Friday, March 25, 2016

Free trade considered harmful?

98% of Economists agree that free trade is beneficial for both countries in an exchange, and should be part of your healthy breakfast.  Eat more.  More, more, more.

The problem is Bastiat's "seen and unseen" problem.  It's easy to measure trade volumes, so that's what we do.  That's what the Economists look at, which is why they all tell us it's good for us.  They're right in that assessment, as far as it goes - what they see is beneficial.

But what about what they don't see?  Andy Grove dies this week, and the ex-Intel CEO had some very strong feelings about important things that are hard to measure.  The unseen:
The lesson Grove had learned at Intel was that success was all about scale. As soon as a country loses its high-tech manufacturing base, it forgets how to do many things, and loses its ability to scale in a new marketplace. The spoils go to those who retain a competitive manufacturing base. 
TVs were a good example, Grove wrote. Princeton economist Alan Blinder had written that the absence of TV production in the USA, as TVs became a low cost "commodity," was a good thing. 
"I disagree. Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution. As happened with batteries, abandoning today's 'commodity' manufacturing can lock you out of tomorrow's emerging industry."
Smart developing nations have long ignored Ricardo's "Comparative Advantage" argument, for precisely this reason.  Alas for our corrupt political class.  They've sold our future to Wall Street for a mess of campaign contributions.

Rest in peace, Andy Grove.


Jehu said...

Every argument made against a tariff can also be made against any other tax. Distorts the marketplace? Check, Deadweight losses, Check, Crony Favoritism? Check.
Thing is, a tariff gives a government far less auxiliary power than do sales or God forbid, income taxes, which gives the government the power to pry into nearly any exchange between two people.

Old NFO said...

Grove was and is right... All of the innovations in TV are coming from Japan and Korea now! The largest size single crystal plasma screens are being manufactured by Korea, and we don't have a clue how they are doing it!

Lawrence Person said...

The problem is that it is impossible to predict in advance which of those legacy businesses will provide the seeds for tomorrow's boom industry. You can't prop up every legacy industry on the theory that some might be vital.

And if left to politicians, we know that the "votal" industries they choose will be those who are already well-connected: Cars, ethanol, steel, etc.

Chris said...

A free market capitalistic system is about "creative destruction". Resources will be obtained by the user who is able to make the best use of them, and thus pay the most for them. This changes over time, and is unpredictable. Not only companies, but people, need to be aware of this and stay flexible. No industry, company, job is forever - absent government interference. But this system will produce the greatest opportunity and wealth for the greatest number. Doing things with a large, centralized, powerful government guarantees a return to some type of feudal society with the same kind of economic results. Think North Korea or Cuba.