Trade and Consumer Advocacy, Part 2

Yesterday, I suggested we needed a new, real consumer advocacy organization to replace the economically ignorant Nader-led PIRG organizations.  The reason is that it is time that consumers banded together and resisted Trump's protectionism, since such protection generally protects a few politically favored unions and corporations while raising prices and reducing choice for all consumers.

A couple of hours after I posted that, the absolutely indispensable Mark Perry brings us a great post on academic research about how protectionist actions nearly always cost consumers more than they help producers.

The empirical evidence above helps us to understand a very important economic lesson about international trade, call it “protectionist math” — and that mathematical reality is that the costs of protectionism imposed on American consumers in the form of higher prices and a reduction in trade will always be greater than the benefits generated for the protected industries and the workers in those industries. And here’s another part of that “protectionist math” that helps us answer the question: Sure, we can save US jobs with protectionist trade policies, but how much does it cost consumers for every job saved with protectionist trade policy, and is that cost worth it? Economic analysis and the empirical evidence presented above suggest that it’s very, very expensive to save US jobs with protectionism — more than half-a-million dollars on average per year per job in 2016 dollars (see chart above). If Trump enacts protectionist policies that save $50,000 per year US factory jobs but at a cost to consumer of $500,000 annually for each job saved, that’s a surefire formula to “Make America Expensive and Poor Again,” not “great again.”

I won't reprint his chart, but he has detailed results form a number of academic studies in different industries that back this statement up.

My point about needing a new consumer advocacy group was a little tongue in cheek, but here is Perry quoting from a study at the Federal Reserve Bank of St Louis a number of years ago (back during the last wave of protectionism, which was based on Japan rather than China bashing).

The primary reason for these costly protectionist policies relies on a public choice argument. The desire to influence trade policy arises from the fact that trade policy changes benefit some groups, while harming others. Consumers are harmed by protectionist legislation; however, ignorance, small individual costs, and the high costs of organizing consumers prevent the consumers from being an effective force. On the other hand, workers and other resource owners in an industry are more likely to be effective politically because of their relative ease of organizing and their individually large and easy-to-identify benefits. Politicians interested in re-election will most likely respond to the demands for protectionist legislation of such an interest group.

  • ErikTheRed

    Problem #1, with a bullet: for the most part, only progressives trust academic research anymore - it's more or less one of their substitutes for religion. I actually think this would be better sold with a priori reasoning, which would be an interesting wedge for driving Austrian economic theory back into the mainstream (at least on the conservative side and with independents).

  • DirtyJobsGuy

    I'm old enough to remember my mother's sewing pattern catalogs and sewing projects. Women's cloths in particular and all my sisters' dresses were home sewed. We were not poor people in the boondocks as my father was a commercial real estate developer for Montgomery Wards. The ILGWU (garment workers union) ran TV adds with seamstresses singing "look for the union label" on clothes.

    Free trade lowered the cost of clothing dramatically. Kids no longer had to wear handme downs and mothers weren't constantly sewing and repairing the families clothes.

    This was true in many other areas. I have a very well off neighbor who built his own Heathkit color TV to save money. Goods were expensive for everyone. God forbid Trump would go on the warpath against imported electronics or clothes.

  • fd

    I've yet to see an economic analysis that accounts for the fact that we don't let people starve in this country.

    In other words, in exchange for lower prices on imported goods, we end up paying the formerly employed not to work. To cover the cost of benefits, either taxes are higher or debt is increased.

    Would you rather pay $2 for a domestically-produced widget, or pay $1 for an import plus $1 in additional taxes required to sustain the idled worker? (Or, worse because it's invisible, pay $1 for the widget while watching your purchasing power erode as the Feds monetize the debt incurred to pay people not to work?)

  • Mark Burk

    The very last paragraph of your article reminds me of what Milton Friedman said about the same issue: That as consumers, our interests are very diverse (spread out over MANY goods and services) whereas as producers, our interests are very focused on ONE (or at the least much fewer than MANY) good or service. The result is that as consumers, it is generally not worth the cost (to us as individuals) to go to the trouble of trying to repeal a given government requirement, law, mandate, etc. However as producers, the situation is reversed: Although it will cost the company we own (or work for) to have a given (or even proposed) government requirement, law, mandate, etc. passed, repealed, revised, etc., it is generally (as perceived anyway) a benefit.

