An attempt to end some economic fallacies - Tilted Forum Project Discussion Community

123dsa · 02-25-2004, 06:43 AM

Over the past couple of days there have been several attempts by left-leaning members to "explain" economic problems in the US. Yesterday while reading the WSJ I came across an article that I thought would help some of my confused friends here to understand the nature of ecomonics. (ie. Greenspan is NOT ruining or economy.)

http://online.wsj.com/article/0,,SB1...137292,00.html

Low Taxes Do What?

By THOMAS SOWELL

Some years ago, the distinguished international-trade economist Jagdish Bhagwati was visiting Cornell University, giving a lecture to graduate students during the day and debating Ralph Nader on free trade that evening. During his lecture, Prof. Bhagwati asked how many of the graduate students would be attending that evening's debate. Not one hand went up.

Amazed, he asked why. The answer was that the economics students considered it to be a waste of time. The kind of silly stuff that Ralph Nader was saying had been refuted by economists ages ago. The net result was that the audience for the debate consisted of people largely illiterate in economics and they cheered for Mr. Nader.

Prof. Bhagwati was exceptional among leading economists in understanding the need to confront gross misconceptions of economics in the general public, including the so-called educated public. Nobel Laureates Milton Friedman and Gary Becker are other such exceptions in addressing a wider general audience, rather than confining what they say to technical analysis addressed to fellow economists and their students. By and large, the economics profession fails to educate the public on the basics, while devoting much time and effort to narrower and even esoteric research.

The net result is that fallacies flourish in discussions of economic policy issues, while the refutations of those fallacies lie dormant in old books and academic journals gathering dust on library shelves. As former House Majority Leader Dick Armey -- an economist by trade -- put it: "Demagoguery beats data in making public policy."

Sometimes the fallacies are based on something as simple as a failure to define terms accurately. Everyone has heard the claim that a high-wage country like the U.S. loses jobs to low-wage countries when there is free trade. When the North American Free Trade Agreement went into effect a decade ago, there were dire predictions of "a giant sucking sound" as American jobs were drawn away, to Mexico especially.

In reality, the number of jobs in the U.S. increased by millions after Nafta went into effect and the unemployment rate fell to low levels not seen in years. Behind the radically wrong predictions was a simple confusion between wage rates and labor costs.

Wage rates per unit of time are not the same as labor costs per unit of output. When workers are paid twice as much per hour and produce three times as much per hour, the labor costs per unit of output are lower. That is why high-wage countries have been exporting to low-wage countries for centuries. An international study found the average productivity of workers in the modern sector of the Indian economy to be 15% of that of American workers. In other words, if you paid the average Indian worker one-fifth of what you paid the average American worker, it would cost you more to get the job done in India.

In particular industries, such as computer software, Indian workers are more comparable, which is why there is so much outsourcing of computer work to India. But virtually every country has a comparative advantage in something, whether it is a high-wage country or a low-wage country.

Those who complain loudly about how many jobs have been "exported" to other countries because of international free trade totally ignore all the jobs that have been imported to the American economy because of that same free trade. Siemens alone employs tens of thousands of American workers and Toyota has already produced its ten millionth car in the U.S. Management guru Peter Drucker has said that this country imports far more jobs than it exports and no one has contradicted him. Indeed, those who are loudest in denouncing the exporting of jobs totally ignore the importing of jobs.

Free international trade produces both the benefits of increased productivity and the adjustment problems that all other forms of increased productivity produce -- namely, job losses in the less competitive firms and industries. The typewriter industry was devastated by the rise of the computer, as the horse and buggy industry was devastated by the rise of the automobile. Histories of the industrial revolution lament the plight of the handloom weavers when power looms were introduced.

* * *
International trade has no monopoly on economic illiteracy. One of the apparently invincible fallacies of our times is the belief that President Ronald Reagan's tax cuts caused the federal budget deficits of the 1980s. In reality, the federal government collected more tax revenue in every year of the Reagan administration than had ever been collected in any year of any previous administration. But there is no amount of money that Congress cannot outspend. Here again, the confusion is due to a simple failure to define terms.

What Mr. Reagan's "tax cuts for the rich" actually cut were the tax rates per dollar of income. Out of rising incomes, the country as a whole -- including the rich -- paid more total taxes than ever before.

At the state and local levels, this confusion of tax rates and tax revenues has led some local politicians to see higher tax rates as the answer to budget problems, even though higher tax rates can drive businesses out of the city or state, with adverse effects on the total amount of tax revenues collected.

Price controls are another area where very elementary economics is all that is needed to show what the consequences are: shortages, quality deterioration and black markets. It has happened repeatedly in countries around the world, over a period of centuries. Yet politicians keep selling the idea of price controls and voters keeping buying it.

Many economic issues are complex, but sometimes a single fact will tell you all you need to know. When you know that central planners in the Soviet Union had to set 24 million prices -- and keep adjusting them, relative to one another, as conditions changed -- you realize that central planning did not just happen to fail. It had no chance of succeeding from the outset. It is a wholly different ball game when hundreds of millions of people individually keep track of the relatively few prices they need to know for their own decision-making in a market economy.

