Follow Up on My Mercantilism Post

Responding to comments on this morning's post.

Okay, so I read some of the comments in my last post, and going to reply here on the main page.

First up is this comment by grumpy realist,

Except that there are a few things that you leave out:

1) National security. We could use the same logic to “outsource” all of our military hardware as well to the nation with the lowest cost-why don’t we do that? Heck, we could outsource all of our MILITARY outside this country, arms and the man together-why don’t we do that?

2) Moving everything in the direction of cheapest cost will prove to be a false economy if your populace-without-jobs decides to have a revolution.

3) Don’t be so enamored of the “oh if we pay any more than the absolute bottom of the economy it’s welfare” idea. Wage supports may be the one thing keeping the lumpenproletariat from invading your house and looting everything. Driving everything down to Chinese wages means the workers can only afford Chinese prices, Chinese level of environmental protection, and Chinese safety. You really want to take a chance on that?

4) Ever heard the term “race to the bottom”?

This has very little to nothing to do with national security or the military. The military is something that the government typically provides and not the market due to the significant free rider problem. The notion that the military will be “outsourced” is just grasping at straws.

The second point is what happens in the domestic economy. Firms look for the low cost method of production. In fact, I would argue that quite a bit of innovation is to lower the cost curve for firms, domestic and foreign, and allow firms to earn economic profits for a period of time. And if we flip it…do we really want an economic process that seeks out higher and higher cost production processes? That is the recipe for economic prosperity? Why aren’t employers simply increasing employee wages, paying more in terms of rent for their floor space, etc.? Nothing is stopping them from arbitrarily raising costs right now. No, this point makes literally no sense.

Point number 3 completely missed the point that I noted about payments to the factors of production. Those payments go up, in a competitive system, as the workers become more productive. And workers become more productive the more specialized their work. It was all there in my post. If we were to reduce specialization people would have to become more self-sufficient. And by that I mean they’d have to produce things they currently purchase in the market. I used the grocery store as an example. But lets go with something far more simple…the humble pencil. I use the pencil when discussing economics with co-workers because it looks so damn simple. But…anyone know exactly how to make a pencil? I mean could you make one right now? I couldn’t and I’d be willing to be all of the commentators could not either. They lack the supplies, the tools and/or the know how. Could anyone make a pencil without…yes WITHOUT going out and buying at least some of the inputs? If you answer yes, please tell us where you obtain the graphite. A picture of your mine and mining equipment would be lovely. Next, a picture of your chainsaw an tree(s) oh and yes, tell us how you’ll produce the rubber eraser. What is the point here? That the market allows us to specialize in only a small part of overall economic production and become very good at it and become significantly more productive and that by exchange in said market process we can all be significantly better off.

And yes, some people are going to be uniquely unsuited for success, even marginal success, in a market based economy. However, moving away from a market based economy is not the answer. Moving away from a market based economy is to move towards a more self-sufficient economy–i.e. where you have to do for yourself vs. using your higher income in a market economy to buy those goods and services you cannot self supply. This is not the answer because I’m pretty sure those people who are not well suited for success in a market based economy are also not going to be well suited for success in a self-sufficient economy. And in the self-sufficient economy everyone is going to have less resources for themselves let alone helping others, especially when there is little to no perceived benefit.

As for point 4, the bottom of what? The bottom in terms of cost? Great! I love paying less for the same product. What quality might decrease, well people are willing to pay more for better quality. Quality and quantity are trade offs that firms and consumers make on a day-to-day basis in the domestic economy. Why is it suddenly bad when it is done between countries. Yes, it is bad if fraud is involved, but that is why we have courts and the law and the government. To punish those who engage in it. Our legal system when it comes to business and the economy is largely like the criminal side: reactive. It does not seek to proactively prevent fraud, but to prevent fraud by punishing those who engage in it. Further, where it is proactive….is precisely where people like Donald Trump complain: regulations. Oh the irony.

Our next post is by Slugger.

