Category Archives: Economic theory and policy

It’s a new economic world coming

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From Drudge:

 

You don’t get all that much credit for an economic upturn since life is never perfect even if everyone has a job, specially if everyone has to work to earn a living. But it will create wealth since the tax cuts are also coming with spending restraint (of a kind) and the removal of regulations at a rate of 22 gone for every new one introduced.

I know there are #NeverTrumpers out there but what exactly they could have expected to have occurred instead that was better remains a mystery. And speaking of which, here is a rhetorical question that needs no answer: Why Does the Media Not Report That ISIS Was Defeated in Iraq and Its Capital City of Raqqa in Syria Has Been Captured by US-Allied Troops? As he says, I would imagine for much the same reason the media is silent on the economy.

Two letters on Say’s Law

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Once someone gets Say’s Law, the reality of what is going on in an economy becomes so obvious that it is impossible to go back to the pallid and utterly inadquate nonsense that passes for modern theory. The following is a letter I received the other day from someone I have been corresponding with for a while, and after that is my reply to him.

Hope you are well. Yes I read (and watched) all you have given me. [I even read (and bought) your conversation with Gregoire Canlorbe ‘Say’s Law, between Classical, Keynesian and Austrian Interpretations (2016)’ (from De Gruyter)].

I read your ‘200 years of Say’s Law (2003)’. Another thought provoking gem.

Back in the early 2000s I undertook 3 and a half years of bible college. I learnt the importance of hermeneutics and exegesis. Today, I am not surprised Economics scholars also struggle with proper interpretation of another author and can fall into eisegesis. The four scholars, arguing against Say’s Law, could only attack the many straw men (eg. ‘supply creates its own demand’, or Say’s economy is barter-only economy, or Say’s Equality, or change Savings’ definition) and reduce its meaning, or, read something of Say’s Law which wasn’t really there and added their own meaning (eisegesis). Misinterpreting is common, unfortunately, across disciplines as you well know. Let me illustrate my two theological favourites, however. If you can you find anywhere in the bible where it says “Money is the root of all evil” or “The truth will set you free” I will happily give you/anyone $15,000 cash and clean one’s house for a year! The point is: if we omit the few words before these popular phrases then the originator’s point is changed and COMPLETELY lost. Sound familiar?

In the tradition of Hayek’s name calling of some scholars to be ‘quasi-scientific’ (p 20) I thought I could respectively/humbly/comically generally refer to those ‘against’ Say’s Law as:

1. ‘One-side of the ledger Economists’: Aggregate Demand (and full employment) is their God, and ignoring the complexity of the supply side is welcome by their herd. Not sure why some Economists think they can ignore one side of a transaction when professional Accountants get fired for it.
2. ‘Unsustainable-loving Economists’: They are at peace to see government spending on unproductive consumption even if it alters the dynamics of the economy and reduces its viability to stand on its own feet.
3. ‘Second-rate Economists’: It is written “All things are [permissible], but not all things are beneficial” Amplified version. Maybe most complacently see policies in action and gravitate to think that must be the best option. Just because a policy is enacted doesn’t mean it is the most beneficial. Most don’t stand for a strong economic view- so they fall for any.
4. ‘Ignore the opportunity-cost-type of Economists’
5. ‘Short term-ism Economists’
6. ‘I missed school that day they taught ‘the cause-and-effect principle’ Economists’ (or ‘Symptom-is-a-cause Economists’)
7. ‘Blinker Economists’: They focus on only that scope of economic activity which supports their limited explanation.
8. ‘Soft-love loving Economists’… as opposed to hard-love=real love (but you get the idea).