Simple stuff like this is not very exciting for economists and there is no payoff in one's professional career for clarifying such things for the general public. The only reason to do it is that it very much needs to be done -- especially during an election year.

Mr. Sowell, a senior fellow at the Hoover Institution, is the author, most recently, of "Basic Economics: A Citizen's Guide to the Economy, Revised and Expanded," just published by Basic Books.

Updated February 24, 2004

As you can see, we are not being hurt nationally by free trade. Perhaps some individuals are losing there jobs, but that is simply the nature of markets. Hopefully this will put an end to much of the uninformed posts concerning "job exportation" and the perceived irresponsible fiscal policy being pursued ny the current administration.

LSD

onetime2 · 02-25-2004, 07:11 AM

Thomas Sowell is a very intelligent man. His perspective and impartiality will be attacked because he is quite right leaning. This, of course, doesn't change the fact that his arguments are highly reasoned and thoroughly accurate.

One of my favorite quotes comes from him...

"To say that someone has a `right' to any [affirmative material good] is to say that others have an obligation to expend... efforts on his behalf, without his being reciprocally obligated to compensate them for it. Rights from government interference... may be free, but rights to anything mean that someone else has been yoked to your service involuntarily, with no corresponding responsibility on your part to provide for yourself, to compensate others, or even to behave decently or responsibly." -- Thomas Sowell

filtherton · 02-25-2004, 07:54 AM

I get what the author is saying, essentially that free trade today is a-ok.
I still don't think he vindicates "the perceived irresponsible fiscal policy being pursued ny the current administration."

Maybe it's just because i'm not an economist, but i fail to see how running a record breaking deficit and national debt can be considered fiscal responsibility.

onetime2 · 02-25-2004, 08:06 AM

Quote:

Originally posted by filtherton
I get what the author is saying, essentially that free trade today is a-ok.
I still don't think he vindicates "the perceived irresponsible fiscal policy being pursued ny the current administration."

Maybe it's just because i'm not an economist, but i fail to see how running a record breaking deficit and national debt can be considered fiscal responsibility.

This doesn't really touch on the deficit or debt. The deficit and debt are far more complicated issues.

This speaks more to the inaccurate argument that raising taxes is the only or best way to get budget deficits and national debt in order.

mr sticky · 02-25-2004, 08:27 AM

Thanks for the info 123dsa!

It's good to know that they're those who look beyond the soundbite!!

filtherton · 02-25-2004, 08:35 AM

Okay, so i understand how increased tax rates can have a negative effect on revenue by discouraging spending and investment. I don't think that that is always true though. Certainly if taxes rates become prohibitive it will have a negative effect on revenue, but small increases in taxes generally aren't prohibitive.
What else can you do to cut deficits? Decrease spending? What else? I think bush's economic policies are inept because he is reducing revenue while increasing spending. I don't see how that is going to help the deficit.

PS. I know the article wasn't about bush. I just don't think it "puts to rest uninformed posts concerning "job exportation" and the perceived irresponsible fiscal policy being pursued ny the current administration" as claimed by 123dsa. Job exportation maybe(although i think it makes attacking our economic interests much easier for those so inclined.) Fiscal policy? No.

onetime2 · 02-25-2004, 09:59 AM

Quote:

Originally posted by filtherton
Okay, so i understand how increased tax rates can have a negative effect on revenue by discouraging spending and investment. I don't think that that is always true though. Certainly if taxes rates become prohibitive it will have a negative effect on revenue, but small increases in taxes generally aren't prohibitive.
What else can you do to cut deficits? Decrease spending? What else? I think bush's economic policies are inept because he is reducing revenue while increasing spending. I don't see how that is going to help the deficit.

PS. I know the article wasn't about bush. I just don't think it "puts to rest uninformed posts concerning "job exportation" and the perceived irresponsible fiscal policy being pursued ny the current administration" as claimed by 123dsa. Job exportation maybe(although i think it makes attacking our economic interests much easier for those so inclined.) Fiscal policy? No.

I agree that it doesn't necessarily support current (or previous) fiscal policy.

Improving the economy is the way to balance the budget without raising taxes or cutting spending. It was a thriving economy which allowed the budget deficit to be eliminated during Clinton's term.

Raising taxes doesn't improve the economy in the short or long term. It doesn't force the government to be more efficient. It simply passes the costs of an inefficient and spend happy government on to the tax payer. It's the taxpayer (i.e., consumer)who ultimately drives the economy.

archer2371 · 02-25-2004, 12:55 PM

No doubt, it is the Consumer who drives the economy out of all the factors (Consumers, Investments, Governenment, and Exports or CIGX as I will abbr.) I wish there were more people like Mr. Sowell that takes a pretty good look at what is actually going on instead of just making outsourcing and Free Trade out to be the giant monster that it isn't.

filtherton · 02-25-2004, 12:56 PM

Good point. It's all about a thriving economy. How we get there, i guess, depends on which side of the aisle you sit on.

gibingus · 02-25-2004, 02:00 PM

uh, first of all, this "article" is an opinion piece.

second of all, free trade and job exportation are not necessarily the same thing. we can have free trade (or better still responsible trade) and still encourage job growth on our own shores. the right seems to always make a heuristic leap that conjoins the two. kind of like the one that says gay marriage threatens hetero marriage. or the one that linked saddam hussein to the 9/11 bombings.

heuristics are best explained by the south park underwear gnomes... step one, steal underwear. step two... step three, profit. you leave a part out of the middle, and the listener automatically makes the association because our minds process information in bytes of three. this administration has mastered this to an artform.

