[ILEcon] Protectionism vs Free Trade FITE!

Oh, that is comedy...

Every time you buy products such as food or gas, you are impacted by unregulated, secretive and often foreign commodities futures markets.

Foreigners!

Sign the petition!
http://www.truthonoil.org/too/

Some will claim that regulation of commodities speculation and hedging will cause an imbalance of free enterprise and undermine our system. The current speculative oil price run-up is eroding our economy, bankrupting businesses and coming at the expense of the American people.

TruthOnOil believes in and supports free enterprise and that hedgers/speculators are a necessary part of the equation. The current situation has been triggered by the fact that 71% of overall oil futures trading is now being done by “Index Speculators” verses “Physical Hedgers.” By comparison, in January of 2000 Index Speculators accounted for only 37%.[1]

Index Speculators are outside of the companies like the airlines, trucking industries, manufacturers, etc., who use hedging as part of their business model and actually consume the commodity; whereas the Index Speculators are merely buying and selling the contracts in order to push the price up and take a profit.

Bad Capitalists vs Good Capitalists fite

Speculators would be pushing the price down if that's the way they though it would trend.

I did think of subtitling this 'Capitalism will eat itself' or some such. everyone likes the market until it kicks them in the nuts.

"We, the undersigned, have no problem whatsoever with free trade until it suddenly results in something we don't like and then suddenly it's terrible in this one situation, but otherwise, yay free trade, yours, a coterie of hypocrites".

I'm sure I was reading something about Obama along these lines recently, but I can't remember what it was. Stupid brain.

Obama has been making protectionist noises, but I think he has shied away from having an actual policy on it.

Something about oil...wait I'm getting there...

Ethanol!

Basically, in favour of subsidies to his constituents and taxes on Brazilian ethanol?

One thing to look for is when people start using the term "fair trade" instead of "free trade", i.e. the US govt talking about Japan's auto industry in the 1980s - suddenly it was all "Japan needs to engage in fair trade"

aka

Japan needs to stop making cheaper, better and more reliable cars than us it's not fair.

Protectionism: the WAAAAAAAAMBULANCE of Capitalism.

Saying that "speculators would be pushing the price down if that's the way they thought it would trend" seems a bit simplistic. I mean yeah, EVENTUALLY, that's what happens, but in the meantime you can have an awful lot of froth. A speculator only has to think he can sell to the next guy for a higher price, and when nothing else looks like a safe investment and everyone has become a self-styled peak-oil theorist, that can seem easy to do for quite a while.

That's not to say I think there's anything the government can do about it without causing some other problem.

http://www.nytimes.com/2008/07/17/business/17econ.html?ref=business

Did they all go on holiday? Or are some of them shorting, accentuating the correction?

Sorry to be slightly facetious, but I do think speculation is more about making money out of trends both short and long term, and providing froth for trends, but it about exploiting circumstances.

I know you're better schooled in this stuff than I am, but it seems to me like you're selling the circular logic of "efficient markets" here, i.e. when prices are too high, they fall, therefore if they don't fall they're not too high.

Speculators do distort market it is true but they are exaggerating trends rather than driving them. More importantly they are providing liquidity in the markets which contributes to market efficiency. The idea that if you removed some class of speculators it would all be sunshine and bunny rabbits, which is what the linked group seem to suggest, is somewhat crazy. You could have a situation where production fell because there weren't actors in the market willing to hold oil and oil futures. Oil companies won't sell it if no one will buy it and consumers won't buy unless the time is right for them. Speculators fill the gap in between.

Unless we move to a socialist system where supply and demand are matched by some other means then there need to be speculators in the market to fill the gaps where buyers and sellers don't match.

As we are seeing if the price gets too high demand drops, stocks rise and prices fall.

So you don't think there was anything wrong with what happened in the U.S. housing market then.

I think there was a lot wrong with the US housing market, and the housing market in a lot of places. It was distorted because of credit that was inappropriately easy to come by because banks could too easily dump the risk off their balance sheets.

My other axe to grind here, which has nothing to do with protectionism or free trade, is that high commodity prices and scarcity is accelerating the pace of technological change and the driving us towards a saner, more equitable and more efficient use of resources.

But then it really sounds like you're saying that speculation is a healthy part of the free market... since it also happens to support my agenda.

I could just as easily say that such speculation is bad since it makes it so people can't afford to buy food.

I would rather say that it is the price for having a free and fluid market. Speculation, or rather futures trading came about because it allowed producer and consumer not to have to interact in time or space. It allows producers to invest based on future production and consumers to hedge more effectively.

distorted because of credit that was inappropriately easy to come by because banks could too easily dump the risk off their balance sheets.

