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I can't believe we're even having this idiotic discussion. What's the next post going to argue? That there are not, in fact, little people in my TV? It turns out that rain isn't God crying after all?

I can (sort of) understand why union make this inane arguments. What I can't understand is why people swallow them. Although Bryan Caplan's book about rational irrationality is an interesting take on it.

Adam: Yep. I was really in two minds whether to just ignore it. But it got some play in the press. And Greg Mankiw noticed it, on his blog. So I thought, having dumped on the Americans for doing the same thing, I really couldn't say nothing when Canadians tried it on. And then I thought I might as well throw in a little bit of analysis as well.

It's that much more depressing that the common media line *against* protectionism is that if we do it, others will retaliate. Which is about as sensible as saying that if we stop bathing, the problem is that everyone else will, too.

I just wish someone in a major newspaper would point out that bathing prevents disease. And that even unrequited protectionism lowers our standard of living, pointlessly.

The concern that preferential procurement may increase costs is valid, but I think that you have overstated it. A Buy Canadian policy does not mean only using Canadian products regardless of cost. It means giving preference to bids using Canadian products that are in the same ballpark as other bids.

Cost concerns have been widely understood and addressed. Canada’s Agreement on Internal Trade explicitly permits a preference for Canadian products as long as it does not increase costs more than 10%. The Buy America provisions of the current US stimulus bill set the limit at 25%.

There’s legitimate room for debate about how much more governments should be willing to pay to keep the money and manufacturing jobs within their country. But no one is asking for a blank cheque.

Assuming a 10% price premium, it might well be a better policy to build nine bridges with Canadian materials than ten bridges with foreign materials. In this example, a Buy Canadian policy would almost certainly create more jobs in Canada for a given amount of government spending.

Foreign retaliation is extremely unlikely because other countries already employ procurement policy along the lines proposed for Canada. I have nothing to add to Paul Krugman’s refutation of your exchange-rate appreciation argument.

Finally, I do not accept your assumption that modestly higher costs would turn voters against fiscal stimulus. I have not seen any polling on a Buy Canadian policy. However, polling seems to show overwhelming majorities of Americans in favour of Buy America requirements. If people believe that government spending will create jobs in their country, they might actually vote for more of it.

Erin, it doesn't matter whether there is foreign "retaliation." OK, it does, but only in the sense that it would determine whether the policy is merely harmful or disastrous. Barriers to trade are impediments to the creation of wealth.

I don't doubt that Buy Canadian would be popular. Most people think that immigrants take jobs away from native Canadians. That doesn't make it so.

I think "Buy Canadian" sends a terrible signal to our trading partners, even if the impact of such a policy might be small.

I really wonder why the union guys went public with that. They should know better. Governments don't have to impose a high profile "buy Canadian" clause in legislation. Most of us know they do it as a matter of course... but it's done quietly, through the tender process.

Most calls for tenders for large projects usually include extra points for the amount of spin-off money spent locally. If your proposal doesn't include enough local input, you bid loses, plain and simple.

We do have to recognise that a demand-constrained economy is different from the normal case of a supply-constrained economy. Most arguments against free trade ignore scarcity and opportunity costs, and are normally wrong for that reason.

If we were able and willing to use monetary and/or fiscal policies by whatever amount were necessary to remove the demand-constraint, then at the margin we are again supply-constrained, resources are scarce, and have opportunity costs, and so all the classic arguments for free trade (comparative advantage etc.) once again apply.

So the argument that protectionism increases demand and therefore creates jobs is only valid (if at all) if, for some reason, we were unable or unwilling to use monetary and/or fiscal policies to remove the demand constraint. I don't find that argument very plausible in Canada: we have some room left for monetary policy, especially non-orthodox; and we have a low debt/GDP ratio, so do not fear bankruptcy if we run a very aggressive fiscal policy.

But just for the sake of argument, suppose for some reason we are unwilling to follow a big enough fiscal policy. Then we get into political economy arguments about how big a fiscal stimulus we will choose. Like Paul Krugman's argument.

