Lay Down Your Farms

President George Bush gave a speech yesterday to the United Nations. On the global poverty front, he talked about Tony Blair's Millenium Project, about tying aid to anti-corruption efforts, about fighting AIDS and malaria and the Avian Flu, about debt relief … and then came five inspiring paragraphs about how "the elimination of trade barriers could lift hundreds of millions of people out of poverty over the next 15 years." Excerpt:

We must tear down the walls that separate the developed and developing worlds. We need to give the citizens of the poorest nations the same ability to access the world economy that the people of wealthy nations have, so they can offer their goods and talents on the world market alongside everyone else. We need to ensure that they have the same opportunities to pursue their dreams, provide for their families, and live lives of dignity and self-reliance.

And the greatest obstacles to achieving these goals are the tariffs and subsidies and barriers that isolate people of developing nations from the great opportunities of the 21st century.

This grand song, which he's sung before, was lashed to the unlovely and torturous Doha Round of world trade negotiations. But as Andres Martinez (Michael Kinsley's replacement at the L.A. Times) points out, if cheaply:

Bush didn't wait for France to sign off on the invasion of Iraq; he certainly shouldn't wait for France to sign off on a dismantling of U.S. farm subsidies that give domestic cotton, rice, sugar and other crops an unfair leg up in global competition. Waiting around for Europe and Japan to accept trade liberalization in agricultural goods could be a decades-long exercise. Besides, it is an abdication of American leadership.

Expanding trade around the world, Bush rightly said Wednesday, "would strike a blow against the terrorists who feed on anger and resentment." By uncharacteristically refusing to act unilaterally on this one, the Bush administration is not only undermining the global economy, it's refusing to shore up U.S. national security.

Comments

[MP]

I agree with Andres Martinez. GWB, put up or shut up.

[Evan Williams]

What a wonderful country this is, where you have to invoke terrorist bogeymen as an excuse to eliminate subsidies, tariffs, and other protectionist trade policies. But, hey, this is the best use of the "terra card" so far---so I'm not complaining. But, aside from his "it's refusing to short up US national security" rant, Martinez is spot-on. How fucking absurd is it to sit there and lecture people about eliminating subsidies and trade barries, when I've yet to see Bush do a single bloody thing about our own tarriffs and subsidies. Remember the shrimp tariffs? How about timber? Steel? Bush should shut his big fuckin' yap, and DO something about it instead. What was that thing about actions speaking louder than words?

[Larry Horse]

Yo, totally. Hong Kong didn't wait for other countries to lower its barriers to their goods before they let in imports, they just made their economy open. I'd say that they haven't really suffered for that, so why not follow suit? It's reasonable of course to offer assistance to those who have lost their jobs because of this openness, because that would likely be the only way to make such a regime politically palatable.

[Tom Crick]

"...And the greatest obstacles to achieving these goals are the tariffs and subsidies and barriers that isolate people of developing nations from the great opportunities of the 21st century."

I'm not sure these are the greatest obstacles to achieving these goals, but they sure are big ones.

...But this President and this congress, removing tariffs and subsidies unilaterally? ...That's hilarious!

The President should forget about the terrorism angle, maybe if he found a way to link free trade with the Terry Schiavo case or--better yet--Intelligent Design!

[Cap'n Obvious]

Thought the point made here was spot on. Given the moral/economic truth that the elimination of all barriers to trade would (in the long-run) be beneficial to all involved, I'd appreciate some input from those more intellectually gifted than I in answering the following related questions:

If the US did spontaneously and unilaterally eliminate every barrier to trade/tarrif that it had the ability to eliminate, 1) what would be the likely short-term consequences? 2) How would those consequences affect the odds that other countries would follow suit?

[SR]

"Hong Kong didn't wait for other countries to lower its barriers to their goods before they let in imports, they just made their economy open."

Another good example in this situation is Britain's unilateral elimination of tariffs on agricultural products in 1846, a time in which a far larger part of the population was employed in the agricultural sector than today.

[Tom Crick]

"If the US did spontaneously and unilaterally eliminate every barrier to trade/tarrif that it had the ability to eliminate, 1) what would be the likely short-term consequences? 2) How would those consequences affect the odds that other countries would follow suit?"

1) Lower prices for American consumers, more money for more productive uses.

2) It might reinforce the idea in the minds of foreign consumers that it's to their benefit to pay less for things. ...Even if, maybe, the unemployment rate and domestic farmers, etc. have to take a short term hit. ...and that's not likely to play well in countries with big unemployment problems.

Point is that the benefit of free trade to American consumers is a benefit regardless of what the rest of the world does. Just because the EU decides to hold its breath until it turns blue, doesn't mean we have to do the same.

[MP]

If the US did spontaneously and unilaterally eliminate every barrier to trade/tarrif that it had the ability to eliminate, 1) what would be the likely short-term consequences? 2) How would those consequences affect the odds that other countries would follow suit?

Short term consequences would be a dramatic lowering of the prices of inputs and consumer goods in the US, making things more affordable. The negative impact would be the jobs lost in industries that are no longer competative. It is most likely that these jobs would be made up by new industries that are now more competative due to lower cost of inputs.

