BACK TO BASICS

Last week's economics essay generated some interesting responses, four Of which prompt me to expand on

their subject matter.

1-Understanding the relationship between imports and exports

The first of these expressed some puzzlement at my statement that we export in order to import, and hence

that it is a mistake to regard exports as a "good thing" and imports as harmful.

Perhaps it would have been clearer if I had said that exporting enables us to import. To import goods we

need to pay for them in the currency of the exporting country. We can buy the amount required from a

foreign bank, ora ask our own bank to buy it from a foreign bank i in the exporting country on our behalf with

instructions to remit itto our supplier.

Our supplier in the exporting country, or a bank on its behalf, is now holding our pounds. What will that

bank (or our foreign supplier) do with those pounds? The only thing they (or anyone in that foreign country

who may finish up holding those pounds) can do with them is use them to buy UK goods or services.

It would be the same, but in reverse, if an American importer wishes to buy British goods and pay for them

in pounds. For that purpose the US company will acquire pounds from a UK bank and, after settling the bill,

the UK exporter or its bank will be a holder of dollars. What will the British company do with them other

than to purchase American products?

To accumulate a pile of foreign currency, and not spend it on imports from those countries, is equivalent to

receiving a cheque in payment for goods, and then sitting on it rather than banking it!

2-Free trade

Another reader objected to my statement that unilateral free trade would always be beneficial for the

country that offers it. He wrote: "If you adopt a policy of unilateral free trade why would any other country

wish to reach a free trade deal with you?"

This shows a fundamental misunderstanding of how international trade operates. The very point of

unilateral free trade is that it provides all the benefits sought from any bilateral free trade agreement. If all

trading countries adopted unilateral free trade there would be no need for any "deals"

If the government of a foreign country imposes a tariff on goods arriving from our country, it penalizes its

own citizens by making them pay more for the things they wish to buy. While this also reduces the total

amount of our exports to that country, there are plenty of other countries whose citizens are eager to buy

from us, and whose governments do not impose tariffs or otherwise interfere with the flow of trade.

If the government of a foreign country applies its taxpayers' money to subsidize one of its domestic

industries it is (i) merely effecting an internal transfer of wealth that only the workers in those industries

would have voted for; while (if) making a gift of lower-priced goods to citizens in any country that imports

its subsidized goods.

Unilateral free trade obviates the need for these manipulative distortions.

3- Historic background to EU departure

Another reader wondered why no other member of the EU had tried to leave the club. While the wretched

Brexit spectacle rumbles on endlessly, you may pause to consider why the departure of one member from a

supposedly willing affiliation of participants is so disruptively shattering to all concerned. What kind of

alliance is that?

The answer is that the mere thought of leaving the club is so heinous that it dare not speak its name!

Although Brussels "E urospeak" refers to "the 27" as if those "other" member states constituted a united

team with aligned policy objectives, we know that this thin veneer glosses over deep fissures on many

fronts, including unresolved historic resentments and the natural tensions of disparate cultures and languages. The trumpeted (but unproven) benefits of ever closer union" and the adoption of a common

currency have served to hide these ideological and temperamental disunities, but they stillexist-and they manifest increasingly as the EU's escalating economic woes threaten to expose the fragility ofits bonds.

One effect Of our attempts to wrest control from Brussels has been to highlight historical factors that might

explain our referendum result (despite the immense efforts Of our Westminster rulers to pretend that it

never happened!). For example, it is noteworthy that although all other 27 countries were deeply affected

by the war of 1939-45, Britain alone is justified in looking back on it as an episode of national triumph

indeed, is able to say that, together with the USA, Russia and Commonwealth allies, we won the war.

Similarly, the UK and Sweden are unique in not having, in living memory, experienced life under a

dictatorship. Who can Say that factors like these have played no part in our determination to re-establish

independence?

Securing our borders, or plain old job protection?

My fourth reader raised a tough issue that ! had not covered in my essay. She asked what I thought of the

government's intention to protect the jobs of low-paid British workers by requiring even unskilled

immigrants to have pre-arranged employment oftering an annual wage of, say, £30,000 before being

granted entry. She questioned whether this differed in essence from any other form of subsidy-style

protectionism that finishes up with citizens having to bear higher prices for goods and services.

As it happens, this was the very issue that constituted David Cameron's last stand in his battle with EU chiefs

over the single market's four freedoms of movement: goods, services, capital and labour. Cameron failed to

secure EU agreement to the UK imposing a limit on immigrants' entitlement to benefits on arrival in the UK,

a failure that was closely followed by the 2016 referendum.

Although at first sight the latest proposal appears to be an ill-disguised attempt to prevent cheap Eastern

European labour from taking British jobs, it's not as simple as that. It hinges on the imperative of protecting

our borders, which would of course be impossible if government were forced to agree to free movement of

people. Indeed, this is one of the main reasons why so many voted to leave at the referendum.

It is not simply a case of anti-immigration bias - we all know how dependent we are on overseas workers in

our hospitals, construction sites and on our roads. But protecting our borders is an essential element of

protecting our property - and that includes the money we pay the state in taxes. Those taxes are raised to

meet the costs of essential services and, to the extent that government permits taxpayers money to support

the welfare of jobless economic migrants, the principle of protecting private property has been

compromised.

Therefore we can argue about the means of assessing the ability and willingness of new arrivals to

contribute to our society (and having a firm job offer is a good start) but acceptance of immigrants into

society is a privilege, and not an automatic right that is always open to abuse- as is the case under single

market rules. Immigrants who come in order to contribute, not to sponge, should always be welcome

Immigration is a wonderful index of economic prosperity, which is why Venezuela does not have an

immigration problem.

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ECONOMIC DISTORTION, COURTESY OF YOUR CENTRAL BANK

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