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March 31, 2016



"It is entirely possible to argue that the free market works in allocating jobs, but fails in determining the level of employment."

Yup. It's between those who think the free market magically provides things for people to do, and those of us who know it doesn't.

One in three workers are in the wrong job:



"It is insufficiently remarked that if we had sensible macroeconomic policy – not just in the UK but across Europe – then steel demand would be higher and the crisis less acute."

Correct partially.

The EU commission set the dumping tariff at about 13%.

That is the value the EU commission considers is sufficient to set Chinese steel on a competitive par with EU steel. Not anybody else - the EU commission.

So as far as the EU commission is concerned any problems in British steel manufacturing is down to the inability to compete in a global market.

It's very sad when an industry becomes completely obsolete. But we can't continue to prop up ancient industries just because of nostalgia.

We have none of the *right sort* of iron ore in the UK any more and we have no coal power plants near the mills. Virgin steel manufacture make no sense whatsoever - particularly in an EU context when there are plenty of steel mills across the EU that are much nearer the source of the ore and power. UK steel mills have been built to use imported ore for nearly a century.

The UK steel mills should be recyclers and formers - which is why the Rotherham plants are not really under threat.

There is excess steel capacity across the world. So somebody is going to lose their jobs somewhere. It's rather interesting that the whole EU/international solidarity thing goes right out the window once job losses are on the cards.

What we need to do is ensure that the workers from the obsolete steel works have another living wage job to go to. The failure of UK industrial policy is no alternative employment.

If you are a Europhile then the closure of Port Talbot is just part of the requirement to reduce output to meet demand. Because of course requiring a UK manufacturer to use British Steel rather than European Steel makes no more sense that requiring an English manufacturer to use English steel rather than Welsh steel.

Jonathan da Silva

What does conventional economics say? That the workers will use some comparative advantage and move to another industry?

I honestly think anyone who espouses that should go along to a meeting in the town and explain it. They need expert reassurance at this time that it's OK. #sarcasm #skepticism

Luis Enrique

Jonathan you don't have to venture very far into conventional economics to discover lots of reasons why finding new careers isn't easy.

Chris your point shows how support for austerity is a puzzle more generally, in the sense that if the ruling elite = capitalists, don't capitalist benefit from a stronger economy? So why the perception / reality that capitalists support Tory macro policy.

Dave Timoney

Luis, capitalists are competitive in the Gore Vidal sense: "It is not enough to succeed; others must fail". This makes them wary of growth that benefits others.

For example, an economy operating near to full employment will tend to bid up wages relative to profit, even if the latter increases in real terms.

Similarly, in a strong economy the government is less likely to be worried over the "confidence" levels of capitalists, thus reducing the latter's influence.

Luis Enrique


and that outweighs the benefits of owning more profitable businesses? I don't find that very convincing, you think business owners actually think "well a stronger economy would mean more profits, but actually I care more about others failing".

I am not saying there's nothing to what you suggest, but not very confident it's the complete explanation

Deviation From The Mean

"In fact, this was Keynes’ position:"

This of course is the fundamental problem with Keynes, i.e. production for productions sake. Doesn't matter what the job is just give someone a job, dig a hole even if the hole is not required.

This problem of Keynes only reflects a fundamental problem with capitalism, i.e. a consumer base that is passive, and doesn't ask serious questions about what gets produced. It is why we have no concept of efficient consumption, beyond capitalist cost cutting.

Tales of the mythical, fabled and Utopian free market is not the answer, the replacement of capitalism and everything it stands on is.

Most capitalists are natural born Tories or republicans etc and for good reason. They supported Blair because Blair was a Tory. Very few capitalists will ever look too far from beyond a very narrow definition of centre left (Blair/Clinton was as much as they would accept). But if the centre breaks the capitalist will generally look right and not left. The capitalists do this because they, even if economists can't see it, know that fundamentally they are in conflict with labour, and labour needs to be disciplined, both in and out of the workplace, and they can never take their eye off the ball in this regard.

