ECONOMY: Don't Circle the Wagons!

I have written before about the dangers of economic protectionism and isolationism and how it prolonged our great depression of the 1930s.

I did not elaborate on the fact that economic protectionism and isolationism usually stem from actions that are based on natural emotions caused by economic downturns and we are definitely in a downturn that feels more like a depression.

Many in my circle, including my wife, feel that if we all just bought American or Michigan made products, we would help our local and national economy. I do not disagree that to feel that way and to act that way is a normal / natural reaction in times of economic hardship.

I can equate that reaction to “circling the wagons” when under attack. In the old days, we were being attacked by Indians and now we are being attacked by global competition. Circling the wagons defends the inner circle (us) from the invaders (them). This works in the short run but eventually we perish because the circle also is a limiting factor; nothing gets in and nothing goes out so there is no growth.

To live and grow, the people in the wagons would engage the attacking Indians in trade that would benefit both sides; food for the settlers and clothes for the Indians, etc.

I realize that this is a very simplistic example but it is how I teach concepts to myself and to others, especially economic concepts that seem to run counter to seemingly rational thought.

I also realize that other countries don’t practice free trade to the extent we do and we should take steps to compel those countries to change their ways or suffer economic penalties. In our current situation, I have seen stealth protectionism being practiced by other countries and Obama needs to point those countries out and demand corrective action.

All economists know the danger of global protectionism so it’s not just an opinion or theory; its fact and history backs it up as such BUT the popular and natural demand is to circle the wagons or go turtle. Politicians have to resist this populist demand or face the dire consequences.

As the global economy naturally evolves, the United States will manufacture the things it manufactures best and will stop manufacturing the things it cannot manufacture in a competitive way; that’s economic logic. It is still all about supply and demand and we have to supply things that others demand.

Those things may not be just goods but services and know-how. We can no longer compete in the manufacture of TVs because we just don’t have the know-how or manufacturing capacity anymore so we have to let that industry go. BUT on the other hand there are products made here that are in high demand worldwide because they are the best and I should know because I am a manufacturer selling worldwide in the midst of global competition.

Capitalism is great if allowed to work properly. Once you start messing with it through socialism or communism, you will end up just like the Soviets did. Learn from history; don’t repeat the same stupid mistakes.