I asked my successful business owner brother-in-law how much he has in idle cash (hoard). He answered it was a lot less than 1% because “you try to put all your money to the best use in every way”. I’m sure if I asked my trader friends what makes them buy and sell a specific trade I am sure they would respond “there is always a reason” rather than Littleboy’s reference of Keynes’ “…people, typically investors, spontaneously change their mind…” (p 160). Ask any banker what they do with savings deposits and they definitely do not lay waste any dime above the ratio reserve law. And I remember asking a wealthy person once as to what keeps him going? The context was why he wants to keep making more and more money. I will never forget his response. “Choices! I can choose to work when I want, or not work when I want” was his reply. Not sure why Keen says capitalists build up money for the sake of it. There is always a reason and it eventually comes back to enriching their lifestyle in some way – whether buying larger home, braces on kids’ teeth, buy another business, securing their wealth/freedom more concretely etc. Lifestyle is the end- not money. Finally, I have been working in the financial sector for the last 4 years. Not sure why this sector is the leakage from the expenditure/circular flow model. We are all charging fees and employed and spending our incomes… maybe we can add ‘Different planet Economists’ to the above list.

Recently I threw a simple question at my demand-worshipping colleagues: “Name one thing you can spend money on that hasn’t been produced?”. They could only resort to the usual retorts: “you have weird economic ideas” preceded by “spending will always be the driver of the economy”.

I am now off to read your 3rd edition Free Market Economics. I only read about half of the 2nd edition nearly a year ago preparing for my anti-Keynesian essay. I have read a quarter of Smith’s Wealth of Nations, but, you are right, these can be difficult to read- I need a break.

All the best Steve and thanks for a wonderful discourse. I am still totally addicted to this issue. Chat soon.

Regards

This was my reply.

That is the most original and possibly insightful non-strictly-economic explanation of Say’s Law I have ever come across. Looking at Say’s Law within the framework of the theory of knowledge is something I do not think I have come across before and may never have been previously done. Also not having come across eisegesis before (and neither has my spell check apparently) I can only emphasise that it is a very useful conceptual distinction that really does help get to the heart of the issue. I, of course, share your frustrations in trying to make others even become aware of the problem. When you ask them to name a product they have bought that had not already been produced (which naturally implies a very lengthy structure of production that must go back a considerable distance in both time and space) the only reaction you are likely to get is that even if they don’t know the answer themselves, someone else does because how could it be possible that you have asked something so penetrating that the entire company of modern economists have no answer for. But they don’t have an answer other than to say that buying something will mean that a replacement item will have to be produced to put on the shelf so it will encourage more production. Except that this new order, if there is a new order, can only be filled if the producer had already made the decision to produce this additional replacement item long before you bought what you bought. But for them to go there would mean they had already seen the problem and understood that it is not demand that causes the supply, but that supply is created in anticipation of some future demand. So you will just have to keep teasing them just for your own satisfaction but do not be surprised if the scales fail to fall from their eyes anytime soon (I hope I have not mis-used the metaphor).

I also found your classification system astonishing and accurate. It is also funny but finding it so on the money, its ironical intent seems more serious than anything. The list truly does begin with the implied words, “Look stupid . . .” but where you go from there I do not know. Well actually, where you go is you write this up in some more polished form and try to get it published. There is no Journal of Irony and Economics but I would not want you to mess with the vision you have shown here or try to diminish your satirical intent. You should just expand what you have written and see what follows.

Anyway, we can discuss when you come to visit which you MUST do if you have the time. I will also pass on a copy of my Economics for Infants discussed here on my blog:

http://catallaxyfiles.com/2017/12/02/the-book-no-child-should-be-without/

As I mention, it is the only children’s book that incorporates Say’s Law, which is indeed an actual feature of the text and the fantastic picture that comes with it.

I do look forward to catching up, but as a kind of cautionary note before we meet I will just say that we had a School retreat the other day where at the dinner we were asked to come as our favourite literary character and I came as the much maligned and mis-understood Edward Casaubon.

With kindest best wishes

Less tax revenue in the hands of government; more money in the hands of business

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If you have been in doubt whether PDT is a political genius, doubt no more: Sweeping tax reform PASSES the Senate: GOP scores major victory in 11th-hour vote for $1.5 TRILLION bill after Democrats said they had no time to read the 500-page, ‘scribbled’ small print.

