More on Steeling Jobs

by Don Boudreaux on October 31, 2006

in Trade

Faultolerant says in a comment on this post

You touch on one issue which is ALWAYS overlooked in econ/lib circles:
The people who are most affected by these changes [more international trade] (as you say, fair or
not). Econ/Libs are happy to toss them out like yesterday’s trash – and
say these people should be thankful for it. I love it when folks in
this forum argue FOR job losses in the US and then primp and pose that
we should be happy for it. It’s fine to have such high-and-mighty
morals when it’s not your ass on the line – and when there’s no skin in
the game. (Or in the case of a lib, when you can still get your cheap
chinese crap at wal-mart). But let someone say that there are BOTH
short and long-term consequences and you get lots and lots of feedback
- all of it negative.

Faultolerant misunderstands the argument.

No part of the argument for free trade celebrates job losses per se.  No one I know — not a single soul — denies that losing a job is typically an unpleasant experience, and often a very difficult one.  And no one I know — again, not a single soul — is happy to toss workers out "like yesterday’s trash."

The argument for free trade is that over time, more and more persons are benefitted by a regime of open trade.  Some persons suffer in the short-run, it’s true.  But those who suffer do so only because they are part of an economy made prosperous by free markets.  That is, the very benefits such persons lose when trade works to their disadvantage are benefits that these persons have in the first place only because these persons are employed in market economy.

The steel-worker, for example, would never have been a steel worker — and would never have had the opportunity to consume so abundantly out of his steel-worker’s wages — had he not been part of a market economy.

"But ‘market economy’ doesn’t necessarily mean an economy with free trade," someone might reply.  True (although, in fact, many of the jobs lost today in the U.S. to imports would never have existed had America been closed to imports).

The crucial point is that for Joe or Suzy to be part of a market economy is for Joe and Suzy each to accept the enormous gains that come from continual entrepreneurial innovation, from consumer sovereignty, and from a free labor market in exchange for Joe and Suzy each agreeing not to prevent these forces from working when these forces happen to go against the short-run interests of Joe or Suzy.

Whenever consumers change their spending patterns, and whenever producers find new ways of producing some output, some jobs will be eliminated while other jobs will be created.  Imagine how many jobs were lost when consumers, enthrall to the Atkins Diet, reduced their purchases of donuts, beer, pasta, and other foods loaded with carbohydrates.  Imagine how many jobs were lost when medical researchers discovered an effective vaccine for polio.  How many house painters have been put out of work by vinyl siding?  How many persons who worked in film-developing labs are today not working in those labs because of the widespread use of digital cameras?

And this train of thought then points us to another important feature of the argument for free trade: because any change in consumer spending patterns and producers’ production practices will create some jobs and elminate others, there’s nothing at all special about that particular change in consumer spending patterns that comes about when consumers voluntarily purchase more goods and services from abroad.  There’s simply nothing economically relevant about the fact that a supplier happens to live on one side of a political border and many of that supplier’s consumers live on another side of that border.

The only thing relevant about the political border is political.  The greedy, unjustified quest of every producer to be excepted from the rules that make markets work so productively for the benefit of all is easier to justify, it seems, if these producers present an "us" versus "them" horror story, alleging that there’s something nefarious about foreigners offering to sell things to us.

Finally, an important part of the argument for free trade is recognition of human deceitfulness — recognition that making exceptions to a policy of free trade whenever someone alleges that foreigners are behaving "unfairly" too easily is abused.  Who knows if Chinese steel producers are behaving fairly or unfairly?  These terms have no hard and fast meaning in such a context.  But let’s say that some Chinese firm is indeed (say) selling its steel to Americans at a price below that firm’s cost of production.  Well, good for us.  We get cheap steel.

Oh, but what about U.S. steel workers who lose their jobs?  They are in the same boat they’d be in if the Chinese steel producer enjoyed a genuine comparative advantage over American steel producers.  If a foreigner insists on selling things to us at a discount, it is not the government’s place to prevent Americans from accepting such generosity.

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{ 32 comments }

python October 31, 2006 at 7:29 pm

I want to make a point about "losing jobs". Many times an employee can see that the profession that he/she is in is becoming less needed or less profitable, etc. The employee has the option to look for work before the eventual hammer is lowered.

The notion that people get their jobs stolen from them – either by the Chinese or progress – is almost always not the case. (It is true that some biotechs that have failed products go under pretty fast. And others as well, but it is a minority) A lot of the jobs that the union types cry about losing are in very strong industries that do not implode overnight.

