Worst. Tariffs. Ever. The Smoot-Hawley tariff

From NPR's Plant Money comes this audio involving Doug Irwin on the Worst. Tariffs. Ever.

About a month ago, President Trump walked up to a podium, and followed through on a big campaign promise. He said the U.S. was going to impose a 25-percent tariff on foreign steel, and a 10-percent tariff on foreign aluminum.

#833: Worst. Tariffs. Ever.
His announcement was met with a lot of face-palming from economists. Why? Because we've been down this road before.

Today on the show, we learn how the Smoot-Hawley tariff act of 1930 helped tank the world economy. And why it means that today, 90 years later, President Trump has the power to start what many people say is a trade war.

Sam Warburton on the economic effects of the America's Cup

Warburton was interviewed on Radio New Zealand's Morning Report.

The Auckland venue for New Zealand's Americas Cup defence was agreed this week and will go to Auckland Council for sign off tomorrow. Yesterday, when I spoke to the Economic Development Minister David Parker about the sign off for the America's Cup village he was talking up the economic dividend the required investment of over two hundred million dollars of public money will yield. New Zealand Initiative economist Sam Warburton heard our interview yesterday and is unconvinced. He's in our Wellington studio.

Trade wars and the Smoot-Hawley tariff: what really happened?

From Trade Talks comes this interview with Douglas Irwin on the Smoot-Hawley tariff, its effects and its relevance for today:

Soumaya Keynes of The Economist and PIIE Senior Fellow Chad P. Bown speak with Douglas Irwin (PIIE and Dartmouth College) about popular misconceptions around the Smoot-Hawley Tariff Act of 1930, the Great Depression, and the global trade wars that ensued. They discuss how the gold standard, tariffs, quotas, exchange controls, imperial preferences, and bartering all fit into the dismantling of the international trading system in the 1930s. They then put President Trump's trade policy actions in perspective.

The gender wage gap is really a child care penalty

A couple of graphs make this point.

and

These graphs come from a column at Vox. The column is A stunning chart shows the true cause of the gender wage gap by Sarah Kliff.

Kliff discusses research by Henrik Kleven, an economist at Princeton University. Kliff writes

His [Kleven] study is among a growing body of research that suggests what we often think of as a gender pay gap is more accurately discussed as a childbearing pay gap or motherhood penalty.

Childless women have earnings that are quite similar to men’s salaries, while mothers experience a significant wage gap.

Kliff continues,

A 2009 study led by University of Chicago’s Marianne Bertrand echoes that conclusion. It examined the earnings of thousands of business school graduates. It found that women earned an average salary of $115,000 right out of graduate school, while men earned $130,000. Men also worked, on average, a few more weekly hours and had a bit more prior experience as they entered the workforce.

But nine years into their careers, women saw their salaries rise to an average of $250,000 — while men’s salaries averaged out at $400,000. Men were earning 60 percent more than women.

“The one thing which is not changing is the effect of children,” Kleven says of the gender wage gap. “This is very persistent and constant. All the other sources are declining, but the child effect sticks, and that ends up taking over as the key driver.”

Historical drivers of the gender wage gap — a lack of education among women, for example — are disappearing. But the professional penalty women face for having children is stubborn, and it isn’t going anywhere.

Such findings are consistent with the findings of yet other researchers such as Claudia Goldin. Goldin (Professor of Economics at Harvard University) has written,

These findings provide more nuance in explaining why the gap widens with age and why it is greater for women with children. Whatever changes have already taken place in American society, the duty of caring for children — and for other family members — still weighs more heavily on women. And if you thought that moving to a more family-friendly nation would eliminate the gap, think again. In several nations, including Sweden and Denmark, a “motherhood penalty” in earnings exists, even though these nations have generous family policies, including paid family leave and subsidized child care.

Such considerations bring us to a very sensitive area: domestic arrangements at home, especially among couples with children. These are personal questions. In theory, gender earnings equality is possible when both parents take off the same amount of time and enjoy the same flexibility at work.

So the answer to the pay gap may be in the choices made within the home. And that makes it difficult for public policy to deal with.

The senselessness of trade wars

The senselessness of trade wars is well expressed in an adage attributed to the British economist Joan Robinson:

Even if your trading partner dumps rocks into his harbour to obstruct arriving cargo ships, you do not make yourself better off by dumping rocks into your own harbour.

Alas in a trade war as soon as one country dumps rocks in its harbours everybody starts dumping rock in theirs, and everybody losses. So no matter what some twitting presidents seem to think, trade wars are not easy and nobody wins them. They really are a lose/lose proposition.

Economist's views on tariffs

The IGM Economic Experts Panel at the University of Chicago's Booth School of Business were asked their views on the statement

Imposing new US tariffs on steel and aluminum will improve Americans’ welfare.

And yes 100% of those who answered either disagreed or strongly disagreed with the statement (Three people did not answer, if you want to know why the numbers only add up to 93%.)

Yes 100%.

In short, economists do sometimes agree, and one thing they agree on is that tariffs are bad.

Politicians take note.

Steve Hanke on Trump's protectionist policies

From RNZ's Morning Report comes this discussion with Professor Steve Hanke of Trump's recent protectionist policies.

