A Falsifiable (Back) Test of the Krugman-Callahan Hypothesis
As if to help crystallize my attempts to get Daniel Kuehn to see why Krugman has been aggravating me on the issue of free-trade advocacy, Gene has a great post in which he suggests that it’s all due to the pay of Big Imports.
Can we all agree that a good test would be my treatment in The Politically Incorrect Guide to Capitalism? That is obviously a very punchy, snarky treatment, and it’s intended for the general public.
I promise I don’t have it in front of me. I haven’t read my treatment of tariffs/protectionism in that book in years. So if any of you have it, can you please type in the comments how I talk about this stuff?
#1: If I don’t make it clear that certain workers can be hurt, especially in the short-run, then I will be much more gentle and understanding when I write in the future on Krugman’s discussion of this.
#2: If I make it clear that certain workers can be hurt, then I am going to continue with my original plan of saying Krugman is full of it when he suggests that the “elite case for free trade” has been a scam and “basically dishonest.”
To be clear: I moved to Texas and have all my stuff back in Nashville office. I don’t have the book in front of me.
Bob, I don’t think your book would be a good test. I think you’re an honest person who wouldn’t just pretend that your policy preferences have no downside. Krugman is criticizing those that do claim that free trade hurts no one.
Bob, I was right in assuming that you would deal with things honestly. Here is what your book says in chapter 14:
“Consider the typical case that so worries the anti-globalization crowd. Imagine a U.S. corporation that sells manufactured goods, perhaps TV sets, to American consumers. Initially the TVs are made in the U.S. by American workers, who each earn $50,000 a year. However, due to falling shipping costs and favorable trade pacts, the corporation finds it can reduce its overall expenses by closing down its U.S. plants, opening factories in China, hiring Chinese workers for much lower wages, and then shipping the TVs overseas to sell in the American market.
In this hypothetical scenario, the laid-off U.S. workers are obviously hurt, at least in the short run. They will have to take jobs that pay less (or are inferior in some other respect) to their old jobs at the TV factory. However, their loss is more than counterbalanced by the gain of the shareholders of the corporation, who are American.”
And then you go on to say this:
“A dispassionate analysis reveals that outsourcing showers more benefits than the losses it imposes on particular groups. In this respect, it is no different from the development of a new machine that “takes the jobs” of factory workers. Although the affected workers are hurt by an innovation in their particular trade, obviously all workers (in their capacity as consumers) benefit from labor-saving machinery in general. The same is true of outsourcing: a worker who loses his job to China will resent the lower paycheck at his new job, but this paycheck goes further at the store because other workers have similarly lost their jobs to cheaper foreign labor. In a dynamic economy no one is guaranteed a particular job, but in the free market people are guaranteed the most efficient deployment of labor, which raises the standard of living for everyone.”
Sorry, the quotes are from chapter 15, not chapter 14.
““A dispassionate analysis reveals that outsourcing showers more benefits than the losses it imposes on particular groups. In this respect, it is no different from the development of a new machine that “takes the jobs” of factory workers”
No, it is not, because the actual manufacturing remains in the US and it still provides
(1) domestic US employment
(2) a supply chain of other profitable businesses in the US which employ US workers,
(3) and less unemployment than if the business was shipped off to the third world.
False. The increased demand in real terms from the Chinese are a new source of trade with American real goods. With the Chinese producing the goods at a lower cost, that leaves more real income to invest in the US for productive purposes.
Your theory prevents you from understanding this because you can only think in terms of money coupled with false assumptions of relative price and spending adjustments.
By your crude logic, wealthier US states should not invest in less wealthy US states lest jobs be forever destroyed and living standards forever be reduced. And city to city as well. And neighborhood to neighborhood.
Your theory leads to isolationism and mercentalist policies interntionally because that is what the theories are at root ontologically.
I’m convinced keynesians would deny a world where all prices approached zero would be a bad thing. And also deny that there is disutility of labor. If these feelings of mine are true, then LK could be taken as coherent in his ramblings. Because employment is more important than living standards, MF.
*good* thing. whoops.
Bob, one criticism I have of the chapter is that you don’t seem to explain *why* it matters that the net gain in dollars outweighs the net loss in dollars. Do you explain Kaldor-Hicks efficiency in other chapters? .
In any case, Krugman would argue that it’s problematic to argue that free trade is a good thing on the basis of it being a Kaldor-Hicks improvement, while simultaneously opposing the redistribution necessary to make the Kaldor-Hicks improvement into a Pareto improvement.
Krugman admitted in his textbooks that actually making the redistribution happen doesn’t matter. Don Boudreaux documented this on his blog last week.
Wow, if Krugman said that turning Kaldor-Hicks improvements into Pareto improvements makes no policy difference concerning the desirability of free trade, that’s astounding. That wouldn’t just be a Krugman Kontradiction, it would be an out-and-out contradiction. Do you have a link to Boudreax’s post?
The only recent Krugman-related post I’ve found on Boudreaux’s blog is this one, and it doesn’t give any quotes from Krugman’s textbook:
cafehayek.com/2016/03/yet-another-open-letter-to-paul-krugman.html
Boudreaux just asks rhetorically, is this the nonsense you teach in your textbook?
Yeah, I thought I remembered him quoting from one of his texts to that effect, but I guess not.
It doesn’t matter- that’s the definition of Kaldor-Hicks.
But in order to do this analysis (trading off the benefits to some against the losses to others), a global utility metric is required, and Austrian economics provides no such thing. IMHO no school of economics has demonstrated the existence of a high quality global utility metric but other schools have at least put forward suggestions.
No disagreement there. Why not broaden the scope of this and look at the general case of any new technology being introduced? For example: drone bombers. Clearly they must be of benefit to someone, else otherwise no one would build the things… but if you happen to be having a wedding at the wrong place and time you could find yourself worse off on the wrong end of this new fangled gizmo. To elaborate… the entire military R&D sector is about new technology that is going to make some people better off at the expense of others. But however you guys feel about that, we all contribute to it, and so has every generation of our ancestors before us going back to Roman metal smiths, Greek bronze traders and stone age flint miners.
