EUROASIAN Union: Regionalizing Cronyism or Despotism?

Russia’s Vladimir Putin has a grand design, he intends to integrate ex-Soviet Union states.

From the Businessinsider.com,

It's likely you've never heard of half of the prospective members of Vladimir Putin's plans for a "Eurasian Union".

However, if the plan goes ahead, you'll need to get familiar with them quick.

A Eurasian Union (EuU) including most of the former U.S.S.R. would become a major counterweight to the EU (a Eurasian Union could control up to 33 percent of the world’s proven natural gas reserves, according to Forbes).

Putin, who floated the idea in October of last year, at the time went to lengths to deny that the bloc would recreate the Soviet Union. However, Russia has already gotten many other former Soviet Union states to sign up for a free trade agreement, including Armenia, Moldova, Ukraine (which was initially set on joining the EU), Kyrgyzstan, and Tajikistan. Uzbekistan, Azerbaijan, and Turkmenistan could follow suit.

Purportedly the union is about a establishing a free trade bloc.

More from Reuters,

Putin said the new union would build on an existing Customs Union with Belarus and Kazakhstan which from next year will remove all barriers to trade, capital and labor movement between the three countries.

"We are not going to stop there and are setting an ambitious goal -- to achieve an even higher integration level in the Eurasian Union," Putin wrote in an article which will be published in Izvestia newspaper on October 4…

Putin wrote that he saw the way out of the global crisis through a regional integration, mentioning the European Union, Asia-Pacific Economic Cooperation, the North American Free Trade Agreement and the Association of Southeast Asian Nations as examples.

"These 'bricks' can assemble into a more stable global economy," Putin wrote.

Politicians espousing free trade or liberalization of the markets have always been welcome news. However one should be leery of any noble sounding intentions, because what politicians say almost always works to the contrary from what they do.

The great Professor Ludwig von Mises says that free trade is about practicing what has been preached

Everybody was in favor of free trade for all other nations and of hyper‑protectionism for his own. It did not seem to occur to anyone that free trade begins at home. For nearly everyone favored government control of busi­ness within his own country.

True to the word of Professor von Mises, we find that the supposed ex-Soviet free trade bloc are composed of mostly economically UNFREE nations.

According to the Heritage economic freedom index, Russia ranks 144^th, Ukraine 163^rd, Moldova 124^th, Armenia 39^th, Kyrgyz Republic 88^th, Tajikistan 129^th and potential participants Uzbekistan 164^th Azerbaijan 91^st and Turkmenistan 168^th.

Except for Armenia and the Kyrgyz Republic whom are classified as moderately free, all the rest led by Putin’s Russia has been mostly unfree.

And the deficiency in freedom has not been limited to economic sphere but has likewise been reflected in their respective political institutions. The following categorization according to Freedomhouse.org

Partly Free: Ukraine, Moldova Kyrgyz Republic

Not free: Russia, Tajikistan. Uzbekistan, Azerbaijan, Turkmenistan

So free trade looks likely a façade to what seems as covert design to control energy reserves which will likely be corralled by the political class and their regional private sector allies.

And like the EU, whom has gone in the direction of a political union, Putin’s union seems like a step towards centralization of the region’s political framework.

Genuine free trade doesn’t need trading blocs or treaties. All that is required of a nation need is to voluntarily open the doors for trade, regardless of the what neighbors or others do.

Again this golden nugget from Professor Ludwig von Mises.

It is hopeless to expect a change by an international agreement. If a country thinks that more free trade is to its own advantage, then it may always open its frontiers. But if it views free trade as a disadvantage to its own interests it will not be more willing to grant it in an international treaty.

Well I hope I am wrong on this, and that such trading bloc will pry open these mostly unfree economies and spur not only regional trade openness but a global one too.

Video: World Bank Promotes Africa's Trade Liberalization

Something to cheer at: The World Bank, along with the African Union, promotes trade liberalization in Africa.

Dr Maxwell Mkwezalamba, Commissioner African Union Commission:

Trade is actually an engine of growth (2:24)

More signs of bullish prospects on Africa

How Economic Freedom Erodes India’s Caste System

From Economic Times India, (bold emphasis mine)

On the face of it, entrepreneur Ashok Khade is just another one of India's growing wealthy, heading a successful $27 million infrastructure and oil and gas business group that employs 4,500 people.

But the 56-year-old is a rarity, as he belongs to India's dalit, or "untouchable" classes, who for centuries have been anchored at the bottom of Hinduism's caste system and remain among the most exploited and despised.

The opening up of India's economy has helped bring in some mobility in the rigid social hierarchy, leading to a gradual rise in jobs and opportunities for India's poorest and even created a new breed -- the dalit millionaire.

Khade, a first-generation businessman who now drives a BMW, battled poverty and discrimination as a child in a village near Sangli in Maharashtra state, about 400 kilometres (250 miles) from India's financial hub, Mumbai.

Not only has economic freedom been expanding people’s choice—to avail of or harness more economic opportunities—for them to advance (unless they are mentally resigned to comply with local customs), but has also been instrumental in reducing class discrimination or class inequalities by providing “some mobility in the rigid social hierarchy”. In short, economic freedom and free trade changes culture.

