Protectionism as investment
Matt Kennel
each job saved.
Could not one view this cost as an "investment"---in that if you save
this job now from foreign competition, then perhaps the industry will
survive long enough that sometime in the future it has the capability
to compete in some new product area not yet invented?
By this measure, government protectionism and industrial policy is forced
investment by citizens in these industries.
What is more valuable? Cheap cameras, or a camera industry? Its probably
a tossup on that level---but what if 5 years down the line, you find that
the camera manufacturers have unique facilities and abilities to manufacture
nonlinear optics?
Notice that the Japanese trade practice appears desgined to completely
and qualitatively *wipe out* foreign competition, often at great initial
cost, in order to have a lock on entire segements of a future economy.
If the competition isn't fully killed off, then it can jump back later
on.
Would we be better off now if we didn't bail out Chrysler? It's doing
much better than GM is now.
---------------------
The implementation of government investment might be very inefficient and
corrupt due to political influence.
Suppose we had a market in goverment investments, i.e. for every dollar
from private investors, comes a U.S. "dollar" in some measure. There
would also need to be something to make sure the investments go towards
long-term, rather than short-term performance.
Another idea,
Suppose the social security administration invested in the stock market,
with a buy-and-hold strategy?
What if it invested in those companies with the maximal median wages
paid to workers, in order to support "high-wage high-growth jobs", and
the growth of business in those industries?
--
-Matt Kennel m...@inls1.ucsd.edu
-Institute for Nonlinear Science, University of California, San Diego
-*** AD: Archive for nonlinear dynamics papers & programs: FTP to
-*** lyapunov.ucsd.edu, username "anonymous".
Peter Nelson
>Re: the articles that talk about how protectionism costs us 2x for
>each job saved.
>
>
>Could not one view this cost as an "investment"---in that if you save
>this job now from foreign competition, then perhaps the industry will
>survive long enough that sometime in the future it has the capability
>to compete in some new product area not yet invented?
This is a nice, theoretical Usenetian argument. The problem is
that we would need much, MUCH better crystal balls to predict
these things.
>What is more valuable? Cheap cameras, or a camera industry? Its probably
>a tossup on that level---but what if 5 years down the line, you find that
>the camera manufacturers have unique facilities and abilities to manufacture
>nonlinear optics?
But economics at the current state of the art can't even come close
to predicting such outcomes with any reliability whatsoever today
so your point is completely moot.
>Notice that the Japanese trade practice appears desgined to completely
>and qualitatively *wipe out* foreign competition, often at great initial
>cost, in order to have a lock on entire segements of a future economy.
>If the competition isn't fully killed off, then it can jump back later
>on.
But the ability to do this rests on fundamentals -- quality,
productivity, innovation, etc. The Japanese government or MITI
could have set all the illustrious 5-year plans for wiping out
the US car industry they wanted. But if they didn't consistently
produce better cars and with about half as many workers per car
as US companies, it would have been for nought. And their ability
to do this is based on competition, not protection. Japan, with
a population of half ours, has *SEVEN* domestic car makers. More-
over they export a far higher percentage of their car output than
the US does, facing stiff competition in every nation they sell to.
Protectionism does nothing to ensure that domestic companies will
improve their products, quality, pricing, service, etc.
>Would we be better off now if we didn't bail out Chrysler? It's doing
>much better than GM is now.
But hindsight is 20/20. Moreover GM is a straw man because it's
doing REALLY badly. The point is there's no reason to assume
that in general the government can "pick 'em" better than the market.
>Another idea,
>Suppose the social security administration invested in the stock market,
>with a buy-and-hold strategy?
Ah, so if the market crashed the SS Admin also goes bankrupt. Gee,
good idea. Also note that the stock market is designed for
investors: the whole concept is that it IS a market. Things get
valued (i.e., bought and sold) according to their prospects and finan-
cials. Pure "buy and hold" stifles this mechanism.
>What if it invested in those companies with the maximal median wages
>paid to workers, in order to support "high-wage high-growth jobs", and
>the growth of business in those industries?
Also note that the "support" this offers is mainly for new issues.
Buying existing stock supplies no capital to the company unless
that company issues new shares.
