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Old 06-29-2011, 12:48 PM   #21
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I wonder, if you adjust for purchasing power parity, if that is accurate. For example, if my USD has decreased in value by 20% but the things I am buying have decreased in price by 30%, am I (or is the country I live in) poorer?
I suppose it depends upon how broad a perspective you take.

If you assume that we live in JasonC's hypothetical agrarian utopia, which is essentially a closed society with no links to the world beyond the next town, then no, it wouldn't really matter. I may be getting paid 30% less, but we can assume that the price of hookers and bread has also decreased by 30%.

Of course, in order for this relative devaluation to have occurred at all, we must by definition be involved in foreign trade. In that case, a devaluation of our currency relative to that of other countries most certainly makes us poorer. Because the cost of imported goods does not fall, it rises.

Take something simple like a car imported from Japan. At today's valuation, I can buy that car for $20,000. To account for things like dealer margin, domestic transportation costs, etc., we'll say that 30% of what I pay for the car goes to US-based companies and 70% goes to the manufacturer. 70% of $20k is $14k, which is about ¥1,130,000.

So now, let's devalue the dollar. We'll say that it drops by 20% across the board. Now, it's actually not realistic to expect that everybody in the US has taken a 20% pay cut. Devaluation decreases the value of the currency I hold relative to the world market, it does not increase the quantity of the currency that I hold.

But just to illustrate how dramatic this effect is, I'll go ahead and grant you a 20% reduction in the number of absolute dollars paid to the dealer, the trucking company that carried the car to the dealer from the dock, etc., So their piece of the pie drops from $6k (30% of $20k) to $4.8k.

However, the Japs still want their ¥1,130,000, and because of the new exchange rate, it now takes $17,500 to equal the same number of yen that $14,000 equaled before. So the new total purchase price of the car is now $22,300. And remember, I gave you a handwave on the domestic portion of the transaction. In reality, the dealer's costs aren't dropping, and the trucking company is probably going to charge more, because the price of diesel has gone up. So in the real world, that car is going to cost more along the lines of $23,500.

So, yeah, currency devaluation makes you poorer. Doesn't matter whether it's cars, oil, photovoltaic cells, good cheese... Anything that we buy from another country costs more in absolute dollars.


And, of course, this ignores the psychological aspect of the problem. What do you think is going to happen to "the market" (the broad collection of stock, bond, commodity, etc., exchanges) on word that the US dollar has fallen? Well, large investors are kind of ********, so they'll probably do what they what they always do and flee the various domestic markets, causing the sort of ripple-effects that we've been living with for the past three years. Confidence will drop, lending will decrease, employers will tighten their belts and cut back on staffing, etc.

There's no upside.


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The Chinese, over that same time, saw an increase of almost 67%. That means they went from ~1.5 b/y to ~2.5 b/y per capita. That's a tremendous rate of change, but it seems less significant on an absolute basis (per capita, not in aggregate).
Yup. And the rate of change is not linear- it's more along the lines of an exponential curve.



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What we may be seeing is an acceleration of global rebalancing due to the spread of technology and more economies moving to market-biased models.
From a purely egalitarian point of view, you are absolutely correct. Given the current spread of technology, education, research and innovation, the US should probably "loose value" relative to a number of Asian countries (India, Korea, Taiwan, etc.)

But it's not the job of the US Government to make that happen. Their job is to make the US as rich and prosperous as possible. It's not a particularly altruistic attitude, but it's reality.
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Old 06-29-2011, 02:13 PM   #22
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Of course, in order for this relative devaluation to have occurred at all, we must by definition be involved in foreign trade. In that case, a devaluation of our currency relative to that of other countries most certainly makes us poorer. Because the cost of imported goods does not fall, it rises.
See, I am not so sure this is true. Granted, I also don't have the time or resources to provide counter-point evidence... I liken it to hedonics. If you compare Imported Product at point A versus Imported Product at point B (which occurs after USD devaluation), then you are correct. The Imported Product costs more.

