localism and free trade

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Erik Kain

Erik writes about video games at Forbes and politics at Mother Jones. He's the contributor of The League though he hasn't written much here lately. He can be found occasionally composing 140 character cultural analysis on Twitter.

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27 Responses

  1. Avatar Nathan P. Origer says:

    Erik, thanks for the rejoinder. I’m drinking, in Chicago, enjoying life with friends, so I’m not really free to reply in the depth that this deserves, but I should clarify on one point:

    “I’m not sure about the bit about supply and demand – communities are built upon supply and demand, and so long as these are natural things, they are hardly anything other than the natural process of free trade.”

    I didn’t mean to suggest that supply and demand should be denied their proper roles, but, rather, following Röpke, that we need more, that we need to keep them in their proper place — natural, as you aptly note — and let more important bits (Apologies for the loose, beer-driven terminology.) — Burke’s “unbought graces”, and so on, have their place, too.Report

    • Avatar E.D. Kain says:

      And that’s a very good point. I agree – and I think the critique is very important and very needed as an ethical or cultural critique, but then falls short or becomes impossible as a political position. I’d say that while we cannot legislate that ethic, we can remove state intervention that promotes greed or entitlement or any of the other vices that seem to come part and parcel with the sort of capitalism we’ve adopted in America today. Absolutely.

      Enjoy your beers…..Report

  2. Avatar Bruce Smith says:

    One of the ideas of the State was to haul the cheats and free-loaders into line (Enter taxation) to contribute towards the Public Goods that the market wouldn’t touch because it couldn’t make big enough profits (Medicare and education to name but two). The old Victorian idea and earlier of relying on private charity to supply the Public Goods never worked because of the cheats with wealth never being sufficiently charitable. Now, however, we have a situation where private enterprise free-loads off the central state with impunity (bank bail-outs and farming subsidies to name but two). Free-loading obviously also takes place at the local state level albeit at a lower scale of operation. Since we can’t go back to a state-free hunter-gatherer set up (Show me the state free example the Libertarians dream of at a town size) because of the commoditization of nature turned into property rights we have no choice but to look at ways of preventing the state being used as a tool of unscrupulous elites. Naturally we can pursue a parallel course of getting the state out of lives by ensuring that everybody can afford Public Goods supplied by the market (profit or non-profit). Key to all of this, however, has to be everybody’s recognition that property can be used as power to free-load off the work-force, consumer and tax-payer and appropriate mechanisms have to be put in place to prevent this happening whilst retaining the benefits of a capitalist market system. That is the central message and task coming from the Sub-Prime Fraud generated recession.Report

    • Avatar E.D. Kain says:

      Excellent points, Bruce. I don’t think we can function without a state at all, I just favor as limited a government as possible. I think government can play a role in providing safety nets, and in providing basic services especially at the local level. But I think the current system basically just encourages and sustains the free-loading you’re talking about.Report

    • Avatar Sycophant of the Bourgeois says:

      The problem with this analysis is every good can be called a “public good” in one form or another. Food is a public good; when I’ve eaten well I can work hard to make things for us to trade. Me eating helps you, yet you have no direct incentives to give me food (Identical to the justifications for public schools/health/welfare etc.). And so goes the roundabout explanations for ever expanding state interventions from apparently reasonable people.Report

      • Avatar greginak says:

        And free markets can be posited as a solution to everything. Government can be blamed for everything and assumed to be universally ineffective. Every position can be taken to a foolish extreme. Logical fallacies don’t invalidate the substance of theories.Report

        • Avatar Sycophant of the Bourgeois says:

          It simply requires deeper investigation of the term “pubic good.” True non-rivalry and non-excludability are only enjoyed by one thing, ideas; infinitely reproducible and impossible to own, yet the government has decided to control them.

          When we label things public goods, we open them for true abuse by individuals and “externalities.” When we made roads a public good, they become overcrowded, slow, and inefficient. When we claimed the state owns rivers, lakes, and streams, they become overused, polluted, and unsustainably abused. When the government claimed ownership of the EM spectrum it stagnated development into signal processing and opened up worlds of rent seeking behavior. AM and FM are 50 year old technologies and have had very little improvement since government usurped the spectrum.

