Is the tsunami still building? (The dreaded "P" word awakes.)

[The Atheist]

It's been a fascinating few months, sitting on the sidelines of what I'm quite sure will turn out to be a historically-significant event - if it isn't already at that status.

Recently, amid the tide of directly contradictory rhetoric about where the crisis will and end and how, I'm starting to see more and more of the worst word in the financial universe - protectionism.

Whether any protectionist measures enter the Obama's rescue package isn't clear yet, but it's very clear that internal rhetoric in USA and UK is protectionist in origin, with the wildcat strikes in UK being an example. If governments aren't extraordinarily careful, they will create a climate of protectionism by default. It isn't easy to convince a steel-worker in the Rust Belt that his redundancy will aid the global economy, and no western government can be seen to allow foreign workers to profit from domestic workers' pain without asking for divine retribution.

I imagine my old Socialist pals will be dusting off their red books right now.

Amid the tests Obama's faced so far, this might be the biggest; if he can show USA taking the lead with an anti-protectionist position, hopefully, others will follow. The devotion of other leaders shows that Obama's got the captain's armband on, but can he live up to it?

 

[themusicteacher]

It seems that if you're a free-market free-baser, you would say that "protectionism" is a very bad thing. Indeed, Obama has his critics up in arms over his "buy American" plan. Personally, I don't see anything wrong with saying, "Hey, If you're going to buy something and it's made here, let's help out your neighbor, not the guy working in the sweatshop in China." Of course, that's a hard sell when the product from China costs significantly less.

Protectionism for protectionism's sake is probably not a good thing but, being economically unsavvy, I'm not sure what the effect would be if American's only bought American-made products. Obviously, the financial system is tied up with the manufacturing system and if we didn't buy a Toyota for a year certainly some American investors would get hurt. I don't think forced protectionism is the answer but American's certainly should get back to making "stuff."

 

[drkitten]

Protectionism for protectionism's sake is probably not a good thing but, being economically unsavvy, I'm not sure what the effect would be if American's only bought American-made products. Obviously, the financial system is tied up with the manufacturing system and if we didn't buy a Toyota for a year certainly some American investors would get hurt. I don't think forced protectionism is the answer but American's certainly should get back to making "stuff."

Well, that's part of the problem right there.

Why should Americans get back to making "stuff"?

We're not at all good at it (which is why we stopped in the first place); in fact, we're not only heinously expensive at it, but we're heinously inefficient.

Let me give you an analogy. Suppose that your brother-in-law is (for whatever reason) out of work and approaches you for help. You say to him "well, I don't really have any work that I need you to do -- but you're family, so I will pay you $20/hr to cut my lawn with a pair of nail scissors."

Does that do either you OR your brother-in-law much good? He's basically wasting time at highly-paid make-work, and you're basically wasting money. He's not going to have time to look for a better job until you stop wasting
his time, he's not developing any useful skills, and at the end of the day he's still got nothing and you haven't gotten anything out of him.

I think you'd both be better off if you paid for his tuition to the local business college or something.

Heck, buy him a lawnmower and let him develop skill at lawncare.

Protectionism is paying people to cut grass with scissors.

 

[Malerin]

Well, that's part of the problem right there.

Why should Americans get back to making "stuff"?

There are American manufacturing companies that are still posting profits.

"Despite a dismal economy and a sluggish fourth-quarter, U.S. Steel on Tuesday announced record profits for 2008, more than double the company's profit for 2007."

http://www.post-trib.com/business/1400114,ussteel.articleprint

"SAN FRANCISCO (MarketWatch) -- Caterpillar Inc. shares dropped more than 8% Monday after the heavy machinery giant announced 20,000 job cuts and posted a lower fourth-quarter profit that was slammed by higher operating costs and an unfavorable foreign-exchange rate."

http://www.marketwatch.com/news/sto...x?guid={2A73EC41-37B9-4D1F-855C-F7ADCF45D311}

Intel and IBM also posted recent profits. Not an easy thing to do in this business climate. America's not very good at making cars, but there's no reason that can't change. Remember, our biggest competitor (China) has state-supported manufacturing and has been dicking around with its currency for years.

 

[The Atheist]

It seems that if you're a free-market free-baser, you would say that "protectionism" is a very bad thing.

We have a couple of examples of being a very bad thing, and I just see no reason why the same wouldn't hold true again. Added to that, the overwhelming expert view that it's a very bad thing, I can't see any reason not to think it's true.

Protectionism is paying people to cut grass with scissors.

Excellent analogy, great finishing sentence!

 

[The Atheist]

Remember, our biggest competitor (China) has state-supported manufacturing and has been dicking around with its currency for years.

