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June 13, 2008
What is Free Trade?
Don Boudreaux
Question: What is free trade?
Answer: Free trade is an institutional environment in which adult buyers and sellers are free to deal with each other without regard to their nationalities, physical locations, religious affiliations, or any other criteria that officious third-parties would elevate into significance but that the buyers and sellers themselves find irrelevant (or at least sufficiently insignificant so as not to affect their desires to trade with each other).
Posted by Don Boudreaux in Trade | Permalink
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Comments
"adult"?
Posted by: Per Kurowski | Jun 13, 2008 4:23:16 PM
"adult"?
Children under the age of majority are considered to not be able to exercise full (enough) control over their actions to be truly "free". That's why they have parents/guardians, and why those agents must give consent for the children.
Posted by: Augustus | Jun 13, 2008 6:19:37 PM
Sorry! I did not know that parents classified as “officious third-parties”. Anyhow would you give me one example why, in the general context of “free trade”, children should not benefit equally from it.
Posted by: Per Kurowski | Jun 13, 2008 6:51:38 PM
Per,
In a free society, the parents have the right to decide whether their children should benefit from free trade.
Posted by: kook | Jun 13, 2008 6:58:27 PM
I don't know for sure where PK is going here but I sense I am in basic agreement.
In my own take, children obviously benefit from free trade, especially children in the developed wealthier nations. And, it goes beyond the obvious that their benefit flows through the ability of their parents to provide a varied diet, health care, and education unavailable in the quantities and consistency that is ours today; but, to the children themselves who very frequently have disposable income of "their own" and therefore benefit from free trade in the disposal of their own money.
However, that being said, a merchant would be and is well advised to not try and engage children in any kind of contractual way because he will lose in the end.
But, I think that this is really just nit picking what Don posted and I doubt seriously he intended to ignore the benefits of free trade to children. It seems to me to be something that, if I were at his keyboard, I wouldn't have bothered expounding on either.
Posted by: vidyohs | Jun 13, 2008 7:03:47 PM
"But, I think that this is really just nit picking what Don posted and I doubt seriously he intended to ignore the benefits of free trade to children"
Posted by: vidyohs | Jun 13, 2008 7:03:47 PM
Absolutely... I confess! But someone’s got to do the nit picking too.
Posted by: Per Kurowski | Jun 13, 2008 11:07:15 PM
Allow me to suggest that "adult" in the definition does not mean person over 18 years of age, but does mean person capable of being responsible for their own actions. Cracking down on Nigerian con artists who are trying to hijack bank accounts of the gullible or the elderly does not constitute infringing on free trade.
Posted by: BoscoH | Jun 13, 2008 11:37:44 PM
“Cracking down on Nigerian con artists who are trying to hijack bank accounts of the gullible or the elderly does not constitute infringing on free trade.” Posted by: BoscoH | Jun 13, 2008
Agree. That has nothing to do with free trade... just as cracking down on the financial regulator´s outsourced risk surveyors, the credit rating agencies, and who by committing human errors that should have been expected by the regulators have now cost sophisticated victims thousand fold what Nigerian con artists might have cost their unsophisticated victims, should have nothing to do with free trade.
But the above also opens up a different set of questions like... does the professor’s “adult” mean “knowledgeable”... meaning that free trade applies only to trade between informed consumers...among Ralph Naders? Friends, where is this professor taking us? Could it be that it was not as much nit picking as initially thought?
Q. Why is life not simple and straightforward?
A. So that PhDs can also make a living, trading freely their grand definitions!
Posted by: Per Kurowski | Jun 14, 2008 4:45:40 AM
Is it a quibble to say that trade is an activity, not an environment? (A free market is an institutional envoronment etc.)
Posted by: largo | Jun 14, 2008 9:00:40 AM
PER --
I'm not sure what point you're trying to make with the reference to the mortgage meltdown. You seem to be saying that the credit rating agencies cost "sophisticated victims" a lot of money. I assume that the people you're talking about are the purchasers of mortgage-backed securities, not the homeowners.
For the large part, those purchasers did not depend on the credit rating agencies. Mortgage backed securities underwent a lot of due diligence, looking into exactly the mortgages that were pooled together. Purchasers knew, or had the opportunity to know, exactly what they were buying. If these securities had been registered and sold to the public, I would agree with you. But, they weren't.
