Trade, Tariffs, and some Basic Economics

Why does trade occur? Fundamentally, trade takes place in order to better the lives of those participating in the trade. You trade money for food because you are hungry and money doesn’t taste very good. Each party values what they are trading away less than what they are receiving in return. That is why the trade occurs.

Another way to look at trade is that it increases efficiency. As people (and companies) trade, they move closer toward an optimized equilibrium. There is an economic principle known as marginal utility. The idea is that the more of a thing one consumes, the less valuable each subsequent unit of the thing becomes. If you are hungry, a hamburger may be very valuable to you. You might even be so hungry that a second burger sounds good too. But how about a third or a fourth burger?

If you were willing to pay $10 for the first burger, does that mean that you would also be willing to pay $100 for ten burgers? Of course not. The utility of the tenth burger is far below that of the first. The reason this is relevant to efficiency is because trade allows people who have more of something than they need to transfer it to someone who values it more highly. You were willing to pay $10 for a burger. Presumably so are others. You aren’t willing to pay $100 for ten burgers. What about $50 for ten burgers? It’s a better deal on a per-burger basis, but you still aren’t hungry enough to consume ten (or even five) burgers.

What to do with all those extra burgers? Trade, of course. At $5 per burger, you can now trade them to people who want them enough to pay $10 a burger and make a nice profit in the process. By the time the trading is complete, everyone in the room will have had a burger and everyone will be (presumably) more satisfied than they were before the trades occurred.

Another important economic principle here is the subjectivity of value. Value is not an intrinsic quality of a good. It is an externally ascribed quality that is unique to each individual. A burger is not objectively ‘worth’ $10. It is ‘worth’ only what someone will pay for it. If you are willing to pay $10 for a burger, that means you value that burger at a minimum of $10. Someone else might value a burger at $8. This means they would pay $8 for a burger, but no more.

So what does all of this have to do with tariffs? As we already discussed, trade increases efficiency. It allows people to balance their subjective values and surplus goods as the economy (which really just means all the people in the economy) moves ever closer to that optimized equilibrium. It never reaches 100 percent optimization, of course, because people’s wants and needs are always changing.

Government intervention in the economy reduces efficiency. Every tax (and a tariff is just a tax) and regulation serves to decrease the efficiency of trade. Remember the $5 burger you sold for $10? Now imagine a 10 percent sales tax being added to it. Now you either have to sell the burger for $11 to get the same $5 profit or you can still sell it for $10, but only receive $4.09 in profit. Either way, efficiency is lost because some of what is being traded is removed from the equation. In the next trade, either you or your customer (or both) will have less to spend.

In a free market, the more trades the better because even trades that only increase efficiency slightly are worthwhile. In a market saddled with government intervention, the loss added to every transaction makes some previously beneficial transactions impractical. The more taxes or tariffs that are added to transactions, the fewer transactions occur and the less efficient life becomes.

Some people who advocate tariffs believe in a concept called protectionism. This is the idea that if the inefficiencies of high taxes are added only to some goods (or to certain suppliers) of these goods, it will protect other goods or suppliers. Imagine that the 10 percent tax added to the burgers only applied to beef. Turkey burgers could be sold tax-free. This might seem to benefit sellers of turkey burgers as some consumers would see turkey as an acceptable substitute good for beef.

Why is this a bad idea? There are several reasons. The first is that the burger market with the tax on beef is still less efficient than the burger market with no taxes at all. The second is that the consumers who opt for turkey instead of beef just to avoid the tax are not as satisfied as if they had their first choice. A third reason is that the artificial advantage given to sellers of turkey burgers will discourage them from seeking out greater efficiencies or improving their quality or customer service. They don’t need to make these improvements, as their products are already cheaper thanks to the protectionist tax system.

Prosperity is maximized when efficiency in the market is maximized. Your dollars go further, your trades are more beneficial, and your options are expanded. On the other hand, wellbeing is reduced as government intervention increases. Every obstacle which is erected in the path of trade reduces the efficiency that promotes prosperity.

Regulations are another form of mandated inefficiency that governments may inject into an economy. Imagine a new law which requires that every burger be sold with a bib. Who would want such a thing? The bib industry, of course. They would love this idea. Such a mandate might be justified as “saving thousands of jobs in the bib industry,” but would that actually improve the economy?

