The American Economy

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Didymos Thomas
 
Reply Sun 11 May, 2008 01:53 pm
@Justin,
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That's what I just said in my post.


What do you know? We agreed.

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We spend more on social security than we do on the military and "defense spending."


Depends on which year you pick out. However, over the past 50 years, we have spent far more on military and defense than on social security. Also, Social Security takes in more revenue than it pays out.

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Pork barrel spending is a huge percentage of our budget. Non-defense discretionary spending (most of which is pork barrel) accounts for around 15% of total spending.


We've spent over 270 billion on pork since 1991 - that's less than one years military spending.

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Medicaid and Medicare cost more than military spending.


I'd like to see some figures, because everything I've looked at shows otherwise - just under 400 billion for Medicare, well over 700 billion for defense.

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There is some truth in this statement, due to our quotas and tariffs and the fact that our trade agreements aren't actually free trade agreements as much as they are mercantilist ones supporting big corporations. Our trade agreements (like NAFTA) are, however, better than having no trade agreements whatsoever.


Sure, having terrible trade agreements is better than having none, but no nation goes without trade agreements. Even free markets require trade agreements between nations.
 
krazy kaju
 
Reply Sun 11 May, 2008 05:22 pm
@Didymos Thomas,
Didymos Thomas wrote:
Depends on which year you pick out. However, over the past 50 years, we have spent far more on military and defense than on social security.


Over the past 50 years we've been in the cold war. Picking the figures as you have done is unfair.

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Also, Social Security takes in more revenue than it pays out.
Your point?

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We've spent over 270 billion on pork since 1991 - that's less than one years military spending.
You're right that military spending far outweighs pork barrel spending, but pork barrel spending is still a major source for hurt on the taxpayer (and businesses).

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I'd like to see some figures, because everything I've looked at shows otherwise - just under 400 billion for Medicare, well over 700 billion for defense.
http://econophile.files.wordpress.com/2007/08/budget-allocation.jpg

http://www.washingtonpost.com/wp-srv/politics/interactives/budget07/categoryPie07.gif

http://www.financialsense.com/editorials/hodges/2007/images/95budget.gif

http://content.answers.com/main/content/wp/en/d/dd/Fbs_us_fy2007.png

http://www.csbaonline.org/2006-1/2.DefenseBudget/images/Graph2-PieChart.gif

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Sure, having terrible trade agreements is better than having none, but no nation goes without trade agreements. Even free markets require trade agreements between nations.
Free markets would actually require an absence of government intervention, meaning no trade agreements but an elimination of tariffs, quotas, etc. If other nations choose not to reap the benefits of trade, too bad for them.
 
iconoclast
 
Reply Mon 12 May, 2008 09:54 am
@Justin,
Krazy Kuju - Didymos Thomas,

Those are some an impressive pie charts, but i have a question. If the guys in charge of a healthcare facility for example, take 40% of the annual budget in wages and bonuses - is that money really spent on healthcare?
 
krazy kaju
 
Reply Mon 12 May, 2008 03:05 pm
@iconoclast,
Yes, it is, as it is taxpayer money being wasted for private citizens' health care.

This presents yet another benefit of privatization over nationalization - a large percent of government budget oftentimes goes towards paying the civil servants. For example, I've heard before that 80% of money for welfare goes to pay bureaucrats.

Private charities have the advantage that they do not have to pay workers as much and that many of their workers choose to work for free.
 
Didymos Thomas
 
Reply Mon 12 May, 2008 03:24 pm
@krazy kaju,
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Over the past 50 years we've been in the cold war. Picking the figures as you have done is unfair.


Not when that was my point - military spending has been the most significant factor in driving the US into debt. The Cold War spending was a big part of that.

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Your point?


It's not the cause of our debt.

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You're right that military spending far outweighs pork barrel spending, but pork barrel spending is still a major source for hurt on the taxpayer (and businesses).


Oh, sure, and the projects are inexcusable vote purchasing.

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Free markets would actually require an absence of government intervention, meaning no trade agreements but an elimination of tariffs, quotas, etc. If other nations choose not to reap the benefits of trade, too bad for them.


That's the problem, though. We cannot have absolute free trade with nations who use protectionist tactics.
 
krazy kaju
 
Reply Mon 12 May, 2008 06:24 pm
@Didymos Thomas,
Oh, I see what you're saying. Yes, you are correct in saying that military spending is a major source of our debt (especially when you consider the Cold War).

I would, however, have to say that Medicare, Medicaid, and social security are all major drains on our economy right now, in addition to military spending.

In any case, I don't think I ever contended that we can have free trade with nations that practice protectionist policies, that is simply counterintuitive. What I did say was that we should eliminate tariffs, quotas, and other trade regulations with other nations. As Bastiat explained, protectionist policies only harm the nation that practice them. It makes no sense to demand higher priced, lower quality goods if we could get them for cheaper with a better quality from abroad.

In short, let's cut trade regulation and lead other nations by example.
 
Didymos Thomas
 
Reply Mon 12 May, 2008 06:55 pm
@krazy kaju,
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Oh, I see what you're saying. Yes, you are correct in saying that military spending is a major source of our debt (especially when you consider the Cold War).

I would, however, have to say that Medicare, Medicaid, and social security are all major drains on our economy right now, in addition to military spending.


Sure, these programs might be called "drains" on our economy, but I'm not convinced it's the programs themselves. The programs are far from perfect, lot's of inexcusable waste, but the real problem, I think, is the cost of health care in the US.

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In any case, I don't think I ever contended that we can have free trade with nations that practice protectionist policies, that is simply counterintuitive.


But you do advocate cutting regulations and leading by example in removing regulations.

