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Tire tariffs -- what on Earth is Obama thinking?

 
 
Thomas
 
  1  
Reply Tue 6 Oct, 2009 05:32 am
@joefromchicago,
joefromchicago wrote:
An entirely unregulated free market, after all, wouldn't have any antitrust regulations or trade barriers.

Not true: Every economics 101 textbook will tell you that monopoly power leads to market failure, and that this is a case for government intervention against monopolies, cartels, and trusts. I have no problem with government interventions that promote the general welfare, as measured in Kaldor-Hicks efficiency or whatever measure your economics textbook uses. Even the economic case for free trade has exceptions, although they are much narrower than the exceptions in current trade policy.

joefromchicago wrote:
Societies erect those restrictions because there are compelling political reasons against having an unregulated free market.

Although the reasons may feel compelling to politicians and their voters, they can still be bad reasons. And I think they are -- unless the intervention is narrowly tailored to correct market failure.
Setanta
 
  1  
Reply Tue 6 Oct, 2009 05:39 am
@Thomas,
Quote:
Not true -- every economics 101 textbook will tell you that monopoly power leads to market failure, giving rise to a case for government intervention against monopolies, cartels, and trusts.


So what? That's not an argument against the proposition that free markets don't exist.
Thomas
 
  2  
Reply Tue 6 Oct, 2009 05:43 am
@Setanta,
Nobody in this thread has advanced this proposition, so why would I bother arguing against it?
0 Replies
 
Setanta
 
  1  
Reply Tue 6 Oct, 2009 07:31 am
@Thomas,
Thomas wrote:
joefromchicago wrote:
An entirely unregulated free market, after all, wouldn't have any antitrust regulations or trade barriers.

Not true: Every economics 101 textbook will tell you that monopoly power leads to market failure, and that this is a case for government intervention against monopolies, cartels, and trusts.


It sure appears that you are arguing against the proposition here. Joe says that an "entirely unregulated free market" wouldn't have antitrust or trade barriers. Your response is to say: "Not true."
0 Replies
 
joefromchicago
 
  1  
Reply Tue 6 Oct, 2009 08:14 am
@Thomas,
Thomas wrote:
Not true: Every economics 101 textbook will tell you that monopoly power leads to market failure, and that this is a case for government intervention against monopolies, cartels, and trusts. I have no problem with government interventions that promote the general welfare, as measured in Kaldor-Hicks efficiency or whatever measure your economics textbook uses. Even the economic case for free trade has exceptions, although they are much narrower than the exceptions in current trade policy.

Well, that's really a matter of conjecture. Just because economics textbooks say that monopolies lead to "market failure" (I think that's a bit much, but never mind) doesn't mean that an unregulated free market would have antitrust regulations. In a libertarian utopia, it's questionable whether even monopolies that caused market failures would be subject to any regulation. But that's because, as I have pointed out many times, market regulations are primarily political in nature, not economic (and that would be true even in a libertarian utopia).

Thomas wrote:
Although the reasons may feel compelling to politicians and their voters, they can still be bad reasons. And I think they are -- unless the intervention is narrowly tailored to correct market failure.

No doubt. But are you suggesting that there's an objective measure for economic regulations -- such that we can say that some regulations are per se bad -- or are you just expressing your personal opinion?
Thomas
 
  2  
Reply Tue 6 Oct, 2009 09:36 am
@joefromchicago,
joefromchicago wrote:
Just because economics textbooks say that monopolies lead to "market failure" (I think that's a bit much, but never mind) doesn't mean that an unregulated free market would have antitrust regulations.

I didn't say it means that. I said it justifies specific departures from the free, unregulated market -- or in other words, specific regulations by the government.

joefromchicago wrote:
No doubt. But are you suggesting that there's an objective measure for economic regulations -- such that we can say that some regulations are per se bad -- or are you just expressing your personal opinion?

Something in between. I submit that a regulation is bad if it decreases aggregate wealth without offsetting benefits to the distribution of income. That's my personal opinion, but it's also pretty well-accepted in principle. I would expect that Obama, if asked in the abstract, would agree with it too.

I also submit that on the available evidence, the tire tariffs are a bad regulation in that sense. It reduces wealth by denying American consumers the good value the Chinese give them for their tire money It denies Chinese producers the good money Americans give them for their tires. And it doesn't substantially affect the American income distribution because American tire makers earn about average incomes, as do American tire users. Finally -- not that Obama would care too much -- it affects the worldwide income distribution adveresly because Chinese tire makers are poorer than American tire makers. That part isn't just my opinion, it's pretty close to an objective fact.
Thomas
 
  2  
Reply Tue 6 Oct, 2009 09:56 am
@Thomas,
Ah. Now I' see what made you think I'm claiming that an unregulated free market wouldn't have anti-trust laws or trade regulations. My "not true" in post #3,777,863was addressed to a portion of your post that I didn't include in the quote. My mistake, sorry. Here is the portion I omitted:

joefromchicago wrote:
Antitrust and trade law may look like they're dealing with economics, but they're strictly political.