Or I could choose a classic example like dynamite. Nobel himself agonized over this.
Hmmm, once again this contains an implicit belief that a globally unique “most efficient deployment” does exist in a meaningful sense.
Let’s look at North Korea as an example. Some people are doing pretty well… the handful at the top of their social order. Those few probably don’t want an alternative system in place which would take away their privilege. Would introducing capitalism to North Korea “raise the standard of living for everyone?” No I doubt it would… I think it would be necessary to knock a few people down pretty hard, in order to raise the standard of living for a large number of others.
“But in order to do this analysis (trading off the benefits to some against the losses to others), a global utility metric is required, and Austrian economics provides no such thing.” Bob is comparing the gains and losses in dollars, which matters because of the Kaldor-Hicks efficiency criterion.
Adding dollars to dollars across an entire economy results in GDP, or something similar from that family or metrics.
Suppose I send you a dollar, and then you send me a dollar and we do that electronically via some algorithm trading a million times per minute … we can clock up a lot of transactions. Of course there’s no profit in doing that, so attempting to merely sum up all transactions won’t give you a useful figure … you need to look at genuine production and consumption. Hence going down the Keynesian GDP calculation path (or something akin, feel free to quibble over a few calculation details).
We should all know by now the strange results you get when you take GDP too literally. For example, Krugman claims that if imports go down and also exports go down by the same amount, then for GDP calculation purposes it’s a wash … no effect on GDP. However, this would lead to the conclusion that blockading Singapore would have the same overall results as blockading the Russian Federation and I don’t believe that for a minute.
The other totally counter-intuitive consequence of using GDP is you end up with a spooky but necessary adjustment from NGDP to RGDP. Suppose for argument’s sake I eat $100 of food each week and then some new technology improves productivity and efficiency amongst the food industry so now I eat $50 of food each week, which in physical terms is exactly what I was eating before. There’s no reason for me to consume more food even though the price has gone down (I don’t want to get fat) and I’m already consuming the things that I enjoy. I might spend my extra $50 on other things, but let’s presume I can’t think of anything in particular to buy with that so I just take more days off work.
So the new technology (i.e. greater efficiency) causes NGDP to go down. If you now apply some price-deflation adjustment you can make RGDP stay equal, but now you are saying the introduction of this new technology has no global effect … in which case, why do people bother with efficiency improvements? Anyway, who is to say your NGDP to RGDP adjustment represents the true change of utility in the system?
Tel, whatever war you’re fighting against Keynesians or GDP accounting, this has absolutely nothing to do with either of those. A Pareto improvement is a policy that leaves some people better off and no one worse off. A policy is called a Kaldor-Hicks improvement if there exists a reallocation of dollars which would turn the policy into a Pareto improvement.
The reason we care about agrgregate gains and losses in dollars is that if the total amount of dollars gains by all beneficiaries of the policy (as a result of the policy) exceeds the total number of dollars lost by all victims of the policy, then that’s an indication that it’s a Kaldor-Hicks improvement, which is only one step from a Pareto improvement.
Pareto improvement is a great theory, and I support everyone studying the concept… then after you have studied the theory, go look for any real-world example of that in practice for a nation with millions of people. Very quickly you discover there are no examples. Pareto improvement never happens in practice!
Let’s suppose we had a government where for any law passed by that government, one single citizen (out of millions) could at any time veto that law… how many laws would there be?
Now you want to consider compensation, another great theory that never happens in practice. But suppose we got to the situation where some government decided to give it a try… how would it work? Some guy says, “Well I lost my job to foreign competition so I want a million bucks compensation.” Is that reasonable? Who gets to decide?
You think the military industry are intending to redirect their profits from weapons sales into compensation? Why compensate anyhow, those guns are for killing bad people, right?
‘in the free market people are guaranteed the most efficient deployment of labor, which raises the standard of living for everyone.’
I can see its guaranteed to raise the overall level of productivity, but the free market isn’t guaranteed to raise the standard of living for everyone, is it ?
From The Politically Incorrect Guide to Capitalism, p.147:
“Despite their infamous arguments, the one thing most economists can agree on is this: when governments impose artificial barriers to international trade, they make their own citizens poorer. Indeed, the case for free trade was hammered out by theorists such as David Ricardo and rendered blindingly obvious by writers such as Frederic Bastiat back in the eighteenth and nineteenth centuries. “
No, “most” economists haven’t agreed on this historically. Even in the 19th century free trade was rejected by Georg Friedrich List, the “American School” economists like Henry Carey or Alexander Hamilton, and the German Historical School, which predominated in the US and Germany.
Also, there is the contemptible historical ignorance of libertarians like you. Did the US pursue free trade?
No, the US was one of the most protectionist nations in history in the 19th century and its manufacturing sector was protected by tariffs in the early 1800s from being wiped out by cheap European imports, e.g., and Bils (1984) shows how the US cotton textile industry would have been largely wiped out in the early 19th century if it had not been for protectionism (Bils, Mark. 1984. “Tariff Protection and Production in the Early U.S. Cotton Textile Industry,” Journal of Economic History 44: 1033–1045).
As for the a priori argument for free trade, it is hopelessly flawed when applied to the real world. Ricardo’s principle of comparative advantage requires two conditions to work properly, as follows:
(1) Domestic factors of production like capital goods and skilled labour are not internationally mobile, and instead will be re-employed in the sector/sectors in which the country’s comparative advantage lies;
(2) Workers are fungible, and will be re-trained easily and moved to the new sectors where comparative advantage lies.
As is admitted even by Mises, by the late 19th century assumption (1) was questionable. Today it is also the case that both capital goods themselves and investment money for production are very mobile, so that (1) is also not true. Proposition (2) is also questionable in many cases.
