Tag: economics

Another strike against free trade

You may note that among my four points against free trade, I note that free trade is incompatible with democracy and national sovereignty. One argument I failed to note in this regard is the way in which free trade permits extortion by holding the national economy hostage:

Saudi Arabia has told the Obama administration and members of Congress that it will sell off hundreds of billions of dollars’ worth of American assets held by the kingdom if Congress passes a bill that would allow the Saudi government to be held responsible in American courts for any role in the Sept. 11, 2001, attacks.

The Obama administration has lobbied Congress to block the bill’s passage, according to administration officials and congressional aides from both parties, and the Saudi threats have been the subject of intense discussions in recent weeks between lawmakers and officials from the State Department and the Pentagon. The officials have warned senators of diplomatic and economic fallout from the legislation.

Adel al-Jubeir, the Saudi foreign minister, delivered the kingdom’s message personally last month during a trip to Washington, telling lawmakers that Saudi Arabia would be forced to sell up to $750 billion in treasury securities and other assets in the United States before they could be in danger of being frozen by American courts.

Dr. Miller mentioned that he couldn’t think of any way that foreigners buying up American assets could be a bad thing. But, once more, we have an object lesson in letting reason be silent when experience gainsays its conclusions. Free trade not only imperils democracy, but also endangers the rule of law.

Notice again that free trade theory fails due to the limited imaginations of its advocates and their inability to even conceive of potential problems that are actually occurring in the real world.

But speaking of Dr. Miller, I emailed him to broach the possibility of a second debate addressing a topic that more than a few readers observed we failed to discuss, namely, whether free trade necessarily requires the free movement of people or not. He agreed at once, although we both need to do a bit of research before we’re prepared to debate it. When we’re ready, I’ll let you know and we’ll hold another open Brainstorm event.

Notes on the free trade debate

First, Dr. Miller has graciously provided the audio of our debate at Future Strategist, which, among other things, once more demonstrates the astuteness of my decision to avoid pursuing a career in radio or anything that involves speaking in public. It’s as if the more clearly I am able to think through these complicated issues, the harder I find verbally articulating the path through them. At this point, I have to expect that if I ever come to correctly grok the fullness of all the myriad pros and cons of free trade, my verbal explanations will be reduced to seemingly nonsensical word bursts.

move… you know… war… people… um, mask of credit!

Second, since I didn’t have any reason to fully cite a few of the more interesting quotes I’d found, (for, as Spacebunny observes, a very particular definition of interesting) I thought some of you might find reading them to be illuminating. Since Dr. Miller didn’t put much effort into distinguishing between free trade in goods and free trade in labor, there wasn’t any point in doing more than mentioning these statements in passing. But many free traders do attempt to make the distinction, which is why I believe they are worth noting.


Milton Friedman, “What is America” lecture at Stanford:

There is no doubt that free and open immigration is the right policy in a libertarian state, but in a welfare state it is a different story: the supply of immigrants will become infinite. Your proposal that someone only be able to come for employment is a good one but it would not solve the problem completely. The real hitch is in denying social benefits to the immigrants who are here. Look, for example, at the obvious, immediate, practical example of illegal Mexican immigration. Now, that Mexican immigration, over the border, is a good thing. It’s a good thing for the illegal immigrants. It’s a good thing for the United States. It’s a good thing for the citizens of the country. But, it’s only good so long as it’s illegal.

Ludwig von Mises, Liberalism, Chapter 8. Freedom of Movement

The natural conditions of production and, concomitantly, the productivity of labor are more favorable, and, as a consequence, wage rates are higher, in the United States than in vast areas of Europe. In the absence of immigration barriers, European workers would emigrate to the United States in great numbers to look for jobs. The American immigration laws make this exceptionally difficult. Thus, the wages of labor in the United States are kept above the height that they would reach if there were full freedom of migration, whereas in Europe they are depressed below this height. On the one hand, the American worker gains; on the other hand, the European worker loses.

