Posted on 03/09/2004 6:13:31 PM PST by freebacon
Discourse on Outsourcing and the disrespect for the Free Market. Has caused me to compile a simple synthesis of basic ideas in order to cast light on the subjects. The Free Market was once an object of liberty which I thought conservatives respected. Hearing some outcry on this website against Outsourcing and the Free Market due to simple fears about job security was rather disheartening. Below is a quick comment on Outsourcing which can be found at http://comment.cio.com/comments/11840.html. Further down is the main article on the Free Market which is informing and should be read by most.
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Protectionist policies do little to ensure national interest, but very often erode it as economies stagnate. It is allways prudent for companies to chase the bottem line for their American investors, and their largly American consumers.
In addition, outsourcing grows global economies, and global markets, creating more opportunities for domestic industries. Protectionism doesn't protect wealth nor create it; It rations it out.
Outsourcing is bad for a few Americans and good for most of them.
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Free market is a summary term for an array of exchanges that take place in society. Each exchange is undertaken as a voluntary agreement between two people or between groups of people represented by agents. These two individuals (or agents) exchange two economic goods, either tangible commodities or nontangible services. Thus, when I buy a newspaper from a newsdealer for fifty cents, the newsdealer and I exchange two commodities: I give up fifty cents, and the newsdealer gives up the newspaper. Or if I work for a corporation, I exchange my labor services, in a mutually agreed way, for a monetary salary; here the corporation is represented by a manager (an agent) with the authority to hire.
Both parties undertake the exchange because each expects to gain from it. Also, each will repeat the exchange next time (or refuse to) because his expectation has proved correct (or incorrect) in the recent past. Trade, or exchange, is engaged in precisely because both parties benefit; if they did not expect to gain, they would not agree to the exchange.
This simple reasoning refutes the argument against free trade typical of the "mercantilist" period of sixteenth-to eighteenth-century Europe, and classically expounded by the famed sixteenth-century French essayist Montaigne. The mercantilists argued that in any trade, one party can benefit only at the expense of the other, that in every transaction there is a winner and a loser, an "exploiter" and an "exploited." We can immediately see the fallacy in this still-popular viewpoint: the willingness and even eagerness to trade means that both parties benefit. In modern game-theory jargon, trade is a win-win situation, a "positive-sum" rather than a "zero-sum" or "negative-sum" game.
How can both parties benefit from an exchange? Each one values the two goods or services differently, and these differences set the scene for an exchange. I, for example, am walking along with money in my pocket but no newspaper; the newsdealer, on the other hand, has plenty of newspapers but is anxious to acquire money. And so, finding each other, we strike a deal.
Two factors determine the terms of any agreement: how much each participant values each good in question, and each participant's bargaining skills. How many cents will exchange for one newspaper, or how many Mickey Mantle baseball cards will swap for a Babe Ruth, depends on all the participants in the newspaper market or the baseball card market—on how much each one values the cards as compared to the other goods he could buy. These terms of exchange, called "prices" (of newspapers in terms of money, or of Babe Ruth cards in terms of Mickey Mantles), are ultimately determined by how many newspapers, or baseball cards, are available on the market in relation to how favorably buyers evaluate these goods. In shorthand, by the interaction of their supply with the demand for them.
Given the supply of a good, an increase in its value in the minds of the buyers will raise the demand for the good, more money will be bid for it, and its price will rise. The reverse occurs if the value, and therefore the demand, for the good falls. On the other hand, given the buyers' evaluation, or demand, for a good, if the supply increases, each unit of supply—each baseball card or loaf of bread—will fall in value, and therefore, the price of the good will fall. The reverse occurs if the supply of the good decreases.
The market, then, is not simply an array, but a highly complex, interacting latticework of exchanges. In primitive societies, exchanges are all barter or direct exchange. Two people trade two directly useful goods, such as horses for cows or Mickey Mantles for Babe Ruths. But as a society develops, a step-by-step process of mutual benefit creates a situation in which one or two broadly useful and valuable commodities are chosen on the market as a medium of indirect exchange. This money-commodity, generally but not always gold or silver, is then demanded not only for its own sake, but even more to facilitate a reexchange for another desired commodity. It is much easier to pay steelworkers not in steel bars, but in money, with which the workers can then buy whatever they desire. They are willing to accept money because they know from experience and insight that everyone else in the society will also accept that money in payment.
The modern, almost infinite latticework of exchanges, the market, is made possible by the use of money. Each person engages in specialization, or a division of labor, producing what he or she is best at. Production begins with natural resources, and then various forms of machines and capital goods, until finally, goods are sold to the consumer. At each stage of production from natural resource to consumer good, money is voluntarily exchanged for capital goods, labor services, and land resources. At each step of the way, terms of exchanges, or prices, are determined by the voluntary interactions of suppliers and demanders. This market is "free" because choices, at each step, are made freely and voluntarily.