I think economic theory is too abstract and too glib. My last US made car was a 1980 Jeep Cherokee, and I and most Americans are better off due to imports, but not everybody. These large shifts in customer allegiance hurt somebody, and often the people who are hurt are the most vulnerable segments of the population. Image a town with one guy making a million a year and ten workers making fifty thou. As a result of opening trade barriers, the millionaire’s income increases to 1.5 million, and each small guys ‘ income drops to forty thou. Looking simply at the numbers that is a good net increase for the town. However, if you look at marginal utility or at human happiness/suffering the town is not better off. Economic theory treats people as fungible widgets, but in reality switching to a different enterprise or moving to a more dynamic part of the country comes with real human costs. In the US, income for middle class people has been stagnant while a tiny elite gets richer. Sadly, there are very few NFL starting quarterback slots available.

Economic theory looks at dollars through a mathematical prism. It needs to account for human happiness and suffering from economic displacement. I sort of understand the Schumpeterian argument about the positive values of dismantling less efficient sectors, but I do think that every job has a human face and every closed plant has some tears with the hopes for a better future. I guess that’s what makes me of the left.

[Note: I added a paragraph break in there for readability]

I agree with some parts of this…kind of. I do think that economists spend too much time looking at aggregate data which can be both misleading (even when correct) and also of dubious value (when incorrect or incomplete). Take for example data on household income. Economists are often prone to taking that day for say the last 20 or 30 years and treating it as if it were comparable. But it may not be. Suppose the in the data there are more single parent households, or more households of illegal immigrants, or more (or fewer) children. Or that there are more (or fewer) college graduates or that the distribution of college degrees have changed. All of these things can make the numbers incomparable. Economists know this, and try to get more data. Data on the composition of the household, educational levels, and so forth. But there is always a limit. As with non-economists there comes a point where you’ll stop collecting data as the cost of doing so will outweigh the benefits (at the margin)….or so you think. Further, as I have pointed out with co-workers aggregated data hides information and distorts it.

As for the town example, that is true, we could look at the aggregate numbers and say, “Oh, no problem. Overall incomes have increased, so nothing to see here move along.” But again, this can happen even without international trade. If it is bad with international trade…why is not bad when it happens without international trade. If you object to this you should object to it irrespective of the cause being international trade or just domestic economic activity.

Further, this is what happens in the market process. Schumpeter called it creative destruction. When somebody innovates they inevitably destroy something that came before. When somebody innovated with the ipod, they set in motion the destruction of cassette players. Similarly with the DVD. They put in motion the destruction of video tape players. Not literal destruction, but…can you even buy a VHS recorder in a store? I haven’t looked in years. And with streaming I’m pretty sure there is now tremendous pressure on DVD production. So, if you want to preserve jobs…stop innovation of all sorts. Innovations that save money, innovation that gives us new products, and so forth. And yes, the “destruction” part of creative-destruction is hard on people. But invariably many recommendations to deal with that destruction are implicitly to stop the creation part of the process. In fact, I do not think you can have the creation portion without the destruction portion also. So the solutions for the destruction side of the process is to find ways to ease the discomfort that causes, and no that won’t be easy either. So while I agree with some aspects of the comment it appears to be missing the forest because of the trees.

Our next comment, and the last one I’ll address in this post is from Ben Wolfe who has been pounding the drum that mercantilism was not anti-trade.

It’s not a big deal for Montana to run a trade deficit with California because the currency monopolist called the U.S. government makes large block grants to replenish the lost financial assets.

Suggesting the deficit of a customer with Wal-Mart is equivalent to a trade deficit with Germany is asinine

P.S.: Mercantilism was a policy of ensuring maximum generation of national wealth by balancing trade to support domestic wellbring. It was never anti-trade.

First of, no financial assets have been lost. That is just completely untrue. Second that one trades financial assets for goods and services is done so on the basis that such a trade makes both parties better off at least ex ante. This comment suggests that because I trade a financial asset, money, for all the groceries I want makes me strictly better off. The grocery is also strictly better off. And as I noted, this is a trade relationship where I run a persistent and on going trade deficit and thank God!

