A statist friend of mine made the following argument:
Romania needs a tax for import cars (based on age and pollution level because): - With no tax Romania becomes Europe's dumpster - With no tax Romania becomes extremely polluted - All "our" money will go away to Germany or some other state and the GDP will fall by as much as 2% (this was calculated).
What are the usual Free Market objections to these?
xSFx: A statist friend of mine made the following argument: Romania needs a tax for import cars (based on age and pollution level because): - With no tax Romania becomes Europe's dumpster - With no tax Romania becomes extremely polluted - All "our" money will go away to Germany or some other state and the GDP will fall by as much as 2% (this was calculated). What are the usual Free Market objections to these?
I would say "Well, in that case...."
*throws brick*
*sound of glass breaking*
"Its ok, I'm keeping the GDP up"
To be serious, it is an application of the broken window fallacy. Forcing people to buy Romainian cars instead of German cars reduces the well-being of everyone involved.
Market anarchist, Linux geek, aspiring Perl hacker, and student of the neo-Aristotelians, the classical individualist anarchists, and the Austrian school.
His reply is that what Romanians gain by the autotax exceeds what they lose by having to buy more expensive, but Romanian cars, as a 2% drop in the GDP affects more people and far more drastically than some having to buy cars at a higher price.
More neoclassical bull*** externalities. How exactly did he calculate Human Action, might I ask?
wombatron: To be serious, it is an application of the broken window fallacy. Forcing people to buy Romainian cars instead of German cars reduces the well-being of everyone involved.
Does Romania manufacture vehicles at all? Romania is kind of the least developed former Eastern Block country. The only thing that I can imagine is that production capability was shifted to that country and that they have a sales outlet there. So Romanians will have to deal with them, instead of making the trip to Germany to by a Volkswagen there and return with it as an imported article.
Anyway the argument doesn't make sense, since it will increase the cost of those products and hence you can buy less with your money in Romania as a result. This will make cars affordable to rich Romanians only. And actually it may make the exports even more expensive. The only one that may be benefiting financially are the privildged sellers in Romania + the government officials they bribe.
earthmoving
Yes, we make the Dacia Logan, a sub-brand of Renault (it's marketed in the west as Renault Logan). Why is the argument a weak one? Why isn't it better for the economy as a whole if less (rather than more) of our money go to another country? The problem isn't German car vs Romanian car, it's to prevent old-cheap-second-hand-cars from polluting the air and draining all the money to other countries. That's their argument, anyway.
Refer him to Ricardo's law of association. This guy lives in the Stone age with regard to economics. GDP means nothing on its own. It's just a (faulty) aggregate of spending in the economy (it doesn't even reflect the structure of production properly.) I don't see why Romania will become polluted if it imports cars. If he has a problem with people driving, well tough ***.
-Jon
To darkness I condemn you...
Not a free market argument but I seem to recall that Roumania has joined the EU and hence accepted the Schengen Treaty. Free circulation of goods and persons between member states, case closed if he's a pro-UE bluff.
But Roumania is a very bad case. I seem to recall that it has a catastrophically bad export balance (please do not throw me out of the window) and it isn't getting any better. Soviet-type Socialism has never been completely eliminated, leading to immense problems: widespread corruption, difficulties in becoming anything more than a sweatshop for Italian firms, widespread poverty, social mayhem (you don't need to go to Brazil or Nigeria to see swarms of starving children living on the streets), inflation (which was wiped clean in 2006, when the old lei was replaced by the new lei at a 10.000 to 1 exchange rate)... perhaps you can help us shedding some light on why Roumania failed to follow in the footsteps of the Czech Repulic and Hungary.
In light of this situation there's small wonder that such oversimplistic solutions pop-up. I doubt that blocking the import of second-hand cars would make Roumania a less polluted place (no offense meant): when Ceasescu was still in power and nobody apart from the "selected few" could afford a car sheep in some areas were litterally dyed black by emissions from plants archaic even by Victorian standards. But the elegant leftists love to hate the car (ie individual freedom to get where you want), apart when you touch their beloved BMWs. It's always other people's cars that pollute. But I am getting long-winded and the hour is late.
A very simple argument is the following: if you put a very high import tariff it's almost certain that the ones you are hitting the most will retaliate by rising their tariffs on your goods. It's a simple matter of retaliation. Germany can live with exporting less cars to Roumania but can Roumania afford to export less goods to Germany?
Final argument: the pollution argument has already been used in both Italy and Belgium to force people into buying brand new cars. I won't go into the details because they matter not here but the result is simple. For a couple of years there has been a sales bonanza (helped by insanely low interests on payments) with dealerships popping up like mushrooms after an August thunderstorm. Now sales have grinded to an halt and car manufacturers are becoming victims of their own greed (now where did I hear this before?). Local governments happily lent an helping hand to their good buddies in the automotive industry while keeping the few but very influential elegant enviromentalist-lefties happy. I hope you catch my drift here.
Yes, it's time for the Dr Goebbels show!
I'd like more details on why the GDP argument is wrong. They claim a drop in the GDP means a drop in the quality of public services.
GDP is a false measurement of production because the government is included in it.