At first glance, it might appear so, but what is seen is often dwarfed by what is unseen. All the money spent buying unwanted bibs would be diverted from other uses. Every dollar that is spent requires forgoing other options. These rejected alternatives are the opportunity cost of your decision. A dollar spent buying a useless bib can’t be spent on something else that is more desirable or productive. These lost opportunities make the bib mandate a net negative for the economy, diverting resources that would have otherwise been used more efficiently.

There are more problems with the bib mandate, however. A protected industry has little reason to innovate or seek out greater efficiency. The bib industry protected by our hypothetical mandate would have no reason to improve their unneeded product or to adapt their industry in response to consumer demand. Those employed in it would not learn new skills or make any meaningful contribution to human wellbeing.

What of trade deficits? Advocates of tariffs often cite a supposed trade deficit as a justification for intervention in the economy. In short, a trade deficit is the amount by which a country’s imports (typically from one country) exceed its exports (to that country.) The idea that a trade deficit justifies a tariff is incredibly flawed, however. Think about it like this: You buy gas for your vehicle from a gas station. What does the gas station buy from you? According to the theory of a trade deficit, the total amount you spend at the gas station represents a “trade deficit” because the gas station (in all likelihood) isn’t buying anything from you. If you are like most people, the same is true of the grocery store, movie theater, and most other places you frequent.

Is this a bad thing? Not at all. On the contrary, attempting to balance your trade with every trading partner would lead to massive inefficiencies and impose all manner of hardship as you sought to trade your particular skills directly to suppliers of the goods and services required to keep you alive.

Instead, you trade your skills to those who need them, accept money in return as an intermediary, and then trade that money to sellers of the goods and services you actually desire. In this way, you maximize your earning potential by focusing on what you do best and obtain the things you need from those whose areas of expertise are different from your own. This idea is known as comparative advantage. If you are good at painting houses and not very good at sewing clothing, it makes sense to spend your time painting houses and using the money you receive for your painting to buy clothing from someone who is better at sewing. This is another way in which a free market increases efficiency.

Imagine if you had to make everything you consumed. Imagine trying to grow your own food, sew your own clothing (from cotton you grew yourself), and build your own house (from trees you cut down). Yes, people did that for centuries, but now imagine trying to do everything required for a comfortable life in the modern age. Can you make a car? A computer? A smartphone? Can you build an air conditioner or perform surgery on yourself?

Why is it that you can enjoy all of these things without knowing how to make or perform most or any of them? The answer is simple. Trade makes all of this possible. Thanks to trade, you can focus on the one thing at which you are the most skilled while still enjoying thousands of other goods and services provided by other people acting according to their comparative advantage.

Economics can be a complicated subject and many people don’t really understand why the economy works the way it does. That’s okay, but learning about economics and economic principles can also be very rewarding because it helps to explain so much about our world and about human behavior. Learning about economics also tends to make one recognize the foolishness of government intervention and central planning. Such interference not only does not improve human wellbeing, it quite literally cannot do so. The efficiency of the free market cannot be improved through taxation or regulation. The imposition of tariffs or mandates cannot get humanity closer to the equilibrium which all of our trades are chasing. The free market may not be perfect (which is ultimately a subjective opinion), but I truly believe it is as close as mankind will ever get to perfection.

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The First Amendment Protects Ex-Politicians Too

Most Americans loathe “lobbyists,” and most Americans think “bi-partisanship” sounds like a good, moderate idea representing compromise and common ground for the public good. So a surprise “bi-partisan alliance” between US Representative Alexandria Ocasio-Cortez (D-NY) and US Senator Ted Cruz (R-TX), with the proclaimed goal of passing a bill to ban politicians from working as “lobbyists” — maybe for life, maybe just for some long period — after leaving Congress was bound to get some good press.

It’s a bad idea. It’s an unconstitutional idea. And it’s yet more evidence that “bi-partisanship” is almost always less about the common good than about the one value that America’s two largest political parties share: The desire to have the heavy hand of government make everyone else do things their way.

What’s a “lobbyist?” Someone who “lobbies.” That is, someone who attempts to influence public policy.

If you call your district’s US Representative or your state’s US Senator to ask for a yes or no vote on a bill, you’re lobbying that official.