Anyway, currently the SSA buys Treasuries. If they put their
money into the stock market instead they, and especially con-
sidering the way the international market for US Treasuries is
drying up, who will fund the US debt? Treasury issues would
probably have to command higher interest. In a complex system
there's no free lunch; change this variable and it affects
all those . . .
>-Institute for Nonlinear Science, University of California, San Diego
>-*** AD: Archive for nonlinear dynamics papers & programs: FTP to
. . . you should read some of this stuff. It would make you
more reluctant to propose solutions to complex economic prob-
lems or to think that we can model economic systems well enough
to predict the outcome of our meddling.
---peter
T. Scott Thompson
>Re: the articles that talk about how protectionism costs us 2x for
>each job saved.
>Could not one view this cost as an "investment"---in that if you save
>this job now from foreign competition, then perhaps the industry will
>survive long enough that sometime in the future it has the capability
>to compete in some new product area not yet invented?
>By this measure, government protectionism and industrial policy is forced
>investment by citizens in these industries.
>What is more valuable? Cheap cameras, or a camera industry? Its probably
>a tossup on that level---but what if 5 years down the line, you find that
>the camera manufacturers have unique facilities and abilities to manufacture
>nonlinear optics?
This sounds suspiciously similar to the "infant industry" argument for
protectionism. The argument goes something like this:
"Society should subsidize a currently unprofitable industry if
it will pay positive net returns in the future. The
government should protect such an industry through trade
barriers."
The problem with this argument is that it replaces "Society" and
"subsidize" in the first sentence with with "government" and "trade
barriers" in the second. Specifically, it ignores the following
arguments about whether or not government intervention is needed and
where it should be directed if so:
(1) Presumably financial markets are good (or at least no worse than
anyone else) at identifying firms/industries that have positive net
present value. If a firm is going to generate profits in the future
whose present value exceeds the subsidy that the firm needs to stay
afloat today, then that is a good investment opportunity for the
private sector. In other words, if the enterprise is worth saving on
purely economic grounds then an efficient financial sector will do the
saving without any need for government intervention.
(This argument does not presume that financial markets always make the
right call about long term profitability. It does presume that they
do as good a job as possible given the inherent uncertainty involved
in forecasting.)
(2) Suppose that (1) does not work because the private financial
investment markets are inefficient. Then the focus should be on
fixing the problems in the financial markets (if this is possible)
rather than intervening in the market for internationally traded
goods. It is difficult to justify protectionism on economic grounds
when the economic problem has nothing to do with international trade
per se.
(3) Suppose that private financial markets are broken _and_ we don't
know how to fix them. Then perhaps some direct government support for
industry is justified as a "second best" policy. There is still no
compelling reason why this should take the form of protectionism
rather than, say, direct subsidies, which tend to be less costly for
the nation as a whole. Furthermore, the "second best" argument
presumes that the government can do a better job of identifying the
jobs that are worth saving than the private sector can. Many people
question whether this is possible.
>Notice that the Japanese trade practice appears desgined to completely
>and qualitatively *wipe out* foreign competition, often at great initial
>cost, in order to have a lock on entire segements of a future economy.
>If the competition isn't fully killed off, then it can jump back later
>on.
The Japanese clearly made large investments in developing new
technologies and bringing them to market. This resulted in vast
improvements in the quality of many consumer goods, and lower prices
as well. While there is some evidence of dumping/predatory pricing by
Japanese firms, I don't think that you can conclude that Japan's
practices have had a negative overall impact on long term U.S.
welfare.
Even if you believe that large investments in R & D by the Japanese
government gave their companies an "unfair" advantage in world markets
the appropriate U.S. response would be to respond in kind (through
investment subsidies) rather than protectionism.
>Would we be better off now if we didn't bail out Chrysler?
This is debatable. The bailout of Chrysler was largely achieved
through restrictions on auto imports. These substantially drove up
the price that consumers had to pay for automobiles for the better
part of a decade. It is not obvious that the current benefits make up
for the costs imposed on consumers during the bail-out.
Furthermore, Chrysler's current success is almost exclusively due to
the extreme popularity of their minivans and the inability of other
manufacturers to come up with something that consumers like better.