To be clear, my position is this:

1) I agree an unregulated free market wouldn't have anti-trust laws or trade regulations.

2) Anti-trust and trade law not only look like they're dealing with economics, they actually do.

3) The economics 101 principles about monopolies (and, in very very limited cases, trade) do justify some departures from unregulated free markets and free trade. Therefore, you are wrong to say that anti-trust regulations, by their nature, are primarily political. In principle, government interventions to curb monopoly power do have a solid economic rationale.

Is that clearer?
0 Replies
 
joefromchicago
 
  0  
Reply Tue 6 Oct, 2009 11:32 am
@Thomas,
Thomas wrote:
I didn't say it means that. I said it justifies specific departures from the free, unregulated market -- or in other words, specific regulations by the government.

Perhaps in Thomastopia, but I am not convinced that the true believers in an unregulated free market would agree with you.

Thomas wrote:
I submit that a regulation is bad if it decreases aggregate wealth without offsetting benefits to the distribution of income. That's my personal opinion, but it's also pretty well-accepted in principle. I would expect that Obama, if asked in the abstract, would agree with it too.

There are quite a few things that we do that decrease aggregate wealth without offsetting benefits to the distribution of income, yet I'm sure that Obama, if asked about such regulations in the concrete, would agree with them too. Licensing regulations, for instance, make it harder for competitors to enter into the market while erecting a protective barrier for business already ensconced in the marketplace. Such regulations make little economic sense, but they respond both to popular concerns about unqualified businesses and complaints from businesses about cut-rate competition. Many of the regulations that have been enacted have no justification under your formulation, but then that merely supports my main contention: that market regulation is principally a political issue, not an economic one.

Thomas wrote:
I also submit that on the available evidence, the tire tariffs are a bad regulation in that sense. It reduces wealth by denying American consumers the good value the Chinese give them for their tire money It denies Chinese producers the good money Americans give them for their tires. And it doesn't substantially affect the American income distribution because American tire makers earn about average incomes, as do American tire users. Finally -- not that Obama would care too much -- it affects the worldwide income distribution adveresly because Chinese tire makers are poorer than American tire makers. That part isn't just my opinion, it's pretty close to an objective fact.

Anybody who knows anything about comparative advantage would agree that such regulations are not justifiable on a purely economic basis. But then, so what? The people who lobbied for this law and the lawmakers who enacted it had, I'm sure, very little concern for the principles of comparative advantage or for the welfare of Chinese tire manufacturers and their employees. It may indeed be an objective fact that such laws defy economic common sense, but who said that laws must conform to the laws of economics? As Justice Holmes would remind us, the laws do not embody Mr. Herbert Spencer's Social Statics.

Thomas wrote:
To be clear, my position is this:

1) I agree an unregulated free market wouldn't have anti-trust laws or trade regulations.

2) Anti-trust and trade law not only look like they're dealing with economics, they actually do.

3) The economics 101 principles about monopolies (and, in very very limited cases, trade) do justify some departures from unregulated free markets and free trade. Therefore, you are wrong to say that anti-trust regulations, by their nature, are primarily political. In principle, government interventions to curb monopoly power do have a solid economic rationale.

If you look at the history of antitrust legislation, you'll find very few advocates arguing that such laws contribute to an efficient marketplace. If such laws have a economic rationale as well, I'm sure that was largely an unintended consequence.
Thomas
 
  2  
Reply Tue 6 Oct, 2009 05:05 pm
@joefromchicago,
joefromchicago wrote:
Perhaps in Thomastopia, but I am not convinced that the true believers in an unregulated free market would agree with you.

Unlike certain not-to-be-named other members in this community who call themselves libertarians, I have never been a True Believer in anything. So how is this an argument against anything I actually claimed? That said, for what it's worth, Bork and Posner agree with me. And people to the right of Bork are a waste of time to argue about -- as you well know.

joefromchicago wrote:
Such regulations make little economic sense, but they respond both to popular concerns about unqualified businesses and complaints from businesses about cut-rate competition.

To the extent that these popular concerns about unqualified businesses are factually correct, licensing regulations do increase the general welfare as economists would measure it, and accordingly would make economic sense. Conversely, to the extent they are factually incorrect, or only care about protecting the monopoly rent of businesses, I think these licensing regulations are bad policy. Do you disagree?

joefromchicago wrote:
It may indeed be an objective fact that such laws defy economic common sense, but who said that laws must conform to the laws of economics?

I'm not saying they must. I'm saying that sensible laws ought to, in the same sense that sensible building codes ought to conform to the laws of physics. But if all you're saying is that some laws are stupid, I have no argument with you. In this case, I would simply rephrase my claim to say that the tire tariff, as enforced, is an example of a stupid law.

joefromchicago wrote:
As Justice Holmes would remind us, the laws do not embody Mr. Herbert Spencer's Social Statics.

