The argument that tariffs raise the prices of imported goods is very similar to the argument that gasoline taxes raise gasoline prices.
You may argue that a given tax may not raise prices. Of course. It is also possible that the increase in the fuel tax does not raise gas prices. In both cases, the seller may receive 100% of the tax. The chances of that happening in the real world are vanishingly small, especially with costs that apply to all countries.
Matt Yglesias He recently retweeted Scott Lincicome’s tweet and added a comment:
Here I think Yglesias goes way beyond the level of disagreement. That may seem like an odd claim, since he uses the phrase “very little disagreement” and points to a study showing only 5% disagreement. However, I still believe you are greatly overestimating the disagreement rate, which I suspect is actually well below 1%.
A survey question asked about the impact of taxes on “general economic well-being.” Few (not many) economists favor tariffs because they think they may improve welfare. But that’s probably not because they think prices will avoid raising prices. For example, suppose an economist thinks that losing blue-collar jobs to imports is a bigger problem than higher prices. It is not an unreasonable claim, although I think it is wrong, in part for the reasons expressed in my book. previous post. (I don’t believe it will save jobs.)
A small number of protectionist economists do so precisely because they believe in taxation would be raise the prices. If it didn’t raise prices, if it didn’t protect domestic industries from buying cheap goods, it would fail to protect jobs in competitive foreign industries.
You might think I’m making a mountain out of a molehill, which makes a big difference between a 5% minority and something like a 0.5% minority. But I worry that people might think that a proposition is probably true if 95% of economists believe it to be true. If 50 out of 1000 economists have a different opinion on a certain topic, it’s certainly not all that implausible that they could be true—certainly more than 5%. Consider a situation where 95% of economists thought that X was 75% likely to be true, and 5% of economists thought that X was 25% likely to be true. In a poll, you might see 95% of economists say they believe X is true, but in reality X is only 75% likely to be true, even if that 95% was completely accurate.
I am part of the small percentage of economists who believe the Fed caused the 2008 recession through tight monetary policy. But even if research shows that 99% of economists believe I’m wrong, that doesn’t mean there’s a 99% chance that I’m wrong. I certainly doubt that most of those economists who disagree with me would be willing to bet where they could get $102 on a $100 bet, on the question of whether some monetary policy in 2008 would have prevented a sharp drop in NGDP, especially given that. we weren’t even at zero limits! (Yes, this would be hard to test, but imagine if there was a test.)
Polling economists tell us for sure something it is useful for what the experts believe. But it is important not to overestimate the importance of the majority of economists lining up on one side of the story. It doesn’t mean anything, but it also doesn’t mean anything.
PS. It is also possible that a survey question on whether tariffs have increased prices would also produce the same heterodox 5%, where there may be a small number of economists who are simply too focused. But I still believe that the number will be less than 5%, especially if these two questions were asked back to back, reminding the economists who were asked that they are two different questions.
PPS. Less than an hour after I finished this post, I was reading The Economist and I came across the following story about the Russian economy:
Russia’s GDP will rise more than 3% in real terms this year, continuing its fastest growth rate since the early 2010s. In May and June economic activity “grew significantly”, according to the central bank. Some “real-time” job estimates, including one published by Goldman Sachs, a bank, suggest that the economy is growing (see chart 1). Unemployment is close to record lows. Inflation is high—in July prices rose 9.1% year-on-year, above the central bank’s target of 4%—but with incomes growing 14% year-on-year, Russians’ purchasing power is rising rapidly. Unlike the people of all other countries, Russians feel happy about the economy.
I would estimate that back in 2022, more than 95% of economists (including myself) were wrong about how the Ukraine War and the resulting sanctions would affect the Russian economy. More often than not, 95% of economists will be right. But in most disturbing cases they are not.