Colossians 3:23

transcript

Colossians 3:23“Whatever you do, work heartily, as for the Lord and not for men…”

Q: How many Chicago School economists does it take to change a light bulb?

International Trade

International Trade• Run into our friend: zero sum thinking

International Trade• Run into our friend: zero sum thinking• Both sides can gain in international trade, and in fact,

usually must or it wouldn’t take place

International Trade• Run into our friend: zero sum thinking• Both sides can gain in international trade, and in fact,

usually must or it wouldn’t take place• Dr. S contends: no need for government or experts to tell

us whether it’s “fair” or not

International Trade• No fixed number of jobs countries must fight over

International Trade• No fixed number of jobs countries must fight over• When NAFTA was approved, number of jobs increased in

Mexico, Canada and U.S.

Sowellian thought “Most international trade, like most domestic trade, is

done by millions of individuals, each of whom can determine whether the item purchased is worth what it cost and is preferable to what is available from others.”

Gibson Les Paul Standard made in U.S.: $2499.99

Epiphone Les Paul Standard made in China: $459

International Trade• Opponents of international trade are still using language

to confuse the situation. Examples?

to confuse the situation. Examples?• “favorable” trade balance, “record trade deficit”

to confuse the situation. Examples?• “favorable” trade balance, “record trade deficit”• Fact is, if the goods and services available are greater as

a result of trade, then America is wealthier

Sowellian thought take 2 “If the goods and services available to the American

people are greater as a result of international trade, then Americans are wealthier, not poorer regardless of whether there is a ‘deficit’ or a ‘surplus’ in the international balance of trade.”

U.S. had a trade surplus during Great Depression

Q: How many Keynesian economists does it takes to change a light bulb?

HOW CAN BOTH SIDES GAIN?

The three advantages

The three advantages• Absolute advantage:

The three advantages• Absolute advantage: when one country, for any number

of reasons, can produce some things cheaper or better than others

• Examples?

• Examples? Weather for bananas, engineers such as India, contra-seasonal veggies from South America

Q. How can you tell the difference between an economist and someone with a really bad concussion?

The three advantages• Comparative advantage:

The three advantages• Comparative advantage: When one country can produce

anything more efficiently than another, it still makes sense to trade thanks to comparative advantage

• Yeah right, boy is this confusing

• Yeah right, boy is this confusing• We gotta get this; foundational to international trade!

Comparative advantage• The secret is that even if a country can produce anything

cheaper than another, it will be unable to make everything comparatively cheaper

• What??????????????? Are you nutz???

• What??????????????? Are you nutz???• No, answer is our oldest econ friend, SRTHAU

Gaaaa!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Example…• Portugal is twice as efficient at producing cloth and three

times more efficient at wine making than England

Example…• Portugal is twice as efficient at producing cloth and three

times more efficient at wine making than England• Comparative advantage says Portugal should focus on

making and trading with England that which it is “most best” at producing… namely, wine

Example…• England should focus on producing that which is it is

“least worse” at producing, namely cloth

“least worse” as producing, namely cloth• They both can trade and “win”

“least worse” as producing, namely cloth• They both can trade and “win”• Also, remember the eye surgeon who is a better car

washer but it makes no sense for him to wash his own car, he can do a lot better working on eyes

Little more Comparative Advantage• It’s been centuries since Great Britain could feed itself

Little more Comparative Advantage• It’s been centuries since Great Britain could feed itself• Nation focused on producing those things where it had

comparative advantage... manufacturing, shipping, finance

Little more Comparative Advantage• It’s been centuries since Great Britain could feed itself• Nation focused on producing those things where it had

comparative advantage... manufacturing, shipping, finance

• Result: Nation is better fed and more prosperous than if it grew its own food

And final advantage…• Economies of scale:

And final advantage…• Economies of scale: when you sell products outside of

your own borders, you can often achieve a great economy of scale

• Examples?

• Examples? Heineken beer, Japanese cars, Swiss watches, Chinese toys

International trade restrictions

International trade restrictions• Politics are important consideration with international

trade• The same fallacies disproven by Adam Smith continue to

be heard today (and tomorrow)

The definition of "waste“… a busload of economists plunging off a cliff with some of the seats unoccupied.

Trade fallacies• Fallacy 1: a high-wage country cannot trade “fairly” with a

low-wage one

Trade fallacies• Fallacy 1: a high-wage country cannot trade “fairly” with a

low-wage one• Why it’s false: need to look at more than wages, but at

overall costs including capital, shipping, productivity.

Trade fallacies• The reason the U.S. is so prosperous is that we’re very

efficient at producing things; likewise, there’s a reason Vietnam, for example, is so poor

Trade fallacies• Fallacy 2: we need import restrictions to save American

jobs from lower cost nations

Trade fallacies• Fallacy 2: we need import restrictions to save American

jobs from lower cost nations• Why it’s false: It usually costs America more in higher

costs and lost jobs overall when we try to “protect” certain jobs from imports

Trade fallacies• So politicians impose tariffs (taxes on imports such as

Brazilian orange juice and sugar) or limit the amount of imports to “protect” American jobs

Trade fallacies• So politicians impose tariffs (taxes on imports such as

Brazilian orange juice and sugar) or limit the amount of imports to “protect” American jobs

• All of this is known as “protectionism”

Smoot-Hawley Act of 1930• Raised tariffs on 20,000 items to record levels

Smoot-Hawley Act of 1930• Raised tariffs on 20,000 items to record levels• 1,028 economists opposed it

Smoot-Hawley Act of 1930• Raised tariffs on 20,000 items to record levels• 1,028 economists opposed it• Trade wars broke out

Smoot-Hawley Act of 1930• Raised tariffs on 20,000 items to record levels• 1,028 economists opposed it• Trade wars broke out• U.S. exports to Europe decreased from $2.3 billion to

$784 million from 1929-1934

Smoot-Hawley Actof 1930• Overall international trade declined 33%

Smoot-Hawley Actof 1930• Overall international trade declined 33%• U.S. unemployment went from 7.8% in 1930 to 25.1% in

Trade fallacies• Fallacy 3: We need to protect our “infant industries”

Trade fallacies• Fallacy 3: We need to protect our “infant industries” • Why it’s false: infant industries rarely have enough clout to

get restrictions passed to help them; winds up as an excuse to protect inefficient industries at expense of consumers and taxpayers

Trade fallacies• Fallacy 4: we need to keep the industry in event it’s

needed for national defense

Trade fallacies• Fallacy 4: we need to keep the industry in event it’s

needed for national defense• Why it can be false: we do need gun, bullet makers, etc.

But many other industries claim to be essential to defense so need to carefully validate this

Trade fallacies• Fallacy 5: we need to stop the “dumping” of goods into

our markets… selling things at a loss to get market share and then raise prices later. Example from today is Chinese steel.

Trade fallacies• Fallacy 5: we need to stop the “dumping” of goods into

our markets… selling things at a loss to get market share and then raise prices later. Example from today is Chinese steel.

• Why it is usually false: almost impossible to determine actual costs of production; and guess who wins with cheaper goods?

Types of restrictions• Tariffs (import taxes)

Types of restrictions• Tariffs (import taxes)• Import quotas… can only bring in a limited number of the

item• Making products meet “health and safety” requirements,

certify that their workforces receive “living” wages, or that the manufacturer had carbon offsets, etc.

Assignment 4/30• Chapter 21: “International Transfers of Wealth”

Colossians 3:23

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