Don’t Follow the Yellow-Goods Road

by Don Boudreaux on August 14, 2014

in Crony Capitalism, Myths and Fallacies, Seen and Unseen, Subsidies, Trade

Here’s a letter to the Washington Post:

You rightly highlight the dubious assumptions used by the Export-Import Bank to estimate the number of jobs its subsidies “support” (“Seeking clarity on the number of jobs the Export-Import Bank is responsible for,” August 14).  Yet a deeper truth deserves prominence - namely, subsidizing exports is no more likely to increase overall employment than is subsidizing any other class of goods or services.

Suppose that, instead of the Ex-Im Bank, we had a Yellow Goods Bank.  This bank would subsidize all purchases, foreign and domestic, of maize, summer squash, school buses, and other goods colored yellow.  Such subsidies would indeed result in larger numbers of people working to produce yellow goods.  But such subsidies would also pull resources - financing, raw materials, machinery, and workers - from the production of beets, blue jeans, cardiovascular surgery, and other non-yellow outputs.

Because sensible people are unlikely to be duped into thinking that a government policy of artificially increasing the production of goods described as “yellow” means a stronger overall economy, why do so many otherwise sensible people continue to fall for the mercantilist myth that a government policy of artificially increasing the production of goods described as “exports” means a stronger overall economy?

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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