The increased standard of living in the US would encourage other populations to adopt the same practices.

[Dakota]

Cap'n obvious,

The only thing I know for sure would be Cargill would shit themselvs.

[M1EK]

I've said it before... we're going to wish we hadn't offshored our critical industries when oil gets REALLY expensive. The market won't be able to 'fix' this problem for us; it'll be too expensive to rebuild any non-trivial infrastructure once oil isn't cheap.

We're going to find ourselves stuck between a rock (doodads from China prohibitively expensive due to skyrocketing transportation costs) and a hard place (can't build new factories here because we can't afford the energy costs inherent in large construction).

Same thing applies to a smaller scale with agriculture -- some kinds of agriculture aren't going to be quick or easy to rebuild here once it gets too expensive to buy a bunch of our produce from overseas.

[kwais]

I don't think it is so much 'how many people are employed' as 'what is the political clout of those who are employed'.

Bush aint running for re-election, but to get done what he needs done, he needs a re-elected and co-operating rebublican congress.

[Tom Crick]

If the President wants to really harp on the terrorism angle of free trade--and maybe get the anti-immigrant vote on his side--he might play up free trade as an alternative to immigration.

I know it's a hot button issue both here and in Europe, but free trade has always seemed like a natural alternative to immigration to me. Maybe Lonewacko can explain this to me, but I've never understood why so many anti-immigrant groups seem to be so against free trade.

...I understand nativism is nativism, but I'd like to understand how they square that circle. ...If you don't want 'em comin' here, why don't you support policies that are likely to keep 'em over there.

P.S. For those of you that don't know, I'm in no way anti-immigrant; in fact, minus some reservations about keeping track of would be terrorists, I'm kind of an open borders kind of guy.

[Tom Crick]

"Bush aint running for re-election, but to get done what he needs done, he needs a re-elected and co-operating rebublican congress."

Bush isn't running for re-election, but the members of congress are. I don't know why they would take the chance to support something like this or Social Security reform at this point. At this point in the election cycle, it's all risk for them.

...and I sometimes wonder if--just like it took a virulent anti-communist like Nixon to create trade relations with communist China--it might take labor backed Democrats to successfully get a big free trade package across the goal line. ...It's a thought.

[David T]

Unfortunately, the short-term *political* effects of unilaterally doing away with all trade barriers and subsidies would probably be unfavorable. The reason is this: the jobs it would *cost* would be easily identifiable. Everyone who lost a job in an industry that could no longer compete would blame Bush. By contrast, the new jobs *created* (e.g., by consumers having more money to spend on other things than the once-subsidized goods) would not be so obviously linked in the public mind with trade liberalization. Few people with new jobs in, say, some service occupation, would stop to think that trade liberalization had indirectly made such jobs possible.

[M1EK]

"Few people with new jobs in, say, some service occupation, would stop to think that trade liberalization had indirectly made such jobs possible."

Perhaps, also, they'd actually notice that those service jobs suck compared to the jobs that were lost, huh?

[Swill]

Perhaps, also, they'd actually notice that those service jobs suck compared to the jobs that were lost, huh?

Why automatically assume that a service job would suck? I doubt that most physicians would say that their careers suck, nor would software consultants or airline pilots. Those are all service sector gigs. Besides, better a job that sucks than no job.

[Cap'n Obvious]

Tom & MP -

Thanks for the effort (I think). Your answers seemed to be more inline with long-term consequences that I'm familiar with. Lower prices, redistribution of employment and industry, etc. I guess what I should have asked is this:

Given that the global economic playing field is somewhat leveled by nearly ALL countries having some sort of barriers to trade that (they think) favor thier citizens, how would the imbalance of the world's (thusfar) largest economic force be disadvantaged by competing with the countries who maintained thier barriers?

The analogy I like to think of is the spoiled kids who get into a good college because thier parents continued to do thier homework for them. In the long run, those kids who actually learn on thier own will be stronger, smarter and better able, but because they didn't get into a first tier school, they aren't given the same opportunities as those spoiled cheaters who then magnify thier advantage by demanding grade inflation and alumni-networked employment based not on ability, but social connections (a la Stanford and the Ivies).

In the long run, I assume most visiting this site are in agreement about the power of the self-correcting market if only it were left alone. What I'm interested in is how the transition would be likely to play out. Think Russia after communism...but on a global scale. Use your imagination.

Sorry for the thread-jack, but now that the box is open, let's follow it to conclusion. Thoughts? Criticisms? Wit?

[M1EK]

" Perhaps, also, they'd actually notice that those service jobs suck compared to the jobs that were lost, huh?

Why automatically assume that a service job would suck? I doubt that most physicians would say that their careers suck, nor would software consultants or airline pilots. Those are all service sector gigs. Besides, better a job that sucks than no job."

Yeah, that's where all the new service jobs over the last ten years went. GMAFB.

No economy can survive on servicing itself, which is what those jobs are (except, MAYBE, software consultants, if their customers are overseas).