However, it would be a mistake to consider the consequences of immigration barriers exclusively from the point of view of their immediate effect on wages. They go further. As a result of the relative oversupply of labor in areas with comparatively unfavorable conditions of production, and the relative shortage of labor in areas in which the conditions of production are comparatively favorable, production is further expanded in the former and more restricted in the latter than would be the case if there were full freedom of migration. Thus, the effects of restricting this freedom are just the same as those of a protective tariff. In one part of the world comparatively favorable opportunities for production are not utilized, while in another part of the world less favorable opportunities for production are being exploited. Looked at from the standpoint of humanity, the result is a lowering of the productivity of human labor, a reduction in the supply of goods at the disposal of mankind. Attempts to justify on economic grounds the policy of restricting immigration are therefore doomed from the outset. There cannot be the slightest doubt that migration barriers diminish the productivity of human labor. 

Gary North, “Tariffs as Welfare-State Economics”, Mises Institute

The ethics and economics of restricted trade surely apply to the person who wants to trade on the other side of the invisible line known as a national border. If the arguments for restricted trade apply to the American economy, then surely they apply to the other nation’s economy. Logic and ethics do not change just because we cross an invisible judicial line.… Any time a government sends out a man with a badge and a gun to restrict trade, this is an act of war. Nobody should favor a restriction on other people’s trade unless the results of that trade are comparable to the results of trade during wartime.

What I find interesting about these defenders of the free movement of people, or if you prefer, free trade in labor and services, is that although the greatest among them, Ludwig von Mises, clearly recognized the potential flaw in his pro-free trade position, he not only uncharacteristically chose to wave it away, but to the extent he considered it at all, he reached what is now obviously a completely wrong conclusion.

This issue is of the most momentous significance for the future of the world. Indeed, the fate of civilization depends on its satisfactory resolution. It is clear that no solution of the problem of immigration is possible if one adheres to the ideal of the interventionist state, which meddles in every field of human activity, or to that of the socialist state. Only the adoption of the liberal program could make the problem of immigration, which today seems insoluble, completely disappear. In an Australia governed according to liberal principles, what difficulties could arise from the fact that in some parts of the continent Japanese and in other parts Englishmen were in the majority?

To continue from my observation in last night’s debate, this is a 20th century defense of an 18th century argument that sounds utterly insane in the face of 21st century realities. Consider the application of this argument to current events:

In a Sweden governed according to liberal principles, what difficulties could arise from the fact that in some parts of the country Syrians and in other parts Swedes were in the majority?

What difficulties indeed?  Anyhow, it has become increasingly apparent to me that the lack of concern about national sovereignty shown by free traders is akin to that demonstrated by libertarians, and reflects a fundamental conflation of the concept of “the nation” with the concept of “the state”. They simply don’t understand that their positions are logically self-refuting in addition to being empirically false.

UPDATE: The paper I mentioned, Trade Wars, Trade Negotiations and Applied Game Theory, by Glenn W. Harrison and E. E. Rutström, can be found here. 

The Free Trade debate

At 7 PM Eastern, the free trade debate between Dr. James
Miller, PhD, JD, and Associate Professor of Economics at Smith College, and Vox Day, Supreme Dark Lord of the Evil Legion of Evil, will begin.

There are 250 seats left, and you can register for the free event here. 

This is an open thread for those watching the debate to discuss it as it is happening. Please be polite to Dr. Miller regardless of whether you agree with him or think well of his arguments or not. As for me, well, feel free to identify any holes in the arguments I present… if you can.

UPDATE: Great turnout for such an esoteric matter. 278 people showed up over the course of the event. We held a show of hands before and after the debate. The numbers aren’t even because there were 170 people at the beginning and 215 at the end.

FREE TRADE PRO: 35 to 24
FREE TRADE ANTI: 80 to 110
NEUTRAL: 55 to 50

While Dr. Miller graciously conceded the actual debate, I think he nevertheless won the evening with his AI bombshell. It was spectacular.

Brainstorm debate: Free Trade

As I mentioned, tonight at 7 PM Eastern I’ll be debating Dr. James Miller, Associate Professor of Economics at Smith College, on the topic of free trade. Dr. Miller has a PhD from the University of Chicago and is the author of Game Theory at Work and Singularity Rising: Surviving and Thriving in a Smarter, Richer, and More Dangerous World.

There are 440 seats left, so if you’re interested and you plan to attend, you can register for the free event here. 

This promises to be interesting. PhD from THE monetarist school vs BS from a econ department of Keynesians and socialists. Game Theorist vs Game Designer. Academic vs gamer.

