What if the U.S. practiced economic isolationism?

Great Debates
61

You have misunderstood an obvious situation. Rhode Island runs a trade surplus. We export almost nothing, and the rest of the states give us money. A gift, not a debt. And we continue to consume that money and ask for more. If China was giving us money, or cheap goods, for free, I wouldn’t want to change the situation. But they don’t. We send them money, which still has some value, and we get back cheap disposable goods which have no value after a short time.

I see you have another post. Hang on.

62

I’m confused. My analogy was nonsensical because states and nations aren’t bodies and organs. Rick’s analogy was nonsensical because states aren’t nations, and states are not all equal and nations aren’t all equal. Do you fail to understand that they are both nonsensical?

It doesn’t matter. States are not nations. States are all different. Nations likewise are not states, and they are all different. Things that are different are not the same. The difference between the borders between any set of states or any set of nations is as different as apples and oranges. What is good for one does not have to be good for the other. One nation could benefit from isolationism while another one might not. Both could benefit, or both not. Because they are not the same nations. Its that simple.

In case you are still missing it, the US would be better off by cutting Rhode Island loose. We are a welfare state, and we have no valuable resources. But Rhode Island will not benefit from this. That’s because Rhode Island, and the rest of the country are different things. Perhaps you’ve never visited the real world, but there are winners and losers. Do you actually buy things from a salesman who promises that you and he will both be winners? If you do, I have some nice property here in Rhode Island I’d like you to see.

***NOTE: I know that there are several Rhode Islanders who can read and use a computer. My derogatory statements about this wonderful state are made for demonstration purposes only. Please do not be insulted. If I actually felt these things, I would have moved half mile away to live in Massachusetts. By the way, if you live in Seekonk, you actually do live in Massachusetts. There’s no wall or anything, so you have to check your zip code. Stop trying to register your cars here.

63

How can you hold both of these beliefs? If putting a stop to trade will magically make everyone richer, why do you oppose it?

Your “strong suspicion” is wrong, simply as a consequence of comparative advantage. Imagine that, instead of trade, we stopped sharing ideas with the rest of the world. Do you really think that this would result in faster scientific progress?

Wow. If I were challenged to come up with a sentence that inaccurately assessed the US economic situation, I don’t think I could do better than this. Let’s start with “dirt poor.” A person working a minimum wage job 20 hours a week is in the top 14% richest people in the world. Check it for yourself here. Second, as a country we do much, much more than “sell stuff from China to each other.” For example, the US produces over 20% of the world’s manufacturing output cite. I know that people of a certain political bent like to disparage service-sector jobs, but manufacturing jobs are simply not going to be returning, primarily due to technology-induced increases in productivity and NOT TRADE (see here and here). Manufacturing job losses are a global phenomenon, occurring all over the first world (see here), and even in the dreaded boogie-man of China (see here). Further, let’s note that more than half of all US imports, and about 45% of imports from China specifically, are used by businesses in the US to produce other goods (see here and here, respectively). If we were to stop trading with China, the cost of goods would rise not only because labor might move back to the US, but also because the cost of capital good–used by businesses to make other products–would rise as well.

64

You appear to be confused about terminology. If you import more than you export (which Rhode Island almost certainly must, given that you “export almost nothing”), you are running a trade deficit. If you export more than you import, you are running a trade surplus.

Ok, so the world is complicated. I can agree with that.

Maybe the US as a whole would be better off if RI got cut off from welfare. But welfare is not the same thing as trade. Would either the rest of the US or RI be better off if there was no trade between them?

Would I believe anyone who said that? No. But I do, from time to time, give someone else money in exchange for some good. Why would I do this if I didn’t value the good more than the money? Why would they do it if they didn’t value the money more than the good? Seems like a win-win situation to me.

