Tuesday, December 02, 2008

As if we already didn't know Pat Buchanan is an idiot

He supports a bailout for American automakers, the supposed necessity of which I debunked the other night.

He complains that other nations are manufacturing powerhouses that sell more to us than we sell to them. Do I sell any bananas to my local grocery store, let alone an equal quantity that I buy from it? Have I sold two computers to Dell, to balance the two wonderful machines I've bought since last year? Of course not, and the same principle applies to everything else. It's perfectly normal to buy more from someone than you sell to the same; it's all balanced out in the end. Your trading partner may not even buy something else directly from you, but rather trade with someone else who might trade with you, or trade with someone else who trades with someone else who trades with you, ad infinitum. Trade isn't a matter of starting and ending points, but rather a complex web where everything (everyone) is connected -- perhaps not directly, but eventually connected through others. The bottom line is this: do you produce enough to buy what you want? For as Bastiat taught us, "Man produces in order to consume. He is at once both producer and consumer."

And Pat Buchanan complains that other nations don't tax their industries like we do. So the solution is for other countries to implement onerous taxation and reduce their own manufacturing output, in turn reducing the standard of living for everyone? Walter Williams put it best: "Imagine that you and I are in a rowboat. I commit the stupid act of shooting a hole in my end of the boat. Would it be intelligent for you to respond by shooting a hole in your end of the boat?"

As Bastiat taught us over a century and a half ago, it's a gift when other countries can sell us something at a lower price than if we made it ourselves. Consider his five points:
(1) That to equalize the conditions of production is to attack exchange at its very foundations.
(2) That it is not true that job opportunities within a country may be choked off by the competition of more favored countries.
(3) That, even if this were true, protective tariffs do not equalize the conditions of production.
(4) That free trade equalizes these conditions as much as they can be equalized.
(5) Finally, that it is the least favored countries that gain the most from exchange.
So why should we think it's "unfair" when South Korea buys very few cars from us? They specialize in building cars there, so it makes no sense for them to import American cars that cost more because of shipping, and which are probably unreliable. By definition, there is a balance in everything that exchanges hands, unless the South Koreans want to hold on to physical dollars (which does them no good). So the South Koreans buy American-made heavy machinery like John Deeres and Caterpillars, Boeing aircraft, maybe American-written computer software. They can also buy U.S. Treasury securities, or dollar-denominated U.S. assets like stocks and corporate bonds, or use the dollars to buy crude oil and other globally trade commodities that are priced in dollars. As I said in my first lesson for Warren Buffett, any currency eventually comes home:
Israel is running a trade deficit, which is actually typical of growing economies today, and Buffett is helping to balance it by acquiring Israeli assets. It wouldn't matter if Buffett were involved in 0% or 100% of all exports to Israel. Buffett would eventually do business with someone who would eventually do business with someone who exports goods and services to Israel. The money might get converted from shekels to euros to pounds sterling to dollars, and then Buffett would convert them back to shekels. It all balances out in the end.

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