April 6, 2018

The limits of free markets

Defenders of capitalism, from libertarian free-traders to self-dealing globalists, are agog at the "protectionist" stance of President Trump vis-á-vis China. I see it as a damned if we do, damned if we don't, situation. But there are nuances that don't make the evening news, fake or otherwise.

Most ThreeSourcers are probably aware that China is the world leader in commercial supplies of rare earth metals, used in many of the world's high tech consumer and military products and systems. But why? I, for one, had believed it was a matter of geology and geography and the raw minerals were just preternaturally abundant in the People's Republic. Au contraire.

America's problem has never been a lack of rare earth deposits - it has plenty. The problem has been maintaining a domestic industry to mine the minerals and transform them into final components. For a while, Colorado-based Molycorp made a go of mining rare earths at Mountain Pass [a mine in California]. But it struggled to turn a profit, and eventually went bankrupt. In the middle of last year, a bankruptcy proceeding sold the mine to another China-involved consortium. The Chinese partner in the consortium, Shenghe, will have exclusive sales rights to the mined product for a period of time, according to sales documents.

That brings us up to date, and on to the final question: How do we fix things?

Free market types like to focus on environmental regulations. Mining rare earth metals is a nasty business, with a lot of chemical and radioactive byproducts. Properly disposing of that detritus is extremely costly, which makes mining rare earth metals for profit hard. In fact, regulators closed the Mountain Pass mine and fined it at one point for skirting the rules.

Of course, Molycorp was also badly damaged by the massive price swings brought on by China imposing and then ditching its export quotas.

But regardless, blaming the hippies for America's rare earth metal woes is doubling down on a bad strategy. Blinkered enthusiasm for free market solutions is how we lost domestic operations in the first place. Furthermore, China itself solved the environmental problem by just not caring, and created dystopian wastelands in the process.

The author goes on to draw analogy with nuclear power, and make a case for nationalization. One thing this "Randian" has come to understand is that there really are flaws in unbridled free-markets. Namely, that competing nations have enough money and little enough scruples to take over strategically important segments in toto. Or, stated differently, "The capitalists will sell us the rope to hang them with."

Dirty Hippies Economics and Markets Modern Marxism Posted by JohnGalt at April 6, 2018 3:05 PM

Yes, government must step in and manage trade. Because they are wiser than the individual citizens, and are driven by purer motives -- well, let's face it, they're just better people.

I've committed the broadest heresy in libertarianism by suggesting that the Bernakeist, 2% inflation-targeted monetary regime is not-the-best, but in the grand scheme of things really not the worst.

The best response to both of us is Milton Friedman's "where are you going to find these angels?" Public Choice theory says that they will be just as self-interested and Hayek has shown they will not have the knowledge required.

You like the current group, fine, but what about the policies of those appointed by President Elizabeth Warren and confirmed by Majority Leader Chuck Schumer?

I'll stick with "unfettered," thank-you, Silence, and thank you brother jg.

Posted by: jk at April 9, 2018 12:27 PM

Clearly it is a major departure for me to endorse government management of anything, but here is another question for both of us: Should the Pentagon be privatized as well?

I see international trade as a direct analogy to international military combat. Both are pursuits of warfare but with different weapons.

Posted by: johngalt at April 10, 2018 5:07 PM | What do you think? [2]