Thanks.

Flavius — Mon, 16 Nov 2015 02:51:44 +0000

In reply to But there's more analysis and

Thanks.

Perhaps the push back is correct. Or perhaps correct in some cases.

Certainly above my grade.

So I still remain convinced by Keynes' "The thing about tariffs is : they do the trick".

To repeat from above , other things being equal the correct approach would obviously vary by country . But other things are of course never equal so the "correct " choice would also vary depending upon your political philosophy.

A country with a true safety net might be able to tolerate losing ,say, its car industry whereas that would cause unacceptable suffering elsewhere,. Like here.

Cheers,

But there's more analysis and

PeraclesPlease — Sat, 14 Nov 2015 18:19:13 +0000

In reply to As I was saying

But there's more analysis and pushback on Keynes' later position, e.g. not unequivocally accepted::

... In time compelling arguments emerged that, if not shattering the Keynesian case for import restrictions, at least relegated it to a narrow range of circumstances in which other, more preferable options had been ruled out. Keynes's argument for tariffs in the early 1930s hinged on two critical assumptions: fixed exchange rates and nominal wage rigidity. In the post-World War II period, as in the early 1930s, fixed exchange rates were an integral part of the international monetary system and downward wage flexibility was not thought to be a feature of modem economies. But changing views on exchange rates in particular and macroeconomic policy in general ultimately undermined the Keynesian employment case for protection and diminished the perception that the standing of free trade had been diminished.

First, economists gradually came to prefer exchange rate flexibility over import restrictions as a means of external adjustment. Keynes and his followers were willing to sacrifice free trade on the alter of exchange rate stability, a choice dictated more by circumstances and his policy preferences than for reasons having a sound grounding in economic theory. Subsequent research comparing devaluation with tariffs weakened any inclination in favor of trade restrictions as opposed to exchange rate adjustment as a means of maintaining external balance. With the development of the "absorption" approach to the balance of payments, a devaluation proved more efficient than import restrictions in improving the trade balance, which was determined by the difference between domestic production and total spending. For example, of expenditure-switching policies that shifted demand away from imported goods and toward domestic goods, a devaluation would switch both domestic and foreign expenditures toward home-produced goods, whereas import controls would shift just domestic expenditures toward home production.

A growing number of economists also came to question the desirability of fixed exchange rates. In a classic essay, Milton Friedman (1953) argued that flexible exchange rates would free monetary policy from being devoted to a particular exchange rate parity to focus on the more important economic policy goal of maintaining domestic price stability. By allowing greater flexibility in the conduct of monetary policy, the very deflationary shocks that prompted Keynes's turn to tariffs in the first place could be avoided altogether. Friedman also stressed that flexible exchange rates were the most direct and efficient means of balancing international payments, eliminating the need for government gold or foreign exchange reserves and hence for direct policy concern over external balances.

Indeed, James Meade (1955, 6) argued that "free trade and fixed exchange rates are incompatible in the modem world; and all modem free traders should be in favour of variable exchange rates." According to Meade, of the three major economic policy objectives-stable domestic prices, stable exchange rates, and free trade-just two were attainable; all three were incompatible. To avoid the deflation of the early 1930s and the accompanying contraction of economic activity, Meade argued that domestic price stability should be afforded top priority. But if monetary policy was already obligated to service another objective, a fixed exchange rate, and exchange rate changes were ruled out, then trade restrictions became the means by which the conflict between domestic price stability and exchange rate parity was resolved without sacrificing either objective. Suppose, for example, the demand for British exports fell under a fixed exchange rate regime. The resulting trade deficit would result in a loss of foreign exchange reserves, putting deflationary pressure on monetary policy. If a fall in domestic prices was deemed undesirable because of employment reasons and an exchange rate change was ruled out, then direct regulation of foreign trade transactions was the only way of restoring balance of payments equilibrium and also avoiding an economic downturn. If the domestic currency were allowed to depreciate on foreign exchange markets, free trade and stable domestic prices could be maintained.

Originally conceived under conditions of deflation and unemployment, the whole Keynesian framework came into question in the late 1960s when the economic problem was one of inflation and unemployment. The development of the natural-rate of unemployment theory by Milton Friedman (1968) and others began to supplant Keynesian economics as the dominant framework in macroeconomics. According to this approach, even if nominal wages were considered fixed in the short run, government policy could not permanently reduce unemployment through the use of stimulative monetary and fiscal policy, whether these policies were anticipated or not. In this framework, protection offered no solace whatsoever to the problem of unemployment.

These developments severely limited the Keynesian case for protection, but did not prevent the resurrection of the argument by Cambridge economists in the mid-1970s, this time in the context of flexible exchange rates. Assessing the depressed state of the British economy in the mid-1970s, the Cambridge Economic Policy Group (CEPG) advocated reducing the current account deficit while implementing expansionary demand policies to alleviate unemployment. Based on an explicit econometric model with real wage rigidity, the CEPG concluded that import quotas and high tariffs were the only way to reduce the external deficit without aggravating unemployment or requiring a steep devaluation of the pound. According to the CEPG, devaluation would deteriorate the terms of trade and raise import prices (leading to higher inflation), both of which would reduce demand. By contrast, import quotas were assumed to increase demand and employment without rekindling inflation. .....The Cambridge proposals provoked debate, but failed to capture support.....

CapitalIdeasOnline.com

Of course there are countries

Flavius — Fri, 13 Nov 2015 17:07:52 +0000

In reply to Malaysia survived the Asia

Of course there are countries whose resources are so insufficient they must be part of a larger entity. A calculation to be made case by case. The extreme example of a country of which that is not true is the continent- wide US of A. You wan't oranges? We got em. Fertile fields of grain? I thought you'd never ask.Of course there might be something we might wish to have. Kangaroos? But need? Forget it.

The late 19th century theory, AKA the "Classical theory" is that for the world as a whole it was wasteful to struggle to produce a commodity in Country A that could easily be produced in B... Given a choice of subject Keynes chose for his Dublin lecture(it was 33 not 35) National Self-Sufficiencyl Saying he was "not persuaded that the economic advantages of the international division of labour to day are at all comparable with what they were "Experience accumulates to prove that most modern mass-production processes can be performed in most countries with almost equal efficiency......Ideas,knowledge , art,hospitality,travel-these are the things that which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible........."

Next question?

Malaysia survived the Asia

PeraclesPlease — Fri, 13 Nov 2015 12:14:07 +0000

In reply to As I was saying

Malaysia survived the Asia crash and the Soros onslaught by shutting its borders and ignoring the IMF. Vienna did something similar when the Turks arrived a few hundred years back.

dagblog - Comments for "As I was saying"

Thanks.

But there's more analysis and

Of course there are countries

Malaysia survived the Asia