However, if you compare domestically-sourced product to foreign-sourced product, that may not be accurate. Due to lower labor/regulatory/liability/legal/etc costs, the manufacturer may be able to produce the same product and then import it to sell cheaper than if it was locally sourced. Specifically, at a price which has been reduced at a rate greater than the devaluation.

Said another way, Hustler makes $100k and a locally sourced Fleshlight at time A costs $100. The dollar then devalues 20% but due to competition, the Fleshlight is outsourced and prices fall 30%.

At time B, Hustler makes the equivalent of $80k but his Fleshlight now only costs him $70. Adjusted for purchasing power (in this obviously isolated hypothetical), he may now actually be better off.

At the same time, the devalued USD has made Brain's Libertarian Lovedoll cheaper to overseas customers, increasing his exports.


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But it's not the job of the US Government to make that happen. Their job is to make the US as rich and prosperous as possible. It's not a particularly altruistic attitude, but it's reality.
I agree, but it may be worth considering a "big picture" perspective. That is, the faster and larger the emerging middle class grows, the more consumers there are for US companies to sell to. Consider some of the great US-founded companies and where the majority of their revenue now comes from.

Likewise, the faster that middle class grows and develops - and gets their hands on technology that "shrinks the globe" - the faster their income increases, the more they consume and the faster US wages reach closer to parity with others.

In theory.
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Old 06-29-2011, 02:42 PM   #23
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IF Joe becomes president, will he fund MT.net?




Will he re-innovate Amtrak? Will he give more cash to already incredibly wealthy corporations that have no problems making it on their own? Will he lift the ****** censor?
I don't know, but I don't think he'd try to **** on the oppositions every point, pointing out what he sees as errors and addressing them as through a biased, view in hindsight.
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Old 06-29-2011, 02:51 PM   #24
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So let me get this straight. Hussein can hold shares of GM, GM can come out today advocating and support E15 fuel, and we are not supposed to see the link between the UAW, ethanol subsidies, and energy policy?
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Old 06-29-2011, 03:17 PM   #25
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I don't know, but I don't think he'd try to **** on the oppositions every point, pointing out what he sees as errors and addressing them as through a biased, view in hindsight.
Then he can probably see that government funded "innovation" to select lucky multi-billion dollar companies is nothign more than parasitism, favoritism, corruption, and greed for the unearned.

And that “public interest” legislation comes down ultimately to the grant of an undefined, undefinable, non-objective, arbitrary power to some government officials.


Let talk about railroad. As Joe pointed out airlines having to do crap to stay afloat. Airlines operate with something around 2% of gov't subsidies.

Amtrak on the other hand...

Amtrak accounts for less than one half of 1 percent of all interstate passenger travel, and 40 percent of that travel occurs in the Northeast Corridor (NEC). Only .001% of Amtrack customers are from rural areas (airlines reach 89%). Amtrak as a whole represents just .007 percent of all daily commuter trips and just 0.4 percent of all intercity trips.

With that said the average taxpayer subsidy per Amtrak rider is ~$100. All of Amtrak's long-distance routes lose money.

But this figure doesn't adequately express how hugely inefficient the trains are run at. The New York to Los Angeles train loses $1,000 per ticket.

It would be cheaper for taxpayers to shut down Amtrak and purchase discount round-trip airfare for all Amtrak riders.

And yet in 2010, Amtrak received $563 million in operating subsidies and $1 billion in capital and debt service grants. The American Recovery and Reinvestment Act of 2009 pumped an additional $1.3 billion in capital grants into Amtrak.
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Old 06-29-2011, 03:39 PM   #26
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Then he can probably see that government funded "innovation" to select lucky multi-billion dollar companies is nothign more than parasitism, favoritism, corruption, and greed for the unearned.

