It's sad because Adam Smith wrote The Wealth of Nations in part to debunk Mercantilism. Smith wasn't right on everything, but he was right to criticize Mercantilism.
For example, if trade imbalances were so bad, we should sink any ship that comes into the US as this reduces trade imbalances (absurd example from Bastiat btw).
> Smith wasn't right on everything, but he was right to criticize Mercantilism.
I don't know why there's a need to hedge. Smith's observations were incredibly objective and insightful and have aged extremely well.
There were areas where his observations were incomplete or refined later (absolute vs relative advantage, paradox of value, efficiency of corporations).
Even Karl Marx found little in Smith's work that was disagreeable.
The Wealth of Nations is a seminal piece of Western civilization and deserves all the respect we can bestow such works.
Yes, it was a very important book and set of ideas. But it also had some shortcomings. For example, he has a theory of value based on labor/work (and David Ricardo continued with that approach, and then Karl Marx as well). That is greatly improved by Carl Menger's marginal theory of value.
Theory of comparative advantage is probably wrong, though. There are huge advantages for a nation in doing (pretty much) everything, and having research close to application, and having tool makers close to their users.
Analogy with human specialization is flawed, because human attention span is limited. Even there the famous Heinlein quote on versatility still applies.
Competitive advantage is how every small community works. One person runs the coffee shop, someone is the mechanic, there’s the town contractor, plumber, grocer, sheriff, etc. the more each person is able to specialize the more services are available to the whole town.
I understand international politics are completely different, but it is hard for me to understand how comparative advantage would not be useful at that level as well.
You guys(I'm not from US) are confused because you thought gaming economy and chasing global economic optima gives you everything, and it didn't quite do so. That's because economic theories don't consider purposes or political importances of a product, it'll tell you it's stupid to make your own nuclear missiles when you can get a bulk discount from China. And you're looking for a different framework that works better than that.
The USA was unique in that it was always outspoken with patriotism, and to lesser extent with classical nationalism than usual. Maybe the US is reaching some stage where it grows its own proper form of good-old ethnic nationalism, whether it's a good thing or not...
Simple models shouldn't be applied without nuance (and that's why I get really annoyed at "engineers" on HN who think they know jack shit about economics because they took econ 101). The idea is sound, but the real world is more complicated. In a simple world model where there are two industries of equal value and two countries with complementary specialization in these industries, it makes sense.
There is an opportunity cost to closing the borders and trying to do everything yourself, which you are not considering.
The theory of comparative advantage should really be dubbed the theory of static comparative advantage to highlight where it fucked up.
If China believed in it theyd still be making cheap plastic tat. If the west hadnt believed in it China's industrial rise probably wouldnt have been quite so shocking - 90s/00s neolib economists thought China was shooting itself in the foot.
It's kinda funny that Americans look at the German economy and think they want to be in that situation. You would rather have an economy based on manufacturing cars, rather than one based on leading in tech? You sure?
The German economy is indeed heavily influenced by its manufacturing sector and its reliance on large trade surplusses. Consequently the German workers can't be granted huge wage increases because it would reduce their competitiveness internationally.
In contrast the US economy is service-based and thus isn't constrained to scale their prices up so much. Of course manufacturing becomes very hard to maintain when skilled workers can earn >100k.
All stats show that top US tech companies earn incredible amounts of money but their share of GDP growth isn't as big as the Mag7 share of the stock markets makes you think. (<15% of GDP growth in 2024)
How does Australia fit into that model? Their economy is based more on resource extraction than on technology or manufacturing, and wages are high relative to most other developed countries.
> "Each of you in your private household would know better than that. You don’t regard it as a favorable balance when you have to send out more goods to get fewer coming in. It’s favorable when you can get more by sending out less.”
- Milton Friedman
Being obsessed about trade deficit is missing the forest for the trees. If you can run a successful modern economy just by sending out slips of paper, that's a great deal.
That said, even Friedman made a caveat for national defense. If war breaks out and you have no manufacturing capacity, there are theoretically bad problems there.
