Tag Archives: economics

In praise of tariffs

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In a previous post I noted that we could reduce global air pollution if we used import taxes (tariffs) to move manufacture to the US from China and other highly polluting countries. It strikes me that import tariffs can have other benefits too, they can keep US jobs in the US, provide needed taxes, and they’re a tool of foreign policy. We buy far more from China and Russia than they buy from us, and we get a fair amount of grief — especially from Russia. An appropriate-sized tariff should reduce US unemployment, help balance the US, and help clean the air while pushing Russia in an alternative to war-talk.

There is certainly such a thing as too high a tariff, but it seems to me we’re nowhere near that. Too high a tariff is only when it severely limits the value of our purchasing dollar. We can’t eat dollars, and want to be able to buy foreign products with them. Currently foreign stuff is so cheap thought, that what we import is most stuff we used to make at home — often stuff we still make to a small extent, like shoes, ties, and steel. An import tax can be bad when it causes other countries to stop buying from us, but that’s already happened. Except for a very few industries, Americans buy far more abroad than we sell. As a result, we have roughly 50% of Americans out of well-paying work, and on some form government assistance. Our government spends far more to care for us, and to police and feed the world than it could possibly take in, in taxes. It’s a financial imbalance that could be largely corrected if we bought more from US manufacturers who employ US workers who’d pay taxes and not draw unemployment. Work also benefits folks by developing, in them, skills and self-confidence.

Cartoon by Daryl Cagle. Now why is Russia a most favorable trade partner?

Cartoon by Daryl Cagle. Trade as foreign policy. Why is Russia a most favorable trade partner?

In a world without taxes or unemployment, and free of self-confidence issues, free trade might be ideal, but taxes and unemployment are a big part of US life. US taxes pay for US roads and provide for education and police. Taxes pay for the US army, and for the (free?) US healthcare. With all these tax burdens, it seems reasonable to me that foreign companies should pay at least 5-10% — the amount an American company would if the products were made here. Tariff rates could be adjusted for political reasons (cartoon), or environmental — to reduce air pollution. Regarding Russia, I find it bizarre that our president just repealed the Jackson Vanik tariff, thus giving Russia most favored trade status. We should (I’d think) reinstate the tax and ramp it up or down if Russia invades again or if they help us with Syria or Iran.

A history of US tariff rates. There is room to put higher tariffs on some products or some countries.

A history of US tariff rates. Higher rates on some products and some countries did not harm the US for most of our history.

For most of US history, the US had much higher tariffs than now, see chart. In 1900 it averaged 27.4% and rose to 50% on dutiable items. Our economy did OK in 1900. By 1960, tariffs had decreased to 7.3% on average (12% on duty-able) and the economy was still doing well. Now our average tariff is 1.3%, and essentially zero for most-favored nations, like Russia. Compare this to the 10% that New York applies to in-state sales, or the 6% Michigan applies, or the 5.5% that Russia applies to goods imported from the US. Why shouldn’t we collect at least as high a tax on products bought from the non-free, polluting world as we collect from US manufacturers.

Some say tariffs caused the Great Depression. Countries with lower tariffs saw the same depression. Besides the Smoot-Hawley was 60%, and I’s suggesting 5-10% like in 1960. Many countries today do fine today with higher tariffs than that.

Robert E. Buxbaum, March 25, 2014. Previous historical posts discussed the poor reviews of Lincoln’s Gettysburg address, and analyzed world war two in terms of mustaches. I’ve also compared military intervention to intervening in a divorce dispute. My previous economic post suggested that Detroit’s very high, living wage hurt the city by fostering unemployment.

Stoner’s prison and the crack mayor

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With the release of a video of Rob Ford, the Mayor of Toronto, smoking crack while in office, and the admission that at least two US presidents smoked pot, as did the Beatles, Stones, and most of Hollywood, it seems worthwhile to consider the costs and benefits of our war on drugs, especially pot. Drugs are typically bad for productivity and usually bad for health. Thus, it seems worthwhile to regulate it, but most countries do not punish drug sale or use nearly as harshly as we do in the US.