Did the people who advocated bailing out Chrysler see this coming? I
think not. Chrysler got lucky. This example appeals to our 20-20
hindsight rather than making a rational argument.
--
T. Scott Thompson email: thom...@atlas.socsci.umn.edu
Department of Economics phone: (612) 625-0119
University of Minnesota fax: (612) 624-0209
John Paul Morrison
>each job saved.
>
>
>Could not one view this cost as an "investment"---in that if you save
>this job now from foreign competition, then perhaps the industry will
>survive long enough that sometime in the future it has the capability
>to compete in some new product area not yet invented?
>
>By this measure, government protectionism and industrial policy is forced
>investment by citizens in these industries.
>
unfortunately, tariffs and quotas get applied to protect an industry, but
never get taken off. A good example is the American car industry:
the US government created quotas for Japanese cars, which limited the supply
of Japanese cars, driving the price up. The US car makers should have had an
advantage, since they had a lower price (incentive for more people to buy),
instead the US carmakers took advantage of this and upped the price of the
cars. Then the US cars no longer had a price advantage; meanwhile, the US
carmakers didn't improve quality etc. The net result is higher prices, and
the US industry is still inferior to the Japanese.
Quotas, tariffs, etc tend to get you the worst of both. Now, perhaps
an initial quota, with a scheduled reduction in tariffs, might have had
a better effect, since manufaturers would have had to prepare for a
resumption of normal trade. But more likely, they would have convinced
government to delay rolling back tariffs, and preserve their higher
profits at the expense of consumers.
>What is more valuable? Cheap cameras, or a camera industry? Its probably
>a tossup on that level---but what if 5 years down the line, you find that
>the camera manufacturers have unique facilities and abilities to manufacture
>nonlinear optics?
>
but how do you measure that value? Do you let the local industry argue for
protection with their own studies, to argue for 1000% tariffs, just so they
can make a quick profit off reduced competition? what kind of (market)
mechanism do you propose to measure the value of local jobs vs efficiency
through competition?
>Would we be better off now if we didn't bail out Chrysler? It's doing
>much better than GM is now.
it's not obvious. Perhaps if Chrysler bit the dust, a new manufacturer would
have snapped up the remaining assets. Just because a company fails doesn't
mean the assembly lines disappear. Maybe the US auto industry is better
served by only two automakers. Ford might have bought Chrysler, and mayber
the entire industry would have been better off, not just Chrysler.
It's not obvious.
>
>---------------------
>The implementation of government investment might be very inefficient and
>corrupt due to political influence.
>
>Suppose we had a market in goverment investments, i.e. for every dollar
>from private investors, comes a U.S. "dollar" in some measure. There
>would also need to be something to make sure the investments go towards
>long-term, rather than short-term performance.
perhaps the government shouldn't invest? This seems to duplicate existing
investment markets. Every dollar the government "invests" in an industry
is a dollar you the taxpayer could have spent more wisely.
(Clinton Comment: I don't know what kind of shape the USA is in, but if
he's talking about "investing" in industries etc. I'd be scared. But if
he's talking about investing in the nation's infrastructure: roads, sewers,
transportation; education etc. that seems like what governments are elected
to meddle in. It depends on how well it is invested, and whether or not
it pays back in greater productivity)
>
>Another idea,
>Suppose the social security administration invested in the stock market,
>with a buy-and-hold strategy?
>
>What if it invested in those companies with the maximal median wages
>paid to workers, in order to support "high-wage high-growth jobs", and
>the growth of business in those industries?
Fundamentally, the money they would invest is owned by the people who
contribute to the social security plan. Social security should invest
for maximum return - minimum risk, so that people will have social security
when they retire. Now if there are dumb tax rules that discourage investment
with the country, then that could be changed.
Let me give an example of what could happen if governments start trying to
direct the way public pensions are controlled. They basically want more
money to grab hold of and spend. In Canada, some socialist-government-
labour union provinces (ie Ontario) are trying (or have succeeded) in
forcing pension funds to make available a certain % of funds for
"investment" in union sponsered buyouts, bailouts, and employee takeovers
of (quite shaky, nearly failed) businesses.
I'd say WATCH OUT! if the government starts coming around, wanting to
"invest" your pension fund.