Luis is, i think, a classic example of an economist?! who doesn't see this fundamental reality. But the people he arse licks do!

Luis Enrique

why don't you experiment with not being such a prick, see how you get on

gastro george

I'd agree with Chris here, I think the short termism of free marketeers is crass, and leads to excessive economic destruction. It was interesting listening to Mariana Mazzucato on Newsnight last night, talking about the static view that free marketeers take - "it's losing money, so it should close". No thought seems to be given to whether this is temporary, or due to particular circumstances - why should steel be viable 5 years ago, or in other European countries. This is reflected in the Tories and New Labour's lack of industrial strategy or policy. And given our national propensity for asset stripping, any temporary downturn becomes inevitably permanent.

Maybe steel is in long term decline, but let's manage this and have some kind of strategy, rather than leave it to those with the biggest knives.

Deviation From The Mean

Only if you stop brown nosing the rich and powerful Luis.


I have to disagree with Bob.

USA tariff set at 256% on steel.

And it is Britain that has been opposing the scrapping of the lesser-duty rule, which prevents higher tariffs in the EU.

How can you compete when 25% of a market gives you a scale monopoly and China has 50% of the steel market, and therefore determines the world steel price, with state aid and state subsidies allow the Chinese to dump steel on the world market.

Are we going to fold in the face of mercantilist polices by Germany and China etc, if so we will have no industry at all, specialty chemicals been lost to the middle east.


"A report by the Economic Policy Institute concludes that unilateral MES status for China would endanger 3.5m jobs in EU industry by limiting anti-dumping tariffs. Almost all the EU's 350,000 steel jobs would be a risk.

If this is correct, and if allowed to run its course, Europe would be finished as an industrial and military region. It would be civilisational suicide."

Import substitution saves foreign currency which we cannot print.

A civilisational suicide pact with the E.U. - sounds about right, what with TTIP, the Free marketeers are truly dangerous and deluded.

Yes we should nationalise steel to preserve a sovereign capacity including for defense, and avoid the social consequences.
Of course the eight million people in London are all that matters, not the zero hours contracts that would replace steel jobs in the rest of the country.


"And it is Britain that has been opposing the scrapping of the lesser-duty rule, which prevents higher tariffs in the EU."

The EU has been pushing to get more powers transferred to the EU trade directorate. Which it doesn't need.

The EU commission can alter the anti-dumping tariff as it sees fit, and that will then get applied using the "lesser duty" rule.

Again the question is why they haven't simply increased the 13% rather than pushing ahead with more power transfer to Brussels.


The issue is on of the 'lesser duty' rule - part of *the WTO*. The EU trade directorate wanted more powers so it can work around that rule:


"Article 9 establishes the general principle that imposition of anti-dumping duties is optional, even if all the requirements for imposition have been met, and establishes the desirability of application a “lesser duty” rule. Under a lesser duty rule, authorities impose duties at a level lower than the margin of dumping but adequate to remove injury. Article 9.3 establishes that anti-dumping duties may not exceed the dumping margin calculated during the investigation. In order to ensure that anti-dumping duties in excess of the margin of dumping are not collected, Article 9.3 requires procedures for determination of the actual amount of duty owed, or refund of excess duties paid, depending on the duty assessment system of a Member, normally within 12 months of a request, and in no case more than 18 months. Article 9.4 establishes rules for calculating the amount of duties to be imposed on exporters not individually examined during the investigation. Article 9.5 provides for expedited reviews to calculate individual margins of dumping for exporters or producers newly entering the market of the importing Member."

The power to impose a higher tariff already sits with the EU commission! It's just a power grab.


I must admit I am not familiar with the details surrounding the Lesser Duty rule.

But I am aware that the Tories supported 'Market Economy Status' (MES) for China which would limit tariffs, so the Tories have form, not to mention their inaction on previous occasions and Sajid Javid attitudes are very Thatcherite.

Previous Ambrose Evans-Pritchard article in the Telegraph.

"While Washington has slapped penalties of 267pc on Chinese cold-rolled steel, the EU peashooter has so far managed just 13pc.

