From: nelson_p@apollo.hp.com (Peter Nelson)
Subject: Re: Protectionism as investment
Date: Wed, 11 Nov 1992 12:55:45 GMT
Organization: Hewlett-Packard Corporation, Chelmsford, MA

In article <1dpjm4INN7jm@network.ucsd.edu> mbk@lyapunov.ucsd.edu (Matt Kennel) writes:
>Re:  the articles that talk about how protectionism costs us 2x for
>each job saved.
>
>
>Could not one view this cost as an "investment"---in that if you save
>this job now from foreign competition, then perhaps the industry will
>survive long enough that sometime in the future it has the capability
>to compete in some new product area not yet invented?


  This is a nice, theoretical Usenetian argument.  The problem is
  that we would need much, MUCH better crystal balls to predict 
  these things.

>What is more valuable?  Cheap cameras, or a camera industry?  Its probably
>a tossup on that level---but what if 5 years down the line, you find that
>the camera manufacturers have unique facilities and abilities to manufacture
>nonlinear optics?

  But economics at the current state of the art can't even come close
  to predicting such outcomes with any reliability whatsoever today
  so your point is completely moot.  


>Notice that the Japanese trade practice appears desgined to completely
>and qualitatively *wipe out* foreign competition, often at great initial
>cost, in order to have a lock on entire segements of a future economy.
>If the competition isn't fully killed off, then it can jump back later
>on.

   But the ability to do this rests on fundamentals -- quality,
   productivity, innovation, etc.  The Japanese government or MITI
   could have set all the illustrious 5-year plans for wiping out
   the US car industry they wanted.   But if they didn't consistently
   produce better cars and with about half as many workers per car
   as US companies, it would have been for nought.   And their ability
   to do this is based on competition, not protection.   Japan, with 
   a population of half ours, has *SEVEN* domestic car makers.  More-
   over they export a far higher percentage of their car output than
   the US does, facing stiff competition in every nation they sell to.
   
   Protectionism does nothing to ensure that domestic companies will
   improve their products, quality, pricing, service, etc.
   

>Would we be better off now if we didn't bail out Chrysler?  It's doing
>much better than GM is now.

   But hindsight is 20/20.   Moreover GM is a straw man because it's 
   doing REALLY badly.    The point is there's no reason to assume 
   that in general the government can "pick 'em" better than the market.


>Another idea,
>Suppose the social security administration invested in the stock market,
>with a buy-and-hold strategy?

   Ah, so if the market crashed the SS Admin also goes bankrupt.   Gee,
   good idea.    Also note that the stock market is designed for 
   investors: the whole concept is that it IS a market.    Things get
   valued (i.e., bought and sold) according to their prospects and finan-
   cials.   Pure "buy and hold" stifles this mechanism.  


>What if it invested in those companies with the maximal median wages
>paid to workers, in order to support "high-wage high-growth jobs", and
>the growth of business in those industries?

   Also note that the "support" this offers is mainly for new issues.
   Buying existing stock supplies no capital to the company unless 
   that company issues new shares.    

   Anyway, currently the SSA buys Treasuries.   If they put their
   money into the stock market instead they, and especially con-
   sidering the way the international market for US Treasuries is
   drying up, who will fund the US debt?    Treasury issues would
   probably have to command higher interest.   In a complex system
   there's no free lunch; change this variable and it affects 
   all those . . . 
   
>-Institute for Nonlinear Science, University of California, San Diego
>-*** AD: Archive for nonlinear dynamics papers & programs: FTP to

   . . . you should read some of this stuff.   It would make you
   more reluctant to propose solutions to complex economic prob-
   lems or to think that we can model economic systems well enough
   to predict the outcome of our meddling.


---peter






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