That’s my job at Islington Technical College screwed then

So, there’s a letter from 1,100 economist floating around. Insisting that trade agreements have made the world much richer blah, blah, blah. So, I was going to write a typically Worstallian piece. Nah, it’s not trade agreements, it’s lower transport costs. Agreements are nice, useful, make us richer etc, but transport hugely outweighs tariffs etc.

And, you know, all economists would agree when this is pointed out, it’s just we don’t normally bother to do so.

Just before I charge off thought I’d just check the drop in transport costs. I know absolutely it’s true for late 19th century, let’s just check it is for post-war 20th.

It ain’t. Ad valorem shipping rates have been pretty constant actually. Complicated stuff – what gets shipped has changed etc, times are much shorter, smaller load can be shipped, less theft – but my thesis isn’t, really, very true at all.

So, not writing a piece on that claim then.

But that is my application to teach at Islington Technical College screwed then isn’t it? Altering stuff on the basis of facts?

Just to make it worse, then looked up a bit of trade theory to see why I disagreed with it. Turns out I misunderstood it. Ho hum….

22 comments on “That’s my job at Islington Technical College screwed then

  1. nobel prize winning economists write open letter to trump urging him not to repeat the mistakes of the 30s
    – Are they talking about the New Deal? Big deregulatory push from the man in the red hat, looks ok
    – Protectionism and tariffs on trade? He seems to be using the threat of tariffs either to coerce others into reducing tariffs, or as a stick against the Iran and Russias of the world. Not quite the 30s.

    Bonus point

    How many of those economists have written to the EU urging flexibility in negotiations with the UK rather than allowing barriers to trade to come into force?

  2. With an attitude like that I can also see why you left politics – change your beliefs based on facts just doesn’t seem to fit into parliamentary politics.

    If monetary transport costs have stayed the same, but transportation time has fullen, then does that mean the real value/cost does differ. Getting goods quicker presumably means you can sell the goods quicker and so a higher velocity of trade making everyone wealthier – similar to velocity of money also being an important concept?

    Presumably trade deals also increase the velocity of trade as they remove bureaucracy and delays in custom processing. So the question may be which has had the bigger benefit on the velocity of trade?

  3. The way to find out is to return to lorries of the size they were before the 1964 regs. There were still a lot of three tonners. How big was a common artic – ten or fifteen tons maybe?

    That experiment would be a useful test of the proposition that transport costs have hardly altered in the last couple of generations. We could do the same thing at sea: bring back all the lovely wee tramp “steamers” (usually diesel engined) of the fifties and early sixties.

    We could go the whole hog and bring back onion johnnies.

  4. Tim, I remember a massive drop in international transport costs in the 1970s as a result of containerisation (there was a knock-on effect on transport costs of non-containerised goods due the resultant surplus of bulk carriers and mixed-freight carriers as freight shifted to container ships and a simultaneous reduction in shipping costs for oil with the move from VLCCs to ULCCs for oil). Definitely less theft – I was staggered to learn that the biggest saving from containerisation was lower insurance premiums due to less theft in the docks.
    Have you checked whether the failure of ad valorem rates to decline is down to the increase in the much more expensive air freight? My local Tesco (Waitrose wouldn’t be so surprising) is selling fresh fruit and Veg flown in from South America. As transport costs come down, those products that it wasn’t worth shipping a decade earlier become available. When I was young we did get fruit shipped from South Africa but not flowers flown from Kenya.

  5. I’m not reading the letter but are there really 1100 or so economists claiming that trade between countries with trade agreements has added to prosperity more in proprtion than trade between countries that do not have negotiated trade agreements?
    I thought the USA, China and the EU had no agreements, and the US States don’t seem to have one between themselves.

  6. @ dearieme
    The Greenies would surely welcome onion sellers as their bicycles did not contribute to Global Warming. You should lobby Caroline Lucas to introduce a bill exempting them from customs duties post-Brexit as they will be personally importing only the weight of onions that they can carry.

  7. That trade agreements improve international commerce is perverse.

    Trade is between people and companies. Trade agreements are between third parties: governments.

    The Mole is on it. The agreements are, “You can sell your stuff here if we can sell our stuff there.” Which everyone would do if governments didn’t prevent it in the first damn place.

