My Open Letter has attracted far more responses than I originally expected.
I’ve joined the “elite” group of people who Tim Worstall disagrees with; I’ve had both Mr and Mrs Devil pay their respects; Chris Dillow (via e-mail) does not think it wise to base my arguments for Socialism on what produces growth and I have to concede they all have a point.
This memo will challenge some of the arguments against me, and clarify where people misunderstand me, and hopefully attract some more ire from the right of the blogosphere.
Memo: Part One
First of all, I would like to say that I did tip into hyperbole at times.
When I cite “the overwhelming body of evidence in favour of Socialism,” even I have to admit I might be overreaching my grasp. In reality, I should claim there is enough evidence for me, and I believe there is enough evidence for most.
I will now confront the arguments levelled against me in no particular order.
I’m sure that isn’t what Tim was intending to argue, but I can’t understand what he said any other way.
I argued that:
America is not a free trade nation and never has been, it is the home and bastion of protectionism. It built up its industries not in competition with Britain, but with intense protection from her output.
Whereas Tim disagrees:
The internal US market was by far the largest free trade area on the planet. The astonishing growth, invention and efficiency of the US economy is not an argument in favour of protectionism at all: it’s a sterling example of the benefits of free trade in action.
Further, it’s a bit of a mistake to think that in the late 19th, early 20th century they were sheltering that huge market behind high tariff barriers. There were indeed high nominal tariffs, this is true, but they aren’t the only barrier to trade. There are also transport costs to think about. And the technological revolution in shipping from 1860 ish to 1910 meant that, even as tariffs themselves rose, the actual trade barriers (tariffs plus transport costs) fell. (The figures are detailed here.)
So, no, we don’t get to claim the US economy as proof that protectionism works.
To me this seems like an odd argument, trade is free or it is not. Secondly, when it comes to the “largest free trade area on the planet,” the UK had a pretty huge free trade zone too, I would appreciate some more input on exactly how accurate Tim’s characterisation is. Moreover, the UK – at its height – practised free trade as no one else did.
Now Tim argues that Tariffs didn’t matter to America for two reasons. One, that domestic firms were put under enough competitive pressure to innovate and grow without external pressure, due in part to the unique nature of the US. And two, that although tariffs were high, it didn’t really matter, because their effect was ultimately small, so firms were still affected by external competitive pressure.
I hope I haven’t misinterpreted him, but this seems the root of it.
Although accurate figures are hard to come I have some information here on US Tariff rates for the 19th to 20th Century. Considering the US is often vaulted as the capitalist’s capitopia it is interesting to reflect on its chequered history on “free trade.”
Average Tariff Rates on Manufactured Products for the USA (weighted average; in percentages of value)
Year vs. Average Tariff Rate
As we can see average tariff rates hover around 40% for a century (these figures hide much variation, but outline the general trend), then drop into the 30s in the 1920s before rocketing back up to slightly over the historical average, courtesy or Smoot and Hawley.
Tim argues that decreasing transport costs in the late 1800s meant that tariffs played only a very minor role in the successful catch up of the US.
It is strange that Tim seeks to write off tariffs as not particularly significant, when their existence is perhaps the prime cause for the American Civil War. The Northern industrial states were very keen to maintain their protection, while the Southern agrarian states were dead set against them.
Slavery was the lead cause of succession but it was not the only reason the Union and Confederacy entered into war. The desire of the South to exit the Union in order to escape its tariff regime should not be underestimated. Tariffs indeed had an effect in these years, war is not entered into lightly.
Throughout the 19th century and up until the 1920s America continued to enjoy the strongest rates of growth despite being the most protectionist.
Tim cannot argue that something supposedly so harmful can in fact be utterly benign when reductions in transport costs are accounted for. Not without seriously more evidence.
Also: Doing some digging on Worstall’s blog I found something contradictory, yippee for me.
Another way of looking at it. If boosting trade is indeed so important, then we should be looking at ways to do it in the most efficient manner. Patrick Minford has pointed out that leaving the EU and having free trade would boost the economy by 3%.
This seems somewhat counter to what Tim is arguing about the US. If the relatively large US internal market applied enough pressure to US firms, then surely the massively larger internal market of the EU can do the same for the UK? However, I don’t think you will find this is what Tim would argue.
I’m not arguing in favour of protectionism in general; I can’t really see what the UK doesn’t just unilaterally drop all barriers – or preferable set up a 10 year plan to gradually reduce them all to zero.
However, in certain historical circumstances, such as in the US, specific protectionism can be a really positive economic step. Tim attempts to argue this is obviously untrue and fails utterly.
We need to talk. Look at this graph.
The first bar represents public spending as a percentage of GDP at the end of Socialist Demagogue Clement Atlee’s tenure: 37.98%.
The last bar represents public spending as a percentage of GDP at the end of Capitalist Demagogue Margaret Thatcher’s tenure: 34.92%.
Now I appreciate a man in your position wants all the crack you can get, but these figures should give you some pause for thought.
Neither the left nor the right really wants to take ownership of either of these. Perhaps I could have done more with the resources Atlee had to avoid the slumps on the horizon. And I’m sure Guido Fawkes could have slashed and burned far more effectively than that spendthrift Thatcher.
Sometimes, there isn’t that much difference between the two “extremes” of the British party system.
Memo End: More to come tomorrow
That’s it for tonight, I’m a bit sleepy. Below are the proposition which I will be challenging and a succinct summary of their argument.
I don’t want to challenge straw men, so rest assured I will flesh out your arguments more than I imply in these glib summaries.