Categories: Andrew Coyne, Capital Read, Uncategorized

The Iowa car crop

by Andrew Coyne on Thursday, September 16, 2010 1:48pm - 0 Comments

I’m borrowing this from Mike Moffatt, who got it from Stephen Gordon, who cut-and-pasted it from Stephen Landsburg, who was quoting David Friedman, but it’s precisely relevant to the current discussion about jobs and jets and whether we should build things here or overseas:

There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First, you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.

International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to Americans’ well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars.

Any policy designed to favor the first American technology over the second is a policy designed to favor American auto producers in Detroit over American auto producers in Iowa. A tax or a ban on “imported” automobiles is a tax or a ban on Iowa-grown automobiles. If you protect Detroit carmakers from competition, then you must damage Iowa farmers, because Iowa farmers are the competition.

…It is sheer superstition to think that an Iowa-grown Camry is any less “American” than a Detroit-built Taurus. Policies rooted in superstition do not frequently bear efficient fruit.

Sometimes economics makes me weep it’s so beautiful.

BONUS MORAL: Moffatt sums up,

“either way, the F-35s will be obtained with Canadian labour. The question is, will it be done directly or indirectly through trade?

And obviously we’d like to do as little work as possible to obtain them, right? Because with the time we save, we can be doing other things. So the notion that we should structure the contract in such a way as to “create” as many jobs as possible has it exactly backward.

Tags: aerospace, F-35, protectionism

More by Andrew Coyne

ColdStanding

"To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars."

Well, it might be a mystery to an economist, but it isn’t to an industrial production engineer. Should we be taking the advice of a so called expert that reasons about one of the most important components of an advanced industrial economy as if it were a mysterious black box?

It is very frustrating to attempt to have a discussion about important issues begin with one side saying, “OK, if we completely ignore this set of facts, my reasoning is correct.”

http://ragingranter.blogspot.com Raging_Ranter

But that, once again, introduces more complexity into the model than it necessary to understand the trade issues. Production is not trade, nor is it relevant to understand how the tradeable goods are produced to deal with the underlying trade issues.

ColdStanding

Then you'd better set aside modelling and learn how to actually fly an airplane.

If production isn't trade then the thick, luxurious hair on my head isn't part of my scalp. Why would you produce in excess of your needs if you didn't intend to trade?

madeyoulook

It strikes me as, well, odd, that something that really is simple to understand should be rejected just because it is so simple.

The point: Decent cars at an attractive price come from "over there." Rather than set up a car manufacturer here that cannot win a fair competition, I will find something worth selling that I can make better than anyone else. That way, I can make a killing doing what I do best, and I know who to call if ever I need a good affordable car. Or bamboo. Or cherries. Or vaccines. Or vacation. Etc.

ColdStanding

I didn't reject it because it was simple. I rejected it because it was focusing on the wrong thing.

Under your scenario in today's conditions, you will only have a comparative advantage for a short period of time unless you are continually developing the primary generators of comparative advantage: scientific discovery. These new discoveries need an environment were significant degrees of protection are established and enforced by a sovreign entitie (it is late, I am not going to correct my spelling).
madeyoulook

These new discoveries [leading to comparative advantage] need an environment w[h]ere significant degrees of protection are established and enforced by a sov[e]reign entit[y].

If you believe a state's protectionist policies can lead to businesses "discovering" newer and better comparative advantages to create better efficiencies with improved quality at lower prices, yeah, you had best turn in.
Holly Stick

If one country grows only wheat and another makes only cars, then they are vulnerable to nature and terrorism. When the transportation system is stopped by bombs or volcanoes, the people who grow wheat will be inconvenience by not having cars, but the people who make cars will starve.

Any country which does not support its agriculture will end up either starving or paying very high prices to other countries.
madeyoulook

There it is: "only."
http://www.projectlearnet.org/tutorials/concrete_…
RagingRanter

You're assuming that allowing comparative advantage to take its course, we'll all end up producing only one thing. There is nothing about protectionism that leads to a more diversified economy, nor is there anything inherent to the reduction of trade barriers that leads to less diversity. If you want a diversified economy, you can remove barriers to entry and allow one to flourish. You don't get one by erecting trade barriers and subsidy schemes.
ColdStanding

You are looking at your model again.

Removing the barriers to entry completely decimated the manufacturing sector on the eastern sea board of the USA, and this was from removing internal barriers to trade. New York was absolutely creamed. So, in this instance, the economy of the eastern seaboard of the USA catagorically did not flourish. Wall Street being the notorious exception.

Your model might say that, on average, the national economy might come out zero sum, but the lives significant numbers of people were badly disrupted, and local economies lost a lot of tax revenues when manufacturing jobs were replaced with lower paying service jobs.
austinso

South Korea completely closed off the import of almost all foreign commodities after the Korean war, and essentially nationalized its economy by appointing conglomerates to lead various sectors of the economy. This allowed Korea to build up its own manufacturing base (next to the behemoth Japan) to the point that within 30 years, its GDP was on par with that of Canada.

So tell me how protectionism is a bad bad thing which prevent progress and diversity?
http://ragingranter.blogspot.com Raging_Ranter

South Korea received favourable export status from the major world economies, including the US and Canada, after the Korean War. At any other time, closing off the country to imports would have seen the door slammed to their exports as well. And you're assuming that by closing off imports, they somehow ended up better off than they otherwise would have been. Like I say, opportunity costs are unknowable.