The folks on Twitter don’t appear to like my chances of success. The worst odds that have been given against me are 68-1. On the other hand, Nate refuses to throw in the towel: Speaking as someone who’s actually debated you. I’m going to say the poor bastard has no idea what he’s in for.

So, whose chances do you like better? Looking at it objectively, I’d have to say that if I can somehow manage to win this one in a convincing fashion, I’m probably smarter than I think I am. There is only one way to find out.

Challenge accepted

A professor of economics with a PhD from the ultimate monetarist school throws down a gauntlet, albeit in a considerably more civil manner than I’ve come to expect from my critics:

I’ve recently started a podcast called Future Strategist and I would love to interview you by Skype audio.  We could discuss political correctness and debate free trade.  While I do not support open borders for people, I do support free trade in goods and while I doubt I could get you to change your opinion I hopefully wouldn’t underwhelm you as have other economists.

James Miller
Associate Professor of Economics, Smith College
Phd University of Chicago

I have accepted Dr. Miller’s challenge to debate free trade. More details to come.

By the way, he’s the author of Game Theory at Work, so he’s obviously a smart guy. We’re going to do one podcast discussion of political correctness first – he obviously won his 2003 tenure battle – and then we’ll do the debate, Game Theorist vs Game Designer.

UPDATE: Dr. Miller and I have decided to simply do the free trade debate, and we’ll do it at the Brainstorm on Wednesday. Invitations have already gone out to the Brainstorm members. Once all the members interested have taken their seats, I’ll open the remaining ones up to everyone else on a first-come, first-serve basis.

This is the sort of thing that Brainstorm makes possible, so if you want to be a part of it, consider signing up for an annual membership.

On being underwhelmed by economists

One of the things I’ve learned about the internet is that it has a way of stripping the intellectual glamor from those one had reason to respect for one reason or another. I discovered that Thomas Sowell was rather less bright than I’d believed when I had a direct personal encounter with him over Michelle Malkin and Pearl Harbor. And it was disappointing to learn that Thomas Woods is considerably more conventional, and considerably less serious, as an economist than I’d imagined him to be.

Supreme Dark Lord @voxday
Free trade advocates don’t realize
they’re supporting a failed theory that never applied to modern
economies or technology in the 1st place.

Bent Nail Retweeted Supreme Dark Lord@ThomasEWoods  free trade failed Tom…just like the non-aggression principle .only works if all comply.

Supreme Dark Lord ‏@voxday
No, it doesn’t work at all. Free trade is totally incompatible with having a nation.

Tom Woods ‏@ThomasEWoods
No, that’s completely wrong. Why not block out the sun? It’s not playing fair, giving all that light for free!

Tom Woods ‏@ThomasEWoods
“Having a nation” = “forcing people to pay higher taxes to the sociopaths who oppress them.” Got it.
Supreme Dark Lord @voxday
I mean literally having a nation at all. With true free trade, HALF of Americans under 35 will have to emigrate.

Tom Woods ‏@ThomasEWoods
Especially the US lightbulb industry, which deserves to suck at the proverbial teat forever. Nationhood demands it

Woods is a good Austrian, in the economics sense, but he’s obviously in over his head here. I am entirely confident that he has literally never considered the obvious consequences of free trade from a labor mobility standpoint, despite the fact that labor mobility is a necessary component of free trade from theoretical, logical, and empirical standpoints.

In fact, with a very few number of exceptions, such as Gary North, who rejects the core concepts of “nations” and “borders”, I daresay that fewer Austrian economists understand that their free trade dogma is absolutely antithetical to the survival of Western civilization than libertarians grasped that their open borders policy was self-refuting twenty years ago.

I find it amusing because the conversation usually goes like this:

FREE TRADER: Free trade is good! Just look at how domestic free trade has benefited the US economy!

VOX DAY: Very well. Now look at US labor mobility rates.

FT: (stricken look) Um, labor mobility isn’t necessarily part of free trade.

VD: Yes, it is. But more importantly, it is observably part of the US economy.

FT: (wide-eyed horror, crash, reboot) Why not block out the sun? Japan! 1970s automakers! Ricardo! Smoot-Hawley!

