Monday, July 23, 2012

Getting off on the Wrong Foot

Hi everybody. My name is Neal and I'm going to try and help Josiah out and write a few posts here. I know Josiah likes to talk about elections and politics and all that, but I have roughly zero experience and, frankly, zero interest in the minutia of the clusterfuck that is American politics. I do enjoy economics which overlaps with politics quite often, usually in the form of politicians ignoring any of the insights of economics and doing whatever they want. So, I expect that my posts will probably just be an extended series of facepalms and rants, so bear with me. I'll do my best to try and tie things in to politics, but this is the internet, so no promises.

Everyone hates special interests. Of all the things that are messing up this country, special interests are at the top of the list. They're jerks. They think that they are so important that they demand what they want from the government, damn anyone else. They want the rest of us to pay for the things that they like and justify it based on some half baked theory about how it really is good for everyone, not just them.

So, today I'm going to highlight one of the biggest, most insidious special interest groups out there; people with manufacturing jobs. People who work in the manufacturing sector are always trying to tell us how great manufacturing jobs are for America and that the government needs to pass laws that encourage more manufacturing jobs. They want the government to give them loans so they can build new factories and place tariffs of foreign goods so that they can compete with foreign manufacturers. They want consumers to pay higher prices so that they can make more money, classic special interest behavior.

Of course they don't ever come out and say that. They claim, like every special interest, that whats good for them is good for the country, but it clearly isn't. Sure some people are better off, but everyone is worse off. If the government is giving them tax credits or low interest loans or just giving them cash, than all taxpayers are worse off. If there are tariffs then all consumers are worse off by paying more for goods.

Does the damage done to consumers outweigh the benefit to manufacturers? Yes. This simple supply and demand graph shows how. The box marked tariff revenue is how much the government receives from the tariff. The boxes marked x and y are called the deadweight loss. The deadweight loss is how much value is lost because of the tariff. This value doesn't get shifted from consumers to producers or get collected by the government; it's gone. On the whole, we are worse off. It's true that producers are better off, and the government has more money, but those two combined are less than what consumers lose.

So, why do I bring this up? Mainly it's because of the "controversy" about the Olympic uniforms (which I agree should be burned, although on the grounds that we should burn shitty uniforms, but not because they are from China) and about Mitt Romney's company outsourcing jobs. Any time the government tries to protect domestic producers, it does so at the cost of consumers. It's no different than when it helps any other special interest group.

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