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Economic Concept: Free Trade

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Economic Concept: Free Trade

One voice that is hardly ever raised is the consumer's. So-called consumer special interest groups have proliferated in recent decades, but you will search the news media,, or the records of congressional hearing in vain, to find any record of their launching a concentrated attack on tariffs or other restrictions on imports, even though consumers are major victims of such measures. The individual consumer's voice is drowned out in the cacophony of the interested sophistry of merchants, manufacturers, and democratic socialists. The result is a serious distortion of the issue. For example, the supporters of tariffs treat it as self-evident that the creation of jobs is a desirable end, in and of itself, regardless of what the persons employed do. That is clearly wrong; if all we want are jobs, we can create any number - for example, have people dig holes and then fill them up again, or perform other useless tasks. Work is sometimes its own reward. Mostly, however, it is the price we pay to get the things we want. Our real objective is not just jobs but productive jobs - jobs that will mean more goods and services to consume. Another fallacy seldom contradicted is that exports are good, imports bad. The truth is exactly the opposite. We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas fro Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets and Chinese iPhones. Our gain from foreign trade is what we import. Exports are the price we pay to get imports, not the other way around. As Adam Smith saw so clearly, the citizens of a nation benefit from getting as large a volume of imports as possible in return for its exports, or equivalently, from exporting as little as possible to pay for its imports. The misleading terminology we use reflects these erroneous ideas. Protection really means exploiting the consumer. A favorable balance of trade really means exporting more than we import, sending abroad goods of greater total value than the goods we get from abroad. In you private household, you would surely prefer to pay less for more rather than the other way around, yet that would be termed an unfavorable balance of payments in foreign trade. The argument in favor of tariffs that has the greatest emotional appeal to the public at large is the alleged need to protect the high standard of living of American workers from the unfair competition of Asian workers. What is wrong with this argument? Don't we want to protect the high standard of living of our factory workers? The fallacy in this argument is the loose use of the terms high wage and low wage. What do high and low wages mean? American workers are paid in dollars; Japanese workers are paid in yen. How do we compare these wages in dollars with wages in yen? How many yen equal a dollar? What determines that exchange rate? Let's consider hypotheticals. Suppose that, to begin with, 360 yen equals one dollar. AT this exchange rate, the actual rate of change for many years, suppose that the Japanese can produce and sell everything for fewer dollars than we can in the United States. If we had free international trade, we would try to buy all of our goods from Japan. This would seem to be the extreme horror story of the kind depicted by defenders of tariffs - we would be flooded with Japanese goods and could sell them nothing. Before throwing up your hands in horror, carry the analysis one step further. How would we pay the Japanese? We would off them dollar bills. What would they do with the dollar bills? We have assumed that at 360 yen to the dollar everything is cheaper in Japan, so there is nothing in the U.S. market that they would want to buy. If the Japs exporters were willing to burn or bury the dollar, that would be wonderful for us. We would get all kinds of goods for useless green pieces of paper that we can produce in great abundance and very cheaply. We would have the marvelous export industry conceivable - ZERO exports. Of course, the Japanese would not in fact sell us useful goods in order to get useless pieces of paper to burn or bury. Like us, they want to real value in return for their work. If all goods were cheaper in Japan than in the United States at 360 yen to the dollar, the exporters would try to get rid of their dollars, would try to sell them for 360 yen to the dollar in order to buy the cheaper Jap goods. But who would be willing to buy the dollars? What is true for the Japanese exporter is true for everyone in Japan. No one will be willing to give 360 yen in exchange for one dollar if 360 yen will buy more of everything in Japan than one dollar will buy in the United States. The exporters, on discovering that no one will buy their dollars at 360 yen, will lower the price. It will go down to 300, 250, perhaps even 200 yen. Put the other way around, it will take more and more dollars to buy a give number of Jap yen Jap goods are priced in yen, so their price in dollars will go up. Conversely, U.S. goods are priced in dollars, so the more dollars the gaps get for a given number of yen, the cheaper U.S. goods become to the Japs in terms of yen. The actual situation is more complicated than that, but the point being is that there is no long term problem with a trade deficit - in fact it is a boon, and in fact is a net benefit for the country in question. However, as I have mentioned, it is difficult to maintain due to normal, somewhat invisible, market forces. It should be noted that net dollars do leave the United States - but that is nullified by private interest, the Federal Reserve, and deficit spending.

21.12.2016 00:28
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Post: #2
RE: Economic Concept: Free Trade

Imports are good. They're the only reason you export stuff- so you can get stuff in return.

I'm leaving and probably never coming back, so thanks for the interesting discussions I guess, dunno why im writing this nobody even irl gives a toss about me anyway
10.01.2017 02:00
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