Free Republic
Browse · Search
General/Chat
Topics · Post Article

To: mac_truck
Your mathematical "proof" shows only that there is a potential COST involved with the application of a tariff, that's all.

No. It shows that, by its very nature, that cost outweighs the protective returns to the producer in the benefitting industry. The result, due to the dead weight losses, is inevitably a net loss in the overall welfare of the country when compared to what occurs absent the tariff.

That there is an "inescapable negative influence on the welfare of the country" as a result of adding a cost to certain imports, is pure bullshit.

Not at all. It is a mathematical certainty caused by the sloped curves of supply and demand. Though I suppose this is hard to describe without a way to draw those curves, I will attempt a description for you:

First visualize a supply-demand diagram (a positively sloped and a negatively sloped line that intersect in the first quadrant). Since this graph represents a candidate good for a protective tariff, it is likely that the world price is lower than the autarky price at the intersection. The world price under free trade will accordingly be lower than the intersection point, which is why the domestic producers want a tariff.

Under free trade, that world price - represented by a vertical line to the corresponding Y variable of price - creates a consumer surplus of that which is above it but to the left of the demand curve. Enact a tariff, and that world price line rises with the tariff, thus removing part of the consumer surplus. to the other side of that line. That which is below the new post-tariff price line but to the left of the supply curve is the part redistributed to the producer. But since the demand curve, at the point of the pre-tariff price, extends to the right of the supply curve at that same price, there still remains a part of the consumer surplus that is not redistributed. Mathematically this part is divided into government reciepts from the tariff (mathematically contained in the "rectangle" between the new price's two intersects and the old pre-tariff price) and the deadweight losses (the triangular segments of the consumer surplus on either side of the square). Because those deadweight loss segments are removed from the economy, that of the consumer surplus that returns by way of the producer and government is inevitably less than that which was removed in the first place. Hence a net loss will occur from a protective tariff.

Theorectically, the added COST of shipping cotton from Charleston, to Belfast, NI versus New York City (or god forbid, to a textile mill in South Carolina), would also have made European products more expensive.

You are still missing the point and spouting a command-style approach to economic distribution that completely neglects the demand portion of the equation. A producer's goal is to sell a good at the market price. He'll take a buyer from anywhere so long as that price is paid, and in fact he has to since agricultural markets are very close to perfectly competitive. In other words, why send all the cotton to NYC if NYC only demands X ammount of cotton that they will pay for? This is especially so when Europe is also demanding Y ammount of cotton and offering to pay the same market price. As a result, the cotton goes to whoever buys it by whatever means they may use to get there. In theory, some transit means will under certain conditions cost more than others, but as a whole this is negligable and adjusted for by the market.

The effect of tariffs on FOREIGN products meant the United States paid MORE for manufactured goods from England

No they didn't. If that were so, trade would not have occurred as it did because everybody would have bought the domestic products instead of the foreign ones.

and (according to your own thesis) should have produced an increase in DOMESTIC trade to avoid that COST.

Not when Britain is comparatively better at manufacturing the same product than the domestic producers are. In fact, that is precisely why the domestic guys wanted a tariff - they claimed that they could not compete with the lower prices from abroad, and demanded "protection" from that competition.

Specifically between the south and the north, which had offsetting and complimentary comparative advantages.

Complementary comparative advantages in one area does not preclude the existence of greater comparative advantages in another. Europe at the time had greater comparative advantages in many industries than the north did. That is why the north wanted tariffs to protect them in the first place.

That you consider this to be a "negative influence on the welfare of the nation", provides insight into how little you understand or care about the history of the United States.

Much to the contrary. That you are spouting a mixture of antiquated 200 year old mercantilist nonsense and command style economic planning in the year 2003 indicates, if nothing else, that you have not the slightest clue how markets work. You fail to even comprehend the straight-forward and easily followed mathematical proof of my argument, much less rebut it. It truly makes me wonder whether I should laugh at you or pity you.

LOL! -Thanks, coming from you thats a compliment.

If you desire to take pride in your ignorance, who am I to stop you? I suppose that there is bliss in ignorance after all, as you certainly appear to have found it!

802 posted on 02/14/2003 1:23:22 PM PST by GOPcapitalist
[ Post Reply | Private Reply | To 801 | View Replies ]


To: GOPcapitalist
Protection of an industry diminishes the consumer surplus by raising the price (we'll denote that as "C"). A portion of that consumer surplus is redistributed to the producer surplus (denoted as "P"), though far from all of it. Of the remainder of C-P, it divides between two parts. The first is that which returns in a small ammount of government revenue (we'll call this "G"). The remainder is a dead weight loss that escapes the home economy (we'll call that "L").

What is the exact ratio of G to L? What is the reason that L even occurs and how is it measured? Why don't other COST increases (like transportation) have an L factor also?

Expressed mathematically: C=P+G+L, or the area that shifts as a result of the tariff's price rise. Absent the protective tariff, the economy retains all of C as a consumer surplus. The economic welfare of the country without a tariff, denoted as "W," includes all of C. Now let's look at what happens mathematically with the tariff. Subtract C from Wt (Wt means W with the tariff) because of the price rise after the tariff. P is transfered out of C to the fishing industry and returns to the economy, so add it back to Wt. You may also add G to Wt as it returns in the form of government expenditures, though they will as a general rule be spent less efficiently there.

Yeah, you do the hokey pokey and you shake it all around...

Since L is lost, the tariff leaves us with Wt + -C + P + G. Since C = P + G + L, it may be substituted in giving us Wt + -P + -G + -L + P + G. Combine the terms, and Wt = -L.

That makes Wt < W

When you create a formula that assumes an action creates a "dead weight loss", of course. You could have just as easily stated

W = economy without tariff, Wt = economy with tariff. Wt= W-L.

Therefore Wt < Wt.

Once again, this formula is your straw man and its not fooling anyone. The invisible graphs won't work either (lol).

Why don't you try researching the actual costs of producing manufatured goods in the mid-19th century from both the american and european (british) perspectives. Write a formula based on that and demonstrate how tariffs ruined the american economy.

803 posted on 02/14/2003 4:07:39 PM PST by mac_truck
[ Post Reply | Private Reply | To 802 | View Replies ]

Free Republic
Browse · Search
General/Chat
Topics · Post Article


FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson