Monday, February 11, 2008

Income v. Consumption Inequality

Two Federal Reserve Dallas economists explain why inequality is generally overstated - and protectionism is a bad idea - in a brief NY Times essay.


Carol L. Douglas said...

The parenthetical clause vis-a-vis how many of the bottom earners are retirees--"the exact proportion is unclear"--is wide enough to drive a house through. One could just as easily assume these bottom numbers belong to laid-off Kodak employees.

I enjoy finding examples of every sort of calamity in Roman history. There the flood of cheap grain from conquered provinces destroyed its small farmers, who then flocked to the city in search of 'bread and circuses.' The politics of Rome became pitched to placating them. This led inexorably to the collapse of the Roman Republic.

I am mostly interested in tariffs as a way to protect American industries for strategic purposes, rather than consumption purposes (higher energy costs act as tariffs but are unfortunately collected by our enemies rather than by us). I think it's unhealthy to have no steel factories, no grain fields, no shoe manufacturers. If it were true that trading nations never go to war it would be because they can't, rather than that they are not so motivated. And they certainly are the victims of war--see the Benelux nations as my prime example.

Chops said...

High tariffs would cause an immediate Great Depression (just like the Smoot-Hawley tariff did the first time).

I understand your motivation isn't economics, but that's a high price to pay - and it assumes that tariffs would in fact make us safer.

The U.S. is a net exporter of food, particularly grain, so no worries on that count. And we make almost all our own weapons, which is obviously strategically important.

Even more, though: countries hate countries with high tariffs. The U.S. sows ill-will in the world with every protective quota and tariff. The more we protect American oligarchs (as we do in the sugar industry, for instance) the fewer friends we have overseas.

I think the economic boom that free trade with the U.S. is creating in Jordan is a lot more valuable to America's strategic interest than the benefit of producing more cotton shirts and cheap industrial goods at home.

Carol L. Douglas said...

I am old enough to remember when the US was a net exporter of steel, heavy machinery and automobiles, not to mention tobacco and hemp. So I am not terribly comforted that at this moment we export more grain than we import, and every time I look at posh fruit at Wegmans and posh wines at the corner hooch store, my unease advances.

How does one build a naval fleet without a steel industry? How does one float it without working oil wells? (The oil reserve was Jimmy Carter’s one good idea, BTW.)

People who complain about our current “war for oil” would do well to re-read WWII history—see Molotov-Ribbentrop Pact, the African campaign, invasion of Soviet Union, Japan’s southeast Asia strategy, our strategy to starve Japan of oil, etc. ad nauseum. It was a war by and about oil and should serve as a warning for future militarists—without a well-stocked supply train, you’re cooked.

The problem is, you can’t suddenly start making boots and steel and flour if you don’t have the factories in the first place. If we aren’t going to make the items, we have a strategic interest in being able to start to make them fast if we need to. If we learned anything from sugar it ought to be how quickly industries can be nationalized by a hostile government.

I’m not interested—in the least—in propping up rich folks. Hence I am very opposed to illegal immigration, since high immigration rates benefit the wealthy. And I am equally disinterested in tariffs for their own sake. However, I do think our primary national policy ought to be stabilization rather than flat-out economic growth.