# Did mercantilism die?



## crazyquik (Jun 8, 2005)

Did the economic policy of mercantilism die? Maybe it just got wrapped up in what we could call protectionism now? I never hear anyone talking about mercantilism directly, though everyone talks about the weak dollar and trade deficits.


----------



## JDC (Dec 2, 2006)

Mercantilism died with the rise of the Reagan supply-siders in the 1980s. And it was buried with Dick Cheney's proclamation, "Reagan proved that deficits don't matter."

Or to translate: "What matters is getting re-elected to office. The long-term economic future of our country can go to hell."

With any luck, someday the Chinese government will call their loans and wind up foreclosing on Mr. Cheney's real estate.


----------



## yachtie (May 11, 2006)

^^^ Same tired diatribe ( insert yawn smiley here) OK we get it Frank, the evil Republicans are the cause of everything from Original Sin to why your car wouldn't start this morning. 

Oh , sorry, the Catholic church was the cause of Original Sin.. my bad.

Sheesh.


----------



## JDC (Dec 2, 2006)

Yachtie, Republicans are not evil. In fact I believe they are, or maybe were, the last hope we had of reversing our headlong plunges toward totalitarianism, socialism, fiscal disaster etc. I rail so loudly against Neocons like Cheney and Bush not because they're conservative, but because they're not.


----------



## Mike Petrik (Jul 5, 2005)

Frank,
What do you think mercantilism is?


----------



## Wayfarer (Mar 19, 2006)

Mike Petrik said:


> Frank,
> What do you think mercantilism is?


It does not really matter. Whatever it is, since WWII, the Republicans have broken it, co-opted it, launched genocide against gays...

The answers are easy when one perseverates. 

CrazyQ, what made you ask this question specifically?


----------



## JDC (Dec 2, 2006)

Mike Petrik said:


> Frank,
> What do you think mercantilism is?


Not sure I understand your question. What I or you "think" it is has no relevance to what it actually is:

"Mercantilism is an economic theory that holds the prosperity of a nation dependable upon its supply of capital, and that the global volume of trade is "unchangeable." Economic assets, or capital, are represented by bullion (gold, silver, and trade value) held by the state, which is best increased through a positive balance of trade with other nations (exports minus imports). Mercantilism suggests that the ruling government should advance these goals by playing a protectionist role in the economy, by encouraging exports and discouraging imports, especially through the use of tariffs. The economic policy based upon these ideas is often called the mercantile system."

https://en.wikipedia.org/wiki/Mercantilism


----------



## crazyquik (Jun 8, 2005)

Wayfarer said:


> CrazyQ, what made you ask this question specifically?


Laissez-faire capitalism was almost forgotten or relegated to the dust bin of history prior to WWII. Other than a few scholars who couldn't get jobs, it was considered a Neanderthal relic, barbaric, etc. Post WWII that all changed, especially during and after the 1970s.

But now you (or at least, I) never hear of mercantilism. It was a dominant theory for hundreds of years, propelling colonization of much of the world and kicking off the modern era and now it's gone. It's become one of the 'dead' theories, thrown into the dustbin of history. When was the last time a politician or economist spoke on a platform of pro-mercantilism?


----------



## JDC (Dec 2, 2006)

Pat Buchanan isn't far from it. e.g.:
https://www.enterstageright.com/archive/articles/0499mercantilism.htm


----------



## Phinn (Apr 18, 2006)

What we have today is basically a kind of neo-mercantilism. Of course, the mercantilist powers didn't have paper-printing central banks. Once modern fractional reserve fiat banking reached maturity, the bullion-hoarding objectives of mercantilism ceased to rank so high in importance. Now, governments accomplish the same goals, but don't have to bother with as many inconvenient details associated with hard currency, particularly in the US since Nixon decreed a permanent gold-payment default. They can rob people with inflation now, and stay in power by doling out trade barriers to their cronies.

The goals of governments are the same today as they were during the mercantilist era -- theft, slavery, and the easy financing of war -- but the means have been refined a bit.

If you want to know the purpose behind the abandonment of gold, here are some handy graphs.

https://imageshack.us


----------



## JDC (Dec 2, 2006)

Phinn, that's an incredibly myopic view. Move those arrows to 1980/81 and replace "Nixon goes off gold standard" with "Reagan takes office".