And yet nobody drives Chinese cars...

 

[Toke]

I have a problem understanding how the us will pay its debts without an industrial base, and while importing industrial goods.

Protectionism look like the only answer to me?

Have I overlooked something or you just blinded by free marked faith?

 

[balrog666]

I have a problem understanding how the us will pay its debts without an industrial base, and while importing industrial goods.

Protectionism look like the only answer to me?

Have I overlooked something or you just blinded by free marked faith?

Maybe Hollywood and DRM will bail us out.

 

[drkitten]

There are American manufacturing companies that are still posting profits.

"Despite a dismal economy and a sluggish fourth-quarter, U.S. Steel on Tuesday announced record profits for 2008, more than double the company's profit for 2007."

Yes, but how much of US Steel's production is actually in the US? From their website:

United States Steel Corporation, headquartered in Pittsburgh, Pa., is an integrated steel producer with major production operations in the United States, Canada and Central Europe and an annual raw steelmaking capability of 31.7 million net tons.

Intel and IBM also posted recent profits.

Again, most of Intel's production is offshore, and IBM basically doesn't make a damn thing except software and service any more.

Remember, our biggest competitor (China) has state-supported manufacturing

That, um, kind of proves the anti-protectionist's point.... How many Chinese cars have you driven?

 

[drkitten]

I have a problem understanding how the us will pay its debts without an industrial base, and while importing industrial goods.

Isn't that like my saying "I have a problem understanding how I personally will be able to eat without farmland and while buying instead of growing my own food." Or "I have a problem understanding how I personally will pay for my own gasoline without an oil well"?

I make enough selling my skills to other people who need them that I can turn around and exchange them to other people who sell food. And, actually, my skills are enough more valuable that I make a hell of a lot more per hour than a typical farmer, and I have a much nicer standard of living.

The subsistence farmer who grows food may not be able to manufacture a tractor. The tractor manufacturer may not be able to build a manufacturing robot. The robot manufacturer may not be able to manufacture the chips that go into the robot. The chip manufacturer may not be able to design the next-generation semiconductor.

Have I overlooked something or you just blinded by free marked faith?

What economists call "the doctrine of comparative advantage." I said that the USA is lousy at making "stuff." On the other hand, our ability to make "ideas" -- whether that be movies, stories, software, or inventions -- simply rocks on graham crackers. As long as we can make ideas that the rest of the world wants to buy, we can sell them ideas and then turn around and use some of the money to buy "stuff."

There's actually a long chain involved. Greatly oversimplified,....

Thailand sells food, 'cause they don't have much else.
China buys food and sells "stuff."
India buys "stuff" (and food) and sells services.
The USA buys services (and "stuff" and food) and sells ideas.

As long as the market for ideas remains strong, everyone's happy.

 

[Toke]

Isn't that like my saying "I have a problem understanding how I personally will be able to eat without farmland and while buying instead of growing my own food." Or "I have a problem understanding how I personally will pay for my own gasoline without an oil well"?

No, I get that part. Specialication and trade, great idea.
My specific problem here is, what will the us export to pay its debt?

What economists call "the doctrine of comparative advantage."

Still looks like someone without a comparative advantage will have alot of iddle workers and no chance to build up a domestic industri. (africa?)
Protectionism will let you build up an industri that may eventualy compete with the rest of the world.
Find it hard to belive it is all evil.

 

[drkitten]

No, I get that part. Specialication and trade, great idea.
My specific problem here is, what will the us export to pay its debt?

Ideas and high-end services.

Hollywood, for example, is a huge money-maker, and so is Google. And someone who isn't me is buying all those damn Britney albums....

While the iPhone may be assembled in China, it was conceived and designed in California.

And until recently, people were willing to pay American firms tremendous amounts of money to hold on to and manage their assets, because the US set the world standards for accounting practices. Even with the slowdown, it's a lot easier to raise investment capital in the US than anywhere else in the world -- and the investment bankers take a substantial rakeoff for helping you raise it.

Still looks like someone without a comparative advantage will have alot of iddle workers and no chance to build up a domestic industri. (africa?)

Which is one reason that Africa blows as a place to live, yes.

Protectionism will let you build up an industri that may eventualy compete with the rest of the world.

The problem is that it generally doesn't. Part of that is the way "protectionism" is most often used. Generally what is "protected" are business practices that demonstrably don't work (more accurately, no longer work), and the industries are therefore "protected" from having to make structural changes such as investing in new technologies or new workforces.