Here’s the big print version: less tax revenue in the hands of government; more money remaining in the hands of business with which to invest and employ. The rest is detail. Here are the subheads on the article:

  • The Senate approved a sweeping tax overhaul in the early hours of Saturday
  • Vote passed by 51-49 as Democrats voted in bloc and one Republican opposed
  • Vice President Mike Pence announced passage at 1.51am to a round of applause
  • Final alterations to the bill were still being made late in the evening on Friday 
  • Democrats claimed they didn’t have time to read bill and tried to adjourn vote
  • Victory moves Donald Trump one step closer to slashing taxes for businesses
  • Democrats say tax overhaul will add $1.5 trillion to national debt over 10 years
  • Republicans insisted changes will be revenue-neutral as tax cuts spur growth

To listen to Democrats complain about the addition to national debt is particularly irritating since that has perennially been the last thing on their minds when adding to America’s massive debt. So let me just say for the record why this will lead to a massive improvement in the American economy.

  • There will be less public spending which invariably slows growth.
  • There will be more spending by private sector firms which adds to growth.
  • Public revenues will rise, all other things being equal, as tax rates fall.
  • Whether Congress will then use the additional revenue to increase spending or to lower taxes is the question, with the likelihood (alas) towards more spending, but at least further spending cuts will become possible.

Meanwhile PDT has his first major legislative win with others sure to follow, once Roy Moore is elected and the Republicans begin to think about the rage within their own constituencies if the Republicans fail to deliver what they had been promised.

The book no child should be without

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If you are looking for Christmas ideas, you might consider Economics for Infants, the only book of its kind.

A perfect book to read to your children and grandchildren! How do you explain the complexities of the economic order to a child? This retro-inspired illustrated book attempts this task in storybook form. A basic primer on economics for the youngest of readers.

For myself, what I like best about the book are its pictures which illustrate the points with an astonishing clarity. There is no children’s book anywhere, past or present, that has illustrated Say’s Law so incredibly well along with so much more. In a recent pee’er reviewed study, 97% chose Economics for Infants as their favourite book (astonishingly, the same as the proportion of climate scientists who believe global warming is caused by humans!). The above photo was taken during that study and is conclusive proof that if your child is to succeed in getting into the best kindergartens and play groups, this is the book you will need to ensure they have read and its contents absorbed. You can see how the other books were ignored while Economics for Infants held the attention of this particularly bright child not entirely chosen at random.

And let me also say this. There may be parents of young children whom you may feel need a refresher course in the economics of the market. Give a copy to their children and contemplate the pleasure it will give in reading about how the capitalist system works for the betterment of all, that is, the pleasure it will give you contemplating their parents vetting the book while deciding whether to pass it along.

Here’s where you may order the book and have it still arrive in time for Christmas.

Jordan Peterson discusses Marx

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Every so often someone is able to slip the bounds of political correctness and he is one and is near unique since he can say all of what he says and not be pulled to the ground.

A Pareto pattern – a small proportion of people end up with the bulk of the goods. But it’s not the same people, just the same one percent proportion but with different groups at the top.

Macro Follies returns

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The only movie that has ever been made from a book I wrote. The movie was put together by that genius, John Papola, producer of the greatest economic video ever, The Keynes-Hayek Rap. And as noted in the credits for Macro Follies, there I am found in truly stellar company:

Special Thanks to Russ Roberts, Steven Kates, Larry White, Steve Horwitz, James Adams and Steve Fritzinger

As for the book, if you are looking for a Christmas present, let me recommend my Free Market Economics which is the book from which the movie was made. It is the only economics book written in approximately the last 150 years that is built on classical economic principles. As it says at the Book Depository website

