Tuesday, October 11, 2011

Free Trade

As an undergraduate in Finance, I took a class in International Trade, and I have to admit that all the theories that support the argument for free trade sounded good at the time.  Those theories point to the "fact" that "society as a whole will be better off with free trade."  On a global basis, I think an argument can be made that society as a whole is better off.  But I am not actually a citizen of any imaginary global society, I am a citizen of the United States, and as such, I am not concerned with how much better off the world is.  I am concerned with how much better (or worse) off the citizens of the U.S. are.  And based on my personal observations, I have to say that I think the citizens of the U.S. are worse off "as a whole."

To make a long story short, I'm just going to cut to the chase.  While free trade may have contributed to increasing global wealth, and even increasing wealth here in the U.S., it hasn't actually increased the utility of that wealth.  Here is a simple example of what I'm getting at:

Suppose I take a dollar from a middle class person, but give a rich person two dollars.  Clearly, as a whole, these two are better off since between the two, they have increased their combined wealth by a dollar.  The problem is that the utility of that dollar to the middle class person is much higher than even the utility of two dollars to the rich person.  Consequently, the two are in actuality worse off, since their combined utility is actually decreased.

This, in effect, is what is happening here in the U.S.  The middle class is disappearing, and the disparity in wealth between the rich and the poor is increasing, resulting in a decrease in total utility, even while the total wealth in this country is increasing.  I think it's time to rethink whether free trade is really such a great idea.

Thursday, July 14, 2011

The debt "crisis"

I'm getting really tired of hearing about how tough the U.S. debt situation is.  Here's my solution: raise the debt ceiling, raise taxes, and cut spending, and let the Fed print more money to keep interest rates down.  Then, don't re-elect the idiots who decided that we needed to spend so much money too early to be of any real help.

Wednesday, June 29, 2011

What did that say?

Today I read a news story on Yahoo! Finance (apparently from Reuters) that ended with this sentence (the "it" in the sentence refers to the IMF):

      "But it added the U.S. central bank must also be ready to "respond decisively" if inflation expectations appear likely to become unhinged."

Now, I've been speaking English for a few years now, so I'm  pretty sure the meaning of the foregoing is something like this:

     "But it added the U.S. central bank must also be ready to raise interest rates in response to rising inflationary pressure."

I'm just not sure why that sentence was written that way.

First, the only part of that sentence that appears to be a direct quote is the phrase "respond decisively," since it is the only part that is actually in quotes in the original story.  So, perhaps the IMF is attempting to avoid the appearance of doling out advice to the Fed by not actually saying the words.  So, the IMF uses a phrase that really doesn't say anything, since I can "respond decisively" by doing nothing or by doing something.

The rest of that sentence is a real puzzle, though, because we can't actually be sure whose words those are.  I mean, it could be the IMF, or it could be the writer's interpretation of what the IMF said.  Perhaps I'm just nitpicking, but it really bothers me that people do such a poor job of communicating, especially when communication is the job being done.  So, here's how I read that sentence if I interpret it into plain English:

     "But it added the U.S. central bank must also be ready to raise interest rates if it appears that people's expectations about inflation might change from what they should be."

 That sounds like a stupid thing to say, but it is, I think, a fair interpretation.  On the other hand, if the sentence had just said that the IMF stated the Fed should raise interest rates if faced with rising inflationary pressure is a real yawner; everyone knows that already.  So, let's try to dress up a dull and obvious statement by using flowery language to make it appear that we're saying something with real intellectual value.