For example,... why are the auto industries in need of a bailout? Because their labor costs are higher than the competition. But why are we even discussing a bailout? Why not let them fail? Because there are a whole lot of people that have a strong interest in the current (uncompetitive) labor structure; cutting labor costs would be disruptive to the economy. But if we give the auto companies money to cover their labor costs, what incentive do they have to streamline? None, unless it's dictated by an external force (like the government-set bailout terms).

(ETA: By the way, "industry" is spelled with a "y" in English. No idea at all how it's spelled in Danish.)

 

[UserGoogol]

No, I get that part. Specialication and trade, great idea.
My specific problem here is, what will the us export to pay its debt?


Still looks like someone without a comparative advantage will have alot of iddle workers and no chance to build up a domestic industri. (africa?)
Protectionism will let you build up an industri that may eventualy compete with the rest of the world.
Find it hard to belive it is all evil.

Nobody would buy from a country without a comparative advantage in anything, and if nobody is willing to buy from a country, that country will have trouble finding the money to buy from other countries.

I think that the infant industry argument is reasonable, but I think protectionism is the wrong way to go about it. Poor countries need as many customers as possible to develop, and encouraging their own citizens to shop locally will only encourage other countries to fight back with their own protectionist laws. It seems more efficient for there to be international alliances to provide subsidies for trade with countries that need development.

 

[drkitten]

Still looks like someone without a comparative advantage

Oh, I should say this as well....

Technically speaking, no one is completely without a comparative advantage. Even if you are dreadful at everything, there will still be something at which your skill level is the highest compared to everything else you can (or can't) do.

Economic theory says that you're better off concentrating on what you're least-bad at. This applies to countries as well as people. And countries that have lots of idle workers generally have a tremendous advantage in labor costs, precisely because people are sitting around doing nothing -- hence the sweatshops that sew Super Bowl LXIII T-shirts, because getting paid a cent a shirt still beats getting paid nothing.

The REAL problem with these hellhole countries is generally not economic, but political. The government is sufficiently messed up that economic growth isn't possible.

 

[Toke]

Ideas and high-end services.

Yes, nice stuff, but current buget defecit sugest it is not enough.

The problem is that it generally doesn't. Part of that is the way "protectionism" is most often used. Generally what is "protected" are business practices that demonstrably don't work (more accurately, no longer work), and the industries are therefore "protected" from having to make structural changes such as investing in new technologies or new workforces.

Sounds like german coal production, it is getting expensive, and they have trouble letting go of their proud mining traditions. (Tradition of being up front with technology)
Yes, protectionism can be bad. But it will also be neccecary for e.g. an african country to build up an industry.

For example,... why are the auto industries in need of a bailout? Because their labor costs are higher than the competition. But why are we even discussing a bailout? Why not let them fail? Because there are a whole lot of people that have a strong interest in the current (uncompetitive) labor structure; cutting labor costs would be disruptive to the economy. But if we give the auto companies money to cover their labor costs, what incentive do they have to streamline? None, unless it's dictated by an external force (like the government-set bailout terms).

Looks like they failed in about every way, including updating production metods.

(ETA: By the way, "industry" is spelled with a "y" in English. No idea at all how it's spelled in Danish.)

Industri, I get it wrong sometimes.

I imagine that protectionism will let you build up an industry, or keep your workforce busy instead of iddle.
Different industries have different requirements of labour amounts, capital, and education levels. Protectionism could be used as a buffer to swicht your country from one to the next.

 

[drkitten]

Yes, nice stuff, but current buget defecit sugest it is not enough.

Huh? The current budget deficit has little to do with protectionism and everything to do with government taxation policy. I can only assume that you're talking about the trade deficit instead. And while I admit that the recent trend has not been looking good, that's mostly driven by US oil policy and consumption (we import too much oil) instead of a lack of available exports. If we could get the damn SUV's off the roads and get oil consumption down to a reasonable level, the trade deficit would level out nicely. And the SUV's, in turn, are largely a consequence of the credit bubble.

So, again, the problem isn't economic, but political.

Sounds like german coal production, it is getting expensive, and they have trouble letting go of their proud mining traditions. (Tradition of being up front with technology)
Yes, protectionism can be bad. But it will also be neccecary for e.g. an african country to build up an industry.

Actually, no. What the African countries need in order to build up industry is not protection, but investment (which is why microcapitalism has been such an effective force);

Protectionism drives up prices on almost everything, and in a cash-poor economy like most of the African states, that's fatal. What is necessary is an influx of capital. While in theory you could raise import duties (a protectionist move) and then re-invest the tax revenues in the local communities, that's almost never done. But if you don't invest the tax revenues -- if you use them, for example, to pave roads or buy fighter planes, then the nascent industry doesn't get the capital it needs regardless of protection. And the people who might be investing in the private sector are paying increased prices, which actively reduces the amount of investment capital around.