Going off the gold standard didn't cause our trade deficits, national debt, spending etc to head south. It simply helped facilitate these disasters.


----------



## Phinn (Apr 18, 2006)

> It simply helped facilitate these disasters.


That's exactly my point, my fellow myopian.


----------



## Mike Petrik (Jul 5, 2005)

FrankDC said:


> Not sure I understand your question. What I or you "think" it is has no relevance to what it actually is:
> 
> "Mercantilism is an economic theory that holds the prosperity of a nation dependable upon its supply of capital, and that the global volume of trade is "unchangeable." Economic assets, or capital, are represented by bullion (gold, silver, and trade value) held by the state, which is best increased through a positive balance of trade with other nations (exports minus imports). Mercantilism suggests that the ruling government should advance these goals by playing a protectionist role in the economy, by encouraging exports and discouraging imports, especially through the use of tariffs. The economic policy based upon these ideas is often called the mercantile system."
> 
> https://en.wikipedia.org/wiki/Mercantilism


Good job cutting and pasting, Frank, but this has to do with supply side economics how exactly?


----------



## JDC (Dec 2, 2006)

Mike Petrik said:


> Good job cutting and pasting, Frank, but this has to do with supply side economics how exactly?


Most of the objectives of mercantilism (trade surpluses, government control over industry and trade etc) were either destroyed by supply-side economics, or at least ran counter to those policies. I'm not claiming mercantilism was still a credible economic theory in 1980 (in fact IMO it never was a cohesive theory), only that supply-side economics killed the basic philosophy behind it.


----------



## Mike Petrik (Jul 5, 2005)

FrankDC said:


> Most of the objectives of mercantilism (trade surpluses, government control over industry and trade etc) were either destroyed by supply-side economics, or at least ran counter to those policies. I'm not claiming mercantilism was still a credible economic theory in 1980 (in fact IMO it never was a cohesive theory), only that supply-side economics killed the basic philosophy behind it.


Fair enough, Frank. While I really don't think that supply side economics had anything to do with balance of trade, etc. as such, I do agree that the Reagan administration's economic policies were especially inimical to those protectionist impulses that can fairly be described as legacies of mercantilism. I see now that you are using the term supply side economics as an imprecise short-hand for Reagan's policies, and in that sense I do see your point.


----------



## JDC (Dec 2, 2006)

Mike Petrik said:


> Fair enough, Frank. While I really don't think that supply side economics had anything to do with balance of trade, etc. as such, I do agree that the Reagan administration's economic policies were especially inimical to those protectionist impulses that can fairly be described as legacies of mercantilism. I see now that you are using the term supply side economics as an imprecise short-hand for Reagan's policies, and in that sense I do see your point.


I'm not sure what's imprecise about it. Reagan didn't invent the supply-side economic theory, but it was certainly the basis for his economic policies ("Reaganomics").

Also, the exodus of manufacturing jobs from the U.S. began in earnest under Reagan. A Democratic proposal to amend the corporate tax code, which would have taxed income from foreign production and removed most of the economic incentive to export American jobs, was dropped at Reagan's insistence. Not only did trade deficits begin to balloon wildly at that point, they've been doing so ever since.


----------



## Phinn (Apr 18, 2006)

> A Democratic proposal to amend the corporate tax code, which would have taxed income from foreign production and removed most of the economic incentive to export American jobs, was dropped at Reagan's insistence.


That's an incredibly myopic proposal.

Businesses move out of the country for a reason -- they are in competition with every other company in their line of work, and they move to other countries in order to lower their costs so they can compete with these other companies on price. When a company improves its efficiency and thereby becomes more successful in price competition, the consumer benefits.

The only alternative is for the domestic producers to be out-sold by the foreign producers and face certain failure, or for the government to go full-bore protectionist and levy equalizing taxes (which, of course, the consumer ultimately pays in the form of prices that are higher than they otherwise would be). Or, like your myopic Democrats, you can increase taxes on Americans who earn foreign income, thereby causing at least two harmful effects that all income taxes cause: diverting capital away from productive uses, and encouraging companies to spend more of their capital on expenses they otherwise wouldn't incur (since an income tax is really a profit tax, and so it encourages businesses to spend that money on something even tangentially business-related, even if unessential, rather than pay it in taxes for which the payor gets nothing of value.)


