WEBVTT NOTE The Case Against Neo-Protectionism 1 00:00:00.000 --> 00:00:11.000 Okay, now, what gave rise to this was reading things that, is that legible there? 2 00:00:11.000 --> 00:00:17.000 Reading stuff that Paul Craig Roberts wrote, which is posted up on the Mises website, 3 00:00:17.000 --> 00:00:23.000 and then the subsequent attempts to reply to him, which I thought was a very poor show, 4 00:00:23.000 --> 00:00:29.000 and so I thought someone should tackle it, particularly when I found that time after time 5 00:00:29.000 --> 00:00:40.000 After time people are prepared to make grandiose statements without taking the slightest look at any facts or any figures or anything. 6 00:00:40.000 --> 00:00:47.000 So I thought that as an historian it's my job to set the record straight. 7 00:00:47.000 --> 00:00:58.000 Incidentally if you have any questions or anything just keep asking as we go along because there aren't very many of us anyway and we're all friends so just feel free to comment or whatever. 8 00:00:58.000 --> 00:01:07.000 Okay, we'll start now with the things which I put up there, which are the elements of the argument. 9 00:01:07.000 --> 00:01:11.000 You begin by saying manufacturing employment in the US has fallen. 10 00:01:11.000 --> 00:01:16.000 You now import manufactured goods. You have trade deficits. 11 00:01:16.000 --> 00:01:19.000 Income flows out to those wicked foreigners. 12 00:01:19.000 --> 00:01:23.000 American assets are sold to pay for the trade deficit. 13 00:01:23.000 --> 00:01:30.040 Now foreigners, God bless them, earn trillions of dollars worth of assets, more income flows 14 00:01:30.040 --> 00:01:38.240 out in rent, interest, dividends, profits. Manufacturing jobs have been exported as a 15 00:01:38.240 --> 00:01:46.480 result of investing overseas. Americans are now investing to sell goods inside America, 16 00:01:46.480 --> 00:01:52.640 dreadful sort. Now they've started importing services from Asian countries where you have 17 00:01:52.640 --> 00:02:03.640 Low living standards, people live on the smell of an oil rag, excess supply of labour, marginal product, labour doesn't get its marginal product, 18 00:02:03.640 --> 00:02:19.640 we Americans cannot reduce our living standards to match, we have large enjoying deficits, so free trade in goods is one thing, capital mobility is something else, you might have very sinister consequences. 19 00:02:19.640 --> 00:02:42.640 Okay, now, my initial reaction after looking at that is, first of all, apparently we foreigners do nothing but sit around with folded hands, waiting for the Americans to make a mistake, and then we come rushing in with our manufactured goods. 20 00:02:42.640 --> 00:02:46.640 Okay, we're just sort of sitting there passively. 21 00:02:46.640 --> 00:02:59.640 The second point is that the world should have stood still if it had stood still when American manufacturing employment was X million or whatever the magic figure is, everything would have been alright. 22 00:02:59.640 --> 00:03:05.640 It's only because the world has changed after this dreadful position. 23 00:03:05.640 --> 00:03:11.640 Third question, of course, why has U.S. manufacturing employment fallen? 24 00:03:11.640 --> 00:03:16.240 In order to create trade deficits and problems, there has to be a reason. 25 00:03:16.240 --> 00:03:21.080 So what you've got is something simply dropping from the sky, 26 00:03:21.080 --> 00:03:26.680 concentrating on a few fairly, what appear to be fairly obvious things. 27 00:03:26.680 --> 00:03:30.600 US balances say even certain features in the late 1990s, 28 00:03:30.600 --> 00:03:37.760 and then carrying on as if it all simply occurred in a total vacuum. 29 00:03:37.760 --> 00:03:47.760 Okay, now my response to that runs two of our three pages, but we proceed step by step. 30 00:03:47.760 --> 00:03:53.760 Okay, now I have another thing somewhere here. 31 00:03:53.760 --> 00:03:57.760 I don't find where I've put it. 32 00:03:57.760 --> 00:04:01.760 Oh, here we are. I've taken everything out. 33 00:04:01.760 --> 00:04:09.760 Okay, so the first point of course is that the world does not stand still. 34 00:04:09.760 --> 00:04:20.760 There have been vast changes since the 1970s and what we want to do is have a look at what some of these changes are. 35 00:04:20.760 --> 00:04:35.760 Okay, what the changes will add up to, ultimately, is simply vast increase in capital accumulation in the rest of the world, 36 00:04:35.760 --> 00:04:44.760 production in areas which hitherto had not had industrial production, and therefore everybody else obviously having to adapt. 37 00:04:44.760 --> 00:04:53.760 You can't keep on doing what you've been doing for the last 15, 20, 30, 40, 100 years and then expect to continue along those lines. 38 00:04:53.760 --> 00:05:00.760 Okay, so the first thing is the new developments that we've got. 39 00:05:00.760 --> 00:05:08.760 First of all, we have continued capital accumulation, continued development in all the developed countries. 40 00:05:08.760 --> 00:05:20.760 Western Europe, Japan, all moving even further into industrial production, new types of industrial production, etc. 41 00:05:20.760 --> 00:05:37.760 Then, what we also have is the growth of industrial development in the East and Southeast Asian territories. 42 00:05:37.760 --> 00:05:48.760 South Korea, Taiwan, and the newly industrialized countries of Southeast Asia, Singapore, Malaysia, Thailand, Indonesia, etc. 43 00:05:49.760 --> 00:06:02.760 Okay, and therefore what we have is, as I said, also now China, and so therefore in consequence what we have is the need to adapt. 44 00:06:02.760 --> 00:06:17.760 and so what we have is adaptation in the developed areas. Developed areas adapting, which has been occurring in all developed areas since the 1970s. 45 00:06:17.760 --> 00:06:34.760 Okay, I might add that the growth in these countries is not new, and it is something which has been going on for a long time, and now finally it's reached the point where even the US has to take account of what's going on. 46 00:06:34.760 --> 00:06:40.760 Okay, Japan, as we know, has been developing since at least the 16th century. It's continuing. 