65

Yes but money has very little intrinsic value; it takes a few cents to manufacture a currency note and of course much less to create money electronically. So if hypothetically the US gave China a billion dollars in exchange for manufactured goods and the Chinese ended up stuffing the dollars under their collective mattresses that would be a fantastic deal. In effect the Chinese are giving up valuables goods which cost scarce resources to manufacture while the US is giving up bits of paper which can be replaced at the cost of a tiny fraction of their face value.

Of course the Chinese ended up using the dollars to buy US bonds so we get back to a situation where the US is getting goods in return for promises. Is this a bad deal? Not particularly. For one thing the interest rate on those bonds was pretty low and certainly relative to its economy the size of US external debt is perfectly manageable. In any case the underlying problem is not the trade deficit but the forces which create the borrowing; for example the budget deficits created by the Bush tax cuts. As Hellestal said the trade deficit was just a symptom.

And this is a meaningless distinction. What ultimately matters is whether a particular good or service provides value to consumers and not whether it’s disposable. $100,000 dollars worth of T-shirts are worth as much as a $100,000 house. And not that it matters but the US imports plenty of long-lasting capital goods from around the world including China.

66

Wow. I posted this, did some lawn work, and then made a beer run down to St. Louis to come back to all these responses. You guys rock.

(And no, I am not shitting you. I drove round trip from Milwaukee to St. Louis and picked up a pallet of beer in under 12 hours [it’s a bit of a story as to why]. I swear to goober I didn’t break any speed limits:dubious: )

You’re right. So right that I’m contemplating having this thread closed and starting a new one with that very question. Going to economic isolationism now would be a disaster.

What if we had never allowed all the stuff (like almost everything sold at Walmart) to be made outside the U.S.? What would the cost of these items be now? What would labor costs be? Would unemployment be the issue it is.
Yes automation is an issue. But if the robot punching out paper plates is in the U.S. and not China, there is going to be a different economic impact on the U.S. than there is now, correct?

67

OK, let me go through your points in the order you bring them up:

  • you seem to be assuming that if we went all iso on the world that those jobs would actually be created in this country. Some would, but many wouldn’t because it would be too expensive to produce the good/service here - in fact that’s why it was moved off in the first place.

  • you are right in assuming that the cost difference doesn’t have to be vast to justify importing…sometimes it is, sometimes it isn’t. But that doesn’t mean that it still wouldn’t be devastating. I never said that those with jobs would be making less money; in fact, it will probably have an inflationary effect, for reasons we don’t need to go into here. But since costs will be far higher, those workers’ (and everyone’s) dollar wouldn’t go as far, hence the lower standard of living

  • OK third world country may have been a stretch: but how would you describe an America where most households could afford only one car (at most), one TV, no mobile phones, no home computers, pharmaceuticals at 3x the price… in essence, a much lower standard of living. And we haven’t even talked about $8/gallon gas, which would devastate the country all by itself.

68

Grrr… missed the fckn edit window thanks to my damn VPN s/w that doesn’t like this board…

I see that XT made basically the same points in post 44, sry. And good post, XT, you explain it better than I can.

69

My tone changes depending on my goal when writing a post.

Right now, I’m doing my best to explain this process in a way that is, I hope, easily comprehensible to anyone, even people with no background in economics. If that goal changes, I think you’ll have no problem noticing the shift in tone.

Lantern already answered this.

What do you think dollars are? They’re promises. They’re just cheap pieces of paper that have no value on their own. The value in them comes only from the promise of what you’ll be able to get for it in the future. You earn a dollar today in the hopes that it will buy you something tomorrow, but that’s never a guarantee. If China sends us factory-fulls of goods in exchange for a trillion US greenbacks, then sticks the whole lot under its mattress (great analogy), then we’ve lost nothing. There is no such thing as “bleeding out” when you can create more money at will from pushing a button on a computer.

Now obviously, we don’t want to break our promise and lose our credibility completely. But we are absolutely in a position where we can, say, fudge the promise just a little bit on the margins. If we take as our plan to slowly but surely eat away enough of the value of those dollars, they’ll think twice about using the same technique for their own narrow mercantilistic interests. That can’t work indefinitely, of course. In the long run, the whole situation depends on us getting our debt situation back in order. But our trade partners didn’t put us in debt. We did that to ourselves.

