[email protected] wrote:
> 1. With the break down in trade barriers we now have the situation
> where local producers have to conform to our laws regarding pay,
> working conditions, use of pesticides etc while competitors in
> other countries are not subject to these rules. This is referred to
> as a "level playing field". Presumably we could fix this problem by
> reducing government interference (ie no minimum pay, no minimum
> working conditions, no restrictions on chemicals)
How would you have it?
The subject of tarrifs etc is another perpetual "debate" which
economists figured out long ago, but every generation screws up anew.
The Chinese (for example) are producing stuff for less than we can
produce it for. If we try to "protect" Australian industry then there
is some benefit to the local producer, but everyone else is worse off.
Lets just say that a Chinese shirt costs $10, but a shirt of the same
quality made in Australia costs $20. We add a $10 tarrif to all
Chinese shirts to protect Australian shirt makers.
We have protected an Australian job in the shirtmaking industry, but at
the same time all Australians are forced to pay $10 more for a shirt
than they otherwise would have.
Bad economics is characterised by an inability to see past immediate
consequences. Good economists look not only at the immediate effect,
but try to think of what follows on.
Lets just say that a $10 tarrif does indeed protect the Australian
shirtmaking industry (what is it with me and shirts? Dunno, they
provide good material for economics!). Lets just say that by adding
$10 to the price of Chinese shirts, we are able to either create a
shirtmaking industry in Australia, or keep one that would otherwise
have failed.
Consumers will be unable to afford as many shirts as they otherwise
would have. They spend $20 on one shirst instead of two, or they buy
one shirt but are unable to afford to go to a movie. In either case,
consumers are worse off because their affluence (ability to buy stuff)
is less. They are worse off by one shirt, or one movie ticket.
But it has further effects which are more insidious. By propping up an
unviable industry where Australia does not have a competitive
advantage, productive resources are diverted away from other more
profitable industries. The employees working at making overpriced
shirts are pulled away from other jobs where they could be making
something which Australia is genuinely better at making than China.
Also, Australian capital is invested in a way which results in less
production than would be the case if the same capital had been invested
in something which we could compete in. Capital isn't merely money,
its also land, materials, broadly you could talk of the labour of those
who built and equipped the shirt making factory. All of this
productive capacity could have been used to build something else,
something hopefully more competitive than shirts.
And so barriers to trade not only reduce affluence by reducing the
amount of stuff we can buy, they also misdirect productive resources.
Financial capital, land, labour, materials, are all utilised less
efficiently by making uncompetitive shirts than if free market
conditions were allowed to apply and a more profitable industry allowed
to be created in its place.
But wait... there is more! When the Chinese sell things to Australia,
they receive Australian dollars. Since these are useless to them,
their only option is to sell these Australian dollars to convert into
RMB. The person buying the Australian dollars needs them because they
want to buy Australian goods and services, or to invest in Australian
capital markets. A dollar of imports is an enabler actually for
exports, or for investment in Australia. This investment reduces our
cost of capital and can be used to increase our productive capacity.
People who are concerned about protecting jobs also tend to be those
with a "social conscience" who care for the plight of the third world
poor.
You can throw money at them with charity if you like, but what people
really need is a job. Without capital, financial or intellectual, all
a person can offer the market is their labour. Obviously a factory
isn't going to be built in some far flung corner of the world unless
there is a significant advantage to the factory owner in setting up
there, and this advantage is usually low labour costs.
By exploiting this low cost of labour, factory owners are able to
reduce their cost of production, enabling more items to be produced for
the same cost. In return, the third world destitute become third world
employed consumers, able to buy more things for themselves, including
some of the things that we produce. As other factories move in to
exploit this cheap labour, unemployment is reduced in the area and
wages start to increase. Wages will keep increasing until it no longer
makes sense to build factories in that part of the world, so companies
start building factories in even poorer parts of the world in order to
get their costs down again.
But they don't tear down the old factories, they keep running. And
because the previously poor country now has a measure of affluence,
they continue to add value to their products and increase their own
productivity. They begin to install machines where once it was cheaper
for all labour to be done manually. Their productivity continues to
increase and so do living standards.
So its not charity the third world needs, its exploitation by
capitalists! Exploitation means jobs, investment, and ultimately
prosperity.
