As you say, some are not.
Perhaps people have a vested interest in protection because the costs of trade liberalization are immediate and obvious and the benefits are not. Jobs get destroyed by outsourcing, but jobs also get created, and according to the book, significantly more get created than destroyed. Is that not true?
Thanks,
Rob
If China bans a foreign product, they are making their population poorer. The Chinese have to spend more money for that product and have less money to spend on other things. To be sure, spread out over 1.2 billion people, this effect gets diluted at the individual level, but the overall economy maybe billions of dollars poorer for it. Incidentally, China’s rise coincided with economic liberalization in the late 70’s. China’s planned economy caused the death of millions of people.
Rob
Protectionism of the sort discussed here can be a temporary, effective measure if the tradeoffs are clear and well-accepted but the requirement is that you are not insulating the industry from competition, only foreign competition. If China, for instance, bans steel imports, but it has several independent competing steel producing businesses competing with each other, then market forces will help propel these along even with imports smashed up.
That said, you cannot ban imports or impose excessive tariffs without simultaneously hurting your exports. Protecting industries does have far-reaching effects, some of which really may be hard to understand or estimate up front, if for no other reason than the possibility of trade retaliation. The long-term benefits may be worth the costs but this is not a simple matter to undertake.
And protect our domestic automobile manufacture? I can see a limited period (say 10-15 years) during which imports would be subject to a 100% tariff. The local manufactureres would be required to build competitive models, and source their parts domestically. After the 15 years are up, we end the tariffs.
Seems like a plan to me.
Please be careful here, as you’re leaving economics and entering the realm of wallets. Benefits are not strictly or–dare I say–mostly monetary. Because of the strong correlation between money and leisure and efficiency, it is easy to forget that no one earns money at the beach but going to the beach is definitely consuming a benefit. Pity it isn’t included in the GDP.
If the majority of people were willing to pay more for local goods, there would be no protectionism needed, it would happen naturally. Since it doesn’t, more people think cheap > local.
Argumentum ad populum is a piss poor argument, especially when you’re discussing an area most people are totally clueless about. Also, they could implement protectionism by buying local. They don’t. I think people speak louder with their wallets than they do to pollsters.
No shit? People are selfish? Quick, call CNN to spread this mind blowing news!
Ultimately the answer comes down to understanding economics, which often contradicts peoples’ common sense.
ralph124c, firstly, it’s illegal. Secondly, if it wasn’t and you did it anyway, there would be retaliation. So unless you enjoy seeing American exporters crash and burn, it would be a poor idea.
That’s not even going into the economic reasons protecting the Big 3 would be stupid.
Most people in most places have owned their own farms or businesses. Even as recently as a century ago it was the norm in most parts of Europe and America. Yet there was no evidence that this was causing a majority of the population to suffer from extreme stress.
As for companies laying off employees for no good reason, it happens all the time. Many companies use mass layoffs to trim expenses, or boost their stock price, or other such reasons. If a company lays off ten thousand workers at a time, they are obviously not evaluating each employee as an individual. There is nothing that any employee can do to protect themselves in such a situation.
Lastly on the “it creates jobs” excuse for globalization, that’s an extreme simplification. If a highly paid auto worker loses his job to an overseas plant, there’s no guarantee that he’ll get a job with the same pay. If a skilled worker loses his job, there’s no guarantee that a new job will emerge that matches his skill set. At the very best, globalization gives us a situation where many workers constantly cycle through different jobs, which is stressful even in the best of times. At worst, it mires a lot of workers without decent, middle-class jobs. In the past three decades, manufacturing jobs that get shipped overseas are replaced mainly by low-paying service sector jobs. Would you like fries with that?
I don’t understand what you are getting at here. Can you clarify?
Thanks,
Rob
I don’t believe the claim that big businesses are more efficient than small ones. Sure, a large company has certain efficiencies in its production and distribution system. It can make fifty million widgets at a slightly lower cost per widget than a small company that makes only five thousand widgets. But is that necessarily better? The question should not be, “Who can make the most widgets?” Rather, it should be “Who can make the appropriate number of widgets?”
A small business would look at this problem logically. People in our locality want a certain number of widgets, so let’s manufacture that number and sell them. If demand changes, we’ll adjust.
A large corporation would look at this problem different. They would spend zillions to build manufacturing plants for widgets and a transportation network to get those widgets into stores. Then, because the stockholders demand growth, they have to keep expanding. Soon they’re manufacturing widgets that no one wants to buy. What then? Run a massive advertising campaign to convince people that they need more widgets. And if that fails? Convince the government to set guidelines that require more widgets. And after that? Demand a huge bailout for the widget industry. And when you’re through with the bailout money? Demand another bailout. And so it goes on.
The basic fact is this. Small businesses manufacture supply to meet the demand. Large corporations manufacture demand to meet the supply. This is happened in all kinds of industries, from corn to prescription drugs. So you can’t simply say that big companies are more “efficient”. They are actually spectacularly inefficient.
…
Could you go take Econ 101 or something?
First of all, I think you are romanticizing pastoral life. There is a reason that only 2% of the population are farmers anymore.
