Redstate

Jacob is right in my view, but I think that we need to be frank about this: the free traders and the economic nationalists are talking right past one another here. I shall not try to summarize the free-trade argument here, because personally I believe it deeply mistaken. However, respecting the economic nationalist's position, what the free traders need to understand is that the economic nationalist fundamentally places value on things other than high production and low prices.

Too many free traders leap to the implication that economic nationalists (and their left-wing doppelgaengers, fair traders) do not care about production and prices at all. This simply is not so. The economic nationalist who does not care about production and prices is a straw man, easily demolished in debate. However, the economic nationalist who believes low prices a blessing but who also observes that a plant owned and operated by Americans can be counted on in time of emergency or war to put its shoulder wholeheartedly to the patriot's wheel---he is the real article.

As an economic nationalist, I would suggest that how China values the yuan is mostly China's business. The appropriate American remedy to an unsatisfactory trade relationship with the Chinese (I know that this drives Pejman up the proverbial wall, sorry) is the traditional American remedy: a tariff. And, yes, I know, a tariff raises prices for American consumers. However, inasmuch as the U.S. federal goverment must raise revenue in one way or another, inasmuch as the revenue comes from the substance of the American people in one way or another, the economic nationalist wonders: what exactly is so wrong with reducing the income tax and making up the revenue shortfall with a moderate, traditionally American tariff?

All right. I admit that I already know the free trader's likely response, so I will yield the floor now to let him give it, if he will.

You assign motivations and and arguments that just aren't true.

But a direct answer to your main point....
It's true that China's government is not free. It's not a democracy, but I see hope where you see a fearsome enemy. I see China as moving towards freedom rather than away from it. It's government is still totalitarian, but it's economics are not. I don't think their current governmental structure and economic structure can co-exist forever. Either the Chinese government will have to change or the government will have to change the economy back to socialism. Since I don't think they can successfully change the economy back, I expect the government will change (and has been changing ever so slowly) in the direction of freedom and democracy.

Unless.... we push them. If we try to tell them how to run their country, it's likely to backfire. Nothing riles up a population quite like foreigners trying to tell them how to run their country. If we try to force them to democracy or try to force them to adopt an economic policy that they don't agree with, our attempts are likely to backfire. I think the best approach to China is to gently nudge them towards more freedom and openess and free trade and let nature take its course.

Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.

Greetings Brian. It was never my intent to construct a free-trade straw man. If I have done so then I appreciate the correction. Would you tell me how I have mischaracterized the free-trade position, so that I can avoid the error in the future?

Thanks.

"Many free traders adhere to the free trade gospel, not because it is true, but rather because it makes them feel smarter than you."

I also find your description of economic nationalism to be an appeal to racism which I've never seen as primary protectionist argument before.
"The intersection of race and immigration is one of the great issues of our time, for though Americans have welcomed immigrants of all races, at no time did white Americans consent to become a minority in their own land."

Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.

All right. I asked the question; you answered it. Fair enough.

I infer that you do not approve of the appeal of which you speak, so I will say this. If you think that my basically agreeing with Pat Buchanan and Steve Sailer (not to mention George Washington, Abraham Lincoln, Winston Churchill and Franklin Delano Roosevelt) puts me beyond the pale of civilized debate, then I wish that you would think again.

As for the characterization # 1, it does not describe all free traders but many. I stand behind it.

And no, I don't approve of the appeal to racism in your argument. There are some legitimate arguments that can be made in defense of protectionism*, this is not one of them. You're likely to drive away more people than you win and I don't think you'll like the crowd it does attract.

*I don't agree with most of them, but they are legitimate arguments. Protecting defense related industries is one of the better ones.

Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.

For my own part, I admit that I really didn't want to change the topic from trade to race. However, the topic is now changed and, since the words you quoted are indeed mine, I am hardly in a position to object.

In the census of 1960, the United States was 89 percent white, 10 percent black or mixed, and slightly less than 1 percent "other" (mostly American Indians, Polynesians and Asians). Did you know that? Today among U.S. children under the age of six, only about 60 percent are white, which means that even if all immigration (legal and illegal) ended tomorrow and white women started having sufficient numbers of kids again, the America of the future could be no more 60 percent white. And for white demographics, this is a best-case scenario. In fact by current trends a future America which is more than 40 percent white is hard to conceive; whereas one which is 20 percent white, or less, with a total population rivalling China's, is not hard to imagine at all. Just follow the demographic curve.