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What I did say was that we should eliminate tariffs, quotas, and other trade regulations with other nations. As Bastiat explained, protectionist policies only harm the nation that practice them. It makes no sense to demand higher priced, lower quality goods if we could get them for cheaper with a better quality from abroad.

In short, let's cut trade regulation and lead other nations by example.


The problem is actually putting this into practice. Let's say we can get the cheaper, better quality goods from abroad. In doing so, we risk the livelihood of those in this nation who produce similar goods.

If people lose their income, they can't very well take advantage of the hypothetical cheaper, higher quality foreign goods.
 
krazy kaju
 
Reply Mon 12 May, 2008 07:29 pm
@Didymos Thomas,
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Sure, these programs might be called "drains" on our economy, but I'm not convinced it's the programs themselves. The programs are far from perfect, lot's of inexcusable waste, but the real problem, I think, is the cost of health care in the US.


Thirty percent of which is due to regulation...

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But you do advocate cutting regulations and leading by example in removing regulations.


Yes, but that isn't relative to what you had said. By definition, you cannot have free trade with protectionist nations, but you can have free trade policies (which is what I advocate).

Pointless semantics, dunno why I brought it up in the first place.

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The problem is actually putting this into practice. Let's say we can get the cheaper, better quality goods from abroad. In doing so, we risk the livelihood of those in this nation who produce similar goods.

If people lose their income, they can't very well take advantage of the hypothetical cheaper, higher quality foreign goods.


If you allow a flexible, open, free market to exist, this really wouldn't be as big of a problem.

Involuntary unemployment (frictional unemployment aside) cannot exist for long in a free market economy. Taxes, regulations, expansionary credit policy, and government/union imposed wage rigidities are at the source of involuntary unemployment, and doing away with these measures would promote entrepreneurs creating and expanding their businesses.

Comparative advantage is a great thing, you only have to allow the market to work.
 
Didymos Thomas
 
Reply Tue 13 May, 2008 03:08 am
@krazy kaju,
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Thirty percent of which is due to regulation...


In the case of health care today in the US, some degree of de-regulation might very well be helpful. Of course, this depends on how we go about things. Regulation and de-regulation - these are things which are sometimes and in some cases good, other times, bad.

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If you allow a flexible, open, free market to exist, this really wouldn't be as big of a problem.

Involuntary unemployment (frictional unemployment aside) cannot exist for long in a free market economy. Taxes, regulations, expansionary credit policy, and government/union imposed wage rigidities are at the source of involuntary unemployment, and doing away with these measures would promote entrepreneurs creating and expanding their businesses.

Comparative advantage is a great thing, you only have to allow the market to work.


But how is this supposed to work if the cheaper, higher quality goods come from protectionist nations?

That's the problem - unless we have some perfect world in which all nations have an absolute free trade policy we cannot demand that the solution to current economic woes amounts to pretending that said dream world does exist. In the meantime we have to pragmatic. Sometimes de-regulation will be the answer, other times, regulation will be necessary.

In a perfect world, the de-regulation of airlines might have worked. In a perfect world, the de-regulation of the lending market that helped fuel the current bust might have instead brought about positive results.
 
krazy kaju
 
Reply Tue 13 May, 2008 06:26 pm
@Didymos Thomas,
Didymos Thomas wrote:
In the case of health care today in the US, some degree of de-regulation might very well be helpful. Of course, this depends on how we go about things. Regulation and de-regulation - these are things which are sometimes and in some cases good, other times, bad.


How are entry fees, taxes, monopolies, etc. beneficial to consumers?

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But how is this supposed to work if the cheaper, higher quality goods come from protectionist nations?

That's the problem - unless we have some perfect world in which all nations have an absolute free trade policy we cannot demand that the solution to current economic woes amounts to pretending that said dream world does exist. In the meantime we have to pragmatic.


What do you mean?

We get cheaper, higher quality goods while they don't. It's beneficial to us, not them.

If you're arguing from the "job perspective," there are more than only two nations in the world, and even if there were only two nations, there's this little thing called comparative advantage.

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Sometimes de-regulation will be the answer, other times, regulation will be necessary.

In a perfect world, the de-regulation of airlines might have worked. In a perfect world, the de-regulation of the lending market that helped fuel the current bust might have instead brought about positive results.


When have we ever had true deregulation of airlines or the lending market? The current depression has been fueled by extravagant inflation of the money supply that has sent false signals to businesses about the spending/consumption rate of consumers.

People often incorrectly use "empirical" examples of deregulation failing, which are total lies. The only time we began to deregulate the airline industry we saw lower prices and better quality being offered to consumers.

As for deregulation of the lending market - are you being serious? I don't see how our current fascistic banking and lending industry resembles capitalism at all.
 
Didymos Thomas
 
Reply Wed 14 May, 2008 02:06 pm
@krazy kaju,
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How are entry fees, taxes, monopolies, etc. beneficial to consumers?


They are not always beneficial to consumers. And my interest does not end with consumers. Regulation should be a pragmatic tool to benefit or protect both consumers and workers and those who do not have the means to consume nor the ability to work.

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What do you mean?

We get cheaper, higher quality goods while they don't. It's beneficial to us, not them.


Cheaper, higher quality goods from other nations is good from the perspective of the consumer. But this is often harmful to the worker in that they lose their job.

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If you're arguing from the "job perspective," there are more than only two nations in the world, and even if there were only two nations, there's this little thing called comparative advantage.


There are many nations in the world. Comparative advantage is nonfalsifiable - it's nothing more than wishful thinking, and sometimes the girl gets her pony. But this does not save jobs lost to overseas workers who produce cheaper goods.

