Buying American myth

[noobd]

Does anyone know of any FDR podcasts on this topic or any other resources I can take a look at? I remember Stefan touching on how "buying American" is a myth, but I can't recall the specific podcast. 

 

Here is a relevant article: http://archive.lewrockwell.com/dilorenzo/dilorenzo43.html

[Daniel Unplugged]

I can give you the argument that buying American products because they are made in America does not benefit (the economy of) America and is in fact counter productive.

 

It is helpful to think of international trade (and all trade for that matter) as the exchange of goods and/or services. In this context, when you purchase an imported product of value X, it necessitates the other country purchasing product(s) from your country of the same value. Trade flows both ways. Regardless of whether you purchase local or imported products, products of value X will still be produced locally. There no benefit to the local economy by purchasing local products. So purchase based on the quality and price of the product, and save yourself some money.

 

The argument that you should purchase American products instead of Chinese products is derived from racism (It is preferable for an American to have a job instead of a Chinese person.) It is not derived from sound economics.

[Sal9000]

it necessitates the other country purchasing product(s) from your country of the same value.

 

 

This is not always true. In 19th century, there was trade between Brittain and China. Chinese traders sold tea and porcelain to British traders and companies. Since they did not want any of the goods Europe had to offer, there was a trade deficit that got worse and worse over time. Hence the Opium wars started to balance this deficit.

[Daniel Unplugged]

This is not always true. In 19th century, there was trade between Brittain and China. Chinese traders sold tea and porcelain to British traders and companies. Since they did not want any of the goods Europe had to offer, there was a trade deficit that got worse and worse over time. Hence the Opium wars started to balance this deficit.

Are you telling me that the Chinese traders did not return to China with their pockets full of gold? Seems like balanced trade to me.It was necessary for Britian to produce the gold in order to purchase the tea and porcelain.

[cobra2411]

In my view the ultimate value comes from production, not service. Therefore, buy american will benefit america the best. That's why real estate is so crucial to our economy and why with the exception of 2 times, every real estate downturn in the last 100 years has resulted in a recession or worse. 

 

The lines blur when it's a foreign owned company with manufacturing in the US. There is a benefit to the workers creating the service, but the ultimate profit goes out of the country. Not sure how that differs from local companies because local companies have bailouts and fraudulent pension liabilities. 

 

Without a state or boarders, in my mind raw materials would make their way to final assembly close to where they are going to be used / sold. Not shipped around the world twice to get the advantage of the different tax farms... 

 

Now, intellectual property can be a form of creation, but also a curse. Take Adobe's rental program. You develop with their software and they hold your developments hostage. If you stop paying your monthly fee you can't alter your existing documents. Because of the state and patent laws there are no real competitors. 

 

My biggest issue with avoiding the chinese used to be their quality. It's much better now, but still spotty at times as I feel they have an attitude of "who's going to pay to return it for an exchange." As long as they can continue to sell enough, who cares if you piss off 20-30% of your buyers. What are they really going to do in today's society. 

[Livemike]

Are you telling me that the Chinese traders did not return to China with their pockets full of gold? Seems like balanced trade to me.It was necessary for Britian to produce the gold in order to purchase the tea and porcelain.

The problem is that at the time gold was money.  More money doesn't mean more wealth, it just means that each unit of currency is worth less than it was before.  So China basically imported inflation.  The Chinese government understandably didn't want to do this.  If they wanted inflation they were perfectly capable of producing it themselves (and had on several occasions). 

 

When money is a commodity production of it doesn't make the general economy richer, and transporting it to another area doesn't make that area richer.  Spain had the same problem when they looted the New World.  

[Daniel Unplugged]

The problem is that at the time gold was money. More money doesn't mean more wealth, it just means that each unit of currency is worth less than it was before. So China basically imported inflation. The Chinese government understandably didn't want to do this. If they wanted inflation they were perfectly capable of producing it themselves (and had on several occasions). When money is a commodity production of it doesn't make the general economy richer, and transporting it to another area doesn't make that area richer. Spain had the same problem when they looted the New World.

If it was permitted to progress naturally (not saying the Chinese government allowed it to), then the following would have occurred:China would experience inflation, and Britain would experience deflation (what you said). This would make Chinese goods more expensive and British goods cheaper. This change in relative prices would decrease Chinese exports and increase Chinese imports, and bring the trade back into balance. The same thing (should) happens in modern economies. If a country exports more than it imports, its currency should rise in value until goods exported=goods imported. Of course, (especially the Chinese) governments mess this process up by fixing the value of their currencies, resulting in trade imbalances. Also, (again, especially the Chinese) central banks are willing to hold vast amounts of foreign currency, in order to ensure a trade surplus, and, (especially the United States) governments are willing to borrow vast amounts of money from foreign countries, to ensure they can consume more than they produce.Bottom line is, all of the imbalances in international trade are caused by governments, not the free market. The purpose of a free market is to bring things into balance, and without government interference, they would. I actually suspect that the Chinese Government is intentionally destroying the US industrial base, by ensuring chinese products are cheaper than they should be. They know from their experience with socialism within their own country, that if you give people things for free, they will lose their incentive to, and then their ability to, produce it themselves. Very little in international politics is not preplanned.So, at the time, gold was money, and, the Chinese government was perfectly capable of producing inflation (what you said). May I ask how they would accomplish this?

[Livemike]

If it was permitted to progress naturally (not saying the Chinese government allowed it to), then the following would have occurred:China would experience inflation, and Britain would experience deflation (what you said). This would make Chinese goods more expensive and British goods cheaper. This change in relative prices would decrease Chinese exports and increase Chinese imports, and bring the trade back into balance. The same thing (should) happens in modern economies. If a country exports more than it imports, its currency should rise in value until goods exported=goods imported. Of course, (especially the Chinese) governments mess this process up by fixing the value of their currencies, resulting in trade imbalances. Also, (again, especially the Chinese) central banks are willing to hold vast amounts of foreign currency, in order to ensure a trade surplus, and, (especially the United States) governments are willing to borrow vast amounts of money from foreign countries, to ensure they can consume more than they produce.Bottom line is, all of the imbalances in international trade are caused by governments, not the free market. The purpose of a free market is to bring things into balance, and without government interference, they would.I actually suspect that the Chinese Government is intentionally destroying the US industrial base, by ensuring chinese products are cheaper than they should be. They know from their experience with socialism within their own country, that if you give people things for free, they will lose their incentive to, and then their ability to, produce it themselves. Very little in international politics is not preplanned.So, at the time, gold was money, and, the Chinese government was perfectly capable of producing inflation (what you said). May I ask how they would accomplish this?

The Chinese were the first to invent paper money, which as you know is ideal for producing inflation.  

 

Sure in the long run prices would have equalized.  In the meantime, and perhaps for several years, the Chinese would have had less goods and services because resources would have been diverted to unproductive uses (the gathering of more gold). 

 

Nowdays of course trade happens fast enough that massive imbalances of commodity money wouldn't happen without serious government intervention.

 

Regarding the Chinese governments intentions re: the American industrial base, I doubt it. The Chinese government is functioning as a conveyor belt of resources from workers/consumers to businesses/producers.  This is due to the prevalence of business owners and those connected to them in the Chinese government.  Much of China's industrial development for instance has been in firms run by the military or those connected to it.  The problem is that this pattern simply can't be sustained.  The distortions it gives rise to will simply overwhelm the capacity of the government to paper them over.  For instance they can't simply keep buying US bonds for ever.