“In this thoroughly updated third edition of Free Market Economics, Steven Kates assesses economic principles based on classical economic theory. Rejecting mainstream Keynesian and neoclassical approaches even though they are thoroughly covered in the text, Kates instead looks at economics from the perspective of an entrepreneur making decisions in a world where the future is unknown, innovation is a continuous process and the future is being created before it can be understood. Key Features include: * analysis derived from the theories of pre-Keynesian classical economists, as this is the only source available today that explains the classical pre-Keynesian theory of the business cycle * a focus on the entrepreneur as the driving force in economic activity rather than on anonymous `forces’ as found in most economic theory today * introduces a powerful though simplified model to explain the difference between modern theory of recession and classical theory of the business cycle * great emphasis is placed on the consequences of decision making under uncertainty * offers an introductory understanding, accessible to the non-specialist reader. The aim of this book is to redirect the attention of economists and policy makers towards the economic theories that prevailed in earlier times. Their problems were little different from ours but their way of understanding the operation of an economy and dealing with those problems was completely different. Free Market Economics, Third Edition will help students and general readers understand classical economic theory, written by someone who believes that this now-discarded approach to economic thought was superior to what is found in most of our textbooks today.”

You can order a copy here. For anyone who wants to get a sense of how an economy works, and also why government intervention beyond a minimum creates harm, this is the place to go. Of course, you might instead decide to save your money and have an even better Christmas next year, but you might also instead just think of it as helping to build your own human capital, as well as helping you to contain your rage watching Malcolm and Co butcher economic policy before Bill and Co are allowed to take over who will do even worse.

Even the NeverTrumpers are coming around

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It’s from Instapundit

IN NATIONAL REVIEW, OF ALL PLACES: This Thanksgiving, Thank Donald Trump:

This Thanksgiving, Americans in general — and free-market conservatives in particular — have plenty for which to be grateful. And much of it would be absent had the White House’s current occupant not become president on November 8, 2016. The day after Donald J. Trump defeated Hillary Clinton, Princeton University economist Paul Krugman called Trump’s victory “the mother of all adverse effects.” He predicted “very probably . . . a global recession, with no end in sight.” • The Dow Jones Industrial Average, NASDAQ, and S&P 500 all hit record highs on Tuesday. The Wilshire 5000 Index calculates that some $3.4 trillion in new wealth has been created since President Trump’s inauguration and $5.4 trillion since his election. Fueled by the reality of deregulation, expectations of lower taxes, and a new tone in Washington that applauds free enterprise rather than excoriate it, the economy is on fire. • Atop the second quarter’s 3.1 percent increase in real GDP, and 3.0 in 3Q, the New York Federal Reserve Bank predicts that 4Q output will expand by 3.8 percent. This far outpaces the feeble average-annual GDP growth rate of 1.5 percent on President Obama’s watch. Meanwhile, the IMF expects global GDP to rise by 3.5 percent this year. So much for a Trump-inspired “global recession.”

Unemployment is at 4.1 percent, a 17-year low. New unemployment claims in September were at their most modest since 1974. Goldman Sachs on November 20 “lowered our unemployment rate forecast to 3.7 percent by end-2018 and 3.5 percent by end-2019.” According to the Wall Street powerhouse’s chief economist Jan Hatzius, “Such a scenario would take the U.S. labor market into territory almost never seen outside of a major wartime mobilization.” . . .

• For every new regulation that Trump has imposed, 16 have been erased.

• The FCC has begun to dismantle Obama’s “Net Neutrality” takeover of the Internet, which functioned marvelously, thank you, before his needless e-power-grab.

• Supreme Court Justice Neil Gorsuch is on the bench, along with 13 constitutionalist lower-court judges. At this stage in Obama’s presidency, the Senate had confirmed just seven of his district- and circuit-court nominees.

Much more at the link, concluding with this: “The Never Trump faction still claims that the president of the United States ‘is no conservative.’ And yet, with rare deviations (such as free trade), he spends nearly every day implementing the conservative agenda. Ideas that center-Right activists have demanded for decades are becoming public policy, one after another — to the pleasant surprise of even some of Donald J. Trump’s most enthusiastic supporters.”

Did I mention this was in National Review, of all places?

101Posted at 10:58 pm by Glenn Reynolds
.