The free market and the free price system make goods from around the world available to consumers. The free market also gives the largest possible scope to entrepreneurs, who risk capital to allocate resources so as to satisfy the future desires of the mass of consumers as efficiently as possible. Saving and investment can then develop capital goods and increase the productivity and wages of workers, thereby increasing their standard of living. The free competitive market also rewards and stimulates technological innovation that allows the innovator to get a head start in satisfying consumer wants in new and creative ways.
Not only is investment encouraged, but perhaps more important, the price system, and the profit-and-loss incentives of the market, guide capital investment and production into the proper paths. The intricate latticework can mesh and "clear" all markets so that there are no sudden, unforeseen, and inexplicable shortages and surpluses anywhere in the production system.
But exchanges are not necessarily free. Many are coerced. If a robber threatens you with "Your money or your life," your payment to him is coerced and not voluntary, and he benefits at your expense. It is robbery, not free markets, that actually follows the mercantilist model: the robber benefits at the expense of the coerced. Exploitation occurs not in the free market, but where the coercer exploits his victim. In the long run, coercion is a negative-sum game that leads to reduced production, saving, and investment, a depleted stock of capital, and reduced productivity and living standards for all, perhaps even for the coercers themselves.
Government, in every society, is the only lawful system of coercion. Taxation is a coerced exchange, and the heavier the burden of taxation on production, the more likely it is that economic growth will falter and decline. Other forms of government coercion (e.g., price controls or restrictions that prevent new competitors from entering a market) hamper and cripple market exchanges, while others (prohibitions on deceptive practices, enforcement of contracts) can facilitate voluntary exchanges.
The ultimate in government coercion is socialism. Under socialist central planning the socialist planning board lacks a price system for land or capital goods. As even socialists like Robert Heilbroner now admit (see Socialism), the socialist planning board therefore has no way to calculate prices or costs or to invest capital so that the latticework of production meshes and clears. The current Soviet experience, where a bumper wheat harvest somehow cannot find its way to retail stores, is an instructive example of the impossibility of operating a complex, modern economy in the absence of a free market. There was neither incentive nor means of calculating prices and costs for hopper cars to get to the wheat, for the flour mills to receive and process it, and so on down through the large number of stages needed to reach the ultimate consumer in Moscow or Sverdlovsk. The investment in wheat is almost totally wasted.
Market socialism is, in fact, a contradiction in terms. The fashionable discussion of market socialism often overlooks one crucial aspect of the market. When two goods are indeed exchanged, what is really exchanged is the property titles in those goods. When I buy a newspaper for fifty cents, the seller and I are exchanging property titles: I yield the ownership of the fifty cents and grant it to the newsdealer, and he yields the ownership of the newspaper to me. The exact same process occurs as in buying a house, except that in the case of the newspaper, matters are much more informal, and we can all avoid the intricate process of deeds, notarized contracts, agents, attorneys, mortgage brokers, and so on. But the economic nature of the two transactions remains the same.
This means that the key to the existence and flourishing of the free market is a society in which the rights and titles of private property are respected, defended, and kept secure. The key to socialism, on the other hand, is government ownership of the means of production, land, and capital goods. Thus, there can be no market in land or capital goods worthy of the name.
Some critics of the free-market argue that property rights are in conflict with "human" rights. But the critics fail to realize that in a free-market system, every person has a property right over his own person and his own labor, and that he can make free contracts for those services. Slavery violates the basic property right of the slave over his own body and person, a right that is the groundwork for any person's property rights over nonhuman material objects. What's more, all rights are human rights, whether it is everyone's right to free speech or one individual's property rights in his own home.
A common charge against the free-market society is that it institutes "the law of the jungle," of "dog eat dog," that it spurns human cooperation for competition, and that it exalts material success as opposed to spiritual values, philosophy, or leisure activities. On the contrary, the jungle is precisely a society of coercion, theft, and parasitism, a society that demolishes lives and living standards. The peaceful market competition of producers and suppliers is a profoundly cooperative process in which everyone benefits, and where everyone's living standard flourishes (compared to what it would be in an unfree society). And the undoubted material success of free societies provides the general affluence that permits us to enjoy an enormous amount of leisure as compared to other societies, and to pursue matters of the spirit. It is the coercive countries with little or no market activity, notably under communism, where the grind of daily existence not only impoverishes people materially, but deadens their spirit.
Good luck.
Both parties undertake the exchange because each expects to gain from it. Also, each will repeat the exchange next time (or refuse to) because his expectation has proved correct (or incorrect) in the recent past. Trade, or exchange, is engaged in precisely because both parties benefit; if they did not expect to gain, they would not agree to the exchange.
