Econ 101 for Presidential Candidates (and VN) - CATO

[n_huffhines]

Thorough and easy to digest.

Economics is not hard; it’s just that key concepts are politically inconvenient. Here’s a remedial lesson in the economics of trade.

All resources are scarce; demand and supply determine their value. Gravel and gold both have limited supplies. A pound of gold has a higher price than a pound of gravel because the supply of gold is scarcer relative to its demand.

Markets are more effective than governments at setting prices....Free trade promotes economic growth by ensuring that scarce resources are put to their highest-value uses. Governments that use trade restrictions to control markets will cause resources to be used less efficiently, thus making their people unnecessarily poorer.

Costs outweigh benefits for a country imposing import restrictions....Trade restrictions reduce economic welfare.

Comparative advantage still works in the 21st century. Countries, like individuals, are better at doing some things than others. The concept of comparative advantage explains that neither individuals or nations should seek self-sufficiency, because not everyone or every country can do everything well.

People deserve the freedom to buy from and sell to whomever they choose. The United States is a free society with relatively open and competitive markets, which enables people to enjoy the fundamental human right to engage in commerce. Any governmental limitation of that right should only be imposed to serve an essential societal objective, such as preventing the export of sensitive military equipment to enemy nations.

Imports are good. They help ensure that people benefit from a wide variety of competitively priced items, thus expanding consumer choice and raising living standards. Half of all imports are used as inputs in manufacturing; those imports contribute significantly to the success of the manufacturing sector. Value added to the economy by U.S. manufacturers hit $2.4 trillion in 2015, its highest level in history. Imports also provide competition for domestic businesses, stimulating innovation and product improvements.

But what about people who might lose their jobs due to import competition? A recent study by the Center for Business and Economic Research at Ball State University found that 13 percent of manufacturing job losses have been due to trade, but 85 percent of the employment decline has been caused by automation related to robots and computers. Policies that provide adjustment assistance to unemployed workers should be structured in ways that don’t restrict trade.

Econ 101 for Presidential Candidates | Cato Institute

 

[hog88]

Free trade is a wonderful idea, sadly there is no such thing.

 

[LouderVol]

Thorough and easy to digest.



Econ 101 for Presidential Candidates | Cato Institute

whats happen with your comparative advantage when a country CAN do everything well. countries like Russia, China, the US and Brazil probably COULD do everything they need. this idea seems to hamstring them so that others are better off. while the lesser off countries get the benefit they give nothing up like the big guys do.

this idea seems to globabist for me to be comfortable. but if I am misunderstanding something I would appreciate some clarification.

 

[n_huffhines]

whats happen with your comparative advantage when a country CAN do everything well. countries like Russia, China, the US and Brazil probably COULD do everything they need. this idea seems to hamstring them so that others are better off. while the lesser off countries get the benefit they give nothing up like the big guys do.

this idea seems to globabist for me to be comfortable. but if I am misunderstanding something I would appreciate some clarification.

You're talking about absolute advantage. It doesn't matter so much what you have an absolute advantage in. It's about what you are relatively best at and focusing on that. That's what makes you the most wealth. For example, Lebron James might have an absolute advantage by being great at mowing lawns and changing engine oil, but because his comparative advantage is with basketball, he's wealthier if he just focuses on hoops and pays someone else to mow his lawn and change his car's oil, instead of doing all 3 himself.

 

[n_huffhines]

Maybe a better example:

Say that with our resources we can produce 1M planes and 10M cars...or we can produce 2M planes and trade 1M of them for 12M cars...which makes us wealthier?

 

[hog88]

Maybe a better example:

Say that with our resources we can produce 1M planes and 10M cars...or we can produce 2M planes and trade 1M of them for 12M cars...which makes us wealthier?

Huff, true free trade requires all the parties involved play by the same rules. We cannot have true free trade when our industry has to deal with regulations and taxes our trading partners do not have to deal with.

 

[n_huffhines]

Huff, true free trade requires all the parties involved play by the same rules.

OK, but we don't have to have totally free trade. The more free the better is the point.

We cannot have true free trade when our industry has to deal with regulations and taxes our trading partners do not have to deal with.

That's not why we can't have true free trade. We can't have true free trade because it's politically unpopular and our partners find it politically unpopular too. It is possible to institute free trade despite our taxes and regulations. There is near total consensus among economists that we're better off trading freely, even if partners are protectionists.

