[MisterAgreeable]

I claim to be a libertarian, and I think I am in large part, but it seems that I always end up agreeing with Pat Buchanan. I really like his magazine, American Conservative. I think it's possible that modern day "conservatism" is nothing like traditional conservatism, and I'm more of a conservative in the sense that he is, rather than modern-day republicans like GWB.

This is one of those classic issues where I don't have the courage of my supposedly libertarian convictions. I agree wholeheartedly with him here - the death of US manufacturing is a tragedy. We import billions of dollars worth of useless consumer crap every year, and increasingly, the only real export markets that aren't rapidly disappearing are software, music, movies and TV. And those aren't large enough markets to support an economy.

At times he's a bit alarmist, but I think it's a good article. It's a little long, by op-ed standards, I guess.

http://www.amconmag.com/08_11_03/cover.html

[+Donny]

I don't have the time to read through it now, but could you sum up the arguments he makes against free trade?

So far in my limited studies, I find opposition to free trade a bit ridiculous. It has been shown that free trade will benefit a country every single time. Every country has a comparative advantage (IIRC, that is the right term) in something. Through free trade, our capital, technology, and natural resources are used more efficiently.

Furthermore, I remember a quick bit in my textbook claiming that tariffs do not necessarily decrease the trade deficit. What does increase the trade deficit, however, is American budget deficit.

[JerryLove]

Take the technology industry for example. Most major companies from Intel, to IBM are moving their helpdesks overesas to India. The US has lost 2.5 million tech jobs to overseas outsourcing and will not be getting them back unless somthing happens.

The engineers in India are earning figures like $8,000 per year, and that lets them live well.. I cannot function on that kind of income. At that income, they are not coming over here, nor buying our goods; and it is simply impossable for me to compete in any manner other than moving to India or some other impoverished country... And considering that they are 3 times the size of the US; I don't see it as reasonable that their standard of living will come up from this fast enough to push their wages into tolerable levels for the US.

I see no positive outcome for America or American workers from allowing free competition/trade with countries on a very unlevel playing field.

[Daniel Horney]

and on a smaller scale, take my town of high point

for years, the economy of high point and surrounding areas was driven by textiles and furnature (all that furnature you see on the price is right is made in high point or thomasville). NAFTA gets passed and all the textile mills here shut down because its cheaper to make shirts and socks in mexico. China is granted MFN status, joins the WTO and all the sudden were importing tons of hardwood and prefab furnature from asia. Free trade, while might be beneficial to the us as a whole (im not convinved it is though) absoultely killed the high point economy.

[+Donny]

Take the technology industry for example. Most major companies from Intel, to IBM are moving their helpdesks overesas to India. The US has lost 2.5 million tech jobs to overseas outsourcing and will not be getting them back unless somthing happens.

The engineers in India are earning figures like $8,000 per year, and that lets them live well.. I cannot function on that kind of income. At that income, they are not coming over here, nor buying our goods; and it is simply impossable for me to compete in any manner other than moving to India or some other impoverished country... And considering that they are 3 times the size of the US; I don't see it as reasonable that their standard of living will come up from this fast enough to push their wages into tolerable levels for the US.

I see no positive outcome for America or American workers from allowing free competition/trade with countries on a very unlevel playing field.

Bad argument. You are not factoring in the effect his has on other people besides those in the tech business. Those people will be getting cheaper goods from the tech companies because of the cheaper labor. Furthermore, Indians are now getting good jobs, which means GDP goes up in India.

Now, the Indians either are getting dollars or they are getting their currency (I'm simply not sure which). In the first case, they would have to do something with the dollars. If they merely exchange them for their domestic currency, the added supply of the dollar on the international currency exchange market reduces the cost of dollars in relation to other currencies, making American exports more attractive for foreigners and foreign imports less attractive for Americans. This obviously increases net exports and likewise must increase net foreign investment (found in the paying of foreign employees), which increases GDP.
If we are getting their currency and paying them in that, this means that we are doing the same thing, as we increase the supply of the dollar in the international currency exchange market by buying foreign currency to pay foreign employees.

Next, other companies that need to invest in pc's now have cheaper goods (or can afford to buy better ones). This means that companies can now afford to hire more employees, which either gives you a job or hires more foreign employees, which just starts the process all over again.

Now, I could also argue from the basis of opportunity cost and comparative advantage, but I'm sure you know that argument.