Paul Krugman argued that countries might prefer a bigger fiscal response if they saw the jobs staying at home. I am now making a counterargument that countries would prefer a bigger fiscal response if they saw bigger benefits (more bridges).

Erin: Paul Krugman responded to my exchange rate argument, and it was a good response. But he did not "refute" it. He gets his results under his assumptions; I get my results under my assumptions. Who has the better assumptions? Neither of us knows. But I think mine are more plausible than his. I assumed international capital mobility is imperfect, not perfect. I think that fits better today. He assumed expected future exchange rate is fixed. I assume it varies in line with the current exchange rate. I explained in my post on "exchange rate expectations" why I think my assumption is more plausible.

There is also something morally peculiar about those unions' argument. They are asking us, as voters and taxpayers, to set aside our own self-interest in getting some good bridges built, so we can help them....screw workers in other countries by taking away their jobs.

Because free trade undermines our sovereignty to arrange our economy and society according to democratic principles. As presently construed, it creates and expands inequality.

There is also something morally peculiar about those unions' argument. They are asking us, as voters and taxpayers, to set aside our own self-interest in getting some good bridges built, so we can help them....screw workers in other countries by taking away their jobs.

They are protecting the gains they've made in increasing economic democracy against the race to the bottom. Workers in other countries can find employment by selling to people in those countries.

Mandos: if we really cared about inequality, we would give preference to buying shirts made by the workers with the lowest wages. That would increase the demand for those shirts, increase the derived demand for the labour of those who made those shirts, and help increase their wages.

"Workers in other countries can find employment by selling to people in those countries." Do we want no trade at all between countries? Do we want no trade at all between provinces? Cities? Households? Why does the colour of someone's passport determine whether or not it is beneficial for me to trade with him?

Off topic: how do you do that neat indentation thingy for quotes? I can't figure it out.

How do you account for the fact that our 'Buy Canadian' rules (aka Canadian content rules) for segments of the entertainment industry haven't adversely affected them or ignited a trade war?

Off topic: how do you do that neat indentation thingy for quotes?

Use the ul tag.

Robert: I don't know whether or not protectionism in the entertainment industry has provoked retaliation. My guess is that at least some countries have pointed to it, and used it to argue for their own protectionism.

But the general point is that trade wars are much more likely to break out now than in the past. In the past, if there were a shortage of demand, countries could just choose a more expansionary monetary policy, and solve the problem that way. Economies were "supply-constrained" rather than "demand-constrained". Now that many economies are demand-constrained, the temptations of protectionism to do a beggar-my-neighbour demand increase are much greater. There's a lot of gasoline on the floor today.

Really dumb question: thanks for trying to help me, but what's an "ul tag"? I don't know what either of those two words means. Maybe I'm just too old, or too hopelessly techno-incompetent (but I can sometimes fix cars!). Computers scare me. Sorry.

Use the ul tag.

No, please don't use the ul tag. The ul tag is for indenting unordered lists of li tags.

Use the blockquote tag. Its purpose is indenting text.

Use the blockquote tag. Its purpose is indenting text.

If the style sheet doesn't include instructions for block quoting it won't work though.

Nick: Underneath the comment box you'll see this: You can use HTML tags like...

Those are tags that alter the presentation of text. You use them by first putting a set of brackets in front of and at the end of the text you want to modify. Inside these brackets you put the appropriate tags. For instance, if you want your text to be presented in italics, you'd put i inside the brackets at the beginning and /i inside the brackets at the end.

It might be easier for you though if you just badgered Stephen to install a quicktags (aka a WYSIWYG--what you see is what you get) plugin for the comments. Then all you'd have to do is click on the tag button you want, type in your text and click on the closing tag button.

But the general point is that trade wars are much more likely to break out now than in the past.

I wouldn't call them "trade wars". They're more like "protectionist excuses". Downturns do lead to more protectionism since it's human nature to look after your own during tough times and it's going to happen regardless of whether or not Canada implements its own protectionist policies. In fact I was reading yesterday that the number of tariffs filed with the WTO were up 40% in 2008 over 2007. So it's already begun.