And it is nice you think comparing a trade deficit with Wal-Mart is equivalent with a trade deficit with Germany is asinine, but that isn’t an argument is a baseless assertion. You literally sound like Donald Trump.

As for mercantilism, even with put the best make-up job on this pig it still comes down to being implicitly anti-trade. You simply cannot have every country running a positive trade surplus at the same time. It would be, literally, impossible. Somebody has to run a trade deficit. And trying to have the balance of trade be precisely zero is to argue for substantial State control of the economy. Congratulations on being a fairly extreme statist. Here is Murray Rothbard,

Mercantilism, which reached its height in the Europe of the seventeenth and eighteenth centuries, was a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state. Thus, mercantilism held exports should be encouraged by the government and imports discouraged.

If every country is discouraging imports while trying to encourage exports it is exactly like pissing up a rope. This is precisely what happened with the Smoot-Hawley Tariff in 1930. It is quite clear that that legislation had a very deleterious effect on the not just the U.S. economy the world economy as well. I would encourage everyone to listen to this podcast at EconTalk that has Thomas Rustici as the guest. Rustici takes on the notion that Smoot-Hawley was not a significant factor. He points out that while the primary effects were “small” in that trade was not as significant as it is now, that the secondary and tertiary effects resulted in a significant worsening of the economic situation. For example, one of the U.S. primary exports was agricultural goods and that with the passage of Smoot-Hawley and the concomitant retaliatory trade restrictions by other countries the prices for agricultural goods dropped sharply. This lead to farmers being unable to pay back bank loans and due to the unit banking in many states during that era that those banks in turn would fail and wipe out deposits for the entire community. And that such bank failures can take on a contagion like aspect leading to sound banks facing runs and shutting down due to being illiquid (and letting an illiquid bank fail is just bad central banking policy).

As for promoting overall well being; I’m sorry but you don’t do that by telling people they can’t buy the things they want to buy and that they have to buy something they don’t want that also costs more.

FILED UNDER: Economics and Business, , , , , , , , , , , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.


  1. Han says:

    So you have a perfectly good post with only 30+ comments where you could engage your audience, but you start an entirely new post? For what purpose? So everyone can see how you have Responded To Your Critics, and are still The Smartest One In The Room? Jesus Christ, needy much?

  2. MBunge says:

    Yeah…I’m not going to bother reading anything from a guy who thinks trade relationships between sovereign states is the same as a person’s relationship with their local supermarket, because he’s already proven that he’s just as foolish as the guy who thinks managing the U.S. federal budget is the same as balancing the family checkbook.


  3. Jack says:

    As for promoting overall well being; I’m sorry but you don’t do that by telling people they can’t buy the things they want to buy and that they have to buy something they don’t want that also costs more.

    Like Obamacare?

  4. Steve Verdon says:


    Are you suggesting I’m a fan of Obamacare?

  5. Steve Verdon says:


    I put it here because those are often common objections and wanted to provide the response were others might see them vs. having to sift through the comment section.

  6. Steve Verdon says:


    First, I never made the analogy between balancing the Federal budget is like balancing the family check book. But, I would point out that some aspects of the accounting surrounding the Federal budget are fundamentally different and rather strange relative to how a household would view its budgeting process. I would submit that this same kookiness might very well be at play in the accounting of our trade balance and even more broadly the current account balance. Yes, that makes the analogy with me and my grocery store inappropriate, but not because it is wrong, but because the accounting process is cock-eyed.

  7. Jack says:

    @Steve Verdon: Nope. Just throwing it out there for those who wholeheartedly agree with your economic position but somehow squeeze forced purchases of insurance people may not want or need into their tiny little concept of free trade and market economy.

    That sound you hear is the grinding of their tiny little brains as they paradigm shift without a clutch.

  8. MarkedMan says:

    I’m glad Steve made this second post. I feel like I disagree with a fair amount of what he is saying, and agree with some of it, but mostly I feel I have to think about it. Which is a good thing.

