I would benefit from an Ask Me Anything with David Friedman. For me, that is the best reason to have one. However, I fear that for David Friedman, most of the answers would be, "see Chapter x of "Hidden Order" (or "Price Theory")", or, "See my post at *link*," which would be boring for the respondent. How about an Ask Me (and an editorial assistant who posts links) Anything?
This is brilliant but isn't there another reason for not having tariffs against China, even on military goods? Namely, the more we trade, the friendlier our relations and the less chance of war.
Russia attacked Ukraine. Russia already had trade relationships with Ukraine and rest of the Europe, it did not matter. In autocratic regimes, the only thing the ruling class cares about is maintaining their hold on the power. They do not care about wealth of the citizens and their wealthy class.
I wonder what David Friedman would say. Couldn't the author of the Great Illusion, if he were alive, argue that the wars experienced since 1914 were caused by provocative actions that couldn't be mitigated completely by trade? One could still argue that trade helps. Respectfully, Joy
One of the strongest arguments for tariffs is that tariffs are a kind of Pigouvian tax.
The communist party of China is a bad organization that has bad effects on the world. When one trades with that government or its subjects, one slightly strengthens the Communist Party of China, thus imposing a negative externality on everyone else in the world. A tariff could arguably internalize that externality.
Of course, this only applies to trade with hostile countries, not allies.
Following the path of Trump's tariff policy making, or better, threatening, was at first for me like following a random walk. Over the months I have learned that that is his MO. It is hard to figure out his desired end results. That is on purpose.
Using two venerable models of trade theory, one long run and one short run, I know what he is doing. He is tilting the income distribution to his voters. The deviation from freer trade means the winners win less than the losers lose, but the losers are not his voters. As I've posted before, Trump is not a trade theorist, but the idea that American workers are aided by protection was extant in the US labor movement well beyond the 1930's, and Trump would certainly have heard something about it in New York City.
Now, the venerable models have extreme simplifying elasticity assumptions, perfect substitution between domestic and foreign goods, e.g. I need a computable general equilibrium model to give a contemporary answer, and I don't have one. [I understand the principles of these things, I just can't do it.] I'm not worried because all empirical elasticity estimates are too low anyway, so I trust the old time medicine will give roughly the right answer, certainly in direction.
I'm looking at the swing states, the rust belt. Getting manufacturing back is the common man's version of increasing the real wages of specific skills in the short run and unskilled labor in the long run [and probably even in the short run].
You are right about agriculture. I'm guessing the great Midwest and South are not marginal to the Trump coalition. They are decidedly infra-marginal. But just in case, Trump promises side payments from new tariff revenues to the losers in his coalition.
ETA: It is hard to stay aware of how small a share of the US labor force is in agriculture -- 1.2%. And the touted ancillary industries, such as food processing, will benefit from lower agricultural prices.
I would offer another option. There is an argument for tariffs as a source of revenue, and that is how nearly all of our national tax revenue was raised from the founding.
What issue would you have with a tariff that was both extremely broad-based and relatively low? At this point, the US has a self-designated need to keep peace and free transit of container shipping. Wouldn`t a low but broad tariff be reasonably able to support the US military? It could even be designated for that purpose.
I agree that a revenue tariff has some desirable incentive effects on the government that imposes it. But it also gives the government an incentive to set revenue maximizing rates.
I think the WTO rules for tariffs (from which the USA has recently defected) seem pretty reasonable, where basically you're allowed to single out categories of goods for higher tariffs but you're not allowed to single out countries for higher tariffs (but you are allowed to have free-trade areas). This allows the tariffs that protect the military industry while disallowing a lot of the damaging policies we've seen lately.
The argument for tariffs to protect the military industry only makes sense for tariffs against countries that won't be available to buy from if there is a war.
Was Hamilton wrong to argue for fair trade rather than free trade? Would the US have industrialized as rapidly if he had bought the free trade argument?
China is a low cost, high quality producer. The US desperately needs to learn how to do the same. The question is how. Trump answer seems to be by following Hamilton’s strategy. What other options are there?
