel from Ilene and her progressive agenda, I can not believe TD lets Ilene post this tripe.

Fri, 08/12/2011 - 22:20 | 1556259 sambro
sambro's picture

Only balanced trade is really free. Same as your checkbook...

There are many ways to achieve balance of trade:

Import Certificates: issued to importers or sold by the Treasury. Warren Buffett proposed it way back when he was with the good guys. 

Scaled Tariffs: The higher the trade deficit with a country, the higher the tariffs. If zero deficit - zero tariffs.

Check The Balanced Trade  Restoration Act of 2006 by Dorgan and Feingold (if I remember correctly), many solutions but only TWO responsible and honest politicians. That was in back 2006, today the responsibility deficit exceeds the trade one.

Fri, 08/12/2011 - 21:30 | 1556169 theopco
theopco's picture

Yeah anything that doesn't conform to your right wing brain washing should be censored

Sat, 08/13/2011 - 00:00 | 1556437 CrockettAlmanac.com
CrockettAlmanac.com's picture

What makes you think that those who love freedom have been brainwashed by the right wing? I was a Democrat most of my life because I believed their lies about peace and social justice. But big government always looks to enlarge itself by squelching individual freedom which in turn leads to conflict.

Peace and justice can only be found in the free market. The 800 pound gorilla only wants your bananas.

Sat, 08/13/2011 - 02:30 | 1556567 theopco
theopco's picture

what makes you think that I think that I'm talking about you? Why are you looking for conflict amidst those that obviously share your views?

I mean, unless you get paid to do this. In which case, semper fi, brah.

 

Um the free market?

You mean like, I'm just gonna put the tip in free market?

 

God I hope you get paid to spew this craven nonsense. Ohterwise. Jesus Christ dude What are you doing? Are you this stupid?

Sat, 08/13/2011 - 13:29 | 1557266 CrockettAlmanac.com
CrockettAlmanac.com's picture

Yeah. They pay me to post here. Because I'm the best.

And you're not paranoid at all.

 

Fri, 08/12/2011 - 20:49 | 1556077 keating
keating's picture

When China cut the value of its currency, the move was transparent. A good negotiator would have doubled the prices by tariff, and agree to eliminate them once China restored a fair value for its currency. But, American negotiators are spineless morons, and gave away teh store. I have heard them speak on CSPAN and they are without a clue.

This would have been an easy problem to solve...not too late now.

 

Fri, 08/12/2011 - 20:48 | 1556070 newbee
newbee's picture

I have a substantial level of cognitive dissonance on this whole topic.  I'm generally a free market supporter.  However, I look at places like China which sold many of their inefficient and failing government run industries to private owners and saw both the massive growth / profits with all the corruption / pollution accompanying it.  I breath clean air in the States on the most part, something I can't do in China.  I eat good clean food and don't have to wonder if someone's spiked the milk with some kind of poison to make a bit more profit watering the milk down.  In the end, I think it's a balance where these forces simply have to continually battle it out.  Either extreme is doom.  My 2 cents.

Fri, 08/12/2011 - 21:39 | 1556185 theopco
theopco's picture

Good thing you posted that late.  Anything reasoned that doesn't tow the Randian line gets smacked down pretty hard around here. Almost as if... as if there were people who were actively trying to avoid any change in the status quo...

Fri, 08/12/2011 - 19:28 | 1555921 PPagan
PPagan's picture

Great article, a breath of common sense. Thanks!

Fri, 08/12/2011 - 18:50 | 1555854 Heroic Couplet
Heroic Couplet's picture

In 1961, taxes were 90% on the wealthy, the middle class was thriving, as it only took one wage earner for the middle class to enjoy home ownership, employment, auto, food. There's the lie to "lower taxes" that the teabaggers chant. Today the top tax bracket is 35% and the middle class is in its last stages, until the middle class decides to take matters into their own hands.

Fri, 08/12/2011 - 19:32 | 1555925 gwar5
gwar5's picture

The 90% tax always pointed to by the Obamabaggers is always misunderstood and misrepresented by the illiterati.

The 90% tax rate did not even kick in until income reached a certain threshold of income, and then, only the portion above the threshold was taxed at a 90%. But this tax regime had the predictable results, which was that people mostly just stopped working after they hit the 90% threshold level, with loss of productivity and revenues, which was another reason it was discarded. 

Carter had a 70% tax rate on the highest earners, and they only paid 19% of all revenues. After Reagan reduced the highest rates, the highest earners paid 39% of all revenues, more than twice what Carter's 70% could achieve. This continues to be true today.

Tax rates and tax revenues are two completely different things. But socialists don't seem to care. They'd rather take food out of a baby's mouth just to punish somebody they considered "rich".

 

"Yes, I'd raise the tax rate on capital gains even if it meant lower revenues." -- Barrack Obama, in ABC's Charlie Gibson interview.

 

 

Fri, 08/12/2011 - 20:35 | 1556039 Heroic Couplet
Heroic Couplet's picture

If you're telling me the Rothschilds and the Rockefellers stopped working at the 90% tax rate, I don't believe you. I don't believe they "stopped working" in the United States. I don't believe they stopped working any place else in the world. Give me the names of those who stopped working. Joe Kennedy maybe? He switched from being president of the SEC to being US Ambassador to England. Define what you mean by "working" versus "living off the returns of investment."

Socialism is a great term. Check out Moore's Creek Bridge in Pender County if you're ever traveling in North Carolina. It was the site of Cornwallis's defeat at the hand of the colonials.  There is a bridge across the creek. There's a sign that states before the American Revolution was even fought, a landowner was forced to maintain a bridge across every creek that was deemed a route to market, IOW, Regulation, and at who knows what percent of the landowner's income and wealth. The specifications were exact. The bridge had to be wide enough to support a cart fully loaded with hay, and had to support the weight of a fully loaded cart on its way to market. It was the Landowner's expense and responsibility to maintain the wooden bridge.

You could call that stipulation socialism, but it's not the govenment owning the means of production. You could call it Marxism: the greatest good for the greatest number of people living in Pender County. It damn straight was regulation and Marxism, but it was law and enforced.

Fri, 08/12/2011 - 18:33 | 1555820 jaybos1
jaybos1's picture

Perhaps we should study whether the comparative advantage foundation for free trade is viable in a world economy where there are no real barriers to availability of capital and availability of technology.  When a new product is to be brought to market, the only question is where the labor is cheapest to produce it.   If the U.S. allows all manufacturing to occur offshore, aggregate trade deficits will ultimately give the producing countries such a significant call on American assets that they can buy all we have.  Why do we allow cheap producers to undersell us when they refuse to comply with reasonable environmental requirements, labor protections, and other requirements we impose on our own producers?   Comparative advantage breaks down in a world of controlled economies and when the only real advantage is cheap labor.

Fri, 08/12/2011 - 17:23 | 1555658 Catullus
Catullus's picture

It's just another in a long series of hopelessly confused essays of the human experience by Jesse.  He doesn't disprove Free Trade theory, he just says it's like the Efficient Market Hypothesis in that it's not true.  He admits fully that there are gains from trade and that division of labor actually does exist, but it's "more complicated" and the world is "more complex".  It's not.  This is just confused thinking.  If the division of labor and gains from trade can be proven to exist between individuals, than why don't  they exist between lots of individuals living in other countries?  Because they form monopolies? Then it slips into the efficiency argument, as if oil or coal are going to magically appear in countries where there is none. 

But really what he identified is the eventually downfall of all governments: trade.  The gains from trade and global division of labor are so advantageous to take advantage of that human beings will subvert and even risk their own safety to break the laws of a government that does not allow for the free exchange of property.  Jesse views this as the "least common denominator"; it can be properly viewed as the essential element of human behavior that gives hope to many.  That in the end, people will always be 12 steps ahead of the governments around the world. 

Fri, 08/12/2011 - 17:08 | 1555619 Manthong
Manthong's picture

"We can be thankful that other crackpot theories have not become mainstream, such as eugenics, or the marginalizing and then disposal of the weak, the disabled, and the different to serve the economic advancement of the state."

Just be patient and give it a little more time. It’s taken us 50 years to normalize sexual deviancy and infanticide, destroy the institution of marriage and we are just about done with the destruction of the dollar and the American economy.

We need just a little longer to finish those jobs. We’ve got the sexualization of the children in process and next up is going “all-in” on the New World Order and Eugenics.

Have faith.

Rome wasn’t built (or destroyed) in a day.

 

Fri, 08/12/2011 - 18:56 | 1555877 anony
anony's picture

As a male 'lesbean', at first I thought this an " Onion " piece, but as I finished it, I realized: Eureka! You're absolutely right!

 

Fri, 08/12/2011 - 17:02 | 1555599 Spitzer
Spitzer's picture

I took a jibe at JesseAmeircain just yesterday about his trading record. Im glad I did. He is showing his true colors with bullshit like this.

