Economic theory is all right in theory

“Every economic answer is a political question.”

Here then is a question for all you experts on international trade, taken directly from my Free Market Economics [pp. 248-249]. Picture two countries, A and C.

Suppose in Country A, in one hour it can produce either one car or 1000 shirts. [It’s also the same answer if Country A can produce ten cars and 10,000 shirts per hour!]

Meanwhile in Country C, in two hours it can produce either one car or 500 shirts.

According to the economic theory of comparative advantage, how many cars will Country A produce? OK, once you’ve worked that out, now tell me if you get the same answer using common sense. As chrisl said, “economic theory is all right in theory”. Personally, I’m not even sure of that, but you get the idea.

So here’s the thing. It is entirely possible that the US is tired of carrying most of the burden for the defence of the West and would like a bit of sharing the burden. It might also find some respite for itself in strengthening those parts of its economy which are more closely associated with its defence industries. And it might even wish for some kind of gratitude from others, supposedly on the same side, in trying to assist the US in resurrecting its strength. And then there are the straightforward economic issues, which are not the same as the political. So let us go to these.

And of course the issue economically is comparative advantage, and not pure let the most efficient producer produce each product. With comparative advantage, it is not always the most efficient low-cost producers who produce. If you don’t even understand that, you should keep right out of this debate.

Why encourage free trade:

  • competition is what drives improvement and growth – without competition most businesses would just coast along to the fullest extent they could
  • innovation is driven by competition – the way to take on an established business is to find a better way to do something
  • all other things being equal, free trade is best

Why “free trade” is not working for the US:

  • cheating is rife – try to sell an American car in Japan – not possible for all kinds of products in all kinds of countries
  • many countries subsidise exports while imposing non-tariff barriers to trade on imports along with tariffs themselves
  • currency manipulation – artificially holding exchange rate lower to discourage imports and encourage exports is not unknown
  • since the $US is the world’s reserve currency it is unable to adjust to repair a balance of payments deficit
  • there are many forms of approved trade restrictions everywhere you look – the EU for example – such as:

Trading blocs

A regional trading bloc is a group of countries within a geographical region that protect themselves from imports from non-members. Trading blocs are a form of economic integration, and increasingly shape the pattern of world trade. There are several types of trading bloc:

Preferential Trade Area

Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to reduce or eliminate tariff barriers on selected goods imported from other members of the area. This is often the first small step towards the creation of a trading bloc.

Free Trade Area

Free Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or eliminate barriers to trade on all goods coming from other members.

Customs Union

A customs union involves the removal of tariff barriers between members, plus the acceptance of a common (unified) external tariff against non-members. This means that members may negotiate as a single bloc with 3rd parties, such as with other trading blocs, or with the WTO.

World Trade Organisation

There are then the WTO rules of trade engagement which are not designed to create a world where free trade is the only answer. The rules were devised when the US economy was a lot more robust than it now is, and when the US was both willing and able to make sacrifices of all kinds to help others withstand the spread of communism. None of this is applicable today. The US is therefore no longer willing to watch others cheat their way into a stronger trade position, at the cost of its own national security, economic strength and domestic employment. Here is part of what the WTO is up to.

WTO Rules

1. Most-favoured-nation (MFN): treating other people equally. Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.

2. National treatment: Treating foreigners and locals equally. Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents.

3. Developing countries have transition periods to adjust to the more unfamiliar and, perhaps, difficult WTO provisions — particularly so for the poorest, “least-developed” countries – so these basket case economies are allowed to whittle away at the economic strength of the developed world.

Meanwhile, economic ministers around the world increase unproductive public spending every chance they get, add new regulations on top of old, increase business taxes at every turn, and then jump on their chairs screaming, “Eek, a tariff!”

Lastly, in regard to this great TPP agreement, today we find out this: TPP overhaul to spur foreign takeover deals. First paras:

Businesses from countries that signed on to the revived Trans-­Pacific Partnership agreement will have an easier run at mounting cross-border takeovers in ­Australia as the threshold for ­scrutiny is lifted fourfold to more than $1 billion.

The federal government said yesterday as part of agreements signed under the TTP-11, the threshold for the Foreign Investment Review Board to screen ­acquisitions lifts from $261 million to $1.13bn.

The change would encourage further foreign investment takeover of local businesses in ­Australia while retaining [in theory] the ­ability to screen sensitive investment areas such as defence, ­agriculture, electricity and media, as well as any investment by a ­foreign govern­ment.

Everyone has always lived in an Age of Stupidity, I guess. This is just one of the forms it takes in the age in which we live.

AND NOW THIS: From Kurt Schlichter:

To the extent free trade has a bad name, it’s because the free traders are less concerned with actual free trade than with the purity of their doctrine. Our voters are not going to support a system where they are getting the short end of the stick, nor should they. How about we demand equal trade terms, and when we don’t get them we make it painful? Because if someone has to suffer the pain that comes with unfair trade, I vote it be the people trading unfairly.

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149 Responses to Economic theory is all right in theory

  1. Confused Old Misfit

    all other things being equal, free trade is best

    Free trade is a Utopian myth. So many adjustments, so many exceptions, all in the name of “fair” trade, make “free” trade impossible in any area other than pure barter.

  2. chrisl

    Hey thanks for the hat tip Steve
    I was always taught in small business that the key to success is to have an unfair advantage over your competitor.
    Are you better at something,have more knowledge,can get things cheaper, have a better machine and so on.
    And so too with trade.
    What is Australia’s unfair advantage?
    Clearly it is natural resources.
    Which should lead to cheap energy and the ability to value add to those resources.
    So what happened?

  3. Paul

    My anti globalist stance is why import cheaper cars or iphones from China, when the only way your unemployed population can afford these is to steal them?
    But maybe that’s exactly what the socialists want.

  4. Pyrmonter

    ad hoc nonsense

    ‘The rules were devised when the US economy was a lot more robust than it now is, and when the US was both willing and able to make sacrifices of all kinds to help others withstand the spread of communism.’

    That wouldn’t even sound sensible from one of the purveyors of Trumpism like Seb Gorka.

    Trade protection, whatever the ‘theory’ of optimal tariffs might suggest inevitably founders on the rock of ignorance. No business, and still less no US President can determine the ‘optimal’ tariff. The reality is that it is driven by the very things the early Public Choice writers suggested: electoral politics. And it weakens the US. That is bad for the US, and bad for its allies.

  5. max

    INTERNATIONAL TRADE

    international trade is not a
    zero-sum contest. Both sides must gain or it would make
    no sense to continue trading. Nor is it necessary for experts
    or government officials to determine whether both sides are
    gaining.
    Most international trade, like most domestic trade,
    is done by millions of individuals, each of whom can
    determine whether the item purchased is worth what it cost
    and is preferable to what is available from others.

    What happens
    when a given country, in isolation, becomes more
    prosperous? It tends to buy more because it has more to
    buy with. And what happens when it buys more? There are
    more jobs created for workers producing the additional
    goods and services.
    Make that two countries and the principle remains the
    same. Indeed, make it any number of countries and the
    principle remains the same. Rising prosperity usually
    means rising employment.
    There is no fixed number of jobs that countries must fight
    over. When countries become more prosperous, they all
    tend to create more jobs.

    terminology used to describe an export
    surplus as a “favorable” balance of trade and an import
    surplus as an “unfavorable” balance of trade goes back for
    centuries. At one time, it was widely believed that
    importing more than was exported impoverished a nation
    because the difference between imports and exports had to
    be paid in gold, and the loss of gold was seen as a loss of
    national wealth. However, as early as 1776, Adam Smith’s
    classic The Wealth of Nations argued that the real wealth
    of a nation consists of its goods and services, not its gold
    supply.

    If the goods and
    services available to the American people are greater as a
    result of international trade, then Americans are wealthier,
    not poorer, regardless of whether there is a “deficit” or a
    “surplus” in the international balance of trade.

    The reasons why countries gain from international trade are
    usually grouped together by economists under three
    categories: absolute advantage, comparative advantage, and
    economies of scale.

    Absolute Advantage
    It is obvious why Americans buy bananas grown in the
    Caribbean. Bananas can be grown much more cheaply in
    the tropics than in places where greenhouses and other
    artificial means of maintaining warmth would be necessary.
    In tropical countries, nature provides free the warmth that
    people have to provide by costly means in cooler climates,
    such as that of the United States. Therefore it pays
    Americans to buy bananas grown in the tropics, rather than
    grow them at higher costs within the United States.

    Economies of Scale
    It has been estimated that the minimum output of
    automobiles needed to achieve an efficient cost per car is
    somewhere between 200,000 and 400,000 automobiles per
    year.

    Producing in such huge quantities is not a serious
    problem in a country of the size and wealth of the United
    States, where each of the big three domestic
    automakers—Ford, General Motors, and Chrysler—has
    had at least one vehicle with sales of more than 400,000, as
    did Toyota, while the Ford F-Series pickup truck has had
    more than 800,000 annual sales.

    But, in a country with a much smaller
    population—Australia, for example—there is no way to
    sell enough cars within the country to be able to cover the
    high costs of developing automobiles from scratch to sell at
    prices low enough to compete with automobiles produced
    in much larger quantities in the United States or Japan.
    The largest number of cars of any given make sold in
    Australia is only about half of the quantity needed to reap
    all the cost benefits of economies of scale.

    Even those cars which have been manufactured in Australia
    have been developed in other countries—Toyotas and
    Mitsubishis from Japan, and Ford and General Motors cars
    from the United States. They are essentially
    Australian-built Japanese or American cars, which means
    that companies in Japan and the United States have already
    paid the huge engineering, research, and other costs of
    creating these vehicles. But the Australian market is not
    large enough to achieve sufficient economies of scale to
    produce original Australian automobiles from scratch at a
    cost that would enable them to compete in the market with
    imported cars.
    Although Australia is a modern prosperous country, with
    output per person higher than that of Great Britain, Canada
    or the United States, its small population limits its total
    purchasing power to one-fifth that of Japan and
    one-seventeenth that of the United States.

    Exports enable some countries to achieve economies of
    scale that would not be possible from domestic sales alone.
    Some business enterprises make most of their sales outside
    their respective countries’ borders. For example, Heineken
    does not have to depend on the small Holland market for its
    beer sales, since it sells beer in 170 other countries. Nokia
    sells its phones around the world, not just in its native
    Finland.

    Despite offsetting economic gains that typically far
    outweigh the losses, politically it is almost inevitable that
    there will be loud calls for government protection from
    foreign competition through various restrictions against
    imports. Many of the most long-lived fallacies in
    economics have grown out of attempts to justify these
    international trade restrictions. Although Adam Smith
    refuted most of these fallacies more than two centuries ago,
    as far as economists are concerned, such fallacies remain
    politically alive and potent today.
    Some people argue, for example, that wealthy countries
    cannot compete with countries whose wages are much
    lower. Poorer countries, on the other hand, may say that
    they must protect their “infant industries” from competition
    with more developed industrial nations until the local
    industries acquire the experience and know-how to
    compete on even terms. In all countries, there are
    complaints that other nations are not being “fair” in their
    laws regarding imports and exports. A frequently heard
    complaint of unfairness, for example, is that some countries
    “dump” their goods on the international market at
    artificially low prices, losing money in the short run in
    order to gain a larger market share that they will later
    exploit by raising prices after they achieve a monopolistic
    position.
    In the complexities of real life, seldom is any argument
    right 100 percent of the time or wrong 100 percent of the
    time. When it comes to arguments for international trade
    restrictions, however, most of the arguments are fallacious
    most of the time.

    International trade restrictions provide yet another example
    of the fallacy of composition, the belief that what is true of
    a part is true of the whole. There is no question that a
    particular industry or occupation can be benefitted by
    international trade restrictions. The fallacy is in believing
    that this means the economy as a whole is benefitted,
    whether as regards jobs or profits.

    Tariffs are taxes on imports which serve to raise the prices
    of those imports, and thus enable domestic producers to
    charge higher prices for competing products than they
    could in the face of cheaper foreign competition.

    Basic Economics 5th Edition by Thomas Sowell

  6. The term fair trade is an oxymoron, and free trade isn’t much better.

  7. Joe

    What happens
    when a given country, in isolation, becomes more
    prosperous? It tends to buy more because it has more to
    buy with. And what happens when it buys more? There are
    more jobs created for workers producing the additional
    goods and services.

    Ok good.

    Make that two countries and the principle remains the
    same. Indeed, make it any number of countries and the
    principle remains the same. Rising prosperity usually
    means rising employment.

