Sunday, November 05, 2006

"we shall not see them lit again in my lifetime"

The ghost of Sir Edward Grey haunts Europe.

Power companies said the outage started in Germany with a surge in demand prompted by cold weather, and then spread to other parts of Europe.

Some five million people in France lost power, mainly in the east of the country and including parts of Paris.

"We weren't very far from a European blackout," a senior director with French power company RTE said.

Pierre Bornard told the French news agency AFP that two German high-voltage transmission lines failed, causing problems across western Europe.

This triggered a "house of cards" style system breakdown, he said.

Probably something to do with global warming. I bought a 2.5kw generator last year, but haven't had to use it yet.

Talking of global warming, the Greens have a good idea for reducing Co2 emmissions :

"The environmental costs of long-distance trade need to be properly taken into account," said Dr Caroline Lucas, Green Party MEP for South East England.

"We must manage international trade in a way which is socially and environmentally sustainable, working towards global agreement on a raft of measures such as taxation on fuel and import tariffs designed to support home-grown businesses.

"This will help offset the environmental damage caused by ships like the Emma Maersk plying international waters filled with MP3 players and plastic toys."

Tariffs, eh ? It's the way of the future !

I doubt very much that Chris Dillow reads Majority Rights, but its occasional contributions from the Bear's Lair are worth a browse - this one on Comparative Advantage :

In his 1990 paper “Endogenous Technological Change” economist Paul Romer showed that economic growth is caused primarily by the spread and interaction of information, some but not all of which is “excludable” in that others can be prevented from using it once it’s created. As an instance of information-driven technological change, he instanced Francis Cabot Lowell’s 1811 industrial espionage on British power looms, through which he created the U.S. textile industry.

From the Lowell example, it is immediately clear where the Doctrine of Comparative Advantage falls down. Under the Doctrine, if the United States is able to produce textiles more cheaply than Britain because of its more advantageous factor costs, then the U.S. should specialize in textiles and Britain in other goods and this will be advantageous for both sides. However Lowell’s industrial espionage demonstrated a flaw in this argument: if British technological superiority consists of knowledge of how to run a textile mill, and can be suborned by an American spy, then the transfer of textile manufacture to the United States was disadvantageous to Britain. It produced new competition which drove down prices, removed the U.S. market (Lowell was instrumental in getting an 85% tariff enacted against imports of British textiles in 1816) and was highly damaging to British living standards. By the process of technological piracy, the factors of comparative advantage were changed in the U.S. favor, with no compensating advantage to Britain.

Further :

Given that most intellectual property is portable and non-excludible, if the world economy is to consist largely of intellectual property, with physical goods being manufactured by robots and their design being far more important in their cost than human direct labor, then the world trading system is in deep trouble. Companies in rich countries that outsource intellectual property production to cheaper labor environments will soon find their trade secrets no longer secret and their outsourcees competing with them with an unbeatable wage cost advantage.

Ah yes, but our superior education system will mean we move to higher-added-value goods, aided by our 'superior infrastructure', education system, and 'technical know-how'. That's why we're specialising in hi-tech stuff like ... er ... er, while China is doing downmarket products like medical scanners and telecomms.


Anonymous said...

Nice one LT, truths self evident that only libertarians, economists and politicians (and journalists obviously) could fail to spot them.


Anonymous said...

It is often said that the environmentalists want to persecute the middle classes through green taxes. However, by introducing green tariffs, are they not about to penalise the lower classes?

Who are these radical greenies that seem determined to stop civilisation dead in its tracks? What purpose to they fulfil?

Anonymous said...

Edward Grey was so very right. European culture died with the Emperor Franz Joseph.

Voyager said...

Tariffs, eh ? It's the way of the future !

but for The Calico Act Lancashire could never have competed with India on cotton, because of The Calico Act it was able ti generate funds to invest in machines and make Manchester rich

but for the McKinley Tariff the US would have not developed many scale industries

the tariffs protecting Germany allowed it to build major electrical-engineering groups AEG, Siemens-Halske, Telefunken, etc - Britain's Ferranti and Thomson-Houston did not survive

Against the powerful I G Farben Britain had no leverage unrtil the Govt created ICI in 1926

AntiCitizenOne said...

Of course those Tarrifs made CONSUMERS in the host country poorer.

