March 28, 2012
Wildcard week! (3/28- 4/4)
With two midterms behind us, we've covered a lot of ground. This week, the focus of the blog is entirely up to you. Your entries should, of course, have something to do with world politics. Here's are some ideas to get you going:
-Given everything you've learned, what do you international relations will look like in 100 years?
-What does this course tell us about human nature?
-Given everything we've learned, does the unified actor/unitary actor assumption hold? (unitary actor assumption = the assumption made in game theory that state speaks with one voice)
-I was really interested in XYZ topic in world politics, so found a journal article about it and this is what it said...
-If you were teaching this course, what content would you emphasize? Anything not covered that you'd include?
March 18, 2012
Exchange Rates (3/18-3/25)
Few Americans feel knowledgeable enough to discuss exchange rate policies. However, the topic was central to the 1898 presidential campaign, when voters were less literate and economically sophisticated. Why was the issue on the political agenda then but not now?
March 11, 2012
Protectionism is a policy of imposing barriers (tariffs and taxes) on imports in a process that shields domestic producers from often cheaper foreign producers. Unfortunately, protectionism also has the effect on raising prices for consumers. In today’s market with high unemployment levels, the calls for protectionism have risen. The hope is that protectionism will lead to an increase in the purchasing of domestic goods and an increase in American jobs, which will help the US economy. When politicians speak of trade protectionism, they rarely mention the added cost to consumers, because they believe consumers will benefit in the long run, through job creation and refueling the US economy. However, my main concern is not over the added consumer cost, but how realistic protectionism can be in our globalized world. The US has to be selective with its protectionism. We cannot return to a society where domestic producers make the most basic of goods. With globalization, countries have specialized and have comparative advantages. The best way to lower prices for consumers while still helping domestic producers is to be selective with protectionism. This all amounts to a cost-benefit analysis. Politicians represent voters who are both consumers and producers; they have to look out for the interests of both. Free trade benefits consumers because it leads to lower prices, but hurts domestic producers who have to compete with those foreign lower prices.
With today’s economy hurting, politicians are stressing protectionism, to the disadvantage of consumers. Consumers might have to pay higher prices now, but the hope is that, if protectionism can help our re-boost our economy and create jobs, then consumers will ultimately save. The economy is refueled through consumer spending; whether consumers are paying more for goods that they could be paying less for is irrelevant. Politicians focus on levels of unemployment. In our current economic crisis, politicians stress creating more American jobs. The increase in consumer costs contradicts this goal and therefore it is pushed to the wayside. The goal should be to create jobs in industries in which we have a comparative advantage and use free trade on basic industries or on industries where we have a comparative disadvantage. Trying to manufacture and purchase everything domestically fosters isolationism and will hurt the global US in the long run.
Protectionism and Utility
When we start to talk about protectionism, we are debating whether or not it is good for American citizens. However, there can be many measures for deciding what is best for the country. First, we can divide the economy into two different groups, consumers and producers. These roles can obviously change as we discuss different goods, but that is not important. For any given good, the consumers and producers get different utility. The amount of utility all depends on the price. Letting the market decide the price, it will lead to an efficient outcome but not an equitable outcome. The government can institute policies to change this but the bottom line is that it will change the overall utility of the group. Whether this is desirable depends on peoples’ incomes. If for example, consumers have low incomes and producers have high incomes, protectionism will take a large amount of utility from consumers and give a lower amount of utility to producers.
When policy is being made, this is the kind for argument that needs to be made for or against protectionism. In the United States, we typically see attempts to protect labor intensive goods from foreign competition. This holds true with the Stolper-Samuelson approach as protectionism would benefit American labor since it is a scarce resource compared to a place such as China. When arguments are made that this is necessary to help workers, we should ask if this is really helpful? If workers are able to go to other jobs relatively easily, it does not hurt these workers much and instead benefits consumers who now can buy more with their income. But if these workers are only trained for a specific job, protecting them would be incredibly important. If their jobs were eliminated by competition, the overall utility would be drastically reduced as producers would lose almost all utility for the consumers to gain relatively little.