Mercantilist Politics: Making a Mountain Out of a Molehill

A common maneuver applied by the advocates of protectionism is to tunnel or fixate on specific imbalances which they use as basis to call for trade restrictions (otherwise known as the fallacy of composition).

Take for instance the debate over China’s role in the US economy, where Chinese imports have been alleged as ‘stealing’ US jobs.

From Walter E. Williams

Let's look at the magnitude of our trade with China. An excellent place to start is a recent publication (8/8/2011) by Galina Hale and Bart Hobijn, two economists at the Federal Reserve Bank of San Francisco, titled "The U.S. Content of 'Made in China.'" One of the several questions they ask is: What is the fraction of U.S. consumer spending for goods made in China? Their data sources are the U.S. Census Bureau, the Bureau of Labor Statistics and the Commerce Department's Bureau of Economic Analysis.

Hale and Hobijn find that the vast majority of goods and services sold in the United States are produced here. In 2010, total imports were about 16 percent of U.S. gross domestic product, and of that, 2.5 percent came from China. A total of 88.5 percent of U.S. consumer spending is on items made in the United States, the bulk of which are domestically produced services – such as medical care, housing, transportation, etc. – which make up about two-thirds of spending. Chinese goods account for 2.7 percent of U.S. personal consumption expenditures, about one-quarter of the 11.5 percent foreign share. Chinese imported goods consist mainly of furniture and household equipment; other durables; and clothing and shoes. In the clothing and shoes category, 35.6 percent of U.S. consumer purchases in 2010 were items with the "Made in China" label.

Much of what China sells us has considerable "local content." Hale and Hobijn give the example of sneakers that might sell for $70. They point out that most of that price goes for transportation in the U.S., rent for the store where they are sold, profits for shareholders of the U.S. retailer, and marketing costs, which include the salaries, wages and benefits paid to the U.S. workers and managers responsible for getting sneakers to consumers. On average, 55 cents of every dollar spent on goods made in China goes for marketing services produced in the U.S.

Charts from the abovementioned FRBSF study

Mercantilists have been arguing from China’s niggardly 2.5% share which makes their entirely ridiculous.

And as pointed out earlier, despite the deepening trend of globalization, the US economy, whom supposedly represents the vanguard of free market capitalism, remains virtually a closed economy.

Yet such argument shouldn’t be seen in the light of merely the share of imports but rather from the social, economical and ethical merits.

As the great Ludwig von Mises wrote,

What generates war is the economic philosophy almost universally espoused today by governments and political parties. As this philosophy sees it, there prevail within the unhampered market economy irreconcilable conflicts between the interests of various nations. Free trade harms a nation; it brings about impoverishment. It is the duty of government to prevent the evils of free trade by trade barriers. We may, for the sake of argument, disregard the fact that protectionism also hurts the interests of the nations which resort to it. But there can be no doubt that protectionism aims at damaging the interests of foreign peoples and really does damage them. It is an illusion to assume that those injured will tolerate other nations' protectionism if they believe that they are strong enough to brush it away by the use of arms. The philosophy of protectionism is a philosophy of war. The wars of our age are not at variance with popular economic doctrines; they are, on the contrary, the inescapable result of a consistent application of these doctrines.

Quote of the Day: Trade Spreads Culture

Every increase in trade facilities aids in the spreading of cultural values; and, contrariwise, every interference with trade results in a corresponding retardation of cultural progress. In other words, the freer the trade, the greater the advance in civilization, and the more restrictions there are on trade, the surer will be the retrogression of civilization.

That’s from the great Frank Chodorov in the 1940 essay “Civilization or Caveman Economy?” (source Café Hayek’s Don Boudreaux)

ASEAN Integration: ASEAN Economic Community

Despite the ongoing grim conditions in many key developed nations, there is a major development to cheer about: The goal to integrate the economies and markets of ASEAN via the ASEAN Economic Community (AEC) by 2015

From Matthew Asia’s Tarik Jaleel, (bold emphasis added)

The establishment and prioritization of a move toward a common market by 2015 with free movement of resources comes in response to increased competition posed by China and India. A grouping of 10 countries, with a combined population of 600 million and GDP of more than US$1.7 trillion, would give its members greater influence on the world stage than they might individually attract.

Intra-ASEAN trade already represents nearly 25% of total exports by ASEAN countries and about 24% of total imports. Intra-ASEAN trade over the last 10 years has grown at a faster rate of 10.7% compound annual growth rate, compared to the total trade growth of 7.6%. The AEC, therefore, will build on an already robust trade platform and extend ASEAN to the next level to that of a single market and production base. The AEC will be comprised of five core elements which espouse the free flow of: goods, services, investment, capital and skilled labor. Industrial sectors to be included in the single market and production-base comprise 12 priority integration sectors, including food, fisheries, air transportation, automotives, health care, apparel, tourism and logistics. In an open economic region this would create a multitude of opportunities—a company in Singapore or Malaysia could easily invest in infrastructure projects in lesser developed countries such as the Philippines or Vietnam. More importantly, in increasingly service-driven economies, mobility of skilled labor would be improved, facilitated through employment passes and mutual recognition arrangements for professional services.