Why should pre-1965 Americans (white or black) be asked to celebrate such a demographic debacle? For fear of being labelled "racists?" That epithet actually meant something in the 1950s and 60s when applied to people who wanted to deny black Americans full participation in the society their own ancestors had helped to build. You don't have to hate non-European immigrants to see just how hard it is to assimilate them, and you don't have to be a white or black supremacist to believe that race has real consequences. Someday, some among us are going to have to show the fortitude to declare ourselves conscientious objectors against the draft into the Great American Demographic Insanity Project.

I will let you have the last word, and will do so with goodwill, for I believe that you mean well, and that your point of view does have a certain internal consistency to it (in fact I used to share it). Before you answer, though, I would ask you to consider this. Before 1965, southern California was a beautiful, peaceful, prosperous American paradise, settled mostly by Americans whose fathers had fought at Gettysburg and Normany, settled otherwise by European immigrants who looked like us, acted like us, and raised children indistinguishable from us. Some settlers were black---again, Americans. Forty short years later, southern California is an ethnic Brazil and almost a cultural Bosnia. Pre-1965 white Americans are fleeing the state in droves, fencing themselves off into gated communities, or otherwise doing whatever they can to insulate themselves and their families from the resultant cultural chaos. Are they racists? If not, then is not the question of sharply restricting the future numbers of U.S. immigrants not only a legitimate question but a vital one?

I know the arguments about Ellis Island, Irish cops in New York and Boston, Greek restauranteurs in Chicago and so on. It seems to me that we Americans are taking an awful risk by assuming that our past success in assimilating European ethnics must repeat itself with the non-white tribes of the world. We have not even nearly fully integrated our own blacks yet, most of whom have a deeper, more authentic American heritage than has the majority of white America, who share with white Americans a common history, language, religion and culture. The kind of multiracial immigration we have now has little history of happy outcomes elsewhere in the world. Wouldn't it be wise for us to stop importing the "united colors of Bennetton" for a generation or two, to see if our assimilation experiment can actually be made to work with the great masses of post-1965 immigrants who are already here?

Or better yet, DON'T forgive me since I'm not apologizing for disagreeing with you. I find nothing appealing in any of your arguments.

Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.

I'm not a follower of Buchanan, but I realize a lot of people are. He's significant enough that it's worth reading what he's promoting even if I don't agree with many of his stances.
I took a look at the "About us" section of Buchanan's site and I don't think he agrees with your appeal to racism. In fact one of his statements is:

"We believe that all forms of discrimination are wrong and oppose any policy that prejudices or prefers individuals or groups on the basis of race, sex, color, ethnicity, or national origin."

Sorry I've never heard of Steve Sailer so I could really care less about your appeal to his authority.

Washington, Lincoln, Churhill and FDR* lived in different times. Racism used to be an acceptable attitude. It's not anymore.

*Do you really think that using FDR as a reference will hold much weight here? This is the base of MANY people who would like to tear down the monstrosity that he started.

Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.

>>It's true that China's government is not free. It's not a democracy, but I see hope where you see a fearsome enemy. I see China as moving towards freedom rather than away from it. It's government is still totalitarian, but it's economics are not. I don't think their current governmental structure and economic structure can co-exist forever.

China is changing rapidly. Its best and brightest students study abroad. I know, I teach a lot of them. This is very far removed from the old 'deny the outside world' policy of the past - and not just the communist past, either.

One of the reasons communism fell in Eastern Europe is that governments lost control of the means of communication. People were able to watch TV broadcasts from the West, and could no longer be fooled into believing that Westerners lived under oppression and poverty. Despite very strict controls, photocopiers got cheaper, and Samizdat newspapers started to spread.

The internet puts these same trends onto steroids. It is more than steroids - it's like that Dr Seuss book in which the boy overfeeds the fish and it grows too big for a swimming pool.

China tries to control the internet - we all know of the Great Firewall - but they are holding back the tide with a small pieces of string and some bubblegum.

On China's most popular blog certain terms are banned. You can't post anything referring to the three Ts - Tianenman Square, Taiwan independence or Tibet independence. But computers are stupid. You tell them to ban certain characters, and that is exactly what they do. If you type the words with a minor spelling error, the machine lets it go through, and everyone knows what you mean.

