Sowell's Rule and Economic Nationalism
Politics as usual
There are some reports that economic growth is positive now in the United States, this is great, it means that business people are over the 'shock' of the financial crisis, have internalized the devaluation of the dollar due to the bailouts and fiscal stimulus, and are starting to invest and thusly later, with a lag, this will mean job creation. However not all is rosy on the economic front. President Obama is now going to put in place tariffs of 35% on tires imported from China, something of course, his labor union supporters (the United Steelworkers, a large donor, like all unions, to Obama's campaign, represents tire workers in the USA) have been asking for.
This is fully consistent with Thomas Sowell's "Law" which states the first rule of economics is that resources are scarce and the first rule of politics is to ignore the first rule of economics. Logic dictates that this is bad for everyone in the economy, meaning those that drive cars or consume goods which are transported by the vehicles who use the tires (meaning, yes, everyone), because delivery costs are now going to go up. Yet of course it is good for tire companies because they are now protected from competition. This just means an increasing upward spiral of tire costs because the US tire companies now have less incentive to innovate and reduce costs.
It also shows, unfortunately, that the Obama administration's economic policy is really short-sighted. It is well-known that politicians have more immediate time preferences compared to people who actually produce value in an economy, leading not least to the growth of the state, but this is ridiculous. China is growing twice if not three or four times the rate of the United States and is a major buyer of the very debt that the US government creates to, yes, give fiscal stimulus money to more special interest groups. We should be cooperating economically with China - US innovation and Chinese manufactoring prowess working together brings prosperity to both countries - but now this policy of economic nationalism (protectionism) is poisoning the goose that lays the golden egg.
There are some reports that economic growth is positive now in the United States, this is great, it means that business people are over the 'shock' of the financial crisis, have internalized the devaluation of the dollar due to the bailouts and fiscal stimulus, and are starting to invest and thusly later, with a lag, this will mean job creation. However not all is rosy on the economic front. President Obama is now going to put in place tariffs of 35% on tires imported from China, something of course, his labor union supporters (the United Steelworkers, a large donor, like all unions, to Obama's campaign, represents tire workers in the USA) have been asking for.
This is fully consistent with Thomas Sowell's "Law" which states the first rule of economics is that resources are scarce and the first rule of politics is to ignore the first rule of economics. Logic dictates that this is bad for everyone in the economy, meaning those that drive cars or consume goods which are transported by the vehicles who use the tires (meaning, yes, everyone), because delivery costs are now going to go up. Yet of course it is good for tire companies because they are now protected from competition. This just means an increasing upward spiral of tire costs because the US tire companies now have less incentive to innovate and reduce costs.
It also shows, unfortunately, that the Obama administration's economic policy is really short-sighted. It is well-known that politicians have more immediate time preferences compared to people who actually produce value in an economy, leading not least to the growth of the state, but this is ridiculous. China is growing twice if not three or four times the rate of the United States and is a major buyer of the very debt that the US government creates to, yes, give fiscal stimulus money to more special interest groups. We should be cooperating economically with China - US innovation and Chinese manufactoring prowess working together brings prosperity to both countries - but now this policy of economic nationalism (protectionism) is poisoning the goose that lays the golden egg.
posted by Cameron Weber at 4:02 PM
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