[metalgrid]

You can always look at it from the angle of: Eliminating subsidies will free up more money to bring democracy to Iran.

[Hakluyt]

It would also help alleviate poverty in the U.S.

[Larry Horse]

I don't know M1EK, I've been surviving by servicing myself for a little more than a year since my last relationship ended.

[Dakota]

The Republican control of congress would likely be lost if Bush were act instead of talk about ending subsidies. I think 4 or 5 of the largest 10 recipients of farm subsidies are in Mississippi, Alabama, and Arkansas. (think re-election money) Also on an emotional level it would kill anyone from about a dozen states to vote to reduce or eliminate subsidies. It would do a lot for our economy and the world economy, but a Midwestern or Southern congressman is more likely to vote or introduce a bill legalizing 4th trimester abortions.

Ain't politics wonderful!

Heritage Foundation and Cato have both done great studies on the wholly wasteful nature of farm subsidies.

Didn't Matt Welsh profile John Cougar Mellencamp and various other Mellencamp's in Indiana got in the neighborhood of 1 million in federal "aid" one year.

Cue the music:

"Here's a little ditty about being a welfare quee-en."

[Capatin Awesome]

Perhaps, also, they'd actually notice that those service jobs suck compared to the jobs that were lost, huh?

I guess services jobs just can't compete with being paid by the government to not produce.

[Swil]

Yeah, that's where all the new service jobs over the last ten years went. GMAFB

Not what I said, put the straw man down and back away slowly.

No economy can survive on servicing itself

Actually division of labor allows for an economy to exist in only one sector, export its service sector surplus and import all sectors in which it is at a competitive disadvantage.

[MikeP]

Given that the global economic playing field is somewhat leveled by nearly ALL countries having some sort of barriers to trade that (they think) favor thier citizens, how would the imbalance of the world's (thusfar) largest economic force be disadvantaged by competing with the countries who maintained thier barriers?

I'm still not following where you're going.

If the world's largest economic force drops all impediments to trade, it only makes itself that much more able to swiftly move into new markets and reap riches for its workers and consumers. When Hong Kong does it and passes its colonial masters' per capita income in a generation, people use it as an example. When the United States does it, the effect may be more dramatic.

Unlike your Ivy League analogy, there is no quasi-omnipotent human force handing out riches in the world economy. The world economy works by external and independent laws of economics, just as the solar system works by external and independent laws of physics. The peoples who follow the laws of economics by recognizing the wealth producing features of free trade are just like the peoples who follow the laws of physics by, e.g., using Hohmann orbits when designing spacecraft routes. They will better achieve their goals and prosper more.

[R C Dean]

No economy can survive on servicing itself

Umm, that's all any economy ever does. A giant web of interaction.

The distinction between "goods" and "services" is pretty artificial. Both involve the application of knowledge and labor.

Some of these applications have as their direct output material items (say, an assembly line worker), some have such items as an indirect output (say, an engineer) at more or less remove (the banker who loans the money to build the assembly line, perhaps?).

Its not hard to trace the dependence of "goods" on "services" if you think about it a little.

[Captain Awesome]

One could also look to the radical agro-reforms of New Zealand, agriculture actually became more productve after deregulation. Also consider that a lot of small farmers would love the freedom to differentiate their products from the lumbering behemoths and compete on a level playing field on an internal system as well.

If you truly love something then you should set it free. You don't hate farmers M1EK, do you?

[Mick]

Every time George Bush talks about worldwide elimination of tariffs, what I actually hear is a cynical calculation that he will never have to actually deliver anything. He knows the Europeans and the Japanese won't agree to reduce tariffs any time soon, so he can safely make the grand gesture and blame others for not making it happen.

American farmers brag about how they are the best in the world. Why then does the recently signed free trade agreement with Australia leave protection for American sugar producers unchanged, and continue to protect beef production for another 18 years? Could it be that the "best farmers in the world" aren't sure they can compete with the Aussies on a level playing field?

From memory, the value of tariffs and subsidies on agricultural products as a percentage of the total value of production looks something like this:

Japan - 60%
Europe - 40%
US - 20%
Australia and New Zealand - 0%

There's no need to wait for anyone else, George. Tear down those walls now. Let American consumers benefit from lower prices, and let poor people everywhere get a fair price for their agricultural products.

[MP]

First off...it seems that everyone is taking him at his word.

"Everyone" certainly doesn't appear to include the readers of this blog.

[joe]

I've been kicking around an idea about how to make cuts in farm subsidies and tarriffs more politically palatable - transition the current system of subsidizing farmers into more of an environmental public works projects. "Tillers of the land" getting soil under their all American fingernails through erosion control, reforestation, and environmental restoration projects.

Like it or not, libertoids, America is just fine and dandy with using public funds to keep the historic virtue of our family farms babbedy blabbedy blah. But in this way, we actually get something worthwhile for our money, and at the same time, reduce the opposition to openning up the agricultural sector.