So what we should really be looking at isn't whether or not we should implement our own protectionist policies but how we can do so in such a way that;

    provide optimal results for us;
    minimize the impact to the global economy;
    are easily justified by precedent so as to avoid retaliatory protectionist actions;
    can be easily nullified when the good times resume.

With that in mind, our own temporary 'Buy Canadian' policy is a no brainer.

I used blockquote. It works here.

The quickest way to reduce inequality is simply to prevent some people from getting too rich, one way or another. Inequality undermines democracy, and turns some people effectively into serf classes. What you propose involves playing a serf class off against another serf class. The wages of the former can't rise to the level of the latter, because political systems exist to prevent it from doing so. Those systems are reinforced by uncontrolled free trade between polities.

Take China. The rulers of China want development, higher worker incomes, but only at a rate and to a level which preserves the overall power structure of Chinese society. More importantly, they want to pursue a policy that improves their relative military and industrial strength vis-à-vis rival powers, most notably the USA. They have chosen a policy which appears to have induced American policymakers to accept the relative and slow impoverishment of their own working classes, over a long period of time. Of course, it can't last forever, but China was hoping to disengage from it at a point where they wouldn't be hurt by a collapse in American demand.

This is all perfectly rational, and it is not a secret. What's astonishing is that anyone would base economic policy on ideas that ignore Chinese military policy.

Of course, in the case of Canada, practically every other country of note has a strategic wish for Canada to remain, as far as is possible, hewers of wood and carriers of water, so to speak.

Those are tags that alter the presentation of text. You use them by first putting a set of brackets in front of and at the end of the text you want to modify. Inside these brackets you put the appropriate tags. For instance, if you want your text to be presented in italics, you'd put i inside the brackets at the beginning and /i inside the brackets at the end.

Testing.

[Nick, you forgot to close the bold! SG]

Oooh! I've just discovered bold!

Testing again:

    Those are tags that alter the presentation of text. You use them by first putting a set of brackets in front of and at the end of the text you want to modify. Inside these brackets you put the appropriate tags. For instance, if you want your text to be presented in italics, you'd put i inside the brackets at the beginning and /i inside the brackets at the end.

      Got it! (And I've discovered the "preview" button!)

      Thanks Leo and Robert!

      Back to economics in the next comment.

Robert:

"provide optimal results for us;
minimize the impact to the global economy"

I think that's the problem. Even at best (if we ignore the advantages of trade, and assume all the other arguments of protectionists are true), protectionism is a zero sum game, so we gain exactly what they lose.

Nick, your position seems to be that we should not make policy based on the reality of a demand-constrained economy because monetary and fiscal stimuli could eventually lead to a supply-constrained economy.

On monetary policy, we agree that the Bank of Canada should have cut its target interest rate to zero. At least until recently, you were suggesting that Canada did not need fiscal stimulus. You now appear to have so much faith in "very aggressive fiscal policy" that it obviates the need for complementary procurement or trade policies.

In fact, neither the Bank nor Government of Canada has delivered sufficient stimulus. Even if they did, much stimulus could leak out of Canada through a deteriorating trade balance. A Buy Canadian policy could help reduce this leakage.

My bottom-line view of exchange rates is that they fluctuate for many reasons and are not mechanically related to real economic factors. Even if your assumptions are better than Krugman’s assumptions, it does not follow that exchange-rate appreciation would automatically remove all of the aggregate demand gained through a Buy Canadian policy. (Anyway, kudos for successfully engaging a Nobel laureate in this debate.)

On morality, my premise is that the Canadian state’s main goal should be to maximize the well-being of Canadian residents. Neoclassical economists embrace this premise when they argue for slashing corporate taxes to attract more business investment to Canada as opposed to other countries. I do not see why the same premise becomes less moral regarding procurement policy.

Nick, this is mostly a moral argument for free trade, is it not? Let's put aside our inner Ricardos and drop the knee-jerk defense of free trade.

The reality of the development of advanced countries is that all of them have used some forms of active industrial policies, including preferential procurement; none has gotten rich by blithely pursuing free trade (one exception might be Hong Kong but it has some unique circumstances). Even economic theory suggests that free trade is not always a win-win for everyone, all the time (Krugman's Nobel speaks directly to this).

