Tariffs Make Us Poorer in the Long Run

I was drinking last night in Snyder's tavern in West Shokan, and two friends were defending Trump's tariff program. After four Canadian Clubs, I wasn't about to go into the apples-and-oranges example that illustrates comparative advantage; then, one of the friends emailed this Breitbart column defending the tariffs because products made with the protected metals have been in strong demand. 

Comparative advantage is a simple insight: If someone can do something that you can do, even if not as well as you (i.e., so that they are poorer and less productive than you in all respects), it makes sense to have them do the thing or things at which they are most productive or at which you are least productive if it enables you to spend more time on the things on which you are most productive. The total output goes up (their production plus your greater production), and the surplus can be divided.

Studies of comparative advantage have confirmed that it works in the real world. When you shop at Wal-Mart or Target, you benefit from free trade.

When tariffs are first imposed, it is normal for output in the protected industries to go up in the short-term because the effects of making yourself poorer aren’t yet felt. In addition, today’s economy is accelerating due to the monetary expansion of the Obama years. There is high demand as the monetary cycle peaks, which probably enhances the short-term effect on the protected industries. 

The greater demand for home-based products (what Breitbart calls “firms hit by tariffs”) creates short-term employment gain in those few industries. A year or two after employment goes up in the specific industries, the prices of the protected products that they make go up, so there is less money to spend, and demand in other areas falls, so people lose jobs in computers, plastics, barber shops, and so on.

The tariffs make the protected industries seem to do better (as Wall Street has done since the 1970s because of monetary subsidies), but in a few years everything else turns sour. You will have made yourself poorer.

Here is an article by Deirdre McCloskey on comparative advantage that may be helpful.

Tariffs are one example of short-term or focusing-on-the-obvious-but-ignoring-secondary-effects thinking that the famous book by Henry Hazlitt, Economics in One Lesson, explains. It is an easy-to-read book, and I recommend it. It is available for free here.

Town of Olive Republican Committee

I got myself appointed to the Town of Olive Republican Committee. Chet Scofield, the Town chairman, leads a group of about 10 or 12 committee members. The meetings are held at Chet's bar, Snyder's, which is on NY 28A in between Watson Hollow Road and NY 28. I thought the committee has great potential and there are quite a few great Republicans in the Town of Olive. Robin Yess, who ran for state assembly in our district last year, was at the meeting in June. I was added to the committee and carried my own petition along with several others to voters in the Olivebridge district. I live in a different district, West Shokan, but Town residents are allowed to cross over.

Here are some things I learned:

1. Olivebridge and the Town of Olive constitute an incredibly beautiful district. I have petitioned in New York City and I must say, it is a pleasure to drive around a place as beautiful as the Ashokan Reservoir, Route 213, Brown Station, Beaverkill Rd. Driving around there is like being on vacation.

2. The Olivebridge Republicans are a rather contrary group. I think some of them aren't sure if they're Republicans and I had to pull teeth to get 20 signatures. In part the difficulty is the distance. When New York City gutted the Town of Olive and submerged about three quarters of it in the Ashokan Reservoir, they left scattered streets and roads which now constitute the Olivebridge district. It is a disjoint place. It was probably among the first instances of a community utterly devastated by modern urban planning. New York City still pays the County of Ulster a fee for the use of the reservoir land, and Olive does not get its fair share. Recently, a "large parcel" tax bill removed the payment for Olive to the County, and the good people of Olive are justifiably annoyed.

3. There are a lot of very concerned people here, many of whom are quite unhappy with the nation's socialist direction and the incompetent Democratic leadership in Washington.

4. I think the Republican Committee in Olive and everywhere else has a great opportunity. The Democratic Party advocates a stupid, failed ideology, social democracy. The sorry excuse for American politics that we have seen under Bush and Obama poses opportunities.