And that “public interest” legislation comes down ultimately to the grant of an undefined, undefinable, non-objective, arbitrary power to some government officials.


Let talk about railroad. As Joe pointed out airlines having to do crap to stay afloat. Airlines operate with something around 2% of gov't subsidies.

Amtrak on the other hand...

Amtrak accounts for less than one half of 1 percent of all interstate passenger travel, and 40 percent of that travel occurs in the Northeast Corridor (NEC). Only .001% of Amtrack customers are from rural areas (airlines reach 89%). Amtrak as a whole represents just .007 percent of all daily commuter trips and just 0.4 percent of all intercity trips.

With that said the average taxpayer subsidy per Amtrak rider is ~$100. All of Amtrak's long-distance routes lose money.

But this figure doesn't adequately express how hugely inefficient the trains are run at. The New York to Los Angeles train loses $1,000 per ticket.

It would be cheaper for taxpayers to shut down Amtrak and purchase discount round-trip airfare for all Amtrak riders.

And yet in 2010, Amtrak received $563 million in operating subsidies and $1 billion in capital and debt service grants. The American Recovery and Reinvestment Act of 2009 pumped an additional $1.3 billion in capital grants into Amtrak.
Why not just run trains on routs like the NEC, and maybe even cut most sleeper cars? Sleeper cars carry far fewer people then "coach" cars, not to mention the car with all the easy chairs and skylight that people would sit in to read or whatever, but didn't serve a purpose as far as getting people from A to B. If some of these things where cut, and some routs where cut, I think the amount of cash being pumped into Amtrac could be cut, without killing Amtrac all together.

BUT

I can see the argument that most trains routs aren't that necessary, and since we are economically in between a rock and a hard place, things that aren't so necessary have go. So I see your point

BUT BUT, how much did we give the airlines in the early 2000's? I'm not trying to make a political point, just curious as to the plain to train spending ratio.
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Old 06-29-2011, 04:07 PM   #27
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When the gov't "bailed out" the airlines in 2001, the Air Transport Stabilization Board issued $1.6 billion worth of guaranteed loans, and by the time that debt was retired, the board had earned a $300 million profit for taxpayers.

When the Gov't starts simply handing out cash it tends to take a miracle for it to stop. Its solution to a problem is throwing more money at it. Instead of stopping Amtrak service, it's now investing in building high-speed rails. I'm sure it will continue to fund Amtrak while competing with them for service for a slightly faster more expensive higher dollar lost averaged ticket.

Also, why did the gov't pick those 10 companies to "invest in" over 10 others?

Does this mean those 10 companies can set prices and production policies independent of the rest of the economy? Because that's what most of gov't does.
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Old 06-29-2011, 04:52 PM   #28
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As someone who competes directly with Caterpillar on machinery sales for my livelihood, I am very happy that my confiscated tax dollars are going directly toward putting me out of work. Thanks, selective illegal giveaways! Obama is so ******* awesome! I love that cocky socialist ************! Isn't he great!

I know I'm looking forward to my financial de-development as mentioned in the article and I'm absolutely certain that my subsequent ideological re-education camp visit will be amazing. Woohoo! Mutherfucking woohoo!
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Old 06-29-2011, 04:59 PM   #29
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Every government interference in the economy consists of giving an unearned benefit, extorted by force, to some men at the expense of others.

Looks like you got the short stick.
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Old 06-29-2011, 05:23 PM   #30
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Looks like you got the short stick.
It doesn't help me to feel better by having you call my stick short.
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Old 06-29-2011, 05:24 PM   #31
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Every government interference in the economy consists of giving an unearned benefit, extorted by force, to some men at the expense of others.