Donald Trump and economic policy

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Just received this very nice note so thought I would say something about the question asked. Here is the note:

I enjoy reading your contributions to Catallaxy on a regular basis. I can’t say I know a lot about economics, but I especially like hearing you arguments to current economic theory. Rational debate is a powerful tool.

Recently, I was at work and a conversation around the lunch room turned to America politics.

Most of my work colleagues are “Never Trumpers”, but when I pointed out the American economy was currently doing very well, with record high stocks and decade low unemployment, one of my colleagues said something thatade me questions Donald Trump’s success. The comment was…

“The current economic success in American has nothing to do with Donald Trump. It wouldn’t matter who was President at the moment. The economy just goes through natural peaks and troughs in a capitalist society.”..

Knowing that the President has now been in place 12 months, and knowing that the Republicans still have not released their tax plan, is the above statement true?

Nothing like magical thinking to make you believe in the tooth fairy.

The parlous state that Obama left the American economy in will require an astonishing amount of luck combined with a great deal of very well constructed policy to move past. You do know that in the entire eight years Obama was president, the US economy on not a singe occasion achieved a growth rate as high as 3%. Trump has now achieved it twice, with more to come. Obama even inherited the recovery phase following the GFC which is almost invariably an economy’s period of strongest growth since part of what happens is the recovery of ground lost during the recession. Instead, there were eight years of low growth and stagnant employment. There is not an economic story to tell to his credit, even with interest rates at near zero and public spending at an all-time high, which in standard economic theory are a good thing. Of course, both are harmful to an economy’s prospects but don’t expect your friend to know it or believe it if you tell him.

But why take my word for it. Here is Conrad Black pointing out that Trump is already the most successful U.S. president since Ronald Reagan. And as you can see from the beginning of this excerpt he is not PDT’s greatest admirer, but even so:

He can be a tiresome and implausible public figure at times, and the reservations widely held about him, in the United States and elsewhere, are understandable and not unfounded. He is, however, the most effective U.S. president since Reagan. In the 20 pre-Trump years there [occurred] the greatest world economic crisis since the 1930s, American GDP per capita growth and capital investment shrunk by 75 per cent, the work force lost over 15 million people, millions of unskilled, illegal migrants were admitted, and the national debt of 233 years of American independence more than doubled in the last seven years of Obama. Those 20 years were the only time of absolute decline in American history, as well as a period of prolonged economic stagnation. Americans, unlike the older great nations of Europe and the Far East, have never experienced such setbacks and stagnation, and don’t like or accept them. It was in these circumstances that this unusual president was elected.

In addition to these American problems, there is the international phenomenon of ever-widening disparity of wealth and income, with no obvious solution — taking money from people who have earned it and giving it to those who haven’t will just drive out the high economic achievers who provide most of the personal income tax revenue already. And there is the problem that, for the first time, higher technology produces unemployment rather than employment, and increased productivity, unlike in the Reagan years, has not, until Trump was elected, led to job creation.

There is more at the link than just the economy but here we will stick to the economic issues.

The political business cycle works like this. The left elects a typically economically ignorant numbskull (voted in by people such as your colleague at work) who think markets don’t matter and public spending plus socialist rhetoric plus charisma are all that is required. The result is economic damage that goes on until finally enough of the socialists in our midst finally decide to get rid of these incompetents and bring in someone who knows what they are doing. Very old story. Whitlam in the 1970s gave way to Fraser, Rudd-Gillard in the 2000s was replaced by Abbott, Jimmy Carter replaced by Reagan, Labour in the UK followed by Thatcher etc. The return to market principles lasts just long enough before another adventure in socialist central direction, which is why we can never rid ourselves of bad economic policy (imagine voting out Howard-Costello for Rudd-Swan!). Most of the time, socialists wreck things followed by conservatives who fix things up (and it is weird that Shorten is being looked at as a better economic manager than Turnbull). Your mate is one of those who cannot bear to recognise that anti-market policies never work and just getting rid of them does work. Had Hillary been elected, the certainty is that no recovery of any kind would have been visible nor probably have ever occurred. Ignorance of the necessities of market-based policies is the rule on the left, and only deep deep pain for a large number of people for a considerable period of time finally get them to turn around. Venezuelans may just be there now, but the entire country invited the problems it has and the cure, if they ever get around to one, will be short-lived because the world is filled with people who believe strong economies are like good weather, just part of the nature of things, and into every economy a bit of rain must fall, etc etc. You won’t convince him, but at least you can see it for yourself.

