Tuesday, 22 April 2014

Old Wine Into Old Wineskins - How Ed Continues To Make No Sense

Ed Miliband popped up in The Independent the other day, telling us how in his election manifesto he is going to try to tackle the 'cost of living crisis' (his favourite term at the moment) by concentrating on creating jobs in this country rather than being over-reliant on consumption of goods imported in from outside.

The ignorance here is staggering. I won’t write too much about this delusional idea of a government creating jobs, because I think regular readers of this Blog will have picked up by now that the very idea of politicians being better determiners of allocation of labour, resources and capital than the actual people whose money it is behind those decisions is laughable. The notion that politicians will spend other people's money in the hope of securing votes better than owners of that money will spend it looking for profit is absurd - and anything to the contrary uttered by politicians ought to be exposed as drivel every time it is declared.

But while that's absurd in itself – it is arguably less absurd than Ed Miliband's other mistake in the newspaper, where he claims that he will help us become less reliant on consumption. His mistake here is in failing to realise that the purpose of all market activity is consumption - either consumption of goods or consumption of services. To see why, imagine you find a magic lamp that, when rubbed, will give you any good or service you want - food, films, dental treatment, a car, good health, legal advice, pain relief, a holiday abroad, therapy, you name it, you get it by rubbing the lamp. Upon finding this lamp you would have no more need to produce anything or have anything produced for you. Further, if you gave everyone in the UK one of these lamps then no one in the UK would have any reason to produce anything, resulting in industrial stasis. In the real world we don't have magic lamps, so we produce and consume through our own time and effort. The idea of having an economy that makes us less reliant on consumption is as foolish as having a marriage that makes us less reliant on love or a classical piano concert that makes us less reliant on music.

Another misapprehension from Ed Miliband is that he would prefer to see us manufacturing things here and selling them to foreigners rather than buying manufactured goods from foreigners. He's not alone; David Cameron often speaks this way too. I can only think that such idiocy must be a ruse to win a few voters in marginal constituencies. From such absurdity, it’s becoming more evident that both party leaders need to learn that the benefits of trade are not confined to artificial national borders, as anyone who has bought a book from another country on Amazon will know. In the same way, trade between two companies in the same country is no better or worse than cross-national trade. To see why, imagine that the Republic of Ireland, Northern Ireland, Scotland and Wales all became part of England. Technically that would reduce cross-national trade by a significant figure, but would all the traders in this new England really feel that they were any worse off because imports and exports had decreased in favour of inner-national trade? The answer is clearly no. 

I remember when I was about 10 or 11 meeting man from the north who bemoaned that Thatcher had took his job by closing down the coal mine in which he worked because coal could be bought cheaper from abroad. I said to him that surely this is a good thing, because cheaper coal is better than expensive coal for the one buying it, irrespective of the country from which he happens to come. The man scoffed, said he hoped one day I'd understand, and left the conversation. St Paul said "When I was a child, I spoke as a child, I understood as a child, I thought as a child; but when I became a man, I put away childish things". When that conversation about coal was going on I was the child and he the adult, but he was the only one failing to realise that trade should have no national preferences (see my Blog post here for further elaboration). His self-preservation meant that he preferred more expensive British coal to less expensive foreign coal. Short of discriminating against another trader based on nationality, his position lacked any sense.

This man was not alone - mercantilists used to make this silly mistake all the time - they wanted home trade because they thought that selling to foreigners means we are producing more than we consume, and that as we had the money from sold goods and foreigners had our sold goods that we were better off. Ed Miliband was only repeating past mistakes from people that gone before him - not understanding that consumption is the watchword, and that money itself is not wealth. It beggars belief that this man will probably be Prime Minister next year.
* Photo courtesy of The Independent