Can We Have Free Trade?

I find discussing trade with libertarian free traders frustrating. I believe in free trade. I also believe in the virgin birth. Belief is not enough when you’re talking about the economy. You’ve got to take practical considerations into account as well.

Referring to Don Boudreaux’s piece at AEIR, I wouldn’t accuse him of “naïve globalism”. I would accuse him of not understanding what David Ricardo actually wrote and how what he did write doesn’t apply to our present circumstances.

I have probably understood Ricardo’s theory of comparative advantage for longer than Don Boudreaux has been alive. In addition I have actually read what Ricardo wrote and Mr. Boudreaux would be the exceptional commentator if he had. Practically everyone relies on what other say about comparative advantage rather than what Ricardo said.

I think there are several reasons that Ricardo’s theory does not apply to our present circumstances. For one thing “free trade” doesn’t just mean the absence of tariffs. It means the absence of any barriers or restrictions on trade in any form. That includes patents, copyrights, occupational licensing, and any other barrier to trade.

For another I have yet to encounter any manager who engages in the sort of arbitrage that Ricardo imagines. I have met lots who understand absolute advantage. They buy from the lowest cost sources. IMO Ricardo imagined trade that was completely controlled by some authority, e.g. “the Sovereign”, who did engage in the sort of arbitrage described by Ricardo.

A third reason is that unlike in Ricardo’s day the most important factor of production, capital, is highly portable from one country to another. Under such circumstances comparative advantage doesn’t mean much but absolute advantage does.

We are presently in a world in which absolute advantage is king and there are multiple non-tariff barriers that constrain trade.

I look forward to Mr. Boudreaux’s demonstration that even in the presence of those non-tariff barriers and other countries imposed all sorts of barriers on our goods and services the people of the United States would still benefit from that limited sort of free trade. I have never seen such a proof. Maybe it’s possible to construct one but I doubt it.

I think that what would happen is pretty much what is happening. People working the protected sectors, e.g. healthcare, finance, government, would benefit and everyone else would find it much harder to get alone. There would be lots of cheaper goods but the unemployed couldn’t afford them.

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A First for “Net Gain”

What was a rumor yesterday is today’s news. Lawrence Livermore has successfully produced a fusion reaction which actually produces more energy than is used in the reaction, i.e. has “net gain”. That’s a major breakthrough. Here’s a report from KSBW:

WASHINGTON —
Energy Secretary Jennifer Granholm announced a “major scientific breakthrough” Tuesday in the decades-long quest to harness fusion, the energy that powers the sun and stars.

Researchers at the Lawrence Livermore National Laboratory in California for the first time produced more energy in a fusion reaction than was used to ignite it, something called net energy gain, the Energy Department said.

The achievement will pave the way for advancements in national defense and the future of clean power, Granholm and other officials said.

“This is a landmark achievement for the researchers and staff at the National Ignition Facility who have dedicated their careers to seeing fusion ignition become a reality, and this milestone will undoubtedly spark even more discovery,” Granholm said at a news conference in Washington. The fusion breakthrough “will go down in the history books,” she said.

For my entire adult life practical fusion has been “just around the corner”. Not to diminish the importance of this breakthrough but fusion remains just around the corner. We might have a practical fusion reactor in a year, ten years, or a century.

So, let’s rejoice in this accomplishment while understanding the practical hurdles that remain.

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The Right Answer to Homelessness

The second Atlantic piece I wanted to comment on is “The Obvious Answer to Homelessness” by Jerusalem Demsas. In the piece the author makes a point which should be obvious but, apparently, is not. The cities and states with the highest numbers and rates of homelessness are not those with the highest rates of poverty, mental illness, or drug addiction but those in which there is just not enough “affordable housing” for the people who are trying to live there. The “obvious answer” to which the author refers is to build more affordable housing.

To the author’s credit attention is drawn to the biggest impediment to building more affordable housing, zoning, and its handmaiden, the full-throated support of progressives for building affordable housing in someone else’s neighborhood.

There’s an old daily strip from the Broom-Hilda comic strip in which Broom-Hilda is walking down the street and passes in front of a booth that Irwin the Troll has set up with the banner, “Questions Answered: 5 cents”. Irwin is, of course, providing the most absurd answers imaginable. Broom-Hilda walks a little farther to find another booth, set up by Gaylord the vulture with the banner, “Questions Answered Correctly: $5″.

Building more affordable housing is, of course, one possible solution to the problem of homelessness but there are others and some of them may be more practical and have fewer run-on effects. Is there any amount of money and construction which will build enough housing in San Francisco’s Mission District?

I would argue enthusiastically against higher federal housing subsidies. For an idea of why read up on the history of Pruitt-Igoe or Cabrini Green. The federal government’s track record in affordable housing is, shall we say, blemished.

We might consider the matter a different way: it’s not that there isn’t enough housing but that there are too many people. It’s a truism that you get more of what you subsidize. Do we really need more people who can’t afford to live wherever it is they’re trying to live?