Once capital becomes extremely mobile internationally, we no longer have comparative advantage, but absolute advantage. It is not at all clear that free trade under “absolute advantage” is beneficial to all nations. The neoclassical and Misesian argument for free trade is dependent on the capital of one country remaining in that country and being put to work in some other productive domestic industry, where comparative advantage lies. This is not what happens today, where capital from Western countries seeks absolute advantage in the developing countries.
Murphy was talking about most economists today, not the mercantialists hundreds of years ago that originated the beliefs you have today.
“Once capital becomes extremely mobile internationally, we no longer have comparative advantage, but absolute advantage. It is not at all clear that free trade under “absolute advantage” is beneficial to all nations.”
Absolute advantage … in satisfying consumer preferences, maybe?
The consumer is *destroying* domestic businesses, not the greedy business man.
But since the consumer is who production is *for*, that’s ok.
Production is a means to an end, and workers piggy-back off of producers’ efforts.
If your employer is not satisfying consumer preferences, you’re *supposed* to lose your job.
The consumer has zero obligation to spend domestically or on behalf of workers. Nobody is entitled to a man’s wealth but himself.
Outsourcing is for the benefit of the specific outsourcing producer in his pursuit of making a profit off of specific domestic consumers.
Nobody is losing from outsourcing since nobody was entitled to the consumers’ or outsourcing producers’ wealth to begin with.
Say it with me: Production is *for* consumption; You’re not supposed to produce what consumers don’t want to spend their scarce resources on.
“No, “most” economists haven’t agreed on this historically.”
Nobody said they did. “[T]he one thing most economists can agree on” is in the present tense.
“Also, there is the contemptible historical ignorance of libertarians like you. Did the US pursue free trade?”
Who said the US pursued free trade? Mostly eliminating trade barriers between the states was certainly good, as was the relatively high openness to immigrants, but I wouldn’t say they pursued free trade.
“No, the US was one of the most protectionist nations in history in the 19th century”
The US was neither one of the most protectionist nations in history at the time nor one of the most protectionist nations in the 19th century. There were numerous countries that were blocking trade almost completely. If you’re going to be complaining about historical ignorance, making these claims is probably not a good idea.
“…and its manufacturing sector was protected by tariffs in the early 1800s from being wiped out by cheap European imports, e.g., and Bils (1984) shows how the US cotton textile industry would have been largely wiped out in the early 19th century if it had not been for protectionism (Bils, Mark. 1984. “Tariff Protection and Production in the Early U.S. Cotton Textile Industry,” Journal of Economic History 44: 1033–1045).”
I looked into the literature on this, and it really isn’t all that clear how much the tariffs helped the cotton textile industry. From what I could see, the study you cited seems to have been a push away from an earlier consensus that it had little or no effect (as Bils concludes in that paper, “My findings could hardly conflict more with the consensus view on the economic importance of the tariff.”). The research since then has been mixed. “The Antebellum American Tariff: Food Exports and Manufacturing” (Harley 1991) supports Bils’ conclusion (estimating about 55% loss of output from the textile industry – so not “largely wiped out”, but certainly important) while “The Antebellum Tariff on Cotton Textiles Revisited” (Irwin 2001) rejects it:
“The relative unimportance of the tariff is suggested by the reduction in the cotton-textile duties in 1846 from nearly 60 percent to 25 percent. Imports soared by a factor of three and increased their share of the U.S. market from about 7 percent to about 15 percent, but there was no decline in domestic output. This simple experiment suggests that U.S. cotton-textile producers were not dependent upon the tariff and thus supports Taussig’s view that the industry was well established by this time.”
In any case, there seems to be widespread agreement on a couple of things. One, the industry was extremely inefficient. American cloth similar to British cloth used twice as much power at least into the late 1830s, for example. So the tariffs were probably not doing much to actually improve the industry relative to the British industry. The second is that the tariffs probably had a slight negative effect on national income (Harley 1991, which supported Bils’ conclusion, still found a slight negative effect on national income from the tariffs). Nobody was arguing that the protected industries would be better off without the tariffs. The argument was that the country as a whole would be poorer, which seems likely to be true.
In conclusion, your complaints on the empirical side seem to be completely separate from what Bob is saying and are still way overstated.
I don’t agree with the economic complaints either, although I don’t know enough on the topic to make strong statements either way. Skills of workers are part of what makes up comparative advantage, so I don’t understand complaint (2) – if someone can produce 100 apples per day in the US, but only 2 bananas due to lack of any skill there, then it is unlikely that they would switch away from apples (unless if I’m misreading what you’re writing?). Point (1) seems to just be a geographical complaint. But Bob was talking about the citizens, not about who happened to be living on the same piece of land some years from now (at least that’s how I’m reading it). I don’t think economic theories like this can be used completely a priori (I think they’re just a useful guide), but I don’t think your criticisms address the problems with that.
(1) ““[T]he one thing most economists can agree on” is in the present tense.”
And even today it is rubbish. There is a strong heterodox critique of free trade, and even a critique of free trade from within neoclassical economics.
(2) “The US was neither one of the most protectionist nations in history at the time nor one of the most protectionist nations in the 19th century. “
Yes, it was. You are an ignoramus.
Here is the average level of tariffs in the United States as compared with other Western nations in 1875 in the following data:
Average Level of Duties on Manufactured goods 1875
(1) United States | 40–50%
(2) Portugal | 20–25%
(3) Spain | 15–20%
(4) Russia | 15–20%
(5) Austro-Hungary | 15–20%
(6) Denmark | 15–20%
(7) France | 12–15%
(8) Belgium | 9–10%
(9) Italy | 8–10%
(10) Germany | 4–6%
(11) Switzerland | 4–6%
(12) Sweden | 3–4%
(13) Netherlands | 3–5%
(14) UK | 0%. (Bairoch, P. 1993. Economics and World History: Myths and Paradoxes. University of Chicago Press, Chicago. p. 24, Table 2.2).