Finally, the argument that allowing free trade causes American workers to lose jobs is only true in the short run. In the long run, industries move to where the nation has a comparative advantage and America (and the world) has a higher standard of living. I find it absolutely stupid to say that companies should employ more expensive people so that the higher priced workers can have a job. If they can't compete, they have to find another industry to compete in. Advocating where you are advocating, Jerry, would also force you to advocate subsidizing infant-industries in foreign countries and enforcing high tariffs, the latter of which is Mercantilism, which is a bit old in economic history.

for years, the economy of high point and surrounding areas was driven by textiles and furnature (all that furnature you see on the price is right is made in high point or thomasville). NAFTA gets passed and all the textile mills here shut down because its cheaper to make shirts and socks in mexico. China is granted MFN status, joins the WTO and all the sudden were importing tons of hardwood and prefab furnature from asia. Free trade, while might be beneficial to the us as a whole (im not convinved it is though) absoultely killed the high point economy.

This is exactly the kind of example I would have brought up in support of free trade. In the short run in isolated markets, there is harm. However, in the long run and in the American economy as a whole, there is gain. Should we choose to harm the economy as a whole (national and international) because there would be short term unemployment in isolated markets? No. That's just bad economic policy.

[MisterAgreeable]

Well, here are a few scenarios that I think definitely call for some amount of market protection.

1. Subsidised goods. Buchanan mentions this in the article. Canadian wood, for instance, or some French wines. American goods have an extremely hard time competing when foreign governments are paying to have this stuff exported. One could claim that the US consumer benefits because some foreign government is paying a percentage of the cost of raw materials, but the downside is that it can kill domestic markets.

2. Dumping. Foreign companies selling at a loss to starve domestic competitors. This happens with domestic markets, too, of course.

3. Foreign tarrifs. Other countries will have significan import tarrifs on american goods, yet we freely allow their products inside our borders. They're saying that it's fine for them to make profit from American citizens, but our companies can't do the same with them.

In each of these cases I would be in support of tarrifs to level the field.

[MisterAgreeable]

And about the tech jobs, I agree with Jerry that it is a problem.

I work for a british company, and by far our largest office is in Mumbai, India. I think my job, increasingly, is to be the smiling, caucasian face put on Indian labor. The clients seem to be barely aware that work happens in India. We charge prices pretty close to the American labor market, just 10-15% cheaper.

Well the whole arrangement sucks. We've laid off most of our American workforce, and the customer isn't getting much benefit at all. The US tech market is drying up, further poisoning the economy, and the only people to benefit - the consumers - don't see much of a price cut.

Some stockholder somewhere benefits at the cost of our economy. My example is particulary bad because we're privately owned - by Brits. The only people to get any significant benefit are the Indians and the foreign business owners.

Here's why I think it's such a problem. Tech jobs and phone support are the big jobs that are leaving. It's not like you're importing steel or something - there has to be a huge price difference to make it cost effective to put steel on a boat and float it across the earth, so thre is probably large market benefit. Also, imports make a lot of commerce. The terminals take a cut, the dock workers, the shipping lines, the domestic transportation lines. Heck, the shore pilots. Even if it's not huge, there are secondary benefits.

You can have Indians doing tech support or programming with very little US overhead. There are big call centers opening up weekly there. There are organizations employing programmers who will deal with the overhead of offices and management. US money goes straight to India, and the product goes straight to the company. The US company saves maybe 20%, but meanwhile thousands of US workers who would have run that call center are laid off. Their negative impact on the economy is far larger than the 20% saved, and the local economy doesn't get any of the usual side benefits it gets from real imports.

Until you've been there, you probably can't imagine the labor market in India. Simply put, the cheapest commodity they have there is people. You speak of increasing the GDP of India. Well, that's hard to do when your talking about a country with just under 1.1 billion people. That's a whole lot of US jobs that have to move before you're making a big change in the average Indian's lifestyle.

Here's a real example. Our office needed to run a pretty long cable - maybe 1/2 mile or so. Well, the first option is to rent a ditch witch and get the cable run in a few hours. Obviously that's what we would do in the US. The second option was to pay hundreds of local laborers to bring shovels and dig a trench, lay the cable, and cover the trench.

It was significantly cheaper to pay the local laborers. Imagine a long line of people stretching as far as the eye could see (which isn't so far given the pollution in India) digging a big ditch. All to save the cost of renting a comparatively cheap piece of construction equipment.

Our Mumbai office has a guy whose job it is to open cokes from the drink machine. They have a full-time bathroom door opener. Labor is practically free.