47 00:06:40.760 --> 00:06:52.760 South Korea, 17th century onwards. And in the early 19th, early 20th century, it started developing as part of the development of the Japanese economy. 48 00:06:52.760 --> 00:06:56.760 As you might say, the career sector of the Japanese economy. 49 00:06:56.760 --> 00:07:24.760 South East Asian countries, the growth of the international economy in the late 19th century produced growth there, growth in both the economy and in populations, huge increase in populations all around, and that growth was of course export of commodities to the manufacturing countries, and then on top of that you had further industrial growth in the 20th century. 50 00:07:24.760 --> 00:07:33.760 I might add that the newly industrializing countries of Southeast Asia only developed after the late 1970s 51 00:07:33.760 --> 00:07:38.760 because then governments stopped protecting industries and opened economies up. 52 00:07:38.760 --> 00:07:43.760 So that is in itself another example of the growth of the market order. 53 00:07:43.760 --> 00:07:51.760 And of course China only developed after its rulers opened it up to the market economy. 54 00:07:51.760 --> 00:08:10.760 Okay, and so therefore as a result you have the growth in all these areas, therefore growth in exports from these countries. 55 00:08:12.760 --> 00:08:16.760 Okay, US therefore, no exception, also having to adapt. 56 00:08:16.760 --> 00:08:27.840 One method of assessing the growth of production in the outside world and that is the proportion 57 00:08:27.840 --> 00:08:37.240 of foreign trade to aggregate output in the U.S. 11% in 1970, 26% in 2000. I might add 58 00:08:37.240 --> 00:08:43.400 that for all the developed countries the proportions usually run from 35 to 60% and more. In other 59 00:08:43.400 --> 00:08:59.400 In other words, they are all completely and fully integrated into the world economy and most developed countries are, in a sense, sectors, the British sector, the Australia sector, the German sector, etc. of the world economy. 60 00:08:59.400 --> 00:09:17.400 Okay, another example of increasing capital accumulation in the early 1960s, as you've got, I haven't put it up there, but if you looked at the world's largest banks, insurance companies, chemicals producers, car manufacturers, etc., most were American. 61 00:09:17.400 --> 00:09:24.400 But by the early 1980s, the majority were non-American. 62 00:09:24.400 --> 00:09:29.400 We had Japanese, German, Canadian, French, Swedish, what have you. 63 00:09:29.400 --> 00:09:37.400 In other words, capital accumulation elsewhere produces results, which everyone has to adapt to. 64 00:09:37.400 --> 00:09:49.400 As capital accumulation grows and diversifies, we have labour moving into those occupations where labour is the chief input. 65 00:09:49.400 --> 00:09:55.400 Therefore, you find growth of services, and that has been true of all the developed countries. 66 00:09:55.400 --> 00:09:59.400 I don't know if any of you remember this, but I do. 67 00:09:59.400 --> 00:10:13.400 Back in the late 1960s, this was first observed, the Chancellor of the Exchequer imposed his notorious selective employment tax in Britain to try and reverse the process. 68 00:10:13.400 --> 00:10:23.400 And what happened? The manufacturing employment declined by 38.5% between 1975 and 2001. 69 00:10:23.400 --> 00:10:32.400 Okay, even in Japan you find the decreases. Now the decreases are first proportional and then in more recent times if you have a look there are absolute declines. 70 00:10:32.400 --> 00:10:40.400 So that again the US is not exceptional. Everybody has been experiencing decline in manufacturing employment. 71 00:10:40.400 --> 00:10:47.400 Even in the newly industrializing countries you find there's a slight relative growth in service. 72 00:10:47.400 --> 00:10:56.400 Okay, now I've got, I don't know if I've mentioned there, I'll come to that later. 73 00:10:56.400 --> 00:11:05.400 Anyway, if you have a look at the direction of trade for the US, what you find is that, of course, the bulk of the trade is with the developed countries. 74 00:11:05.400 --> 00:11:11.400 In other words, its main trading partners are the ones whose manufacturing employment is also falling. 75 00:11:11.400 --> 00:11:29.400 Okay, right. Now if we go on from there and tackle the next question, and that is capital exports and imports. 76 00:11:29.400 --> 00:11:39.400 Capital exports and imports. Now I would like to underline the point that US capital exports have been going on since the late 19th century. 77 00:11:39.400 --> 00:11:48.920 The capital exports are not new and the operations overseas or in foreign countries have been 78 00:11:48.920 --> 00:11:55.600 exactly, virtually in the same category throughout, manufacturing, particular kinds of manufacturing 79 00:11:55.600 --> 00:12:01.800 at which the Americans are based, mass production, high technology, capital intensive, relatively 80 00:12:01.800 --> 00:12:08.360 little labor, relatively little skilled labor and producing again the kinds of mass production 81 00:12:08.360 --> 00:12:15.440 and Goods, a range of things, cars of course, obviously electronic goods, adding machines, 82 00:12:15.440 --> 00:12:22.320 office machinery, lifts, all the lifts in the world are probably American, elevators, 83 00:12:22.320 --> 00:12:23.320 and so on. 84 00:12:23.320 --> 00:12:29.000 They've been doing this since late 19th century. 85 00:12:29.000 --> 00:12:36.920 US, inward investment into the US again unchanged, going on since the late 19th century, exactly 86 00:12:36.920 --> 00:12:43.960 The same people as who invested in the late 19th century are still chief investors today. 87 00:12:43.960 --> 00:12:49.600 And more or less again broadly the same lines, the kinds of things which they invested doing, 88 00:12:49.600 --> 00:12:55.520 French producing cars, tyres, the Italians also producing tyres, and certain sorts of 89 00:12:55.520 --> 00:13:02.480 highly specialised goods, which in fact these companies produce for the world market, so 90 00:13:02.480 --> 00:13:06.440 they're simply also producing for the US market. 