Asymmetrical Information

What, exactly, has the U.S. gained from its accession to the WTO?

And, why, exactly, are those(WTO) "officials" elected "in the dark" and remain, largely, anonomous?

I'm inclined to agree entirely with Jane. For all its flaws as a process, Doha blowing up is a tragedy.

It's a cliche, but it's true and therefore worth repeating: More trade and freer markets, in the aggregate, improve livelihoods in every country they apply to.

This answers Mark E. Hoffer's first question: The United States has had its overall welfare improved just like every other participating country. WTO's GATS, GATT and AoA have certainly improved the United States overall well-being by cutting expenditures on wasteful farm subsidies while simultaneously allowing for cheaper, high-quality food in to the country(in the case of the AoA) and made services and trade cheaper and probably higher-quality (in the case of GATS and GATT).

In addition to providing cheaper goods and services to American citizens, they also provide more opportunities for American businesses and entrepeneurs.

(Note: This applies to other WTO participants as well, but they are irrelevant to the question MEH posed)

There are negatives to the WTO such addition of anti-market clauses (minimum export levels, for example) to WTO agreements, but it's unclear how much progress would be made in the absence of joint 'disarmament' (for lack of a better term).

In regards to MEH's second question: Your question indicates you have a serious problem with the selection process for WTO officials. How would you prefer it be done? Trade representatives are always appointed as opposed to voted in by the public (in the case of the US, at least).

The end of Doha is not the end of liberalization, but it is definitely a major setback.

Ben Isaac's post is well-reasoned. The WTO and its predecessor GATT have allowed for a general reduction of tariffs since World War II that has been enormously beneficial. David Ricardo's comparative advantage is alive and well. In contrast, the criticism of Greenpeace and Oxfam is not so well-reasoned:

"Activist groups including Greenpeace and Oxfam were quick to condemn both Washington and Brussels for intransigence over agricultural subsidies, saying that rich-world self interest is leaving the poor to suffer."

The U. S. proposed deep cuts in tariffs on industrial and consumer goods, as well as the elimination of all agriculture subsidies. This made other countries blanch. America shouldn't take the blame for Europe's intransigence on trade. It was Europe, driven by Chirac, that refused to cut farm subsidies. Moreover, Oxfam and Greenpeace don't want to admit it, but the most protectionist countries tend to be the LDC's. The LDC governments themselves are principally to blame for the suffering of their people.

Ben,

Thank you for your civil and mature reply.

Others, on this this thread, would do well to take notes.

"In regards to MEH's second question: Your question indicates you have a serious problem with the selection process for WTO officials. How would you prefer it be done? Trade representatives are always appointed as opposed to voted in by the public (in the case of the US, at least)."

In the U.S., our Trade representative(s) are vetted by the Senate, yes?

My issue with the WTO is that it's "officials" are appointed "in the dark", they decide the "cases", in front of them, "in the dark", and are, largely, anonomous. Yet, we accord this body's actions, the term "liberalization" (?).

Just to be clear, for my account, Trade Rules!. We just don't need trade rules.

These various "Free-Trade" agreements are impenetrably thick, running into, literally, thousands of pages. That these various schemas are sold as "Free-Trade" is truly something that would make Orwell blush.

In sum, the WTO is an exercise in mis-labeling, at best, and, more than likely, another fine example of Command and Control "Top-Downism".

I agree with Ben. World trade will no doubt limp along somehow, and anybody who expected the French to make meaningful concessions on farm subsidies was deluding himself. It's a setback, but no disaster.

It's not clear to me how much of a disaster this is, particularly for the US. Expanding free trade zones (such as NAFTA/Chile etc and the EEC) seem to be taking up a lot of the slack.

I've lost track of all the wacko things that the Europeans have tried to do to American companies - the effort to make Apple open up its IPOD being just the most recent. Then there is the European view of antitrust that is designed not to protect consumers, but companies.

Europeans have every right to do whatever they want to companies trading in their countries. But the WTO is about as toothless as the UN when countries choose to play hardball. Think back to how long it took the WTO to catch up with the Bush administration after it played internal politics over steel imports.

It strikes me that the biggest loosers here in the long term are the very countries (France, etc in Europe) who derailed this round. In the absence of multilateral trade agreements like this, there will be bilateral and regional agreements. The difference will be that there will not be a WTO like organization to appeal to about disagreements. Compare the European experience with suing the US in the WTO to the Canadian experience trying to get lumber issues resolved in NAFTA. Basically, the disintegration of Doha strengthens the hand of the largest trader (the US). This implies a weakening of European influence in trade.

Wow! I'm finally in agreement with Greenpeace and Oxfam about something.

Funny that the U.S., such a "major beneficiary" of the glories delivered by the WTO (?)

Can longer afford to mint coins delinating 1/100th of a "dollar"

http://money.cnn.com/2006/07/18/news/penny/index.htm?cnn=yes

Can longer afford to mint coins delinating 1/100th of a "dollar"

That's the best you can come up with as an example of the downside of globalization? That zinc-based pennies aren't cost-effective anymore?

Color me unimpressed. :)

As true today as ever:

"It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy... If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage."

-Adam Smith

Dan,

Remember, that before the copper-plated zinc penny, there were pennies of near solid copper.

If the decline of purchasing power of the U$D isn't starkly evident in the debasement of our coinage, I'm not sure, what then(?), would be a good proxy. I'm sure we'd most agree that the relative value of the U$D is good barometer of the health of our Economy, yes?

Isoc,

If you missed it, in my earlier post: "Just to be clear, for my account, Trade Rules!. We just don't need trade rules."

Comparative advantage, to me, is non-arguable, it's quite the Fact.

With that, our, the U.S., trade deficit of ~U$D 700bn/an, should give us some cause to pause, no?

As I was asking, previously, what's the benefit, to the U.S., of the WTO?

"With that, our, the U.S., trade deficit of ~U$D 700bn/an, should give us some cause to pause, no?"

Mark,

As you probably know, there is some disagreement among economists about the trade deficit. There is, though, almost universal agreement that it does not indicate that America is somehow losing from trade.

My own opinion is that the trade deficit in itself does not matter much but that it might be a symptom of a problem. The low American saving rate means that America must borrow from abroad to fund its investment. This net capital inflow is a good thing, in that it allows for a high level of investment that leads to greater productivity and growth. Still, I would like to see a higher saving rate and would support policies that would increase both public and private saving...

Incidentally, as for the penny, I'm not sure I see the connection between that and trade. The debasement of the currency results from poor monetary policy.

Mark,

What does the US get from the WTO? This is a fair question, since someone earlier described how bilateral/regional agreements favored the US. I suspect that others might answer differently, but here is my take.

1) The WTO provides opportunities for credible commitment. The fact that the WTO enforcement mechanism works on the US (albeit slowly), as the steel example shows, means that other countries should be more willing to make deals. Participating in a process that limits our freedom of action tells other countries that we are serious about liberalizing trade and helps them believe that we (or anyone else) won't try to free ride on their liberalization.

2) The WTO makes it easier for administrations to get trade agreements ratified. Limited agreements (small scale, single issue, etc.) have more clear winners and losers. This creates a constituency opposed to the deal and creates political challenges. Remember the "great sucking sound?" WTO deals, as someone (you?) mentioned, are so big, so wide-reaching, and so complicated that it is hard to figure out who wins and who loses, so it is hard to rally a constituency to oppose the deal, and hence easier to pass it. (actually I don't have hard emipirical evidence on this, so if anyone does, please chime in)

At the risk of extreme oversimplification, the WTO "takes politics out of trade policy." On the one hand, this is anti-democratic. On the other hand, when you let politicians near trade policy you end up with protectionism. A rough analogy might be the logic that leads us to an independent central bank to protect monetary policy from political intervention.

That may also address your second question somewhat about non-transparent selection processes.

My $.02

A couple of things seem worth commenting on.

- I also think it likely that bilateral and regional trade agreements will pick up some of the WTO's slack, but I can't tell whether that's guaranteed. The Economist (for one) has warned about a potential loss of interest in liberalization for some time. I'd hope we're not seeing that.