I will discuss international trade and free markets some other time. In the meantime, here are a few specifics of what Trump has done and is doing from a previous post:

• reducing public spending
• rolling back regulations
• cuts to taxation – business and personal
• interest rate increases although limited
• more room provided for entrepreneurial decision making
• crony-capitalism [Keynesian theory] no longer at the centre of policy

Nothing you can do to convince such people, but it isn’t bad luck that causes leftist governments to wreck things but bad policies. They can’t help it, but at least we can do something by not electing them in the first place.

AND WHILE WE’RE AT IT: Don’t be misled by the title: Why I Have Given Up on Trumpism. Here’s his point but feel free to read it all:

“But just think about these subjects: illegal immigration (down by more the 60 percent), energy (America is now the world’s biggest producer of energy), unemployment (4 and a bit percent), growth (3 percent for two quarters running), the market (up more than 5,000 points since November 2016), regulation (huge progress in turning back the counterproductive regulatory environment that has stymied American business), consumer confidence (the highest it’s been in a generation), the military (revitalized), taxes (a bracing if imperfect plan wending its way through Congress), Iran (declining to recertify a deal that paved the way for Iran to become a nuclear power). Et, need I say, cetera.”

For the #NeverTrumps and the #NoTrumps you waste your breath in saying anything at all. But this is what I say. You may not have preferred PDT to some other as many did. But if you are still banging on about Trump and where he might lead us, rather than starting to think he might in the end be all right, you are simply a partisan fool, utterly clueless about policy, and have no business even pretending you are on the right side of politics.

Not that anyone will notice

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It still has to make it through the Senate, but this is progress: House Republicans pass tax reform bill.

House Republicans on Thursday passed a monumental bill to cut taxes on businesses and individuals, the biggest step yet in the GOP’s once-in-a-generation effort to overhaul the American tax system. . . .

The House plan would permanently chop the corporate tax rate to 20 percent from 35 percent and make other tweaks aiming to make businesses more competitive. It would reduce individual tax brackets to four from seven and make changes to several tax breaks. Among them, the bill would limit state and local deductions and the mortgage interest deduction, eliminate the personal exemption and nearly double the standard deduction.

On other matters of more interest to the media, if you were wondering about evidence and sexual harassment and what it looks like, here is an actual example. It’s sort of even more obvious than the DNA on Monica’s dress, and the woman was herself outraged: Senator Al Franken Kissed and Groped Me Without My Consent, And There’s Nothing Funny About It.

It doesn’t much matter since the media is not trying to remove Democrats from the Senate, only trying to prevent Trump-supporting Republicans from being elected, the same approach being taken by Congressional Republicans as well. There are many reasons that the Republicans got around to finally doing something on the Trump agenda, and their clear willingness to throw away a Republican Senate seat by not defending the person who actually won the primary in Alabama is a not insignificant part of it. Really, what are they good for?

Meanwhile, the American economy is going forward, growth is accelerating and employment picking up. But since these are natural phenomena that have no relationship to who is president nor what he does, we can concentrate on what really matters, such as the sexual practices of actors and politicians in Hollywood and DC.

Not giving credit where credit is due

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Just received this note so thought I would say something about the question asked. And until I remove this sentence you are reading now, think of this post as work in progress until I have put the right words in the right order. Here is the note:

I enjoy reading your contributions to Catallaxy on a regular basis. I can’t say I know a lot about economics, but I especially like hearing you arguments to current economic theory. Rational debate is a powerful tool.

Recently, I was at work and a conversation around the lunch room turned to America politics.