[Ted]

By dropping these subsidies he would lose support from the Left and the Right .... my father is a fascist, my mother a communist and both are "SAVE AMERICAN JOBS!!" folk --- luckily my girlfriend is Indian so both of us scream back "GET OF YOUR LAZY ASSES, AMERICA!"

in any event, if you want free trade, move out of the americas and western europe.

[Johnny]

I don't know MP, it strikes me that republicans are less likely than Libertarians to believe in the "free trade" statements of republicans.

Matt says: ... 'and then came five inspiring paragraphs about how "the elimination of trade barriers could lift hundreds of millions of people out of poverty over the next 15 years."'

Since, as he pointed out, we've heard this before, and there is no more evidence to believe it now than before, shouldn't folks be asking why he is saying something he clearly doesn't believe?

Even should I wake up in a world where Al Sharpton agreed with me, I would hardly be inspired, I would wonder instead what face card he just palmed.

I'm gonna go the Penn & Teller route and ask what anti-freetrade thing he is attemtping with this comment, or....what face card did he just palm.

That should be the question, what free trade betrayel is he hiding with this clearly bullshit speech.

When the devil tells you he believes in Jesus, believe him, 'cause he does. That doesn't mean he's not the devil, just watch those cards.

[M1EK]

"Umm, that's all any economy ever does. A giant web of interaction."

No, at the base, all economies form around the production of goods, most basic of them being food. All other high-value economic activities happen, to some degree, because somewhere down the chain they make a farmer more productive.

(Repeat to a lesser degree with things like shelter, electricity production, etc.).

This DOESN'T mean subsidize farmers. It DOES mean that services are only economically viable to the extent that they make the basic services more efficient.

[MikeP]

When Australia investigated whether and how to liberalize the Textiles, Clothing, and Footwear (TCF) industries, which the report calls the most protected industries in Australia, ...

http://www.pc.gov.au/ic/inquiry/59tcf/finalreport/ (link is not working -- don't know if that is temporary or permanent)

...they found that another country's reducing its tariffs on such things provides only 11% of the benefit to the Australian economy that Australia gets by reducing its own tariffs.

Unilaterally dropping tariffs gets you 90% of the benefit of mutually dropping them!

There's no need to wait for anyone else, George. Tear down those walls now. Let American consumers benefit from lower prices, and let poor people everywhere get a fair price for their agricultural products.

No doubt! All these free trade agreements, while incremental improvements, are so much posturing as well as opportunities for political favoritism.

[Captain Awesome]

M1EK, you commiting a basic marcantilist fallacy. Life is not only about food and who is selling it. TV isn't just a support system for the weather channel, it entertains all of us, not just the farmers who then find it easier to work the next day for it. I suggest you go study further before you make it necessary to call you a liar.

[Cap'n Obvious]

"The world economy works by external and independent laws of economics, just as the solar system works by external and independent laws of physics."

I don't believe that most of people are rationally self-interested. I know how the economy works, but so long as cheating is tolerated, why would I play fair?

To answer your question, I'm not "going anywhere" with my questions, just masturbating my brain. Though I'd like to understand how traumatic the transition would be so as to properly prepare. In all my experience observing and participating in nature, weaning is rarely a smooth process.

[MP]

Johnny: That should be the question, what free trade betrayel is he hiding with this clearly bullshit speech.

His objective is to try and get other countries to do things that he finds politically non-viable to do here at home. The fact that he doesn't see how blatantly hypocritical his statements are, and thus how easily his statements would be shunned, are simply further evidence as to how inept he and the people around him are.

I'd love to hear someone argue why these statements don't show that he is a moron.

[Cap'n Obvious]

Arguing that Bush isn't a moron would only prove the idiocy of the one making that argument.

[M1EK]

"TV isn't just a support system for the weather channel, it entertains all of us, not just the farmers who then find it easier to work the next day for it."

And the rest of us can only pay the bills for that channel because at some level of indirection our own economic activity makes food production more efficient.

[temporary K]

"I know it's a hot button issue both here and in Europe, but free trade has always seemed like a natural alternative to immigration to me. Maybe Lonewacko can explain this to me, but I've never understood why so many anti-immigrant groups seem to be so against free trade." - Tom Crick

Other than that a significant number of the "Mexifornia" immigration-haters are racists who think hispanics aren't quite eligible to be Real Americans, I think a lot of reasonable opposition to free trade is based on the evidence that virtually all proposals put forward thus far involve sacrificing US national and state soveriegnty to quasi-governmental judicial bodies. Anti-immigrant groups, already worried about things like amnesty for illegal immigrants and the health and education dollars spent on illegals, are extremely suspicious of further legislation that they perceive as damaging to US citizens in favor of non-Americans.

I agree with you, Tom, and probably the majority of the people on this board, that true free trade is not only the best protection against illegal immigration, but the best economic situation possible for all involved. But I am very skeptical of the bastardized version of free trade that agreements like NAFTA represent. It seems like just one more way that large interests collude with each other for their own enrichment at the expense of taxpayers.

