Post-Brexit Britain Must Turn Its Back on Protectionism
Comparative advantage is a force that drives worldwide progress, prevents stagnation and allows the poorest nations to develop.
Alexander C. R. Hammond —
The First Minister of Wales, Carwyn Jones, recently denounced the idea of a post-Brexit Britain entering into trade deals with poorer nations. Jones’s main objection lay in the premise that free trade with less developed countries would “undermine Wales’ farming sector.” Jones’s remarks came after meeting International Trade Secretary Liam Fox. Sensibly, Dr. Fox has not been dettered by this warning and remains focused on seeking new post-Brexit trade deals.
Shortly after Jones’s comments Chatham House declared that post-Brexit, a market oriented approach with no farming subsidies, like that seen in New Zealand, would ultimately lower food prices and increase British productivity. Jones is concerned about Welsh farmers being unable to compete with cheaper international produce. To overcome this “problem”, Jones favours either taking taxpayer money to give to farmers in the form of subsidies, or tariffs to tax international products. The former would mean the government extracting more from UK taxpayers; the latter would mean selling foreign produce at a higher price to British consumers.
As a member of the EU, the UK has become accustomed to artificially high food prices. Prior to entry into the European Economic Community in 1973 (before Britain had to accept high tariffs on non-EU imports) food prices were 40 per cent lower. Even the OECD has conceded that the EU’s Common Agriculture Policy still adds 17 per cent to our food bills. Bear in mind that this is the same organisation that recently declared, with the arrogance that has become characteristic of such supranational organisations, that calling a second referendum to reverse Brexit would be beneficial to the UK.
Imposition of tariffs hurts the poorest in society, who spend a larger proportion of their income on food. To quote Daniel Hannan’s new Institute For Free Trade, in regards to industries that have been artificially propped up by government, “we must not shy away from the fact that some people lose out from free trade. But it is vitally important to clarify the scale on which this occurs. Many more people lose out from protectionist policies. The overall effect of an open trading environment on the economy is undoubtedly positive.”
In sharp contrast, Jones laid out his vision of post-Brexit Britain as follows: “What we can’t do is have free-trade deals that deliver cheaper goods in Britain but end up with us exporting jobs to somewhere else.” Like many protectionists who have come before him, Jones ignores both jobs lost to protectionism (more expensive inputs lead to more expensive outputs) and the very concept that for the last two hundred years has made his own nation prosper: comparative advantage.
The concept of comparative advantage turns 200 this year. Developed by David Ricardo in 1817 it states:
If a country is relatively better at making wine than wool, it makes sense to put more resources into wine, and to export some of the wine to pay for imports of wool. This is even true if that country is the world’s best wool producer, since the country will have more of both wool and wine than it would have without trade. A country does not have to be best at anything to gain from trade. Because it is relative advantage that matters, it is meaningless to say a country has a comparative advantage in nothing.
If, in the 19th century, the UK had followed the advice of the likes of Jones, rather than David Ricardo, we would all still be stuck with back breaking labour in the fields. Importing cheaper foodstuff from abroad allowed us to work in factories at a significantly higher wage, while our agricultural jobs were exported internationally. If Jones’s ideas were applied to the UK in the 20th century, many of us would all still be working in the factories as opposed to having more comfortable jobs in service sector.
Later in his speech, Jones said “Fine, have a free trade agreement, but it’s got to be with a country which is pretty much level pegging with you in terms of income.” This is an absurd suggestion. There’s no doubt that developed countries trading freely with one another is beneficial. But excluding poorer nations from these agreements both hurts the UK by denying Jones’s constituents cheaper goods, and denies the poorest nations access to the markets in which they can grow prosperous.
If we in the developed world were never permitted to buy cheap products from China, not only would we be missing out on a plethora of Chinese goods, but the Chinese extreme poverty rate (less than $1.90 per person per day in 2011 at PPP) would not have fallen from 66.6 percent in 1981 to under 1.9 percent today. Comparative advantage, when allowed to work its magic, is a force that drives worldwide progress, prevents stagnation and allows the poorest nations to develop.
Whether it be wartime blockades, or sanctions imposed against a rogue state, limiting a nation’s ability to freely trade with the outside world makes them worse off. As my Cato Institute colleague Ryan Bourne says, voluntarily imposing tariffs is like blockading your own ports during wartime. The English economist Joan Robinson paraphrased the great Frédéric Bastiat when she said, “Even if your trading partner dumps rocks into his harbour to obstruct arriving cargo ships, you do not make yourself better off by dumping rocks into your own harbour.”
Comments from the First Minister of Wales show misunderstanding of basic concepts of economics and ignorance of practices that made Great Britain great. Following the U.K.’s departure from the E.U., we should slash the protectionist practices we’re currently obliged to follow and in doing so we’ll help both the poorest in our society and in the worldwide community. Let’s stick to the free-trade ideas that were at the heart of Brexit, whilst being cautious about dumping the rocks of protectionism around our own white cliffs.
Get almost 16 today for the time price of one in 1971.