Yes he was wrong. How does a tariff, which shifts US production away from things we are good at producing (export goods) to things we are bad at producing, help?
In what sense is China a "low cost producer"? What unit are you measuring cost in?
I don't remember Hamilton arguing for fair trade. What he argued for, and it was in the air in his time already, was infant industry protection.
It is often forgotten that Frederich List's first publication on the infant industry argument has a Philadelphia imprint [Outlines of American Political Economy,1827], written while he was exiled to America for political reasons. [He was too classical liberal.] I once held the book in my right hand. :-)
According to Stossel's Election Betting Odds, Vance is currently the favorite to be elected President in 2028, with a 27.7% probability. However, oddly, the next President has a 54.7% chance of being a Democrat. I doubt that any Democrat would listen to you (Newsom is the heavy favorite in the Democratic field, with AOC a distant second). However, if a Republican wins, I hope you'll offer your services. I can't see what you have to lose by doing so.
Yes, absolutely. There's the The Volokh Conspiracy at Reason.com, that does the opposite. Once a week there's an open thread where commenters can comment. I'd rather have you comment.
Yes, of course. But if one can identify flows of goods necessary for defense, a per unit production subsidy is better.
Focusing on flows is natural in America, for that is how America has won its wars. Russia, too, I might add. Seeking enlightenment, I happened upon Venice, a sea power. Instead of amassing a navy, Venice amassed a fleet in kit form! The kits were knock-down, unmanned, and stored at the Arsenal. When needed, the kits were assembled and manned by merchant seamen. Those were the days.
With navies it's always been about stocks, though not so much for the United States. Germany tried a guerre de course with a flow of U-boats. Didn't woik against the British with a stock of ships [with serious American help from a flow.]
It's not too different post World War II. Navies are still stocks. In addition, part of military might is nukes, but we keep a stock, a bloody big one. Wish we could have nuke kits!
I'm guessing that the ground element of warfare nowadays is not at all like the Napoleonic flow of bodies and arms. What matters is the stuff you start out with.
ETA: And that means the technology you start out with. For a technological race during a war, only the technologists matter, and past tariffs and subsidies are almost irrelevant here unless we knew precisely how the technology race would unfold. Drones, e.g., turned Blitzkrieg back into WW I in Ukraine. The technology was known before the start of hostilities but it was not known how it would work out.
Anyway, the flows leading to accumulating stocks might have to be subsidized, best not protected by tariffs.
In principle, what you should subsidize is not production but ability to produce, factory kits. But it would be hard to measure hence hard to subsidize.
India is adamant on not opening the dairy sector. Govt does not subsidize it but the sector employs hundreds of millions.
Indian customers can, I believe, absorb any amount of dairy imports. There is great demand but dislocation to the entire rural economy is probably not worth it.
Prior to the German invasion, the Soviet Union had the most tanks and the most airplanes of any nation in the world, many multiples of other countries combined. Almost all obsolete at the moment of impact! But the Soviets had American designed factories for mass production, which happened to be precisely what was needed. Of course, no one knew that for certain ahead of time. Somebody guessed right.
There are simpler cases when technology doesn't matter, or not so much. In time of war, you need food. If you're not the US or France, don't grow it aided by policy, but store it! That amounts to a subsidy. A decent example is post-Berlin-airlift Berlin. Over time everything was accumulated, including meanwhile unfashionable shoes for women!
Well, it's a tough knowledge problem. Or better, a tough insurance problem.
I would benefit from an Ask Me Anything with David Friedman. For me, that is the best reason to have one. However, I fear that for David Friedman, most of the answers would be, "see Chapter x of "Hidden Order" (or "Price Theory")", or, "See my post at *link*," which would be boring for the respondent. How about an Ask Me (and an editorial assistant who posts links) Anything?
You can download his books, feed them to Gemini or ChatGPT and ask "What might be DDF's answer to following questions?"
Someone told me that she had done that, created a virtual David Friedman.
This is brilliant but isn't there another reason for not having tariffs against China, even on military goods? Namely, the more we trade, the friendlier our relations and the less chance of war.