In today's world, quality has little to do with the equation. Cheap is the bottom line, and many Americans have lost jobs because foreign firms can come up with cheap products, even if they are not as well made.

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When have we ever had true deregulation of airlines or the lending market? The current depression has been fueled by extravagant inflation of the money supply that has sent false signals to businesses about the spending/consumption rate of consumers.


There has never been true deregulation of anything - that's the idealistic fantasy of free marketeers. My point is that regulation is sometimes helpful.

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As for deregulation of the lending market - are you being serious? I don't see how our current fascistic banking and lending industry resembles capitalism at all.


It does not resemble your ideal vision of capitalism. Not supposed to. It was just another example of de-regulation failing because of reality.

And that's my point - de-regulation and regulation are not to be used to pursue some ideal, they should be used pragmatically. Chasing ideals is not helpful when we have lives on the line. Sometimes de-regulation is the answers, other times, a disaster.
 
iconoclast
 
Reply Thu 15 May, 2008 07:15 am
@Didymos Thomas,
I have another question. If money is an abstract representation of value rather than a real object - how can you expect to achieve the right answer? Any answers are surely conventional - or at best, the rationale of a fiction. No?
 
Didymos Thomas
 
Reply Thu 15 May, 2008 07:53 am
@iconoclast,
Any answer to what?

Economists deal with more than money.
 
krazy kaju
 
Reply Fri 16 May, 2008 04:37 pm
@Didymos Thomas,
Didymos Thomas wrote:
They are not always beneficial to consumers. And my interest does not end with consumers. Regulation should be a pragmatic tool to benefit or protect both consumers and workers and those who do not have the means to consume nor the ability to work.


So government regulators know better than you and I and should be able to determine which regulations are bad and which ones are good?

Doesn't your proposal require a utopia where government actually can be trusted?

Also, wouldn't the interests of consumers and workers be protected by competition, unions, and consumer organizations in a free market?

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Cheaper, higher quality goods from other nations is good from the perspective of the consumer. But this is often harmful to the worker in that they lose their job.


You're ignoring comparative advantage. It seems that in your economic world viewpoint, all the jobs of one nation could move to another simultaneously, leaving an entire nation unemployed.

This is unprofitable for businesses for obvious reasons (available resources and markets). What actually occurs in a free trade situation is that nations either specialize in what they do best, or if a nation is outcompeted in every aspect, it will begin to specialize in industries it does OK in. Economics 101. I remember reading that something like 90% of all economists want to completely remove tariffs, quotas, trade embargoes, etc. This isn't a very controversial idea.

Lastly, workers are consumers.

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There are many nations in the world. Comparative advantage is nonfalsifiable - it's nothing more than wishful thinking, and sometimes the girl gets her pony. But this does not save jobs lost to overseas workers who produce cheaper goods.


Well, first of all, eliminating our harmful regulations and taxes would bring businesses to us in floods.

Second of all, comparative advantage is very well established among all economists. Comparative advantage is economic law. It is not profitable or in the self interest of anyone to leave people unemployed. Involuntary employment mainly due to government intervention, not free trade.

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In today's world, quality has little to do with the equation. Cheap is the bottom line, and many Americans have lost jobs because foreign firms can come up with cheap products, even if they are not as well made.


Hondas and Toyotas are of inferior quality, obviously.


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There has never been true deregulation of anything - that's the idealistic fantasy of free marketeers. My point is that regulation is sometimes helpful.


Right, as if that's a logical argument.

"That won't happen, so let's ignore that argument, it's supported by some ridiculous idealists, I'll say something is helpful without any evidence or examples, and let's ignore the fact that an ideal, perfect government is needed to support what I'm saying."

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It does not resemble your ideal vision of capitalism. Not supposed to. It was just another example of de-regulation failing because of reality.



"My ideal of capitalism?" Again, is this a joke, or do you not understand free market fundamentals?

You can't say that deregulation fails when there are thousands of other factors, like huge taxes, entry fees, government-enforced monopolies and oligopolies, and a huge [government] monetary expansion driving businesses to make erroneous assumptions about consumer spending/saving habits.

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And that's my point - de-regulation and regulation are not to be used to pursue some ideal, they should be used pragmatically. Chasing ideals is not helpful when we have lives on the line. Sometimes de-regulation is the answers, other times, a disaster.


And you have yet to provide an example of helpful regulation.
 
Didymos Thomas
 
Reply Sat 17 May, 2008 03:20 am
@krazy kaju,
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So government regulators know better than you and I and should be able to determine which regulations are bad and which ones are good?


Depends on who those regulators are, hmm?

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Doesn't your proposal require a utopia where government actually can be trusted?


No, my proposal is that economic policy should be pragmatic. If we cannot trust the government to be pragmatic about economic policy we also cannot trust that government to use your free market principles. Personally, I don't trust the government to do either.

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Also, wouldn't the interests of consumers and workers be protected by competition, unions, and consumer organizations in a free market?


That's the idea, as I follow it. But the question is how well will consumers and workers be protected. Chasing ideals does not put food on the table.

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You're ignoring comparative advantage. It seems that in your economic world viewpoint, all the jobs of one nation could move to another simultaneously, leaving an entire nation unemployed.


And you're expecting comparative advantage to be an economic cure all. As for my economic world viewpoint - I've made no such claim. My view point is that we should be pragmatic, however radical I might be.

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I remember reading that something like 90% of all economists want to completely remove tariffs, quotas, trade embargoes, etc. This isn't a very controversial idea.


And your point is? I want to do exactly the same.

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Lastly, workers are consumers.


Not if the worker loses his job because it was outsourced to a nation without labor laws.

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Well, first of all, eliminating our harmful regulations and taxes would bring businesses to us in floods.


