From: jwh@citi.umich.edu (Jim Howe)
Subject: Re: Wake up call
Date: Fri, 16 Oct 92 09:27:10 EDT
Organization: IFS Project, University of Michigan
Reply-To: jwh@citi.umich.edu

In article <9210151852.AA21274@TIS.COM>, richard@TIS.COM (Richard Clark) writes:
|> In article <9210151437.AA14610@TIS.COM>, richard@TIS.COM (Richard Clark) writes:
|> |> 
|> |> 	Four, lift the cap on Social Security income taxes. What the
|> |> hell, the middle class is *already* paying their fair share. Lifting the
|> |> cap would produce an immediate 14% tax increase on the rich, resulting in
|> |> them *finally* paying their fair share of the Social Security budget. Or
|> |> didn't you know that? That SS tax is only collected on the first 50,000
|> |> dollars of income? In other words, the rich put in only as much as the 
|> |> middle class.
|> |> 
|> 
|> jwh@citi.umich.edu (Jim Howe) writes:
|> 
|> >False.  It is true that people only pay taxes on their first $50,000 in
|> >income, however when benefits are paid, the person who made a million
|> >dollars a year will not receive any more than the person who made $50,000
|> >a year.  What you get back is related to how much you put in.  People
|> >at the top see a lower return than people at the bottom.
|> 
|> 	True enough. And we should go ahead and keep it since they don't
|> need it anyway. And like I said, make them pay more into the system.
|> 

If the 'rich' are going to pay more into the system then why don't we
simply completely eliminate the farce and fund SS from general revenues.
After all, you are simply suggesting that SS become [more of] a welfare
program.  I say its well past the time that SS should have been phased
out.  Let people invest their FICA payments in something that will do
them some good.  Investments which will help the economy and give a
better return than SS will be able to do in the future.

|> |> [...]
|> |> 
|> |> 	Six, protectionism. Currently a dirty word in politics.
|> 
|> >As it should be.
|> 
|> 	Yeaaaaaaah, riiiiiight. Let everyone else sell freely into our
|> economy while they tax or ban our exports into theirs. Does this sound fair?
|> 

If other countries wish to make their citizens poorer by artificially
raising the cost of goods then let them.  If other countries want to
tax their citizens to subsidize their businesses to make goods cheaper
for U.S. citizens, let them.  People in the U.S. will have access to
better cheaper products and have more money to spend, creating a larger
economy and more jobs.  History has shown that protectionism doesn't
work.  It leads to retaliation and the resultant economic troubles.
Raising the cost of imported goods is an unfair tax on the poor and
middle class.  It raises the costs of many goods purchased by these
people.  The rich can afford it either way.  You say you want to
ease the burden on the middle class, and yet you want to make the
products they buy more expensive.

|> |> But
|> |> only because foreign companies have *literally bought* our politicians.
|> |> This alone, is the single most effective way to bring jobs back home.
|> |> And for what cost? Nothing, zero, zilch, nada.
|> 
|> >Tell that to the people whose jobs depend on imports.  Also, protectionism
|> >tends to foster retaliation, making exports more difficult.  This costs
|> >jobs as well.
|> 
|> 	Tell that to the people who lost their jobs because foreign
|> competition knocked them out of the market through dumping and taxing
|> or forbidding our exports! Protectionism will *create* jobs by fostering
|> growth internally to supply the new demand.
|> 

People will lose jobs as the comparative advantage for different 
industries shifts.  However, jobs will be gained in other areas.
Protectionism will result in a net job loss as export workers lose
their jobs because of foreign retaliation, import workers lose 
their jobs because of U.S. protectionism, factor workers lose their
jobs because the company they work for has smaller world wide
markets, prices in the U.S. rise and quality suffers because of
reduced competition, people will then spend more and get less.
Sounds like a marvelous way to boost the economy and standard of
living.

|> 
|> > In addition, protectionism raises the costs of goods and
|> >lowers the quality due to reduced competition.  The result is that
|> >consumers pay more for less.  Not the best way to improve your nations
|> >standard of living.  Foreign competition, brought on by free trade,
|> >will reduce the cost of products, increase quality, and make the
|> >U.S economy more efficient.  People will be able to spend less and
|> >save more, or get more by spending the same.  Either way, the net
|> >effect is to help, not hurt, the economy.
|> 
|> 	Bzzzzt. Wrong. American products are not usually significantly
|> higher in price than the competition. Just enough that the consumer tends
|> to by the cheaper of the choices.