The Freak Brothers by Gilbert Shelton. Clearly these boys were not improved by drugs, but perhaps we could do better than incarcerating them, and their fans, for years, or life.

The Freak Brothers by Gilbert Shelton. Clearly these boys were not improved by drugs, but perhaps we could do better than incarcerating them, and their fans, for years, or life.

While US penalties vary state by state, most states have high minimum penalties that a judge can not go below. In Michigan, where I live, medical marijuana is legalized, but all supply is still illegal. Marijuana cultivation, even for personal medical use, is a felony carrying a minimum punishment of 4 years in state prison and a $20,000 fine. For cultivation of more than 20 plants the minimum sentence is 7 years in prison and $500,000; and cultivating 200 or more plants results in 15 years plus a $10,000,000 fine. These are first-time, minimum sentences where the judge can not consider mitigating circumstances, like a prescription, for a drug that was accepted for use in the US in the 70s, is legal in Holland, legalized in Colorado, and is near-legal in Belgium. While many pot smokers were not served by the herb, many went on to be productive, e.g. our current president and the Beatles.

In Michigan, the mandatory minimums get worse if you are a repeat offender, especially a 3 time offender. Possession of hard drugs; and sales or cultivation of marijuana makes you a felon; a gun found on a felon adds 2 years and another felony. With three felonies you go to prison for life, effectively, so there is little difference between the sentence of a repeat violent mugger and a kid selling $10 rocks of crack in Detroit. America has more people in prison than Russia, China, or almost every industrialized nation, per capita, and the main cause is long minimum sentences.

In 2011, Michigan spent an average of $2,343 per month per prisoner, or $28,116/year: somewhat over 1.3 billion dollars per year in total. To this add the destruction of the criminal’s family, and the loss of whatever value he/she might have added to society. Reducing sentences by 10 or 20% would go a long way towards paying off Detroit’s bankruptcy, and would put a lot of useful people back into the work-force where they might do some good for themselves and the state. 60.8% of drug arrestees were employed before they were arrested for drugs, with an average income of $1050/month. That’s a lot of roofers, electricians, carpenters, and musicians — useful people. As best we can tell, the long sentences don’t help, but lead to higher rates of recidivism and increased violent behavior. If you spend years in jail, you are likely to become more violent, rather than less. Some 75% of drug convicts have no prior record of violent crime, so why does a first-time offense have to be a felony. If we need minimums, couldn’t it be 6 months and a $1000 fine, or only apply if there is violence.

Couldn’t we allow judges more leeway in sentencing, especially for drugs? Recall that Michiganders thought they’d legalized marijuana for medical use, and that even hard-drugs were legal not that long ago. There was a time when Coca-Cola contained cocaine and when Pope Leo was a regular drinker of cocaine laced wine. If the two presidents smoked pot, and the Mayor of Toronto could do a decent job after cocaine, why should we incarcerate them for life? Let’s balance strict justice with mercy; so the fabric of society is not strained to breaking.

Robert Buxbaum, Jan 16, 2014. Here are some other thoughts on Detroit and crime.

Chemist v Chemical Engineer joke

What’s the difference between a chemist and a chemical engineer?

How much they make.

I made up this joke up as there were no other chemical engineer jokes I knew. It’s an OK double entente that’s pretty true — both in terms of product produced and the amount of salary (there’s probably a cause-and-effect relation here). Typical of these puns, this joke ignores the internal differences in methodologies and background (see my post, How is Chemical engineering?). If you like, here’s another engineering joke,  a chemistry joke, and a dwarf joke.

R.E. Buxbaum –  June 28, 2013.

