San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Wednesday, April 13, 2016

"The Free Market Is A Stupid Market"

I was listening to Bill O'Reilly interview Donald Trump earlier this week.  The interview was filled with the usual blather about how Trump is going to make Amerika great again, whatever that means.  It was also filled with the usual attempts by Bill to get Trump to agree with him that he is a brilliant political analyst.  At one point in the interview Donald, ranting and raving about how China and Mexico are at war with us over trade, made the statement that "the free market is a stupid market."  That comment put my feeble mind on a path of thought that has resulted in today's post.  See what you think.
The essential presupposition behind Donald's belief that free markets harm his concept of what the Socialist Democracy of Amerika should be is that when foreign governments devalue their currencies they obtain an unfair advantage for their domestic industries, thus allowing their domestic industries to produce goods for a cheaper price than those same goods can be produced in the SDA.  When foreign countries devalue (inflate) their money supplies one of the necessary consequences of that action is that the dollar, provided it is not being inflated even more quickly, strengthens.  A strong dollar can buy more units of currency in the foreign land that is inflating and, thus, can purchase more goods from that country for less total dollars.  Donald sees this as an act of war and wants to punish countries like China for doing it.
Donald has been less than clear about how he will engage China in a trade war.  If he decides to go the route of devaluing (inflating) the dollar, he ends up shooting the SDA in the foot.  The worst possible response to one country inflating its currency is for the SDA to do the same thing.  Contrary to popular opinion, a strong dollar is a good thing.  Yes, it is true, a strong dollar makes foreign goods cheaper and, in some cases, it also makes selling domestic goods in foreign market more expensive, thus suppressing some of that type of trade.  But the situation is a whole lot more complicated than Donald is willing to admit.  Or perhaps he is not even aware of how things operate in the world of international trade.  Either way, Donald's desire to engage in a trade war can only bring about negative consequences.
If Donald does not go the route of inflating the dollar to "level the playing field" and make SDA goods "more competitive,"  maybe he is thinking about asking Congress to make laws that prohibit the citizens of the SDA from purchasing goods produced in foreign countries which are being subsidized due to the fact that those countries are engaging in inflationary practices.  Good luck with that one.  What omniscient bureau is he going to create, and which body of omniscient bureaucrats is he going to hire, to determine exactly who is subsidizing production and to what extent they are doing so?  It is an impossible task, even for the federal government of the SDA.
Most amazing to me in this entire discussion is the apparent belief that the hands of the SDA are clean in this matter.  Donald always speaks as if we are blindly and stupidly engaging in free trade with the citizens of other countries around the world while all of them are ripping us off by subsidizing their goods.  As Donald tells the story the SDA is a babe in the woods when it comes to foreign trade.  Donald believes the free market is stupid because only the SDA is really operating in a free market. As he sees it, the SDA is robbed daily by robber baron foreign nationals who sell us subsidized goods.  Nothing could be further from the truth.
The graphic below shows how much a select group of SDA companies have received in direct federal government subsidies in the fifteen year period ending 1-1-15.  This is only a partial list and includes only the most subsidized companies.  To show up on this list the company had to receive over a half billion dollars in taxpayer funds during that period.  I do not know what each of these companies produces but I do know one thing.  Receiving over a half billion dollars in federal subsidies most certainly creates an unfair playing field.  It also most certainly gives an unfair competitive advantage to each of the companies listed below.  If any of these companies ever sold a single item to a foreign country then the SDA is guilty of the exact same practice Donald is so disturbed by.

Parent Companies Receiving More Than $500M Since 2000

Parent Company Federal Grants and Allocated Tax Credits
Iberdrola $2,172,641,752
NextEra Energy $1,938,811,949
NRG Energy $1,730,060,410
Southern Company $1,475,553,962
Summit Power $1,441,936,555
SCS Energy $1,254,154,000
Tenaska $966,252,326
Duke Energy $898,436,173
General Electric $836,524,548
Exelon $734,674,010
EDP-Energias de Portugal $722,468,855
Leucadia National $651,647,087
SunEdison $649,564,635
General Atomics $614,658,667
Abengoa $605,128,646
Air Products & Chemicals $604,170,312
Ameren $594,809,786
E.ON $576,149,728
AES $566,920,950
Invenergy $531,915,559
General Motors $529,398,581
SOURCE: Good Jobs First

