In this article, Robert Murphy says that “Most economists favor free trade because (at least under classical assumptions) when the government imposes a tariff, the monetary gains to the winners are outweighed by the monetary losses to the losers.” Again: “And as we’ve seen, the general rule is that a tariff hurts consumers more than it helps producers.”
What is the reasoning behind this?
The general reasoning is that the lower prices for all consumers will outweigh the loss in profits for the producers. The problem with this reasoning is twofold. First, it assumes society values the welfare of all its members equally. If the consumers are poor laborers and the producers rich capitalists, shouldn’t we weight them accordingly? Or vice-versa. Second, it assumes a first-best world, one that doesn’t exist. There may be other distortions in the economy that are worsened when the tariff is removed (information spillovers, scale economies, etc)
Who is society?
Weight them to be equal? ?
The price mechanism already distinguishes between the means of both groups, but to imply that low prices are bad for any group is, on it’s face, quite ridiculous.
The general public, or public opinion. In general, most people think a dollar to a poor person is more important than a dollar to a rich person
Low prices can hurt domestic producers, and laborers by extension. And if there are, for example, learning externalities that exist from this domestic production, then the problem is compounded because goods are underproduced relative to their social return.
By what authority do they make this decision? What sort of mechanism is used to determine WHO is in the “general public” specifically, and how their common “public opinion” is determined? Are there referendums? Is it a 100% unanimous public opinion? 80%? Does it only include the opinion of voters, or non-voters as well? If it includes non-voters, how are their opinions gathered?
Shouldn’t higher priced domestic producers and labourers shift to a different market, rather than insist upon producing goods inefficiently relative to competition? Sounds like a misallocation of capital and labour to me. Also seems to run counter to the notion of the division of labour.
It’s not unanimous, because most rich people would not agree. But in a democratic society, most would say they care more about a poor person’s welfare than a rich person’s. That’s simple human compassion
Not necessarily. If there is a high social return but some distortion exists where the private return is relatively low, then a tariff or other such correction being removed is the wrong thing to do.
You didn’t answer my questions. Who are included in the public? Elderly? Children? Illegal aliens? How do you determine the public good? Vote? Referendum? What sort of consensus is needed to determine the “public agenda”? 50% + 1 vote? Do you include the opinion of non-voters?
Do you feel less than unanimous consent is just? Say if all of your neighbors decided to take your house and give it to the poor, is that ok even though you dissent?
You haven’t explained how you have come to this conclusion, or who is included in MOST. What is the objective description of rich or poor that you used when everyone in the society was weighing in on this conclusion?
Your mistake in this statement, is that you don’t regard the private good as the social good.
Tariffs reduce free trade. They reduce freedom, and by reducing the volume of trade, also reduces prosperity. Tariffs are bad all around.
Unless your goal is poverty. Then tariffs are great.
I look at it over the long term. what eventually happens with a policy of tariffs? the rest of the world gets more and more products for cheaper while you stick your own citizens with paying a larger portion of their income for it. the result is a decrease in the standard of living, which makes your country less competitive.
In a perfect world, unanimous consent would be ideal. But it’s impossible to achieve this ideal. Democracy as a decision-making process is the next best thing. Within certain parameters, the population can decide on policies to promote the social welfare. Of course, those parameters would include not taking away someone’s house. I think if we continue this line of discussion, it will take the thread way off-topic into political theory. Let’s just say we are both compassionate individuals, and we care about the welfare of a poor person more than the welfare of a rich person.
The private good can diverge from the social good in certain contexts of externalities. For example, a firm’s future profitability is greater than it’s current because of learning externalities. As it produces over time, it “learns” and costs fall in the future both for the firm and the industry in general. But private returns to each firm in the industry are too low to invest in this new firm. Protection like a tariff would allow this firm to be set up, and in the future benefit everyone else. Eliminating the tariff harms welfare. Harley Davidson is a good example of an industry that was protected by the Reagan administration when it was suffering losses, but the future profits far outweight the costs of protection
You’re seriously confused, Danja. There is no “social welfare”. Nor can there be any moral justification for coercing higher payments to benefit a certain group.
Why?
Hmm, then why does this happen in democracy?
When you brought up the poor vs. rich, you made it political.
Why would I say that, and why would you say it for me? How do you know I believe that (I don’t)?
This is not an absolute.
In other words, it is a bad investment. Likely because the learning has already been done, and to repeat that progress from scratch, is a waste of resources.
Again you are talking about “everyone else”. But they are paying for it, by being forced to pay higher prices now via the tariff. First you say the returns are too low to make it worthwhile, then you say we need a tariff to force people to pay for it, even thought it is not worthwhile.
The welfare of whom? The tariff raises prices now. It reduces trade, and it reduces prosperity NOW. Plus, it also perpetuates an inefficient domestic industry, in some pointless effort to compete with foreign firms sometime in the future, which assumes that they can ever be caught and overtaken.
Oh rly?
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?
You’re right, I phrased it wrong and forgot the “if”.
It’s a bad investment for each individual firm, yes. But the social return overall makes it a worthwhile investment. That’s the problem
Yes, that’s the cost of the tariff. A present loss in welfare for consumers. Does this outweight the future gains for the industry in profitability? Sometimes it does, sometimes it doesn’t.
It reduces social welfare - future profitability is never realized. If those future profits are greater than present consumer surplus, after discount, there is a loss in welfare.
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.
Instead of unanimous consent which usually requires coercion, voluntary concent is the next-best thing. It allows people to consent to the things that help them but not the things that harm them.
In my system, they can choose to do that, with the exception that the policy cannot violate involuntarily the life, liberty, or property of anyone.
Ummm… then this democracy must not conform to your ideal situation, as homes are taken away.
One question, is involuntary theft good under any situation? If not, tell me the circumstances under which theft is legitamate.
I care for the freedom of all.
Wait, didn’t Rothbard prove that this was false? How about Mises?
Wait, I don’t understand.
Monopolies/quasi-monopolies are good for the monopolistic company and the government but bad for everyone else. And it also makes the industry worse, if you are curious.
Voluntary consent fails miserably when it comes to correcting externalities.
Theft is “good” when it promotes the social welfare.
I read Human Action and MES back to back years ago, and nowhere did they prove externalities don’t exist
It doesn’t make the industry worse off. Harley Davidson learned a lot of useful techniques from the Japanese that turned their outlook around. If it wasn’t for the tariff, they would have gone out of business.
No it doesn’t.
Ok, now you’re just trolling. Stop. This is a warning.
What is the social welfare? If giving to the poor promotes it, I could steal from the rich and the middle class as long as I gave to the poor. Heck, I should just steal from anyone who has more than they need, just to help the poor. I need to become a theif. LONG LIVE THE POOR.
Alright, for positive externalites, what is the problem? Since both people benefit from something, it is helpful. This is good, why does a zero-sum game further make this better. Certainly, someone is going to loose.
For negetive externalities, often times, these involve a violation of properity rights, which can be solved by negotiation or PDAs. What are ones that don’t involve property rights that are still significant?
They proved that nothing should be done coercively in the case of positive externalities, and that properity rights solve negetive externalities.
Oh, and one more thing, public schools are a negetive externality (I sent in a paper to my econ teacher). So are public roads, police, fire protection, and other social services. So are involuntary laws, which benefit some at the expense of others.
Is voluntary consent going to stop global warming?
The example is the one I just gave about Harley Davidson. Obviously, libertarians consider tariffs to be theft. But Harley Davidson is a clear case where protection promoted the social welfare.
It only sounds like I’m trolling because I’m using your language. I certainly don’t consider taxation to be theft.
I spotted this over an hour ago. lol