Friedman on the minimum wage

Via Mark J. Perry comes this classic 1980 Milton Friedman video on the minimum wage. Professor Walter E. Williams makes a guest appearance.

Cost and benefits of trade

Mark Perry at the Carpe Diem blog writes

From a WSJ article today "China Boosts Lead in Global Exports" about China's exports setting several new records in June:

"China's critics, including members of the U.S. Congress, say an undervalued currency unfairly helps Chinese exporters."

While at Cafe Hayek Don Boudreaux writes,

You report that “China’s critics, including members of the U.S. Congress, say an undervalued currency unfairly helps Chinese exporters” (“China Boosts Lead in Global Exports,” July 11).

Indeed. If Beijing truly is pursuing such a policy, that government is beyond doubt unfairly enriching some people at the expense of others. And the people unfairly enriched do include a few Chinese exporters. Overwhelmingly, though, the beneficiaries are non-Chinese consumers (including Americans) of China’s subsidized exports. In contrast, the people unfairly burdened are exclusively Chinese citizens – both as consumers forced to pay higher prices at home, and as taxpayers forced to fund Beijing’s practice of purchasing U.S. dollars in order to depress the price of the yuan against the dollar.

It is, in fact, obscenely unfair for Beijing to oblige the Chinese people to hand over chunks of their wealth to Americans, even the poorest of whom is far richer than is the typical man or woman in China.

and

Protectionism does reduce U.S. exports. The resulting loss to Americans, though, isn’t the valuable goods and services that Americans don’t ship to foreigners; instead, it’s the valuable goods and services that foreigners don’t ship to Americans.

Consider the U.S. exports that Mr. Norton mentions. Directly or indirectly, South Koreans purchase these exports with South Korean won. Of what use are won to Americans except as currency for purchasing goods and services from South Korea? If South Koreans refuse to pay for exports received from America – or insist on paying for these exports only with Monopoly money – no one would regard Americans’ failure to export to South Korea as a loss to America.

Americans’ losses from protectionist policies are measured exclusively in the value of the imports that those policies prevent us from receiving.

So if China is undervaluing its currency, then long may it continues as we get the benefits and the Chinese pay the costs. And remember the up side of trade is the imports we get, not the exports we have to give up to obtain the imports.

Nations don't trade with each other; individuals do

Mark J. Perry makes a good point at his blog Carpe Diem: Nations Don't Trade With Each Other; Individuals Do. Perry opens by quoting the Washington Post

WASHINGTON (Reuters) -- The United States imported $2.74 billion of "oil country tubular goods" from China in 2008, more than triple the previous year, as a surge in oil prices led to increased demand for the oil well tubing and casing.

Perry then writes,

The statement above perpetuates a common misconception about international trade that clouds clear thinking about the topic. Technically, the United States did NOT import $2.74 billion of steel pipe from China, at least not as a "country." It was dozens, if not hundreds, of American-owned companies that voluntarily placed hundreds, if not thousands, of individual purchase orders in 2008 to purchase Chinese steel from dozens, if not hundreds, of steel-producing companies in China who filled the orders totalling $2.72 billion, and shipped the steel.

The reason this is important is,

Starting with the fallacy that countries, not individuals, engage in international trade, it's then much harder to realize that it's individual American companies and consumers who are penalized, taxed and disadvantaged by trade protection. By understanding that only individuals ultimately trade, it's then much easier to see that trade barriers typically protect a concentrated, small but well-organized group of inefficient domestic producers from more efficient foreign competition, while imposing huge and significant costs on other Americans - domestic companies that buy imported inputs and ultimately millions of U.S. consumers.

Remember it is companies that are trading, it's companies that have to pay the taxes (tariffs) to our own government. In the case of New Zealand tariffs on, say, Chinese goods the tariffs (that is, taxes) are being imposed not on the Chinese government or even the Chinese manufacturers, but on New Zealand companies who now are taxed for buying goods from China, and then those taxes are ultimately passed along to the individual New Zealanders who purchase the Chinese goods directly or purchase other consumer products that use the Chinese goods as inputs.

Protectionism is doing to ourselves in peacetime what our enemies to do us in wartime

This graph comes from Mark J. Perry's blog Carpe Diem.

The graph shows the volume of U.S. exports of goods and services, in inflation-adjusted dollars, annually from 1929 to 1945. The effects of protectionism - the Smoot-Hawley Tariff Act of 1930 - are roughly the same as the effects of war - World War 2. Trade protection amounts to making economic war on yourself.