Posted by: Chris | Jun 14, 2008 9:13:12 AM
P K,
Actually I sensed that you and I were basically on the same page and I thought my response made that obvious, I was really pointing the nit piking finger at the others.
Perhaps we weren't as close in thought as I thought my thoughts were thinking.
Posted by: vidyohs | Jun 14, 2008 10:02:27 AM
Ahhh back on familiar ground.
P K,
"Q. Why is life not simple and straightforward?
A. So that PhDs can also make a living, trading freely their grand definitions!
Posted by: Per Kurowski | Jun 14, 2008 4:45:40 AM"
Your answer is biased, prejudicial, judgmental, bigoted, envious, nasty, mean spirited, liberal, and unworthy of a guest. (wow, hows that?)
Q. Why is life not simple and straightforward?
You have two choices for the answer:
1. Christian: God has an unrevealed plan and he works in mysterious ways.
2. Secular: Mother Nature is nothing but random change.
From either of those two platforms we humans are subjected to dealing with complexity and learning flexibility.
Posted by: vidyohs | Jun 14, 2008 10:09:39 AM
"How much for your daughter? I can pay in cocaine."
Posted by: Rob Dawg | Jun 14, 2008 12:32:35 PM
I should also add that cracking down on Nigerian con artists doesn't require a regulatory scheme for trade. It requires some cooperation of general law enforcement between jurisdictions. I think that's the detail that PK misses in making a case for some bureaucrat in Washington reviewing each and every mortgage application. Which has nothing to do with free trade, BTW.
And if cracking down on so-called predatory lending makes credit less accessible to the 90+% of people who are credit worthy, you've failed.
Posted by: BoscoH | Jun 14, 2008 3:16:18 PM
For the large part, those purchasers did not depend on the credit rating agencies. Mortgage backed securities underwent a lot of due diligence, looking into exactly the mortgages that were pooled together. Purchasers knew, or had the opportunity to know, exactly what they were buying. If these securities had been registered and sold to the public, I would agree with you. But, they weren't.
Posted by: Chris | Jun 14, 2008
Sorry to say you are absolutely misinformed. It was the credit rating agencies, those appointed by the regulators survey the risks, that gave this securities AAA and with that wings to fly all over the world offering such a juicy bargain as “good returns with no risks” and so much did they fly that the first bank that went broke because of investing in those securities was a German bank that had never given a mortgage in Germany.
And now Merkel, the German Chancellor (and with the French doing the same) is even asking for a European credit rating agency so as to correct the bias that exists by which she must mean she wants European bias.
Posted by: Per Kurowski | Jun 14, 2008 7:01:18 PM
"And if cracking down on so-called predatory lending makes credit less accessible to the 90+% of people who are credit worthy, you've failed."
Posted by: BoscoH
You are right, in one sense, but please chew on the following:
Every creditor who at predatory lending rates has been able to show himself credit worthy is also evidencing that he should in fact not been charged those rates to begin with and that what he is doing is paying the cost of those creditors that confirmed they were not credit worthy... at least while paying those predatory interest rates.
Posted by: Per Kurowski | Jun 14, 2008 7:09:37 PM
Ridiculous Per. The so-called "predatory rates" of which you speak were the norm for the most credit worthy not 20 years ago. The problem comes down to payments, with people taking on bigger payments than they could afford over the term of their loans. If the rates for poor credit applicants were lower, the problem would have been worse by driving prices even higher. Even for the most strident critics of mortgage lenders, "predatory" has never had anything to do with rates. It's been about the terms (such as ARMs) and the attitude that foreclosure was part of the business model.
Posted by: BoscoH | Jun 15, 2008 1:10:21 AM
I am not given an opinion on whether the development it good or bad, but a couple of decades ago the interest rates applied were much more equal, for instance, 5 to 7%, and not like today, 4 to 13% and which all meant that before there were much more limits on the amounts that you could award a doubtful risk than now, when you have a lot of debtors paying higher rates to make up for the shortfall of others.
Posted by: Per Kurowski | Jun 15, 2008 8:51:46 AM
I loved your definition and found it useful but how about something pithier: "Free trade is when a trade doesn’t need the consent of anyone but the traders." More on http://elzr.com/posts/what-is-free-trade
Posted by: elzr | Jun 17, 2008 3:56:20 AM
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