Category Archives: Free Trade

Free Trade, protectionism, the like

Trickle Down

Theodore Dalrymple explains it, at Library of Law and Liberty:

 The trickle-down theory of wealth may or may not be correct, but those who hold it do not express, and never have expressed, ‘a crude and naïve trust in the goodness of those wielding economic power…’ On the contrary, according to the theory it is not the rich whose goodness benefits the poor, but the system that allowed them to become rich, even if the rich should turn out to be hard-hearted skinflints. A system of redistribution, by contrast, really does require the goodness of at least the superior echelons of the system, faith in which is genuinely rather crude and naïve.

Deirdre McCloskey: market-tested innovation

I cite a citation:

Think of the Bill Gates and Steve Jobs, big wealth accumulators in recent times. It wasn’t the magic of compound interest on capital that made them rich; it was intellectual property. They created billions of dollars of business from virtually nothing at all. If you measure the profits as a return on the small amount of initial capital invested, then it looks huge; but capital was no more important an ingredient of the original Apple or Microsoft than cookies or cucumbers.

Also:

Capitalism’s nature is not, contrary to Piketty’s claim, to forever protect and augment existing capital.  Central to capitalism’s nature is what McCloskey calls “market-tested innovation.”  And this innovation inevitably destroys the value of older, less-productive capital that is in competition with with it – in competition with the new capital, the new goods, the new production and consumption processes, and the new knowledge that innovative entrepreneurs create.

All at Cafe Hayek.

Pride in the dismal science

Tim Harford responds to question as to whether the study of economics attracts, or creates, sociopaths. Because apparently it is one or the other.

I would also posit that students’ responses to hypothetical situations while in an academic environment are not necessarily an accurate reflection of real world behaviour, but in any case Harford is a few steps ahead of me:

“If there is a single foundational principle in economics it is that when you give people the chance to trade with each other, both of them tend to become better off. Maybe that’s naive but it’s all about “abundance” and is the precise opposite of a zero-sum mentality.

. . .

Economists may appear ethically impoverished on the question of co-operating in the prisoner’s dilemma but they seem to have a far more favourable attitude to immigration from poorer countries. To an economist, foreigners are people too.”

And don’t miss the last paragraph, in which he explains the “dismal” epithet.

 

Vodka Discrimination?

From Marginal Revolution:

What’s surprisingly affordable in hotel rooms across the globe is, however, vodka. It’s much cheaper than peanuts and, in some cases, even water.

That is the case for instance in Zurich, Helsinki, and Oslo.  (Where is the profitable cross-subsidy?  Or is this price discrimination?  Is vodka less likely to be claimed for reimbursement from third-party payment?)  In Toronto hotel minibars, a can of nuts costs on average $18.23, at least among the hotels sampled.

 

 

Questions libertarians can answer

I remember when I was in college and so many conversations revolved around appropriate ways to save the world, most of my contemporaries were so sure they were right. As sure as I was when I was seventeen years old (which at 20 seems so far behind). My thought – though I confess occasional fear at expressing it so – was always that I don’t know if I am right, I’m not sure there is a “right”; rather this is the best I can propose with the knowledge at hand. The future can not be seen (though we can indeed learn much from the past).

The Skeptical Libertarian Blog brought me back to those thoughts with they post from a few months ago: “Questions Libertarians Can’t Answer? Let Me Google That For You“.

From the post:

There’s become something of a cottage industry recently of blogs listing “questions libertarians can’t answer” or “knockdown arguments” against libertarianism … Having read an impressive fraction of these articles, I’ve concluded that most of their authors do not have a clue what libertarianism actually is.

They assume libertarians are fools, who have not bothered to think about the most basic philosophical or practical implications of their ideas (“Oh. My. God. You’re right! Who would build the roads?! Why didn’t we think of that before?”)

And the clutch:

It may well be that our answers are factually wrong, morally confused, or illogical–far be it from me to suggest we have The One True Ideology™. But answers exist. Why not deal with them? Why, if you truly wanted to disprove libertarianism, wouldn’t you try to engage with what libertarians actually believe? Serious intellectual critiques of libertarian ideas exist, so what is gained by strawmanning them, other than to have a convenient icon to torch?