91 00:13:06.440 --> 00:13:12.240 Okay, so that it's no use looking at capital exports or capital imports. 92 00:13:12.240 --> 00:13:15.840 As I said, these things have just been going on. 93 00:13:15.840 --> 00:13:22.840 Okay, so we now come, therefore, to the other points that were made. 94 00:13:22.840 --> 00:13:41.840 The actual figures for U.S. balance of payments. 95 00:13:41.840 --> 00:13:47.840 Now, one reason why I again raise that issue is because, again, we have lots of economists 96 00:13:47.840 --> 00:13:54.840 I've prepared to say, of course, it's the way foreign central banks and others are holding US dollars and therefore we can run a trade deficit. 97 00:13:54.840 --> 00:14:02.840 In other words, the rest of the world gives us the goods free in order that they might have the privilege of holding US dollars. 98 00:14:02.840 --> 00:14:09.840 Okay, well let's have a look at the numbers then to try and see exactly what sorts of numbers are involved. 99 00:14:09.840 --> 00:14:24.840 I've also looked at separating the private transactions from government transactions for a particular reason. 100 00:14:24.840 --> 00:14:33.840 And what we see, have a look at all these numbers anyway, might be useful. 101 00:14:33.840 --> 00:14:44.840 Okay, there we are. I've just pointed out that the FDI in the US comes mainly from the developed countries and if you have a look it's exactly the same countries that were investing at the end of the 19th century. 102 00:14:44.840 --> 00:14:52.840 Japan is in fact a minor proportion of the total and all the others have in fact declined again proportionately. 103 00:14:52.840 --> 00:14:58.840 All right, now what I did there for the next two tables, if you'll have a look please, 104 00:14:58.840 --> 00:15:06.840 is classify it according to the inflow and outflow of foreign exchange. 105 00:15:06.840 --> 00:15:09.840 That is probably the simplest way of putting it all together, 106 00:15:09.840 --> 00:15:14.840 because then putting both capital and current account transactions. 107 00:15:14.840 --> 00:15:19.840 And I did that for 2001, you can do the same for all the other years. 108 00:15:19.840 --> 00:15:28.840 Right. Now, if we look at private transactions, we find exports of goods, exports of services and imports of services. 109 00:15:28.840 --> 00:15:33.840 And we'll come back to this. We have, you know, import of services increasing, et cetera, et cetera. 110 00:15:33.840 --> 00:15:43.840 You notice that there is still net export of services. Income in, income out. There is still net income inflow. 111 00:15:43.840 --> 00:15:54.840 Capital inflow, which provides foreign exchange, and you'll notice at the end that the private sector has not only been providing all of its own foreign exchange requirements, 112 00:15:54.840 --> 00:16:00.840 there's even a surplus which can go to government if government wants it, probably always does. 113 00:16:00.840 --> 00:16:10.840 Okay, and if you look at government transactions, you'll notice very small inflow, very large outflow. 114 00:16:10.840 --> 00:16:17.840 And in fact, I don't know why that's happened there, but the income out has been a huge increase in more recent years. 115 00:16:17.840 --> 00:16:25.840 Possibly someone who knows what's going on will be able to tell me, but that is a major outflow on a government account. 116 00:16:25.840 --> 00:16:35.840 Okay, and as you can see, it's in deficit, and the deficit has been made up by private sector earnings. 117 00:16:35.840 --> 00:16:43.840 Okay, now, what does this mean? This means that, again, the sky is not falling in exactly, you know, perfectly normal situations. 118 00:16:43.840 --> 00:16:51.840 From various sources, the private sector has been obtaining foreign exchange from various sources, and it's been using it for various purposes. 119 00:16:51.840 --> 00:17:04.840 Okay, now, before I... let me go on to have a look at the overall picture, and then we'll go back to see about capital inflows and outflows, what exactly they do. 120 00:17:04.840 --> 00:17:15.840 The number at the bottom there, 9.4 billion, is that the next trade government? 121 00:17:34.840 --> 00:17:43.840 Now, I haven't done all the years it could be done. I was better at using computers. 122 00:17:43.840 --> 00:17:51.840 What I've done there is simply looked at these one, two, three, four, five years. 123 00:17:51.840 --> 00:18:01.840 Now, I haven't actually looked further into these figures, would like to, but you'll notice that so far as the private sector is concerned, 124 00:18:01.840 --> 00:18:08.840 In general, except for two years, it's been providing itself with its own foreign exchange. 125 00:18:08.840 --> 00:18:19.840 So the earnings of foreign exchange and out-curve foreign exchange, not just balanced, but in 2001 you provided the US government with some money. 126 00:18:19.840 --> 00:18:29.840 1990 there was a small surplus, and in the two years in which apparently US government has been supplying the foreign exchange, 127 00:18:29.840 --> 00:18:42.640 The important thing really is the extent to which the U.S. government has been net demanding 128 00:18:42.640 --> 00:18:47.840 foreign exchange which someone else has to supply and that someone else being either 129 00:18:47.840 --> 00:18:53.960 other central banks which means that the poorer populations of poorer countries are providing 130 00:18:53.960 --> 00:18:59.320 goods for free so that their governments can hold U.S. dollars so that the U.S. government 131 00:18:59.320 --> 00:19:07.560 can run a deficit on its own account. Alternatively, in some years, as I said, it might be inflows. 132 00:19:07.560 --> 00:19:13.720 Now, as I said, I want to go into these further, but I suspect that in the years in which I 133 00:19:13.720 --> 00:19:19.320 haven't had a look, you'll have pretty much the same sort of pattern. 134 00:19:19.320 --> 00:19:24.600 Okay, now capital imports, capital exports, what do capital imports and capital exports 135 00:19:24.600 --> 00:19:32.600 If you are going to be a net capital exporter, you have to save the foreign exchange. 136 00:19:32.600 --> 00:19:38.600 That means you have to run a current account surplus. 