Pretzel Logic in Washington DC

It gets to the point where the pretzel logic of America's top leaders can no longer be ignored, despite the fact that it is a tiring, time consuming activity to refute their illogical ways.

Example 1: a top US national leader, after the attacks on the World Trade Center, said that because the terrorists attacked the World Trade Center, which was a leading location for international trade, therefore anybody who is against free trade is a terrorist.

The statement in example 1 makes no sense. It's like saying: Yesterday a child abuser was murdered. Therefore you are a terrorist because you are against child abuse.

Example 2: a top US national leader, said that politicians such as him were not to blame for the fact that money intended to deal with the problem of money being lost on bad mortgages, was given to the banks instead, because they, the politicians, did not know that the money would be given to the banks instead.

The statement in example 2 makes no sense either. It's like saying, "I'm not to blame for the fact that I let a lion into the house and it ate my child. I did'nt know that the lion would eat my child". The politicians could have written a clause into the legislation, which would have served to prevent money from being given to people the politicans did not want it given to. But they did not. And then they turn around and say, "it's not our fault, we did'nt know that the money would be given to the banks".

Example 3: Another top US national leader, a pro-free-trade guy, said that free trade is good, because when some of America's most insignificant trading partners reduced restrictions on American exports, America's balance of trade with these trading partners improved.

The statement in example 3 also makes no sense. What America has been involved in, international trade with insignificant restrictions placed on imports, is what people in general and the pro-free-trade crowd call "free trade". The fact that when a few relatively tiny nations reduced restrictions on imports, America's balance of trade with these nations improved, does not even come close to proving that the current "free trade" situation is good for America. The fact is, that a nation's trade balance always improves when an exports recipient reduces restrictions on the nation's exports. At the same time undeniably, the facts are that: nations can damage themselves by reducing restrictions on imports; and, nations can benefit through governmental or private sector actions that reduce imports. Therefore, it is illogical to say that "free trade" is good for America simply because America's trade situation improved when a trading partner reduced restrictions on American exports.

The ivory-tower pro-free-trade theories ignore the fact that aside from government restrictions and tariffs on imports, nation X can take advantage of nation Y, by hating nation Y more than nation Y hates nation X. Nation X being more allergic to imports from nation Y compared to nation Y's attitude to imports from nation X can result in a flow of money away from nation X to nation Y.

Example 4: Over and over again, we hear from the pro-free-traders about Smoot-Hawley. As far as they are concerned, this proves that tariffs are bad and free trade is good.

The attitude expressed in example 4 is also illogical. Prior to the depression, almost 100 years ago, America raised its tariffs, by way of the Smoot-Hawley act. This was followed by the depression. Yet the fact that one event is followed by another event, does not mean the second event caused the first event. If it rains after the Red Sox win a baseball game, that does not mean that the rain was caused by the Red Sox winning the baseball game. When Smoot-Hawley raised American tariffs on imports, American tariffs were at a much higher level, compared to the level they are at now. Therefore, to say that what happened after Smoot Hawley increased American tariffs proves that America should not now increase tariffs on imports, is illogical. It's like saying that since a doctor killed a patient by prescribing too much of some medicine, therefore that medicine is bad. yet people can be killed even by drinking too much water. 100 years ago, America's net international investment position was much better than it is now. 100 years ago, America had not been running enormous trade and budget deficits year after year for dozens of years. Nobody says that since anti-cancer drugs accomplish nothing for those who do not have cancer, therefore they should not be used on people who do have cancer.
100 years ago, (taking into account inflation), it was more expensive to transport goods thousands of miles, and the wage differential between America and America's trading partners was less. The fact that something was bad 100 years ago, does not mean that it is bad today. You don't hear anybody saying that we should drop atomic bombs on Japan today because dropping an atomic bomb on Japan brought WW II to an end 65 years ago.

