Isolationism, Protectionism Lead to War

Posted: Dec 30, 2011 12:01 AM

Read an article I linked to in the breakfast links this morning that said a lot if you read between the lines a little. The sentiment is very unsettling to me with regard to growth and the future of the world economy.

IMF Chair Christine Lagarde came out yesterday with guns blazing. It looks like even she has had enough of bureaucratic doublespeak for the last two years in Europe and wants something accomplished other than throwing more money at the debt crisis.

She compared the current situation to the period between the two World Wars. “The period we are living in is like the 1930s in certain respects. At that time, countries turned inwards, and multilateralism declined. Today, we see some countries raising tariffs, and erecting non-tariff barriers and sometimes blocking capital flows.”

According to Lagarde, rising national self-interest is the main obstacle to overcoming the current crisis. “It is difficult to put in place strategies for international cooperation against the crisis. National parliaments are reluctant to put at risk their public finances or their government guarantees to support other countries.”

She added that around the world there was growing support for protectionist policies, and that the idea of “everyone for themselves” was gaining ground.

The US response to the crisis in 2008 was not unlike the 1930's. It didn’t work in 1930, and it didn’t work in 2008.

This theme of discontent started back in 2006 in the US, and now is picking up steam across the world. It’s manifested in many different ways, but I believe there is a great disconnect between what we experience locally in our daily lives and what we see in our governments.

Locally, we see people being able to target services to individual needs. New tools change one size fits all to on demand, cost effective, how I want it, production. Nationally and internationally, we see big generic, big spending, over reaching government programs. It’s causing consternation. People aren’t stupid. You know when you are being snookered.

In 2006, the Democrats ran on a platform of fiscal conservatism and fighting for the little guy. Once ensconsed in power, they did the opposite. Their budgets blew up the debt and they passed huge government programs that only benefit the biggest guys.

In 2009, the Tea Party formed when Obama passed the stimulus, and gained momentum after Obamacare was passed. In 2010, they swung legislative power back to the Republicans that have pledged to follow Tea Party tenants, shrink the size and scope of government and cut spending. 2012 becomes a pivotal year for that movement because if they can get control of the Senate and White House, we might actually see some progress on their goals.

Worldwide though we are seeing people rise up against central planning. It’s the millions versus the monolith. The Arab spring was something that could not have been fathomed 10 years ago. Some say its the result of social media, others the Iraq War, and some say a little of both. In China, people are becoming discontented with their government. In Russia, Putin looks to be in trouble. Closer to home we have seen a secondary movement in Occupy Wall Street that might have started with good intentions, but was co-opted by the hard left. Republican voters have tried almost every declared candidate on for size. In Iowa, we now see the rise of Ron Paul.

Paul’s increasing Iowa poll numbers are not because people believe in his platform. It’s a sign of how discontented voters are with the establishment. Paul would be dangerous as a President because he is an isolationist. With rising tides of isolationism world wide, this is precisely the wrong strategy to take in the US.

Free trade and free capital flows among markets are some of the best tonics for an ailing economy. Home grown businesses have a chance to penetrate other markets, and can increase competition to make goods and services cheaper at home. Immigration goes hand in hand with free trade. We want a lot of immigration to the US because it establishes all kinds of world wide networks that are impossible to establish with centrally planned negotiation. We need all kinds of high level talent in the US, and immigration is a good way of getting it here. Instead, we are setting up barriers. The isolationist logic seems so simple. It’s easy to explain. However, when you hear it, gird yourself. It’s a fool’s path to prosperity.

The internet is changing our economies and societies in ways that people never envisioned fifteen years ago. The internet makes the world flat. It takes vertical chains of distribution and blows them up, putting producers closer to end users. Producers can now manufacturer products directly for your need, instead of being generic. Central planning for the masses doesn’t work.

The world used to be this.

Now it’s this,

Protectionism and isolationism lead to war. All government programs treat you as if you are a random number variable in an endless chain. Bad fiscal policy, as the US has had, leads to desperation, which leads to class warfare. This is not about the have and have nots. It’s about making the pie larger. As we have seen over and over again across the entire world, big government isn’t about making pies bigger. It’s only about dividing pie. Because government is unproductive, reliance on it keeps giving you smaller and smaller slices of pie. Pretty soon we are fighting over crumbs.

Our government and our markets are not broken as some would have you think. They are obstructed right now with people that have a vested interest in keeping them broken. 2012 is going to give us a chance to begin fixing it, if we don’t crawl deep into our isolationist shell first.

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