Protection it is currently popular, gaining support from both the left and the right. It’s not the first time. As the popularity of protectionism ebbs and flows, it remains constant. Each resurgence is driven by a variation of the same argument, particularly the child industry argument.
The argument is straightforward: protectionism, through tariffs or subsidies, helps young industries to grow defensively from foreign competition until they can compete on their own, ultimately leading to greater economic growth than would otherwise be the case. Like right-wing public intellectual Oren Cass which has just been summarized“the way America went from colonial waters to this global industrialization was not through free markets and free trade. It was a strong defense of our home market.”
The problem is that, with each restart, the same answers can be made: the increase in domestic production of protected industries is not worth the lost welfare of consumers. In fact, not a single statement made by Cass is consistent with American economic history.
Let’s start with the last part of Cass’s comments about “strong protection of our domestic market”. By definition, to protect it should increase productivity in protected industries. However, the scale of the increase, as seen in the most frequently cited studies of the steel industry in American economic history, is emerging he is beautiful small– less than what the defenders had promised when they originally called the prices. One of the reasons is that this is because of the prices and can increase the price of other inputs (such as capital investment)which reduced productivity growth in the future. Therefore, there may have been a bump in production at one time but the trend was eventually reduced by taxes.
On the cost side, it is important to note that tariffs, by increasing the prices of certain inputs, also increase costs in industries that depend on these inputs. This is particularly dangerous for industries involved in the fierce international competition of export markets. Economic historian Douglas Irwin was able to show that this effect was created, for postbellum America, that was an effective 10% export tax. All this without considering the costs borne by consumers. Returning to the case of metal protection (one of the most frequently discussed cases in history), we find that consumers are left worse off in important measurements. In other words, “strong protection” was a bad thing.
However, the first part of Cass’s comment is even more flawed. America was far from a “backwater” in the 18th century. Economic historians such as Jeffrey Williamson and Peter Lindert have shown that in 1774, the average American colonist enjoyed a much higher wage than the average Englishman-a fact associated with the large number of immigrants immigrating to America. My research also shows what America was getting into It is 30% richer than the richest region in the Americas at the timeFrench colonies in Quebec. Significantly, this pre-1774 period coincided with what was “free” the commercial era of American economic history. From 1760 to 1775, after the conquest of Canada, the North Atlantic served as a free trade area between America, Canada, and Britain. Much of the protective legislation (such as the Navigation Acts) was too small to matter or was widely ignored.
To make the claim he does, Cass commits a common crime in economic history: focusing on growth in periods such as 1790 to 1860 or 1865 to 1913 without considering the broader context. What these times mean is that they were immediately followed by more destructive wars. The American Revolutionary War, for example, removed America’s economic advantage over Britain, with incomes dropping by nearly 20% due to the destruction. Similarly, the American Civil War had a negative impact on the economy. Although both postwar periods saw dramatic growth, this was mostly “concrete” growth—accelerating economic recovery as the nation rebuilt after the upheavals of war. Cass and other defenders tend to choose defensive periods, attributing all observed growth to their preferred policies. This trick, similar to a magician’s sleight of hand, is designed to entertain the audience by hiding the real elements at play.
The case for taxes as a driver of economic growth has always been fragile, and no amount of changing the name every few decades can change that fundamental flaw.
[Editor’s Note: Readers may also be interested in Geloso’s contributions to the Liberty Matters Forum, “Did the American Colonies Pay Too High Cost?” at the Online Library of Liberty.]Vincent Geloso is an Assistant Professor of Economics at George Mason University.
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