Tuesday, September 22, 2009

Tariffs and Dead Weight Loss

Today's issue of The Wall Street Journal has an interesting little story (free content at this writing) about how a 46-year old tariff spat has an auto company (Ford) partially dismantling imported vehicles to avoid a stiff tariff. The result is almost laughable. (I especially enjoyed the auto exec who claimed "we're free trade." But I won't pursue that.)

The dead-weight loss is very clear. And, as a colleague of mine points out, it can even be used to illustrate the "broken window" fallacy of job-creation.

I hope you enjoy it.

5 comments:

Rdan said...

Hi Tim. I like the broken window fallacy...especially if students and teachers look for the 'invisible' effects of defining market rules (there are always rules). What is free, freer, and such, especially since few discuss WTO rules and limits.

I posted indirectly on the tariffs for tires discussion going on...there are links in the post to vertical specialization, and how tariffs are selectively applied say to labor and not banks or pharma. Opportunity costs happen all the time, of course.

Rdan said...

http://angrybear.blogspot.com/2009/09/free-freer-and-tradewhat-flavor-cool.html

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