Looks like you got the short stick.
I don't understand what this administration is thinking. How is this a good idea or remotely fair to any competitor?
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Old 06-29-2011, 05:37 PM   #32
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"the common good"
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Old 06-29-2011, 10:14 PM   #33
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If you assume that we live in JasonC's hypothetical agrarian utopia, which is essentially a closed society with no links to the world beyond the next town,
??? I espouse free trade with all nations. If a company in my town wants to buy bolts from Who Flung Dung Enterprises in China, and buy nuts from Praise Allah Nuts in Riyadh, they should be free to do it, without any tariffs/taxes by the US Gov't.

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... it's not the job of the US Government to make that happen. Their job is to make the US as rich and prosperous as possible.
The way to do that is with liberalized trade.
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Old 06-29-2011, 10:16 PM   #34
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Old 06-30-2011, 01:09 AM   #35
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The way to do that is with liberalized trade.
How does permitting the nearly unrestricted tariff-free importation of goods from countries which severely limit our ability to export goods to them in return further the goal of protecting the economic wealth of the US?



I'm serious, this isn't a rhetorical question. What is your rationale for how that is supposed to be a Good Thing™?



I'll give you a specific example of what I'm talking about. The company which I principally work with, Harris PR&E, manufactures high-end audio consoles for radio broadcast stations. By "high-end", I mean that our cheapest 8 channel console is about $5,500, and you can easily spend $30-$40,000 on a fully-loaded RMX with all the goodies.

Our recently released "cheap" console (the Oasis) was designed largely with the export market in mind. South America, the middle east and Asia, mostly. Over the past several years, we've sold large projects, mostly to state-owned operations, in France, Taiwan, South Korea, Nigeria, Botswana, Iraq (courtesy of a Virginia-based entity whose true identity is still unknown to me), South Africa, and we're about to deliver a massive 80 studio order to Turkmenistan. In other words, we are a net exporter of product. More money flows into the US than out of it as a result of our business.

Unfortunately, we've come to learn that in order to sell our consoles in China (a very lucrative market), we have to build them in China.

Now, we just don't do that.

We obviously have to purchase some low-level components from US-based companies who do their fabrication overseas (semiconductors and connectors, mainly), however we do 100% of our manufacturing right here in the USA. We "outsource" circuit board fabrication, plastic and rubber molding, aluminum extrusion, and polycarbonate forming to various US-based specialty companies, and we do all of the wiring, sheet-metal fab, CNC machining, welding, painting, powdercoating, silkscreening, final assembly and documentation printing & binding in-house at our division HQ factory in Quincy, IL.

But China has decided that if we want them to buy our products, we have to set up a manufacturing line in their country, operated by their people, to build our products.

And we're ******* doing it.

So now, instead of employing workers in the US to build products out of subassemblies manufactured in the US in buildings located in (and paying taxes to) the US, we have to do about 50% of the manufacturing (including final assembly and test) in ******* China. So all that money which would have otherwise been flowing into the US and being added to our GDP will instead be remaining in a foreign country.



And that's a Good Thing™? I seriously need for you to explain how, because I don't get it. And don't just post a link to an article written by some narrow-minded philosopher. I need for you to articulate this in your own words if I'm to take it seriously.
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Old 06-30-2011, 02:23 AM   #36
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I can't explain it as well as Harry Hazlitt can.

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Chapter Eleven


WHO'S "PROTECTED" BY TARIFFS?

A mere recital of the economic policies of governments all over the world is calculated to cause any serious student of economics to throw up his hands in despair. What possiblepoint can there he, he is likely to ask, in discussing refinements and advances in economic theory, when popular thought and the actual policies of governments, certainly in everything connected with international relations, have not yet caught up with Adam Smith? For present-day tariff and trade policies are not only as had as those in the seventeenth and eighteenth centuries, hut incomparably worse. The real reasons for those tariffs and other trade harriers are the same, and the pretended reasons are also the same.

In the century and three-quarters since The Wealth of Nations appeared, the case for free trade has been stated thousands of times, hut perhaps never with more direct simplicity and force than it was stated in that volume. In general Smith rested his case on one fundamental proposition: "In every country it always is and must he the interest of the great body of the people to buy whatever they want of those who sell it cheapest." "The proposition is so very manifest," Smith continued, "that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind."

