Reprinted from hartmannreport.com
Late last week Ryan Petersen, the CEO of Flexport, put together a truly fascinating twitter thread describing the massive bottleneck of containers at the Port of Long Beach, the nation's busiest.
"The ports of LA/Long Beach," he wrote, "are at a standstill. In a full 3 hour loop through the port complex, passing every single terminal, we saw less than a dozen containers get unloaded. There are hundreds of cranes. I counted only ~7 that were even operating and those that were seemed to be going pretty slow.
"It seems that everyone now agrees that the bottleneck is yard space at the container terminals. The terminals are simply overflowing with containers, which means they no longer have space to take in new containers either from ships or land. It's a true traffic jam."
While the immediate bottleneck problem had to do with too many containers and not enough land on which to handle and store them (particularly empty ones), it highlights an even larger problem that goes back to a major change in US trade policy in the 1980s, a part of Reagan's neoliberal revolution.
This issue of trade goes way, way back and it's important to understand its history if we're going to fix things here today. This is a longer read, but I promise it's worth it.
Shortly after George Washington was elected president, he tasked his Secretary of the Treasury, Alexander Hamilton, with figuring out how to turn America into an economic powerhouse that could compete with the giants of Europe. In 1791 Hamilton turned in his "Report on Manufactures," borrowing heavily from King Henry VII's "Tudor Plan" from the late 15th century.
Henry VII had transformed England from a provincial mud-streets, thatched-roofs backwater who's main product was wool into an industrial powerhouse by encouraging exports of finished goods while discouraging the import of any finished products that could be manufactured in England instead.
English traders could import raw materials to be transformed into finished goods in England's early factories with virtually no import/export taxes (they're called tariffs), and they could ship finished products out all over the world, again with no tariffs. Cheap raw materials came into the country, English workers were paid a good wage to convert them into expensive finished products, and those products were sold around the world.
The profit from converting raw materials into finished goods was shared between the English workers and the factory owners: it turned England in an economic powerhouse in a few generations.
On the flip side, Henry VII encouraged British manufacturing and profits by putting high tariffs on the export of raw materials that could be used by British factories and on the import of finished products from the rest of Europe that might compete with British-made goods.
British economist Adam Smith explained the process almost three hundred years later, in his 1776 book Wealth of Nations, when he noted that a tree limb lying on the ground is a raw material with little commercial value. But if a workman applied labor to that limb, turning it into an axe-handle, it now had value that would last for generations and become part of the "wealth of the nation."
Additionally, if that axe-handle were sold overseas that money would come back to England from the sale and would continue to have made England one axe-handle richer, to be a part of the "wealth" of England, even though it was sold overseas.
"By preferring the support of domestic to that of foreign industry," Smith wrote, "he [a British merchant] intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an Invisible Hand to promote an end which was no part of his intention."
It's the one single reference in Wealth of Nations to the "Invisible Hand," and was made in the context of the importance of a nation's businesspeople supporting their own country's manufactured goods rather than buying cheaper stuff from overseas.
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