Tuesday, April 20, 2010

In defense of Libertarianism

By delaying a Treasury Department report on the US's trading partners, the Obama Administration has helped China dodge a bullet. But has it left China off the hook?

For the last 16 years, the US has avoided labeling China a currency manipulator. This, despite substantial evidence to the contrary, has given China the impression that it's free to value it's currency as it sees fit. China's case has also been supported by an outcry by pseudo-libertarians who would like the world to believe that they are disciples of the great Ludwig Von Mises.

Libertarianism, or the Austrian School of Economics is a school of thought that, amongst other beliefs, believes that Governments should not be granted the right to dictate what currency it's people use. Instead it believes in monetary competition, allowing multiple private sector participants to create money and consumers choosing the one which offers greatest value. While logic in this case is strongly in their favor, the current breed of libertarians promote a belief that defies all logic. They would have the world believe that just because the current monetary system allows governments to dictate a national currency, it also gives them the right to decide it's value vis-a-vis other currencies. This belief isn't just illogical, but is against the core principles of libertarianism which abhors government intervention of any form.

This outcry and fallacious justifications used to promote this belief only serve to underline a blatantly partisan agenda. Libertarianism is consumerist by nature, but it does not promote consumer interest at the cost of producer interest. In an ideal libertarian world, the absence of fiat currencies would ensure that all currencies are independently valued by a free market. No resource cost benefit is long lasting as free trade ensures its neutralization and producers all over the world retain basic competitiveness at most times. Additional competitiveness comes only from higher productivity and quality improvements. In this environment, resource costs equalize as well, ensuring amongst other things, equal opportunity for wage earners across the world. This pure form of libertarianism works in consumer interest as well as producer interest and does not value one of these activities above the other.

In contrast, the current proponents of libertarianism, or what they profess to be libertarianism, believe only consumers matter. And if consumer benefit is served by outsourcing all manufacturing activity to another country, even one which manipulates it's currency to keep it's products cheap, so be it. The jobs exported by them along with production don't bother them as long as consumers benefit. And they are ready to sacrifice a cardinal principle of their chosen discipline to justify their position.

These so called libertarians aren't intellectuals who want an open debate on their beliefs. Sarcasm and ridicule take the place of logic in their arguments, failing which they resort to outright insults and threats. They call anyone who opposes their thoughts "mercantilist" while themselves supporting blatantly mercantilist currency manipulation by countries like China, Japan and India.

Another favorite tool used by them is to switch from macro to micro or vice versa to justify an argument. For example, Donald Boudreaux, a Professor of Economics at George Mason University ridiculed another academic who sought to make a case against China's currency manipulation by comparing trade between countries to them buying each others books. One wonders about the knowledge he imparts while remaining oblivious to the difference between trade amongst individuals and trade between countries. But then, it's an easy route to take when one doesn't much care about the logic, but is intent on ridiculing an opponent.

The case made by this group is representative of their true loyalties. They use their position to promote self interest above all else. They make a case which suits their profile as pure consumers, ones who do not participate in the production of goods. So do the other proponents of this "theory" including bankers, academics and politicians who are consumers but not part of an industry that has lost jobs to another country.

They represent themselves, not a school of thought.

2 comments:

  1. trade between nations? no siree, all trade exists between people alone.
    now,since money is not free (ie is today a fiat entity),the govts enjoy the support of exporters who are a vocal minority and therefore keep the currency devalued.
    in a free market or a manipulated market,you can never choose your neighbor's actions nor how technology changes.
    if chinese exports were based on productivity alone,i am sure you would not blame anyone if jobs were lost in the US because of that.i find your argument that china exports because there is no demand for these goods domestically to be specious.you want to say that for example,that we export IT services because indians want nothing to do with it?. just let the currency appreciate and you'll be surprised who can afford IT services locally.
    favoring exporters over importers while impoverishing your silent domestic consumer is old english style mercantilism.you can deny all you want.

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  2. In a free currency environment, trade between individuals remains just that. In a fiat currency environment, however, trade acquires national character and has national repercussions.

    Now,I am no fan of the chartalist fiat currency environment that exists, but it is reality. However, using the existence of fiat currencies to justify their manipulation cannot be right.

    I am violently opposed to currency manipulation of any sort, whether its in India, China or Japan. I believe it makes an already bad (fiat currency) situation only worse. I have written about it repeatedly and will continue to do so. I don't know from what part of my post you got the impression that i was favoring weakening the currency to favor exporters. I have quite a collection under the "Currency Manipulation" category if it interests you.

    Thank you for visiting and I look forward to your comments in the future as well.

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