George Ought To Help (video)

A great animation illustrating with great simplicity the true nature of the State.

George Ought To Help

Capitalism in One Lesson (video)

Nielsio's latest original video is one of the clearest short explanations I have seen of what capitalism is and how State intervention hampers the wealth-generating free market process. It also provides a wealth of useful links to video lectures that explain the points being made in more depth.

Capitalism in One Lesson

Trade is Made of Win (video)

Great new set of short videos presented by Prof. Art Carden.

Trade is Made of Win - Part 1: Wealth Creation



Trade is Made of Win - Part 2: Cooperation



Trade is Made of Win - Part 3: Conservation

Fifth Rejoinder to Eerlijke Handel on Fair Trade or Free Trade

This is my response to Eerlijke Handel's latest post in our discussion.

We seemed to be making progress in terms of agreeing on definitions Eerlijke, but your latest post seems to be several steps backwards. What is this new thing you’re talking about: “economic power”? How can it be misused (except by allying with political power)? What is “exploitation”? How can a voluntary trade possibly be exploitative? What is slavery? How can a voluntary relationship be called slavery?

I defined slavery very clearly in my post, and subsequently elaborated it in responses to you. Do you have difficulty distinguishing between coercive and voluntary? Do you think consentual sex and rape are the same thing? Do you think boxers commit the crime of assault against each other when they fight? Do you think you inviting me to your home is the same as me breaking into it?

Clearly, the most important ethical distinction between two types of trade is whether or not both parties consent to it (i.e. whether or not it’s a voluntary trade). There is no such thing as slavery or exploitation except where there is coercion, i.e. one party threatening another with violence or using violence to make him comply. Impoverished people working voluntarily are not being “exploited” by their employers, no matter how little they are paid; they are choosing to work because it’s the best option available to them right now; otherwise they would discontinue the relationship.

Regarding your criticisms of my method (especially the use of ceteris paribus, and how economic analysis relates to “the real world”), I encourage you to investigate the Austrian School of Economics. The Mises Institute has a wealth of resources on all sorts of topics, including the epistemology of economics. A discussion about epistemology (which would be necessary for me to convince you that my economic method is valid) is perhaps too far from our core topic here.

Regarding the success of Fairtrade, this is not a “flaw” in the market at all. Lots of people demand Fairtrade and the market delivers it; it is a market success. What do you think this proves? How is it relevant to my critique at all? It sounds like a circular argument: you are saying that lots of people demand Fairtrade therefore more people should demand Fairtrade. What I am saying is that no-one who has the end of helping the poorest people of the world should demand Fairtrade, because there are more effective means of achieving that end.

Fourth Rejoinder to Eerlijke Handel on Fair Trade or Free Trade

This is my response to Eerlijke Handel's latest post in our debate about Fair Trade.

I have asked questions, that you have not answered.
1. Did you supply proof that Fairtrade competes with other charities? Yes or No?

If you think my statement requires some kind of “proof” then you’ve misunderstood the nature of my statement. Fairtrade obviously competes with other charities, because all ways of spending my income compete with all other ways. This is a logical statement, evident just by thinking about the nature of human action in a world of scarcity. It cannot be falsified by any empirical evidence.

2. Is the 10p in your critique solely based on the one 2005 article by Harford? Yes or No?

That is the article I cited for my claim. I note that you have not provided any evidence that contradicts this, despite my asking you to do so. So I’ll ask again: are you claiming that a higher percentage of Fairtrade money reaches their desired recipients than Oxfam money reaches their desired recipients? If you are, please provide a source.

I have already given you many reasons why Fairtrade does not necessarily have to be more expensive than other branded products.(*)
(*) I have given many reasons why from an economical point of view Fairtrade does not necessarily have to be more expensive. Look at the past blogs.

Where? Are you referring to your hand-waving towards “economies of scale”, “better negotiation position”, “shorter supply chain”, “long term commitment”, etc? Because I have responded to all of these showing why they are red herrings. It seems like you are unable to respond to my scenario without invoking one of these concepts, which are not unique to Fairtrade in any way, and violate the ceteris paribus condition that must be maintained for economic analysis.

