From: thompson@atlas.socsci.umn.edu (T. Scott Thompson)
Newsgroups: sci.econ
Subject: Re: Trade War?
Date: 13 Nov 92 17:36:27 GMT
Reply-To: thompson@atlas.socsci.umn.edu
Organization: Economics Department, University of Minnesota

nelson_p@apollo.hp.com (Peter Nelson) writes:

>In article <10416@ncratl.AtlantaGA.NCR.COM> mwilson@ncratl.AtlantaGA.NCR.COM (Mark Wilson) writes:
>>In <BxI6oC.As5@apollo.hp.com> nelson_p@apollo.hp.com (Peter Nelson) writes:
>>
>>|>   I have no problem with a particular nation wanting to protect
>>|>   their farming industry/culture.   Maybe they just want to ensure 
>>|>   that they retain a domestic source of production and not have
>>|>   to depend on outside sources for something as basic as food.
>>
>>If the French were only growing enough food or other crops to provide for
>>domestic consumption you might have a point.  Unfortunately, the French
>>are also subsidizing crops that are grown for export.

>   I think this is a distinction without a difference.
> 
>   Presumably the idea is to keep the farmers *in business*.   And
>   again, they don't *have* to do it to supply domestic needs; I 
>   merely mentioned that as an example.   Many countries, e.g., 
>   Japan, have important cultural values wrapped up a bucolic
>   self-image.   I don't really care why they feel the need to do
>   it; I'm just saying it's their tax money and they can do what
>   they want with it.  

Sorry Peter.  While I basically agree with your message that a trade
war is a real danger that must be somehow avoided, this kind of
reasoning just doesn't hold water.

First, if the goal is simply to keep these farmers in business then
that can be accomplished with far less disruption to world commodity
markets through lump-sum cash subsidies and elmination of the
distortionary price supports.  Simply give each landholder a fixed
annual sum to keep their land pastoral.  Or else offer a price
subsidy, but only for a limited amount of output.  The current system
("Grow as much as you can -- We guarantee a buyer at an artificially
high price") leads to excessive, inefficient production, artificially
high costs for European consumers, and distortion of world markets.
None of this is "culturally necessary."  Don't you think that the
cultural needs of France could be met without producing more output
than can be consumed domestically?

Second, given today's interdependencies there is no such thing as a
purely domestic economic policy.  I do not agree with your implicit
statement that a country should be allowed to do anything it wants
with its tax dollars, provided it spends them domestically.

I bet you'd change your tune real fast if the Japanese decided that
(as a matter of cultural necessity of course!) they were going to pay
Canon $10,000 dollars for every Laser printer they could produce and
have the government dump the ones that Japanese businesses don't want
to buy (which would be most of them at that price) on the
international market.  HP would be rather unhappy, don't you think?
And rightly so.

Lest you get the wrong idea, let me point out that the U.S. is at
fault in these areas as well.  We have lots of agricultural price
supports that should be eliminated by these arguments.

>   Suppose they used their tax money to turn their nation into
>   a giant theme-park which became the biggest tourist attraction
>   on earth, sucking up billions of dollars that world tourists
>   would have otherwise spent coming to see attractions in the US?

Agricultural price supports would be more like a policy in which
France guaranteed _private_ theme park operators $100 per ride ticket.
Of course only their own citizens would have to actually pay this
price.  Foreigners would be charged whatever is the going price at,
say, Disney World - Florida, with the difference made up by French
taxpayers.  And French citizens would not be allowed to visit Florida
without paying a big tax.  The net effect would be (a) too little
theme park usage by French citizens, (b) too many theme parks built in
France, (c) too much inefficient travel to France by foreigners, and
(d) underutilization of Disney World - Florida.  In other worlds, a
big loss of efficiency in world tourism markets.  If (b) is
"culturally necessary" then the other distortions can be avoided by
simply paying private operators to build and operate theme parks, and
this would cost the French taxpayers and consumers much less.

>   The bottom line, for the reasons I mentioned in another post
>   is that a "level playing field" is a complete fantasy; it has
>   never existed and never will exist, nor is it clear it even
>   offers any lasting benefits.   

The benefits from an undistorted price system are quite clear (in
theory at least).  One can easily make a case against the EC
agricultural policies on grounds of pure efficiency.  You don't need
any notions of "fairness" or of "level playing field."
--
T. Scott Thompson              email:  thompson@atlas.socsci.umn.edu
Department of Economics        phone:  (612) 625-0119
University of Minnesota        fax:    (612) 624-0209