Ustwo · 02-25-2004, 02:27 PM

Quote:

Originally posted by gibingus
uh, first of all, this "article" is an opinion piece.

second of all, free trade and job exportation are not necessarily the same thing. we can have free trade (or better still responsible trade) and still encourage job growth on our own shores. the right seems to always make a heuristic leap that conjoins the two. kind of like the one that says gay marriage threatens hetero marriage. or the one that linked saddam hussein to the 9/11 bombings.

heuristics are best explained by the south park underwear gnomes... step one, steal underwear. step two... step three, profit. you leave a part out of the middle, and the listener automatically makes the association because our minds process information in bytes of three. this administration has mastered this to an artform.

So what you are saying is he is wrong and offer underware gnomes as an example of why?

Also what is 'reponsible trade'?

Finally are not all articles an opinion piece?

gibingus · 02-25-2004, 07:12 PM

he's not wrong, he's intentionally misleading. that's the beauty of heuristic manipulation of speech. the writer or speaker is never factually wrong, because the reader or listener fills the gap that is missing. the underwear gnomes, who skip step two in their business plan, make fun of this.... it's supposed to be a funny example of the concept from popular media. it is hard to keep a sense of humor about these things, but it is the only way i can survive these times. the fact that the daily show is beating all three 24-hour news networks during it's time slot may indicate that i am not alone there.

responisble trade is what you make of it, it isn't a catch phrase coined by anyone but me. is there something wrong with taking a responsible attitude about doing business. maybe making choices that cut the margin a bit for a greater good, maybe considering the global environment or the labor practices of the nations you are working in? maybe having ethical and honest accounting standards? but far beyond that liberal thinking, i would say the balance of trade between the united states and china is anything but responsible. they are taking us to the bank, and in our greed for cheap labor, we're rushing to sell ourselves out.

third, there is a HUGE difference between content in the news hole and content in the opinion hole. editorial standards are applied to objective and factual reporting that do not apply to the opinion page. corroboration of sources, quotes, everything is different. but the biggest difference is that in an opinion story, the writer is the voice issuing one side of a topic. in a news story, the writer is a recorder who presents the story through quotes of credible sources and balanced research of both sides - because the core of a good news story is conflict and the story is interesting to read if you present the conflict via the dueling sides. the writer may take a "slant" and favor one side or the other for any number of reasons, but will always present facts from both sides. an opinion writer is an advocate, a reporter is an observer.

journalism 101.

Jizz-Fritter · 02-25-2004, 08:04 PM

I love how the author avoided discussing the kinds of jobs that are lost to free trade, and the kinds of jobs that are gained from free trade.

When the author said that we gained 2 millions some-odd jobs, he neglected to indicate that those are net-gained. The only hint he gave to jobs lost was when he said "some" jobs are lost, but look at all of these jobs we created! Isn't it magnificent?!

His "some" represents about 1.3 million jobs.

What he also fails to mention is that we lost mostly high-paying, skilled labor and gained low-paying, low-skilled labor.

Ralph Nader had a joke about this in the 2000 campaign: Clinton or Gore would say, "Look at all these jobs we created!"

Punch line: "Tell me about it, I had 3 of them!"

Also the increase in imports as a result of NAFTA is not a credible indicator of the health of a trade agreement, because most of the imports are trade within a corporation. It's like taking a product off a shelf and putting it somewhere else in the store.

Free trade equals free exploitation.

On a slightly related note: No country in the history of the world developed successfully under free markets.
That is not to say countries didn't try.

Corporations don't want you to realize that they want to be regulated, because ultra competition would see the devastation of any corporation no matter how big.

They also want you to believe that the Investor Protection Agreement (NAFTA) is about free trade. In the words of that Rupublican aid in Texas, ha ha ha ha ha ha ha ha..."

Scipio · 02-25-2004, 11:48 PM

There always has been and always will be a tension between free trade, which produces large aggregate economic gains, and protectionist or socialist structures that attempt to ease the short term (and sometimes long-term) pain that capitalism can inflict on many individuals.

I'm a dedicated Democrat, but I'm dismayed that protectionism has become such an issue in the campaign this year. It really isn't good economics. In my mind, the solution is not to prevent the loss of jobs, but to ease the transistion of people who are experiencing structural unemployment. It's not a small challenge, but it's better and probably cheaper to reeducate the unemployed than it is to pay the economic price of protecting their jobs.

