I’ve now finished working my way through the over 1,600 pages of Armen Alchian’s writing. (Note to self: when you agree to write a book review, keep in mind the book you’re reviewing. When I went back to the original email offer, I found that I was asked to review the single-volume 523-page Economic Forces at Work. Oh, well. Not the optimal use of my time, but not that far from optimal: I learned a lot and seeing Armen’s mind at work led to some nice memories of being in his class in 1972.)
One of the pieces in the longer 2-volume work is titled “Customs, Behavior, and Property Rights.” It was presented at the Peking [Beijing] Institute of Foreign Trade in 1982.
The whole thing, which is short, is good, but here’s my favorite. Remember that this was back in 1982:
Fourth, as Chinese trade expands with the United States, American politicians will complain that you are selling us more than we are buying from you. You should ignore our American politicians, who don’t know that international trade involves many countries. No one buys from another exactly the same amount sold. Instead three- or four- or five-way trade—called multilateral trade—occurs, and one country’s imbalance with another country is matched by its opposite balance with still another. But some politicians who understand that fact are really representing some American producers who are being displaced by the foreign imports. We American consumers welcome those imports. So if American politicians complain about your success, you know how to answer them.
[DRH note: If Armen’s statement “one country’s imbalance with another country is matched by its opposite balance with still another” is about the merchandise trade balance or the current account balance, he’s obviously wrong. If it refers to the overall balance, including the capital account, he’s obviously right. But don’t let issue stop you from realizing his prescience about the future in which Chinese would sell us more than they buy from us and U.S. politicians would complain about that.]
Further note: When I thought, just now, to see if I could find his paper on line, I didn’t, but I found that Donald Boudreaux highlighted the same quote over 2 years ago. Great minds, etc.
READER COMMENTS
Benjamin Cole
Nov 20 2018 at 11:35pm
Interesting juxtaposition.
The same day I read this advice that Armen Alchian gave to the Peking [Beijing] Institute of Foreign Trade in 1982 (and thus, I assume, the ruling Communist Party of China). I read this:
“The expansion of the FPD (flat panel display)equipment market that started in 2016 has been driven by the high equipment intensity of new flexible active-matrix organic light-emitting diode (AMOLED) display factories and the scale of Gen 10.5/11 LCD factories,” said Chase Li, senior analyst at IHS Markit. “This expansion has been further fueled by Chinese local governments, which have supported panel makers with various mechanisms such as financing, land grants, reduced taxes, infrastructure and direct subsidies.”
There are certainly valid reasons to ponder “free trade” with Communist China.
I would not surmise that all opponents of “free trade” with the Communist Party of China have venal motives or a incomplete comprehension of how global trade works.
Indeed, when it comes to “free trade,” there seems to be the textbook versions as sacralized by academics…and then the grubby facts on the ground.
mbka
Nov 21 2018 at 1:30am
Of course, such things only ever happen in China, never in the US, EU, Russia, or the ROW. Right?
But regardless: ever wondered where those reputed subsidies come from? That’s right, from China too. NOT from outside China. So, what happens is, some Chinese give money so that the export customer can save money. In other words, your now cheaper flat panel display was financed by some poor Chines chap paying some of your bill. You now have more money left over to buy some other products or services, possibly expensive American ones, e.g. go to a local restaurant and splurge. That restaurant splurge won’t show up in the trade balance of course, so you’ll never notice how you actually got the better end of the bargain.
Thomas Sewell
Nov 21 2018 at 10:58am
+1,
It’s apparently only when a gift crosses international borders that people think to complain voraciously against people being allowed to receive it.
I mean, if Santa Claus were real and resided at the North Pole, apparently some people would complain about our severely unbalanced trade with the North Pole every Christmas…
Benjamin Cole
Nov 21 2018 at 8:34pm
mbka/Thomas:
Yes, one way to view current managed trade with China is that the Sino population is forced by Beijing to subsidize exports, and US consumers benefit. From that narrow perspective, there are benefits to the arrangement for the exalted US consumer.
But there is the rest of the story.
The current trade arrangement (organized by the Communist Party of China and multi-nationals) certainly makes a hash of Ricardo’s theory of comparative advantage. Global free trade does not result in production moving to the most efficient locations, but rather locations with the best subsidies (the modern-day comparative advantage).
Unlike in Ricardo’s time, capital is now mobile between nations. Exchange rates do not have to adjust to return trade to balance. The US borrows or sells assets to finance its huge current account trade balance. So, already 35% of public company Corporate America is owned by offshore entities, and that ratio is growing, and we owe trillions in Treasuries to China. The Communist Party of China now owns The Walforf. We get imports, and we indebt ourselves permanently to foreign interests.
One wonders why anyone would ever build a factory in the US, if the rules of the game tolerate the heavy subsidization of exports from other nations. Why risk capital in the US? So we are trapped—we have to continually sell assets or go into debt to buy products we no longer have the ability to make. That is economic colonization with the help of multi-nationals, who have overriding fiduciary obligations to global shareholders, but no allegiance to the US at all. But mutli-nationals make money this way.
There is the whole issue of IP theft. And Sino militarization and imperialism. Given the way Beijing treats it own citizens, I can only imagine how they will govern others (well, no need to imagine. Read up on Tibet). Have you pondered this out a few years?
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