In the United States, this need seems to be overblown by a few producers who can easily organize in order to protect their specific industries like the Ricardo-Viner model says. They are not countered easily by consumers who would have to overcome large collective action problems. The result is that consumers normally have to pay a higher price for certain goods like sugar. This policy may protect sugar farmers but now consumers pay twice as much for sugar. If sugar farmers could only farm sugar, this may be a necessary policy, but for the most part, they could find another crop to farm.
Overall, trade protectionism should be looked at on a case by case basis. I think most people would argue for protectionism if free trade left a significant population destitute. However, in US politics this fear is normally overstated considerably. I think that each industry simply wants to fear the public into supporting the industries interests.
March 10, 2012
Trade Protectionism and American Production
Initially, after reading about trade protectionism, I did not think it made much sense to encourage the production of a product that we do not have the comparative advantage in. But then again, many businesses would not exist if trade protectionism was not present. This brings in the concept of individual or particularistic interests, since protection only benefits certain sectors. These sectors, often times, support the political candidate that supports their interests. This support is important to the candidate, not only for potential campaign contributions, but also for votes. In a way, the sector could be viewed as an interest group that will vote based on issues having to do with trade and the protection of their particular sector.
The candidate must convey his support for protectionist policy, while maintaining the approval of the general population who will pay the price as consumers. I think that the costs of protectionism are bypassed because the candidate, perhaps falsely, turns the focus towards supporting American production. Most Americans would agree that we are giving up jobs by importing so much from foreign countries like China. It is pretty simple to link trade protectionism to the general betterment of the U.S. economy. By ignoring the issue of consumer cost, politicians make the citizens think they are supporting American production, which is especially important in these times, considering the car production companies. Most people would be in favor of supporting such companies, since it seems patriotic. In reality, the consumers will end up paying the price, while the sectors benefit. It can be argued whether trade protectionism ultimately helps everyone, but this is not the issue. I believe that the citizens should at least be aware of the decision they are supporting and all of its consequences, whether good or bad.
March 07, 2012
Trade Protectionism is meant to protect domestic producers from imports and benefit the overall domestic economy. It is enacted to create more opportunity for domestic producers in the market by setting up barriers for imports such as tariffs, quotas and other regulations. While this may be seen as a good policy, it does hurt consumers by increasing prices. I think that this cost to consumers rarely enters into political discourse because trade protection is thought to benefit the economy as a whole. The point is to get consumers to spend more, contributing to the domestic economy and increasing the flow of money within the country. Unfortunately policy doesn't look to the cost of consumers because in the long term it is believed to be benefit the economy as a whole. While some have to pay more, it protects the interests of unionized and unskilled workers or other workers harmed by import competition. Thus the cost to consumers is seen to be worth it because it distributes money in what many see as a more equitable way.
In my opinion I think that some protectionism is a valid policy for the U.S. For example I think in the clothing industry it would be environmentally beneficial to protect domestic producers. It would reduce carbon emissions by forcing local production all while spurring the economy and protecting unskilled workers who would be harmed by import competition. However, some free trade (with fair policies) is also necessary. Allowing countries to specialize based on their comparative advantage is important for the growth of developing nations. As our world is increasingly globalized it's unpractical to attempt to create completely protectionist policies as consumers will seek access to the cheapest goods with the highest quality, often from developing nations.
March 05, 2012
Trade Protectionism 3-5 to 3-12
When politicians speak of the need for trade protection, rarely does anyone point out increased costs consumers will pay as a result. Essentially, the leadership promises to transfer wealth from a large number of voters to the hands of a relative few.
-Why do you think the cost to consumers rarely enters in to political discourse?
-Is sector-based trade protectionism a valid policy for the US?