Thursday, December 30, 2004

Tariffs have received poor acceptance among Economists, ever since the Great Depression. A great deal of this disrupte can only be considered deserved, but much of the polemic far exceeds the actual damage which Tariffs impose. The Author has just read an Economic Working Paper:


Tariffs and the Great Depression Revisited¤
Mario J. Cruciniy James Kahnz
August 5, 2003


It was basically a defense of their earlier Paper which stated:


In our 1996 Journal of Monetary Economics paper, we made the following
arguments:
1. Effective tariff rates during the 1930s were higher than their apparent
nominal rates because of deflation.
2. Because of the importance of material inputs in traded goods, the impact
a given tariff rate could be magnified because of the impact on productive
effciency.
3. There was substantial retaliation from foreign countries in their tariff rates.
4. Consequently, even a neoclassical equilibrium model with flexible prices
and no other distortions suggests that tariff increases of the order of magnitude
that took place in the 1930s could have resulted in substantial
declines in output.
5. Though large enough to look like a modest recession, these model-calibrated
output declines are only on the order of one-tenth the magnitude of the
actual declines that occurred during the Great Depression.


Their current Paper asserted basically the same rationale, though utilizing modern Accounting models to get the same prognosis. Their use of the Armington assumption (1969) of imperfect substitution of Trade product and materials remains doubtful, connected to analysis of complete inelasticity of Labor accross Countries--Trade being the basic elasticity of Labor accross Countries.

The heart of the Argument they advance holds true, in that Tariffs are only marginal to Flow forces within an Economy even under the worst of economic conditions. The Economic bais against Tariffs in favor of Free Trade stands as irrational, and artifically prohibits valuable tools for economic policy. lgl

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