          The failures are there, and the list only gets longer as time goes on. I suspect the problem has much more to do with governments than markets.Report

  3. Avatar Francis says:

    ED, so much of what you write is essentially an expression of your desire that your fellow citizens be more like you. As the success of Wal-Mart demonstrates, they’re not. Most people like having lots of cheap stuff, and they don’t particularly care if their fellow citizens lose their jobs, the environment is contaminated half the world away (or even over the next ridgeline) or their descendants will face a radically changed environment.

    Yes, the rich and powerful band together to ensure that government responds to their needs first. Thus it has always been, and at least in this country the middle class has more of a chance to be heard than just about anyplace else. The real problem is that amount of energy contained in a barrel of oil, coupled with the computing power available in a desktop computer, allows the rich and powerful to see the entire planet’s population as an available workforce and any natural resource worldwide as available for exploitation.

    Longing for the past cannot undo the ability of Wal-Mart to manage its inventory so effectively that it can deliver apples from around the world to its store near you more cheaply than you can grow them in your back yard.

    Using government to force Wal-Mart to capture its energy and labor externalities could make your apples more competitive. But (a) that’s hard political work and (b) localists tend to deride the idea of government as a solution. (see, eg, your post about retail delivery of utility services.)Report

    • Avatar Dan Miller says:

      “at least in this country the middle class has more of a chance to be heard than just about anyplace else”

      Really? Our distribution of wealth is the most unequal in the first world, and our intergenerational mobility is low as well (PDF).Report

    • Avatar Bob Cheeks says:

      Yep, that darn Wally World always making me buy their stuff cheaper than Giant Eagle, Sears, Kmart, ect., ect. damn them anyway! Who do they think they are?Report

    • Avatar E.D. Kain says:

      I probably do write in that way, though I’ve never considered it before. Actually Wal*Mart provides a pretty valuable service to especially the poor, though I personally don’t much like shopping there, and find their goods less than durable much of the time. You pay for what you get I suppose.

      But it was the government’s interstate project that allowed Wal*Mart to achieve the logistical capabilities that it now has. Without such a system it would have been far more difficult for that company to achieve the retail dominance it now has.Report

      • Avatar Francis says:

        I’ll agree that the interstate system is a necessary (but far from sufficient) condition for the success of Wal-Mart. Three points, though:

        a. It already exists;
        b. It’s incredibly popular;
        c. It’s increased the productivity of Americans by staggering amounts.

        What’s the first things that the western forces did upon conquering Afghanistan (the most recent version)? Start building roads. Connecting communities to each other is critical to ending rural isolation and (therefore) poverty.

        Mind you, there are big chunks of this country, in the Dakotas, Montana and Alaska, that are miles upon miles from any good road. There is nothing to prevent a die-hard localist from relocating there. (Of course, the US Mail plus an internet connection will prevent too much hardship.)Report

        • c. It’s increased the productivity of Americans by staggering amounts.

          Is this an intrinsically good thing. You tacitly posit that it is, but I’m convinced neither by the following sentences nor by the peculiar conceptions about efficiency and “productivity” to which we collectively adhere.

          Also, although E.D. is right to point out the IHS, he is far from complete in his painting of the picture. The favoritism shown to Wal*Mart (and other larger concerns) even by perfidious officials in our local governments — in the form of tax breaks, training-program grants, roadway improvements, et cetera — plus the extent to which employees of Wal*Mart (and their children) comprise sizable portions of state health insurance programs, inter alia: When we take all of this into consideration, those cheap Wally World prices that Mr. Cheeks enjoys and all of that convenience start to look a lost costlier, particularly when these easily ignored/swept-under-the-rug monetary costs are combined with serious environmental degradation and the loss of local cultural, political, and economic autonomy.Report