- I can only speak for myself here, but I am more interested in thinking about how to keep this kind of collapse from happening in the future than who bears what percentage of the blame. This certainly serves as a reminder (for example) of European unwilligness to liberalize certain sectors, but didn't we know that already? It's also worth asking whether or not we're better off without the WTO, not because it was harmful but because it had too high an opportunity cost (i.e. there are more effective ways to liberalize than it). This is basically an empirical data question, though, and I lack the data.

- Lastly, since MEH addressd me (more or less) directly, it seems polite for me to do the same.

1. As you point out in your second post (and I tried to allude to in my first), the US Representative is voted on by the Senate. What additional criterion would you require for you to not think of this as a selection you are kept in the dark about? If you feel this is unacceptable, do you feel that that necessitates you to object to our selection of, say, the Secretary of Transportation?

2. The phrasing of your questions implies a serious problem with the WTO. You object to the WTO and you also object to the truly breathtaking number of pages these agreements span. I can not find another objection you raise about the WTO barring the isssue of representation (addressed in point 1). You also are clearly enthusiastic about free trade, so I can't fairly assume it's the EFFECTS of the WTO agreement that you object to.

This seems to leave the legal complexities standing alone. To be honest, I think that's a bit of a trivial objection in that it doesn't seem to be very harmful that it's dense and it certainly gets much of the desired job done. Moreover, what alternative is there? Given every free trade negotiation that I have ever read about, length seems to be required because of political realities in the world: countries need to feel that they 'win', exceptions need to be made for domestic political favors, funds need to be alloted for retraining programs, etc., etc.

If you grant the idea that there is a legitimate process in the US (which you seemed not to despite granting the existence of the central requirement for such a process) AND that vast forests of legal verbiage are required for any trade liberalization agreement AND that freer trade is good, which I have given a number of examples of the WTO definitively supplying, then I guess we are left with a question for you (one that I should have asked off the bat):

Why do you feel the WTO has been harmful for the US?

Given the way you phrase your comments, I am currently assuming that you do. The reasons aren't fully clear to me.

3. As I imagine you know, MEH, the real value of a static quantity of money normally decreases over time. And, of course, the contents of the penny have stayed fairly constant for a while (the zinc-copper combo already mentioned). But zinc and copper have both seen significant price spikes on the commodities markets recently. Given these three facts, MEH, how would you suggest avoiding a penny's production costing more than its face value? But money's material is kind of irrelevant anyway, so we can always afford as many pennies as we want if we, say, make them out of tin and brown food coloring or what have you.

4. It's not at all clear to me that a trade deficit is a bad thing (read Friedman's "Free to Choose" for an example why) but, assuming it is, what would you propose the US do about it? I ask because many people feel that it is an issue largely out of US control.

If I misunderstood MEH's or anyone else's posts, I'd appreciate the clarification. Sorry about the length here.

- Ben

There's alot to respond to, does anyone know if this thread can be printed out? so to avoid having to scroll up, then back down to the "comments" box ?

For now, I was able to print the thread via Copy&Paste, is there an imbedded [Print} command?

And, Ben, you stated: "the real value of a static quantity of money decreases over time".

Personally, I thought it was the other way 'round, could you elaborate for me?

Remember, that before the copper-plated zinc penny, there were pennies of near solid copper

Not that that's relevant to anything, but ok.

If the decline of purchasing power of the U$D isn't starkly evident in the debasement of our coinage, I'm not sure, what then(?), would be a good proxy.

The purchasing power of a dollar isn't what matters, either to a nation or to individuals. What matters is what your total wealth will buy. The average American today can buy more than the average American of the past, both because the average number of dollars we have has grown faster than the dollar has declined, and because (in large part due to globalization) production costs, and therefore goods themselves, are cheaper than they were.

I'm sure we'd most agree that the relative value of the U$D is good barometer of the health of our Economy, yes?

The relative value of the US dollar to other currencies has basically nothing to do with the health of our economy. Which is why the United States is, today, richer than it has ever been, and just about the richest nation in the history of the planet.

As I was asking, previously, what's the benefit, to the U.S., of the WTO?

Cheaper goods and labor costs, with the healthier, more robust economy that goes along with that. It is no coincidence that nations with tougher tariffs and import restrictions have correspondingly weaker economies.

Remember, that before the copper-plated zinc penny, there were pennies of near solid copper.

Not since 1982. And the composition of mostly-copper pennies has flitted around amongst various alloys as convenience or other needs dictated, ever since pure-copper pennies were discontinued in 1837.

Barring the discovery of an untapped, massive, minable deposit of copper, the market value of copper has nowhere to go but up, since every component in our information society (including every appliance you own) now uses a fair bit of the stuff. Even the cost of a 25-foot spool of 3-wire Romex cable -- i.e., the stuff any electrician will fish through the wall to enable your new light switch -- can vary daily or weekly depending on the current stage of copper in the commodities market.

What was your point about the pennies and the copper, anyway? The US has been trying to kill the thing for years as being impractical, but somehow, Raspenny always rises again on a wave of nostalgia. I hardly think the latest attempt to shoot it has any broader commentary to offer on the state of the economy.

I am completely in favor of free trade and believe that we should eliminate our system of agricultural subsidies. However, don't discount their usefulness as a bargaining chip.

Avoiding the subject of the merits of the WTO or the actual freedom of trade under its regime, the collapse of this round is not a bad thing. The only way that the talks could have continued is if the United States had eliminated its agricultural subsidies while other countries (particularly developing ones) retained theirs.

The discussion, particularly on the part of the Europeans, is either misinformed or disingenuous. The idea that the U. S. subsidies, amounting to roughly $40 billion—a relatively small proportion of agricultural sector income, make U. S. agricultural exports unfairly competitive is nonsense.

Compare that with the $100 billion subsidies of the EU—a larger component of agricultural income.

But the most important factor affecting the economies of developing countries is the subsidies within the countries themselves in whatever form they take. Much greater impact on them specifically than U. S. subsidies generally.

The sad reality is that most developed economies have done so by moving relatively non-productive capital and labor from agriculture to other more productive activities. As long as their own systems of subsidies remain in place developing countries will stay poor.

Here in the United States we'd be better off negotiating tough-minded bilateral trade agreements with China and India. Both countries have substantial barriers to U. S. imports and, essentially, no protections for U. S. intellectual property while millions of their own people are in poverty. Look at the stats. An enormous proportion of the world's poorest are either Indians or Chinese.

Consequently, the most effective thing the U. S. can do to fight world poverty is to get India and China to abandon their trade policies which damage both them and us.

Compare the European experience with suing the US in the WTO to the Canadian experience trying to get lumber issues resolved in NAFTA.

Er, the Canadian problem on disputing the softwood lumber tariffs was entirely because the Canadians are directly intervening in the Canadian softwood lumber industry in a non-measurable way.

A government owns the land that is being logged, and that government sells the logging rights through a non-bid proceedure. The result is that no market value can be assigned to the unharvested lumber. Without a market price for the lumber, it cannot be determined if it is being sold at a price that constitutes a de facto subsidy to the lumber industry or not.

After all, if they were just giving the logging permits away for free, it would clearly be subsidizing the local lumber industry to the whole value of the unharvested lumber. Similarly, at an arbitrary but non-zero fixed price, they're subsidizing the lumber at the difference of the value and the fixed price (which might be negative, of course). Since unlogged lumber varies significantly in value, the conclusion of the NAFTA panel was that we don't know what the value is, and so cannot measure the size of the subsidy.

Since the size of the subsidy to lumber companies is unknown, the amount the U.S. is allowed to charge under NAFTA as anti-subsidy tariffs is similarly unknown. Therefore, no U.S. counter-subsidy tariff can be found to be higher than the Canadian subsidy, and so no U.S. counter-subsidy tariff can be found to violate NAFTA rules.

So, the reason the Canadians didn't win the judgment is because the Canadians are cheating, and nobody can be sure how much they arte cheating.

You sound like Wiktor Bielski, anony-mouse. Copper isn't bound to go up, because
1. Demand destruction; people use PVC in more plumbing applications, or aluminum (abundant in the Earth's crust) in electrical applications, or fiber in communication applications.
2. It's not scarce. It's true that it's currently scarce in concentrations where it can economically be extracted, but there's plenty more out there. Don't discount the industry's ability to find more and extract better.