Second of all, trimming expenses is a very good reason to lay people off. It means that those jobs cost more than they are worth to the company. If that isn’t true (or at least if the stock market thinks it’s true) and they do it anyway, the stock price will decline. In some European countries, e.g. France, it is very difficult to lay off workers. This has had the effect of making it difficult to get a job. France has rather high unemployment (around 10%, IIRC).
As far as high-paying manufacturing jobs being replaced with low-paying service industry jobs, I think I will need a citation. Be careful not to conflate the service industry with services like consultancy, accounting, software development.
Thanks,
Rob
The ‘big 3’ are in the pickle they are in partly because of such protectionism. In 1964, a 25% tariff was imposed on imported trucks, giving the U.S. companies a huge advantage in truck manufacturing. Later on, trucks and SUVs were given exemptions from CAFE and safety regulations. Since U.S. automakers were now disproportionately truck manufacturers, they benefited by the rules. These two acts made truck manufacture extremely profitable for U.S. companies, and caused them to neglect their car businesses. Then when the car business began to slide in the 80’s because the vehicles were crap, congress responded by slapping import quotas on foreign cars.
As a result of those quotas, the domestic car manufacturers raised their prices by an average of $2000, but did nothing about the quality. A lot of that money went to better deals for auto workers instead of being invested in quality and technology upgrades. So when the quotas inevitably came off, they couldn’t compete.
In theory, it should be true. But even assuming it’s true in practice : as you said, there’s a cost. A new industry and new jobs won’t appear overnight, assuming they will. It might take 10, 20 years, for instance. A whole generation, or a whole region, might be sacrificed. The 50 yo car factory worker won’t become a telecom technician, in all likelihood. Maybe someone younger, in another part of the country will, and will be better off as a result. But knowing this won’t make the autoworker anymore willing to sacrifice himself, and that’s perfectly understandable.
I have seen you claim to be a libertarian in other threads. If I have that right, you might enjoy Eat the Rich by P.J. O’Rourke. Out of curiosity, what kind of work do you do?
How do you know the cost difference between a large company and a small one without knowing which company you are talking about? Try making a car in your garage and see what it costs you and how long it takes to do it. Remember that this is for consumption, so you have to add in your labor costs. I am betting that it wouldn’t be cheap.
While it’s true that a large company isn’t necessarily more efficient and they certainly do game the system by, among other things, lobbying to erect barriers to trade, to claim that they are spectacularly inefficient is overstatement if not total bullshit. If a large company is overproducing a widget, it is true that they might do the things that you mentioned, but it isn’t guaranteed. They might just cut production.
FWIW,
Rob
Not so fast. The guy who owns the orchard down the street is subject to American laws regulating labor, pesticides, taxes, and almost everything else. Companies that produce apples on another continent are not. Furthermore, they may be collecting all kinds of subsidies from foreign governments. It’s meaningless to point out that foreign goods are often cheaper, when the playing field is titled in favor of foreign manufacturing. The recent outburst of interest in local foods indicates that many people do desire them.
Personally I believe that the people are smart enough to know what they want, and don’t need a ruling elite to tell them.
I do not deny that there is a cost, but do the benefits outweigh the costs or vice versa? There is also a cost to protecting a factory worker.
Furthermore, there is a lot of evidence that the law of comparative advantage is true in practice. I will have to dig some out for you.
Rob
Let’s see…
It has nothing to do with intelligence, it’s a matter of education. Most people are clueless about economics, and their opinion on protectionism is worthless. If by “elite” you mean “educated in the area under discussion”, then yes, those people should be telling them what to do. That’s what happens all the time. You think members of congress make up their own economic policy etc or something? They ask economists, or scientists, or whatever, depending on what area they need to make decisions on.
OK sometimes they don’t, that doesn’t tend to work out so well…
This whole issue is so sad. Not only is protectionism shooting yourself in the foot, it also screws over all the developing nations (many of which the West fucked over royally for centuries), preventing them from becoming competitive and gaining a decent standard of living for their citizens. Cheap food from subsidised European countries and the USA fucking over African farmers being a good example.
Does the benefit outweight the cost? I assumed in my example that it did, on the overall. But should we only take into account the overall economical benefit on the long term? Should we only take into account a purely economical cost/benefit analysis? Do we want, as a society, to just brutally write off a segment of society for the greater long-term good?
Do you realize that subsidies are a protectionist measure? How can you defend and damn protectionism in the same argument? Also, a lot of the recent outburst of interest in local produce is driven by the fact that it can be of higher quality and therefore worth more. If I were on a tight budget, I don’t think I would do my shopping at the farmer’s market.
I also believe that people are smart enough to know what they want. That doesn’t mean it is good for them and/or good for society. For example, people want cheap gasoline. Should the government fix the price? That lead to gas lines in the '70s. Should the government subsidize the cost? That will lead to overconsumption which will further burden the government.
FWIW,
Rob
Clearly not, but protectionist measures may not be (and probably are not) the best way to achieve that end. What about things like temporary income subsidies, or job retraining? Incidentally, the aforementioned book I am reading makes the claim that the U.S. doesn’t do enough to retrain displaced workers (that is, enhance labor mobility), limiting such assistance to manufacturing and textile jobs, and that European governments do to much, effectively creating incentives to stay unemployed.
Rob