I don't know how much Austrian economics, JesseAmericain has read, but judging by the fact that he sold some gold at the high ($1800) and the fact that he posted this garbage, indicates to me that he has read none.

He is just another wonderer, on the fence between socialism and capitalism.

Fri, 08/12/2011 - 16:52 | 1555561 aerial view
aerial view's picture

The key issue in all trade (AND LIFE) is FAIRNESS.

Why should McDonalds, Walmart, Home Depot be able to buy and then sell things cheaper than the neighborhood business? How many millions of small businesses can't make it or barely make it while the 5 Walton family members are worth over $20 billion EACH?! Throughout  life we are taught to work hard, play fairly and be honest. We are all given the same material to learn in class and the same test in order to be judged fairly. Sporting events all have rules and referees to enforce them. In the business world, the only principle is ANYTHING IS LEGAL AS LONG AS YOU DON'T GET CAUGHT and this has been further twisted into EVEN IF WE DO GET CAUGHT THE PROFIT OUTWEIGHS ALL ELSE. Since we have no referees to enforce the rules in business and trade, we end up with a corrupt system that only rewards the rule breakers and makes a very few ridiculously rich at the expense of all others and society.

 

Fri, 08/12/2011 - 19:00 | 1555885 anony
anony's picture

Expecting life to be "Fair" is inordinately naive, unless you are very very young, in nursery school.

From our earliest years we find out life's essential characteristic is that it is unfair.  Remember high school if you can.

 

Fri, 08/12/2011 - 17:03 | 1555605 CrockettAlmanac.com
CrockettAlmanac.com's picture

The rules encourage exactly the type of behavior which you claim to abhor in your comment. Government creates loopholes in legislation specifically in order to benefit the corporations with which they are allied. We all know this.

Fri, 08/12/2011 - 17:03 | 1555603 tmosley
tmosley's picture

Yeah, fuck the consumer!  No-one needs things or money, let's give everything to the crappy, non-competative businesses of the world!

Never mind that big businesses like Wal-Mart got their start as small businesses who gew by developing their businesses with what was best for the consumer in mind.  

If you are going to rail against something, rail against the root issue which has driven every problem that has emerged in America, from poverty to war to pollution, in the past 100 years--the central bank (and the corporations that have sprung up around them).

Don't like corporations?  Abolish the corporate form.  Let the shareholders be responsible for their purchases with 100% of what they own, just like any other business owner.

Fri, 08/12/2011 - 16:31 | 1555468 keating
keating's picture

There is a nice space in the middle. Highways do best with some highway patrols, and the ability to hand out warnings as well as big tickets.

Banks need limits as well, or the greed of some changes the entire institution. India avoided the housing crisis because they had a hard ass bank regulator, Mr. Reddy (?) who insisted on a 20% down payment to buy a house. Simple regulation, kept some people out of the market, but it worked perfectly. We had no such rule and paid the price.

We have no reasonable access to many of the world's markets. I heard one of our negotiators on C-Span and he was entirely clueless. It's no wonder all our jobs went overseas. I think the next president needs to use Donald Trump and Scott Boras, and beat some of these small countries into good behavior.

 

Fri, 08/12/2011 - 17:00 | 1555586 CrockettAlmanac.com
CrockettAlmanac.com's picture

Highways do best with some highway patrols, and the ability to hand out warnings as well as big tickets.

 

Governments find traffic laws to be a great source of revenue. Circumstances encourage government to impose regulations which are not geared toward making roads safer but rather to swelling government revenues.

How much government revenue (at the expense of jobs and food prices) do you think this proposed piece of legislation will bring in?

A new rule being proposed by the federal Department of Transportation would require farmers to get commercial drivers licenses.

Drivers would keep logs of information including hours worked and miles traveled. Vehicles would be required to display DOT numbers. A CDL in Virginia costs $64 for eight years, or $8 per year, not including the cost of an instructional class and the written test.

 

http://www.gazettevirginian.com/index.php/news/34-news/3739-proposed-rul...

 

Please review the studies of Hans Monderman. His research led to the implementation of roadways without regulation as this was shown to be safer. When individuals must interact with other drivers, cyclists and pedestrians safety improves.

Fri, 08/12/2011 - 17:08 | 1555620 Spitzer
Spitzer's picture

Traffic lights are the socialists dream. They put them up and then hire public unionized workers to maintain them. Then they hang camera's on them to catch tax payers running yellows.