(3) Irwin 2001 fails to understand that the 1846–1861 period in the US was **still** a moderately strong protectionist phase, and it doesn’t show us what would have happened if you completely eliminated tariffs.
(1) “And even today it is rubbish. There is a strong heterodox critique of free trade, and even a critique of free trade from within neoclassical economics.”
From a 2009 article in Econ Journal Watch by Robert Whaples, “The Policy Views of American Economic Association Members: The Results of a New Survey”: For the statement “The U.S. should eliminate remaining tariffs and other barriers to trade”, 83% of economists agreed or strongly agreed. Given the original statements was “the one thing most economists can agree on”, that seems to be true based on this survey.
From a 1992 survey “Is There a Consensus Among Economists in the 1990’s?” by Richard Alston, J.R. Kearl, and Michael Vaughan: Over 70% agree that tariffs/quotas usually reduce general economic welfare, and over 20% agree “with provisos”. Given the original statements was “the one thing most economists can agree on”, that seems to be true based on this (admittedly old) survey.
That was from a quick look.
(2) “Yes, it was. You are an ignoramus.
Here is the average level of tariffs in the United States as compared with other Western nations in 1875 in the following data:”
This would be a great response (besides the insult!), if I had said that the United States was less protectionist than other Western Nations in 1875. But I didn’t say that. The first thing that popped out at me when I heard your statement earlier was China, which blocked almost all trade in the early 1800s. Obviously there are thousands of other examples of countries blocking trade for long periods throughout history, which is why your statement was wrong.
Even with the Western nations, the time period you chose here was the highest in the 1800s for average tariffs, at least according to the data I see from Wikipedia. The average in the 1800s for the US based on that data is less than 20%. I don’t know if this was a high point for other nations or not (if not, the US would be close to 5 other Western countries for the average of the entire period); nevertheless, “one of the most protectionist Western nations during the 1800s” would have been a correct statement. “One of the most protectionist nations in history in the 19th century” is wrong.
(3) “Irwin 2001 fails to understand that the 1846–1861 period in the US was **still** a moderately strong protectionist phase, and it doesn’t show us what would have happened if you completely eliminated tariffs.”
None of them show what would happen if you eliminated tariffs. That data doesn’t exist, because it didn’t happen. They all tried to measure based on other things, and made multiple speculations. But I don’t have any game in this particular debate, since the original claim does not rely on it whatsoever and the data from that period is pretty bad. I just wanted to note that there was still some disagreement in the literature over how much of an effect the tariff had.
(1) ” “The Policy Views of American Economic Association Members: The Results of a New Survey”: “
In other words, the opinions mostly of pro-free trade neoclassicals, neglecting other non-neoclassical economists. And even the survey results you mention show 30-20% disagreement. Add to that just non-Marxist heterodox economists, it would no doubt rise to 50%.
(2) so you now agree that the US had a high level of protectionism in the 19th century?
(3) “None of them show what would happen if you eliminated tariffs. That data doesn’t exist, because it didn’t happen”
Yes, it does. Take a look at what happened to 19th century India when it was subjected to almost total trade liberalisation, and was not allowed to impose retaliatory tariffs against the UK:
http://socialdemocracy21stcentury.blogspot.com/2010/06/early-british-industrial-revolution-and.html
For people who don’t have their heads stuck in the sand and are familiar with the economic history literature there are powerful arguments — both theoretical and empirical — for why infant industry protectionism was a vitally important development strategy in the 19th century.
See Bairoch, Paul. 1993. Economics and World History: Myths and Paradoxes. Harvester Wheatsheaf, New York and London. pp. 16-55, 88-92.
So in other words, any survey that has results contrary to your false claims, are to be rejected on the basis of no evidence whatsoever.
How very empirical of you.
(1) “In other words, the opinions mostly of pro-free trade neoclassicals, neglecting other non-neoclassical economists. And even the survey results you mention show 30-20% disagreement. Add to that just non-Marxist heterodox economists, it would no doubt rise to 50%.”
No, the AEA is a very mainstream economic society. It likely is fairly close to the average economist. My other survey looked at numerous other economists as well and came to the same result.
That survey result had over 80% agreeing/strongly agreeing. I don’t know how you’re getting 20-30% disagreement. It would actually be in the range of 10-20% (only 9.8% disagreed or strongly disagreed), likely closer to 10%.
(2) “so you now agree that the US had a high level of protectionism in the 19th century?”
What are you talking about? I said something similar to that in my first post here. You made a completely different claim that I disagreed with. Can you please stick to the actual topic of discussion?
(3) “Yes, it does. Take a look at what happened to 19th century India when it was subjected to almost total trade liberalisation, and was not allowed to impose retaliatory tariffs against the UK:”
No, I’m not looking through another round of studies. I looked through the literature *for the US* which was your original claim. I found overall agreement that the tariff was harmful (with even the study saying it protected the industry by some 55% showing that it hurt national income slightly). The literature did not support your claim that it would have been “largely wiped out”, with some saying that it would hardly be effected at all and others showing that almost half of the industry would remain. None of the studies looked at India to make their conclusion, and you citing a completely different example doesn’t help your case.
(3) In fact the literature in support of the view that protectionism was important includes the following:
Bils, Mark. 1984. “Tariff Protection and Production in the Early U.S. Cotton Textile Industry,” The Journal of Economic History 44.4: 1033–1045.
Bils concludes that as late as 1833 removal of the tariff would have wiped out half of the industrial sector of New England.
Temin, Peter. 1988. “Product Quality and Vertical Integration in the Early Cotton Textile Industry,” The Journal of Economic History 48.4: 891–907.
Temin agrees with Bils in essence, and argues that the lower quality cotton textiles industries could not survive and prosper without the tariff.
