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Protectionists in a Pickle

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This post is inspired by the comments on this earlier post [2], especially by those of C___ W___.

Scenario 1: Sam produces pickles in competition with Sue.  Although from a family background nearly identical to Sam’s, Sue started saving much earlier than did Sam.  As a result, Sue has more money saved for which to use to build her pickle factory.  As a result, Sue builds a larger factory than Sam builds and, producing at lower cost per jar, Sue is on the verge of running Sam out of business.  Should the government impose a punitive tax on Sue’s pickles?

Scenario 2: Sam produces pickles in competition with Sue.  Although from a family background nearly identical in monetary wealth to Sam’s, Sue – unlike Sam – has an uncle who learned the art of making pickles as a young boy.  Sue’s uncle teaches Sue this pickle-making art free of charge.  As a result, Sue can produce pickles at a lower cost per jar than can Sam.  Sue is on the verge of running Sam out of business.  Should the government impose a punitive tax on Sue’s pickles?

Scenario 3: Sam produces pickles in competition with Sue.  Sue’s rich uncle lent her money at a below-market rate of interest to construct her pickle factory.  (Sam, alas, has no rich uncle.)  As a result, Sue builds a larger factory than Sam builds and, producing at lower cost per jar, is on the verge of running Sam out of business.  Should the government impose a punitive tax on Sue’s pickles?

Scenario 4: Sam produces pickles in competition with Sue.  Sue’s uncle has connections with a local bank.  He uses his connections to persuade the local bank to lend Sue money at a below-market rate of interest to construct her pickle factory.  (Sam, alas, has no such well-connected uncle.)  As a result, Sue builds a larger factory than Sam builds and, producing at lower cost per jar, is on the verge of running Sam out of business.  Should the government impose a punitive tax on Sue’s pickles?

Scenario 5: Sam produces pickles in competition with Sue.  Sue is a citizen of a different country.  In Sue’s country, the government has spent a great deal of taxpayer money building a vast network of especially safe, remarkably smooth, and impressively wide roads.  As a result of these unusually high government highway expenditures in Sue’s country, Sue can sell her pickles at a lower price per jar than can Sam.  Sue is on the verge of running Sam out of business.  Should Sam’s government impose a punitive tax on the pickles that Sue offers for sale in Sam’s country?

Scenario 6: Sam produces pickles in competition with Sue.  Sue is a citizen of a different country.  In Sue’s country, the government has a policy of subsidizing domestic pickle producers.  As a result of these subsidies, Sue can sell her pickles at a lower price per jar than can Sam.  Sue is on the verge of running Sam out of business.  Should Sam’s government impose a punitive tax on the pickles that Sue offers for sale in Sam’s country?

What are the difference between these scenarios?  The only relevant differences that I see are between scenarios 5 and 6, on one hand, and the earlier scenarios, on the other hand.  Only in 5 and 6 is Sue’s comparative advantage over Sam at selling pickles the direct result of government policy.  Most people will find no reason to object to the government policy in scenario 5; lots of people will object to the government policy in scenario 6.

But I say that these government policies are not as different as they at first appear.  Certainly from the perspective of Sam and Sue – and of pickle consumers – the effects of the policies are identical.  Any relevant economic differences in the policies have to do with their respective effects on the economy of Sue’s country (and on the economic well-being of Sue’s fellow citizens).  A case can be made that the building of good roads is a good policy for the people of Sue’s country.  It’s far more difficult to make a case that the people of Sue’s country are on the whole made better-off by their government’s policy of subsidizing pickle producers.  But note that the differences between the government policy featured in scenario 5 and that of scenario 6 are irrelevant for people in Sam’s country.  In both cases, those government expenditures in Sue’s country improve the economic well-being of people in Sam’s country.  The relevant losers from the government subsidies in scenario 6 are the citizens of Sue’s country.  They have a right to complain.  Sam, in none of the above scenarios, has any legitimate right to complain.  He is not a victim in any of the scenarios.  The only victims in any of the above scenarios are the people of Sue’s country, and then only for sure in scenario 6.

And in all of the above scenarios, the government of Sam’s country would unambiguously make the citizens of Sam’s country poorer than they would otherwise be by imposing a punitive tax on Sue’s pickles.

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