McCaughey Flunks Econ 101

by Don Boudreaux on March 14, 2018

in Crony Capitalism, Myths and Fallacies, Trade

Here’s another letter to the New York Sun:

In one of the most astonishingly fallacious assertions in an essay teeming with astonishingly fallacious assertions, Betsy McCaughey writes “Critics claim tariffs will raise steel prices.  That’s questionable.  The opposite is more likely to happen, industry experts suggest.  Tariffs will shift demand to domestic steel, enabling plants here to operate closer to capacity.  That will bring down the unit price of American-made steel – not raise it.  That’s Economics 101” (“Case for Trump Tariffs Centers on the Danger Of a Genuine War,” March 13).

Ms. McCaughey – like her ex-husband, Wilbur Ross – must have failed Economics 101.  Here are relevant lessons that are really taught in Economics 101 (a class, by the way, that I teach every semester at George Mason University).  First, shielding producers from competition makes the outputs they produce more scarce, thus raising prices.  Second, if it is true (as Ms. McCaughey asserts) that untapped economies of scale are available by expanding outputs, and that such expansions will lower prices and enable (in this case) American steel and aluminum producers to profitably charge lower prices than they now charge, then American steel and aluminum producers will so expand their outputs without any government prodding.  So why have they not yet done so?

That is, if what Ms. McCaughey asserts about the current existence of untapped economies of scale is true, then the men and women who currently run American steel- and aluminum-producing firms should not be rewarded with protection from competition but, instead, fired for gross incompetence.

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

P.S. Bureaucrats at the Commerce Department – cited by Ms. McCaughey as “industry experts” – are, well, not such experts.


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