Sure, if the taxes and regulations are harmful, it would be best to remove them. The problem is that not all taxes and regulations are always harmful.

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Second of all, comparative advantage is very well established among all economists. Comparative advantage is economic law. It is not profitable or in the self interest of anyone to leave people unemployed. Involuntary employment mainly due to government intervention, not free trade.


I trust you are just as capable as I am at looking up the criticisms of comparative advantage. Doing so might be useful at some point.
Comparative advantage does not work when capital is internationally mobile.

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Hondas and Toyotas are of inferior quality, obviously.


Because Honda and Toyota are the only foreign products we Americans consume, right. Have you ever been to Wal-Mart?

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Right, as if that's a logical argument.

"That won't happen, so let's ignore that argument, it's supported by some ridiculous idealists, I'll say something is helpful without any evidence or examples, and let's ignore the fact that an ideal, perfect government is needed to support what I'm saying."


Talk about ignoring arguments - my point was that regulation is sometimes helpful. Would you like examples other than the recent airlines and lending markets? Medicine.

What you say about inflation is true, and this was no help. But the heart of the matter was deregulation of the industry, allowing banks to write loans to people who could not pay, and then sell those loans as investments.

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"My ideal of capitalism?" Again, is this a joke, or do you not understand free market fundamentals?


Do you want to address the issues, or ask me if I'm a fool? Yes, your ideal of capitalism. Reality has shown that capitalism, like communism, is open to abuse by those in power. I give you the US as an example.

The terrible banking and lending industry is indefensible. However, deregulating that industry was definitely a poor idea. Again, deregulation can be harmful.

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You can't say that deregulation fails when there are thousands of other factors, like huge taxes, entry fees, government-enforced monopolies and oligopolies, and a huge [government] monetary expansion driving businesses to make erroneous assumptions about consumer spending/saving habits.


Good - because I didn't say deregulation fails. Instead, I suggested that we regulate and deregulate according to the circumstances before us, that we use pragmatic economic policy instead of idealistic laissez-faire capitalism.

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And you have yet to provide an example of helpful regulation.


Oh, I have, you just didn't like them. Airlines, lending. Remember? In this post I also give medicine as an example. If you want specific legislation, the Pure Food and Drug Act.
 
krazy kaju
 
Reply Fri 6 Jun, 2008 03:57 pm
@Didymos Thomas,
Didymos Thomas wrote:
Depends on who those regulators are, hmm?


Wait... people exist who can calculate the subjective values of goods and services better than the market?

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No, my proposal is that economic policy should be pragmatic. If we cannot trust the government to be pragmatic about economic policy we also cannot trust that government to use your free market principles. Personally, I don't trust the government to do either.


I'm pretty sure "free market principles" implies as little government as possible (or even no government).

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That's the idea, as I follow it. But the question is how well will consumers and workers be protected. Chasing ideals does not put food on the table.


So again, you're assuming that the government is ideal and can quantify values better than the billions of subjective values that form the market?

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And you're expecting comparative advantage to be an economic cure all. As for my economic world viewpoint - I've made no such claim. My view point is that we should be pragmatic, however radical I might be.


Is your definition of "pragmatic" equivalent with "unemployment," "inflation," and "tyranny?"

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And your point is? I want to do exactly the same.


I can't see how you can ignore comparative advantage but still be anti-tariff.

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Not if the worker loses his job because it was outsourced to a nation without labor laws.


Frictional unemployment is something that happens in every type of economy on every scale.

Let me break this down for you:

First, let's discuss what comparative advantage actually means. The market ensures that resources (such as labor) are allocated in the most profitable and efficient manner possible. When a business moves its resources from the USA to France, it means that the business can provide a product that is in some way superior to what it could provide here. When a business moves from Michigan to Ohio, it means that it can produce a superior product in Ohio. When a business moves from New York City to Albany, it does so because it can produce a superior product in Albany. When a business moves from Main Street to St. Petersburg Road, it does so because it can provide a superior product on St. Petersburg. When a business moves from 15692 Franklin Road to 15693 Franklin Road, it can provide a superior product at 15693 Franklin Road.

Will the members of the community in the USA, Michigan, NYC, Main Street, and 15692 Franklin Road lose jobs? Yes. But this happens for a reason: efficiency. So let me approach this question from yet another angle.

Opponents of comparative advantage believe that free trade is bad because it causes workers to lose jobs at "home," which usually implies your home nation. But look into it further. When that job moves from the USA to France, an American loses a job, so we need tariffs, right? What about that job that a Michigander loses to an Ohioan? Shouldn't there be tariffs preventing jobs from moving from Michigan to Ohio? What about the New Yorker who lost his job to the resident from Albany? Shouldn't there be tariffs preventing jobs from moving between cities within a state? What about the guy who lost his job on Main Street to the guy on St. Petersburg Road? Shouldn't there be tariffs preventing job movement from one block to another? What about the business that went under (and the workers who lost their jobs) at 15692 Franklin Road to the competing business at 15693 Franklin Road? Shouldn't there be tariffs between addresses, then, to prevent job loss?

In fact, shouldn't every family be responsible for creating its own food, clothing, entertainment, etc. from scratch? Or possibly every individual? After all, trade would cause an individual to lose his/her job of sewing to someone who can do it more efficiently. This is the logical conclusion of so called "fair traders" who are against comparative advantage.

Comparative advantage is not a hard thing to understand. If a business from France out competes one in the USA, or if that business moves from the USA to France, it means that something in France makes it more efficient to produce that product in France than in the USA (meaning lower prices or higher quality). Comparative advantage is simply a tool used to explain the division of labor. Say I can't sew as well as you do, so I'll compensate you for sewing my clothes. But I produce food more efficiently, so we'll trade, you can sew my clothes and I'll give you food. Or say that you do everything better than I do. Well, what then? You'll provide me with the job that I do the strongest in comparison to you while I trade that service with all the other things you produce.