    All those years ago as the Iraq war was starting down its disasterous path, I felt I needed to find some conservative voices that saw what was happening in a different way. I searched for blogs that argued the other side, but weren’t just a “my team right or wrong” echo chamber. I hit upon this blog and Andrew Sullivan’s. As of late, so much focus has been on Trump and the bankruptcy of the current Republican Party that even OTB hasn’t provided much in the way of conservative arguments. I welcome Steve joining back into the fray.

  9. Steve Verdon says:


    By the way just curious. Suppose, I am a business man and I go over to Vietnam and purchase a factor to make tennis shoes. How is that purchase treated in the Current Account accounting process and what does it imply? It would be treated as if I had imported a factory to the U.S. Now do you see why looking at the accounting process is, by most people’s standards, a bit…strange?

    Or here is an example from Donald Boudreaux,

    Americans import $1 million of foreign cars and, in exchange, export to foreigners $1 million worth of software engineered in Silicon Valley. The software is delivered to foreigners by loading it onto computer diskettes and then shipping these diskettes abroad.

    Americans import $1 million of foreign cars and, in exchange, export to foreigners $1 million worth of software engineered in Silicon Valley. The software is delivered to foreigners by having them download it online.

    Economically, I would see no difference, but the cock-eyed accounting we use does impose a difference.

    And if the current account is in deficit by say $150 billion what does that imply about the capital account? Is it in deficit or surplus?

  10. steve says:

    Rothbard? As your appeal to authority? My anarchy-capitlaist buddy said read Rothbard. Have Man, Economy and State right behind me. He is an extremist in almost any conceivable way you would want to define one. (And, contra my friend, not an easy read.) You would help your case immensely if you could cite people who aren’t extremists and whom we know support what you are advocating.


  11. Andre Kenji says:

    The supermarket is a complicated analogy. It means that you could have a trade deficit with country A, but that you´d need to have a surplus with another country to buy things in the country A.

    And I also think that politicians don´t have a problem with trade deficits per se – they are selling to voters the idea that you can have large sections of the population being paid to do unskilled work, and that´s an illusion.

  12. Pch101 says:


    Rothbard is the type of extremist who appeals to mild-mannered extremists who fail to recognize their own extremism.

  13. MarkedMan says:

    Here’s my admittedly limited understanding. The Vietnamese factory would be a separate Vietnamese legal entity. The US company would be a sole or majority owner. It is only the profits dispersed back to US company that are make it fpdifferent from a normal purchaser/supplier relationship and those are treated seperately. Arrangements like this are hard to police, since the temptation would be to mess with the cost of goods charged to the US side to reflect favorable tax treatment rather than true cost. However, that is fraud and the IRS goes after companies they believe are doing that.

  14. Michael Robinson says:

    @Steve Verdon: You could get an education starting here:

    The Great Transformation (Karl Polanyi, 1944)

  15. Slugger says:

    My first sentence in the previous thread talked about my personal and our nation’s aggregate benefit from the international automotive trade. I recognize and admit this. However, I don’t think that the process is entirely benign. Displacement of automobile jobs in the US has caused real pain to some people, and most of us would agree that Detroit is not a desirable goal to use as a benchmark. I agree that people have made money in Silicon Valley, but there is no reason to think that Americans are uniquely able to do this type of work. There are a billion people in China and a billion in India, and some of them are probably pretty smart. Should we stand by if San Jose turns into Detroit in order to maintain our standing with some professors?
    Capital is able to move across national borders easily. It is harder for people.

  16. Michael Robinson says:

    Which is given a human face by:

    The People of the Abyss (Jack London, 1903)

  17. Steve Verdon says:

    @Michael Robinson:

    You can start your education here. It is free and much shorter.

  18. Steve Verdon says:

    @Michael Robinson:

    By the way, new research suggests that Polyani was wrong. Reciprocity is still quite a driver in human behavior even today.

    Here, this is also much shorter that Poyani and also “free”.

    More here too.

    BTW, I think most people who encountered Homo economicus in real life would walk away feeling like we just met a sociopath.