They literally have no comeback for this argument, because most of them are unwilling to openly declare themselves anti-American globalists who don’t believe in nations, let alone national sovereignty, let alone the US Constitution. And that is the only rational response that remains to them if they are going to retain the free trade dogma.

I have yet to hear a single free trader even TRY to respond to my point that if the international economy was opened up to free trade to the extent that the domestic economy is, US labor mobility indicates that nearly half of all Americans would be forced to emigrate by the time they turn 35.

Free trade. Nations. Pick one.

Cheap at the price

Critics complain Trump’s deportation plan would cost $500 billion:

Presidential candidate Donald Trump’s plan to deport all undocumented immigrants would cost between $400 billion and $600 billion and take at least 20 years to implement, according to a report from the American Action Forum.

The report estimates that there are currently 11.3 million undocumented immigrants currently living in the United States. To deport them, these individuals would have to be apprehended, detained, legally processed, and transported back to the country they originated from.

In order to do this in two years like Trump has proposed, the report estimates that there would need to be 90,582 federal immigration apprehension employees, 348,831 immigration detention beds, 1,316 immigration courts, 32,445 federal attorneys to process undocumented immigrants, and a minimum of 17,296 chartered flights and 30,701 chartered bus trips.

“If the federal government were to remove all undocumented immigrants in only two years, it would require a massive expansion of the federal government’s immigration enforcement personnel and infrastructure,” states the report.

The report says that if the federal government began enforcing mass deportation, about 20 percent of undocumented immigrants would begin to leave voluntarily which would leave about 9 million illegal aliens in the country. Currently, U.S. Immigration and Customs Enforcement only has the capacity to remove 400,000 undocumented immigrants in one year.

“That means if ICE were to operate at its current maximum capacity, it would take over 20 years to remove 9.04 million undocumented immigrants,” states the report. “To remove those 9.04 million immigrants in two years, ICE would have to remove 4.52 million immigrants per year. That is 11.3 times larger than ICE’s current maximum capacity.”

I can solve those problems easily. The answer is private enterprise. The AAF estimate claims a cost of $55,555 per individual deported. So, the cost can be cut to less than $100 billion by simply offering a $10,000 bounty on every illegal immigrant delivered to a station on the Mexican border. Assume that it costs $5k to do a quick identity check to confirm their status and transport them home.

That means the USA would be saving nearly $250 billion per year based on the $346 billion per year that illegal aliens cost as estimated by the National Research Council. Trump is not only right to call for deportations, but America can’t afford NOT to round them up and repatriate them.

The China train is NOT fine

David Stockman foresees some grim deflationary bubble-popping out of China:

The truth is, the 25 year growth boom in China is just a giant, credit-driven Ponzi.  Any fool can run a central bank printing press until it glows white hot.

At the end of the day, that’s all the Beijing suzerains of red capitalism have actually done. They have not created any of the rudiments of viable capitalism. There are no honest financial markets, no genuinely solvent banks, no market driven allocation of capital and no financial discipline which comes from the right to fail as well as succeed.

There are, for instance, 287 million equity trading accounts in China, most of them opened within the last year and overwhelmingly held by retail punters with sub-high school educations. In less than 12 months they took down upwards of $1 trillion of margin debt through official brokerage channels and a massive network of shadow banking sources including dodgy peer-to-peer lending arrangements.

So fortified, they clambered after a stock market bubble that expanded by $3 trillion in just 60 trading days ending on June 14, and then broke into a panicked selling stampede that liquidated that very same $3 trillion of bottled air in hardly 20 trading days thereafter.

The problem is that the impact of the Chinese deflationary collapse is not likely to be limited to China, and will likely render all of the Western central banks’ efforts to keep the Western economies afloat through zero interest rate policy moot. The central bankers are counting on the Chinese to respond to a popped bubble like they do, with a flood of liquidity propping up the financial gangsters. But the Chinese government is much more likely to jail and shoot the lot of them.

The latter is the Achilles Heel of the whole Ponzi. To arrest capital flight they will have to do the opposite of what they have done for the last 20 years. That is, they will have to shrink the domestic money supply and banking system in order to sell dollars and euros rather expand domestic credit in order to sequester dollar liabilities (i.e. treasury bonds) in the PBOC.

