Optimal Tariffs and Blackboard Economics

Don Boudreaux favorably quotes Doug Irwin over at Cafe Hayek.  Below is a slightly edited comment I left:

What Iriwn, like Hayek and Coase before him, points out I think is just brilliant: the scarcityists’ arguments are one long exercise in begging the question. They’re assuming they have the very knowledge they’re trying to show they can acquire. Yes, if one just happened to know the complete set of preferences and demand curves for all people in the nation, then one could create an optimal tariff or policy for that given moment in time. But it’s in getting that knowledge where the trick lies.

Note that the key word here is “knowledge,” not “information.” You don’t need data points to feed into a machine, but precise observations about the nature and time and place of each individual, observations the individual himself does not necessarily know. Collecting these necessary observations are impossible.

But there is another thing to keep in mind: Bastiat. Let’s grant the scarcityist’s assumptions and say we can set an optimal tariff policy. Such a policy is optimal in name only; it’s optimal only through incomplete accounting. It’s optimal only from the point of view of the country levying the tariff. But economics is not about only looking at one person in one time period (the seen). We must look at all people over all time periods (the unseen). An optimal tariff in the US may temporarily raise US net welfare, but at the same time, the world as a whole is made worse off. A poorer world means fewer buyers of US products and fewer sellers of goods to the US (exacerbated by the tariff). A poorer world also means increased instability, and likely more war. Both these effects will rebound on the US, leading to a poorer US as well over time. In short, even if we grant the assumptions of the scarcityists, the outcome from tariffs, when explored across all people in all time periods, is still negative.

4 thoughts on “Optimal Tariffs and Blackboard Economics

  1. Ok, but at the end of the day we live in a world with taxes. If you buy from me here in NJ, you pay a sales tax (which is really just a domestic tariff) and then, sure enough, there’s a state trooper somewhere and courts, etc. Indeed, same would be true if the item were imported. But whose paying for the destroyer protecting the trade route? Why SHOULDN’T that be paid for by tariff? As opposed to income tax? Or sales tax?

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    • Craig, you make a good point. Let me respond with a quick correction and a general comment:

      1) A sales tax is not a domestic tariff. It’s a sales tax. They operate in different manners. Sales taxes are applied uniformly, regardless of geographic or political location. A tariff is applied arbitrarily.

      2) If I understand your argument correctly, and please object if I don’t, you’re saying tariffs can/should be used to pay for those who keep trade routes open (eg the Navy keeping pirates out of the Suez Canal). I’ve no objections to this line of reasoning. The benefits from the protection may outweigh the costs of the tariff. But, in that case, the goal is to keep tariffs as low as possible while being able to maximize the outcome. But that’s not the argument most make when calling for tariffs; they want tariffs as a means of restricting international trade.

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