Though I feel bad that the typewriter repairmen lost all of their jobs, I would not pass legislation to keep them employed.

If a clever guy invented a cheap personal transportation device that you could build yourself and made cars unnecessary – and therefore no more need for automotive employees – would you build one? What if it was a Chinese guy that invented it?

lowcountryjoe October 31, 2006 at 8:39 pm

Lost in much of this discussion are the negative effects that are happening in China because their economy distorts the trade picture. Everyone sees the benefits; the employment, the exports, the savings rate [if that's really such a good thing], the independence of relying on their own industry [again, if that's such a good thing], the currency manipulation pegging that still exists that allows the Chinese to free ride off of our Federal Reserve decisions.

But what isn't seen in China? After all, there are no free lunches. Don't you suppose that Chinese consumers and Chinese businesses that import raw materials experience purchasing power erosion, more so than it would have/could have been, if they didn't peg their currency? And obviously the so-called independence of China is only an independence on their industry. But they're interdependent because they need us and the economies of other industrialized countries to sell the goods that they spend so much of their time making for our consumption – and they do this for us rather cheaply, I might add!!

We really need to have a serious discussion about the economic consequences that take place in China along side the haranguing and fretting about the consequences, both good and bad [but mostly good; as is ALWAYS the cause in mutual and voluntary exchanges] within the United States.

Could it be that the Chinese bureaucrats are playing trade games out of necessity? Think about a Chinese population over one billion and trying to contain progress in the age of connectivity — no doubt that the central planners are trying to keep these people occupied. Do you really think that the Capitalist Genie is going back in the bottle now that Hong Kong has some influence over the mainland?

True_Liberal October 31, 2006 at 9:13 pm

100 years ago – how much trauma did Henry Ford cause? He put blacksmiths, buggywhip makers, streetsweepers, and many other hard-working Americans out of work. They did nothing wrong; they "played by the rules" (to borrow a tired line from a local candidate) – but they had to find new work.

Where would we be if we mandated "fair trade" for those poor folk? Would we still be subsidizing them?

faultolerant October 31, 2006 at 9:36 pm

Don,

Loved the post….of course (as is your wont) you took my comments out of context to make a cheap shot. Congratulations – you got what you were after. Of course, that says more about you than you may think.

Anyway, the point I made is still the same, I still stand by it and you're still not making a convincing argument to the contrary.

It occurred to me in the car on the way home (A domestically manufactured American brand…yeah, I know, shame on me) that you're happy to trade tomorrow's economic consequences for cheap crap today. Rather than trading tomorrow's consequences, you assert that no consequences do, or will, exist.

Like I said: When there is no more manufacturing in the US we'll have consequences. But you're the guy who asserts that we can "turn on" blast furnaces and "reinvent" lost production arts in a moment or two should we need to do so.

Gosh, I wish I could live in your rosy world where all governments are benevolent, everyone is of good moral character and the women are above average.

Supermike October 31, 2006 at 9:51 pm

The one bad thing about USA programmers losing their jobs in waves is that it isn't like there's less of a need. In fact, with new technologies and things, there's an ever-increasing need. It's not like the loss of the typewriter repairman industry because there are still huge programmer needs. The thing that gets us USA citizens is that other governments cheat their way into the G8 (or sub G8) by providing almost free, forced labor, inhuman living conditions, unhealthy environments, and many other atrocities that USA businesses wouldn't touch. Governments in these countries also outright build the factories for businesses and eliminate much of the taxation in order to steal jobs from the USA.

The one saving grace for the USA programmer is that the web is exploding right now with opportunity as it re-invents itself yet again. The best thing for the USA programmer is to quit the day job, work part-time at the mall if you have to, and get out there and freelance your programming skills. And for Pete's sake, try to keep up and learn something new that's cost-effective or financially lucrative on the web.

Adam October 31, 2006 at 11:12 pm

faulttolerant: your hostility towards those among your fellow Americans who prefer to buy foreign-made products, is a pity. If you consider something to be cheap crap, you're free not to buy it. I don't see any reason why you should be free to prevent your neighbour from buying it.

As for the "not your ass on the line" argument, that is the real cheap shot. I've actually been accused of hypocrisy because I don't believe in the state yet I use public sidewalks. What exactly would you like us to do? Call for measures that would harm our job prospects in the short run? Gladly. I'm a lawyer (corporate law). I make my living off the insane proliferation of tax laws and regulation so complex that only a trained professional can ever have a pray of understanding it.

I'd love to see it all disappear. I'd be out of a job tomorrow. But I'd find another one in the blink of an eye, thanks to all the labour, capital, and creative energy that would be freed by such a move.

Granted, this call of mine isn't worth much, but what more can I do? What can a tenured economics professor do to establish that he's not a hypocrite when calling for free trade? Give up tenure? Quit? How's he supposed to find another job when everyone else still has their tenure?

Arguments are what they are. They are either right or they are wrong. They are logical or illogical. They are sound or unsound. We'd be much better off if we all stuck to refuting one another's arguments instead of resorting to ad hominem attacks.

In passing, why would an absence of manufacturing be a problem for the US? Why wouldn't those jobs be replaced by even better paying positions in the services sector? Are all the people who manufactured candles and horseshoes (more accurately, their descendants) out of work? Or did they find even better jobs? Free trade raises helps most living standards in the short run and all of them in the long run.

Tim Morris October 31, 2006 at 11:29 pm

The other part of the argument has to be about not the theory of free trade, but its actual application in the real world by politicians. Do they in practice put up trade barriers/tariffs (1) against countries that exploit the environment, use slave labor, etc or (2) for the constituencies of strong Senators? As a real world example, I used to live in the US and now live in New Zealand. New Zealand can not ship its milk products to the US. Why? New Zealand is a developed free country with a democratic government, minimum wage laws, a welfare state and a free medical system for all residents. In addition, New Zealand lets in American products, watches American television, etc. Dairy farmers in rural American are politically strong (see US Constitution for details) so they get trade barriers. Poor blacks in the ghetto are politically weaker, therefore there are no trade barriers on Jerri-Curl. Judge a system by its results, not its stated intentions.

Morgan November 1, 2006 at 1:42 am

faultolerant:

I have to admit; having read the discussion on the previous thread and your comment here, I still have little idea what your argument is.

Yes, I get the notion that trade should be "fair", which I think means to you that it should not be distorted by subsidies, manipulated exchange rates, or any other means that forces the "lowest cost" producer per unit of value out of the market. We all agree that's more or less the ideal. That wouldn't mean that American manufacturers never stopped producing, of course; there might be more profitable ways to invest capital or deploy labor in the US than steel making (for example), but there's nothing unfair about comparative advantage.

It doesn't necessarily follow that the appropriate response to that is to fight fire with fire and impose tarrifs or subsidize competing industries, though. I admit to some sympathy for the idea that cheaters should be punished even if it costs me more to do so than to accept the cheating, and there are plenty of findings from behavioral economics indicating that most people choose that course. And it's also true that ultimately the distortions make everyone poorer, and if we can take the (perceived) profit out of subsidies, we may be able to remove them from the system altogether. That's the game theory idea that bbartlog brought up in comments to the earlier post.

But tarrifs ensure that Americans pay more for steel than anyone who buys Chinese, so only American steel users are penalized, making their products uncompetitive as exports and unable to compete with imports. And subsidizing American steel means that we're investing heavily (as a nation) in an unprofitable industry – effectively paying people to buy stuff we made. Unless it leads to the removal of all subsidies/tarrifs, it's a lose-lose, we're worse off than we would have been if we had simply accepted the cheap steel and found the next best way to allocate resources.

I think you recognize that, and maybe that's why at times it seems you're trying to bolster your argument by asserting that unless the US counters Chinese subsidies with tarrifs/subsidies of our own, the Chinese will ultimately have killed off all US manufacturing ("When there is no more manufacturing in the US…").

But how? It would require one of two things, either simultaneous subsidization of every industry, or massive subsidization of industries in a serial manner that results in a series of complete kills – the US industry is dead, and stays dead.

But you can't use the profits from a subsidized industry to subsidize another industry – almost by definition the subsidies make the industry unprofitable for the subsidizing country as a whole – it certainly implies that the rate of return is not sutainable. So I don't see how the "simultaneous subsidization" scenario works.

But I also don't see why the steel industry would stay dead once subsidies were halted – even with massive subsidization to push out not just the core of the industry but niche components as well (which would seem to be a prerequisite for this strategy to have any chance of working – otherwise the expertise remains in the industry overseas, and would certainly form the seed for rebirth once subsidies were removed). Are the barriers to (re)-entry really so great that it wouldn't attract an appropriate share of new investment when the playing field was level again?

And what would the consequences be?