    Wrong. One country with cheaper cost grows jobs and production at the expense of the country that is dearer. When that happens across the board instead in selected industries, one country beggars itself for the other country, which then reduces to the one country case and that country that is the winner and could care less about the other country because it has no purchasing power. It gave it up.

  8. Dr Fred Lenin

    What doe Donald Trump know that generations of highly “educated” economists don’t know and never knew . When in history have the clever knowledgeable plans of economists created three million jobs in an economy? Trump with his lack of political correctness and lawtrade smarts ,and lack on economics has done just this ? This leaves the question , why are taxpayers funding courses in “economics”? Why do faculties of economics exist ?

  9. Ƶĩppʯ (ȊꞪꞨV)

    China’s comparative advantage is state sponsored theft.

  10. Grunter

    Hi Steve

    All good and well on the economic theory. I take a more basic business-like approach to the latest “outrage” by PDT regarding the impositions on steel and aluminium imports.

    PDT is a highly skilled negotiator putting forward what appears to many to be irrational demands. What PDT achieves is the scurrying of affected parties to seek a remedy or reversal and he is then in a position to negotiate a compromise deal (e.g. exempt Australia) for some benefit to the USA without any deterioration in the USA’s original position.

    Outcome: USA gets ahead without giving anything away (which, by the way, is one of the main objectives of his job role}.

    Simple luck or a brilliant mind? I favour the latter – and I doubt very much that it has anything to do with economics, it’s a concerted focus on strategic gain.

    Check mate.

  11. Dr Fred Lenin

    It’s starting to look like “free trade” is another creation of the u.n. Communists to implement agenda 21 of the latest communist manifesto . Wreck the civilised West ,where the opposition to fascist dictatorship will come from ,and make the primitive shithole has populations indebted to the brilliant “equality “ of Narxist dogma . Good with words those fascists not much good at anything else .

  12. notafan

    Thomas Sowell extract is excellent, thank you.

  13. Bruce of Newcastle

    Free trade is excellent. It’s one of the very best ways to lift people out of poverty that exists. Britain’s Empire was built on trade, and that trade helped and enriched both the home country and the dominions like Australia

    Unfortunately humans love to cheat, which is why Britain also had a very large and powerful navy. People behave ever so much better when they know they are being watched.

  14. Gary

    Iv been vocal booster of free trade for many years and benefit from cheep gear as low income earner myself.
    But it wasn’t just cheep stuff that sold me it was market access and better alternative to another cold war.

    It does not seem to be working out that way.

  15. Jobson Grothe

    Bloody hell – luddites on the march.

  16. Tel

    According to the economic theory of comparative advantage, how many cars will Country A produce? OK, once you’ve worked that out, now tell me if you get the same answer using common sense. As chrisl said, “economic theory is all right in theory”. Personally, I’m not even sure of that, but you get the idea.

    I would say that neither under standard economic theory, nor using a “common sense” outlook is there sufficient information to solve the problem.

    Based on assumptions: if the cost of transport is low, and if country A is not significantly larger than country C and if the demand for either cars or shirts does not diminish at some point, and if we further presume that the manufacturing statistics are unlikely to change any time soon, and if we presume the world is linear missing significant economies of scale, then based on all those assumptions country A should focus on making shirts and buy their cars from country B.

    If the cost of transport is high then all bets are off, don’t worry about trade between the countries.

    If country A is much larger than country C then they end up dominating the economic decisions both on the supply side and the demand side, thus country C just gets pushed into making cars but this has bugger all effect on country A which does whatever it likes (which is the relationship between the USA and Australia).

    Using “common sense” has become somewhat unpredictable these days, but IMHO the “common sense” solution is that car manufacture tends to be highly non-linear and benefits massively from economies of scale, and especially benefits from technology and capital investment. Since country A tends to be better at everything, it should be able to blitz the supply of cars unless some political factor was preventing this from happening. Therefore I question the static nature of the statistics given in the problem, and because insufficient information was available in the first place I’ll fill it in with “common sense”. What’s more there are infinite hybrid solutions where cars are designed and prototyped in country A but the assembly line runs in country C, or some other permutation.

    Shirts tend to be the thing anyone can make since they mostly require a lot of human labour, and there isn’t as much difference between a bad shirt and a good shirt, as compared to the difference between a bad car and a good car (which is huge).

  17. Jobson Grothe

    Thomas Sowell extract is excellent, thank you.

    Sowell Power

  18. Tel

    So here’s the thing. It is entirely possible that the US is tired of carrying most of the burden for the defence of the West and would like a bit of sharing the burden. It might also find some respite for itself in strengthening those parts of its economy which are more closely associated with its defence industries.

    Those two sentences contradict each other. If the USA wants to pull out of NATO and scale back on the “World Police” operations, close down foreign bases and reduce defense spending then they have plenty of domestic steel capacity, and even plenty of manufacturing capacity to handle their reduced military requirements.

    The USA is still the biggest economy on Earth, and from memory they are second largest manufacturing economy, and by far the largest military. I think they are OK for self defense. Admittedly they are behind in the technology of hypersonic scramjet missiles but even then they are probably still OK for self defense.

  19. Iampeter

    Oh dear

    Indeed.

    Get the cult de-programmers on stand-by. They’ve got a serious case on their hands here.

  20. Tel

    Meanwhile, economic ministers around the world increase unproductive public spending every chance they get, add new regulations on top of old, and increase business taxes at every turn, and then job on their chairs screaming, “Eek, a tariff!’

    I agree with you on that one, governments interfere with the economy in many ways and many places, so with a tariff you have something quite visible, easy to understand, and as long as the tariff is not too large it does not prevent comparative advantage optimization if there’s a significant gain in international trade.

    On the other hand, the state with high minimum wage, and high income tax (as well as disguised taxes like payroll tax that operate on similar lines to an income tax) and large internal wealth transfers will distort various aspects of the economy in ways that are generally bad but difficult to fully understand. If you can trade off government spending and income tax, in exchange for tariffs then that’s a good thing; but it’s basically impossible to make any trade-off deal with any government, since they do not keep their word and will happily take both kinds of tax, and then increase spending to boot.

  21. struth

    Iampeter has not been able to articulate one argument on this subject, just abuse.

    China and the U.N. are not playing by the rules and are sabotaging the west.
    The U.N. is not a country and therefore trade doesn’t actually effect it, as a body, and inside the body, it’s full of Global socialists tying the hands of the west.

    Should you buy stolen property just because it is cheaper than those selling it honestly?

    Or should you bring it to everyone’s attention, and punish the thief?

    Globally , this is what is happening, so again I ask these pompous twats, (who know so much better than Trump), those who regurgitate bow tie wearing institutionalised morons called economists, as their already debunked arguments, does it matter to your brilliant minds, as to WHY the product is cheaper and not just that it is?

    I’m for free and fair trade, and understand the theory, so spare me the theory.
    There are outside concerns that call for a wider look than academic tunnel vision.

  22. Stimpson J. Cat

    Why do faculties of economics exist ?

    Because without them no one would be no Bowtie industry.

  23. MPH

    So we are to assume that Country A and Country C are in all respects identical and deploy the same number of equally skilled and productive workers to produce their respective outputs?

  24. candy

    He promised tariffs and delivers.
    On reading more about it, by what people like Ms Sloan has written, and by experienced commentators here like JC, you do wonder if this is the right track.

    As well, trade provides a means of engendering international co-operation, are bargaining and threats the way to go, and equating national security needs with trade, two completely separate things?

  25. Tom

    Why “free trade” is not working for the US:
    ◾cheating is rife – try to sell an American car in Japan – not possible for all kinds of products in all kinds of countries.
    ◾many countries subsidise exports while imposing non-tariff barriers to trade on imports along with tariffs themselves.

    Thanks for pointing out the obvious, Steve, especially after Judith Sloan’s hare-brained attack on the Trump Administration this morning for not following her textbook free trade prescription.

    US Commerce Secretary Wilbur Ross also pointed out the obvious at Davos:

    12. Secretary Ross then cited a study of more than 20 products that showed China had higher tariffs on all but two of the items on the list while Europe had higher tariffs on all but four. The panel sat agape at Ross’s delivery of irrefutable facts to the audience.
    13. “Before we get into sticks and stones about free trade we ought first talk about whether there really is free trade or is it a unicorn in the garden,” said Ross. Again, there was no response from the panel.

    It seems to me even rational economists close ranks against attacks on their profession, using arguments from authority if necessary, rather than acknowledge the reality of economic malpractice, like widespread cheating by the EU and China.

    Judith also refuses to acknowledge that Trump regards tariffs simply as a negotiating tactice to achieve compliance by trade cheats.

    I’m sorry, Judith, but I’ll back Trump’s unorthodoxy (and his business experience) against your academic textbook any day.

    Don’t judge Trump by his rhetoric, but by his achievements. Beclowning yourself this early in the game is unnecessary.

  26. Turtle of WA

    Madness is rare in individuals – but in groups, parties, nations, and ages it is the rule. – Friedrich Nietzsche

  27. Turtle of WA

    Why do faculties of economics exist ?
    Because without them no one would be no Bowtie industry.

    Classic.

    There’s always the pop science industry, with that fwit Bill Nye the Lying Bowtie Guy.

  28. struth

    Oh dear

    Well, you can’t argue with that!

  29. Paul Farmer

    I always struggle with these textbook examples of comparative advantage , not because I don’t understand the theory but because the reality of the world is so different from this abstraction that I am not sure it has any validity other than as a nice utopian ideal, one might say even a fantasy.

    It rests at its heart not only on the idea of free trade but also on specialisation and that by letting someone who is more inefficient at some activity than you in absolute terms, to do it anyway because you can focus in on what your doing the best at in relative terms and by trade share the gains of a bigger pie. It’s an extension of the idea of specialisation we see at work in our own lives everyday but applied to global trade not just local trade.

    This idea may have been a bit more realistic in Riccardos time when labour intensive industries were more the norm and this labour had to be combined with much simpler technologies and endowments of natural resources to provide tradeable goods but now with often super economies of scale at play and the interplay of this with the sizes of consumer markets, product differentiation, a large service element in a lot of goods, deep technological know how at work in many companies, spillover effects of technology , inter connected global supply chains, education levels of work forces including the entrepreneurialism skills and cultural predispositions to create new businesses, intellectual property rights, not to mention transaction costs of trade, currency rates and a plethora of other factors, …..it is arguably now just an empty vessel of an idea that offers little empirically of value to guide government policy. If all factors of production , capital , labour , technology and entrepreneurs were mobile and most importantly homogenous around the globe, it would be more relevant, but the world simply isn’t like that.

    The theory also implicitly assumes that there is a god like agent or chess master having sized it all up in terms of how to configure global production, ( Hayek was critical of socialist planners trying to do this in one economy much less the entire global production chain due to the failure of complete knowledge ) can then align the pieces of the board to get the optimal outcome. That hopefully will never happen in a world of free choice.

    Most importantly in a market economy it is the entrepreneurs at the firm level that make decisions about production not governments and academic economists. So in Steve’s example who in country c would be brave enough to make cars when your twice as inefficient as country a , on the basis according to an academic economist that you’re at least not 4 times as inefficient as you are with the shirts ? No economics textbook on the planet goes on to answer just how that actually can happen in the real world in terms of a mechanism if everyone agrees it’s a good idea but that is the implication of the theory it has just tried to ram into the head of a student. A student is told the theory works, accept it , and we should let the market drive this natural outcome and just let free trade proceed.

    But even if we let free trade proceed you wouldn’t get the outcomes envisaged by the economics textbooks. The textbook assumes production in country a and c is homogenous , undifferentiated and equally valuable and desirable and transferable between both industries without friction. In the real world certain goods are more desirable for production than others , that is just how it is. In the real world country a would just dominate with both products and c would become a poor backwater, much like what we see with Africa today. A worker / entrepreneur in a country isn’t going to redeploy himself / resources to making shirts so someone in another country can make a car twice as less effectively. To get this abstraction to make any sense you have to put so many constraints on it but then it is so far removed the real world it is meaningless.

    If you accept that individual firms and entrepreneurs not only do but should make production decisions because this ultimately leads to the best decisions on allocations of resources as the marginal theorists and Hayek tell us, not governments nor governments working in unison trying to optimise global outcomes, then you must accept the theory of free trade at a deep conceptual level is built entirely on flawed premises because the individual agents who make the decisions have insufficient incentives and knowledge to shuffle the allocation around to incorporate the inefficient producers.

    Take steves example further. Arguably country a should focus on shirts , but there is no way in hell that would happen today . Producing cars comes with a lot of spin off effects in technological know how that doesn’t come with shirts. Car making is predisposed to economies of scale , shirts are not in the same way. You wouldn’t even be in the game to consider making cars . One could go and on and on.