We can all cite someone who smoked cigarettes and lived to be 90 years old, and use that as proof that smoking isn't bad for you. But only if we ignore the possibility that the smoker might have lived past 100 if he didn't smoke.
austinso

Then give me a concrete example of the converse. It should be trivial to find, if as you say, S. Korea was an exception rather than the norm.
ColdStanding

One man's protectionist policy is another man's seeking to cultivate the conditions for growth of that which would not exist without said protections, but needs to exist in order to sustain an increasing population.

Damnation upon Giamaria Ortez and his lies of carrying capacity.
madeyoulook

but needs to exist in order to sustain an increasing population.

Like…?
ColdStanding

Why was Japan able to change from a military economy to a productive economy? Because it existed and continues to exist under the ageis of the USA & it's military. Government intervention, myl.

It was more expedient establish the protections to allow Japan to re-tool and develop the skills it needed to compete than to leave it to its own devices. Same story for post WWII Germany.
madeyoulook

Now you're reaching. No, sorry, it's been a pleasant conversation, and an interesting debate, and I look forward to future dialogues, but this is OVER-reaching.

If the most helpful "protectionist ECONOMIC policy" you can cook up "to sustain an increasing population" is the military defence of a nation just decimated by war, I will suggest you stay in that corner until your paint dries, and I am off to bed.
ColdStanding

My sleep addled mind may have lead me down un-productive pathways.

But I believe I have come up with an important point and started a new thread below.

JustinWordswrth

It is not being said that it is a mystery how the cars are made, but simply that it doesn't matter from the point of view of trade.

If for example, Canadians put some portion of what onto a boat, and that boat left the shore and returned later with cars, it doesn't matter to the Canadians how those cars got there. The boat could have gone to Japan, Saudi Arabia, or Haiti, the wheat could have been consumed by people who built cars, or a magician could have turned the wheat into cars. It doesn't matter. The point is that if the amount of resources going into the wheat production is less than what would have gone into the domestic car production, it is an economically beneficial result.

It is very frustrating to attempt to have a discussion about important issues proceed with one side completely bungling–deliberately or otherwise–the premises of the other.

ColdStanding

I got the gist of the argument as it was presented. I just unfolded the entailments/consequences of said arguement in practical application. Are you prepared to go back to farming? I am not. I need to live in an industrial soceity that generates a significant portion of its wealth from production of physical goods that increase the ability of me and my prodigeous kin to exist. Call me old fashioned, but I am not so keen on living in a soceity that derives most of its income from looting uninformed actors by exploiting pricing disparities. Even though I actually do live in such a soceity.

JustinWordswrth

You're old-fashioned.
JustinWordswrth

I got the gist of the argument as it was presented. I just unfolded the entailments/consequences of said arguement in practical application.

No. x 2.

ColdStanding

?

Loraine Lamontagne

Interesting thread. Makes me wonder how WWII would have ended if the USA had not had car plants,

RagingRanter

They didn't have much for airplane plants. But they built them. In a hurry.

ColdStanding

They were able to build them quickly thanks to the federal government having organized the TVA to increase the availablity of electricity for more intensive levels of industrial production. That experience developed their engineering capacity to enable them to build advanced production capacity quickly.

It was quite a fight to get the privately owned interests on side to the project. Thank goodness more sensible people were at the helm.

ColdStanding

OK, I have it. Some people, myl and JustinWordwrth I'm talking to you, have suggested that my umbrage with the example of trading wheat for cars is misplaced because it is but a stand-in for any number of things that could be traded.

But this isn't an academic exercise. We have seriously consider the example as it is given as being the likely thing that we can trade with Japan, Korea, and China because………………

Japan et al have overt and subtle barriers to the importation of finished goods! They will only accept an insufficient amount of finished goods in trade. We, save through act of war (which nobody wants) would be and are limited to trading commodities for finished goods. NA finished goods, regardless of quality, are not allowed compete in the Japanese/Korean/Chinese markets. We can't even get into the game to counter their development of technological comparative advantage.

So, my counter-arguement that I can not efficiently get into the farming business to get wheat to trade for a Camary has to stand.

JustinWordswrth

Get into any business you like.

You don't have to buy your Camary directly from Japan for a shipment of wheat. Your neighbourhood Toyota dealership will get the Camary to you, and all they'll ask for in return is cash.

You can make the cash however you like. But since the cars are being made more cheaply in Japan than they would be in North America, you'll get your Camary for less.

P.S. May I suggest a yellow Camary?

ColdStanding

Yellow's a little too splash for my tastes. Toyota makes a good car, recent events not withstanding. After a long apprenticeship, when they took advantage of underpaid labour, preferencial treatment, and favourable exchanges rates (all of which should be constituted as subsidies) to get into the game by produce products whose primary selling feature was price, they have finally learnt how to make good cars.

peter

So are you arguing that the CWB is a good thing? Are you arguing Agri-business and corporate farming is the new normal? While I support the jet purchase for many reasons (mostly the fact they kick ass and the guys flying them will be serious value added in a conflict), your argument looks crafted in the corporate offices of Archer Daniels or Fleishman Hilliard (authors of the famous "from farm to fork" line.)

Please review the language in S510 down south and tell me your argument is "'economic" or "free market".
wsam

The only thing you're involved with every day is your johnson.

Style

That's Dr. Johnson to you, amateur. That's right – *my* johnson has a doctorate. Can yours even matriculate?

Reverend_Blair

Hmmm…maybe the big green truck will go to seed out back there, and a new 3/4 ton diesel will grow up out of the soil.

Or maybe it will dry up enough that I can haul the big green truck to the wrecker.

Both seem equally improbable at this point.
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