We Need More Trade Barriers with China

...and we need it now.

I've said it before, and I'll continue saying it.   And, I may be only econ person to do so, but damnit, the only way to fight this kind of stuff is to impose a penatly - and the best kind of penalty is a sharp tax on these kinds of goods coming from China.  Will it be perfect; will perfectly harmless goods be taxed?  No, and probably respectively.  But doing this is a sure way send a signal to China that these kinds of industry practices will not be tolerated.  We should demand this behavior stop, along with its trade currency manipulation.  Until their manipulation stops, we should continue to enforce our trade restrictions.   That's the only sure way to double exports or whatever absurd thing Obama thinks he's going to do without a real plan to do it.  At least this is a plan, and not some edict on high with no teeth.

Because the US is such a large nation in terms of the degree of importation of Chinese goods and exports on the world market, it has some power in the market.  Nevertheless, there would be some amount of dead-weight loss, which I suggest might be more than offset by the benefits mentioned in paragraph one.  In addition, by taxing these 'bad' goods, we essentially are correcting a negative externalities imposed by Chinese producers/government on American consumers.   Despite that benefit, consumers would be hurt by higher priced Chinese imports after the tariff policy is enacted.  However, the government would be taking in a presumably good chunk of change in taxes which it could then turn around and provide a progressive tax rebate annually until and unless China improves its aforementioned problems.

On the absurdity of some mainstream economic research

And now I introduce to you the most ground breaking research of our time:

http://www.bepress.com/bejeap/vol10/iss1/art64/?sending=11190

... Come On People!  Really?  You are going to use 'equilibrium' and 'optimization' analysis on the behavioral/cultural act of cutting someone genitals off?   Welcome to the absurdity of which many (not all) in mainstream economics peddle.   Start off with 20 different assumptions about rationality, equilibriums, stable preferences, etc., and this is the kind of quackery the 'science' gives you.

Let me tell you, only an economist so brainwashed in the mathematics of 'rational' economics can say something like:

In this paper, we model FGC [female genital cutting] as a pre-marital investment. We show how the rat-race nature of the marriage market may result in inefficiently high equilibrium levels of FGC [female genital cutting].

Keynes: Disconnect b/w capital and labor markets

"The fact that an unforeseen change only exercises its full effect on employment over a period of time is important in certain contexts;-in particular it plays a part in the analysis of the trade cycle (on lines such as I followed in my Treatise on Month). But it does not in any way affect the significance of the theory of the multiplier as set forth in this chapter; nor render it inapplicable as an indicator of the total benefit to employment to be expected from an expansion in the capital-goods industries. Moreover, except in conditions where the consumption industries are already working almost at capacity so that an expansion of output requires an expansion of plant and not merely the more intensive employment of the existing plant, there is no reason to suppose that more than a brief interval of time need elapse before employment in the consumption industries is advancing pars passu with employment in the cap ital-goods industries with the multiplier operating near its normal figure." -J. M. Keynes, General Theory 

Keynes is basically saying (in the round-about way he does) that his Keynesian multiplier effect on spending should be highly correlated to the amount of labor employment created due to the increased spending.  IE, he assumes that his spending will lead to income multiplied which will increase the buildup of capital and GDP/output  and employment  of labor, quickly, not just capital spending alone... and not after too long of a time.   But our government's most recent 'experiment' in Keynesian economics calls into question the ability for simple Keynesian spending to quickly increase labor employment.   Unemployment has hovered at 9.6% for the last number of months despite increases in spending.  This is not a huge surprise as unemployment tends to linger for a long time after spending rebounds, but the lag is a problem for which Keynes assumes to not exist. 


If employment is the important variable for a Keynesian, why focus on spending?  Why not focus on employment multipliers?  Or as some post-Keynesians might advocate, why not have the government buffer employment more directly?  (I have mentioned reasons I think the latter is a bad idea)  Keynes' error was in assuming the majority of private industry would hire workers line-to-line with capital.  This simply isn't true.  The structure of our economy is that there are often large deviances between industry.  Further, it is also likely that a firm's first response will be to milk productivity out of existing workers as opposed to taking the hiring risk.  

A thought for today

This just came to me:

(mainstream) Economics may be the only social science where when human behavior doesn't fit the model, humanity is blamed for the failure to conform to it rather than the model being required to explain the behavior.

Why is that?

On Global Domination

So I recently purchased "Civilization 5" the computer game (and popular series) which pits different civilizations in conquest (military, cultural, technological, economic, etc).  I used to play Civ 2 when I was a kid and loved it - was really quite good at it.  Civ 5 is more difficult, not because it's more difficult to conquer people or because it's difficult to advance new technologies - it's difficult because Civ 5 introduces a radical and in my view wholly unrealistic viewpoint of military conquest.