It also doesn't account for cultural concerns. Maybe a country that doesn't have enough manual labor jobs develops weakness and stagnation?
I want to have good American-made tools that don't break under normal use and can be easily maintained. To do that we apparently need a robust manufacturing economy.
Cars are great: we need good cars, but more than that, we need good tools to fix the cars.
Taiwan make/have some of the best tools in the world. There's no reason the USA can't do the same. We once did.
People want Germany's 1,350 average annual working hours compared to America's average 1,765 hours, and then tax billionaires to make up the difference.
Probably wouldn't work out well, but that is the shiny object they are transfixed on.
Watching intelligent people across America defend tariffs has been shocking/amusing, to say the least.
We all understand that for most of human history, everyone lived at a subsistence level because we all had to farm our food, bake our bread, sew our clothes, build our own houses, etc.
Specialization is what makes the luxury and wealth of the modern world possible: you do one thing all day long and convert it to cash, then exchange value with people who do other stuff to get what you want. And since they're operating at scale, they can build more houses, make more stuff, etc. that you ever can if you did it yourself. So, you pay less for more stuff.
International trade simply takes it to the next level. For instance, the average American will not bend over to pick cocoa beans for chocolate for even $100k/yr. Many of you will argue, but all I'll say to you is that there's a reason agricultural work is referred to as back-breaking work. There's also a reason why farmers have the highest rate of suicides. Even if the American eventually agrees to do it, the cost will be so prohibitive that buying chocolate will be out-of-reach for everyone but the rich. Abundance ended; the end.
Now, using tariffs, the US gov. wants to take money away from customers and use it to prop up inefficient businesses that should be outsourced to other places that can do it well.
If the CCP wants to subsidize solar panels and sell them to you, why not accept free panels funded by diluting the wealth of Chinese workers and savers?
The main argument mercantilists use against free trade is that after establishing a monopoly, incumbents can raise prices. They forget that there's competition, even among solar manufacturers in China and anyone trying to bait and switch would be driven out of business by smaller, hungrier players.
And in this example, PV lasts 40-50 years and once you buy it, they can't gouge you.
No country has benefited from free trade like America; no bloc has benefitted like the West. You're mad at China for lifting hundreds of millions from grinding poverty, without realizing that Chinese mass production has cushioned the effect of all the money-printing by Western economies for decades now. Hundreds of millions of Chinese workers going into cities to work in manufacturing are the reason why many middle class workers across the West can afford cheap consumer goods, despite their government's dumb financial decisions.
The only problem I have with articles like this is that it frames what Trump is doing with an air of intention. Most readers will obviously think that becoming mercantilist is a bad idea. However, readers will also walk away with the notion that these actions have all been done with the a grand plan in mind.
The reality is much more stupid though. Recent policies have been made without any plan to begin with. There is no driving philosophy of "we must create modern mercantilism" and the resulting policies being a coherent plan to bring about that change. Instead actions are being made based on the split second decision making of a moron would lacks the most basic understanding of economics much less mercantilism.
This is a decidedly worse world than one in which the plan is simply a bad one. A bad plan would at least be coherent and something that our allies could predict and make their own plans around. Nevertheless, I think the thesis is broadly correct as being the outcome of recent actions.
I don't think they're gracing him with an air of intention. I think they're just looking at what he's doing and finding the closest model that makes reasonably accurate predictions about the future.
I don't think so. Recent actions are not delivering an industrial policy, or promoting research. They are not addressing the distribution of "wealth and power" which is possibly more important than its magnitude.
True. And in a few years we'll find out how much Trump has actually affected the nation's trajectory. His trade policy is an absolute 180 from GOP orthodoxy and members of his own party have mostly said "we'll do what the president wants" and not "we think this is a great idea". I'd wager a lot of this policy gets undone at the first opportunity.
The trend of the US pulling out of the "global order" has already been happening. It's just that Trump is taking something that was happening gradually, and through his policy button-mashing, accelerated it much faster
> China turned a slow drip into a death spiral. While many countries pushed the boundaries before China did, its economic size and the effectiveness of its mercantilist policies broke the pre-existing order. Through currency management, public procurement, state subsidies, protectionism, and other implicit subsidies, China has developed a range of leading industries, including electric vehicles, solar power, and batteries.