 

Understanding communism

In the kitchen:

Setting: I am cleaning out our food shelves

Me: I’m going to put the coffee salt and pasta all on the lower shelf since it is what we use the most. I’ll put bread crumbs and flour above.

G: hmmm

Me: …?

G: flour and pasta should be kept together

Me: *sigh* this is the difference between a communist and a free marketeer. A communist rules by ideology, regardless of whether the enforcement is welcome, sensical or beneficial. A free marketeer adapts his approach to human nature and positive outcomes.

G: so I am a communist?

Me: kitchen communist

G: *starts to pour water on my head*

Me: as a free marketeer I probably believe in private gun ownership…

Oldie of the Month: Dumb History – The Boston Tea Party

In opposition to the Stamp Act and the Townsend Acts, the American colonists decided to boycott tea from the British East India Company. This allowed merchants such as John Hancock to smuggle tea from Holland without paying taxes.

The Crown then decided, in 1773, to do away with any tax on tea and the British East India Company was able to sell tea again to the colonies at a competitive price – underpricing most of the local merchants in the process.

Of course, this removal of the Tea Tax did not benefit the local merchants, so they decided to protest. They threatened the British consignees (those receiving the British tea) through vandalism, and they organized protests when the British East India Company ships started coming into the harbor. After some weeks of a standoff, the owners of the ships agreed to sail back to Great Britain, but the mayor of Boston did not let them. So on December 16, 1773, Bostonians dressed as Narragansett Indians boarded the ships and threw around 45 tons of tea into the harbor.

The fact that this was all done in opposition to a tax removal (and the subsequent loss to local merchants), means that the Boston Tea Party was not in opposition to “Taxation without Representation”, but was actually the United States’ first instance of Anti-Free Trade protectionism.

 

Creative Destruction + Trade = Renaissance

The crusades were a series of raids by Western European kingdoms in and around Jerusalem against the Muslim rulers of the land. The 4th crusade didn’t even make it to the ‘Holy Land’, with the western troops ransacking Byzantium and leaving it in ruins. This destroyed the Byzantine empire, while the wars were devastating to both sides involved. The 100 years’ war, in the meantime, in Northern Europe, did much the same for that area. The final step was the bubonic plague, known as the Black Death, which killed off 1/3 of Europe. Interesting that what followed was the Renaissance: one of the periods of greatest cultural and intellectual achievements ever. How did this happen?

The aftermath of all this left Europe destitute. This meant the rich lords weren’t in power anymore and social structures were in shambles. This allowed for what Schumpeter called ‘Creative destruction’ to take place. Old, established norms were ignored, and money, food and goods had to be bought and sold in new ways. So new ways were discovered.

For example, a curious consequence to the crusades was the establishment of trade routes through the Levant from the East to the West, and vice versa, while the 4th crusade more or less destroyed the influence and power the Byzantine Empire had enjoyed since it was the Roman empire.

So suddenly spices, silks and dyes were coming from the East, through the Levant, and into the now more viable ports of Venice, Genoa and Pisa. From these ports the goods were then traded throughout Europe. These trade routes also served as conduits for knowledge. Greek mathematics and philosophy, while often outlawed by the Catholic church, thrived in Arab lands. Thanks to these trade routes, these ideas made their way back into the Western world. This new wealth and knowledge were the spark of what we now call the Italian Renaissance.

It is no coincidence that the Renaissance started in Italy, before spreading to other countries throughout Europe (only reaching England, for example around 200 years later). Davinci, Michelangelo, The DeMedici family, Macchiavelli were all products of this trade.

In fact, Davinci, Michelangelo, The DeMedici family and Macchiavelli were all Florentine, and this was for a specific reason. The Medici family engaged prolifically in trade with the Champagne trade fairs, cities such as Bruges, and regions such as Egypt and the Baltic states. They were able to use the dyes imported from the east, with wool imported from the North, to become some of the biggest woolen textile producers in Europe. This sparked the Medici-controlled International banking system, foreign exchange market, double-entry bookkeeping, insurance, and many other economic novelties we still use today.

This increase in trade, large even compared to other Italian states, made Florence the wealthiest city in Europe of the time. The trade it engaged in made its trading city partners richer as well. So, Creative destruction, followed by trade, brought about what we call a Rebirth of Western Europe. Could it do the same everywhere else?