The economic cost of protecting a job is quite high, but it is spread out through the economy. While consumers might pay mere pennies more for a product, those pennies add up. Of course, consumers aren't aware that they're paying more than they ought to. The people who really feel the pain are the ones that lose jobs because they can no longer compete. The squeaky wheel tends to get the grease.

Quote:

The High Cost of Protectionism
How much does it cost to protect a job? An average of $231,289, figured across just 20 of the many protected industries. Costs range from $132,870 per job saved in the costume jewelry business to $1,376,435 in the benzenoid chemical industry. Protectionism costs U.S. consumers nearly $100 billion annually. It increases not just the cost of the protected items but downstream products as well. Protecting sugar raises candy and soft drink prices; protecting lumber raises home-building costs; protecting steel makes car prices higher; and so forth. Then there are the job losses in downstream industries. Workers in steel-using industries outnumber those in steel-producing industries by 57 to 1. And the protection doesn't even work. Subsidies to steel-producing industries since 1975 have exceeded $23 billion; yet industry employment has declined by nearly two-thirds.

http://www.dallasfed.org/fed/annual/2002/ar02b.html

This article is a good explanation of why free trade is beneficial, and is published by the Dallas Federal Reserve bank. It isn't very techinical, and is a better starting point than a WSJ editorial, which can't bear to pass up a chance to plug Reagan and take a shot at the Soviets.

gibingus · 02-26-2004, 04:39 AM

oh, i failed to mention last night in explaining the difference between opinion pieces and news pieces that authorship of articles are not from reporting or editorial staff of the paper.

thomas sowell is not a journalist, he is a fellow of a very right wing special interest group. the hoover institution is a peer of the heritage foundation and the american enterprise institute. such articles are published to present polarized view points, and are generally balanced throughout the publishing cycle according to the discretion of the opinion page editor by views from the other pole.

the injection of bias or personal opinion into a news story is called "editorializing" and is considered by professional journalists and editors to be a cardinal sin. because fox news engages in editorializing their news coverage by allowing their anchors and reporters to opine on the subjects they cover, most professional journalists question their ethics - not becuase of the right wing slant of their news schedule. it is perfectly acceptable for a publication or broadcaster to chose a perspective from which to cover the news. in a competitive information industry, that is why some media are called liberal or conservative, they cater to some degree to their readerships' interests in order to provide the best demographic to their advertising customers.

understanding these basic journalistic ethics and principles are not only key to understanding the information that is presented before you, but they are your best defense against propaganda and manipulation by any radical interest - either right or left wing. understanding the competitive, free market nature of the news industry is also crucial to understanding the role of the media as the independent guardian of the public trust and watchdog of all cultural organizations, including government and religion. when you consider that the news industry is a free market business arena, it is absoultely absurd to call the media "liberal" in the way conservatives commonly apply that term. there is no better evidence of capitalism in clear play than in today's competitive media.

building trust and protecting it is the key to viability of the press as a business... and it is a lesson that applies to us all. that's why jason blair's lying in his news stories was a big deal, that's why clinton's perjury over his infidelities was a big deal - you cannot abuse the public trust, even if it doesn't really hurt anyone. in the case of this administration's misrepresentation of intelligence data to the public to justify the case of invading iraq (we have not declared war), this is very important to keep in mind.

Jizz-Fritter · 02-28-2004, 07:27 PM

Quote:

Originally posted by gibingus
...the hoover institution is a peer of the heritage foundation and the american enterprise institute.

Wasn't Hoover such an awesome job-creating machine?? hehe

amonkie · 02-29-2004, 12:28 AM

As a econ major, I can add a little light to the thread by suggesting a book I feel is quite valuable - "Hidden Order" by Milton Freedman. It's about the economics of everyday life, but expounds and touches upon some of the issues raised in this thread about trade and tax effects on the economy.

hammer4all · 02-29-2004, 01:49 AM

Recorded April 13, 1996 at Harvard.

Noam Chomsky, MIT Professor

Free Market Fantasies - Capitalism In The Real World.mp3 (6MBs)

saru · 02-29-2004, 08:51 AM

Quote:

On a slightly related note: No country in the history of the world developed successfully under free markets.
That is not to say countries didn't try.

Switzerland and Singapore, two of the more open and freer economies in the world, have done quite well for themselves thanks to free trade. Both countries would never have become rich without access to neighboring markets (Singapore was nothing but a swampy little island with no natural resources to speak of) and, even today, would suffer greatly if these markets were to close. And, there are earlier historical examples of free trade creating enormous national wealth as well: the whole English empire was built on decades of persistent and forceful international trade expansion...

nanofever · 02-29-2004, 09:14 AM

Quote:

Originally posted by saru
And, there are earlier historical examples of free trade creating enormous national wealth as well: the whole English empire was built on decades of persistent and forceful international trade expansion...