Don't get me wrong. I generally support open trade but there are democratic limits. Countries need to be able to carve out certain sectors from trade (most public services), regulate consistent with their own circumstances (environmental protection, labour standards, etc) and engage in industrial policies. The latter is even more important given the trend for Canada to revert back to its traditional role of resource exporter to the rest of the world, most of whom are more pragmatic and have developed strategies to take leading positions in high value added industries.

More specifically, the idea that a made in Canada purchasing policy would lead to less stimulus than purchasing all through exports does not add up. You would have to torture the math pretty badly to prove that result.

The only valid argument in all this is that protectionist measures beget protectionist measures and thus lead to cascading trade barriers that deepen the global recession. But let's keep perspective on what is being proposed and its total magnitude. Furthermore, what is being proposed is legal under existing trade rules, so there is no need to be concerned about retaliation.

I'd feel a lot better if they promised to lay down these powers after the crisis has passed.

Only with a little more sincerity than Chancellor Palpatine did.

Marc: Let me set aside the Ricardian argument. Let me set aside the "international moral" (for want of better words, but meaning I ought to care for foreign workers as well) argument. Let me set aside even the fear of retaliation argument. Not because I don't believe in them, but because I want to focus in on the hardest of all arguments you have set me:

    More specifically, the idea that a made in Canada purchasing policy would lead to less stimulus than purchasing all through exports does not add up. You would have to torture the math pretty badly to prove that result.

Watch me torture the maths! I have three arguments. The third argument works even if all were spent on exports. The first and second assume there is at least something that Canadian workers can produce at better value for money (and I think that's a legit assumption):

1. This applies to Canada, where we have a low debt/GDP ratio, and the Bank of Canada has not yet fired all its ammo. It may not apply to some other countries. Assume, for the sake of argument, that we need a bigger stimulus. If we need extra stimulus we can do it, using either more monetary or more fiscal policy. We do not need to resort of protectionism to get extra fiscal stimulus. Even if (for the sake of argument) we got a bigger "bang per buck" for a protectionist stimulus, we could just spend more bucks to get the requisite-sized bang. And it would be a much more useful bang as well, if we could buy foreign goods where they gave better value. In other words, why have full employment and 9 bridges built (under protectionism) when we could have full employment and 10 bridges built instead? It's not bang (employment) per buck, but bridges per buck that matters. Otherwise, just throw money at the unemployed, if you don't care about bridges.

2. Political economy. Suppose for some reason that voters (governments, if you prefer) are unwilling to spend the dollars to get us to full employment. They worry about the future tax implications of deficit spending. They look at the benefits, as well as the costs. The voters get no benefits from throwing money at the unemployed, or paying them to dig up holes and fill them in again (same thing, except the workers would be happier digging their gardens than doing something totally useless). The voters do get benefits from bridges. Free trade gives them more bridges per dollar of future taxes, so they will be willing to vote for a bigger stimulus.

3. The exchange rate. Assuming perfect capital mobility, and an exogenous expected future nominal exchange rate (Paul Krugman's assumptions) protectionism will not change the exchange rate. Assuming imperfect capital mobility, and an exogenous expected rate of change of the nominal exchange rate (my assumptions) protectionism will cause the exchange rate to appreciate, and leave net exports unchanged. My assumptions are more plausible (I argued that elsewhere). If I am right, you do not get more bang per buck with protectionism.

What do you think?

Must Google Chancellor Palpatine.

Curses! I screwed up the indent again!

[Fixed - SG]

Must Google Chancellor Palpatine

You disappoint me.

Rent-seeking, placing the interests of producers over those of consumers: that is the path to the Dark Side. Very seductive, the Dark Side is.

I would add that you also lose out on employment because you can build fewer projects - one bridge when the cheaper components would have allowed you to build two.

I think what is most disturbing is that the unions seem to regard government spending as merely a vehicle for funneling funds to their members, with no regard to the actual projects or programs it is supposed to be used for.

If we didn't actually need the projects, why not just:

1. estimate the costs using Canadian-sourced and cheapest available materials.
2. write the unions a cheque for the difference.
3. not build any bridges at all.
4. lather, rinse and repeat with every item in the stimulus package.