Only if cheaper is a better value.  In addition, if you take away
the competition, where is the pressure to keep prices lower and
quality high?

|> 
|> 	Quality is unaffected. New businesses start up to fill the gaps,
|> and competition is re-established internally, on a level playing field.
|> 

We've certainly seen that in the auto industry, haven't we.  When
voluntary 'quotas' were established, U.S. automakers simply raised
prices.  Did their quality improve?  Did other companies start up in
the U.S.?  People used to complain that GM had a monopoly and needed
to be broken up.  Now that there is true competition and GM is
faltering, people suddenly want government to 'help' companies like
GM.

|> 	The US economy is huge. There are always *many* manufacturers
|> of any particular product, except in the cases where we have been forced
|> out by the foreign competition. Need I mention steel and micro-chips?
|> The Japanese have already been tried, convicted, and slapped on the wrist.
|> 

Japanese steel is known for its high quality.  The U.S. steel industry
is one of the oldest 'infant' industries on record.  They continually
use government coercion to keep out competition.  They did it so long
that they grew fat and lazy and unable to compete.  Their quality
sucked.  It's no surprise that they suffered in the face of true
competition.  As to the Japanese having been tried, convicted, etc.
are you aware of the criteria used to determine 'dumping'?  In many
cases its purely arbitrary.  I suggest you read James Bovard's book
"The Fair-Trade Fraud" for a different perspective on this issue.

|> 
|> >Evidence?  What you are claiming is simply not true.  There certainly
|> >may be companies who no longer operate in a particular market, but
|> >I would bet that you can't find an instance where prices have gone
|> >up unreasonably as a result.  What you are describing is known as
|> >predatory pricing, and research has shown this practice to be virtually
|> >none existent and certainly unsucessful whereever it may have been
|> >tried.
|> 
|> 	Read above again. The steel and micro-chip industries are just
|> just two, to name a few. Get your head out of the sand.
|> 

Look at facts rather than government and industry propaganda.  The 
micro-chip industry is a perfect example of comparative advantage.  We
are much better at assembling the finished product.  Our computers
are the best in the world.  Japan has tried but they haven't made serious
inroads.  We are more productive at producing the finished product so
it would be a waste for us to spend resource producing microchips when
we can do better producing the finished product.  Look at what the
'punishment' of the microchip industry did for the U.S.  It made memory
much more expensive, which meant that companies bought less of it.  It
very nearly killed the OS/2 operating system which needed more memory
to operate.  Now that prices have finally fallen again, software which
increases productivity but requires lots of memory is becoming available
once again.   I think it is you who need to pull your head out of
the sand.

|> 
|> |> hell out of anything imported into this country. Level the playing field.
|> |> What the heck, let's teach the Japanese a lesson, and *ban* the import
|> |> of Japanese cars, stereos, and electronics for two years.
|> |> 
|> 
|> >Why don't we just pass a law preventing U.S. citizens from purchasing
|> >imported products?  That is effectively what you are doing.  Of course
|> >this ignores the fact that we supposedly live in a free country.
|> 
|> 	A little too drastic for me. I like the TAX idea because it makes
|> foreign products more expensive, so only the rich will buy them, which
|> ends up as begin a tax on those who *can* afford it.
|> 

Right, raise prices so that poor and middle class people can't afford
the product, but the rich still can.  You say you want to help the
middle class and yet you insist on ruining their standard of living.

|> 	Besides, we simply want to stop the leaching long enough to
|> get back on our feet without killing the leeches. Sooner or later we'll
|> want to trade (fairly) with them again.
|> 

Check out the history of our trade policies.  Once an industry gets
'protection' it generally maintains it forever in one form or another.

|> |> 
|> |> 	Whew. Just a raving madman frustrated with politics and the
|> |> economy and the inability of the former to deal with the latter.
|> 
|> >Sit down, take a stress pill.  Things aren't as bad as you want to
|> >make them out to be.  Try to get a better understanding of economics
|> >before making rash proposals.  Try reading Henry Hazlitt's book,
|> >"Economics in One Lesson", it is short, easy to read, and very
|> >enlightening.  I can recommend other books if your interested.
|> 
|> 	Nah. They really *are* as bad as I think they are. Take a look
|> around you. Tell me what you see. It ain't pretty, and it ain't going
|> away. Besides, we both know very well that economists are simply people
|> you pay to tell you what you want to hear.
|> 

What I see is a country with an economy that grew by 1/3 over a seven
year period of time.  I see a country which has the highest productivity
in the world.  I see a country with the highest standard of living
in the world.  I also see a country that is in a recession and if
government would stop trying to 'help' by raising taxes, overregulating,
spending too much, etc., the economy would recover just fine.  Things
only look bad now compared to the growth and sucess of the 80's.  I
personally found the 70's with double-digit inflation and interest
rates, wage and price controls, gas lines, etc. to be a much more
dismal time.  I've read the literature about how things are so bad,
and I read the literature giving the opposite perspective.  The
evidence I've seen of how bad things are is mostly based on superficial
interpretation of statistics.  When you strip away the aggregation
and really look at what happened, things are quite a bit better than
people would have you believe.


James W. Howe                  internet: jwh@citi.umich.edu
University of Michigan             uucp: uunet!mailrus!citi.umich.edu!jwh
Ann Arbor, MI   48103-4943