I could swear the English were the imperalist who raveged the African people from Egypt to Cape Town, inslaved Indians to farm opium and used gunboat diplomacy to "trade" with China.

saru · 02-29-2004, 09:50 AM

I agree with your point, but what does it have to do with my point? I didn't say that using force to open trade lanes was a good thing. Only that nations have generated economic wealth through open markets, contrary to what jizzy implied in his post. The means in which they chose to do so is a whole other discussion.

Jizz-Fritter · 02-29-2004, 06:20 PM

Quote:

Originally posted by saru
Switzerland and Singapore, two of the more open and freer economies in the world, have done quite well for themselves thanks to free trade. Both countries would never have become rich without access to neighboring markets (Singapore was nothing but a swampy little island with no natural resources to speak of) and, even today, would suffer greatly if these markets were to close. And, there are earlier historical examples of free trade creating enormous national wealth as well: the whole English empire was built on decades of persistent and forceful international trade expansion...

England developed through colonialism, Singapore did not, and Switzerland had lots of money in the first place.

And just because the stock market rose, it does not mean all boats rose with the same tide.

Scipio · 03-01-2004, 02:12 PM

England developed through mercantilism, and took up freer markets as the 19th century began. Colonialism isn't an economic system, though it became a part of mercantilism.

We're dealing with an actual economic issue here, but not explicitly.

The argument I think you're advancing is the infant industries justification for protectionism. The line of reasoning goes that a country should subsidize its industries until a certain level of productivity or cost of production is reached. Economically, this makes some sense. Market entry, say, into the production of iron ore requires that the producer is able to produce iron ore at a certain cost. In a perfectly competitive market (like a commodity market), the prices are fixed, and producers who can't produce below price don't produce any profit.

On the flipside, there's no guarantee that the industry will lower costs enough to compete. There's no certainty that current prices will hold in the future. They might go down. Political actors aren't adept at managing specific industries. They aren't interested in protecting only until the industry is competitive. Rather, they are interested in protecting domestic jobs for political reasons. In short, protective measures done under the auspices of protecting an "infant industry" are usually just regular anti-market protectionism.

Jizz-Fritter · 03-01-2004, 03:49 PM

If find it funny that Reagan talked so much about market forces, yet he refused to let them work; he gave domestic industry more import relief than any other president.

Scipio · 03-01-2004, 08:17 PM

Jizz- Could you offer something more than an attempt to start a flame war about Reagan's record?