1. As you point out in your second post (and I tried to allude to in my first), the US Representative is voted on by the Senate. What additional criterion would you require for you to not think of this as a selection you are kept in the dark about? If you feel this is unacceptable, do you feel that that necessitates you to object to our selection of, say, the Secretary of Transportation?

Look, sorry if I was unclear, but I pointed to the U.S.'s "system" for appointing Trade Representatives as a contra-point to the way the WTO is assembled. Senate review of appointees certainly shed more light on the subject than the method of selection of WTO "representatives".

This: "2) The WTO makes it easier for administrations to get trade agreements ratified. Limited agreements (small scale, single issue, etc.) have more clear winners and losers. This creates a constituency opposed to the deal and creates political challenges. Remember the "great sucking sound?" WTO deals, as someone (you?) mentioned, are so big, so wide-reaching, and so complicated that it is hard to figure out who wins and who loses, so it is hard to rally a constituency to oppose the deal, and hence easier to pass it. (actually I don't have hard emipirical evidence on this, so if anyone does, please chime in)"-- is the major part of the Problem with the WTO. It subverts our representative institutions, as well as the price signals extant in the economy.
"On the one hand, this is anti-democratic. On the other hand, when you let politicians near trade policy you end up with protectionism"-- Right, the WTO is not "Free-Trade", yet more Command and Control "Top-Downism". Paternalistic in the extreme: "The poor serfs, they know not what is good for them." Literally, executing its policy, if nothing else, "in the dark".

How we confuse the WTO with any semblance of "Free Trade" is truly a sight to behold.

And, this: "The relative value of the US dollar to other currencies has basically nothing to do with the health of our economy. Which is why the United States is, today, richer than it has ever been, and just about the richest nation in the history of the planet."

Per David Walker, head of the GAO, the NPV of our current liabilities? ~U$D 57 Trillion.

We are the largest net debtor on the face of the Globe, the largest net debtor in History.

The point about the penny, and the continual debasement of our coinage, is that our "dollar" is devaluing. Need I remind anyone that our coinage was once Silver & Gold?

Healthy economies, productive and well managed, experience a relative increase in the value of their currencies, not a decrease.

More later, if necessary..

"Here in the United States we'd be better off negotiating tough-minded bilateral trade agreements with China and India. Both countries have substantial barriers to U. S. imports and, essentially, no protections for U. S. intellectual property while millions of their own people are in poverty. Look at the stats. An enormous proportion of the world's poorest are either Indians or Chinese.

Consequently, the most effective thing the U. S. can do to fight world poverty is to get India and China to abandon their trade policies which damage both them and us."

D. Schuler, in my opinion, is on the right track, not the "fast-track".

George,

With this: "A rough analogy might be the logic that leads us to an independent central bank to protect monetary policy from political intervention."

Where are there independent Central Banks?

or aluminum (abundant in the Earth's crust) in electrical applications

A nit: Aluminum was briefly used for house wiring a couple of decades ago, but is no longer permitted, because it proved to be a fire hazard.

The US should try to break up the EU's tariff wall by offering good terms to more liberal-minded EU countries such as Britain or Holland and maybe eventually Germany. They might, over the medium term, be tempted to break up the EU's protectionist single market, isolating the French and the other European protectionists.

Mark Said And, Ben, you stated: "the real value of a static quantity of money decreases over time".

Personally, I thought it was the other way 'round, could you elaborate for me?

Well, I can't say for sure what Ben meant, but I imagine he was referring only to modern fiat currencies and the inevitable inflation - mild as it might be, since inflation as an intentional mechanism is thoroughly discredited - that occurs when trying to match money production to wealth creation without causing deflationary pressures.

Since we can't perfectly match creation of new money to the creation of wealth, and deflation (making too little money) is even scarier than inflation, the central banks inevitably end up with slight inflation; thus the value of any specific amount of the currency must become lower over time.

The alternatives are:

1) Perfect matching between wealth creation and money minting; very difficult if not impossible to manage.

2) Going back to the gold standard; Mises rejected this as impracticable in the late 20s (IIRC from The Theory Of Money And Credit), and it's even more impracticable now, I think. Plus such a standard leads to other fluctuations and issues.

3) Deflation; not likely better than inflation, typically regarded as worse, probably correctly so.

(Man, and I'm not even an economist!)

Weirdo,

From what little I know you accurately describe the US complaint with Canada, namely cheap access to Crown (Government) forests. However, I thought Canada actually won a ruling against the USA under NAFTA.
see
http://www.thegreenpages.ca/portal/bc/2006/03/nafta_sides_with_canada_again.html and
http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/1083258365157_78667565/?hub=TopStories

I also thought the Canadian position was that the USA refused to accept the rulings and had to be sued in American courts and the USA lost again. see
http://www.guelphmercury.com/national/n0721133A.html

The big complaint in Canada is that there is no point in doing deals with damyankees because they ignore them when they become politically inexpedient. i.e. American Lumber operations that cannot compete scream to their congresscritter.

Am I missing something?

Sigivald:

I think what Mark meant was that anyone would rather have $100 now than the same amount next year. Not jsut because of deflation, but because the $100 can either be used (invested) to make money during that year, or because it can be used to purchase something that you then enjoy for the said year.

Thanks to everyone for a remarkably sane and on-point discussion; I've just been at Crooked Timber, which (while often erudite) is completely unable to stay on-track.

Sigivald,

With this: "Mark Said And, Ben, you stated: "the real value of a static quantity of money decreases over time".

Personally, I thought it was the other way 'round, could you elaborate for me?

Well, I can't say for sure what Ben meant, but I imagine he was referring only to modern fiat currencies and the inevitable inflation - mild as it might be, since inflation as an intentional mechanism is thoroughly discredited - that occurs when trying to match money production to wealth creation without causing deflationary pressures."

I thought that Ben was referring to a "static quantity", economy-wide. But, not sure, and haven't yet heard back from him.

On a different tack, you may like this:

http://www.minneapolisfed.org/Research/data/us/calc/hist1800.cfm

A true free trade agreement between two or more free-market economies would require only one sentence. The reason WTO agreements are thousands of pages long is because they are dealing with thousands of exceptions to free trade and free markets.

An issue overlooked by everyone so far is war. In times of war a country must be self-sufficient for food, ammunition, weapons manufacture, water, fuel/electric power. Survival requires that the nation safegaurd its food supply - which means keeping its farmers farming and its farmland productive. It must have factories, factory workers, managers, capital markets, R&D, needed to build the implements of war and it must have a large supply of wombs to produce the soldiers needed to carry those weapons.

Trade agreements which degrade domestic agriculture and manufacturing or which cause a lowering of the birth rate are suicidal.

sol,

Um ... you seem to envision some very long wars. (a large supply of wombs to produce the soldiers) You also seem to think any modern country can conceivably be self-sustaining in all these areas. None are.

However, no one can successfully blockade a sizeable country for any length of time. Trade is inevitable -- you might as well make it work for you. It also tends to reduce the risk of serious conflict. If I can buy oil (food, water, etc.) from someone, that's going to be cheaper than fighting them for it.

You seem to be applying an overly simplistic analysis to an outdated model of national economic sovreignty. Though I will agree (what the heck) that trade agreements which reduce birth rates well below the replacement rate, for decades at a time, are suicidal. If I ever find one I promise to condemn it.

Shelby,

Seeing how the U.S. Congress and the SCOTUS have stretched the "Commerce Clause" to fit nearly any end of the State, would you agree that the "contract" between the State and its Citizens could be construed as a "Trade Agreement"?

If so, then look no further the Euroland for examples of "Trade Agreements" "which reduce birth rates well below the replacement rate".

Or, if you don't like that, just say EU.

And, I think you misconstrued this: "(a large supply of wombs to produce the soldiers)". A vibrant economy gives rise to more young, with that, obviously, more women, of child-bearing age, willing to have yet more children. It is never the Old that go to fight.

This: "It also tends to reduce the risk of serious conflict."-- is an iteration of the newly beloved idea of "Economic M.A.D.", and sought to be used as a pallative against Americans suspicious of the rapid disarming/de-industrialization of their once strong Economy.

This "old faithful" of a slapdown: "You seem to be applying an overly simplistic analysis to an outdated model of national economic sovreignty."= you're stupid and out-of-date. I'm surprised you didn't call him a Luddite, to boot.