From another point of view, free trade was considered as one aspect of the specialization of labor:

It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, hut buys them of the shoe maker. The shoemaker does not attempt to make his own clothes, hut employs a tailor. The farmer attempts to make neither the one nor the other, hut employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbors, and to with a part of its produce, or what is the same thing, with the price of a part of it, whatever else they have occasion for. What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.

But what ever led people to suppose that what was prudence in the conduct of every private family could be folly in that of a great kingdom? It was a whole network of fallacies, out of which mankind has still been unable to cut its way. And the chief of them was the central fallacy with which this book is concerned. It was that of considering merely the immediate effects of a tariff on special groups, and neglecting to consider its long-run effects on the whole community.
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Old 06-30-2011, 02:23 AM   #37
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An American manufacturer of woolen sweaters goes to Congress or to the State Department and tells the committee or officials concerned that it would be a national disaster for them to remove or reduce the tariff on British sweaters. He now sells his sweaters for $15 each, but English manufacturers could sell here sweaters of the same quality for $10. A duty of $5, therefore, is needed to keep him in business. He is not thinking of himself, of course, but of the thousand men and women he employs, and of the people to whom their spending in turn gives employment. Throw them out of work, and you create unemployment and a fall in purchasing power, which would spread in ever-widening circles. And if he can prove that he really would be forced out of business if the tariff were removed or reduced, his argument against that action is regarded by Congress as conclusive.
But the fallacy comes from looking merely at this manufacturer and his employees, or merely at the American sweater industry. It comes from noticing only the results that are immediately seen, and neglecting the results that are not seen because they are prevented from coming into existence.

The lobbyists for tariff protection are continually putting forward arguments that are not factually correct. But let us assume that the facts in this case are precisely as the sweater manufacturer has stated them. Let us assume that a tariff of $5 a sweater is necessary for him to stay in business and provide employment at sweater-making for his workers.

We have deliberately chosen the most unfavorable example of any for the removal of a tariff. We have not taken an argument for the imposition of a new tariff in order to bring a new industry into existence, but an argument for the retention of a tariff that has already brought an industry into existence, and cannot be repealed without hurting somebody.

The tariff is repealed; the manufacturer goes out of business; a thousand workers are laid off; the particular tradesmen whom they patronized are hurt. This is the immediate result that is seen. But there are also results which, while much more difficult to trace, are no less immediate and no less real. For now sweaters that formerly cost $15 apiece can be bought for $10. Consumers can now buy the same quality of sweater for less money, or a much better one for the same money. If they buy the same quality of sweater, they not only get the sweater, but they have $5 left over, which they would not have had under the previous conditions, to buy something else. With the $10 that they pay for the imported sweater they help employment-as the American manufacturer no doubt predicted-in the sweater industry in England . With the $5 left over they help employment in any number of other industries in the United States .

But the results do not end there. By buying English sweaters they furnish the English with dollars to buy American goods here. This, in fact (if I may here disregard such complications as multilateral exchange, loans, credits, gold movements, etc. which do not alter the end result) is the only way in which the British can eventually make use of these dollars. Because we have permitted the British to sell more to us, they are now able to buy more from us. They are, in fact, eventually forced to buy more from us if their dollar balances are not to remain perpetually unused. So, as a result of letting in more British goods, we must export more American goods. And though fewer people are now employed in the American sweater industry, more people are employed and much more efficiently employed-in, say, the American automobile or washing-machine business. American employment on net balance has not gone down, but American and British production on net balance has gone up. Labor in each country is more fully employed in doing just those things that it does best, instead of being forced to do things that it does inefficiently or badly. Consumers in both countries are better off. They are able to buy what they want where they can get it cheapest. American consumers are better provided with sweaters, and British consumers are better provided with motor cars and washing machines.