What is therefore surprising is the indifference, or lack of awareness, amongst the investment community and the private sector to the many opportunities and threats. In a recent investment bank survey of 60 publicly listed ASEAN companies, approximately one-third of respondents classified themselves as either “familiar” or “very familiar” with the AEC. In light of the plans, some companies are undergoing measures to strengthen their position within the community. Malaysian banks backed by the government, for example, have expanded aggressively in the region in hopes of capturing a bigger share of regional business that may result from increased trade among AEC countries.

For investors, the move toward a single market may present a period of change from the previous state of business as companies consolidate, aim to increase transparency and to adopt standardized regulations. The blueprint for the formation of the community also calls for business dynamics to be conducted under free market competition. The hope is that an open market environment would provide a broader and more attractive investment universe in Southeast Asia.

This looks like one step in the right direction. I hope that free trade won’t stop with ASEAN but spread throughout the entire world that should not only increase wealth and prosperity but likewise foster peace, cooperation and social harmony.

As the great Ludwig von Mises wrote,

What makes friendly relations between human beings possible is the higher productivity of the division of labor. It removes the natural conflict of interests. For where there is division of labor, there is no longer a question of the distribution of a supply not capable of enlargement. Thanks to the higher productivity of labor performed under the division of tasks, the supply of goods multiplies. A preeminent common interest, the preservation and further intensification of social cooperation, becomes paramount and obliterates all essential collisions.

Globalization Fuels the Africa’s Moment

Globalization has been fueling Africa’s renascence.

From the Economist, (bold emphasis mine)

AFRICA has made a phenomenal leap in the last decade. Its economy is growing faster than that of any other continent. Foreign investment is at an all-time high; Senegal has lower borrowing costs than Ireland. The idea of a black African billionaire—once outlandish except for kleptocratic dictators—is commonplace now. At the same time an expanding African middle class (similar in size to those in India and China) is sucking in consumer goods. Poverty, famine and disease are still a problem but less so than in the late 20th century, not least thanks to advances in combating HIV and malaria.

Africa’s mood is more optimistic than at any time since the independence era of the 1960s. This appears to be a real turning point for the continent. About a third of its growth is due to the (probably temporary) rise in commodity prices. Some countries have been clever enough to use profits to build new infrastructure. The arrival of China on the scene—as investor and a low-cost builder—has accelerated this trend. Other Asian economies are following its lead, from Korea to Turkey.

Yet factors unconnected to resources have been equally or even more important. Africans are taking a greater interest in each other. Regional economic cooperation has improved markedly—borders are easier to cross now, especially in the east. Technology helps too. Africa has 400m mobile phone users—more than America. Such tools boost local economies, especially through mobile banking and the distribution of agricultural information.

As the rest of the world struggles with economic meltdown, Africa is for once enjoying a moment in the sun. Even political violence, long an anti-reformist cancer, is simmering down. Many long-running civil wars have (more or less) ended: Sudan, Congo, Angola. Bad governance is still holding back many countries, but markets are becoming more open thanks to privatisation. Examples of the old Africa (destitute, violent and isolated) are becoming more rare.

The above article echoes on the earlier observations of the McKinsey Quarterly in June of 2010 (bold emphasis mine)

The key reasons behind this growth surge included government action to end armed conflicts, improve macroeconomic conditions, and undertake microeconomic reforms to create a better business climate. To start, several African countries halted their deadly hostilities, creating the political stability necessary to restart economic growth.

Next, Africa’s economies grew healthier as governments reduced the average inflation rate from 22 percent in the 1990s to 8 percent after 2000. They trimmed their foreign debt by one-quarter and shrunk their budget deficits by two-thirds.

Finally, African governments increasingly adopted policies to energize markets. They privatized state-owned enterprises, increased the openness of trade, lowered corporate taxes, strengthened regulatory and legal systems, and provided critical physical and social infrastructure. Nigeria privatized more than 116 enterprises between 1999 and 2006, for example, and Morocco and Egypt struck free-trade agreements with major export partners. Although the policies of many governments have a long way to go, these important first steps enabled a private business sector to emerge.

In short, Africa has greatly reduced dependence on the political distribution of resources (which has reduced wars), has vastly improved property rights, which has enabled free trade and importantly embraced economic freedom.

Basic lessons which Filipinos ought to learn and emulate.

Marc Faber: Asia to Benefit from Imploding Welfare States of the West

Dr. Marc Faber has been an indirect mentor of mine. It has been through his writings which has led me to learn of Austrian Economics, the major pillar of my analytical methodology.

Nevertheless, recently he says that imploding welfare states of the West should be positive for Asia.

The Asian Investor quotes Dr. Faber, (bold emphasis mine)

“Asia should send a thank-you letter to [Federal Reserve chairman Ben] Bernanke” for stimulus policies that have been an “utter failure” for the US but beneficial to Asia.

"We had, essentially, a bank failure in 2008 and the financial system in the Western world went bankrupt. Then it was bailed out by governments and the banks have learned nothing. “

Government intervention in private finance will have a damaging effect to the US and European economies over the long run, he predicts. “In 2008, the financial sector [went] bust, and in the future, the [Western] governments will go bust.”

In contrast, “the Asian banks are in a good shape”, says Faber. “Asia reacted well in the 1997-1998 crisis. A period of deleveraging followed. Businessmen became conservative. They paid down debts and the banks became very cautious in terms of their lending.”