Sol is more correct than we may care to admit. Graduates of West Point learn, to this date, that you're only strong as your supply-chain is short.
Here's betting ol' Nappie learned the same thing @ Waterloo.

Also, we seem to be forgetting that: "We must Supply, in order to Demand." and its co-rider: "We must Supply, to demand Order."

Some observations

Shelby - I wouldn't discount the threat of blockade too quickly. Hitler came close to starving England in WW2. We might try to do it Korea or Iran. Other countries see this.

Isocrates - I'm not sure that the Adam Smith quote about comparative advantage helps much here. Intellectually, it makes sense - in the same way that it makes sense to say that countries should not make war on each other. But in a world where many countries are exert a high degree of sovereignty over what goes in and out (including the EEC and USA in the case of agriculture), we might have to fall back on game theory in deciding how we interact with each country.

Since the USA is big and all-powerful, perhaps it makes sense to develop a strategy (as suggested by PJ) of making it very advantageous for friends to trade with us. In other words, we have our own expanding free trade zone, and we're right at the center of it.

This strategy has the added advantage of allowing us to exert influence over countries in a way that would not be possible under the constraints of WTO rules.

gazzer,

I agree with you. The quote from Adam Smith explains why we ought to pursue free trade, but Public Choice Theory explains why we often don't and game theory offers insights about how to make trade freer in the future.

As I understand it, the Bush administration was trying to use regional and bilateral trading agreements to pressure the big countries to accept greater liberalization. It was a good idea, but it didn't work. Maybe it will in the future, but unfortunately, though mercantilism has died a thousand deaths in academia, it is still popular among politicians all over the world.

My preference would be for the U. S. to unilaterally remove all barriers to trade (except those few that have a convincing political explanation, like sanctions on North Korea). Then we could let the world see the benefits of free trade. Hong Kong has had little or no trade restrictions for decades and the success of that policy is there for all to see.

That isn't likely though, so the next best option is to keep doing what we have been: trying to persuade other countries to sign trade agreements with us. Unfortunately there is a popular misconception that rich countries gain from trade at the poor countries' expense. It has no intellectual merit, but many people believe it because it has a superficial plausibility. That makes the task of liberalizing trade much more difficult.

Unfortunately there is a popular misconception that rich countries gain from trade at the poor countries' expense.

It has no intellectual merit

Oh, it doesn't, eh?

I'm well familiar with the *theoretical model* of comparative advantage and how everyone wins, but like most basic economic models it makes breathtaking assumptions that go beyond plausibility when we talk about the real world instead of chess pieces. Comparative advantage assumes that every country geuninely has through their cultural heritage, or whatever, some unique set of skills that they can perform more efficiently than any other country - even though most basic economic theories assume that all people everyone are basically the same - so why should any particular society have a comparative advantage in anything?

In real life, free trade doesn't let Mauritania use its competitive advantage in spearing fish to enrich itself. In real life, spearing fish is a very low-value activity, while the first-world economies have the REAL advantages - vastly greater concentrations of capital, infrastructure, efficient polities, specialized and trained labor force, and so on. While trade liberalization may *eventually* serve to help introduce greater competition and prevent stagnation amongst *already-developed* domestic industries, when you eliminate tariffs for Mauritania, you allow the Mauritanians the right to sell you speared fish in exchange for the ability to strangle their ability to compete in higher-value-added industries in the cradle.

There. The intellectual merit of why the Washington Consensus is full of crap. 200 words. Got a response? By the way, most of this comes from economics professors themselves. They don't all share Milton Friedman's opinions.

A true free trade agreement between two or more free-market economies would require only one sentence.

That's a nice slogan, but it isn't even vaguely true. Free trade agreements need rules for enforcement and penalties for violating them, for starters. They further need descriptions of what is and isn't meant by "free trade" -- for example, the United States bans the sale of heroin. If we confiscate shipments of heroin into the United States, are we guilty of violating a free trade agreement with the country it came from? Suppose a country where slavery is legal ships slaves to the United States, whereupon we confiscate that "property" by freeing those slaves. Is that a free trade violation? Is the fact that our corporate taxes are lower than those of most of Europe a "corporate subsidy", as many European nations argue?

An issue overlooked by everyone so far is war. In times of war a country must be self-sufficient for food, ammunition, weapons manufacture, water, fuel/electric power

That's not true at all. During World War 2, for example, none of the warring nations was entirely self-sufficient. Being self-sufficient makes fighting wars *easier*. But the resource-poor islands of Britain and Japan gave pretty good showings of themselves in a number of wars.

glasnost,

I. "Comparative advantage assumes that every country geuninely has through their cultural heritage, or whatever, some unique set of skills that they can perform more efficiently than any other country."

No. That's absolute advantage. A country can have an absloute disadvantage in every good, yet it will have a comparative advantage in something. For example, America as an absolute adavantage in almost everything over Mexico. Yet Mexico has a comparative advantage in labor-intensive goods, while America has a comparative advantage in capital-intensive goods.

II. "...when you eliminate tariffs for Mauritania, you allow the Mauritanians the right to sell you speared fish in exchange for the ability to strangle their ability to compete in higher-value-added industries in the cradle."

This is the so-called "infant industries" argument. It does not get much support among economists. They point out that the government is not very good at determining which industries to protect and that, if the government does want to promote certain industries, subsidies are a more efficient way to do it. A tariff creates larger "deadweight losses." India used protection for decades to try to build up "high value industries" like steel mills. The policy created massive inefficiency and is now widely recognized as a failure. They should just have imported the steel.

III. "By the way, most of this comes from economics professors themselves. They don't all share Milton Friedman's opinions."

You seem not to like Milton Friedman, so I'll quote economists who have never been accused of being Friedman's disciples. Alan Blinder explained comparative advantage well:

"(Many people) worry about what happens if another country—say, Japan—can make everything, or almost everything, cheaper than we can. Will free trade with Japan then lead to unemployment for American workers, who will find themselves unable to compete with cheaper Japanese labor? The answer, which was provided by David Ricardo in 1810, is no. To see why, let us once again appeal to our personal affairs.

"Some lawyers are better typists than their secretaries. Should such a lawyer fire his secretary and do his own typing? Not likely. Though the lawyer may be better than the secretary at both arguing cases and typing, he will fare better by concentrating his energies on the practice of law and leaving the typing to a secretary. Such specialization not only makes the economy more efficient, it also leaves both lawyer and secretary with productive work to do. The same idea applies to nations."

That is to say, even though the lawyer has an absolute advantage in both law and typing, the secretary has a comparative advantage in typing.

And Paul Krugman explained why those who oppose free trade are harming the poor around the world:

"The lofty moral tone of the opponents of globalization is possible only because they have chosen not to think their position through. While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers."

The Blinder quote is from an essay "Free Trade" availiable at: http://www.econlib.org/library/Enc/FreeTrade.html

And the Krugman quote is from his essay "In Praise of Cheap Labor" on Slate at: http://web.mit.edu/krugman/www/smokey.html

Both essays are very good.

You sound like Wiktor Bielski, anony-mouse.

That was a pretty impressive trick, considering I had to google the name to figure out who he was. Separated at birth, maybe? Psychologically linked via a wrinkle in the space-time fabric? Who knows?

Copper isn't bound to go up, because

Okay, you got me on a nitpick. I should have thrown in the words "...in the near term", which was basically my intent. Also keep in mind I was mainly responding to Mark Twain -- pardon, Mark Hoffer -- in regard to his absurd political-economic twist on the proposal to discontinue pennies.

1. Demand destruction; people use PVC in more plumbing applications, or aluminum (abundant in the Earth's crust) in electrical applications, or fiber in communication applications.

High-temperature rated PVC only recently became economical for whole-house plumbing (it had previously been limited mainly to pool and spa applications), possibly in part due to the price fluctuation of copper injecting uncertainty into the supply chains. Regarding aluminum, I believe you have that backwards: copper normally supplants aluminum because aluminum has a higher resistivity. And your assessment of the fiber market is optimistic for the short-term time frame that I wish to consider.

2. It's not scarce. It's true that it's currently scarce in concentrations where it can economically be extracted, but there's plenty more out there. Don't discount the industry's ability to find more and extract better.