  19. grumpy realist says:

    Unfortunately you still haven’t answered my question: what if the people decide to have a revolution because they’re sick and tired of not being paid anything? What is your wonderful free market going to do when everything is roboticized, we have factories churning out cheap stuff, but no one can buy anything because they aren’t employed anywhere?

    You can’t keep “improving efficiency” and just keep “dumping the deadwood” (sorry that we’re moving the factory to Mexico because it’s cheaper and yeah, you’re losing your job, sucks to be you boo hoo, not our problem) because at some time the whole thing will crack.

    You seem to have read a lot of economics. I suggest you start reading up more history.

  20. Alfred E. Neuman says:

    “This is precisely what happened with the Smoot-Hawley Tariff in 1930. It is quite clear that that legislation had a very deleterious effect on the not just the U.S. economy the world economy as well.”


    In the world of free traders the United States was a free trade nation until the 1930 passage of the Smoot-Hawley tariffs which killed international trade causing the Great Depression or at least made it worse just as free trade theory says it would.

    This view is inconsistent with real world facts. First, the time line does not support this view. International trade decline started in June 1929. Smoot-Hawley was passed into law a year later in June 1930, but did not become effective until two years later in 1931. Most of the decline in trade had already happened before Smoot-Hawley collected a single dollar of tariff. Moreover, while the Great Depression did not end until the end of the 1930s the Roosevelt administration ended Smoot-Hawley in 1934 with the Trade Agreements Act. When the Great Depression started its double dip in 1937 Smoot-Hawley was gone.

    Second, and far more important, before Smoot-Hawley passed tariffs were already high and had been for more than a hundred years. For more than a hundred years the United States was the most trade protected economy on earth. The first act of the first Congress of the United States was to impose tariffs. That tariff was under 10 percent. By 1821 tariffs were near 40 percent, peaked at 62 percent in 1828, drifted down to about 20 percent before the Civil War, shoot up to near 50 percent at the start of the Civil War, bounced around between 40 percent and 50 percent until about 1912, declined to just below 20 percent (reducing tariffs was used to deal with monopolies), went up to near 40 percent in 1921, up to 59 percent with Smoot-Hawley in 1930, started a rapid descent to under 20 percent in 1934, and under 10 percent after the Kennedy Round in 1967.

    Free trade is an Ivory Tower Theory surrounded by a bodyguard of lies. The big lie is that trade protected economies are not prosperous. Our past tariff protection served us well and has produced real world positive results that are in every way the antithesis of what free trade theory would predict. All of the gains of the middle class came with tariff protection. All the middle class loss has been under free trade.

    No tariff no recovery!

  21. JohnMcC says:

    I stayed in my foxhole during the first ‘Mercantilist’ battle rather amazed that several gentlemen and ladies of considerable learning would spend a Saturday afternoon growing angry and sometimes abusive of each other over the intricacies of 17th century economic theories. It reminded me of my good friend (who also has a fabulous brain and education) who grows irate at high tension electrical lines near his house and worries about GMO foods.

    These people are way up on Mazlow’s hierarchy indeed.

    But my friend also grinds away at ‘Neo-Liberalism’ to the extent that I looked into it and Mr Verdun’s two posts have admirably condensed it (as far as I can tell). And I have a couple of thoughts about that.

    First, that plenty of de-regulation and market-orientation has been helpful. When my Sis in Nevada grumbles about being ignored and disrespected because ‘we are just fly-over country’ I remind her that that is a result of de-regulation (which a dyed-in-the-wool conservative like she endorses). Before Pres Carter began the process of freeing airlines to become primarily profit centers and only secondarily public utilities medium size cities like Reno had air connections with each other because the FAA required it. Today it’s all ‘spoke and hub’ and if you want to go from Reno to Taos, enjoy LosAngeles on the way. To a large extent, this has been a good thing but it’s not without costs. Similarly, when I was much (MUCH!) younger you could find a Greyhound/Trailways bus station in virtually every small town in America. I was recently in a small NCarolina town having gotten off the Appalachian Trail and had to get someone to drive me some 40miles to a bus station. That 40miles was more expensive than the bus ride to Atlanta. De-regulation of the major banks turned out to have some obvious flaws as we’ve all noticed.