China's rise can be attributed to taking advantage of the neoliberal order. Many of their nationalistic successes come through things like currency manipulation, hiding illegal subsidies, intellectual property theft, and using state monopolies to bully other nations and their corporations.
It's a prisoner's dilemma. If everyone copies China's playbook, there is nothing left to take advantage of. We will all be poorer for it.
It cannot be understated that we are getting front row seats to the end of Pax Americana. In a world where countries can no longer enjoy reliable trade for commodities, we are going to revert to a world of imperialist land grabs and violence.
> It cannot be understated that we are getting front row seats to the end of Pax Americana. In a world where countries can no longer enjoy reliable trade for commodities, we are going to revert to a world of imperialist land grabs and violence.
I don't agree with everything Peter Zeihan writes, but he did a good job of capturing this in "The end of the world is just the beginning"[0].
It feels like it is going to be a rough couple of decades.
On trade imbalances: Trump expects Canada, a country of 40 Million people, to buy as much goods from the USA, a country of 300+ Million people. And if you subtract the oil that the USA buys from Canada, Canada has a trade SURPLUS with the USA. That is, apart from selling oil to the USA, Canada buys MORE from the USA than the USA buys from Canada, a country roughly one tenth the size.
This trade war isn't about righting trade imbalances. It's about the USA exerting leverage over countries that it can get away with. Just like a Mafia Don.
Or to quote a crude summary from Peaky Blinders: "Big $ucks small".
That's the philosophy of the Trump Administration in a nutshell.
Have you seen (or read) "Cloud Atlas", by David Mitchell? It's worth watching. And I think the phrase from the movie "the big eats the small" encapsulates this administration's behavior. It's simply exploitative, even predatory (for e.g., if you're homeless in Washington D.C. right now.)
I think that the attitude that "the big eats the small", and its consequences (that is: the trade war and the accompanying uncertainty for business, slashed science funding, tax cuts that lead to more debt for the country, and all the other potentially disasterous policy decisions) America and the world will pay a very heavy price.
Thanks for the recommend. I have considered watching it. Just haven't gotten around to it.
I guess the proper term is "Social Darwinism". Trump will do whatever he can get away with. That's his only code.
Supposedly architect Andrew Tesoro did some work on one of Trump's golf courses. He invoiced Trump for $140,000. Trumps lawyers offered $50,000. They threatened to drag it out in the courts otherwise. He agreed to charge $50k. Trump didn't pay. Tesoro contacted Trump. Trump offered half that, $25,000. Tesoro got $25k. Trump's transactions are all about leverage.
Invest heavily in the Electricity grid. Both AI Data Centers and The Transportation Grid (Electric Vehicles, Batteries). These two sectors are only going to grow and they require massive amounts of electricity.
Peak Oil is going to happen soon 2020-25. China's oil demand in 2025 dropped from previous years. Even in the "drill baby drill" USA refineries are closing do to falling demand in the USA.
The private sector does not see new pipelines as economically viable. Trudeau had to step in to finish the Trans Mountain twinning. Existing pipelines that go to the USA are only at 75% capacity. If Canada wants to ship oil to Europe or Asia they should ship it by rail. It would be foolish to spend money on new pipelines when overall demand for oil is declining. And by the time these pipelines would be completed Peak Oil would be a done deal.
Develop more trade with Asia and Europe (which the current govt appears to be trying to do). A big problem is this emerging multipolar world means the USA is going to increasingly pressure Canada to become even more of a vassal state.
Just before the plandemic, China put in an offer on everything that Alberta could produce, and that deal never got past the first stage, and then, we kidnaped the daughter of the guy behind Huawie, all the rest of the anti China stuff and now we are here, watching Trump fly out to entertain Putin......perhaps Canada can put together a very special surprise for both of them
It's not really about illegal drugs from Canada - not a lot of illegal drugs coming in from there. It's about intimidating Canada and attempting to annex parts of it.