  • J_W_W

    I don't believe that keeping jobs in the US is bad per se. Primarily because I think that many companies make outsourcing and offshoring decisions for the wrong reasons. And if Trump gets those companies to stop, America will benefit. Over the last couple of decades any BS reason was grasped upon for companies to save money. Outsourcing and offshoring was seen as the golden egg of making a LOT more money, far too often this doesn't really pan out. Then what do we end up with, out of work Americans, products that aren't any cheaper, and company execs that don't give a damn.

    I don't think Trump will actually enact any tariffs, I think its just a threat to get companies thinking about being American companies again. When he then actually does lower taxes and regulations, the companies thinking American again will have to show real actual large gains to make their offshoring and outsourcing moves, and where they do make those moves, I think that Trump won't go after them. In reality all Trump needs is for the country to get the impression that American companies actually care about their American workers again...

  • ColoComment

    Along with all the other comments, I want to ask, "For the last multi-dozens of years, where were all the people who are now complaining about tariffs?
    http://www.businessinsider.com/americas-biggest-tariffs-2010-9#non-specific-dairy-products-20-tariff-on-imports-1

    For example: periodically, we hear about the sugar tariff, but there's been no similar uproar, much less concerted activity, against it. We've had a sugar tariff since 1789, repeat, 1789. (Of course, at that time federal revenue depended on tariffs and duties.)
    http://sugarcane.org/global-policies/policies-in-the-united-states/sugar-in-the-united-states

    What a bunch of hypocrites. We've got tariffs NOW that increase the prices of many, many products that we buy every day, but all of a sudden now that Trump has made trade an issue, OMG we CAN'T have tariffs!

    And, oh by the way, I'm with J_W_W: these are Trump's opening position statements. He's a negotiator. It what he does. You don't open your negotiations with your target point or your walk away point. Nor do you negotiate against yourself. Trump has let companies know what he may be willing to do in the most extreme case. It's now up to the companies to make their next "offer."

  • Milo Minderbinder

    What if we had a revenue tariff instead of a protective tariff? After all that along with excise taxes were how the Federal Government was funded until 1913. And we could make the tariff revenue neutral by getting rid of the payroll tax or lowering the income tax.

  • bill

    The last pair of jeans I bought at Wal-Mart cost $15. I'm sure folks will be happy with the "extra jobs" when they have to work longer to afford the jeans at $30 per pair. They may need new jeans sooner too if we can't get enough avocados for our guacamole (consumption up 7-fold in the last 2 decades).

  • Mercury

    "Professional economists in the United States, however, generally agree that trade restrictions such as tariffs and quotas substantially reduce a nation’s economic well-being."
    ------------------------------------------------------------------------------------------------------------------------------------------------------

    I don't think you're going to win over many Trump voters who have lived through the last eight years with Davos-Man pronouncements like that.

    Also, the world may have now changed to the point where data that's over three decades old isn't quite as relevant as it once was.

    The goal should be to foster industries like aerospace that are of such high quality that they don't really need to be protected.

  • Titan28

    I don't think you get Trump at all. I don't know where you stand on the TPP, but the paperwork was 5,000 pages long, interlarded with sweet little plums for Eurocrats who would skim right from the top while they regulated the bejesus out of any free trade. Trump's position is that free trade really isn't so free anymore. There may be something to that, what with the way various countries fiddle with their currencies. And the idea that America ought to negotiate trade deals with individual nations one at a time is very appealing. The world of Adam Smith and David Ricardo, when much of what we understand about free trade was coined, is not the world of today. Perhaps there really are substantive differences. Give Trump a chance. Take a breath. See what he actually does. Trump may be inarticulate, but I wouldn't mistake such clumsiness for economic illiteracy. He did run a massive company. Contrast that with the silver tongue of his economically-illiterate predecessor. So, count to ten.

  • AtlantaDude

    I agree somewhat with "fd". Tariffs and other job-protecting regulations create inefficiencies in the market, and the economic models certainly capture that. But, what if inefficiency is the most palatable form of tax. Unfortunately consumer utility optimization models cannot factor in the utility of dignity and other societal benefits of low unemployment. But consumer utility optimization models are mathematically solvable, so we have used them to drive macro policy for the past 60 years. The question is - should be choosing our economic policies simply based on which ones can be captured in closed-ended mathematical models?