Now let us look at the matter the other way round, and see the effect of imposing a tariff in the first place. Suppose that there had been no tariff on foreign knit goods, that Americans were accustomed to buying foreign sweaters without duty, and that the argument were then put forward that we could bring a sweater industry into existence by imposing a duty of $5 on sweaters.

There would be nothing logically wrong with this argument so far as it went. The cost of British sweaters to the American consumer might thereby be forced so high that American manufacturers would find it profitable to enter the sweater business. But American consumers would be forced to subsidize this industry. On every American sweater they bought they would be forced in effect to pay a tax of $5 which would be collected from them in a higher price by the new sweater industry.

Americans would be employed in a sweater industry who had not previously been employed in a sweater industry. That much is true. But there would be no net addition to the country's industry or the country's employment. Because the American consumer had to pay $5 , more for the same quality of sweater he would have just that much less left over to buy anything else. He would have to reduce his expenditures by $5 somewhere else. In order that one industry might grow or come into existence, a hundred other industries would have to shrink. In order that 20,000 persons might he employed in a sweater industry, 20,000 fewer persons would be employed elsewhere.

But the new industry would be visible. The number of its employees, the capital invested in it, the market value of its product in terms of dollars, could be easily counted. The neighbors could see the sweater workers going to and from the factory every day. The results would be palpable and direct. But the shrinkage of a hundred other industries, the loss of 20,000 other jobs somewhere else, would not be so easily noticed. It would he impossible for even the cleverest statistician to know precisely what the incidence of the loss of other jobs had beenprecisely how many men and women had been laid off from each particular industry, precisely bow much business each particular industry had lost-because consumers had to pay more for their sweaters. For a loss spread among all the other productive activities of the country would be comparatively minute for each. It would be impossible for anyone to know precisely how each consumer would have spent his extra $5 if he had been allowed to retain it. The overwhelming majority of the people, therefore, would probably suffer from the optical illusion that the new industry had cost us nothing.

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Old 06-30-2011, 02:24 AM   #38
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It is important to notice that the new tariff on sweaters would not raise American wages. To be sure, it would enable Americans to work in the sweater industry at approximately the average level of American wages (for workers of their skill), instead of having to compete in that industry at the British level of wages. But there would be no increase of American wages in general as a result of the duty; for, as we have seen, there would be no net increase in the number of jobs provided, no net increase in the demand for goods, and no increase in labor productivity. Labor productivity would, in fact, be reduced as a result of the tariff.

And this brings us to the real effect of a tariff wall. It is not merely that all its visible gains are offset by less obvious but no less real losses. I t results, in fact, in a net loss to the country. For contrary to centuries of interested propaganda and disinterested confusion, the tariff reduces the American level of wages. Let us observe more clearly how it does this. We have seen that the added amount which consumers pay for a tariff-protected article leaves them just that much less with which to buy all other articles. There is here no net gain to industry as a whole. But as a result of the artificial barrier erected against foreign goods, American labor, capital and land are deflected from what they can do more efficiently to what they do less efficiently. Therefore, as a result of the tariff wall, the average productivity of American labor and capital is reduced.

If we look at it now from the consumer's point of view, we find that he can buy less with his money. Because he has to pay more for sweaters and other protected goods, he can buy less of everything else. The general purchasing power of his income has therefore been reduced. Whether the net effect of the tariff is to lower money wages or to raise money prices will depend upon the monetary policies that are followed. But what is clear is that the tariff-though it may increase wages above what they would have been in the protected industries-must on net balance, when all occupations are considered, reduce real wages.

Only minds corrupted by generations of misleading propaganda can regard this conclusion as paradoxical. What other result could we expect from a policy of deliberately using our resources of capital and manpower in less efficient ways than we know how to use them? What other result could we expect from deliberately erecting artificial obstacles to trade and transportation?