02-25-2004, 06:43 AM	#1 (permalink)
123dsa Crazy Location: KY	An attempt to end some economic fallacies Over the past couple of days there have been several attempts by left-leaning members to "explain" economic problems in the US. Yesterday while reading the WSJ I came across an article that I thought would help some of my confused friends here to understand the nature of ecomonics. (ie. Greenspan is NOT ruining or economy.) http://online.wsj.com/article/0,,SB1...137292,00.html Low Taxes Do What? By THOMAS SOWELL Some years ago, the distinguished international-trade economist Jagdish Bhagwati was visiting Cornell University, giving a lecture to graduate students during the day and debating Ralph Nader on free trade that evening. During his lecture, Prof. Bhagwati asked how many of the graduate students would be attending that evening's debate. Not one hand went up. Amazed, he asked why. The answer was that the economics students considered it to be a waste of time. The kind of silly stuff that Ralph Nader was saying had been refuted by economists ages ago. The net result was that the audience for the debate consisted of people largely illiterate in economics and they cheered for Mr. Nader. Prof. Bhagwati was exceptional among leading economists in understanding the need to confront gross misconceptions of economics in the general public, including the so-called educated public. Nobel Laureates Milton Friedman and Gary Becker are other such exceptions in addressing a wider general audience, rather than confining what they say to technical analysis addressed to fellow economists and their students. By and large, the economics profession fails to educate the public on the basics, while devoting much time and effort to narrower and even esoteric research. The net result is that fallacies flourish in discussions of economic policy issues, while the refutations of those fallacies lie dormant in old books and academic journals gathering dust on library shelves. As former House Majority Leader Dick Armey -- an economist by trade -- put it: "Demagoguery beats data in making public policy." Sometimes the fallacies are based on something as simple as a failure to define terms accurately. Everyone has heard the claim that a high-wage country like the U.S. loses jobs to low-wage countries when there is free trade. When the North American Free Trade Agreement went into effect a decade ago, there were dire predictions of "a giant sucking sound" as American jobs were drawn away, to Mexico especially. In reality, the number of jobs in the U.S. increased by millions after Nafta went into effect and the unemployment rate fell to low levels not seen in years. Behind the radically wrong predictions was a simple confusion between wage rates and labor costs. Wage rates per unit of time are not the same as labor costs per unit of output. When workers are paid twice as much per hour and produce three times as much per hour, the labor costs per unit of output are lower. That is why high-wage countries have been exporting to low-wage countries for centuries. An international study found the average productivity of workers in the modern sector of the Indian economy to be 15% of that of American workers. In other words, if you paid the average Indian worker one-fifth of what you paid the average American worker, it would cost you more to get the job done in India. In particular industries, such as computer software, Indian workers are more comparable, which is why there is so much outsourcing of computer work to India. But virtually every country has a comparative advantage in something, whether it is a high-wage country or a low-wage country. Those who complain loudly about how many jobs have been "exported" to other countries because of international free trade totally ignore all the jobs that have been imported to the American economy because of that same free trade. Siemens alone employs tens of thousands of American workers and Toyota has already produced its ten millionth car in the U.S. Management guru Peter Drucker has said that this country imports far more jobs than it exports and no one has contradicted him. Indeed, those who are loudest in denouncing the exporting of jobs totally ignore the importing of jobs. Free international trade produces both the benefits of increased productivity and the adjustment problems that all other forms of increased productivity produce -- namely, job losses in the less competitive firms and industries. The typewriter industry was devastated by the rise of the computer, as the horse and buggy industry was devastated by the rise of the automobile. Histories of the industrial revolution lament the plight of the handloom weavers when power looms were introduced. * * * International trade has no monopoly on economic illiteracy. One of the apparently invincible fallacies of our times is the belief that President Ronald Reagan's tax cuts caused the federal budget deficits of the 1980s. In reality, the federal government collected more tax revenue in every year of the Reagan administration than had ever been collected in any year of any previous administration. But there is no amount of money that Congress cannot outspend. Here again, the confusion is due to a simple failure to define terms. What Mr. Reagan's "tax cuts for the rich" actually cut were the tax rates per dollar of income. Out of rising incomes, the country as a whole -- including the rich -- paid more total taxes than ever before. At the state and local levels, this confusion of tax rates and tax revenues has led some local politicians to see higher tax rates as the answer to budget problems, even though higher tax rates can drive businesses out of the city or state, with adverse effects on the total amount of tax revenues collected. Price controls are another area where very elementary economics is all that is needed to show what the consequences are: shortages, quality deterioration and black markets. It has happened repeatedly in countries around the world, over a period of centuries. Yet politicians keep selling the idea of price controls and voters keeping buying it. Many economic issues are complex, but sometimes a single fact will tell you all you need to know. When you know that central planners in the Soviet Union had to set 24 million prices -- and keep adjusting them, relative to one another, as conditions changed -- you realize that central planning did not just happen to fail. It had no chance of succeeding from the outset. It is a wholly different ball game when hundreds of millions of people individually keep track of the relatively few prices they need to know for their own decision-making in a market economy. Simple stuff like this is not very exciting for economists and there is no payoff in one's professional career for clarifying such things for the general public. The only reason to do it is that it very much needs to be done -- especially during an election year. Mr. Sowell, a senior fellow at the Hoover Institution, is the author, most recently, of "Basic Economics: A Citizen's Guide to the Economy, Revised and Expanded," just published by Basic Books. Updated February 24, 2004 As you can see, we are not being hurt nationally by free trade. Perhaps some individuals are losing there jobs, but that is simply the nature of markets. Hopefully this will put an end to much of the uninformed posts concerning "job exportation" and the perceived irresponsible fiscal policy being pursued ny the current administration. LSD

02-25-2004, 07:11 AM	#2 (permalink)
onetime2 Junkie Location: NJ	Thomas Sowell is a very intelligent man. His perspective and impartiality will be attacked because he is quite right leaning. This, of course, doesn't change the fact that his arguments are highly reasoned and thoroughly accurate. One of my favorite quotes comes from him... "To say that someone has a `right' to any [affirmative material good] is to say that others have an obligation to expend... efforts on his behalf, without his being reciprocally obligated to compensate them for it. Rights from government interference... may be free, but rights to anything mean that someone else has been yoked to your service involuntarily, with no corresponding responsibility on your part to provide for yourself, to compensate others, or even to behave decently or responsibly." -- Thomas Sowell __________________ Strive to be more curious than ignorant.

02-25-2004, 08:27 AM	#5 (permalink)
mr sticky Psycho Location: NC	Thanks for the info 123dsa! It's good to know that they're those who look beyond the soundbite!! __________________ The sad thing is... as you get older you come to realize that you don't so much pilot your life, as you just try to hold on, in a screaming, defiant ball of white-knuckle anxious fury

02-25-2004, 12:55 PM	#8 (permalink)
archer2371 Sarge of Blood Gulch Red Outpost Number One Location: On the front lines against our very enemy	No doubt, it is the Consumer who drives the economy out of all the factors (Consumers, Investments, Governenment, and Exports or CIGX as I will abbr.) I wish there were more people like Mr. Sowell that takes a pretty good look at what is actually going on instead of just making outsourcing and Free Trade out to be the giant monster that it isn't. __________________ "This ain't no Ice Cream Social!" "Hey Grif, Chupathingy...how bout that? I like it...got a ring to it." "I have no earthly idea what it is I just saw, or what this place is, or where in the hell O'Malley is! My only choice is to blame Grif for coming up with such a flawed plan. Stupid, stupid Grif."

