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BobK71
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The Misunderstandings of 'Free Trade'
Mar 7th, 2018 at 9:18am
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John Maynard Keynes (NOT my favorite commentator) said:

"The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist."

The sudden return from memory of this was, of course, inspired by Donald Trump and Peter Navarro, his new best economist friend who advocates protectionist tariffs.  (I'm sorry if my brand of humor doesn't impress.)

Now let me be clear that I never fell for the America-first, stop-foreigners-taking-our-jobs rhetoric.  'What rules are best for humanity' has always been my main concern.  The justification for free trade rests on something called 'comparative advantage,' which argues that resources are best allocated when the free market decides who produces what.

But I smell a panic in the establishment air every time something threatens our globalized system.  Traders, bankers, economists and politicians seem to jump to the rescue of free trade, based on an idea that seems only a nice-to-have promoter of efficiency. Something is not quite right.

It's only with a lot of reflection that I came to understand reality as it truly is.  The entire theory of 'comparative advantage' rests on the assumption that money and finance are a free market too.  They decidedly are not.  If money is manipulated by the global establishment, all pricing signals are distorted, and 'free trade' is not nearly what it's advertised to be.

Central banks of developing countries have been doing the dirty work of the Western establishment by artificially cheapening their own currencies and exporting real goods to the West in exchange for 'trusted' money and debt issued by Western countries.  This suppressed the cost of goods in Western currencies and propped up the power of Western elites to issue money and debt.  When your dollars can buy Vietnamese goods cheaply, you have faith in them.

One of the side effects of this was the hollowing out of the Western manufacturing middle class.  And a side effect of that was the election of Trump.  Trump has always argued that 'bad trade' was the result of unfair practices by other countries.  The reality is that the Western establishment has allowed the odious system to continue for decades, and barely paid lip service against the illiberal practice of manipulating exchange rates.  And its members have benefited so far by having the world trust the money and debt they issue out of thin air.

The establishment's panic comes from the fact that the cancer has spread.  Any disruption to this globalized system, at this point of the world's addiction to it, means consumer price inflation, painful deflation from asset bubble bursts, or both (stagflation.)

The establishment narrative will always be looking for specific people to blame (as, for example, the book 'Lords of Finance' blamed the entire Great Depression on a few central bankers) rather than allow us to examine what is, in truth, a system of money that is rooted in theft and deception.

The only true solution to most of the world's problems is a free market in finance as well as goods and services.
  
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Don_G
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Re: The Misunderstandings of 'Free Trade'
Reply #1 - Mar 7th, 2018 at 12:49pm
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When your dollars can buy Vietnamese goods cheaply, you have faith in them.


A strange way of saying that goods made in the Asian countries are up to US standards but cheaper Bob.

[quote]One of the side effects of this was the hollowing out of the Western manufacturing middle class.  And a side effect of that was the election of Trump.  Trump has always argued that 'bad trade' was the result of unfair practices by other countries. [quote]

Maybe a simpler and more easily understood way of saying it would be that the US can't compete with it's expensive labour and Trump fooled workers into thinking he could do something about it.

Did I miss any critical points Bob? I think I got your main point?
  
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ahhell
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Re: The Misunderstandings of 'Free Trade'
Reply #2 - Mar 7th, 2018 at 1:05pm
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Maybe a simpler and more easily understood way of saying it would be that the US can't compete with it's expensive labour and Trump fooled workers into thinking he could do something about it.

Did I miss any critical points Bob? I think I got your main point?
Wow, you wrote something that is unambiguously true.

Worth pointing out that we actually produce a lot of stuff still, its just we do it with a lot more automation and fewer people than back in the day.  Its not foreign workers taking our jobs as much as its robots.  Maybe Trump should be railing against silicon valley rather than China.
  
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Don_G
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Re: The Misunderstandings of 'Free Trade'
Reply #3 - Mar 7th, 2018 at 1:18pm
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ahhell wrote on Mar 7th, 2018 at 1:05pm:
Wow, you wrote something that is unambiguously true.

Worth pointing out that we actually produce a lot of stuff still, its just we do it with a lot more automation and fewer people than back in the day.  Its not foreign workers taking our jobs as much as its robots.  Maybe Trump should be railing against silicon valley rather than China.


I read Bob's post and tried to answer to his points. Then I asked him if I did? I may have failed in part but I wanted Bob to tell me what I missed.

How about you? Did I miss any finer points and if so then how would you respond to his post?

If in fact that wasn't it?

I'm sort of thinking it's time to drop the nonsense and separate the wheat from the chaff on this forum. That means I'll talk with you, Bob, burnsred when he's serious, and may Tom? I can't think of any others at the moment.
  
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ahhell
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Re: The Misunderstandings of 'Free Trade'
Reply #4 - Mar 7th, 2018 at 2:13pm
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I read Bob's post and tried to answer to his points. Then I asked him if I did? I may have failed in part but I wanted Bob to tell me what I missed.

How about you? Did I miss any finer points and if so then how would you respond to his post?

If in fact that wasn't it?

That was my response, I agree with your statement.

In essence, the reason the US has lost manufacturing jobs is not because the global elites play games with money(though, that may contribute) its that labor in the west and US is much more expensive than labor elsewhere and we have robots. 
  
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The Opposition
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Re: The Misunderstandings of 'Free Trade'
Reply #5 - Mar 7th, 2018 at 3:20pm
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BobK71 wrote on Mar 7th, 2018 at 9:18am:
Central banks of developing countries have been doing the dirty work of the Western establishment by artificially cheapening their own currencies and exporting real goods to the West in exchange for 'trusted' money and debt issued by Western countries.  This suppressed the cost of goods in Western currencies and propped up the power of Western elites to issue money and debt.  When your dollars can buy Vietnamese goods cheaply, you have faith in them.