Sadly, he was right. (If the Supreme Court had interpreted the 14th Amendment that way, blacks and women would have had equal rights as early as 1868.)

joefromchicago wrote:
If you look at the history of antitrust legislation, you'll find very few advocates arguing that such laws contribute to an efficient marketplace. If such laws have a economic rationale as well, I'm sure that was largely an unintended consequence.

Based on my superficial understanding of that history, I tentatively agree this was true until about the 1970s. Beginning in the 70s, publications like Posner (1976) and Bork (1978) did advocate for interpreting the Sherman Act and companions under a general policy of protecting the general welfare against the market failure that monopoly power generates. In the meantime, as best I understand it, their view has for the most part become accepted by the Federal courts. I welcome that. (To limit my embarrassment, Bork's Antitrust is the only book of his that I fully agree with.)
joefromchicago
 
  0  
Reply Wed 7 Oct, 2009 09:44 am
@Thomas,
Thomas wrote:
Unlike certain not-to-be-named other members in this community who call themselves libertarians, I have never been a True Believer in anything. So how is this an argument against anything I actually claimed? That said, for what it's worth, Bork and Posner agree with me. And people to the right of Bork are a waste of time to argue about -- as you well know.

I'll have to read Bork. Posner is a lost cause.

Thomas wrote:
To the extent that these popular concerns about unqualified businesses are factually correct, licensing regulations do increase the general welfare as economists would measure it, and accordingly would make economic sense. Conversely, to the extent they are factually incorrect, or only care about protecting the monopoly rent of businesses, I think these licensing regulations are bad policy. Do you disagree?

It all depends on how willing you are to accept the claims of those who want more regulation. There are probably more people who think it's important to license doctors than there are who think it's important to license hairdressers. Yet there are certainly those who think it's worthwhile to do the latter.

Thomas wrote:
I'm not saying they must. I'm saying that sensible laws ought to, in the same sense that sensible building codes ought to conform to the laws of physics. But if all you're saying is that some laws are stupid, I have no argument with you. In this case, I would simply rephrase my claim to say that the tire tariff, as enforced, is an example of a stupid law.

But you're saying it's stupid because it defies the laws of economics.

Thomas wrote:
Sadly, he was right. (If the Supreme Court had interpreted the 14th Amendment that way, blacks and women would have had equal rights as early as 1868.)

And I'll just add that the laws don't enact Milton Friedman's Price Theory or Paul Krugman's Macroeconomics either.

Thomas wrote:
Based on my superficial understanding of that history, I tentatively agree this was true until about the 1970s. Beginning in the 70s, publications like Posner (1976) and Bork (1978) did advocate for interpreting the Sherman Act and companions under a general policy of protecting the general welfare against the market failure that monopoly power generates. In the meantime, as best I understand it, their view has for the most part become accepted by the Federal courts. I welcome that. (To limit my embarrassment, Bork's Antitrust is the only book of his that I fully agree with.)

By the 1970s, the antitrust laws were pretty much in place. If there was a change at that time, it was a change in practice, not a change in the laws. As for the federal courts, I'm not sure what they've done with regard to antitrust law. Not very much, I'm afraid.
0 Replies
 
Mexica
 
  1  
Reply Sun 11 Oct, 2009 06:48 am
Kudos to Thomas & Robert Gentel, for arguing your position intelligently and patiently.

I've read posts implying something akin to: if the government says anti-trust, then there must be something wrong. To me, it seems a bit odd to place so much trust into an entity that has proven to be so untrustworthy time-and-time again.

I'm inclined to believe that this is a case of Chinese manufacturers out-competing so-called American manufactures and American manufactures turning to the government to bail them out of their inability to compete in a "free-market." And then of course, you have the undercurrents of xenophobia, which can often mask itself under the guise of "national security," that helps to foment popular support of self-injurious economic governmental policy.

Perhaps some might find this interesting:

Quote:

Thomas Sowell:

What is called anti-trust "law" might more accurately be called anti-trust tradition or even anti-trust ideology. Its failure to define what competition means and doesn't mean and its relying on murky notions like "control" of the market make it more vague than other laws that courts have struck down as "void for vagueness."

We all agree that the World Series is a competitive process. It is competition whether one team wins four straight or the Series goes all the way to seven games.

In anti-trust "law," however, the fact that one company's product is overwhelmingly preferred by consumers and vastly outsells similar products is taken to mean that the "market" is "controlled" by the company with the bulk of sales, so that there is a lack of competition.

If baseball were not exempt from anti-trust laws, the New York Yankees could be fined and punished for having won so many World Series. Tiger Woods could be in big trouble in golf as well.

Competition means that there are winners and losers. When someone wins big, that is not a sign that the competitive process did not exist or had something wrong with it. Too many judges see the anti-trust laws as protecting competitors, instead of protecting competition as a process.


You can read the rest here
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