02-25-2004, 02:00 PM	#10 (permalink)
gibingus Insane Location: 38° 51' N 77° 2' W	uh, first of all, this "article" is an opinion piece. second of all, free trade and job exportation are not necessarily the same thing. we can have free trade (or better still responsible trade) and still encourage job growth on our own shores. the right seems to always make a heuristic leap that conjoins the two. kind of like the one that says gay marriage threatens hetero marriage. or the one that linked saddam hussein to the 9/11 bombings. heuristics are best explained by the south park underwear gnomes... step one, steal underwear. step two... step three, profit. you leave a part out of the middle, and the listener automatically makes the association because our minds process information in bytes of three. this administration has mastered this to an artform. __________________ if everyone is thinking alike, chances are no one is thinking.

02-25-2004, 07:54 AM	#3 (permalink)
filtherton Junkie Location: In the land of ice and snow.	I get what the author is saying, essentially that free trade today is a-ok. I still don't think he vindicates "the perceived irresponsible fiscal policy being pursued ny the current administration." Maybe it's just because i'm not an economist, but i fail to see how running a record breaking deficit and national debt can be considered fiscal responsibility.

02-25-2004, 08:35 AM	#6 (permalink)
filtherton Junkie Location: In the land of ice and snow.	Okay, so i understand how increased tax rates can have a negative effect on revenue by discouraging spending and investment. I don't think that that is always true though. Certainly if taxes rates become prohibitive it will have a negative effect on revenue, but small increases in taxes generally aren't prohibitive. What else can you do to cut deficits? Decrease spending? What else? I think bush's economic policies are inept because he is reducing revenue while increasing spending. I don't see how that is going to help the deficit. PS. I know the article wasn't about bush. I just don't think it "puts to rest uninformed posts concerning "job exportation" and the perceived irresponsible fiscal policy being pursued ny the current administration" as claimed by 123dsa. Job exportation maybe(although i think it makes attacking our economic interests much easier for those so inclined.) Fiscal policy? No.

02-25-2004, 12:56 PM	#9 (permalink)
filtherton Junkie Location: In the land of ice and snow.	Good point. It's all about a thriving economy. How we get there, i guess, depends on which side of the aisle you sit on.

02-25-2004, 07:12 PM	#12 (permalink)
gibingus Insane Location: 38° 51' N 77° 2' W	he's not wrong, he's intentionally misleading. that's the beauty of heuristic manipulation of speech. the writer or speaker is never factually wrong, because the reader or listener fills the gap that is missing. the underwear gnomes, who skip step two in their business plan, make fun of this.... it's supposed to be a funny example of the concept from popular media. it is hard to keep a sense of humor about these things, but it is the only way i can survive these times. the fact that the daily show is beating all three 24-hour news networks during it's time slot may indicate that i am not alone there. responisble trade is what you make of it, it isn't a catch phrase coined by anyone but me. is there something wrong with taking a responsible attitude about doing business. maybe making choices that cut the margin a bit for a greater good, maybe considering the global environment or the labor practices of the nations you are working in? maybe having ethical and honest accounting standards? but far beyond that liberal thinking, i would say the balance of trade between the united states and china is anything but responsible. they are taking us to the bank, and in our greed for cheap labor, we're rushing to sell ourselves out. third, there is a HUGE difference between content in the news hole and content in the opinion hole. editorial standards are applied to objective and factual reporting that do not apply to the opinion page. corroboration of sources, quotes, everything is different. but the biggest difference is that in an opinion story, the writer is the voice issuing one side of a topic. in a news story, the writer is a recorder who presents the story through quotes of credible sources and balanced research of both sides - because the core of a good news story is conflict and the story is interesting to read if you present the conflict via the dueling sides. the writer may take a "slant" and favor one side or the other for any number of reasons, but will always present facts from both sides. an opinion writer is an advocate, a reporter is an observer. journalism 101. __________________ if everyone is thinking alike, chances are no one is thinking.

02-25-2004, 08:04 PM	#13 (permalink)
Jizz-Fritter Crazy Location: Bowling Green, KY	I love how the author avoided discussing the kinds of jobs that are lost to free trade, and the kinds of jobs that are gained from free trade. When the author said that we gained 2 millions some-odd jobs, he neglected to indicate that those are net-gained. The only hint he gave to jobs lost was when he said "some" jobs are lost, but look at all of these jobs we created! Isn't it magnificent?! His "some" represents about 1.3 million jobs. What he also fails to mention is that we lost mostly high-paying, skilled labor and gained low-paying, low-skilled labor. Ralph Nader had a joke about this in the 2000 campaign: Clinton or Gore would say, "Look at all these jobs we created!" Punch line: "Tell me about it, I had 3 of them!" Also the increase in imports as a result of NAFTA is not a credible indicator of the health of a trade agreement, because most of the imports are trade within a corporation. It's like taking a product off a shelf and putting it somewhere else in the store. Free trade equals free exploitation. On a slightly related note: No country in the history of the world developed successfully under free markets. That is not to say countries didn't try. Corporations don't want you to realize that they want to be regulated, because ultra competition would see the devastation of any corporation no matter how big. They also want you to believe that the Investor Protection Agreement (NAFTA) is about free trade. In the words of that Rupublican aid in Texas, ha ha ha ha ha ha ha ha..." Last edited by Jizz-Fritter; 02-25-2004 at 08:07 PM..

