Trade

Pillock of the day

Yep, if we let foreign investors into the NHS then all that money that is paid to doctors, to nurses, to porters, all that cash spent on water, electricity, land, every single penny of the £120 billion a year we lavish upon health care for the citizenry immediately flows abroad, doesn’t it?

Pillock.

The only part that can possibly flow to foreign investors as a result of privatisation is the profit. And the profit is, by definition, the amount that is being added in value. So, they send their capital in (and we get the use of their capital, Yippee!) and if, and only if, they manage to add value do they get that profit stream back.

Adding value = we get more health care for less of our money.

Pillock.

BTW, do note the implication of his argument. The more locally the cash circulates the better. Thus I should never buy anything outside my own household because that makes the cash move outside my household. And thus, by his argument, makes me poorer.

Pillock.

He’s arguing that I am made poorer by buying my bananas from Tesco rather than building a greenhouse to grow my own.

Pillock.

And George gets it wrong on trade again

They have good reason to ask. The commission insists that its Transatlantic Trade and Investment Partnership should include a toxic mechanism called investor-state dispute settlement. Where this has been forced into other trade agreements, it has allowed big corporations to sue governments before secretive arbitration panels composed of corporate lawyers, which bypass domestic courts and override the will of parliaments.

This mechanism could threaten almost any means by which governments might seek to defend their citizens or protect the natural world. Already it is being used by mining companies to sue governments trying to keep them out of protected areas; by banks fighting financial regulation; by a nuclear company contesting Germany’s decision to switch off atomic power. After a big political fight we’ve now been promised plain packaging for cigarettes. But it could be nixed by an offshore arbitration panel. The tobacco company Philip Morris is currently suing Australia through the same mechanism in another treaty.

Sigh.

All it is about is making sure that governments also obey the law. If you nationalise something you’ve got to pay compensation, that sort of thing. And yes, that really is all it is.

The old paradigms die hard, don\’t they?

The eurozone crisis certainly provides a convenient excuse but it doesn’t really explain why the UK’s export performance has been so poor relative to its continental competitors. The latest projections from the European Commission suggest that the UK’s export performance in 2012 will be one of the worst in the EU. A likely 0.2 per cent gain compares dismally with projected increases of 3.9 per cent for Germany, 2.6 per cent for France, 2.1 per cent for Spain and 1.1 per cent for Italy. Even Greece does better, with an expected gain of 0.8 per cent. None of these figures is particularly impressive, but in a sea of mediocrity, the UK stands out for all the wrong reasons.

In a world of fixed exchange rates export performance is vital.

In a world of floating exchange rates it doesn\’t matter a toss. For exports are our labour and resources that we send abroad for foreigners to enjoy. So we export less? We enjoy more of our own labour and resources.

The only point of exports in this floating rate world is, eventually, to pay for the things that Johnny Foreigner can supply us with better than we can make ourselves.

We\’re just no longer in an \”Export of Die!\” world, yet all too many people seem to think we are.

Trading note

Fun:

I\’ve just been asked if I can sell some \”baleine oil\”. I assume, given that the email came from a native French speaker, that they mean whale oil.

Does anyone at all still use this stuff?

If you start with the wrong facts……

Then your conclusions are obviously going to be wrong.

In real terms, Americans are on average no better off than they were 30 years ago;

That simply is not true.

The way you get to a figure which seems to show that it is is by looking at median household income.

And median household income is a horribly misleading figure.

Firstly, household size has changed. Meaning that income per person in the median household has risen even if household income has stayed static.

Secondly, the measurement used is of income, not compensation. And in the US this is important (much more so than in the UK) because the majority of US households get their medical insurance as part of working compensation  but not as part of working income. And yes, the cost of such insurance has been soaring in recent decades. It\’s not just the cost that\’s risen, so has the effectiveness of the care that is purchased: it\’s not purely inflation here. Which means that household compensation has been rising in a way that is not captured by the statistics.

Yes, this is important. Because if you start by saying that the average household hasn\’t gained from the past 30 yeasr then you\’re going to end up thinking that there\’s something terribly wrong with the way the economy has been working these past 30 years. But if you note that actually household income has been rising then you\’re less likely to make that mistake, aren\’t you?

Sure enough, the world as a whole is getting a whole lot richer. In the past decade alone, the global economy has doubled in size. But most of the benefits of this explosion in activity have gone to the developing world and, in the West, the already rich, highly educated and talented. The wealth divide has widened to record levels almost everywhere.

But having made that correction, let us now ignore it. And let us be good little liberals as we do so.

