Closing markets has become a regular phenomenon. However, there are some economists, the authentic liberal and libertarian, who claimed that these actions of the national Governments do nothing but lead to economic stagnation or worsen the situation of the global economy in general. Among these are the skeptics and the famous liberal theorist, Director of Cato University, Tom Palmer. In an interview with the Russian magazine Expert during his visit in Kazakhstan in February 2009, Tom Palmer, talked about the possible consequences of the decision of Governments to reject the free trade principles and arguments brought against the intrusion of politics into economics. The interview was translated and adapted for Idei in Dialog Dan Hanganu and Olga Nicoara with permission of the author.
Expert: Mr. Palmer, currently many countries wish to retain their own free markets lead to the appearance of protectioniste policies. What are the consequences of such measures?
Tom Palmer: protectionism against is undoubtedly a great danger for the world economy and experience showed us her several times. In response to the stock market crisis of 1929, the United States Congress adopted a series of measures worth catalogued among the worst laws in u.s. history. On 17 June 1930 tariff Law was passed Smoot-Holly, a legislative act and proposed protecting American industry during the financial crisis. The consequences were disastrous: U.s. exports have dropped by over 50% in that year. This happened because the politicians don't understand the principles of free trade. Exports are the ones that cover imports. Thus, if you choose to ingreunezi the import process, you will automatically slow down the process of exportation. In addition, the law regulating the prices caused a chain reaction of protectionism around the world.
In less than two years, world trade has been nearly destroyed, decreasing by 70%. This example shows that it is a sure way protectionism against towards total collapse of the global economy and, consequently, leads to poverty and suffering. This applies equally well in the European Union, the United States or anywhere in the world. A protectionist one policy will have a devastating effect on exports.
Expert: how strong are proponents of protectionismului in the world?
T.P.: preference for protectionism can be observed also in Western European countries. The u.s. Congress passed a plan to rescue the U.s. economy, which contains a section called "Buy American products!" All economists were against this idea, but, unfortunately, there are many economists in Congress. I hope that this section will be revised, because otherwise the next slogan that will emerge will be "Buy American products, because nobody else does not make it anymore!" The same thing will happen in the case of measures of the type "Buy Romanian or European products!" Simply nobody else will buy such products.
Expert: currently trying to reduce tariff barriers still export …
T.P.: I consider that these tariff barriers should be equal to zero. This is the optimal level of taxation of imports and exports.
Expert: do you consider that it is possible to produce a process opposed to globalization, during which each country trying to cope with the crisis one?
T.P.: I'm afraid that this is a plausible scenario, but that will have disastrous effects. Imagine if every home is becoming a manufacturer. Imagine if every household must work independently to produce one single food, medicines and clothes. No doubt, in this case I am living in a poverty lucie. It would be much better to give some of your products in Exchange for products to give them the neighbors their-what you can produce better and buy from them what they are capable of producing more efficiently than you.
Street commerce between neighbors there is no different from international trade, even if in the latter case goods crosses the boundaries of countries. This is extremely important, but that is often overlooked. Too many people consider as the most important is that their countries to conclude trade agreements with the United States, Japan or Europe. This approach is faulty because it leads to ignoring the possibility of benefits as a result of an Exchange with neighboring countries. Therefore, I think that each State has the opportunity to protect themselves just by reducing the barriers and obstacles that lie in the way of Commerce. This means that the fewer and smaller will have a freer trade.
Expert: but the alternative to globalization is no longer izolationismul, but a regional approach; in this situation, a country's economic activity expands beyond their own borders to a limited number of partners, forming compact units as well as the European Union or CIS.
T.P.: I believe that this approach is also wrong. Trade must be for everyone, not just for trading partners. The law should establish equality in relationships. Politics seen European leaders has led to a significant increase of the prices of products in Europe. I would say that were smothered by themselves.
If I were to make a top of trade policies, I'd say that the best policy is unilateral commercial that gives the same rights to all. Estonia and Georgia have adopted this attitude and she proved to be more than beneficial. Even while Georgia was involved in the recent war, its economy has continued to grow, despite a total political defeat. Meanwhile, Georgia has continued to export products worldwide. The situation would have been even more obviously good if at that time Russia, South Ossetia and Abkhazia would be formed all a free trade zone. Situation which, surely, would have lessened the possibility that iscarii war.
