Saturday, July 28, 2018

The Tendency toward Self-Destructive False Equivalence

During the past year, I have heard many advocates of protectionism claim that without tariffs trade is not fair.  The Chinese have tariffs, so we need to have tariffs as well in order to make trade fair.  Trade must be equivalent. If they buy from us, we need to buy from them.

This reasoning makes as much sense as this:   Since I buy from Wal-Mart but Wal-Mart doesn't buy from me, I should stop buying from Wal-Mart.  It isn't fair that trade is one way.

That is mistaken, of course. If we buy from the Chinese, but they do not buy from us, the dollar will become weak, and the Chinese currency, the yuan renminbi, will become strong. The Chinese goods will become expensive, and Americans will stop buying them. That has not occurred because of the policies of China's communist dictators.

China's communist dictators believe that if they do not subsidize demand for their manufactured products, then their regime may collapse.  If rural inland farmers who have migrated to the cities find themselves unemployed, then they will riot.  As a result, the communists depress wages.  In accordance with the law of supply and demand, low wages stimulate employment.  The migrant farmers do not realize that their $8,000-a-year paycheck is small.  They do not know that Americans who are less productive than they are earn $40,000 a year.  

The Chinese use a few methods to keep wages low and to make their urban migrants suffer in exchange for social passivity.  These include printing ever-larger amounts of yuan; using much of the printed yuan for valueless real estate, ghost cities, and pet projects;  suppression of the yuan by directly purchasing US dollars; purchasing treasury bonds with purchased US dollars; and tariffs. 

These are self-impoverishment strategies: They make the average citizen poorer because they weaken the yuan.  At poorer wages, employment is stimulated, and citizens are too busy to riot, but most are poorer.

In exchange, Americans benefit from the option to purchase inexpensive merchandise that is cheaper than we could purchase without China's self-impoverishment strategies.  The cost of that is that some manufacturing plants close, but the benefit outweighs the cost.  If every American spends more on manufactured goods, the cost is enormous; if there is a 20% increase in manufacturing employment, the benefit is small. 

Americans follow similar but more moderate self-impoverishment strategies.  For instance, America's Federal Reserve Bank prints lots of paper money and hands it to unproductive Wall Street stock jobbers, investors who are so incompetent that they required a $29 trillion bailout ten years ago and continue to require ongoing monetary subsidization.  

The ongoing subsidization of Wall Street makes Americans poorer, of course, because someone has to pay.  At poorer wages, Americans enjoy full employment, but we don't go as far as the Chinese because our farms have been integrated into the modern economy.

Nevertheless, Wall Street benefits from other self-impoverishment policies. The subprime crisis and excessive investment in technology both have benefited investors at the expense of American workers. However, Wall Street does not benefit from tariffs and trade impediments, which are also a self-impoverishment strategy.

The decision to establish tariffs would ordinarily make Americans poorer; however, do not underestimate the stupidity of the Chinese.  They may decide to make their citizens poorer still by further purchasing additional dollars.  This may result in Americans' becoming richer as the dollar strengthens; however, there will be further disinvestment in domestically produced importable merchandise--the opposite result of what Trump's supporters want.

The tendency toward self-destructive false equivalence is seen on the left as well as among Trump's supporters. Many leftists make this argument: America is the only country to have a political commitment to freedom; isn't that a reason to end the political commitment to freedom?  Well, yes, the rest of the world has a history of gassing dissenters and Jews, and left-wing, social democratic regimes are in that long tradition.  The left has a long history of self-destructive, delusional false equivalence. It is sad that the majority of Trump's supporters have adopted it as well.

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