    I think he nails it on transport speed, too.

    I add that the internet enables international shopping. I might find something I’m looking for in Europe. I can securely pay for it with a credit card. I can expect to receive it in less than a week, not the 6 weeks it used to take.

    In fact, Amazon.com encompasses much of the process.

  8. So, trade agreements and tariffs are protection money?

    Makes sense,unfortunately

  9. Tim, what shipping costs are you looking at? My understanding is that the big drop with containerization was in door to door costs. It’s the cost of loading and unloading and getting freight from and to the port that containerization fundamentally transformed, not so much the cost of carrying it on the ship.

  10. Two short but very interesting podcasts on the shipping container:

    From the Planet Money team (20 mins):

    The shipping container completely transformed commerce over 50 years ago. It’s part of the reason the Planet Money women’s T-shirt comes from cotton grown in Mississippi, spun into yarn in Indonesia, and sewn together in Colombia.

    On today’s show, we meet the captain of a giant container ship bringing our women’s T-shirt home to the United States and challenge him to a game of ping pong.

    View our T-shirt’s journey at planetmoney.com/shirt.

    And listen to more of our T-shirt podcasts here.

    The T Shirt series mentioned there really is fascinating and educational and should be compulsory listening for all SJW’s and pretend professors of political economy.

    And from the BBC’s excellent series 50 Things That Made the Modern Economy (10mins):

    The boom in global trade was caused by a simple steel box. Shipping goods around the world was – for many centuries – expensive, risky and time-consuming. But, as Tim Harford explains, 60 years ago the trucking entrepreneur Malcolm McLean changed all that by selling the idea of container shipping to the US military. Against huge odds he managed to turn ‘containerisation’ from a seemingly impractical idea into a massive industry – one that slashed the cost of transporting goods internationally and provoked a boom in global trade.

  11. I think I might be rethinking yet again. Ad valorem might not be the way to be measuring them. If the tshirt used to cost $10, now $1, and shipping costs are still 7% (say) then lowered shipping costs have increased trade, haven’t they? Hmm, more thought needed.

  12. Tim, if you haven’t found it, this article is interesting:

    http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.395.5379&rep=rep1&type=pdf

    “The price of bulk shipping measured in real dollars per ton has declined steadily over time so that it is now half as much as in 1960 and a third the price in 1952. However, when measured relative to the commodity price deflator there are large fluctuations but no downward trend. While the cost of shipping a ton of wheat or iron ore has steadily declined, the cost of shipping a dollar value of wheat or iron ore has not.”

    But there must be a feedback there. Containerisation reduces the cost of international trade, which increases the volume of international trade, which reduces commodity prices by making more distant suppliers competitive and so broadening markets, and so the ad valorem shipping cost rises again.

    But it also finds counters to the savings from containerisation, in particular increased oil prices and increased port costs (I’d guess the latter was unions screwing the consumer and preventing us benefiting from the lower handling time of containers).

    Plus perhaps some of what Daniel Hill said – on-board price vs dock gate price?

  13. Have you included things like communication in “costs”? You can drop an order to a factory in China, know when it’s been made, when it’s shipping etc.

  14. The point is to calculate when to use air freight, when to use ships and then when to split containers, if that means the shipping starts earlier. Lots of variables. Depends on value as a proportion of weight or mass as to whether to air freight, or ship it. Flowers don’t ship well but need the fast transit. Bis has the rules of thumb

  15. In the 70s, almost all coal burnt in the UK was home-produced from deep mines. Today, none of it is. It’s much cheaper to strip mine coal in the Powder River basin and carry it across the US by rail and then across the Atlantic by ship, than it is to deep mine it in the UK (or France, or Germany).

    Something has clearly changed, and I don’t think it’s simply that deep mining has become much more expensive.

  16. Maybe it’s reliability. British deep mining might, on any given week, produce coal or end up with rioters killing police horses at the insistence of come commie union leader.

    A boat full pf coal being unloaded at the docks doesn’t have these problems.

  17. Mr Yan,

    It used to do when secondary picketing was legal and will be again should Corbyn and his goons get the key to No10 and start repaying their union paymasters.

  18. @MrYan Fair point about the British strikers, but exactly the same thing happened in Germany and most of W Europe that had deep mining.

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