Subscribe to BrookesNews’ Bulletin
A socialist economist spews garbage on tariffs
Gerard Jackson
Dr Evan Jones’ blog is a vivid example of the sheer viciousness of the left. This joker teaches political economy at the University of Sydney. Now the phrase political economy was coined in the seventeenth century and was used by classical economists to avoid confusion with Aristotle’s concept of economy as a study of household management. It was the left that put the politics –– meaning clapped out Marxism –– into the adjective “political”.
Let us now see just how good an economist this lefty really is. Nearly five years ago he launched a grossly misinformed attack against free trade in The Australian Financial Review (Tariff regime a tonic for the nation, 5 January 2001). He began, as I recall, by correctly pointing out that tariffs caused British firms to set up subsidiaries in Australia. The implication being that tariffs increase net investment; a view that was reinforced in a later paragraph in which he stated that in “all probability, protection fostered capital . . . Inflows and enhanced economic development …”
This is man-in-the-street economics.
What this lecturer in political economy is saying is that protectionism generated a net inflow of capital that expanded national income and raised real wages. But what really happened is that tariffs caused investments to shift from more favourable areas of production to less favourable ones causing the price of their products to rise which in turn lowered local purchasing power or at least kept it lower than it would otherwise be. This means that there was no net gain from the tariffs because they reduced consumers’ real incomes. Not a hint from Jones that he has the slightest understanding of this process.
A more realistic approach would assume that only part of the capital is imported with the rest being raised in the tariff country. This means that land, machinery, labour, raw materials, etc., would have to be withdrawn from more valued lines of domestic production, thus raising operating costs and reducing the productivity of these factors. Yet the leftwing Jones would have us believe, including, I presume, his students, that this wasteful misallocation of resources has “economy-wide benefits”.
Jones backed up his interventionist assertions by claiming that John Story had demonstrated in 1933 that tariffs lead to lower and not higher prices because of competition from domestic producers. What a damn silly statement. This is the first and only time I ever heard a protectionist argue that tariffs were needed to protect consumers from higher-priced imports.
The argument for non-revenue tariffs has never changed: tariffs are needed to protect domestic producers from lower-priced imports. If imports were too ‘highly’ priced this would have a twofold effect: 1) domestic production would be encouraged without the need of state intervention; 2) other foreign producers would be encouraged to expand their exports to the importing country thus exerting a downward pressure on other import prices.
Now Jones asserted (his article was just one long assertion: free trade is bad) that at federation free trade meant that the economy would be left to “producing exportable — unprocessed foods and raw materials”. This is not true. To convert raw materials into finished goods requires a complex capital structure consisting of stages of production. This structure is built on savings. In no way at all can tariffs increase the quantity of savings.
Additionally, if Jones were right, protectionist Victoria would have led free-trade New South Wales. Instead we find that from the 1870s, when Victoria implemented a very restrictive tariff regime, NSW pulled ahead of Victoria in every economic measure, including manufacturing and wages. (Federation and protectionist fallacies). Unfortunately, the ideological likes of Jones are not interested in facts that do not serve their political prejudices and hatreds.
To put it bluntly, Evan Jones’ views on markets and free trade are pathetic. In a self-righteous letter to the AFR (13 August 2001) he described Jonathon Keller as “a rather ignorant fellow” and called free trade theory “theory simplistic incoherent and inconclusive”, “the product of ideology and self-interest” and “war by other means”. What utter leftwing garbage. If Jones thinks the theory of comparative advantage is “incoherent” and “simplistic” then I challenge him to refute it.
Jones is a socialist ideologue who has resorted to abuse and gross misrepresentations in a desperate attempt to defend his absurd ideology. I doubt very much if the man has anything of value to offer in the field of economics. Moreover, the Political Economy Department is an intellectual disgrace that no self-respecting university would tolerate.
Gerard Jackson is Brookes’ economics editor
BrookesNews.Com
Monday 12 December 2005