As a result, he has more confidence in Asian banks than their Western counterparts. “I would deposit money with a Thai bank, no problem. They will pay me back. They don’t know what derivatives [are], because the derivatives salesmen never get through the traffic in Bangkok,” he quipped.

“I would rather stick to emerging economies than Europe and the US.”

For as long as Asia resists the siren song of the welfare based political economy and shun protectionism, the policy divergences between the West and the East should imply for a wealth convergence, where Asia’s potential higher returns on investments emanating from the declining relative trend of interference from the region’s governments should attract more of the savings from the West.

The above would compliment domestic growth dynamics for as long as Asian governments continue to ease on economic restrictions or regulations.

This also implies that the current contagion based financial market meltdown in Asia—mainly transmitted from the boom bust cycle policies of Western governments which have been aimed at the preservation of the unsustainable state of incumbent political institutions—is likely a temporary event.

And given the right conditions (not yet today) would present as ‘buy’.

Quote of the Day: Trade Made Us Superior

Fantastic quote from the prolific Matt Ridley (bold emphasis mine)

There was no sudden change in brain size 200,000 years ago. We Africans—all human beings are descended chiefly from people who lived exclusively in Africa until about 65,000 years ago—had slightly smaller brains than Neanderthals, yet once outside Africa we rapidly displaced them (bar acquiring 2.5% of our genes from them along the way).

And the reason we won the war against the Neanderthals, if war it was, is staring us in the face, though it remains almost completely unrecognized among anthropologists: We exchanged. At one site in the Caucasus there are Neanderthal and modern remains within a few miles of each other, both from around 30,000 years ago. The Neanderthal tools are all made from local materials. The moderns' tools are made from chert and jasper, some of which originated many miles away. That means trade.

Evidence from recent Australian artifacts shows that long-distance movement of objects is a telltale sign of trade, not migration. We Africans have been doing this since at least 120,000 years ago. That's the date of beads made from marine shells found a hundred miles inland in Algeria. Trade is 10 times as old as agriculture.

At first it was a peculiarity of us Africans. It gave us the edge over Neanderthals in their own continent and their own climate, because good ideas can spread through trade. New weapons, new foods, new crafts, new ornaments, new tools. Suddenly you are no longer relying on the inventiveness of your own tribe or the capacity of your own territory. You are drawing upon ideas that occurred to anybody anywhere anytime within your trading network…

That is what trade does. It creates a collective innovating brain as big as the trade network itself. When you cut people off from exchange networks, their innovation rate collapses. Tasmanians, isolated by rising sea levels about 10,000 years ago, not only failed to share in the advances that came after that time—the boomerang, for example—but actually went backwards in terms of technical virtuosity. The anthropologist Joe Henrich of the University of British Columbia argues that in a small island population, good ideas died faster than they could be replaced. Tierra del Fuego's natives, on a similarly inhospitable and small land, but connected by trading canoes across the much narrower Magellan strait, suffered no such technological regress. They had access to a collective brain the size of South America.

War on Terror: More Terrorism Deaths Since 9-11

Since 9/11, the US government led war on terror has brought upon more fatalities and not less. This in spite of all the legal and bureaucratic inconveniences imposed on travel, finance and etc.

From the Economist, (bold emphasis mine)

THE attacks of September 11th 2001 killed 2,996 people. Despite the subsequent declaration of a war on terror, over the past ten years thousands more have been killed by terrorists of all hues. The chart below tracks the number of terrorist-related fatalities worldwide. The data is from the National Consortium for the Study of Terrorism and Responses to Terrorism, which defines terrorism as “the use of illegal force and violence by a non-state actor to attain a political, economic, religious, or social goal”.

This is just another brazen example of government failure

Congressman and US Presidential aspirant Ron Paul is right, we should stop terrorism through empathy and free trade. (bold highlights mine)

Sadly, one thing that has entirely escaped modern American foreign policy is empathy. Without much humility or regard for human life, our foreign policy has been reduced to alternately bribing and bombing other nations, all with the stated goal of "promoting democracy." But if a country democratically elects a leader who is not sufficiently pro-American, our government will refuse to recognize them, will impose sanctions on them, and will possibly even support covert efforts to remove them. Democracy is obviously not what we are interested in. It is more likely that our government is interested in imposing its will on other governments. This policy of endless intervention in the affairs of others is very damaging to American liberty and security.

If we were really interested in democracy, peace, prosperity, and safety, we would pursue more free trade with other countries. Free and abundant trade is much more conducive to peace because it is generally bad business to kill your customers. When one’s livelihood is on the line, and the business agreements are mutually beneficial, it is in everyone’s best interests to maintain cooperative and friendly relations and not kill each other. But instead, to force other countries to bend to our will, we impose trade barriers and sanctions. If our government really wanted to promote freedom, Americans would be free to travel and trade with whoever they wished. And if we would simply look at our own policies around the world through the eyes of others, we would understand how these actions make us more targeted and therefore less safe from terrorism. The only answer is get back to free trade with all and entangling alliances with none. It is our bombs and sanctions and condescending aid packages that isolate us.