Fri, 08/12/2011 - 20:12 | 1555996 theopco
theopco's picture

statism is not the same as socialism. socialism is an economic system. And no, I'm not a fan of either

Fri, 08/12/2011 - 17:25 | 1555653 CrockettAlmanac.com
CrockettAlmanac.com's picture

Then they hang camera's on them to catch tax payers running yellows.

 

Which increases traffic accidents as drivers will now slam on the breaks at the first hint of yellow rather than gauging their driving behavior according to the actual traffic conditions.

Fri, 08/12/2011 - 16:08 | 1555388 adr
adr's picture

I can build many things with my bare hands. I am an industrial designer by trade and education. I have the ability to take raw materials and turn them into something useful for someone else. However if the barrier to enter the "free" market is set too high due to regulations and manipulations of the cost of raw materials then my skills are then worthless and my ability to keep the market in check vanishes.

In a true free market I would always be able to use my ability to trade for something made from someone's ability that I did not have. If I felt that someone was ripping people off selling something I could make myself, I could make it for less and put him out of business or at least get him to lower his price. Competition forces honesty and relative equality in the overall economy. If you take too much for yourself you will be crushed by someone who is willing to take less in order to get your business.

The problem is that the government intervened in the natural free market and made it nearly impossible for someone to break into that market and force a readjustment. Those who rip people off have been protected by the government because they could afford to pay off those who are elected. Competition was sacrificed for the comfort of those in power and for the sake of the concentration of wealth in the hands of the few.

Fri, 08/12/2011 - 16:51 | 1555556 CrockettAlmanac.com
CrockettAlmanac.com's picture

On the money.

Fri, 08/12/2011 - 15:34 | 1555257 CrockettAlmanac.com
CrockettAlmanac.com's picture

Whatever the case may be, let's take a look at the theories that seem to underpin the virtue of 'free trade,' meaning international commerce with very light national regulations and a centralized semi-autonomous authority as arbiter.

 

That's not free trade. In a free market participants interact without any regulation and they chose their own arbiter.

 

But the fallacy that is repeated over and over by the non-scientific thinker (like too many economists and politicians for example) is that one can extend things that might make sense anecdotally into general principles writ large on the face real world, or more properly OVER the face of the real world, that at the end have little real fundamental connection with reality. ...

 

Anyone who believes that believes that markets and society do not require clear laws and impartial referees because people are naturally inclined to know and do the 'right thing' has obviously never driven on a modern American freeway.

 

You  resort to using anecdotal evidence to support your own misconception. Please take a look at the scientific research conducted by Hans Monderman regarding the improved efficiency and safety of reduced traffic relations.

 

 

 

This notion that government and regulation is the problem is true only to the extent that government has become weakened and corrupted by gross abuses. Effective government takes planning, continual hard work, and the adjustment of renewal and reform.

 

 

Right. All we need are perfect people (or maybe computers) to make a perfect government and all will be well. Nothing delusional about that. It's not as if people will always use their positions in government to promote their own values and ideas which naturally means that all legislation tends to benefit those who are friendly with the legislators.

 

Fri, 08/12/2011 - 15:22 | 1555217 DogSlime
DogSlime's picture

oops - posted in wrong place

 

Fri, 08/12/2011 - 15:34 | 1555259 Michael
Michael's picture

In other words;

We must abolish NAFTA, CAFTA, and GATT.

Fri, 08/12/2011 - 15:11 | 1555175 Stuck on Zero
Stuck on Zero's picture

The Author is very thoughtful and has many strong points.  Trade can be used as a tool by governments for polticial purposes.  Defending oneself against unfair trading is just as important as defending oneself against invasion, diseases, pestillence, or other invader.  Dumping cheap products on a nation can be more damaging than dropping bombs.  Bombs don't tear up the social fabric.  Joblessness and the expectation of cheap goods without effort does tear up the social fabric.  My claim is that it can all be settled with a "trade currency" that carries an expiration date.   All goods and services crossing the border would have to be settled in the "trade currency." If you don't spend it it would revert to zero value within a year.  It would be hard to be a mercantilist in that situation.  It would also speed up the velocity of money considerably.

Fri, 08/12/2011 - 19:49 | 1555801 scrappy
scrappy's picture

On "Trade Currency"

 

You are on the right track but perhaps it takes a different form...

This was tried in the last great depression...and worked.