So I'm not sure what your argument is. Maybe it's as simple as "punish the cheaters even if it costs us more to do so". Maybe there's an element of game theory embedded somewhere in there. Or maybe you have some argument I don't that explains how China can kill off all US manufacturing.

Russell Nelson November 1, 2006 at 1:52 am

faulttolerant says "Anyway, the point I made is still the same, I still stand by it and you're still not making a convincing argument to the contrary."

Actually, he is. Yes, job loss in the short term is hard to deal with. I've lost one; no fun. And yet adults realize that there is a long-term beyond the short term. And economists realize that the employment lost wouldn't exist without the long-term, thus nothing is lost from free trade that you could have had without it. The fact that his argument fails to sway you says that you lack the economics-fu to understand it.

faulttolerant also says "your rosy world where all governments are benevolent." I doubt very much that Don thinks that all governments are benevolent. I expect that he thinks that all governments are destructive to the extent they fiddle with markets (just like markets are destructive to the extent they fiddle with government.)

Henri Hein November 1, 2006 at 2:12 am

"When there is no more manufacturing in the US we'll have consequences. "

The trouble with this is that your scare story has never happened before. You have over 200 recorded years of capitalist history. Can you find a single historical event paralleling your concern? Perhaps if you do, we'll understand better.

By Bruce Hall's own admission, China has followed the same strategy for centuries. Japan has followed it earlier as well. It has proven a dismal failure in the past. There is little reason to believe it will suddenly succeed.

Mike L November 1, 2006 at 4:25 am

I suspect that faulttolerance's argument is about more than free rideing off of our Federal Reserve decisions. It is a more general free riding argument. What is the basis of China's comparative advantage? Its huge labor pool, lack of enviromental or safety regulations, and its 19th century Manchester type capitalism (i.e. no labor unions). Couple in their undervalued currency that artificially makes their goods even cheaper to produce. (i.e. a dollar is worth more in China therefore a factory is cheaper in China) This is not exactly "fair trade". What you have is a new race to the bottom. We faced teh same crisis in the US back in the 30's between teh state's and the new deal provided protections that we are now not seeing in China, nor will we ever see them in China as long as the CCP remains in power.

So the free riding argument comes in because, China is not following a similar path. While America protected its labor force and allowed a middle class with a spectrum of wealth to develop. China instead is developing a 2 tier system of poor laborers from the country side that are easily replaced and the newly wealth party member that owns the factory. This would be fine if the Chinese were only selling to the Cchinese, but they are not, the chinese are instead siphoning off the wealth of the American middle class by having their competing system with out the same protections.

China sells their goods in America , while at teh same time the Chinese do not buy comparitavely expensive American goods. Goods made expensive by our crazy social nets like child labor laws and social security. look at our trade deficit, the trade with china is very once sided.

well fine you say, every factory worker will now go get an education and become a programer or an engineer instead a type writer repair man. ok, thats great for those who can get into school. not all 50 year old machinists can do this though. so now since you are no longer a manufacturer, and you have two choices, service or some IP based job like a engineer or a programmer.

the IP jobs are only as good as the protection that the IP is provided, and we know how much protection china gives to american IP. so here you have more free riding, direct freeriding stealing our inventins, our inavations, and our processes. things that were our comparative advantage.

well what about service jobs? well now thanks to that wonderful internet, we are wasting our time on right now, they will also have to compete just like the manufacturer. see indian call centers for tech jobs, and soon legal research as well.

The only service jobs left will be those that cant be outsourced, but we cant all be dentists and waiters. instead you will see a drop in the living standard of america, and a withering of our middle class until we are a similar two tier system to china. I dont think a democracy can survive in an environment like that, but thats a seperate matter.

what is happening is that the capital created in the west in the last century is being distributed. The amount of capital is the same, but the amount of labor has doubled, so in effect we will have 1/2 as much share of the capital. once again this could be seen as free riding on our efforts of the last century.

the fact that the wto does not let you consider how an item is created (i.e. child labor) and its MFN requirement for all members is accelerating the process.

One day our goods will no longer be expensive because we will no longer have social nets, and perhaps the Chinese can then complain that the cheap Alamaba labor is gutting the Chinese Cheng Dao heartland.
I dont want to live in that America, because it will be based on a large pool of poor uneducated labor and a tiny aristoracy of trans-national ultra rich who own the factories.