Because all GDP is, is a measure of economic activity, specifically consumptive activity. It does not reveal the level of productive activity in the economy. Reisman and Skousen both have articles on this that you can find by just googling them. E.g. even wasteful expenditure is measured as an increase in the GDP. It's meaningless. As for why a drop in GDP might mean a drop in public service quality, this doesn't quite follow. I presume the logic is that because production falls, tax receipts fall. But that isn't the case, for the reasons I just outlined.
Taxes based on rational and measurable unaccounted for externalities make sense. It's impossible for someone to own the air, so it is the governments job to protect it. As long as they also tax domestically produced cars, I see no fault in that part of the argument (taxing old heavily polluting cars).
I think this general idea that money leaving a country is always bad for that country assumes that the countries own productivity is not covering that gap. If the United States has something like a 10% growth in productivity then losing 1% of that productivity in trades with other countries is relatively insignifigant and worth what is gained out of it (lower prices for material goods that add to our wealth). This trade gap idea assumes there is only so much wealth in the world and it is a competition between nations for that wealth.
It is an import tax that naturally discourages imports.
Jon Irenicus:Because all GDP is, is a measure of economic activity, specifically consumptive activity. It does not reveal the level of productive activity in the economy. Reisman and Skousen both have articles on this that you can find by just googling them. E.g. even wasteful expenditure is measured as an increase in the GDP. It's meaningless.
I don't dismiss GDP as meaningless, but as problematic. As I understand it GDP counts all economic activity where money is exchanged. If you buy a Pizza for US$10 then that adds to the GDP. If you bake Pizza at home it doesn't.
It is also not measured, whether it is forced or voluntary exchange/payment of money (While crime may not be counted, replacing losses to crime may well). Another issue is the durability of goods being sold. Years ago a car could have lasted for 20 years (but cost US$20.000) - Now it lasts maybe 6 years and costs US$25.000 - GDP doesn't consider the changes in Parameters.
I'm not saying there couldn't be exceptions. But as a rule of thumb import taxes add to cost of operations in a country. They do so by either increasing consumer prices (which will bear on cost for Labor) or capital/material prices. If they don't bear on the cost, they'll bear on living standards or even working conditions.
Could you place links to the articles of Reisman & Co.
Here's Skousen's, and here is Reisman's. There's also this and this by the latter.
Jon Irenicus:Here's Skousen's, and here is Reisman's. There's also this and this by the latter.
Thanks for the interesting links Jon,
A few years ago I actually pointed out to the problems with GDP calculation and comparisons. People first believed I'm talking nonsense. I may have had a line of argument that is a bit different, but the articles confirm my skepticism.
The reason he sais a drop in the GDP is important is because public services in Romania are funded as a % of the GDP.
So let's say that this year, Education will get 5% of the GDP while Healthcare will get 6% of the GDP.
If so, isn't the problem on the part of the state officials who decide to calculate the public budget that way?
xSFx: His reply is that what Romanians gain by the autotax exceeds what they lose by having to buy more expensive, but Romanian cars, as a 2% drop in the GDP affects more people and far more drastically than some having to buy cars at a higher price.
Even ignoring all non-sense about this being a problem -- does GDP actually drop? Why do German car manufacters accept the Romanian money? Do they not expect to trade it by Euros? Why would anyone trade their Euros for Romanian money? Do those people not expect to buy Romanian stuff?
It seems as if your friend is simply substracting that money now spent abroad, ignoring the fact that the reason why those evil Germans wish to export is because they wish to import. The reason why you sell something is so you can buy something. The reason why you work is so others will work for you. These are different faces of the same coin. Protectionist measures if taken to their full extent would mean we would all live in huts off of potatoes and chickens we breed.
Equality before the law and material equality are not only different but are in conflict with each other; and we can achieve either one or the other, but not both at the same time. -- F. A. Hayek in The Constitution of Liberty
Cars can also be seen as an investment. It certainely improves division of labor by allowing people to take jobs that would otherwise be too expensive or tiresom to go to. They will also be able to buy groceries at larger volumes and at more far locations, which will result into resources being freed for further economic advancement. Cheaper cars can possible allow businesses to structure production more efficiently. Cars is not solely a consumer good, especially not in a developing country. Your friend here is ignoring all the extra economic activity hindered by these protectionist measure.
With regard to pollution, I would think Germany cars would be more energy efficient than the Romanian ones. But ignoring that, this is a very lousy way to target pollution emitters. Even a tax on oil makes more sense than that. I personally see car pollution as being more problematic in the city than, for instance, when used far way from population in farming and transportation. If you believe in global warming, you may want to reduce those pollutants too, but you must agree that their effects are much worse in the city, and so the des-icentives should reflect that. In the city, pollutants get more contained and cars are an hazard to public health for several reasons. So, if he is worried about that it would make more sense for him to argue for city entrance tolls, or some other strategy (there are several), so drivers pay for the costs they are causing on the inhabitants. Car tariffs in the name of environmentalist is disengeneous.
Going back to protectionism, there are a lot of literature on this. Even Keyneysian Krugman is for free trade and has writting on the law of association. AFAIK most economists are [for free trade], so it seems like this comes down to people not understanding why an economy develops in the first place.
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