----------



## JDC (Dec 2, 2006)

Phinn said:


> That's an incredibly myopic proposal.
> 
> Businesses move out of the country for a reason -- they are in competition with every other company in their line of work, and they move to other countries in order to lower their costs so they can compete with these other companies on price. When a company improves its efficiency and thereby becomes more successful in price competition, the consumer benefits.


We're the only major industrialized country on Earth who rewards our corporations for exporting domestic jobs. If implementing corporate taxes to remedy this obscenity qualifies as "full bore protectionist" in your book, too frickin bad IMO. It's nothing every other country isn't already doing, just as a matter of common sense.

And you'll need to show us where outsourcing has provided any benefits to consumers. Have you seen a CPI chart lately? Outsourcing hasn't made a shred of difference to anything except executive salaries, bonuses, corporate profits and shareholder returns. The consumer gets the shaft. Joe Sixpack winds up working 2 (or 3) jobs just to have the same buying power he did when he had his manufacturing job, while we wind up with ever decreasing quality products, and having to call Bangladesh to get ever decreasing quality support on these products.


----------



## Phinn (Apr 18, 2006)

> If implementing corporate taxes to remedy this obscenity qualifies as "full bore protectionist" in your book, too frickin bad IMO.


If raising taxes on imports in order to keep domestic producers from being out-competed by lower-cost foreign competitors doesn't qualify as "protectionist," then I need to know which dictionary you are using, because you aren't making any sense.

While you are at it, tell me what you mean by "obscenity," too.



> And you'll need to show us where outsourcing has provided any benefits to consumers. Have you seen a CPI chart lately? Outsourcing hasn't made a shred of difference to anything except executive salaries, bonuses, corporate profits and shareholder returns. The consumer gets the shaft. Joe Sixpack winds up working 2 (or 3) jobs just to have the same buying power he did when he had his manufacturing job, while we wind up with ever decreasing quality products, and having to call Bangladesh to get ever decreasing quality support on these products.


I have. I take it very seriously. There's a Producer Price Index chart up-thread under my earlier post. It's the first one.

What's worse, the official state numbers for CPI don't even remotely reflect the real inflation rate. The government has a stable of these state-paid economist whores that have more ways of cooking the books than you can imagine. The idea of a "core" index is only one -- they inflate the crap out of the currency, then they eliminate from consideration the areas where the inflation is experienced the most.

The escalating prices that you refer to, which punish all of us, not just Joe Sixpack (maybe _I am_ Joe Sixpack?) is the result of the constant inflation that the Fed has visited on us since 1913, an error compounded by Nixon's total severance of money from assets. Price inflation is more than an increase in the price level as of some earlier point in time. You also have to account for the increase in the price level above what the price level _*would have been in the absence of the expansionary monetary policies*_. Once you factor in the monetary expansion, the real inflation rate is shocking.

The Fed stopped reporting the M3 last year. One of the most useful pieces of information about inflation. Gone. Makes you wonder.

Outsourcing absolutely has made a difference -- prices are lower than they otherwise would have been in the absence of outsourcing. Forcing companies to stick with more expensive domestic production means higher prices for what they produce. If that's not true, then I heartily recommend that you IMMEDIATELY get off the computer and start a business competing with one of these supposedly inefficient businesses that is charging outrageously excessive prices for no good reason -- you'll make a fortune selling your goods for less than these fat cats do. If the government had not only raised prices by devaluing our money, but it also prevented producers from reducing costs by using foreign labor markets, just think of how much higher prices would be than they already are.


----------



## Wayfarer (Mar 19, 2006)

Under mercantilism, a strict version of it, would trade unions not be disallowed? As the UAW threatens another disasterous strike, mainly on job security for the 70k workers the Big 3 wish to shed, this is a fitting question. Outside of regulatory compliance and social programs, the hourly labour cost is a huge reason for the outsourcing.


----------



## pt4u67 (Apr 27, 2006)

FrankDC said:


> Most of the objectives of mercantilism (trade surpluses, government control over industry and trade etc) were either destroyed by supply-side economics, or at least ran counter to those policies. I'm not claiming mercantilism was still a credible economic theory in 1980 (in fact IMO it never was a cohesive theory), *only that supply-side economics killed the basic philosophy behind it*.