Any AOL users reading this can try this experiment. Call AOL tech support. Ask the person who answers where they are. They will almost certainly say Bangalore or Mumbai. Just to be certain, tell me this - has AOL lowered their prices lately, have they "passed the savings on to the consumer?" I didn't think so.

[JerryLove]

Agreed... and there really isn't a win solution.

An Indian engineer is making $8,000 per year. He's not buying American goods (nothing is made in America, and he can't afford it anyway) so the money is not coming back.

Let's imagine that the company actually does pass some savings on. Well, that doesn't help me, because with no income, my buying power is nill.. It helps you (you still have a job) but wait... the US dollar is devaluing (you said this was good). This means that the cost of that service in relative US dollars is going up... oops, no savings and I still don't have a job.

What about what you sell? Can you sell it overseas? Well, if the dollar has dropped to about $0.12 you can compete with India; do I really need to tell you how bad the revolution will ge there before that happens? So let's imagine that we are down a modeart $0.80. Now you want to see your widget... you still can't sell it overseas, and I'm not buying them from you anymore (I lost my job, remember) so now you loose your job too... which stops you from buying anything and costs someone else their job.

[Daniel Horney]

Originally Posted by +Donny

This is exactly the kind of example I would have brought up in support of free trade. In the short run in isolated markets, there is harm. However, in the long run and in the American economy as a whole, there is gain. Should we choose to harm the economy as a whole (national and international) because there would be short term unemployment in isolated markets? No. That's just bad economic policy.

short term my ass. This is going on ten years now. And I'm not sure i see any real economic fruits from NAFTA either. By this logic you would have been cool with the tariff of abominations, i assume?

[+Donny]

Well, here are a few scenarios that I think definitely call for some amount of market protection.

1. Subsidised goods. Buchanan mentions this in the article. Canadian wood, for instance, or some French wines. American goods have an extremely hard time competing when foreign governments are paying to have this stuff exported. One could claim that the US consumer benefits because some foreign government is paying a percentage of the cost of raw materials, but the downside is that it can kill domestic markets.

Once again, you are simply redistributing wealth. You are forcing Americans to pay higher prices for most likely lower quality goods so that other companies do better. In short, you are harming consumers to help our firms. In doing so, however, you also harm foreign firms by lowering their demand. You harm other nations by lowering their net exports. With decreased importation, the supply of the dollar goes down on the currency exchange market, making our exports less attraction because of the higher exchange rate. This hurts those companies who export goods and brings down our net export. Most likely, our net export with not rise much, if at all, through the tariffs. Yes, it is true that you help out some domestic companies, but you also harm consumers and other firms that must now buy from the protected domestic companies. Protected companies are also going to have less competition, which means they have less incentive to improve their product. It simply is a way to write a check to firms at the expense of the international and national markets.

Furthermore, why not apply this to states? If florida oranges are beating the crap out of all the other oranges, should states put tariffs on imports if the Constitution didn't prohibit it?

2. Dumping. Foreign companies selling at a loss to starve domestic competitors. This happens with domestic markets, too, of course.

So? That is a method of business. It happens, like you said, in all markets. There is a guy at our church who temporarily had this happen with his small electric business. He worked through it, though, and is doing fine.

3. Foreign tarrifs. Other countries will have significan import tarrifs on american goods, yet we freely allow their products inside our borders. They're saying that it's fine for them to make profit from American citizens, but our companies can't do the same with them.

Yes, they are saying that, and they are stupid and are harming their economy as well as ours. Your solution is to harm the economy even more?



Normally I would provide a visual for this, but I'll try to explain. In any given market we can measure the "surplus" of both buyers and sellers. This of it this way. If I went to the store looking for a cd and say that I am willing to pay $20, but the cd is only $15 I can say that there was a consumer surplus of $5. Likewise, say the supplier would have been willing to sell for $10. This means he had a surplus of $5, too. In a supply and demand graph, the consumer surplus is the area below the demand curve and above the price level. The producer surplus is the area above the supply curve and below the price level.

Now, when a government allows free trade and the world price is lower than the previous domestic price, domestic companies must lower their price to meet foreign competition. In the domestic market, such a lowering of the price would produce a shortage of goods, as there are less companies willing to produce goods at the lower price and there are more buyers willing to buy at the lower price. Ths shortage that is left over is picked up by international trade. In a supply and demand graph, it would be the triangle below the domestic equilibrium price, whose base would be the international price.
Because of free trade, consumer surplus increases because of the added international trade and because of lower domestic prices. However, the producer surplus only decreases by the lower domestic prices. Thus, in a free economy, the consumer surplus goes up more than the producer surplus goes down. This means that the firms lose less than the consumers gain.

