Imagining two countries: Industria and Agriculturia
You can find a more full elaboration here, but is this argument really valid?
This seems to be utterly misguided nonsense. The fact that they can on the one hand postulate some absurd distinction between “luxury goods” and food (amazingly, industrial goods all fall under luxury goods) then harp on about free trade’s non-existence is beyond me. That is something consumers subjectively appraise. Moreover, their claim is only true to the extent that food is the most urgent want. Otherwise, demand for it may increase regardless of whether one’s basic “needs” are satisfied or not. At least they understand that there is no such creature as free trade right now.
-Jon
If you are new to economics britainland, it’s important for you to know that it’s not only the Austrian tradition and it’s followers that would dissagree with this nonsense, on this purticular issue of trade even most mainstream economists would laugh (cry?) at the simplistic explanation of free trade that is given by oxfam.
I’ve only been studying economics for a year, so yes I am new at it in the sense that at the moment I only know the subject superficially, if you know what I mean. I am also aware that Keynesians, neo-classicals, and even Marxists, are generally in favour of free trade.
If individuals within that country make the most money when they produce food, why does he want to force them to make anything else? The author is playing with language; that’s typical of individuals of his political persuasion.
Under-developed countries specialize in exporting agricultural goods, instead of other stuff, because most of it’s people are low-skilled and they don’t have much sophisticated capital. Free trade is their only chance to start importing the stuff they need to enrich themselves and start adventuring into a wider scope of product activity. The article makes it sound like these countries figured their land was very fertile and so they focused on producing agriculture goods, and now they are screwed.
The article encorages the reader to consider the alternatives. Import tariffs: first, under-developed countries have high tariffs already (I read e.g. Nigeria is like a 30% fee). This loses the all point of why people want to import: to get the tools for agriculture, telecommunications, etc. If you restrict imports, how are you suppose the country will ever develop?! Import will already be very expensive anyway, because they are trying to out-sell countries that even though have expensiver labor, also have way more productive capital, and have all kinds of subsidies! Suggesting an under-developed country to increase the tariffs even more is the most ridiculous notion ever. Why does the author think the international trade is good in the first place? They should just enact a ban on it already!
Subsidies: how does he suppose under-developed countries get the subisidies from? Governments and guerrilas there already take huge sums for all kinds of war and social planning purposes. They don’t have much people to steal the resources from. Hello? They are under-developed for a reason?!
Maybe these commies should consider that they should try to get rich countries to trade freely with them, instead of inciting poor countries to come up with the same schemes.
I didn’t read the elaboration, but the graphic is absolutely silly. It relies on quite a few unrealistic assumptions. The most obvious one is that it seems to assume a static, unnatural existence for Agriculturia and a natural, developing existence for Industria. Why doesn’t demand for agricultural products increase? No one wishes to increase their caloric intake and no one wishes to eat ‘luxury’ foods, like meat instead of rice? And why are the birthrates only at replacement levels? Or does everyone lower their intake to compensate for newborns? And is industrial production banned on Agriculturia? Is agricultural production banned on Industria?
I don’t think it’s as bad as some of the others imply.
Here’s the part that the graphic comes from:
The false premise they make here is that the people of Aqriculturia haven’t invested any of their increased wealth in anything but imports from Industria. Once they start producing surpluses over the demands of both of their countries then prices will fall and they will receive less in return from their agricultural exports but will also shrink the size of Industria’s export market and lessen their total wealth as well…Unless the cheaper food causes enough consumer spending to make up for the decreased demand from Argiculturia that is.
This also implies a static economy since increased efficiency in Industria may be able to offset the static food production in Agricultria (assuming no overproduction) so they can keep not only their previous standard of living but increase it over time like happens in The Real World™.
The complete static economy (in terms of efficiency increases since demand in Industria increases by some unknown method and/or doesn’t apply to Agricultria) they assume for this model would mean that neither side would get either richer or poorer since it is, well, static. Or a zero-sum game, I’d have to click on the ‘agricultural problem’ link to find out I suppose.
But, if as history has shown happens in these cases, they take up some of the less skilled production of ‘luxury goods’ by investing their increased capital in domestic industrialization they can solve both their overproduction problem (assuming away a static economy) and cause both of the countries to be wealthier in the long run.
Yeah, preaching to the…
The rest of the article is more of an description of the hazards of government intervention than anything else IMHO.