Maybe marx was right, and simply a century early.

sorry for the poor punctuation, structure and capitalization. it is late on a tuesday.

jomama November 1, 2006 at 7:39 am

What I will never understand is why so many folks want to be policy wonks, apparently eager to dictate their own personal values on everyone else instead of just minding their own business.

I don't buy that 'crap' that's being talked about here, neither am I a lesbian but why should I give a shit what other peoples tastes are or where some of it comes from?

When people stop minding their own affairs – we're already there – I expect there'll be hell to pay.

I'm certainly not looking forward to it.

Flynn November 1, 2006 at 9:43 am

Has anyone noticed that Faultolerant is, well, not?

Randy November 1, 2006 at 10:03 am

Jomama,

Agreed. I am curious as to why the same people who in their personal lives go to great lengths to avoid disturbing the neighbors, will in their public lives suddenly assume they have a duty to disturb the neighbors.

Flynn,

Yes, I noticed that too.

Randy November 1, 2006 at 10:18 am

Mike L,

I think you're absolutely right about the true nature of China's advantage. But I think we'd be wrong to be overly concerned about it. I just find it highly unlikely that American workers, deprived of the option to make stuff on an assembly line, will simply subside into abject poverty. I think they will find better things to do. I also happen to think that the wages paid to the automakers, steelworkers, etc., during the heyday of American manufacturing were seriously inflated, and that the "problem" of the loss of those jobs is therefore also seriously inflated.

Tom November 1, 2006 at 10:52 am

"of course (as is your wont) you took my comments out of context to make a cheap shot."

Faultolerant,
Don has been gracious. No cheapshots have been taken, though you have provided AMPLE opportunities to do so. Too bad you do not wish to even consider a rebuttal. Had your mind been open, you could have learned something.

JohnDewey November 1, 2006 at 11:23 am

faultolerant: "When there is no more manufacturing in the US we'll have consequences."

Why should there be no more manufacturing in the U.S.? U.S. manufacturing output has continued to grow for decades. In fact, U.S. manufacturing output has grown faster than average over the past two years:

Annual growth in manufacturing output

1979-2005……..+2.9%
2003-2004……..+4.8%
2004-2005……..+4.0%

Source: BLS statistics

Manufacturing jobs have also declined in the U.S. for decades.

Annual change in manufacturing hours

1979-2005……..-1.1%
2003-2004……..-0.5%
2004-2005……..-1.1%

Source: BLS statistics

The long term and near term reduction in manufacturing hours are due to productivity increases, not because jobs are being moved to China or Korea or anywhere else. Manufacturing jobs have moved in large numbers within the U.S. – from the rust belt to the sun belt.

The long term decline in U.S. manufacturing employment mirrors the earlier trend in agriculture employment. At the same time, our manufacturing output has grown just as our agriculture output has grown.

Caliban Darklock November 1, 2006 at 1:15 pm

Isn't it the worker who tosses himself out?

I mean, I wasn't always a software project manager. Before that, I was a developer. Before that, I was a pastry chef. Before that, I was in the military. Before that, I was a professional astrologer (seriously!). Each and every one of those prior jobs turned out to be something I didn't want to do for the rest of my life.

What people always seem to miss is that a worker is still a worker when he has no work. He might not be able to do what he has been doing, but he can still do something. It might not be what he wants to do, but you don't always GET to do what you want to do.

I wanted to stay a pastry chef. Still do. If I became independently wealthy tomorrow, I'd open a bakery. But since I can't afford the lifestyle I want for my children on a baker's income, I had to make a choice.

So when a worker refuses to accept reality and make those choices, why is it the market's fault? It looks to me like my two year old sitting at the dinner table, refusing to eat his chicken because he wants pizza. I expect him to eat the chicken, and if he doesn't, he goes hungry -which is a punishment of his own making. Shouldn't we expect at least as much of a worker as we do of a two year old?

Kent Gatewood November 1, 2006 at 3:29 pm

Several wrote that everyone that suffered loss due to free trade will be better in the long run.

Is this what is believed, or did I misread?

The market has been good to me, but I know people who are not as well off as they once were and much time has passed.

Caliban Darklock November 1, 2006 at 3:45 pm

Kent, my position is more that if you suffer loss due to free trade, you SHOULD have suffered loss because you did something WRONG.

Likewise, if you realise a gain, you should have realised a gain because you did something right.

Free markets are not "good" or "bad" to people. They simply reward certain behaviors as a natural consequence. In short, you earn whatever you get from the market.