Harley, C. K. 1992. “The Antebellum American Tariff: Food Exports and Manufacturing,” Explorations in Economic History 29: 375–400.
Harley doesn’t contradict Bils 1984. In fact Harley concludes: “Tariff removal would have reduced the American cotton textile industry by half and probably considerably more. The effect of the tariff on other manufacturing is harder to decide; it was less, probably about half the effect on cotton textiles.” (pp. 398–399).
Irwin, Douglas A. and Peter Temin. 2001. “The Antebellum Tariff on Cotton Textiles Revisited,” Journal of Economic History 61: 777–805.
Irwin and Temin challenge only in arguing that the tariff could have been eliminated in the 1830s and later, but they do not deny that earlier than the 1830s tariff protectionism was important: “We conclude that high tariffs were not an essential component of the survival and success of the later antebellum domestic cotton-textile industry, although the early cotton industry may have been protected by the Tariff of 1816.” (p. 797).
You also totally ignore their conclusion: “We infer from these fragmentary data that the American cotton industry may have been protected by the Tariff of 1816. The tariff extended the protection afforded by embargo and war to enable the industry to grow. It is possible that the industrial growth achieved during the years of conflict with Britain could have been erased by free trade after the end of hostilities.” (pp. 796–797).
——————
So actually even if you want to cite Irwin and Temin, they don’t refute the view that early 1800s protectionism was probably important.
(2) You were just fixated on a poorly worded comment by me. I rewrite my claim as:
US was one of the most protectionist Western nations in the 19th century. This correct,
(1) “No, the AEA is a very mainstream economic society. “
lol… “mainstream” means “neoclassical” which excludes non-neoclassical Keynesian economists. Your survey is unrepresentative of the broad range of opinion of professional academic economists by focusing on neoclassicals.
(3) “In fact the literature in support of the view that protectionism was important includes the following”
No, the literature does not support that view. You’re citing papers I read when looking through this stuff. They don’t make a conclusion anything like that. The research definitely suggests that the very early tariffs were very important for the cotton textile industry. For the later tariffs, which is what Bils argument was on (which is what you cited and what I was arguing against), it is not nearly as clear. But “important”? No, that just isn’t the case. Like I pointed out earlier, even the papers that think the tariffs were highly important for the industry (i.e., half of it would have been wiped out without them) do not support the conclusion that they helped the national income (instead, they seem to show the opposite). The cotton textile industry was highly inefficient after decades of tariffs.
(2) “You were just fixated on a poorly worded comment by me.”
Fixated? I wasn’t fixated. I made a simple disagreement with what you said. Then you replied “Yes, it was. You are an ignoramus.” You defended your statement, insulted me, and now are calling me “fixated” on the issue. I would happily have been done with the issue after my first comment.
(3) “lol… “mainstream” means “neoclassical” which excludes non-neoclassical Keynesian economists. Your survey is unrepresentative of the broad range of opinion of professional academic economists by focusing on neoclassicals.”
The mainstream means the “neoclassical synthesis”, which includes the large majority of economists. Their views fit fairly well with the average economist. And the other survey I showed, which included a far larger range of economists, came to a similar result. Do you have any evidence that members of the society don’t represent the typical economist? Or, for that matter, that the general view that the majority of economists support free trade is wrong?
Because most economists are neoclassical synthesis economists, and because most neoclassical synthesis economists agree that protectionism reduces standards of living, LK has to find ways to reject the survey results as the results contradict his eariler claim.
LK, protectionism protects jobs *from consumers*, in that they would otherwise buy cheaper / better goods (in their own estimation) from foreigners.
Therefore, consumers are worse off under protectionism using their own preferences as the standard, which is the only standard that matters, economically.
Why are consumer preferences the only standard that matters?
Because production is *for* consumption. You’re not supposed to produce things on which consumers don’t want to spend their scarce resources.
guest, the problem with where you are going there is that all producers are also consumers in equal amounts (Say’s Law).
Thus, there cannot be either consumer sovereignty, or producer sovereignty. There’s just people making exchanges.
“… all producers are also consumers in equal amounts (Say’s Law). …”
“… There’s just people making exchanges.”
We are all certainly consumers (I’m not sure “in equal amounts” is a helpful qualification; I don’t know what that would mean).
But not all of us are producers, and not all possible exchanges are the same from the individual’s perspective.
The reason we can say that there’s such a thing as consumer soveriegnty is because you’re not supposed to produce something that won’t be useful in the fulfilment of preferences (consumption of the final good).
This is the heart of why protectionism is bad, and why free trade is Pareto positive.
No one loses in free trade because no one is entitled to another’s wealth.
My goal in buying something is *not* to give the producer money. If I could consume without the step of having to go somewhere to get something, that would benefit me.
So, both production and jobs are merely expendable means to the end of preference satisfaction.
The real tragedy, then, is not that consumers want your competitor’s products because they’re cheaper/better (in the consumjer’s estimation), but all the regulations that prevent people from reallocating their resources to productive use when consumer preferences change.
The goal of consuming a final good is what sets the value of all the production processes involved in producing that good.
As Joseph Salerno has noted, if nobody wants diamonds, then the diamond mine and its miners are useless (as diamond miners).
That’s what is meant by consumer sovereignty. There’s no point in producing something that nobody wants.
In a nutshell, Say’s Law means that the market value of what you produce always equals the market value of what you consume. In a barter economy this is obvious; but in an economy where money is the intermediary there may be a temporary imbalance if someone goes into debt for example then pays it off later.
Of course the value to you of what you consume would be larger than the market value because otherwise there’s no point in buying it.
The same argument works exactly in reverse: there’s no point wanting something that no one will produce. Then you have “producer sovereignty” if you like.
But what actually happens is that in order to make a deal you need BOTH sides: a producer and a consumer who are willing to exchange. Ultimately, at the deepest level all economies come back to barter (often by a complex route).
