Sunday, April 4, 2010

Building Cars out of Corn

I'm 15 years late to this discussion and don't have anything worthwhile to add to it, but I found this point from Steven Landsburg's "The Armchair Economist" quite profound:
David [Friedman]’s observation is that there are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everyone knows about the first technology; let me tell you about the second. First you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.
International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to America’s well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars.
Any policy designed to favor the first American technology over the second is a policy designed to favor American auto producers in Detroit over American auto producers in Iowa. A tax or ban on “imported” automobiles is a tax or a ban on Iowa-grown automobiles. If you protect Detroit carmakers from competition, then you must damage Iowa farmers, because Iowa farmers are the competition.