Martin November 1, 2006 at 4:22 pm

Don,

You wrote,

"Finally, an important part of the argument for free trade is recognition of human deceitfulness — recognition that making exceptions to a policy of free trade whenever someone alleges that foreigners are behaving "unfairly" too easily is abused. Who knows if Chinese steel producers are behaving fairly or unfairly? These terms have no hard and fast meaning in such a context. But let's say that some Chinese firm is indeed (say) selling its steel to Americans at a price below that firm's cost of production. Well, good for us. We get cheap steel."

To my mind that's not economics – that's economism. 'Fairly' and 'unfairly' have particularly hard and fast meanings in this context.

Fo example, is American steel more expensive because American steelworkers wear hardhats and boots while Chinese steelworkers wear baseball caps and flip-flops?

Does corruption, brutally punished in America, flourish within procurement in the Chinese steel industry?

Do Chinese steelworkers have the benefit of workmen's compensation schemes?

Saying 'Hmm, O goodie we get cheap steel and the government's got no business telling ME who I can buy from' when people can get killed making the stuff cuts neither the moral nor intellectual mustard – don't you think?

That's your own political judgment. Others can differ.

But you then go on to say –

"Oh, but what about U.S. steel workers who lose their jobs? They are in the same boat they'd be in if the Chinese steel producer enjoyed a genuine comparative advantage over American steel producers. If a foreigner insists on selling things to us at a discount, it is not the government's place to prevent Americans from accepting such generosity."

Let me repeat that –

"They are in the same boat they'd be in if the Chinese steel producer enjoyed a genuine comparative advantage over American steel producers."

OK, you've just admitted that David Ricardo no longer matters. What matters instead is not comparative advantage but economism dressed up in verbiage about gifts from foreigners.

Demanding free trade on the basis of comparative advantage when it suits you while also glibly ignoring it when it suits you does not seem particularly scientific.

What you are arguing for is that the ends justify the means – an unwholesome doctrine to promulgate in any discipline.

Don, I know you're a smart guy, because you're a JD as well as a Ph.D. – but do you really think your country is a product of markets alone? Do you really think that? If you do, then I'm afraid to tell you that ou seem to have little idea of nationhood.

I would grow one real quick, because the Chinese and Indians sure do.

JohnDewey November 1, 2006 at 4:50 pm

martin: "I'm afraid to tell you that ou seem to have little idea of nationhood.
I would grow one real quick, because the Chinese and Indians sure do."

What are you arguing, Martin? That trade with China is harming Chinese workers? Trade continues to raise living standards in China.

Are you arguing that trade with China hurts the U.S.? How is that? Here's what I see:

- China has replaced other nations – Korea, Mexico, and Guatemala, for example – as our supplier of labor-intensive goods.

- U.S. consumers pay less for many goods we import than they paid for those same goods before we traded with China.

- U.S. manufacturing output continues to grow, at a higher rate the past two years (4.8% and 4.0%) than over the past 30 years (2.9% annually).

- U.S. unemployment remains low by historical norms.

Trade with China is paying off very well, and doing little harm. Where's the problem?

Matthew November 1, 2006 at 5:38 pm

The more I think about it, the less I am reflexively opposed to tariffs on subsidized steel. A corollary of the "cheap steel" applies to the develop world's farm subsidies. If Chinese subsidies just increase the amount steel enjoyed by America's consumers, then wouldn't American farm subsidies do the same for African food consumption? Indeed, it's almost a dogma among economist that farm subsidies hurt both the developed countries and the developing countries.

According to Microeconomics, a subsidy moves the supply curve outward, giving an equilibrium where the marginal cost is greater than the marginal benefit. The area between the supply and demand curves between the Pareto optimal price and the subsidy price is then considered a deadweight loss. A tariff, or tax on the steel, would then shift the supply curve back in, giving the original efficient equilibrium.

However, many problems with tariffs exist in practice. First, anything financed with government money is less efficient than the same amount of money otherwise used in the free market. Thus, if China gives steel producers a hundred bucks per ton (just some wild, uninformed guess), then the marginal supply curves will actually shift out less then the hundred bucks. Also, the steel's quality may decline after subsidization, shifting the demand curve inward. This phenomenon has started to affect Airbus, as Boeing has become more efficient in turning out new airplanes for customers.

I don't know, of course, how much this affects either the worldwide food or steel markets. In the end, the world would be best off without these kind of subsidies in the first place, with every industry having a market of several producers from several countries fighting to give the lowest cost product to the world's consumers.

