John Stossel: The Stupidity of "Buy American"

[torchbearer]

This is one of the best threads on here that I remember.

i thought good points were made in this thread and shows that even in a ron paul american, we'd still have some issues to work on.

 

[Anti Federalist]

As is almost the case, I haven't got enough rep to give that.

A grim, but true, assessment.

Tariffs with reciprocity is free trade.

"Free Trade" is just part of the latest "world domination" scheme in a long list of such schemes that dates back to the Pharaohs.

Has anyone ever explained in these silly trade debate threads why it is that every country in the history of civilization that had world class industrial capacity has been prosperous, regardless of what government that country labors under?

Whether it was a Pharaoh, an emperor, a Democracy, Republic, Monarchy, Nazi dictator, Military dictator, Communist or Constitutional Republic, every successive world power achieved that status through industrial scale production of innovative hardware. Egyptian, Mayan, Assyrian, Babylonian, Medo-Persian, Chinese, Greek, Roman, Anglo-American... all had possession of world class industrial production.

If a productive country engages in the barter system, you have free trade. That is, as long as 2 parties each have something of value to and desired by the other, there is no need for tariffs.

If a country decides to steal your goods by force or by fraud or by other devious means intends to destroy your innovation and industrial capacity, tariffs it is. The only alternatives are a) go ahead, we don't care as long as the shit we buy is cheap, or b) we have a military force and will use it to repel your hurtful machinations.

That is the History of the World.

Governments are irrelevant. When the merchants and/or the military force disagreed with the government, assassinations or worse immediately ensued. There was no debate. The resultant "change" in government was only ever to appease the taxpayers.

Then came the eighth wonder of the world; fiat paper currency with compound interest.

He who controls the currency wins. He who controls the military force can oust the currency controllers by force, but when the currency controllers also control the military force, it's game over, regardless of what type of government feigns control.

The wild card is a revolutionary force. The reason the Japanese scrapped plans of a ground invasion of the US in WWII: "There will be a gun behind every blade of grass".

In any event, when the currency controllers had bought up enough of US industrial capacity and purposely moved it off shore, it wasn't for money. They controlled all of that already. It was to continue to hide their wanton inflation of the currency, the total destruction of the worlds reserve currency, backed by the mightiest, most productive and most innovative industrial capacity the world had ever known.

Westinghouse, Carnegie, Ford, Tesla, Edison, etc., all eventually lost control of or sold their companies to the bankers. When the Free Market and Competition flags were pulled down and the "Free Trade" flags were run up instead on the ship of state, had "WE" been smart we would have used tariffs to destroy the plan and the planners.

The bankers hide history from the masses through government-controlled schools. They, on the other hand, know history well. Well enough to have included buying the government and the military force before making their final moves against the only and biggest threat to their latest "world domination" scheme.

So, here we sit, after the fact, arguing against each other some empty BS over who's epitaph is the correct one to carve into the headstone.

Bosso

 

[Anti Federalist]

I'm sorry, Anti-Federalist, to have to disagree with you on this, I really am. It is one of the very, very, very few things I disagree with you on, and I admire you a great deal for your passion and uncompromising integrity. Here is a video that I just found that explains my view on free trade pretty well. Can you tell me why you think it's wrong?

Well, thanks for the kind words, really.

I'd respond, but I can't watch videos where I am now, but honestly, I think the case has been laid out on both sides in pretty great detail in this thread and many others like it.

Maybe a specific question on something that we could discuss would work.

 

[helmuth_hubener]

How about I answer one of yours, and we see what we think about that?

OK, so if the premise of the OP is true, why are we in the jam we are in?

Because, for all intents and purposes, it is next to impossible to "Buy American" in retail consumer goods.

...

So why are we bankrupt, personally and on a government level, why have real wages stagnated for decades now, why does it take two people working multiple jobs to support a household and why is unemployment, gauged by the metric used up until 1986 hovering around 17-18 percent?

Why are we in the jam we're in? Why is the economy bad? OK, first, there's a lot of factors, of course. Given. We can both agree on that. So let's just stick to the factors relating to the topic at hand: international trade.

The prime, ultimate factor happens to be related: less and less stuff is being produced here in America. You yourself wrote this earlier in the thread, and posted all those cool pictures of huge ships and engines. That is, indeed the fundamental determinant of how the economy is doing; you're 100% right on that. If you don't make stuff, you can't have stuff, and in the long run you'll be poor -- it's that simple.