Federal subsidies are not the only way the taxpayers are fleeced in this envy filled country.  State and local subsidies are also rampant throughout the land.  I am not sure of the time frame for the graphic shown below so take it with a grain of salt.  I show it to you here only to make my point that when it comes to subsidizing domestic industries, the very thing Donald finds so reprehensible, the SDA is no neophyte.  Here is a list of the top 30 state and local subsidy beneficiaries:

Is it not fascinating to see that foreign companies, like Hyundai, also receive SDA subsidies?  What sense does it make to engage in a trade war when you are subsidizing the alleged enemy?  Most all of the companies on the list above have profits from foreign operations.  Is Donald willing to admit that those profits are immoral because of the domestic subsidies those companies have received?  Furthermore, is Donald willing to stop all domestic subsidies immediately?
Besides federal, state and local subsidies to businesses directly, there are also hundreds of federal subsidies to small businesses based upon what they produce.  This is especially true in the area of agricultural production.  The graphic below shows how many taxpayer dollars were used to subsidize various agricultural products in 2004:

2004 U.S. Crop Subsidies
Commodity Millions of US$ Share
Feed grains, mostly corn 2,841 35.4%
Upland cotton and ELS cotton 1,420 17.7%
Wheat 1,173 14.6%
Rice 1,130 14.1%
Soybeans and products 610 7.6%
Dairy 295 3.7%
Peanuts 259 3.2%
Sugar 61 0.8%
Minor oilseeds 29 0.4%
Tobacco 18 0.2%
Wool and mohair 12 0.1%
Vegetable oil products 11 0.1%
Honey 3 0.0%
Other crops 160 2.0%
Total 8,022 100%

It does not take a genius to realize that when the SDA government subsidizes agricultural products it does so at the expense of foreign producers.  Sugar subsidies are a case in point.  Because of more favorable growing conditions, economies of scale and the division of labor there are several countries in the world that can produce sugar less expensively than it is produced in the SDA, without subsidies in their own countries.  SDA career politicians, in order to buy votes, have long subsidized the price of sugar, thus effectively keeping less expensive foreign sugar out of the country.  The net impact of the domestic sugar subsidies is the fact that SDA citizens pay more for sugar and foreign nationals are unable to compete on a level playing field for sugar.  Will Donald stop all sugar subsidies in the name of fairness and a level playing field?
Tariffs are another form of subsidy.  A career politician enacts a tariff on an imported good for only one make it more expensive, thus protecting domestic producers of that good.  Does the SDA have many tariffs?  Go here for a list of SDA tariffs.  I really want you to do this.  Go to the link I just gave you and type "sugar" into the search box.  Click on search and watch what happens next.  The list of tariffs that comes up are just for items that involve sugar in them somewhere.  There are dozens of categories and hundreds of individual tariffs on sugar and products related to it.  Have fun with this. Type in any product at random and observe how hundreds of tariffs are associated with thousands of different products.  Anyone foolish or stupid enough to believe that the SDA operates as a free market needs to be made aware of this website.  Anyone crazy enough to deny that the SDA is the world's biggest violator of the principle of a level playing field is simply not looking at the facts. Donald wants to engage in a what he deems to be a defensive trade war while at the same time he is unwilling to admit that the SDA is already the world's most aggressive trade warrior.  I call that hypocrisy.  What do you call it?
Donald is wrong. The free market is not a stupid market.  The free market is the only way citizens from different countries can trade with one another in a fair and equitable fashion.  Sadly, and according to all usual expectations about the role of government in this immoral land, career politicians are incapable of keeping their hands out of the free market. There are too many votes to be purchased and privileges to be sold to allow markets to operate freely.  When Donald says that we need to engage in a trade war with countries all around the world he fails to notice that the SDA is already engaged in a significant trade war, and has been so for as long as I have been alive.  The solution to the problem of unfair international trade is not more rules, laws and tariffs.  The solution is freedom.  But I don't ever expect a career politician to understand that.


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