This exacerbated the distortion but was not the cause of the distortion. There have been many credit expansions in history before and they all resulted in contractions

While speculators may have helped in providing future infrastructure that wouldn't have occurred at such a pace through the rail bubble of the 19th century and the dotcom boom quite clearly speculators also end up pushing negative or impractical infrastructure such as inappropriate and unnecessary housing stock. or tulips

But the argument here is that speculators are acting as an early warning system re:energy...right? Not sure about the word early but ok with the rest.

How many of these speculators do you think are Chinese btw?

I don't think speculators are, in the main, any more prescient than anyone else they are reacting to supply and demand. The only way they are unique is that they can swing both ways and make money where as suppliers and consumers have definite ideas about which way prices should go. Are they benign actors with no ill effects, of course not but the penalty for not having them would, ultimately, be lower production and higher prices.

this is a good thread - free trade & globalization are some of the few issues i tend to break with leftists & ive really changed my views on in the past 5 years or so

yeah, you should hear me go on a drunken anti-corn rant. fuck iowa, basically is the gist of it.

momus thought that all globalization and outsourcing should be outlawed to preserve "non-western" culture from american movies and pop songs

so many jokes... can't focus...

generally i feel like protectionism is the way to go when you're a growing economy and your local businesses need to be protected from foreign competition, and free trade is the way to go when your economy's strong enough that you don't need protectionism anymore. i don't think the u.s. needs protectionism, for example, but i'm not in favor of dictating "liberalization of trade" to other countries.

good joseph stiglitz article on the IMF meddling in east asia in the 90, with disastrous effects: http://www.globalexchange.org/campaigns/wbimf/stiglitz041700.html

hi speculators have nothing to do with oil prices here are some links to people who agree with me, starting with the most accessible:

http://www.slate.com/id/2195037/
http://www.nytimes.com/2008/06/27/opinion/27krugman.html?ex=1372305600&en=bde3215528c8197c&ei=5124&partner=permalink&exprod=permalink
http://krugman.blogs.nytimes.com/2008/06/24/iron-resolution/
http://www.economist.com/opinion/displayStory.cfm?source=hptextfeature&story_id=11670357
http://delong.typepad.com/sdj/2008/06/oil-and-specula.html

generally i feel like protectionism is the way to go when you're a growing economy and your local businesses need to be protected from foreign competition, and free trade is the way to go when your economy's strong enough that you don't need protectionism anymore.

this looks good on the surface, but what happens is that it encourages countries to do things that they are not good at. additionally, even if the country is good at that thing, because there is no competition from other companies, it doesn't have an incentive to get any better. so it costs a lot to make goods, so the goods cost more, and are less innovative than goods made in other (competitive) markets. the problem is your economy never gets strong enough to not need protectionism, because the inefficient firms or industries are not weeded out through competition and they have no incentive to become efficient.

then when consumers get annoyed enough at being a technological backwater and/or there's an economic crisis and/or the country decides it needs international investment and reduces the trade barriers, suddenly the market is flooded with better goods at lower prices, and the domestic industry dies on its arse. and because you've spent all this time propping up activities that your country isn't good at, you haven't been looking for things that your country is good at, and so the people working in the old industries have nowhere to go.

it's more painful in the long-run, for everyone except the dudes running the inefficient industries (and the politicians who get voted in on the back of doing favours for said inefficient industries)

True, when speculators make mistakes, that is destabilizing. But in the case of oil prices, it's hard to see that speculators are playing much of a role. For one thing, inventories don't seem to be rising. If the inventory data are correct, consumers were burning all that $135 oil.

Hello article from July 12, have you read the news from July 17?

Speculators do play an important role in setting the price of oil and other raw materials. But they do so based on their expectations of future trends in supply and demand, not on whims. If they had somehow managed to push prices to unjustified heights, then demand would contract, leaving unsold pools of oil.

Hello article from July 3, have you read the news from July 17?

sry, i really should have read that article first. still, i think it's hard to argue that speculators are the main reason for higher oil prices. or i guess what ed said already

I don't think the falls of the last few days do anything other than to prove speculators follow (possibly exaggerate) trends rather than set them. No doubt some speculators will have lost money, some will have made some by quick shorts and some will see this as an opportunity to buy autumn/winter dated futures cheaply on the assumption that prices will rise again. (A very few may be taking long term short positions but I don't think that this is very likely to pay off but I could be wrong).

and hat raises a good point. I think the left have failed spectacularly in their response to free trade. If we are not going to replace the market then let us have the fairest and most efficient market possible. I will admit that this puts small actors at risk of loosing out to big actors but the left already has a toolbox for dealing with this which it has failed to use. The response to industrialisation in the 19th and early 20th centuries was collective action. Labour organisation, cooperative wholesale, retail and production, mutual and friendly financial institutions. The response to globalisation and free trade should have been to take a good solution that has worked on a local and national level and push it out globally.

