Saturday, January 30, 2010

Some Good Sense on Trade Policy

John Papola writes in What the Hell do I know? (HERE):

“about 600-year-old defunct economics in the state of the union address?”

“As part of a speech that was marvelously delivered and, as is typical of such things, coated with pandering and economic nationalism, the President made the proclamation that his trade policy would attempt to double American exports. I doubt this was a Steve Jobs-style teaser for a hot new product coming from the Whitehouse that will fly off the shelves worldwide like the Apple iPad. No, this export goal is going to be sought through restrictive government trade and tariff policy. There is a name for this kind of economic policy and it’s nothing new (and certainly not “change”): mercantilism.

Mercantilism is economic nationalism for the purpose of building a wealthy and powerful state. Adam Smith coined the term “mercantile system” to describe the system of political economy that sought to enrich the country by restraining imports and encouraging exports. This system dominated Western European economic thought and policies from the sixteenth to the late eighteenth centuries. The goal of these policies was, supposedly, to achieve a “favorable” balance of trade that would bring gold and silver into the country and also to maintain domestic employment. In contrast to the agricultural system of the physiocrats or the laissez-faire of the nineteenth and early twentieth centuries, the mercantile system served the interests of merchants and producers such as the British East India Company, whose activities were protected or encouraged by the state.

Mercantilism, at its heart, is a deeply pro-merchant/pro-“business” approach to trade, hence the name. Mercantile policy uses protectionist tools like tariffs and import quotas to help the narrow group of exporters at the expense of consumers and society on the whole. Why is Coca-Cola made of corn-syrup instead of sugarcane? Mercantile import quotas on sugar that help out the Domino Sugar corporation at the expense of the rest of us is the reason. Mercantilism is a 600-year-old doctrine, which is funny because many mercantile market skeptics critique the free-market liberalism of Adam Smith as being “our of date” and “a 200 year old doctrine”. Based on age, the trade policy of the Obama administration makes Adam Smith look downright hip

You must read this critique of today’s version of the 600 year-old mercantile policy of modern economies. Follow the link. It’s an highly original – and mostly correct – appreciation of what has been going on since Adam Smith’s time.

The facts are that not much notice was taken in practice in regard to Adam Smith’s detailed critique of the mercantile political economy, laid out on Wealth Of Nations (mainly Book IV). Yes, the Corn Laws were repealed, but the British navy and numerous British regiments enforced commercial relations between Britain and subject states throughout the 19th century.

Tariff reform was always on the agenda at some time or another; but kept coming back, and never really went away. It’s not as if Smith advised that all protective tariffs should be scrapped immediately, or overly hasty, or in ignorance of their effects on those dependent on protection to keep their jobs and incomes.

“Slowly and gradually” were Smith’s watch-words.

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