If you write a letter to the editor hoping to bring public pressure on government officials on an issue you care about, that’s lobbying too.

Suppose you make a sign with a slogan on it and join a crowd in front of a public building to have that sign read by the media and, hopefully, by politicians with the power to act on it? Yep, lobbying.

It’s lobbying if you do it on your own. It’s lobbying if you do it as an activist with a grassroots group. And it’s lobbying if you’re paid to do it by a corporation, a theoretically “independent” policy institute, or a foreign government.

What’s the problem with banning former members of Congress from “lobbying?” Try this on for size:

“Congress shall make no law … abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”

That’s most of the First Amendment to the US Constitution. It clearly protects your phone calls, your letters to the editor, and your public protest outings in one fell swoop. It includes no exceptions for former members of Congress, or for people who are paid to speak, write, or protest.

Yes, powerful entities with lots of money like to hire former members of Congress to lobby on their behalf.

Yes, there’s a “revolving door” between Congress, the federal bureaucracy, and those lobbying jobs that lends itself to corruption and sweetheart dealing.

Yes, that’s a problem.

No, a ban on those practices isn’t the solution. It’s unconstitutional, it won’t solve the problem, and a threat to the rights of one American — even a former member of Congress — is a threat to the rights of all Americans.

The only practical, constitutional, and moral way to reduce the influence of powerful lobbies over Congress is to give Congress less  power over the things those lobbies care about — a prospect sure to elicit “bi-partisan” horror among politicians.

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Today’s Schools Are Yesterday’s Streetcars: How Technology Will Transform Education

We can predict the future of education by glimpsing the past of transportation. Fueled by technological innovation, namely electricity, streetcars gradually replaced the horse-and-buggy in the late 19th and early 20th centuries, followed by mass-produced automobiles that ultimately toppled the streetcar.

Throughout the 20th century, cars became safer, faster, cleaner, and cheaper and allowed individuals unprecedented mobility and autonomy. Then, in the 21st century, car-sharing applications showed how technology could once again disrupt the transportation industry, expanding rider options and challenging entrenched systems of control.

Personalized Learning

Education transformation will take a similar path. Fueled by technological innovation, schools are now in the middle of their streetcar moment. Chalkboards are still ubiquitous, but computers are increasingly being used not only to supplement learning but also to administer it. Personalized learning, as this technology-enabled classroom education is called, is all the rage.

In public schools like those using Summit Learning, a personalized, online learning approach developed by Facebook engineers and funded by Facebook founder, Mark Zuckerberg, the computer becomes the teacher, executing a largely self-paced curriculum and offering more flexibility and autonomy for students.True education transformation will come when learners realize that they don’t need an intermediary at all. The platform has sparked controversy, as some parents and educators resist change. Like the streetcar and transportation, personalized learning in schools is altering and modernizing the educational landscape. But it is just a launchpad.

True education transformation will come when learners realize that they don’t need an intermediary at all. Personalized learning in conventional schools will shift to self-directed education or unschooling, driven by the learner herself using the resource-rich networks of both real and digital communities. As Ivan Illich wrote in Deschooling Society:

The current search for new educational funnels must be reversed into the search for their institutional inverse: educational webs which heighten opportunity for each one to transform each moment of his living into one of learning, sharing, and caring.

Illich wrote those words in 1970 before the technological webs now at our fingertips were ever imagined. The funnel model of education, even when augmented by technology, is simply passé. Conflating learning with schooling, mired in coercion and a controlled curriculum, is an outdated idea. Schooling is something that others do to you; learning is something you do for yourself.

A New Perspective on Learning Itself

We already see how this works in our own adult lives. Just as the first automobiles began to disrupt old notions of transportation, recent technological innovations are recalibrating the way we learn. Whether it’s using YouTube to fix a toilet, Duolingo to learn a language, Audible to listen to books, or FaceTime to have lessons with your guitar instructor, technological platforms and applications are quickly helping us to shed our schooled vision of learning. Increasingly, we see that we can self-educate by following our own curiosities and pursuing our own personal and professional goals.

We can choose our own teachers and select the learning tools that work best for us. In his book, Illich wrote,

School prepares for the institutionalization of life by teaching the need to be taught.

Technology frees us from this institutional paradigm of education and lets us teach ourselves.