In essence, comparative advantage works as a model on individuals as well as communities. If a job moves from Los Angeles to San Francisco, it does so because somebody at San Francisco can provide the product you produce better. But what then happens to you?

This is the huge secret that "fair traders" have not yet discovered: free trade creates jobs as well. For every job lost, one is created. If France produces better wine than the USA, but the USA produces better grain, we might exchange grain and wine. If France does everything better, American citizens will specialize in what they do comparatively better at than Frenchman (i.e. Americans might make beer that is ALMOST as good as French beer, so the Americans would produce more beer).

Of course, this relationship gets much more complex when you move up on the ladder of economies of scale. The market allocated goods, labor, and resources in the most efficient manner. If you totally want to prevent any kind of frictional unemployment, you'd have to force everyone to become completely self reliant.

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Sure, if the taxes and regulations are harmful, it would be best to remove them. The problem is that not all taxes and regulations are always harmful.


So you're assuming that the income tax doesn't reduce aggregate demand, the payroll tax doesn't reduce wages and salaries, the property tax doesn't cause urban sprawl, the sales tax doesn't create improper price allocations, and tariffs don't prevent market inefficiency, correct?

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I trust you are just as capable as I am at looking up the criticisms of comparative advantage. Doing so might be useful at some point.
Comparative advantage does not work when capital is internationally mobile.


Mobility of capital is irrelevant. It is actually helpful in reducing frictional unemployment. In a traditional model where, say, English vineyards are competing against French vineyards, entire industries might be forced to go under in a very short time period by their competitors, creating a large amount of temporary unemployment. But in the modern era, if a car manufacturer begins to move capital to another nation, then that car business won't face such a great possibility of going down at once. Instead, the business will slowly decrease the amount of workers at "home" and begin hiring more "abroad."

Also, you're again ignoring the fact that free trade necessarily implies that jobs will be coming back "home" due to comparative advantage.

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Because Honda and Toyota are the only foreign products we Americans consume, right. Have you ever been to Wal-Mart?


Are you saying that there is something morally wrong with buying cheaper products if they're from abroad? Are you xenophobic or racist by any chance?

(That is a rhetorical question, obviously.)

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Talk about ignoring arguments - my point was that regulation is sometimes helpful. Would you like examples other than the recent airlines and lending markets? Medicine.


Bringing up more examples of government intervention failing, are we?

Airline industries have been flunking due to huge government mismanagement. The airline industry has largely been hurt by inflation (again caused by the gov't) which has been a major reason why jet fuel is so expensive now. The airline industry has also been hurt by the way the Fed manages loans due to their heavy reliance on capital goods (i.e. planes). With below-market-level interest rates, loans are made to businesses who then use the extra cash for what they assume will be profitable ventures. Of course, this creates a distortion in the market where consumption is temporarily out-of-whack and well above it's actual market level. This causes a temporary boom followed by a bust when the loans expire and no new cash is circulating in the economy to keep normally unprofitable ventures profitable.

A great example of the above is the housing market. Since the invention of the individual loan, we've seen many housing booms and busts. This has largely been due to the manipulation of credit by central banks across the world, creating distortions in the perceived spending/saving rate of individuals. This affects airlines in that artificially low interest rates might temporarily increase their business (due to the multiplier effect) leading them to believe an expansion in their fleet is necessary. They, in turn, might take out loans (again at the below-market rate) to increase their fleet to meet the new demand. When those planes are done, or even before they're done, the demand might cease to exist due to not enough credit being injected to the market. Then the airline business might be forced to liquidate its spending on new capital goods, meaning less jobs and more lay-offs producing air planes, etc., which in turn means a further downturn in jobs.

The same applies to the lending industry. When there is new credit created by a central bank, the lending industry will have more credit to loan out. Greater supply usually means lower price (interest rate) and it also means that a greater number of people will be able to purchase the product (in this case: loans). This causes banks to give out loans to greater risks, something they would normally not do if they weren't able to get huge amounts of money from the government for a very low interest rate. When, inevitably, some of the loans fail, lenders will simply take assets from the people who failed to repay their loans that are worth approximately the same amount the loan was worth. However, when this happens on a large scale due to a low point in a business cycle (which happen again due to central bank manipulation), the lenders don't have enough money to continue. They go under and expect more low-interest loans from the gov't and bail outs.

As for medicine, I'm assuming your mentioning the rising price of health care in general and medicine in particular. This has been due to more government involvement. When the government provides free health care and medicine to a large proportion of the population while limiting supply due to regulations, what else can you expect? If you can get a good or service for free, or almost for free, you'll consume a lot of it. But since the government artificially lowers these prices due to Medicaid and Medicare, it increases demand artificially which raises the price for the rest of us.

Normally, an increased price is a signal for entrepreneurs to enter the business and for existing businesses to expand supply (in this case, medicine). However, with strict regulation of medication, you can expect supply to remain relatively low while the price remains high. And this regulation usually has nothing to do with "ensuring quality" as much as it has to do with the drug war.



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What you say about inflation is true, and this was no help. But the heart of the matter was deregulation of the industry, allowing banks to write loans to people who could not pay, and then sell those loans as investments.


No, that is not at the heart of the matter. What is at the heart of the matter is constant government catering of banks. If banks mismanage their assets, they will go out of business. This creates a strong incentive to make low-risk investments and to loan money to people who can afford to pay them back.