China has responded to Donald Trump's threat of a trade war with a warning that it won't sit idly by if its economy is hurt by new protectionist policies by the United States. The US President openly talked of starting a trade war late last week when he announced stiff new tariffs on imported steel and aluminium. He tweeted: "Trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don't trade anymore-we win big. It's easy!" Mr Trump also threatened to impose a tax on EU-made cars. His comments have drawn strong criticism from the International Monetary Fund, the World Trade Organisation and trading partners including Canada and China. Professor of Applied Economics at Baltimore's Johns Hopkins University and a former senior economic advisor to President Ronald Reagan, Steve Hanke, has described Mr Trump's proposed new tariffs as a "horror".

Milton Friedman on the protection of the US steel industry

Protection is, unfortunately, in the news again. The US may be starting a trade war by imposing steep tariffs on imported steel and aluminum. Milton Freedman explains why protection is a bad idea.

Brink Lindsey and Steven Teles on rent-seeking and the twin melees afflicting the U.S. economy

From David Beckworth’s podcast series, Macro Musings comes this audio of an interview with Brink Lindsey and Steven Teles on Rent-Seeking and the Twin Melees Afflicting the U.S. Economy

Lindsey and Teles join Beckworth to discuss their new book, "The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality." For Lindsey and Teles, slow growth and inequality are “twin melees” that are harming the economy. They discuss some of the issues at the root of these problems, including excessive occupational licensing laws and zoning regulations, as well as some ways to fix them.

Competition and search in internet markets for used books

A couple of years back in an email about my book The Theory of the Firm: An overview of the economic mainstream I wrote:

The other thing I don't get is the price dispersion. $180 at the book depository but $355 at the NZ based Mighty Ape website. Isn't this internet thingy supposed to do away with price dispersion by making information more available?

Well it appears, for one market at least, I'm wrong about the effects of the internet on price dispersion. The advent of the online market for used books has increased price dispersion in online relative to offline sales. It has also raised prices but improved welfare for both sellers and buyers, especially where unusual titles are concerned.

The following is by Morgan Foy and comes from the March 2018 issue of the NBER Digest.

Online shopping has become ubiquitous. Has this raised profits or raised consumer welfare? Both, at least in one market. In Match Quality, Search, and the Internet Market for Used Books (NBER Working Paper No. 24197), Glenn Ellison and Sara Fisher Ellison find that digitization of the used book market increased prices and price dispersion in online relative to offline sales. Profits on used books were 80 percent higher online, but the higher prices facing buyers were more than compensated for by the expanded access to hard-to-find volumes that the internet provided.

By visiting physical bookstores in 2009, the researchers created a sample of 335 books. They then collected online prices for the same titles in 2009 and in 2012. Contrary to what many might have expected, they found that the used books were typically more expensive online than in brick-and-mortar stores: the average online price was about $20, while the equivalent offline price was roughly $11. There was also a lot of dispersion in the online prices. The accompanying figure provides one illustration: online prices for what the researchers call "standard" titles — fairly obscure, typically out-of-print books — were much higher and much more dispersed than offline prices.

Normally, price dispersion is interpreted as a sign that markets are not working well, and higher prices are interpreted as evidence that buyers are worse off. But the researchers note that neither is necessarily true. They point out two avenues through which the rise of internet markets and the associated availability of online search technologies could affect prices. Better search technologies could lead to buyers being better informed, inducing sellers to reduce prices in an attempt to win business. This is the "competition effect." Online markets could also make it easier to find products with unique value to a specific buyer — an increase in match quality. For example, a buyer searching for a specific 15-year-old used book may have a hard time tracking it down at a brick-and-mortar store. The internet facilitates search, thereby increasing demand for unusual titles. The latter effect benefits buyers, but will also tend to increase prices. Knowing only that average prices are higher online does not permit any conclusion about whether this is because the "competition effect" was small or the "match effect" was strong enough to offset increased competitive pressure.

To explore the hypothesis that both effects are important in the used book market, the researchers examine how price levels and price dispersion vary across different types of used books and over time, looking for patterns that would be expected if match quality effects were important. They find several different pieces of evidence consistent with the view that price increases reflect match-quality improvements and that search technologies have made consumers more informed. For example, they looked separately at what they termed "local interest" books — books about the history or geography of a specific area or otherwise associated with that area. They noted that brick-and-mortar bookstores in those areas had high prices for these books relative to online sellers, consistent with the notion that brick-and-mortar stores were already providing about the best match quality one could imagine for such books.

Whether buyers' welfare is higher or lower in the online market depends on the strength of the match quality effect. To address this issue, the researchers develop a model of competing sellers of unusual items, and infer important quantities like the rates at which potential consumers are arriving and the magnitudes of potential gains from selling to well-matched consumers. They use the price data they collected as well as sales data they inferred from disappearances of specific online listings in sequential data gatherings. The researchers estimate that per-bookseller revenues were 80 percent higher online than offline in 2009, due to both higher prices and a higher likelihood of sale. And, more strikingly, they estimate that the consumer welfare gains are not only positive, but roughly equally as large. In the case of the used book market, they therefore conclude that moving online has been a win-win process for sellers and buyers. More generally, the paper suggests that match quality may be an important and underappreciated source of welfare gains from online sales.