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Comment by bitops | Hacker News Reader

> The difference is, it wouldn't be okay if all our domestic steel production went overseas.

I think I know the rationale behind this statement, but I'm always curious as to why we hold on to these beliefs. If we let industries move around based on true competitiveness, stripped of subsidies and other anticompetitive practices, we might find that to be a force for good.

That said, I've come to believe that this is most likely a minority view. Everyone believes in free markets until it starts affecting their bottom line.

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The "free" market, at least as we understand it, depends on a fiction: interactions between people happen in terms of transactions in private property according to enforced contracts. Neoclassical economics doesn't really consider what an efficient economy looks like when "killing someone and taking their stuff" is a valid action within the system.

We can get away with this inside a country, because governments monopolize the use of force, and so you can talk about "free" markets in terms of interactions between people in terms of market transactions, without factoring into the equation the possibility of use of force.

But as between countries, that fiction fails. Countries are in the state of nature. In that state, force is as valid an interaction as trade. Any discussion of the interactions between countries, therefore, must consider how force affects any trade dynamic between the countries.

So why do we keep a domestic steel and arms industry, even though it might be more efficient in terms of global GDP to let some other country manufacture those things? Because it's a huge disadvantage in terms of waging war to have your arms manufacturing done by some other country. We would have a hard time bombing China if our bomber aircraft were manufactured there...

> We would have a hard time bombing China if our bomber aircraft were manufactured there...

You say that like it would a bad thing if we "had a hard time" bombing specific other countries. :-)

As an American, yes, I think it would be. I like the current status quo, where we consume 10x as many resources per capita as the Chinese. Eliminating the ability to bomb specific other countries would curtail our ability to maintain that margin.

Um, we can consume 10x as much per capita as the Chinese because we produce 10x as much per capita as the Chinese. And we could produce (and hence, consume) even more if we wasted less effort on making war and propping up inefficient old industries.

Hearing someone bluntly say this made my skin crawl, you're okay with enormous economic imbalance in your favor backed up with no greater justification than the collective willingness of the society to which you belong to engage in mass murder against the members of societies to which you do not. That really has no ethical implications for you at all, personally?

Well reading your post rather bothers me because you automatically assume murder. Attempting to maintain the 'status quo' via military sounds like a default defensive action to me, fending off the attacks of others.

"The ability to bomb specific other countries" sounds like the default go to defensive action to take in the event of external attack?

I know a supranational fanatical religious terrorist organisation that happens to agree with you.

That's how modern warfare between major powers works. You don't drive off a land invasion, you bomb each others' cities until someone cries uncle.

Actually I'd dispute that; modern warfare between major powers can only waged by proxy wars between lesser powers who do not have recourse to nuclear options. In the future as the destructive potential of smaller and smaller actors increases over time, humanity will have to get used to the idea that it can't go around just acting like a pack of spoiled murdering bastards with an entitlement complex, or it will end up destroying itself as the power threshold of the disenfranchised actors approaches mutually assured destruction scenarios.

So perhaps in light of this it might be a good idea being practical to get used to that fact and stop acting like endless bullying war is a realistic long term foreign policy?

You quoted the wrong half of the sentence. It's maintaining the status quo that sounds defensive. And apparently I used the word 'default' in a confusing way. I did not mean 'default go to'. I meant that maintaining the status quo is by default a defensive thing.

On top of that, it's not actual 'bombing' that you use most of the time to do that, but the 'ability to bomb'. Nobody actually has to get blown up.

It's very much a bad thing if the bomber-making country starts using them, and nobody can fight back effectively.

http://en.wikipedia.org/wiki/Pax_Americana

> The "free" market, at least as we understand it, depends on a fiction: interactions between people happen in terms of transactions in private property according to enforced contracts.

No, the idea that a "free market" would lead to a perfect society with perfectly efficient allocation of resources depends on that fiction. It's still quite possible to prefer a free market while still acknowledging the inevitability of market failures. Remember, governments inefficiently allocate resources too, for many of the same reasons as do markets.

Think about it like this, lets say we let people make Steel wherever they want and everyone starts making it in China, causing the local production to grind to a halt due to being unable to compete.

Now a year later, China decides it doesn't want to export to us anymore and bans exports of Steel to the US, now we are screwed for at least 6 months, since we don't have the ability to create the product anymore.

The difference with sugar is we do have an alternative available (corn syrup) so the loss wouldn't be as big.

There are three good solutions:

1. Maintain a 6 months (or whatever time is necessary to restart production) stockpile

2. Have a highly credible policy that, if any foreign country actively opposes free trade of anything important, an ICBM loaded with a nuclear warhead is launched on their main government building or biggest city

3. Change things so that there is no advantage to producing abroad, if possible (e.g. allow unlimited immigration, remove taxation, remove minimum wages, remove regulations, etc.)

Surely you're joking about 2/3 of those being remotely close to good ideas. And you made an account just to post this??

There's always advantage to producing abroad, no country can be optimal producer of everything, due to varied geography, natural resources and cultures.

