When the facts change I change my mind - Pray, what do you do, Sir?
As we all know one of the exceptions to free trade, all free trade, all the time free trade, is national security. It is said that - you know there, might be - constraining consumption to domestically produced goods and or services is useful because what if, in time of war, Johnny Foreigner refuses to sell to us?
Well, OK, fair enough and Adam Smith was generally in favour of the Navigation Acts:
The acts generally prohibited the use of foreign ships, required the employment of English and colonial mariners for 75% of the crews, including East India Company ships.
Well, if that’s good enough for Smith then why not for modern day America?
Better known as the “Jones Act,” the law was presented as a plan to ensure adequate domestic shipbuilding capacity and a ready supply of merchant mariners to be available in times of war or other national emergencies. The law aims to achieve those objectives by restricting domestic shipping services to vessels that are U.S.-built, U.S.-owned, U.S.-flagged, and U.S.-staffed.
Donald Trump is lamenting the loss of American shipbuilding.
“We used to build a ship a day, and now we don’t build a ship a year practically,” the US president said this month before signing an executive order to restore “America’s maritime dominance”.
Shipbuilding in the US peaked during the Second World War – and has been falling ever since.
The number of commercial vessels in the pipeline has fallen to fewer than five a year, a remarkable decline when America was churning out 70 ships per year in 1975.
The Jones Act has made intra-US shipping so expensive that no one - other than wholly captive markets like Puerto Rico - actually does it. The costs have so changed the pattern of trade that there is no shipping market to build ships for therefore no - OK few - ships are built.
The validity of a policy depends not upon the theory behind it but whether the policy actually works in achieving its stated aim. If it doesn’t then change the policy.
One step further here. Yes, it is possible to come up with reasons for trade restrictions. So too for government planning. But as with the first we need to grasp an important point about the second. What matters with planning, as with markets, is whether it works. That is, we cannot compare the possible outcome from perfect planning against the messily imperfect one from markets. Well, we can, as all too many do. Rather, we should not. We need to compare what messily imperfect planning produces as against what the outcome would be without it. Sure, market failure exists but then so does planning failure. It is not therefore true that the necessary solution to market failure is to thus adopt direct planning.
Something we might want to keep in mind as all and sundry insist that government should own, plan and run the steel industry again. As with the American shipping industry it’s not necessarily true that insisting upon domestic production is something that actually creates domestic production.
Tim Worstall