Wednesday, July 27, 2016

Jerry Pournelle on free trade


Dr. Jerry Pournelle, one of the doyens of science fiction, has commented on his blog (one of the oldest in existence) about the issue of free trade.

One reason Conservatives are advised by Conservative leaders to disagree with Trump is his position on Free Trade. The problem for me is that I do not see Free Trade, particularly laissez faire Free Trade, as necessarily Conservative at all.

The advantages of Free Trade are lower prices for stuff. That means they are more cheaply produced. As the economist David Ricardo wrote, there is a principle of comparative advantage that coupled with free trade guarantees maximum profits for when there are no trade restrictions, and impediments to free trade are supposed to be mutually disadvantageous.

But do understand, what is conserved is lower prices. Nor social stability. Not communities. Not family life. Indeed those are often disrupted; it’s part of the economic model. Under free trade theory, it’s better to have free trade than community preservation, better to have ghost towns of people displaced because their jobs have been shipped overseas; better to have Detroit as a wasteland than a thriving dynamic industrial society turning out tail finned Cadillacs and insolent chariots and supporting workers represented by rapacious unions in conflict with pitiless corporate executives.

. . .

What was conserved by turning Detroit into a wasteland? How was that conservative? Wouldn’t it be more conservative to argue that if everyone pays a little more for stuff made here, by people who work here, we are better off than having it made south of the border and inviting our people to go work there at their prevailing wages?

There's more at the link.  Scroll down the page until you come to the relevant section.

Plenty of food for thought there.  I'm on the fence about free trade.  There are undoubted international advantages, but not so many national advantages.  The question is, where do our priorities lie?  Being an 'international sort of person', and an immigrant to the USA, I used to come down on the side of international advantage.  Now, having had time to assess the results of more than half a century of free trade and internationalization . . . I'm not nearly so sure that was a good idea - at least, not for Americans.

Peter

31 comments:

Anonymous said...

He makes the assumption that free trade broke Detroit. I would say political pandering, excessive costs, and a under educated work force led to the abandonment by business and the migration of people.

Gerry

Eric Wilner said...

There's another aspect to this. How about we consider lowering the barriers to domestic production?
Domestic labor costs aren't just wages; there's a lot of overhead, from mandatory benefits to the administrative costs of paperwork. (Coyote Blog often reports on this sort of thing.)
Then, if you're trying to run a factory, there are compliance costs for countless regulations. Sure, a lot of these regulations are beneficial in principle, but there seems to be little or no cost-benefit analysis (or, perhaps, costs borne by regulated businesses don't count).
Maybe we should examine why, exactly, a company would be motivated to uproot itself from, say, Ohio and set up a whole new factory in Mexico. You don't go to that kind of trouble unless you've got some good reason to leave.

Rusty Gunner said...

Like so much else, it depends where you have your view focused. Evolution can be great for a species, not so much for individual animals. Utilitarian philosophy is very sensible in the macro, not friendly to the minority. Globalism is great for the big financial picture, and for those who benefit from global prosperity, rather a pig for the local worker, though. This trade-off is one of the Gods of the Copybook Headings, ignore it at your peril.

Old NFO said...

The bottom line, at least to me, is that the cost of business is so high in the US that companies realistically can't compete in the world market, hence the 'outsourcing' of manufacturing to (insert country here)... Sigh

Joe Mama said...

I think there is value in retaining a core competence at manufacturing very basic, life sustaining products and being able to grow enough food for a nation's minimum daily calorie requirements.

Nations in Europe have (or used to have) highly restrictive property zoning in order to protect their ability to grow food. I am sure that having a war sweep through every thirty years had something to do with wanting to be able to eat, even if the railroads could not get through to the ports.

The current period of peace might be a fluke or it might be for keeps. It is safer to assume it is a fluke and be wrong than to assume it is permanent and find yourself starving.

The same argument carries over essentials like antibiotics, vitamins, electric motors, shoes and such.

David Lang said...

Free trade both helps and hurts

It helps when you are selling something to other countries

It helps if you are importing something from another country

It hurts if it is easier to produce something in another country and so production moves from your country to that other country.

The more barriers to business that are raised domestically (be it EPA, minimum wage, obamacare, or anything else), the easier it is to tilt the decision in favour of moving production to another country, even if you have to build facilities from scratch and train workers.

In many cases, the benefits of lower priced goods can result in more businesses and more money in spite of some jobs moving out of a country. It's not a trivial win/loose decision.

but the more we make it harder for businesses domestically, the more likely it is that free trade will be a net loss.