  4. Avatar Bruce Smith says:

    I cannot believe even a fatalist like you Francis would be voluntarily wanting to move to China for a factory job. But that might be the reality for you or at least someone you hold dear:-

    http://www.princeton.edu/~blinder/papers/07ceps142.pdf

    http://www.thomaspalley.com/?p=87

    http://message.snopes.com/showthread.php?t=44956Report

  5. Avatar Bob Cheeks says:

    E.D. I believe you’ve nailed it. If gummint did what it’s supposed to e.g. hang a few bastards occasionally then maybe we wouldn’t have so many cheats, thieves, ect. and ‘collectivized’ Catholic Distriubtism can only work (possibly) if there’s a societal collapse and a restructuring and even if there is ‘collectivized’ Catholic Distributism isn’t immune to the libido dominandi, anymore than capitalism.Report

    • Avatar E.D. Kain says:

      I think the motivation behind distributism is very noble, but the practical implementation becomes very tricky. Mainly because there really isn’t any practical implementation. Some goals of distributists, like forming co-ops can be achieved quite easily within a normal capitalistic framework.Report

      • Returning to my original screed, I’d suggest that the Distributist idea of instituting a differential tax — one applied after any (retail) firm exceeds a certain number of stores, which increases more steeply with each expansion beyond a certain number of locations — is a good one. Yes, it’s a tax that “discourages growth”, but it’s one that, rather than burdening every entrepreneur who takes the risk, gives the established businessman a choice: stay (relatively) small and local or pay taxes to expand. Imperfect? Sure. But better than pro-big-business policy and more expansive taxation? I think so.

        Also, I think the Georgist land-value tax offers a reasonable partial solution: No longer does it make sense for speculators to sit on property, waiting for values to increase; homeowners, we can hope, begin again to think of their properties as homes, rather than primarily as “investments”; and it starts to make a hell of a lot less sense for Wal*Mart to sit on thousands of empty stores (with attendant parking lots), leasing a few out, but leaving many vacant, because the company wants to consolidate two locations into one supercenter.Report

  6. Avatar Bruce Smith says:

    Thank you Mike. I think I have read Panagariya’s arguments before but I will read them again. I like Palley’s arguments. As a non-economist they make sense to me. Here is a 2006 one by Palley in which he predicts the Sub-Prime Crash because of the unsustainability of global trading arrangements:-

    http://www.levy.org/pubs/ppb_85.pdfReport

  7. Avatar Bruce Smith says:

    Sorry Mike. I don’t find Panagariya’s arguments very convincing. He seems to ignore the old maxim that to make money you buy low and sell high (Barge Economics).

    Firstly, in Fallacy 1 he argues that the States can make money from selling professional services abroad. Well true a minority might but what is happening is that States trained professional will increasingly be sent abroad to supervise low-wage professionals in other countries to do the grunt work. Call centers were the leading edge of this development.

    In Fallacy 2 Panagariya conveniently ignores that a country like China deliberately manipulates its currency value to stay competitive. He argues that China will demand more goods from America as it becomes richer. Why should it do this once it has gained the expertise and productivity to produce its own technologically advanced goods and services? It will be cheaper under an artificially weighted currency to produce home grown.

    In Fallacy 3 Panagariya again ignores the potential for currency manipulation. Of course there has been the factor of capital mobility for comparative advantage taking place for many years. It was British money, for example, that developed tea plantations in India for the export of tea to Britain and America. Thomas Palley argues that the deadly combination for developed country’s jobs is technological development, capital mobility and currency manipulation. He is also arguing that lower Externalities costs play a significant part and for me supporting a decent standard of Public Goods through taxation is something a country shouldn’t easily surrender. Clearly the issue of factor of production costs being lowered by the admittance of large numbers of immigrants is a contentious issue and large sums of tax payer money is being spent in the United States to control immigration. This in itself is a huge irony but explainable because Americans can see more clearly their jobs going to lower wage immigrants, although to be fair immigrants often get to do the jobs Americans don’t want to do during times of economic bubbles.