We already rich people haven\’t been getting any richer. We people already living as high on the hog as any society of humans has ever done have just been treading water. At the same time hundreds of millions, billions in fact, of the formerly destitute are now not just getting three sqaures a day, they\’re joining us high on that hog, becoming middle class, bourgeois.

As good little liberals, if this was a deal offered to us, should we take it? I\’d say yes, absolutely, this is not just desirable it is our moral duty to not just accept it but to embrace it. You know, aiding the poor in getting rich sort of thing?

The principles of free trade are the same for nations as they are for individuals. Rather than trying to produce everything we need to live, most of us choose to work in quite specialist forms of employment, the product of which we sell to others. We then use the proceeds to buy in other goods and services. Nations ought similarly to derive a collective economic benefit by specialising in the things they do best and then trading with others for the rest.

No, a country is not a household. and that\’s not even comparative advantage, that\’s absolute advantage. And the case for trade rests on comparative, not absolute. It is individuals, companies, associations of people, who should concentrate on doing whatever it is they do least badly, not nations doing what they do best.

Adam Smith’s “invisible hand” cannot operate efficiently in a world of wildly different labour standards, attitudes to the rule of law and manipulated currency values.

Complete and total bollocks. Partly that Smith didn\’t wibble on about invisible hands (his actual one use of the phrase in WoN is actually a reference to how people will naturally employ their capital at home rather than go for the extra profits available from investing aborad) and more importantly,  there is absolutely nothing at all about markets which means they cannot operate with such different attitudes. Such differences are just another thing that markets will arbitrage, that\’s all.

In the long run, all nations must become better balanced and self-reliant. It was madness to outsource so much of what we used to do to foreign climes, just as it is unsustainable for China and other surplus nations to rely on ever-growing exports.

Where are the jobs going to come from, it is often despairingly asked, in Western economies? There’s a simple, if challenging answer: by returning to the way we were and doing more things locally. And that starts with washing our own sprouts for the Christmas dinner table.

I fear that Mr. Warner (for it is he) has been bitten by a very nasty bug. He\’s turned economic nationalist; wibble about the soul of the nation and the way that the darkies are polluting it cannot be far behind.

Trade is just the side effect of the division and specialisation of labour. And one needs only to look at \”home made\” anything to see that reversing that makes us poorer.

Say it Brother!

Free Trade held out a mutually convenient if idealized concordat: politics kept out of business, and business kept out of politics.

Please complete the PJ O\’Rourke quote: when legislators decide what can be bought and sold…..

What excellent news!

More globalisation!

The Centre for Economics and Business Research (Cebr) forecasts that the value of seaborne UK imports, adjusted for inflation, will grow by 287pc over the next two decades, with exports delivered by sea up 119pc.

Britain\’s £345bn imports by sea in 2010 will rocket to £1.95tn by 2030, the Cebr estimates, with exports up from £233bn to £1.63tn – growth that will demand significant investment in port facilities.

Ever more division and specialisation of labour.

How wondrous! It means we get richer.

Back to Adam Smith\’s pin factory: by dividing labour and then specialising, we can get more production from the same input. Us more moderns would extend this to other inputs than labour: the more you specialise in slicing silicon ingots to make solar cells for example, the thinner you can slice them and the more solar cells you can get out of one silicon ingot (and yes, this has actually been one of the major determinants in the reduction in cost of solar cells. We\’re, umm, Chinese factories are,  making three times as many cells out of the same kg of ingot as they were a decade ago).

So, more trade among specialists means we\’ve more output for our inputs, we\’re simply richer.

No, this doesn\’t say anything at all about the distribution of those greater riches: but in and of itself greater wealth through greater efficiency is to be applauded.

Yeah, right, energy is like the 30 years war

The actual energy analysis is that bad. But the surrounding argument is nonsensical.

The energy \”war\” is going to lead to global conflict like the Thirty Years\’ War that devasted Germany.

Umm, right.

Never heard of trade then?

Sigh. The Thirty Years\’ War was, at heart (and whole libraries have been written about the causes so allow me to simplify) about \”who rules\”? This is a binary decision: if you do I don\’t, if I do you don\’t.

You can indeed think of energy as being such a binary decision: I get it, you don\’t and vice versa, so let\’s fight over it. But to think that way is to be an idiot. For if we have a method of producing energy (say, solar PV, tidal, whatever) then we\’ve a system by which all can have it. \”Trade\” we call this system. It can be trade in the actual product, energy (the UK gets some 2% of its electricity from France today) or it can be trade in the materials used to produce energy (I think I\’m right in saying that the UK gets all of its solar cells from abroad) and it can be trade in the manufacturing of such materials (First Solar is a US company with large factories manufacturing solar PV systems in Germany), it can be trade in the machinery to make such materials (Can\’t remember the name but a US company sells the silicon slicing machines to China which are used to them make China\’s solar cells) and it can even be trade in the ideas about how you build the machines that build the systems which produce the energy (licences on patents too numerous to mention).