Everyone seems to forget that.

Voyager said...

Of course those Tarrifs made CONSUMERS in the host country poorer.

Everyone seems to forget that

Depends on elasticity.........don't you know any economics ?

Actually it made them richer - they had JOBS. Only social security can compensate for lack of jobs so maybe we should increase taxation to increase social security so we can import even more and run a bigger trade deficit ?

Why bother investing in Britain when you can get legal documents roduced in India, and manufacture in China ? When public spending growth falls after 2007 we can impose higher VAT on food, newspapers etc to pay for increase social security

Anonymous said...

Hmmm...economist's theorising falls aprt in the real world ? Now, that's something that doesn't happen every day!

Voyager said...

Of course those Tarrifs made CONSUMERS in the host country poorer.

Let's trace this one back. The Corn Laws were used to keep the increased agricultural acreage of the Napoleonic Wars in production. It was a CAP system with export premia when prices were low and maintained a guaranteed domestic price for wheat.

It would cause bread riots for the unemployed, but these became worse after the Speenhamland System was abolished in 1834 with The New Poor Law.

Prior to that textile workers had received Outdoor Relief in the form of wage subsidies when the trade cycle put them on short-time.

After the New Poor Law - designed to save ratepayers money - there was no Outdoor Relief but simply destitution as precursor to entering The Workhouse or Union - here wives were split from husbands and families broken up.

Since the families had to sell cottages etc before the received relief they would be destitute as the trade cycle recovered and millowners wanted skilled labour back.

The system of reducing Aggregate Demand by forcing people into destitution before any relief was paid in the Workhouse meant that food prices was something the manufacturer wanted to cut to pay his workforce less.

So the Liberals as party of the manufacturers started a campaign from Manchester (Cobden, Bright) - the Anti-Corn Law League - to abolish the agricultural price support which was opposed by Tories who were landowners.

People like Ricardo developed (as a Stockbroker) his Theory of Rent to show how land prices were raised and rents because of agricultural price support and the theory of Comparative Advantage as US wheat exports started coming on stream.

The real issue became Famine in Ireland when the Potato Harvest failed and eventually Peel as PM funded imports of wheat from the USA to feed the Irish which drove a coach and horses through THe Corn Laws which he, as son of a manufacturer, repealed and split the Tory Party with Gladstone going to the Liberals and Disraeli getting the support of the right-wingers to lead the Tories as Conservatives.

The Manchester School became thrilled with the idea of breaking open foreign markets for trade and until the world shut them out in the 1890s had a good run but failed to innovate or invest, which is why France produced higher quality textiles than England which stuck too long on bulk mass-produced product with little investment in design.

After the US marjet closed off in 1890 the English firms switched to Germany, and with tariffs there, to Russia until tariffs and V I Lenin destroyed that market too.

Just so we are clear, prior to 1914 75% British exports were Coal and Textiles, mainly Cotton but also Wool Worsted.

Germany emerged dominant in Electro-Engineering, Britain was stuck with coal, steam engines, and textiles

Free Trade Gospel was a political slogan and still is - it is the reason The Express has a Crusader on its masthead.

It is not an immutable truth but a political stance, and f welived in a thinking era people would not chant mantras as if they were true - that was the curse of the Twentieth Century

AntiCitizenOne said...

Tarrifs make people poorer.

They do not create jobs they stop them being lost in industries where someone else will do the job better.

Tarriffs basically make more people poor because the jobs they "save" are at the expense of consumers in their own countries.

Tarriffs are basically a welfare state for corporations. With all the terrible effects that welfare states cause.

Voyager said...

Tarrifs make people poorer.

They do not create jobs they stop them being lost in industries where someone else will do the job better

Political Slogan no more valid than saying "Property Is Theft" or "All Power To The Soviets"

You simply spout assertions and cannot provide any analysis..............I do not accept empty slogans

Anonymous said...

Regarding Caroline Lucas Tim Worstall comments here.

This is a good explanation of comparative advantage for anyone who wants to know.

You simply spout assertions and cannot provide any analysis..............I do not accept empty slogans

Better than saying "nah nah can't hear you", I suppose.

Anonymous said...