Goods are material wealth, by definition. If they were worth nothing, people wouldn’t fork over good money for them.

I don’t even know what you mean by “nothing to show for it”. I can eat the best meal in the world, and the only tangible thing I have to show for it is rank feces. People enjoy what they enjoy, and sometimes after consumption, there is simply nothing left. I’m not saying that financing consumption with debt is good. It’s definitely not. But that is, again, not a trade problem. That’s a debt problem, a finance problem. It goes back to money, not our international relationships.

If the US has debt, somebody is going to buy it. Somebody is going to lend the US money to keep operating. (Of course, in another couple decades, that situation could change.) A big player in that market right now happens to be China. It’s possible, maybe even probable, that their willingness to buy that government debt, thus preventing crowding out of US private investment, made the pain of our government fiscal irresponsibility too soft for us to notice, thus taking away the normal warning mechanism that tells us we’re in trouble. Maybe that’s so. But China taking the pain away, in the short term, didn’t make our own debt decisions any less stupid. They were always stupid, obviously stupid, whether we felt the pain of the stupidity at the time or not.

As the newest figures show, the US trade deficit is not, in fact, continually growing. It dropped about 15% in July.

I have fulfilled your requirement. You now know that the trade deficit is not continually growing, and so I expect your agreement on this issue, as you said.

The trade deficit will continue to fall in the short term if we pursue a smarter monetary policy, because it, as I explained, is quite often a symptom of poor monetary policy (not just on the part of the US, but also on the part of our trade partners). It will continue to fall in the long term if we can increase savings and get a handle on our debt. Unfortunately, it will grow again if there is another adverse economic shock in the world, as people will rush to the dollar for safety, again, driving up the relative value of the dollar, again, thus making our own exports uncompetitive, again, while making imports cheaper, again, and we’ll have to start the whole mess all over.

Look to the money for the present. Look to our savings and debt for the future. These are the drivers of the trade deficit, not the only way around.

70

Get controlled fusion first. Then tell the world to fuck off.

71

Not without major changes in our built environment, there isn’t. And those changes would take a lot longer than the reserves would last.

72

Okay, Americans are working flat out, creating goods and services, and are also borrowing money to spend on additional goods and services to top up those they are creating. Looks like you are currently consuming as much as you will ever be able to, absent productivity improvements. Stop borrowing and there will be less goods and services consumed. Work less hard and there will be less goods and services created and consumed. All those goods and services aren’t being gifted to foreigners as far as I can see.

Probably a good time to start planning how you are going to live you lives when you are consuming less.

Fantasising about being even richer if you didn’t trade with foreigners is not going to make you wealthier.

Sandwich

PS Quite a lot of what America does currently produce is intellectual property. You already whine about Europeans not paying their fair share of pharmceutical research. After the isolation starts we’ll still keep watching the hollywood blockbusters, running the software, listening to the music and making the pills. As well as making the machinery using patentable innovations. We just won’t be sending any money at all for the licensing. So to that extent, non-Americans will be richer in the short term.

73

Funny, but I had thought about making that suggestion as well. Then, the more I thought about it, the more I realized it wasn’t a better questions. There was no mythical time in the past when we didn’t trade with other countries. In fact, one might argue that the American colonies were set up primarily as trading colonies.

If you want to know what the US would be like if it had been economically isolated, just look at pre-Columbian America.

Remember, no trade means no books, no newspapers, no ideas crossing international borders.

74

You are right there, I’m mashing up terms. It’s not actually trade at all. The point is that RI gets a net gain not a loss.

Glad that’s cleared up.

Given the low level of trade between RI and the rest of the states, the rest would hardly be affected. RI would suffer greatly. But I’m in no way advocating anything but free trade for us. We’re winning that game short term.