>
>--
>-Matt Kennel m...@inls1.ucsd.edu
>-Institute for Nonlinear Science, University of California, San Diego
>-*** AD: Archive for nonlinear dynamics papers & programs: FTP to
>-*** lyapunov.ucsd.edu, username "anonymous".
--
__________________________________________________________________________
John Paul Morrison |
University of British Columbia, Canada |
Electrical Engineering | .sig file without a cause
jmor...@ee.ubc.ca VE7JPM |
________________________________________|_________________________________
Paul Barton-Davis
>Now it's 1992, and there are less that 50,000 men employed
>in British coal-mining, and some of these men were not even
>born when the effort tp protect "existing" jobs started.
>Taxpayer protection has created new unproductive jobs in an
>uncompetitive industry. What's more, there is still a
>pressure group, headed by Arthur Scargill, the leader of
>the Miners' Union, who want to "invest" yet more taxpayer
>money in the industry, and the argument is still that we
>should keep "existing" jobs around.
The British coal industry is faced with two specific problems:
- declining coal quality
- more expensive extraction costs due to deeper mines
Both of these can be largely attributed to the age of the industry.
If you do the figures, you will find that in all likelihood, in
approximately 10-15 years time, neither of these factors alone will
impede the industry from being profitable, since most other nation's
industries will be facing similar issues.
The question is, therefore: how much does it cost to close down these
mines and layoff the employees now and then reopen the mine in N
years, versus simply keeping them open and taking a running loss ?
Most analyses of these figures that were done during the early-80's
miners strike suggested very clearly that it was cheaper to keep these
people working in a loss making industry than to lay them off and then
reopen the mines later. For some reason, these studies did not
feature very prominently in the government's nor the media's
discussion of the strike.
This is just another example of saving a penny today to save a
(dollar|pound|mark|lira|franc|etc) tomorrow. Not very complex
economics, but ignored all the same.
-- paul
--
There is hardly anything in the world that some man cannot make a
little worse and sell a little cheaper, and the people who consider
price only are this man's lawful prey.
John Ruskin
Jim Howe
|> Re: the articles that talk about how protectionism costs us 2x for
|> each job saved.
|>
|>
|> Could not one view this cost as an "investment"---in that if you save
|> this job now from foreign competition, then perhaps the industry will
|> survive long enough that sometime in the future it has the capability
|> to compete in some new product area not yet invented?
|>
You could stretch the definition of 'investment' to mean what you say.
Unfortunately it's not investment, its simply a waste of money. Past
history has shown that when industries are 'protected' they fail to
make any significant improvements. You end up with a lower quality
product at a higher price. The higher price prevents people from
spending some money on other goods. The only legitimate reason to
'protect' an industry is for national security reasons. Unfortunately
it is all to easy to claim that a particular industry is necessary for
national security reasons.
|> By this measure, government protectionism and industrial policy is forced
|> investment by citizens in these industries.
It is simply a transfer from consumers of the products of the protected
industry to the companies and employees working in the industry. It
is nothing more than a hidden welfare program.
|>
|> What is more valuable? Cheap cameras, or a camera industry? Its probably
|> a tossup on that level---but what if 5 years down the line, you find that
|> the camera manufacturers have unique facilities and abilities to manufacture
|> nonlinear optics?
|>
How much are you willing to pay for the remote possibility that the lack
of some industry will prevent some future industry from developing in
this country? New companies start up all the time, particularly if there
is a supportive capital market. If the manufacture of non-linear optics
is a good business to be in, someone will start one. The U.S. was the
major producer of automobiles, did that stop other countries from developing
their own auto industry?
|> Notice that the Japanese trade practice appears desgined to completely
|> and qualitatively *wipe out* foreign competition, often at great initial
|> cost, in order to have a lock on entire segements of a future economy.
|> If the competition isn't fully killed off, then it can jump back later
|> on.