Most of my work colleagues are “Never Trumpers”, but when I pointed out the American economy was currently doing very well, with record high stocks and decade low unemployment, one of my colleagues said something thatade me questions Donald Trump’s success. The comment was…

“The current economic success in American has nothing to do with Donald Trump. It wouldn’t matter who was President at the moment. The economy just goes through natural peaks and troughs in a capitalist society.”..

Knowing that the President has now been in place 12 months, and knowing that the Republicans still have not released their tax plan, is the above statement true?

Nothing like magical thinking to make you believe in the tooth fairy.

The parlous state that Obama left the American economy in will require an astonishing amount of luck combined with a great deal of very well constructed policy to move past. You do know that in the entire eight years Obama was president, the US economy on not a singe occasion achieved a growth rate as high as 3%. Trump has now achieved it twice, with more to come. Obama even inherited the recovery phase following the GFC which is almost invariably an economy’s period of strongest growth since part of what happens is the recovery of ground lost during the recession. Instead, low growth and stagnant employment. There is not an economic story to tell to his credit, even with interest rates at near zero and public spending at an all-time high, which in standard economic theory are a good thing.

The political business cycle works like this. The left elects a typically economically ignorant numbskull who thinks markets don’t matter and public spending plus charisma are all that is required. The result is economic damage that goes on until finally enough of the socialists in our midst finally decide to get rid of these incompetents and bring in someone who knows what they are doing. Very old story. Whitlam in the 1970s, Rudd-Gillard in the 2000s, Jimmy Carter giving way to Reagan, Labour followed by Thatcher etc. The return to market principles lasts just long enough before another adventure in socialist central direction, which is why we can never rid ourselves of bad policy. But most of the time, socialist wreck things followed by conservatives who fix things up. Your mate is one of those who cannot bear to recognise that non-market policies never work. Had Hillary been elected, the certainty is that no recovery of any kind would have been visible. Ignorance of the necessities of market-based policies is the rule, and only deep deep pain for a large number of people finally get them to turn around. Venezuelans may just be there now, but the entire country invited the problems it has and the cure, if they ever get around to one, will be short-lived because the world is filled with people who believe strong economies are like good weather, just part of the nature of things, and into every economy a bit of rain must fall, etc etc. You won’t convince him, but at least you can see it for yourself.

So let me get into a bit about foreign trade and protection. Let me take you to Joan Robinson, Keynes’s most devoted follower, but not everything she says is wrong. Such as this, wher her point is that free markets are good for world trade, if good at all, but can harm individual economies quite substantially:

The case for Free Trade was basically the same thing as the general case for the individualistic pursuit of profit, though, starting from Ricardo’s theory of comparative costs, it was dressed up in a different form. It exhibited an equilibrium position in which competition leads to the maximum utility in the world as a whole being produced from given resources.

But, to appeal to the politicians and the voters, the good of the world as a whole was too thin. The argument that protection could benefit one country only at the expense of the rest would not do; the public might have answered: ‘If it is going to benefit us, lead us to it. Nor was it sufficient to prove, in a hard-headed classical style, that Free Trade would benefit the United Kingdom. It had to be shown that, under it, each and every country would be better off, so that it could be preached round the world with a good conscience. Protectionists are represented as being mere lobbyists for particular interests. A tariff might benefit one trade, but it was bound to do more harm to the rest of the economy than good to those protected.

If is true enough that the demand for a tariff more often comes from a lobby than anywhere else, but it is not true that no good national arguments can ever be found for protection. . . .

Even so, after all the interesting problems had been ruled out, the case for Free Trade as a benefit to each nation could not be made out. The weak spot in the analysis was in overlooking the implications of the assumption of universal perfect competition. It is obvious enough that any one group of sellers can normally do better for themselves collectively by agreeing to keep up prices than by competing individualistically. They do less business, but at a higher profit per unit. Similarly any one nation, within the conditions of the equilibrium model, may be better off with a smaller volume of trade at higher prices of exports in terms of imports than at the Free-Trade position.