If we want state and local governments to build more affordable housing, I would propose a head tax on businesses, i.e. a fixed fee extracted from businesses for each employee. The fee would be used to defray the costs of supporting these workers, i.e. housing, safety, sanitary, education, etc. You might be amazed at how many businesses are dependent on the present subsidies for their very existence and which ones they are.

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The Universe Is Stubbornly Non-Linear

There are a couple of Atlantic articles I wanted to comment on. The first, “Why the Age of American Progress Ended” by Derek Thompson, illustrates a fundamental misconception. His basic point is that we have overvalued invention at the expense of deployment:

the end of smallpox offers a usefully complete story, in which humanity triumphed unequivocally over a natural adversary. It’s a saga that offers lessons about progress—each of which pertains to America today.

The most fundamental is that implementation, not mere invention, determines the pace of progress—a lesson the U.S. has failed to heed for the past several generations. Edward Jenner’s original vaccine could not have gone far without major assistance from early evangelists, such as Henry Cline; distribution strategies to preserve the vaccine across the Atlantic; and a sustained push from global bureaucracies more than a century after Jenner’s death.

The rest of the piece is mostly a complaint that we’re not living in the world of the Jetsons (“where’s my flying car?”). His solution, apparently, is more public-private partnerships:

The United States once believed in partnerships among the government, private industry, and the people to advance material progress. The Lincoln administration helped build the railroads. The New Deal helped electrify rural America. Dwight Eisenhower signed the Price-Anderson Act, which guaranteed government funds and limited liability for nuclear-energy firms in case of serious accidents, facilitating the construction of nuclear-power plants. John F. Kennedy’s space ambitions made NASA a major consumer of early microchips, which helped reduce their price by a factor of 30 in a matter of years, accelerating the software revolution.

I think the problem is somewhat different than he does and it has two factors. The first is that we’ve already picked the low-hanging fruit from a technological standpoint and the amount of time, effort, and investment required for that next technological breakthrough will be greater than for the previous ones. The pace of technological development is neither linear nor geometric. It’s hyperbolic.

Turning to electronics, the transistor was an enormous breakthrough relative to vacuum tubes. Semiconductors were invented nearly a century and a half ago; transistors 75 years ago. Contrary to popular view there hasn’t been a comparable breakthrough since—what has happened are elaborations on the breakthrough technologies.

The second factor is that in the real world things must make economic sense. We haven’t gone back to the moon, not because we had lost the ability but because it just didn’t make economic sense. With the collapse of the Soviet Union there just wasn’t a pressing geopolitical need and the cost (and danger) of the venture led us to turn to other things. Now our interest has been piqued again because of the activities of the Chinese in space.

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China’s Long Winter

This sounds pretty grim. From Gordon Chang at 1945:

Perhaps as many as 90% of China’s 1.41 billion people will come down with COVID-19, said Feng Zijian, former deputy chief of China’s Center for Disease Control and Prevention, to Bloomberg News. Feng predicts 60% of the population will be infected in the first wave.

China did not have to wait long. There is now a fast-moving wave ripping through Beijing.

The capital city was not prepared. “We have a child with a high fever but all the pharmacies are out of ibuprofen,” said a Beijing resident surnamed Lin to the Financial Times. “It came too fast, we didn’t have time to prepare.” Shortages are widespread. “Beijing is running out of medical supplies,” the London paper notes.

The situation is so bad, Peking University’s Michael Pettis reports on Twitter, that Beijingers are thinking of deliberately exposing themselves to the disease, so they won’t get it later when the public health care system has completely broken down.

There are also outbreaks across the country, including in Guangzhou, the capital of southern Guangdong province, the country’s factory floor. Some are calling the nationwide situation China’s “nuclear winter.” During the winter, the forecast is one million Covid deaths. Some estimate the toll could reach 2.1 million.

I honestly don’t know how much weight to put on this report. Gordon Chang has been predicting the imminent collapse of the Chinese Communist Party or China itself for the last 20 years. A really serious outbreak in China will inevitably cause global problems, both economic and human.

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Illinois’s Booming Economy

Here’s an interesting little news piece, reported by Economic Times:

The car manufacturer released a statement on Friday that they are taking a difficult decision that will result in layoffs of workers, and it will last for more than half a year. They added that their industry was affected by a lot of factors starting from the surge of the Covid-19 pandemic and the global semiconductor shortage. However, the most challenging aspect was the shift towards the electric vehicle market and the change in manufacturing equipment to facilitate them.

Stellantis said earlier in March that they were going to reduce their workforce at the plant which was responsible for manufacturing the Jeep Cherokee model.

Still, they did not disclose the number of employees they plan to lay off. That was the last of multiple job cut-offs at the facility.

As it turns out, it’s all of them. I wonder whether Gov. Pritzker knew about this when he was running on his sterling record of bringing businesses to Illinois in November?

Will the last one to leave turn the lights out?

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Illinois’s Oligarchy

At RealClearPolicy Matt Paprocki outlines the nature of government in Illinois:

Big money has determined the past three gubernatorial election outcomes in Illinois. Gone are the days of the Illinois political machine and blue-dog Democrats who built patronage armies and rank-and-file majorities. Illinois politics is now, more than ever, a dollars and cents game run by an oligarchy of rich insiders.