Despite Globalization, US Still a ‘Closed’ Economy

Some important figures from Cato’s Dan Ikenson

-Despite globalization, the U.S. economy “actually remains relatively closed.” (By “relatively closed,” the authors mean that imports are puny compared to the size of the economy—not that U.S. policies are relatively restrictive of imports.)

-The vast majority of goods and services purchased by U.S. consumers (88.5%) is produced in the United States

-When accounting for the value of foreign content in final U.S. production of goods and services, 86.1% of U.S. consumer purchases of goods and services is produced in the United States.

-Of the 11.5% of total U.S. consumer spending on imports, 64% accounts for the goods and services produced abroad and 36% accounts for transportation, wholesaling, retailing and other activities performed in the United States.

-Only 2.7% of U.S. consumer spending is devoted to goods labeled “Made in China.”

-Of the 2.7% of U.S. consumer spending on imports from China, only 45% is for the foreign-produced good and 55% goes to transportation, wholesaling, retailing, and other activities performed in the United States. In other words, $.55 of every dollar spent on imports from China directly supports economic activity in the United States.

This Cato paper gives broader perspective to the findings of the aforementioned studies.

Added thoughts:

US trade with the world has been less than 20% of the world’s GDP. Given the heft of the US economy, this low % has brought down the average % of world trade. In other words, many nations have merchandise exports at vastly over 50% of their respective GDPs.

Chart from Google Public Data

The popular anti-trade mercantilist rhetoric about China’s significance (or usurping jobs and trade) has been vastly exaggerated. This only exposes politicians, who advocate protectionism, are engaged in the power of suggestion to dupe gullible masses.

Another way to look at this is that for the US economy to have a stronger recovery, she has to open her trading doors wider to the world, instead of using the printing press which only diverts resources to politicians and their allies and cronies.

In short, there is immensely more room for genuine and sound economic growth via free trade.

Agricultural Protectionism Risks Food Crisis

It’s a popular theme to ‘protect’ society by ‘self sufficiency’ or by closing doors on trade. Well, reality says the opposite—protectionism leads to unintended consequences: mass shortages.

This has been spelled out by Cargrill’s CEO anent the growing risks of a food crisis from increasing government intervention (by hoarding).

From Bloomberg, (bold emphasis mine) [hat tip: Mises Blog]

Cargill Inc. Chief Executive Officer Greg Page, who runs the largest agricultural company in the U.S., has a good idea whom to blame for the global surge in food prices at the end of 2010: governments.

Page urged 708 delegates and guests at the National Grain and Feed Association convention in San Diego in March to take action, Bloomberg Markets magazine reports in its September issue. He said government hoarding was the biggest contributor to the rise in prices, which had soared 15 percent from October through January and pushed 44 million people into poverty, according to the World Bank.

“Ill-timed, ill planned and really a beggar-thy-neighbor strategy,” Page, 59, said of moves by Russia and others to ban grain exports as droughts and floods helped send stockpiles to their lowest levels in two generations.

Page warned that further disruptions might ratchet up costs so much that governments would jump in with more regulations -- not only on grain shipments but also on energy, trade and financial markets. Such moves could discourage investing in agriculture and hurt the poor.

“We have to make sure lawmakers share our understanding,” he said, imploring the executives to increase their lobbying to keep government hands off agricultural markets.

Governments should keep their hands off not only in agricultural markets but in ALL markets.

Free Trade’s Influence on Culture

Even a culture of hate, bigotry and intolerance can be reformed by free trade.

From the Slate, (hat tip David Boaz)

If a century seems like a long time for a culture of racism to persist, consider the findings of a recent study on the persistence of anti-Semitism in Germany: Communities that murdered their Jewish populations during the 14^th-century Black Death pogroms were more likely to demonstrate a violent hatred of Jews nearly 600 years later. A culture of intolerance can be very persistent indeed.

Changing any aspect of culture—the norms, attitudes, and "unwritten rules" of a group—isn't easy. Beliefs are passed down from parent to child—positions on everything from childbearing to religious beliefs to risk-taking are transmitted across generations. Newcomers, meanwhile, may be attracted by the culture of their chosen home—Europeans longing for smaller government and lower taxes choose to move to the United States, for example, while Americans looking for Big Brotherly government move in the other direction. Once they arrive, these migrants tend to take on the attitudes of those around them—American-born Italians hold more "American" views with each subsequent generation.

"Good" cultural attitudes—like trust and tolerance—may thus be sustained across generations. But the flipside is that "bad" attitudes—mutual hatred and xenophobia—may also persist.

How trade changes culture... (bold highlights mine)

Not all cities like Würzburg were so unwavering in their anti-Semitism, however. Those with more of an outward orientation—in particular, cities that were a part of the Hanseatic League of Northern Europe, which brought outside influence via commerce and trade—showed almost no correlation between medieval and modern pogroms. The same was true for cities with high rates of population growth—with sufficient in-migration, the newcomers may have changed the attitudes of the local culture.

The simple point is that trade promotes social cooperation and has the power to change beliefs and culture. And the above is an anecdotal evidence of this.

Once again this validates the theories of the great Ludwig von Mises who wrote,

The market is that state of affairs under which I am giving something to you in order to receive something from you. I don't know how many of you have some inkling, or idea, of the Latin language, but in a Latin pronouncement 2,000 years ago already, there was the best description of the market — do ut des — I give in order that you should give. I contribute something in order that you should contribute something else. Out of this there developed human society, the market, peaceful cooperation of individuals. Social cooperation means the division of labor.