But when government starts providing cheap loans and bailing you out if you make a bad decision, all of a sudden the profit motive is gone (or rather radically changed). Why worry about investing in low risks or giving loans only to responsible people when the government will bail you out if you go under? Why give money only to people you know will pay it back when the government provides you with a seemingly endless amount of credit at a very low interest rate?

Quote:
Do you want to address the issues, or ask me if I'm a fool? Yes, your ideal of capitalism. Reality has shown that capitalism, like communism, is open to abuse by those in power. I give you the US as an example.


Because incredible monetary expansion, high taxes and tariffs, and a lot of red tape are an example of capitalism, right?

Quote:
The terrible banking and lending industry is indefensible. However, deregulating that industry was definitely a poor idea. Again, deregulation can be harmful.


The root of the failure of banks and lenders is the government, as explained above.

Quote:
Good - because I didn't say deregulation fails. Instead, I suggested that we regulate and deregulate according to the circumstances before us, that we use pragmatic economic policy instead of idealistic laissez-faire capitalism.


Just that you have failed to provide ONE example of deregulation failing on its own accord.

Quote:
Oh, I have, you just didn't like them. Airlines, lending. Remember? In this post I also give medicine as an example. If you want specific legislation, the Pure Food and Drug Act.


Your examples have already been dealt with.

As far as the Pure Food and Drug Act, you do realize that it is often used to outlaw products that people want, correct? For example, it was used to outlaw a drink produced by Coca Cola because it contained too much caffeine (even though people might have a demand for that caffeine).

Also, it does nothing that the free market wouldn't do. Businesses that label their products accurately are more likely to get more of their products sold. It could also be feasible for consumer interest groups to provide information about what is inside of foods.

The Pure Food and Drug Act is simply a waste of taxpayer money that could have been used in other ways with greater efficiency.
 
Didymos Thomas
 
Reply Fri 6 Jun, 2008 04:35 pm
@krazy kaju,
Quote:
Wait... people exist who can calculate the subjective values of goods and services better than the market?


Better than the ideal laissez-faire market? Probably not. Better than the market we face in reality? Yes. Gas prices, for example.

Quote:
I'm pretty sure "free market principles" implies as little government as possible (or even no government).


Yes, free market principles implies small government, maybe even no government. You asked if my proposal required some utopian, trustworthy government. The answer is no. I do not expect any government to be trustwrothy, trust worthy enough to make pragmatic economic decisions of trustworthy enough to apply free makret principles without abusing the public (Reagan and Bush II, for example).

As I said, I do not trust the government to do either. My proposal is that government should institute pragmatic economic policy. Often this policy would mirror your suggested free makret policy, the difference is that I would not tie economic policy to free marketeering as doing so would not properly take into account the reality of our tumultuous economic environment.

Quote:
So again, you're assuming that the government is ideal and can quantify values better than the billions of subjective values that form the market?


No.

Quote:
Is your definition of "pragmatic" equivalent with "unemployment," "inflation," and "tyranny?"


Cute, but no.

Quote:
I can't see how you can ignore comparative advantage but still be anti-tariff.


I'm not ignoring comparative advantage, I'm saying comparative advantage is an outdated economic theory that is quickly losing economic reliability in our increasingly global market.
Tariffs can be useful, but are often the result of special interests rather than pragmatic policy decisions. Generally, I think tariffs are more destrcutive than helpful, but again, I'm not concerned with ideals, I'm concerned with what works.

Quote:
Let me break this down for you:


Look, I get comparative advantage. The problem is that comparative advantage is not as useful as it once was because the economy is increasingly global.

Quote:
So you're assuming that the income tax doesn't reduce aggregate demand, the payroll tax doesn't reduce wages and salaries, the property tax doesn't cause urban sprawl, the sales tax doesn't create improper price allocations, and tariffs don't prevent market inefficiency, correct?


No. Stop putting words in my mouth. Taxes and regulations can do as you say (or at least influence - property tax isn't the only factor in urban sprawl), but they do not necessarily do more harm than good.

Quote:
Mobility of capital is irrelevant.


Ricardo's arguments for comparative advantage is premised on the relative immobility of capital between nations. Hardly irrelevant.

Quote:
Are you saying that there is something morally wrong with buying cheaper products if they're from abroad? Are you xenophobic or racist by any chance?

(That is a rhetorical question, obviously.)


Rhetocial question or not, you failed to make the point.

Quote:
As for medicine, I'm assuming your mentioning the rising price of health care in general and medicine in particular.


No, I was refering to the turn of the century regulation of medicine in the US. An example of government regulation that was helpful.

We can debate the other cases all day and night. I'm not interested in that. All I need is one example of helpful regulation. If we disagree on one of my examples, that's fine, we'll move on to the next. I'll wait to see if you disagree with my example of medicine.

Quote:
No, that is not at the heart of the matter. What is at the heart of the matter is constant government catering of banks. If banks mismanage their assets, they will go out of business. This creates a strong incentive to make low-risk investments and to loan money to people who can afford to pay them back.


Was the deregulation harmful? Yes. The deregulation was not pragmatic. Under different cirucmstances, the deregulation could have been helpful, maybe.

You're right about the government messing things up. But so what? We cannot go back in time to change policy, we have to move forward with policy. This means making pragmatic decisions, taking into account current circumstances.

Quote:
Because incredible monetary expansion, high taxes and tariffs, and a lot of red tape are an example of capitalism, right?


I'm sorry, did you miss the turn of the century and Standard Oil?

Quote:
The root of the failure of banks and lenders is the government, as explained above.


Doesn't matter - deregulating the market was not a pragmatic decision. And I'm advocating pragmatic economic policy.

