PeakTrader.com

[administrator]

https://lh6.googleusercontent.com/-6Uy-Vn-KQSE/TXYrTSAK3tI/AAAAAAAAPD0/tcqn-NzLHEI/s1600/Tarrif.png

PeakTrader said...

A definition of greed is taking $1 away in wages for a $1 increase in profit.

Even worse than greed is taking away $2 from society to give $1 for politically favored groups, while destroying $1 in the process.

--------

morganovich said...

mark-

thanks for finally posting this chart.

it lays out very simply a concept that it is very difficult to get across to those with a mercantilist mindset.

tariffs do not benefit the imposing economy. not ever. they are always and inevitably a source of dead-weight loss.

they remain popular because the gains from them are highly concentrated and east to point to while the losses are dispersed and difficult to quantify, but, as this graph shows, they are always present and always exceed the benefits.

---------

PeakTrader said...

It's easy to measure producer surplus-GDP-profits-wages, etc. However, it's difficult to measure consumer surplus.

When a U.S. consumer can buy a $10 shirt from China that the consumer knows is worth $30, and is willing to pay up to $30, then how is the $20 in consumer surplus measured?

When Americans consume up to $800 billion a year more than they produce, from international trade, then you know there's a huge amount of consumer surplus.

Of course, in China, a consumer may not buy a shirt that's selling for $5 when it's worth $4.

---------

bob wright said...

Mark or Morganovich,

My econ 101 is very old and I don't understand the graph.

Would either of you be so kind as to either explain how the shaded areas represent the losses, surpluses and tax revenues shown?

For instance, how does the yellow shaded area represent producer surplus?

Thank you in advance for indulging me.

----------

Mark J. Perry said...

Bob: Before the tariff was imposed, ALL of those labeled areas: (Producer Surplus + Societal Loss (2) + Tax Revenue) were Consumer Surplus. Now with the tariff, ALL of that previous Consumer Surplus is LOST to consumers.

Some of that loss is gained by producers (yellow Producer Surplus) and some gained by government (blue Tax Revenue), but the deadweight loss is the Societal Loss, because it used to be Consumer Surplus, but is now completely LOST.

One way to think about it: Producers have gained $1 or 1 job, but there has been a loss elsewhere of $2 or 2 jobs, so the country is worse off by $1 or 1 job.

---------

bob wright said...

Thanks Mark.

I did find this handy explanation of Producer Surplus.

http://www.investopedia.com/terms/p/producer_surplus.asp

-----------

Jason said...

China is the only continuous culture remaining after 2500+ years...They should own the freaking world...we should be speaking Chinese and using chop sticks. But their protectionist and isolationist views have kept it's growth and culture confined. They could be simply reverting to mean.

----------

PeakTrader said...

Jason, what mean is China reverting to? It may be reverting to the mean, but perhaps not in the direction we think.

China has inflation problems, particularly from rising food prices (including little arable land), and from rising fuel prices (including its heavy industries):

Chinese consumers squeezed by rising prices
February 15, 2011

"Inflation in China has been on a tear lately, and Chinese consumers are feeling the pinch of rising food, energy and housing prices.

Chinese food prices alone rose a staggering 10.3% (in January), up from a 9.6% pace in December... Housing prices rose by 6.8% during the month.

"Lots of peasants' land has been confiscated to build apartment buildings and factories, and fewer people are planting food. All people can do now is just try to shrink their stomachs."

Its (China) central bank has raised the level of reserves that banks are required to hold seven times in the last year, and raised interest rates three times in the last four months."