26 July 2008

Perpetual Economic Ignorance

CNN.com has a story about biofuels, featuring a cross-country trip using biodiesel. There's no comment about the economic impact of biofuels on food prices, but there is this priceless gem, showing that 200 years after Adam Smith wrote The Wealth of Nations, that very few people understand economics.
About $333 billion exited the United States in 2007 due to the purchase of oil, according to Scahill, illustrating the high cost of importing foreign energy. Biofuel is produced and sold in the United States -- which keeps money from those transactions circulating inside the U.S. economy.
Yes, old fashioned mercantilist thinking. And the unavoidable logical implication is that every country will be better off if it produced everything it needed for itself.

Surely, if every country would be better off if it was wholly self-sufficient, so would each state in the U.S. And if each state is, surely each county would be. And if each county would be, surely each municipality would be. And if each municipality would be, surely each family would be. In other words, I should start growing my own biodiesel--after all roughly $2,000 per year exits my household economy.

It may be objected that I'm making false analogies, that a family is not like a country. But both Adam Smith and Frederic Bastiat thought that, in economic matters, they were alike. And more to the point, I'd challenge anyone to make a compelling argument explaining at which of those political boundaries the economic logic changes from trade to self-sufficiency.

3 comments:

James K said...

I think this is normally the point when the protectionist starts in with the special pleading and accusing you of being a cold hearted bastard / lilly livered traitor.

The one thing I am most proud about in my country is that free trade has broad bipartisan support. The far left and one central conservative party aren't too keen, but they're too small to change policy.

James Hanley said...

God bless New Zealand. We shold all be so fortunate.

James K said...

On the downside we have a health system that would be the envy of Michael Moore and a widespread belief that any political party supporting even discussing nuclear power is a puppet of American Imperialism, or something.