That leads to another question: Why are we producing less stuff? Well, to answer that question, maybe we should first ask another: why did we used to be producing more? In, say, the 1920s, the USA was producing a huge bulk of the world's goods, more than all of Europe. By the '50s almost half the world's goods were being manufactured in the USA (to the extent such things can be known -- economics statistics are not exact by any means). Why? Were Americans that much smarter or harder-working than everyone else, or had more natural resources or something? No, not really. What the USA had was capital. Private property was secure, so vast private fortunes could be accumulated and invested into ever-more ambitious capital projects. Even more importantly, all the private fortunes from all around the world were being invested in the USA! French, British, German, wherever you were from, if you were smart, you were going to put your wealth into the United States. It was a good place to invest. You knew the politicians weren't going to seize your money. So the capital structure grows and grows. Machines to build the machines to build the machines... and pretty soon you're making those 500,000 horsepower trading ships you posted instead of hand-hammering horseshoes. Foundries a mile long. Ten-year projects to develop new piston ring formulas. Etc.

That's how you get rich.

Then, the USA gradually started becoming a horrible jurisdiction to do business in. At various times the politicians *did* seize the rich people's wealth. Taxes got higher and higher. You now had to deal with ten different layers of committees and focus groups and zoning boards and regulations and bureau-rats, and get "approval" from all these useless morons. In short: things got bad. No longer was the USA a magnet for all the wealth in the world. It was no longer safe, and no longer profitable.

At the same time, some other countries were becoming more attractive investment targets: Japan, Singapore, New Zealand, Hong Kong, the rest of the Far East, and finally China loosened up and started looking very attractive, too. China is one of the most business-friendly countries in the world right now. In China, if you want to build something, say a road, you sit down with a straightedge and a map, you draw a line, then you hire a bunch of engineers and a few months later you have a road. Compare that with the process in the United States, Land of the Free. Is your road going to encroach on any mating areas of the black-spotted prairie dog? That's gonna take at least five years to find out. And on and on.

So, investors started pulling money out of the USA and pouring their money into the countries which were now better and freer jurisdictions where they could make a better profit. In many cases even the actual physical equipment was pulled out. American and British and German factory equipment was hauled to factories in Asia, and of course the factories where they used to be were shut down. Whole businesses were transplanted. Businessmen saw the risk of their wealth being seized or destroyed as greater under Bill Clinton or Barack Obama than under Jiang Zemin or Hu Jintao. Can you blame them? A lot of them are now wishing that in the 1990s they'd used their money to move more operations overseas, instead of on mergers and aquisitions, because now it's too late, they've got no free cash, and so they're stuck in the US, making little or no profit.

So, OK, end of gallop through history. I trust you can agree that my story was basically accurate. Let's analyze it now. For France (or any European country) in the first half of the 1900s, we were their China! The USA was the country flooding the world with cheap goods! They couldn't compete with our prices. So, if you're France, what's the solution? The only solution there ever is, the only way to become rich: make more stuff! Would it make you more prosperous if the USA were not producing so much? No! Would it help you to put tariffs on stuff from the USA to throw yourselves into a make-believe world where the goods from the USA really weren't incredibly cheap? No! The one and only thing that will make you more rich is to make more stuff. Are we still agreed? Still with me here? The USA being rich really doesn't hurt France, any more than my neighbor being rich hurts me. In fact, the USA's prosperity helps France! France is better off with the USA around, all else equal, because then at least they can benefit second-hand from all the productivity and awesomeness going on over there by trading with them. Just like taxing and tearing down the rich doesn't help the poor people, it just makes us all be poor together. But ultimately, you don't want to keep "all else equal": you want to make France a free market, shrink the government, ax the taxes, and all-in-all make France a fantastically attractive jurisdiction to do business in. Then France can start getting as rich as the USA, and long-term, eventually, they will, as long as their freedom is as good as the USA's.

So for us today, China is our China. We are France. Tariffs are not going to bring the capital back. If it's not profitable for businesses to operate in the USA -- and it's not -- then that's that. Tariffs don't change that; they don't magically make it profitable to do business here; they don't magically make the USA not a horrible jurisdiction. Even nuking China into oblivion wouldn't make it one single bit more profitable to do business in the USA. The idea behind a "protective" tariff is to make life less profitable for overseas businesses exporting to the USA. And it does succeed in doing that. But every other country in the world could become even less profitable to invest in than the USA, and that wouldn't make the capital come back. The capital would just disappear. And the more capital disappears, the more we descend into a dark age, reverting back to hand-hammering horse-shoes again.

So to review:

• Why is the economy bad?
• Because we're producing less and less stuff.
• Why are we producing less?
• Because the United States is a horrible jurisdiction.
• What is the solution?
• Stop being horrible!
• Will it help if we instead just try to make other jurisdictions less attractive by slapping up barriers to trade with them?
• Not ultimately. Ultimately, the only solution is to make your country not a total rathole overrun by pretentious morons in which no one in his right mind would want to start a business or invest his hard-earned wealth.