Russia attacked Ukraine. Russia already had trade relationships with Ukraine and rest of the Europe, it did not matter. In autocratic regimes, the only thing the ruling class cares about is maintaining their hold on the power. They do not care about wealth of the citizens and their wealthy class.
Great point!
Yes, Norman Angell, The Great Illusion, 1910. With all my soul, I wish he had been correct. He was not.
It is also the thesis of a Kipling poem I recently mentioned: The Peace of Dives.
Also written shortly before WWI.
What is the thesis of The Great Illusion?
https://en.wikipedia.org/wiki/The_Great_Illusion
What is your evidence that he was not, if you don't mind my asking?
World history since 1914.
I wonder what David Friedman would say. Couldn't the author of the Great Illusion, if he were alive, argue that the wars experienced since 1914 were caused by provocative actions that couldn't be mitigated completely by trade? One could still argue that trade helps. Respectfully, Joy
One of the strongest arguments for tariffs is that tariffs are a kind of Pigouvian tax.
The communist party of China is a bad organization that has bad effects on the world. When one trades with that government or its subjects, one slightly strengthens the Communist Party of China, thus imposing a negative externality on everyone else in the world. A tariff could arguably internalize that externality.
Of course, this only applies to trade with hostile countries, not allies.
Okay then explain the tariffs on Canada, UK, Japan, South Korea and India.
As he mentioned at the end of his comment that the reasoning only applies to trade with hostile countries, not allies.
Finding meaning, logic and rhyme in the Trumpian tariffs might make Tasseography look like a real logical science.
Following the path of Trump's tariff policy making, or better, threatening, was at first for me like following a random walk. Over the months I have learned that that is his MO. It is hard to figure out his desired end results. That is on purpose.
Using two venerable models of trade theory, one long run and one short run, I know what he is doing. He is tilting the income distribution to his voters. The deviation from freer trade means the winners win less than the losers lose, but the losers are not his voters. As I've posted before, Trump is not a trade theorist, but the idea that American workers are aided by protection was extant in the US labor movement well beyond the 1930's, and Trump would certainly have heard something about it in New York City.
Now, the venerable models have extreme simplifying elasticity assumptions, perfect substitution between domestic and foreign goods, e.g. I need a computable general equilibrium model to give a contemporary answer, and I don't have one. [I understand the principles of these things, I just can't do it.] I'm not worried because all empirical elasticity estimates are too low anyway, so I trust the old time medicine will give roughly the right answer, certainly in direction.
Who do you assume his voters are? He does well in rural areas and agriculture is an export industry hence harmed by tariffs.
I'm looking at the swing states, the rust belt. Getting manufacturing back is the common man's version of increasing the real wages of specific skills in the short run and unskilled labor in the long run [and probably even in the short run].
You are right about agriculture. I'm guessing the great Midwest and South are not marginal to the Trump coalition. They are decidedly infra-marginal. But just in case, Trump promises side payments from new tariff revenues to the losers in his coalition.
ETA: It is hard to stay aware of how small a share of the US labor force is in agriculture -- 1.2%. And the touted ancillary industries, such as food processing, will benefit from lower agricultural prices.
I would offer another option. There is an argument for tariffs as a source of revenue, and that is how nearly all of our national tax revenue was raised from the founding.
What issue would you have with a tariff that was both extremely broad-based and relatively low? At this point, the US has a self-designated need to keep peace and free transit of container shipping. Wouldn`t a low but broad tariff be reasonably able to support the US military? It could even be designated for that purpose.
Thoughts?
I agree that a revenue tariff has some desirable incentive effects on the government that imposes it. But it also gives the government an incentive to set revenue maximizing rates.
And the revenue maximizing tariff rate is greater than the optimum tariff rate.
I think the WTO rules for tariffs (from which the USA has recently defected) seem pretty reasonable, where basically you're allowed to single out categories of goods for higher tariffs but you're not allowed to single out countries for higher tariffs (but you are allowed to have free-trade areas). This allows the tariffs that protect the military industry while disallowing a lot of the damaging policies we've seen lately.
The argument for tariffs to protect the military industry only makes sense for tariffs against countries that won't be available to buy from if there is a war.
