Market Process Blog

Economists have been arguing against tariffs for at least the last two hundred years, but for some reason we have to keep making the argument that tariffs do not benefit an economy. They do not create wealth, they benefit the protected industry at the expense of other industries that are not protected and consumers have to spend more for both domestic and imported goods. Being self-sufficient is not the way to achieve economic growth and prosperity. Trading is mutually beneficial whether it is a transaction at your local grocery store or buying goods from China. Yes, even China. Yet, the Obama administration like the last administration is caving to special interest and increasing tariffs. The WSJ reported several stories last month on the change in tariff policies and the ways that firms have to work to get around them.

U.S. to Impose Tariff on Chinese Tires

Tariff on Tires to Cost Consumers

China Seeks an End to U.S. Trade Spat

To Outfox the Chicken Tax, Ford Strips Its Own Vans

Move Pleases Labor, Complicates Policy

Plan Seeks to Expel Private Lenders From Program

In the latest in a string of government bailouts and takeovers the federal government is proposing to cut the private lenders out of the student loan business and become the direct supplier.

The WSJ reports:
Under a plan unveiled in the administration’s budget, subsidies to private lenders would be eliminated, and the government would use the savings estimated at $47.5 billion over the next decade to help bolster the Pell grant program for low-income students.

If approved by Congress, the plan would effectively end government-guaranteed loans to students by banks and other private lenders—lending that has totaled $56.7 billion in the current school year, and has been the primary source of college financial aid since the program was launched in the 1960s.
Read more …

New study by the Mercatus Center at George Mason University

On February 13, 2009, President Obama signed into law the American Recovery and Reinvestment Act (ARRA), with the promise that this $787 billion stimulus would “create or save” 3.5 million jobs over the next two years, mostly in the private sector. The basis for the law was a study by Christina Romer, the Chairman of the Council of Economic Advisors, and Vice-President Biden’s chief economist Jared Bernstein, who warned that without an economic stimulus, unemployment would reach 9 percent by the end of 2010.
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A little humor for your Friday. How many of you know that Matt Stone the co-creator of South Park is the son of economist Gerald Stone? I am told Gerald Stone actually consulted on this episode on the economic downturn. The Treasury Department Scene is the best part.

No need for a Bail-Out here. The South Park television series won its fourth Emmy last night in the Outstanding Animated Program (for programming less than one hour) category for last spring’s episode Margaritaville.

Watch the full episode here.

“Markets are pro-social. Markets are about serving the needs of another—that is innately virtuous,” says Paul J. Zak, professor of Economics at Claremont Graduate University.

See the video here neuroeconomist-paul-zak

Paul Krugman recently wrote a piece for NY Times Magazine asking How Did Economists Get it So Wrong? In a response to the article John H. Cochrane replies asking How Did Paul Krugman Get is So Wrong? Both pieces are definitely worth the read. Just a small excerpt from Cochrane’s piece

“In fact, I propose that Krugman himself doesn’t really believe the Keynesian logic for that stimulus. I doubt he would follow that logic to its inevitable conclusions. Stimulus must have some other attraction to him.”

With the FDA’s new authority to regulate tobacco one of the first acts is to ban flavored cigarettes, primarily clove cigarettes starting at the end of this month. The WSJ explains the goals of the program and the details. As is always the case when markets are suppressed they emerge in a new form. One of the major producers of clove cigarettes has already developed a clove cigar, which does not fall under the ban. Just as interesting is the question what about the cigarettes already in the stores. “So, what do we do with the stuff that’s on the shelves? Who eats that? Is it legal to sell until it’s gone or what?” asked Jim Carlson, owner of two CVille Smoke Shop stores in Charlottesville, Va., about 70 miles northwest of Richmond.” An astute student of mine read the article in the WSJ and suggested that this was a real entrepreneurial opportunity to buy what was left before the end of the month and start an underground market. This is the normal course of events when products are banned.

John Stossel has an article today on Competition and the health care system that quotes Nobel Laureate F. A. Hayek. In addition, he quotes Steve Horowitz’s piece from the Freeman on profits. Horowitz writes “Critics may consider eliminating the profit motive the equivalent of giving the Tin Man from Oz a heart; in fact it’s much more like Oedipus’ gouging out his own eyes.” Thanks to Art Carden for making me aware of this piece.

Steve H. Hanke a professor of applied economics at The Johns Hopkins University in Baltimore and a senior fellow at the Cato Institute had an interesting article in Forbes Magazine last week on the Fed in which he writes “The federal reserve is scrambling to convince the public that it is not a secretive institution that acts at the behest of Wall Street, but the public isn’t buying the Fed’s line. According to a Gallup Poll conducted in mid-July, the Fed received the lowest approval rating of the nine government agencies and departments evaluated–even lower than the Internal Revenue Service.” Read the rest …

Economist Hernando de Soto has a new video from the Free to Choose Network called “The Power of the Poor.” It emphasizes the entrepreneurial spirit of the informal economy. Click here to see the preview.