I think I more or less accounted for that aspect, yes? And again, keep in mind I was mainly interested in taking a swing at Mark Hoffer's zinc Tiddly-Winks.

Ben Issac - "WTO's GATS, GATT and AoA have certainly improved the United States overall well-being by cutting expenditures on wasteful farm subsidies while simultaneously allowing for cheaper, high-quality food in to the country(in the case of the AoA) and made services and trade cheaper and probably higher-quality (in the case of GATS and GATT)."

GATT, of course, preceeded WTO, and was then absorbed and built upon.

AoA higher quality? Which goods? Not comparable food products I can assure you.

Higher quality consumer goods? Less expensive? Which goods? And how much less expensive due to Advanced Global Trade (AGT)?

The US-China Business Council has a few published reports out which show the cost savings running less that $1.00 per unit for most finished and component goods, and this is a pro-China trade organization. Another study by a retail organization indicated last year that the rise in imported consumer goods saved retail consumers very little - anywhere from $0.15 on low end goods to $5.00 on high priced items kicking in at $65.00-$85.00 or more.

Big consumer savings? Where?

GATS, for your information, is one of the stumbling blocks during the Doha Round. By various developed nations. In the USA, some governors specifically requested that their States be excluded from the WTO provisions of the Doha Round which pertained to...you guessed it...WTO GATS. GATS has proven to be a disaster in many instances on a number of continents.

You talk a good show, but it strikes me that you need to cite some of the examples that you are referring to in your presentation.

Until such time as WTO's Members force WTO to withdraw the significant VAT advantage that WTO ruled in favor of regarding trade from such nations, WTO can go to hell.

And the same should be said for the absence of binding labor and environmental standards in all global trade agreements. WTO is a porch puppy on these fronts.

Yeah, we really need to get behind the gloried WTO puppies. Right... Not.

Big consumer savings? Where?

Well, at the savings rates you quoted, I'd guess that I save at least a few hundred dollars a year thanks to US-China trade.

And if you don't think that's big money, feel free to wire that amount to my PayPal account and I'll concede the argument. :)

Dan, I think you proved my point. If heroin cannot be legally sold, it is an exception to the free market. US safety standards for cars have often acted to exclude foreign models or require a re-design before they could be imported, and that certainly restricts free trade. The USA alone has thousands of such exceptions - and most of the countries in the world have even more. So-called free trade agreements thus run thousands of pages to cover all the exceptions where one or more of the members do not allow free trade.

And one result of this is that the WTO is indeed picking winners and losers in international trade.

" Regarding aluminum, I believe you have that backwards: copper normally supplants aluminum because aluminum has a higher resistivity."

That's wrong in most cases (and I'm an electrical engineer, I've studied such things). Al does have higher resistivity per square inch, but you just have to make the Al wire a little thicker to carry the same current as a Cu wire - and the Al wire will be lighter and cheaper. The problem is, it's hard to make sound electrical conditions to Al. I could wire a house safely with Al, but I would have to buy more expensive electrical fittings, hire better-trained electricians, and they would work slower and more carefully, so the total cost would be much higher than with copper wiring. OTOH, the very thick wires coming into my house are Al - there is so much metal there that you save far more on the metal than you spend on very carefully making three special connections at each end. The wires on power poles are usually Al, saving both money and weight.

Clive Crook of the Economist explains why developing countries benefit enormously from freer trade:

"For its World Development Report in 1987, the World Bank classified forty-one developing countries according to their openness to trade since the sixties. It classed economies as either inward looking (exports were discouraged) or outward looking (exports were not discouraged), with a further division according to the strength of any trade bias. The World Bank then plotted these groups against a variety of economic indicators.

"Growth in income per capita was highest in the strongly outward-looking economies and lowest in the strongly inward-looking ones. The same was true for growth in total GDP and in value added in manufacturing, and for the standard measure of the efficiency of investment. On all these criteria the moderately outward-looking countries also outperformed inward-looking economies, although by a smaller margin. The failure of a strong inward orientation to promote domestic manufacturing—not just exports of manufactures—is particularly striking. The whole point of looking inward had been to industrialize faster...

"The clear consensus among mainstream economists is that outward-looking trade policies are one of the keys to development. But why? The answer from orthodox economics is that trade allows countries to exploit their comparative advantage. Trade enables a country to consume a mix of goods that is different from the mix it produces—with prices in world markets acting as the mediator between the two. Conventional theory proves that trade, as a result, makes both partners unambiguously better off. So long as import barriers and other policies do not drive domestic prices too far away from world prices, market forces are enough to push production and consumption in the right direction. But trade does more than bring about the right mix of products. It also eliminates the inefficiencies in production caused by protection.

"Protection may make some domestic producers monopolists or near monopolists, thus introducing an inefficiency directly (because monopolists exploit their market strength by producing less and charging more) and indirectly (because, lacking competition, they have no incentive to keep costs low)."

http://www.econlib.org/library/Enc/ThirdWorldEconomicDevelopment.html

markm: I think you're using 'free trade' in a sense nobody else is, at least with the heroin example.

For instance, if I can't do murder-for-hire (across national lines, say), is that a restriction on free trade? If not, what's the difference? If so, well, who's for free trade defined that way?

"Free trade" is normally meant, in my observation of how economical types actually use the term, to refer to the absence of tariffs, quotas, and other restrictive mechanisms between countries, in the trade of goods legal on both sides.

If a nation makes the sale of heroin or nuclear materials or bunny rabbits illegal regardless of the origin of such smacky, glowing bunnies, that's not normally held to be related to "free trade".

On the other hand, if a nation bans (without a very compelling reason such as infectious disease, at least) or puts a quota on radioactive smack bunnies from some or all other nations, but not on domestic ones, that's counter to "free trade", as I understand the normal use of the term.

Now, if one wishes to speak of a Very-Libertarian or absolutist capitalist position where any possible restriction on any trade (such as heroin, or murder for hire) counts against free trade, one may certainly do so; but to do so invites the reply I just gave, which is that nobody else means that when they say "free trade", so it's probably best to either pick another term or be pro-active about saying you're trying to redefine it.

(Even if such a redefinition is laudable, which I'm not sure it is, in such a case, one should make the attempt explicit to avoid confusion and accusations of unintentional misuse of the terms.)

(And Dan's still right about treaties needed definitions and conditions for ending the treaty and for enforcement; If you trust the other party 100% to do even your version of free trade with you, you don't need a treaty. In the real world, there's never that much trust, and the treaty needs some way for parties to pull out or punish an offender; otherwise what's the point of a treaty at all?

You are right that treaties like NAFTA are not as free in their trade as is possible, but it's probably best and less confusing to call them free-ER trade, than "not free trade". But I'm in danger of starting in on the meanings and common-use of terms again, so I'll save us all by stopping.)

Isocrates:

You absolutely have me on comparative advantage vs. absolute advantage: pardon my imprecise terminology.

My response to follow. Say, less than 24 hours.

inspector Derik is very good detective.

Dan, I think you proved my point. If heroin cannot be legally sold, it is an exception to the free market.

It is? You didn't mention that in your post. That one-sentence treaty is going to be a but of a run-on sentence, it seems to me. I tell you what -- state the "one sentence" of your proposed free trade treaty, and then I'll explain to you what governments will do to get around it.

US safety standards for cars have often acted to exclude foreign models or require a re-design before they could be imported, and that certainly restricts free trade

What's makes selling an unsafe foreign car different from selling heroin? In both cases the sale is of an illegal good. Why is selling heroin an exception?

Dan, who determines at what point the "safety standard" ceases to have anything to do with safety, but instead just favors the designs built here over the designs built in other countries? The USA and Europe have different electrical standards, so a product that gets UL approval here might not get the European approval, and likewise a product designed in Europe might not get UL approval. Neither product is any safer - it's just that the specified ways to meet the safety requirements are a little different. Is that simple bureaucratic incompetence, or protectionism?

Another example, if I understand correctly, American beer cannot be sold in Germany, because American brewers add cheaper grains to the barley and hops. The Germans may well be correct in their opinion that American beer is not fit to be called "beer", but they don't require that we re-label it as, say, "Ersatz beer-like alcoholic beverage", they ban it entirely and protect their producers from the possibility that some Germans might actually prefer the American version.