Until you solve that, you really can't solve anything. I do agree with you that tariffs are one of the least offensive taxes, if we're going to have taxes. And you could fund all the Constitutionally permitted government we need with a 3% tariff, maybe less, and that % would be able to decrease as we get richer and richer and trade volume gets greater and greater. That would be a lot better than what we have. But the tariff wouldn't be helping the economy. It just would be hurting it less than an income tax.

 

[cavalier973]

A "Buy American" campaign is fine, but the argument that the buying of American-made products, in itself, helps the American economy generally is incorrect. Certain sectors of the American economy would be helped, of course; but it would be at the expense of other sectors.

A lot of the blame for economic problems that should go to government intervention is laid at the feet of free trade, and further government intervention is demanded to solve a problem created by the government. This would be a counterproductive course of action.

The Chinese gov't has orchestrated its nation's economy to be export based, and at least one commentator on this thread counts this as a "win" for China. But the Chinese people are enjoying a lower standard of living than they otherwise would because of the Chinese gov't's protectionism. Protectionism helps the Chinese government, with both increased revenues and increased prestige among mercantilists, but it doesn't help China, as in the Chinese people.

Anti-Federalist is correct in pointing out that most of what is labelled "free trade" today is actually gov't-managed trade. I disagree, however, with the premise that making things necessarily creates wealth (see Solyndra). Manufacturing can actually destroy wealth, if the products that are manufactured are not demanded by the market. The resources that were hypothetically used to make, say, "skunk-flavored soda pop" might have been better used to make soft drinks with more palatable flavors.
Trade, on the other hand, always creates wealth; if a proposed trade did not make each party better off, then the trade would not happen. And if China is manipulating its currency (as if the U.S. isn't the master of manipulating its national currency) due to an ill-advised mercanitilist philosophy, that hurts the Chinese people rather than the American people. Fears that a demolished American manufacturing base would be unable to ramp up production in time to meet the demands of the market are, I infer, based on a belief that the free market doesn't really work. Most of the obstacles in the path of starting a factory can be sourced to government intervention rather than an inability of free market participants to adequately garner and use capital. The "apple juice" analogy mentioned earlier is also unpersuasive. There is a near-zero likelihood that American apple trees would all be uprooted in the face of miraculously cheap Chinese apples. Agriculture is one of the areas in which Americans hold a comparative advantage. Even so, Chinese apples would still have to compete with apples grown in other nations, and with the constant possibility that the American apple industry would eventually be restored, were Chinese apples to become too pricey.

Here's a little tale by Bastiat concerning Robinson Crusoe: http://www.thefreemanonline.org/columns/robinson-crusoe-and-free-trade/

 

[helmuth_hubener]

I disagree, however, with the premise that making things necessarily creates wealth (see Solyndra). Manufacturing can actually destroy wealth, if the products that are manufactured are not demanded by the market. The resources that were hypothetically used to make, say, "skunk-flavored soda pop" might have been better used to make soft drinks with more palatable flavors.

When I say that humans get rich because we make stuff, I implicitly mean good stuff. Or, as you say, stuff someone somewhere (a.k.a. the market) actually wants.

 

[Krugerrand]

LOL!

Should I assume that you can find no reason to reject outsourcing to China our missile, fighter jet, and other national defense production?

 

[Krugerrand]

Great post, helmuth_hubener. +rep to you for it.
http://www.ronpaulforums.com/showth...merican-quot&p=3739124&viewfull=1#post3739124

Clearly, the problem with the US is the US. There have been a number of examples where we make ourselves uncompetitive (toys, cars, etc).

One of my biggest objections is that the rally cry for "free trade" fails to consider that we simply are not in a free-trade reality. That begs the question, how do we best move forward in a non-free trade world.

You use the example that we are Yester-world's France. First, I'm on the same page as you as to the importance of production and capital. However, I think there are some key differences in your example. We've replaced our production with consumption. I would bet Yester-world's France replaced it tightened belts. Someone earlier called it a 'service-based' economy. That's fancy talk for a consumption based economy. That's dangerous on a number of difference levels. Instead of progressing slowly or even staying stagnant, we're regressing. Our capital is flooding out of our country and we face serious problems from Sovereign Trust Funds and a dismantled means of production. We are becoming dependent as a population on those cheap products that will not stay cheap forever. Yes, of course, people will recover from that when it happens ... but we're setting ourselves up for that to be far more painful than it should be.