137 00:19:38.600 --> 00:19:44.600 This is first-year economics, and therefore you can run a capital account deficit. 138 00:19:44.600 --> 00:20:07.600 Vice versa, if you're a net capital importer on net, then you have a surplus in capital account and because people are investing in your country, your territory, you can now get in extra goods from abroad over and above your own current earnings. 139 00:20:07.600 --> 00:20:25.600 So you have extra goods coming in, and if it's on capital account, it means that in effect, you're getting in extra capital goods from somewhere, without reducing your own domestic production of consumer goods. 140 00:20:25.600 --> 00:20:40.600 Okay, now, the U.S. before 1981 ran a capital account deficit and a current account surplus. 141 00:20:40.600 --> 00:20:43.600 In other words, it was a net capital exporter. 142 00:20:43.600 --> 00:20:53.600 Since then, things turned around and the U.S. is now capital importer and therefore runs a current account deficit. 143 00:20:53.600 --> 00:21:04.600 It is in a position to import effectively increased supplies of capital goods without reducing consumption because other people are wanting to invest in here. 144 00:21:04.600 --> 00:21:15.600 Okay, now it's consistent. That picture is consistent because clearly you've got far greater capital accumulation elsewhere, therefore they invest in here. 145 00:21:15.600 --> 00:21:26.600 It is not a case of individually outrunning your own budget and therefore having to borrow and therefore having to sell your house, etc, etc. 146 00:21:26.600 --> 00:21:35.600 The great fallacy of treating the nation as if it were a single individual, it is not. 147 00:21:35.600 --> 00:21:39.600 The balance of payments is a summary of what millions of people are doing. 148 00:21:39.600 --> 00:21:45.600 And that's the way it has to be analysed, it's what millions of people are doing, the net result. 149 00:21:45.600 --> 00:21:51.600 And that shows up because someone somewhere collects an estimate, it's a balance of payments figure. 150 00:21:51.600 --> 00:22:03.600 Okay, what else can I go on to talk about, which I had a note to talk about? 151 00:22:03.600 --> 00:22:16.600 The growth in capital flows, again consistent with increasing capital accumulation everywhere. 152 00:22:16.600 --> 00:22:25.480 In China, as I said, investment has come from Hong Kong, from Taiwan, the overseas Chinese. 153 00:22:25.480 --> 00:22:29.880 The Japanese have not only been investing in Western Europe and the US, they've also 154 00:22:29.880 --> 00:22:34.880 The US has also been investing in South Korea and in the newly industrialized countries. 155 00:22:34.880 --> 00:22:41.880 Most of the growth in Southeast Asia is to a large part due to Japanese capital exports. 156 00:22:41.880 --> 00:22:46.880 And South Koreans are now exporting to Southeast Asia, etc. 157 00:22:46.880 --> 00:22:53.880 And therefore, obviously, part of all this, you've got increasing flows from the US to Western Europe 158 00:22:53.880 --> 00:22:56.880 and increasing flows from Western Europe to the US. 159 00:22:56.880 --> 00:23:12.880 If you look at the figures, you have what appear to be two-way flows, what is really simply increasing production of specific kinds of goods as a result of capital accumulation, complementarity, if you want. 160 00:23:12.880 --> 00:23:20.880 Okay, import of services, we'll go back to that argument. 161 00:23:20.880 --> 00:23:27.880 The people in the underdeveloped areas have very low living standards, 162 00:23:27.880 --> 00:23:32.880 live on the smell of an oil rag, Americans have mortgages to meet, 163 00:23:32.880 --> 00:23:39.880 we can't reduce our living standards and therefore it's impossible for us to compete with suppliers of services elsewhere. 164 00:23:39.880 --> 00:23:49.880 Two comments. One, these were exactly the arguments that were put forward for objecting to import of goods from the poorer countries. 165 00:23:49.880 --> 00:23:59.880 The workers live on the smell of an oil drag, therefore they'll be able to sell their goods dirt cheap and therefore we will all suffer and we can't allow these imports to come in. 166 00:23:59.880 --> 00:24:02.880 Exactly the same with services. 167 00:24:02.880 --> 00:24:06.880 Three comments actually. Second comment. 168 00:24:06.880 --> 00:24:21.880 This is a very insulting attitude to take towards the people of the underdeveloped areas, because the people who supply these services represent the investments of their families. 169 00:24:21.880 --> 00:24:28.880 You have to have long training periods in order to provide computer services, bookkeeping, whatever services are being imported. 170 00:24:28.880 --> 00:24:32.880 Lots of people fail, fall by the wayside. 171 00:24:32.880 --> 00:24:37.880 So what you've got are people who have large debts to pay, who owe their families some of this money, 172 00:24:37.880 --> 00:24:44.880 and therefore to say that, of course, you could afford to reduce your living standards is, as I said, pure insult. 173 00:24:44.880 --> 00:24:52.880 Lots of people now who could not otherwise get high incomes are now able to do so. 174 00:24:52.880 --> 00:25:00.880 For a rich country like the U.S. or rich Americans to complain is, I think, very for sure. 175 00:25:00.880 --> 00:25:10.880 Third point, of course, the great Ricardian principle of association, which Mises enunciated. 176 00:25:10.880 --> 00:25:16.880 It doesn't matter even if someone is better at doing everything than someone else. 177 00:25:16.880 --> 00:25:20.880 They can still gain from specialization and exchange. 178 00:25:20.880 --> 00:25:22.880 And that is precisely the situation here. 179 00:25:22.880 --> 00:25:29.880 Okay, so some people in the underdeveloped areas are specializing in providing certain sorts of services. 180 00:25:29.880 --> 00:25:33.880 That opens up opportunities for providing other sorts of services. 181 00:25:33.880 --> 00:25:35.880 And that is the same argument, of course, for goods. 182 00:25:35.880 --> 00:25:42.880 If they provide certain sorts of goods, it opens up opportunities for providing other sorts of goods. 