    One can make the argument , forget it’s cars and shirts rather treat it just as x or y product. But this goes to the heart of the inherent flaws in it, the world doesn’t work in generic interchangeable equally valued products or commodities in terms of what we as a society demand.

  30. Rob MW

    The economic rationalists morphed into utopian free traders and are now shocked to find out that the theory is nothing more than the reality of the coming daylight after the pleasures of a one night stand.

  31. Sean

    If countries manipulate their own currency they only rob their own people. It means they have to work more hours to be able to import the same amount of goods. Dumb, why not let them rob themselves, we can buy cheaper goods and specialise in other things.

  32. chrisl

    An uncle of mine had his life ruined by the merger of two colleges and going from head of one organisation to 2ic of the larger organisation He never came to terms with it and said why do they make these decisions and then never review them to decide whether the initial plans were optimal ie Did they work? Perhaps it is time for Judith to review her ideas.

  33. struth

    If countries manipulate their own currency they only rob their own people. It means they have to work more hours to be able to import the same amount of goods. Dumb, why not let them rob themselves, we can buy cheaper goods and specialise in other things.

    This is defeatist because you assume that without our hands tied by the U.N. through our own socialists and the corruption of China that we couldn’t even be cheaper than China.
    How do you know what price is the cheapest when the competition is not allowed to compete?
    Everyone assumes totally incorrectly that you can’t compete with a large population when it has sweet f.. all to do with it, or China would have always been a super power and the United States with only a fraction of the population was and seems will be again, a manufacturing power house and super power.

    These “it can’t be done cheaper than China” people are the defeatists that will buy the world in to global socialist domination.
    It is a corrupt market at the moment.
    But you want to let China and the socialists corruptly win while holding dearly to a theory, because your brain hurts?

  34. Ƶĩppʯ (ȊꞪꞨV)

    If countries manipulate their own currency they only rob their own people. It means they have to work more hours to be able to import the same amount of goods.

    chicoms buy our goods? who knew!

  35. Fisky

    No one takes the theory of comparative advantage seriously.

  36. max

    Free Trade: The Litmus Test of Economic Reasoning
    Mercantilism is the default setting for most people. It is based on trust in state power.
    As I have put it, it is faith in the economic productivity of men with badges and guns.


    THE ECONOMIC BLINDNESS OF MERCANTILISTS

    I have never had any illusions about persuading people who trust in the creativity of badges and guns. The universal trust in state power in every area of life is an extension of what I call the power religion. It is the religion of every empire.
    Free trade means free choice. Power-lovers hate free choice, so they hate free trade.

    We come now to the economic issue that separates the economists from the special interest pleaders.

    There are a lot of supposedly free market capitalists who shout the praises of open competition, but when the chips are really down, they call for the intervention of the monopolistic, coercive State to keep Americans from trading with other Free World countries. Competition among Americans, but not between American companies and foreign companies: here is the cry of the tariff advocates.
    The fact that less than 5% of our economy is directly involved in foreign trade never phazes these enthusiasts: free trade is “destroying” the other 95% of the American economy!

    Somehow, the principles of capitalism operate only within national boundaries. Somehow the intervention of the State will “protect” Americans.

    Henry Hazlitt’s classic little book, Economics in One Lesson, so completely destroys the arguments of the tariff supporters that there is nothing left of their position; still they keep coming.

    For two centuries their position has been intellectually bankrupt; still they keep coming. Tariffs hurt all consumers except those on the public dole of tariff intervention, e.g., the “infant industries” such as steel or textiles. Yet the advocates say that all Americans are “protected.” The logic of economics cannot seem to penetrate otherwise rational minds.

    STATE WORSHIP
    The defenders of mercantilism have a religion: the religion of state worship.

    They do not believe that individuals acting in their own self-interest by trading with each other in order to benefit themselves are reliable sources of innovation, exploration, and creativity.

    Mercantilism is always a philosophy of state power. Mercantilism says that the state has a superior interest to the individuals who live under its jurisdiction. Anything that weakens the nation-state, anything that benefits individuals at the expense of the state, anything that elevates the judgment of property owners above the judgment of politicians and bureaucrats is considered by the mercantilist to be an enemy of the state, meaning an enemy of society, meaning an enemy of the nation.

    Mercantilists in the 17th century said that they believed in markets, but only regulated markets. They believed in monopolies granted by the state. They believed in exchange, but only when regulated by the state. What they really believed in was the expansion of the power of the state. They believed that the wisdom given to state bureaucrats is greater than the wisdom given to society as a whole by means of knowledge possessed by individuals.
    They believed that centralized knowledge, based on coercive statistics, is better than, meaning superior to, meaning more productive, than information possessed by all of the members of society.

    GUN-IN-THE-BELLY
    The mercantilists are statists, and so is every conservative who believes that a tariff can benefit American consumers and workers. Every philosophy of mercantilism is a philosophy of a gun stuck in the belly of another American. Every mercantilist idea is a defense of gun-in-the-belly economics.

    “I will tell you what free trade is. It is when I put the barrel of my .45 at the head of some gook and tell him: “We are going to trade, and we’re going to trade on my terms.”

    The mercantilist does not tell the American what he must trade. He only tells him what he may not trade and who he cannot trade with. It is a negative philosophy of government control. It is control by prohibition, not control by active compulsion. It is not socialism. It is not the government ownership of the means of production. It is rather the right of the government to stick a gun in the belly of an American who wants to trade with a foreigner, and to tell that person that he does not have the right to do so without paying the government some money. In short, it is extortion.

    I realize that this is resented by the gun-loving, badge-loving, head-banging, power-seeking, economics-hating conservatives, who I call Hamiltonians. They want to parade themselves as lovers of freedom. They are not lovers of freedom; they are lovers of selective coercion. They believe that violence threatened by government bureaucrats is a superior way to allocate the scarce means of production. They believe in power over voluntarism. They believe in the state over the free market. They believe in coercion over free choice.

    I have dealt with these people for over 50 years. They do not change, because they really are power-lovers. They really do trust the state. They really do not trust the free market. They really do not trust customers. They really do not believe that individuals should be given the right to make their own decisions regarding whatever wealth they possess. They resent the fact that other individuals have the right to make their own decisions with their own money.
    They literally cannot understand the logic of the free market, once they get to the invisible border known as a national boundary. At that point, they completely throw out everything they say they believe in regarding what takes place inside those borders. For them, truth is determined by which side of an invisible line called the border you live on.

    The mercantilist says that he knows better than property owners do what is good for individuals and the nation. Maybe he admits that he personally does not know, but he is sure that Congress does and tenured bureaucrats do. He insists that Congress should pass laws that empower tenured bureaucrats to decide who should trade and on what terms across the nation’s borders.

    Do you believe in the wisdom and incorruptible nature of politicians and bureaucrats? Then you are a prime recruit for mercantilism. If you don’t, then you aren’t.

    Anyone who promotes a tariff is a mercantilist, unless he is also calling for the abolition of the federal income tax and any national sales tax. Anyone who promotes quotas of any kind is a mercantilist. He may deny this. He may not understand this. He probably cannot follow an argument based on voluntarism. He does not believe in voluntarism. He believes in the wisdom conveyed by badges and guns.
    My advice: do not trust his judgment.
    Don’t worry about his arguments. He cannot follow them, so you don’t have to. They will make no sense. That is not because you are unable to follow an argument. It is because he can’t follow one, including his own.
    https://www.garynorth.com/public/9621.cfm

  37. max

    CHINA

    Sometimes the defender of tariffs against slave laborers will use the example of China. This has to be one of the dumbest arguments in the history of economic reasoning.

    During the period in which China was under the rule of Comrade Mao, it had virtually no foreign trade. It had no products that could find markets in the West. The nation could barely feed itself. In some time periods, it could not feed itself. It had nothing of value to export. It had no foreign exchange reserves. It had no large-scale industrial production at all. It was a Third World nation. The only thing it could produce in large quantities was weaponry. It did not export anything to the West.

    Today, China is a major competitor in Western markets. Its economy is basically Keynesian. Its workers can move wherever they want. We are seeing the largest migration in the history of man from rural poverty to urban middle-class living. Hundreds of millions of people have moved from the rural countryside to large cities. This is not slave labor; this is free labor. There are no government restrictions on the movement of laborers. There are very few government restrictions on hiring these workers. There is almost no social welfare system imposed by the state. The Chinese labor market is vastly freer than labor markets in the West, which are dominated by trade unions that have gotten government support, meaning the threat of violence, to support the demands of union members. This is one of the reasons why Western manufacturers are having so much trouble competing against Chinese workers.

    Chinese workers are free to move from job to job, and Chinese employers are legally allowed to hire anyone they want. Under these conditions, it is the Western workers who are closer to slavery than Chinese workers are. Western workers who are not trade union members in Western Europe are forced to take less desirable jobs, because labor union members have locked out competition from nonunion workers. Unions have used the government to send out people with badges and guns to prohibit employers from hiring nonunion workers. This is not the free market; this is a government-rigged market.

    So, the next time you hear someone argue that Western workers need to be protected against foreign goods produced by slave labor, point out to him that the reason why Western workers want protection is because they are the slave laborers. They are finding it increasingly difficult to compete against workers who live in a nation that honors the principle of the free mobility of labor and voluntary contracts between employers and employees. China is a fierce competitor, not because it is a slave labor society, but because it is competing against workers who live in a regime of government-rigged labor markets.

    https://www.garynorth.com/public/9860.cfm

  38. Sean

    Land – Capital – Labour

    those are the 3 inputs. We have much higher capital investment per capita than China, hence we have higher wages e.g. each year the average output is say ~$65,000 per person vs much less in China. Wages are bid up higher because of this fact. Entrepreneurs in China aren’t going to pay people more than they have to.

    Why waste more of my time each year buying manufactured goods only made in developed countries so people can feel better about themselves?

    Machinery is having a massive impact on manufacturing jobs too. Employment in the sector has peaked around the world, even in developing countries, yet production has increased due to automation…there’s no dream renaissance in manufacturing to be had by throwing up tariffs.

  39. max

    The French government had asked Titan to invest in a tire production plant in northern France. It has been producing losses.

    Taylor’s response is classic. “I have visited that factory a couple of times. The French workforce gets paid high wages but only works three hours. They get one hour for breaks and lunch, talk for three and work for three. I told this to the French union workers to their faces. They told me that’s the French way!”

    After five years of negotiations with the union, Goodyear will shut down the plant.

    This is a perfectly rational decision. My only comment is that it comes about four and a half years too late.

    In a letter to a senior French bureaucrat, Taylor made it clear why he is not interested in investing. “Sir, your letter states that you want Titan to start a discussion. How stupid do you think we are? Titan is the one with the money and the talent to produce tires. What does the crazy union have? It has the French government.”

    Here is his new strategy. “Titan is going to buy a Chinese tire company or an Indian one, pay less than one euro per hour wage and ship all the tires France needs. You can keep the so-called workers. Titan has no interest in the Amiens North factory.”

    I have not seen a letter like this from an American executive to any government agency. I have waited for something like this for at least 50 years. Admittedly, it was a letter from an American executive to a French bureaucrat, but at least he said it.

    When an American reads something like this, he is amused. He thinks that the executive who sent the letter made a very good decision.

    Why should an American firm invest in a factory in France, in order to hire French workers, in order to pay more than the going wage in India or China?

    What is best for the American company? Obviously, it is best to pay Chinese or Indian workers, ship the tires to France, and pocket the difference.

    What possible sense would it make to continue to pay above-market wages to a bunch of unionized French workers?

    It will be better for French customers. They will be able to buy cheaper tires.

    https://www.garynorth.com/public/10694.cfm

  40. max

    Once again, we meet up with Smith and Jones. Wong has made an offer to Smith. Smith thinks it’s a good deal. Jones is irate. He protests. He thinks that Smith should pay a sales tax to the federal government whenever he buys from Wong. Jones calls this sales tax a tariff. He prefers not to mention the phrase, “sales tax.” He knows that voters resist sales taxes, but they favor tariffs.

    Smith: Wong’s offer looks like a good deal.

    Jones: It’s not a good deal for America.

    Smith: It’s a good deal for me.

    Jones: You’re not America.

    Smith: Who is?

    Jones: People who live in America.

    Smith: Which people who live in America?

    Jones: People who work in America.

    Smith: What about people who buy in America?

    Jones: That depends on who they buy from.

    Smith: Why should it matter who we buy from?

    Jones: It matters to Americans.

    Smith: It doesn’t matter to me. I just want a good deal.

    Jones: It’s not a good deal for most Americans.

