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PeakTrader said...

U.S. states have similar labor standards and environmental laws, and the same currency.

So, there are fewer competitive advantages between U.S. states than between countries.

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Scott Lincicome said...

Peak,

What about trade between, say, Loudoun County, VA (median household income - $110k) and Clay County, KY (MHI - $16k)? Would that be ok? Or should we prevent the Clayites from trading with the Loudounites bc the Clayites have such cheap labor and (most likely) far lower living standards?

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PeakTrader said...

Scott, in your example, preventing trade would hurt the consumers in the rich county and hurt the producers in the poor county.

Now, what if a foreign government decides to compete with the poor U.S. county by selling the same good at half price?

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PeakTrader said...

When you focus on the costs of free trade and ignore the benefits, you'll have an article like "Ten Problems With Free Trade."

I heard this on the radio:

Say you give 30 students 30 different candy bars. Then ask them to rate their candy bars on a scale of 1 to 10. Their average score is 5.

Then create an environment of free trade. After they trade their candy bars, their average score rises to 7.

So, their living standards rose 40% just from free trade.

Or say there's a country with short people painting ceilings and a country of tall people painting floors. Productivity could increase by trading industries between countries, although you could say the old industries were "wiped out."

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DaveinHackensack said...

"Fairly open trade, most of the time, is justified. Absolutely free trade, 100 percent of the time, is an extremist position and is not. (The difference between the two is rational protectionism.)"

It's worth noting, too, that no less a proponent of free trade than Paul Samuelson raised questions about it toward the end of his life:

"Free trade is not always a win-win situation," Samuelson concludes. It is particularly a problem, he says, in a world where large countries with far lower wages, such as India and China, are increasingly able to make almost any product or offer almost any service performed in the United States.

If we trade freely with them, then the powerful drag of their far lower wages will begin dragging down our average wages. Our economy may still grow, he calculates, but at a lower rate than it otherwise would have.

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PeakTrader said...

Dave, I can understand how restricting production can benefit society, but how does restricting free trade benefit society?

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DaveinHackensack said...

Peak Trader,

"but how does restricting free trade benefit society?"

For starters, restricting free trade enabled the U.S. to develop a manufacturing base in the first place. Intelligent and limited restriction of free trade can also prevent a global race to the bottom in wages and working conditions.

"Or say there's a country with short people painting ceilings and a country of tall people painting floors. Productivity could increase by trading industries between countries"

Sure, and that would be a classic case of comparative advantage. But is that what's really happening in most cases these days? Are Chinese taking manufacturing jobs because their workers are somehow physically superior for the job than ours, or because they have lower wages and fewer worker protections?

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PeakTrader said...

Dave, protectionism, e.g. restricting free trade, didn't enable the U.S. to develop a manufacturing base.

It prevented limited resources from shifting into emerging industries, which prevented higher wages and better working conditions (or a higher standard of living).

For example, many resources in Japan didn't shift from the Industrial Revolution into the Information and Biotech Revolutions, because of protectionist policies.

The Japanese focused on improving goods in older industries rather than allow resources to shift into new industries (or restrained open markets, free trade, etc.), which benefited foreign consumers more than Japanese producers, and eventually led into a "Lost Decade" or two.

Government can create "a global race to the bottom in wages and working conditions" (see China), which spilled-over into other poor countries and even into the U.S., although the gains of U.S. consumers are greater than the losses of U.S. producers.

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Rufus II said...

We allow a "State-Subsidized" Chinese Textile Industry to put our own textile plants (just to give an example) out of business, and then we give unemployment, medicaid, and various other transfer payments to the, now unemployed, workers. Right.

Unrestrained "Free Trade" would only make sense in a country that had no Social Security, Medicare, SSI, Medicaid, Food Assistance, etc.

To, in our case, let China, Inc. pick off our industries, one by one, would be economic suicide.

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PeakTrader said...

Rufus II, yes, China is committing economic suicide, like Japan before it.

If China wants to give away the store, to the U.S. consumer, why stop it?

Americans have better things to do than slave in obsolete factories.

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Rufus II said...

A friend once said to me, "I'm so broke that if fish cost a quarter all I could do was stand on the dock, and say *ain't them fish cheap?*"

PT, "cheap" is good if you have a job. Don't mean much, otherwise.

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PeakTrader said...

Rufus II, is a country better off with more goods and fewer jobs or fewer goods and more jobs? Similarly, would you rather work more for less or work less for more?

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Rufus II said...

PT, I imagine that 9.4% of our citizens that are Unemployed would just like a job.

And, since I'm paying their Unemployment, Food Aid, and Medicaid, I think I agree with them.

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PeakTrader said...
Free trade:

The Economic Organisation of a P.O.W. Camp
R. A. Radford, Economica, vol. 12, 1945

"...through his economic activity, the exchange of goods and services, his standard of material comfort is considerably enhanced.

...it is by trade that individual preferences are given expression and comfort increased.

We...received 1/4 of a Red Cross food parcel each...Starting with simple direct barter, such as a non-smoker giving a smoker friend his cigarette issue in exchange for a chocolate ration, more complex exchanges soon became an accepted custom. Stories circulated of a padre who started off round the camp with a tin of cheese and five cigarettes and returned to his bed with a complete parcel in addition to his original cheese and cigarettes.

One trader in food and cigarettes, operating in a period of dearth, enjoyed a high reputation. His capital, carefully saved, was originally about 50 cigarettes, with which he bought rations on issue days and held them until the price rose just before the next issue. He also picked up a little by arbitrage; several times a day he visited every Exchange or Mart notice board and took advantage of every discrepancy between prices of goods offered and wanted. His knowledge of prices, markets and names of those who had received cigarette parcels was phenomenal. By these means he kept himself smoking steadily – his profits – while his capital remained intact."

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