Wednesday, March 14, 2012

Please Don’t Send Us Free Stuff!

This item recently came from the newsletter of my U. S. House member, Geoff Davis:

Last week, I voted with a majority of the House to pass H.R. 4105.  This bipartisan and bicameral legislation ensures that the Department of Commerce can continue to apply countervailing duty (CVD) law to non-market economies, such as China.  Trade remedies are tools that allow the government to take remedial action against imported goods that are hurting a domestic industry.  CVDs are among these tools, which aim to offset foreign government subsidization of imported goods that can distort the free market.

Mr. Davis has announced he will not seek another term.  I must say that he has generally been an above average member of the House as far as representing my views is concerned.  But here is a place where we seriously disagree.

Sometimes people fail to engage their ‘economic minds’ when these sorts of matters come up.  I am but an amateur in this field, though I have read enough to be somewhat informed.  So think through this with me.

China subsidizes goods it exports to us.  What does that mean, economically speaking?  It means that China is giving us some free stuff, or more accurately, the people in China are being forced to pay part of the cost of things we consume.  Why is free stuff a bad thing?

According to Mr. Davis (and this idea is very common), this free stuff will ‘hurt domestic industry.’  This is true in one sense, but false in another, very important sense.

It is true that if your business makes widget X, and you don’t plan to give part of yours away, you might not be able to make widget X profitably as long as the people of China are being forced to pay part of cost of sending a widget X to us.  But this does not ‘hurt domestic industry’ as a whole.  Rather, it means that domestic industry should turn its attention to making things other than widget X.  After all, many of us want widget Y and widget Z too.  (This is beginning to remind me of The Cat In the Hat!)  If we don’t have to make widget X, we can spend our efforts making more of widget Y and widget Z.

Suppose you were a farmer.  Perhaps you produce eggs, milk, and grain.  If your neighbor decides to give you all the eggs you need, what is your likely, reasonably economic reaction?  Will you do something to stop the free eggs from getting to you – your version of H. B. 4105?  Only if you are a little nutty, it seems to me.

But what if companies in the U. S. give up making widget Xs and then China stops sending us partly free ones?

Back to you as a farmer, you might object that if you get accustomed to free eggs, you might sell your chickens and no longer be able to produce eggs.  Won’t it be expensive to restart your egg production?  Perhaps.  But consider the two possibilities.  First, your neighbor might come to his senses quickly and stop giving you eggs.  At this point, it is not too difficult to restart production recently ended.

The other possibility is that the neighbor is nutty enough to keep giving you eggs for some time.  It won’t be long before you have been given enough free eggs to more than make up for the future costs of restarting your egg production if you need to do so.

Politicians like to think in terms of ‘jobs.’  But in the end, most people don’t want a job.  They want the stuff that working can make.  In the local neighborhood we don’t seem to worry about someone giving us free stuff.  In the international neighborhood, we do seem to worry about getting free stuff.  H. R. 4105 was just part of a move by our government to force us to stop taking free stuff from China, among others.

And that seems, well, just plain stupid.

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