One of the ways you can win Civ games is to amass large armies (at the expense of culture, technology, etc) and try to take over other civilizations.  I like doing that - it's good for pent up aggression.   Who cares if you are the first civilization to reach space - that's not winning - I want to kick butt for the glory!

But here's the problem in the new game: every time you conquer a city, the 'happiness' level, not just of that city, but of your entire civilization permanently drops (until you spend game-decades building 'happiness' generating things like theaters, Colosseum, etc.).  Meanwhile, your production drops and your growth slows across the board.   You can't build things but you have a big army so you might think you could keep conquering and amassing more people and happiness that way, but the problem is, the more cities you conquer and the more population you add, the less happy your people are, the less you produce, and the less your population grows!

A couple comments from a gaming blog summarizes the problem:

A game where it's better to burn a city to the ground and slaughter the hundreds of thousands of inhabitants so you can replace it with your own settler just doesn't feel very Civ-like to me. It's one of my main complaints about the change to global unhappiness - I can see the citizens of THAT city being unhappy, rioting, refusing to work, etc... but why is it that just because I took over a city, everyone in my empire simultaneously decides to stop having kids?

09-27-2010, 02:18 PM	#2978
	Ironically you can't replace it with your own settler, that's the whole point. You can't actually HAVE anymore people. It's like immigration reform run amok. It's Finland saying "there are too many people for us to govern!" and then slaughtering everyone in Sweden and Russia to the last man, because it's The Only Way.

This doesn't make sense. Typically, the cities you are able to conquer are the cities that are weaker from a technology / economic standpoint. So, you would think that by liberating them from their squalor they might eventually be happy. But ok, maybe it takes a while for them to warm up to you, but that shouldn't affect your entire civilization's unhappiness and production. When Rome conquered the Greeks, sure the people in the Greek region were upset for a time, but they eventually assimilated - and certainly Rome wasn't "unhappy" that they just won new land, new economic resources, glory, etc.
Military conquest has costs and benefits - the costs are obviously the cost of the conquest itself (life and resources) and the temporary localized unrest it creates as well as long-run diplomacy with other countries. But the benefits are new and unique resources, new land, new opportunity and new knowledge. Civ 5 captures all the costs PLUS some costs that are completely unrealistic described above- which means you can't reap the full benefits.

The Recession is Over!

Or is it?   NBER announced today that our recession ended in June 2009.

NBER panelist and the author of the macro text I use in class had this to say:
"At least half of them excoriate us for saying that the recession is over, But we are only saying that things started to get better in June 2009, not that times are good."


My question to Robert Hall would be, "What are these things you speak of?"  If you mean corporate profits and overall GDP, yes.  If you mean base wage levels, benefits, raises, or employment, then I would further ask:


"Can I have some of the dope you are smoking?"


I am one of those that thinks we need to examine how we 'call' recessions and expansions.  Or perhaps we should just stop using the terms altogether.  Just call it like it is: GDP is growing and benefiting some, unemployment is still very high and not really budging and it is hurting others....


The Federal Reserve Bank of Richmond sees huge benefits in maintaining the status quo:
"Recession dates are useful because they combine
a great deal of information into a single variable
reflecting an informed judgment that the economy,
broadly defined, was contracting at a certain point
in time." 


For me, the aggregation of such data points, which by themselves are just aggregates of other disaggregated data, means you lose sight of what's really going on.  You end up not making an informed judgement on the economy, but rather you lose sight of reality - such are the problems with the assumption of aggregation in macroeconomics.

What Should Have Been Done

My last post was rather bleak.  It paints a picture of our economy that is structurally problematic.  But that doesn't mean government has tools to reduce the structural unemployment problem.  

Monetary policy won't do. Monetary policy has done much to help stabilize the financial sector but it will do nothing substantial to reduce our structural unemployment issues.  

The fiscal stimulus was poorly designed - it's been too bureaucratic, slow, bloated, and not targeted to the problem at hand.  Demand stimulus old-Keyenesian style throws a lot of money at various sectors in the economy that have been previously known to add employment with the increased spending.   As such, much of the stimulus was aimed at a hodge-podge of things: infrastructure, health care, education, tax cuts, unemployment benefits, etc.   IE-the goal was to increase spending and not employment - with the idea that the employment would follow.  And I admit, at the time, I even bought in to this old line a little - I was hopeful.  I was also a sucker.  I'm not anymore. Surely, the stimulus helped a little, but to me the negatives of waste outweigh the nominal employment retention benefits. 

What we should have done with that money is spent the bulk of it on one thing: retooling the workforce.  We should have spent billions on new teachers, temporary work transition programs, partnered with our academic institutions and funded them new monies to create new transitional jobs programs.   That not only would reduce our structural unemployment problem - by speeding up the retooling of our workforce, but it would also invest in the skills of Americans - benefiting the long-run private sector.   Ironically, we instead threw billions out the window while our States' budgets faltered.  As State budgets fail, so do education institutions that receive State funding.