With apologies to Kramer’s Seinfeld boss. From Oren Cass’s “Trump’s Most Misunderstood Policy Proposal: Economists Are Not Telling the Whole Truth About Taxes,” The Atlantic:
Their first mistake is to consider only the cost of the tax, not the benefits. Traditionally, an economist evaluating a proposed market intervention begins by searching for market failures, usually “externalities,” that need to be corrected. Dirt is an important metaphor. A factory owner will not consider the widespread harm of dumping waste into a river when deciding how much to spend on pollution control. A policy that forces him to pay to pollute will correct this market failure—by agreeing to “make it his problem.” It imposes costs on the polluter in pursuit of benefits for everyone.
Payments refer to different exceptions. The basic premise is that the domestic product is worth more than what the market prices reflect. A company that decides to close a factory in Ohio and move production to China, or a consumer that decides to forego American-made products in favor of cheaper goods, is unlikely to consider the broader value of American-made products. For each player, the logical choice is to do whatever saves the most money. But those individual decisions add up to cumulative economic, political, and social harm. To the extent that prices combat that harm, they bring mutual benefits.
I don’t know. I am not a commercial expert in my upcoming book with Doug Irwin (Cambridge University Press), but I am sure that I have mentioned in my introduction to commerce about transfers, dead weight loss in the production and consumption of parties, and what the controversy of the infant industry was. I think I also talked about learning by doing, and the long-term implications. I look again, why yes me he did: see about tax transfer to Treasury, DWL here, child industry etc., here. (In fact, the fact that Mr. Trump keeps talking about all the tax money the Treasury Department will receive to replace the revenue lost from eliminating the income tax means we can no longer ignore the transfer from consumers to the Treasury.)
It all comes down to empirics, then, when we talk about results. And here we know what happened to the employment indicators after the 2018-20 trade war, at least in manufacturing.
Figure 1: Production activity (bright black, left scale), hours (light blue, left scale), production (green, left scale), value added (red, left scale), all in log 2018M07=0; and power consumption (purple, right scale). Source: BLS, Federal Reserve, BEA via FRED, and author’s statistics.
See also this job loss assessment, here.
Therefore, if Mr. Cass wants to talk about welfare, I would like to see his calculations of welfare losses for consumers, welfare gains for producers, and transfers to the Treasury over time and in the long run. He will have to specify a number of external factors related to production, among other things. I suspect he has no idea about the amounts involved.
And this guy is running a think tank that will provide ideas for Trump 2.0?
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