An Experiment in Worgl

 

http://alt-money.tribe.net/thread/70e5eb29-853d-44ca-9faa-b789d1757037

http://www.cooperativeindividualism.org/gesell_bio.html

This online book might also prove helpful - Comprehensive and historical - cultural analysis. Very ambitious work. Worth a look.

http://ascentofhumanity.com/chapter7-2.php

Combine the ideas from above with some of the good insights of this Georgist Blog, and then combine good political information economy to that and we are on our way to understanding and acting.

https://libertyrevival.wordpress.com/documents/economic-conspiracy/

I have a technological layer I would add to the above solutions, something secure, salvaging the best of what we have, and embracing a new way of doing things in the real world and on the online one.

Here is an early example

The Ingenesist Project - Read the articles and theory...more than meets the eye ;-)

http://www.ingenesist.com/

 

 

 

 

 

Fri, 08/12/2011 - 16:45 | 1555532 Bob
Bob's picture

lol considerably.

Fri, 08/12/2011 - 15:58 | 1555338 Dr. Acula
Dr. Acula's picture

Clearly if someone dumps cheap products on us over a long time, then that is a great thing. For example, if China flooded us with cheap food and electronics that they either subsidized or produced more efficiently than we could, then we can instead focus on producing other goods, say poetry or landscaping services, while enjoying the plentitude of goods we are showered with.

>Joblessness and the expectation of cheap goods without effort does tear up the social fabric.

If you're worried about the temporary effects (job loss), then one can always purchase private employment insurance. I don't understand why you think you are qualified to determine what other people's appropriate level of employment insurance is or what measures should be taken to effect the same, or why you think you can violate other people's right to trade goods freely.

>My claim is that it can all be settled with a "trade currency" that carries an expiration date. 

This would have no impact whatsoever. As a foreign producer I would simply use your trade currency to purchase gold or some other store of value from your country. Attempts to limit your "trade currency" to only certain goods is essentially the same as choosing to subsidize certain industries in your country, which is a foolhardy economic policy.

Try learning some basic economics before you come up with more of these crackpot economic theories. I strongly recommend reading Hazlitt's "Economics in One Lesson" which is available free online.

Fri, 08/12/2011 - 18:50 | 1555857 Stuck on Zero
Stuck on Zero's picture

Acula, your ignorance of history is outstanding.  An expiring trade currency is in use today: namely the dollar.  If the Chinese wait long enough then it won't be worth a cent.  It worked for hundreds of years with bills of credit drawn upon banks in Europe.  There was about a four year period of grace (ships were slow).   The Brits used them because the mercantilists would take all their gold sovereigns and never return them.  Trade currencies are simply exchange controls in another parlance.

Fri, 08/12/2011 - 16:51 | 1555553 Spitzer
Spitzer's picture

Everything about Austrain economics makes sense. It is just sad that we will never live long enough to see a complete worldwide move toward it. I do belive that this will happen in the future but not in the next 200 years.

 

Imagine how high the standard of living will be when most countries have private police forces, private healthcare and private airports. Governments will be small and they will even be profitable.

Fri, 08/12/2011 - 15:01 | 1555145 besnook
besnook's picture

rational self interest always devolves into irrational self destruction. it is a curious program downloaded into human behavior. understanding it is possible, controlling it or reprogramming it has not been very successful.

Fri, 08/12/2011 - 17:30 | 1555542 CrockettAlmanac.com
CrockettAlmanac.com's picture

Just because you hang out with crazy people doesn't mean that the rest of us do too. I like my friends and neighbors. None of them has ever tried to tax me or drop a bomb on me.

 

Fri, 08/12/2011 - 14:55 | 1555117 michael.suede
michael.suede's picture

What a horrible misinformed article.

Fri, 08/12/2011 - 16:26 | 1555449 Spitzer
Spitzer's picture

I agree.

He basically says that capitalism doesn't work.  Little does he realize that this is as bad as it gets. Capital will never get as misallocated as it has since 1971. Ounce the world trade system is balanced by gold rather then US treasuries, then world trade and capitalism will go allot smoother.

Fri, 08/12/2011 - 18:13 | 1555777 mkkby
mkkby's picture

I agree.  We've never tried capitalism.  What we have are various forms of central control, each hoping to advantage their particular elite.

Monetary and fiscal policy are just 2 of the most poorly corrupt systems that we have.

Fri, 08/12/2011 - 14:57 | 1555126 theopco
theopco's picture

What a horrible useless comment.

Fri, 08/12/2011 - 16:46 | 1555533 CrockettAlmanac.com
CrockettAlmanac.com's picture

Thanks for pointing that out with your oh so useful comment.

Fri, 08/12/2011 - 20:10 | 1555992 theopco
theopco's picture

You may be an incurable troll, but you have a sense of humor at least.

Do NOT follow this link or you will be banned from the site!