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A Sensible Economic and Foreign Policy: Part II

A Sensible Economic and Foreign Policy: Part II
Profile photo of Patrick Barron

Part II:

 

A Sensible Foreign Policy: Mind Your Own Business and Set a Good Example

 

For the sake of peace and prosperity in the world, the US should take the true leadership role in proving to the world that free trade and non-interventionism are all that is required. In other words, all nations should simply mind their own business and set good examples. Just as laissez faire policies work within a nation’s boundaries, free cooperation between individuals of different nations will quickly reveal which policies work and which do not. It is important to remember that there is nothing that a nation can do internally to force other nations to subsidize its economy. All subsidies, currency manipulations, etc. are self-defeating. Therefore, the US should take the following actions to remove government interference with peaceful, cooperative trade between its citizens and the citizens of other nations.

 

 

  1. Adopt unilateral free trade.

 

Completely eliminate all restrictions on the importation and export of legal products. For trade purposes treat the rest of the world as if it were part of one’s own country; i.e., the freedom to buy and sell all legal products anywhere in the world. It is a mercantilist fallacy that a nation becomes wealthy by selling more than it imports, thereby accumulating gold (now foreign exchange). On the contrary, mercantilist nations deny their citizens the right to become wealthy. They do not allow their citizens to exchange the product of their labor for the most goods and services. Rather they deny their citizens a higher standard of living by forcing them to purchase higher priced and/or lower quality domestic goods. If this were not the case–i.e., if a nation could produce all things that it needed at the lowest worldwide price–trade barriers would  not be needed, since no one would wish to purchase inferior/higher priced foreign goods. Of course, this is not the case at all. The division of labor is a natural, beneficial process that knows no international, political boundaries. If Hawaii were not a state of the union, but rather a foreign nation under its own political system, would Americans be better off by denying themselves Hawaiian grown pineapples and instead grow inferior pineapples at higher prices somewhere in the remaining forty-nine states? Of course not. Free trade allows for the most efficient allocation of worldwide capital to produce the most goods and services for those who participate.

 

 

  1. Do not lobby foreign governments to allow one’s own citizens’ goods into their countries.

 

A nation that restricts imports harms its own citizens. Allow them to correct their own government’s errors themselves. A nation that denies its citizens the right to import goods from other countries yet encourages its citizens to sell goods into those same countries, (and may even subsidize these sales in some way), has adopted an illogical and unsustainable policy. It is similar to selling one’s wares and never cashing the customers’ checks. Foreign exchange accumulates in the protectionist nation’s central bank. But to what end? If that government buys the national debt of the same nation, then the fallacy becomes even more clear. It denies its citizens the right to buy that nation’s goods and services, yet when the government itself buys that same nation’s debt it is funding that nation’s spending–infrastructure, defense, etc.–with the fruit of its own citizens’ toil. Nothing could be more illogical, and this policy will be abandoned eventually or the protectionist nation will fail economically.

 

 

  1. Do not prevent one’s own citizens from buying so-called subsidized or “dumped” products.

 

This oft-used policy is a consequence of mercantilism. Nation A prevents its citizens from buying products that it claims nation B subsidizes in some way. The US/Canadian softwood dispute is a good example. The reciprocal tariffs that emanated from this dispute have caused Americans to pay more for softwoods, reducing their standard of living. The “seen” consequence is that American softwood producers get higher prices for their product, but at the “unseen” expense of their fellow countrymen. The US consumer suffers and capital is used in less productive ways than if the tariff were not in place. If Canadians are foolish enough to subsidize exports, the beneficiaries are Americans. Canadians are taxed so that Americans can enjoy cheaper softwoods.

 

 

  1. Do not subsidize in any way any good, whether sold domestically or to foreigners.

 

The flip side to number three above is that a nation should not subsidize exports. All the citizens of the exporting nation bear the cost, and the citizens of the importing nation reap the benefit. What could be more illogical?

 

 

  1. Scrap all existing trade treaties, agreements, etc. and defund and close down all trade offices and personnel.

 

Free trade is incompatible with managed trade. All trade agreements are “managed” trade. If they aren’t managed, then what is the point of the agreement itself? There is nothing to manage. But, if the point of the agreement is that a nation will open its doors to another nation’s products only if that nation reciprocates, then each nation is still pursuing the illogical and self-defeating precepts of a mercantilist trade policy.

 

 

  1. Do not intervene in any way into the internal affairs of any country.

 

If one’s own citizens are disgusted with the governmental policies of another country, they can privately boycott that country’s goods and refuse to invest in that country’s economy. This is the international equivalence of boycotting some local vendor. (A good domestic example of this policy is the boycott organized by Cesar Chavez. See The 1965-70 Delano Grape Strike and Boycott.) A good international example is the closing over the last decade of most Cities Services (Citgo) gas stations. Venezuela owned Citgo, and Americans were disgusted with Venezuelan policies. No governmental policy was necessary for US citizens to register their disgust. The fact that the Venezuelan government has not changed its policies is no reason for the American government to take action. Americans can simply be reassured that they are not supporting Venezuela by purchasing it most recognizable product–oil.

 

 

  1. Do not use military force except to retaliate against attack upon one’s own territory or the right of one’s own ships, planes, etc. to travel in international waters or airspace.

 

No nation has a right to intervene, especially militarily, in the internal affairs of others. This is the non-aggression principle extended to the behavior of nations. Of course, if no nation intervened in the affairs of another and no nation attacked another’s territory, war between nations would end. There are many caveats to this policy–genocide of minorities by majorities, for example–but nations must beware of the slippery slope toward continuous interventions that so-called “special cases” seem to authorize.

 

 

  1. Do not enter into unlimited and/or ill-defined collected security agreements.

 

Just as a nation should not intervene militarily into the affairs of others on its own accord, so the speak, it should be even more circumspect about not becoming legally tied to intervene in the affairs of others as a result of a collective security agreement. This would be second hand intervention, whereby the nation itself is not attacked but acts as if it were. Collective security agreements should be written very carefully. Carte blanche agreements remove the incentive of one’s allies to resolve agreements peacefully. There are few disputes in which side is completely innocent and the other is completely guilty. There are few disputes in which there are only one of two alternatives. Furthermore, collective security agreements may backfire; i.e., reducing the security of current members and admitting new members with ancient animosities that they now find no reason to attempt to resolve peacefully. Collective security agreements suffer the same adverse consequences of other socialist policies.

 

 

Conclusion

 

Most of the issues confounding Americans today are the result of government hubris and overreach. Government apologists believe that the economy can be improved by intervening into the free market. But sound economic theory reveals that government intervention is both unnecessary and destructive. It reduces market transactions that participants believe will benefit both parties. Furthermore, it misdirects capital to unsustainable investment, resulting in capital deccumulation. Complete laissez faire is the only rational policy that remains.

 

Internationally, government should follow the maxim “Mind your own business and set a good example.” Avoid intervening into the affairs of others and allow your good example to speak for itself. In trade avoid the fallacies of mercantilism. Avoid or strictly limit collective security agreements and follow the non-aggression principle.

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Profile photo of Patrick Barron

Patrick Barron is a consultant to the banking industry. He teaches Austrian school economics at the University of Iowa and Bank Managemant Simulation for the Graduate School of Banking, University of Wisconsin. Visit his blog. Send him mail.

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