söndag 29 oktober 2017

Protection = self-imposed sanctions

Sanctions are imposed on a country as a punishment. The ultimate form of sanctions is a military blockade - like the Germans did in the two world wars - submarines, battleships, bombers, mines, to prevent goods reaching Britain and the other Allies. Protection has exactly the same effect. It is astonishing that people find it so difficult to see the similarity.

Chinese protectionism and the sale of goods at below cost is at the cost of the Chinese. If their government is stupid enough to force its people to make stuff and give it away or sell it for less than it costs to produce, then the only rational reaction from the rest of the world is to take it and say, "Thank you very much!"

If someone in your street set up a bakery and insisted on selling the bread at half price, everyone in the neighbourhood would scratch their heads for a while and then take advantage of their stupidity. Nobody else would try to compete directly. Sooner or later the crazy baker would get the idea that customers were taking the mickey, or realise that they could not carry on like that indefinitely, but in the meantime they would make the most of the opportunity.

Economic models assume rational behaviour. When one player, in this case the Chinese, behaves irrationally and effectively gives stuff away for next to nothing, or everyone else has to work round their stupidity until they come to their senses. When and if that happens, they will want the proper price for their products.

What is the economy for, if not to enable people to provide themselves with the goods and services they want and need? It does not exist to keep people busy.

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