In the 80s and 90s freedom swept across Eastern Europe and Latin America. The level of development at which freedom catches fire is now much, much, lower. China and the Arab world are going this way, whether they like it or not.

Quentin Langley
Editor of http://www.quentinlangley.net

I haven't visited China myself, but everyone I've talked with who has, gives an account similar to yours. That's why I'm hopeful that if we just stay out of the way and don't push (well gentle nudges might be OK), China will become a Democratic country.

(Also thanks for not pointing out my grammatical errors in the use of it's instead of its, it's one of my proof reading blind spots.)

Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.

that I have not visited China either.

My first hand experience comes from teaching Chinese students in Britain. The best and brightest Chinese students are studying all over the world.

Quentin Langley
Editor of http://www.quentinlangley.net

After boiling away all the hand-waving, I'm getting only two substantive points from your argument. The second one (that we should replace income taxes with an import tariff, essentially a consumption tax) is irrelevant so I'll ignore it.

Your other point is that America has an interest in domestically controlling certain strategic industries so they'll be available to us in time of war. I have many problems with this, but the primary one is that there aren't all that many strategic materials and products that are single-sourced from China. (Certain classes of computer hardware are perhaps the near-exception to this.)

The point that trade restraints reduce the level of economic activity on both sides of a border is so uncontroversial that even economists generally agree with it. You still haven't compellingly explained what it is we should get in return for sacrificing the economic activity.

Thank you for the follow-up, Blackhedd.

You feel that the economic nationalist is waving hands (or at least that I, as an instance of the economic nationalist, am waving hands). It is hard to know quite how to reply. Surely there is no shortage in the world of specious arguments not really worth responding to---nothing is more common than "hand-waving," after all---and if that is what you think that my argument is, then, well, how can I tell you to think otherwise? Your balance weighs me and finds me wanting.

It will not surprise you that I think you mistaken.

The point that trade restraints reduce the level of economic activity on both sides of a border is so uncontroversial that even economists generally agree with it.

This is not quite correct, though the Wall Street Journal's editorial page would have one think that it were. If readers would indulge a little technical jargon here, what economists agree is that the differential equation describing a Pareto exchange projects trade restraints to reduce the level of economic activity on both sides of a border. Most, but not all, professional economists believe that said differential equation more or less faithfully models the economy's relevant observables. Gomory and Baumol have other ideas, as do Paul Craig Roberts, Pat Buchanan, Lou Dobbs and Duncan Hunter (some though not all of whom are in fact professional economists).

Even if the Pareto equation did faithfully model reality (and I do not think that it does), the benefits of raising revenue by income tax rather than tariff are at most second-order benefits. Please, think about this. The United States is to sacrifice its economic independence, ignoring her own history, her own customary trade practices from George Washington through FDR, for a mere theoretical second-order benefit? Do you not think that extreme?

Well, no, surely you do not think it extreme, or you would not have written what you wrote. Actually, Blackhedd, from your earlier writings (which I have very much enjoyed reading) I deduce that a free-trade policy is consistent with your world view. I do not fully share the same world view. Hence do I suggest that a more moderate, traditional approach to international trade would be in order for our country once again to adopt.

Tariffs are not a "moderate approach", they are an act of aggression against the country to which you have applied tariffs.

I'll concede in advance that there is an exception. If you applied your tariffs in a VAT structure against ALL goods entering the country from ALL sources, it would be less likely to be seen as an aggressive act by our trading partners (though it may violate some of our treaties). I'm not advocating such tariffs as I think they'd be bad for us in the long run.

Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually
accompanied by widespread death and suffering).
Proud member of the V.R.W.C.

Lets examine the consequences of undertaking a strategy as such.

We could either apply an across the board tariff on Chinese goods. Our demand for the goods would not go away so the purchases would come from alternate sources that were less desirable before the tariff. If they are foreign sources our current accounts balance would be negatively affected. Given our employment situation is nearly maxed out here, increasing domestic production of such items would mean diverting resources from what were more profitable activities or importing more foreign labor.

I don't see how the above could be construed as beneficial to the nation.

I also have problems with ignoring the historical record on trade. Nations that are great traders are wealthy, increasing trade increases wealth by allowing greater specialization. If you take a look at our history the best you can say about tariffs is that result in economic pain.