> as countries defected and adopted mercantilist policies, the global system lacked sufficient authority to stop them. Each time another country adopted mercantilist policies, it pushed others to react similarly
Readit News
For example, if trade imbalances were so bad, we should sink any ship that comes into the US as this reduces trade imbalances (absurd example from Bastiat btw).
I don't know why there's a need to hedge. Smith's observations were incredibly objective and insightful and have aged extremely well.
There were areas where his observations were incomplete or refined later (absolute vs relative advantage, paradox of value, efficiency of corporations).
Even Karl Marx found little in Smith's work that was disagreeable.
The Wealth of Nations is a seminal piece of Western civilization and deserves all the respect we can bestow such works.
Dead Comment
Analogy with human specialization is flawed, because human attention span is limited. Even there the famous Heinlein quote on versatility still applies.
I understand international politics are completely different, but it is hard for me to understand how comparative advantage would not be useful at that level as well.
The USA was unique in that it was always outspoken with patriotism, and to lesser extent with classical nationalism than usual. Maybe the US is reaching some stage where it grows its own proper form of good-old ethnic nationalism, whether it's a good thing or not...
There is an opportunity cost to closing the borders and trying to do everything yourself, which you are not considering.
If China believed in it theyd still be making cheap plastic tat. If the west hadnt believed in it China's industrial rise probably wouldnt have been quite so shocking - 90s/00s neolib economists thought China was shooting itself in the foot.
What are they?
In contrast the US economy is service-based and thus isn't constrained to scale their prices up so much. Of course manufacturing becomes very hard to maintain when skilled workers can earn >100k.
All stats show that top US tech companies earn incredible amounts of money but their share of GDP growth isn't as big as the Mag7 share of the stock markets makes you think. (<15% of GDP growth in 2024)
- Milton Friedman
Being obsessed about trade deficit is missing the forest for the trees. If you can run a successful modern economy just by sending out slips of paper, that's a great deal.
That said, even Friedman made a caveat for national defense. If war breaks out and you have no manufacturing capacity, there are theoretically bad problems there.
It also doesn't account for cultural concerns. Maybe a country that doesn't have enough manual labor jobs develops weakness and stagnation?
Cars are great: we need good cars, but more than that, we need good tools to fix the cars.
Taiwan make/have some of the best tools in the world. There's no reason the USA can't do the same. We once did.
Probably wouldn't work out well, but that is the shiny object they are transfixed on.
We all understand that for most of human history, everyone lived at a subsistence level because we all had to farm our food, bake our bread, sew our clothes, build our own houses, etc.
Specialization is what makes the luxury and wealth of the modern world possible: you do one thing all day long and convert it to cash, then exchange value with people who do other stuff to get what you want. And since they're operating at scale, they can build more houses, make more stuff, etc. that you ever can if you did it yourself. So, you pay less for more stuff.
International trade simply takes it to the next level. For instance, the average American will not bend over to pick cocoa beans for chocolate for even $100k/yr. Many of you will argue, but all I'll say to you is that there's a reason agricultural work is referred to as back-breaking work. There's also a reason why farmers have the highest rate of suicides. Even if the American eventually agrees to do it, the cost will be so prohibitive that buying chocolate will be out-of-reach for everyone but the rich. Abundance ended; the end.
Now, using tariffs, the US gov. wants to take money away from customers and use it to prop up inefficient businesses that should be outsourced to other places that can do it well.
If the CCP wants to subsidize solar panels and sell them to you, why not accept free panels funded by diluting the wealth of Chinese workers and savers?
The main argument mercantilists use against free trade is that after establishing a monopoly, incumbents can raise prices. They forget that there's competition, even among solar manufacturers in China and anyone trying to bait and switch would be driven out of business by smaller, hungrier players.
And in this example, PV lasts 40-50 years and once you buy it, they can't gouge you.