It can do the same for our children. As our own relationship to learning shifts in response to new technologies that make information and knowledge more accessible, we may begin to question the worn-out ways our children learn. As we realize the value and reward of self-education in our own lives, we’ll want to give this gift to our children.

Minimally Invasive Education

In his academic papers and award-winning 2013 TED Talk, Newcastle University professor Sugata Mitra explains how children teach themselves without institutional schooling. His “hole in the wall” studies have been widely cited, showing how children from the poorest slums of India to elsewhere around the world are able to learn to read, to teach themselves English, and to understand advanced scientific content (like DNA replication) simply by having access to an Internet-enabled public computer.

Mitra calls this approach “minimally invasive education” and concludes in his talk:

If you allow the educational process to self-organize, then learning emerges. It’s not about making learning happen. It’s about letting it happen.

Thanks to technology, we adults now see this learning emerge all the time in our own lives. It can be the same for our children.

In the 21st century, the transportation industry was jolted again by technological innovation. Uber, Lyft, and other car-sharing companies challenged longstanding local monopolies, granting riders more choice and flexibility with better service and lower costs. Next, autonomous vehicles may be the new wave of disruptive innovation in transportation. Meanwhile, in education, technology will continue to expand access to resources, information, knowledge, and skills that make self-education outside of schooling not only possible but preferable.

Like the streetcar and horse-and-buggy, institutional schooling will become a cultural relic, a quaint reminder of yesteryear. We will realize that non-coercive, technology-enabled, self-directed education in collaboration with others results in better, more meaningful, more enduring learning than its institutional predecessors can offer. We will realize that we can be educated without being schooled. Indeed, the future is here.

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“Spying”: Comey Doth Protest Too Much

“We didn’t ‘spy’ on anyone’s campaign,” writes former FBI director James Comey in a recent Washington Post op-ed.

“We asked a federal judge for permission to surveil” former Donald Trump campaign adviser Carter Page,” but that’s not “spying.”

Before that (unmentioned in the op-ed), we infiltrated an informant into the campaign to gather information on its operations, but that’s not “spying.”

What a strange allergic reaction from Comey, and others associated with US intelligence and counterintelligence operations, to US Attorney General William Barr’s simple statement before the US Senate: “Spying on a campaign is a big deal … I think spying did occur. The question is whether it was adequately predicated.”

Comey insists that the spying was indeed “adequately predicated,” and that for some reason this makes it not spying.

It was spying.

You know, the same activity for which 98-year-old Patricia Warner, who infiltrated Nazi circles in Spain during World War Two, just received the Congressional Gold Medal.

The same activity for which dozens of CIA assets have received the Intelligence Star medal, and for which 113 of them have their names inscribed on that agency’s “Memorial Wall.”

The same activity on which the US government spends untold billions per year, assuring us that it is not just good and moral and justifiable, but absolutely necessary to the defense of the United States.

Comey’s trying to have it both ways here.

On one hand, he justifies the spying based on claims that “Russia engaged in a massive effort to interfere in the 2016 presidential election,” and that “we learned that one of Trump’s foreign policy advisers knew about the Russian effort seven weeks before we did.”

He defends the cloak-and dagger approach of the FBI’s espionage (“the practice of spying or using spies”) operation on the Trump campaign, saying that “if there was nothing to it, we didn’t want to smear Americans. If there was something to it, we didn’t want to let corrupt Americans know we were onto them. So, we kept it secret.”

On the other hand, he claims it wasn’t “spying” because … well, just because. “Non-fringe” media, he says doesn’t spend much time on this “conspiracy theory” because it’s just so wacky.

Comey’s sophistry doesn’t even rise to the level of Nixon Logic: “When the president does it, that means that it is not illegal.” His formulation is “if the FBI did it for a good reason, that means the FBI didn’t do it.”

The important question here is not whether the FBI spied on the Trump campaign. It did. Period.

The important question is why Comey doesn’t want to discuss, or even acknowledge, that fact.

The answer to that question is that discussing and acknowledging the irrefutable fact that the FBI spied on the Trump campaign leads into other discussions he finds even less desirable, such as whether the spying was legal — “adequately predicated” — and whether it was politically motivated (in a word, an attempted “coup”).

Why doesn’t Comey want those discussions? That question pretty much answers itself.