Well then you understand the basic nature of the matter. The question is, what good does the US gain from free-trade. It seems obvious to me that we are at a disadvantage now. That’s only my perspective though. Do you think isolationism would be worse? I would agree, but I’m still not hearing why. Inflation isn’t the reason, contrary to popular belief inflation is a good thing, especially for debtors. It’s only bad for people who have accumulated monetary wealth. Those are the actual fixed income group, not those who recieve public money that will have cost of living adjustments. Is it a lack of trade in ideas? What good ideas do we import? We are the exporter of ideas, we which we allow to be traded away without reasonable compensation. Is it a lack of natural resources? There are a few we are short on, but finding alternatives for those will improve our economy. That does point out the problem with isolationism though. If we are totally isolationist, and don’t export, our ideas and inventions can’t be exported to other countries who would provide great demand for those things. But I mentioned early on, once we isolated, the rest of the world would be begging us to get back in the loop. We could use that opportunity to return to the advantageous trade position that allowed us to create the modern world in the first place. Maybe we could be smarter the next time. That seems unlikely though, which is your best argument. Our ability to snatch defeat from the jaws of victory over the past half century doesn’t speak well of adopting any change.

75

You keep saying or implying this.

I just cannot, for the life of me, understand how you can seriously believe that every one of your governments has, for many decades, got it so completely wrong (which must be the case if you are correct).

Europe and the US have been the prime movers in opening up world trade over the last few decades. Why do think they would have done that if they were going to be worse off? Altruism? :eek:

And why do you think that there has not been a truly massive outcry from business and academia if your government has been working hard to increase the very thing that you think has you at a disadvantage?

76

As the newest figures show, the US trade deficit is not, in fact, continually growing. It dropped about 15% in July.

I have fulfilled your requirement. You now know that the trade deficit is not continually growing, and so I expect your agreement on this issue, as you said.

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Agreement. Actually I’m largely in agreement with everything you are saying. You provide reasoned arguments instead of aphorisms to address the issue. I’ve taken an opposing view to elicit such responses. Thank you.

My only differences would be on lumping all ‘material wealth’ into one category. There is huge difference between a house and short life disposable goods (not necessarily with some of the houses being built now). We also import many low grade raw materials from China and elsewhere that lead to lower quality of our domestic products, but that is actually our own fault. And while money is just an IOU, US money is backed with more collateral, and has a better valuation than many other countries. After all, the US has dealt with many economic crises, but China may be about to face its first modern one. Japan may be in the same boat, and they have precious little collateral. But you are right, those aren’t really trade issues.

77

That’s simple: The dilemma of the commons. I don’t argue that some people aren’t better off. The problem is the increasing number of people who are worse off. There will be no outcry from business, they are the beneficiaries. Academic outcry is usually non-existent, or ignored anyway. If you are listening, you will hear the outcry from the vast majority of Americans who consider that the government has not worked in their interests. Sadly, they don’t understand that they are the government in this country, and should blame themselves, but there are other threads to address that.

Another disclaimer: I am not a proponent of isolationism. I don’t think it will work. But the list of reasons why is tired and worn. Inevitably people will seek change, and if they are not presented with change that can be justified as an improvement, they will choose any change. Read Hellestal’s posts. He is addressing the issues directly.

78

If this happens fast enough that there’s an “economic downturn”, we’ll all die. No point in discussing it - especially as that’s all just a temporary effect anyway. (Forty years = temporary, yes.) What you’re discussing with me is what it’s like after the dust has settled.

So yeah - the economic downturn is the biggest thing. And it’s off the table.

I don’t really believe that everything would be completely automated, either.

I have an alternative scenario, yes, and it has the virtue of being possible, unlike the one you present.

Your thesis is that prices will shoot up beyond middle-class wages to the point that nobody will be able to afford to buy anything. Did it cross your mind that this will mean that nothing gets sold? This is a closed system - not only can’t have the asians make cell phones, we can’t sell them cell phones. The market is now here and here alone.

