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The 1980s Called, And It Wants Its Industrial Paranoia Back

Courtesy of ZeroHedge View original post here.

Authored by John Tamny via RealClearMarkets.com,

How soon we forget…

It was 24 years ago this summer that Steve Jobs was coaxed back to Apple. The only thing was that investors weren’t interested. Titans of tech at the time like Michael Dell dismissed Apple’s long-term potential, and said the company’s assets should quite simply be sold off ahead of it folding altogether.

Apple nearly died, but for a $150 million investment care of Bill Gates.

Funnily enough Netflix opened its doors right around the time that Jobs returned to Apple. The reaction from investors was somewhat similar. The DVD-by-Mail company’s prospects were once so questionable that it tried twice to sell itself to Blockbuster. The video chain couldn’t be bothered. The future it saw was “Blockbuster Nights” that involved driving to a video store in the hope of leaving with the VHS or DVD you actually wanted. It seems government saw a similar future as evidenced by the FTC’s nixing of Blockbuster’s attempt to purchase Dothan, AL-based Movie Gallery. Too much market power was the excuse. A few years later both were bankrupt.

Back to Gates, a year after Jobs’s Apple return and the opening of Netfix, the DOJ filed suit against Microsoft for it allegedly violating the Sherman Antitrust Act. Something about MSFT bundling Internet Explorer – for free – in its software made it too powerful. A few weeks ago the Seattle software giant discontinued what the feds thought so nifty that the corporation would never again have competitors.

The stories are endless. More important, the lessons are timeless. The future is much more than opaque. To paraphrase some kind of wise mind from the past, “no one knows anything.” This is certainly true in business. We know this because the great commercial cemetery in the sky is filled to bursting point with formerly essential corporations.

The obvious message from this for the political class is that if business men and women in the proverbial arena can’t predict the future, why would any sane person expect politicians to have a clue?

Better yet, why would politicians think they possess some kind of hotline to tomorrow?

Read more.Except that they do.

The latest evidence is the passage in the Senate of a technology and manufacturing bill “that takes on China.” Congress will invest in science and technology, among other things. See above and try not to laugh. The lack of self-awareness within members of the political class never disappoints, but in this case it’s hard not to feel a little embarrassed for the proponents of that which vandalizes reason.

At which point it’s worth noting that trade is not war. Trade is mutual improvement. I’ve got bread, but what I really want is wine, so I’ll exchange my surplus for yours. Both sides win.

Except that the above doesn’t begin to explain the genius of trade. What makes it truly spectacular is that it allows the individuals who comprise what we call the “economy” to focus on what they do best. Translated for those who need it, free exchange among humans frees the math deficient from ever having to take Calculus again, and the athletically club-footed from ever having to take Phys-Ed again.

Yes, trade enables individual specialization. And when we’re able to specialize, our productivity soars.

What the truth about trade should remind those who are a bit confused is that if the Chinese really hate us, they sure have a funny way of showing it. Indeed, if they really wanted to harm us, they would close their borders in order to allow no foreign production in, and no Chinese production out. If so, American workers would be dividing up labor with millions fewer hands on the way to much lower wages in concert with much more expensive goods and services.

Yes, you read that right. The entrance of millions of Chinese workers into the workforce has not pushed down U.S. wages. And the entrance logically hasn’t. Work divided is always and everywhere the path to higher wages. Important about this is that the empirical marries the logical in this case. We know this from the Chinese once again. Really, why would they work so aggressively to export to the U.S. if the wages of its workers were in decline?

After which, any government “support” for U.S. business will by definition hurt U.S. businesses. Politicians are quite simply constrained by the known. When they call for competition between “countries” they’re invariably calling for competition on existing playing fields. Put another way, political support for business is all about bolstering the Blockbuster forms of doing business just as those ways of serving customers are about to be thoroughly discredited. $250 billion is a lot of money, and it’s money that will logically free U.S. businesses from market-driven pressure to evolve.

This matters, because it cannot be stressed enough that market signals are precious. They quite simply cannot be replicated by politicians.

Market signals tell businesses in rapid fashion what they’re doing right, and what they’re doing wrong. In the real world, successful businesses search endlessly for those signals, and yes, they rush to realize errors revealed in rough fashion by the marketplace. Government support harms businesses precisely because it deadens their sensitivity to the signals. When you know you have money coming in no matter what you do, and regardless of what investors think, you can necessarily be less reactive to what the market is telling you. Assuming competition with “China” is necessary, subsidies will logically weaken U.S. businesses in the fight.

Oh well, we’ve tried this before. So many forget that Japan used to be China. So many silly things said about Japan that are now being said about China. Sad about it all is that formerly free market conservatives have joined the echo chamber this time around, and turned the volume way up. A $250 billion industrial policy bill reminiscent of ‘80s paranoia is the result. Good work, conservatives.


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