    Smith: Most Americans don’t care what I buy.

    Jones: But they care what people like you buy.

    Smith: Who are people like me?

    Jones: People who don’t always buy from Americans.

    Smith: What about imported raw materials?

    Jones: That’s OK.

    Smith: But what about Americans who sell raw materials?

    Jones: They had better lower their prices.

    Smith: That’s what I tell sellers of manufactured goods.

    Jones: That’s different.

    Smith: Why is it different?

    Jones: Because sellers of raw materials did not labor to produce raw materials.

    Smith: What has labor got to do with it?

    Jones: Everything.

    Smith: Why isn’t ownership the only legal issue governing buying and selling?

    Jones: It is: the ownership of labor.

    Smith: Not raw materials.

    Jones: Correct.

    Smith: Do you labor for a living?

    Jones: Yes.

    Smith: Does your employer sometimes buy raw materials?

    Jones: Yes.

    Smith: So, you want your employer to buy raw materials at a good price?

    Jones: Yes.

    Smith: So, he buys imported raw materials.

    Jones: Yes.

    Smith: Do you want sales taxes on imported raw materials?

    Jones: No.

    Smith: I agree. I don’t want sales taxes on imported products.

    Jones: That’s where you and I differ.

    Smith: What do we differ on?

    Jones: The need for sales taxes on the output of foreign workers.

    Smith: But we agree on the absence of any need for sales taxes on imported raw materials.

    Jones: So it seems.

    Smith: So, you distinguish between good sales taxes and bad sales taxes.

    Jones: Yes.

    Smith: What is this difference?

    Jones: Sales taxes are appropriate when imposed on the output of foreign labor.

    Smith: But not foreign raw materials.

    Jones: Correct.

    Smith: So, what should matter judicially is the ownership of labor, not raw materials.

    Jones: Correct.

    Smith: Why?

    Jones: Because America needs cheap raw materials.

    Smith: But not cheap manufactured goods.

    Jones: That depends on who offers cheap goods.

    Smith: What if it’s foreign sellers?

    Jones: Then the imports should be taxed.

    Smith: But that costs Americans more money. Also, the government gets bigger.

    Jones: That doesn’t matter if it protects American labor.

    Smith: But isn’t the idea to make American workers richer?

    Jones: Yes, it is.

    Smith: But if they can buy more with their wages, they get richer.

    Jones: I can see where this is headed.

    Smith: Good for you.

    Jones: You are going to argue that lower-cost imports will reduce the cost of living for Americans.

    Smith: Correct.

    Jones: But low-cost imports from foreign nations will hurt American workers who live in America.

    Smith: What about American workers who live in Wyoming?

    Jones: What about them?

    Smith: Aren’t they hurt by imports from the other 49 states, plus Washington, D.C. and Puerto Rico?

    Jones: Of course not.

    Smith: Why not?

    https://www.garynorth.com/public/15846.cfm

  41. Fisky

    So, the next time you hear someone argue that Western workers need to be protected against foreign goods produced by slave labor, point out to him that the reason why Western workers want protection is because they are the slave laborers.

    OMG. The autism of the libertarian movement never ceases to amaze!

  42. Infidel Tiger

    OMG. The autism of the libertarian movement never ceases to amaze!

    It’s a bizarre form of sola scriptura. They can’t fathom that life is not one of their sacred text books.

  43. max

    Fisky & Infidel Tiger

    are you going to argue that slave is more efficient worker than free man?
    or slave system is more efficient than free market ?

  44. max

    In his 2012 State of the Union address, President Barack Obama boasted that “over 1,000 Americans are working today because we stopped a surge in Chinese tires.”

    According to a study done by the Peterson Institute for International Economics (http://tinyurl.com/jdtbktu), those trade restrictions forced Americans to pay $1.1 billion in higher prices for tires. So though 1,200 jobs were saved in the U.S. tire industry, the cost per job saved was at least $900,000 in that year.

    According to the Bureau of Labor Statistics, the average annual salary of tire builders in 2011 was $40,070.
    Here’s a question for those of us who support trade restrictions in the name of saving jobs: In whose pockets did most of the $1.1 billion that Americans paid in higher prices go? It surely did not reach tire workers in the form of higher wages.

    There are naïve people who believe that the imposition of a sales tax on imported goods is a good thing for them and for the economy generally. They oppose taxes in every other area, but when the sales tax on imported goods is called a tariff, they support the imposition of this tax. Tariffs are a favorite tax within what is sometimes called the Tea Party movement.

    Members of the Tea Party think of themselves as opponents of taxation, but they are not opponents when it comes to tariffs.

    Whenever you read that a politician is in favor of saving American jobs by imposing a sales tax on imported goods, keep your hand upon your wallet and your back against the wall. If this politician persuades other politicians to join with him, they will soon be coming after your money. They are not coming after your money in the name of making fat-cat corporate managers richer. They are coming after your money in the name of benefiting workers who will lose their jobs if the politicians don’t steal your money.

    They think you will be supportive if they tell you this. In other words, they regard you as a mark.

    Are you a mark? You are if you believe that the imposition of sales taxes on imported goods will save American jobs or even create American jobs. They will do so only at the expense of customers who are forced to pay more, and also at the expense of workers in the export industry.

    Exports will fall, because foreigners will not be able to get access to dollars by selling goods to Americans. They need dollars to buy the goods, and they won’t have the dollars.

    Do you really want higher sales taxes? You do if you vote for any politician who says that this nation needs tariffs in order to protect workers. What he is really saying is that the workers to be protected are senior managers in large manufacturing firms.

    https://www.garynorth.com/public/16278.cfm

  45. max

    Smith: “We just want to make a trade. He wants to sell me a flat-screen TV.”
    Badge: “Sorry, but Congress sees it otherwise. I am here to tell you that Congress has passed a sales tax on buying anything from a foreigner with slanty eyes.”
    Smith: “But that’s racial profiling.”
    Badge: “It’s not. I have been tailing this guy for days.”
    Smith: “But this man is an American.”
    Badge: “No, he isn’t. Although he dresses like an American, he in fact comes from China. He lives on China Avenue, but he only rents. His citizenship is in China. His cousin’s factory made the TV. His cousin lives in China.”
    Smith: “But he is here now. We may want to make a trade.”
    Badge: “You can, but only if you pay the U.S. government a sales tax.”
    Smith: “I never heard of a federal sales tax.”
    Badge: “That’s because it’s called a tariff.”
    Smith: “What is the difference between a tariff and a sales tax on imported goods?”
    Badge: “Voters won’t re-elect Congressmen who vote for tax increases. So, it’s called a tariff.”
    Smith: “You mean that voters will accept a tax if it’s not called a tax.”
    Badge: “As surely as they will accept a welfare check if it’s not called welfare.”
    Smith: “Is this prohibition on trade only about taxes?”
    Badge: “It’s not just about taxes. It’s also about true freedom of trade.”
    Smith: “What is true freedom of trade?”
    Badge: “Free trade plus sales taxes.”
    Smith: “Does it take badges and guns to enforce Congress’s definition of freedom of trade?”
    Badge: “It always has.”
    https://www.garynorth.com/public/6893.cfm

  46. max

    Whenever the government intervenes, there are winners and losers. Follow the money.

    A popular slogan in favor of tariffs is this one: “Tariffs protect Americans.” It is an accurate slogan. The question is: “Which Americans are protected?” Another question is: “Who pays?”

    In this world, you don’t get something for nothing. If some Americans are protected, then other Americans are paying to grant them this protection.

    Who are the winners? Who are the losers?

    The winners are a relatively small percentage of American workers who produce goods at higher prices with lower quality than imported goods offered to consumers. The only reason why these workers need protection is because they are not efficient workers.

    Who judges efficiency? Consumers do. The heart of the free market system is this: people who spend money have final authority in the economy. This means consumers.

    Any attempt by the government to intervene in the economy to help special interest groups always comes at the expense of consumers who would have bought whatever it was that competitors were offering for sale, but who are unwilling or unable to buy the goods because of some government regulation.

    A tariff is a sales tax on imported goods. Therefore, the sales tax is discriminatory. It is not paid by everybody.

    It is paid by those members of the workforce who are facing foreign competition. It is also paid by exporters in the United States, because foreign buyers cannot get access to the domestic currency, precisely because foreign exporters cannot get buyers in the domestic currency.

    So, exporters are hurt and importers are hurt. This means that American consumers are hurt.

    Defenders of tariffs basically do not understand economics. They really are economic ignoramuses. They do not understand economic cause-and-effect. They do not understand the fact that consumers are being hurt by the tariffs.

    They call for these discriminatory taxes, and they do it in the name of liberty. They do it in the name of fairness. Yet discriminatory taxation is inherently unfair.

    https://www.garynorth.com/public/16296.cfm

  47. Fisky

    Fisky & Infidel Tiger
    are you going to argue that slave is more efficient worker than free man?
    or slave system is more efficient than free market ?

    No, but if you agree with Gary North’s bizarre claim that Chinese workers are freer than European workers, then you are an autist.

  48. Fisky

    The crazy thing about the libertarian movement, is they define “slavery” (or the lesser crime, “aggression”) as any action that violates libertarian principles. On the other hand, if a private company engages in coercive action, even in collaboration with governments, “libertarians” generally have no issue with that.

    Which is why there is hardly any outrage from “libertarians” against Google, Facebook, etc, getting into bed with western governments to crack down on “hate speech”. Google could even compile an official list of “racists” based on individuals’ search results, hand it over to the German state prosecutor, and you would hear nothing at all from the majority of “libertarians”.

  49. Fisky

    It’s just as well that corporations are not at all government entities, and always engage in pure free market behaviour based on the best interests of investors and consumers!

  50. egg_

    are you going to argue that slave is more efficient worker than free man?
    or slave system is more efficient than free market ?

    The “slaves” in the new economy are robots, including white collar software, a game changer.

  51. egg_

    Wasn’t the world’s biggest economy built on slaves – initially poor Europeans, the African?

  52. md

    Excellent article, Steve. It’s good to see economists talking common sense rather than just pure theory.

  53. Confused Old Misfit

    Best you define “slave” egg. Be precise in your language.

  54. The textbook advocates of free trade forget to address the elephant in the room. That elephant, regarding the USA, is $800B big.
    $800B is the US trade deficit. That’s the equivalent of 4.5% of GDP going out the door every year. If the US trade deficit was wiped out (by China and others spending their US dollars back in the US instead of say, buying oil from the Arabs or ore from Australia with them) then the current US GDP of 2.8% would be 7.3%.
    That’s a big farking elephant.

    The whole purpose of free trade is to expand the size of the market that businesses trade in, and for consumers to have access to the best value products and services.

    In theoretical textbooks, when two nations trade freely with each other, they receive the currency of the other. That currency can’t be used in the domestic market, it must be spent back in the other country.
    In the real World where the US dollar is a global reserve currency, China et al don’t have to spend their reserve dollars back in the US, and they don’t, causing the US to BLEED $800B per year.

    So yes free trade without tariffs and barriers is unquestionably good for both the traders. Even if one cheats with subsidies to local industries, they’re only cheating themselves by providing otherwise more expensive goods cheaper by the amount of the subsidy. Stupid for the subsidizer, good for the consumer that receives the cheaper goods.

    Free trade fails when a global reserve currency is used and one nation ends up with a large trade deficit. Especially if that deficit is exasperated by subsidies and currency manipulation.

    If Trump can get just half of that $800B back to the US each year, the US GDP will go up from the current 2.8% to 5%. Enough to wipe out the US debt in a couple of decades and enough for full employment as far as the eye can see.

    I’d like Judith Sloan or any other advocate of “Free Trade” to explain how bleeding $800B per year benefits the US economy.
    Free Trade yes, RECIPROCAL TRADE a must.

  55. Malcolm

    I suppose the fourth edition of Steve Kates’ book will be quite a reversal of the previous editions. He is now saying don’t bother reading my book because it has no practical purpose.

    Steve Kates love of Trump is so great that he now rejects his own magnum opus.

  56. Augustus Carp

    Shirts tend to be the thing anyone can make since they mostly require a lot of human labour…”

    Not any more. Fully automatic shirt making machines are here and are putting thousands out of work in Bangladesh. Garment making is on the rise in the US. One machine and an attendant can do the work 70 people did previously. Ever wondered why you can’t buy a man’s shirt with a breast pocket these days? Pockets are tricky to make and fit and not yet automated…so you can’t have one.

    https://www.fastcompany.com/40454692/this-t-shirt-sewing-robot-could-radically-shift-the-apparel-industry

  57. Ellen of Tasmania

    Just thinking out loud here, but how is free trade affected by enforced, fiat currencies?