If we add tariffs, this raises the price above what the international price would have been. If it raises it back up to the old price, the surpluses don't change and you don't gain what you would have from free trade. If you only raise it a portion of the drop in prices, you still are losing some of the consumer surplus (more than the producer surplus you are gaining) because of the decreased quantity demanded.

Any AOL users reading this can try this experiment. Call AOL tech support. Ask the person who answers where they are. They will almost certainly say Bangalore or Mumbai. Just to be certain, tell me this - has AOL lowered their prices lately, have they "passed the savings on to the consumer?" I didn't think so.

This seemed to be the crux of your argument, so I'll address it. What, then, has AOL done with its savings? If it has invested it into a larger supply, that will drive down price and increase quantity demanded. Have the high-up officials just taken the extra cash? If so, that means they are spending that money into the American economy. That increases the demand in other markets, which opens up jobs for people that were in the tech market. Again, in the long run, jobs move from market to market and from firm to firm. If Ford lost to the other domestic car companies, should we subsidize it to save jobs? No. Competition means that some lose and some win. Those that lose must find other jobs. If you disagree then you are opposing the free market, somthing I doubt you will bring yourself to do.

An Indian engineer is making $8,000 per year. He's not buying American goods (nothing is made in America, and he can't afford it anyway) so the money is not coming back.

You didn't respond to what I said, so I'll repeat it:

Now, the Indians either are getting dollars or they are getting their currency (I'm simply not sure which). In the first case, they would have to do something with the dollars. If they merely exchange them for their domestic currency, the added supply of the dollar on the international currency exchange market reduces the cost of dollars in relation to other currencies, making American exports more attractive for foreigners and foreign imports less attractive for Americans. This obviously increases net exports and likewise must increase net foreign investment (found in the paying of foreign employees), which increases GDP.
If we are getting their currency and paying them in that, this means that we are doing the same thing, as we increase the supply of the dollar in the international currency exchange market by buying foreign currency to pay foreign employees.

Let's imagine that the company actually does pass some savings on. Well, that doesn't help me, because with no income, my buying power is nill.. It helps you (you still have a job) but wait... the US dollar is devaluing (you said this was good). This means that the cost of that service in relative US dollars is going up... oops, no savings and I still don't have a job.

You misunderstand. The US dollar is devaluing in the international currency exchange market. That means that it buys less foreign currency because of the increased supply in that market. This says nother for the domestic money supply, but does increase net exports.

Furthermore, we are talking about macroeconomics, not just you. You have my sympathies if you lose a job from foreign competitors, but that doesn't mean I think we should legislate tariffs to provide a buffer against competition. We don't do that when domestic companies compete.

What about what you sell? Can you sell it overseas? Well, if the dollar has dropped to about $0.12 you can compete with India; do I really need to tell you how bad the revolution will ge there before that happens? So let's imagine that we are down a modeart $0.80. Now you want to see your widget... you still can't sell it overseas, and I'm not buying them from you anymore (I lost my job, remember) so now you loose your job too... which stops you from buying anything and costs someone else their job.

False. First of all, India is not the only foreign country. America exports goods.
Second, as I said earlier, the dollar depreciates in the international currency exchange market.
Finally, you are not the entirety of my demand. If some people lose their job to foreign competition, that means that the companies that hired foreign competition have lowered their prices, which lowers my investment costs. This increases investment. Furthermore, it increases sales for those companies that are hiring foreign workers. Companies that are still hiring domestic workers have increased their investment, which means they are hiring more workers. Again, there is always an industry where a nation has a comparative advantage.

short term my ass. This is going on ten years now.

I was talking about the market for furniture and textiles. Has that been harmed? No, it has been helped by cheaper investment costs. Yes, people lost jobs, but that is a free market. People have to compete for jobs. They have to compete for buyers. Did everyone who once was in the market go unemployed? Possibly. Are they all still unemployed? No.

And I'm not sure i see any real economic fruits from NAFTA either.

Im sorry that you feel that way.

By this logic you would have been cool with the tariff of abominations, i assume?

I don't know what that is.

[MisterAgreeable]

Previous:

1. Subsidised goods. Buchanan mentions this in the article. Canadian wood, for instance, or some French wines. American goods have an extremely hard time competing when foreign governments are paying to have this stuff exported. One could claim that the US consumer benefits because some foreign government is paying a percentage of the cost of raw materials, but the downside is that it can kill domestic markets.