Prices are set at the intersection of the supply and demand curves, give or take some technicalities. (Relevent technicalities, but let’s not get overcomplicated here.) In your imagined world where robots have mainly or completely replaced the human worker…nobody can afford to buy anything. And we’re about out of credit. All those somewhat-more-expensive-to-make shirts? If you don’t price them at a level where your workers can afford them, you won’t sell them, you’ll eat the loss, and you’ll go out of business. And this happens to nearly everyone. That’s the world you are proposing.

However, most businessmen are not going to like the sound of that, and so will instead decide that less profit is better than no profit. So, prices will necessarily not dramatically outstrip wages, simply because doing so is not in the seller’s best interest. Which means that the seller is taking it in the teeth - in preference to losing those teeth.

I will note that this mitigating effect won’t be the same across the board - some sellers might decide that they don’t need to sell DVDs to anyone who’s not independently wealthy, and that they can instead make up the lost volume with absurdly high prices. But I don’t imagine this will be as common as you seem to suppose.

What about things that can no longer be manufactured cheaply enough to be sold at affordable enough prices to generate enough sales to justify manufacturing them? These things simply won’t be manufactured anymore. But there’s no way that everything will fall under this category.

Except that’s completely wrong. It’s wasn’t too expensive to produce here - or it never would have been produced here at all, to be ‘moved’ later. It was just cheaper to produce elsewhere, enabling larger profits to be generated. These profits would just have to shrink back again, when the jobs naturally moved back.

Presuming, of course, that it doesn’t play out that all the foreign workers are replaced by robots. Which frankly doesn’t seem all that likely to me.

I dispute that sellers will choose to drive themselves out of business in the way you describe.

I would describe it as an apocalyptic fantasy that can only be arrived at by both ignoring the effects of closing the borders on the labor market, and by assuming that manufacturers are all morons who would cut off their own heads to avoid having to cut off their noses.

In other words, not something worth discussing.

79

Hi John,

You and I may disagree about things, but I don’t find you unreasonable. I’m sure you meant that ‘citing an authority’ is not the same as the ‘appeal to authority’ fallacy. That would be correct. It wouldn’t be practical to discuss evolution without citing Darwin. Once Darwin is cited, not merely by name, but referencing a particular statement or work, the validity of his arguments could be examined. But RickJay wrote:

*This is not a matter on which there is any general dispute whatsoever among the people who actually study this stuff. *

That is not a cite of an authority. It doesn’t even mention an actual authority much less reference the authorities’ claims. I’m not sure it even qualifies as an ‘appeal to authority’.

I just wanted to let you know I’m not antagonistic towards your point of view. I often find it very interesting, and adding balance to these debates.

80

Begbert, I understand the point you think you are making, I really do. But I never said

Perhaps that’s the source of the confusion here. What I’m saying is, that virtually all goods and services that are now outsourced OCONUS would be more expensive, relative to the standard American’s wage (notwithstanding a couple of lucky breaks here and there, ie we discover some natural resource that we were forced to go looking for since our foreign supplies were cut off, stuff like that).

My point is most definitely NOT that we would all perish. Or enter a new bronze age. Whatever. My point is that there’d be a huge hit to the average American’s standard of living. You could even say that our sources of uber-cheap labor overseas have, to some extent, spoiled Americans, raising the expectation of a standard of living that we’d no longer be entitled to, so to speak. This expectation is why this would be monumentally harder to do in midstream (ie, now) than to assume that we never outsourced anything to begin with (ie, There’s America and the rest of the world was a vast ocean, one where we’d never get a dime’s worth of resource or production). Then our ‘new normal’ would seem reasonable to us.

You seem to be creating strawmen so you’d have something to argue against. In XT’s quote, he said

(talking about manufacture of clothing).

You interpreted that to say

(emphasis mine)

So… maybe we’re in violent agreement?