It could be argued that it killed itself. An economic system such as mercantilism can only last for so long before it burns itself out. The same with socialism/communism.

The reason why our system of capitalism has lasted and flourished is precisely because it works.


----------



## Mike Petrik (Jul 5, 2005)

FrankDC said:


> I'm not sure what's imprecise about it. Reagan didn't invent the supply-side economic theory, but it was certainly the basis for his economic policies ("Reaganomics").
> 
> Also, the exodus of manufacturing jobs from the U.S. began in earnest under Reagan. A Democratic proposal to amend the corporate tax code, which would have taxed income from foreign production and removed most of the economic incentive to export American jobs, was dropped at Reagan's insistence. Not only did trade deficits begin to balloon wildly at that point, they've been doing so ever since.


Frank, supply side economics refers to the proposition that decreased income and capital gain tax rates can actually lead to greater government revenues as a consequence of greater productivity. It can fairly be described as part of so-called Reaganomics, but it is not the same thing. The principle is grounded in the proposition that income taxes are a burden on production, and that they therefore lessen production. The proposition is certainly true, at least to a point. And the idea that such a reduction can be acute enough to actually reduce government tax revenue is also true, at least to a point. Income tax rates of 0% and 100% would yield exactly the same government revenue -- zero. Plainly, there is a curve. Economist Art Laffer believed that pre-1986 the US was near or on the right side of the curve's apex and that tax rates could be reduced without reducing revenue, especially in the long-run. Rates were reduced in 1986 and revenue did increase. Economists still debate whether that was a consequence of the supply side effect of rate reduction, however. Indeed, some economists believe that revenue would have increased more dramatically if rates had not been reduced.


----------



## Wayfarer (Mar 19, 2006)

Mike, do not buy yourself too much trouble. I can remember a thread where I brought up the Laffer Curve and it was not a positive outcome. If one is disinclined to believe in the science of economics when it conflicts with their political views, it is rather a futile operation to try and explain the concept to them.


----------



## Mike Petrik (Jul 5, 2005)

Understood, Wayfarer. I did try to make my explanation measured and unbiased (e.g., nonpartisan). The notion that there is such a thing as a Laffer Curve is not disputable by reasonable people. What the curve looks like and where the US is on the curve at any given moment is a lot more complicated, of course, and plenty debatable; and I hope my post made that clear.


----------



## JDC (Dec 2, 2006)

Mike Petrik said:


> Frank, supply side economics refers to the proposition that decreased income and capital gain tax rates can actually lead to greater government revenues as a consequence of greater productivity. It can fairly be described as part of so-called Reaganomics, but it is not the same thing. The principle is grounded in the proposition that income taxes are a burden on production, and that they therefore lessen production. The proposition is certainly true, at least to a point. And the idea that such a reduction can be acute enough to actually reduce government tax revenue is also true, at least to a point. Income tax rates of 0% and 100% would yield exactly the same government revenue -- zero. Plainly, there is a curve. Economist Art Laffer believed that pre-1986 the US was near or on the right side of the curve's apex and that tax rates could be reduced without reducing revenue, especially in the long-run. Rates were reduced in 1986 and revenue did increase.


Reagan's revenue increases came from higher FICA taxes, not lower income taxes. It was smoke and mirrors. In hindsight there can be no debate about the effects of Reagan's voodoo fiscal policy.

The numbers speak for themselves. Budget deficits exploded, as did the national debt, trade deficits etc.

The Laffer curve deals with revenues, and doesn't bother to concern itself with little details like _spending_. So the theory in real life is reduced to absurdity:
https://en.wikipedia.org/wiki/Laffer_Curve#The_Neo-Laffer_Curve


----------



## Wayfarer (Mar 19, 2006)

FrankDC said:


> The Laffer curve deals with revenues, and doesn't bother to concern itself with little details like _spending_. So the theory in real life is reduced to absurdity:
> https://en.wikipedia.org/wiki/Laffer_Curve#The_Neo-Laffer_Curve


I did warn you Mike.

Yes Frank, the Laffer curve does indeed only deal with what tax revenues the government will collect. Spending and revenue collections are two completely different things. Conflating them and deeming the Laffer concept absurd is...absurd. It should also be noted that Frank's link will bring you to a satirical critique of the Laffer Curve, not to one of the more scholarly attempts to critique it.