Like the article states, 1/2 of our imports are input goods.....most everything we manufacture would be cheaper if we lowered tariffs....that means we can have more competitive prices at home and abroad.

 

[LouderVol]

Maybe a better example:

Say that with our resources we can produce 1M planes and 10M cars...or we can produce 2M planes and trade 1M of them for 12M cars...which makes us wealthier?

I would say the second in a relative world. looking at the big picture although what happens when we can't buy 12 million cars and only needed 10, or 9 or whatever. having more might make us "wealthier" but it is not usable wealth. To me it sounds like the Dwarf's gold sickness in Tolkiens world. congrats you have all this gold that you do not/can not use. it has done you zero real world good to have all that "wealth".

IMO it would be a healthier economy to do 1m planes and 10m cars for any number of reasons. diversity being the biggest one. also if you are using this idea that we have the right to buy from whomever we want you have also removed the possibility of buying American cars in the 2m plane example.

and as long as we are importing stuff (to a country that doesn't need to import) and worried about the closed system and finite resource real world we are wasting real world resources. It might save us money to import, but all that stuff is made somewhere else and then has to get here burning fuel, requiring a ship to carry it here, places to store it, distribution etc etc. Free trade in this instance doesn't seem like the best use of our resources (finite) vs money (arguably infinite or at worst "recyclable")

 

[n_huffhines]

I would say the second in a relative world. looking at the big picture although what happens when we can't buy 12 million cars and only needed 10, or 9 or whatever. having more might make us "wealthier" but it is not usable wealth. To me it sounds like the Dwarf's gold sickness in Tolkiens world. congrats you have all this gold that you do not/can not use. it has done you zero real world good to have all that "wealth".

So you are worried we won't trade for usable wealth? Tolkien? I suppose you are against cutting down trees, too?

IMO it would be a healthier economy to do 1m planes and 10m cars for any number of reasons. diversity being the biggest one. also if you are using this idea that we have the right to buy from whomever we want you have also removed the possibility of buying American cars in the 2m plane example.

What do you mean by diversity? Why is that inherently beneficial?

You can still buy American...it's just an oversimplification of how trade works so that it's easy to understand. In reality, it's more like we end up producing 1.8M planes and 2M cars, and trade 800k planes for 10M cars.

and as long as we are importing stuff (to a country that doesn't need to import) and worried about the closed system and finite resource real world we are wasting real world resources. It might save us money to import, but all that stuff is made somewhere else and then has to get here burning fuel, requiring a ship to carry it here, places to store it, distribution etc etc. Free trade in this instance doesn't seem like the best use of our resources (finite) vs money (arguably infinite or at worst "recyclable")

I am not worried about this at all. You are maybe the only person in the world making this argument.

 

[LouderVol]

and my point doesn't even go into the secondary wastes of resources (possibly) in making something somewhere else outside of the US.

a good for instance is the steel industry. before China most of our steel/iron we mined here, shipped to Japan, where it was refined, then bought it back. China is even doing it with their steel. it might be cheaper, there might be more of it but it continues to be a waste of resources.

 

[red butler]

My opposition to free trade treaties has nothing to with free trade. I'll let this quote from the great Murray Rothbard sum up my feelings.

"The folks who have brought us Nafta and presume to call it “free trade” are the same people who call government spending “investment,” taxes “contributions,” and raising taxes “deficit reduction.” Let us not forget that the Communists, too, used to call their system “freedom.” In the first place, genuine free trade doesn’t require a treaty (or its deformed cousin, a “trade agreement”; Nafta is called a trade agreement so it can avoid the constitutional requirement of approval by two-thirds of the Senate). If the establishment truly wants free trade, all it has to do is to repeal our numerous tariffs, import quotas, anti-“dumping” laws, and other American-imposed restrictions on trade. No foreign policy or foreign maneuvering is needed.
*
If authentic free trade ever looms on the policy horizon, there'll be one sure way to tell. The government/media/big-business complex will oppose it tooth and nail. We’ll see a string of op-eds “warning" about the imminent return of the 19th century.
*
Media pundits and academics will raise all the old canards against the free market, that it’s exploitative and anarchic without government “coordination.” The establishment would react to instituting true free trade about as enthusiastically as it would to repealing the income tax."

 

[n_huffhines]

and my point doesn't even go into the secondary wastes of resources (possibly) in making something somewhere else outside of the US.

a good for instance is the steel industry. before China most of our steel/iron we mined here, shipped to Japan, where it was refined, then bought it back. China is even doing it with their steel. it might be cheaper, there might be more of it but it continues to be a waste of resources.

I don't agree that it is a waste of resources. The resources are used to increase wealth, and it is only a waste if we are certain they would be better used in other ways.

You are not omniscient and we can't regulate the economy based on a guess that there are better uses.

 

[n_huffhines]

My opposition to free trade treaties has nothing to with free trade. I'll let this quote from the great Murray Rothbard sum up my feelings.

"The folks who have brought us Nafta and presume to call it “free trade” are the same people who call government spending “investment,” taxes “contributions,” and raising taxes “deficit reduction.” Let us not forget that the Communists, too, used to call their system “freedom.” In the first place, genuine free trade doesn’t require a treaty (or its deformed cousin, a “trade agreement”; Nafta is called a trade agreement so it can avoid the constitutional requirement of approval by two-thirds of the Senate). If the establishment truly wants free trade, all it has to do is to repeal our numerous tariffs, import quotas, anti-“dumping” laws, and other American-imposed restrictions on trade. No foreign policy or foreign maneuvering is needed.
*
If authentic free trade ever looms on the policy horizon, there'll be one sure way to tell. The government/media/big-business complex will oppose it tooth and nail. We’ll see a string of op-eds “warning" about the imminent return of the 19th century.
*
Media pundits and academics will raise all the old canards against the free market, that it’s exploitative and anarchic without government “coordination.” The establishment would react to instituting true free trade about as enthusiastically as it would to repealing the income tax."

Yeah, we shouldn't need treaties. We should just make it our reputation to freely trade with everyone. You don't need an agreement for that.

 

[LouderVol]

So you are worried we won't trade for usable wealth? Tolkien? I suppose you are against cutting down trees, too?

it goes back to my statement/question on what is real wealth. yay we have more, so what? cutting down trees, I wouldn't clear cut a forest when there is already a open arable field nearby, even if it would save money.

What do you mean by diversity? Why is that inherently beneficial? diversity in what you make, so when a down turn happens our economy isn't collapsed. if we go all in on planes we become too tied on that one trade item. its risky.

You can still buy American...it's just an oversimplification of how trade works so that it's easy to understand. In reality, it's more like we end up producing 1.8M planes and 2M cars, and trade 800k planes for 10M cars.

with no thought to what is actually needed? if you are thinking about long term health of the world's economy you can't waste resources

I am not worried about this at all. You are maybe the only person in the world making this argument.

only one making the argument that it is dumb to ship stuff in to save a few bucks when we could make it ourselves? Pretty sure thats how the military used to think about where our troops got their equipment; sadly thats not the case anymore.

and it was the second paragraph in the OP that brings up finite resources. to me it is just wasteful to do some of the stuff we are doing. like keeping the tap running while brushing your teeth. we could shut it off after we start but instead we keep it running. if we made things here we would use less resources, no need for the constant running from source to end user. there is of course a trade off/balance in having to spend resources on the infrastructure on micro-manufacturing but shipping from China (where ever) costs a ton of resources that could be better used elsewhere.

 

[n_huffhines]

it goes back to my statement/question on what is real wealth. yay we have more, so what? cutting down trees, I wouldn't clear cut a forest when there is already a open arable field nearby, even if it would save money.

So you don't care about growing wealth? You're saying that's not good? Is that how you live your life?

diversity in what you make, so when a down turn happens our economy isn't collapsed. if we go all in on planes we become too tied on that one trade item. its risky.

We won't go all in on planes. Again, the example was an oversimplification of how an economy works. There are more goods than just airplanes and cars. We will have lots of diversity, plenty enough for the health of the economy. You aren't talking about making a diverse group of products, you are talking about making everything. We don't need to make everything to mitigate the risk associated with failure in specific industries.

with no thought to what is actually needed? if you are thinking about long term health of the world's economy you can't waste resources

Who said no thought? I said you can't know. I have given it a lot of thought and I am not really worried about energy. There are lots and lots of untapped sources and we are getting better at extracting it and using it. Just like when whale oil was becoming scarce, innovative minds came up with other sources of energy and the world kept turning. Thank goodness nobody halted industry and trade in the name of preserving whale oil.