And so ... I agree that solution step one is to make the US a better place for investments. However, that is not easy to get the government to do. So, then what? You say tariff will hurt consumers. Could that be a blessing! We need to cut back on our CONSUMPTION. Could that encourage people to save and invest their capital better?

 

[Krugerrand]

... The "apple juice" analogy mentioned earlier is also unpersuasive. There is a near-zero likelihood that American apple trees would all be uprooted in the face of miraculously cheap Chinese apples. Agriculture is one of the areas in which Americans hold a comparative advantage. Even so, Chinese apples would still have to compete with apples grown in other nations, and with the constant possibility that the American apple industry would eventually be restored, were Chinese apples to become too pricey.

Here's a little tale by Bastiat concerning Robinson Crusoe: http://www.thefreemanonline.org/columns/robinson-crusoe-and-free-trade/

I stand by my apple analogy. Brian4Liberty offered one show of support:

That's exactly what has happened in California. Some of the world's best farmland, paved over and covered in cheaply made cookie cutter houses on postage stamp lots. Plus the environmental extremists in government shut off irrigation water to orchards, so that eliminated even more production.

The past two weekends I visited farmer's markets. What do you think happens if people do not support these local establishments and farmers? I buy from them even though their prices are higher than the grocery store. I want them to be there when the grocery store shelves are bare because it costs too much to ship in goods from the other side of the country or outside of the country. In my parts orchards and farms get snapped up all the time to build housing complexes.

Do you know why most bread wheat comes from Montana? They grow the best bread wheat. Do you know why certain places have orchards ... because they grow well there. Why is Idaho known for their potatoes? Potatoes grow exceptionally well in Idaho. However, if we dismantle these things and replace them with housing complexes, it is not so easy to just 'restore' them.

Imagine suggesting that if France tore out their massive vineyards that they could be restored when the money is better for them. Restoration is not always possible - or can only come as the expense of a great deal of capital.

 

[roughridersten]

Great post, helmuth_hubener. +rep to you for it.
http://www.ronpaulforums.com/showth...merican-quot&p=3739124&viewfull=1#post3739124

Clearly, the problem with the US is the US. There have been a number of examples where we make ourselves uncompetitive (toys, cars, etc).

One of my biggest objections is that the rally cry for "free trade" fails to consider that we simply are not in a free-trade reality. That begs the question, how do we best move forward in a non-free trade world.

You use the example that we are Yester-world's France. First, I'm on the same page as you as to the importance of production and capital. However, I think there are some key differences in your example. We've replaced our production with consumption. I would bet Yester-world's France replaced it tightened belts. Someone earlier called it a 'service-based' economy. That's fancy talk for a consumption based economy. That's dangerous on a number of difference levels. Instead of progressing slowly or even staying stagnant, we're regressing. Our capital is flooding out of our country and we face serious problems from Sovereign Trust Funds and a dismantled means of production. We are becoming dependent as a population on those cheap products that will not stay cheap forever. Yes, of course, people will recover from that when it happens ... but we're setting ourselves up for that to be far more painful than it should be.

And so ... I agree that solution step one is to make the US a better place for investments. However, that is not easy to get the government to do. So, then what? You say tariff will hurt consumers. Could that be a blessing! We need to cut back on our CONSUMPTION. Could that encourage people to save and invest their capital better?

Higher prices for consumer goods will not "decrease consumption". The higher costs will eat up a larger portion of our incomes, leaving even less to save and invest with. And if you argue we should just purchase fewer things, you are arguing that we should make ourselves richer by paying more $$$ for fewer things (make ourselves poorer). I want to be richer, not poorer.

 

[helmuth_hubener]

You say tariff will hurt consumers. Could that be a blessing! We need to cut back on our CONSUMPTION. Could that encourage people to save and invest their capital better?

Well, it could. It very well could. I will give you that.

My own preference, however, is for the government to do as little as possible. When the government intervenes, even when it does so with the best of intentions and a sensible-seeming plan, such as yours, unintended consequences and blow-back often occur.

In this case you present, it's possible that people just want certain things and their preferences to buy them will not vanish due to higher prices. In that scenario, higher prices due to tariffs will cause even more of their incomes to be sucked up by consumption, leaving even less left over for savings and investment. I see that scenario as being at least as likely as yours wherein consumption is reduced and higher a investment rate ensues.

 

[helmuth_hubener]

Higher prices for consumer goods will not "decrease consumption". The higher costs will eat up a larger portion of our incomes, leaving even less to save and invest with.

It depends on how elastic the demand curve for these goods is.

 

[SpicyTurkey]

It depends on how elastic the demand curve for these goods is.