Once again, you are simply redistributing wealth. You are forcing Americans to pay higher prices for most likely lower quality goods so that other companies do better. In short, you are harming consumers to help our firms. In doing so, however, you also harm foreign firms by lowering their demand. You harm other nations by lowering their net exports. With decreased importation, the supply of the dollar goes down on the currency exchange market, making our exports less attraction because of the higher exchange rate. This hurts those companies who export goods and brings down our net export. Most likely, our net export with not rise much, if at all, through the tariffs. Yes, it is true that you help out some domestic companies, but you also harm consumers and other firms that must now buy from the protected domestic companies. Protected companies are also going to have less competition, which means they have less incentive to improve their product. It simply is a way to write a check to firms at the expense of the international and national markets.

Furthermore, why not apply this to states? If florida oranges are beating the crap out of all the other oranges, should states put tariffs on imports if the Constitution didn't prohibit it?

Donny, did you read my post? Do you know what a subsidy is? What on earth is the above paragraph about?

You addressed precisely nothing related to the importation of subsidized goods, so I guess I'll explain the whole concept to you.

Canada wants their wood to be widely exported. They subsidize the wood cost. They tell the mills that they will guarantee $1/board foot of some particular stock, up to 30% of the cost. So the canadian lumber mills can sell their wood for $0.70/board foot, and have the difference picked up by the government.

The Canadian government may break even on the whole affair, taking into account the income taxes and such. However, US companies can't compete. The Canadian economy benefts from all the economic activity, but the US competitors stagnate because of the artificially manipulated market.

Previous:

2. Dumping. Foreign companies selling at a loss to starve domestic competitors. This happens with domestic markets, too, of course.

So? That is a method of business. It happens, like you said, in all markets.

Yes, Donny, it happens, much like drug dealing happens. Dumping products is illegal, both by domestic and foreign companies.

There is a guy at our church who temporarily had this happen with his small electric business. He worked through it, though, and is doing fine.

The US television manufacturers did not. It was a clear case of predatory market manipulation - Japanese tarrifs prevented US TVs from entering their markets, while their manufacturers took advantage of a monopoly to gain capital. Once they were ready, they flooded the US markets with below-or-at-cost and killed the industry.

A large judgement was awarded against the Japanese TV manufacturers, but by that time, the US manufacturers had been driven to bankruptcy. Can you somehow say this particular application our free market helped the US?

Yes, they are saying that, and they are stupid and are harming their economy as well as ours. Your solution is to harm the economy even more?

They are the ones with the trade surplus, whose products can move freely. We are the ones with the trade deficit, whose products are ignored in foreign markets. Their manipulation of trade is causing American products to become uncompetitive. They are not harming their economies at all.

Normally I would provide a visual for this, but I'll try to explain.

... spectacular oversimplification of global economy removed for brevity's sake...

Thus, in a free economy, the consumer surplus goes up more than the producer surplus goes down. This means that the firms lose less than the consumers gain.

Your example works fine in a closed system with limited variables, but it is absurd to think that such a trivial system explains global economies in even the broadest sense.

The first factor your model conveniently ignores is the long-term effect imbalanced trade has on competition. Perhaps the US lumber mills could compete head-on with the Canadian mills, or maybe not. That's a fair and free market, and I'll accept however it turns out. However, to find the US lumber mills competing against the Canadian counterparts, plus the Canadian government itself (through subsidies and import tarrifs) is clearly unfair.

The second factor ignored is the effect of the monopolies which have historically been created by significanly imbalanced trade. Certainly the Japanese TV manufacturers recouped their losses from the American public once they had destroyed our TV market. The US television manufacturers were battling rival Japanese manufacturers and the Japanese government itself, just like above. The US lost an entire industry while free trade people did nothing to counter the fact that trade with Japan was anything but free or open.

This seemed to be the crux of your argument, so I'll address it. What, then, has AOL done with its savings? If it has invested it into a larger supply, that will drive down price and increase quantity demanded.

Larger supply? Of what, exactly? They haven't had to buy POPs for quite a while given their market share's stagnation. AOL isn't exactly a supply and demand sort of business.

Have the high-up officials just taken the extra cash? If so, that means they are spending that money into the American economy. That increases the demand in other markets, which opens up jobs for people that were in the tech market.