Why should NGOs have the monopoly on micro credit driving small scale third world enterprise? why aren't there international freindly societies and credit unions? Where are the multinational food co-ops? Why are global banks and insurance companies all for the profit of the few rather than the benefit of depositors?

The biggest scandal is that unions have been at the for front of globalising organised labour in the face of globalising industry.

None of this would be easy and it would face plenty of opposition but so did the creation of all these things on a local and national level. Instead of trying to, canute like, turn back the tide of globalisation, we should have been working to raise the living standards of workers world wide to level the playing field.

Ed I take it you know about this?

http://www.nytimes.com/2008/07/03/us/03union.html

Indeed I do, 30 years too late, at least and why aren't they merging with Indian and Brazillian trade Steelworkers' Unions?

http://www.nytimes.com/2008/07/18/washington/18speculate.html?hp

Idiocy, pure idiocy. Might as well just close the Nymex because this is what this bill will do.

We are fortunate that the Senate only has 1/3 of its members elected every cycle.

So what do people think of the collapse of the Doha round of the WTO talks. Plenty of people saying it will be back in 2009 but can this kind of multi-polar, multi-faceted trade deal ever really work? Potentially there was a lot of good in this deal not least the slashing of US and European Farm subsidies if only because both countries could really use the money and less distorted internal food markets, even ignoring the global benefits.

Should Doha be persevered with or is it a waster of time and we should do sector by sector deals, bilateral deals or even unilateral actions to free up trade?

With reduced self-sufficiency in many countries, increased inefficiency and waste, increased transportation distances and fuel usage, think we need to question the idea of Trade as a universal good to be pursued at all costs - particulary in regard to food

Whatever you think about carting food around the world, and I don't think it is a particularly healthy think especially where it comes to supplying the rich with year round out of season luxuries, you cannot see the current situation where massive subsidies and tariff protect farmers in developed countries from the market and third world farmers never get a look in in their own markets due to commodity dumping on a massive scale.

The biggest loss by not having doha go through is not achieving any cuts in US and European subsidies and protections. Subsuidies distort markets. They force third world farmers to grown cash crops because they can't compete with imports. If subsidies were removed then the true price of things would become apparent and third world farmers would be in a much better position to compete in local markets.

ive arrived at the position that free trade is basically ok, protectionism is generally a bad idea - but - globalization needs to be heavily regulated both inside the participating states and by an international labor authority (which doesnt really exist right now) - do i need to refine this any further?

i guess what im asking is - who should i align myself with? what organizations are advancing this cause? i dont know anything about trade stuff

knew i shoulda watched those new star wars movies

lol

i think uve arrived at the position of much of the establishment/moderate left not sure what you mean by "align myself with" here - politically? philosophically? economically?

do i need to refine this any further?

there are big qns here about what the regulations look like and how they're implemented and also what the goal of your labor authority is - full employment vs. employment protections &c.

i think your probably good if you keep voting democrat and never go to seattle

I was OTM on this thread about oil

Jon Schwarz
‏@tinyrevolution
We must pass TPP because "trade supports peace" says the CEO of Xerox, which helped the Nazis organize the holocaust

https://www.washingtonpost.com/opinions/how-passing-the-trans-pacific-partnership-will-be-good-for-america/2016/09/27/5fcd31b4-8386-11e6-a3ef-f35afb41797f_story.html?utm_term=.f24dfab00ffd

http://qz.com/840973/everything-we-thought-we-knew-about-free-trade-is-wrong/

Anyone have thoughts on this? Dean Baker tweeted it and seems to agree with it.

tl;dr, i stopped at this indulgent piece of biography

The godfather of free trade, David Ricardo, was a cool guy. A Sephardic Jew of Portuguese descent born in the Netherlands, he was the third of 17 children. He learned markets from his father, a stockbroker, for whom he began apprenticing when he was just 14. In his early 20s, he eloped with a Quaker woman, and converted to Unitarianism, prompting his parents to disown him. Ricardo struck out on his own, building a successful bond trading business.

can u c/p the good parts?

ok sorry I read most of it. IMO there is prob a good way to make this argument, but this is terribly written/argued and gets basic shit wrong

to just pick one, author shows that net exports decreased and says,

"Why ... did Nafta not encourage Mexican consumption of US goods?"

um... it did! that's not what net exports tells you. net exports negative just means they sold relatively more to us

https://www.uschamber.com/sites/default/files/nafta.png

maybe a better graph to make the same pt

http://www.ncpa.org/images/1733.jpg

BLUF, economic stability and a healthy middle class have to be won through global cooperation on exchange rates and labor standards. Nobody is going to do either of those things, so whatever.