02-26-2004, 04:39 AM	#15 (permalink)
gibingus Insane Location: 38° 51' N 77° 2' W	oh, i failed to mention last night in explaining the difference between opinion pieces and news pieces that authorship of articles are not from reporting or editorial staff of the paper. thomas sowell is not a journalist, he is a fellow of a very right wing special interest group. the hoover institution is a peer of the heritage foundation and the american enterprise institute. such articles are published to present polarized view points, and are generally balanced throughout the publishing cycle according to the discretion of the opinion page editor by views from the other pole. the injection of bias or personal opinion into a news story is called "editorializing" and is considered by professional journalists and editors to be a cardinal sin. because fox news engages in editorializing their news coverage by allowing their anchors and reporters to opine on the subjects they cover, most professional journalists question their ethics - not becuase of the right wing slant of their news schedule. it is perfectly acceptable for a publication or broadcaster to chose a perspective from which to cover the news. in a competitive information industry, that is why some media are called liberal or conservative, they cater to some degree to their readerships' interests in order to provide the best demographic to their advertising customers. understanding these basic journalistic ethics and principles are not only key to understanding the information that is presented before you, but they are your best defense against propaganda and manipulation by any radical interest - either right or left wing. understanding the competitive, free market nature of the news industry is also crucial to understanding the role of the media as the independent guardian of the public trust and watchdog of all cultural organizations, including government and religion. when you consider that the news industry is a free market business arena, it is absoultely absurd to call the media "liberal" in the way conservatives commonly apply that term. there is no better evidence of capitalism in clear play than in today's competitive media. building trust and protecting it is the key to viability of the press as a business... and it is a lesson that applies to us all. that's why jason blair's lying in his news stories was a big deal, that's why clinton's perjury over his infidelities was a big deal - you cannot abuse the public trust, even if it doesn't really hurt anyone. in the case of this administration's misrepresentation of intelligence data to the public to justify the case of invading iraq (we have not declared war), this is very important to keep in mind. __________________ if everyone is thinking alike, chances are no one is thinking. Last edited by gibingus; 02-26-2004 at 04:43 AM..

02-29-2004, 12:28 AM	#17 (permalink)
amonkie Drifting Administrator Location: Windy City	As a econ major, I can add a little light to the thread by suggesting a book I feel is quite valuable - "Hidden Order" by Milton Freedman. It's about the economics of everyday life, but expounds and touches upon some of the issues raised in this thread about trade and tax effects on the economy. __________________ Calling from deep in the heart, from where the eyes can't see and the ears can't hear, from where the mountain trails end and only love can go... ~~~ Three Rivers Hare Krishna

02-29-2004, 01:49 AM	#18 (permalink)
hammer4all Insane	Recorded April 13, 1996 at Harvard. Noam Chomsky, MIT Professor Free Market Fantasies - Capitalism In The Real World.mp3 (6MBs)

02-29-2004, 09:50 AM	#21 (permalink)
saru Tilted Location: Switzerland	I agree with your point, but what does it have to do with my point? I didn't say that using force to open trade lanes was a good thing. Only that nations have generated economic wealth through open markets, contrary to what jizzy implied in his post. The means in which they chose to do so is a whole other discussion.

03-01-2004, 02:12 PM	#23 (permalink)
Scipio Mencken Location: College	England developed through mercantilism, and took up freer markets as the 19th century began. Colonialism isn't an economic system, though it became a part of mercantilism. We're dealing with an actual economic issue here, but not explicitly. The argument I think you're advancing is the infant industries justification for protectionism. The line of reasoning goes that a country should subsidize its industries until a certain level of productivity or cost of production is reached. Economically, this makes some sense. Market entry, say, into the production of iron ore requires that the producer is able to produce iron ore at a certain cost. In a perfectly competitive market (like a commodity market), the prices are fixed, and producers who can't produce below price don't produce any profit. On the flipside, there's no guarantee that the industry will lower costs enough to compete. There's no certainty that current prices will hold in the future. They might go down. Political actors aren't adept at managing specific industries. They aren't interested in protecting only until the industry is competitive. Rather, they are interested in protecting domestic jobs for political reasons. In short, protective measures done under the auspices of protecting an "infant industry" are usually just regular anti-market protectionism. __________________ "Erections lasting more than 4 hours, though rare, require immediate medical attention."

03-01-2004, 03:49 PM	#24 (permalink)
Jizz-Fritter Crazy Location: Bowling Green, KY	If find it funny that Reagan talked so much about market forces, yet he refused to let them work; he gave domestic industry more import relief than any other president.

03-01-2004, 08:17 PM	#25 (permalink)
Scipio Mencken Location: College	Jizz- Could you offer something more than an attempt to start a flame war about Reagan's record? __________________ "Erections lasting more than 4 hours, though rare, require immediate medical attention."