    In Fallacy 4 Panagariya thinks that because many jobs in personal services have to stay in the States that helps supports his position on global trade. There seems, however, to be a consensus that many of these jobs pay low wages. In addition that consensus argues that for the bulk of Americans wages have been static for the last thirty years for a combination of reasons amongst them unfair wage bargaining power because of the eradication of trade unions and cheap imports which help maintain a downward pressure on wages. The bulk of Americans it is argued cannot afford to pay higher wages for personal services even if they’d like to. Finally, Panagariya comes very close to stating the real nature of the problem. This is the assumption that country’s like China and India will always want to continue buying America’s IOU’s. The Chinese have recently been exploring ways of not doing this and will no doubt continue to do this because the instability of the American capitalist system they have helped to cause scares them. Secondly, he makes no mention that this instability is because of artificially depressed interest rates and an unnaturally high currency rate which have generated the Sub-Prime and Hi-Tech financial bubbles.Report

    • Avatar mike farmer says:

      So, are you saying we should develop protectionist policies — what policies to do think would remedy the unfair advantage in trade? Now that I know what you are against that won’t work, what are you for that will work? My position is that even with all the problems we face in global trade, free trade is still better than protectionism. As China becomes richer and it focuses on what it does best, we will also be focusing on what we do best — no country can do it all efficiently. Plus, our innovation, productivity and creativity will keep us competitive, unless we hamstring businesses and entrepreneurs by fighting progress and attempting to create some static, safe system to protect workers against change.Report

  8. Avatar Bruce Smith says:

    Erik. Correct me if I’m wrong but I don’t think TLOOG has ever paid much attention to analyzing the role of the State. I’ve always hoped you would. Sure there has been plenty of criticism especially by the Libertarians but little attempt to understand the reason for its existence. Of course the state has been subject to capture by the baddies but what’s news and that hardly means it’s invalid. I tend to find myself in the middle of the vector politics chart and largely subscribe to the views of the 20th century Liberal LT Hobhouse. He argued we all want maximum individual freedom but we live in large societies and to keep our freedoms and societies from being destroyed by other individuals we have to tolerate limits on our individual freedoms. He believed the only acceptable body able to impose these limits in a large society is a democratically elected state.Report

  9. Avatar Bruce Smith says:

    Mike I am not for blanket protectionism. Maintaining competition is important. We need to welcome innovation. The current system though is not balanced. It is dangerous because it is not free trade with the artificial manipulation of currencies and distortion of the interest and currency rates of the United States. Trade with other countries I believe should be balanced by fairness. Why do I believe that? Because I believe there is no virtue in a system where one country has the right to get the better of another country, nor one small group of people the better of all others. That is not to say we should attempt to nullify personal initiative and talent in enterprise just that there should be better balance. The Sub-Prime Disaster is simply a signal to us all that thirty years of neo-liberal economic policy and manipulative “unfree” trade has delivered great imbalance. The renewed interest in the ideas of distributism as a middle way between neo-liberalism and socialism is also recognition of the need to find this better balance and allow more virtue in our societies. It may not be the best way but point me out any other system that is attempting to seriously provide balance.

    As I argue in my previous post to have virtue in society “we have to tolerate limits on our individual freedoms”. This is just another way of also saying to have balance we have to recognize that Liberty is about Control not just in political matters as the Founding Fathers thought but also in economic matters. It is the issue of Control that makes it so important for our times to debate, understand and redefine the role of the State. The Sub-Prime Disaster has made clear to us that we can no longer afford to allow the capture of the State by self-centered elites. But we cannot go back to the small population and substantially property-less hunter-gatherer tribes that decided matters by consent. The Hippie communes of the Sixties were the failed experiments in that direction. These are some of the reasons I cannot be a Libertarian. I actually think Libertarians act as an impediment to having the necessary discussion on the role of the State and also stand in the way of rational discussion of what limits we should tolerate on our individual freedoms because they largely want no limits. Here to dramatically illustrate my point is an extreme example of the importance of society debating and enacting limits. Milton Friedman, a famous libertarian, wanted no limits on the sale of narcotic drugs. Today in Afghanistan opium addiction is a major problem. Babies are born addicted and mothers blow opium smoke in their faces to pacify them and give them their “fix”. Where is the virtue in this? A child surely is entitled to rights? If you believe they do then you have to also believe that Liberty must entail Control. That would mean that if you had lived in the nineteenth century you would believe that the British East India Company (the huge corporate conglomerate that caused the American Revolution) should be prevented by government imposed law from importing opium into China. British military power prevented the Chinese government from doing this so you would have to rely upon the British government doing this. However, since influential members of Parliament also held stock in the East India Company this made it difficult to pass such law. Lack of virtue continues in global trading to this day!Report