The illogical pretzel logic coming out of Washington DC would be shocking were it not for the fact that we have been bombarded by so much mischief that we have gotten used to it. The media and the public's failure to notice the lack of logic in the illogical statements is disconcerting. Seems a factor in this is that throwing free market theory aside, academic credentials, the attainment of which requires abnormal ability in terms of rote memorization and brainspeed, have been empowered by way of goverment intervention. Yet the scientific fact is, even morons can memorize entire books. Thousands of poor kids in Pakistan memorize the entire Koran, even before they can understand the meaning of the Arabic words they are memorizing. Memorization and brainspeed are not the same thing as logic. Just as a fool in a fast car can get lost in a complicated city, so also fast brainspeed does not necessarily produce wise results. One cannot help but thinking, despite one's desire to be inoffensive in the eyes of the famous and powerful, that bribed, robotic men, do not need to think logically and so therefore become incompetent in the art of thinking logically. President Nixon said that the (tariff-protected) America of 1969, was the best time and place in history for a human to live. He also said, that the mind is a muscle--using the mind builds the strength of the mind just as using a muscle builds the strength of the muscle. But if people don't need to use their mind because they are a bribed robot, or a puppet with a gun to his head, or both, then their ability to think logically declines.

@2010 David Virgil Hobbs

Transportation costs of imported products can result in cheap imports damaging the overall world economy

A typical situation involving transportation of products long distances from point of production to point of sale, follows the Xaw + Xat < Aw equation, where Xaw is the wage cost for producing product Theta in location Xa which exports product Theta, Xat is the transportation cost for moving product Theta from location Xa to location A for sale in location A, and Aw is the wage cost in order to produce product Theta in location A the location importing product Theta.

There exists, a hyper-enthusiasm for utilizing low-cost labor to build things and then ship these things long distances to the point of sale, in situations of the type described in the equation. This hyper-enthusiasm damages the overall world economy.

Building on the equation, the wage costs that would occur if product Theta were to be produced in nation A the importing nation, exceed the wages paid at location Xa by wdiff, the wage differential.

Wdiff is not lost to the world economy if the alternative of using the higher wage labor in location A is employed, because wdiff is spent and invested by the workers in location A.

At the same time the world economy incurs (the inefficiency of?) the loss of expending time, energy, money, and natural resources, on the unnecessary (busy-work of?) transporting product Theta thousands of miles from production point Xa to sale point A, if the alternative of producing product Theta in location Xa, where wage costs are lower, and then transporting the productto point of sale at location A is followed. I call this effect the Tloss effect.

(Transportation of a product is not a necessary aspect of the production of the product.The world underestimates the extent to which unnecessarily transporting products long distances is inefficient busy-work).

At the same time, there is a negative impact on the world income/prices ratio equation, which acts to reduce the real world GDP as measured taking into account prices, when consumers in location A consume higher-priced product Theta made in location A, instead of lower-priced product Theta made in location Xa. I call this the price-index effect.

Thus the judgement regarding comparing the expensive domestic labor approach vs the cheap foreign labor approach, with regards to the effect on the world economy, comes down to the Tloss (unnecessary transportation of product Theta), weighed against the price-index effect (world prices pushed upwards through higher prices for product Theta when product Theta is produced in location A where wages are higher).

If the Tloss negative impact on the world economy outweighs the price-index effect, the alternative involving the goods produced where wages are cheaper and then unnecessarily transported thousands of miles to point of sale, is inferior from the total world economy perspective compared to the alternative involving domestic production.

Forces of supply and demand tend to establish an equilibrium wherein approximately speaking, Xaw (wage cost in location Xa) + Xat (cost of transporting product from Xa to location A) = Aw (wage cost for producing product in location A). Changes to this equilibrium tend to be balanced by other changes that restore the equilibrium.

The equilibrium illustrated through the Xaw + Xat = Aw equation, is an equilibrium that persons religiously devoted to persecuting what they call "protectionism", seek to disrupt in favor of the alternative involving using the cheaper labor located in location Xa:

"SENATOR BLATHER: Internashunal trade is th' engine of wo'ld economic growth. Internashunal trade is superio' t'domestic trade in terms of effeck on wo'ld economic growth. Domestic trade is shamefully proteckshunist an' interferes wif th' superio' internashunal trade. Ev'ry time a produck crosses internashunal bo'ders, waves of psychic wo'ld unity spread throughout th' wo'ld, promotin' wo'ld economic prosperity.

