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EconOptimisim

Does supporting trade a traitor make?

History seems to repeat itself often and in earnest, in spite of all of our attempts to know better.  Perhaps the reason is not that we haven’t adequately learned our lessons, but that, like any good student just trying to get through the next test, we have learned our lessons too literally.

The Treaty of Versailles provides a great “lesson learned” moment in history.  To my knowledge, western powers have never again signed a treaty to end a war where the terms of the treaty decimated the loser.  Since we all know that those terms crippled the German economy, which in turn inspired hatred and made fascism the most appealing political philosophy around, leaders, either implicitly or explicitly have successfully pledged, “never again.” But before we congratulate our leaders for honoring the self-imposed mandate, we must examine whether their policies result in similar consequences to the Treaty of Versailles.  If so, we can say a Treaty of Versailles by any other name will still smell rotten.

Consider policy towards Iran.  While some may cry “appeasement” on grounds that the United States has not invaded, on encouraged Israel to do so, the obvious historical allusion is hardly relevant.  Given that Russia, China, North Korea, Pakistan, India, Israel, and the United States all have nuclear bombs, such an argument implies that the world is over-run by Hitlers just waiting to make their move.  Rather than giving up Poland, it seems as though the United Nations continually adds stipulations to the Treaty of Versailles with increasing economic sanctions.

Trade increases the wealth of both trading parties- why else would both agree to the terms- and so limits to trade limits the total wealth available to society.  If one country, like Iran, is very and uniquely limited in its ability to trade, then all else equal, it will have a stymied ability to create wealth.  “All else equal” is important because that means equal in things like natural and human resources, rule of law, and government competence.  Such factors can add to a country’s ability to increase wealth and given that Iran is already so unequal on these terms as compared to the United States, the industrialized world, and some place in the developing world, the country begins with a handicap.

Trade, rather than aid, presents an empirically proven way to circumvent such a handicap, and yet that route is repeatedly closed.  A troubled economy leads to troubled people: those with full bellies or who can reasonably hope for full bellies in the future have little incentive to blow anyone up.  China may be flexing its muscles but it has yet to announce any intentions for war.

While some may find Ahmedinejad shocking, dangerous, and inflammatory, given his country’s economic present and foreseeable future, his rhetoric is really comparable to a prepared speech from an uninspiring politican: completely expected and devoid of new or interesting information.

Its much too simplistic to argue that Iran’s state is entirely that of their own making.  Such a claim ignores basic history ad the reality of path dependence: the past does not make an inevitable future but it does limit the available choices.  Just as Iran would have a more robust economy if it did not motivate sanctions against itself, the United States could likely mitigate enmity in the region by including Iran in the world’s future.  That such inclusion can come not from warm and fuzzy intentions but the cold, hard profit motive is a good thing: it makes inclusion more likely to work.

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