17 Nov 2016

Ben Powell and I Talk International Trade

Trade 8 Comments

We taped this before the election, in case that matters.

8 Responses to “Ben Powell and I Talk International Trade”

  1. Bob Roddis says:

    I’m writing this before watching. My ongoing question about “protectionism” in a democracy is how do the government Central Planners know which industries to protect and to not protect? How do the voters (who, by definition are too dumb to know what products to buy in the free market without causing all sorts of “macro” disasters) know which politicians to vote for who will hire the best Central Planners?

    • John Arthur says:

      Hi Bob Roddis,

      Good questions. Most economists support free trade, although some allow for protection of “infant industries” but barriers need to be lifted after a while to ensure that the “infant” grows up.

      Governments are often wrong when they try to predict which industries to protect.

      Central authorities who try to impose tariff barriers may be hit by “beggar thy neighbour policies” from other nations’ central authorities, and this would be counter productive.

      John Arthur


      John Arthur

  2. Tel says:

    “The US labour should focus on what they are really good at.”

    But that hasn’t been happening, US labour has been leaving the labour force since 2000, especially young people who can’t get jobs (or possibly won’t get jobs, depending on how you see it).


    You can see the biggest drop in participation has been among the youngest groups.

    “As there’s more innovation, people start going into software development.”

    That has happened a little bit, but still doesn’t explain the young people who aren’t going into anything. Also, a 50 year old who spent his life building cars is going to have great difficulty retraining around software development… but that’s kind of one of these “cost of progress” type things. The much worse issue, in the USA we also have young people who could fairly easily get up to speed in some sort of modern industry, but for whatever reason they aren’t getting there.

    Regarding sovereignty… you have a fundamental point that in order to have any sort of trade you also must have property rights. I cannot sell you something unless I own it first, in order to put it up for sale.

    But now we get the situation where different countries don’t agree on how property rights should work. Indeed, different individuals inside the same country also don’t agree on these matters but we settle that with an election every 4 years (somewhat messy, ugly process but it does the job). Between countries you can’t have an election, and you don’t want to have a war so how are you going to resolve ownership?

    You bring up the intellectual property case, and that’s probably one of the key issues, but not the only one. Consider the Spratly Islands where the Chinese government just decided they should own it, while other countries said, “Hey, you don’t own that.” Then we had some kind of Permanent Court of Arbitration which is a court sitting outside any single national jurisdiction and this court also decided that China had no claim to these islands. China just ignored the decision, they feel happy to ignore this court because the court has no military force to make the decision stick.

    So if you know you are trading with an entity which has demonstrated an inclination to just ignore property rights that’s got to make it difficult to create some sort of unilateral deal. That was one of the concepts of the TPP to create a court that sits outside national jurisdiction in order to decide on property rights issues. Maybe it’s a good court, and maybe not, but someone needs to decide this.

    As for currency manipulation, well hard to find anyone without sin on that score.

    Currency manipulation is another property rights issue, if you own currency do you really have property? As many Indians are discovering, their 1000 Rupee notes can very quickly become non-property.

    • Harold says:

      Have they made the 1000 RP note non-property? I thought you were entitled to retain ownership of the note, just that the note no longer meant what you thought it did. That is, you have a piece of paper, not 1000RP.

      So when someone owns a piece of paper with 1000RP on it, what exactly is it they think they own?

      • Harold says:

        Missed off the > after the italics, sorry.

      • Tel says:

        The note is a written promise (hence the common name “promissory note”) and the ability to trust that a promise is worth something is itself a key part of doing business and trade of all sorts.

        • Harold says:

          What is the actual ruling? If it is just that the note is no longer legal tender there would be nothing to stop individuals still using it among themselves. I wonder if there is any instances of this happening? It seems interesting in the context of the “what is money” debate.

  3. Tel says:

    About the sanctions, I agree with that stuff about roving bandits and stationary bandits. If you can encourage a militia to settle down in one area they become invested in the local economy.

    However, the question of sanctions shows that some of the free trade assumptions are not reflected in the empirical results. For example, sanctions on Russia have NOT significantly hurt Russian growth, and those were fairly heavy sanctions. The sanctions on Russia probably hurt Europe more, when you look at how poorly the European economies are growing (although as always many factors could contribute to that).

    Places like Congo have a narrow range of high-value industry so they are especially vulnerable to sanctions. This leads me to conclude that a country should maintain some degree of internal economic diversity and self sufficiency simply because if you specialize in one narrow area you are vulnerable to being held to ransom. Diversification protects you from all sorts of risks, even if it probably isn’t the most efficient.

    One of the topics Trump has brought up is the US military being based all over the world. So in a way the USA has become a specialist provider of military protection. For example, Australia largely depends on the USA for security. Trump has said that other countries should pay more for this service, or else be willing to defend themselves. This is a type of international trade, although probably not what most economists like to talk about. Australians are very aware that they are vulnerable to a potential change in US military policy which is one of the reasons we got involved in Iraq and Afghanistan… because we felt it was expected of us. Having a greater degree of self sufficiency also means you get a greater degree of self determination and the ability to make careful decisions.

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