183 00:25:42.880 --> 00:25:54.880 Okay, another point is that in India, in particular where most of these services come from, not China, again, you couldn't even be bothered to look at the facts. 184 00:25:54.880 --> 00:26:03.880 In India, why has the computer industry developed, why have these exports of services developed? 185 00:26:03.880 --> 00:26:07.880 Precisely because the planners in their wisdom did not get there. 186 00:26:07.880 --> 00:26:15.880 The planners and their wisdom have been concentrating on industrial production, centrally planning it and therefore killing it. 187 00:26:16.880 --> 00:26:24.880 On the other hand, the two things which have really developed in India and taken off, the two viable exports which have occurred in more recent years, 188 00:26:25.880 --> 00:26:32.880 polishing of gemstones, diamonds and so forth are imported into India from all over the place, Israel and so on, 189 00:26:32.880 --> 00:26:38.720 and so on, the polished and set and so on, highly skilled labour, very little capital, 190 00:26:38.720 --> 00:26:43.280 highly skilled labour, and then the gemstones are sent out, and the planners of course never 191 00:26:43.280 --> 00:26:47.040 thought of this, therefore they could not interfere, therefore it developed. 192 00:26:47.040 --> 00:26:52.560 Similarly with services, this is the one thing the planners can't control, therefore it 193 00:26:52.560 --> 00:26:58.320 developed and as you can see it developed to the extent to which you have Indian computer 194 00:27:28.320 --> 00:27:36.320 Patronising and Insulting Comments from Gephard Nollis 195 00:27:36.320 --> 00:27:53.320 He says the minimum wage, we should have a minimum wage imposed in various countries, according to each country, so that the Americans do not have to import goods produced by slave labour, child labour, sweatshop labour, etc. 196 00:27:53.320 --> 00:28:18.320 Thank you very much. There's 29 million people employed in factories, modern factories, doing far better than they would have done otherwise, throughout South Korea, the newly industrialized countries of Southeast Asia, and I can't imagine a greater insult. I find it very insulting to say this. 197 00:28:18.320 --> 00:28:33.320 Okay, oh yes, now there are some economists who are prepared to say that exports increase jobs, imports reduce jobs. 198 00:28:33.320 --> 00:28:39.320 Capital exports reduce jobs, capital imports increase jobs. 199 00:28:39.320 --> 00:28:45.320 Okay, the other side of capital imports is import of goods. 200 00:28:45.320 --> 00:28:55.320 Now, you can't have it both ways. If the capital imports increase jobs, the corresponding imports of capital goods have to reduce jobs. 201 00:28:55.320 --> 00:29:06.320 Conversely, if capital exports reduce jobs, the other side of capital exports is of course the export of capital goods, other goods, correspondingly. 202 00:29:06.320 --> 00:29:09.320 That therefore increases jobs. 203 00:29:09.320 --> 00:29:17.000 And let us proceed now, we haven't done this before but I think we should do that, let us proceed to the reductio ad absurdum 204 00:29:17.000 --> 00:29:22.160 of exports, creating jobs and imports, reducing jobs. 205 00:29:22.160 --> 00:29:25.660 Okay, we will ban all imports 206 00:29:25.660 --> 00:29:28.440 because they reduce jobs. 207 00:29:28.440 --> 00:29:31.740 We export every single thing that we produce, 208 00:29:31.740 --> 00:29:33.720 we have no goods in the country 209 00:29:33.720 --> 00:29:37.280 but we have a very high level of employment indeed. 210 00:29:37.280 --> 00:29:39.120 The poor foreigner, 211 00:29:39.120 --> 00:29:42.920 All of his goods are at home, no exports, he's unemployed. 212 00:29:42.920 --> 00:29:47.160 What's more, all these imports that have come in from elsewhere, sitting there on the walls, 213 00:29:47.160 --> 00:29:54.760 he's even more unemployed, just sitting there wistfully looking at all these goods, which you can't get. 214 00:29:54.760 --> 00:30:03.440 I mean, you know, I mean, there's clearly something wrong with that line of reasoning. 215 00:30:03.440 --> 00:30:10.940 Now, the superficial plausibility is, of course, that if you have tariffs, or in other words, subsidies, 216 00:30:10.940 --> 00:30:19.140 what you are doing is preventing those incremental adjustments which would occur day by day, month by month, year by year. 217 00:30:19.140 --> 00:30:24.240 And then when you remove the tariffs, you then have to do everything all at once. 218 00:30:24.240 --> 00:30:31.440 Therefore, you know, remove tariffs, free trade, dreadful things happen, let's go back to the old regime. 219 00:30:31.440 --> 00:30:37.880 Okay, another point which I'd like to make is that many of these points we already see in the rest of the world, 220 00:30:37.880 --> 00:30:43.160 in the kinds of arguments which I've been mentioning here, which have been put forward seriously, 221 00:30:43.160 --> 00:30:46.560 by serious papers like the Christian Science Monitor and so on, 222 00:30:46.560 --> 00:30:49.800 my second year students in Australia would laugh at them, 223 00:30:49.800 --> 00:30:53.960 because we've had the experience, and we know positively, 224 00:30:53.960 --> 00:31:00.120 that with the growth in real incomes and output in Southeast Asia and elsewhere, we can now sell them goods. 225 00:31:00.120 --> 00:31:06.720 With the import of cheaper goods, living standards have increased. 226 00:31:06.720 --> 00:31:12.600 The other question which isn't asked, everybody says, how nice, imports reduce prices. 227 00:31:12.600 --> 00:31:17.080 Okay, but what do people do with the extra income which they save? 228 00:31:17.080 --> 00:31:19.360 Stick it under the mattress, sit on it. 229 00:31:19.360 --> 00:31:24.000 You can now buy not only what you had before, you can buy other goods. 230 00:31:24.000 --> 00:31:26.360 I mean, a very humbly example. 231 00:31:26.360 --> 00:31:32.360 Before we reduced tariffs in Australia, we had to buy Australian made jerseys, woven jerseys. 232 00:31:32.360 --> 00:31:36.360 They cost $50, $60, $70 a piece. 233 00:31:36.360 --> 00:31:42.360 After the tariffs were removed, Chinese sent in jerseys, you can buy them for $10 a piece. 