In due course, China will be aflame with campaigns against corruption and enemies of the state as it seeks to cope with its collapsing financial bubbles and endless herds of economic white elephants. Chairman Mao’s axiom as to where state power really comes from——that is, the barrel of a gun—-will become the increasingly evident modus operandi of the communist party rulers.

The resulting deflationary spiral will suck the global economy into its vortex. And Wall Street will go down for the count because this time the Fed will be utterly powerless to reverse the tide.

Just remember, even when the paper money and the digital wealth evaporates, you’re not actually any worse off materially than you were the day before.

The preference cascade

Glenn Reynolds makes a connection between the Trumpening and #Brexit:

In America, Donald Trump — who many of the experts thought had no chance — is dominating the polls. In Britain, meanwhile, much of the public seems to be mobilizing in favor of exiting the troubled European Union — a British Exit, or Brexit.

Writing in The Spectator, Brendan O’Neill puts this down to a class revolt on both sides of the Atlantic. And he’s right as far as he goes, but I think there’s more than just a class revolt. I think there’s also a developing preference cascade. O’Neill writes: “In both Middle America and Middle England, among both rednecks and chavs, voters who have had more than they can stomach of being patronised, nudged, nagged and basically treated as diseased bodies to be corrected rather than lively minds to be engaged are now putting their hope into a different kind of politics. And the entitled Third Way brigade, schooled to rule, believing themselves possessed of a technocratic expertise that trumps the little people’s vulgar political convictions, are not happy. Not one bit.”

Well, that’s certainly true. Both America and Britain have developed a ruling class that is increasingly insular and removed from — and contemptuous of — the people it deigns to rule. The ruled are now returning the contempt.

Robert Prechter predicted this more than a decade ago. It’s also happening in other European countries. This is what happens when the social mood changes. The blithe, mindless optimism that permits the populace to be used and abused by the financial elite is gone. People are seeing more clearly now, and they are beginning to recognize what was done to them, and by whom.

There will be a reckoning. There will be many reckonings. And unfortunately, not all of them will be pretty, or even civilized.

When the tide goes out, it’s easy to see who was naked all along.

“Something big has happened”

A surprisingly astute article from a dyed-in-the-wool member of the US establishment, Robert Reich:

Something very big has happened, and it’s not due to Bernie Sanders’ magnetism or Donald Trump’s likeability.

It’s a rebellion against the establishment.

The question is why the establishment has been so slow to see this. A year ago – which now seems like an eternity – it proclaimed Hillary Clinton and Jeb Bush shoe-ins.

Both had all the advantages – deep bases of funders, well-established networks of political insiders, experienced political advisors, all the name recognition you could want.

But even now that Bush is out and Hillary is still leading but vulnerable, the establishment still doesn’t see what’s occurred. They explain everything by pointing to weaknesses: Bush, they now say, “never connected” and Hillary “has a trust problem.”

A respected political insider recently told me most Americans are largely content. “The economy is in good shape,” he said. “Most Americans are better off than they’ve been in years. The problem has been the major candidates themselves.”

I beg to differ.

Economic indicators may be up but they don’t reflect the economic insecurity most Americans still feel, nor the seeming arbitrariness and unfairness they experience.

Nor do the major indicators show the linkages Americans see between wealth and power, crony capitalism, declining real wages, soaring CEO pay, and a billionaire class that’s turning our democracy into an oligarchy.

Median family income lower now than it was sixteen years ago, adjusted for inflation.

Most economic gains, meanwhile, have gone to top.

These gains have translated into political power to rig the system with bank bailouts, corporate subsidies, special tax loopholes, trade deals, and increasing market power – all of which have further pushed down wages pulled up profits.

Those at the very top of the top have rigged the system even more thoroughly. Since 1995, the average income tax rate for the 400 top-earning Americans has plummeted from 30 percent to 17 percent.

Wealth, power, and crony capitalism fit together. So far in the 2016 election, the richest 400 Americans have accounted for over a third of all campaign contributions.

Americans know a takeover has occurred and they blame the establishment for it.

Damn straight it has. And damn straight they should. They’ve created a system that is every bit as centralized and bureaucratic as Soviet communism and they called it “capitalism” and “free trade”.

It isn’t. It’s financial rape and plunder.