I would suggest that you read https://www.jerrypournelle.com/chaosmanor/the-poor-and-the-rich-moores-law-changes-everything/

between the Internet and cheap electronics, there are LOTS of businesses now that would not have been viable even a few years ago. These are largely tiny (frequently single-person) businesses, but even some larger businesses exist only because of (or providing) online tools and services that exist.

Jonathan H said...

One distinction that I think should be drawn is the difference between 'free trade' and 'fair trade' - I think 'fair trade', a reciprocal treatment of people, goods, and services between 2 countries - is what our government should foster. Right now, what we call 'free trade' means that the US allows in other countries products when they don't allow in our products, either at all or on similar terms.
For example, Japan sends us lots of cars, car parts, and other equipment that it is very difficult or impossible for the US to send to Japan because of their regulations, yet the US rarely if ever brings it up. We should apply other country's import regulations to our imports of their products. For example, anything imported to China in wooden packaging must use kiln dried wood, so the US should require imports from chins to use kiln dried wood for packaging (kiln dried wood is significantly more expensive and harder to find that non-kiln dried; specialty and custom equipment is often packed with wood since it is easy to customize - the rule makes shipping machinery to China much more expensive).
How far do we take the 'fair' analogy? Good question - but we need to start somewhere. Some people have brought up concerns about labor laws or environmental regulations in other countries that differ from our own; those are areas that as a country we need to decide if we want to encourage - and encouragement through affecting the wallet is the best way to get people to pay attention!

David Lang said...

@jonathan H

and to be fair Trump has been saying "fair trade not free trade"

Nate Winchester said...

What many above said. I'll also repeat what I posted on another post of yours:

I'm reminded of that essay on "what is not seen" - in this case, where the jobs "lost" are what is seen and the jobs gained (by factories expanding thanks to the extended markets) are not seen.

But otherwise I must slightly protest [us buying] into the leftist narrative that factories and jobs are some kind of naturally occurring resource, that other countries "steal" them like they might steal our gold. That is wrong. It's not something that "just happens," jobs are provided by people. If you ban Apple from making products in China, that doesn't necessarily mean that Apple will make products over here. There's a third (just as likely) option: Apple makes nothing. Then nobody - not you, not the chinaman - has a job.

The problem is, "if I can't have it, nobody can have it" is the mindset that kept most of humanity poor for most of our history. If we're not careful, we'll end up poor, filthy, and miserable once again.

Will said...

Detroit died (along with the PRODUCTION of vehicles) due to the idiotic, rapacious labor unions. Some so-called domestic vehicles are ASSEMBLED here, but the parts and sub-assemblies are, for the most part, made in other countries. The unions cut their own throats. They could only get away with their pay demands when no outside vehicles were imported. To compensate for that now, most of the labor intensive units HAVE to be made elsewhere. Still, the pension requirements add so much cost, that they still aren't competitive.

One of the problems businesses have here is the high corporate tax rate. (highest in the world, IIRC) What those stupid politicians don't realize is that companies don't pay that tax, the customers end up paying it with higher prices. This makes it harder to compete in the rest of the world.
I swear that it must be a requirement to have the math/money limitations of a bridge toll taker to qualify for congress or any state level legislature. Do they have to have it surgically removed?

Borepatch said...

I was trained as an economist, but am not on the fence at all.

Google won't let me embed this song in a comment, but it's important to watch:

https://www.youtube.com/watch?v=OWjkDfRcCus

Combining free trade with increasingly costly regulation here drives jobs overseas. Why bother saving domestic jobs when the EPA will make you jump through hoops for 10 years. The Chinese will have the factory in production in 6 months, just like we used to.

Economists suffer from Bastiat's "Seen and Unseen" problem. The value of commerce is counted, so it is seen. The lost jobs are increasingly ignored by corrupt unemployment statistics, and so are unseen by the economists.

All that's lost are the dreams of our neighbors. I'm quite angry about this.

Anonymous said...

Pournelle is a fiction writer, and this description of the consequences of libertarian-type free trade is fiction. Like all other red diaper commie liberals, what Pournelle actually wants is to rule, to set up other people in rows like plastic army men and knock them down at his will.

Suppose today I moved to Detroit, rented a building in an industrial zone, and set up metal stamping presses to manufacture tailfins for Toyotas. Then what would occur? Hordes of rapacious predators, the trade-managing bureaucrats Pournelle wants to hire, would decend on me, demanding at gunpoint to extort various costly behaviors and sums of money from me, in return for "licenses" and "permits" in obedience to "laws" and "regulations". All of these negative consequences are man-made by Pournelle.