Technology Uncovers the Secrets of the Pyramid

Like it or not, this is the information-digital age.

Work that used to take years to uncover can be done over a short period time with rapidly developing technologically enhanced instruments. Moreover, long held secrets of nature have greater chances to be discovered.

Below is an example of another important breakthrough: a specially designed robot has unearthed the ancient markings of the pyramid’s secret chamber. And this discovery has gone viral.

From Yahoo (bold emphasis mine)

Are the glory days of the archaeologist over? Has everything cool and ancient already been discovered? Nope. Thanks to ever-improving technology, several new findings have electrified the Web.

A robot explorer recently discovered ancient markings at the Great Pyramid of Giza in Egypt. The robotic device found the markings inside a secret chamber inaccessible to humans--and then proceeded to film the painted hieroglyphics and stone markings, which hadn't been seen by human eyes in 4,500 years, via a small robotic camera that was fit through a tiny hole in a stone wall.

It is too soon to tell what the markings mean, but experts are hoping they may shed some light on why the ancient Egyptians originally built the tunnels. An article from CNN explains that the tunnel is "one of several mysterious passages leading from the larger king's and queen's chambers."

This wasn't the first time a robot explored the passageways--but it was the first time a robot could focus on details on the walls. This breakthrough occurred thanks to a new kind of micro-camera that can be bent side-to-side instead of just focusing straight ahead.

News of the discovery quickly took the Web by storm. Over the past 24 hours, Web searches for "great pyramid of giza" and "egypt pyramids" both spiked into breakout status. Also seeing big bumps in lookups: "hieroglyphic dictionary" and "hieroglyphic meanings."

Meanwhile, other technologically enhanced discovery expeditions have turn up other fascinating new information about the pyramids in recent days. Archaeologists from the United States (with some help from the BBC) used satellite imagery to discover 17 pyramids beneath the sand and silt in Egypt. An article from Canada's CBC explains that 1,000 tombs and around 3,000 other buildings were also discovered thanks to the technology.

Technology and information are proving to be a potent force.

People will have increasing access to information or acquire the capability to secure knowledge from formerly unconventional channels and on real time.

Science will enhance economic progress which should open doors to new industries (lengthening of the production process), organizational and business processes and new markets.

Also by increasing knowledge and with the introduction of specialized tools, productivity will be enhanced. This should mean more prosperity and wealth or a higher living standard for society.

Although despite the good news, there will always be the opposition. They will be personified by people who resist change (luddites), people who feel entitled (welfare beneficiaries) and people who desire control (progressives or liberals, politicians and the bureaucracy) who will use political force to oppose this progress.

Yet despite all the hurdles, breakthroughs like this is a refreshing news.

Has the Magic of Technology Ebbed?

Marketing guru Seth Godin thinks so. He writes, (bold emphasis mine)

Arthur C. Clarke told us, “Any sufficiently advanced technology is indistinguishable from magic.”

Head back to the 1800s with a Taser or a Prius or an iPad and the townsfolk will no doubt either burn you at the stake or worship you.

So many doors have been opened by technology in the last twenty years that the word “sufficiently” is being stretched. If it happens on a screen (Google automatically guessing what I want next, a social network knowing who my friends are before I tell them) we just assume it’s technology at work. Hard to even imagine magic here.

I remember eagerly opening my copy of Wired every month (fifteen years ago). On every page there was something new and sparkly and yes, magical.

No doubt that there will be magic again one day... magic of biotech, say, or quantum string theory, whatever that is. But one reason for our ennui as technology hounds is that we’re missing the feeling that was delivered to us daily for a decade or more. It’s not that there’s no new technology to come (there is, certainly). It’s that many of us can already imagine it.

The current generation, whom have been key beneficiaries of the transformative technological innovations, may seem to be less appreciative of the contributions of technology to our current welfare. That’s because technology has been giving us constantly more for less.

Thus, the diminishing returns on expectations from the impact of technological progress: the perceived loss of magical touch.

But I think it goes more than that.

Perhaps most people may be a lot less familiar with the antecedent of today’s state of technology. Or, people may have forgotten the roots of today’s progress: our ancestors compounded efforts or actions.

As the great Ludwig von Mises once wrote, (bold highlights mine)

Nobody denies that technological progress is a gradual process, a chain of successive steps performed by long lines of men each of whom adds something to the accomplishments of his predecessors. The history of every technological contrivance, when completely told, leads back to the most primitive inventions made by cave dwellers in the earliest ages of mankind. To choose any later starting point is an arbitrary restriction of the whole tale. One may begin a history of wireless telegraphy with Maxwell and Hertz, but one may as well go back to the first experiments with electricity or to any previous technological feats that had necessarily to precede the construction of a radio network. All this does not in the least affect the truth that each step forward was made by an individual and not by some mythical impersonal agency.

When people forget about history; the contribution of a multitude of individuals in today’s progress through the years, then they became less appreciative of the blessings that has been happening.

Many people today seem to think that the progress from technology is just a given. It is not.

For as long as people are allowed to trade, trade will then function as the main driver of technological progress.

