More Odds and Ends

another collection of short pieces

More on Tariffs

A number of points came up in the comments on my previous post that I thought worth mentioning. The first was that, even if the effect of a tariff on trade is a net cost on the country that imposes it a tariff does produce revenue, is an alternative to other taxes that also impose net costs. This raises the question of whether a tariff is more costly per dollar raised than, say, an income tax. A full answer to that question would require a longer post and more research than I plan to devote to it, but here is a short answer.

As a general rule, a broad based tax is less inefficient, imposes less of an excess burden per dollar collected, than a narrow based tax. As a general rule, and for similar reasons, a tax rate that is a small fraction of what is being taxed is less inefficient than one that is a large fraction.¹ Total US imports, what a tariff is taxing, come to about four trillion dollars a year. Total individual income is about 25 trillion.² To put the point a little differently, replacing the roughly 2.5 trillion dollars currently produced by the individual income tax with a tax on trade would require a tariff that collected more than sixty percent of the total value of imports. That would require a tariff rate of much more than sixty percent, since the tariff would reduce the volume of imports — there might be no tariff high enough to do it.

A second point raised by one commenter is that a tariff could benefit the country that imposes it by reducing world demand for something the country is importing and so lowering its price. That is logically possible and I discussed it in one of my earlier and more detailed posts on tariffs. The same is true of an export tax. Either in effect carellizes consumers or producers to let them take advantage of market power that exists for all of them together but none individually, lets consumers buy at a monopsony price, producers sell at a monopoly price

The third, and to me most interesting, point raised was the idea of setting tariffs collected equal to tariffs paid for each country, which I had offered as a possible definition of retaliatory tariffs, and then transferring the money collected from foreign exporters to US exporters to compensate them for the money they paid in that country’s tariffs. The result, from the standpoint of the US exporters, would be to eliminate the tariff they were being charged.

Trump, given his conventional non-economist view of trade economics, should enthusiastically approve, since the US tariffs would be protecting American producers from foreign competition while the foreign tariffs were no longer a barrier to US exports. He should expect it to reduce the trade deficit, since foreign tariffs would no longer reduce exports and US tariffs would still reduce imports. The only negative result, from his standpoint, would be the loss of tariff income diverted to compensate exporters for the tariffs they paid.

Trump, or perhaps Vance, probably has someone on his staff who understands trade economics and could point out that the combination of tariffs and subsidies would shift the exchange rate, raise the price of the dollar and the cost to foreign consumers of US exports, lower the cost to US consumers of imports, reduce or eliminate the reduction in the trade deficit. The actual effect of the policy would be a tax on trade all of whose revenue was collected by other countries.

But pointing things out to Trump that he doesn’t like is probably not a good way to advance a career on Trump’s staff, or even Vance’s.

Explaining Bigotry: Maps and Costs

The world is a complicated places. Human beings — in law, language, and thought — deal with it by constructing models of reality simple enough to think through, accurate enough to be of use. People are alive or dead, married or not married, male or female, adult or child. Things are either people or not people.

From time to time the misfit between model and reality makes itself painfully obvious. The transition from fertilized egg to adult is continuous, with a not-person at one end, an adult person at the other, a child in the middle and no sharp dividing lines. When we try to deal with that fact the intellectual tools with which we deal with the world, tools based on those simplifications, stop working, which most of us find confusing and unpleasant.

For a more recent example, consider transsexuals. Interacting with them is difficult, may be uncomfortable, because they don't fit the patterns for which we are prepared, are not unambiguously male or female. A similar problem occurs with same sex marriage. Such a couple doesn't fit the template most people have for either a married or unmarried couple, so our precomputed calculation of how to deal with couples in social situations don't quite fit. An older version of the same problem occurred when people started openly living together, sometimes having and rearing children, without being formally married.

When people do things that make my models of the world, on which my daily life depends, stop working, it is natural for me to be irritated. It is even natural for me to try to stop them from doing those things, since if I succeed I will be back with a real world close enough to my mental model to make the latter usable. All of which suggests a rational explanation of at least some bigotry.

And the nature of the abortion controversy.

Avoiding Polarization

In recent years, politics has become increasingly polarized. A poster on an online forum I read suggested that one reason was an increasing correlation between what someone’s political views were and which party he was in. In the limiting case, assuming political views can be described by a one dimensional ordering, the Republican party contains everyone right of the median voter, the Democratic party everyone left of him.

Even in that case there could be cross party coalitions to support or oppose laws or policies, because not all laws and policies have clear left/right locations. One could imagine, for example, a law that made activist policy easier being supported by the right and left and opposed by the center. More possibilities come from the fact that political views are not one dimensional. Marijuana legalization has in the past been supported by both the libertarian right and parts of the left, opposed by conservatives and other parts of the left. Tariffs are supported by the populist right, opposed by the economic right, supported by the union left, opposed by the internationalist left.

It seems likely, however, that there would be more cross party alliances and less ferocious interparty warfare if each party was closer to an ideological mix, with liberal Republicans to the left of conservative Democrats, as was the case sixty years ago.

Suppose you believe polarization is bad, is pushing the country towards the sort of system where the party in power has no scruples in using its power, including its control of the legal system, to stay in power, a trend arguably signaled by actual lawfare against Trump, anticipated lawfare by Trump, and the burst of pardons from first Biden and then Trump just before and after the inauguration. How could you modify our political system to make the parties less well sorted?

One answer is to have government focus more on issues that don’t fit the left/right pattern, giving parties an incentive to sort membership on different criteria.

Juvenilizing Parents

I recently heard someone on the radio talking about the reaction of parents to their children starting to date. Reactions mentioned included feelings of jealousy, since it is an experience the parents can no longer have, and rethinking their own dating history. Not mentioned, at least until I turned off the program, was parental concern with the person their child was dating, whether he or she would be good for their child, perhaps, if all went improbably well, whether this was someone they would want to add to their family. It struck me as an odd attitude, implicitly ignoring the traditional structure of the family, parental responsibility, things parents could and should teach their children.

The speaker’s attitude to parents reminded me of:

“When I was a boy of 14, my father was so ignorant I could hardly stand to have the old man around. But when I got to be 21, I was astonished at how much the old man had learned in seven years.” (Mark Twain)

I assume that he (or she — I don’t remember) was more than fourteen.

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1. The reason is that revenue is roughly proportional to the tax rate, less than proportional taking into account the reduction in quantity due to the tax, cost in reduced consumer and producer surplus to the square of the tax rate, surplus being an area on the relevant graph. Hence the excess burden from a tenth the rate on ten times the basis is about a tenth as large. I better explanation requires a course in price theory which I cannot fit into a footnote but offer for free in either of two books, Hidden Order or Price Theory.

2. For simplicity I am ignoring the fact that tariffs do not fall uniformly on all imports or income tax on all income.