From: studier@ninja.life.uiuc.edu (Jim Studier)
Subject: Those Wicked Japs
Summary: Cost of Capital
Organization: University of Illinois at Urbana
Date: Thu, 16 Apr 1992 22:10:52 GMT



In:
From: louis@cs.mcgill.ca (Louis LECLERC)

Louis writes the following about my previous post:  My reply is at the end.

>>studier@ninja.life.uiuc.edu (Jim Studier) writes:
>>Competition at most forces people to change jobs.  They are not shot to death.

>NOT TRUE, COMPETITION LIKE THIS MOVES JOBS TO JAPAN UNFAIRLY BECAUSE THE
>COMPETITION WAS NOT FREE. AMERICANS USUALLY CANNOT WORK IN JAPAN, SO
>THE CONSEQUENCE IS THAT PEOPLE LOSE JOBS...THEY CANNOT SIMPLY CHANGE JOBS
>AS YOU STATE ABOVE BECAUSE THEIR JOB IS NOW IN JAPAN AND THEY CANNOT GO THERE.
>THE RESULT IS HIGHER UNEMPLOYMENT AND A LOWER STANDARD OF LIVING IN AMERICA
>AS THESE PEOPLE PAY NO (OR MUCH LOWER) TAXES.

>>   If an industry can't survive on its own what purpose is served by
>>raising everybody else's costs, through trade barriers or subsidies in order
>>to "save" it.

>BECAUSE ITS WHAT THE JAPANESE CORP'S DO...IF WE DONT DO IT OR RESPOND IN
>SOME OTHER WAY, THEN YOU ARE RIGHT, OUR BUSINESSES WONT SURVIVE.

>>Physical capital such as buildings can often be reallocated to new uses.
>>It is not destroyed as in a bombing. Those who purchase "dumped" products
>>achieve a higher standard of living because they obtain better goods
>>at lower prices.  If the "dumped" prices are financed by the Japanese
>>people thats their problem, not ours.

>YOU ARE RIGHT, BUYERS OF DUMPED PRODUCTS DO ACHIEVE A HIGHER STANDARD
>OF LIVING....IN THE SHORT TERM ONLY!
>...HOWEVER, IN THE LONG TERM, ONCE THE COMPETITION IS DESTROYED AND BARRIERS
>TO ENTER THE MARKET (THIS WILL OCCUR WHEN HDTV IS LAUNCHED) ARE HIGH, THE 
>PRICES WILL BE MUCH HIGHER AND STANDARD OF LIVING WILL DROP PRECIPITOUSLY.
>ANY ECONOMIST CAN TELL YOU THIS.
>
>THE US ECONOMY WILL THEN GET HIT BY A DOUBLE WHAMMY, HIGH PRICES, AND
>NO MONEY STAYING HERE SINCE THE DOMESTIC COMPANIES ARE DEAD. AT THIS
>TIME DOMESTIC COMPANIES CANNOT ENTER THE LUCRATIVE MARKET
> BECAUSE NATURAL BARRIERS TO ENTRY IN THE INDUSTRY ARE NOW TOO HIGH.
>(AGAIN, IF YOU DONT UNDERSTAND THESE TERM, AN ECONOMICS PROF CAN EXPLAIN
>IT)
>THE PROBLEM WITH YOUR ARGUEMENT IS SAME AS THE PROBLEM IN 
>AMERICA IN GENERAL, YOU
>SEE THINGS TOO SHORTSIGHTEDLY, AND THAT IS THE REAL DANGER...THE DISASTER
>HAPPENS LATER ON...IN THE LONG TERM...THAT IS WHAT YOU DO NOT SEE.

You mention "NATURAL BARRIERS TO ENTRY".  What about unnatural barriers
to entry such as a tax system that encourages consumption and increases
the cost of capital to American businesses.  Since you don't seem to
have learned much from economics professors I will cite a reference
for you:
    Hatsopoulos, George N., et. al.
    U.S. Competitiveness: Beyond the Trade Deficit.
    SCIENCE  July 15,1988  pages 299-307.

Those who think that the U.S. government should get tough with the
Japanese by preventing U.S. consumers from purchasing their products should 
look at how that same government has already crippled American business
by increasing their capital costs through tax distortions and government debt.
This has nothing to do with shortsightedness or longsightedness.
It has to do with correctly understanding cause and effect.

    Jim Studier  (studier@ninja.life.uiuc.edu)
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