The roman empire in the west collapsed as its ability to maintain trade and commerce collapsed. The eastern empire was able to maintain trade and commerce and thus survived for nearly an extra milenium.

Veritas magna est et praevalet.

that appealing to mathematical models of economic activity is a pretty good way to convince me that you're not serious about understanding the real world. The fact that professional economists take them seriously impresses me all the less.

The reason I used "hand-waving" to describe your writing is not a comment on your argumentation. It's rather a comment on your low signal-to-noise ratio. After reading your post twice, I came out with only one substantive point: you don't accept that trade restraints are costly.

You didn't clearly state whether you believe trade restraints are cost-free strictly in the sense of reduced economic output, or in some larger sense that also takes account of the "good" of "economic independence" and an appeal to our history before the 16th Amendment. From your references to Pareto efficiency, I now surmise you believe the former. In my previous post, I had assumed you believed the latter and challenged you to precisely identify the value we receive in return for trade restraints. I'm a businessman and an investor: I make resource-allocation decisions by looking for the highest risk-adjusted rate of return. I'm open to being convinced here.

Instead, you begged the question by appealing to a point which I haven't granted, viz. that the benefits you claim for trade restraints are indeed real and compelling.

At the end of all this, I'm just asking you to state your case clearly and in a straight line.

you begged the question by appealing to a point which I haven't granted, viz. that the benefits you claim for trade restraints are indeed real and compelling.

But you and Pejman are maing the argument that the Chinese policy of artifically pegging their currency at a certain level is a benefit. At lest that is what I take from comments such as this;

My theory is that China saw what happened to the Japanese in 1985-87 when, as part of the Plaza Accord, they let the yen approximately double in value against the dollar. made by you.

Or this;

So why, in the face of all of these policy concerns regarding yuan appreciation, is the Treasury Secretary so bound and determined to get the Chinese to allow their currency to be more inflated in value? by Pejman.

When a country artifically sets it's currency at a particular level versus that of one of its main trading parteners then it is engaging in "trade restraint", or government driven trade manipulation. Do you agree?

And once you make the argument that this sort of trade manipulation is a good thing, which both you and Pejamn seem to be making here, I don't see how you can claim to be in favor of free trade. You are no different from the economic nationalists in your basic assumptions, you only differ in what particular government intervention you think is best.

Don't forget that in this subthread, the point was made that America has something to gain by erecting tariff barriers to Chinese imports. The conventional argument for this runs something like: it's a bad idea for us to give up XXX in return for a lot of cheap Chinese crap that we can make just as easily here. In this case, XXX is something called "economic independence," which has yet to be precisely described.

That's evidently not your argument, Jon. To your points: I can only speak for myself and not for Pej or for Hank Paulson. I'm making observations about the behavior of the Chinese in tying their currency closely to ours. Does this constitute a restraint of trade? Darned if I know. Is it a good thing? Even more darned if I know. I've been trying to figure out for years why they do it. My point about Japan is a theory under which the behavior of China is at least rational.

I have to say that there are a lot of missing pieces in the debate. The biggest one is: why is it economically rational for Americans to trade money for goods (incurring a notional "trade deficit") rather than the more traditional goods for goods? And it is rational because we're all doing it. As I said above, I think China's currency peg has the effect of tying our monetary and fiscal policies tightly to theirs. It may be more fruitful to examine the two economies as an aggregate. This is a story that hasn't really been told yet.

To your question about Hank Paulson: I always like to examine the career background of Treasury Secretaries as a way to predict how they will behave. Bob Rubin was a bond trader. He knew enough about how important it is to keep credit markets stable (even though they generate no headlines) that he wasn't about to let Bill Clinton do the economy-wrecking things he would have loved to do.

But Paulson is an investment banker, not a trader. He likes to make deals. He wants to cool down the political pressure for trade barriers against China because he knows they will throw a wet blanket all over Goldman Sachs' deal flow from East Asia. He also understands that the pressure for trade barriers arises from political alarm over "trade deficits" and not from economic reality.

The argument is over whether free trade is a good thing or not.

If not, then accusations of "protectionism" are meaningless.

If free trade is a good thing then I'd like to hear somebody explain why China fixing its currency at a point it would not occupy in a free market is a good thing, from a free trade standpoint.