Seems that that's what they would like to see.

Mandos wrote: "The quickest way to reduce inequality is simply to prevent some people from getting too rich, one way or another."

Funny, one would think that the best way to reduce inequaity would be to simply prevent some people from getting too poor, one way or another.

But people have always found it easier, and more satisfying, to knock others down than to pull others up.

Funny, one would think that the best way to reduce inequaity would be to simply prevent some people from getting too poor, one way or another.

But people have always found it easier, and more satisfying, to knock others down than to pull others up.

Absolutely! When there is a class of people who are too rich, they use the political power they acquire from their wealth to make sure that the rest remain serfs and subject to their whims and fancies. That is why uncontrolled trade in a polity whose workers are relatively rich:

1. impoverishes the workers in the richer polity and reduces their political clout relative to their own rulers.
2. enriches the rulers of the poorer polity.
3. does not enrich the workers in the poorer polity to the point where they have the political clout to make a difference.

This cannot last, and its end result is inexorably guillotines in some form or another.

This is why economics is a shallow and futile discipline.

Re Palpatine: Well wrap me in black wool and call me a Sith Lord, but a long-term rethinking of free trade dogma is long overdue.

Stephen, LOVE the Palpatine reference as the family just re-watched the new SW trilogy.

Nick, on 1 and 2 I think we might be in agreement that the stimulus package should be bigger. But that is a seperate argument from whether a given amount of stimulus can provide a bigger bang for the buck if a made-in-Canada procurement policy were in place.

I'm not sure I get you on 3, the exchange rate. My guess is that the made in Canada policy would have about zero impact on the value of the Canadian dollar. Most of the movements in the exchange rate are not determined by trade per se. My quick Wikipedia search says that the DAILY turnover in currencies as measured by the BIS is $3.2 trillion, and trade in the Cdn dollar is about 4.2% of that. So that is like an average of $134 billion in Cdn dollar transaction per day, and we are talking about a stimulus package of $20 billion (max, assuming all levels of government come to the table and all of the federal cash on the table gets spent) over two YEARS, of which a fraction will be the actual sourcing of materials from Canadian or foreign suppliers.

The main benefit of a made-in-Canada procurement policy is that it would soup up the multipliers for infrastructure spending. There might be something of an argument if Canadian industry was already at full capacity but it is not. Otherwise, the cost advantage of the imported alternative would have to be huge relative to the domestic, and as Erin points out we are not totally stupid about such things.

The math is something like: Say we spend $10 billion on bridges, and that it costs $0.5 billion in labour to build a bridge. In case A, we buy imported materials for $0.5 billion and in case B we buy Canadian materials for $0.6 billion, a 20% increase per bridge in cost above imported (say). In case A we get ten bridges; in case B we get nine bridges. In case A we get a stimulus of $5 billion in labour for the bridges. In case B we $4.5 billion in labour for the bridges but $5.4 billion in sourcing locally, so as long as the wage bill is greater than 9.3% of the shipped materials, and it almost certainly is, we are better off.

To exert torture would be to say (a) the cost advantage of imports is very large; or (b) the share of output going to labour from the Canadian supplier is extremely low. Thus the wage bill from the tenth bridge with imports would have to exceed the wage bill for domestic sourcing for the nine bridges.

There would be some additional indirect effects in favour of Canadian sourcing the greater is the difference in wage bills. On the other hand, your point is that Canadians want bridges and in the long-run there may be additional productivity benefits to having that additional bridge, so we should weigh those factors, too. As for materials producers in exporting counties, don't they need their own bridges?

a long-term rethinking of free trade dogma is long overdue

What makes you think it hasn't happened already? Have you read (say) Krugman's textbook? How much effort have you put into your literature review?

Or are you just waiting for someone to tell you what you want to hear?

I'm obviously culturally deprived, on the Palpatine reference! I think I only saw Star wars one.

Marc: my own views on whether the stimulus is big enough are a bit complex. I'm going to leave them aside.

You lost me on the numerical example. Let me try to restate what I think you are saying.

