Friday, November 28, 2008

The Auto Bailout, Trade, and Policy Specificity

As a trade economist, there is exactly one thing that could convince me that a subsidy to the auto industry is worthwhile, and it's this: Give them a direct subsidy and tear down all of the trade restrictions on foreign-made autos. That way, we could increase the competitiveness of the MARKET, and increase the chances that the monies will be used productively, rather than squandered on short-sighted SUV promotions that would keep us in the energy use gluttony of the last 20 years.

3 comments:

  1. Anonymous1/12/08 12:16

    Should the Big Three continue to have extra high wages/benefits, from top to bottom, funded by the subsidies? What is there to keep them from having higher and higher salaries and perks?

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  2. To quote The Simpsons - Ned Flanders: "Is God punishing me?" Rev. Lovejoy "...ooooh short answer yes with an if, long answer no with a but..."
    So again, my answer is yes, if it means removing the trade restrictions that distort our own (and the world) economy, but no, I do not believe it is the ideal way of dealing with the current problem.
    Why? The long and short of it is this: We're already subsidizing them with the trade tariffs and other restrictions. The problem is that the benefits that the tariffs allot to the industry also does a lot of other damage to the economy. At least a subsidy (only if coupled with tearing down the trade restrictions) would be a direct and transparent way of doing it (de jure), instead of indirectly through tariffs and non-tariff barriers like we do now (de facto).
    The reason we don't directly subsidize firms and instead slap tariffs on is basically elucidated by your own skepticism, Mr. Anonymous: It "sounds" slimey, but economically speaking it is a much cleaner way of achieving a goal, even if you disagree with the reasons for having that goal (as I do). I hope this helps, but I respect and understand your skepticism.

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  3. Like Oliver Wendell Holmes always said, I like to pay taxes. With them I buy civilization and high wages for the UAW.

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