    Taking a swing at the same idea from another direction, think of Holland. In a truly efficient world they would never ever have constructed a fabulously expensive set of dykes and canals for the purpose of growing tulips and making cheese. But the Dutch happen to like where they live and their government taxes them and builds water controls and they think that’s just fine.

    There’s plenty of things that Government does for us that are uneconomic. Ms GRealist points out our military. Good point I think. There is a certain amount of security that we all would agree we should purchase. Beyond that there is a diminishing amount of extra security that each $Billion adds. How much is too much and how much is not enough? Only experts like Dr Joyner have a good handle on that and they probably get outvoted all the time so more or less money than they think right is spent. And that’s just fine because we live in a democracy and have a national identity that doesn’t grow or shrink depending on the trade deficit.

    There is no reason that Government policies should conform to the greatest possible economic efficiencies. The reason we formed ourselves into a nation was not to produce an economy that hums along making everyone individually richer and richer — IF they have the adaptability and cleverness to know how to do it. And if not, well, sucks to be you.

    I posed this thought experiment to a nephew who was enamored with Ayn Rand. Suppose you were re-locating to a new job and had a choice of two cities to put your family into. In one, the realtor could show you somewhat smaller homes and smaller lots without quite the bells and whistles you could wish but the city was full of parks and libraries and had the best public schools in the state. In the other the homes were large and wonderful but you had to travel miles to get to a park or library and you’d have to send your kids to private schools in order to see their education was up to your standards. Remember you’re planting yourself in the city of your choice for your whole life and raising a family there. What’s your choice?

    My choice would be influenced by considerations of civic virtue. How well does a nation care for the weakest, the poorest, the young and the old. Only after I have a sense that our entire nation has ‘succeeded’ as a common, joint, shared citizenry do I give a pile of dog poop about the notions of economic efficiency.

    I could go on but that’s probably too much already and I despise keyboardarrhea. And I’ve poured a wee dram for myself and promised that I never comment under the influence again.

    G’night, all.

  22. Steve Verdon says:

    @Alfred E. Neuman:

    Good god man learn some basic logic.

    Yes, as the economy went from expansion to recession purchases of imports tends to follow the business cycle. So yes, imports would decline as the economy heads into recession. This is obvious to most people, but I guess not you….then again given your user name I would not expect sophisticated reasoning capabilities.

    As for Smoot-Hawley it had an almost imediate effect. Irrespective of the legislative language firms and individuals can anticipate its effects and take immediate actions to minimize their downside exposure. This should be obvious to even the most banal reader.

    As for ending Smoot-Hawley and expecting it to end the Great Depression I have never made such a claim so here you are tilting against a windmill. However, in 1932 or so the Roosevelt Administration passed the NIRA which a few months later pretty much killed the nascent recover. See the graphs here. This is just not my opinion bust also the view of James Hamilton.

    I openly confess to believing that government policies that were explicitly designed to limit manufacturing, agricultural, and mining output may indeed have had the effect of limiting manufacturing, agricultural, and mining output.

    This policy was the most boneheaded policy a government could exact.

    But hey, whatever it takes to cling to our precious world view right…facts be damned.

  23. Steve Verdon says:


    See, there is a considerable amount of nonsense and Bravo Sierra in the comments. So, in answer to your question, I just don’t give a shit. FOADIAF.

  24. JohnMcC says:

    @Steve Verdon: I’ll remind everyone of my thought that some people are WAY to far up on Mazlow’s pyramid. You should all go for a long wilderness hike.

    (Edit) That should be ‘too far up’…. Obviously a good wee dram.

  25. Davebo says:

    @Steve Verdon:

    Welcome back Steve! OTB was lacking in it’s “dick with ears” quotient but luckily you were here to step into the breach.