    I am no economist, but it seems to me that talking about ‘free’ trade, when the very means of exchange is made-up currencies controlled by governments, doesn’t seem very free at all.

    At least with gold, it was a product in and of itself, that required labour to mine and refine and thus could have some kind of reference to the value of other productivity. Perhaps, also, a little trickier for governments to manipulate?

  58. Tel

    Just thinking out loud here, but how is free trade affected by enforced, fiat currencies?

    All of the central banks have been involved in currency manipulation, so although the Chinese cannot claim clean hands, they at least can point to things like QE, QE2, the BOJ deliberately devaluing the Yen, the ECB and Mario’s big bazooka. That’s what is going on, but there are two interpretations:

    [1] Anyone manipulating the money supply is always interfering with market prices, therefore distorting the economy (the Austrian interpretation).

    [2] It is necessary to stabilize overall prices to prevent high inflation and especially prevent deflation because only with reasonably stable prices are people able to plan their activities (a generous explanation of the Keynesian position).

    The Chinese can reliably come up with extensive explanations as to why their government needed to “stabilize” this that and the other thing, and since all the others are doing it, that makes the whole “currency manipulation” distinction extremely subjective.

  59. Tel

    Fisky & Infidel Tiger

    are you going to argue that slave is more efficient worker than free man?
    or slave system is more efficient than free market ?

    I would argue that if you define “efficient” to mean what gets produced compared to what you have to pay in wages, then for simple labour intensive tasks the slaves are more efficient, and the big empires of history repeatedly came to the same conclusion. The final consumer usually cannot see the chain of production and looks only at the price and the product, therefore typically will not consider how it was produced (although there’s campaigns to change that, arguably some of them quite muddle headed).

    However, for complex tasks involving many decisions to complete the task, the free man will be more efficient, because the free man will have better opportunity to optimize the decision making process. In the modern world, many but not all jobs fall into this latter category.

    I should point out that “efficient” is a tricky word. Consider cases such as ISIS in Syria using sex slaves. From their own perspective it was very “efficient” because they could capture women ready to use, then take advantage of them, and throw them away sometime later. The slavers did not need to pay for the human capital, they were able to consume capital that had been built up by other people. The slavers also did not worry too much about upkeep, they will provide some minimal food and shelter but they don’t need to factor in any long term retirement plans for these sex slaves. In other words, they do not pay the full costs of their operation, and hence can achieve apparently high “efficiency”.

    This is exactly the sort of thing the “Progressives” complain about with every business, but it’s more self evident when you look at extreme cases like ISIS and sex slaves.

    I’m only bringing up the extreme case as an illustration, I don’t believe that China really operates anywhere nearly as bad as this, although individual rights are somewhat curtailed in China (e.g. crackdowns on political opinion, and ethnic minorities).

  60. The Pugilist

    Men (except Donald Trump) err in their productions…is that how it goes Steve?
    Donald can overcome Mises’ socialist calculation problem?

  61. Texas Jack

    Reading a post-Trump-tariff-announcement market blog last week I was surprised at the extent of the hyperventilating on display. The modern market traders all seem to have been born with a lifetime sub to the Washington Post, but in this case the hyperventilating really rolled in like a king tide. The moderators gave up moderating. What it proved, to me at least, was that the MSM is dangerously deluding people, turning them into unthinking zombies.

    Anyone who has been involved in markets for long enough knows that Abenomics is just the latest round of economic nationalism, and that when Abe, or Kuroda, or any of the other pre-programmed members of the BoJ answers a media question, he or she (they’re all male bar Ms Masai), will be sure to stick to the program. And that program, at least the “First Arrow”, the only one with any real effect on Japanese inflation, is to enact sufficient QE to weaken the Yen forever and a day, if they can (they can’t is my view). Meanwhile, try selling frozen beef on export to the Japanese. If you’re American the current tariff is 50% (as announced last year, and US beef exports plummeted within 3 months down a quarter). If you’re Australian the rate drops to 15% at some point when Peta Credlin is in her third term as Australia’s first female PM (okay, yes, she is my dream candidate).

    The Chinese have been doing something similar with the Renmimbi since they started liberalising their markets, allowing it to strengthen slowly, but much more slowly than would occur given the scale of their current account. The remaining command part of their mixed system has any number of supports that act like subsidies, some of which resulted in the issue of steel oversupply.

    As for Europe, you’ve only got to look to the Common Agricultural Policy to realise that while European rags may bleat the loudest about Trump none of them will bother to check how much damage farm subsidies there do to their bargaining position at the WTF. And anyone who’s driven on a European motorway will know you don’t see many Chevvies motoring down the fast lane.

    If Trump is prepared to put his political skin on the line to manoeuvre the planet towards a level of genuine free trade – we should all cheer. If all he’s doing is trying to hold votes in Pennsylvania’s 18th district special election – we should all boo.

  62. Texas Jack

    WTF = WTO…. But maybe WTF? Is more apt!

  63. Ellen of Tasmania

    Thanks, Tel,

    I guess I fall into the ‘Austrian’ school, then.

    I certainly wasn’t pointing my finger at the Chinese – it seems to me that all fiat currencies are being manipulated and the whole market seems so distorted we cannot really know the ‘market value’ of anything accurately.

    But I am a Christian, so I work my thinking out from the fact that God hates unequal weights and measures. I’m pretty sure what He thinks of fiat currencies and people being forced to use them.

  64. egg_

    Best you define “slave” egg.

    Unpaid labour.
    USA:
    Poor Dutch, etc. sent to work the fields for their keep (much like Di Natale’s au pairs of today)
    Replaced by Africans.
    Today’s equivalent is robots, which would jeopardise inefficient “workers” such as Diversidee tokens.
    Illegal immigrants would approach slave labour in the US and established Chicanos eschew them coming over the border and applaud Trump’s wall policy.

    Steelmaking is relatively high labour, but much of the process is automated as it’s like a sausage factory and there are dedicated OEM’s (Danieli being a world leader).

  65. egg_

    I would argue that if you define “efficient” to mean what gets produced compared to what you have to pay in wages, then for simple labour intensive tasks the slaves are more efficient, and the big empires of history repeatedly came to the same conclusion. The final consumer usually cannot see the chain of production and looks only at the price and the product, therefore typically will not consider how it was produced (although there’s campaigns to change that, arguably some of them quite muddle headed).

    Indian child labour producing rugs.

  66. egg_

    Ciabo on Insiders crapping on about how we “need Caterpillar”.
    It has many competitors, including European and Japanese, with superior products.

  67. Sean

    It’s just so obvious that if Obama had done such a thing Kates would be claiming it’s a socialist revolution. Hopeless tribalism is clouding his ability to think objectively.

  68. Tel

    Indian child labour producing rugs.

    If you can produce a rug more efficiently then go ahead.

  69. Arky

    Suppose in Country A, in one hour it can produce either one car or 1000 shirts. [It’s also the same answer if Country A can produce ten cars and 10,000 shirts per hour!]

    Meanwhile in Country C, in two hours it can produce either one car or 500 shirts.

    ..
    What is this stupid shit?
    Is this how economists think?
    Obviously what will happen in real life is companies will move their operations from country C to Country A.
    As this process continues country A will enjoy exponentially increasing advantages over country C as all the intellectual property and factories required to produce things move to country A.
    Country C, if it wants to import manufactured goods must now become Thailand, selling blowjobs and obseiqious serving economy massages and caffeine enemas to increasing numbers of rich sex tourists from country A.

  70. The Pugilist

    I certainly wasn’t pointing my finger at the Chinese – it seems to me that all fiat currencies are being manipulated and the whole market seems so distorted we cannot really know the ‘market value’ of anything accurately.

    The US has been at the forefront of trying force its currency downwards ever since the GFC and ‘beggar thy neighbour’ themselves out of their doldrums.
    Trump’s focus on making businesses competitive through reducing their energy costs, labour costs, tax burden, etc. is the right way to go. That will do far more to encourage entrepreneurial spirit than raising taxes on imported inputs. Tariffs are an increase in the tax burden and a form of price manipulation. Didn’t think I’d ever hear Steve Kates arguing for that.

  71. egg_

    If you can produce a rug more efficiently then go ahead.

    Automation.
    I’m sure the Injuns are headed there, anyway.

  72. egg_

    Persian rug, Indian rug, whatever.

  73. Once manufacturer

    So we are going back to the 1960s with two brands of car and big company, big union protectionism? I don’t think so Mr Kates. Another case where Trump proves his tub thumping ignorance.

  74. mh

    Normally I start reading the comment section before replying. But I have to say that is a great post, Steve.

    As for the last bit on the TPP, from what I have heard that is just the tip of a very dangerous TPP iceberg for the Turnbull government. It seems to have been designed by very powerful globalist elites. No wonder Trump walked away from it.

  75. Arky

    The ruling elites of country C will consider all this a very good deal, as country A gives them brown paper bags full of cash, their children and professors will congratulate them on not being “racist”, and after all, it won’t be their daughters giving blowjobs to country C’s new middle class.

  76. mh

    This Is the Greatest Manufacturing Jobs Boom in Twenty Years

    Every globalist is attacking Trump, cheered on by the likes of the Guardian, yet the results of course contradict them.

  77. max

    Protectionist logic:

    Protectionist Mr. Holden — asians are cheaters and liars; they do not play by the rules. We need to protect our jobs.

    Max — how do they cheat ?

    Protectionist Mr. Holden — they are manipulating currency!

    Max –they are making their currency cheaper ?

    Protectionist Mr. Holden — yes

    Max — this means that they work for cheaper, what is the problem with that?

    Max — anything else?

    Protectionist Mr. Holden — yes –no paid lunch, no 15 minutes break, no holidays,no sickies, no environmental protection, no safety protection, no union fees, no minimum wage laws, no medicare, no social security, no dole,…

    Max — yes they do not have all this –they work for cheaper than you.

    Protectionist solution:

    Protectionist Mr. Holden — we need to lobby our government and our politicians to stop this nonsense and protect our jobs!

    Max — how we are going to do that ?



    Protectionist Mr. Holden — we are going to put a sale tax on all imports from asian cheaters.



    Max — who is going to pay that sale tax ?

    Protectionist Mr. Holden –all australians!

    

Max — so this means that you are asking 20 million australians to pay to protect your job and to pay for more expensive cars that you are going to make?



    Protectionist Mr. Holden — no it is not a sale tax, we will call it a ‘tariff’.



    Max — Why do we not ask politicians to make Holden Government company like Australian Post? That way we can see how much australians need to pay for your protection.



    Protectionist Mr. Holden — Max, you do not understand anything; they cheat

    Max — for your selfish interest (high wages and good conditions ) all australians need to pay for more expensive cars.



    Australian government can save some individual jobs, but price of that is borne by all australians not foreigners.

    Max solution:
    work cheaper and remove all lows and regulations that interfere with trade and freedom and jobs will come back.

    honest money commodities money ( gold and silver ) can stop all cheaters. 


  78. mh

    Max, you are not impressing anyone.

  79. Tel

    Obviously what will happen in real life is companies will move their operations from country C to Country A.

    If you are talking about the free movement of capital and how this effects the theory, then you are somewhat behind on this already.

    https://voxday.blogspot.com.au/2014/08/the-end-of-comparative-advantage.html

    1. Free trade, in its true, complete, and intellectually coherent form, is not limited to the free movement of goods, but includes the free movement of capital and labor as well. (The “invisible judicial line” doesn’t magically become visible when because human bodies are involved.)

    If you are talking about positive feedback and economy of scale, I already mentioned this but you might try reading Paul Ormerod “The Death of Economics” from 1995 which explains it in detail.

    As this process continues country A will enjoy exponentially increasing advantages over country C as all the intellectual property and factories required to produce things move to country A.

    Except that the observed event was that factories moved from MORE advanced economies (e.g. USA) to LESS advanced economies (e.g. China, Vietnam, Philippines, Mexico etc) so the evidence points towards Adam Smith and negative feedback. It’s intrinsically easier to copy technology than to invent for the first time, so people lagging behind tend to catch up, and investors go for the most improved, not necessarily the biggest total output. If you think that Piketty was onto something with his “r > g” then let me tell you… he is a fraud.

    Since Detroit was well ahead back in the automotive trade during the 1960’s by the theory of positive feedback it should remain well ahead today… except that it isn’t; instead it’s turned into a shithole and no one with half a brain would invest there. That’s not to say that positive feedback can never exist, but as a global economic phenomenon the tech catchup theory fits the observations a lot better.

  80. egg_

    Obviously what will happen in real life is companies will move their operations from country C to Country A.