For the erection of tariff walls has the same effect as the erection of real walls. It is significant that the protectionists habitually use the language of warfare. They talk of "repelling an invasion" of foreign products. And the means they suggest in the fiscal field are like those of the battlefield. The tariff harriers that are put up to repel this invasion are like the tank traps, trenches and barbed-wire entanglements created to repel or slow down attempted invasion by a foreign army.

And just as the foreign army is compelled to employ more expensive means to surmount those obstacles bigger tanks, mine detectors, engineer corps to cut wires, ford streams and build bridges-so more expensive and efficient transportation means must be developed to surmount tariff obstacles. On the one hand, we try to reduce the cost of transportation between England and America , or Canada and the United States , by developing faster and more efficient ships, better roads and bridges, better locomotives and motor trucks. On the other hand, we offset this investment in efficient transportation by a tariff that makes it commercially even more difficult to transport goods than it was before. We make it a dollar cheaper to ship the sweaters, and then increase the tariff by two dollars to prevent the sweaters from being shipped. By reducing the freight that can he profitably carried, we reduce the value of the investment in transport efficiency.

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The tariff has been described as a means of benefiting the producer at the expense of the consumer. In a sense this is correct. Those who favor it think only of the interests of the producers immediately benefited by the particular duties involved. They forget the interests of the consumers who are immediately injured by being forced to pay these duties. But it is wrong to think of the tariff issue as if it represented a conflict between the interests of producers as a unit against those of consumers as a unit. It is true that the tariff hurts all consumers as such. It is not true that it benefits all producers as such. On the contrary, as we have just seen, it helps the protected producers at the expense of all other American producers, and particularly of those who have a comparatively large potential export market.

We can perhaps make this last point clearer by an exaggerated example. Suppose we make our tariff wall so high that it becomes absolutely prohibitive, and no imports come in from the outside world at all. Suppose, as a result of this, that the price of sweaters in America goes up only $5. Then American consumers, because they have to pay $5 more for a sweater, will spend on the average five cents less in each of a hundred other American industries. (The figures are chosen merely to illustrate a principle: there will, of course, he no such symmetrical distribution of the loss; moreover, the sweater industry itself will doubtless he hurt because of protection of still other industries. But these complications may be put aside for the moment.)
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Old 06-30-2011, 02:24 AM   #39
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finally
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Now because foreign industries will find their market in America totally cut off, they will get no dollar exchange, and therefore they will he unable to buy any American goods at all. As a result of this, American industries will suffer in direct proportion to the percentage of their sales previously made abroad. Those that will be most injured, in the first instance, will be such industries as raw cotton producers, copper producers, makers of sewing machines, agricultural machinery, typewriters and so on.

A higher tariff wall, which, however, is not prohibitive, will produce the same kind of results as this, hut merely to a smaller degree.

The effect of a tariff, therefore, is to change the structure of American production. It changes the number of occupations, the kind of occupations, and the relative size of one industry as compared with another. It makes the industries in which we are comparatively inefficient larger, and the industries in which we are comparatively efficient smaller. Its net effect, therefore, is to reduce American efficiency, as well as to reduce efficiency in the countries with which we would otherwise have traded more largely.

In the long run, notwithstanding the mountains of argument pro and con, a tariff is irrelevant to the question of employment. (True, sudden changes in the tariff, either upward or downward, can create temporary unemployment, as they force corresponding changes in the structure of production. Such sudden changes can even cause a depression.) But a tariff is not irrelevant to the question of wages. In the long run it always reduces real wages, because it reduces efficiency, production and wealth.

Thus all the chief tariff fallacies stem from the central fallacy with which this book is concerned. They are the result of looking only at the immediate effects of a single tariff rate on one group of producers, and forgetting the long-run effects both on consumers as a whole and on all other producers.