[joe]

"Life is not only about food and who is selling it. TV isn't just a support system for the weather channel, it entertains all of us, not just the farmers who then find it easier to work the next day for it."

Hold it there, Catain. Not everything that is good and worthwhile actually generates economic value. The Boston Symphony Orchestra, for example, is merely a machine for redistributing money. A very nice machine, but they don't produce any economic value.

[Johnny]

MP,

See, that's my problem, that doesn't seem like a big card to palm, trying to get other countries to do this.

Things we know: Bush supports Corporate welfare and levels that make the welfare states of Europe look like 1st grade.

We know Bush supports institutions that support the badge of authority above demonstration of authority.

We know he finds his soulmates among men like Bander of the Sauds and Putin of the KGB.

We know he favors theocracy above science.

But, I fear until it is far to late, Libertarians will help him hide that card he palmed until we are his pigeons.

I don't think he's doing this to fool Europe, I think he's saying this to fool us. After all, is that the standard con, say one thing, but do the exact opposite?

The very discussion on this board shows how well his misdirection worked.

[Captain Awesome]

Joe, not sure exactly what here diasagreeing on here. But I'm thinking I could just as easily have said:

No, at the base, all economies form around the production of goods, most basic of them being housing. All other high-value economic activities happen, to some degree, because somewhere down the chain they make a carpenter/bricklayers/cement trucks more efficient.

You could also argue that in the end all the economy revolves around one way or another making banks more efficient and providing liquidity to laborors. Just because food is one of the inputs necessary (but not suficient) to living doesn't make it the end all be all of the economy and ones worth.

[MikeP]

Not everything that is good and worthwhile actually generates economic value. The Boston Symphony Orchestra, for example, is merely a machine for redistributing money. A very nice machine, but they don't produce any economic value.

The mere fact that someone went into the hall and coughed up $70 for a concert demonstrates that the Symphony produced economic value. It produced a value to that person at least equal to $70, and the total wealth of the world increased by the actual value to that person minus $70.

This is the very basis of the position that free trade increases wealth.

[MikeP]

I think a lot of reasonable opposition to free trade is based on the evidence that virtually all proposals put forward thus far involve sacrificing US national and state soveriegnty to quasi-governmental judicial bodies.

Yet another reason to unilaterally adopt free trade! The US doesn't need any agreements with anybody that need any extranational adjudication.

Can that be used as a selling point?

[thoreau]

I do think M1EK underestimates the number of decent jobs available in the service sector. However, those jobs generally require training. A guy who's made a career in the textile industry probably won't be getting a job as a technician in a laser eye surgery center, which is most definitely a service industry. And that service industry, like many other luxuries, is only possible because Americans spend less money on other things.

Indeed, I wonder how many laser eye surgeons, or spa managers, or restaurant chefs, or other middle-class to upper-class service sector people, realize that their livelihood depends (to some extent) on Americans saving money by buying cheap foreign goods. It's not like the day after NAFTA a whole bunch of people started eating more meals in restaurants. But the trend over time has been for people to eat more meals out. More women, even women of modest income, are occasionally visiting spas. Even the middle class is getting laser eye surgery. And so forth. And all of this depends on people having more money to spend on non-essentials.

Besides, for every one of these middle to upper class professionals there's a staff making less money than the boss. Some of those incomes are still pretty decent, and many of those jobs are decent starting points for young people who want to transition to something better. The receptionist at the laser eye center who takes night classes will have an advantage when she graduates and looks for a job as a nurse or technician. But the 50 year old textile worker who just got laid off isn't thinking about paying dues in a low-paid job and taking night classes in preparation for something better. He's thinking about his mortgage.

Mind you, I am not defending protectionism. I'm just putting a human face on the classic problem of diffuse benefits and concentrated costs. The textile worker feels sharp pain today, and the eye surgeon and chef, as well as their employees, experience gradual benefits long after the election.

I have no idea what to do about it, but that's what it is.

[Herman]

Arguing that Bush isn't a moron would only prove the idiocy of the one making that argument.
Capn'O & MP -
So you guys aren't buying the "Evil Genius Pretending to be Dumb" theory?

[M1EK]

"But I'm thinking I could just as easily have said:"

(with other inputs besides 'food')

I mentioned housing as one of the other (small number) of cases where this applies, but it's less so than food. Shelter in some countries that grow food for us is nominal.

[Captain Awesome]

Even if you think that food is one of a subset of production goods that really matters. Then why would you want it to be protected from competition? That would seem to me to be the one true way to insure our inferiority at it?

[temporary K]

I think a lot of reasonable opposition to free trade is based on the evidence that virtually all proposals put forward thus far involve sacrificing US national and state soveriegnty to quasi-governmental judicial bodies.

- Yet another reason to unilaterally adopt free trade! The US doesn't need any agreements with anybody that need any extranational adjudication.
Can that be used as a selling point?

i'd buy it!

[Captain Awesome]

Or we could take a service example to replace the key terms in your analysis of the economy. Obstetrics, for example. Everything we do is in the end to make sure that babies come into the world with greater efficiency.

