Conservative Commentary
"the blogger whose youthful effusions have won him bookmarks all over Whitehall ... horribly compelling" - The Guardian
Great Weblogs
The Enemy Within

Most recent posts ...

Wednesday, March 17, 2004
Trading on a flat earth?

I'm not someone convinced of Pat Buchanan's anti-Semitism, and I certainly do not see him as a curse on the American right. The very least one can say is that he is an able commentator and a great orator with the very rare distinction of having served both of the two greatest Presidents of the twentieth century; Richard Nixon and Ronald Reagan.

But I do find his foreign policy attitude disagreeable and believe his economic views to be ignorant (as Peter Brimelow has noted, his advocacy of tariffs as a means of altering the trade balance apparently takes no account of how the dollar exchange rate would appreciate in proportion to the fall in imports, restoring the original balance of trade).

An example of this is his piece in the latest American Conservative. One thing it certainly reveals is a very screwy sense of history. He attributes British decline to her acceptance of the theory of comparative advantage without a thought for the geopolitical circumstances. Except it wasn't Lord Salisbury, Prime Minister from 1895, who ushered in free trade. The nineteenth century considered as a whole was a time when this country opened its markets to the world, and benefited. We even adopted unilateral free trade towards those countries who, so much the worse for them, persisted with their own protectionism. It was the most globalised period in history, and it came at the moment when British prestige and power were at their greatest.

Equally, the 1930 Smoot-Hawley tariff of 40% on imported goods immediately preceded the fastest rise in unemployment in the worst recession in American history. For so many smaller nations, cutting oneself off from international trade was what set them so much apart from their more successful neighbours, all those Asian tiger economies which embraced global markets outstripping them with ease. If history tells any story about trade, it is that Ricardo was right.

I can't yet claim to understand fully the workings of the balance of payments or the current account. But I know enough to say with confidence that a trade deficit, though it may be epiphenomenal to other economic difficulties, cannot itself be deemed a problem. What, then, is Buchanan's evidence of other problems? That Americans are consuming 4% more than they are producing, relying on capital inflows to fund this.

China is becoming the factory floor of the world. And as her leaders force her people to sacrifice for the future, America, where the consumer is king, indulges herself in the present.

... The Chinese are the ants of summer, gathering for the winter. Americans are grasshoppers consuming themselves into dissipation.

But unless one is to take the view that foreign investment in one's country is inherently bad and foreign consumption of one's country's goods inherently good, I don't see why a Chinese Pat Buchanan couldn't make an identical argument by looking at the figures the other way around: so flawed is the Chinese economy that its people want to consume far less than they are producing - but even with all that saving China still lacks the promising industry or services that would tempt her own people to plug the capital account deficit by investing more at home rather than in the US and elsewhere. As a result, she is only getting by at all by sweating away on the factory floor and then selling more of her goods to the rest of the world than she is getting back in return. Is this equally one-sided outlook any better than his on America? Is it the economy of a country "subsidizing [American] consumption ... [f]or the same reason a drug dealer hands out samples of crack cocaine to school kids. To get them hooked"?

I am wary of saying this sort of thing is the equivalent of George Monbiot's Tuesday tripe, if only because of Warren Buffet's apparent agreement with some of it. But it does appear that Pat Buchanan's piece contains some unargued assumptions that few real economists - least of all conservative economists - would accept.

UPDATE: Andrew at Southern Cross devotes an epic post to the historical debate.

Great Sites
Tory Party
Reading ...