What you're saying is that a dollar is better in Vietnam than it is in America, and that only because of this can the Vietnamese labour work for less. They want our currency instead of their own.

I think the truth is closer to the American worker just being spoilt, lazy, stupid, and inefficient by nature. Americans should lose all our jobs, because we can't compete.

We can't compete in labour, science, or technology. The problem is not the banks, but the people.

It's easy to blame others for one's own problems.

Eliminate the minimum wage. Americans aren't worth a penny, let alone $10 an hour. Let Americans work for what the value of their labour commands.
  

This moral relativism of yours is exactly what lets government take this freedom, then that freedom, until we have lost them all.
-SnarkySack
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Tom Palven
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Re: The Misunderstandings of 'Free Trade'
Reply #6 - Mar 8th, 2018 at 8:46am
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The implementation of Adam Smith's views on free trade expressed in his book The Nature and Causes of the Wealth of Nations, 1776, is credited by many with advancing England's industrial revolution.

In 1850 British Prime Minister Benjamin Disraeli proclaimed that "protection is not only dead, but damned."

But not in Donald Trump's world.

The following article describes part of the can of worms that Trump's tariffs will open:
https://www.ericpetersautos.com/2018/03/06/trumps-tariff-turducken/
  
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BobK71
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Re: The Misunderstandings of 'Free Trade'
Reply #7 - Mar 8th, 2018 at 9:40am
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A strange way of saying that goods made in the Asian countries are up to US standards but cheaper Bob.

Maybe a simpler and more easily understood way of saying it would be that the US can't compete with it's expensive labour and Trump fooled workers into thinking he could do something about it.

Did I miss any critical points Bob? I think I got your main point?


What you're saying is certainly true.  But why is Asian labor cheaper that produces the same quality of products?  My argument is that it's exchange rate manipulation.

It goes like this, and this is pretty mainstream stuff.  Under truly free markets, as long as there was a trade surplus by China, there would be more demand for yuans than for dollars in the yuan-dollar markets.  The yuan would go up against the dollar.  Chinese goods would become more expensive in America, and vice versa.  *This process would keep going until trade was balanced* simply because of the foreign exchange markets.  When trade was balanced, the major problems would be gone.  This is the market's natural balancing that was disturbed by the Chinese central bank buying dollars to keep the yuan cheap, with tacit approval from the US elites.

BTW, the building up of financial imbalance this way was also the fundamental cause of the 2008 crisis IMO.  The mainstream narrative that it was bankers or Fannie and Freddie was only a downstream effect.  (The mainstream economists cutely called this massive money creation a 'savings glut.')

I didn't want to lengthen my piece by including detailed arguments.  But hopefully the above will make things clearer.
  
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BobK71
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Re: The Misunderstandings of 'Free Trade'
Reply #8 - Mar 8th, 2018 at 10:12am
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ahhell wrote on Mar 7th, 2018 at 1:05pm:
Worth pointing out that we actually produce a lot of stuff still, its just we do it with a lot more automation and fewer people than back in the day.  Its not foreign workers taking our jobs as much as its robots.  Maybe Trump should be railing against silicon valley rather than China.


I know robots are famous and look cool on TV these days, but China didn't become the biggest manufacturing economy in the world if robots could have done it cheaper or better.  I can probably count on one hand things I own that were made in the US, by people or robots.

Where technology might have played a role was displacing low-level management and clerical work with software.  There is a major push to argue this by mainstream economists, but I still think trade played at least a major role.

Ultimately, though, it doesn't really matter.  Whether it's technology or trade, the loss of much of the middle class was driven by a centrally planned, artificial system designed to benefit the elites and destined to destabilize the world (even though, and perhaps because, it quickened growth.)  The frenzy of investment into technology was driven by the same creation of money and debt by the elites.  The exploitation of developing country populations added a moral dimension to the problems of trade, but for our purposes, in a slightly more general analysis, technology is really no different.
  
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Don_G
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Re: The Misunderstandings of 'Free Trade'
Reply #9 - Mar 8th, 2018 at 12:42pm
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BobK71 wrote on Mar 8th, 2018 at 9:40am:
What you're saying is certainly true.  But why is Asian labor cheaper that produces the same quality of products?  My argument is that it's exchange rate manipulation.


Rather than disagree with you, I'll restate it and maybe that will be seen as agreement by you. Asian products which are sometimes equal in quality to US  products, sometimes better, and sometimes worse, are cheaper because labour is cheaper.

Quote:
It goes like this, and this is pretty mainstream stuff.  Under truly free markets, as long as there was a trade surplus by China, there would be more demand for yuans than for dollars in the yuan-dollar markets.  The yuan would go up against the dollar.  Chinese goods would become more expensive in America, and vice versa.  *This process would keep going until trade was balanced* simply because of the foreign exchange markets.  When trade was balanced, the major problems would be gone.  This is the market's natural balancing that was disturbed by the Chinese central bank buying dollars to keep the yuan cheap, with tacit approval from the US elites.


Again, I'll just restate that for simplicity sake. The world market will balance. Asian labour will become more expensive and US (Western) labour will become cheaper, until the balance is found.

Quote:
BTW, the building up of financial imbalance this way was also the fundamental cause of the 2008 crisis IMO.  The mainstream narrative that it was bankers or Fannie and Freddie was only a downstream effect.  (The mainstream economists cutely called this massive money creation a 'savings glut.')


I see internal US manipulations of the market as just a temporary aberration.

Quote:
I didn't want to lengthen my piece by including detailed arguments.  But hopefully the above will make things clearer.


Maybe we will reach agreement with my few simple words.
  
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