Economics blog - Why protectionism did not cause the Great Depression

Sir_Humphrey

StevieJ wrote: »

The problem with US protectionism now would be the psychological damage it would inflict on the world economy in the future, i.e. free trade is great as long as it suits the USA.

Frankly, it is pretty obvious for ages that the USA has that attitude!

Generali

Sir_Humphrey wrote: »

I am not foolish enough to claim I have a magic, exhaustive plan that will solve all the ills. However, the following gives a rough idea of what I think would be Good Idea.

The economy needs to be tided over in the short term, and restructured to the Scandinavian model in the longer term.

In the short term, massive (much bigger than now) fiscal stimulus is required. Most UK banks need to be nationalised, with the taxpayer getting upside from their eventual recovery. In short, measures have to be taken to ensure lending to viable businesses, and to boost demand.

In the short to medium term, government needs to nurture industries where the UK can be reasonably expected to compete in future, such as green/hi tech. This entails favouring British firms in awarding contracts. The UK infrastructure needs to be radically improved. These need to be funded from greater progressive taxation in the Swedish mould, and reduced waste on private contractors, such as rail operating companies, refuse companies and the suchlike. Tax havens have to be stamped out to prevent leakage of tax revenues.

The economy needs to be tided over in the short term, and restructured to the Scandinavian model in the longer term.

This is of course quite radical. I do not expect that to happen, at least not until the UK has gone through enough pain to finally realise that neo-Liberalism is a busted flush. A change in the priorities of the population away from selfish consumerism to a more rounded idea of the good life is important. Government cannot do that.

What do you think would be the response of other countries?

How would you stamp out tax havens (I have some experience of working with tax havens)?

Would you like to answer my initial question?

StevieJ

Sir_Humphrey wrote: »

Frankly, it is pretty obvious for ages that the USA has that attitude!

True, but I meant more overt protectionist measures,

Conrad

Surely the collapse of some 3000 American Banks, which lead people withdrawing thier funds from the remaining Banks was a key catalyist in the American Depression, in that business became cash starved, which lead to more lay offs and so on

A failure of early Government intervention then.

Sir_Humphrey

Generali wrote: »

What do you think would be the response of other countries?

How would you stamp out tax havens (I have some experience of working with tax havens)?

Would you like to answer my initial question?

The response of other countries would be unpredictable. It would depend on their own individual situation. Some might not take a favourable view and retaliate. The question is whether the pros outweigh the cons. You do not know until you try.

As for tax havens. The UK ones are quite easy for us to shut down. Other ones would need US action. If things got bad, this could involve sanctions or even military force, but that would be no different to what happened before under WTO rules (eg Iraq etc ad nauseum). I suspect in practise, it would not come to that, a threat would be enough - after all I don't think Monaco has an army.

Of course, none of this might work, in which case Engels will have been proven to be right all along.

Sir_Humphrey

Conrad wrote: »

Surely the collapse of some 3000 American Banks, which lead people withdrawing thier funds from the remaining Banks was a key catalyist in the American Depression, in that business became cash starved, which lead to more lay offs and so on

A failure of early Government intervention then.

Shush, it was all protectionism...nothing to do with laissez faire!

WTF?_2

StevieJ wrote: »

The problem with US protectionism now would be the psychological damage it would inflict on the world economy in the future, i.e. free trade is great as long as it suits the USA.

That's the gist of things though.

Free trade was great when it delivered us cheap goods, importing deflation to balance the inflation-powered boom that other markets were enjoying. We couldn't get enough of it.

Now that homegrown jobs are getting scarce, suddenly there's less of an appetite for it.

No-one wants to take the swings and roundabouts together - they want benefits without drawbacks. Simply not possible but it hasn't stopped our authorities from trying to engineer a perma-boom.

Generali

Sir_Humphrey wrote: »

The response of other countries would be unpredictable. It would depend on their own individual situation. Some might not take a favourable view and retaliate. The question is whether the pros outweigh the cons. You do not know until you try.

As for tax havens. The UK ones are quite easy for us to shut down. Other ones would need US action. If things got bad, this could involve sanctions or even military force, but that would be no different to what happened before under WTO rules (eg Iraq etc ad nauseum). I suspect in practise, it would not come to that, a threat would be enough - after all I don't think Monaco has an army.

Of course, none of this might work, in which case Engels will have been proven to be right all along.

Military action! How many dead would you consider to be reasonable to impose the UK's tax laws on a foreign country?

Should the Chinese be able to invade the UK to impose her tax laws?

Typical Socialism. Sounds reasonable until you get down to the nitty gritty of how to impose this Nirvana on people who don't want it.

Sir_Humphrey

Generali wrote: »

Typical Socialism. Sounds reasonable until you get down to the nitty gritty of how to impose this Nirvana on people who don't want it.

I made it clear that it would not come to that. Perhaps you like to explain how it is any different to what the USA did to Iraq in the name of free markets and getting oil? (I take you don't actually believe in that WMD guff). The French could roll into Monaco if they so chose without firing a shot.

BTW, this is not original thought on my part, I first read such a suggestion from Wolfgang Munchau in the FT.

Generali

Sir_Humphrey wrote: »

I made it clear that it would not come to that. Perhaps you like to explain how it is any different to what the USA did to Iraq in the name of free markets and getting oil? (I take you don't actually believe in that WMD guff). The French could roll into Monaco if they so chose without firing a shot.

BTW, this is not original thought on my part, I first read such a suggestion from Wolfgang Munchau in the FT.

You were pretty clear old boy:

As for tax havens. The UK ones are quite easy for us to shut down. Other ones would need US action. If things got bad, this could involve sanctions or even military force

How many dead would be reasonable do you think?

The French could roll in to Monaco without firing a shot if the Monacans chose not to defend themselves. What if they decided to defend themselves? Should the French continue in and kill a few people? Or a lot of people? Or all the people? How many dead to bring about a Socialist Paradise?