Kent Gatewood November 1, 2006 at 6:56 pm

Free trade raises helps most living standards in the short run and all of them in the long run.

Posted by: Adam | Oct 31, 2006 11:12:05 PM

I know someone for whom this is not true.

faultolerant November 1, 2006 at 7:22 pm

Don, you say:

“Oh, but what about U.S. steel workers who lose their jobs? They are in the same boat they'd be in if the Chinese steel producer enjoyed a genuine comparative advantage over American steel producers.”

That’s part of the point – the Chinese steel producer DOESN’T necessarily HAVE comparative advantage. They have GOVERNMENT advantage. Don’t you routinely and consistently argue AGAINST that perspective? Unless, of course, it’s inconvenient to your issue-du-jour.

“If a foreigner insists on selling things to us at a discount, it is not the government's place to prevent Americans from accepting such generosity.”

Who says?

Adam:

“your hostility towards those among your fellow Americans who prefer to buy foreign-made products, is a pity.”

I will say it again: What you buy is up to you. Full stop. Can I say that often enough for you? I really don’t give a flying flip what you buy or from whom. Never have, never will. My arguments were about FREE, FAIR TRADE. Your insistence that I’m somehow trying to *make* you buy – or refrain from – buying something is asinine.

“Free trade raises helps most living standards in the short run and all of them in the long run.”

Finally, someone recognizes one of the things I’ve been saying: there are consequences in BOTH the short and long run. The cavalier attitude in here about those who are affected in the short run (“They can just get another job”) is astonishing. Yes, we *may* all benefit in the long run, but we all will *not* benefit in the short run. And why, oh why, should we only look at the short run (i.e. we got cheap stuff! Goody!). That’s why I have said, repeatedly, that – in the short run – we got the cheap crap we wanted. We just may have made a long run error. Of course, long-run concerns, in the econ/lib world are not under consideration, are they?

Morgan:

“It doesn't necessarily follow that the appropriate response to that is to fight fire with fire and impose tarrifs or subsidize competing industries”

You may be right, you may not be. My assertion, unlike Don’s abject acceptance of whatever others wish to do, is that there *are* times to take action, but not necessarily every time. The absurd notion that the US should always accept whatever actions are undertaken by other countries (i.e. Chinese steel subsuduzation) smacks of cowardice and bigotry.

“It would require one of two things, either simultaneous subsidization of every industry, or massive subsidization of industries in a serial manner that results in a series of complete kills”

You hit the head right on the nail. That’s precisely what the Chinese government has stated as a national goal – serial executions. And they’re quite good at it – just look around.

Russel Nelson:

“The fact that his argument fails to sway you says that you lack the economics-fu to understand it.”

So, let me get this straight: If Don says it, it must be true? When did he become a deity? I must have missed the memo. I said his arguments were unpersuasive and I meant it. I understand it, I just don’t agree with it. Of course, based on your comments, if someone doesn’t agree with you they’re stupid. That’s a perspective I think I’ll adopt: You don’t agree with me, therefore you’re an idiot. I like it!

Henri:

“The trouble with this is that your scare story has never happened before.”

So, what you’re saying is that because it’s never happened before it can’t happen now? I’ve heard that those who forget the past are bound to repeat it, but is this a case of those who rely ONLY on the past can’t conceive of the future?

Flynn and Randy:

“Has anyone noticed that Faultolerant is, well, not?

If that’s your idea of witty repartee or a stinging ad hominem….um, you need to work at it. You’re neither clever nor original.

Tom:

“Don has been gracious.”

Bull.

“No cheapshots have been taken”

More bull.

“Too bad you do not wish to even consider a rebuttal. Had your mind been open, you could have learned something.”

I’ve considered Don’s “rebuttal”. I still don’t agree with him. I guess that if I don’t accept your opinion the second time you say it I have a “closed mind”. Hmmmmm – that’s an interesting perspective. OK, I’ll follow along: I’ve said Don’s wrong more than twice, and since you don’t accept my perspective, you have a “closed mind”. See – it sounds stupid no matter who says it.

Kent:

“The market has been good to me, but I know people who are not as well off as they once were and much time has passed.”

Yep, what you read is what they meant. Of course they didn’t mean it on an INDIVIDUAL basis. After all, the INDIVIDUAL doesn’t count here – unless of course if it’s to make another argument of convenience. The market has been very good to me, as well. I, too, know of those who have fallen and have yet to make up that lost ground, and many will never do so. But, of course, they’re better off because they lost those jobs….at least they’re supposed to be, aren’t they?

