A quick question … and an answer

From point 3 on this piece on Rates Blog we have the following statement:

It’s good to see the issue of free trade being debated. Frankly, it hasn’t worked for the middle classes of the developed world. They got cheap stuff, but lost their jobs.

How exactly does this make sense when during the “peak” interventions by China (in terms of their devalued currency) our unemployment rate was at record low levels …

I’ll answer, its because the idea of “taking jobs” doesn’t really make sense – they subsidised their exports, and lent the money to buy them at a low rate of interest (driving down real interest rates, and driving up borrowing).  This imbalance creates losers – the solution isn’t to copy it.

“Jobs” aren’t being created now because of uncertainty – that is the key.  We need to talk about ways that we can deal with uncertainty at the moment (if at all) – not start arbitrarily restricting trade.

Protectionism is not the way to go.  There are two types of people who want protectionism:  People like Bernard who want us to do something they believe will improve outcomes, and people like car manufacturers in Aussie who are just self-interested.  I promise you that if we go down the protectionist root route (turns out I’m illiterate, especially when writing these things at 1am), the only people that will be happy will be these car manufacturers – not society, and not many of the people asking for such measures now.



10 replies
  1. Eric Crampton
    Eric Crampton says:

    I’m sure that Hickey’s turn to economic populism hasn’t hurt his web traffic or his ad revenue. He’s supplying what part of the market wants. I never heard him on Radio NZ back when he took a more mainstream approach.

    • Matt Nolan
      Matt Nolan says:

      I’m sure it has helped him – but I’m also pretty sure he believes in what he’s saying.  And I can understand why – when there are a lot of commentators suggesting the same sort of things.

      The real failure of the economics discipline during this crisis has been its inability to lead the debate regarding what is happening, and what (if anything) can be done to improve outcomes.  These are the issues economists have spent their lives training to understand – but then there was no push to try and bring balance to the conversation.

      I just wish I actually knew something so I could at least try – and in this case I do know that protectionism is inappropriate, so the least I can do is point out that this is the case.

      • Kimble
        Kimble says:

        I dont think you can successfully “lead the debate” by saying the same things you have been saying for the past two centuries. Protectionsism as a practical solution should be dead. It isnt. Why? The arguments against it are sound. They have been restated a million different ways.

        Maybe people just get bored? Maybe they think they are being novel when they say, “yes, free trade is good – in principle”, as if they think the ‘principle’ was established in a labratory, and has never truly been tested in real life, or at least, hasnt been tested in the brand new style world we live in today.

        • Matt Nolan
          Matt Nolan says:

          Good point.

          However, surely there is some way we could make our message sexier – make it sexy, and provide an area where people can look for answers would solve a lot of things.

          I guess the problem is that, often, economists recommend “do nothing” – and people struggle with that, because of the illusion of control we all harbor under as people.

    • Matt Nolan
      Matt Nolan says:

      We would need new staff members … although I imagine rauparaha could pull it off.

      If we make a million dollars from a professional stripping operation, I will be sure to give you a cut.

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