Economics Questions

Re: Free trade question

pairunoyd — Mon, 15 Dec 2008 18:21:19 GMT

What about the loss to foreign producers?

Re: Free trade question

Sage — Mon, 15 Dec 2008 17:56:25 GMT

Ok, I've realized that my question is this: why is protectionism a negative-sum game rather than merely a zero-sum game?

Prima facie it would seem that tariffs are a zero-sum game, because producers gain to the extent that consumers lose.

However, once you factor in the cost of tariff bureaucracy and the weakened division of labor, then tariffs are a negative-sum game; everyone is worse off.

Are there any other reasons?

Re: Free trade question

Jon Irenicus — Mon, 15 Dec 2008 09:32:55 GMT

I'm sure there are economists who get all wet over economic protectionism. That doesn't mean they're correct, of course, or not attacking windmills of their imagination's own artifice. Isn't Sanford Ikeda in favour of them, for instance? Incidentally, this is one area where Krugman is good.

Re: Free trade question

kiba — Mon, 15 Dec 2008 01:26:36 GMT

Danja:

liberty student:
And how have you measured the costs of protection? How many people paid too much for motorcycles, foreign and domestic? How many fewer motorcycles were sold under the tariffs?

By comparing the loss in import sales with the stock market value of the firm around the time the protection was lifted. Harley Davidson is a clear cut case for tariff protection.

Not to mention that around that time Harley Davidson made lousy, crappy motorcycles around that time and their Japanese competitors made better motorcycles. They were lucky that they managed to turn their business around.

You also just contradicts practically the entire economic profession. To date, I never ever heard of an economist, neoclassical and Austrians argued for traiffs. Rather, there is a consensus that free trade is a clear and unambigious benefit to the economy. You got a high wall to climb there.

Free trade is benefical by deduction from logic using the principle of comparative advantages. Let see if you can refute this.

Re: Free trade question

Jon Irenicus — Sun, 14 Dec 2008 23:48:49 GMT

That's not true if there are market distortions. Again, if there are learning externalities that aren't taken into the account of profit-loss calculations, that's inefficiency.

There is no such thing as a "learning externality". Toss the book of fairy tales you consider to be an economics textbook in the fireplace.

Re: Free trade question

Jon Irenicus — Sun, 14 Dec 2008 23:42:38 GMT

It only sounds like I'm trolling because I'm using your language. I certainly don't consider taxation to be theft.

Now consider yourself to be banned. Good riddance.

Re: Free trade question

Sage — Sun, 14 Dec 2008 23:12:34 GMT

Thanks for the hijack Danja. Great jorb on that one.

Getting back to the original topic, is the reason tariffs hurt consumers more than producers that companies will only outsource if the wage of the second best domestic job is higher than the foreign wage?

From here, p. 90:

"Let:
• W = aveage original wage of workers laid off
• w = average wage of laid off workers in 2nd best job
• N = number of outsourced workers
• f = average foreign wage
Thus:
• Total cost to US labor:
(w - W)N
• Total gain to shareholders:
(W - f)N
• What does the US gain overall? Capitalists only outsource if:
(W - f)N > (W - w)N
W - f > W - w
-f > -w
f < w
• This must be true, because if the 2nd best wage wasn't better than
the foreign wage, companies would just offer to reduce their
employees salaries."

Admittedly, this doesn't really have anything to do with consumers, so I wonder if it is the right answer...

Re: Free trade question

eliotn — Sun, 14 Dec 2008 04:06:47 GMT

Danja:
I don't think it really matters. This is an economics discussion.

Isn't taxation/properity rights a part of economics?

Danja:
Exactly. That's the nature of the private return being too low.

OK, whats the problem with that action not being undertaken? Hasen't the original actor benefited by doing another action instead of benefiting another with his action that created a positive externality.

Danja:

1. I'm not a scientist and neither are you, so it's not my place nor yours to prove or disprove global warming. From an economics perspective the relevant question is, if global warming is real what needs to be done about it?

2. How can one person stop global warming?

1. Good point.

2. Assuming global warming is real, will only one person want to stop it from affecting their property?

Re: Free trade question

Danja — Sun, 14 Dec 2008 01:07:45 GMT

liberty student:
What externalities? If Harley Davidson can't compete, then it is the source of misallocated labour and capital. That is the inefficiency.

That's not true if there are market distortions. Again, if there are learning externalities that aren't taken into the account of profit-loss calculations, that's inefficiency.

If:

Future profits - loss in consumer surplus = a positive amount, then the failure of Harley Davidson is inefficient. Allowing Harley Davidson to survive and copy Japanese production techniques, is the efficient solution

liberty student:

In both cases, you are ignoring the clear signals the market is sending, and choosing to intervene, which upsets the free market, and causes inefficiency and waste, thus hurting your precious public good, and undermining prosperity for rich and poor, but more for poor, because you are taxing cheaper goods in the marketplace.

