> A dull punch from another dim light on the right
>
> 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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> >
>