The Japanese are already facing competition from the Koreans. You seem
to be making the 'predatory' argument, that a country will wipe out
domestic industry with low prices and then raise prices. Japan currently
supplies most consumer electronics. Why haven't prices gone up? Global
competition keeps quality high and prices down. This is to the benefit
of everyone. If citizens of some country want to subsidize my purchase
of a product I'm all for it.
|>
|> [...]
|>
|> Another idea,
|> Suppose the social security administration invested in the stock market,
|> with a buy-and-hold strategy?
|>
Why not let workers invest their SS funds in a fund or plan of their
own choosing? If you let the government invest in private investments,
who would determine which investments got the money? The amount of
influence the government could wield over stock prices would be
tremendous.
|> What if it invested in those companies with the maximal median wages
|> paid to workers, in order to support "high-wage high-growth jobs", and
|> the growth of business in those industries?
Who says that those investments would maximize the return on investment?
The thought of investment by political bureaucracy is a scary thought.
James W. Howe internet: j...@citi.umich.edu
University of Michigan uucp: uunet!mailrus!citi.umich.edu!jwh
Ann Arbor, MI 48103-4943
Jon Livesey
In article <1dpjm4...@network.ucsd.edu>, m...@lyapunov.ucsd.edu writes:
> Re: the articles that talk about how protectionism costs us 2x for
> each job saved.
>
>
> Could not one view this cost as an "investment"---in that if you save
> this job now from foreign competition, then perhaps the industry will
> survive long enough that sometime in the future it has the capability
> to compete in some new product area not yet invented?
>
> By this measure, government protectionism and industrial policy is forced
> investment by citizens in these industries.
One problem with this argument is that in any country there
are industries spread over a spectrum of competitiveness,
from very competitive compared to foriegn industry, to not
competitive at all.
Now from which end of that spectrum does pressure for
protection emerge? From the end where domestic industry
is already *very* uncompetitive. These are then the
industries least likely to survive in the long run, with or
without the kind of "investment" you propose. In other
words, the industries least likely to benefit.
A concrete example: when I was a kid, there were 700,000
men employed in the British coal-mining industry, and the
Govt. was already "investing" taxpayer funds in the
industry "to keep the jobs of men currently empoyed in the
industry alive".
Now it's 1992, and there are less that 50,000 men employed
in British coal-mining, and some of these men were not even
born when the effort tp protect "existing" jobs started.
Taxpayer protection has created new unproductive jobs in an
uncompetitive industry. What's more, there is still a
pressure group, headed by Arthur Scargill, the leader of
the Miners' Union, who want to "invest" yet more taxpayer
money in the industry, and the argument is still that we
should keep "existing" jobs around.
jon.
Jon Livesey
In article <1992Nov12.0...@beaver.cs.washington.edu>, pa...@cs.washington.edu writes:
> In article <1ds4he...@fido.asd.sgi.com> liv...@solntze.wpd.sgi.com (Jon Livesey) writes:
> >Now it's 1992, and there are less that 50,000 men employed
> >in British coal-mining, and some of these men were not even
> >born when the effort tp protect "existing" jobs started.
> >Taxpayer protection has created new unproductive jobs in an
> >uncompetitive industry. What's more, there is still a
> >pressure group, headed by Arthur Scargill, the leader of
> >the Miners' Union, who want to "invest" yet more taxpayer
> >money in the industry, and the argument is still that we
> >should keep "existing" jobs around.
>
> The British coal industry is faced with two specific problems:
>
> - declining coal quality
> - more expensive extraction costs due to deeper mines
It has been facing these problems for the last forty years,
and they don't show any signs of going away.
>
> Both of these can be largely attributed to the age of the industry.
> If you do the figures, you will find that in all likelihood, in
> approximately 10-15 years time, neither of these factors alone will
> impede the industry from being profitable, since most other nation's
> industries will be facing similar issues.
Most other countries *which* industries? You are falling
prey to a fallacy which is being hotly promoted by the
British Miners' Union, namely that British Coal's
competition is overseas coal.
It's not, coal is just energy, and energy is obtainable
from more things than coal. These other forms of energy
may, or may not, encounter rising extraction costs: we
simply don't know. However, we have to imagine that by
some mechanism, the overall world energy cost is going to
rise to the current cost of British deep-mined coal, before
that coal can become economic.
Now that might happen. The *cheapest* form of other energy
available worldwide might just rise to the price of British
coal. And by then I just might have clear title to this
bridge I want to sell you.
jon.