 

[LouderVol]

So you don't care about growing wealth? You're saying that's not good? Is that how you live your life?

in a word, yes. quality not quantity. if I made 10 million dollars a year and still lived the same lifestyle what good would that 10 million do me? To paraphrase Forrest Gump you only need so much money, the rest is just showing off. not saying we should take away money from anyone. but again what tangible good does it do us; especially if it puts us at risk for bigger down turns?

We won't go all in on planes. Again, the example was an oversimplification of how an economy works. There are more goods than just airplanes and cars. We will have lots of diversity, plenty enough for the health of the economy. You aren't talking about making a diverse group of products, you are talking about making everything. We don't need to make everything to mitigate the risk associated with failure in specific industries.

i agree we don't need to, my point is why shouldn't we? why is cheaper better? as it has been pointed out by others what good does it do American's to have cheaper goods if the people can't buy them because they have no jobs? its kinda like taxation, what good does it do to the government to increase taxes if they are just decreasing their tax base? doesn't matter that it is government manipulation vs free market manipulation; its still manipulation

Who said no thought? I said you can't know. I have given it a lot of thought and I am not really worried about energy. There are lots and lots of untapped sources and we are getting better at extracting it and using it. Just like when whale oil was becoming scarce, innovative minds came up with other sources of energy and the world kept turning. Thank goodness nobody halted industry and trade in the name of preserving whale oil.

whale oil is kinda my point. what good would have come from driving whales to extinction? what is the point of burning fuel if you don't have too? Do you run your lights just because?

 

[n_huffhines]

whale oil is kinda my point. what good would have come from driving whales to extinction? what is the point of burning fuel if you don't have too? Do you run your lights just because?

How is it "kind of your point" when business and industry voluntarily moved away from whale oil before they used it up? It confirms my point that the market naturally moves towards better solutions.

You poo-poo wealth, but it's not just about being rich and affording more cars...it's about affording cars with better safety features which save lives. It's about affording better medical care. It's about affording healthier food.

Some of our increases in wealth are frivolous, but you can't cut out the frivolity without cutting out the good.

 

[LouderVol]

I don't agree that it is a waste of resources. The resources are used to increase wealth, and it is only a waste if we are certain they would be better used in other ways.

You are not omniscient and we can't regulate the economy based on a guess that there are better uses.

why this fascination on wealth? there has arguably been very few times a society can ever be said to have had too much wealth but they are more damning than when you don't have enough.

Spain with the gold from the free world. there was sooo much gold in spain that it lost all of its value.

The current diamond manipulation, where De Voors or whoever is controlling production to keep prices high, the real tangible value of that diamond wouldn't change if there was more. but its wealth value gets manipulated for what end???? so someone has more money?

artificially high or low value of an item is bad and leads to problems.

 

[LouderVol]

How is it "kind of your point" when business and industry voluntarily moved away from whale oil before they used it up? It confirms my point that the market naturally moves towards better solutions.

You poo-poo wealth, but it's not just about being rich and affording more cars...it's about affording cars with better safety features which save lives. It's about affording better medical care. It's about affording healthier food.

Some of our increases in wealth are frivolous, but you can't cut out the frivolity without cutting out the good.

healthier more expensive food that used to be the only thing you could get? there is one area we have definitely gone full circle on. before industry got involved organic food was all you could get, but no we needed cheaper.

better medical care for all the issues this current influx of wealth has helped create? junk food and idleness leading to cancer. and how much of the medical care that we get actually cures/fixes a problem instead of treating it. big pharma doesn't want to cure anything, they want to give you a pill they can sell every month instead of a vaccine that they can only give once.

what about the "better appliances" that last for a couple years instead of a decade.

not harping for a time long past, I would not be alive without the innovations of today. but un-limited growth is a very bad thing. look at the most telling example of that today, suburbia. with our "wealth" we created all this stuff that is unsustainable which the current downturn is highlighting. For every innovation I can point out a Dubai; for every convenience a consequence. if we aren't growing our wealth with some end goal/target and with direction it is nothing more than a cancer we all want to die from.

what is your wealth doing for you? What would more do for you? if the answer is "stuff" that's a shallow life with no benefit to yourself or others.