You know nothing whatsoever about what AOL is doing with the cash, so making assumptions like this is ridiculous. They might be investing in foreign markets. They might be putting it in the bank. Or big suitcases. They might be wiping their butts with it. If you're trying to offer some sort of guarantee that a 20% savings on call centers for AOL will help the economy more than thousands of employed workers would have, well that's ludicrous.

You seem to rather enjoy vast oversimplification, and you've made it clear that you feel that the 20% savings for AOL was worth thousands of American jobs, so let me ask you this very directly:
Is it always a positive thing economically when American jobs are lost so that corporations can obtain services cheaper?

I do hope you won't try to answer "yes."

Again, in the long run, jobs move from market to market and from firm to firm. If Ford lost to the other domestic car companies, should we subsidize it to save jobs? No. Competition means that some lose and some win. Those that lose must find other jobs. If you disagree then you are opposing the free market, somthing I doubt you will bring yourself to do.

Yet again, you avoid the issue. Every example I brought up is not "free" trade. There are artificial factors manipulating the flow of goods and money, always in favor of the foreign competitors. If Chrysler beats Ford by making better cars, that's fine. But if the Japanese government underwrites Honda's losses and together they beat Ford, that is entirely different. Please at least try to address the market disparity issue.

[JerryLove]

MisterAgreeable has already done a good deal of very solid point-by-point, so I won't; but I have to post something

Unregulated trade between the US and India is nothing like unregulated trade between Florida and New York. Firstly, the people in New York can move down here with far more ease than I can move to India. Secondly, they are operating in the same economy, under the same federal government. If New York becomes uncompetative, they can adjust to being competitive.

There is no reasonable way Florida can adjust to an averagee income hovering around two-dollars-a-day. There is no reasonable way that their economy will come up from the business enough to even the playing field (as happened with Japan).

We are not selling much of anything to India; I just seek to maintain a stable trade; meaning if they don't buy from us, we don't want to be buying from them, or we have no jobs and no economy.

[+Donny]

Donny, did you read my post? Do you know what a subsidy is? What on earth is the above paragraph about?

You addressed precisely nothing related to the importation of subsidized goods, so I guess I'll explain the whole concept to you.

Canada wants their wood to be widely exported. They subsidize the wood cost. They tell the mills that they will guarantee $1/board foot of some particular stock, up to 30% of the cost. So the canadian lumber mills can sell their wood for $0.70/board foot, and have the difference picked up by the government.

The Canadian government may break even on the whole affair, taking into account the income taxes and such. However, US companies can't compete. The Canadian economy benefts from all the economic activity, but the US competitors stagnate because of the artificially manipulated market.

No, I don't know what subsidies are, my macroeconomics textbook didn't cover them.

Yes, I know exactly what subsidies are. However, the same principle applies, as the government is messing with the supply and demand graph. In the case of tariffs, the government makes foreign competitors sell at higher prices. In the case of subsidies, the government allows domestic firms sell at lower prices. Since you seem to disagree about the link, I'll explain it.

First, the supply curve with increase, decreasing equilibrium price and increasing equilibrium quantity. In short, the market for subsidized Canadian lumber gets bigger. We could show how this will hurt the Canadian economy, but that isn't necessary. The question is whether our government should come in and save our lumber industry from those darn Canucks.

Well, I believe I have answered this question when I discussed the consumer-producer surplus. The answer is not different at all. Foreign companies can supply domestic consumers with a cheaper product. It does not harm the US economy as a whole to allow this to happen. As I said earlier, the gains outweigh the losses. Yes, our lumber industry will get harmed, but industries that use lumber (construction companies, for example) will gain. The gain in consumer surplus will outweigh the loss in producer surplus. Workers will move from production of lumber to firms that consume lumber over time. The argument is exactly the same, it just is more extreme because Canadian lumber is even cheaper.

Yes, Donny, it happens, much like drug dealing happens. Dumping products is illegal, both by domestic and foreign companies.

And what do you say should happen?

The US television manufacturers did not. It was a clear case of predatory market manipulation - Japanese tarrifs prevented US TVs from entering their markets, while their manufacturers took advantage of a monopoly to gain capital. Once they were ready, they flooded the US markets with below-or-at-cost and killed the industry.

A large judgement was awarded against the Japanese TV manufacturers, but by that time, the US manufacturers had been driven to bankruptcy. Can you somehow say this particular application our free market helped the US?

1)The only way you can protect against illegal actions like that is if you subsidize or tariff the crap out of goods. As I said, this kills the American economy as a whole and only helps the firms you are directly aiding with the government help. The consumer loss outweighs producer gain in the case of tariffs and subsidies.
2)An abuse of foreign trade is not a good argument against the legitimate use of it. Talking about how to stop dumping is a separate issue and should include domestic and foreign issues.