For simplicity, lets hold taxes constant, ignore second round effects, and hold the exchange rate constant.

Suppose the government spends an extra $10. If it spends 100% of that $10 on Canadian-produced goods, then Canadian producers' incomes rise by $10. If it only spends 50% on Canadian-produced goods, and 50% on imports, then Canadian producers' incomes rise only by $5. So less "stimulus" or bang-for-buck without protectionism. Agreed.

But if the imported components are cheaper, we get more bridges-per-buck without protectionism. Agreed (I think). So you see it as a trade-off between two good things: bang-for-buck, and bridges-per-buck. You accept that trade-off in principle (I think), but say that in practice it's only a shallow trade-off. In other words, we would get a lot more bang-per-buck, and only lose a small number of bridges-per-buck, if we adopt protectionism. Is that what you are saying? If so, here's my response(s).

We can't assume the $10 increase in government expenditure is fixed independently of whether or not we have protectionism. Two reasons:

1. Assume we need a $10 increase in Canadian producers' incomes to get to full employment (or the government thinks we do). And the government is prepared to increase G to get us to full employment. With protectionism, the government will choose to increase G by $10. With free trade, the government will choose to increase G by $20 instead. So we get the same "bang" in either case, but get more bridges, and at a lower cost per bridge, under free trade. Free trade is better.

2. The level of G is chosen by self-interested voters. Voters want bridges. Assume the voters' demand for bridges is price-elastic. (This assumption would be false if we quickly run out of useful government projects). Free trade reduces the price of bridges. The voters demand more bridges, and the total expenditure on bridges rises. So G increases by more under free trade. Does G increase enough to offset the reduction in percentage expenditure on domestic production? Depends on the elasticities. But we get more bridges under free trade, both because we get more bridges per buck, and voters choose to spend more bucks.

I expect I am trying to get across two messages. The size of G is not exogenous with respect to protectionism; and we want bridges-per-buck, rather than just bang-per-buck.

"As for materials producers in exporting counties, don't they need their own bridges?" If so, the price of imports will rise if we try to buy imports, so Canadian produced goods will be as cheap or cheaper, so it won't matter whether we have free trade or protectionism.

As for the exchange rate: it's just not OK to ignore it. We need a theory of whether or not it will change when we change fiscal policy, and the demand for imports, and how it will change. We have zero experience of how the exchange rate is determined with liquidity traps in all countries (The 1930's had the Gold Standard, so are no help). Evidence from the past experience with flexible exchange rates is also of no use, since interest rates could adjust to exchange rates. We really are flying on instruments (theory) only. I've got a theory.

The fact that forex flows are large doesn't really count as evidence against my theory. Most of it could be two-way self-cancelling flows. All theories of the exchange rate that I can think of have a role for exports and imports. Exchange rates would be indeterminate otherwise.

Tired. Good debate. I hope to see Erin commenting again soon. Some trouble with TypePad it seems. Must check on my other posts.

I just had difficulty posting. Try signing out of Typepad, and don't sign in. I think that's what worked for me the second time.

Erin: I'm sorry you had those difficulties posting, and am very pleased to see you finally managed to get past TypePad. You and Marc especially are forcing me to be much more clear, both in thinking and in writing, and that's good for me.

We both wanted the Bank to cut to zero a few months ago. And I still think we were right. I'm less clear in my head on fiscal policy, partly because I would prefer a mix with more monetary policy and less fiscal policy.

But for the sake of argument, let's take monetary policy as given. And, again for the sake of argument (and to keep the math simple), lets say we both agree that we need twice as much fiscal stimulus as we currently have. And again for the sake of argument, let's say we ignore the exchange rate, hold it fixed, ignore retaliation, ignore the costs to foreigners, ignore all differences in cost and quality of foreign goods, and agree that the fiscal multiplier with protectionism is twice as large (to keep the maths simple) than the fiscal multiplier under free trade.

Even given all those assumptions, it still does not follow that protectionism would be better. Hold taxes constant, for simplicity. We would both agree that the increase in government spending should have been twice as big. And we would both agree that protectionism, by doubling the multiplier, would be a good thing, for a given increase in government spending.

