REGARDING MERCANTILISM AND GLOBALIZATION
“It is amazing how fast people learn when they are not insulated from the consequences of their decisions.” — Thomas Sowell
Howdy, gang! I trust that all is well for you and yours and that you’re getting closer towards achieving your 2017 goals. With just about ten weeks left in the year it’s becoming abundantly clear to me that I need to get my hustle on in order to fill up my personal list of goals with check marks!
I also hope that you have enjoyed reading this blog at least half as much as I’ve enjoyed writing it. The task of writing about economics is something that I genuinely enjoy for various reasons, but I don’t think I truly understood the process that would be involved when I first agreed to write for Tackle Trading. The challenge of creating something interesting to read is a pretty intimidating task. The challenge of creating something interesting to read about economics is absolutely intimidating and humbling, but I’ve enjoyed it as I’ve noticed a growth in my own level of understanding throughout the process. That’s the beauty of accepting interesting challenges! When we strive to help others gain a more complete understanding of a particular topic it usually means that we (as individuals) end up doing the majority of the learning along the way.
The same can be said about trading, too. I would sincerely recommend that you take a step outside of your comfort zone and begin teaching someone you know about trading. Shrink it down to a specific topic instead of trying to tackle the art of “trading” right out of the gate. You’ll quickly begin to realize exactly where your knowledge is lacking, which should indicate where you need to double your efforts! I’ve often told my students that ‘you don’t really know what you know until you’ve helped someone else know it’! Teaching truly is one of the most effective methods of learning and I encourage you to spread the wealth by sharing the information that you’re accumulating.
My last blog entry was a two-part discussion about capitalism and the ironies that we deal with (especially in the United States) while living and operating within a (mostly) capitalistic society. Writing that particular blog, for me, was a knowledge expanding opportunity because I was able to really dig in regarding some intellectual ideals that I’ve usually always just skirted past. During that process, I was constantly reminded of the tug-of-war battle between so many different sets of ideas that have come and gone throughout history as well as the present. One of those sets of ideas involved globalism and its counterpart, mercantilism.
For the most part, globalization has been a pretty hefty buzzword used by economists and politicians alike. Beginning in the 1990’s, most politicians seemed irrevocably entangled with the idea of globalization because of the alluring benefits it seemed to produce regarding employment, wages, and profits. In the early 90’s, NAFTA was passed and the United States was on her way towards participating in a world free from the usual obstacles of international trade.
NAFTA wasn’t the first time we became affiliated with a trade agreement with another country, but it was the biggest. Prior to NAFTA, the United States and Canada created the U.S.-Canada Free Trade Agreement, which began in 1989 and made it more efficient for companies to exchange resources ultimately resulting in higher profits. After seeing the increase in trade between Canada and America, it became a necessity for Mexico to be brought into the loop because of the severe economic difficulties they were dealing with down south. Since it seemed like a win-win scenario for the other two countries (at the time), they entered into negotiations and ultimately created the North America Free Trade Agreement (NAFTA), which officially became the new order of trade between the three countries in 1994.
Supporters of NAFTA have a lot of data at their fingertips to use as proof that the tri-lateral agreement is mutually beneficial. Tariffs, for example, have essentially been eliminated (progressively) and all other duties and quantitative restrictions have ceased to exist. There are, of course, a limited number of agricultural products that have been omitted from the exemptions of NAFTA. Those omissions are what helps create so much distrust and opposition towards trade agreements…and the quintessential existence of globalism as a whole! If free trade is a good thing then why not allow it to be a good thing for everything? Why is there always a group/list of “exceptions” whenever government decides to control something? There’s the rub.
Free trade sounds great, right? Eliminate the barriers of entry for products and services in foreign countries so that companies can increase their business model, increase their balance sheet, and increase employment! Why does there need to be a “limited number of exceptions” to this rule? Who decides this? Who implements this? How do we know that the exceptions and exemptions are being fairly implemented across the board?
I’m not going to condescend to you and try to answer those questions because they seem to be rather simple questions with obvious (long-winded) answers. I don’t worry about being pessimistic towards government controls anymore because there is no such thing. Being pessimistic about government intervention isn’t about pessimism. It’s just reality! There literally isn’t anything more corrupt, more inefficient, or more wasteful than government. If the government were a publicly traded stock then it would have already issued a stock repurchasing initiative (decades ago) in order to decertify their stock and become a privately held company…whereby it would have folded and became insolvent, thus ceasing to exist. It really is that bad! What do we expect when we elect people who (for the most part) have nothing in common with business or the rules of engagement for life as a “normal person”? There’s literally nothing the government can’t ruin if it decides to get involved and the primary reason is because the government doesn’t have to show a profit. Also, the shareholders (we, the people) have become more and more complacent to the point that most citizens either don’t know/understand or don’t care!
NAFTA is just an example of the ideal of globalization and the political ideal of globalism. The ideal, as a whole, is the process through which restrictions to international trade are removed and companies trade freely across national boundaries. The process is usually accompanied by increased outsourcing, whereby individual stages of production are allocated to companies in different countries, according to price, resulting in a massive increase in transportation.
On paper, the ideal of globalization sounds like a complete win-win scenario and it very well could be, but there’s always a “list of exceptions” that circumvent the agreement in order to protect a certain resource (industry). It’s always the exceptions to the rule that create the problems. If you’re not sure then just take a look at the people who have “exceptions” regarding the Affordable Care Act (aka, Obamacare) and ask yourself WHY it makes sense for the very people who created the new healthcare laws to be exempted from taking part in it. What’s good for the goose is good for the gander, right?
Free trade is something that every business person should be intrigued by. Like I said…on paper, it makes sense. It’s the application of the rule that creates the mess. If we’re not able to govern our economic interests via trade agreements then how about the other side of the spectrum? What about mercantilism?
I’ll leave that pitch hanging over the plate until next week. In the meantime, I hope that everyone has a fantabulous day and remembers that you never profit by short selling yourself.
Be good. Do good. Know good.