About a year ago I was asked to participate on a committee (I know yikes a committee) from our local school district. The idea was to pull together the community to work with district personnel to better prepare students for college and working life. Our district has an outstanding track record in academics and that is one of the main reasons that we moved here long before we had children of school age. At one of the first meetings we brainstormed about topics where more emphasis was needed to better prepare our children.
I was somewhat surprised and disappointed when parents, teachers, and members of the business community started listing ideas like “diversity,” “social justice,” etc. I piped up and stated “economics.” They asked what I meant and I said that most folks really do not know anything about real economics and our children should be better prepared to evaluate economic issues. The topic was listed, but not very enthusiastically.
Fast forward to a story that appeared in a local paper where “U.S. elected officials accused China on Tuesday of stealing American jobs.” I was trying to visualize how the Chinese snuck over and stole these jobs. They would certainly have used the largely unprotected southern border with Mexico to take the jobs, but how did they transport the jobs?
The “U.S official” turns out to be Pennsylvania’s Gov. Ed Rendell who is an expert in jobs losses as he has lead Pennsylania from 5.5% unemployment when he was first elected in 2002 to a whopping 9.5% today (data available through September 2009). Playing on our fears about job losses and a terrible economy, Rendell equates the fact that the Chinese are able to sell steel pipe to Americans cheaper than it can be made here with job theft. We must act now as Rendell claims that, “This country has been a patsy for too long, and we are getting the you-know-what kicked out of us.”
Them fightin’ words were swiftly followed by a call for import tariffs on Chinese goods. Of course the United Steelworkers Union and manufacturers agreed with the call. These are the folks who cannot compete with the less expensive Chinese products and will have their jobs “stolen” by the Chinese.
Here is where understanding economics comes into play. If Americans really understood economics a series of logical questions immediately come into play.
- How can the Chinese afford to make a product like steel pipe and ship it across the world (this pipe is heavy) and still sell it cheaper than when it is made much closer to where it is used?
- How does the claim that Chinese subsidies allow the cheaper prices make sense when subsidies are then paid for by the same Chinese people? Chinese workers will be required to receive higher wages to pay for the subsidies resulting in higher prices for their produced goods.
- Why would the United States government impose a tariff on a product that will have the very real effect of raising energy prices for virtually all Americans? These pipes are to be used in the oil and gas industry to provide energy to American businesses and homes. Most Americans get at least a portion of their energy from these sources. If the price for the materials needed to produce this energy increases, does it not follow that the price to consumers for this energy will also increase?
- What segment of the population benefits from the imposition of these tariffs?
- Won’t the imposition of tariffs cause other countries to impose tariffs on our goods?
None of these questions were raised in the Reuters story, but the answers are certainly there. Governor Ed Rendell is calling for a tariff on goods to protect a few of his union buddies even though the net result will be an increased cost to all Americans. There will be a large and direct benefit to the union workers and to the businesses while the increased costs are spread around to many people. I guess this is kind of like to each (unions) according to their needs and from each (the rest of us) according to our ability. The harms are spread our so that their impact is less noticeable.
GOOD POLITICS = BAD ECONOMICS
As more and more people call for “protection,” “tariffs,” and ” subsidies” these incremental harms really start to add up as every industry wants their piece of the pie. One can only surmise that politicians like Rendell know enough about economics to understand the ramifications of tariffs. So what is their motivation? Who gains? The only ones who really benefit are the politicians who gain power.
“See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what hte citizen himself cannot do without committing a crime…[this law] is a fertile source for further evils because it invites reprisals. If such a law is not abolished immediately, it will spread, multiply, and develop into a system.”
Frederic Basiat (The Law, 1850)
I probably should have included History as a subject where students (and adults) could benefit from more instruction.