Mark Wilson
>Both of these can be largely attributed to the age of the industry.
>If you do the figures, you will find that in all likelihood, in
>approximately 10-15 years time, neither of these factors alone will
>impede the industry from being profitable, since most other nation's
>industries will be facing similar issues.
You are making the assumption that the mines will ever be reopened.
Given the amount of oil and gas that have been discovered in the last few
years, plus the known amount of coal in deposits that are cheaper to mine,
it is very questionable whether the mines will be reopened.
If coal were truely running out at some future date then the cost of coal
will go up. When the cost of the coal still in the ground reaches the point
that it is greater than the costs of somebody reopening the mines, then
somebody will do it.
It makes no sense to subsidize the extraction of hard to reach coal when
cheaper stuff is readily available.
BTW, it will probably be closer to 100-150 years before the British coal
becomes cost competitive again. The US alone has more than 100 years worth
of coal, most of that in near surface deposits that can be strip mined
quite cheaply.
--
Mob rule doesn't become any prettier, just because the mob start to call itself
a government.
It ain't charity if you are using someone else's money.
Mark....@AtlantaGA.NCR.com
Matt Kennel
:
: > Re: the articles that talk about how protectionism costs us 2x for
: > each job saved.
: >
: >
: > Could not one view this cost as an "investment"---in that if you save
: > this job now from foreign competition, then perhaps the industry will
: > survive long enough that sometime in the future it has the capability
: > to compete in some new product area not yet invented?
: >
: > By this measure, government protectionism and industrial policy is forced
: > investment by citizens in these industries.
:
: One problem with this argument is that in any country there
: are industries spread over a spectrum of competitiveness,
: from very competitive compared to foriegn industry, to not
: competitive at all.
:
: Now from which end of that spectrum does pressure for
: protection emerge? From the end where domestic industry
: is already *very* uncompetitive. These are then the
: industries least likely to survive in the long run, with or
: without the kind of "investment" you propose. In other
: words, the industries least likely to benefit.
Yes exactly! We (meaning U.S. 'authority') throw good money after
bad, putting effort where we've already "lost".
I would rather make sure we do everything we need to to *win* in other areas,
which is approximately what the Japanese do.
I agree it's stupid to waste taxpayer's money to simply make industry
lose slightly slower. If we are going to spend money, make sure we
*WIN*.
The "market has spoken" and is saying that U.S. is losing and Japan winning
The "market has spoken" and wants to average my standard of living with
Mexico's
The "market" has spoken and is saying "WE'RE DOING IT WRONG!".
I want to make sure the market says what I want to hear, rather than
take its short term valuations passively and say "the market made me do
it".
Do you really think the "market's" doing the right thing when it slashes
private R&D across huge segments of industry?
Perhaps the "market" is punishing us for poor decisions. Why do
people think that the 'market' is not shouting "YOU BOZOS! YOUR ECONOMIC
SYSTEM DOESN'T WORK! DO SOMETHING DIFFERENT!"
The statement of the fundamental problem:
=========================================
Only in a econometrician's linear fantasy world can you locally optimize
individual variables to obtain a global optimum.
The "market" is propelling us to local "optima" which don't really
seem even that locally optimal in the U.S.
The idea of an industrial policy that works is to jump over the local
maxima, rather than spend money to swim against the gradient.
: A concrete example: when I was a kid, there were 700,000
: men employed in the British coal-mining industry, and the
: Govt. was already "investing" taxpayer funds in the
: industry "to keep the jobs of men currently empoyed in the
: industry alive".
:
: Now it's 1992, and there are less that 50,000 men employed
: in British coal-mining, and some of these men were not even
: born when the effort tp protect "existing" jobs started.
: Taxpayer protection has created new unproductive jobs in an
: uncompetitive industry. What's more, there is still a
: pressure group, headed by Arthur Scargill, the leader of
: the Miners' Union, who want to "invest" yet more taxpayer
: money in the industry, and the argument is still that we
: should keep "existing" jobs around.
Yes, I agree that's foolish. I was thinking of things like industrial
policy for developing better solar and nuclear plants.
In this case, protectionism and industrial policy might only be beneficial
for those industries that don't already yet exist.