[M1EK]

"Or we could take a service example to replace the key terms in your analysis of the economy. Obstetrics, for example. Everything we do is in the end to make sure that babies come into the world with greater efficiency."

No, that's missing the point entirely. Most people don't NEED obstetrics. People that pay for it are able to do so because their economic activity makes the production of food more efficient somewhere further down the chain.

i.e.: I build tractor which helps farmer increase production by X, so he can pay me Y. I can then afford to pay obstetrician Z, (might be to make me more efficient at tractor-building, might be just because I prefer the medical care; but either way I couldn't afford it if I wasn't generating real, i.e. goods-backed, economic activity).

Chains which go too far away from goods-based economic activity usually end up snapped, or you end up with a very unproductive economy.

In my case, at my last job, I wrote software which let my last company sell hardware which let companies not lose as much stuff to theft or environmental issues, which let those companies lower the price of the stuff they sell to people who sold stuff to farmers.

[Mick]

Unilaterally dropping tariffs gets you 90% of the benefit of mutually dropping them!

A compelling argument for unilaterally eliminating tariffs, MikeP. Thank you for that information.

Here's the Google cache copy of that report:

http://66.102.7.104/search?q=cache:QmcMCBcebvAJ:www.pc.gov.au/another

[Cap'n Obvious]

Herman -
I never claimed that Bush was an Evil Genius Pretending at anything. I think he's a dolt from a powerful family...like JFK or Paris Hilton.

Thoreau -
Your comments were along the lines of what I've been looking for. In the long-run, free trade is better for all, but in the short-run, there will be small tragedies as those accustomed to their protected employment are awakened to just how precarious their station really is. As a friend of mine explained, "you can't oppose the 'exploitation of third-world workers' the same day you buy your $39 DVD player at Wal-Mart." Once the costs for goods and services are paid by those purchasing them, consumers will have to make more conscientious desicions...and THAT will be a paradigm-shift and a harsh one for many Americans. The ironic part is that most Americans (disproportionately left of center) who cry so loudly that the rich should pay more in taxes forget that on a global level, they ARE the rich.

I guess I'm just kind of interested to see how it will all play out when the chickes come home to roost. Eventually, they'll have to....right?

[Captain Awesome]

I second that thank to MikeP, that's a great little bit of empiracle data.

M1EK, so in the end it all comes down to manufacturing. And even that comes down to the manufacturing of a specific subset of goods. And inclusion in that subset is dependent upon the necessity of a good for living. While I can appriciate this chain of reasoning, that has very little to do with the overall shape of a global economy (and more and more, it's necessary to think of it as a single global unit). How does a government regulating inneficiencies, and incentives for greater ineficiency into local sectors make the system more robust? I still don't follow you from your premises to your conclusion.

[joe]

Mike P, I do not agree with you that the happy feelings generated in the BSO listener are actually economic value. The world may be "richer" in an emotional or cultural sense, but unlike a $70 batch of concrete, he can't turn around and use his happy appreciation and trade it to someone else for something of value.

[M1EK]

Cap'n O:

What the "economics as measured by food production" argument does is point out some liabilities to globalization, and posits that an economy that goes further and further down the services path might be endangering its long-term vitality.

In other words, I think in ten or twenty years, we might regret having offshored so much actual goods production (and actual goods-supporting services like software). There's only so long the world will support us without asking us:

http://new.wavlist.com/movies/317/ofsp-dohere.wav

Expensive oil brings this day of reckoning much closer. The magic-of-the-market fairy will save us, though, I suppose.

[thoreau]

joe-

The bottom line is that the orchestra and its management take a building on a lot and turn it into a place that can collect $70 from each person entering the building. Does it generate value to society? I guess that depends on definitions. But the combo of building+orchestra generates more revenue than just the building. So the orchestra is a valuable enterprise that an investor would pay money for. If it is something that informed buyers will pay money for, then it is valuable. (I inserted the "informed" caveat to distinguish from scams that generate revenue until the truth comes out.)

Caveat: Yes, I know, some orchestras also receive a lot of grants from foundations. The purists here would say that the need for charity means it's a value-less enterprise and destructive to the economy, yadda yadda. Fine. Substitute "concert arena featuring major pop bands" for "orchestra" and the analysis holds. The bottom line is that a musical venue is valuable, and the people who play the music make it valuable. Take it for what it's worth.

[MP]

The magic-of-the-market fairy will save us, though, I suppose.

It'll do a heck of a lot better than the crystal ball loving bureaucrat.

[Cap'n Obvious]

M1EK -
Sadly, my company has one of those internet baby-sitters, blocking my access to certain content deemed inappropriate (God only knows why my access to this blog is uncensored), so I couldn't view your link. Care to share its content in summary?

[MikeP]

unlike a $70 batch of concrete, he can't turn around and use his happy appreciation and trade it to someone else for something of value

joe, I don't see the goods/services dichotomy you see. For instance, when I buy $70 of food and eat it, I actually have to pay someone to take away the resultant product.

Most everything comes from an economically unusable state -- e.g., seed, sunlight, and soil -- to a place in the economy and then is passed around before returning to an economically unusable state -- e.g., sewage.

