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jmherbener
ParticipantOne simple way to think about the issues is to contemplate your questions with respect to changes in the division of labor among the states in the U.S. Are Pennsylvanians really worse off because manufacturing jobs have moved to Georgia, South Carolina, and Alabama and been replaced by jobs in healthcare. Pittsburgh was filthy and depressing in the 1970s during the heyday of manufacturing. Now it’s largely a service economy, clean with burgeoning culture. If Pittsburgh would have put up tariffs against manufacturing imports from the South isn’t it obvious how this would make Pittsburghers worse off, including those in manufacturing since they would be selling to customers who were poorer because they couldn’t sell as much to outsiders (and, of course, outsiders will not buy Pittsburgh manufactured goods since Pittsburgh manufacturers are inefficient and so ask higher prices.) Isn’t it obvious, that the others who were being harmed by the tariffs would simply move out of Pittsburgh or invest outside of Pittsburgh further lowering the standards of living of those remaining in Pittsburgh, including the workers in manufacturing.
The recent dip in manufacturing jobs in the U.S. is the result of the liquidation of malinvestments during the boom which ended in 2007. Here are the numbers:
http://data.bls.gov/timeseries/CES3000000001
After hitting a trough in 2010, the number of manufacturing jobs has been steadily increasing.
If you look at manufacturing jobs post WWII, you can see that they have risen from around 12 million right after the war to an average of around 17.5 million from the late 1960s to 2000 then they fell until 2010 and have since risen back to around 12 million.
http://data.bls.gov/pdq/SurveyOutputServlet
Finally, in the same way that you assert the superiority of manufacturing jobs over service jobs, some once asserted the superiority of agricultural jobs over manufacturing jobs. Two hundred years ago, more than 90 percent of Americans worked in agriculture, now fewer than 2 percent do so. How has this made America weak or inferior? Isn’t is a sign of strength when workers become more productive, i.e., each worker produces more output.
ParticipantFreer trade allows people to extend the division of labor which raises productivity and standards of living overall. Tremendous wealth has been created by market reforms in China.
http://money.cnn.com/2015/10/14/news/economy/china-middle-class-growing/
The Chinese have been buying American assets and claims to assets. Like any investment, if they earn a rate of return, they will be better off. If they buy physical assets in the U.S. or hold bonds and stocks of private companies, then they will be paid back. Of course, the Federal government may default on Chinese held Treasuries, in which case expect the Chinese government to retaliate in some manner.
Here is a list of foreign holders of U.S. Treasuries:
http://ticdata.treasury.gov/Publish/mfh.txt
Here’s a list of foreign holdings of U.S. assets:
http://www.cfr.org/united-states/quarterly-update-foreign-ownership-us-assets/p25685
Here’s a list of Chinese holdings:
ParticipantThe monetary inflation and credit expansion of the 1920s occurred in three intense episodes in 1922, 1924, and 1927. The resulting asset price inflation, especially the rising stock market, led the Fed to tighten monetary policy in 1929. A few months later, interest rates started to rise. Savvy investors recognized this as the top and sold out of stocks. As they did so, stock prices softened and less savvy investors sold out and so on. So in some cases, the Fed tightens monetary policy to “fight Inflation” and this heralds the financial crisis.
Take a look at Benjamin Anderson on the Great Depression:
https://mises.org/sites/default/files/Economics%20and%20the%20Public%20Welfare_5.pdf
In other cases, like the financial crisis of 2007, the Fed continues expansionary policy even in the face of asset price inflation. Savvy investors still sold out of real estate investments because they recognized the increasing riskiness of further investment in the lines of the boom. As a result housing prices softened, leading less savvy investors to sell out and so on.
Take a look at Lucas Engelhardt on the downturn of 2007:
https://mises.org/sites/default/files/Economics%20and%20the%20Public%20Welfare_5.pdf
ParticipantThe history of labor unions in America is written largely from a Marxist perspective, which is based on the assumption of capitalist exploitation of labor. The true is quite different.
For example, take a look at this history of the coal mine violence in West Virginia:
If anything, the violence escalated because of the failure of the government to defend private property. Consider, a strike means that the labor union uses violence to prevent the employer from hiring replacement workers to continue operations. The government ignores this violation of private property and instead supports the labor union’s false claim to a right to the jobs of its members. When the employer uses force to evict labor union members from his property and employ replacement workers, the government, again, stands by and allows the union to escalate the violence.
Here’s more to read, in general, about the failure of government in labor relations:
ParticipantThere are two ways to interpret the claim that imports are necessary for exports.
(1) When you include money as a good, then it must be true in any trade that the goods “exported” (i.e., given up) are the basis for the goods “imported” (i.e., acquired). This is even true of an exchange of one money for another. So if the Chinese sell their money to buy our money there is still a one-to-one correspondence between exports and imports.