The obvious problem is that nonexistent industry has no political power.
Somehow the Asian nations seem to have gotten around this problem. Perhaps
it's because they're culturally disinclined to whine. (this is exceedingly
superficial i know)
: jon.
Matt Kennel
: |> {I said}
: |> What is more valuable? Cheap cameras, or a camera industry? Its probably
: |> a tossup on that level---but what if 5 years down the line, you find that
: |> the camera manufacturers have unique facilities and abilities to manufacture
: |> nonlinear optics?
: |>
:
: How much are you willing to pay for the remote possibility that the lack
: of some industry will prevent some future industry from developing in
: this country?
: New companies start up all the time, particularly if there
: is a supportive capital market.
That's exactly the point. Why is there only sometimes a supportive
capital market?
Is a new teeny company doing nonlinear optics going to do as well against
the full force of Nikon and Matsushita and NTT if all of a sudden this new
field arises?
: If the manufacture of non-linear optics
: is a good business to be in, someone will start one.
And if it's really good, foreign competitors might make sure by
'any means necessary' that ours don't get off the ground.
Because the 'capital markets' are so good at observing economic
trends, there won't be a supportive capital market here because
most of these new startups fail.
Bummer.
The capital markets will make their evaluations based on *existing* economic
factors, rather than "what could be". The capital markets have already
taken into account trade policy when they make their decision. Right now,
they place their bets on Nikon & Matsushita and not on Yoyodyne, Inc.
: The Japanese are already facing competition from the Koreans. You seem
: to be making the 'predatory' argument, that a country will wipe out
: domestic industry with low prices and then raise prices. Japan currently
: supplies most consumer electronics. Why haven't prices gone up? Global
: competition keeps quality high and prices down.
Yup. And the Japanese now have a huge, very efficient, low-cost, high
performance, high-technology industry and we don't.
Funny thing that.
They knew that we could compete against them, and did everything to make
sure we couldn't. Maybe they didn't have time to deal with the Koreans, but
you know, I wish our country had that problem.
: This is to the benefit
: of everyone. If citizens of some country want to subsidize my purchase
: of a product I'm all for it.
I'm touched by their generosity.
Like a drug dealer who gives out free samples.
Here's the question: cheap VCR's give individual Americans $50 extra free
dollars. Will that make us make more money in the long run or will
having all 10 billion working in one place? I thought the point of
*capital*ism is that having alot of capital in one place can do a lot of good.
Somehow, the Japanese still seem to have been able to acquire enough VCRs of
their own.
It's not easy to take apart those cheap VCR's to get to their cheap
parts to salvage them to make cheap ISDN network connectors.
: |> Another idea,
: |> Suppose the social security administration invested in the stock market,
: |> with a buy-and-hold strategy?
: |>
:
: Why not let workers invest their SS funds in a fund or plan of their
: own choosing?
Better.
: If you let the government invest in private investments,
: who would determine which investments got the money? The amount of
: influence the government could wield over stock prices would be
: tremendous.
: |> What if it invested in those companies with the maximal median wages
: |> paid to workers, in order to support "high-wage high-growth jobs", and
: |> the growth of business in those industries?
:
: Who says that those investments would maximize the return on investment?
Yes, this could be a problem. I was thinking about a huge venture capital
firm whose mission was in fact to make a profit.
How about this---a capital market in government policies? You can buy
options in some stocks or derivatives combined with various policy proposals.
Current capital markets only evaluate current conditions, and not "what would
things be like if policy were different". Maybe this could aid policy
makers by having "many" people evaluate proposals through more objective
means than the current "who whines the loudest and who knows whom".
Question: does parallel local optimization of profit lead to global
optimization of GDP?
