Really not much here to comment on save three points.
1. There is not a nobel prize for economics. There is "The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel", which was set up by their conservative economists.
2. Interesting that despite free trade the US maintains a long term imbalance in its Balance of Payments. Free Trade theory predicts a long term movement towards a balanced BOP.
3. The point on Reagan and tax is somewhat twisted. Reagan's tax cuts came in tandem with an explosion in defence spending. So the issue was the deficits which were fuelled by the tax cuts insofar as they decreased the revenue that would have been generated from increasing incomes.
The author tries to finesse this point by suggesting that had Reagan kept tax levels where they were (no tax cut) the rich (because it is hard for employment income to be sheltered) would have sheltered their income more effectively from taxation.
Interesting that the author chose to use the threat of disinvestment to support lower taxation in an article that was suppose to be in defence of free trade. Free trade is often use by neoclassicals as synonymous with free capital flows (something Bhagwati has been critical of).
Travis Fast
> [A sharp jab from the right. Would the economists among us like to
comment?]
>
>
> Low Taxes Do What? by Thomas Sowell
>
> The high cost of economic illiteracy.
>
> Thomas Sowell is a senior fellow at the Hoover Institution.Some years ago,
> the distinguished international-trade economist Jagdish Bhagwati was
> visiting Cornell University, giving a lecture to graduate students during
> the day and debating Ralph Nader on free trade that evening. During his
> lecture, Professor Bhagwati asked how many of the graduate students would
be
> attending that evening’s debate. Not one hand went up.
>
> Amazed, he asked why. The answer was that the economics students
considered
> it to be a waste of time. The kind of silly stuff that Ralph Nader was
> saying had been refuted by economists ages ago. The net result was that
the
> audience for the debate consisted of people largely illiterate in
economics,
> and they cheered for Nader.
>
> Professor Bhagwati was exceptional among leading economists in
understanding
> the need to confront gross misconceptions of economics in the general
> public, including the so-called educated public. Nobel laureates Milton
> Friedman and Gary Becker are other such exceptions in addressing a wider
> general audience, rather than confining what they say to technical
analysis
> addressed to fellow economists and their students. By and large, the
> economics profession fails to educate the public on the basics, while
> devoting much time and effort to narrower and even esoteric research.
> The net result is that fallacies flourish in discussions of economic
policy
> issues, while the refutations of those fallacies lie dormant in old books
> and academic journals gathering dust on library shelves. As former House
> majority leader Dick Armey—an economist by trade—put it: “Demagoguery
beats
> data in making public policy.”
>
> Sometimes the fallacies are based on something as simple as a failure to
> define terms accurately. Everyone has heard the claim that a high-wage
> country like the United States loses jobs to low-wage countries when there
> is free trade. When the North American Free Trade Agreement went into
effect
> a decade ago, there were dire predictions of “a giant sucking sound” as
> American jobs were drawn away, to Mexico especially.
>
> In reality, the number of jobs in the United States increased by millions
> after NAFTA went into effect and the unemployment rate fell to low levels
> not seen in years. Behind the radically wrong predictions was a simple
> confusion between wage rates and labor costs. Wage rates per unit of time
> are not the same as labor costs per unit of output. When workers are paid
> twice as much per hour and produce three times as much per hour, the labor
> costs per unit of output are lower. That is why high-wage countries have
> been exporting to low-wage countries for centuries. An international study
> found the average productivity of workers in the modern sector of the
Indian
> economy to be 15 percent of that of American workers.
>
> In other words, if you paid the average Indian worker one-fifth of what
you
> paid the average American worker, it would cost you more to get the job
done
> in India.
>
> In particular industries, such as computer software, Indian workers are
more
> comparable, which is why there is so much outsourcing of computer work to
> India. But virtually every country has a comparative advantage in
something,
> whether it is a high-wage country or a low-wage country.
>
> Those who complain loudly about how many jobs have been “exported” to
other
> countries because of international free trade totally ignore all the jobs
> that have been imported to the American economy because of that same free
> trade. Siemens alone employs tens of thousands of American workers, and
> Toyota has already produced its ten millionth car in the United States.
> Management guru Peter Drucker has said that this country imports far more
> jobs than it exports, and no one has contradicted him. Indeed, those who
are
> loudest in denouncing the exporting of jobs totally ignore the importing
of
> jobs.
>
> Free international trade produces both the benefits of increased
> productivity and the adjustment problems that all other forms of increased
> productivity produce—namely, job losses in the less competitive firms and
> industries. The typewriter industry was devastated by the rise of the
> computer, as the horse and buggy industry was devastated by the rise of
the
> automobile. Histories of the industrial revolution lament the plight of
the
> hand-loom weavers when power looms were introduced.
>
> International trade has no monopoly on economic illiteracy. One of the
> apparently invincible fallacies of our times is the belief that President
> Ronald Reagan’s tax cuts caused the federal budget deficits of the 1980s.
In
> reality, the federal government collected more tax revenue in every year
of
> the Reagan administration than had ever been collected in any year of any
> previous administration. But there is no amount of money that Congress
> cannot outspend. Here again, the confusion is due to a simple failure to
> define terms.
>
> What Reagan’s “tax cuts for the rich” actually cut were the tax rates per
> dollar of income. Out of rising incomes, the country as a whole—including
> the rich—paid more total taxes than ever before.
>
> At the state and local levels, this confusion of tax rates and tax
revenues
> has led some local politicians to see higher tax rates as the answer to
> budget problems, even though higher tax rates can drive businesses out of
> the city or state, with adverse effects on the total amount of tax
revenues
> collected.
>
> Price controls are another area where very elementary economics is all
that
> is needed to show what the consequences are: shortages, quality
> deterioration, and black markets. It has happened repeatedly in countries
> around the world, over a period of centuries. Yet politicians keep selling
> the idea of price controls and voters keeping buying it.
>
> Many economic issues are complex, but sometimes a single fact will tell
you
> all you need to know. When you know that central planners in the Soviet
> Union had to set 24 million prices—and keep adjusting them, relative to
one
> another, as conditions changed—you realize that central planning did not
> just happen to fail. It had no chance of succeeding from the outset. It is
a
> wholly different ball game when hundreds of millions of people
individually
> keep track of the relatively few prices they need to know for their own
> decision making in a market economy.
>
> Simple stuff like this is not very exciting for economists, and there is
no
> payoff in one’s professional career for clarifying such things for the
> general public. The only reason to do it is that it very much needs to be
> done—especially during an election year.
>
> http://www-hoover.stanford.edu/publications/digest/042/sowell.html
>
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