    JIT mass production plays a part, too.
    IIRC the global source of the Broadcomm chip is a single factory in Taiwan that burnt down and was rebuilt; likewise the global source of HDDs* is Thailand, which was affected by floods affecting global supply.

    *It’s successor, SSD, will likely follow the same path.

  81. …but includes the free movement of capital and labor as well.

    And hasn’t that worked out well for the likes of the UK, where UK workers have been displaced by European workers. A similar, though slightly different situation has affected the US in the tech industry, amongst others.

  82. Arky

    Max solution:
    work cheaper and remove all lows and regulations that interfere with trade and freedom and jobs will come back.

    ..
    Oh!
    So close!
    Keep going son, you might get there yet.
    Where are these laws and regulations. Which ones, in which order will you remove to get those jobs back?
    Would you;
    A:
    Remove tariff protection then maybe some decades later maybe, but probably not, remove carbon taxes, company taxes, EPA, etc etc etc.
    Or would you,
    B:
    Remove all that internal friction and then immediately lower tariffs?
    Which way did we do it?
    Oh, that’s right. We removed tariffs and then increased
    all those internal frictions, compketing our anihilation.
    Good work libertarian economists!

  83. Ƶĩppʯ (ȊꞪꞨV)

    Protectionist logic:

    So we pay a tiny bit more to keep our mates in jobs. thoughtcrime!

  84. Arky

    but includes the free movement of capital and labor as well

    ..
    There you have it.
    Tel hates us and wants to abolish the West, the nation state and everything that brought about the freedom and prosperity he enjoys.

  85. egg_

    as a global economic phenomenon the tech catchup theory fits the observations a lot better.

    Stock “air+steer+auto” in Jap cars helped to kill Detroit.

  86. max

    Ƶĩppʯ (ȊꞪꞨV)
    #2657567, posted on March 11, 2018 at 12:54 pm

    Protectionist logic:

    So we pay a tiny bit more to keep our mates in jobs. thoughtcrime!

    Australia Post’s former CEO Ahmed Fahour walks away with $10.8 million pay package.

  87. Arky

    JIT mass production plays a part, too.

    ..
    That just in time works so well amazes me.
    I wonder how much improvement in logistics is driven by previous military uses.

  88. Crossie

    Malcolm and his cretins couldn’t negotiate their way out of a paper bag. I’m starting to think that even Shorten and Plibersek’s Labor couldn’t be this bad.

  89. Crossie

    Protectionist logic:

    So we pay a tiny bit more to keep our mates in jobs. thoughtcrime!

    Absolute free traders logic:

    Destroy industries in your own country because imports are cheaper then you end up still paying more when imports become more expensive to keep the other countries’ workers happy.

  90. max

    Protectionist cry:
    Please brothers and sisters, buy our expensive Australian products. Save our cushy jobs.

    What if we don’t want?

    Then we are going to lobby the government to put sale tax on imports to protect our jobs.

  91. Crossie

    competition is what drives improvement and growth – without competition most businesses would just coast along to the fullest extent they could

    In US this attitude has led to out of control illegal immigration from Mexico and Central America. Farmers want cheap labour and illegals provide it thus undercutting the citizen workers.

    It is possible and likely that local and legal workers would have lost their jobs to automation which is not necessary when illegal immigrants will work for less and less. This sort of policy leads to poverty for many and no innovation.

  92. Crossie

    chrisl
    #2657118, posted on March 10, 2018 at 6:07 pm

    What is Australia’s unfair advantage?
    Clearly it is natural resources.
    Which should lead to cheap energy and the ability to value add to those resources.
    So what happened?

    We let the hard Left Greens run our economic policy.

  93. Cynic of Ayr

    I’m no expert, but the way I see tariffs work, (in Australia) is not to so much to protect the industry, as to enrich those already in the industry. Cars, for example. The toilet cleaners at Holden were on $100,000 a year. (Ten years ago.) There had to be one non-working supervisor for every ten workers. and so on, and so on.
    Detroit was mentioned. and when Detroit was in financial difficulties, they flew to the government meeting in their private jet aircraft, and were amazed that they were deemed to be extravagant! They soon learnt! Next time they drove.
    The banks are protected. So protected that they can pay their CEO ten milli0n dollars a year! Plus perks, of course. And when she leaves, the bank continues without a blip. So much for “essential.” So much for “protection.”
    So, without strict control on where the tariffs protection applies, tariffs can be just wasteful. Of course, the downside is that the control has to be by government, and who in their right mind would even imagine that a government – any government – would actually make decisions on the subject of money with any wisdom?
    Another point is the import of cheap goods. Not necessarily cheap cars, but cheap rubbish! Our dumps must be half full of party rubbish. Those little numbers that people scatter on the table at a Birthday party, balloons by the million, party hats. They all must come into the country by the container load. All one-time-use, then dumped. Add in all the last-a-day toys, and it’s obvious that cheap can just mean money transported to the dump.
    As a non-economist – for which I am truly grateful – I wonder about the intelligence of borrowing money, to run a deficit, so we can buy cheap goods from other countries? I mean, is there an end? When we don’t make anything, where does the money come from, other than borrowings?
    Sure, we have coal to sell, but the morons don’t want to sell it.
    We have uranium, but the morons don’t want to sell it.
    We have a “come and look at the reef” to sell, but the morons don’t want to sell that either.
    We have aluminum refiners, but the morons don’t want to power them.
    We have a reef, that a moron spent thousands coming up with the fact that fish are crapping on the reef! Whoda thunk it?
    We have the morons, but they don’t pay for themselves, they don’t produce, they don’t provide, they just bludge on the above mentioned, and squeal about it. I guess that’s why they are morons.
    Still, free trade fixes all that in one fell swoop. Or so the economists tell me.

  94. meher baba

    “cheating is rife – try to sell an American car in Japan”

    Those rotten, cheating Japanese: having such narrow streets, limited parking spaces and driving on the left-hand side of the road: they’re unAmerican!

  95. struth

    I’ll go a step further and suggest to you commo bastards that we shouldn’t, if we had the slightest brains at all, trade with a communist nation.
    We should put trade embargoes on them, (no one sees a problem with that on the worst totalitarian shitholes) but China gets to be corrupt communist arseholes and screw the west through corruption.
    How do you think your little free trade for one side only, at all costs, is going to work out then?

    This is where pure libertarianism is so dangerous to the west.
    It seems to you,
    No one, no country, is criminal in their intent, or will act corruptly or criminally, and if they do, according to them, they won’t win if they don’t follow the theories of some bow tied , insulated, theory over common sense academic that states as fact, a thought bubble theory.
    In the real world, there are a lot of rich crooks.
    They won through corrupt or criminal behaviour.
    IT MATTERS VERY MUCH WHY things are cheap, and not just that they are.
    What you are doing is supporting communism and socialism and it’s inherent corruptions.
    This will not only be bad for trade, it will kill our entire civilisation and leave your children to kill and eat their pet dogs to survive, as is now happening in Venezuela.

    You do not accept stolen goods and you shouldn’t accept anything from a communist country, until they are forced to free their people.
    And don’t tell me employment is more than here.
    Most businesses are run and owned by the government and communists, so as long as you are either of those you can start a business?
    But the workers are free to come and go as they please?
    Yeah, free to cowtow to communists to get ahead, become one, or slave for them for nothing.
    You are trading with evil and you think that’s fine because the product is cheap.
    That’s a brilliant economic position.

    Bend over libertarians, open your theory books and get ready to scream “this wasn’t meant to happen” or “you’re doing it wrong” or “if you look at page 59, you can’t actually be doing this” as the communist fist is shoved up hard.

  96. Arky

    The Chinese ban, which will be fully implemented early next year, affects an annual average of 619,000 tonnes of materials — worth $523 million — in Australia alone.

    ..
    See how it works?
    You give an entire industry over to some other country.
    (albeit a mostly bogus greeny industry)
    Then once there are no local alternatives (no glass manufacturers willing to take bottles) Surprise! Oh, big nose, what you gonna do?
    Hows that “free trade” working for ya?
    Maybe you can find some glass factories in Bangaldese in twenty years time to take that shit off your hands. Good luck.

  97. MPH

    I’m amazed that people can be so anti-Keynes in general yet when it comes to the tariff discussion they all want to talk about the benefits to the consumer. I thought it was all about the producer, or have I misunderstood Say’s Law? If you destroy your producers by offshoring then you destroy your consumers, no matter how cheaply cars are available from Country A or how much fist currency is printed by the central bank. The fraud that has been perpetuated on the western world by trying to move towards a ‘knowledge economy’s or a ‘service economy’ is a symptom of the same arse backwards view of the world.

  98. mh

    Bend over libertarians, open your theory books and get ready to scream “this wasn’t meant to happen” or “you’re doing it wrong” or “if you look at page 59, you can’t actually be doing this” as the communist fist is shoved up hard.

    Interesting piece from The Australian:

    Pacific nations drowning in Chinese debt

    …The frustration with China is palpable in Tonga.

    Many business owners told The Australian that residents felt “helpless” and held to ransom by China.

    Locals said they felt they had been sold out by the Tongan government, which had been heavily wooed by China and had welcomed lavish gifts with open arms.

    A representative of the Tongan Chamber of Commerce and Industry said the issue of debt to China was a “red hot topic” but could not comment further. The Tongan government declined to respond.

    One taxi driver said the feeling among Tongans was the Chinese government was loading up the nation with unserviceable debt, while Chinese nationals were putting locals out of work.

    Across the island nation retail trading is dominated by Chinese nationals who run small stores, stocked with goods brought in on containers from China.

  99. egg_

    “cheating is rife – try to sell an American car in Japan”

    Euros enjoy driving big displacement Corvettes down the Autobahn.

  100. meher baba

    Sean: “It’s just so obvious that if Obama had done such a thing Kates would be claiming it’s a socialist revolution. Hopeless tribalism is clouding his ability to think objectively.”

    There’s appears to be something in this suggestion, although Kates has never exactly been a mainstream free market economist. While he has clearly evolved into a massive hero-worshipper of the Donald, it is possible that his current pro-protectionist position is also in some way tied to his longstanding commitment to the seemingly losing cause of Say’s Law. If I get more time than I have now, I’ll try to identify a connection between these two positions: it might be that Kates is being quite consistent.

    Protectionism vs Free Trade is an argument which has long divided people on the right side of politics: which is one of the reasons that it was Labor – under Hawke and Keating – who made the first big steps in post-WWII Australia towards a free market economy.

    Reading the comments on this thread, I can discern a connection between protectionism and political conservatism: eg, a view that continuing to have a strong manufacturing sector in your country is an inherently good thing, a form of “nation-building” or, perhaps we should say, “nation-sustaining”. It is a view shared by many on the left of politics, eg: Kevin Rudd’s comment that he wanted “to live in a country that makes things.”

    It’s a view of the world which has a strong political appeal among the native-born people in Western countries who have not achieved a great deal in the way of education or skills development. For a long time, protected industries gave these people low-skilled jobs with generous base salaries and working conditions (eg, double time overtime or more). Economic globalisation, the negotiated removal of trade barriers and technological demand have lowered employer demand for such low-skilled, well-paid work in Western countries. Basically, if a manufactured good can easily be transported, it makes no economic sense for it to be made in a Western country.

    The children and grandchildren of the people who used to have these low-skilled, well-paid jobs are angry and resentful. And, where they might once have turned to trade unions and left-wing politicians to help them, they are increasingly turning to the parties of the right. Hence the rise of a figure such as Trump.

    These developments do not bode well for the future political prospects of free market economic policies. In Australia, we can see breakaways from the free market position on both the right and left: with the Labor Party seemingly now having abandoned and renounced the Hawke-Keating positions in favour of a policy platform of more taxes on everyone and everything (except tampons).

    I fear that the next few years are not going to be much fun for us economic libertarians.

  101. meher baba

    Crossie: “Absolute free traders logic: Destroy industries in your own country because imports are cheaper then you end up still paying more when imports become more expensive to keep the other countries’ workers happy.”

    I’m struggling to think of anything that we used to produce in Australia, but now import, that now costs more in real terms than it did when we made it ourselves. I suspect I’ve been on this planet a lot longer than many of you who post on this forum, but to me there has never been a greater availability and affordability of most things than at the moment. The main exceptions are products that are not geographically mobile and therefore cannot be imported: the most obvious example being housing.

  102. Arky

    I fear that the next few years are not going to be much fun for us economic libertarians.

    ..
    We can only hope.
    ..

    It’s a view of the world which has a strong political appeal among the native-born people in Western countries who have not achieved a great deal in the way of education or skills development.

    ..
    You arrogant, arrogant arsehole.