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Trump’s Trade War Has Probably Permanently Damaged America’s Tech Leadership Position

On May 15, US president Donald Trump issued an “Executive Order on Securing the Information and Communications Technology and Services Supply Chain.”

Pursuant to that order, a number of firms in the US (including Google, Qualcomm, and Intel) and abroad (including Panasonic and Arm) have reduced or even entirely cut their ties with Chinese firm Huawei.

Beneath the risible national security claims used to justify it, Trump’s order is just another exercise in economic protectionism. He thinks he’s securing America’s position as the world’s leader in the tech sector. In reality, he’s demolishing that position.

Huawei is just one company, but it’s a big one. It sells its products and services in more than 170 countries and to 45 of the world’s 50 largest telecom operators. One third of the world’s population uses its networks.

Trump isn’t just cutting Huawei out of the US. He’s also cutting American companies out of lucrative relationships with Huawei.

Huawei will soon lose access to Google’s Android operating system. It’s already been working on its own in-house replacement for some time. It probably also has contingency plans for replacing the Intel, Qualcomm, and Arm chips in its phones with chips produced in China — perhaps by Huawei itself.

Nothing Trump does can likely put Huawei out of business. He can temporarily hurt it, but he can’t permanently kill it. The most momentous effect of his order is to put Huawei  on notice that it must not, under any circumstances, ever again find itself at the mercy of US suppliers and of the US government’s good will.

If Trump “wins” his trade wars, will Huawei go back to using the US suppliers it was just cut off from? That’s very unlikely.  Once bitten, twice shy.

Other global tech companies and other governments are watching, and unless they’re stupid they’re drawing the same conclusions.  If it can happen to Huawei, it can happen to them. No matter the immediate outcome, Trump’s stunt has done irreparable long-term damage to global trust in America’s tech giants.

As for those American companies, if they’re smart they’re already looking into what it will take to move their executive functions, and as much of their operations as possible, offshore, for the same reasons. They’re in business to make money, not to serve the whims of economically illiterates like Donald Trump.

The Trump trade bubble is bursting. The fallout isn’t pretty. And it’s going to get worse.

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Scott Adams Defends Socialism

On a recent podcast, I noticed a bit of pro-socialism dishonesty from Scott Adams. I wasn’t really surprised, because he is a government supremacist, after all. And you can’t really have a state without embracing socialism.

It was hard to listen through to the end, but I did because I knew it would be important to refute the dishonest claims he was making.

He was first saying that it’s meaningless to be against socialism because socialism is not a thing; it’s multiple things and no one can explain why they believe it’s bad. He attributed this to people being brainwashed by the “anti-socialist” media (FOX News?) they absorb.

But, no one can explain why they believe it’s bad?

Challenge accepted– Socialism is the attempt to base a “society” on theft (usually, by government); driven by envy and entitlement. Taking anyone’s rightfully owned property from them when they’d prefer not to have it taken is theft, even if you like what the property is used for.  Even if the stolen property is used for “good” purposes. I believe this is bad. Pro-socialism people think it’s OK. Who is being reasonable here?

Then he went on to claim that socialism didn’t destroy Venezuela because other countries do fine with socialism. That it was because Venezuela had a tyrant (who imposed too much socialism) rather than because Venezuela was socialist.

He claimed that America does fine with the “little bits” of socialism the US government imposes, and that European countries do fine with the socialism they have. This is also dishonest.

Yes, the US is socialist. I’ve been pointing this out for ages. Democrats are openly socialist, and Republicans are socialists in denial– they still want socialism, they just call it “national security”, “border security”, or whatever socialist programs they like. Am I OK, or better off, because of that “little bit” of socialism?  I’m more than willing to get rid of it to find out which is better.

But, he’s almost right. A little bit of (antisocial) socialism won’t destroy a society just like a small robbery won’t wipe out an individual. But it’s still theft and it still isn’t good. You might survive it but you’re better off without it. And, socialism and robberies frequently escalate into the thief killing the victim. Not always. You probably won’t be murdered as long as things don’t go off the rails in directions which shock, threaten, or thwart the thief, but your death is always on the table for thieves.

If you’ve convinced yourself that ethics aren’t a real thing, that being pragmatic is the way to go, you can justify anything. I hope you don’t follow anyone down that path.

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