You are mixing up the moral concept of property rights and entitlement (or lack thereof), with the physical condition of being better off or worse off.
There’s plenty of situations where immoral people end up doing very well for themselves. One could say that a core part of morality is to deliberately choose NOT to take every possible advantage for yourself.
For example, suppose you know you can steal something and be sure to get away with it. The best personal advantage would be obtained by taking it, but the moral behaviour would be to refrain… thereby making yourself worse off.
If you want to claim a moral case for free trade that’s quite a different argument. Mind you, once we go down that direction we would have to get into the morality of whether a group have the right to defend their own culture… which gets kind of messy.
“Add to that just non-Marxist heterodox economists, it would no doubt rise to 50%.”
Talk about starting with a conclusion first and making up numbers to fit your conclusion.
That is also a very popular empirical technique.
Yeah, I don’t see any reason to believe it would be push it that way, and certainly not by that much. Plenty of heterodox economists are supportive of free trade (like Austrians!).
The Marxist part is funny too, considering Marx was mainly in favor of free trade.
(1) Austrians only make up a handful of professional academic economists.
(2) Post Keynesians and non-neoclassical institutionalists make up many more of of professional academic economists than you think.
(3) modern Marxists also reject free trade as always
beneficial, and that was also Marx’s view. But I left them out to make it easy for you.
Marx on the devastation of free trade imposed on India
“On the other hand, the English cotton machinery produced an acute effect in India. The Governor General reported 1834—35. “The misery hardly finds a parallel in the
history of commerce. The bones of the cotton-weavers are bleaching the plains of India.” No doubt, in turning them out of this “temporal” world, the machinery caused them no more than “a temporary inconvenience.”
See Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York. p. .471
(1) “Austrians only make up a handful of professional academic economists.”
No, it’s way more than a handful. Just from personal experience, I randomly had an Austrian as my microeconomics professor a couple of years ago. I doubt it reaches even 1% of economists, but for a heterodox school of thought, it’s probably pretty big. In any case, I was naming one group of heterodox economists who take the free trade position. Heterodox economists are all over the place on various issues.
(2) “Post Keynesians and non-neoclassical institutionalists make up many more of of professional academic economists than you think”
I doubt it’s many more than I think. And they aren’t all of the same position on free trade. Just by Googling some major proponents, the results seem to have been mixed. Nor would the survey necessarily miss these people. I looked up some of the major proponents in the directory of members, and unsurprisingly, numerous of them are members. That’s three major problems with using this group.
(3) “modern Marxists also reject free trade as always
beneficial, and that was also Marx’s view. But I left them out to make it easy for you.”
This discussion isn’t over whether economists think it is always beneficial. Marx certainly had plenty of major criticisms of free trade, particularly in his earlier days. But his criticisms over the system seemed to generally be in comparison to his ideal system (such as in the passage you quote), not versus protectionism. Marx clearly took the pro free trade position, which is what is important here:
“But, generally speaking, the Protective system in these days is conservative, while the Free Trade system works destructively. It breaks up old nationalities and carries antagonism of proletariat and bourgeoisie to the uttermost point. In a word, the Free Trade system hastens the Social Revolution. In this revolutionary sense alone, gentlemen, I am in favor of Free Trade.”
He specifically says he is in favor of free trade.
There really isn’t anyone who denies that he held this position. Engels certainly recognized it, although he didn’t take the same position (he was closer to the opinion that it didn’t matter which position Marxists took):
“To him, Free Trade is the normal condition of modern capitalist production. Only under Free Trade can the immense productive powers of steam, of electricity, of machinery, be full developed… And because Free Trade is the natural, the normal atmosphere for this historical evolution, the economic medium in which the conditions for the inevitable social revolution will be the soonest created — for this reason, and for this alone, did Marx declare in favor of Free Trade.”
Marx was far more critical of protectionism than free trade, as are numerous Marxists today (although I don’t know the main position of modern Marxists), and was in favor of free trade under the circumstances. Obviously his main preference was a communist society (with no money).
So LK, you view Marxists as real, competent economists?
Economists — real, competent ones — agree that free trade makes resource allocation more efficient. That is not quite the same as “beneficial under all circumstances “. Economics does not address that question really. Perhaps an angry God will smite us all for being rich and efficient, which would not be of benefit. These quibbles aside you are wrong on the substance here, and your need to brigade with Marxists shows it.
“No doubt, in turning them out of this “temporal” world, the machinery caused them no more than “a temporary inconvenience.””
So, loads of unskilled labor, and no capitalist wanted to “take advantage” of them to at least permit them to eat?
Sounds like the problem was regulations, not the free market.
“So LK, you view Marxists as real, competent economists? “
Craw,
Of course they are “real economists” in the sense they have a definable school and given set of theories — just like neoclassicals or Austrians.
But the point is that the Marxist theory overall is fundamentally flawed — but then so is neoclassical economics or Austrian economics.
LOL… you can’t point to neoclassical charlatans as “economists” then exclude Marxists. Nor, incidentally, would I exclude Austrians — if we want a *representative* sample of what all schools of economists think.
Now occasionally, however, even incompetent idiots — Marxists, neoclassicals, Austrians — get some things right:
(1) Neoclassicals and Austrians are right to reject the LTV.
(2) Austrians are right to reject the neoclassical rational expectations and neoclassical neutrality of money nonsense.
(3) modern Marxists are right to reject Ricardo’s argument for free trade by comparative advantage.
Reece:
“And they [viz., Post Keynesians and non-neoclassical institutionalists] aren’t all of the same position on free trade.”
No, Reece. This is absolutely a common point of agreement amongst Post Keynesians and non-neoclassical institutionalists: they all reject Ricardo’s argument for free trade by comparative advantage and have severe criticism of free trade theory.
You are both out of your depth and don’t know what you are talking about.
