Wednesday, January 26, 2011

Donald J. Boudreaux's Economics in Many Lessons: Ask the protectionist

There are many economics concepts that are complicated for people by the rhetoric and context around them, which you can clarify by addressing the same general topic with a different product or context. One of the discussions that I've had with people, over the years, is whether player salaries are responsible for high ticket prices at sporting events. I have always argued that there is a relationship, but that people get the causality backwards. That is to say that Red Sox tickets aren't expensive because they have a high payroll - the Red Sox have a high payroll because they can charge a lot of money for their tickets. And they can charge a lot of money for their tickets because there's a high demand for the tickets - people want them. If the demand goes down, eventually so will the price, and the payroll will follow. And the example that I always use, and which has never been refuted, is the NCAA basketball tournament, particularly the final four. If ticket prices are determined by player salary, you'd think that the National Championship game tickets would be free, given that the players aren't drawing any salary. Obviously, that's not the case.

Well, there's an excellent example of just that kind of discussion taking place in regards to trade protectionism, from Donald J. Boudreaux. I found this passage particularly clarifying:
1. You, Mr. Protectionist, say that low-priced imports harm us. Can you explain why access to low-cost goods and services makes us poorer?

2. You answer question No. 1 by saying that allowing American consumers to buy low-priced goods and services from abroad causes American producers -- who can produce those things only at uncompetitively higher costs -- to lose their markets. When these high-cost American producers lose their markets, high-wage American workers lose their jobs. You insist that it's this displacement of high-cost producers in the U.S. by low-cost producers abroad that must be stopped.

So do you, Mr. Protectionist, also believe that Uncle Sam should force us Americans to pay a high tariff on sunlight before we are allowed to use it? After all, sunlight is an enormously beneficial product that Americans routinely import at no cost at all! (The sun charges us nothing for the valuable heat and light that it exports to us daily.) Don't you worry that this dirt-cheap import that floods our market every day unfairly shrinks the market for American-made goods such as light bulbs, flashlights, central-heating units and down blankets?

If you don't support blocking sunlight with a tariff or with some other government restriction -- why not? Please explain how one low-cost yet valuable import (sunlight) differs from other low-cost yet valuable imports (such as steel from China or textiles from Malaysia).

3. If you insist that the example of sunlight is irrelevant, try this example: Would you oppose the invention and sale of an inexpensive pill that safely cures people of colds, flu, impotence and acne? Such a pill, after all, would displace many high-wage American workers, such as physicians, nurses and pharmacists.

If you would not oppose such a pill, why do you oppose low-cost imports
Obviously, that's not the only argument to be made for protectionist policies, but, by stripping away some of the context, it reveals serious flaws in that argument. There's more to the piece - I recommend it.

(Thanks, Betsy, for pointing it out...)

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