----------



## Mike Petrik (Jul 5, 2005)

Wafarer is correct.
And, Frank, the article you sight conflates ERTA (1981 as I recall) and the TRA of 1986. Supply side economics is based on rate reductions which happened under ERTA only insomuch as the 70% top marginal rate was eliminated. That elimination almost certainly had a net positive supply side effect. ERTA's other tax reductions had to do with depreciation and similar matters and were not really based on supply side thinking in the proper sense, and their revenue negative effect was much greater. Thus, the article is correct that ERTA did, on balance, cause a revenue decline -- at least that is commonly accepted by economists. But supply side thinking had little to do with ERTA, but it did inform the TRA of 1986 which reduced the top marginal rate to 28%. Although income tax revenue increased after that act, it is not all clear that this was a consequence of the promised supply side effect since the base was dramatically broadened and pretty much all longstanding tax shelters closed. 
In summary the article you sight is neither fair nor accurate. Moreover, while ERTA may have been financially imprudent, it was essentially undone two years later with TEFRA, which actually increased taxes in the same order of magnitude as ERTA had decreased them (though did not increase rates).
Wayfarer is correct that the large deficits were chiefly the result of increased spending (especially national defense in a "quixotic" effort to spend the Soviet Union into non-existence), not tax decreases, especially not rate decreases (and under supply side theory there is a very important difference between the two).
Frank, you are way too invested in your opinions. You really need to understand that were are talking about evaluating some tricky things here over which reasonable people can disagree and reasonable economists do. But you should at least understand the history and definitions so that an intelligent discussion can take place.


----------



## JDC (Dec 2, 2006)

Mike Petrik said:


> Wafarer is correct.
> And, Frank, the article you sight conflates ERTA (1981 as I recall) and the TRA of 1986. Supply side economics is based on rate reductions which happened under ERTA only insomuch as the 70% top marginal rate was eliminated. That elimination almost certainly had a net positive supply side effect. ERTA's other tax reductions had to do with depreciation and similar matters and were not really based on supply side thinking in the proper sense, and their revenue negative effect was much greater. Thus, the article is correct that ERTA did, on balance, cause a revenue decline -- at least that is commonly accepted by economists. But supply side thinking had little to do with ERTA, but it did inform the TRA of 1986 which reduced the top marginal rate to 28%. Although income tax revenue increased after that act, it is not all clear that this was a consequence of the promised supply side effect since the base was dramatically broadened and pretty much all longstanding tax shelters closed.
> In summary the article you sight is neither fair nor accurate. Moreover, while ERTA may have been financially imprudent, it was essentially undone two years later with TEFRA, which actually increased taxes in the same order of magnitude as ERTA had decreased them (though did not increase rates).
> Wayfarer is correct that the large deficits were chiefly the result of increased spending (especially national defense in a "quixotic" effort to spend the Soviet Union into non-existence), not tax decreases, especially not rate decreases (and under supply side theory there is a very important difference between the two).
> Frank, you are way too invested in your opinions. You really need to understand that were are talking about evaluating some tricky things here over which reasonable people can disagree and reasonable economists do. But you should at least understand the history and definitions so that an intelligent discussion can take place.


Mike, with all due respect, you seem to be the one who has an infinite capacity for ignoring history. Given that the supply-side debacle has reared its ugly head not once but twice in the last 25 years, both times with disastrous long-term fiscal effects, I'm astonished that anyone continues to take it or the Laffer curve seriously.

The supply-side theory in real life experience has amounted to nothing more than a way to force poor and middle classes to pay for reduced tax burdens on the already wealthy. In my view that's the bottom line, and all spin aside I've yet to see any numbers which counter this claim.


----------



## Wayfarer (Mar 19, 2006)

FrankDC said:


> Mike, with all due respect, you seem to be the one who has an infinite capacity for ignoring history. Given that the supply-side debacle has reared its ugly head not once but twice in the last 25 years, both times with disastrous long-term fiscal effects,* I'm astonished that anyone continues to take it or the Laffer curve seriously.*
> 
> The supply-side theory in real life experience has amounted to nothing more than a way to force poor and middle classes to pay for reduced tax burdens on the already wealthy. In my view that's the bottom line, and all spin aside I've yet to see any numbers which counter this claim.