Trump’s victory highlights the dangers of misinterpreting Ricardo’s theory. For decades, free-enterprise enthusiasts oversimplified the implications of his model, encouraging policymakers to ignore its consequences, and assuring them that free trade always created jobs. That has left the global economy—and American politics—dangerously unstable.

So does that mean that Trump is right in his anti-free trade crusade? No, says Dani Rodrik, economist at Harvard University.

“Trump is correct about the malaise that lower and middle class voters feel, but I cannot think of a single trade policy of his that I agree with. He is deluded in thinking that he can bring manufacturing jobs back to the US by changing trade policies,” Rodrik says. “And his belligerent, unilateralist tone on trade policy will do more harm than good.”

In this sense, Ricardian analysis is right: The jobs America lost in the last half-century would inevitably have been shed due to comparative advantage, as US productivity climbed. To bring them back now would cost the US economy enormously.

But you should skim the whole thing for yourself.

Running a trade deficit isn’t necessarily bad—provided a country is doing so for the right reasons. Under standard trade theory, says CEPR’s Baker, foreign investment should flow into poorer countries. By definition, bringing in more capital than you’re sending out to the rest of the world entails importing more goods than you export.

this is also wrong

"By definition," always a red flag

this is a better skeptical free-trade take IMO

Is there some policy the U.S. could have used to protect more workers from Chinese competition in the 2000s, without inflicting undue harm on itself or on the impoverished masses of China? I think there might have been one: export subsidies to cancel out Chinese currency manipulation.

For most of the 2000s, China kept its currency, the yuan, artificially undervalued, probably to stimulate exports. The U.S. refused to respond to this by officially branding China a currency manipulator, but in fact it was. China’s currency peg acted as a tax on U.S. exports to China and a subsidy to Chinese exports to the U.S. -- according to some sources, the size of the tax reached as much as 40 percent.

A system of U.S. export subsidies -- basically, paying U.S. companies to sell things to China -- would have canceled out the tax China’s currency put on U.S. exports. In the best-case scenario, China would have agreed to change its peg in exchange for elimination of U.S. subsidies -- but even if that didn’t happen, U.S. subsidies would have canceled out much of the distortion created by China’s peg, allowing more domestic manufacturers to survive.

Such a policy wouldn't have killed trade with China or left Chinese people impoverished. It even might ultimately have been to China’s benefit. China now is suffering from a broken investment-heavy economic model, which was encouraged by distortionary Chinese government policies. The currency peg was almost certainly one of those distortions. So countervailing subsidies by the U.S., by canceling out other distortions, might even have been good for both countries.

I think it’s unfortunate that our knee-jerk bias in favor of free trade prevented us from taking this step, which would actually have mostly been just an offset of China’s own distortion of free trade.

Now it’s too late. China’s economic slowdown has reduced the currency’s value, so that the yuan is, if anything, kept artificially strong instead of weak. The window for the kind of intervention I just suggested has closed. It's likely that the entire China trade shock has run its course, as Chinese labor and other costs skyrocket and the economy shifts toward more consumption and domestic demand. Our best bet now is to focus on worker retraining and relocation.

https://www.bloomberg.com/view/articles/2016-01-28/china-trade-shock-for-u-s-workers-was-avoidable

flops do you concur with my executive summary though

i agree with the "Nobody is going to either of those things" part, but in terms of how the 100 Trillion dollar question of get economic stability and middle class growth i have no answers

I wanted to ask about the idea of sanctions and protectionism having some degree of overlap, partly in relation to oil prices and the relative resilience of the Russian economy, but also in general

I get that sanctions are a blunt tool and have different outcomes in different circumstances, but at least in terms of oil are they actually helping the Russian' economy by. keeping oil prices high? (though I also noticed natural gas prices have fallen considerably over the same time period).

Would a better strategy be to tank oil prices by ramping up production elsewhere? But then while this is fine for Saudi Arabia, production costs per barrel in the US must be higher than elsewhere and prices dropping too much would hurt the US more than Russia?

I'd like to focus on the mechanics of how these things work to get a better understanding, more so than the rights or wrongs of it

.