I will respond to each of the quotes you provide.

Tim Harford 2005:
“The truth is that fair trade coffee wholesalers could pay two, three or sometimes four times the market price for coffee in the developing world without adding anything noticeable to the production cost of a cappuccino.”

This particular quote doesn’t mention the final price, so it doesn’t support your claim at all. A few sentences earlier however, Harford says “the premium paid to the farmer should translate into a cost increase of less than a penny a cup,” so this supports my claim, not yours.

Oxfam:
“There are now so many Fairtrade products available in the UK market that it is misleading to suggest that a product is more expensive simply because it carries the Fairtrade label – indeed, because Fairtrade staples such as tea, coffee and sugar have become so popular through consumer demand, the economies of scale now possible mean that they are usually no more expensive than their non-Fairtrade equivalents."

This also supports my claim, because it gives “economies of scale” as a reason that the increased production cost does not translate into a higher final price. (In other words, it explicitly says that ceteris paribus has been violated, so the implicit message is that if ceteris paribus were maintained, the final price would be higher.)

I say well done to the Fairtrade organization if they’ve found a more efficient way of producing (by utilising economies of scale), but this is something any organization can do, so it is irrelevant to any economic analysis of the essence of the fair trade model. There is no necessary connection between Fairtrade and economies of scale. That examples can be found where the final price to the consumer is equal for Fairtrade vs. non-Fairtrade demonstrates only that in the real world, all things are not always equal, and the world is in a constant state of flux.

So the Oxfam quote does not refute my claim that ceteris paribus, Fairtrade products have a higher price than non-Fairtrade products.

Ben & Jerry’s:
“The retail price of Fair Trade coffee is usually within the same price range as other gourmet coffee. Consumers should expect to pay about the same price as regular organic coffee. The main reason coffee farmers earn a better income under Fair Trade is that the farmer cooperatives export directly to importers, cutting out various intermediaries who typically capture more of the profit.”

This is another example of the same thing. This time it is “cutting out various intermediaries” that has meant that ceteris paribus has been violated. Again, I applaud the Fairtrade organization if they’ve found a more efficient production process, but any other firm could do this too, so it is not the essence of Fairtrade and irrelevant for an economic analysis of the fair trade model.

So your new question is not in line with my argument:
“Convince me personally to start buying Fairtrade chocolate… slightly more expensive than a non-Fairtrade brand?” “I have tried the Fairtrade bar an it tastes the same to me.”


I will answer nonetheless:
• If the price and the quality is the same, you might want to give Fairtrade the benefit of the doubt.

The price is not the same in the scenario I am asking you about. Anyway, even if the price was the same, I would still buy the non-Fairtrade product, because buying the Fairtrade product would send the wrong signals to the market: investment would be directed away from the neediest areas. 

• If Fairtrade happens to be slightly more expensive than your favorite (alternative) branded product,
then you might want to ask yourself the question:


Where does the non-Fairtrade branding money end up?

Why are you bringing up branding again? I am trying to do economics here, and that means assuming Fairtrade and non-Fairtrade pay the same for branding. Why do you keep violating the ceteris paribus principle? Let’s stick to economics, please.

So what will happen if you decided for non-Fairtrade rather than Fairtrade (all relative)?
You save a penny. The non-Fairtrade company will earn more… Fairtrade will earn less and a poor farmer will be paid less.

That’s right. And of course the farmer that produces for the non-Fairtrade company will (ceteris paribus) be even poorer than the Fairtrade farmer (remember that absent Fairtrade certification, investor-entrepreneurs are attracted to the very poorest areas). So by buying non-Fairtrade I will be benefiting the very poorest farmers (e.g. in Ethiopia) at the expense of those less poor (e.g. in Mexico). And of course I can donate the penny saved to a direct charity as well if I wish.

You are of course free to keep buying Fairtrade if you wish, but be aware that you would be helping the world's poorest people more by avoiding Fairtrade and encouraging others to do so as well.