Monday, March 17, 2008

Economic Theory vs. Facts; Free Trade and Sick Taxes

A RedState commenter has a serious case of confusion.

He cites an article from Greg Mankiw:

"Economists are, overwhelmingly, free traders. A 2006 poll of Ph.D. members of the American Economic Association found that 87.5 percent agreed that "the U.S. should eliminate remaining tariffs and other barriers to trade.

"The benefits from an open world trading system are standard fare in introductory economics courses. In my freshman course at Harvard, we start studying the topic in the second week, and we return to issues of globalization throughout the year. The basic lessons can be traced back to Adam Smith of the 18th century and David Ricardo of the 19th century: Trade between two countries creates winners and losers, but it leaves both nations with greater overall prosperity."

The RedState essayist, a Harvard grad, then states:

These are all facts. They are facts that smart people, intimately familiar with the details surrounding trade policy take as givens--much as they take the revolution of the Earth around the Sun as a given.

In reality, the internal citation of Smith and Ricardo happens to be a citation of theories, not fact.

And in reality, the mercantilists and protectionists are operating freely in PRChina, India, and Europe--not the USA.

So, in reality, the only country which is reducing labor's standard of living is the USA.

Let's not even get into the question of "whether economists are credible." If you want to see apposite economic commentary, merely go to MBG Information Services (a fact-based website) or to the remarks of Paul Kasriel, an economist who works for the Northern Trust.

Wanna see how that relates to the Hospital Tax? Simple.

The "Free Trade" crowd confuses theory with fact. They also confuse "what's good for industry" with "what's good for the United States."

You can see that in micro, if you wish: WMC/MMAC's endorsement of new taxes is "good for industry." But not good for Wisconsin.

Nice to have you with us, Owen!!


PaulNoonan said...

Pardon my French, but I have to call bullshit on this sentence:

The "Free Trade" crowd confuses theory with fact. They also confuse "what's good for industry" with "what's good for the United States."

It is protectionists that confuse "what's good for the US" with "what's good for industry."

Free trade is good for consumers, not industry. It is decidedly "bad" for some established US corporations. In the aggregate free trade does a few things. allows price signals to work properly, which shifts resources into their most efficient lines of production.

This results in certain unprotected corporations going under. Creative destruction. That capital (especially human capital. You like Human Capital, right Dadsly?) does not disappear, it simply moves to a more productive sector.

This is painful for those who lose their jobs, but protecting that industry would be more painful for those who lost jobs to lack of new industry.

But enough theory. Let's talk facts. Let me just walk over to my library...

Ah, here we go:

Restrictions on imported sugar, for example, have reduced employment in such industries as sugar refining and candy making. After all, if food manufacturers who produce sugar intensive products must pay a higher price for sugar than their foreign rivals, their competitive position suffers. In 1990, Brachs Candy Company announced that because of the high domestic price of sugar, it would close a factory in Chicago that employed 3000 workers and expand production in Canada, which does not artificially inflate the price of Sugar.

In 1988 the Department of Commerce estimated that the high price of domestic sugar cost almost 9,000 jobs in food manufacturing and 3000 jobs in the sugar refining industry.


In 1991 the US imposed anti-dumping duties on imported flat panel displays, used by domestic manufacturers of laptop computers. Specifically, 62.67% duties on active matrix LCD displays and 7.02% duties on electroluminescent displays. Producers of laptops could no longer afford to purchase expensive displays in the US and still compete effectively against overseas rivals, who could buy the same displays at much lower prices on the world market and then export these laptops freely to the US.

To avoid the higher domestic prices, several manufacturers decided to shift production abroad. Immediately after the imposition of the duties, Toshiba announced that it would cease production of laptops in California and shift production to Japan, Sharp announced that it would shift production of laptops in Texas and move production to Canada, and Apple announced that it would relocate its assembly of laptops from California to Ireland or Singapore.

The same thing happened with semi-conductors.

I've got literally millions of examples of the gains of free trade just on my bookshelf. Your implication that most economists work just off of the "theory" of Ricardo and Smith is simply not true. Economists believe this because almost all empirical evidence supports Smtih and Ricardo. Exceptions are interesting and worthy of study simply because they are exceptions.

However, the gains from free trade are immense, and almost all empirical support confirms this view.

You sound like a creationist, Dad29, trying to label evolution as "just a theory."

PaulNoonan said...

These are from Douglas Irwin's "Free Trade Under Fire." I could have gone Sowell or Harford too.

Dad29 said...

Free trade is good for consumers, not industry mean "consumers" who actually have jobs, and whose jobs' payscales exceed the rate of inflation, right?

As to inflation--you know the stat--median payroll in the USA has fallen behind inflation for, oh, around 10 years.

More to the point, we are on the same page, more or less. I maintain that the tax/reg environment in the USA is FAR more onerous than that in PRChina, or India.

In addition, I maintain that the VAT scheme of the Euroweenies is used as a weapon against US manufacturers--and that "export-friendly" scheme is employed, mutatis mutandis by PRChina and Japan against the US' manufacturers, too.

I suspect that you agree with both those statements.

My difficulty is not necessarily with "free" trade. It is that the US Gov't simply ignores the FACTS in evidence--that this may be "free" but it is not "fair."

Given the usual "if" sequences, one cannot blame US industry for fleeing.

But one certainly CAN (and should) blame the US Gov't, and those of the States, for screwing their own residents, directly or indirectly, with tax/reg burdens and NOT countering Euro/Far Eastern trade blocking.