Sunday, March 29, 2009

A Beginner's Guide To Protectionism

I've been going back and reading a lot of the older posts on Stephen Smith's "A Beginner's Guide To Freedom" blog.

Here are a few excerpts from a piece on Protectionism. Nothing in this section is new. Nothing in this paragraph would be news to anyone who took Economics 101 (which would rule out most of Congress). But Stephen writes so well I'm tempted to email all of his posts to The Teleprompter Jesus in hopes that maybe the central logic will sink in.

Protectionism is nothing more than an unrelated third party interfering with the voluntary exchange of goods and services between two parties. If I have a quarter, and Joe has a pencil, we may decide to enter into an agreement in which I buy the pencil for a quarter. If we decide to do this, it is only because we both stand to gain from the exchange - otherwise we wouldn’t do it. If I buy the pencil, it’s only because I value the pencil more than I value the quarter. Conversely, if Joe sells me the pencil, it’s only because he values the quarter more than he values the pencil. As a result, we are both better off by having made the transaction.

But for some reason, people accept the idea that government bureaucrats can and should step between Joe and me and take a cut of the proceeds. Some guy from Washington says, “You can’t buy your pencil from Joe for a quarter. I want you to buy your pencil from Fred. If you still buy the pencil from Joe, you have to give me 5%.” It’s really no more complicated than that.

But does it really harm us if we can't get that pencil for a quarter? Well, yes. It does.

Protectionism flies in the face of the division of labor. We all benefit by obtaining goods and services from the most efficient producers, no matter where they happen to be located. That frees up money that we can use to consume other goods and services, and it is this increase that raises our standard of living. Protectionism also ensures that capital remains tied up in less efficient industries instead of being freed up to be used in more efficient areas that would further increase our standard of living.

Stephen ends his post with a Milton Friedman parable that I hadn't heard before.

Milton Friedman used the following example which helps to clarify the true nature of protectionism. In a time of war, the enemy will often attempt to blockade a country to prevent the importation of goods and services. Protectionism is merely an effort to do to yourself in peacetime what your enemy would do to you in a time of war.
Keep that in mind the next time you hear some politician calling for additional restrictions on imports.
I wish I'd written that. Hit the top link to read the entire piece.


Dr Ralph said...

After butting heads with Stephen via various blog posts, in person I found him to be a much different person than I imagined: thoughtful, gracious and sincere. I think he was somewhat appalled by me, but that's another story.

Still, as well spoken and thoughtful as he is, reading his blog posts reminds me of the old H.L. Mencken quote, "There is always an easy solution to every human problem—neat, plausible, and wrong."

TarrantLibertyGuy said...

Yes, "There is always an easy solution to every human problem - neat, plausible, and wrong" Even including Mencken's quote.

Please don't disparage TCLP Jesus or The Knights of Tarrantplar will rain down it smitey best upon your head. You would do best to forever eschew uttering the name of He who's blog is our scripture.

Now, dispatch yourself from the eyes of our Mr. Smith, TCLP Jesus. AWAY O Ralpharisee!

The Whited Sepulchre said...

Let's fill in some blanks here.

Say you want to purchase item A from party B but Senator So-And-So says you can only purchase item A from party C.

In almost all cases that I've been able to find, party C is a donor to Senator So-And-So.

If Stephen Smith is wrong in the Mencken sense (and no one enjoyed hurling dead cats into the temples of government more than Mencken) can you name any instance where you think we should be penalized for purchasing item A from party B instead of party C ?

Dr Ralph said...

WS -- A? B? C?

What is this, economics or algebra? Word problems were never my forte. That's why I majored in painting.

My objection, mild though it may be, to Stephen's statements are that (in my humble opinion) he presents his opinions and treats them as broadly accepted facts. He's welcome to his opinion, but arguing via appeal to authority doesn't convince me. And you and I are not the only ones guilty of straw man arguments.

Do lobbyist donations influence legislation? No doubt.

Does that automatically mean the legislation is unnecessary or improper? Nope.

And let me assure you, I have absolutely no doubt if the LP were in power would it be any different, other than the distasteful and inevitable rise in self-righteousness and self-aggrandizing.

Do you honestly think becoming a Libertarian makes one immune to influence peddling? There are plenty of nefarious characters out there who would benefit from Libertarian policies. Does that automatically make them wrong, too?

The Whited Sepulchre said...

But, Dear Doctor, the harms associated with protectionism are indeed broadly accepted facts.

And if, due to some huge climactic revolutionary unprecedented upheaval, the libertarians were to get anywhere near the levers of power, can you honestly imagine they would slut themselves out the way it is currently being done in this land of whoredoms ????

Granted, the fact that donations are changing hands doesn't automatically discredit the cause.

But have you ever seen people marching on Washington to keep Brazilian wheat from crossing the border?
African cotton?
Taiwanese textiles?

Can you name any example where you believe the majority wouldn't benefit by shutting down the graft?

The Whited Sepulchre said...

one other thing....about the "self righteousness and self aggrandizing"

To admit that one cannot run something as complicated as the economy isn't a sign of self-righteousness. It's closer to the humility side of the righteousness side of the continuum than it is the arrogance side.

The Libertarian Party - "We won't work hard for you. And that's a promise !"

Dr Ralph said...

There's nothing so weak as untested virtue. Can I honestly imagine the Libertarians slutting themselves out if in power?

Faster than a drunk nymphomaniac.

But you have my solemn vow I won't say I told you so. They are no better (or worse) than the other parties. Therein lies the self-righteousness.

"Vote Libertarian: Humble and Proud of it!"

I admit it's catchy.

The Whited Sepulchre said...

Not necessarily proud. Just aware.

Mark said...

it sounds like that in the simplistic case, but in reality what you get is that Sam is selling you a pencil for only 20 cents because his government helps him out or because his pencil makers eat dirt or whatever.

You can say, too bad, let Joe with his 25 cent pencil starve or lower the price of his pencil to 20 cents.

In some cases it forces Joe to innovate and come up with a way to make 20 cent pencils, in others (most?) Joe can't compete, loses all his pencils and goes on the dole.

Mark said...

it's funny how different perspectives think - to me the final paragraph proves the value of protectionism, if your country can be hurt so severely by a blockade than you are not self-reliant and placing your citizens welfare in the hands of others. I would use that statement as justification for increased protectionsim.

The Whited Sepulchre said...

The only problem with your idea that "increased self-reliance" is a good thing?
The only truly self-reliant people live in mud huts, kill and grow their own food, and tend to have difficulty living past age 40.
I don't know where you live, but how much more would you be willing to pay for a computer made in that city? (I can assure you that yours wasn't made there.)
The countries without a protective tariff are able to take advantage of the OTHER countries competitive advantage. Put a wall up, and you can't.