If you doubt me, then NAME ME EVEN ONE Post Keynesian or non-neoclassical institutionalist who accepts Ricardo’s argument for free trade by comparative advantage. Just one.
We won’t hear from you again.
“If you doubt me, then NAME ME EVEN ONE Post Keynesian or non-neoclassical institutionalist who accepts Ricardo’s argument for free trade by comparative advantage. Just one.
We won’t hear from you again.”
While your “We won’t hear from you again” claim was technically wrong, it is indicative of my new position. This discussion isn’t worth it for me, for the reasons I will outline.
This is just a sample of your argumentation in this discussion:
1) You disagreed with Bob’s claim that most current economists agree that barriers to international trade make citizens poorer by responding that this wasn’t true in the past.
2) You said, “Also, there is the contemptible historical ignorance of libertarians like you. Did the US pursue free trade?” Nobody said or implied that the US had free trade.
3) You responded to the claim that protectionism makes citizens poorer not with data on national income or something similar, but instead with data on the cotton textile industry (which is what the protectionism was for).
4) After you claimed that the US was one of the most protectionist nations in history in the 1800s, and I disagreed, you called me “an ignoramus” and gave data for a single year in the late 1800s (which just happened to be at or close to the peak for the US) that showed the US higher than other Western nations.
5) You responded to my survey showing only 10% disagreeing with free trade (or less than 15% of economists who had an opinion) by saying there was somewhere between 20% and 30% disagreement according to that survey.
6) You responded to my disagreement with your argument in point (4) by saying “so you now agree that the US had a high level of protectionism in the 19th century?”, despite me never taking a position even implying the contrary.
7) You responded to my argument about tariffs being harmful (and citing national income for it) with an argument about tariffs being important to the cotton textile industry.
8) After I said that Marx was mainly in favor of free trade, you responded that Marx actually “reject[s] free trade as always beneficial”
9) Now you responded to my claim that Post Keynesians don’t all have the same position on protectionism by saying “NAME ME EVEN ONE Post Keynesian… who accepts Ricardo’s argument for free trade by comparative advantage”
The thing is, for the most part your responses don’t contain incorrect information. For example, there very well might not be a single post Keynesian who supports Ricardo’s argument for free trade by comparative advantage. But the problem is that you are making these as responses when nobody even remotely disagreed with them, while either explicitly or implicitly calling the person wrong while doing so (for example, here you said “No, Reece. This is absolutely a common point of agreement amongst Post Keynesians”).
A good response would have been data showing most Post Keynesians don’t think protectionism makes citizens poorer, that the number of Post Keynesians in the AEA isn’t representative of their actual existence, etc. That would have been a response addressing my arguments/the original claim. But instead you went after a much easier strawman.
Even the one time you admitted you were wrong, about an issue that you first insulted me over, you called me “fixated” on the issue.
And this is only the tip of the iceberg; if you’re struggling so much with comprehending short responses from me, I’m guessing that your reading of the more in depth literature is even worse (your blatantly incorrect conclusion from the literature on tariffs in the 1800s and the cotton industry is supportive of this). The way you are arguing makes it impossible to have a real conversation. So I’m done.
LK = REKT
Also, none of these tired libertarian pro-free trade arguments engage with good modern critiques of free trade:
Reinert, E. S. 2007. How Rich Countries got Rich, and Why Poor Countries Stay Poor. Carroll and Graf, New York.
Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective, London, 2002.
Ha-Joon Chang, Bad Samaritans: Rich Nations, Poor Policies, and the Threat to the Developing World, London, 2007.
Tired? Hahahaha, more like powerful, since it welcomes ALL individual efforts subjective to non-aggression, unlike your “good modern” nonsense which worships state power and demands individual liberty be suppressed.
For what it’s worth, countries don’t get rich – individuals get rich.
Individuals make the judgement as to what it means to be rich (and certainly not as simple as just having money, although that helps).
The nation provides the institutions to give some structure to what those individuals do, and (hopefully) improve the opportunity of each individual. Put it this way: I would much rather be dirt poor in Australia than middle class in North Korea. Then again, if you asked someone from Norrh Korea they might well say the opposite.
There are no “institutions”. There are services and products that individuals provide.
The “structure” that the division of labor provides is simply each individual attempting to economize their available opportunities for profit.
The more individuals who can find other individuals doing tasks that could more profitably be done by more than one person, the more individuals will have access to processed resources.
This means that not everyone will have to mine raw materials and process them. Each person who trades with the miner becomes like a mine, himself, making those resources available to increasingly more individuals.
There is no reason to take terms of convenience such as “institutions” or “structure of production” and attempt to make entities out of them as if they had a purpose unto themselves.
True, in order for producers to make a profit off of consumers, the structure of production must align with consumer preferences, but each individual producer is making the decision to attempt to align himself with consumer demand.
The nation, as a central planning agency, merely substitutes its own values for those of individuals, and the “structure” that it creates is therefore necessarily chaotic because production is for consumption and consumers decide the value of all goods (Menger’s Theory of Imputation).
You need methodological individualism to understand economics all the way up the structure of production.
If there’s no such thing as institutions, then why do people create corporations?
Why do they create churches and religion?
Why bother with a legal system?
The best thing for any state of individuals, and any individual whatever, is to be a source of production and trade, otherwise get out of the way.
I don’t get the point of the test – Krugman’s not responding to you. He’s been linking and blogging pretty specifically what he’s frustrated with.
Krugman only responds directly to people in his caste.
I guess I’ve been gone long enough I don’t get my own tag anymore huh?
1. Didn’t protectionism result in 750,000 slaughtered in the “Civil War”? How cool was that? Where does that fit on the positivist empirical double-entry bookkeeping ledger? How do they measure the road not taken?
2. Could it be that protectionism caused the horrible depression during the last quarter of the 19th century that LK always mentions?
