Counter-intuitive (4)

As we know, recessions tend to trigger protectionism. Mark's Any pointed out that the whole British job for British workers row that has flared up is tilting at windmills, to which I commented "While I am rabidly anti-EU, I can also see that international labour mobility is probably a good thing...".

Turning to Obama Bin Laden's call to "Buy American", Tim W compiled a list of people who were against the idea over at the ASI 'Blog. The ever readable Karl Denninger (an opponent of bail outs; a proponent of debt-for-equity swaps and as far from protectionist as you can get), came up with a good argument in favour of "Buy American".

To summarise, "... a big part of the current mess [is] a direct consequence of the mercantilism of China, India and many other "low-cost" producers in the world... Global free trade eh? Uh, not quite. These same nations have a hodge-podge of subsidies for local producers for their economy, thereby making import from us either uneconomic or, when they can't manage it that way, they put procedural, capital control and other hurdles up that make "free trade" a joke going the other direction. "Buy American" is perfectly legitimate for government spending in an economic stimulus bill. After all, is not the essential purpose of such a bill to stimulate OUR economy? It is not to stimulate the economy of CHINA, is it?"

Fair enough. On the one hand, if some producer is prepared to sell goods at below cost (which with China is undoubtedly the case), the response should either be "Great! Bring it on!" or the importing government could just slap import duties on the goods equivalent to the subsidy at the other end to level the playing field.

If you believe in free trade, we could allow those subsidised goods to come in without tarrifs, which surely frees up our own economy to shift to higher value stuff? As somebody once said, 'they sell us a hundred million shirts, we sell them one Airbus'. The problem is of course that not only did China and Japan export like maniacs, but they did it on credit - they lent a lot of the proceeds straight back to Western countries. That's why those two countries now hold one-third of global currency reserves.

If the West had had the good sense to invest that money in high tech stuff, then we would have benefitted doubly from the deal. The problem is, we didn't - governments allowed all the cheap credit to go into a property price bubble that doesn't add one dollar, one pound or one Euro to our economic output.

Hmm. But, as DBC Reed explained, diverting cheap credit away from land speculation and into more productive activities is actually quite simple...