If there is one thing that nearly all economists believe, and preach, it is the benefit of Free Trade. As a result all Britain’s great industries have either closed down, or are in the process: coal, steel, ship-building, cotton mills in Lancashire, woollen mills in Yorkshire, cars, motor-cycles, bicycles, trucks, clocks and pottery in the Midlands, white goods, aircraft, computers, electronics, shoes …….going, going, gone. But it isn’t just Britain. Youth unemployment in France is 25%, 40% in Italy and Spain. And look at America: its great manufacturing centres such as Pittsburgh, Detroit, Cleveland….. are now part of that broken rust belt which rose in despair and voted for Trump. What have we all done to ourselves? I will now argue that what the academic economists proclaim is so good for us is actually a deadly poison.
An imported commodity may be dramatically cheaper at the point of retail sale than its domestically produced equivalent. Unfortunately though imports can also have large Sunken Costs arising from losses in domestic employment, investment and profits. And none of us can afford to ignore such hidden costs because we will all have to stump up for them in the end in the form of extra taxes to pay for unemployment benefits, retraining and relocating workers, lost capital and wasted infrastructure (factories, roads, schools, shops, hospitals….). And that says nothing of the misery involved in breaking up communities, families and friends. All that should be obvious; but not apparently to our Economist friends.
What needs to be made, commodity by commodity, is a calculation of the benefits of a particular Free Trade set against the Sunken Costs which we will have to be borne by the wider community as a whole (i.e. the importing nation). That shouldn’t be too difficult – and it isn’t. I won’t bore you with the algebra but it is all in the attached article.
Let’s take just one dramatic example: a motor car imported into Britain; it doesn’t matter where from. According to my calculation it will have to be 64 per cent cheaper at the point of retail; sale than its domestic equivalent to be a bargain. Sixty Four Percent ! Most of the foreign cars on Britain’s (Frances’s, America’s…..) roads are thus an absolute disaster for the importing country as a whole because the Sunken Costs far exceed the benefits. Ditto for many other countries and other commodities (though bananas will still be welcome in Britain). The more sophisticated a country is in social terms the less it can afford to indulge in Free Trade because its sunken social costs (mostly investments in people ) are so high – by definition. Free Trade makes far more sense for unsophisticated countries because their people-investments are (equally by definition) so much lower. [China for instance barely has a social welfare system so, by the same argument, it benefits from a wide variety of free trades.]
I couldn’t believe this calculation when I first made it in 2016. But it has been checked by several other people with far more commercial background than I. It is right. But please check it out because it is so important for you and your family.
So why do Economists still preach the nonsense they do about Free Trade? I’m sorry to say that it’s chiefly because Economists appear to be too simple-minded to recognize the fallacies underlying their own profession. Unfortunately the harm they have done already is almost incalculable.
N.B. My argument is NOT Economics, merely accountancy. The distinction is that Economists have to make assumptions about how humans will react. I have not.
THE FALLACY THAT ECONOMICS IS A SCIENCE.
The essential skill of any kind of science is hypothesis-testing. In my book [ ‘Thinking For Ourselves‘, Amazon paperback, 2020] I demonstrate how such testing works using Common Sense Thinking. But It will only work if the number of possible hypotheses (to explain the evidence) is finite, and indeed very limited in number. Thus dream-interpretation can never become a science because the number of possible explanations (hypotheses) for any dream is unlimited. If there were an infinite number of possible hypotheses then the initial Odds on any one of them being right would have to be infinitely small, and no amount of subsequent evidence can make something infinitely small finite – that is the obvious logic. Philosophers call this “The Principle of Limited Variety” (PLV for short). The Greeks, the Romans and the biblical Jews were all big on dream-interpretation, but now that we understand the PLV we have (except for psychologists) given the dodgy practice up.
So what about Economics – can that be a science? For Economics to claim that it is, or could become a science, it must demonstrate that the Principle of Limited Variety applies to it. But how could it do that? Take the recent financial crash of 2007/8. Practically nobody foresaw it, but dozens of books and thousands of learned papers have been written about it since, pointing to different culprits which include: greedy bankers, toxic mortgages, opaque financial instruments, over-leveraging, vast international imbalances (China saving versus US borrowing), auditors in cahoots with the companies that paid them, Fanny Mae and Fanny Mac (you don’t want to know), the scuppering of the 1944 conference on international banking at Bretton Woods, Nixon refusing to back the US dollar in the aftermath of the Vietnam War (1971), over-saving, poor wealth distribution, flash trading, inadequately financed pension funds going in search of unrealistic returns, poor or non-existent supervision of the system by financial supervisors, the Euro, hubris following the collapse of Communism, a naïve belief in ‘perfect markets’, the inappropriate use of ‘The Normal Distribution’ by financial ‘Quants’, insurers ignoring the possibility of correlated market movements, extremely foolish advice given by the actuarial profession, dishonesty on the part of politicians willing to buy votes by offering unaffordable utopias and raising government debts, house owners foolishly believing they were rich because house prices were rising…..and so on and so on. When I read and try to understand the various hypotheses, they all carry a degree of plausibility to me. Moreover they can interact with one another in a whole variety of plausible and dramatic ways leading to an almost infinite number of compounded hypotheses – completely abrogating the Principle of Limited Variety.
Thus it must be true that Economics is not, and never can become, a science!
There is another way to look at the matter. Imagine that Economics is a science capable of generating reliable predictions. Suppose that it predicts that farmers will make more money from selling beef than selling milk. Then smart farmers will switch from dairying to beef production. Through scarcity the price of milk will rise; through oversupply the price of beef will fall. The very prediction of the allegedly sound Economic theory has proved to be self-defeating (‘reflexive’ in the jargon). And it seems to me that any ‘science of human behaviour’ would be self-defeating in the same way.
Thus everybody needs to understand that Economics is a church built on quick-sand. However much one might wish it otherwise, nothing can ever be done to rescue that situation. This argument is so simple that one has to wonder why Economists themselves do not understand it. Perhaps they don’t want to.
J.K. Galbraith, the historian of Economics was right when he wrote: “Economics was invented to make Astrology look respectable”.
The good news is that although Free Trade is a paralysing disease it is not malignant. We could cut it out tomorrow if we wanted to and return to ruddy health. But to do that we first have to convince ourselves that it is bloody unhealthy. So check out the full argument at:
https://mjdisney.org/wp-content/uploads/2020/10/freetrade.pdf
Tags: common sense, economics, history of brits, hypothesis testing
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