When an animal species is productive at its life activities, the species thrives, prospers, has become fruitful and multiplies. Pournelle claims this is not the case for the human animal species. Pournelle claims that for humans to thrive and proper, the bulk of humans must be ruled by a subset of the human animal species, with Pournelle near the top. Funny how Pournelle would never allow an experimental control group to exist to prove this Hobbesian claim. Imagine a large Gilligan's island, which Pournelle promises to not do "gunboat diplomacy" against, even when they pursue the most powerful kinds of economic growth such as manufacturing rockets to open up a new space frontier.

I know Pournelle's camouflage reads "Reagan conservative". But Reagan liberals are no different from Carter liberals, both are animals more equal than others who seek to rule.

Now, having had time to assess the results of more than half a century of free trade and internationalization

Factually false. Free trade and internationalization would mean Congress does not get to extract a tax on international trade in sugar, solar cells, oil, automobiles, etc. You can't point to an object which is allowed to trade freely and openly over a border by the containerload without the organized criminals in DC stealing a percentage.

David Lang said...

@Anonymous, you don't know Pournelle's politics and history if you are calling him a Liberal

when you are that wrong to start with, the rest of your post isn't worth reading.

scipioamericanus said...

"Pournelle... red diaper commie liberal"

Ahahahahahahahahahahah

Gasp

Ahahahahahahahahahaha

Anonymous said...

A liberal is a person who wants big government, or as W. F. Buckley wrote:

[Buckley] admits that his opposition to Statism, eloquently expressed at the beginning, is merely romantic academicism. For Buckley favors "the extensive and productive tax laws that are needed to support a vigorous anti-Communist foreign policy," and by implication supports ECA aid and 50-billion dollar "defense" budgets. He declares that the "thus far invincible aggressiveness of the Soviet Union imminently threatens U.S. security," and that therefore "we have got to accept Big Government for the duration -- for neither an offensive nor a defensive war can be waged ... except through the instrumentality of a totalitarian bureaucracy within our shores." Therefore, he concludes, we must all support "large armies and air forces, atomic energy, central intelligence, war production boards and the attendant centralization of power in Washington -- even with Truman at the reins of it all."

https://mises.org/library/buckley-revealed

Yes, I have seen page scans of the original article. The ellipsis skips several pages, but the two halves of the quote are in context.

Now, as I was saying, in 2002 the US Navy did a big wargame simulation, called the Millennium Challenge, it cost a quarter billion dollars. Scenario was a US Navy carrier group vs. the Iranian coastal fishing fleet armed with Russian silkworm missiles. Outcome was the Navy couldn't cheat fast enough to win:

https://en.wikipedia.org/wiki/Millennium_Challenge_2002

Government tightly enforces gun control against rockets, because rockets allow you to defend against the largest of government enforcers. and colonization. Freedom, opening a new frontier, space exploration, space colonization, rocketry, and the 2nd amendment all rise and fall together. The very last thing Pournelle wants is space exploration.

Meanwhile, I notice the highest-end of 3D printing is making Titanium turbine blades with internal cooling passages, using electron beam welding in vacuum. Seems to me that could produce small rocket engines. Countdown to opening a new frontier in 3, 2, ...

scipioamericanus said...

Anon, the Millennium Challenge was a ridiculous failure; do you have any idea how large a silkworm missile is? the the power of the exhaust plume when it is fired? If you tried to mount one to the sort of Boston whaler type vessel the OPFOR was using in that simulation, the only question would be whether the parts of the boat would be large, because it sank before it could fire, or small, because it exploded when it did fire. Not to mention that the OPFOR commander blatantly repositioned destroyed forces back on the board, and had them teleport around or appear magically in exactly the right firing position to get off a perfect shot when in reality a small slow boat with a tremendous metal launch tube somehow strapped to it is not exactly hard to find on even rudimentary radar systems.

If you think "space colonization, rocketry, etc." are "the last thing Pournelle wants" then you are hopelessly and willfully ignorant. He's been one of the foremost proponent of those fields for decades, with the expressly libertarian aim of freeing voluntary societies of individuals from the oppression of centralized and socialistic states.

And yes, revolutionary technological innovations are making spaceflight technology cheaper and easier to achieve, but the physics of rocketry imply that, at best, a launch vehicle capable of carrying even a few tons into orbit is unlikely to breach the lower bound of cost and complexity of, say, a mid-range airliner. I think you would do well to study the topic in greater depth. There are boundless free resources on the web to aid you in this endeavor, and no reason for one as apparently interested in the topic as you are to refrain from dipping into that well of knowledge.

http://www.projectrho.com/public_html/rocket/index.php is a pretty good place for a novice to start learning the basics, and has an extensive "Resources" section to help you go further.