234 00:31:42.360 --> 00:31:50.360 Now I can buy two jerseys for tennis, and I still have $30, $40, $50 left over which I can spend on other things. 235 00:31:50.360 --> 00:31:51.360 Of course I do. 236 00:31:51.360 --> 00:31:57.360 Now, the real problem, of course, is that that expenditure is diffused. 237 00:31:57.360 --> 00:32:01.360 Because it's diffused, there's no way anyone can actually see it. 238 00:32:01.360 --> 00:32:07.360 You don't have other outputs increasing and then coming with little labels tied down their necks saying, 239 00:32:07.360 --> 00:32:13.360 you remember those tariff reductions? Well, I am the increasing output that resolved it. 240 00:32:13.360 --> 00:32:18.360 Okay, your steel tariffs here. 241 00:32:18.360 --> 00:32:24.360 Okay, the lesson here is the conclusion which I will be reaching is that laissez-faire is best. 242 00:32:24.360 --> 00:32:28.360 Not because this is the best of all possible worlds, 243 00:32:28.360 --> 00:32:32.360 but because anything you do is going to make things worse. Therefore do nothing. 244 00:32:32.360 --> 00:32:38.360 Okay, your government in its wisdom has imposed steel tariffs. 245 00:32:38.360 --> 00:32:46.360 What is the consequence inside the country? Higher costs and therefore reduced output. 246 00:32:46.360 --> 00:32:54.360 People doing exactly, working as hard as they did before, but getting less in return, because output has fallen. 247 00:32:54.360 --> 00:33:09.360 And the other consequence, you start importing cheaper goods from elsewhere, and therefore, surprise, surprise, your trade deficit gets worse and everybody jumps up and down and says, terrible, terrible. 248 00:33:09.360 --> 00:33:26.360 Okay, now the Franco-German Empire imposes restrictions on US exports. In its wisdom, what happens? 249 00:33:26.360 --> 00:33:34.360 Real income falls inside the EU. People are working just as hard as before, they're getting less. 250 00:33:34.360 --> 00:33:38.360 Both sets of populations are suffering because they've got governments. 251 00:33:38.360 --> 00:33:44.360 And therefore, as I said, laissez-faire is the best policy. 252 00:33:44.360 --> 00:33:49.360 If the US government had done nothing when cheaper steel imports were coming in, 253 00:33:49.360 --> 00:33:54.360 then you would have had the adjustment which is necessary, capital and operating losses in the steel industry, 254 00:33:54.360 --> 00:33:58.360 people having to move out and find somewhere else to work. 255 00:33:58.360 --> 00:34:04.360 Painful for them, yes, but eventually things would have settled down. 256 00:34:04.360 --> 00:34:10.360 If the EU had not imposed restrictions on US exports, what would have happened? 257 00:34:10.360 --> 00:34:15.360 Okay, steel exports are reduced, but at least you don't suffer further reduction in real income. 258 00:34:15.360 --> 00:34:19.360 And now what's happened is, as a result of the so-called retaliation, 259 00:34:19.360 --> 00:34:22.360 both countries have suffered double reductions in real incomes, 260 00:34:22.360 --> 00:34:27.360 and the only people who are better off, if anyone is better off, are these bureaucrats, 261 00:34:27.360 --> 00:34:34.360 with the headlines of politicians and, you know, saving the economy, blah, blah, blah...etc, etc. 262 00:34:36.360 --> 00:34:46.360 Okay, I think that's about all the thoughts that I had after reading Craig Roberts. 263 00:34:46.360 --> 00:34:48.360 As I said, I was infuriated. 264 00:34:48.360 --> 00:34:52.360 The kinds of things he was saying and no one was answering properly. Yes? 265 00:34:52.360 --> 00:35:01.360 I didn't read this, Paul, but what implications did he see coming from this summary? 266 00:35:22.360 --> 00:35:45.360 In his testimony for Congress, you kindly did let the other shoe drop, and proposed a kind of regional, a global system of regional autocracy. 267 00:35:52.360 --> 00:36:20.360 The British had unilateral free trade from 1846 to 1931, and free trade was abandoned only with the very greatest reluctance, because they felt they had no choice, partly because of what the US was doing. 268 00:36:20.360 --> 00:36:30.360 And in that period of unilateral free trade, all its trading partners, of course, restricted, did try to restrict British exports from one way or the other, even the colonies did. 269 00:36:30.360 --> 00:36:34.360 And the clothing office didn't stop them. 270 00:36:34.360 --> 00:36:39.360 Nevertheless, of course, Britain, as we know, flourished as the Green Bay Tree. 271 00:36:39.360 --> 00:36:45.360 It had huge increases in output, per capita income rose, population rose, etc., etc. 272 00:36:45.360 --> 00:36:50.360 The other 20th century example is of course Hong Kong. 273 00:36:50.360 --> 00:36:59.360 What's Hong Kong going to do to anybody who tries to reduce its exports, send a popcorn out or something? 274 00:36:59.360 --> 00:37:06.360 So again, it's had unilateral free trade throughout, and as you know, it flourished as a Green Bay tree. 275 00:37:06.360 --> 00:37:11.360 It now exports more than most developed countries. 276 00:37:11.360 --> 00:37:16.360 South Korea, by the way, is the world's 12th largest exporter 277 00:37:16.360 --> 00:37:24.360 and the world's second largest producer of certain types of electronic consumer goods, and so on. 278 00:37:24.360 --> 00:37:36.360 If anybody wants to talk about South Korea, I can say definitively that it is, in fact, the result of free access to world markets. 279 00:37:36.360 --> 00:37:46.860 Because if you look at what South Korea has been doing, in effect, the inputs were purchased at world prices, capital goods and so forth were purchased at world prices, 280 00:37:46.860 --> 00:37:52.360 and if you look at their trading partners, the major trading partners for a long time were the US and Japan. 281 00:37:52.360 --> 00:37:58.860 So that in effect, what you had was a trilateral, you might say, free trade area. 282 00:37:58.860 --> 00:38:06.360 And then, of course, with the Southeast Asia developing, you started getting more multilateral trade. 283 00:38:06.360 --> 00:38:12.860 Okay, that's the other thing that your US trade figures show, and that is growth in multilateral trade. 