Monday, September 08, 2008

Melbourne's Pravda runs free ads for protectionism

The Age today runs what amounts to a free advertisement for the car industry protectionists.  It is the usual nonsense.  Other countries shoot themselves in the foot by subsidising their car industry so we should too. Plus the crazy, utterly discredited line that was pushed for a while on other blogsites that there is an optimal tariff of about 10% on cars because we don't levy tariffs on those exports we have for which there is monopoly power.   The argument here relies on the Lerner symmetry condition of trade theory showing that an export tax is equivalent to an import tariff so if an optimal tariff is not levied on exports for which we are price makers this can be undone by leving a tariff on imports.  The claim is nonsense - the last link to an earlier post shows exactly why it is nonsense.

Those propounding these economically irresponsible claims should be ashamed of themselves.

Thanks to Damien Eldridge for pointing out The Age article.

6 comments:

Anonymous said...

Harry,

Is there any theoretical difference between an 'optimal tariff levied on exports' and the royalties that mining companies pay already (aside from the fact that the royalty rate may not be optimal).

It seems to me that if we do have market power in a few goods (i.e. some metals), we already levy taxes on them. Based on the Lerner condition that you referred to, would this further weaken the (already intelectually bankrupt) claims for a 'scientific tariff' on imported cars (and any other imports)?

Regards,

STT (sorry to use anonymous, I'm too busy to set up an account)

hc said...

Your point is right. In fact where we do exert monopoly power in coal and iron ore markets local monopolies are already extracting the rents so man optimal tariff is redundant.

These pointsd are well-known and should not be raised as a serious basis for restricting trade.

Anonymous said...

Thanks for the response, Harry.

STT

Anonymous said...

Don't you mean free "ads"?

hc said...

I am glad someone around here can spell.

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