So what the WTO winds up doing is trying to find a balance between all these protectionist effects of regulation - and every choice will hurt some particular companies, and making those choices is not an objective, non-political, or transparent process by any means...

Dan, who determines at what point the "safety standard" ceases to have anything to do with safety, but instead just favors the designs built here over the designs built in other countries?

That's a good question -- and one of the many reasons why free trade treaties are so long. They need to address questions like that. It is not, as you claimed, merely a matter of the treaties being packed with exceptions to free trade. They are packed with rules governing when the rules governing the sale of products cross the line from "free trade" to "unfree trade".

Neither product is any safer

That is only your opinion. It is unlikely that both governments' safety appraisal systems are precisely equal in competence and thoroughness.

The Germans may well be correct in their opinion that American beer is not fit to be called "beer", but they don't require that we re-label it as, say, "Ersatz beer-like alcoholic beverage", they ban it entirely and protect their producers from the possibility that some Germans might actually prefer the American version.

Would it be free trade if they let it be sold but required labelling that was guaranteed to cost it market share? For example, suppose the US government decided that foreign terrorists might poison food imported to the United States, and therefore required that any food produced outside of the USA carry a label saying "WARNING: The Department of Homeland Security has determined that this product may be poisonous." Would that be free trade? The import and sale of the food is, after all, not being restricted...

"Free trade" isn't a simple concept. That's why you can't write a one-sentence treaty for it that is enforceable and effective at lowering trade barriers.

But, again, I'd like to see what your hypothetical one-sentence free trade agreement would look like.

"So what the WTO winds up doing is trying to find a balance between all these protectionist effects of regulation - and every choice will hurt some particular companies, and making those choices is not an objective, non-political, or transparent process by any means."

Picking winners and losers the old-fashioned way: by Fiat.

All tariffs provide more harm than benefit to the country that implements them. The problem is that the pain of a free market is concentrated, while the benefits are spread throughout the economy. Lowered tariffs might put 10,000 garment workers out of work, but create 20,000 jobs by making 2,000,000 unemployed people each 1% more likely to find work. The 10,000 know why they're out of work (those damned Mexicans again), while the 20,000 have no hard proof that the reduction in tariffs helped them find a job. Similarly, when 50,000 people lose their jobs because high tariffs have weakened the economy, making 5,000,000 people each 1% more likely to get sacked, the victims have no direct indication that the tariffs are to blame.

Which means that, even though the country as a whole, and the population of the country as a whole, has every reason to want tariffs to be very, very low, *politicians* have good reason to want tariffs to be high -- lowered tariffs result in a net increase in people angry about foreign competition, even though then are a net benefit to the voters.

Dan,

With this: "Which means that, even though the country as a whole, and the population of the country as a whole, has every reason to want tariffs to be very, very low, *politicians* have good reason to want tariffs to be high -- lowered tariffs result in a net increase in people angry about foreign competition, even though then are a net benefit to the voters."

Are you saying, in backhanded fashion, "the ignorant serfs need impenetrable "trade deals" foisted upon them, so they don't know what hit them?"

Really, don't you think we'd All be better off if we retired the teachings, and the teachers, of Keynes? Maybe, be so bold as to actually instruct people how Economies do operate?

Or, do you think that might be considered to grave a threat to the Status Quo?

Isocrates:

II. "...when you eliminate tariffs for Mauritania, you allow the Mauritanians the right to sell you speared fish in exchange for the ability to strangle their ability to compete in higher-value-added industries in the cradle."

This is the so-called "infant industries" argument. It does not get much support among economists. They point out that the government is not very good at determining which industries to protect and that, if the government does want to promote certain industries, subsidies are a more efficient way to do it. A tariff creates larger "deadweight losses." India used protection for decades to try to build up "high value industries" like steel mills. The policy created massive inefficiency and is now widely recognized as a failure. They should just have imported the steel.

Well, you've picked India as a successful example of an economy that both underperformed, and also had tariffs. I'm hardly ready to call that binding proof. So far, we're talking past each other. Obviously, I mixed up absolute and comparative advantage, (it's been a while), but your workplace example is based on a single value - greater total output. The lawyer-secretary example, sticking to concepts, works out great for the lawyer, and creates more output for the system as a whole. But so what? Does the secretary's overall net value or worth increase, compared to what would be earning if she became a lawyer, even if she stayed a crappier lawyer than the original one? Of course not. Your comparative advantage is actually game theory. If both people specialize, the net output is more, and the higher-skill person earns more than for two generalists. Meanwhile, the bottom person earns less than they would as an unspecialized lawyer.

Similarly, the only thing economic history as a whole shows is that *exports* benefit nations who do a lot more of them than importing, and that free trade makes the system as a whole produce more output. Free trade and the growth of the countries on the bottom rung of the trade tiers have no historical connection whatsoever. For example, the United States became the world's foremost economic power behind very, very thick layers of tariffs. Japan and East Asia as a whole achieved spectacular growth in the 20'th century by having a vast surplus of exports to imports - of course. The export-import surplus allows you to stockpile capital to move into the value-added industries that are your only real chance for growth.

So please, give me a break. Under truly free trade agreements, for at least a century, the least developed countries would run massive export deficits. Most of them already do just that. They can't produce any high-value goods, and because foreign first-world multinational corporations can sell them so much more cheaply and efficiently than start-ups, they face a massive first move disadvantage that will remain with them for generations.

The wrinkle in this is, of course, FDI, but FDI is a blip on the radar screen of the above pattern.

Now, I'll grant you that developing nations that have manipulated a partially free trading system to achieve massive export surpluses have prospered in this century, but that has nothing to do with free trade.

Last, but not least, subsidies may be more efficient than tarrifs in the economics textbooks, but the thing about poor nations is, they don't have the money to subsidize s*it.

That's wrong in most cases (and I'm an electrical engineer, I've studied such things).

...but not the only one.

Al does have higher resistivity per square inch, but you just have to make the Al wire a little thicker..........total cost would be much higher than with copper wiring.

Uh...thanks for confirming the point? Copper is usually preferred over aluminum. This is pretty much universally true in both small-signal and power systems. The one noteworthy application exception is --

OTOH, the very thick wires coming into my house are Al - there is so much metal there that you save far more on the metal than you spend on very carefully making three special connections at each end. The wires on power poles are usually Al, saving both money and weight.

Transmission lines are steel reinforced, so the weight savings, though present, are not necessarily comparable.

Transmission is normally performed in the kilovolt ranges, reducing current requirements proportionately, and thus resistive losses are minimized. In transmission it is also preferable to use a material that cannot magnetize, as current flow is less prone to disruption from EMI/RFI bursts generated by lightning. And then there's the cost of stringing up millions of miles of transmission cable. These requirements happen to match very well to the electrical and economic properties of aluminum, and are primary reasons why it is used in transmission.

In most other applications, aluminum increases costs and/or compromises electrical safety, and copper will be preferred.

Glasnost:

"Similarly, the only thing economic history as a whole shows is that *exports* benefit nations who do a lot more of them than importing, and that free trade makes the system as a whole produce more output."

I strongly disagree with you about this. You have given a pretty good summary of mercantilism, which is now widely considered discredited among economists. The mercantilits believed that the goal of trade was to run persistent trade surpluses to accumulate gold (specie). But David Hume and Adam Smith refuted their arguments. Hume pointed out that trade surpluses would lead to the accumulation of gold (or, nowadays, foreign currency), which would cause a rise in domestic prices, and make exports less competitive. This is the "specie-flow mechanism" and it shows mercantilist policies are self defeating. More importantly, though, Adam Smith pointed out that it is not gold or currency that improves people's welfare--it is real goods and services. Contrary to what you say, imports are good (which is why people choose to buy them) and exports are the price we pay for imports.

"Under truly free trade agreements, for at least a century, the least developed countries would run massive export deficits. Most of them already do just that. They can't produce any high-value goods, and because foreign first-world multinational corporations can sell them so much more cheaply and efficiently than start-ups, they face a massive first move disadvantage that will remain with them for generations."