  103. struth

    It’s a view of the world which has a strong political appeal among the native-born people in Western countries who have not achieved a great deal in the way of education or skills development.

    What a knob.

    Right there.

    Elitist dribble.

    Doesn’t for a second acknowledge why we can’t compete, and assumes just that all those beneath him are lazy.
    White westerners are lazy you see, and can’t compete against other countries.
    What I call the insulated “sweat shop” view of the elite.
    It’s all about who can make the cheapest shoe.
    Theory driven twats who don’t understand supply chains and just how much heavy industry is involved in putting a glass of milk on a table.
    They don’t really get industry and manufacturing.
    How one tractor equals hundreds of cheaper labour workers in other countries.
    Infrastructure and corruption levels differ.
    Technology and innovation.

    Instead of blaming the true reasons for our failure to be able to compete, which is socialism and it’s corruption, internally through unions and politicians and their adoption of U.N. policies to tie our hands behind our backs, to those outside socialists, like Soros Green groups, the U.N. (as mentioned, and the corruption of the Chinese, it’s all just those lazy uneducated bogans this twerp blames.
    Which is laziness of the mind.
    Australians have long been regarded as good workers when they are employed overseas, so please, fuck off with your generalisations about the Australian workforce.
    Humans are the same world wide.
    It’s incentive that dictates activity.
    There is no point busting your gut in Australia at the moment, but when there was incentive to do so, Australians did.

  104. mh

    Arky and Struth, remember that meher baba has been on the planet a lot longer than us.

  105. A H

    To fix trade imbalance it is simply a matter of moving from fiat currency to hard currency. This decreases government involvement. If you argue for tariffs you call for increased government involvement. But government involvement was the cause of t
    he problems and increasing their involvement will make the problems worse.

  106. struth

    What the west will come to learn and is just starting to re learn thanks to Trump, is a nation must produce stuff to sell.
    When in previous years our smart elite thought they were so important to an economy that you could give up industry and become a smart nation, servicing the rest of the world with their brilliant minds, has now come to show just how extraordinarily thick, and arrogant (and insulated) they are.
    These people are so thick as to believe an economy can survive, a whole nation on educating your competing trade competitors, and serving coffee.
    People getting their hands dirty, well it’s just so 1955, isn’t it…..yuk. Not needed.
    All we need to do is educate people and our problems are solved.
    If only people were as educated as us.

    Here’s a simple chicken and egg concept.
    Those that produce the most, win.
    Those that buy it and produce nothing to sell in return, lose.
    If the system corruptly favours the producer, fix the problem.
    Service industries that have nothing to service except public servants and studying women’s issues in a subsidised university is about as close to losing as you can get as a nation.

  107. Fat Tony

    It’s an interesting comparison:

    Reality (Struth, Arky etc) vs the Theory Elite

    Thanks Struth, Arky etc – at least your opinions/facts are realistic and sensible.

  108. egg_

    “cheating is rife – try to sell an American car in Japan”

    Euros enjoy driving big displacement Corvettes down the Autobahn.

    Likewise, although produced in Detroit, IIRC much of the Dodge Viper V10 Engine’s high tech IP is sourced from Daimler in Germany and both the car and individual engines are shipped globally.

  109. Arky

    native-born people in Western countries

    ..
    ..
    Do you see now?
    They hate us.
    First came the motivation THEN the libertarian economic policies, then the nonsense excuses for the destruction wrought, as seen on these pages the last two days.
    We see through you now.

  110. egg_

    I fear that the next few years are not going to be much fun for us economic libertarians.

    When we’ve destroyed our coal fired power stations and are now in the absurd position of having to import gas to supply gas fired power stations propping up “renewables’ whilst we export coal overseas as one of the biggest producers?
    All at the behest of our Global elites?

  111. Here’s another example of ‘free trade’, or call it what you will: http://www.abc.net.au/news/rural/2018-03-11/farmers-spearhead-right-to-repair-fight/9535730.

    Note:

    After Australia’s local agricultural machinery industry fell by the wayside in the 1980s, grain and cotton farmers have become tied to overseas manufacturers such as John Deere and Class.

  112. @ meher baba
    #2657616, posted on March 11, 2018 at 2:06 pm

    I won’t address your arrogance as Struth and Arky have done better than I could.
    I will however address your ignorance.

    In an economy, there must be Diggers, Growers, Makers and a Service Sector to service those three.
    When the Makers go out of business, and global policies (Climate Change for example) restrict growers like a python (we import more food than we export these days ffs) then all those “highly educated” Service Sector people have only the Diggers to service.

    When those who service outnumber the Diggers Growers and the vanishing Makers AND get paid more than the former, you have an economy which will either collapse pronto, or one that will collapse worse after being propped up by debt.

    This exactly what’s happened to Western economies. Makers largely disappeared, Growers restricted or run off of their land, leaving us with only the Digging sector. The only sector that generates wealth to pay for all the overpaid under worked Service Sector.

    When the environazis shut down the Digging sector (urged on by the UN carpetbaggers), who will pay for the ever growing Service sector? China? (laughs heartely).

    Economic theorists like yourself need to take your theory to its conclusion.
    If a nation like Australia no longer has Diggers and Growers and Makers, who will pay the Service Sector? Where will the money be generated other than devaluation and debt?
    Until your theory addresses that, your decades long experience in theorising is worth $hit.
    (With all due respect of course).

  113. meher baba

    struth and Arky: you can rant about it all you like, and call me elitist or snobbish (which I find rather odd on what I thought was a right-wing website: isn’t egalitarianism a leftist concept?)

    Anyway, none of your ranting changes the facts, which are that Australian (and US, and European, and British, etc.) shop floor workforces in manufacturing industries with high hourly rates of pay, plus penalties, plus two day weekends, plus public holidays, etc, etc. are not competitive in a globalised economy.

    You can blame the unions, but, take away the unions and reduce the wages earned by these people and nobody will want to work in these factories. Unless you also take away social security benefits and find some magic way of dramatically reducing housing and many other costs. Or, in other words, turn Australia into something that more closely resembles the type of third world economies we are competing against. Maybe you’d like this, but I certainly wouldn’t.

    Or, as you seem to want to do, you can put up massive protection barriers. This might work for the US, which could conceivably develop a self-sufficient economy: albeit, I suspect, one with a significantly lower average standard of living than it current enjoys. But a world in which all the major countries put up tariff barriers will be an unhelpful one for Australia, which is an exporting economy.

    I am not snobbish towards people who have a low standard of education and low skill levels but who would like to enjoy a high standard of living. Living as I do in Tasmania, I am surrounded by them: young men whose fathers and grandfathers had well-paid jobs in Forestry Tasmania and the Hydro, and who are now finding themselves seeking work in the service sector, where the employers generally prefer to hire women or newly-arrived migrants. So many of them look destined to spend their lives on the dole.

    It’s a very sad state of affairs, but I can’t see any long-term solution other than for these people to be encouraged/assisted/prodded into getting themselves more education and more skills. This might be a snobbish view of the world, but it also seems to me to be the correct one.

  114. egg_

    If a nation like Australia no longer has Diggers and Growers and Makers, who will pay the Service Sector?

    But, but… TheirABC is championing us becoming a Service Economy!

  115. meher baba

    Baa Humbug: “I won’t address your arrogance as Struth and Arky have done better than I could.
    I will however address your ignorance…we import more food than we export these days ffs”

    Well, that’s certainly one thing of which I’m ignorant: the last stats I saw (a year or two back) showed that the value of our food exports was 4 times that of the value of our food imports.

  116. Iampeter

    It’s good to see that most here agree that the principles of freedom are impractical and “theoretical” and are destroying Western Civilization, while the regulatory state and authoritarianism is what’s going to fix things. How could we have all been so wrong?
    To think that all we had to do to fight socialists and statists was to support statism. The answer was right in front of us all this time!
    And to think that Say’s law, the empirically proven fact that you have to produce before you can consume has been so thoroughly wrong all along. I guess we had that one backwards huh?
    It looks like the Stalin’s and the Hitlers and Mao’s and the kings and popes before them had it right and us individualists and capitalists have always had it wrong.

    I can’t wait for further insights from you guys! Perhaps you’ll talk about how the world is flat after all and that masturbation will make you go blind.

    You never know on a Cat thread about politics!

  117. Arky

    . This might be a snobbish view of the world, but it also seems to me to be the correct one.

    ..
    It is an extremely ignorant view of the world.
    Have you worked in manufacturing?
    Do you understand the skills required to set up and run a manufacturing plant? I suspect not or you would shut your great big flabby gob.
    Have you worked in education?
    Do you understand how IQ is distributed?
    Again, I suspect not or you would understand how globalisation has simultaneously broken our previously excellent education and training systems. So now we don’t teach trades. we teach gender studies. We are three to four years behind other countries at secondary level and we import doctors.
    Well done Western civilisation hating libertarian douches.
    Lets keep doing it your way.

  118. Confused Old Misfit

    But a world in which all the major countries put up tariff barriers will be an unhelpful one for Australia, which is an exporting economy.

    But (and I’m sorry to nip you with a bit of reality here) “all the major countries [HAVE]put up tariff barriers.”
    That is the elephant in the room which those pushing the concept of “free trade” appear to be completely ignoring, despite numerous examples of same being presented on this and preceding topics on this forum.
    If the theories of the economists are to function then NO country shall have any tariff, excise, tax, impost or any other fiscal or moral inhibitor to the free and untrammeled movement of goods and services across its frontiers and its retail counters.
    Dream as we will, that is not going to happen. And if it did I invite you to consider the eventual outcome.

  119. Arky

    Of course, none of these arguments will sway you. You will not even begin to address them, because, as we can see from your statements: You hate the West and want to abolish it.
    The only thing left to do is expose you for who and what you are.
    I am very happy with the last two days, as you have effectively done this to yourselves.

  120. meher baba

    Arky: “It is an extremely ignorant view of the world.
    Have you worked in manufacturing?
    Do you understand the skills required to set up and run a manufacturing plant? I suspect not or you would shut your great big flabby gob.
    Have you worked in education?
    Do you understand how IQ is distributed?
    Again, I suspect not or you would understand how globalisation has simultaneously broken our previously excellent education and training systems. So now we don’t teach trades. we teach gender studies. We are three to four years behind other countries at secondary level and we import doctors.
    Well done Western civilisation hating libertarian douches.
    Lets keep doing it your way.”

    If we can put the insults to one side, I’m still struggling to see how the solution to these problems lies in more protectionism. As far as I can see (as an outside observer, I’ve never worked in the education system, but I have worked in engineering and industrial businesses), our governments and schools have been putting more and more effort into trying to direct young people who are not academically outstanding (for reasons of IQ, family background or whatever) into the apprenticeship system.

    And I can’t recall a time in which the trades have been better remunerated or have had a higher public profile, eg: through reality TV shows in which tradies are often portrayed as sexy beasts. And it’s not a closed shop: there are shortages in many trades which are being filled by migration as are, as you point out, some jobs in the medical sector (nurses even more than doctors, I believe).

    And yet, many young people lack what is required to make it in the trade sector. They might not be smart or literate enough (because the work in quite a few trade areas – electricians and mechanics are good examples – is becoming increasingly complex). Or, quite often, they lack the application and self-discipline required to make it: success in a trade career involves accepting an initially low income and a lot of being bossed around to perform menial, unpleasant tasks. Compared to this, a life in the service sector or even on the dole might look quite attractive to many.

    I personally can’t see any indication that the trades are being taught any less well than in the past. I don’t like the postmodern/identity politics nonsense taught at unis any more than you seem to do, but that seems to me to be a world away from education in the trades, which seems to me to still be pretty good.

    As I see it, the causes of the problems facing these less skilled, battling people in our society are complex. At the economic level there’s globalisation and technological change. At the social level, there are problems like family breakdown, domestic violence, lack of positive male role models, drugs. I wish it were true that there was one simple solution – like more protectionism – but I don’t believe that’s the case.

  121. meher baba

    Confused Old Misfit: “But (and I’m sorry to nip you with a bit of reality here) “all the major countries [HAVE]put up tariff barriers.” That is the elephant in the room which those pushing the concept of “free trade” appear to be completely ignoring, despite numerous examples of same being presented on this and preceding topics on this forum.”

    It’s an elephant in the room that I’ve certainly missed. The last few decades have seen a great deal of work globally to reduce trade barriers: the results have been far from perfect, and many trade barriers still exist (including sneaky ones masking as regulation, quarantine, etc., etc.) But the progress has been significant.

  122. egg_

    meher baba
    #2657676, posted on March 11, 2018 at 3:44 pm

    What of India placing a 60%? Tariff on Australian pulses overnight, with millions of dollars of freight already at sea?