Looks like they failed in about every way, including updating production metods.

Oh, yeah. TOTAL failure.

But look at the history of protectionism in the auto industry. For nearly fifteen years (1981-1994) the Japanese were held to a protectionist quota (limiting the number of cars the Japanese were permitted to export to the States); the effect was to make Japanese cars significantly more expensive and thereby raise the prices on all cars, domestic and imported.

If protectionism is/was such a good idea, why are we bailing out the car companies now? And why are the Japanese companies doing so well (comparatively)?

 

[Toke]

Sorry, trade defecit. Budget defecit is a seperate big problem.

Here is a fun little game on budget.
http://budgethero.publicradio.org/widget/widget.php

If protectionism is/was such a good idea, why are we bailing out the car companies now? And why are the Japanese companies doing so well (comparatively)?

I do see the disadvantages, my problem is seeing anything as all bad.
(even capitalism have advantages)
I do wonder if not protected industry beats unemployment, at least in some cases.

Another and maybe more important thing, if free marked advocates condem protectionism there must be something good to it.

 

[drkitten]

I do see the disadvantages, my problem is seeing anything as all bad.
(even capitalism have advantages)
I do wonder if not protected industry beats unemployment, at least in some cases.

There are a few instances where protectionism makes sense. If what you're trying to preserve, for instance, is a strategic capacity, then protectionism can be a legitimate (if relatively inefficient) way to do it. For example, if you wanted to argue that we need to keep GM open because we need to be able to produce tanks someday, and we can't afford to rely on Toyota to make our tanks in case we go to war with Japan again, then the argument makes a certain amount of sense. The Japanese have used similar arguments regarding agriculture, because they're (justifiably) concerned about blockades and food shortages; they want to be self-sufficient "just in case."

But unemployment -- well, that goes back to hiring my brother-in-law to cut the grass with scissors. It's not simply a choice between employment and unemployment -- if I'm going to provide him with a job, I have lots of other choices that make more economic sense. Similarly, what should be done with the auto workers is not propping up the car companies, but giving the workers paths out of the auto industry and into other well-paying jobs. (Hell, send 'em all back to school to learn to be science and math teachers, since there's a shortage.)

Another and maybe more important thing, if free marked advocates condem protectionism there must be something good to it.

Nah. Some ideas are just so dumb that even the free-market advocates notice. While I recognize that may sounds like a joke ("Did you hear the one about the idea so stupid that even Ayn Rand rejected it?"), the basic problem is that NO one likes spending money inefficiently. While we may disagree on what is worth spending on, EVERYONE hates waste. And protectionism simply encourages waste.

 

[Toke]

But unemployment -- well, that goes back to hiring my brother-in-law to cut the grass with scissors. It's not simply a choice between employment and unemployment -- if I'm going to provide him with a job, I have lots of other choices that make more economic sense.

My country have an unemployment support very close to minimun wage. I could imagine that some staterun industry would make more money than the difference.
It is not done, so i guess it does not apply to us.

If a country have a high unemployment rate and a large trade defecit, it might be worth it. Or would the "natural" adjustment in exchange rates change the domestic wages/import cost rate to make domestic production profitable?

Similarly, what should be done with the auto workers is not propping up the car companies, but giving the workers paths out of the auto industry and into other well-paying jobs.

Yes, happend to most of our shipyards as the asians started up.

Nah. Some ideas are just so dumb that even the free-market advocates notice.

Could be.

 

[Toke]

Actually, no. What the African countries need in order to build up industry is not protection, but investment (which is why microcapitalism has been such an effective force);

Protectionism drives up prices on almost everything, and in a cash-poor economy like most of the African states, that's fatal. What is necessary is an influx of capital. While in theory you could raise import duties (a protectionist move) and then re-invest the tax revenues in the local communities, that's almost never done. But if you don't invest the tax revenues -- if you use them, for example, to pave roads or buy fighter planes, then the nascent industry doesn't get the capital it needs regardless of protection. And the people who might be investing in the private sector are paying increased prices, which actively reduces the amount of investment capital around.

Protection would raise prices of the products of your new industry, that would count as capital for it. So protectionism can be used to raise capital from the consumers. If it is not total, the money from import dues could subsidice industry directly, or go to neccecary infrastructure.

For countries with little money, protectionism is a way to finance an industrial buildup, and keep the ownership/profit.
If it had no advantages there would be no reason for freemarketers to speak up so loudly against it.