What I'm hearing here, and have heard before, is that America stands to gain from what China is doing. If that is true then its an admission that free trade is not the ideal system after all.* The logic is that, if China announced today that they will henceforth allow their currency to float, we should then announce that we are fixing the yuan/dollar exchange rate ourselves. And we may as well do the same for the euro/pound/yen. At least, working from the premises on display here, I see no reason why we should not do such a thing. If a particular exchange rate is a good thing, and its acceptable for a government to fix it, then who cares which government fixes it?

*(I suppose someone might try to argue that currency trading and currency exchange rates are seperate from the operation of free trade and free markets. I don't see how anyone can say that with a straight face, but its the only possible way out of the logical inconsistency I see here.)

...are pegging their currency to ours. I can tell you that I'd strongly prefer to see their currency float freely. However, if I were in their shoes, seeing what they see, fearing what they fear, I can't tell you whether I would be playing this the same way they are.

I'm very confident that the Chinese recognize both their growing power in the world and the near-symbiotic relationship between their economy and ours. Observing their actions, I'm inclined to believe that their top priority is to ensure the long-term stability of the relationship. We have the ability to create tremendous economic (and candidly, military) pain for them. In their shoes, I would be acting to reduce their exposure to these risks without overreacting and causing antagonism.

Typically, you peg your currency to a reference like the dollar in order to minimize your exposure to internal pressures that you're not confident you can face any other way. Argentina did it for a long time because in your typical Latin American government, there is often huge populist pressure to inflate the currency. I think the same thing is happening in China. In fact, I know so because of all the state-owned enterprises that aren't covering their debt service. The Chinese may know what they don't know about running a modern financial system, and the currency peg is a great way to impose discipline from the top down. In addition, I'm still convinced that they intend not to repeat the horrible mistakes that the Japanese (who are no fools) made in revaluing the yen in the mid-Eighties.

The question of free trade as it relates to China in the context of a discussion among Americans comes down practically to this: what should we do differently, if anything? Not what should they be doing differently. There seems to be a perception that the Chinese are fighting against us (through the currency peg) but we're not fighting back (through import barriers).

Now import barriers against China will displace a certain amount of economic activity here by raising prices for imported goods. (And of course we'll hurt the Chinese in so doing.) Can you or anyone else tell me in measurable terms exactly what we expect to gain by this? And don't tell me it's higher employment here, because last time I checked employment is pretty full here. If you're going to say we need to put all of our unskilled people to work making the stuff that China sells us now, then I'd say that first you need to relax all the environmental and labor regulations that make manufacturing so much harder to do in the US.

You are presenting the pragmatic argument that the Chinese are introducing a market distortion through their actions, but that this distortion is in everyones best interests. I'm willing to take that proposition as true, at least for the duration of this thread.

I'm just pointing out that the notion of a market distortion which is in the best interests of everyone is a repudiation of free market theory. Once we accept that this one is good, why not look around for further desirable distortions which we can implement? Fixing an exchange rate is the ultimate tariff, one which affects all goods, not just some targeted ones. Don't kid yourself that you are not endorsing a tariff here. You're simply saying that in this case, it's a good tariff.

In addition, I'm still convinced that they intend not to repeat the horrible mistakes that the Japanese (who are no fools) made in revaluing the yen in the mid-Eighties.

In your opinion, should major economic powers be in the business of trying to set the value of their own currency relative to others, or should they allow them to float?

I'm not presenting any kind of argument at all in respect to China's currency peg. I'm merely presenting observations, and trying to understand the behavior of a trade counterparty that mixes the characteristics of partner and adversary.

I'm not an economic theorist. I'm a businessman. What concerns me are the potential action items we can take away from this. If there is such a thing as "free market theory," I'm not an expert in it, and I think I've already expressed enough disdain for economic theory to make you hesitant to bring it up with me. (By that I mean, don't expect to get anything more from me in regard to theory than "that's nice.")

Free markets are a good thing for the simple and axiomatic reason that they tend to generate outcomes that reflect the total information available in the system. I'm not trying to play a Pareto game here. I think the situation with China more closely resembles chess than economic theory, and that's how I approach it.