That means Illinois is on its way to being a state where special interests can outweigh the voices of the everyday people – unless the people do something about it.

continuing with this example:

Illinois Gov. J.B. Pritzker makes up the first half of that elite group. The wealthiest sitting politician in the country, Pritzker has broken records by spending a total of $323 million on his past two gubernatorial campaigns – approximately $70 per vote in 2022. Then, he spent millions more to ensure which opponent would win the Republican primary: Darren Bailey, a downstate, conservative farmer perceived as easier to beat than moderate Richard Irvin.

If any one person can buy not only their candidacy but also buy their opponent, what true voice do voters have?

He is more optimistic about it than I:

The only way we’re going to stop big money and entrenched partnerships such as the Illinois oligarchy from stealing our elections and rights is to run ourselves. Start small. Run for school board or another local office. Volunteer for political campaigns. Get involved.

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Strategic Options II

Leonard and Michael Hochberg have published the second installment in their series on U. S. national interests and the war in Ukraine at RealClearDefense. This installment deals with the second possible outcome—reinforcing the rules-based international regime through a complete Ukrainian victory:

One reason that the war in Ukraine has been met with such alarm is that it is a direct attack on the rules-based international order, which stipulates the sanctity of the territorial integrity of sovereign states. In the absence of a global government enforcing these rules, enforcement rests on the willingness of the U.S., as a now-weakened global hegemon, to enforce its treaty obligations.

As desirable as that outcome might be, I think there are several major roadblocks. The first of those is that it is far from clear that it is an achievable goal, especially without direct intervention of American forces and such an intervention would appear to contradict directly the limits President Biden has placed on our involvement. It would also be quite risky.

The second is that our commitment to a “rules-based international regime” rings a bit hollow at this point. Invading Iraq? Our intervention in Libya went far beyond the empowering Security Council resolution and our interventions in Serbia and Kosovo took place without such a resolution. In other words we’ve made it pretty clear that we only follow the rules when it suits our purposes. Not to mention all the times we have turned a blind eye on other countries’ violations of the rules when responding to them was simple not seen as being worth the cost.

I look forward to the third installment. Since the first installment dealt with Russian victory and the second with Ukrainian victory, I assume it will deal with some sort of negotiated settlement.

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Is Normalization a Workable Social Strategy?

The Oxford Dictionaries Word of the Year is “goblin mode”, defined as “a type of behavior which is unapologetically self-indulgent, lazy, slovenly, or greedy, typically in a way that rejects social norms or expectations”. That cuts pretty close to the bone. I might have suggested “normalization”.

In my lifetime the people and things we have been trying as a society to normalize are vast. In just the last 30 years I could mention quite a number. For example, the number of female-headed households has risen sharply, from about a third in 1990 to half today.

Some of the things that have been normalized over the last three quarters of a century are benign, e.g. graduating from high school. Others less so, e.g. illegitimacy.

Right now we’re struggling to normalize marriage between homosexuals, people using drugs and surgery to “transition” from one sex to another, and in some places petty crime. I question whether such rapid normalization is a viable social strategy.

Maybe “goblin mode” was a good pick.

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The U. S. Interest in the Russia-Ukraine War

in a thought-provoking piece at RealClearDefense Michael and Leonard Hochberg consider outcomes and U. S. interests in the Russia-Ukraine War. It’s the first of a three part series.

Regarding Ukraine: What exactly is the goal of the U.S. intervention? What is the outcome that we believe serves our national interests? Regrettably, neither American nor allied Western politicians have clearly answered this question.

In this first part they actually enunciate several interests. For example:

The United States, as the foremost maritime power, has an enduring interest in stopping Russia from dominating the Black Sea; therefore, the United States must seriously consider defending the territorial integrity of Ukraine.

What I found most interesting was their hat tip to “fractured nature of American strategic culture”. Despite the heartfelt declarations of support from some in the U. S. to the U. S. role as guarantor of democracy and freedom everywhere, the reality is somewhat different. There should be little doubt that there is no limit to the extents to which we will go in defending our own democracy and freedom. However, the facts support the view that our willingness to guarantee the democracy and freedom of other countries is subject to cost-benefit analysis. We have demonstrated that in Vietnam and Afghanistan, just to name two. Many countries see that as hypocritical of us and for that reason are chary of considering the U. S. a reliable ally. Said another way defending democracy and freedom is not an ironclad principle with us—it’s a means to an end. What’s the end?

I tend to believe more in principles than most of my fellow Americans. Consequently, I think we should be more reticent about declaring our support for the democracy and freedom of any country other than our own. I that sense I follow John Quincy Adams: we are the well-wishers of democracy and freedom everywhere but the guarantors only of our own. At least other countries would know where we stand were that our posture. It’s not a instance in which strategic ambiguity works to our advantage.

In the first installment the authors only consider one strategic outcome: trading Ukraine for a Russian alliance which I think is too cynical a goal for me to believe they are raising it as anything but a strawman. I look forward to the remaining installments.

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