One of the reasons that underlie a terrible incident with Abkhazia was the fact that the previous Government has banned imports of georgian in Abkhazia, which was undoubtedly a crazy decision.
Second place would be multilateral policy whereby all countries involved aim at reducing barriers to trade.
The third place would be taken by bilateral treaties or by a regional approach. In principle, this policy would have positive effects, but smaller intensity than a multilateral policy or unilateral commercial opening. This has an explanation and logic. The extra cost of their products due to transportation of China in the United States is lower than the cost of their transportation in Chicago due to Texas, and that's because shipping is cheaper even as volume transported is higher.
The regional bloc ideal depends on the kind of partnership with the neighboring countries. If so, then the preferential partner in block on the Pacific Coast: Chile, Ecuador, Peru, Mexico and the United States. And in the block on the other side of the ocean, Russia, Korea and China. Obviously, I'm not suggesting that it should stand for things, but on the contrary, I try to point out how absurd it sounds regional trade policy.
The only concern you should have is to ensure a basis for free trade. There is no need for action plans or something like that. You just have to bring charges at the top level. Now, in almost all cases, a trade agreement of 600 pages does not result in a legal framework within which trade to be free. And this happens because each page contains a certain secret privilege conferred a certain representative of a particular industry. You can write a trade agreement on a single sheet of paper, specifying that the tariffs are zero-and that would be enough.
Expert: Besides trade restrictions we can see another tendency, strengthening the role of the State in the economy, more specifically in the financial sector, the United States as an example in this respect. What is your opinion about the State's role as a financial regulator and economic?
T.P.: this is a dreadful thing. And I say this not because I regard the world with some sunglasses. Measures of this kind are sending the wrong messages to all players on the financial market. I refer now to the well-known problematic assets, in the case of the United States. As you know, there are so many mortgages on which have been issued financial guarantees ultimately were borne by the taxpayers.
This type of warranty have been distributed worldwide. Private companies that evaluating and re-evaluating these warranties were warned in advance about the possible problems that might occur on the mortgage market. But the same private companies haven't had no reaction when Congress approved the $ 800 billion for the TARP (Troubled Asset Relief Program, through which the Government buys these assets problematic-note trad.), which was designed to solve the problem of such debt assets. This decision did not allow the professionals in the field to assess properly the existing portfolios and to regulate the situation on the market. Instead, we've faced all with great uncertainty. As a result of this, many players have simply chosen not to enter the market, but to keep their savings in cash. This is the explanation for the deterioration of the situation in the world.
What happens in fact now, both in the United States and anywhere in the world? The Government says "do this, do not do the other, invest in those industries and do not invest in the other." A good example is the situation of those at General Motors, which the Government helped them with subsidies and who facilitated the mortgage loans. During this time it works very efficiently and profitably in the United States an industry producing cars in Ohio, Tennessee and South Carolina. But those machines are produced only by Japanese and German companies or, though the Congress refused to support u.s. financial firms, Henry Paulson (Secretary, Treasury of United States) acted despite the refusal of the Congress, giving money to companies Chrysler and General Motors. This gesture worthy of a King of cars, Mr. Paulson is very proud today. But the last thing we need now is a King.
Expert: there is another solution for getting out of the current crisis, other than the infusion of capital in certain industries?
T.P.: Yes. The best policy would be to do nothing. But for politicians this proved to be difficult. Let us remember, in the history of recessions, 1920, immediately after the first world war, when there was an extremely serious financial crisis. This lasted only one year, between 1920 and 1921, precisely because of the non-political in the plan. With everything else happened in 1929. Then, protectioniste policies, stimulus plans, which were directed towards specific industries and capital public works, plus the war, made the crisis in 1929 the longest economic downturn in u.s. history. The recession lasted until 1946.
If you will, the current situation is like a hangover. Yesterday you had fun today, you wake up with a headache. You can drink a coffee, to ignore the pain and get you the job. Or you may drink a vodka. It is the way in which current policies are designed: the best way to get rid of the hangover is another glass of vodka.