Was Hamilton wrong to argue for fair trade rather than free trade? Would the US have industrialized as rapidly if he had bought the free trade argument?
China is a low cost, high quality producer. The US desperately needs to learn how to do the same. The question is how. Trump answer seems to be by following Hamilton’s strategy. What other options are there?
Yes he was wrong. How does a tariff, which shifts US production away from things we are good at producing (export goods) to things we are bad at producing, help?
In what sense is China a "low cost producer"? What unit are you measuring cost in?
I don't remember Hamilton arguing for fair trade. What he argued for, and it was in the air in his time already, was infant industry protection.
It is often forgotten that Frederich List's first publication on the infant industry argument has a Philadelphia imprint [Outlines of American Political Economy,1827], written while he was exiled to America for political reasons. [He was too classical liberal.] I once held the book in my right hand. :-)
I like the idea of an AMA. I like more the idea of you becoming an economic advisor to the President.
I am confident he would not take my advice. The VP would at least understand it but would also not take it.
Would you consider trying?
No. If Vance wins in 2028 I might try to get some arguments to him.
According to Stossel's Election Betting Odds, Vance is currently the favorite to be elected President in 2028, with a 27.7% probability. However, oddly, the next President has a 54.7% chance of being a Democrat. I doubt that any Democrat would listen to you (Newsom is the heavy favorite in the Democratic field, with AOC a distant second). However, if a Republican wins, I hope you'll offer your services. I can't see what you have to lose by doing so.
Should I do an AMA?
Yes, absolutely. There's the The Volokh Conspiracy at Reason.com, that does the opposite. Once a week there's an open thread where commenters can comment. I'd rather have you comment.
Yes, of course. But if one can identify flows of goods necessary for defense, a per unit production subsidy is better.
Focusing on flows is natural in America, for that is how America has won its wars. Russia, too, I might add. Seeking enlightenment, I happened upon Venice, a sea power. Instead of amassing a navy, Venice amassed a fleet in kit form! The kits were knock-down, unmanned, and stored at the Arsenal. When needed, the kits were assembled and manned by merchant seamen. Those were the days.
With navies it's always been about stocks, though not so much for the United States. Germany tried a guerre de course with a flow of U-boats. Didn't woik against the British with a stock of ships [with serious American help from a flow.]
It's not too different post World War II. Navies are still stocks. In addition, part of military might is nukes, but we keep a stock, a bloody big one. Wish we could have nuke kits!
I'm guessing that the ground element of warfare nowadays is not at all like the Napoleonic flow of bodies and arms. What matters is the stuff you start out with.
ETA: And that means the technology you start out with. For a technological race during a war, only the technologists matter, and past tariffs and subsidies are almost irrelevant here unless we knew precisely how the technology race would unfold. Drones, e.g., turned Blitzkrieg back into WW I in Ukraine. The technology was known before the start of hostilities but it was not known how it would work out.
Anyway, the flows leading to accumulating stocks might have to be subsidized, best not protected by tariffs.
In principle, what you should subsidize is not production but ability to produce, factory kits. But it would be hard to measure hence hard to subsidize.
India is adamant on not opening the dairy sector. Govt does not subsidize it but the sector employs hundreds of millions.
Indian customers can, I believe, absorb any amount of dairy imports. There is great demand but dislocation to the entire rural economy is probably not worth it.
Precisely. Generalized better than I did.
Prior to the German invasion, the Soviet Union had the most tanks and the most airplanes of any nation in the world, many multiples of other countries combined. Almost all obsolete at the moment of impact! But the Soviets had American designed factories for mass production, which happened to be precisely what was needed. Of course, no one knew that for certain ahead of time. Somebody guessed right.
There are simpler cases when technology doesn't matter, or not so much. In time of war, you need food. If you're not the US or France, don't grow it aided by policy, but store it! That amounts to a subsidy. A decent example is post-Berlin-airlift Berlin. Over time everything was accumulated, including meanwhile unfashionable shoes for women!
Well, it's a tough knowledge problem. Or better, a tough insurance problem.