Tariffs do make people poorer in the long run: shielding British business from foreign competition means the corporations can slowly raise prices whilst product quality levels and business efficiency levels fall (perhaps inadvertedly). The raised prices and the lower standard of the product means that the consumer is worse-off, and the consumer may well be a worker at the business.

Tariffs serve no real purpose other than to temporarily avert political discontent over job losses.

Anonymous said...

Sam - Ah now I understand why the Japanese car industry produces such woefully poor products protected as it was by tariffs and nowadays just by restrictive import practices. Whereas the go-ahead swashbuckling entrepreneurs of the British car industry exposed the harsh winds of free competition completely wiped out.

Lets try another instructive example, how about Renault? A dinosaur of a state controlled car industry trounced again and again by the Phoenix Rover

paul ilc said...

Well said, aco.

In a free market, you get creative destruction as economies rebuild themselves on new foundations, as the UK did as a result of Thatcherism.

Btw, the UK's car production is close to its all time high, as I recall. It's just that the car manufacturers in the UK are not UK-owned.

giant squid said...

The Jews did it to harm white interests. Has anyone investigated whether Jewish homes were also affected by the blackout? Of course not, because such a study would not be countenanced by the Jewish ruling class, or publicized by the Jewish media. In fact, anyone speculating on the obvious possibility of a Jewish-controlled anti-white blackout is likely to be incinerated by a Zionist death ray. My theory, which is entirely false yet quite possibly true, and most definitely true in a higher sense, is that the Jews caused the blackout while preserving electricity for themselves, as part of their nefarious scheme to... /end Guessedworker/Majority Rights mode

Anonymous said...

Squid - you are posting in the wrong thread I suspect, plus you dont get what GW is on about.

Libertarianism - a fetish, sorry I just dont buy it (almost a pun in there?).

Voyager said...

British business from foreign competition means the corporations can slowly raise prices whilst product quality levels and business efficiency levels fall (perhaps inadvertedly

That implies the only competition is external and that there is no domestic competition.

No foreigners come to install plastic uPVC windows yet there are thousands of installers in the UK with a market presence rarely exceeding 3 years.

However there are very few car producers globally and we expect maybe 5 groups to dominate the world.

70% radio sets are Made in China.......the competition is restricted to fascia plates

There are 4 producers of notebook computers with probably 20 fascia designs

70% children't toys comer from China

When textile workers in Morocco lose their jobs to China they will move North looking for work in Western Europe

Anonymous said...

Short term, tariffs and protection created the domestic market Japan needed to create the industries she wanted. Long term she needed free trade once again in order to sell her produce to the rest of the world. That policy obviously works at least in the short term when you are "catching up". What is less clear is how such protectionism would work over a longer period or if it was implemented by an advanced nation.

Historically when Britain was faced with protectionist rivals such as German, then the USA, it didn't actually harm it's economic health. We did move on to other things. We continued to get richer.

In contrast, during the 1950-70s, we did go out of our way to secure our industry. We invested in heavy manufacturing like steel, car production and aerospace. Britain relatively declined. The change occured precisely when we stopped being wedded to manufacturing support and allowed the market to move freely.

Far from me needing to persuade people that comparative advantage is a reality, the deniers need to persuade me.

Umbongo said...

So let's have tariffs on everything. And, even better, let's leave the height of the tariff (and the size of the quotas) to be decided by our wonderful and all-knowing politicians. Then "voyager" can marvel at the new tractor factories being built on Hampstead Heath because that's where the Mayor of LondON wants them built.

The only economic (albeit short-term) argument against free trade and the application of the comparative advantage rule may be the "infant industry" one. The problem there is to decide when the "infant industry" can be weaned off the mother's milk of tariffs, quotas and subsidies. The politicians' answer is "never" because they might lose some power that way and have to work for a living. In practice, permanent (and most temporary) artificial barriers to trade (which includes "special" development areas) always give too much power to politicians. "Voyager" appears to be happy giving the political class even more influence over our lives but s/he is obviously a more trusting soul than I am.

BTW implicitly criticising Ricardo because he was a stockbroker is like criticising Engels (a "voyager" hero presumably) because he was a cotton manufacturer: both true but so what?

Anonymous said...

We need more protectionism in the world.

The last time this was done was after 1929, when every western country put up trade barriers. The economic crisis of the early 1930s was not very disruptive and by the 1940s everything was hunky-dory again.