Tuesday, May 23, 2006

I found this article interesting (thanks Autoblog). It says that Korean automakers are delaying introduction of their own hybrids because they're not sure they can make money off of them without government subsidies--and if they get government subsidies and lower their prices, they may be subject to international trade restrictions.

They might sell them without subsidies, but then they could be subject to anti-dumping laws if they took losses. If they charge prices high enough to make a profit on each car, they might go unsold. What a mess.

If someone offers you something for a low price, you should buy it. You need not ask "did someone else subsidize you to make the price this low?" The answer to the question is irrelevant. If Koreans want to pay taxes to their government so that we can have cheaper Korean hybrid cars, then I am mighty appreciative. I don't think the Koreans are doing themselves a favor, of course.

What of the cost in lost American jobs? Again, suppose someone offers you a cheap car. Do you say "but I wanted to work the extra hours to pay more for that car"? Of course not. Some of the labor income that would have gone to pay for that higher price can now be used to buy something else. So it is with jobs. We would have used resources to produce more hybrid cars without the Korean subsidy (or we might have purchased more expensive Japanese hybrids instead). Thanks to the generosity of Koreans, our workers can build other things instead. We're better off.

As an extreme example, suppose aliens from another planet stopped by to say hello, and gave every American a free car as a gesture of interstellar friendship. Assuming that the cars are not in fact booby-trapped in order to wipe us out and take control of our precious supply of jelly beans, we would be fools to turn them down. Free cars are the best. But cheap cars are pretty good, too.

3 comments:

Urstoff said...

Given general public choice theory, I doubt very much that car subsidies in Korea would be due to the generosity of the Korean public rather than the sway of the special interest group, the auto industry in this case. Of course we as Americans are better off buying goods subsidized from other countries, but does that hurt the countries from whom we're buying? Governments aren't the most rational of entities and the surge in sales of subsidized goods might be seen as a reason to continue subsidizing them (whilst raising taxes to pay for the increase in quantity demanded) rather than to end the subsidies and curtail the increased costs.

Just yesterday I was re-watching Milton Friedman's old PBS series "Free to Choose" and in the episode on free trade panelist Jagdish Bhagwati (no radical economist, mind you: http://www.columbia.edu/~jb38/ ) likens buying such subsidized goods to buying stolen property. Sure, the recipient of the goods is better off but it also gives incentive to theives to steal more goods.

Given that it's quite the informational burden to try to figure out just what goods are subsidized and which aren't I'd personally say "to hell with it" and just buy the cheapest good, but that action in itself may not be a utility-maximizing action (inside joke).

Oh god, did I just invoke a moral argument in an economics discussion? Say it isn't so!

Mike Hammock said...

Of course, the generosity of the Korean public isn't the cause of the subsidies. That was hyperbole on my part. The subsidies exist because politicians benefit from providing them. They receive campaign funds, votes, or other favors.

Bhagwati has a point, but I don't think it's a strong one. Aside from the informational burden, it seems to me that the incentive to provide extra subsidies is constrained. If the hybrid subsidy is on a per-car basis, and if the cars sell well, it will be expensive. More subsidies will be more expensive. Even politicians face some budget constraints.

Also, my decision not to buy subsidized foreign goods has no effect on the decisions of others, who will likely buy whatever they want.

Of course, one might propose a policy that bans imports of subsidized foreign goods. I worry that this might turn into something like anti-dumping law--an excuse for firms to engage in rent-seeking. They'll find any excuse possible to claim their foreign competitors are subsidized. Do only subsidies on specific products count? What about subsidies for an entire industry? What about special tax breaks for specific businesses? Domestic firms push as far as they can, trying to tie their competitors up in court, harming consumers by restricting competition.

No, I think the simplest and best policy is to simply let people buy whatever is cheapest, and hope that they will come to their senses (loosely and collectively speaking; lack of opposition to subsidies can be individually rational) and compel their politicians to stop subsidizing domestic production.

somebody said...

酒店經紀人,

菲梵酒店經紀,

酒店經紀,

禮服酒店上班,

酒店小姐,

便服酒店經紀,

酒店打工,

酒店寒假打工,

專業酒店經紀,

合法酒店經紀,

酒店暑假打工,

酒店兼職,

便服酒店工作,

酒店打工經紀,

制服酒店經紀,

專業酒店經紀,

合法酒店經紀,

酒店暑假打工,

酒店兼職,

便服酒店工作,

酒店打工,

制服酒店經紀,

酒店經紀,