Very little of what you have posted today is rational or consistent. Someone who cares about the poor, does not prop up inefficient business, by taxing low cost goods necessary for the prosperity of the lower class.

This particular discussion actually has nothing to do with the poor. Hypothetically, Harley Davidson could be owned by middle-class shareholders, and its consumer base could consist of wealthy collectors. I'm not familiar with motorcycles outside of the trade aspect, so this could be true or it might not be. If it's not true and it's the other way around, then it is a question of whether we should be hurting poor consumers to benefit rich producers. There are always lots of issues involved.

Re: Free trade question

Danja — Sun, 14 Dec 2008 01:01:44 GMT

eliotn:
OK, so we established that I cannot define it. What is your definition of this? Is that everyone's definition? If not, why should some people be allowed to say what is theft and what is not, while the opinions of others are not considered?

I don't think it really matters. This is an economics discussion.

eliotn:
And why isn't the activity undertaken? Because the person preforming the action does not benefit ex ante.

Exactly. That's the nature of the private return being too low.

eliotn:

1. Prove global warming.

2. If global warming has harmful effects to a person's properity, wouldn't that person strive to stop it?

1. I'm not a scientist and neither are you, so it's not my place nor yours to prove or disprove global warming. From an economics perspective the relevant question is, if global warming is real what needs to be done about it?

2. How can one person stop global warming?

Re: Free trade question

liberty student — Sun, 14 Dec 2008 01:01:12 GMT

Danja:
You're missing the point. It's not efficient. The externalities make it inefficient for Harley Davidson to go out of business. When private returns aren't the same as social returns, that's inefficiency.

What externalities? If Harley Davidson can't compete, then it is the source of misallocated labour and capital. That is the inefficiency.

You presume that without Harley Davidson, people will not be able to find profitable employment, or that Harley-Davidson is more important to the market, than consumers are willing to indicate with their purchasing power, and more profitable than capitalists are willing to invest.

In both cases, you are ignoring the clear signals the market is sending, and choosing to intervene, which upsets the free market, and causes inefficiency and waste, thus hurting your precious public good, and undermining prosperity for rich and poor, but more for poor, because you are taxing cheaper goods in the marketplace.

Very little of what you have posted today is rational or consistent. Someone who cares about the poor, does not prop up inefficient business, by taxing low cost goods necessary for the prosperity of the lower class.

Re: Free trade question

Danja — Sun, 14 Dec 2008 00:58:23 GMT

liberty student:
You're being dishonest with this statement, because you have no mechanism to measure the cost.

Nothing's ever perfect in economics, but we can measure the imports lost from the tariff. That's the loss in consumer welfare due to less output and higher prices. And you can get those numbers from the ITC.

By the way, I'm not saying tariffs are always a good idea. In fact, more often than not they aren't. There are usually better ways for the government to correct market distortions. And there are many cases where tariffs haven't worked at increasing efficiency. Computers in Brazil is a good example.

liberty student:
If someone demands your property under threat of violence, is that not the definition of theft?

I don't think the word theft properly describes taxation. It requires looking at the context under which taxation takes place.

Re: Free trade question

eliotn — Sun, 14 Dec 2008 00:51:19 GMT

Danja:
That sort of theft would induce dynamic consequences that would not help the social welfare. Now you're just being facetious.

OK, so we established that I cannot define it. What is your definition of this? Is that everyone's definition? If not, why should some people be allowed to say what is theft and what is not, while the opinions of others are not considered?

Danja:

They won't benefit if the activity is never undertaken because the externalities aren't taken into account

And why isn't the activity undertaken? Because the person preforming the action does not benefit ex ante.

Danja:
Global warming? Property rights don't solve everything. Not all externalities can be easily delineated.

1. Prove global warming.

2. If global warming has harmful effects to a person's properity, wouldn't that person strive to stop it?

Danja:
Refresh my memory. What would their argument be in the case of tariffs to protect young industries?

One sec. I will get their argument later.

Re: Free trade question

Danja — Sun, 14 Dec 2008 00:49:27 GMT

eliotn:
Ok, Harley Davidson goes out of business due to inefficiency, and more efficient businesses cater to what the consumers want. That makes the industry better in my book, since the rest of the companies cater to the buyer much better. On the other hand, it is worse if Harley Davidson is inefficient but sustained by a tariff. The tariff also involves *GASP* coercion.

You're missing the point. It's not efficient. The externalities make it inefficient for Harley Davidson to go out of business. When private returns aren't the same as social returns, that's inefficiency.

Re: Free trade question

Knight_of_BAAWA — Sun, 14 Dec 2008 00:46:48 GMT

Knight_of_BAAWA:
No it doesn't.

Danja:
Is voluntary consent going to stop global warming?

Manbearpig is real, donchaknow.

Knight_of_BAAWA:
Ok, now you're just trolling. Stop. This is a warning.

Danja:
The example is the one I just gave about Harley Davidson.

And that hurt consumers. There is no such thing as social welfare.

And it sounds like trolling because you are trolling. Please stop.