That something is produced from thin air by an orchestra on a stage and is then consumed by a fellow in the sixth row does not make it any less of a product of the economy and does not decrease its economic value below the $70 the fellow paid for it.

Yes there are capital goods that can be passed around. But there are also ethereal goods or services. Each serves its own purpose in a complex economy. And each is exchangable for the other at some price. They both have economic value, a value which is identical at that price.

[M1EK]

CO:

It's the quote from Office Space:

"What is it, you say, you DO here?"

said by one of the Two Bobs to the guy who ended up winning the disability lottery.

[joe]

thoreau, I don't question that the construction of the building produced value. I'm talking about playing the instruments, and charging people to watch. While the people who pay to watch obviously consider it worth it to them, have they really gained any economic value?

"But the combo of building+orchestra generates more revenue than just the building." See, your eliding the question with "generates." It collects value from the audience, and is therefore profitable no question. But if I give you a ten spot for doing nothing, vs. giving you the same amount of money for humming "Billie Jean," is the GDP any higher under the latter scenario than the former?

Mike P, "joe, I don't see the goods/services dichotomy you see. For instance, when I buy $70 of food and eat it, I actually have to pay someone to take away the resultant product." Not the same thing - the "service" you get from an orchestra is already in a condition that you cannot trade, the moment you get it. You don't make it value-less in the market - it has no (economic) value the moment you walk in the door, though it makes you happy.

Does the economy get bigger when you pay a hooker?

[Larry Horse]

Hey, it might not be the economy, but I know something that gets bigger when I hire a hooker!

[Jason Ligon]

Is utility maximization the question? Service exchanges clearly work on the utility maximization front. If Keynes is all about digging holes and filling them as a way to increase short term aggregate demand, surely an analogy suggests itself.

[thoreau]

joe-

The services of the orchestra make the building more valuable. And they appear to have an enduring value, unlike scams. I think Jason gets it right on utility.

My humming, however, would not have any sort of enduring value. Indeed, if I did hum, you'd probably pay me $10 to stop humming.

[Swill]

Does the economy get bigger when you pay a hooker?

Among other things it depends on the slope of my labor supply curve, my hooker indifference curve, and whether you choose to believe the income effect or the substitution effect. It may be that hookers so gratify me that I actually go out and work more hours and produce more in order to consume more hookers and therefore the economy does get bigger. Or it may be that I after I discover the joy of paid sex I reallocate my discretionary income and watch fewer movies in order to consume more hookers, thus changing the market share of prostitution and movie house, but leaving the size of the economy unchanged.

[Swill]

Does the economy get bigger when you pay a hooker?

Among other things it depends on the slope of my labor supply curve, my hooker indifference curve, and whether you choose to believe the income effect or the substitution effect. It may be that hookers so gratify me that I actually go out and work more hours and produce more in order to consume more hookers and therefore the economy does get bigger. Or it may be that I after I discover the joy of paid sex I reallocate my discretionary income and watch fewer movies in order to consume more hookers, thus changing the market share of prostitution and movie house, but leaving the size of the economy unchanged.

[Swill]

Does the economy get bigger when you pay a hooker?

Among other things it depends on the slope of my labor supply curve, my hooker indifference curve, and whether you choose to believe the income effect or the substitution effect. It may be that hookers so gratify me that I actually go out and work more hours and produce more in order to consume more hookers. She goes and spends the money and what with the multiplier effect and all the next thing you know we are in high cotton and the economy does get bigger. Or it may be that I after I discover the joy of paid sex I reallocate my discretionary income and watch fewer movies in order to consume more hookers, thus changing the market share of prostitution and movie houses, but leaving the size of the economy unchanged.

[Swill]

Does the economy get bigger when you pay a hooker?

Among other things it depends on the slope of my labor supply curve, my hooker indifference curve, and whether you choose to believe the income effect or the substitution effect. It may be that hookers so gratify me that I actually go out and work more hours and produce more in order to consume more hookers. She goes and spends the money and what with the multiplier effect and all the next thing you know we are in high cotton and the economy does get bigger. Or it may be that I after I discover the joy of paid sex I reallocate my discretionary income and watch fewer movies in order to consume more hookers, thus changing the market share of prostitution and movie houses, but leaving the size of the economy unchanged.

[MikeP]

But if I give you a ten spot for doing nothing, vs. giving you the same amount of money for humming "Billie Jean," is the GDP any higher under the latter scenario than the former?

Nope. Both would show a $10 addition to the GDP. GDP measures trade rather than wealth per se. As such it is a metric that dances around the actual wealth-generating consumer surplus, but not a perfect metric of the wealth itself.

But I would say that the wealth of the world is higher in the latter than the former, unless the humming is painful to hear.

Does the economy get bigger when you pay a hooker?

Absolutely. The wealth of the world went up by the consumer surplus of the transaction -- the price you would have paid minus the price she would have taken. That that surplus existed meant that actions were taken: you went out to find her, and she went out to find you. If you want to track the long-lasting capital goods, look a the $70 itself. It has not been lost or destroyed. It merely passed from your hands to hers. And in doing so you are both better off. That's the economy getting bigger.