Trade means that human innovation is not a zero sum game, is not a binary decision. Therefore we don\’t need to go to war over it. Thus using the analogy of war to describe the future path of such innovation is nonsensical.

The Guardian doesn\’t understand trade

Quelle Surprise.

Either the EU gets tough in its demands, by threatening to shut out firms from countries like China that remain closed – barring them from tendering for public contracts in Europe

The aim and point of trade is not to make exports. It is to purchase imports. Those lovely things that Johnny Foreigner can make better/cheaper than we can.

Exports are just the shite we do to afford them.

To ban imports from people who will not buy our exports is simply insane. Who cares whether they will buy our trains, pottery, planes, cars? What we want is their cheap spanners, low cost solar cells and mountains of tchotchke. So we should buy these from them, whatever they deny their own citizenry by excluding the results of our labours.

Our lives are made better by having low cost spanners, cells and tchotchke. So we should act in our best interests and ignore whatever fucks ups they might be making.

On the distribution of the gains from trade

Saying that everyone could be made better off with increased international trade is not the same as people actually being made better off. There are winners and losers from increased international trade, and while I agree that the gains exceed the losses in almost all cases, the gains haven\’t been distributed in a way that leaves everyone, or even most everyone, better off (see, e.g., widening inequality and where the costs of these kinds of adjustments fall). When some people are made better off and others made worse off at the same time, economists cannot say it is unambiguously better or worse. If we are going to make the argument that trade is good because everyone could potentially be made better off, we should do much more than we have to ensure that this potential is realized, i.e. that the gains from trade are distributed widely across the population rather than concentrated among a smaller set of winners.

Mebbe.

But this argument then generally morphs into an insistence that we should not have free trade until that compensatory mechanism is put in place, so that, say, I, who will be gaining from that free trade will be compensating those who will lose from that free trade.

Hmm. But do you see what is implicit in that argument?

That there are gains that I am not getting, gains that are going to some other, as a result of our not currently having free trade.

This is obvious: if free trade benefits me and disbenefits you, then not free trade must disbenefit me and benefit you.

Which leads to the question: are you compensating me for those benefits you are getting and the disbenefits I am getting from the absence of free trade?

Where, in short, is my check from those benefitting from protectionism?

What\’s that?

*crickets*?

Fuck you then matey.

Why we\’d all really rather not have a trade policy at all

But on trade policy formulation, it seems that the right hand doesn’t always know what the left hand is doing. Last year, while magnesium imports from China were subject to U.S. antidumping duties, the Obama administration launched a WTO case against China for its restraints on exports of raw materials, including magnesium. That’s right. The U.S. government officially opposes China’s tax on exported magnesium because it imposes extra costs of U.S. consuming industries, but it insists on enforcing its own antidumping duties on magnesium imported from China despite those costs.

Even if Ja Hoon Chang and the rest were right, that infant industry protection works (they\’re not) then we\’d still have whatever the trade policy is being created and enforced by the idiots in the government.

And that just ain\’t gonna work, is it?

(We have some interestingly similar hijackings of EU import tariffs: there\’s only one EU producer of rhenium and yes, there\’s an import tax on it. And no, they\’re not an infant industry nor do they face unfair competition. Just have a good lobbying office in Brussels. )

I endorse this view

We are very happy to have Matt Ridley here, to talk about what I think is the foundational issue in economics. The very first paragraph of the second chapter of Adam Smith\’s Wealth of Nations says that economic prosperity rests on the:

division of labour… not originally the effect of any human wisdom… [but] the necessary… consequence of a certain propensity in human nature… to truck, barter, and exchange one thing for another…

The fact that human group sociability and solidarity is based on exchange rather than, as with chimpanzees, grooming each other or, as with dogs–well, I don\’t think I should go there–has, Adam Smith thought, extraordinary consequences. I think Smith was right. So does Matt Ridley. He is here to tell us about them.

Of course, the nutters over at the nef take exactly the opposite view.

That we should stop being sociable in this uniquely human manner and reverse the division of labour and go off and do everything (or at least more things) for ourselves.

Which is why they\’re nutters, they\’re advocating for humans exactly the opposite of what makes us humans.

African free trade

A free trade area for Africa, to help the impoverished continent match the spectacular growth of Far East economies, emerged as a distinctive British initiative at the G20 summit today.