Docko' Easterneuropinsky has invented a brilliant noo fo'mula thet explains th' situashun. When th' low foreign labor costs Docko' Easterneuropinsky calls Xaw, plus th' transpo'tashun costs he calls Xat, is equal t'th' domestic labor cost he calls Aw, we sh'd step in t'make sho'nuff thet th' low foreign labor combined wif th' transpo'tashun shippin' costs alternative is used. We sh'd tax th' expensive domestic labor alternative an' use th' money t'subsidize th' cheap fo'eign labor combined wif shippin' th' produck t'th' point of sale even eff'n its a million miles away fum th' produckshun locashun."

A simple analysis of the equation shows that such interpretation of the Xaw + Xat = Aw equation is irrational.

The price-index effect, which is the effect on world prices when the alternative of more expensive domestic labor is used, is Aw - (Xaw + Xat), that is, the expensive domestic labor cost minus the combination of the cheap foreign labor cost and the transportation cost. This is always zero, when the equilibrium condition (Xaw + Xat = Aw) exists.

However the unnecessary transportation cost, is always greater than zero when the Xaw + Xat = Aw condition exists.

Since that which is greater than zero is always greater than zero, when the Xaw + Xat = Aw condition exists, the (unnecessary) transportation cost outweighs the non-existent advantage derived through lower prices, indicating that when such conditions hold, the domestic production alternative is superior for the world economy as a whole. This correct interpretation directly contradicts Senator Blather quoted above.

Even when Xaw (foreign labor cost) + Xat (cost of transportation of product from production point to sale point) < (is less than) Aw (domestic labor cost), the equation incisively illustrates how using the less espensive foreign labor, Xaw, could be worse for the overall world economy compared to use of the more expensive domestic labor, Aw.

If Xaw is 7, and Xat is 2, and Aw is 10, then: the price of the product using the produce-in-the-foreign-location and import to home alternative is 7+2=9; the price of the product using the produce-at-home alternative is 10; the effect on the world price index if the produce at home alternative is used is 1; the shipping cost effect is 2 if the produce-foreign-and -import alternative is used.

Since 2 is greater than 1, the equation shows that the world economy in this case featuring the situation illustrated by the Xaw 7 + Xat 2 < Aw 10 equation, would be better off if the domestic production alternative were to be employed, despite the fact that the cost of the product is less using the produce-using-cheap-foreign -labor and import-via-shipping-to-point-of -sale approach.

An economy featuring an emphasis on doing lots of unnecessary things, begins to become an absurd economy. What is unnecessary becomes a source of inefficiency and busy work. The lower cost of a transported product, is balanced by the cost of the unnecessary transportation of the product; the higher wages paid when the product is not transported, are used not for madcap unnecessary busy-work purposes, but rather to satisfy the normal rational desires of persons.
@2009 David Virgil Hobbs

Non-minimal production cost production locations better for planet than minimal production cost production locations--an example

Roughly speaking, traditionally the majority opinion amongst economists has been, that buying product X, for price P1 from vendor V1, when an equivalent quantity and quality of product X can be bought from vendor v2 for price P2, when price p1 is higher than price P2, automatically damages the world economy, through the negative effect it exerts on the world's net income vs prices equation.

This is incorrect. the negative impact on the world's income vs prices equation, can be more than compensated for by factors related to how the money paid to the vendor circulates after the vendor is paid.

Imagine two planets, planets Alpha and Beta. Nation A is a nation on planet Alpha, and nation B is a nation on planet Beta. Nation A and nation B are identical twins as are planets Alpha and Beta.

Nation A on planet Alpha, faces higher non-wages production costs and higher wage costs when it comes to producing product Sigma, compared to other nations on planet Alpha. This nation A imports the product Sigma it consumes.