With China we have a situation in which our counterparty has fixed his unit of account, for reasons best known to him. You can apply all the theoretical language you want, call it a "restraint of trade," and proceed to espouse corresponding restraints of trade on our side. (You haven't connected all these dots, but others on this thread have.) My question is simply and precisely: what do you hope to gain by imposing trade restraints of our own? It's a practical question, not a theoretical one.

Straight line? Okay. The premise is that, though there is no such thing as absolute economic independence, relative economic independence---that is, variegated, robust, nationally comprehensive domestic production capacity owned and operated by Americans in the United States---is inherently a desirable end, insofar as it can be achieved at reasonable cost. (We are always going to import black pepper, but for us to remain incapable of manufacturing, for example, the flat-panel display on which you may be reading these words is unfortunate and perhaps unnecessary.) If the premise is granted, then the argument follows straightaway. If the premise is denied, of course, then the argument is impossible.

The simplest, fairest way to determine which production can be repatriated at reasonable cost is to restore a moderate, across-the-board tariff, and then to let the domestic market sort it out. The historical average from George Washington through FDR was about 25 percent, so that might be as good a level to try as any, offset by a corresponding decrease in the federal income tax.

I can make the argument no straighter than that.

Can the US Federal government fund all of its activities from import tariffs, as it did throughout the 19th century (except during the Civil War)? Perhaps it can, but I'm unwilling to try it unless we first repeal the 16th Amendment. Under no circumstances would I countenance giving a new revenue stream to the Federal power. Now the problem is that you'll have to convince the Left to give up the income tax, which is the most powerful tool for achieving their ends, which are to implement social policies of various kinds rather than to fund the government. That'll be a bloody fight. Let me know how it turns out.

In regard to domestic ownership of "production capacity": again, you're begging the question. I don't accept that this is "inherently a desirable end," or even necessarily a possible one. Intending no disrespect, I think perhaps you've lost sight of the genie which has left the bottle: capital is now fully globalized, and no longer subject to the control of national governments. The fact that there is a national border between the US and China is no longer a fundamental characteristic of the trade relationship, but rather functions as an irritant. Additionally, manufacturing per se is perhaps not the activity we should be seeking to protect. That's an intuition generated by the observation that the other guy is a lot better at it in some key respects than we are. As a practical businessman, that tells me to look for my comparative advantage somewhere else.

You may think I'm nuts. (If you do, you're in distinguished company.) For my part, I think the world of global commerce is fundamentally different than it was just 15 years ago and we'd do well to figure out how it works now rather than how it used to work.

"The appropriate American remedy to an unsatisfactory trade relationship with the Chinese (I know that this drives Pejman up the proverbial wall, sorry) is the traditional American remedy: a tariff.

Can we even do this anymore? I was under the impression that we are under treaty obligations with pretty much every important trade partner that makes imposing greater tariffs in order to protect our industry nearly impossible. An case in point was Bush's effort to impose tariffs on steel a few years ago.

Given the restrictions on tariffs, the modern way to fight a trade war is with currency manipulation. If you want to export more and import less, you devalue your currency.

In my opinion, either kind of trade war is a bad idea, but if you are going to propose one, you ought to propose one that we have the legal power to implement.

Can we even do this anymore? I was under the impression that we are under treaty obligations with pretty much every important trade partner that makes imposing greater tariffs in order to protect our industry nearly impossible.

Good question. We could withdraw from the treaty, which one wishes the U.S. had never joined, but I am not now doctrinaire on the point. It is one thing never to sign a treaty; it is another to withdraw once one has signed it. (The wise miner, once within the mine, thinks twice before lighting fire to a roof support.) If ways exist to reach more or less the same end a moderate tariff reaches, without abrogating the treaty, then I at least am willing to consider them. In any case there is no immediate emergency: we can take our time and back out gracefully.

A straight tariff has the substantial extra benefit that it brings money directly into the treasury, allowing an offsetting decrease in the income tax. Some alternatives seem to lack this benefit; but, again, I am not doctrinaire in the matter.

Also, there is this: my memory might be false, but I seem to remember that the United States never actually ratified the WTO treaty by a proper two-thirds majority of the Senate, but rather acceeded to it statutorially. If this is the case, then Constitutionally we have zero international obligation and can pull out any time we want (although the miner's principle clearly still applies, and in any case we should behave decently and if we withdraw, withdraw gracefully).