They are the ones with the trade surplus, whose products can move freely. We are the ones with the trade deficit, whose products are ignored in foreign markets. Their manipulation of trade is causing American products to become uncompetitive. They are not harming their economies at all.

Yes, they are harming their economy. By subsidizing their goods or putting tariffs on our goods (or both), th ey are requiring their consumers to pay higher prices. As I have said repeatedly, the loss in the case of a subsidy or a tariff outweighs the gain.

Your example works fine in a closed system with limited variables, but it is absurd to think that such a trivial system explains global economies in even the broadest sense.

That is how every economist works problems such as these out and it actually is perfectly legitimate. A tariff is applies to the market for the said good. Supply and demand is altered and it is our job to find out how much the consumer gains/looses and how much the supplies gains/looses.

The first factor your model conveniently ignores is the long-term effect imbalanced trade has on competition. Perhaps the US lumber mills could compete head-on with the Canadian mills, or maybe not. That's a fair and free market, and I'll accept however it turns out. However, to find the US lumber mills competing against the Canadian counterparts, plus the Canadian government itself (through subsidies and import tarrifs) is clearly unfair.

So what if its unfair? You have to prove it would be beneficial for the American economy as a whole to initiate tariffs or subisidies, which you have clearly not done.

The second factor ignored is the effect of the monopolies which have historically been created by significanly imbalanced trade. Certainly the Japanese TV manufacturers recouped their losses from the American public once they had destroyed our TV market. The US television manufacturers were battling rival Japanese manufacturers and the Japanese government itself, just like above. The US lost an entire industry while free trade people did nothing to counter the fact that trade with Japan was anything but free or open.

How does this possibly contradict my thesis? Yes, government intervention harms people. Japanese government intervention harmed us. However, it would be stupid to respond with more government intervention, as that would merely raise the prices (or taxes in the case of subsidies) even more, harming people even more. Shall we play chicken until we run off the cliff or should we be sane and stop acting like idiots?

Larger supply? Of what, exactly? They haven't had to buy POPs for quite a while given their market share's stagnation. AOL isn't exactly a supply and demand sort of business.

Explain please.

You know nothing whatsoever about what AOL is doing with the cash, so making assumptions like this is ridiculous.

Did I not just ask you what they were doing with it? Name all the possibilities you want, since I obviously have no clue what they are doing with it (and I thought I made that apparent in my last post).

They might be investing in foreign markets. They might be putting it in the bank. Or big suitcases. They might be wiping their butts with it. If you're trying to offer some sort of guarantee that a 20% savings on call centers for AOL will help the economy more than thousands of employed workers would have, well that's ludicrous.

You obviously misinterpretted what I said.

You seem to rather enjoy vast oversimplification,

If you don't simplify the an economy, especially a global economy, you will never have a clue what will happen when governments do or don't do something. You have to simplify in order to make arguments and propose policies. Even you must do that. In fact, I think you simplify even more than I do.

and you've made it clear that you feel that the 20% savings for AOL was worth thousands of American jobs, so let me ask you this very directly:
Is it always a positive thing economically when American jobs are lost so that corporations can obtain services cheaper?

If the same supply can be maintained for a lower price in labor, that is obviously an increase in capital, which increases total output of an economy. The domestic supply of labor for that market will suffer, just as anyone who is getting beat by someone willing to offer their service cheaper will get beat. What does a firm do when it is losing in a market? Workers must do the same. In the long run, it is always better, as that firm will increase its supply and decrease its price. Fired workers will get jobs elsewhere, increasing the output and helping those markets.

Let me ask you a similar question. Is it always better for the economy when a company emerges that can offer a product like an existing company for much cheaper?

I do hope you won't try to answer "yes."

Again, in the long run, jobs move from market to market and from firm to firm. If Ford lost to the other domestic car companies, should we subsidize it to save jobs? No. Competition means that some lose and some win. Those that lose must find other jobs. If you disagree then you are opposing the free market, somthing I doubt you will bring yourself to do.


Yet again, you avoid the issue. Every example I brought up is not "free" trade. There are artificial factors manipulating the flow of goods and money, always in favor of the foreign competitors. If Chrysler beats Ford by making better cars, that's fine. But if the Japanese government underwrites Honda's losses and together they beat Ford, that is entirely different. Please at least try to address the market disparity issue.