  123. Judith

    Steve: why would you possibly include that quote. All economists understand that protection hurts the imposing country and unilateral dismantling of protection helps that country. In your quest to defend your man, you have completely lost the plot.

  124. meher baba

    egg: “What of India placing a 60%? Tariff on Australian pulses overnight, with millions of dollars of freight already at sea?”

    I’m sure I read somewhere that this was all Justin Trudeau’s fault.

  125. I can’t wait for further insights from you guys! Perhaps you’ll talk about how the world is flat after all and that masturbation will make you go blind.

    I bet Iampeter wears glasses.

  126. Arky

    If we can put the insults to one side

    ..
    No.
    I have read this blog for six years.
    Libertarians here use all the tactics they can muster:
    Insults.
    Sock puppet pile ons.
    Accusations and “escalation”.
    Stupid appeals to authority, and lately, posting long excerpts from economics texts.
    Get fucked.

  127. egg_

    meher baba
    #2657684, posted on March 11, 2018 at 3:55 pm

    India and China can be protectionist, too.
    Japan is highly so.

  128. egg_

    Could it be that as Countries develop, they become more protectionist – viz India’s example above?
    The more developed Countries of the Globe being protectionist, the least developed Countries being the least protectionist.
    Then there is “Dumping” – Oz steel manufacturers are vigilant against dumping in our market, as BHP announced on Trump’s Tariff news.

  129. Confused Old Misfit

    But the progress has been significant.

    But the progress in dismantling is not the subject under discussion. I willingly concede that progress has indeed been made. You will, however, surely concede that the American perception is that the pendulum has swung too far in a direction that is for them unfavorable. This perception persists in significant areas of the US, despite Judith’s

    unilateral dismantling of protection helps that country

    . On aggregate and over an undefined time period that may well be the case.
    But people and politicians live and work with comparatively short horizons, at least horizons that appear to be shorter than the economic theorist.
    In the two to three years that follows the death of an industry a man or woman may be able, if they are fortunate, to retrain themselves and benefit therefrom. More often that man or woman suffers a severe dislocation of their standard of living and emotion trauma. The results are tragic. See rural West Virginia, see the opioid crisis, see the numbers of under employed or unemployed and not seeking work, see the continual rise in casual employment. These developments are not conducive to raising a stable, balanced family.
    Of course, there are those who will argue that it takes a village to raise a child and therefore we don’t need to rely on that antiquated structure of the nuclear family.
    So, a move by a major trading nation to re-balance its trading relationships should not necessarily be seen as retrograde. Hopefully, it may lead to other nations pulling back their restrictive practices. See Canada, in respect of dairy products as an example yet to materialize. See the EU in too many areas to categorize.
    If this happens, as it ought to, then the US may well make a move back towards less tariff restriction.
    However, I sometimes tend tend to be a bit of a Pollyanna.

  130. struth

    You can blame the unions, but, take away the unions and reduce the wages earned by these people and nobody will want to work in these factories. Unless you also take away social security benefits and find some magic way of dramatically reducing housing and many other costs. Or, in other words, turn Australia into something that more closely resembles the type of third world economies we are competing against. Maybe you’d like this, but I certainly wouldn’t.

    Who said we were against taking the welfare away?
    Or minimising it substantially to vouchers (my preferred option)

    If there are jobs in factories to be had and you decide to stay on welfare, I suggest Arky and myself would be of the same mind.
    You would be denied welfare, and you would want to work in the factory.

    But in your argument you have no understanding of how an economy works.
    Again I call it the sweat shop analysis that you keep repeating.

    We can’t compete with their sweatshops because we are lazy westerners.
    This with no concept of who supplies and transports to and from said sweat shop, how much sweat shop pays for electricity, taxes, how over regulated it is, whether it is allowed to operate at all due to U.N. environment regulations, corruption of competitors governments through corruption,and thousands of other factors effecting the end price of the product.
    Just the fat lazy westerners being paid too much.
    Not real bright are you?

    The cost to business in Australia is not so much worker’s wages , it’s compliance and taxing.
    As evident by the bonuses given to thousands of employees around the states after the Trump tax breaks were given, and evidenced by the USA being a major production powerhouse with the highest paid workforce with the highest standard of living in the world, for the entire 20th century.

    You don’t give up against corrupt slave running socialist sweat shop shitholes by rolling over and saying, well if we haven’t got slaves and sweat shops, and people that will work like that, we will never compete.
    History proves that theory dead wrong.
    The United States for the entire 20th Century proves that it’s wealth creation lies in the freedom of the people.
    Freedom from government control and over regulation.
    With low government taxation and regulation, they boomed.
    Factory workers with every modern convenience, and cars and houses, etc etc.
    China at the same time, with their billion souls, could only feed their army.

    Hint, it’s in the politics of the nation as to wether you can compete or not, not in the level of desperation of it’s slaves.
    For god sakes man, get some belief in the west, as it was before socialists took hold, both internally and externally.
    The external ones can’t influence your country if we get rid of the socialists internally.
    As the united states is again showing us.

    I can’t keep stating the bleeding obvious while theorists with academic tunnel vision refuse to lift their blinkers to see the entire situation we are in.

    Thank God Trump is a realist.
    Thank god for the entire world.

    It’s an amazing thing when you think of the attack on the west by the left globally and theory regurgitating elitist know nothings in the right side of politics.
    How he ever got the job and can get anything done is a bloody miracle.

  131. struth

    Steve: why would you possibly include that quote. All economists understand that protection hurts the imposing country and unilateral dismantling of protection helps that country. In your quest to defend your man, you have completely lost the plot.

    This is an argument.

    This is an own goal, in my view.
    You booted it straight through the posts with “All economists understand”
    FMD.

  132. Fisky

    Bend over libertarians, open your theory books and get ready to scream “this wasn’t meant to happen” or “you’re doing it wrong” or “if you look at page 59, you can’t actually be doing this” as the communist fist is shoved up hard.

    To the contrary, I think a great many libertarians deep down want to be sodomised by communists.

  133. RobK

    The Paris agreement repesents the greatest anti-free trade deal known. It is buttressed by over supply of consumables from overseas that are artificially mandated to be comsumed. Crazy.
    Investment in coal and nuclear power development will underpin a prosperous society. Solar and wind won’t.

  134. egg_

    When we’ve destroyed our coal fired power stations and are now in the absurd position of having to import gas to supply gas fired power stations propping up “renewables’ whilst we export coal overseas as one of the biggest producers?
    All at the behest of our Global elites?

    The steel for our wind turbine towers is inferior, corrosive, cheap Chinese steel, not Australian made steel and BHP are forced to store it onsite for deployment elsewhere.
    No wonder BHP are bitching over the prospects of US Tariffs.

  135. MPH

    Countries don’t produce, people produce. While the aggregate economic measures might look better with unilateral tariff reduction, the incremental individuals losing their job is where the pain is felt. And if you really want to shrink government and reduce taxes, you have to be heading in the direction of more and more people being net producers. If you want to continue to rely on aggregate economic metrics then you have to concurrently support a welfare state as the production concentrates in fewer and fewer individuals.

  136. Deplorable

    Free Trade yes, RECIPROCAL TRADE a must.


    I am no economist thank Christ but to my mind the above statement spells it out very succinctly.

  137. Barry 1963

    Trade unions love protection. When Australian industry was protected, more than half of the workforce was unionised. I noticed quite a few persons wearing steel workers’ union apparel alongside Trump when he signed the tariff order.

  138. Deplorable


    When Australian industry was protected

    When I look at the cmfeu the public service the medical field the law ripoff it is obvious that there are still a lot of “protected industries” where salaries are out of touch with ” unprotected” salaries in the real world.

  139. Crossie

    Many business owners told The Australian that residents felt “helpless” and held to ransom by China.

    Tonga is a warning to Australia what’s waiting for us when the Chinese empire decides to flex its muscle.

  140. Crossie

    We were told that we should not worry about manufacturing or even exporting resources, our universities were going to be powerhouses educating progeny of the middle classes of Asia.

    It’s only a matter of time before China established educational institutions as good as ours. After all they will have professionals whom we have trained.

  141. Crossie

    What’s more, Chinese universities will not be teaching gender studies or anything that will disparage their culture.

  142. After Australia’s local agricultural machinery industry fell by the wayside in the 1980s, grain and cotton farmers have become tied to overseas manufacturers such as John Deere and Class.

    My favourite part of that was tariffs being imposed on Australian truck & tractor makers, while American brands were not subjected to a tariff.

    When the revolution comes & we’re filling tumbrils, politicians of all stripes will find the depth of feeling in the retribution is very deep indeed.

  143. Let’s try this a little more succinctly.

    When Free For All Traders say “Why deploy your capital to inefficient industries (like Auto) when you can buy better and cheaper (cars) from Japan or Korea (now China and Mexico) and then redeploy your capital to more productive sectors of your economy?

    All good and fine. Even the fact that individuals in the less productive industries may/will suffer, overall the economy will improve and hopefully those suffering individuals will also retrain and redeploy to the more efficient industries. Everyone is a winner (with some exceptions e.g. the 55 year old tool maker who can’t or won’t deploy. We have safety nets for those).

    Now for the elephant in the room which hasn’t been responded to (Judith?)
    How do you deploy (in the case of the USA) $800B of trade deficit? That money has left the US to be deployed elsewhere (mostly China in the case of the US).

    Those huge trade deficits happen purely because trading partners don’t have to spend the $US they receive
    back with the US. They spend it elsewhere.
    When most of the classic economics books were written, trading partners either used gold or they used each others currency back with each other. If a country didn’t have gold reserves, it said “sorry I can’t buy your stuff, unless I can get some of your currency by selling you my stuff.”
    In other words, a true Free AND RECIPROCAL trade was the only option.

    However since the $US, and to a lesser extent the British Pound and now the Euro, have been used as reserve currencies, that ‘natural’ reciprocity has been done away with (by the actions of government with the advice of economists wouldn’t you know it).

    The other natural balance was supposed to be the floating of currencies. When a nation runs trade deficits, the value of their currency drops, making their ‘stuff’ comparatively cheaper, hence re-balancing the trade deficit. It was supposed to be a cyclic thing. Deficits for a couple of years, lower value currency, surpluses for a couple of years, higher value currency etc.
    All the while capital being deployed in ever more productive endeavors.

    The huge trade surpluses China has been running should have increased its currency to a much higher level (THAT COULD TECHNICALLY BE CALLED A NATURAL TARIFF IMPOSED BY THE MARKETS, NOT BY POLITICIANS). That natural tariff would have been huge compared to the pissy 25% and 10% imposed by Trump.

    So let’s hear it (Judith?) How does the US deploy $800B it doesn’t have (every single year) into the more productive sectors of its economy?
    How can natural tariffs (currency floats) work when they are removed by currency manipulators?

    Unless these are addressed, all other textbook theory based arguments for Free For All Trade are forms of hand waving.

  144. struth

    Lets put it anotyer way then.
    Right now the Chinese Worker is the protected species.
    Protected by the chains placed on international competition by the UN and it’s socialists and the corrupt practices of its government.
    Argue why these substandard workers producing substandard shit are not.
    Tariffs aren’t the right thing to do in utopia.
    We aren’t living in utopia.

  145. Deplorable

    Where are these laws and regulations. Which ones, in which order will you remove to get those jobs back?
    Every federal,state,council, union, academic and legal interference that relates imposts on jobs and freedom. We are so bound up in bullshit red tape that keeps shiny arses in jobs but produce nothing but increased costs to business and the community. If free trade is so good how come there is so much corruption in its implementation?

  146. egg_

    Best you define “slave” egg.

    Unpaid labour.
    USA:
    Poor Dutch, etc. sent to work the fields for their keep (much like Di Natale’s au pairs of today)
    Replaced by Africans.
    Today’s equivalent is robots

    The word robot was coined by artist Josef Čapek, the brother of famed Czechoslovakian author Karel Čapek. Karel Čapek was, among other things, a science fiction author before there was something officially known as science fiction, in subject matter along the same vein as George Orwell. He introduced the word in a play called R.U.R. The full title translating into English as Rossum’s Universal Robots, which debuted in January of 1921.

    While writing this play, he struggled to come up with a word to name the robots, initially settling on ‘laboři’, from the Latin ‘labor’. He discussed this with his brother, Josef, and Josef suggested ‘roboti’, which gave rise to the English ‘robot’. ‘Roboti’ derives from the Old Church Slavanic ‘rabota’, meaning ‘servitude’, which in turn comes from ‘rabu’, meaning ‘slave’.

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