Writers like me will try to keep that magic alive.

Economic Freedom and the Free Trade Exceptionalism

What distinguishes today’s quality of living conditions than from the past?

It’s not that political order has changed so much to improve society, i.e. democracies doesn’t automatically translate to economic betterment.

It’s not about killing high target fugitives either...

As Professor Don Boudreaux wonderfully writes,

Secular and spiritual authorities have killed people for millennia. And these authorities have often employed impressive organizational talents and state-of-the-art techniques both to gather intelligence on the whereabouts of their prey and to perform the actually killings. In taking down Bin Laden, the U.S. government did what governments throughout the ages have regularly done. Success at this task does nothing to distinguish America from any of hundreds of other societies – societies present and past, good and bad, great and contemptible, civil and uncivil...

Our civilization is vindicated by our supermarkets full of food, by our shopping malls full of clothing, by our homes with solid floors and solid roofs and air-conditioning and automatic dishwashers, by iPads and smart phones and aspirin and antibiotics and Amazon.com, by the globe-spanning cooperation that makes these things real – and by the freedom from central direction and mind-numbing, soul-shriveling superstitions that have made so many other ‘civilizations’ sanguinary and hellish.

It is free trade (and the innovations derivative of trade) and economic freedom that has made that remarkable difference.

Political History: Democracy Shaped By Trade

Economics drive politics.

Author Matt Ridley points to the accounts in history where democracy had been shaped by trade (in agriculture).

From the Wall Street Journal, (bold highlights mine)

Trade is much older than farming: Australian aborigines used to trade stone axes for sting-ray barbs over long distances, showing that hunter-gatherers can benefit from exchange. The advent of agriculture accelerated the trend toward specialization—but not everywhere. In temperate zones, farming encouraged trade, but in the tropics subsistence farmers often ate and wore their own produce.

I have been pondering why this difference emerged since reading a fine new paper by Stephen Haber of Stanford and Victor Menaldo of the University of Washington. They argue that, historically, stable democracy has depended on the growing of grain, because it is a tradeable commodity and is best grown on a small scale. Therefore, they say, the parts of the world suited to grain-growing have developed the institutions that build equitably distributed human capital, and hence democracy. This explains why democracy flourishes where rainfall is modest.

Their idea has just as much to say about economic development as about politics. The key is perishability. Where farmers produced food that could be stored, especially cereal grain and pulses (peas and beans), trade flourished, specialization increased and cities emerged, filled with manufacturers, soldiers and priests who swapped their outputs for the grain supplied by the farmers.

Tropical fruit, however, was harder to store and therefore harder to trade, as were other tropical crops like cassava root, which rots after a week or so. This goes some way to explaining the lack of cities in the tropics before the industrial era: You simply cannot ship bananas to an urban elite in the way you can ship grain. Hence the invention of olive oil and wine as tradeable versions of olives and grapes. The ancient civilizations around the Mediterranean depended heavily on trading networks that brought grain, oil and wine to cities.

Read the rest here

Daniel Griswold: Debunking the Belief that Imports and Trade Deficits Are a "Drag on Growth"

Cato's Daniel Griswold rebuts popular myths about trade deficits in the research journal below.

Abstract:

A nearly universal consensus prevails that the goal of U.S. trade policy should be to promote exports over imports, and that rising imports and trade deficits are bad for economic growth and employment.

The consensus creed is based on a misunderstanding of how U.S. gross domestic product is calculated. Imports are not a "subtraction" from GDP. They are merely removed from the final calculation of GDP because they are not a part of domestic production.

Contrary to the prevailing view, imports are not a "leakage" of demand abroad. In the annual U.S. balance of payments, all transactions balance. The net outflow of dollars to purchase imports over exports are offset each year by a net inflow of foreign capital to purchase U.S. assets. This capital surplus stimulates the U.S. economy while boosting our productive capacity.

An examination of the past 30 years of U.S. economic performance offers no evidence that a rising level of imports or growing trade deficits have negatively affected the U.S. economy. In fact, since 1980, the U.S. economy has grown more than three times faster during periods when the trade deficit was expanding as a share of GDP compared to periods when it was contracting. Stock market appreciation, manufacturing output, and job growth were all significantly more robust during periods of expanding imports and trade deficits.

The goal of U.S. trade policy should not be to promote exports at the expense of imports, but to maximize the freedom of Americans to trade goods, services, and assets in the global marketplace.

The Trade-Balance Creed: Debunking the Belief that Imports and Trade Deficits Are a "Drag on Growth", Cato ...

ASEAN Integration: Regional Stock Exchange Website Launched

The path towards the deepening of integration of ASEAN markets and economies has moved one step forward.

ASEAN has launched a website to promote the integration of ASEAN stock markets.

Reports the yahoo,

The www.aseanexchanges.org website launch was celebrated on the sidelines of the 15th ASEAN Finance Ministers Meeting at the Laguna Resort and was attended by the chairman of the meeting -- Indonesian Finance Minister Agus Martowardojo -- and seven chief executive officers (CEOs) of the member stock exchanges.

The ASEAN Exchanges website features a product called "ASEAN Stars", which provides 210 blue chips stocks ranked by "investability" in terms of market capitalization and liquidity and made up of a selection of 30 stocks from each exchange.

