Neither did I. What I was talking about is free trade and protectionism, not “models”. Go back and check.

In fact, the burden of the proof cannot be on me because I have nothing to prove. I do not claim that free trade is always good and protectionism is always bad. I just don’t know of any clear case in which protectionism is good. Japan appears to me as good an example in favor of free trade as it appears to you in favor of protectionism. Since you appear unwilling to produce a clear case, I am quitting this debate.

Sorry, but burden of proof is on you, not me. I’m not the one claiming the model is valid. I simply pointed out some reasons why I’d be real cautious about drawing too many broad conclusions from it.

I pointed to an example where I think protectionism did not reduce overall wealth. Japan decided it was in its strategic interest to protect Toyota which it did. It is a potection decison that has ramifications that filter down to this day.

I already know you can’t do the math to cover 80 years and continuing of puts and takes surrounding that decision. It would have to include the business that spawned other busineses, the jump in knowledge of the people leading to even more advanced industries, the value to Japan of the inventory management practices it created and on and on and on.

But the zeitgeist of it probably supports me. I’m willing to bet that most everybody but a few economic fundamentalists would agree that in the case of Japan and Toyota, protectionism worked and the people were made wealthier for it.

Since simplication is all the rage and no oversimplifcation is too much, let me provide some simplified examples off the top of my head that might cause one to consider protectionism could be an appropriate policy choice. Assume country A produces product A. Country B produces product B. Assume product B is just good enough and just cheap enough to be a reasonable substitute for product B.

Could country A potentially choose protectionism as reasonable policy choice if:

* Product B is manufactured by 6 year old girls chained to their desks 16 hours a day — Because their little fingers allow them to fill wafer boards better?

* Product B is made out of the tusks of dead elephants?

* Product B is made through a strip mining technique that causes lethal heavy metals that leech into the local river which just happens to be a major drinking source for country C?

* Country B is goverened by aparthied?

* Product B is being subsidized by country B because country B believes the domination of of that market is of long term strategic importance (again, look at cellular 4G right now because it is happening and it will change the landscape for decades)?

* Relations between countries A and B are getting a little heated. Products B happens to be a bomb country A uses?

* Product B is produced because of Country B’s illegal invasion of Country C?

* Product B is the book The Big Questions and the new publisher pays no royalties to the author (don’t believe it, I have a CD purchased in China to give to you)?

* Product B is stolen software?

* 80% of the employment of Country A comes from product A, and they need to buy some time to make changes?

I can go on and on and on. The point is in the real world you can’t just say protectionism lowers wealth because the apparent reduction in wealth isn’t always a real reduction in wealth (ie define wealth and for whom, and for what period of time, or just because something is hard to count doesn’t mean it shouldn’t be counted). I’m sorry the real world gets messy. I wish it were neater.

As for the history of Athens, Sparta, Venice, Florence, Amsterdam, and Victorian Britan and how they “would have become even richer without trade.” I never made that claim, nor would I.

You would also need to show me that communist Albania would have been worse off if it did not close its borders; and that Hong Kong and Singapore would have been better off if they had been less open to trade.

Going back in time, you would need to show me that classical Athens would have been better off if it had adopted Sparta’s autarky; that Venice, Florence, Amsterdam, and Victorian Britain would have become even richer without trade. This is just the tip of the iceberg, but it will do to start the discussion.

As for the bailout, the story for each was fast moving and different for each company. Things were getting better and then turned very bad when Bear Stearns was allowed to go under. So there was some evidence for trepidation. Using AIG as an example, bankruptcy was not really considered an option because they were the ones that backed a lot of the mortgage-backed securities. As the market was spiraling, it was thought that if AIG was out of the picture, there would be a domino effect and everybody else would start to fail. All of the people that had done business would have to face the reality of their own assets and others would also go under. It wasn’t just the $80 million given to AIG, it was the full faith and credit of the US that backed up the estimated $1-2 trillion others would have been out had it come to pass (much more than the market cap of the company). At least that was what I remember the understanding to be at the time.

We can agree on one thing Joe Z. I don’t trust the banks or their friends in Washington either. The game is rigged and it pisses me off.

At which point professor, we start to reach some of the limits of Aumanns argument. If both parties are truth seekers, but they perceive each other not to be, they can agree to disagree. If both parties are truth seekers, but one perceives that there really is no “truth” at which the parties can arrive, they can agree to disagree. If both parties are truth seekers and one perceives the value of the truth to be learned is less than the effort required to get to it, they can agree to disagree.

I don’t like the bailout either Joe Z. It was structured very badly. I don’t think bankruptcy was an option. You do. How about we agree to disagree?

“You left out terms like: Necessary evil. No good outcomes. Who knows? Big difference in meaning don’t you think?”

Nah. Really didn’t leave those terms out. To me it sounded like you were saying, all is well with the banks who received tarp money cause their paying it back now.

I was merely pointing out the fact that you can’t trust those banks or their friends on Capital Hill [pun intended]. My skeptical future self thinks [net] they’ll pay nothing back via tax breaks and funky accounting methods.

My Friend Izzydog also wrote:

“How would future self be feeling if all of the companies that received bailouts really had failed?”

Future self thinks when management runs a company into the ground, it should be bailed out by its shareholders, bondholders, management, additional investors, if at all, not with public money. We have excellent BK laws and procedures for this. Also, there was more than sufficient and willing private capital that would have scooped up any remaining assets and customers. In a heartbeat!

Really?

What would I need to provide to you to show that Japan is better off for having protected Toyota? Or better yet, why don’t you show us how they are worse off?

No you haven’t.

Does this suit what you are looking for?

No it doesn’t. You have not provided any clear evidence that protectionism can do good to the country that adopts it. [Let alone to the countries that do not adopt it.] Please stick to my question.

Hmmm. I think I am a stranger in a strange land here. First, let me assure you and the professor that I know models by definition simplify (and that “the word is not the thing”). It’s just that where I come from, and most places for that matter, the generally accepted adage is “garbage in, garbage out.” It’s pretty well accepted that bad assumptions lead to bad conclusions.

Economic models tend to work well…until they don’t. I think the recent history of economic modelling supports me on this. Ask the nobel prize winning economists that started Long Term Capital Management how things worked out for them – It went great, until it didn’t. Ask portfolio managers about the Dot Com bubble and the impossible % of GDP targets they assumed the hi tech industry would absorb. Ask the guys who created CDO’s how well their assumptions about risk proved to be.

An economist, who can’t predict the price of anything, can confidently say that protectionsism always lowers wealth? Okay, I’ve already agreed that that is true — within a limited set of parameters. Is that adage always true? I thought I provided enough examples of additional things that must be considered before we can say it is right in any specific case (essentially boiling down to “define wealth, and for whom?”). I’m suggestiong that we should exercise caution be before we go screaming from the mountain top that protectionism is always bad. That kind of generic thinking does not serve us. When an industry gets wiped out, it’s gone, lives are disrupted and it rarely comes back. These are long term decisions that deserve real discussion, not slogans.

Are you looking for mathmatical proof that sometimes protectionism might be an appropriate response? I’m not your guy. An example off the top of my head might be back in the 30’s the Japanese government subsidized the Japanese auto industry and kicked Ford and GM out of the country because the domestics couldn’t compete. That’s a decision that is still playing out 80 years later. Are we better or worse off for it? Are the Japanese? Are the Japanese responsible for making sure we are better off for it? I don’t know, you tell me. Does the simple protectionism lowers wealth argument apply here? If so, to whom? By what math? Bottom line is I suspect the Japanese are pretty happy with it.

I’ve already provided some current examples and considerations.

Does this suit what you are looking for?