284 00:38:12.860 --> 00:38:19.360 In other words, trade not only with developed countries, but growing trade, of course, with all these other countries that are growing. 285 00:38:19.360 --> 00:38:23.360 Okay, back to the late 19th century. 286 00:38:23.360 --> 00:38:32.360 Even the French had very low tariffs in the course of the 19th century, there was even a short period of free trade, the Cobden Treaty with Britain. 287 00:38:32.360 --> 00:38:49.360 Germany had relatively low tariffs, they had an internal huge free trade area, and of course throughout the free trade area, except for where the colonies imposed tariffs. 288 00:38:49.360 --> 00:39:13.360 The Indian textile industry developed as a result precisely under this regime. 289 00:39:13.360 --> 00:39:18.360 In fact we had the first textile mill in India before Japan got a textile mill. 290 00:39:18.360 --> 00:39:28.360 The Japanese were forbidden to impose tariffs as a result of the so-called unequal treaties. 291 00:39:28.360 --> 00:39:34.360 So the early period, when you're supposed to need the tariffs, precisely when they didn't have them. 292 00:39:34.360 --> 00:39:40.360 And tariffs in any case are subsidies. I mean, the monster is saying that if you subsidise something, it's going to grow. 293 00:39:40.360 --> 00:39:44.360 But of course it's going to grow, but at whose expense? 294 00:39:44.360 --> 00:39:51.360 You know, what's really happening is that the growth has overtaken the results of the tariffs. 295 00:39:51.360 --> 00:39:56.360 And then you're, in other words, you're peacocking around in burrowed feathers. 296 00:39:56.360 --> 00:39:59.360 That's about what it amounts to. 297 00:39:59.360 --> 00:40:04.360 I know you were a real jobs business program on CNN. 298 00:40:04.360 --> 00:40:06.360 Yes, yes, I was horrified. 299 00:40:06.360 --> 00:40:12.360 He's become, for some unknown reason, a vehement protectionist. 300 00:40:12.360 --> 00:40:17.360 And I can't quite figure that out unless he's planning on running for president someday. 301 00:40:17.360 --> 00:40:27.360 But he turned his guns last week to the export of service jobs to India and other countries. 302 00:40:27.360 --> 00:40:35.360 And he had a professor, a business professor from New York, I think he was a management professor from New York University of Columbia. 303 00:40:35.360 --> 00:40:41.160 and he made a very good argument that the export of these service jobs actually 304 00:40:41.160 --> 00:40:48.600 saves jobs in the United States because companies that basically were in the 305 00:40:48.600 --> 00:40:54.980 absence of these service jobs being exported abroad that they would have to 306 00:40:54.980 --> 00:41:04.520 shut down or at least retail operations in the United States so that our retail 307 00:41:04.520 --> 00:41:11.240 operations and finance and electronics can remain viable simply by exporting 308 00:41:11.240 --> 00:41:18.920 various categories of service jobs. I think it was a good argument that he made it, 309 00:41:18.920 --> 00:41:25.320 but actually it's effective in countering docs. The only sad part of that was that they 310 00:41:25.320 --> 00:41:29.080 reported the next night that that professor had died. 311 00:41:29.080 --> 00:41:30.080 Oh dear. 312 00:41:30.080 --> 00:41:45.080 Common sense says, if you can get something cheaply, a fraction of what it used to cost 313 00:41:45.080 --> 00:41:47.080 you, that's a good thing. 314 00:41:47.080 --> 00:41:53.080 You've got the extra income, output, whatever, to do something else with, so that if the 315 00:41:53.080 --> 00:41:58.080 Asians can supply particular services, particular goods or whatever, anybody can supply it, 316 00:41:58.080 --> 00:42:05.080 In fact, a fraction of the previous cost. You can now use your resources to produce a whole range of other things. 317 00:42:05.080 --> 00:42:11.080 As I said, the only trouble is that the other things which you produce will not come with these labels tied around their necks. 318 00:42:11.080 --> 00:42:18.080 Saying, you know, remember those cheap imports were the result of increased output. 319 00:42:18.080 --> 00:42:27.080 So therefore, one has to argue in a sense that it's a completely abstract argument, which I think many people would find difficult to follow through. 320 00:42:28.080 --> 00:42:33.080 Let me ask about the politics of these international trade negotiations. 321 00:42:33.080 --> 00:42:37.080 The team at the Cancun talks to the World Trade Organization. 322 00:42:37.080 --> 00:42:43.080 The developing world represented on balance, of course, for pre-trade, 323 00:42:43.080 --> 00:42:49.080 and the industrialized world was all for colonization and regulation, 324 00:42:49.080 --> 00:42:55.080 opening up tariffs, removing tariffs abroad by keeping them on at home, 325 00:42:55.080 --> 00:42:59.080 and generally promoting a kind of regulatory protectionist program. 326 00:42:59.080 --> 00:43:05.080 Is that a new development or is it just more visible now that we have the international trade talks? 327 00:43:05.080 --> 00:43:09.080 Has the developing world always been a force for liberalization? 328 00:43:25.080 --> 00:43:42.080 The developing world is developed only after all that was dropped, and therefore they are now discovering, of course, that all these things are a real problem now. 329 00:43:42.080 --> 00:43:54.080 Again, I think in these circumstances, given that all governments are going to be doing something nasty all the time, the best principle for everybody is unilateral free trade. 330 00:43:54.080 --> 00:44:01.080 Okay, so the US negotiators come out and say, open up your economies, we want to send goods, and let them get the goods. 331 00:44:01.080 --> 00:44:06.080 The Americans, by maintaining their tariffs, are cutting off their nose to spite their face. 332 00:44:06.080 --> 00:44:10.080 They are busy buying things at higher cost than they need to. 333 00:44:10.080 --> 00:44:16.080 We can buy whatever Americans produce at world prices. Why should we, you know, why complain? 