Quote:
Just that you have failed to provide ONE example of deregulation failing on its own accord.


On it's own accord? You miss the point. Again, we cannot go back in time to change economic policy, we have to move forward. Moving forward means taking into consideration current conditions. Under some conditions, deregulation is harmful. One example is the recent deregulation of the housing market. Another is the deregulation of the airlines.

Quote:
As far as the Pure Food and Drug Act, you do realize that it is often used to outlaw products that people want, correct? For example, it was used to outlaw a drink produced by Coca Cola because it contained too much caffeine (even though people might have a demand for that caffeine).


So what? I'm not saying the legislation was perfect. The point was that the legislation was an example of regulation being a good thing. And the Pure Food and Drug Act was obviously a great imporvement.

Quote:
Also, it does nothing that the free market wouldn't do. Businesses that label their products accurately are more likely to get more of their products sold. It could also be feasible for consumer interest groups to provide information about what is inside of foods.


Depends on the conditions. At the time, products which were not properly labeled sold quite well.

Quote:
The Pure Food and Drug Act is simply a waste of taxpayer money that could have been used in other ways with greater efficiency.


Then you can go buy a bottle of whiskey next time you get a cough instead of something that will actually help your cough.
 
Holiday20310401
 
Reply Fri 6 Jun, 2008 04:40 pm
@Justin,
Justin wrote:


What are your thoughts or opinions?

How much more can we expect?

What are we, or can we do about this change?

:eek:
I think that the whole problem is that the government needs to lighten the bureaucracy, pay the senators less money, place some morality in the courts, deviate from petty conflicts, get out of middle east, spend more on research than of ways to target the false need for oil, less time in the political elections, create a cap for limiting money that a CEO can have in his/her life, stop the greedy globalization, think twice before voting in a republican (history teacher says they tend to leave the US in debt rather than surplus), stop taking the side of the the companies (in relation to health care), and just forget about Iran, just completely abolish that concept.:mad:
 
krazy kaju
 
Reply Fri 6 Jun, 2008 05:36 pm
@Holiday20310401,
Holiday20310401 wrote:
:eek:
I think that the whole problem is that the government needs to lighten the bureaucracy, pay the senators less money, place some morality in the courts, deviate from petty conflicts, get out of middle east, spend more on research than of ways to target the false need for oil, less time in the political elections, create a cap for limiting money that a CEO can have in his/her life, stop the greedy globalization, think twice before voting in a republican (history teacher says they tend to leave the US in debt rather than surplus), stop taking the side of the the companies (in relation to health care), and just forget about Iran, just completely abolish that concept.:mad:


Salary caps on CEOs would simply cause CEO shortages, just like price and wage caps on everything else. "Fighting greedy globalization" would lead to nothing but a backwards economy with high prices that are easily effected by monetary expansion (you need a higher rate of production than monetary expansion to fight inflation). Also, spending more on research wouldn't do much. We need to open up the coasts and the ANWR to drilling and eliminate regulation on drilling at home.

This would help increase supply to reduce prices. In the meantime, the market would allow for maximum efficiency in the allocation of resources for research into stuff that is actually needed (i.e. NOT corn-based ethanol).
 
krazy kaju
 
Reply Fri 6 Jun, 2008 06:23 pm
@Didymos Thomas,
Didymos Thomas wrote:
Better than the ideal laissez-faire market? Probably not. Better than the market we face in reality? Yes. Gas prices, for example.


So you think a bureaucrat can more accurately determine the value of oil products than the market?

Gas prices are nothing but a product of large monetary expansion, low supply, and high demand. Basic economics. If prices were held artificially low, you would have shortages a la the 70s all over again.

In other words, marginal utility is awesome.

Quote:
Yes, free market principles implies small government, maybe even no government. You asked if my proposal required some utopian, trustworthy government. The answer is no. I do not expect any government to be trustwrothy, trust worthy enough to make pragmatic economic decisions of trustworthy enough to apply free makret principles without abusing the public (Reagan and Bush II, for example).


You sound like a good candidate for an anarchist.

Quote:
As I said, I do not trust the government to do either. My proposal is that government should institute pragmatic economic policy. Often this policy would mirror your suggested free makret policy, the difference is that I would not tie economic policy to free marketeering as doing so would not properly take into account the reality of our tumultuous economic environment.


Correct me if I'm wrong, but this seems to conflict with your statement that: I do not expect any government to be trustwrothy, trust worthy enough to make pragmatic economic decisions.

Quote:
No.


Actually, you are.

Your original statement to which I replied was: That's the idea, as I follow it. But the question is how well will consumers and workers be protected. Chasing ideals does not put food on the table.

In here, you're essentially stating that the government has a right to take away our money to provide "protection." In other words, the government knows our own interests better than we do.

For example, a consumer cannot buy from trustworthy businesses or apply to consumer-protection groups to protect him/herself from fraud. In short, the government knows better how much of your money it should allocate for protecting you than you do.

Quote:
Cute, but no.


Again, let me restate your original statement (for your utility of course): And you're expecting comparative advantage to be an economic cure all. As for my economic world viewpoint - I've made no such claim. My view point is that we should be pragmatic, however radical I might be.

As already stated, no government can really have a "pragmatic" economic policy. Governments, just like individual persons, are bound to fail. If an individual screws up, s/he screws things up for him/herself and possibly a few others. If a government screws up, it potentially screws **** up for billions of people.

What has been viewed as "government pragmatism" has lead to levels of inflation, unemployment, and all-around misery that would not exist in a pure free market.