Detroit: maximum punishment

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Some moths ago, I argued that getting rid of its extra-high minimum wage was perhaps the single best thing that Detroit could do to improve its bankrupt finances and to provide jobs for its youth. I argued that this living wage of $11 or $14/hr, depending on whether healthcare was provided, was too much for the city to pay for it’s minimal skill workers. I also argued that a lower minimum wage would help the city finances, and would allow the unskilled of Detroit to find jobs: it would provide the first rung of a ladder. Well, sort-of good news: Detroit’s living wage has been declared unenforceable by the Michigan Supreme court.

Unenforceable does not mean that wages will lower immediately: anyone working for the city will keep their high salary job, so the finances of the city will remain strained. Also, private companies can not lower anyone’s contracted wages. The only difference is that workers on non-city jobs who agree to be paid $7.50 to $14/hr, can no longer sue to recover additional dollars to meet Detroit’s “living wage.” Bit by bit I expect that more low-skilled workers will be hired, and that their wages will stabilize downward to a free-market value.

The next big things that are needed are reduced crime and increased population who are employed in businesses other than selling drugs or themselves. One way to reduce crime, I think is to have less-stiff minimum penalties for non-violent crimes like drug possession and driving with a suspended license. Currently the penalty for possession runs to 15-20 years. No one who spends that much time in prison will fit back into society. Let’s do them and ourselves a favor by reducing minimum sentences so that the normal sentence is only 1-5 years (ideally with < 1 oz marijuana possession punished by a fine).

Another horror is the penalty for driving with a suspended license. It’s $3000 for a start (a reasonable amount, I think), but then the state adds a $4000 per year penalty for the next 3 years: a total of $15,000. That’s too much for a minimum-wage earner to pay, but the minimum wage earner needs a car to get to work. So he/she can’t work, or he/she drives without a license or insurance. Is this what we want? Lets give a second chance and lower the penalty to produce more working, law-abiding citizens. There is nothing wrong with Detroit that could not be fixed by 200,000 more, law-abiding, employed Detroiters.

R.E. Buxbaum owns REB Research, a maker of hydrogen purifiers and hydrogen generators. We used to be located in Detroit, but are now in Oakland county, 1/2 mile north of the Detroit border.

For parents of a young scientist: math

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It is not uncommon for parents to ask my advice or help with their child; someone they consider to be a young scientist, or at least a potential young scientist. My main advice is math.

Most often the tyke is 5 to 8 years old and has an interest in weather, chemistry, or how things work. That’s a good age, about the age that the science bug struck me, and it’s a good age to begin to introduce the power of math. Math isn’t the total answer, by the way; if your child is interested in weather, for example, you’ll need to get books on weather, and you’ll want to buy a weather-science kit at your local smart-toy store (look for one with a small wet-bulb and dry bulb thermometer setup so that you’ll be able to discuss humidity  in some modest way: wet bulb temperatures are lower than dry bulb with a difference that is higher the lower the humidity; it’s zero at 100%). But math makes the key difference between the interest blooming into science or having it wilt or worse. Math is the language of science, and without it there is no way that your child will understand the better books, no way that he or she will be able to talk to others who are interested, and the interest can bloom into a phobia (that’s what happens when your child has something to express, but can’t speak about it in any real way).

Math takes science out of the range of religion and mythology, too. If you’re stuck to the use of words, you think that the explanations in science books resemble the stories of the Greek gods. You either accept them or you don’t. With math you see that they are testable, and that the  versions in the book are generally simplified approximations to some more complex description. You also get to see that there the descriptions are testable, and that are many, different looking descriptions that will fit the same phenomena. Some will be mathematically identical, and others will be quite different, but all are testable as the Greek myths are not.

What math to teach depends on your child’s level and interests. If the child is young, have him or her count in twos or fives, or tens, etc. Have him or her learn to spot patterns, like that the every other number that is divisible by 5 ends in zero, or that the sum of digits for every number that’s divisible by three is itself divisible by three. If the child is a little older, show him or her geometry, or prime numbers, or squares and cubes. Ask your child to figure out the sum of all the numbers from 1 to 100, or to estimate the square-root of some numbers. Ask why the area of a circle is πr2 while the circumference is 2πr: why do both contain the same, odd factor, π = 3.1415926535… All these games and ideas will give your child a language to use discussing science.