(1) If one divides things into categories (namely: goods & services; money; and capital funding) then the exports of goods and services do not have to equal the imports of goods and services even though the overall movement of everything in all three categories must still balance.
In a market economy, the composition of the balance of trade is determined by people’s preferences. If Americans prefer Chinese goods over Chinese money or Chinese investments and Chinese prefer American money and investments over American goods, then American will have a merchandise trade deficit with the Chinese which is balanced by a capital account surplus. We buy more Chinese goods than they buy American goods and they buy more American money, assets and claims to assets than we buy Chinese money, assets, and claims to assets.
https://mises.org/library/what-trade-deficit-portends
https://mises.org/library/balance-trade
https://mises.org/library/neo-mercantilist-hysteria-over-us-trade-deficits
https://mises.org/library/trade-deficit-austrian-perspective
ParticipantConsider this analogy: suppose your family had a homestead in the American territorial west and, while mostly self-sufficient, your family traded with the merchants in the local town for goods that they could sell more cheaply than you could produce. Then one day the merchants decided to give your family a discount for goods they sold to you because they wanted to expand their own business in these lines (let’s say they are forerunners of the strategy of Sam Walton). By accepting their discounted goods, your family would raise its standard of living by shifting to areas of production in which it had comparative advantage and the producers supplying the merchants would be doing likewise.
ParticipantThe central bank of Brazil has slowed the growth of the money supply recently. It has even shrunk in the lat few months:
http://www.tradingeconomics.com/brazil/money-supply-m2
Domestic price and inflation and international devaluation are not, strictly speaking, inversely related. They are instead, two manifestations of the same phenomenon, namely, the purchasing power of a money.
With the money supply shrinking in Brazil and prices still rising, it must be a collapsing demand for money that is driving up prices. People expect price inflation to accelerate and so spend money more readily. The mainstream refers to this as inflationary expectations. (You may remember when Ben Bernanke was inflating the dollar in the hope, which proved to be vain, that it would ignite inflationary expectations among Americans who would then spend more freely.) As you point out, foreign holdings of Brazilian currency are also declining and their selling of it against other currencies is driving its depreciation.
The last chart in this Bloomberg story shows that price inflation has been running between 6-7% in Brazil since the beginning of 2014 until last summer when it shot up to 9% in the fall and has been between 8-9% since then.
And this Bloomberg story highlights that the monetary tightening has precipitated a recession in Brazil:
March 2, 2016 at 12:58 pm in reply to: Doesn't Keynesianism work when you control the world's reserve currency? #21172ParticipantCorrect, monetary inflation can make some people richer at the expense of others that it makes poorer. What monetary inflation cannot do is make society-at-large richer. In fact, it makes society-at-large poorer.
ParticipantLike other countries, China supports pegs of its currency to other important currencies. China devalues the RMB by moving the peg. It did this last summer:
The effect of devaluation depends on whether it is an adjustment toward or away from the currency’s underlying purchasing power. If the devaluation is moving the currency in line with its purchasing power, then it improves the efficiency of the international division of labor. If the devaluation is moving the currency below its purchasing power, then it leads to a less-efficient international division of labor.
A devaluation means that a given amount of foreign currency will buy more of the devalued Chinese currency and therefore, the foreign currency price of Chinese exports is reduced (because the price of the exported products in the Chinese currency remains unchanged). But, again, whether is is beneficial or harmful to the international economy depends on whether the devaluation brings the currency in line with its purchasing power or pushes it below its purchasing power.
If the devaluation brings the Chinese currency in line with its purchasing power, then efficiency is improved and worldwide standards of living rise. (The Chinese products were over-priced to Americans and under-priced to the Chinese before the devaluation.) If America then places a tariff on goods imported from China after the devaluation corrects the inefficiency, the international division of labor is less efficient.
If the devaluation pushes the Chinese currency below its purchasing power, then the international division of labor is made less efficient and standards of living are lower than otherwise. If America then places a tariff on goods imported from China, the American government receives tax revenue paid from the lowered income of Chinese producers. Therefore, these two policies, the Chinese devaluation and the American tariffs, do not cancel out and render the efficient result of the free market.
China’s prosperity depends on it continuing to move toward a free market economy. Unilateral rollback of government intervention on all fronts and unilateral strengthening of the legal sanction of private property and contract is called for.
As long as the Chinese continue to save, the world’s credit markets will not change and therefore interest rates across the world will not change. Capital markets across the world are integrated. Only is the Chinese quit saving and start consuming will interest rates rise and then not only in America, but everywhere.
Here’s is something to read on international trade theory:
ParticipantLudwig von Mises demonstrated that there is no single scientifically accurate way to construct a price index. Money is the general medium of exchange and therefore, its purchasing power can be expressed in terms of any set of goods. Each person will assess the purchasing power of money according to his own interest (i.e., according to the goods that he is interested in buying and selling). Each such construction of a price index has the same justification and therefore, the same scientific status as a measure of price inflation.