And our income vs the price of goods.

 

[Brian4Liberty]

I stand by my apple analogy.

More on agriculture in California:

COALINGA, Calif. — Would France rip out its storied vineyards? Would Juan Valdez scorch Colombia's coffee crop? Sri Lanka its black pepper harvest? China its tea?

With global markets won by nations specializing in doing what they do best, and with regional reputations important enough to drive some nations to protectionism, it's almost unthinkable.

But then there's California.

On a springtime drive through the Central Valley, it's hard not to notice how federal and state governments are hell-bent on destroying the state's top export — almonds — and everything else in the nation's most productive farmland.

Instead of pink blossoms and green shoots along Highway 5 in April, vast spans from Bakersfield to Fresno sit bone-dry. Brown grass, dead orchards and lifeless grapevine skeletons stretch for miles for lack of water. For every fallow field, there's a sign that farmers have placed alongside the highway: "No Water = No Food," "No Water = No Jobs," "Congress Created Dust Bowl."

Locals say it's been like this for two years now, as Congress and bureaucrats cite "drought," "global warming" and "endangered species" to deny water to this $37 billion breadbasket through arbitrary "environmental" quotas.

It started with a 2008 federal court order that stopped water flowing from northern tributaries on a supposed need to protect a small fish — the delta smelt — that was getting ground up in the turbines of pump stations that divert the water south. The court knew it was bad law, but Congress refused to exempt the fish from the Endangered Species Act and the diversion didn't help the fish.

After that, the water cutoff was blamed on "drought," though northern reservoirs are currently full. Now the cry is "save the salmon," a reference to water needs of the state's northern fisheries.

Whatever the excuse, 75% of the fresh water that has historically irrigated California is now being washed to the open sea. For farmers in the southwest part of the valley, last year's cutoff amounted to 90%.

"It's pretty hard to keep crops alive at 10%," says Jim Jasper, who runs a 62-year-old almond farm in Newman that employs 170. "That's one irrigation, and trees take 10 to 12 over the growing season from March to October." Almond trees cost $8,000 per acre and take six years to start producing, so farmers reserved their 10% allocation for mature trees first.

The cutoff didn't kill just trees, however. It also devastated the area's economy. Unemployment in some valley towns has shot up to 45%. Mortgage defaults are on the rise, and food lines are lengthening.
...

http://news.investors.com/ArticlePrint.aspx?id=531662

 

[roughridersten]

It depends on how elastic the demand curve for these goods is.

My point is, regardless of the elasticity, we are worse off. We either pay more for the same good, or have less of it. Either way I am poorer because of the tariff.

If you think positively of tariffs, follow this link and start reading at page 67 (on the pdf, 61 on the page). Then go back and read the whole thing.

 

[helmuth_hubener]

More on agriculture in California:

Just another reason not to put the state in charge of important things like water. They have no incentive for rationality.

 

[heavenlyboy34]

Just another reason not to put the state in charge of important things like water. They have no incentive for rationality.

qft and +rep!

 

[cavalier973]

When I say that humans get rich because we make stuff, I implicitly mean good stuff. Or, as you say, stuff someone somewhere (a.k.a. the market) actually wants.

Sometimes the market demands cheap, disposable, easily replaceable products. Making a high quality, long-lasting chair is a waste of resources is that's not what the market demands.

 

[cavalier973]

I stand by my apple analogy. Brian4Liberty offered one show of support:

Originally Posted by Brian4Liberty

That's exactly what has happened in California. Some of the world's best farmland, paved over and covered in cheaply made cookie cutter houses on postage stamp lots. Plus the environmental extremists in government shut off irrigation water to orchards, so that eliminated even more production.

Was the farmland paved over because of trade, or because of bad government policies? Or, was the farmland paved over because, despite the high quality of the farmland, better uses were found for the land through market forces?

 

[helmuth_hubener]

Sometimes the market demands cheap, disposable, easily replaceable products. Making a high quality, long-lasting chair is a waste of resources is that's not what the market demands.

Again: I said just stuff, but by that I meant good stuff, by which I meant market-demanded stuff -- nothing to do with quality. Stuff=good stuff=market-demanded stuff=stuff someone somewhere actually wants. I understand you can spend a lot of money building a concentration camp and that's not increasing the wealth of the world, it's decreasing it. Or you can build a huge copper mine where there's no copper. I understand all that. I agree with you. Sometimes we must simplify things and use shorthand. That's all I was doing. But then sometimes I overdo it and that leads to having to painfully spell myself out like this.

I do hope I've written clearly enough that you realize I of course agree with your position: tariffs drain wealth. We should get rid of tariffs.