"The main focus will be ASEAN's key assets -- the strength and diversity of ASEAN's companies, some of which are the largest and most dynamic companies in the world, including leaders in the banking, finance, telecommunications, commodities and automotive industries," Indonesia Stock Exchange president director Ito Warsito said at the event.

The 30 Indonesian stocks included in the ASEAN Stars come from various sectors, including Astra International (ASII), Adaro Energy (ADRO) Indofood Sukses Makmur (INDF) and state-owned firms such as Bank Mandiri (BMRI), Jasa Marga (JSMR) and Telekomunikasi Indonesia (TLKM).

Shares of firms from other countries promoted through the ASEAN Stars include Malaysia's CIMB Group and Petronas, as well as Singapore's SingTel and Wilmar International.

"Each of these 30 stocks will represent the favor of a particular exchange. Review will be done on a six-month basis in terms of liquidity, size and market capitalization," Gan said, adding that Thomson Reuters, which has thousands of terminals worldwide, would provide market data for the website.

ASEAN had a combined market capitalization of about $1.8 trillion as of January 2011, the eighth highest in the world, with total listed firms numbering over 3,000 companies and a market of more than 538 million people.

This how the nascent website looks...

If the goal is to balance trade and investment flows by reducing dependence on the US—this incorporates the vendor cycling programs of buying US sovereign securities and the implied importation of US monetary policies—then the development of ASEAN financial markets have much more much much room for progress.

The share of some of the major ASEAN members in % to the world stock market capitalization [chart from safehaven.com] reveals of the lack of depth, sophistication and the penetration levels by the local populace in the domestic equity markets which has resulted to the inadequate channeling of savings to investments.

This can also be seen from the region’s share of global market capitalization (2007 chart from Leaps) where ASEAN’s role remain insignificant.

Yet ASEAN has huge foreign exchange reserves which it can use for its development.

(chart from Donghyun Park and Gemma Esther B. Estrada Asian Development Bank Foreign exchange reserve accumulation in the ASEAN-4: challenges, opportunities, and policy options)

Bottom line: This represents more indications that ASEAN (and Asia) have increasingly been adhering to free trade principles which should translate to more progress down the road.

Global Poll: Free Trade Sentiment Gains In Emerging Markets, World

I am delighted to say that despite some short term setbacks, global sentiment on free trade appears to be gaining significant ground over the long term, and importantly, remains a dominant theme for the world.

This from the Economist, (bold emphasis mine)

FAITH in the free market is at a low in the world's biggest free-market economy. In 2010, 59% of Americans asked by GlobeScan, a polling firm, agreed "strongly" or "somewhat" that the free market was the best system for the world's future. This has fallen sharply from 80% when the question was first asked in 2002. And among poorer Americans under $20,000, faith in capitalism fell from 76% to 44% in just one year. Of the 25 countries polled, support for the free market is now greatest in Germany, just ahead of Brazil and communist China, both of which have seen strong growth in recent years. Indians are less enthusiastic despite recent gains in growth. Italy shows a surprising fondness for markets for a place that is uncompetitive in many sectors. In France under a third of people believe that the free market is the best option, down from 42% in 2002.

While free trade sentiment has skidded to low in the US, as a consequence of the crisis, the poll shows of an offsetting surge over most parts of the world.

A broader view of the poll shows this:

From Global Scan

Globescan.com writes, (bold highlights mine)

The results mean that a number of the world’s major emerging economies have now matched or overtaken the USA in their enthusiasm for the free market. The Chinese and Brazilians, 67 per cent of whom regard the free market system as the best on offer, are now more positive about capitalism than Americans, while enthusiasm in India now equals that in the USA, with 59 per cent rating the free market as the best system for the future.

Among the 20 countries polled in both 2009 and 2010, an average of 54 per cent today rate the free market economy as the best economic system, unchanged from 2009.

I am even more pleasantly surprised to see that the Philippines seems more “free market” oriented than some developed economies (e.g. Japan, Australia, France) or to some EM contemporaries (e.g. Indonesia).

Although operating from ground zero, I’d say that the free market sentiment may not be significantly accurate: many (even in the business community or in the elite academe or the media) don’t seem to understand or even resists the notion of free markets at all!

Some local 'free trade' experts see free markets more of a convenience or perhaps even a fad.

But there’s got to be some truth to this. that’s because probably the benefits of free trade (seen via globalization)—broader array of choices, cheaper and more affordable and quality and technologically enhanced products and services plus social mobility (tourism, migration) and more job or earning opportunities from external exposures (trade and remittances)—may have sublimely filtered to the sensibilities of the domestic populace.

Simply said, much of the world, including the Philippines, has been benefiting from increasing exposure to market economies and globalization.

And this has remarkably helped improved free market sentiments, mostly seen on the emerging markets which has been major beneficiaries of trade liberalization.

I am reminded of one of the champions of capitalism and free trade, the great Milton Friedman, in this historic interview about greed who said, (bold highlights mine)

Well first of all tell me, is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course none of us are greedy. It’s only the other fella that’s greedy. The world runs on individuals pursuing their separate interests. The greatest achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty that you are talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it’s exactly in the kind of societies that depart from that.