Gale Pooley —
Summary: Since the introduction of the first US commercial soft contact lenses, significant advancements have made them more accessible and affordable. This progress in abundance, driven by continuous innovation, underscores the importance of fostering an environment conducive to scientific and entrepreneurial advancements for the prosperity of society.
In 1971, Bausch & Lomb manufactured the first US commercial soft contact lenses. An eye doctor fitting ran around $550, and a pair of contact lenses cost $65, putting total costs around $615. Unskilled workers at the time earned about $2 an hour. This means the time price was about 307.5 hours.
Today an eye exam is about $120, and lenses start at $200 for a 12-month supply, putting the cost at $320. Unskilled workers now earn about $16.51 an hour, indicating a time price of 19.4 hours.
Unskilled workers can now get 15.9 sets of contact lenses for the time price of one set in 1971. Abundance has been growing at a compound annual rate of 5.35 percent, doubling in abundance every 13.3 years.
Today an estimated 45 million Americans wear contact lenses, of which 30 million are women. Imagine if the manufacturers of eyeglasses had used government regulation and coercion to prevent the innovation of contact lenses?
The more we make of something, the more we learn. The more we learn, the lower the price. The lower the price, the higher our standard of living. This truth was described by Adam Smith in 1776 in The Wealth of Nations.
And what is wealth? As George Gilder notes, “Wealth is knowledge and growth is learning.” The nation that is best at growing new knowledge will enjoy the greatest wealth. Artificial intelligence offers the hope that this learning process can be dramatically enhanced.
We can thank the continuous innovations of scientists and entrepreneurs in developing new contact lens designs and manufacturing techniques. America’s comparative advantage has been its visionary leadership in encouraging everyone in discovering and creating valuable new knowledge that can be shared in free markets. We cannot allow fear to blind us to these truths and prevent a future of innovation and greater prosperity.
This article was published at Gale Winds on 3/12/2024.
Most things are more abundant and affordable today.
Gale Pooley —
If you had a dime in 1900, you could buy a 1-ounce Hershey chocolate bar and a 6.5-ounce bottle of Coca-Cola. It sounds like those were happy days indeed. That is until you look at wages, which were around 14 cents an hour for blue-collar workers.
At Walmart today, a 1.55-ounce Hershey bar costs $1.17 and a 1.25-liter bottle (42.27 ounces) of Coke is $1.52. Blue-collar workers earn closer to $36.15 an hour in compensation.
We buy things with money but pay for them with our time. Money prices are expressed in dollars and cents, while time prices are expressed in hours and minutes. A time price is simply the money price divided by hourly income.
In 1900, it took more than 21.4 minutes to earn an ounce of chocolate and 3.3 minutes for an ounce of Coca-Cola. By 2023, the chocolate time price had fallen to 1.25 minutes, and sodas were down to 0.06 minutes (3.58 seconds).
Chocolate cost fell 94.2 percent while cola cost fell 98.2 percent. For the time required to earn 1 ounce of chocolate in 1900, you get 17.1 ounces today, and for the time required to earn 1 ounce of Coca-Cola in 1900, you get 55.2 ounces today. Chocolate is 1,611 percent more abundant while cola is 5,425 percent more abundant.
Things can get more expensive and more affordable at the same time. This is why you must always compare prices to wages to see the true price, which is how much time things cost you.
This article was published at Gale Winds on 3/19/2024.
Remember that it’s the time price, not the money price, that counts.
Gale Pooley —
Summary: The affordability of gasoline varies significantly worldwide due to varying taxes and subsidies. Analyzing the GDP per hour worked against the money price per gallon shows that the United States emerges as the most affordable country for purchasing gasoline, even compared to nations where gasoline prices are heavily subsidized by the government.
According to GlobalPetrolPrices.com, the average price of gasoline around the world is USD5.03 per gallon. However, there is substantial difference in these prices among countries due to the various taxes and subsidies for gasoline. All countries have access to the same petroleum prices of international markets, but countries do not all impose the same taxes. As a result, the retail price of gasoline varies significantly.
The money price of 16 selected countries ranges from $2.26 in Russia to $8.55 in Denmark. But what about the time price? To calculate the time price, we first calculated the GDP per hour worked in each country. The data to calculate this ratio come from the World Bank and the Conference Board.
We then divided GDP per hour worked by the money price per gallon. This gave us the gallons of gasoline that one hour of work would buy in each country:
We also divided the nominal price per gallon by GDP per hour worked to get the minutes required per gallon:
This chart illustrates how much more expensive relative to the US the other 15 countries are in terms of time price:
Of the 16 countries analyzed, the US is by far the most affordable place to buy gasoline. There are other countries where gasoline is more affordable, but the gasoline price in those countries is heavily subsidized by government.
“Thanks to innovation driven by the Gulf Cooperation Council (GCC) countries, notably advancements in membrane technologies and energy efficiency, the price of desalinated water has plummeted from US$5.00 per cubic meter in the 1980s to as low as US$0.40-0.50 in recent projects. This is making desalination increasingly affordable for countries worldwide.
Beyond desalination, the GCC countries are implementing diversified water management strategies to manage water demand. One of the most important areas is the reduction of ‘non-revenue water’ (NRW) — physical and commercial losses of water.”
