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Dr. Gonzo
June 7th, 2006, 04:30 PM
Just to spark some more economic debate, I am interested to see where everyone stands on protective tariffs. As you can probably guess, I am staunchly against them as they are harmful to sectors of the economy that aren't the directly benefitted industry. They are a form of government subsidy, but a particularly pernicious one. They lock resources into bad firms and when it comes time to liquidate these malinvestments, the economy of those local areas suffer (read: Flint, MI). Far from being a market failure, when a plant is forced to close because it cannot compete with a foreign firm, it is the government's fault for making the problem worse by not allowing the business to go under at a time when it naturally should have. In other words through tariffs, the government distorts production and artifically supports it, only for it to fall harder when it truly realizes it cannot compete.

Basically tariffs help protect X industry at the benefit of the rest of the economy. What you see is the government supporting the steel industry, but the fallacy comes in when you don't see how that money COULD have been spent on better, more efficient business.

Anyway if anyone is interested in tariffs, one of my favority 19th century economists was the great Frederic Bastiat:

For his great writings on the fallacy of the broken window and government spending: http://www.mises.org/web/2735

His witty, but unfortunately accurate portrayal of protectionism is found here, entitled "The Candlemakers' Petition": http://bastiat.org/en/petition.html

Wikipedia describes it:

"The Candlemakers' petition is a well known satire of protectionism written and published in 1845 by the economist Frédéric Bastiat as part of his Economic Fallacies. In the Candlemakers' petition, the candlemakers and industrialists from other parts of the lighting industry petition the Chamber of Deputies of the French Third Republic to protect their trade from the unfair competition of a foreign power: the Sun."

FruitandNut
June 7th, 2006, 06:53 PM
In most cases, with the exception of poor and vulnerable countries, I am generally against it as it imbalances the market place like a cartel might. It acts against efficiency and improvement, can be an unnecessary drain on taxes and revenues; and often leads to corrupt claims. Like subsidies and 'Topsy' they have a habit of 'growing'. They can also lead to 'tit for tat' international anomie.

Dr. Gonzo
June 7th, 2006, 06:58 PM
with the exception of poor and vulnerable countries
Why are you against it in these cases? You think that they should be allowed to raise tariffs to encourage infant industry? Because I have a good rebuttal for that if you do.

FruitandNut
June 7th, 2006, 07:19 PM
So long as it is made clear that it would only be tolerated as a temporary contingency. I am actually more into allowing protective 'quotas' for genuinely vulnerable small countries - here I am thinking of the likes of the Windward Islands and their reliance on the banana crop. I thought the 'banana wars' with Uncle Sam and the likes of 'Chiquita' and 'Del Monte' using bully boy tactics against the EC was rather disgracful. The EC got a protective quota of it's bananas from small island economies like the Windward Islands and big business wanted to stomp it - as it was a 'compromise' was reached, and such economies are now the poorer, though not yet destitute.

I make a personal choice to pay a little more and still buy Windward Island produce whenever I can as a consequence.

By the way, where countries unfairly subsidise and then go in for 'dumping', I can empathise with protective tariffs and quotas being thrown up as a reaction. I feel this is taking the concept of 'loss leader' just a tad to far. Often those subsidies are protecting internal inefficiencies, over high incomes; and above all, votes.

Dr. Gonzo
June 7th, 2006, 07:39 PM
Okay well because you are not talking about protective tariffs from the poor country's government, I will not address that.

Instead I will address your idea of quotas. Basically a government quota is nothing more than America (or any rich country) forcing its citizens to subsidize the inefficient industry of the Banana country (poor country). From the poor country's view, of course this is a good thing...there is nothing better than getting money when you don't deserve it. This is the mindset of those economists who support things like subsidies, tariffs, and other forms of government "promotion of industry".

Unfortunately this argument is the great economic fallacy that permeates almost all of modern, neo-Keynesian thinking. The fallacy comes in studying any given economic proposal by the short term effect it has on a select group or industry. Instead the art of economics consists of not simply looking at the immediate effect of an act, but rather the long-term effect it has on the whole of society.

The resources that are spent inefficiently producing a good (bananas in this case) are NOT being spent somewhere else. What quotas do is essentially artificially distort production by taking the resources of one industry and giving them to another. In the case of Banana Island, the people see that the banana company is prospering, but what they don't see is the various other businesses, which are much more efficient, that are being forced to reduce their production because capital and labor is being artificially being locked into the banana factory. The U.S. is harmed by having to subsidize an inefficient company. For every busshel of bananas that we buy, it is X amount of money less than we can spend on some other industry...say the sweater industry.

So basically quotas do the same thing as tariffs, they make one business and the economy as a whole suffer at the expense of unproductive firms that could not survive in the free market.

If we don't buy into this Establishment rhetoric about "saving X industry" we will find that not only our economy will be better, but the global economy as a whole will benefit from the complete repeal of all tariffs, quotas, trade barriers, and fiat currency (had to throw that one in there...you don't want to get me started on Nafta).

FruitandNut
June 7th, 2006, 07:48 PM
Dr.G - For farque's sake though, since when did a protective quota of bananas from the Windward Islands to the EC really threaten to topple the likes of Del Monte and Uncle Sam????? I wonder how many dollars find their way from 'Del Monte's' account to the Republican coffers?

Dr. Gonzo
June 7th, 2006, 07:51 PM
Dr.G - For farque's sake though, since when did a protective quota of bananas from the Windward Islands to the EC really threaten to topple the likes of Del Monte and Uncle Sam????? I wonder how many dollars find their way from 'Del Monte's' account to the Republican coffers?
Forget about American industry, think about the Windward Islands industry. Think of the Winwardian businesses they aren't allowed to use the labor and capital that are being spent in an artificially propped up banana factory. It actually would be better, economically speaking, to just give them money for free and have them produce something that they can genuinely compete to produce...like socks...or Windwardian bumper stickers.

Once again the economic sophistry comes in only looking at that single banana plant and not the entire economy of Winwardville that is suffering.

FruitandNut
June 7th, 2006, 07:59 PM
Think about it - a small island group at the bottom of the West Indies chain that gets visited by hurricanes - bananas if anything makes more economic sense than your suggestions. In farming terms the 'Windies' are limited in their options. They are however looking more to expanding the fledgling tourist industry.

Dr. Gonzo
June 7th, 2006, 08:04 PM
Think about it - a small island group at the bottom of the West Indies chain that gets visited by hurricanes - bananas if anything makes more economic sense than your suggestions.
Economics consists of doing things that people will pay for. Obviously it is not economical if people are not willing to pay for the bananas.

FruitandNut
June 8th, 2006, 02:07 AM
Yeh, and .......

Pibs
June 8th, 2006, 05:49 AM
The steel tariff is a laughable example of the stupdity of the whole concept - Americans get protected by being forced to pay higher prices for anything and everything which involves steel at any point - which is most things.

Such is the logic of "government".

Tariffs and sanctions and so on are just low level warfare, often leading to "greater" things.



P.

Dr. Gonzo
June 8th, 2006, 05:43 PM
Yeh, and .......
Well you said that producing bananas was economical...and I disagreed.

FruitandNut
June 8th, 2006, 10:19 PM
So let the s*ds starve or undergo the indignity of overt handouts? US farmers get far bigger handouts, but a lot of it is kept under wraps.

Pibs
June 8th, 2006, 11:56 PM
They only give out "handouts" in order to try and control - and adding ro rhe long list, YET AGAIN the US government has managed to create a Taliban, this time in Somalia!

http://www.lewrockwell.com/rockwell/somalia-saladdays.html


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