No country has benefited from free trade like America; no bloc has benefitted like the West. You're mad at China for lifting hundreds of millions from grinding poverty, without realizing that Chinese mass production has cushioned the effect of all the money-printing by Western economies for decades now. Hundreds of millions of Chinese workers going into cities to work in manufacturing are the reason why many middle class workers across the West can afford cheap consumer goods, despite their government's dumb financial decisions.
But, it's okay: we'll see how it plays out.
This is not research; it's an opinion piece by a Bridgewater employee that may prove right in the years to come.
Plus, the rhetoric of differentiating China from the "free world" paints a Big Red Flag over the article's face.
The reality is much more stupid though. Recent policies have been made without any plan to begin with. There is no driving philosophy of "we must create modern mercantilism" and the resulting policies being a coherent plan to bring about that change. Instead actions are being made based on the split second decision making of a moron would lacks the most basic understanding of economics much less mercantilism.
This is a decidedly worse world than one in which the plan is simply a bad one. A bad plan would at least be coherent and something that our allies could predict and make their own plans around. Nevertheless, I think the thesis is broadly correct as being the outcome of recent actions.
You're likely right, but it likely won't happen for about 3.5 years during which time much damage will be done.
The trend of the US pulling out of the "global order" has already been happening. It's just that Trump is taking something that was happening gradually, and through his policy button-mashing, accelerated it much faster
China's rise can be attributed to taking advantage of the neoliberal order. Many of their nationalistic successes come through things like currency manipulation, hiding illegal subsidies, intellectual property theft, and using state monopolies to bully other nations and their corporations.
It's a prisoner's dilemma. If everyone copies China's playbook, there is nothing left to take advantage of. We will all be poorer for it.
It cannot be understated that we are getting front row seats to the end of Pax Americana. In a world where countries can no longer enjoy reliable trade for commodities, we are going to revert to a world of imperialist land grabs and violence.
I don't agree with everything Peter Zeihan writes, but he did a good job of capturing this in "The end of the world is just the beginning"[0].
It feels like it is going to be a rough couple of decades.
0: https://zeihan.com/end-of-the-world/
When the firefighters get blamed for causing fires because they are always present every time there is one.
This trade war isn't about righting trade imbalances. It's about the USA exerting leverage over countries that it can get away with. Just like a Mafia Don.
Or to quote a crude summary from Peaky Blinders: "Big $ucks small".
That's the philosophy of the Trump Administration in a nutshell.
I think that the attitude that "the big eats the small", and its consequences (that is: the trade war and the accompanying uncertainty for business, slashed science funding, tax cuts that lead to more debt for the country, and all the other potentially disasterous policy decisions) America and the world will pay a very heavy price.
I guess the proper term is "Social Darwinism". Trump will do whatever he can get away with. That's his only code.
Supposedly architect Andrew Tesoro did some work on one of Trump's golf courses. He invoiced Trump for $140,000. Trumps lawyers offered $50,000. They threatened to drag it out in the courts otherwise. He agreed to charge $50k. Trump didn't pay. Tesoro contacted Trump. Trump offered half that, $25,000. Tesoro got $25k. Trump's transactions are all about leverage.
https://www.forbes.com/sites/forbestreptalks/2016/07/13/this...
Peak Oil is going to happen soon 2020-25. China's oil demand in 2025 dropped from previous years. Even in the "drill baby drill" USA refineries are closing do to falling demand in the USA.
The private sector does not see new pipelines as economically viable. Trudeau had to step in to finish the Trans Mountain twinning. Existing pipelines that go to the USA are only at 75% capacity. If Canada wants to ship oil to Europe or Asia they should ship it by rail. It would be foolish to spend money on new pipelines when overall demand for oil is declining. And by the time these pipelines would be completed Peak Oil would be a done deal.
Develop more trade with Asia and Europe (which the current govt appears to be trying to do). A big problem is this emerging multipolar world means the USA is going to increasingly pressure Canada to become even more of a vassal state.
This youtube channel has excellent information about Canada's Engergy Future: Energi Media https://www.youtube.com/@EnergiMedia/videos
Trump wants Canada to help more with policing the illegal drug trade.
This is just a prisoner's dilemma.