Buchanan\'s Folly

Jeffrey Tucker lays the smackdown on Pat Buchanan's economic ignnorance.

Somehow it always comes back to the foundational insight that trade--all trade everywhere of whatever type, regardless of political borders or anything else--is mutually beneficial. If that one insight could be understood and absorbed and fully applied by all people who comment on politics and economics, how much fallacy would the world be spared?

I have encountered the same fallacy to which Buchanan falls prey among some acquaintances of mine - the belief that a successful Chinese economy is the greatest "threat" of the next century. Nothing could be further from the truth. A thriving Chinese economy would be beneficial to the rest of the world. Economics, unlike politics, is a positive-sum game.

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So how did you feel about

So how did you feel about grain sales to the Soviet Union?

Something that bothers me

Something that bothers me about free trade advocates: While I agree with them on their positions, they never recognize that countries such as China and Japan getting more productive, while helping us in ways, also hurts our competitive advantage with other countries relative to them.
If China gets more efficient than us in producing product A that we used to sell to Europe but now Europe buys from them, that does hurt us (How to weigh this with how much our trade with it helps us I don't know).
I'm not sure if there is much we can do about it politically, but to deny that a thriving economy, if it specializes in the same type of goods and services that we export, might have negative effects on the US economy seems disingenuous.

Lonsdale, You make some

Lonsdale,

You make some falicies in your argument. You suggest that if countries such as China and Japan get more productive, at a rate faster than in the US, our "competitive advantage" will be hurt.

First, an understnading of comparitive advantage and absolute advantage is required. Take two nations, US and GB as a simple example. Perhaps US can produce 10 guns or 5 lbs of butter in an hour. GB may be able to produce 8 guns or 7 lbs of butter a day. This would correctly lead us to believe that US should produce only guns, since US is more efficent at this than GB, and GB should produce only butter, for the same reason. Hence, worldwide, 10 guns and 7lbs of butter are produced an hour. Both countries have an ABSOLUTE advantage in their respective areas of production.

Now, say GB gets more productive in gun production, and now leads the US in both markets. Now GB can produce 12 guns or 7 lbs of butter a day. What happens? Are US markets crippled as GB is more efficent in both markets?

No. Even though GB has an absolute advantage in both markets, they can only produce one product at the cost of another. This is where the concept of comparitive advantage begins.

In GB, the production of 12 guns 'costs' 7 lbs of butter, since they have limited resources. This works out to a cost of 7 lbs per 12 guns, or 0.583 lbs/gun (sorry for the bad choice in numbers). In the US, production of 10 guns costs 5 lbs of butter, or 0.5 lbs/gun. This indicates that GB suffers a greater cost per gun produced compared to the US. They are more cost-efficent at producing butter compared to the US.

To maximize production and increas worldwide efficency, GB will produce only butter, at 7 lbs/hr, and the US will produce guns, at 10 guns/hr. This is the most efficent outcome.

In international markets the dynamics are much more complex and the opportunities are far more diverse. There will always be another market for the US to excel in, even if China and Japan were far more productive than the US.

Secondly, economic data indicates that the US is excelling in production even as China and Japan are. However, even if they outpace the uS, it does not matter, as shown above.

So how did you feel about

So how did you feel about grain sales to the Soviet Union?

I was not politically aware at the time, but I believe that economic sanctions only make the people living under tyranny worse off.

Iâ??m not sure if there is

Iâ??m not sure if there is much we can do about it politically, but to deny that a thriving economy, if it specializes in the same type of goods and services that we export, might have negative effects on the US economy seems disingenuous.

It will certainly have negative effects on those who work for the companies making those products (although it will also benefit them in a small way), but for the vast majority, i.e., those who do not work for those inefficient companies, it will be a benefit.

If Dell makes the same computer cheaper than Compaq, I benefit, because I can buy the same computer at a lower price. If Compaq goes out of business as a result, surely the people working at Compaq suffer. (Yet they can also buy a cheaper computer; little consolation, I know.) However, if Dell is prevented from even existing, the people working at Compaq are using monopoly-granted privilege to make the rest of us suffer.

Even if Compaq goes out of business, ex-Compaq workers are freed up for more productive work. This is how the US went from a nation of farmers to a nation of computer programmers, architects, designers, accountants, and engineers.

Change Dell and Compaq to China and the US, and the same argument holds.

Greenlee, you help prove my

Greenlee, you help prove my point. Assuming only two countries exist overly simplifies the issue. If three countries are assumed then it can be seen that the situation is much different.

Wilde shows this by his company analogy. Sure the US can go on to produce other things, and the overall wealth has increased, but the workers who got laid off aren't better off because of it.