We recently laid out an argument that a little bit of protectionism wouldn’t be the end of the world and that it might actually do some good. To sum up, our basic points were:
- The fact that every economist seems to uniformly accept the benefits of free trade is a good reason to be sceptical
- Completely free trade frequently benefits the elites — the taxed class — while the unskilled and uneducated suffered.
- There were few prospects to bring many low skilled workers into the so-called knowledge economy.
- Light-brush protectionism should be seen as a substitute for welfare, rather than a scheme to improve the economy overall.
- We don’t want to incite a trade war — as the benefits of global trade are clear — but perhaps we can use the “green” brush to avoid pissing off our trading partners and make manufacturing palatable in the US again.
Anway, while several readers seem to support it, The Economist magazine’s Free Exchange blog calls us out on it. We thought we’d pass it on:
(His) argument assumes there exists two jobs: engineer and manufacturer. Lots of other jobs, at all skill levels, benefit from that electric car. The former auto manufacturer can sell or service that same car. If we insist on keeping the manufacturing here, that merely increases the price of the American car. That means Americans will want to buy electric cars made entirely elsewhere (to the benefit of foreign engineers too) so the government must put tariffs on foreign electric cars as part of this policy. That means people will just buy fewer electric cars (which harms the people who sell and service them).
Also, in the long run it makes little sense to subsidise an industry whose inefficiencies mean it cannot compete globally. It leaves the government needing to prop up these jobs indefinitely (unlike welfare which often has provisions that force people to eventually find other work).
Mr Weisenthal does recognise that if this incited a trade war, that would probably lead to a decline in welfare. Especially because, as he points out, we depend on China to support our debt. So, I think, Mr Weisenthal supports a policy aimed at subsidising green jobs. Not only solar panels and windmills, but remaking everything we currently use. Read the whole thing >
Their points are well taken and are worth considering, but a few, hardly exhaustive, thoughts in response:
– The goal of increasing the price of various domestic goods is exactly the idea. That’s the transfer payment from the wealthy to the less well off. You could have a subsidy, however, that would allow a domestic industry to be cost competitive with foreign competitors.
– While welfare-qua-welfare does end after a given amount of time, other government schemes that serve as a form of welfare (lending laws, job training, government healthcare, hiring laws, etc.) continue indefinitely.
– There are businesses other than electric cars. In large part we’d envision boosting traditional manufacturing, but calling it “green”. Not so much so that we could subsidise it, but so that regions which have become regulatorily hostile towards heavy industry would once again embrace it.