: James W. Howe internet: j...@citi.umich.edu
: University of Michigan uucp: uunet!mailrus!citi.umich.edu!jwh
: Ann Arbor, MI 48103-4943
--
Jim Howe
|> j...@citi.umich.edu (Jim Howe) writes:
|> : |> {I said}
|> : |> What is more valuable? Cheap cameras, or a camera industry? Its probably
|> : |> a tossup on that level---but what if 5 years down the line, you find that
|> : |> the camera manufacturers have unique facilities and abilities to manufacture
|> : |> nonlinear optics?
|> : |>
|> :
|> : How much are you willing to pay for the remote possibility that the lack
|> : of some industry will prevent some future industry from developing in
|> : this country?
|>
|> : New companies start up all the time, particularly if there
|> : is a supportive capital market.
|>
|> That's exactly the point. Why is there only sometimes a supportive
|> capital market?
|>
Government rules and regulations.
|> Is a new teeny company doing nonlinear optics going to do as well against
|> the full force of Nikon and Matsushita and NTT if all of a sudden this new
|> field arises?
|>
Sure, why not? GM is large and should be dominating smaller competitors,
right? Small car companies have never been able to compete against GM,
correct? Small computer companies have no chance against IBM do they?
Small has its advantages.
|> : If the manufacture of non-linear optics
|> : is a good business to be in, someone will start one.
|>
|> And if it's really good, foreign competitors might make sure by
|> 'any means necessary' that ours don't get off the ground.
|>
If foreign competitors want to keep prices so low that we don't
bother then I don't see a problem. Taken to an extreme, foreign
competitors could *give* away products in the U.S. so their
country would have jobs. Of course, we wouldn't need jobs because
foreign populations would completely subsidize our lifestyle. The
key thing to remember is that we live in a global economy. Just as
it would make no sense for every state or every city to produce the
goods used by people in that state or city, it makes no sense to
worry that some goods are produced in foreign countries.
|>
|> Because the 'capital markets' are so good at observing economic
|> trends, there won't be a supportive capital market here because
|> most of these new startups fail.
|>
|> Bummer.
|>
|> The capital markets will make their evaluations based on *existing* economic
|> factors, rather than "what could be". The capital markets have already
|> taken into account trade policy when they make their decision. Right now,
|> they place their bets on Nikon & Matsushita and not on Yoyodyne, Inc.
|>
When government rules and regulations create disincentives for banks to
take risks small business will have problems. When laws exist which
tax capital and investment, small business will be hurt. These are
government impediments, not market impediments.
|> : The Japanese are already facing competition from the Koreans. You seem
|> : to be making the 'predatory' argument, that a country will wipe out
|> : domestic industry with low prices and then raise prices. Japan currently
|> : supplies most consumer electronics. Why haven't prices gone up? Global
|> : competition keeps quality high and prices down.
|>
|> Yup. And the Japanese now have a huge, very efficient, low-cost, high
|> performance, high-technology industry and we don't.
|>
Actually so do we. Mostly in industries that haven't been 'protected'.
|>
|> They knew that we could compete against them, and did everything to make
|> sure we couldn't. Maybe they didn't have time to deal with the Koreans, but
|> you know, I wish our country had that problem.
|>
You seem to believe the hype that we are a completely inept country. We
happen to have the highest worker productivity of any nation. This doesn't
mean that we should be producing all products. The law of comparative
advantage applies here. We produce what we are good at, other countries
produce what they are good at.
|> : This is to the benefit
|> : of everyone. If citizens of some country want to subsidize my purchase
|> : of a product I'm all for it.
|>
|> I'm touched by their generosity.
|> Like a drug dealer who gives out free samples.
|>
Faulty analogy. Obviously you are implying that low priced goods will
make us dependant on them and then they will be able to jack up the
price because we will be hooked. Fortunately this isn't the case.
Successful predatory pricing (which is what you are describing) is a myth.
In a worldwide economy with true free trade, a monopoly position could
only be held if the company were providing a valuable product at a
reasonable price. If the price was unreasonable, some other company
would find it profitable to enter the market and would drive the price
back down.
|> Here's the question: cheap VCR's give individual Americans $50 extra free
|> dollars. Will that make us make more money in the long run or will
|> having all 10 billion working in one place? I thought the point of
|> *capital*ism is that having alot of capital in one place can do a lot of good.
Artificially keeping prices high in an industry is hardly a good way to
economically ration resources.
|>
|> Somehow, the Japanese still seem to have been able to acquire enough VCRs of
|> their own.
|>
Check out the cost of living in Japan. Compare their standard of living
to ours on a purchasing power basis. You will find that we have a lower
cost of living and a higher standard of living.