[+Donny]

Unregulated trade between the US and India is nothing like unregulated trade between Florida and New York. Firstly, the people in New York can move down here with far more ease than I can move to India.

Relevance? Wouldn't that just make Indian labor more expensive because of the higher "shipping" costs?

Secondly, they are operating in the same economy, under the same federal government. If New York becomes uncompetative, they can adjust to being competitive.

And American and India are both operating under the same global economy. This can be extended down to counties and cities, too.

There is no reasonable way Florida can adjust to an averagee income hovering around two-dollars-a-day. There is no reasonable way that their economy will come up from the business enough to even the playing field (as happened with Japan).

Your point? If I invented a way to create diamonds for incredibly cheap, would you say that the present monopoly should be protected so that they aren't destroyed?

Lower competition raises prices. In America, there is less competition if there are protective rules, which is why labor is so much more expensive. Furthermore, the standard of living is higher. Why should you force firms to higher more expensive labor, harming their output and forcing consumers to pay higher prices? If India can produce labor cheaper than America can in a given market, why can't we import it? What if American could produce GPS guidance systems cheaper than anyone else. Should they protect their GPS guidance system markets to avoid a flood of American GPS guidance systems? No. This harms the global economy. The economy as a whole and each country individually benefits from free trade because of comparative advantage. Closing economies raises prices on many markets, causing the consumer to pay more. Since closing an economy lowers demand and lowers supply (as supply would have been higher counting imports), the market is hurt by it overall.

We are not selling much of anything to India; I just seek to maintain a stable trade; meaning if they don't buy from us, we don't want to be buying from them, or we have no jobs and no economy.

Why do they have to buy from us?

And once again, they have to do something with their dollars.

[MisterAgreeable]

Donnie, I'm not going to answer what you wrote point by point, because what you wrote can be summed up with the old German expression (I think it's German. it's also a Crowded House song.) : "Everything is good for you, if it doesn't kill you."

If Canadian wood is cheaper, we benefit. If it's more expensive, we benefit. If out TV manufaturers are driven out of business, it's good for us. If american jobs are lost but companies get stuff cheaper, that's good too. I suspect if our TVs had sold spectacularly in foreign markets, we'd benefit. And if AOL had kept their call centers open, somehow I'd guess you'll explain how that's positive too.

Notice your take on whether or not the Indian employees are paid in rupees or dollars : If we pay them in dollars, it's good for the american economy. If we pay them in rupees, amazingly, that's good for the American economy too. I suspect if we paid them in pesos, rubles, lyria, pounds or kroners, no doubt you'll explain how the US economy comes out shining through the whole thing.

In fact, as far as this conversation has uncovered, the only thing you believe can ever harm an economy is government intervention - even if it's to correct an obvious case of market manipulation.

Let us go back to the TV issue. Here's Donnie's quote:

1)The only way you can protect against illegal actions like that is if you subsidize or tariff the crap out of goods. As I said, this kills the American economy as a whole and only helps the firms you are directly aiding with the government help. The consumer loss outweighs producer gain in the case of tariffs and subsidies.

Now, bear in mind the following:
1. American TV manufacturers were put out of business because of this. A court agreed with this statement.
2. When it was done, the Japanese TV manufacturers had a monopoly, which they abused.

Would it truly have "killed the American economy" if the US government had corrected the Japanese price, promoted fair competition and prevented a foreign monopoly?

Bear in mind that all the while, the Japanese manufacturers had a monopoly in their own country because significant import tarrifs kept US TVs from competing. This was a seige on a US market, being backed by the Japanese government and consumers, and you feel that it would be wrong for the US government to stop it?

Let me ask you this, Donnie - in Article I, Section 8 of the U.S. Constitution, Congress was given the power "to regulate commerce with foreign nations." Was that a mistake?

The real problem, Donnie, is that you don't have the courage of your libertarian, Laizzes-fair convictions - you want to maintain the notion that unrestrected always does the very best thing for consumers. Every possible outcome I've listed you claim as a benefit - prices can move in either direction, currencies can move either way, we can have trade deficits or surpluses - these are all somehow magically beneficial. Yet, intervention is always harmful.

Seriously, you need to abandon the fantasy that unimpeded trade through our borders (even in cases where trade in other nations' borders are skewed to give them clear advantages) is always the most economically beneficial course. Often it is not. You sound ridiculous here - please just stand up like a man and say "I support free trade in all cases, even though at times I understand it can have very bad impacts on the American economy."