Quote:
I'm not ignoring comparative advantage, I'm saying comparative advantage is an outdated economic theory that is quickly losing economic reliability in our increasingly global market.
Tariffs can be useful, but are often the result of special interests rather than pragmatic policy decisions. Generally, I think tariffs are more destrcutive than helpful, but again, I'm not concerned with ideals, I'm concerned with what works.


How has comparative advantage been shown to be outdated then?

Quote:
Look, I get comparative advantage. The problem is that comparative advantage is not as useful as it once was because the economy is increasingly global.


See above.

Quote:
No. Stop putting words in my mouth. Taxes and regulations can do as you say (or at least influence - property tax isn't the only factor in urban sprawl), but they do not necessarily do more harm than good.


Your statement was that not all regulations and taxes are harmful. I showed you examples of how the most commonly used taxes distort the price system and contribute to modern day problems.

I'm not putting words in your mouth as much as parodying the idea that taxes aren't harmful.

Quote:
Ricardo's arguments for comparative advantage is premised on the relative immobility of capital between nations. Hardly irrelevant.


... And I replied showing how mobile capital is actually better.

Yes, Ricardo assumed that capital was immobile. So what? The same principles apply. I believe Ricardo used an example of England and Portugal trading textiles and some kind of farming products (I think wine or something, I don't remember though). The idea was that England was better at producing textiles while Portugal was better at producing wine or whatever. Hence, the Portugese textile industry went under while the English wine industry went under. In turn, England specialized in textiles while Portugal specialized in wine and both nations benefited from cheaper, higher quality products.

The same applies to mobile capital, but instead of businesses going under and hence leaving people unemployed, businesses move and hence leave people unemployed. For example, in Ricardo's example the Portugese textile industry most likely went bankrupt, leaving a lot of workers without a job temporarily. In the modern market, a textile firm might move from Portugal to England causing frictional unemployment. Same difference.

Actually, I lied. There is a difference. If a firm is moving, it is less likely to go under violently leaving a large amount of people unemployed. It will instead leave in bits and pieces - it might first open up another factory abroad and then phase out one at home, instead of several factories of the same firm being left empty due to a sudden downturn.

Quote:
Rhetocial question or not, you failed to make the point.


The point was that you are implying that jobs in your house, block, city, state, region, nation, continent, etc. are more important somehow than jobs in somebody else's house, block, city, state, region, nation, continent, etc.

That amounts to some kind of xenophobia or racism. Essentially you're saying that ensuring constant employment of someone who lives closer to you or is more similar to you is more valuable than letting someone who lives further away or across some kind of imaginary boundary get that job (and do it more efficiently).

Quote:
No, I was refering to the turn of the century regulation of medicine in the US. An example of government regulation that was helpful.

We can debate the other cases all day and night. I'm not interested in that. All I need is one example of helpful regulation. If we disagree on one of my examples, that's fine, we'll move on to the next. I'll wait to see if you disagree with my example of medicine.


So then the burden of proof falls on you.

Provide one example of regulation that was better than what a pure free market could provide.

Quote:
Was the deregulation harmful? Yes. The deregulation was not pragmatic. Under different cirucmstances, the deregulation could have been helpful, maybe.


Bail outs and government control of the money supply are considered deregulation?

Quote:
You're right about the government messing things up. But so what? We cannot go back in time to change policy, we have to move forward with policy. This means making pragmatic decisions, taking into account current circumstances.


Economic policy shouldn't change with "current circumstances." First of all, there is no perfect government which could perfectly manage the economy based on the circumstance it was currently in. Second,

Quote:
I'm sorry, did you miss the turn of the century and Standard Oil?


I think you need to learn a bit more about the ICC and other regulatory commissions as well as the monetary history of the United States.

As for Standard Oil - see this.

Quote:
Doesn't matter - deregulating the market was not a pragmatic decision. And I'm advocating pragmatic economic policy.


Really? It's great to see that you're advocating pragmatic economic policy, because I am too! And the most pragmatic economic policy is no economic policy.

Quote:
On it's own accord? You miss the point. Again, we cannot go back in time to change economic policy, we have to move forward. Moving forward means taking into consideration current conditions. Under some conditions, deregulation is harmful. One example is the recent deregulation of the housing market.


The housing booms and busts are all created by the Fed, as I already mentioned. Please reread the post.

Quote:
Another is the deregulation of the airlines.


Don't expect me to take you seriously unless you provide detailed examples. What specifically did the government "deregulate?" How did the markets respond? Could the market response be considered a market failure or a market correction?

On a side note, empiricism in economics isn't the smartest thing ever due to several overlying factors that are usually overlooked.

Quote:
So what? I'm not saying the legislation was perfect. The point was that the legislation was an example of regulation being a good thing. And the Pure Food and Drug Act was obviously a great imporvement.

Depends on the conditions. At the time, products which were not properly labeled sold quite well.

Then you can go buy a bottle of whiskey next time you get a cough instead of something that will actually help your cough.


If food wasn't labeled there means that there wasn't a great demand by consumers for transparency of products. It also means that there probably were some kind of government intervention (probably by restricting tort laws) allowing businesses to be unaccountable to individuals for incorrectly labeled food products.

And again, the Pure Food and Drug Act didn't do anything that the free market wouldn't do if there was a demand for something similar. Today, if we lived in a free market society and I needed a medicine to help my cough, I would take it up upon myself to purchase what was the most appropriate for my cough - whether it was DXM, codeine, etc. Most brands would probably be transparent due to demand and I would most likely check with a consumer protection group if I was super careful. With less government intervention dictating where, how, and when you can and cannot produce certain drugs, there would be a higher supply and therefore a lower price. You would pay for the quality you want.

Just to drive the point home, the Pure Food and Drug Act was simply another act essentially stating that the government knows better what it should do with your money than you do.
 
 

 
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