Timmy elsewhere

At the ASI.

The correct answer to some other idiot subsidising the production of something is \”thank you very much\”.

15 thoughts on “Timmy elsewhere”

  1. The problem here is you believe it is a very good thing that the British government has deliberately trashed sterling’s external value as it is reflation, ie our exports relatively cheaper and imports relatively dearer.

  2. It’s like the European airlines whining they cannot compete with Emirates and Etihad because the latter two are subsidised from the pockets of wealthy sheikhs. As a customer, I am quite happy for my air travel to be subsidised by wealthy sheikhs, something the dickheads running airlines in Europe don’t seem to understand.

  3. Matthew

    just curious as to how the British Govt could have stopped the decline of sterling or why it should even have tried.

  4. I’d generally agree with Tim, but this kind of tactic was applied in the mercantilist era at protecting indigenous industries and preventing the rise of cheaper foreign competitors. There is a longer-term view that allowing the destruction of indigenous industries that would otherwise be viable under a proper free-trade system is a bit silly. And there are overtly mercantilist states still out there – as much as we ideologically hate it, it’s a sad reality. You only need to subsidise long enough to obtain a monopolist position, and subsequently keep the price at a level that discourages upstarts (already chilled out by the fate of their predecessors) from starting up. If a renowned British airline can do it to a less-renowned airline (mentioning no names), a country (particularly one running a heavily-protected, state command economy) can do it to another for selected industries.

  5. and how much do you subsidize your unemloyed??
    which ,at least parttially (or more). makes up for those cheap importss

  6. Subsidising the unemployed actually makes the imports more attractive because it puts a floor under the price of labour. So lack of subsidies for unemployment in other places could be interpreted as mercantilism of sorts.

    As a result, if you want some measure of freedom and some measure of equality, you find your national sovereignty is constrained by reality (including the things other countries do).

  7. Diogenes – not particularly relevant to the argument as its Tim who says they deliberately reduced its value by 25%, but you could simply reverse or not do what it was that brought that about – steeply (steepest of all major economies) negative real interest rates, QE etc.

  8. OT, but I don’t comment at Forbes:

    > No, this just isn’t true. The estimates of the amount of warming we’re likely to get are going down, not up: from respectable research groups that is.

    is bollocks.

    > A decade ago it was possible to say, with a straight face, that the effect would be a 6 oC rise or more. Nowadays scientists would laugh at you. 3 oC is a good guess, 4.5 at the limits of believability at the top end and perhaps 1 or 1.5 at the low.

    This is also bollocks. The central estimate of 3 oC hasn’t changed; the range hasn’t changed much, though it has narrowed a bit. so on the central issue of most-probable-value, the answer is no change. Krugman is wrong, but so are you.

  9. JamesV’s comment is very good.

    The problem with the kind of presentation Tim does here is it comes across as rather uncaring. People in industries ruined by subsidised foreign competitors are not likely to be much impressed by it. It’s not good propaganda, ignoring other factors.

    JamesV’s point about allowing foreign subisidsers to ruin indigenous industries really is a good point. There may be an industry with large numbers of workers who are hard to re-assign to new production. Take coal, for instance. If foreign coal has a free market price lower than yours, fair enough. You are beaten fair and square.

    But if a foreign government are subsidising their coal in order to knock you out of the market, you quite reasonably feel that you haven’t been beaten “fair and square” at all. You might quite reasonably ask your own government to impose a tarriff sufficient to block the foreign coal’s unfair advantage. You might expect your government to say to the foreign government, “stop subsidising your coal, and we will drop the tarriff”. This is of course how trade wars develop.

    It really isn’t as simple as Tim is presenting it, and I don’t think it does the case for free markets any favours.

  10. There is a longer-term view that allowing the destruction of indigenous industries that would otherwise be viable under a proper free-trade system is a bit silly.

    This longer-term view needs to explain:
    – How one can know if an indigenous industry would otherwise be viable under a proper free-trade system. Particularly given that it’s always possible that a new invention would make said industry unviable under a proper free-trade system.
    – Why the industry can’t just be reconstructed, when/if the subsidies disappear (look at how quickly new designs of planes could be churned out in WWII).
    – Given the deadweight losses of taxes, why running a trade war, or establishing offsetting subsidies, would be cheaper than just allowing the destruction of indigenous industries. (There’s a certain argument that what caused the collapse of the USSR was trying to keep up with US government spending on defence. At some times swallowing a loss is cheaper than getting into a “war”, particularly as in the case of subsidies which harm the providing country.)

    You only need to subsidise long enough to obtain a monopolist position, and subsequently keep the price at a level that discourages upstarts from starting up.

    The threat of new entry is indeed an important limit on someone who, on paper, might be a monopolist.

    Ian B: It is rather obvious that people in affected industries will not accept that they have “been beaten ‘fair and square'” if they start losing money, no matter how much of a free market is operating. They’ll still come crying for subsidies. When a factor is invariant to whatever decision you make, you should ignore it in making decisions, so the fact that people will come calling for subsidies is a factor that should be ignored in any analysis about what to do in response to other governments’ subsidies.