The anti-poverty strategy, which is partly the brainchild of former Labour minister turned G20 adviser Baroness Vadera, has been developed with Jacob Zuma, the president of South Africa.

David Cameron, speaking at a business summit in Seoul today, said: \”We should explain that free trade is good for the poorest parts of our world as well, and one thing the British have been very active in trying to insert into this G20 is a free-trade area for Africa.

\”Africa should be a growing part of the world economy: we should be lifting more people out of poverty in Africa. But we will not do it with all the trade barriers that exist between African countries.\”

A damn good idea.

Despite the fact that both political sides seem to support it, usually proof that a proposal is horribly, wildly, stupid.

For it isn\’t true that \”free trade\” between the industrial nations and the developing is the only good thing about free trade. There\’s hugely, vastly, more benefit to come from intra African trade. For trade between those at roughly the same level of development still allows that division of labour and its specialisation, which is the very definition of the Smithian creation of wealth.

There\’s a passage in Michela Wrong\’s (very good by the way) \”In the Footsteps of Mr. Kurtz\” that describes the licences, allowances and taxes (plus of course huge bribes demanded and the arbitrage done by those, the disabled, who are tax free) that choke trade across the Congo River between Congo Brazaville and DRC. Wiping away all of those would, as with the EU (about which I know I complain but free trade is still free trade: the complaint is that the EU only allows intra EU free trade, not quite getting the point that if intra is good, so is inter) quite simply boost growth and wealth creation.

Miserably stupid twats

The European Union will block access for Chinese companies bidding for publicly funded contracts unless businesses from Europe get the same access in China, under new proposals tabled in Brussels.

The point of having someone coming in to bid for a public contract is so that that public contract gets done more cheaply/better than if it were done by government directly. And the more people we have bidding on such contracts the better we think the deal we\’ll get is. The less the taxpayers will have to shell out to get more of whatever it is.

This is true wherever the bidders originate from: more of them is better. For what we actually care about is how much do we have to pay to get our bridge/tunnel/bag of bureaucrats\’ pencils delivered to us.

We should therefore welcome Chinese companies bidding on such contracts: for we don\’t in fact care where they come from, only for what they will deliver to us.

That China doesn\’t allow their own citizens to benefit from what we can do more cheaply/better for them makes Chinese taxpayers poorer but not us.

The EU here really is committing the great mercantilist sin. They really are saying that because you won\’t let us save your taxpayers\’ money then we, in a fit of Gallic arrogance of quite monumental stupidity, will not allow you to save our taxpayers\’ money.

Fuck \’em. So who has the key to that warehouse where we put the tumbrils after the events of 1794?

Well of course

The Chinese need to compromise to secure Doha. So do the Indians, South Africans and Brazilians. But the West should be leading the charge when it comes to freeing-up world trade – not in the name of charity or \”development\”, but as a result of cool, dispassionate analysis combined with naked economic self-interest.

For of course the purpose of trade is imports.

We shouldn\’t care one tiny bit what other people do to prevent their citizens getting access to our lovely cheap and wonderful produce. We should only care that we ourselves don\’t put barriers in the way of we ourselves getting access to all those lovely cheap and wonderful products made by the various different flavours of Johnny Foreigner.

The only logical stance to take on trade is unilateral free trade: for it\’s the imports which are going shopping and exports are only the dreary shit we have to do to pay for them.

Yes, I\’d go with this

On the other side if there is no agency problem then deregulation should remain the order of the day.  Trade restrictions create arbitrageurs – and the arbitrageurs ensure the trade restrictions don’t work anyway.

Sensible policy.

A very strange question indeed

There we have it, thirty years ago the world’s centre of economic activity was in the mid Atlantic, today it is around Turkey, in thirty years time it will have reached India and China. This is the new globalization and I’d like to hear how Western politicians plan on dealing with it.

Why should politicians deal with it? Quite apart from whether politicians can or that we\’d even trust them to deal with matters economic, why on earth should they?

Who gives a shit where the centre of economic activity is ?

All we care about is that we can trade with it.

After all, it\’s not like we\’ve not been here before. China has been the world\’s largest economy in 19 out of the past 20 centuries.

Yes, yes, I know that the question is being asked because Duncan labours under the delusion that politicans can do something about everything and under the even worse one that they should do something about everything but really. Think about what is actually happening here to move this centre. The 1.5 billion or so of South Asia and the further 1.5 billion or so of East Asia are both producing and consuming more (that\’s what economic activity means, see?).

In what way is this a problem that needs something doing about it? Either they produce and consume their own stuff (fine, so what?) or they produce stuff for us to consume and we make stuff for them.

Lovely, where\’s the problem?