> now we are screwed for at least 6 months, since we don't have the ability to create the product anymore.

So stockpile it. Just buy 6-month's supply of cheap foreign steel and store it in a warehouse somewhere. Now if things turn south we just draw down the "strategic steel reserve" for a while - we have 6 months to either reclaim our prior ability or find another trading partner willing to sell to us.

It takes a lot more than 6 months to rebuild war-making capability. It's not just the physical production that moves off-shore, it's the know-how and expertise. As we saw with the computer industry, it's not just production that moves off-shore. Eventually, so does much of the design capability.

Thought experiment: if the key to saving our civilization was on the moon, how long would it take us to redevelop the technology and infrastructure to get back there?

So store 12 month's supply, Or 18 or 24 months. And buy options to buy from a few other countries that we can exercise if need be.

So what happens when you have a years long war? You can't rebuild a steel production industry from scratch while also fighting a war. More important than that, you can't keep the expertise in a stockpile. If we let e.g. shipbuilding go overseas, it could be a decade before we could gather together the expertise again to build a nuclear powered aircraft carrier, even if we had a stockpile of steel.

I don't think you understood what I meant by "buy options".

So let's flesh that out a little. Suppose steel costs $2/unit from a US firm, but costs $1/unit on the world market. We can go to companies in various other countries and pay some nominal fee (say, $50k/year) to buy an OPTION to buy their future steel output, not at the current price, but at twice the world price. So in the best case scenario there's no war, the steel company gets paid a nominal fee for an annual option that never gets exercised, and the US military saves far more by buying low cost steel through the years than the cost of the options. But if there ever is a war, we execute the option and get to buy (on 6 month's notice) that factory's full capacity at a 100% markup, crowding out whoever else they would otherwise have sold that steel to at a much lower price. So in wartime we pay foreign companies exactly what we would have had to pay a US firm - twice the world market rate - without first having to wait to build any US factories!

The foreign firm just has to allow for this in their contracts - that they reserve the right to cut off any buyer (paying a suitable penalty fee) with 6 month's notice. Now our stored 6-month supply is exactly enough to tide us over until options can reasonably be exercised (and penalty fees paid) that provide us with substitute sources.

We sign those sort of contracts with firms in a variety of countries in a variety of geographic locations. Unless our primary low-cost supplier gets mad at us and ALL those "safety" countries also get mad at us at the same time, we have an adequate safety margin.

All our steel - heck, all our ships - gets made for HALF the current cost until such time as there actually IS a war with our main supplier, whereupon it all gets made for exactly the price it would have cost to make domestically, had we kept that industry around.

So in the middle of a war a foreign company is going to sell war materials to the enemy because of a contract?

Okay, let's make the example even MORE explicit. In normal times we'd buy most of our actual supply from China or Taiwan, because they're the cheapest, fastest, most flexible supplier. We'd buy those side OPTIONS (that are never exercised other than in a time of war) from companies NOT in China. We'd buy the options from companies in, say, Brazil, Mexico, Argentina, and Canada. Where the steel is typically a little more expensive per unit.

In the middle of a war with China or Taiwan, a foreign company in Brazil, Mexico, Argentina, or Canada is unlikely to consider us "the enemy", so they'll have no trouble selling us all the steel they can make at the inflated prices we're willing to pay. The contract and the higher-than-normal price it specifies, should suffice to compensate them for inconveniencing their normal customers, foreign or domestic.

What happens when China bombs the plant in Brazil and cuts off 25% of our supply?

Um, you mean cuts off 25% of our potential supply. What happens then is we exercise more of our options (or just negotiate new deals) elsewhere to make up for it. In short, pretty much the same thing that happened when China declared war in the first place. However many plants in however many countries they bomb, we're still better off than if we had used and they had bombed the same plants in the US. Fewer American casualties, certainly.

(Are you expecting China to declare war on us and bomb every country in the world that we do business with? That seems like a pretty expensive and unlikely proposition. It's also worth noting that international trade all by itself tends to improve communications and reduce the potential for hostilities.)

Now a year later, China decides it doesn't want to export to us anymore and bans exports of Steel to the US

You mean they might do what Australia did to Japan in 1938, and the US copied in 1940? If it comes to that, we'll all have bigger problems.

If you have an interest in self-defense, it's a good idea to retain a meaningful industrial base (eg domestic steel manufacturing). There are numerous other strategic economic reasons also.

> it's a good idea to retain a meaningful industrial base (eg domestic steel manufacturing).

Whenever we "protect" one industry, that has negative downstream effects on all our other industries that depend on it.

In the case of steel, the fact that we protected steel manufacturers made our own auto manufacturers much less internationally competitive than they would otherwise have been, because US automakers were paying twice as much for their steel as companies in Japan and Taiwan were paying for theirs. Similarly, the US nearly killed Apple Computer at one point when it tried to "protect" the domestic semiconductor industry, making locally-assembled macs artificially more expensive than foreign-assembled clones due to the artificially-inflated price of imported DRAM chips.

The best way to "retain a meaningful industrial base" is let our companies compete on the world market.

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