But you and I don't set government spending. The government does. If we succeeded in doubling the multiplier, by imposing protectionism, the government would simply halve the increase in government spending, in order to get the same fiscal stimulus as it originally intended.

My father used to drive too slow. So I installed larger tires on his car, so it would go faster for a given rpm (I increased the multiplier). But my stratagem didn't work. He saw the tires were larger, and just decreased the rpm proportionately. (Not a true story, BTW).

I'm still unsure on my exchange rate argument. It is true there are many reasons why exchange rates fluctuate, but that doesn't mean that the trade balance can't be one of them. I'm sort of disappointed in academic economists, that they haven't really engaged in the theory of exchange rates under current conditions. Until I see a better theory, I'm sticking with my "full offset" as the base case. But thanks for the kudos! I must say I felt good (if a bit scared), as a very unknown economist, getting an argument back from PK!

On your last point, about corporate taxes, I confess I half agree with you. I would much prefer to base an argument on it being good for the world to cut corporate taxes. Only then, if the rest of the world didn't do it, would I say "too bad for them".

Or are you just waiting for someone to tell you what you want to hear?

I see what I read here, and I assume it means something.

In any case, it's not like I've made it a secret that I see economics as a discipline as more of a style of rhetoric and form of propaganda than as a science.

Nick, it has indeed been a fruitful debate. I am always happy to hold your feet to the fire.

We are discussing many moving parts at once, which is part of what makes economics challenging and interesting. You assume that the government has decided upon a given level of stimulus. If a Buy Canadian policy increased the multiplier on public spending, the government would spend correspondingly less to achieve that level of stimulus.

A more realistic view may be that the government has already announced how much it is willing to spend. The Official Opposition (unfortunately) supported this budget. The political battle now is to ensure that the announced funds are spent in the most stimulative manner. Increasing the multiplier would increase the level of stimulus.

Erin: "We are discussing many moving parts at once, which is part of what makes economics challenging and interesting."

You put your finger right on it. What do we treat as exogenous, and what endogenous. That's the key. And it's not obvious (to me) how we could ever decide.

I think more students should go to college WITHOUT using private debt. If they cannot afford it, let's get the gov't to pay for it using gov't debt. To maximize the number of students the gov't can afford, college tuition needs to be lowered with the best way to do that being to cut college professors' salaries. So, would any college professor like to allow someone from the outside to come in and work that person's job for 1/4 of what he/she is making now??? That would PERMANENTLY lower wages. In the future, the gov't can raise taxes to pay for the debt or cut social services.

I just want to be clear on these points.

Does monetary policy mean attempt to create more private debt?

Does fiscal policy mean attempt to create more gov't debt?

Mandos said: "Because free trade undermines our sovereignty to arrange our economy and society according to democratic principles. As presently construed, it creates and expands inequality."

BINGO!!!

How about as presently construed (the spoiled and the rich exploit an oversuppplied labor market to attempt to drive wages down to the chinese level), it creates and expands wealth and income inequality with goldman sachs at the "top of the food chain"???

Except, is it possible that American policymakers (the rich democrats, the rich republicans, the bankers in NYC, and the rich economists like greenspan) went to the chinese with cheap labor free trade agreements, and the chinese agreed while jumping up and down to say yes???

Is the prize that certain bankers IN NYC can attempt to get the future lower and middle class in china into debt (and therefore interest payments to bankers) as far as they have the lower and middle class in the USA???

Oops! That last post at 9:38 should begin with:

Mandos said: "Take China. The rulers of China want development, higher worker incomes, but only at a rate and to a level which preserves the overall power structure of Chinese society. More importantly, they want to pursue a policy that improves their relative military and industrial strength vis-à-vis rival powers, most notably the USA. They have chosen a policy which appears to have induced American policymakers to accept the relative and slow impoverishment of their own working classes, over a long period of time. Of course, it can't last forever, but China was hoping to disengage from it at a point where they wouldn't be hurt by a collapse in American demand.

This is all perfectly rational, and it is not a secret. What's astonishing is that anyone would base economic policy on ideas that ignore Chinese military policy."

BINGO AGAIN!!!

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