Saturday, November 29, 2008

Individuals Make War Not Governments


I understand the desire of bloggers to have catchy post titles, hence the title of this post. I was actually doing a title parody of a post at Carpe Diem: People and Businesses Trade, Not Countries.

It's a simple, but overlooked point: Countries don't trade, individual American consumers make voluntary decisions to buy products produced by foreign companies (e.g. check the country of origin on the tags/labels on your clothes), and individual American businesses voluntarily buy from, and sell to, foreign firms and consumers. Most of the discussion about trade focuses on aggregate trade statistics at the "country level," like reports of a $56.5 billion U.S. trade deficit in September, a $700 billion U.S. trade deficit for 2007, a $195 trade deficit with China this year, or a $14 billion trade surplus with Netherlands this year.

Like Walter Williams points out, those aggregate trade data can disguise the fact that it was individual American consumers and businesses making voluntary decisions on buying and selling products every day that result in some country-level trade deficit or surplus when trade data between the U.S. and other countries is aggregated at the end of a month, quarter or year.

Bottom Line: People trade, not countries. Therefore, any restrictions on trade in the form of protectionism hurt American people, i.e. U.S. consumers, and the workers and shareholders of U.S. businesses. A tariff on Japanese-made products is not a tariff on the country of Japan,it is really a tax on American consumers and businesses who voluntarily decide to buy products made by Japanese producers.
Of course, the title is perfectly accurate because a "country" is composed of individuals including those who run businesses... but the title is somewhat misleading when the author tries to equate actions of individuals with those of multinational corporations and governments [yes, comprised of individuals].

My responses to the article and some other comments about the article. This:
Countries don't trade, but governments facilitate trade through treaties that are either enforced or not.

When you go to the store to purchase an item, you probably don't look at the country of origin. You don't look for the "made with child labor" label. You don't read the "prices kept low through currency manipulation" disclaimer. You don't read the part of the owner's manual that tells you "designed by carefully copying quality products."

Individuals do NOT engage in trade... well, 99.9999% don't... they purchase available products. Small businesses do NOT engage in trade... they purchase available products from suppliers. Large corporations with resources to specifically source as they want DO engage in trade. Governments that award contracts based on price DO engage in multinational sourcing... DO engage in trade.
And this:
For those who wish to equate purchases at a local store with arranging for large volumes of goods to be brought in from other countries for distribution, sale, or incorporation into a larger product/assembly, then I concede the concept that individuals trade. But beyond such superfluous and meaningless comparisons, the argument is specious.

Qi, trade does not necessarily enrich all. The Chinese, for example, have siphoned billions... perhaps trillions... of dollars from U.S. companies through intellectual theft... THEFT. You can call that trade if you wish, but counterfeiting and intellectual property theft is just another form of Barbary pirating.

Economists want to view the world through "principles" of trading and thereby lose credibility with those who truly understand the actual interchanges.

Now, if placing boundaries around what is considered acceptable is "an infringement on my freedom allowing to choose who I want to trade with," perhaps your freedom should be re-examined.

Going back to the original point; individuals make purchases or exchange their labor or knowledge for payment... a micro form of "trade" in a loose semantic way. But trade, in the sense of transactions impacting nations, is far upstream of those individual purchases which are "an infringement on my freedom allowing to choose who I want to trade with" by driving out of business through unethical practices [by our standards and laws] those local and national businesses with whom they compete.

But you might save a buck at Wal-Mart as a result.
Further reading here.

... and individuals fire weapons and fly planes and sail ships... not governments.... Governments don't make war.


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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
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Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)