334 00:44:16.080 --> 00:44:45.080 I have two questions. You promised a new introduction to address the point that some people say that the Chinese central bank and other central banks have developed the word for client dollars, and I took it to mean that you thought that was not strictly speaking true, so that the trade deficit was not financed by dollars in 2016. 335 00:44:45.080 --> 00:45:05.080 I didn't want to do it the conventional way, which is, you know, balance on services, balance on goods, because that is just analytically meaningless. 336 00:45:05.080 --> 00:45:15.080 The trade deficit is huge. And as you can see, you also have very large capital imports. 337 00:45:15.080 --> 00:45:20.080 And that's the link between the two. The link is between those two. 338 00:45:20.080 --> 00:45:31.080 The growth in capital accumulation elsewhere, and therefore export of capital directly, instead of exporting it via goods. 339 00:45:31.080 --> 00:45:39.080 And again, if you import capital, it means you can import more goods than with your current earnings. 340 00:45:39.080 --> 00:45:45.080 And that's what's been happening. That's why the demonstration I think there, or at least what the figures seem to show, 341 00:45:45.080 --> 00:45:50.080 that the private sector earns all its own foreign exchange plus some. 342 00:45:50.080 --> 00:45:55.080 Which means that none of this is being financed by somebody somewhere holding dollars. 343 00:45:55.080 --> 00:46:02.080 that trade deficit is being paid for by either capital imports or foreign exchange earnings of some sort 344 00:46:02.080 --> 00:46:12.080 because when you balance, when you compare the two, what you've got is, at least in 2001, a surplus for the private sector. 345 00:46:12.080 --> 00:46:19.080 But, I mean, we agree that if the dollar is being stockpiled in the Bank of China or Bank of India, wherever, 346 00:46:19.080 --> 00:46:31.080 What is the actual quantitative significance of this? 347 00:46:49.080 --> 00:47:02.080 In the crepancy in the figures, at least you would have some inputs coming in, some imports or something coming in, which is not paid for by foreign exchange earnings. 348 00:47:02.080 --> 00:47:11.080 You would be running a deficit. The only sector which is running a deficit is the US government. 349 00:47:11.080 --> 00:47:21.080 The U.S. government's expenditures are being financed by central banks holding dollars or whatever, however they've been doing it, pulling others to pay for it or whatever. 350 00:47:21.080 --> 00:47:28.080 My second question would be, do you know what Paul Craig Roberts views on immigration are? 351 00:47:28.080 --> 00:47:32.080 No, I don't. Does anyone? Other people might know if he has? 352 00:48:02.080 --> 00:48:08.080 These are some of the architects of the five-sided economic policies in the region. 353 00:48:08.080 --> 00:48:13.080 It's not as if he's done a long-time protectionist or anything. 354 00:48:13.080 --> 00:48:17.080 He claims that circumstances are very sophisticated. 355 00:48:17.080 --> 00:48:22.080 These are new circumstances, and they require a rethinking. 356 00:48:22.080 --> 00:48:27.080 Then we must assume that he just lost immigration, for example. 357 00:48:27.080 --> 00:48:36.080 I mean, that's a point probably overlooked in Europe, the relationship between trade policy and immigration. 358 00:48:36.080 --> 00:48:45.080 I mean, these people do not come just because they love so much the Alps or Clots and Dutch Chiefs or something like that. 359 00:48:45.080 --> 00:49:00.080 There was an interesting possibility that you sort of raised that when you said that in 1981 the United States had a trade surplus, 360 00:49:00.080 --> 00:49:12.080 but that now of course the trend seems to get upward, ever higher as we have a trade deficit, a growing trade deficit. 361 00:49:12.080 --> 00:49:36.080 Of course the government deficits have also increased during that period but in 1981 you have the Monetary De-Control Act here in the United States which was a major regime shift from the US dollar we have in ramifications as we go forward in terms of trade. 362 00:49:42.080 --> 00:49:53.080 And basically I think what's been driving the whole scenario is the growth in capital accumulation, output, diversification elsewhere. 363 00:49:53.080 --> 00:49:59.080 And that's how these adjustments that are showing up in the trade figures. 364 00:49:59.080 --> 00:50:10.080 Now up to 1981, what happened was that the US, as I said, was a net capital exporter, and therefore it had to have a trade surplus. 365 00:50:10.080 --> 00:50:25.080 The rest of the world, therefore, by definition, was a net capital importer from the U.S. and therefore had a trade deficit with the U.S. 366 00:50:25.080 --> 00:50:39.080 Okay, now that's another point which we might perhaps make, if the Craig Roberts argument is correct, then before 1981 it was the US which was busy draining income away from the rest of the world through, because they had a trade deficit with the US, 367 00:50:39.080 --> 00:50:50.080 and the US it was which was busy, you know, obtaining trillions of dollars worth of assets from other people, because it was exporting capital to them and further draining away rent. 368 00:50:50.080 --> 00:50:56.080 In that case, how did the rest of the world suddenly turn around and start doing exactly the same to the US itself? 369 00:50:57.080 --> 00:51:03.080 You know, I mean, that is not what's been happening. What has been happening are these other changes. 370 00:51:04.080 --> 00:51:14.080 These other changes have been therefore showing up one way or the other inside, in the structure and composition, whatever, balance of payments everywhere. 371 00:51:14.080 --> 00:51:24.080 And these are, you know, solid long-term changes, solid long-term developments. 372 00:51:24.080 --> 00:51:36.080 For everyone. I mean, there's no way we're going to, you know, drive the Southeast Asian countries back to where they were in 1861 or wherever. 373 00:51:36.080 --> 00:51:39.080 There's no way Japan is going to... I mean, you know, they're there. 374 00:51:39.080 --> 00:51:50.080 And already I would, you know, seriously, the rest of the world has adjusted, it's just the US which is now beginning to discover that even it has to adjust, despite the size of its economy.