  26. JohnMcC says:

    @Steve Verdon: Really?! F*#K OFF AND DIE IN A FIRE

    Do I have that right? Oh My God, sir. I happen to have had the honor and responsibility of actually taking people’s bodies from the downed aircraft where they had died in fire. You wish that on someone who disagrees with you on an internet comment board over the topic of mercantilism versus neoliberalism.

    Do you have any idea how low you have sunk in the range of ‘rancid human refuse’?

    I will never NEVER honor anything you place here with my attention and if someone you love is ever killed in a fire — I hope you remember this sad moment.

  27. michael reynolds says:

    Dude. It’s just an expression. When I get really irritated I tell my wife I’m going on a killing spree. Do you think that means I really intend to kill people? In the course of my life I’ve made smart-ass remarks about killing, maiming, etc probably 10,000 times. Number of actual kills: zero.

    Hyperbole is a form of humor. Like when I say to one of my kids, “I’ll give you a million dollars if you do X, Y or Z.” My kids rarely but occasionally do as I ask, and yet neither has a million dollars.

  28. Franklin says:

    I fail to see how Verdon’s response to point number 3 (by grumpy realist) in any way responded to it. Environment protection and safety, for two examples – we’re still waiting for an answer to that.

  29. Zachriel says:

    Of course, the greatest trading empire in history was a mercantilist empire.

  30. Andy says:


    You keep mentioning “economic prosperity” without any irony. It is a concept predicated on human experience and not merely the cost of goods and services.

    Secondly, your arguments are correct only as theoretic constructs divorced from other considerations. In reality, economics doesn’t exist in a little drawer removed from other human endeavors. There is no such thing as “free trade” – there is always a degree of mercantilism. Every country is playing the trade barrier game. The negotiations take place in the realm of international politics where there is plenty of room for incompetence, subterfuge and double-dealing. It is not for nothing that nation-states devote considerable intelligence resources to economic and trade negotiations. The people actually negotiating these deals have agendas. The resulting “free trade” agreements are not inherently beneficial to the US or workers, or even the aggregate economy. They might be beneficial, but it’s not some divine truth dictated by economic theory, it all depends on the details.

    So it is completely reasonable to be skeptical of trade deals which, by definition, are not “free trade.” It’s fair to be skeptical that our negotiators are perhaps not up to the task, or are more interested in serving specific constituencies rather than economic prosperity or even aggregate economic benefit.

  31. Eric Florack says:

    So that’s what this is turned into? An argument for increasing the minimum wage?

    Let me answer that by stating that the minimum wage in this country should be zero. Nothing.

    Now, of course you’re going to suggest that nobody would work for that. And you’re quite right. At that point it becomes an argument to be held between the workers and the employers. No input from the government needed.

    With the added advantage that jobs have a tendency not to disappear over the Border

  32. Alfred E. Neuman says:

    @Steve Verdon:

    In the graph you reference Industrial Production Index is just below 8 in June 1929. At the passage of Smoot-Hawley in June 1930 the index is 6. When Smoot-Hawley went into effect in June 1931 the index is 5 and after declines to a low of below 4. The decline from 8 to 5 cannot be blamed on Smoot-Hawley. If Smoot-Hawley tariffs had been the driving force there would have been no change until it was passed and between the passage and the implementation there would have been an increase in the Industrial Production Index as consumers would be adding to inventory in an effort to beat the tax increase. Last time my state had a sales tax increase retailers had a “beat the tax sale.” Automobile dealerships were open to midnight the day before the tax went into effect.

    Again, even before Smoot-Hawley tariffs were high and had been for over a hundred years.

    My point is the data do not support the notion that Smoot-Hawley was the boogieman of the Great Depression.

    As for understanding basic logic I have a master of science in engineering as well as a MBA. Once I accepted the notion that free trade was a good thing. Seeing the impact of NAFTA lead me to look more carefully at the numbers. My basic conclusion is that the Emperor Free Trade, like the Emperor in the Hans Christian Andersen tale “The Emperor’s New Clothes” is naked. This nation did better with trade protection than it has done with free trade.