Saturday, November 26, 2016

The History of the World (Part Seven)

Free Trade: Part Two.

In our last episode, I discussed losing my job because of (ominous musical fanfare): The Great Recession. I pointed out that this was/is, generally speaking, a fact. However, I went on and on (you know how I get...) to demonstrate that specifically speaking, the particular reason was/is hard to pin down.

This is true because if I look at what happened via a big picture view, and strive for objectivity, I can observe any number of seemingly concrete facts. But which particular combination of concrete facts resulted in my losing the last real job I had is nothing more than a best guess. And what about facts that I may be completely unaware of? Sheesh, it would seem that economics, like everything else in life, is mostly just a best guess, based on (hopefully) known facts, and subject to our built-in biases.

Macroeconomists, like all social scientists, are much better at explaining things afterward than in making predictions. Why? variables. Just like the weatherman, they have to deal with myriad known unknowns, and, unknown unknowns. Which is a very fancy way of saying they try and make predictions about systems that are so complex in nature that an educated guess is as good as it gets.

This is why a minimally regulated market works better than a highly regulated market. This is why when you go to the supermarket most of the thousands of competitively priced products they carry are always in stock -- literally millions of specialists pursuing their own self-interest and freely trading with each other. This is why communism and strict versions of socialism don't work, it's physically impossible for politicians and bureaucrats to efficiently do what the market does effortlessly.  

If we’re truly free, we’re free to trade. Common sense suggests that both sides in a given transaction are getting something they want out of it or it wouldn’t happen. Life on Earth being what it is, in spite of what we would like it to be, there’s no guarantee the result of a given transaction is going to be completely fair and equitable for both sides. Let the buyer beware, but let the buyer buy, if they want to. Prosecute the weasels, enforce the contracts, read Consumer Reports and ask dad, mom or your dutch uncle what they think. Secure your _______ and jump.

You’ll win some, you’ll lose some, and some will have mixed results. Take comfort in the fact that when you win one the other side may hate and resent you, or at least be thoroughly depressed, often without even having ever actually met you. The entrepreneur that went bankrupt because you didn’t think their world-changing product was worth your money comes to mind. There are no unemployment checks for failed entrepreneurs. Of course, if you fail on a large enough scale The Gubmint may step in and save your bum. And that’s not fair -- unless, of course, your job or business is on the line. But that’s not how it’s supposed to work, and you can’t count on it.

Adam Smith said, “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.”

In other words, the cut-throat competition of the marketplace usually ensures that the customer wins. The huge honking downside is that any given particular producer --  which includes owners, management, and labor -- is subject to being destroyed by its competition.

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups,” Henry Hazlitt (my emphasis.)  Notice the use of the word art, not science.

“Oh yeah,?  Well that’s all well and good but NAFTA screwed everything up and now they want to do that new one and….”  Whoa cowperson, obviously anyone who lost a job because of NAFTA may understandably be reconsidering not only the wisdom of free trade agreements but capitalism in general. This will no doubt be on their minds while they’re driving to Wally World to take advantage of the low prices and all that stuff in one place in an American made car that’s chock full of parts manufactured all over the globe (as virtually everything is).

Yes, people lose jobs when a trade agreement is implemented and/or a tariff is eliminated. Other jobs are created or expanded, but unfortunately, this is virtually impossible to document with anything resembling precision, which is why both sides can plausibly argue their position. However, economists don’t agree on much but they overwhelmingly agree that free trade will, overall, generate at least as many jobs in a given country as it erases. Also, the consumer (that is, everyone) always wins. The producers (and by extension, their employees) may win or lose. We all want good, secure jobs. But we also all want lots of food, toys, and fun -- for which we wish to pay as little as possible.

Finally, the Reality Checks, Caveats & Premises department has it on good authority the global economy is a fact, not a possibility. Adapt or get run over like a cute little bunny that’s incapable of grasping the potential impact of an 18 wheeler passing through the neighborhood.

After WW 2 ended America was the beneficiary of a boom that lasted for roughly 35 years during which you could drop out of school and still get a job that would provide a good living, and maybe a pension. The rest of the world, having been more or less trashed by WW 2, watched and learned.

More than a few thought they might also enjoy eating regularly and being able to seal the couch in plastic to keep it nice. Liberty might be nice too but that proved to be a lot harder and much more complicated. Life on Earth being what it is, instead of what we would like it to be (a phrase that bears repeating), there’s always gonna’ be bullies that embrace their inner chimpanzee - bullies need victims.

Nowadays, the US buys a lot of shtuff from the rest of the world, because we're rich. The US also sells a lot of shtuff to the rest of the world, the World Bank says the US exported $2,263,253,700,000 trillion dollars worth of stuff in 2014. The 35-year-old bubble of prosperity didn’t pop, the rest of world starting blowing their own bubbles. We export more than we ever have in terms of dollar value, even allowing for inflation. The bad news is that because of productivity gains we're able to do this with a lot fewer people than we used to. A little noted/reported fact is that better than half of the shtuff we import are pieces/parts of shtuff we build here, much of which is then sold there.

And if that ain’t bad enough, now we have to deal with a communication/high tech revolution. It’s like the industrial revolution on steroids (and there still isn’t much work for saddle makers) in that the rules of the game keep changing and nobody on the rules committee has a clue what the final draft is going to be.

And if that ain’t bad enough it turns out there is no rules committee, there are just H. sapiens hoping it all works out somehow, and that the civilization ending sized meteors keep missing the mother ship. It may be the best of times, but it might be the worst of times. As noted in part six, not even the experts of Federal Reserve can be relied upon to accurately tell us what's next.  Also, they’re acutely aware that throwing the wrong lever at the wrong time, considering how complex and interconnected the global economy is, can easily set off a cascade of unexpected and unwelcome consequences.

But I've gotten ahead of myself, and I've exceeded my words quota, and I've sorta jumped from 1776 to the present, and I've gotta go. Stay tuned for part eight, the season finale.

Have an OK day.

P.S. If you're a Facebooker, and you enjoy my shtuff, could I trouble you to click on "Like" at the top of the page? This will (hopefully) help me to find some new readers, and retain existing ones, via your friendly neighborhood cranks Facebook page.