Again Mike, I warned you. I think you lost Frank at the part where you explained that 0% taxes and 100% taxation yield the same result. Frank will still claim that 100% taxation hits the poor and minorities harder :icon_smile_big:


----------



## Mike Petrik (Jul 5, 2005)

Frank, just so you understand -- there is not a single economist in America -- not one -- who does not take supply side economics and the Laffer Curve seriously, at least as a theoretical matter. What they cannot agree on -- because it is both complex and fluid -- is the curve's shape and practical application to our current income tax system. And on that score, I have offered no opinions and made no assertions. Your weird hostility is grounded in some type of emotional pathology rather than reason. You need help, buddy; this pathology is impairing your ability to reason, or even read.


----------



## JDC (Dec 2, 2006)

Mike Petrik said:


> Frank, just so you understand -- there is not a single economist in America -- not one -- who does not take supply side economics and the Laffer Curve seriously, at least as a theoretical matter. What they cannot agree on -- because it is both complex and fluid -- is the curve's shape and practical application to our current income tax system. And on that score, I have offered no opinions and made no assertions. Your weird hostility is grounded in some type of emotional pathology rather than reason. You need help, buddy; this pathology is impairing your ability to reason, or even read.


Right back at ya (same source I referenced earlier):

"A harsher critique of the Laffer Curve can be seen with Martin Gardner's satirical construct, the so-called neo-Laffer Curve. The neo-Laffer curve matches the original curve near the two extremes of 0% and 100%, but rapidly collapses into an incomprehensible snarl of chaos at the middle. Gardner based his curve on actual US economic data collected in a fifty year period by statistician Persi Diaconis.

The satire illustrates the major fallacy commonly committed with the Laffer curve, namely the assumption that the middle is a smooth, concave function merely because the two extreme endpoints are well-defined. *A realistic tax curve would most certainly not resemble a smooth parabola or even any other simple function, but rather a very complex curve with many peaks, valleys, and multiple local maxima. Inside the middle, a wide range of various economic factors confound any simplistic attempt at this interpolation*.

As a pedagogical tool, a Laffer curve helps illustrate a specific application of the law of diminishing returns, where the inhibitory cost of taxes may eventually outweigh the increased rate of taxation, and thus led to a counterintuitive lower realization of tax revenue. *However the Laffer curve should not be taken as a literal model for a tax revenue curve, especially in debates between relatively moderate amounts of taxation. It is in this context that the Laffer curve is often abused, taken as a serious model for tax revenue when it has little to no predictive value in debates between intermediary rates of taxation*."


----------



## Mike Petrik (Jul 5, 2005)

Having read both Frank's posts and the referenced Wiki article in their entirety, I rest my case -- both as to the definition of the Laffer Curve and its relation to Supply Side economics as well as to Frank's unfortunate emotional condition.


----------



## JDC (Dec 2, 2006)

Mike Petrik said:


> Having read both Frank's posts and the referenced Wiki article in their entirety, I rest my case -- both as to the definition of the Laffer Curve and its relation to Supply Side economics as well as to Frank's unfortunate emotional condition.


Concession noted.

We'll see how loudly supply-siders whine when the next administration starts to repair the catastrophic fiscal damage of the current one.


----------



## Wayfarer (Mar 19, 2006)

Mike Petrik said:


> Having read both Frank's posts and the referenced Wiki article in their entirety, I rest my case -- both as to the definition of the Laffer Curve and its relation to Supply Side economics as well as to Frank's unfortunate emotional condition.


My next prediction is you will be on Frank's "ignore" list soon. Although, even though I am on it, he somehow answers my posts on a regular basis...


----------



## JDC (Dec 2, 2006)

Wayfarer said:


> My next prediction is you will be on Frank's "ignore" list soon. Although, even though I am on it, he somehow answers my posts on a regular basis...


WF, sometimes I read this forum without logging in first, that's when your (and ksinc's) posts appear. Actually you've been toning down your personal attacks lately, so I removed you from my ignore list. If you post something worth responding to I'll do so.


----------



## Wayfarer (Mar 19, 2006)

FrankDC said:


> WF, sometimes I read this forum without logging in first, that's when your (and ksinc's) posts appear. Actually you've been toning down your personal attacks lately, so I removed you from my ignore list. If you post something worth responding to I'll do so.


Sometimes I am so right it scares me.


----------