(I hear some reader asking: "Why not solve this by giving tariff protection to all producers?" But the fallacy here is that this cannot help producers uniformly, and cannot help at all domestic producers who already "outsell" foreign producers: these efficient producers must necessarily suffer from the diversion of purchasing power brought about by the tariff.)

On the subject of the tariff we must keep in mind one final precaution. It is the same precaution that we found necessary in examining the effects of machinery. It is useless to deny that a tariff does benefit-or at least can benefit-special interests. True, it benefits them at the expense of everyone else. But it does benefit them. If one industry alone could get protection, while its owners and workers enjoyed the benefits of free trade in everything else they bought, that industry would benefit, even on net balance. As an attempt is made to extend the tariff blessings, however, even people in the protected industries, both as producers and consumers, begin t o suffer from other people's protection, and may finally he worse off even on net balance than if neither they nor anybody else had protection.

But we should not deny, as enthusiastic free traders have so often done, the possibility of these tariff benefits to special groups. We should not pretend, for example, that a reduction of the tariff would help everybody and hurt nobody. It is true that its reduction would help the country on net balance. But somebody would he hurt. Groups previously enjoying high protection would be hurt. That in fact is one reason why it is not good to bring such protected interests into existence in the first place. But clarity and candor of thinking compel us to see and acknowledge that some industries are right when they say that a removal of the tariff on their product w o u l d throw them out of business and throw their workers (at least temporarily) out of jobs. And if their workers have developed specialized skills, they may even suffer permanently, or until they have at long last learnt equal skills. In tracing the effects of tariffs, as in tracing the effects of machinery, we should endeavor to see all the chief effects, in both the short run and the long run, on all groups.

As a postscript to this chapter I should add that its argument is not directed against all tariffs, including duties collected mainly for revenue, or to keep alive industries needed for war; nor is it directed against all arguments for tariffs. It is merely directed against the fallacy that a tariff on net balance "provides employment," "raises wages," or "protects the American standard of living." It does none of these things; and so far as wages and the standard of living are concerned, it does the precise opposite. But an examination of duties imposed for other purposes would carry us beyond our present subject.

Nor need we here examine the effect of import quotas, exchange controls, bilateralism and other devices in reducing, diverting or preventing international trade. Such devices have, in general, the same effects as high or prohibitive tariffs, and often worse effects. They present more complicated issues, but their net results can be traced through the same kind of reasoning that we have just applied to tariff barriers.
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Old 06-30-2011, 02:31 AM   #40
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Joe, I already explained how it is good for the USA to NOT have tariffs, even though our trading partners may put tariffs on our exporst.


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Let's say China decides to put tariffs on all imported goods. And the USA decides to NOT put tariffs on any imported goods. This makes the Chinese consumer poorer because they are subsidizing inferior locally made products. The American consumer has more choices effectively, being able to choose among different products without selective tariffs distorting the pricing.

Let's say China decides to subsidize its export industry. This means taxing their populace and giving it to whomever buys their product, us. They're effectively subsidizing the US consumer.

If let's say the USD begins to lose value vs the Chinese Yuan due to the imbalance of trade. Then the Chinese decide to devalue their currency by printing more money to subsidize their exporters. They are simply increasing the tax on their people. If they didn't do this, then their consumers incomes would effectively increase. The Chinese taxing their consumers and making them work longer hours is like you and your neighbor agreeing to help work on each others' cars, but your neighbor insists on working 20% longer hours than you. Hey, who comes out ahead?

As for your point about deficit spending:

The only reason the USA can do deficit spending is because it enjoys having the reserve currency of the world.
So China sells goods to us which we pay with soon-to-be-worthless IOUs. Who's the bigger idiot?
Again, the Chinese worker and consumer is subsidizing the US consumer.


When you make your arguments, substitute "Texas" for "USA", and "California" for "China". Explain how "it's different" if we're dealing with people that happen to be across an international border.

Last edited by JasonC SBB; 06-30-2011 at 04:57 PM.
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