Akatsukami said...

We have now seen why the LP will draw a tiny fraction of one percent of votes in Presidential elections from here to eternity.

kurt9 said...

What Jerry fails to mention is that Detroit made garbage starting in the ealry 70's, and that it was only foreign competition by the Japanese that forced the U.S. automakers to mend their ways and start making high quality cars.

I would not even consider buying a U.S. made car in the 1980's (when I came of age). Most of my cars in the past 15 years have been U.S. made.

I understand the desire to protect U.S. workers from "cheap" foreign labor. However, restrictions on trade often protects parasitism as well. Outside competition is necessary to force reform on an industry.

David Lang said...

As far as rockets go, I would suggest that you guys watch http://copenhagensuborbitals.com/

a group of 50 geeks crowdfunding rockets with the aim being to launch a manned suborbital flight.

unfortunately they think they overfilled the LOx tank on their test launch this month, so things didn't go well, but they did recover the rocket and will be able to track it down

Quartermaster said...

What the so-called conservatives were calling "free trade" really wasn't. It is actually managed trade, and managed for the benefit of the oligarchs. The major problem with it now is that we are feeding an enemy, China.

Anonymous said...


One thing to keep in mind on any of these discussions, and I always see omitted, is the FACT that what we have in the US is definitely NOT free trade. Under any interpretation of the subject. We do not have a capitalist economic system. To whine about whether free trade is or isn't working here is silly because it doesn't exist and hasn't for some time.

What we have is socialism. You can argue degrees, but not the title.

Matthew Dixon Cowles said...

What's being conserved is your freedom to do business with whom you please.

Able said...

Another aspect of that globalist 'free trade' sham that is often 'overlooked' is that many (if not most) of those foreign competitor firms which can offer either (unbelievably) larger investments or (almost slave/convict cost) cheaper costs are ... almost always wholly owned covert subsidiaries of foreign governments.

Japanese cars? French energy companies? Chinese ... almost everything, they're all subsidized, supported, funded, legislated for and protected by their respective governments. the real question you should be asking is ... why? I mean, why exactly would a country wish to utterly degrade and destroy the industrial capacity, and economy, of an 'enemy' nation? Duh!

Bill Scott said...

I always ask, why do we trade with China? Diplomatic relations? Yes. Trade with a country that has no human rights? No!

Bruce said...

The Us Free Trade Policy was established at Bretton Woods and was a policy set forth to do ONE thing: BUY the US an alliance against the Soviet Union. It worked. At the end of WW II, the United States was essentially the only country with a working economy and we purchased an alliance against the communist steamroller in the USSR (and Warsaw Pact) by 1) opening our markets to foreign nations - giving them the markets to sell their products and rebuild their nations and economies; and 2) guaranteeing free and open access to the seas - allowing them to trade WITHOUT having to expend their limited funds on a navy sufficient to protect their shipping.

Prior to Bretton Woods, each nation's navy had the responsibility to protect their nation's shipping on the high seas. Since the US also had essentially the only intact blue water naval force at the end of WW II, we offered to guarantee free and open access to the high seas to ALL nations...so long as they stood with us against the USSR and Warsaw Pact.

Free Trade is not really a conservative platform, beyond the point of defeating communism. There are a lot of people that are happy to point out that the USSR is no more and maybe it is time to end, or at least rethink, the Bretton Woods agreement. Maybe it is. Maybe it's time to do a Bretton Woods 2.0 to buy the end of Islamic Terrorism.

Anonymous said...

Peter, your question cannot be answered in the abstract. There are as many answers, at least, as there are voters.

When voters felt that globalization and free trade were a net plus to them, they voted for politicians promising them to implement the requisite policies.

Today the number of people who feel slightly uneasy all the way to being violently opposed edges towards the 50 percent mark and perhaps above. Thus, Donald Trump and the resurgence of nationalism.

Time will tell if this is a flash in the pan or if the pendulum will swing back towards protectionism.

Anonymous said...

scipioamericanus, I can easily imagine a two ton missile carried on the coastal fishing boats out of New Orleans. Won't be elegant or seaworthy carrying that load that high, will damage with backblast, but it will still work. The simulation said it was a swarm attack. The attacking coastal boats were not hidden from radar, but there were too many of them for the Navy's close-in defenses to get them all.

[Pournelle has] been one of the foremost proponent of [space colonization, rocketry, etc.] for decades, with the expressly libertarian aim of freeing voluntary societies of individuals from the oppression of centralized and socialistic states.