If your child is old enough to read, I’d definitely suggest you buy a few books with nice pictures and practical examples. I’d grown up with the Giant Golden book of Mathematics by Irving Adler, but I’ve seen and been impressed with several other nice books, and with the entire Golden Book series. Make regular trips to the library, and point your child to an appropriate section, but don’t force the child to take science books. Forcing your child will kill any natural interest he or she has. Besides, having other interests is a sign of normality; even the biggest scientist will sometimes want to read something else (sports, music, art, etc.) Many scientists drew (da Vinci, Feynman) or played the violin (Einstein). Let your child grow at his or her own pace and direction. (I liked the theater, including opera, and liked philosophy).

Now, back to the science kits and toys. Get a few basic ones, and let your child play: these are toys, not work. I liked chemistry, and a chemistry set was perhaps the best toy I ever got. Another set I liked was an Erector set (Gilbert). Get good sets that they pick out, but don’t be disappointed if they don’t do all the experiments, or any of them. They may not be interested in this group; just move on. I was not interested in microscopy, fish, or animals, for example. And don’t be bothered if interests change. It’s common to start out interested in dinosaurs and then to change to an interest in other things. Don’t push an old interest, or even an active new interest: enough parental pushing will kill any interest, and that’s sad. As Solomon the wise said, the fire is more often extinguished by too much fuel than by too little. But you do need to help with math, though; without that, no real progress will be possible.

Oh, one more thing, don’t be disappointed if your child isn’t interested in science; most kids aren’t interested in science as such, but rather in something science-like, like the internet, or economics, or games, or how things work. These areas are all great too, and there is a lot more room for your child to find a good job or a scholarship based on their expertise in theses areas. Any math he or she learns is certain to help with all of these pursuits, and with whatever other science-like direction he or she takes.   — Good luck. Robert Buxbaum (Economics isn’t science, not because of the lack of math, but because it’s not reproducible: you can’t re-run the great depression without FDR’s stimulus, or without WWII)

Detroit economics and the minimum wage

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A major cause of Detroit’s financial problems, it seems to me, is that Detroit has an uncommonly high minimum wage, $13.75/hr for all employees in any company that contracts with the city and does not provide free health care; or $10.50/hr for companies that provide healthcare. This minimum, called a living wage, is about double the state minimum wage of $7.40.

Although the city is financially bankrupt, the city can not hire janitors and pay less than this, nor hire accountants from a company that pays its janitors less than this. Besides the burden on Detroit’s budget, this puts a burden on its unemployment system. Many in Detroit don’t possess the education or skills to justify jobs at this wage. This high minimum wage effectively cuts them from the bottom rung of jobs at these companies — jobs at the bottom of the ladder of success. Many businesses find innovative ways around the law, using corruption and bribes to skirt enforcement, if the recent trials of the mayor are any indication, but a system of corruption is not good for the city.

As these wages are far above standard, most employed workers for the city get their jobs by corruption and connections, and most everyone knows they got their jobs this way rather than skill. As a result, workers have no incentive to improve at their job. In a corrupt system like this, there is no likelihood that  a raise would come with improved performance.

The justification for the living wage is the cost to support a family of 4 or 5, but Detroit is a much cheaper place to live than most, and not all workers are supporting families of 4 or 5. It therefore makes little sense to force all potential workers to refuse entry-level employment at $8.00/hour, a wage that would allow a single, motivated individual a decent living and a chance to climb as his/her needs and skills grew. Instead of promoting hard work and merit, this ordinance fosters corruption and cronyism; it makes it expensive for the city to hire contractors, makes it hard for workers to get their first jobs, and removes the benefits that normally come with improved skills. It’s a disaster, I suspect, and a reason the city is bankrupt.

Dr. Robert E. Buxbaum is a self-employed curmudgeon who tries to speak the truth as he sees it.