Nation B on planet Beta, like nation A on planet Alpha, faces higher non-wages production costs and higher wage costs when it comes to producing product Sigma, compared to other nations on planet Beta. Nation B, unlike nation A on Alpha, nevertheless chooses to produce the product Sigma that it consumes in its own territory, domestically, paying higher prices for product sigma compared to what would be the case if it imported product sigma.

Earth's simple minded economists who regurgitate what they have failed to digest (understand), will be surprised to learn, that nation B's domestic production approach, contributed more to nation B than Nation A's importing approach contributed to nation A; and nation B's domestic production approach, contributed more to the economy of it's planet Beta, compared to the positive impact of nation A's importing approach on the planet it is on, planet Alpha.

There are several reasons for the surprising outcome.

Reduction of costs in money time and human energy required for production per unit, is the major engine of actual (as opposed to illusionary) world economic growth.

Nations facing high production costs and high labor costs can by nature, tend to be more inclined to put resources into attempts to reduce non-wage production costs, compared to nations that enjoy low production costs and low labor costs. Nations featuring high wages can tend to have more money available to spend on goods and services that increase productivity.

After Nation B's management and workers were paid for producing product Sigma, as the money spent and invested by nation B's management and workers passed from person to person through financial transactions, a high percentage of the transactions involved persons purchasing goods and services that increased their productivity, their nation's productivity, and their planet's productivity (productivity per dollar paid and per hour worked).

An example of this was investments that increased productivity in terms of production of product Sigma in nation B.

By way of contrast, on planet Alpha, nation A imported product Sigma because imports of product Sigma were cheaper than domestic production of product Sigma.

The workers and management in nation D, the nation that nation A imported the product Sigma from, started chain reactions that damaged the productivity of the world, when they spent and invested the money that they received as payment for the product Sigma that they exported to planet A.

The people that nation D workers and management bought things from, took the money that they got, and spent it on things that damaged their own productivity as individuals, damaged the productivity of their nation, and damaged the productivity of their planet that they shared with nation A, planet Alpha.

Then those who sold the things that damaged productivity to the workers and management in nation D who got money from nation A for the product sigma, took the money they got for selling the things that damage productivity, and used it to buy more things that damage productivity, on and on it went like that.

Looking at the impact nation A's import-oriented approach had on nation A, compared to the impact nation B's self-sufficient approach had on nation B, nation A's citizens were reduced, through lack of circulation of money leading to poverty, to a state wherein from the productivity per dollar paid and also the productivity per hour worked perspectives, the input-output equations for them as individuals became non-optimal.

Meaning, if they got paid X amount, their productivity per dollar paid would have been greater; but they got paid less than X amount, because of the lack of domestic circulation of money due to the nation A's imports-oriented policy.

If they got paid Y amount, their productivity per hour worked would have been greater, and their productivity per hour spent studying would have been greater; but they got paid less than Y amount, due to the lack of money flowing through the nation A, due to nation A's imports-oriented policy.

By way of contrast in nation B on planet Beta, the reverse held true. In nation B on planet Beta: the citizens of planet Beta were paid not less than the amount at which their productivity per dollar paid was the greatest; rather, they were paid the amount at which their productivity per dollar paid was the greatest, because there was money circulating through the economy of nation B in sufficient quantity so as to allow for such to occur.

In nation B, workers were paid the amount at which their productivity per hour spent working or studying was the greatest, as opposed to a lesser amount, again due to the domestic circulation of money in nation B created through nation B's self-sufficient imports-independent, import-alternatives approach.

Thus in the end, planet B on planet Beta, which resorted to domestic production of product B, through its self-reliance, created a positive impact on planet Beta's economy, which outweighed the negative impact on planet Beta's economy, caused by the adverse impact on the planetary income vs prices ration equation.

Planet A on planet Alpha, by way of contrast, loving low prices, imported product sigma instead of producing product sigma domestically, and thereby created a negative impact on planet Alpha's economy; this negative impact outweighed the advantage produced for planet Alpha's income vs prices ratio equation, which derived from nation A choosing to utilize the lowest price source of product sigma.

@2009 David Virgil Hobbs