It follows that when the government constructs a price index it will be according to the interests of government officials and of the multitude of price indices they construct there is no way to demonstrate that one is scientifically more sound than the others in measuring price inflation.
Here’s a small sample of government computed price indices:
https://research.stlouisfed.org/fred2/categories/32455
There are a few non-government-agency computed price indices.
MIT compiles the billion prices project:
ShadowStats computes the CPI using the techniques employed by the government in 1980 and 1990.
February 29, 2016 at 8:30 pm in reply to: Doesn't Keynesianism work when you control the world's reserve currency? #21170ParticipantIt has long been realized that having the world’s reserve currency permits a country to engage in a policy of “inflation without tears.” The British did this when the pound was the world’s reserve currency before the First World War. The USA did this under Bretton-Woods and in the 1980s and 1990s.
Take a look at Murray Rothbard’s book, What Has Government Done to Our Money:
https://mises.org/library/what-has-government-done-our-money
For “inflation without tears” to operate, there must be an international monetary regime of pegged exchange rates and coordinated world inflation. Under Bretton-Woods, for example, monetary inflation and credit expansion of the dollar becomes the base of monetary inflation and credit expansion of the domestic currencies in other countries. Their central banks increase their holdings of dollars as a reserve upon which they inflate their own currencies. This increase demand for the dollar prevents price inflation from choking off the boom which is induced by credit expansion. When price inflation occurs in the domestic currencies the booms their collapse and there is a rush to liquidity in which the central banks hold even more dollars further insulating the US economy from price inflation.
Take a look at Henry Hazlitt’s book on Bretton-Woods:
https://mises.org/library/bretton-woods-world-inflation-study-causes-and-consequences
Keynesianism doesn’t work for the country having the world’s reserve currency, just look at the UK and the trajectory of the US economy. If the policy is pushed far enough we get world monetary inflation and credit expansion, as the title of Hazlitt’s book indicates, and as the booms and busts of the last several decades illustrate.
ParticipantThe wage for each type of labor service is determined by demand and supply.
The choice the worker makes to supply his labor to a particular entrepreneur is based on his assessment of the value of the alternative compared to the value of the employment opportunity with this entrepreneur.
The choice the entrepreneur makes to demand the labor services of a particular worker depend upon the entrepreneur’s assessment of the marginal revenue product generated by the labor service discounted by the rate of interest if the entrepreneur pays the worker in advance of selling the output he helps produce.
Because both supply of labor services and demand for labor services depend upon the workers’ anticipations and the entrepreneurs’ anticipations there is no way for an economist to accurately estimate what the wage would be under different conditions. The economists can determine whether the wage would be higher of lower under different conditions, but the quantitative magnitude of the difference cannot be objectively calculated.
Market wages will always reflect the DMRP and opportunity cost of the labor services given the circumstances, including government interventions, under which the trade of labor is conducted. But what the exact wage of a labor service would be in the absence of government intervention can only be estimated imprecisely.
ParticipantHistory is complex and so determined opponents can always find alternative explanations that they consider plausible. Very rarely are there historical cases that prove to knockdown all opposition. That’s why finding cases in which several plausible factors are similar is helpful. Hans Hoppe refers to this in comparing the economic performance of East Germany v. that of West Germany as demonstrating the superiority of a freer market system.
https://mises.org/library/de-socialization-united-germany
By extension, the comparison between the downturns of 1920-21 and 1929-1933 have a similar advantage as historical evidence.
One could point to the experience of Western economies in the 19th century, which experienced panics instead of depressions, the latter of which involved serious unemployment. The U.S. economy did not experience severe unemployment in a downturn until the depression of 1894. Bob Higgs, in his book Crisis and Leviathan, argues that the rise of labor union violence against private property contributed to the problem.
The colonial period in America experienced remarkable economic progress largely free from boom and busts and unemployment. Even though Great Britain had a central bank and credit expansion, the British did not allow banking to develop in the American colonies. Murray Rothbard chronicles this in his multi-volume work, Conceived in Liberty.
ParticipantTake a look at the laissez-faire policies of the Harding administration during the downturn of 1920-1921 compared to the interventionist policies of Hoover and Roosevelt during the downturn of 1929-1933.
ParticipantPerhaps the most famous case is Great Britain in the mid-nineteenth century.
http://personal.lse.ac.uk/schonhar/docs/books/Orourkes%20review.pdf
https://mises.org/library/what-crushed-corn-laws
Bastiat led the intellectual movement for free trade in France around the same time.
https://mises.org/library/comment-french-liberal-school-0
Chile is cited as a more recent case.
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