Redcar has already paid the price for this ultra-free trade ideology, and Port Talbot is about to follow. There will eventually be little left if the current drift in trade policy is allowed to continue."

gastro george

Sorry to hark back to Newsnight again, but it was amusing to see Paul Mason last night essentially hurling abuse at Javid for being an ideological do-nothing.

Also interesting to see that the Tories put up Ken Clarke in a repeat of his recent avuncular budget defence - nothing to see here, everything is for the best, fruit and jelly for everybody.


I have found the following document in Google.
In two pages (pdf) it outlines the issue with the lesser duty rule. It is dated 2013, before the commission wanted to change the lesser duty rule in 2006.


The lesser duty is limited to the injury margin rather than the dumping margin.

How they calculate an injury margin of only 13% is beyond me.

If it is a power grab by the commission, it is a power grab against countries engaging in unfair trade practices (subsidies/loans etc) and is a WTO-plus requirement.

The lesser duty rule, is not much of a bargaining tool unless you are prepared to abandon the lesser duty rule if required.

What China is doing is predatory and political.


"If it is a power grab by the commission, it is a power grab against countries engaging in unfair trade practices (subsidies/loans etc) and is a WTO-plus requirement."

Steel would just be the first in a long list of goods that would end up getting clobbered with higher tariffs. First steel. The next German clog manufacturers.

The EU commission already has the power to lift the tariff if it wants to. Do a recalculation. There are plenty of 'injury' reports on its desk. And it can do it retrospectively.


German Clogs are a big issue ...
But if China wants to monopolise manufacturing, we should just roll over?

Trade Deficit at 7% largest since 1772.

You will appreciate that this is the real issue.

The lunatics are in charge of the asylum.


"You will appreciate that this is the real issue."

It's not. In a floating rate system that can only occur if foreigners are saving in Sterling. Otherwise the currency moves to eliminate the differential.

So there is no imbalance. Just out of date economists who can't see Sterling savings and insurance as a product the UK sells to other countries.

It's hardly surprising there is such a high level of foreign savings in Sterling. Everywhere else is on its backside.

It would help if economists stopped using a country's borders as the limit of its currency's influence.

Free capital movement has been a reality for 40years. There is little difference in a modern world between somebody saving in Sterling in Glasgow, Scotland, or Glasgow, Ontario.

The number of people holding Sterling, the amount they hold and their geographic distribution changes day-to-day. The Sterling currency area is dynamic and larger than the UK geographic area.

Yet economists analysis techniques still function like it is the 19th century.


When exporters export to excess (i.e. beyond what they buy back in imports) then they cease to be exporting in any generally understood sense. In reality they have started to *import demand*. And that is what a net import nation is selling - demand to a wider world that is short of demand due to export led policies. Since demand is in short supply, it is valuable in its own right.

Excess exporters simply take foreign currency, discount or swap it for their domestic currency in some way and then figuratively chuck the foreign currency in the back of a drawer - pretty much like most of us do after a foreign holiday. The whole process is in fact a way of injecting domestic currency into the excess exporters economy, but they have a foreign currency asset to make the books look better. It's that simple - and that stupid.

"The lunatics are in charge of the asylum."

Indeed this is the problem. The feedback into the import economy from export led countries is the same as any saving. A reduction in domestic flow that has to be accommodated or you get a paradox of thrift. That is *rarely done* due to neo-classical beliefs. But you can't use economies that are operating under neo-classical rules and have failed to support their economy as an argument against floating rate systems. That's like blaming the aircraft for crashing when the person piloting didn't know how the controls worked.


The drawer is only so big, then they come for UK assets. Like Thames Water, Hinkly Point, Fibre optic companies.

We then pay rents to the Chinese for water and electricity, and performing research where the Chinese are the beneficial owners.

To a greater or lesser degree we become 'owned' by the Chinese, and as we import without sufficient exports, the pound will fall pushing up the price of imports like Steel.

Of course we might well see the sale of Tata Steel to a Chinese company, if it doesn't close, or the Chinese close it, the irony ...