Caliban:

“you SHOULD have suffered loss because you did something WRONG”

Like what, Caliban? Worked at a job? Raised a family? Didn’t spend enough ime analyzing emerging economic trends and discussing trade phenomena with the “great minds” in this forum? Oh brother.

Martin:

“To my mind that's not economics – that's economism. 'Fairly' and 'unfairly' have particularly hard and fast meanings in this context. “

Concepts like fair and unfair are foreign to economists. Those require higher order emotional and mental functionality. And don’t even discuss national interests. Just because the Chinese and Indians work toward a common good – and not just in their own personal, short term, atomistic interests – we dumb Americans shouldn’t.

Let me summarize here – and this is the last post I’ll make on this subject (I can hear the Huzzah’s now):

I’ve never advocated for protectionism (other than in the pursuit of FAIR trade). I don’t give a flying rats ass where you spend your money. I perceive the anti-US, pro-chinese bias in this forum is morally bankrupt – but that’s just MY morality. Y’all can have whatever morality you like. Just because we don’t agree that doesn’t make anyone “stupid” or any such thing. It’s only small minds – like those noted above – who reflexively assert that “If you don’t agree with me you’re dumb” (or whatever pseudo pejorative you wish to use). That kind of childish commentary should be beneath most people….but I guess you can’t expect that here. Furthermore, while I heartily appreciate a good deal, it doesn’t mean that everyone will benefit in the long or the short run. To blindly assume that china has US interests at heart and will always act in accordance with “the market” is to ignore history. Of course, ignoring inconvenient truths is what this forum is all about, isn’t it? If I don’t agree with YOUR preconceived notions then I’m ignoring “truth” and “history”. Well, get over it – not everything spouted in here has “truth” and “history” behind it as much as it does a rose-colored view of the world. I truly do hope y’all are right. It would be schweeet if it were true. And, if it does come to pass, that my suspicions and distrust of china – and its government – are wrong, I’ll be happy to say so. However, if that isn’t the case……Oh, well, at least you got to buy cheap crap.

python November 2, 2006 at 1:02 am

I am ashamed that I didn't say anything so accurate as to make faultolerant's hall of shame.

Russell Nelson November 2, 2006 at 1:45 am

faulttolerant:

No, when somebody is correct and you don't agree with them, you're an idiot. That conclusion says nothing about what anybody should do when somebody is not correct. Do you understand simple logic? If A then B only says things about B when A is true.

Russell Nelson November 2, 2006 at 1:49 am

faulttolerant says "I perceive the anti-US, pro-chinese bias in this forum …."

The problem is that you do indeed perceive an anti-US pro-Chinese bias. If you understood more about economics, you wouldn't say that. I accept that not everybody is going to learn to become a real economist. It's taken me years of study. But if you post comments on an economics, then you should expect to have to post economic sense rather than economic nonsense.

Henri Hein November 2, 2006 at 1:53 am

"That’s precisely what the Chinese government has stated as a national goal – serial executions."

That may be so, but such a strategy cannot succeed.

"And they’re quite good at it – just look around."

I think you lost several of us here. What are you referring to?

"So, what you’re saying is that because it’s never happened before it can’t happen now"

I would be willing to entertain the possibility if someone could just give a coherent explanation of a plausible scenario.

In the one corner, we have centuries worth of historical data showing us immense benefits from free trade.

In the other corner, we have some poorly explained panic by a few people who are concerned about Chinese intentions.

Since intentions don't matter, I think we can be excused for sticking to the free trade position.

Caliban Darklock November 2, 2006 at 6:50 pm

Faultolerant, the point here is that in a free market, nothing "just happens". It happens for a reason, and that reason is that you did something.

Just because you blame other people for the things that happen to you doesn't make them responsible. It's not their job to prevent you from suffering loss, it's yours. If you suffer loss, YOU failed. Not them.

Marysienka November 4, 2006 at 8:04 pm

"There's simply nothing economically relevant about the fact that a supplier happens to live on one side of a political border and many of that supplier's consumers live on another side of that border."
I am glad to see someone say this; it's how I've always thought of the world. Rock on, Cafe Hayek!

Tom Tamlyn May 27, 2007 at 10:33 pm

No company can compete with a government which is what US companies are being forced to do competing with China.
China cares about China, nothing else, we should care about our country, nothing else.
I resent the implication a business isn't well-run if it can't compete with slave wages being paid in China

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