Now ask anyone and they’ll tell you the following: I’m a pretty capitalistic guy. I frequently clash on my ideological views with the left.  I adhere to the notion that the individual is, and always has been, the single most important factor in an economy and society- the so-called “rugged individualist“, in my opinion, forms the foundation of our progress as a society. We owe a lot to people like Henry Ford, Albert Einstein, Rene Descartes and Isaac Newton. We are standing on the shoulders of giants.

Where am I going with this you ask? Bear with me, especially if you are on the left of the political spectrum.

I’ve frequently stated that where markets are concerned, there is no single “one strategy fits all” solution. Which is why, of course, any regulatory body, any union, any political group or any central bank simply will fail in their approach at some stage. They tend to be wedded to an ideology* which is only correct in certain situations.  So-called “linear thinking”, the notion that the world is a constant like a linear equation:

y = ax +b

Everything is constant; it lies on a straight line.  You just plug the inputs into the function, get the output out and away we go.  That point is critical to understand some of the biggest policy blunders in history. 

vd_3dcont2-large
Some people would like to believe that the economy is a simple linear function. In reality there are thousands of variables, even if only a few variables account for the majority of economic output.  The picture above is a 3D contour map- linear models (particularly bivariate linear models) are a primitive mathematical tool in terms of explanatory power, or indeed in terms of policy solutions.

The case for UK Steel tariffs:

My very first blog post was in response to a friend on the left asking how UK Steel could be protected. The first part can be viewed here.  And with that background  I’ll explain, in this instance my reasoning as to, why as a capitalist I view Europe’s (and by proxy the UK’s) inability to tariff cheap Chinese steel as a dangerous thing:

There should be no question in anyone’s mind that we are in trying economic times. The glut of steel coming out of China echoes the aftermath of the previous wave of globalization, where production and consumption was polarized increasingly in specific regions of the world.  China, having a huge overproductive surplus in steel, is now flooding the markets to maintain their industry.

The neo-classical economist would argue that tariffs constrain economic growth and economic development, and this may be true during an economic growth period. This is why, in many ways, Thatcher’s decision to cull the unions was likely to be a good move. It allowed the cost of labour to decrease and for the market to clear- creating renewed prosperity. In many respects the unions were the ones wedded to an ideology back then- the notion that they could extract increasing wages for their labour at expense of the overall society, at a time when real wage increases were not viable based on market characteristics.  This type of thinking can be true in the face of unscrupulous business owners, which I discuss here. Once again, this is not always the case and today it seems the shoe is on the other foot where being unreasonably wedded to ideologies is concerned.

So why would I argue that tariffs are warranted this time? Quite simple really. At some point the probability of and costs borne by social unrest will exceed the costs of implementing a tariff in utility terms. An economy cannot function under mass social unrest or flat-out war. Property rights fall apart (the foundation of capitalism), insurance costs skyrocket, even basic tasks like shifting goods become fraught with danger.  That’s the sort of world which we appear to be heading towards right now and it’s being perpetrated by linear thinkers: people who are focused on one single variable (economic growth) at a time when they should be worried about another (social stability). The economy and markets are neither linear, nor are they bivariate in nature.

*It is worth noting that some things may well be immutable- things like physical observations that follow specific laws that have not changed in all of the time they have been observed. These are the rules that govern our universe; without these physical rules the universe would cease to exist.  Of course, this is not an ideology or a human construct, but rather an adaptive observation based model.

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