That's not necessarily true. America is the most developed of all nations, yet we have a large trade deficit. Meanwhile, much poorer countries like China and Russia have substantial trade surpluses. So there is no necessary connection between a country's wealth and its trade balance. Anyway, your argument that trade surpluses mean an accumulation of capital is wrong. A trade surplus means there is a net capital outflow. It's true that trade surpluses imply an accumlation of foreign currency, but it's not clear what good a large quantity of foreign currency does you if you don't spend it.

I gave India as an example, but it is hardly alone. Many countries tried the policies you are espousing--most of Latin America for example. It was called "import substitution" and many development economists believed it would work, despite what Adam Smith and David Ricardo had written. But it failed miserably. It failed so badly that the 1980's are called Latin America's "Lost Decade," since output actually declined in the region during that time. The only very successful country in Latin America during that time was Chile, which bucked the trend and adopted free market policies (inspired by Milton Friedman and others from U. Chicago).

I will quote from a popular textbook on International Economics ("The World Economy," by Yarbrough & Yarbrough): "Import subsititution does not constitute a promising development strategy...A period of temporary support is no substitute for comparative advantage, and an industry without comparative advantage will remain an infant forever... The strategy's emphasis on ('high value added') manufacturing tempted many developing countries to pour vast resources into building highly visible and symbolic national industries, such as steel, autos, chemicals... By artificially encouraging industrialization even in areas of comparative disadvantage, import substitution actually increased dependence on the imported inputs and capital goods." So, in short, import substitution was a miserable failure.

Instead of industrializing as planned, those developing countries that tried it ended up squandering their resources on unproductive projects and penalizing the industries, like agriculture, where they had a clear comparative advantage in favor of industries in which they never would. Even worse, by discouraging trade, they cut themselves off from foreign flows of capital and technology and doomed themselves to stagnation. Contrast their experience with that of Hong Kong, which has had the freest trade the world and has seen its GDP per capita grow at more than 5% per year for the last 50 years. It is clear to me whose strategy worked better.

I assure you that most economists agree with what I've written. The only one I can think of who disagrees is Lester Thurow, who was predicting 15 years ago that America would be left behind by Japan. That prediction hasn't turned out so well. Since then America has engaged in fairly free trade and has prospered while Japan's efforts to pick and choose favored "high value" industries bred a notorious crony capitalism that has retarded their growth. All the while America has run large trade deficits and Japan has run large trade surpluses. Yet it is Japan that has been left behind.

Well, that's enough. I recommend "The Commanding Heights" by Yergin and Stanislaw, which gives an excellent overview of the failure around the world of the policies you are advocating.

Isoc,

Would you care to examine this: "A trade surplus means there is a net capital outflow. It's true that trade surpluses imply an accumlation of foreign currency, but it's not clear what good a large quantity of foreign currency does you if you don't spend it." Specifically: "A trade surplus means there is a net capital outflow."

This: "net capital outflow" comes from the equation, balance of trade + ( net FDI(foreign direct investment))= current account balance(net capital outflow), no?

And, are you saying that having the ability, through accumulated trade surpluses, to (invest in/purchase) chunks of foreign entities, is a "bad thing" ?

btw, in view of your whole post, did you misplace your copy of The Organon?

Are you saying, in backhanded fashion, "the ignorant serfs need impenetrable "trade deals" foisted upon them, so they don't know what hit them?"

I'm saying that many people only see the bad and miss the good, even though the good is much greater than the bad. It is the same phenomenon seen in sick children, who will refuse medicine on the grounds that it "tastes bad" simply because they do not understand the benefit the medicine is providing them.

It is also a bit hypocritical for a supporter of unfree trade to talk about "ignorant serfs" -- since, by definition, any opponent of free trade believes that the government is a better judge of what's good for the people than the people themselves are.

Really, don't you think we'd All be better off if we retired the teachings, and the teachers, of Keynes?

Keynes has nothing to do with this. The major supporters of free trade have been Adam Smith, Ludwig von Mises, Friedrich Hayek, Murray Rothbard, and Milton Friedman, none of whom were Keynesians.

Maybe, be so bold as to actually instruct people how Economies do operate?

That's exactly what proponents of free trade are doing. And really, is a person with as little grasp of economics as yourself really in a position to lecture on the subject?

"prescribed Regulations proscribe the Market."

"This Time Magazine Europe article on the WTO mentions my article for the Mises Institute, but it is slightly misleading: we don't want the WTO to be more effective; we would like to see it abolished and replaced with real free trade."

http://blog.mises.org/archives/003462.asp

"The WTO must, of course, be opposed with vigor, but not for the reasons the protesters trot out. As an organ of the United Nations, the WTO should strike terror in the heart of any true free trader. The organization is the concoction of international statists; it's a powerful bureaucracy concerned with managing trade not freeing it; a central planner whose goal it is to "harmonize" labour, health and environmental laws throughout the world.

Wrote commentator Lew Rockwell before the charter was ratified: "The WTO will convert peaceful trade into policy imperialism. It will allow economic exchange with some countries under approved conditions, and impose a variety of sanctions on others. The conditions will include all the legislation beloved to the U.S. left-liberals..." In short, a mercantilist takeover that bears little resemblance to free trade."
--Ilana Mercer for the Ludwig von Mises Institute

"by definition, any opponent of free trade believes that the government is a better judge of what's good for the people than the people themselves are." Right, exactly what the WTO is.

Dan,

pro-WTO=pro-Free Trade is inaccurate.

If you'd like me to provide, for you, more reference points, just say so.

If you can find some (referencably) Austrian Economists that are pro-WTO, and they think WTO=Free-Trade, Please make them known.

Maybe you could start @ www.mises.org, and, you know, ask around.

By the way,

I was looking for an answer to this:

George,

With this: "A rough analogy might be the logic that leads us to an independent central bank to protect monetary policy from political intervention."

Where are there independent Central Banks?

If George has gone looking for one, I fear we've lost him for good.

Anyone want to try to help George out?

pro-WTO=pro-Free Trade is inaccurate.

Since the WTO increases trade freedom, "pro-WTO" does, in fact, mean "pro-free-trade".

If you'd like me to provide, for you, more reference points, just say so.

"More" reference points? That would imply you've provided some already. All I've gotten out of you thus far is a bizarre assertion that the cost of pennies has a bearing on the health of our economy.

If you can find some (referencably) Austrian Economists that are pro-WTO, and they think WTO=Free-Trade, Please make them known.

I do not share your apparent belief that a person must have the Von Mises Institute stamp of approval in order to (a) understand the economy and (b) qualify as non-Keynesian. Indeed, the only significant living member of the Austrian school I'm aware of is Lew Rockwell, whose opinions on economics are frequently risible (e.g. his obsession with the gold standard -- an automatic disqualification from any serious discussion of economics). It is obvious from Hayek's writings, though, that he would have viewed the WTO as a step in the right direction, albeit an insufficient one -- he did not share the latter-day libertarian obsession with making the perfect the enemy of the good.

Maybe you could start @ www.mises.org, and, you know, ask around

The Mises Institute is dedicated to advocating a specific set of beliefs -- not to understanding economics. It is a great place to visit if you want to know what orthodox Austrian economists think about issues. It is a lousy place to visit if you want to hear from people who are more interested in figuring out what's true than they are in reaffirming their beliefs.

Where are there independent Central Banks?

The Federal Reserve is independent in the sense George was using -- no political entity has control over its policies.

Dan,

To disabuse the thread of your mischaracterizations:

Re: vMI

"The Ludwig von Mises Institute is the research and educational center of classical liberalism, libertarian political theory, and the Austrian School of economics. Working in the intellectual tradition of Ludwig von Mises (1881-1973) and Murray N. Rothbard (1926-1995), with a vast array of publications, programs, and fellowships, the Mises Institute, with offices in Auburn, Alabama, seeks a radical shift in the intellectual climate as the foundation for a renewal of the free and prosperous commonwealth.
It is the mission of the Mises Institute to restore a high place for theory in economics and the social sciences, encourage a revival of critical historical research, and draw attention to neglected traditions in Western philosophy. In this cause, the Mises Institute works to advance the Austrian School of economics and the Misesian tradition, and, in application, defends the market economy, private property, sound money, and peaceful international relations, while opposing government intervention as economically and socially destructive.

from : http://www.mises.org/content/about.asp#MISSION

Other Austrian Economists you may care to acquaint yourself with:
Walter Block (Loyola University, New Orleans)
Thomas DiLorenzo (Loyola College)
David Gordon (The Mises Review)
Jeffrey Herbener (Grove City College)
Hans-Hermann Hoppe (University of Nevada, Las Vegas)
Jörg Guido Hülsmann (University of Angers)
Peter G. Klein (University of Missouri)
Roderick T. Long (Auburn University)
Yuri N. Maltsev (Carthage College)
Ralph Raico (State University College at Buffalo)
Joseph T. Salerno (Pace University)
Mark Thornton (The Mises Institute)

This: Since the WTO increases trade freedom, "pro-WTO" does, in fact, mean "pro-free-trade".-- is simply, at its face, untrue.

want to stop at "pro-freer-trade"? It's still doubtful, but, at least, plausible.