This is not an example of international trade, not even interstate trade, this is nano-economics. Where is the government subsidizing the production of the newspaper, another government with a printing press? This doesn't matter? Then why do free traders defend their policies with talk of governemnt subsidies and exchange rates?In addition, outsourcing grows global economies, and global markets, creating more opportunities for domestic industries. Protectionism doesn't protect wealth nor create it; It rations it out.
This more than anything smacks of socialism.increase the productivity and wages of workers, thereby increasing their standard of living
It would certainly be nice to see this actually happen some day.Government, in every society, is the only lawful system of coercion. Taxation is a coerced exchange, and the heavier the burden of taxation on production, the more likely it is that economic growth will falter and decline. Other forms of government coercion (e.g., price controls or restrictions that prevent new competitors from entering a market) hamper and cripple market exchanges, while others (prohibitions on deceptive practices, enforcement of contracts) can facilitate voluntary exchanges.
Since this is in bold, I assume it is a major point. If so, then why waste your time trying to eliminate a 4-5% tax when there is the 35% income tax, 100% gas tax, 9% sales tax? Aren't you overestimating the damage tariffs are doing to the economy?One more point, you don't have the freedom to just bring anything into this country without it being inspected. And, it is certainly not coercive to charge a fee to offset the costs of inpection at the border.
Okay. As far as I am concerned we're off to a good start. No nonsense about "stop whining," juvenile reminders that "no job belongs to you," or the Limbaugh-Hegecock-Sullivan "jobs is jobs" BS -- "Get a job, any job and shut up, Mister Middle Class Professional! Or, should we say ex-middle class. Hee, hee, hee."
Nevertheless, discussing free markets and Red China together makes no sense. Red China does not play by rules, not even the WTO's rules.
Yes, I know the CIO Online thread was mostly about India. But Red China is a major player here also. India is a socialist country that permits some capitalist functions. Both are not all that respectful of intellectual property, though Red China is the worst offender by far.
Market socialism is, in fact, a contradiction in terms.
Yet, some praise Red China as "market socialism." It probably is an accurate description given their implementation of market factors along with Lenin's New Economic Plan (NEP). But the Party owns the capital. Party members (and their "princelings") are the capitalists unlike the 1920s Soviet version of NEP where individual Russians (nepmen) were the capitalists. The Soviet put an end to it as it threatened to overtake communism and executed the nepmen. In Red China NEP is very successful and it benefits the Party members. Smart!
Protectionist policies do little to ensure national interest
Why do you guys always single out protectionism? Not all of our concerns call for restricting "free" trade. True free trade that is.
I have yet to see an answer to my question. To wit, what does sending our technology, manufacturing, and IT-enabled services off shore and importing those goods and services have to do with free trade?
It's not free trade it's offshoring? Okay. Why do some say we have to offshore to be competitive? Yet their argument goes, we benefit by offshoring, too! European and Japanese companies offshore to us!
Yes, they do. Another question, how can they offshore to us and still be competitive when our own corporations cannot? Yes, I know. Not that many jobs have gone offshore yet but it is estimated that the number will keep growing and growing.
Free trade was suppose to be about "comparative advantages." India and China offer labor of all types. That is their advantage, I suppose.
But how could they use that advantage had not our own government assisted them in building their infrastructures to support the industries being shipped to them by our own corporations?
Both our own government and our own corporations supported by our own taxpayers.
Then there's the pesky little problem of national security.
Or rational --- that's when they realize that in spite of all the pretty-sounding theories, you have to have a job to make it in this world.
Yes, the simple fears of those who are not in academia.
Maybe your definition for standard of living includes deaths per live births, but strictly talking money, here are the World Bank numbers:
GNP per capita 1999, Atlas method and PPP
| Purchasing | |||||
| Atlas | power parity | ||||
| methodology | (international) | ||||
| Ranking | Economy | (US dollars) | Ranking | Economy | (US dollars) |
| 1 | Luxembourg | 44,640 | 1 | Luxembourg | 38,247 |
| 2 | Liechtenstein | .. a | 4 | United States | 30,600 |
| 3 | Switzerland | 38,350 | 6 | Switzerland | 27,486 |
| 4 | Bermuda | 35,590a | 7 | Singapore | 27,024 |
| 5 | Norway | 32,880 | 8 | Norway | 26,522 |
| 6 | Japan | 32,230 | 9 | Iceland | 26,283 |
| 7 | Denmark | 32,030 | 12 | Denmark | 24,280 |
| 8 | United States | 30,600 | 13 | Belgium | 24,200 |
I don't know how you can say we have the highest standard of living in the world any more. Maybe for a collection of states, but that depends on how you define the United States of Europe.
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