Monday, 28 November 2016

What are politicians for?

The Archdruid in his weekly report last Thursday defended the virtues of trade barriers and customs tarrifs between trading countries.  It's an unusual argument to hear today, when free trade is widely accepted, in economic terms, as being beneficial.  He argues that trade barriers between countries help establish a trade equilibrium, and he observes that free trade between nations has resulted in the past, and is resulting today, in enormous inequalities in wealth, along with increased poverty.

Donald Trump has persuaded Ford not to transfer their small car production to Mexico where costs are lower.  This is good news for American Ford workers, but bad news for Mexicans.  Mexicans on average will be poorer; the American car workers will be richer, and the American public will be slightly poorer, having to pay more for their Fords.  Economists will tell you that as a result, mankind overall is worse off as a result.

Let's imagine a large island, a continent that is a single country.  Business goes on as usual.  Goods are traded freely across its entire surface, people move about according to their desires and money flows where it will within the border.  This is normal national management and it proceeds as well as the government of the day can make it.

Now let's imagine that accidents of history, war and politics have resulted in this same continent being divided into three different countries, each taking about 1/3 of the area, with borders dictated by nothing but the hazards of time and chance.  Suddenly trade barriers between these areas are a good thing?  Why should that be?  Our Archdruid argues that they reduce inequality, and he might well be right, but what is the difference between our continent of one country, and the same continent divided into three countries, that necessiates trade barriers in order to reduce inequality?

Britain comprises three nations: England, Wales and Scotland.  When Wales play Scotland at rugby, it's an international match.  The three nations form a free trade area, with monetary union, free movement of goods, services and people, and it has been successful for .... well, a long time.  It's so transparent that many people forget that it is a successful example of monetary union and free trade between nations.   The difference between Britain and our hypothetical continent of three countries is that Britain is centrally governed, and has a central and universal tax system; fiscal union.

When companies are free to move money into different countries with different tax regimes and different costs of business, the money tends to flow to the most advantageous place and stay there.  What doesn't happen is that it gets freely distributed around the countries where the company operates, and it doesn't get taxed everywhere either.   (Apple for example sits on an enormous cash pile held outside of the USA, and has, I believe, borrowed money in the USA because it's cheaper than paying the tax).

Is this the root cause of the increasing transfer of wealth to the 1% (or 0.1%)?    Does this mean that the people arguing for fiscal union in Europe are right?   Noting as an aside that the tragedy of the commons applies to the planet as a whole and not just bits of it, do we need a world government?


Tim Trent said...

The fate of most recent and many historical dictators has been interesting.

Castro actually died peacefully in his bed. Mugabe will, I hope, meet that fate soon. Mussolini only made one train run on time, and died unpleasantly, Hussein, Gaddafi, the bloke with the bad 'tache in Berlin, all this lot and more met the ends that they deserved.

The trump of doom has many similarities with totalitarian egomaniac bullies, and his rhetoric and lies are redolent of the Germany of the 1930s. He, too, has a poor sense of hairstyling.

I am bewildered that the USA has achieved electing the rabid right. I had thought and hoped it was on track to become a civilised democracy.

That is all a preamble to the thought that the tinpot dictator rises to power on the illogic of those who have not. They believe that their idle idol will provide for them instead of providing for himself.

Of course he will head for glorious isolationism. The USA had that in the 1950s, and we could buy US$4 for each £1. He will mine coal and make fake jobs for comparatively few folk and leave the expiry of coal to his successor, I hope in four years time.

Simon Cooke said...

As a politician of sorts I wonder often about the question in your headline. Ideally our job is to make those decisions not better made in a market. In the real world we are the alternative to someone like Castro, Mugabe or Assad putting a gun to your head and saying "do this".

On the free trade thing you're right to question the Archdruid here. Trade decisions (see above) are one of the decisions best made in a market rather than by politicians. And there's no objective different between me trading with a Lancastrian and me trading with a German or an Indian.

Mark In Mayenne said...

Yes, I was trying to raise some questions about free trade, and the utilisation of the planet's resources.

Clearly Trump is happy to promote the interests of Americans against those of Mexicans, and it seems that this is one reason why he was voted in. The morality of the resulting, slightly reduced, average wealth of mankind is a different consideration, one that tends to be highlighted by economists. Do politicians have a responsibility to the world at large or only their constituents?

As for wealth inequality, my question was "Does free trade inevitably lead to gross inequality and increased poverty unless it is combined with fiscal integration?" Experience seems to tell us that it does (and the Archdruid supports the idea that free trade leads to poverty and inequality, without fingering the lack of fiscal unity as the culprit).

So as a corollary, perhaps Europe's problems of inequality between, say, Greece and Germany, are precisely because there is no fiscal unity; in a nutshell, Germany doesn't want to pay for Greece. Perhaps those arguing for "more Europe" are right (in this regard at least).

And finally if we want to have Mexicans, Americans and everyone else benefiting from the world's resources in an equitable way, perhaps a worldwide fiscal regime is necessary, and that inevitably only comes with a world government. They could also sort out the worldwide tragedy of the commons while they're at it. Except that I don't hold out much hope for an acceptable form of world government appearing over the horizon any time soon.

Tim Trent said...

Imagine a Trump as rule of the world, and weep! We need the self interest of different nations to keep some sort of chaotic order.

By the way, a mate in Germany tells me that Greece and Brexit no longer make mainstream news there. Perhaps Greece has been sold to Trump via the Official Receiver?

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