This: "a person must have the Von Mises Institute stamp of approval in order to (a) understand the economy and (b) qualify as non-Keynesian."-- is something I never said. I was merely asking that offer a referencable Economist fitting, (your list): Adam Smith, Ludwig von Mises, Friedrich Hayek, Murray Rothbard, and Milton Friedman. As opposed to someone like Paul Krugman, who, as you may know, would not fit the list you delineated.

With this: "The Federal Reserve is independent in the sense George was using -- no political entity has control over its policies." Was not the Federl reserve created by an Act of the U.S. Congress? Is there something special about that Act, that it contains bars from its repeal? No?

How can an entity created by a political body, that relies upon that body for additional statutory support(s), not be, at the very minimum, somewhat beholden to it? Thereby, Not Independent(?)

To disabuse the thread of your mischaracterizations

Quoting the vMI's mission statement at me demonstrates nothing other than your willingness to take everything the vMI says at face value. :)

Other Austrian Economists you may care to acquaint yourself with:

Please note my use of the word "significant" as a modifier to "living member of the Austrian school". Pointing out that there are Austrians at Grove City College and UNLV doesn't refute my claim. :)

want to stop at "pro-freer-trade"? It's still doubtful, but, at least, plausible

There is no doubt that the WTO has fostered freer trade. But as for your attempt to draw some sort of distinction between "free trade" and "freer trade" -- support for the latter is the one and only way to achieve the former, as it is not possible to force the removal of all trade barriers at once.

I was merely asking that offer a referencable Economist fitting, (your list): Adam Smith, Ludwig von Mises, Friedrich Hayek, Murray Rothbard, and Milton Friedman.

So why ask for an Austrian School name, given that neither Smith nor Friedman belong to it?

In any case, four out of the five died before the WTO came into existance, while the fifth, Friedman, supports the WTO. It can also be surmised from their writings that Hayek (founder of the Chicago school) and Smith would have been WTO supporters as well; certainly it is true that most of Hayek's disciples at Chicago supported the various tariff-reduction agreements (from the abortive ITO up through the WTO).

not the Federl reserve created by an Act of the U.S. Congress? Is there something special about that Act, that it contains bars from its repeal? No?

I said "the Federal Reserve is independent". Please note the use of the present tense in that sentence.

Could Congress pass a law seizing control of the Fed at some point in the future? Sure. Congress could pass a law seizing control of Belgium tomorrow too, if it wanted to. Beligum is, nevertheless, an independent nation today.

For Dan, and others who may have any interest in the Economic significance of the debasement of our coinage:

"If one values the Current Dollar against and Constant Dollar (CPI 1913=100) or a Gold Dollar (gold price/20.67), todays Dollar is worth a bit less than 0.05 Constant Dollars or 0.0333 Gold Dollars. This approximates where the French Franc, Belgian Franc and Italian Lira were at after 1920. You can see the changes the the coinage systems in the Standard Catalog. Centimes went out of use and there were alterations to other denominations. Sadly, US coinage will follow sooner or later. Cents and probably nickels will go, forced out by the high cost of production. Our "mighty buck" is just a devalued Lira now.

Posted by: George at July 27, 2006 02:19 AM

Well when the metallic value in the coins is higher than the nominal value of the coin itself, it means that inflation is exploding. Regrettably for the FED and all the central banks of the world, it is the ultimate indicator that the dishonest statisticians cooking the CPI numbers, can no longer hide the brutal fact! Much much bigger inflation and monetary debasement lies ahead. I see this strange phenomena as the ultimate, the NEC PLUS ULTRA measure of monetary expansion. Expect dramatic monetary debasement of all fiat currencies !

Posted by: Marc Authier at July 28, 2006 05:05 AM

are two recent posts to a thread, here:
http://blog.mises.org/archives/005375.asp#comments

Dan,

This: "Quoting the vMI's mission statement at me demonstrates nothing other than your willingness to take everything the vMI says at face value. :)"

is not necessarily true, it was done so to publicize vMI's view of itself, from which point, people can draw their own conclusions.

This: "Please note my use of the word "significant" as a modifier to "living member of the Austrian school". Pointing out that there are Austrians at Grove City College and UNLV doesn't refute my claim. :)"- funny that Rothbard taught at UNLV. Walter Block, whom I listed, is one of the more widely published "Austrians" of our day.

This: "support for the latter is the one and only way to achieve the former, as it is not possible to force the removal of all trade barriers at once."- again, is not necessarily true. Hypothetically: I could lobby for reductions in Steel tariffs, and them alone. If I were successful, that could be termed: "freer-trade". My single issue advocacy is hardly a ringing endorsement of "free-trade".

"It can also be surmised from their writings that Hayek (founder of the Chicago school) and Smith would have been WTO supporters as well" Dan, you could surmise all you'd like, but I think it to be dissociative to think that Hayek would support the WTO. Check his works: The Road to Serfdom, and The Constitution of Liberty. Smith, on the other hand, might be more plausibly construed as a supporter of the WTO, though, still unlikely.

Dan, it's simple, in re: any CBs "independence". They simply are not. To say that they are is akin to saying the obverse of a coin is independent from the reverse.

And, "I was merely asking that you offer a referenceable Economist fitting, (your list): Adam Smith, Ludwig von Mises, Friedrich Hayek, Murray Rothbard, and Milton Friedman.."

No vMI "stamp of approval" necessary. Btw, if you are interested: Saying Hayek founded the "Chicago School" and thereby asserting: Today's Chicago School is = to Hayek, is equivalent to dreaming that Edison's General Electric is, today, still, primarily a manufacturer of industrial goods.

This: "the WTO should strike terror in the heart of any true free trader. The organization is the concoction of international statists; it's a powerful bureaucracy concerned with managing trade not freeing it" is Still apt and accurate.

Isocrates:

Thanks for the cordial tone. But yes, we most certainly don't agree. Furthermore, you're either not looking very carefully at some of your own examples, or you're being disingenuous.

The infant industries strategy will not work in every time and every place. It's certainly possible to attempt to build competitive industries behind domestic tariffs and have them be stagnant, inefficient, inexpert, and corrupt. But this in no way means that, as a small, argiculture-based poor country, that throwing your markets open to unfettered competition from major multinational corporations will make you a richer country. Quite the opposite. Individuals buy imports because of their individual quality and care little for its effect on the country's macroeconomy.

Now, to get into your examples:

Chile is a great example of a success story in the 90's and 00's, because it ignored Washington DC, but under Pinochet in the 80s', the economy initially stabilized and than began to nosedive.
Latin America's economies have been bled dry for decades and remain in trouble for a whole variety of reasons, and I would not single out import tariffs as very high on that list. Meanwhile, the Japan you disparage, as well as coutnries like Taiwan and South Korea, moved from poor and devastated countries to relatively rich and prosperous ones, thanks to the massive export and trade surpluses that they ran for decades, thanks to having trade policies that were less free than those of Europe and America.

China, a poor country, runs trade surpluses, huh? Do you mean the poor country with the highest rate of growth in the world?

And do you hear any economists out there harping on how America's trade deficit is a useful asset for our country?

Rich, industrialized, competitive countries can afford to float trade deficits on the backs of their other strenghts, but export-led growth, the only real model we can observe that has actually worked in the real world since WWII, almost demands restrictions on imports. Of course, flooding the world with exports while restricting imports to your own country harms the system while enriching your country, I admit - but joining the WTO as a poor country harms yourself while enriching the system.

Tough call, eh?

Comments are Closed.