gabor@qantel.UUCP (Gabor Fencsik@ex2642) (12/04/85)
I would rather not start one of those dreadful technical arguments in economics where neither side knows what they're talking about [then why am I doing this?] --- but here it goes: nrh@inmet's model of what happens between an export-subsidizing Flood and its masochistic trading partner Drain has a hidden assumption. > 3. In the meantime, Drain citizens are buying shoes at the expense > of Flood taxpayers, meaning that: > a) The cost of living has gone down for Drainians, and > up for Floodians. > b) Drainian Industry as a whole will experience lower > labor costs, at the same time as Floodian industry > is experiencing (because of the tax) higher ones. > c) Labor-intensive Drain exports will go > down in price compared to "all-other-things-equal" > Flood exports. c) assumes that currency exchange rates won't offset the effects of a marginal improvement in Drain's competitiveness. Such things are known to happen: in a a few months in 1980 the inflation-adjusted dollar-yen exchange rate rose by 70 percent. The currency markets are a good example of a thing that, by libertarian standards, should not exist: a market that is free, where the participants have nearly perfect information and yet it is both unstable and inefficient. [Inefficient in the sense that 'a persistently overvalued dollar' can exist.] Wild swings in exchange rates are often triggered by capital movements which nowadays completely dwarf the volume of international trade. Don't misunderstand me: I am instinctively in favor of free trade but I wonder if you are willing to contemplate the political costs of expanding trade. Let me quote an article by Lester Thurow from the Nov 9 issue of The Economist titled, rather provocatively, 'A Time to Dismantle the World Economy': The world economy is in fact at a turning point and the next ten years are likely to witness a lessening of economic integration. The reasons for this belief are simple. First, the current degree of economic integration has outrun the world's collective willingness to manage it. To make today's world economy work, the major industrial countries would have to be willing to coordinate their monetary and fiscal policies and to limit movements in exchange rates between major currencies. While both are within the realm of economic feasibility, neither seems within the realm of political feasibility. In the end the national instabilities produced by this collective management failure will force countries to reduce their involvement in the world economy. I would only like to add that I am not now nor have I ever been an economist. ----- Gabor Fencsik {ihnp4,dual,lll-crg,hplabs,intelca}!qantel!gabor
nrh@inmet.UUCP (12/08/85)
Gabor, I'll certainly steer clear of the what-about-the-currency-exchange rate question. I'm in no position to speak on it -- my article was to bring out a couple of points that seemed to me important, in particular, the part you objected to, 3c, I think, was an "all-other-things-equal" construction, as I'd hoped to avoid such questions. I am most intrigued by the idea of the currency market having the qualities you suggest. Can you suggest a reference? By the way, Libertarians that I know don't suggest that free markets are necessarily stable (the futures markets are good evidence of this, as well as a good example of how to deal with it). We do often argue that government is a source of instability, though, and if the market on currency (heavily influenced by governmental policies) is unstable, I'm not a *bit* surprised.