Pournelle's political life was a bait and switch. All those speeches to rocketry societies were fiction, they were the sales pitch. The non-fiction switch was the policy advice he gave to government organs who controlled armies. The real-world result of Reagan following Pournelle's policy advice was about as many privately-owned armed space vessels as found in the original Star Trek, i.e. none. Reagan was even more of a bait and switch. He was CEO of the government, but the day after one of his libertarian-ish speeches, there were just as many government employees doing the same big government jobs as yesterday. The speeches changed nothing. Are you trying to convince me nobody presented Pournelle with the libertarian objections, or that he didn't understand them?

http://copenhagensuborbitals.com / a group of 50 geeks crowdfunding rockets with the aim being to launch a manned suborbital flight.

Three years from now hackerspaces will have their own ICBMs.

Bruce, there was no communist steamroller in the USSR. See Heinlein's travelogue from visiting. Notice the USSR collapsed, while the intelligence community who claimed it was a steamroller wasn't expecting it to collapse? Conclusion: US central planning fails at military intelligence and war strategy, USSR central planning fails at everything but genocide.

Anonymous said...

Here's a thought experiment. Fifty nerds build a rocket in CONUS without using tax money. Let's say the nerds are being at least as careful about range safety as Apollo did. No launching from Brooklyn like in _Kings of the High Frontier_. Thus there is no legitimate claim to be made of trespassing or reckless endangerment. Space command argues the rocket is an ICBM, say they get to control it. Nerds agree it certainly has military utility, that's why they built it, and therefore is protected by 2A; all attempts to infringe the keeping and bearing of ICBMs are backdated to be null and void, come and take it.

Now, before another Waco gets going, we pause the action and inspect peoples' sympathies. On one side are libertarians. On the other side is everyone who believes government should have a monopoly on the good stuff. Maybe they believe the common man should be given a Star Trek lifestyle rather than a Red China, USSR, Nazi Germany, or North Korea lifestyle. Oh, how progressive they are! But they do see themselves as rulers, given a mandate to set up other people in rows like plastic army men and knock them down at their will. Which camp are you in?

David Lang said...

Jerry has followed up with the topic https://www.jerrypournelle.com/chaosmanor/capitalism-conservatism-and-free-trade/

Anonymous said...

Free trade (low tariffs) is very helpful to our economy, and all our trading partners.

Countries generally have items they can produce better than others. For example, a developing country in the tropics with a large labor force may be able to produce agricultural products and textiles cheaply. However, it is very hard for them to make their own computers, jets, and cell phones.

A developed country with a highly skilled workforce can easily make the high-tech products far more cheaply than the undeveloped country. Now, the developed country can make their own textiles, bananas etc too- but every dollar they spend growing bananas and making cheap t-shirts is a dollar they CAN'T spend building jumbo jets! It makes more sense for the developed country to order its banana and shirts from the undeveloped country (with low tariffs) and spend its limited dollars making hi-tech goods to export to the world.

In the same way, it would be foolish for the undeveloped country to stick a high tariff on importing jumbo jets, computers and cell phones to try to "protect" its inefficient domestic producers. This would make its own people poorer, and deprive them of cheap quality high tech goods.

The money the developed country saves on importing low-tech goods they can use to buy MORE goods, invest in more development, and hire more people.

The money the undeveloped country saves importing its high tech goods they can use to buy MORE goods, invest in their own development of what they do best and hire more people!

This is called comparative advantage; Thomas Sowell discusses it very well in his book "Basic Economics" and you can also read about it here:

https://en.wikipedia.org/wiki/Comparative_advantage#Evidence_of_effects_on_the_economy

Free trade helps BOTH countries, and saves them both money and increases the standard of living in both countries. This is easy to see- world poverty has hugly decreased in the last few decades since China and India have opened up to trade with the world! And the spending power in the USA has increased due to cheaper goods from abroad. Trade saves the average consumer in the USA thousands of dollars a year- money which they can use to buy other things you want! The money doesn't cease to exist when the consumer saves it, the buyer can get more goods.

For those of you who are still not convinced- Tarriffs are nothing other than taxes which make everything you buy more expensive and lower quality due to decreased choice and competition. Do any of you honestly think our economy can be improved by making everything more expensive and preventing you from choosing between more diverse products when you buy? Does anyone really think that will help your family.

Anonymous said...

Anon at 9:34 AM

Sure, but consider a machinist who had been making $28/hr and loses his job due to cheap foreign competition. He and his family aren't going to be so excited about being able to save a few bucks on purchases if it means loss of the breadwinner's job, pride, and income.