Wednesday, November 15, 2006

Intelligent Trade policy

Sub-title: Another reason I think conservative pundits are stupid.

Ever since the election results came in last week, we have been bombarded with the notion that the newly elected Dems are going to put in protectionist trade policies. If anyone even refers to the fact that inequality is growing and trade policy might have something to do with it - they are immediately labeled Protectionists.

Here's an idea - just because you want to help people in the lower end of the income distribution does not mean you do not believe in the benefits of more open trade policy. I am one who is concerned about our current income distribution and here are three ways of conducting trade policy in the future. (1) put up protectionist trade barriers - this is a really BAD idea!! (2) continue with our current trade policy - NOT a GOOD idea!! or (3) implement more open trade policies and redistribute some of the gains to those who lose in the process. Yes - you read it correctly - REDISTRIBUTE!!! Not to the point where all the gains from trade are redistributed, but SOME of them.

Here is the story I told my class yesterday. Suppose a firm packs up and leaves the US for China. Here are some of the benefits: (1) People in China get jobs, (2) prices in the US fall, (3) the firm increases its profits, (4) shareholders in the firm make money, (4) eventually workers in China start to demand US goods and services.

The primary cost is the resultant unemployment in the US. So - should we stop this firm from moving to China - NO!!! Should we let this firm move to China and then implement domestic policy to lower the marginal tax rate for corporate income and capital gains - NO!! By the way, this is what the Republicans have done. Should we let the firm move to China and raise the corporate taxes and capital gains taxes in order to help those who lost their jobs in the US - YES!!

Since the Republicans have been using option 2 and they want you to vote for republicans the next time around they will spend the next two years trying to convince you that the only other option is number 1 and this is just an out and out lie!!!

We can have more free trade and we can also have sensible policies to help those who lose in the process.

Sunday, November 12, 2006

Carbon Reduction Strategies

Using incentives to reduce carbon emissions is the preferable strategy for most if not all economists. But, we don't agree on whether to use price or quantity controls. I usually favor tradable permit approaches, but I am also open to other ideas. So here is another idea.

Friday, November 10, 2006

Saturday, November 04, 2006