[test]

test

[passingthru]

Have globalists now seeped into the libertarian party? God help us!

[MikeP]

On the Australian experience, it's kind of fun browsing around the websites of a government that actually gets trade liberalisation.

There's a nice 2002 speech by the chairman of the Productivity Commission -- Getting the most out of the WTO and the Doha Round -- that is quotable in giant sections. E.g.:

This turned out to be an important advantage, as we were among the first countries
to act on the recognition that a country gains most of all from reducing its own trade
barriers, regardless of what other countries do.

But the money line for today's news:

If we downplay the USA's recent actions and pay more attention to its words
(reversing the usual rule), things do look more promising this time around.

[David T]

"Does the economy get bigger when you pay a hooker?"

A friend of Edmund Wilson's once told him "I always pay the whores as little as possible--I don't want to encourage prostituion..."

[Hakluyt]

Does the economy get bigger when you pay a hooker?

Economists as a rule don't put such items into their measure of GDP.

[MikeP]

That Australian report I cited above is available on line again, and I find that I have overstated the universality of the assertion about the Australian economy.

The source of that number is a 1997 Brookings paper. I've only skimmed it, but it appears to run macroeconomic models over various liberalization hypotheticals.

The prediction of that paper has the United States only getting 12% of the benefit of the multilateral APEC liberalization where Australia got 90%. The reasons cited are many, including already low barriers ("the US does not need to do much" -- also, Hong Kong of course shows no benefit of reducing its already nonexistant tariffs) and the composition of home country production.

So the message is the same: unilateral tariff reduction is better than no tariff reduction. But the proportion unilaterally available of the gain from multilateral tariff reduction is less for larger freer economies than for Australia in 1997.

[notso]

short term cheaper plywood from the north;

fewer US lumberjacks.

long term cheaper Orange juice;

smaller payouts by FEMA.

[Mick]

Australian enthusiasm for free trade has been evolving gradually since the 1980s, when some of the absurd results of protectionist policies first became a political issue. There was, for example, a government agency that guaranteed a minimum price to wool growers by buying all wool that was left unsold. When the stockpile of wool in that agency's warehouses reached one million tons (!) it became clear to all that something had to be done.

Trade liberalization has now had such positive results that the momentum is likely to continue. And by some estimates the Australian federal government is projected to become debt-free in the next year or so.

Now, if they could do as well at lowering taxes...

[Isaac Bartram]

Australian enthusiasm for free trade has been evolving gradually since the 1980s,...

Doesn't that pretty much coincide with the end of the Commonwealth preference when Britain joined the ECC?

[joe]

"It may be that hookers so gratify me that I actually go out and work more hours and produce more in order to consume more hookers and therefore the economy does get bigger." Ok, but then it is your work that makes the economy bigger, not the hooker's exertions or your payment of her.

Mike P, "But I would say that the wealth of the world is higher in the latter than the former, unless the humming is painful to hear." So what your saying is, there is no objective standard of value, that "aesthetic value" or "cultural value" are just like the value that gets added when a lump of iron is turned into a kitchen knife. Is that what you're saying?

[MikeP]

So what your saying is, there is no objective standard of value, that "aesthetic value" or "cultural value" are just like the value that gets added when a lump of iron is turned into a kitchen knife.

Yes, I would say that there is no objective standard of value, for extra-human meanings of objective. It is objectively true that a thing has a value, but that value is measured by what one would accept to replace it or what one would give up to acquire it.

Value is entirely subjective to a person. But since most people can find many people similar to themselves, you can objectively measure the value of a thing within the group by watching how the collection of people value the thing relative to all the other things they could possess or consume. The measurement may be objective ($70), but I'd still say the value is subjective.

There are capital goods like iron and gold that have more concrete and exchangable value. But even there, iron has so many diverse uses at its typical price that it has a "more objective" value than gold, whose value is determined more by aesthetics and speculation.

A concert in a concert hall, on the other hand, has value only to a person who likes such particular concerts. That value is measured by the fact that the person gave up $70 which could have otherwise been used to buy iron, knives, gold, prostitution, or two fewer hours of $35/hour overtime.

[MikeP]

the value that gets added when a lump of iron is turned into a kitchen knife

I realize reading back that I didn't get to the precise "value added" point you were asking about.

Yes, the knife with 250 grams of iron in it is more valuable to more people than the 250 grams of iron. That can be objectively measured on the market. But that seemingly objective value is merely an averaging of the subjective values of all the people who might choose the iron or the knife.

In particular, say you "added value" to a lump of iron by making a knife which was two edged and had no handle. The value of that knife to just about anybody would be zero or negative as it would be injurious to use. You have done work on the iron to make the knife. That work cost you real time, capital, energy, etc. But you certainly added no objective value to it and, frankly, took value away. The original iron would command a higher price on the market than the finished knife since the iron has more valuable uses to more people than the knife.