3. Doesn’t interventionism overseas and in Latin America by way of the drug war and real war (among other things) result in impoverishment for those people? Doesn’t that make them more likely to be willing to work for peanuts?
Here’s a good post by Steve Randy Waldmann on what happens if you don’t actually do a redistribution after a Kaldor-Hicks improvement:
http://www.interfluidity.com/v2/5212.html
Big picture, folks:
Producers are expendable because consumers decide what is economically valuable; If you’re not producing what consumers want, then your business should fail.
To say otherwise is to make a claim on consumers’ wealth, that they *ought to* buy this particular good or from that particular producer. That is Socialism.
And since producers are expendable, that means that workers are also expendable, since their role in consumer-preference filfillment is to augment the producers’ role. Again, workers don’t add value because the producer gets the same amount of money for his goods regardless of how high are his costs.
I do not understand how it bolsters LK’s case when he cites economists he knows are wrong. When I criticize Murphy’s religiosity I don’t rely on Muslim preachers to suggest he gets it wrong.
I’m not citing them to prove my view is right. I have my own independent arguments for why I am right. This is not some argument from authority.
The issue here, Craw, was that Murphy asserted that “the one thing most economists can agree on is this: when governments impose artificial barriers to international trade, they make their own citizens poorer. ” My citation of dissenting opposing views here — both historically in the 19th century (actually the most important point because there was substantial rejection of free trade) and today — is merely provide the evidence that things are as clear cut as Murphy claims. There has been considerable dissent.
“I have my own independent arguments for why I am right.”
Haha, no you don’t, because you aren’t. Most economists by every survey cited on this blog, show that the “dissent” is in the minority.
Murphy’s right, you’re wrong. Again.
By the logic of your “independent” argument, US states would become wealthier if they cut off trade with all other US states. And cities would become wealthier by cutting off all trade with other cities. Indeed, it would imply that individuals would become wealthier by cutting off all trade with all other individuals.
It is absurd to believe that magic happens at the arbitrary borders established by war and conquest, where trade beyond those borders somehow makes people worse off, but trade within those borders makes does not make people worse off.
(1) “no you don’t,.”
Yes, I do, here and here.
Tell us, Major_Idiot, can you predict that free trade will be beneficial for all parties tomorrow, or for that matter will any theory in Austrian economics be true tomorrow? lol.
False. US states are under 1 federal government that can deal with issues of distribution and uneven economic development, such as by monetary and fiscal policies, taxation, welfare and social security.
It is precisely because wealth gets parcelled out and redistributed and people can move to and from individual US states that makes your counterargument worthless.
Americans have same general standard of living and labour rights etc. and this is NOT like moving production off to the third world and devastating industries within the US. Try again.
False. By your logic it should not matter whether a government is federal or state. Protectionism, if it works, works at all levels. If it doesn’t work at a particular level, it does not work at any level.
It is irrelevant whether people can move between states and countries. They can move between countries so your excuse that this matters, is in fact worthless. It is not the flow of labor across borders that is the factor barring gains. It is the flow of goods and services across borders. Individuals naturally trade with other individuals across imaginary borders you call countries because of the gains made with goods and services.
You did not engage the criticism. I said by your logic US states that engaged in protectionism would not make people poorer. Your response if it actually addressed the criticism would be along the lines of “No, the logic does not apply, because I am only talking about protectionism by federal governments. US state protectionism would make people poorer. Here’s how…”, or something else, like “Yes the logic applies, and yes if US states did engage in protectionism, then it would make people wealthier. Here’s how…”
But that isn’t what you said. Your response does not even constitute a response to the criticism. You are only dodging it. Saying that people can move from state to state does not address the criticism that by your logic US state protectionism will not make people poorer.
If your belief is that US state protectionism will not make people poorer because people can move from state to state, then you just admitted that protectionism actually does make people poorer, and that in order to avoid the losses as best as people can, they have to move to another US state so that you do not observe a significant temporal decline in their standard of living.
In other words, what you are really saying is that protectionism does not actually “work” IF people were maximally able to avoid it.
Your hilarious claim that Americans having the same general standard of living, as if this had anything to do with the criticism, shows you do not understand Ricardo’s law of comparative advantage. If US workers focus on what they are relatively best at, and the rest of the world’s workers focus on what they are relatively best at, then “shipping production off to third world countries” is actually about opening up new possibilities for labor in the US given those who are better at making those particular goods, are making those goods. The resulting total output is HIGHER, and the volume of goods actually consumed is HIGHER by all parties.
Real consumption in the US has increased substantially since the 1970s, when China opened up and “stole US jobs.”
Your post totally evaded the argument. And I bet you will again evade it.
Also, you speak of “distribution” of wealth, as if wealth were a zero sum game. That is a barbaric and ancient superstition.
Travel between Texas and Mexico is cheaper than travel from Maine to California, so your claim to the existence of magic between federal borders that does not exist for US state borders is ludicrous.
Very often, it is cheaper to travel between countries than it is to travel within a country. Not that this even matters to the overall point.
“… moving production off to the third world and devastating industries within the US.”
Industries are supposed to be devastated when consumers no longer want them at the price or quality offered.
What’s your point?
Correction:
“is merely to provide the evidence that things are not as clear cut as Murphy claims.”
No typo corrections is going to salvage the debacle that is your comment history on this thread.
Gene’s dialogue discusses a steel plant that a company relocates to China, enriching the company executives while devastating the town where the plant used to be located. But in fact what really hurt the U.S. steel industry was the so-called “Steel Crisis” of the 1970s. Basically you had a global glut of steel production combined with a severe recession. This was a worldwide phenomenon that effected steel producing regions in places like Germany and Britain as well as the Rust Belt, so blaming it on free trade doesn’t seem plausible. And given that China was still dealing with the end of the Cultural Revolution, I don’t think a lot of companies were moving plants there.
Forget economics, maybe Joe ought to have talked to a history professor instead.