Short-term trade balances may be absorbed by currency adjustments, but a demand only economy will be owned by other countries in the long term (when we are dead).


"then they come for UK assets. Like Thames Water, Hinkly Point, Fibre optic companies.

We then pay rents to the Chinese for water and electricity, and performing research where the Chinese are the beneficial owners.

To a greater or lesser degree we become 'owned' by the Chinese, and as we import without sufficient exports, the pound will fall pushing up the price of imports like Steel."

Really? Why do you think that? Who are "they"?

These attitudes have to be formed from somewhere. Maybe it is in 'stab in the back' racist cartoons like this one:



'They' are the people with surpluses of sterling.

The Chinese are the most obvious, and all the traffic is one way, look at our trade deficits or try buying Chinese assets.

I don't see why it is racist to identify the main counter-party in unbalanced trade, and mercantilism which would also include Germany and Japan.

The source of these attitudes is more like J. M. Keynes, who wanted balanced world trade and the Bancore.


The purpose is to balance world trade between nations, and maintain the balance.

A suggestion of racism, helps no-one.



"The Chinese ministry of commerce said in a terse statement that it was slapping anti-dumping tariffs of 14.4pc to 46.3pc on companies from the EU, South Korea, and Japan, claiming that China had suffered "substantial damage" from trade abuses."

""If this is not a trade war, I don’t know what is," said Gareth Stace, director of UK Steel. "We’re literally drowning in a flood of Chinese imports globally. We’re certainly not seeing a flood of European steel into China.""

"China’s share of global steel output has risen from 10pc to 50pc over the last twelve years, with the single province of Hebei now producing twenty times as much as Britain. China’s excess capacity 400m tonnes, double the size of the entire EU steel industry."


Isn't there something slightly wrong with the idea of arguing for "less austerity" (is there really much austerity by historic standards?) to ameliorate a problem largely caused by massive lack of austerity in China?

As if government-mandated aggregate demand would be great over here, though it's clearly caused enormous waste and over-capacity over there.

I know it's not strictly comparable - a general fiscal stimulus is not "Build a dozen steel mills here" order from the CPC, but it is still a government-mandated and planned injection of demand.

Keyne's problem with the final million unoccupied men is worse than them having nothing to do - it is that we don't *know* what they should best be doing. Neither the government nor the market. And this makes it very likely that any action taken to get them moving will create a good deal of waste.

It would be nice to think of the state as the market participant with the longest investment horizon, and therefore capable of taking a stab at employing some of these people. Unfortunately, the investment horizon of the state seems to be about 4-5 years. In China too.



"Pisano and Shih write: "The decline of manufacturing in a region sets off a chain reaction. Once manufacturing is outsourced, process-engineering expertise can’t be maintained, since it depends on daily interactions with manufacturing. Without process-engineering capabilities, companies find it increasingly difficult to conduct advanced research on next-generation process technologies. Without the ability to develop such new processes, they find they can no longer develop new products. In the long term, then, an economy that lacks an infrastructure for advanced process engineering and manufacturing will lose its ability to innovate."

Pisano and Shih have a frighteningly long list of industries that are "already lost" to the USA, including: compact fluorescent lighting; LCDs for monitors, TVs and handheld devices like mobile phones; electrophoretic displays; lithium ion, lithium polymer and NiMH batteries; advanced rechargeable batteries for hybrid vehicles; crystalline and polycrystalline silicon solar cells, inverters and power semiconductors for solar panels; desktop, notebook and netbook PCs; low-end servers; hard-disk drives; consumer networking gear such as routers, access points, and home set-top boxes; advanced composite used in sporting goods and other consumer gear; advanced ceramics and integrated circuit packaging.

The list of industries "at risk" is even longer and more worrisome."


For a free market to evolve we need to lose borders and economic politicians. For this to occur we need to be the human race on plane Earth.

Of course, with asteroid mining we would need to ensure we maintained steel production on earth. Can't let the uppity Martian and Titan economies get one over on old earth.

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