 

[LouderVol]

what about today's modern society makes you think we need more of it huff? Do we need a world full of millennials who have no social skills outside of a phone? do we need more generations of people who can't even cook for themselves?

 

[n_huffhines]

what about today's modern society makes you think we need more of it huff? Do we need a world full of millennials who have no social skills outside of a phone? do we need more generations of people who can't even cook for themselves?

Serious question, are you a Marxist? It's not up to me to judge what people do with their money/wealth. All I know is we live better than anybody in history, and yes I want more of that.

 

[jvol1]

This thread seems to have identified a split in the Republican party pretty well. The moderates (and me) are on the side of n_hh and the far right and Trumpers are on the other side. We just can't be like those folks in Gullivers Travels that live on a floating island and go around dumping our refuse on everyone else. We need everyone else with us and that means free trade. We'll only be better off if everyone else is because we actually export too, and the more money they have the more money we'll make so doing.

 

[LouderVol]

Serious question, are you a Marxist? It's not up to me to judge what people do with their money/wealth. All I know is we live better than anybody in history, and yes I want more of that.

not even a little. like I said I don't think there should be any type of wealth redistribution or limitation. I am just asking some very basic questions to which you have very little answers for. and your content seems to boil down to "where a little is good, more must be better."

its a chicken and egg question about this wealth creating a better world. Are we "richer" because we are in a better world; or are we in a better world because we are richer? I lean to the first, you seem to lean to the second.

again I ask, what is the end goal of this wealth?

 

[n_huffhines]

not even a little. like I said I don't think there should be any type of wealth redistribution or limitation. I am just asking some very basic questions to which you have very little answers for. and your content seems to boil down to "where a little is good, more must be better."

This is not an accurate representation of this conversation. I've given plenty of answers, steeped in sound economic theory and with historical backup.

its a chicken and egg question about this wealth creating a better world. Are we "richer" because we are in a better world; or are we in a better world because we are richer? I lean to the first, you seem to lean to the second.

Well, we built this country on slavery, we discriminated against women for 2 centuries, we were careless with the environment, we had terrible employment practices, we treated immigrants terribly, etc. As we got wealthier, these terrible practices fell by the wayside.

again I ask, what is the end goal of this wealth?

To improve our lives. How is this still a question? I've answered it already.

 

[AM64]

Serious question, are you a Marxist? It's not up to me to judge what people do with their money/wealth. All I know is we live better than anybody in history, and yes I want more of that.

LouderVol is making a lot of the right points. So much so that I guess he's on the verge of getting one of your lectures about how much better off we are today than we were in the 50s. The fact is that we are producing and consuming unreasonably - fad and fashion and obscenely rapid obsolescence - flying in the face of common sense. Some of the obsolescence is truly technology driven, but a lot is just fad and fancy.

When Ford built cars with the idea that the people who built them could buy them, it stimulated. He created a market for the people building the product, and provided utility that they didn't have at their disposal previously. That's an example of how the industrial revolution brought change, made economies grow, and improved life.

What Ford didn't do was bundle in a lot of other costs that reduced wages he paid - steel was mined nearby and processed nearby - not transported back and forth around the world. Those unnecessary costs deduct from what can be paid for labor and provide no useful advantage. We won't even get into the environmentalist views.

Free trade (even if that is what we were talking about) really can't work when you have the extreme differences in living standards, customs, and other cultural differences we have across the world. China can build products cheaply, but most Chinese can't buy what they and certainly not what we produce. That's a one way street - even if the Chinese government didn't stack the deck. So in the end we rob the American worker/consumer and distribute his wages to a Chinese worker, to Chinese, shipping, and to ME oil. That is not a win/win and not a sustainable model for the US.

Trade (free or otherwise ) only makes sense to the effect that two parties have something of value to sell or trade between themselves - that implies reasonably equal exchange in value. In a way it's semantics - "free trade" and globalism/free trade agreements aren't really the same thing at all. Because what we are doing in the name of "free trade" is to artificially create manufacturing in underdeveloped countries who have nothing to offer but extremely cheap labor and no regulation by robbing industrially developed countries. Want to talk about the debt and trade deficit burden that everybody wants to ignore - that big elephant sitting right there getting larger and larger until we can't even keep up with the interest? You see, a bank loans you money based on your ability to pay; a predator keeps extending money, drugs, or whatever to own you.