Understanding Economics

I like to read a paper from my home town on line. Every so often, I like to read the LTTEs or Opinions. Here is one that I had to comment on in the Pratt Tribune. My response to letter is at the bottom, but also here:

To the Editor:

It is unfortunate there is such a misunderstanding about basic economics as this Letter to the Editor shows. It is important to first understand some facts.

US manufacturing output has grown every decade since the beginning of the 1900s. Today Americans produce more output while using less inputs than ever before. This means this country is very productive. It is this productivity that is often confused with reduced output. The confusion is the result of fewer people actually being employed in traditional heavy industry that leads people to believe there is less output. That is wrong. Fewer workers in heavy industry means we can have more people working in services, engineering, and medical care that help improve the quality of our lives as well.

Anyone that has traveled outside the US knows that US Dollars are essentially useless in most countries. The beautiful thing about international trade is we Americans get to give our trading partners pieces of green paper in exchange for goods that make our lives better. So why do our trading partners bother to give us goods in exchange for 6 inch strips of paper? Because they need those dollars to buy our goods because if you want to trade in this country you need dollars. For extra dollars that these entities have, they can put them in a vault and wait to buy more goods, or they can take those dollars and invest them in this country. That is exactly what that Chinese (and many others) are doing today when they buy US Treasuries and help finance our Government's spending addiction.

Free trade is what makes our lives better. In fact, I believe it was the free trade between States that helped create our prosperity. I like getting fresh fruit in the winter months from Chile, eating bananas and drinking coffee from Central America, and having cheap electronics from Asia. Limiting our trade means goods will be more expensive driving our standard of living lower, not higher.

So the question is how can we continue to increase our standard living and give our children a better life? Government cannot great prosperity. That has been proven time and again (think China during the time of Mao or the experiment of Communism in the USSR). Government can only created the environment where prosperity is allowed to blossom.

There are five simple things that government can do to create the necessary environment for prosperity.

1. Secure private property rights
2. Secure Rule of Law
3. Allow for spontaneous order without unnecessary regulations
4. Allow entrepreneurs to enjoy profits and endure losses without interference
5. Secure free speech and promote knowledge exchange

Isolating ourselves from the rest of the world through embargoes, tariffs, and other protectionist measures will only make matters worse for future generations, not to mention make the world less secure. After all, who wants to be at war with a good trading partner (known as killing the goose the lays the golden eggs).

I know it is easy to get caught up in politics and rhetoric. However, politicians rarely give service to good economics so let's make them accountable.