Greg Ip, Larry Summers, and Paul Krugman provide their economic incompetence bona fides . . .4/12/2016 Political Borders' Continuing Economic Irrelevance to Trade - Cafe Hayek
. . . as if that is a positive thing! Don Boudreaux's letter to the Wall Street Journal is well worth a read: "Ip too readily buys Larry Summers’s and Paul Krugman’s case that a combination of weak aggregate demand and low interest rates supplies an economic justification for protectionism (“The Case for Free Trade Is Weaker Than You Think,” April 11). First, this case rests on the claim that the only mechanism by which capital inflows boost domestic employment is by reducing domestic interest rates. But this claim is mistaken. When, for example, Sony uses dollars earned on its exports to America to build a retail outlet in America, the U.S. trade deficit rises yet the resulting capital inflows create domestic employment. Such an outcome is possible even if aggregate demand and interest rates are low. Ditto if, say, investors in Australia use U.S. dollars to supply seed money to a Silicon Valley upstart. Second, contrary to Messrs. Ip’s, Summers’s, and Krugman’s implication, whatever problems are caused by inadequate aggregate demand and low interest rates are not unique to international trade. These problems do not, therefore, justify a policy of treating foreign commerce and goods differently from domestic commerce and goods. If the economy truly is such as Messrs. Ip, Summers and Krugman suppose it to be, then every fall – regardless of source or reason – in the demand for currently produced outputs increases unemployment. If Messrs. Ip’s, Summers’s and Krugman’s analyses reveal that economic conditions justify restrictions on international commerce in order to close trade deficits, then those same analyses justify restrictions also on domestic commerce to prevent savings from increasing. Not only must the government threaten to shoot or to cage people who insist on buying imports, it must also threaten to shoot or to cage people who, say, insist on saving more for their retirements, for their children’s education, or to buy a new home. Additionally, the government must also forcibly prevent current debtors from reducing their rates of borrowing. Unless and until Messrs. Ip, Summers, and Krugman admit and endorse the full implications of their alleged case against free trade, we have good reason to believe that their endorsement of this case against free trade is poorly thought out. Sincerely, Donald J. Boudreaux Professor of Economics and Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center George Mason University Fairfax, VA 22030" How this level of incompetence happen is mysterious, but clearly ideology trumps reason for many, including Ip, Summers, and Krugman. There are no good reasons for protectionist statutes outside of specific national security needs.
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What Is It About Trade That Makes People Spout Nonsense?
. . . but because our political betters do not understand this we are saddled with the nonsense emanating from The Bern, and The Donald, and the Hillary, and likely from a large number, perhaps a majority of our politicians. "Suppose Toyota sells a $20,000 car to an American and then immediately uses that $20,000 to buy software from Microsoft. Because the value of additional U.S. imports (a car) equals the value of additional U.S. exports (software), there’s no change in the U.S. trade deficit. Now tweak the example just a bit. Toyota sells a $20,000 car to an American, then uses that $20,000 to buy stock in AT&T from another American. The American who sold the AT&T stock, in turn, spends the $20,000 on software from Microsoft as part of his effort to launch a new business. Because Toyota spent none of the $20,000 on U.S. exports, the U.S. trade deficit rises by $20,000. Is the second situation worse than the first? If the pronouncements of the mainstream media and of most politicians are to be believed, the answer is a resounding yes. A rising trade deficit is bad! But look more closely. In both cases, Americans get an additional car worth $20,000, and Microsoft produces and sells additional software worth $20,000. In both cases, the amount of extra American-made output produced and sold as a consequence of Toyota selling that car to an American is the same: $20,000 worth of Microsoft products. If you’re a Microsoft employee, shareholder or creditor, it matters not a whit to you whether that company’s increased sales are made to foreigners or to Americans. Clearly, a rising U.S. trade deficit does not necessarily mean less demand for American-made goods and services." The wanker candidates do not understand this. It really is simple, but apparently impossible for people of above average or better intelligence, once they become politicians. The article is worth a read. It shows one of the harebrained ways the progressives analyze trade. Trade, and immigration are pillars which make America Great, not mercantile protectionism, and border walls. We do need to create an orderly mechanism for entry, but we should simply fully, and permanently renounce all trade barriers. The real problem with immigration is the way the welfare state is constructed, and implemented. Unfortunately, it is designed to destroy the incentive to work, and family formation. We need better candidates. The reason economics is so difficult to understand . . . Countervailing Economic Misunderstanding - Cafe Hayek
. . . is that evil men attempt to confuse us into believing false demagoguery. |
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