  11. Tracy, like I said, it’s not that simple. And, because people know it’s not that simple, free marketeers saying it is that simple just loses us their sympathy, and just encourages them to vote Statist. Taking your points-

    How one can know if an indigenous industry would otherwise be viable under a proper free-trade system. Particularly given that it’s always possible that a new invention would make said industry unviable under a proper free-trade system.

    If it is known that the foreign government is subisidising their coal by £x per tonne, it is reasonable to conclude it would cost £x per tonne more unsubsidised, and thus compare it to the price of your own unsubsidised coal.

    Why the industry can’t just be reconstructed, when/if the subsidies disappear (look at how quickly new designs of planes could be churned out in WWII).

    Ever looked at the practicalities of reopening an abandoned, flooded coal mine, and getting the workforce etc back together?

    Given the deadweight losses of taxes, why running a trade war, or establishing offsetting subsidies, would be cheaper than just allowing the destruction of indigenous industries.

    It may not be, but such an analysis is hard since you’re comparing what is with what might have been in an unknown counterfactual universe. Part of the problem is that government subsidies spread the cost across the whole of society, so may be small to each individual, whereas there is a significant local cost to the destruction of a major industry (like coal, in my example) since reviving the local economies requires enormous investment, reskilling, and so on, and many of the lost jobs are people who are likely to have low reskilling value due to age etc. IOW, there’s a whole range of economic and social factors. Which would also apply if the industry had died fair and square, but wouldn’t have the “I’m unemployed because Farawayland subsidises its coal, but our own government just threw us to the wolves” effect.

    On the other hand, governments can use the threat of a trade war to discourage other governments from applying such subsidies to their own industries; that is, to help impose free markets on foreigners. That is going to produce a better political effect; it shows that the free market government is ideologically sound, rather than just a policy of (e.g.) Southerners benefitting from cheap foreign coal and leaving the Northerners to go to hell, kind of thing.

    Anyway, back to the economics briefly, we must also remember that once your own industry is wrecked beyond repair, the foreign one you’re dependent on can now ramp their prices back up. You may end up paying more anyway.

  12. Ian B – trouble is, if you make it complicated, you lose people’s attention too.

    If it is known that the foreign government is subisidising their coal by £x per tonne, it is reasonable to conclude it would cost £x per tonne more unsubsidised,

    Ah, it’s not that simple. Prices are set by the intersection of supply and demand. Whether a subsidy results in higher prices depends on the elasticity of demand relative to demand, not just on the level of subsidy.

    As for reopening old coal mines, this happens if, in a free market, coal prices are low for a while but then rise. For example, coal prices fell as developed countries started using natural gas and nuclear for power generation, but now coal prices have apparently gone up because India and China are now growing rapidly and demanding heaps of coal. By your logic,why not subsidise for variations in prices driven by free market causes, as well?

    It may not be, but such an analysis is hard since you’re comparing what is with what might have been in an unknown counterfactual universe.

    Yes, but that’s what you need to show before you can assert that we’re better off getting into a trade war. You’re the one recommending action, so the burden of proof is on you.

    Part of the problem is that government subsidies spread the cost across the whole of society, so may be small to each individual, whereas there is a significant local cost to the destruction of a major industry (like coal, in my example) since reviving the local economies requires enormous investment, reskilling, and so on, and many of the lost jobs are people who are likely to have low reskilling value due to age etc.

    But paying for the subsidies involves a significant national cost, even though it is small to each individual. Every individual has less money to invest in their local communities (and in communities far away), in their own reskilling to deal with technological change, etc. There is a significant cost to the destruction of a minor industry, as well as to major industries. What’s the point of protecting jobs in a coal-mining community, if that means that you lose even more jobs in, say, tourism, or childcare, because of the higher deadweight costs of taxes? How about the costs from less medical treatment, because money is being diverted to coal subsidies?

    Furthermore, in the case of coal, there’s a really high cost from keeping coal mines going. Coal mining is naturally very dangerous, particularly deep coal mining, because the people are working with heavy machinery in a place it’s hard to get out of in a hurry. Keeping the coals going means more young people going into coal mining, which means more people dying in coal mines. It’s one thing for people to risk their own lives, it’s another thing to encourage them to do so with taxpayers’ money. One of the things that really puzzles me about UK politics is that many of the people who are on the left, who typically support health and safety laws, and nuclear safety, and are the most likely to talk about how people need to be protected from making bad choices, and etc, also apparently sincerely believe that shutting down coal mines was a bad thing.

    Which would also apply if the industry had died fair and square, but wouldn’t have the “I’m unemployed because Farawayland subsidises its coal, but our own government just threw us to the wolves” effect.

    This only applies if the people in question are not greedy bastards who’ll use any excuse to get more government subsidies. Having worked in government, and seen the number of people arguing for subsidies, the idea that people are more likely to lobby for subsidies just because another country subsidises them doesn’t pass the giggle test. People lobby for subsidies and will use any reason they can think of for more subsidies. If the industry is kicking butt, they’ll, with straight faces, say that this proves that the subsidy is essential. About the only exception I can think of is the NZ Business Roundtable.

  13. This is nonsensical:

    Whether a subsidy results in higher prices depends on the elasticity of demand relative to demand, not just on the level of subsidy.

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