>
> 2. Some of the richest companies and individuals don't produce any
> goods at all. The Packers and Murdochs, advertising companies,
> banks. They are selling services which vanish as they are
> provided. Banks don't produce anything - they are just middle
> men, taking a cut on the money as it goes past. I am not saying
> that this is a bad thing, but it ain't making shirts.
They are providing valuable services. In the case of banks for
instance they provide finance for investing in businesses and buying
goods. Successful entrepreneurs can concentrate on running their
factories rather than having to privately find lenders, or invest their
surplus capital privately. Banks are able to offer greater
specialisation of labour (one of the major features of efficient
economies) by freeing the rest of us from the task of financing each
other.
If you do not believe that strong and profitable banks are a good
thing, check out economic growth in many countries where banks are not
strong and profitable. Cost of capital, i.e. interest rates on loans,
are typically much higher and the amoutn of capital to be obtained is
simply much less.
Financing businesses (the prime role of a bank, though most people
think of banks merely as cashboxes for holding your savings) is one of
the core elements of capitalism. Without financial institutions, its
often simply impossible for entrepreneurs to get into business.
>
> > Who can deny that the quality of life today is better than it was 100
> > years ago?
>
> The nutritional value of fruit and veg has deteriorated. Employment
> levels have deteriorated. Cancer rates are higher. Stress levels are
> higher.
Its debateable that the nutritional value of fruit and veg has
deteriorated. 100 years ago the average working class person had
probably never seen most of the fruits and veg that we eat today, let
alone eaten prime quality produce. People ate much less meat (though
from a health point of view that is a contentious one) and certainly
couldn't afford "luxury" items like icecream and orange juice.
I have absolutely no idea what your claim about employment levels
means. That we are working more hours perhaps? Or that we're working
less? The quality of our work has certainly improved, there is much
less emphasis on back breaking labour these days, and in fact
backbreaking labour (as performed by miners and the like) actually pays
very well at the moment.
Cancer rates are higher because we're living longer. Its a disease of
the aged. however we're surviving cancer a lot better than previously.
We're living longer because we're not dying of cholera at a young age.
Not everyone's stress levels are higher. Its an individual thing. I
would imagine packing ten people into a single room worker's hut and
wondering how you're going to feed everybody would be quite stressful,
but I think they were just too preoccupied with trying to survive to
gripe too much about being stressed.
> People live longer, but not all trends are upwards. I prefer to live in
> this century, but then I am one of the winners in this environment.
Even the losers today are better off. Give me a minimum wage job at a
supermarket any day over the life of a subsistence peasant.
>
> > Ordinary working class people today can afford clothes, food and
> > housing that a few hundred years ago would have been only available to
> > great noblemen.
>
> 100 years ago ordinary people owned their own homes. In 1929, 2% of
> homes in the US had mortgages. 60 years later 2% of homes did NOT
> have a mortgage. I am sure the trend is similar here.
No, 100 years ago a lot more people rented actually, and they didn't
have mortgages because they didn't have the means to pay for them, and
cost of capital through the weak banks of the day was much higher.
> > If productivity continues to grow at such a rate, ordinary people in a
> > few hundred years will, on average, enjoy a lifestyle that only the
> > wealthy enjoy today.
>
> They may have such a lifestyle. Whether they enjoy it remains to
> be seen 
Oh I'm sure they'll be *****ing about how the cost of dilithium
crystals has skyrocketed again and they can't afford weekenders on the
moon any more.
One of the most interesting cultural phenomenon of today is how poor
and hard done by people think they are because they can't afford a
European holiday so they have to go to Bali instead, and they're having
trouble paying the fuel bills for their 3 tonne Urban Assault Vehicle.
Its not a new phenomenon though, people just think it is:
"I have never seen any rich people. Very often I have thought that I
had found them. But it turned out that it was not so. They were not
rich at all. They were quite poor. They were hard up. They were
pushed for money. They didn't know where to turn for ten thousand
dollars." - Stephen Leacock, Further Foolishness (1917), 'Are the Rich
Happy?'
"Poor Harold, he can live on his income all right, but he no longer can
live on the income from his income." - George S. Kaufman of Harold
Vanderbilt; Howard Teichman, George S Kaufman (1973).
Travis