Large amounts of economic stupidity could be avoided if more people would focus on the stuff changing hands, and not on the money. Most of the really atrocious nonsense we read on these subjects is as you say: it treats "money" as the item of value, and the good or service as if it were a worthless afterthought. Every time a public official goes down that path, something dumb happens.

Drink Good Coffee. You can sleep when you're dead.

Add to this the fact that the so-called deficit is not actually measured by anyone anyway, and it becomes obvious that trying to analyse it is just stupid.

Governments measure imports very carefully, as nearly all governments tax them. Governments barely measure exports at all, often coming up with an estimate based on weight. So a ton of scrap metal is worth the same as a ton of software or consultancy.

This leads to the suspicion that the figures are likely to be bogus, but we also know for a FACT that the figures are bogus. The entire planet has a major trade deficit every year. The planet is importing more than it exports. Unless someone is accounting for solar power, that is plainly impossible, so the figures MUST be wrong.

Quentin Langley
Editor of http://www.quentinlangley.net

They have the worst quality of any world-class automaker, by far, and that's been true for quite a few years now. The rest of your argument is mostly incomprehensible to me.

The undervalued yuan is encouraging transnational business by giving Americans incentives to buy Chinese goods. How that constitutes "against free trade" is beyond me. If you check the links, you will find that ardent pro-free trade libertarian economists are in favor of keeping the yuan where it is.

"At times one remains faithful to a cause only because its opponents do not cease to be insipid." --Friedrich Nietzsche

If you check the links, you will find that ardent pro-free trade libertarian economists are in favor of keeping the yuan where it is.

They may describe themselves as "ardent pro-free trade libertarian economists", but if they favor the government fixing the exchange rate they are simply run-of-the-mill statists. "[K]eeping the yuan where it is", or keeping the dollar at a particular level for that matter (which would have the same result), is not free trade. Governments should not be involved in setting prices. That was once a staple of free market capitalism. It's remarkable that so many self styled free market types are trying to defend the practice.

The undervalued yuan is encouraging transnational business by giving Americans incentives to buy Chinese goods.

That encourages a certain kind of trade, in a certain direction. In order for it to be "free trade" the Chinese government cannot be fixing the exchange rate. Unless you have a rather peculiar definition of free trade.

Suppose the American government, rather than the Chinese, announced that it was fixing the exchange rate of the dollar to other currencies at a level it deemed most favorable to America. Would you support such a move? Would you consider that to be free trade? Because that is what you are defending here, with the meaningless distinction that the fixing is being done by China rather than by us.

I don't favor the government fixing the exchange rate. I favor the government doing nothing as the yuan remains undervalued. The government is now pressuring the Chinese to revalue the yuan, which is much less free market than doing nothing in the face of a low yuan. I don't support the United States government fixing the dollar and in principle, I don't support the Chinese fixing the yuan. But whether the yuan is low or high, in the near term, at least, the Chinese are going to fix their currency. All I am saying is that while the yuan remains low, let's not pressure the Chinese to fix is so that it is revalued at a higher rate. This does not, in any way, connote supporting the fixing of exchange rates by government.

And descriptions of Larry Lindsey, Don Boudreaux and Tyler Cowen as "statists" is about as accurate as descriptions of me as "tall."

"At times one remains faithful to a cause only because its opponents do not cease to be insipid." --Friedrich Nietzsche

this is not accurate.

Currency is a product which is traded, and traded freely. Few major countries these days impose restrictions on the quantity that individuals may trade or possess.

But currency is also a monopoly product. Governments issue currencies, thus governments are, of necessity, players in the currency market. If you are the monopoly issuer of a product - be it dollars or MS Windows - you can price it in one of two ways. You can either set the price and allow the market to set the quantity required for that to be the market clearing price. IE, you keep issuing Yuan until the market is in balance, given your predetermined price. Or you can choose the number you intend to issue and allow the market to determine the price at which they will change hands. Both of these are free market solutions to the pricing problem.

What you cannot do, consistent with free-market pricing, and cannot do at all in a world in which currencies trade internationally, is control BOTH the price and the supply. One needs to be set to the other.

I happen to agree with you that the better way is to control the money supply and allow the market to find the price - exchange rate. But neither strategy is any more or less 'free market' than the other.

Quentin Langley
Editor of http://www.quentinlangley.net