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Thoughts on my view of today's global economy?

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donnywithana

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There has been discussion of barriers to trade on this forum and how they affect economic advantages and whatnot.

It has reasonably been concluded that a foreign economy that subsidizes an industry is simply paying for others to purchase goods from them at a reduced price. If a domestic producer in a capitalist society can not afford to stay in his industry with the foreign subsidy, then he shouldn't stay in his given line of work, because he does not possess an economic advantage.

Because jobs usually involve some form of specialization, this guy could be relatively screwed, but that's his problem because he doesn't have the right to his job if he can't compete. Individuals in this situation will simply need to adapt, starve, or depend on charity, as they don't have the right to the means to life.

If the subsidizing country were to shift its subsidy to another industry for whatever reason, the supply shock that would strike would be perfectly alright, since consumers don't have the right to the product of an industry if no one is making it.

Is this a correct assessment of the situation?

I don't mention tariffs, import quotas, voluntary export restraints or local content requirements because they don't present a positive economic advantage to domestic industries, but instead present an economic disadvantage to foreign producers.

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If a domestic producer in a capitalist society can not afford to stay in his industry with the foreign subsidy, then he shouldn't stay in his given line of work, because he does not possess an economic advantage.
I disagree because you made the question too specific: I might end up agreeing that a person should not stay in such and such business, but not because he lacks that particular advantage. More simply, if a business is unprofitable to the point that no profit can reasonably be expected in the long term, then it is irrational to stay in that business (assuming that making a profit is your purpose). A business can thrive despite the lack of a subsidy. A tax-supported subsidy provided by a foreign government might help the foreign company in the short term, but in the long run it will hinder the business.
If the subsidizing country were to shift its subsidy to another industry for whatever reason, the supply shock that would strike would be perfectly alright, since consumers don't have the right to the product of an industry if no one is making it.
No, it would not be "perfectly alright" if, say, the Japanese government subsidizes the production of automobiles to the point that a new Nissan costs $1,000 and a new Ford costs $15,000, which in the course of 3 years causes all American car manufacturers to go out of business, only to have the Japanese government drop the subsidy and leave us with no cars. That would be terrible and stupid. But that would not be a proper cause for invading Japan militarily. So I'm not sure what you mean by "alright".

But it is correct that government subsidies have bad consequences.

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A business can thrive despite the lack of a subsidy. A tax-supported subsidy provided by a foreign government might help the foreign company in the short term, but in the long run it will hinder the business.

I agree that a business can thrive despite the lack of a subsidy, but I don't think that a business would thrive because of the lack of a subsidy. If two equal competitors exist, and one becomes subsidized, he will have an advantage.

I'm not sure how you arrived at the conclusion that getting money for nothing would hinder a business in the long run holding all other things constant. I suppose you could posit that the added revenue could cause the producer to become complacent and inefficient, but I don't think that this is a necessary development from the provision of a subsidy.

No, it would not be "perfectly alright" if, say, the Japanese government subsidizes the production of automobiles to the point that a new Nissan costs $1,000 and a new Ford costs $15,000, which in the course of 3 years causes all American car manufacturers to go out of business, only to have the Japanese government drop the subsidy and leave us with no cars. That would be terrible and stupid. But that would not be a proper cause for invading Japan militarily. So I'm not sure what you mean by "alright".

Well what I meant is that no one has the right to a car, so it's your own problem if there aren't any cars for you to buy. You, the consumer, are necessarily at the mercy of the producer (I don't mean that as a negative although it kind of sounds that way. I just mean that you can't buy something that isn't produced.) and therefore supply shocks, when existant, are simply the way things end up working when irrational business practices are employed.

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I agree that a business can thrive despite the lack of a subsidy, but I don't think that a business would thrive because of the lack of a subsidy. If two equal competitors exist, and one becomes subsidized, he will have an advantage.
You were talking, at least I assumed (because you said so), about a business in one country which is unsubsidized and (I assume) not otherwise regulated out of existence, vs. a business in a foreign country subsidized by their government. So they aren't "otherwise equal" -- that's impossible. The subsidized business exists primarily in a country with higher taxation and destruction of wealth. For the moment, the citizens of Norway who are underwriting the production of the country's widgets that are sold at below cost are surviving, but barely, and eventually the policy of subsidizing production will result in the decline and eventually the collapse of their economy, as taxes become higher and higher and production decreases because there isn't any good reason to actually produce (since you're guaranteed a state subsidy).

I'm rejecting the concept of "subsidy for one, holding all other things constant". That's a contradiction -- subsidies have to come from somewhere, which introduces another non-equality. The subsidy introduces something more than an economic difference, it introduces the concept of entitlement with all that does with it. If a man believes that he is entitled to be provided with a means of survival, then he will have no reason to be productive -- he can be inefficient, he can be non-innovative, and he can even decide to not bother with the widgets (please note that the biggest subsidy boondoggle in the US is the agricultural subsidy to not produce). In the long term, these are self-destructive acts.

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That's not the only way to create subsidy money though. Let's say the subsidy is taken from tariffs, and the citizens of Norway are satisfied with their decreased real wealth as long as their widget factory stays in business, because lots of poor people are employed there (and they certainly can't put them out of work).

The widget factory sells at dumping levels because it can, but its subsidy depends directly upon output. The factory gets $x/unit, and therefore its marginal cost curve will intersect its marginal revenue curve later. Thus, all the incentive to produce, innovate, and market is still there. However, the company has an economic advantage over me, and I'll eventually go out of business.

But then there's a revolution in Norway, and the people stop being satisfied with their low real wealth when they see the standard of life elsewhere in the world. The widget factory's subsidy is immediately severed, and temporarily, the supply of widgets is suspended, creating massive shortages. Businesses that depend on widgets for survival go out of business as the old Norwegian widget factory's assets are auctioned off.

New suppliers of widgets appear on the scene, but by this time, much of the widget industry infrastructure has collapsed. It will be a while still before the economy returns to normal, but because no one has the right to widgets or their widget industry job, this sort of thing just has to be swallowed. Right? Am I missing something?

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Business entails a degree of unpredictabiliy or "risk". One such risk is the continuity of supply, or supply at a particular price. When there is only a single supplier, there is a risk that something can disrupt that supplier's output. If some aspect of one's business depends on a law (moral or immoral), there is a risk that that law may be changed to one's detriment.

How a business deals with such risk depends on a whole lot of details surrounding the specific case.

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It has reasonably been concluded that a foreign economy that subsidizes an industry is simply paying for others to purchase goods from them at a reduced price. If a domestic producer in a capitalist society can not afford to stay in his industry with the foreign subsidy, then he shouldn't stay in his given line of work, because he does not possess an economic advantage.

I don't like this line of reasoning. It seems to assume that in a free market only the most economically advantage business survives. That's not really true. Many businesses survive without being the most advantaged.

Because jobs usually involve some form of specialization, this guy could be relatively screwed, but that's his problem because he doesn't have the right to his job if he can't compete. Individuals in this situation will simply need to adapt, starve, or depend on charity, as they don't have the right to the means to life.

More importantly, I think, is that he doesn't have a right to ask others to pay for his poor decisions. By specializing in only one industry, and further specializing in a very niche market in that industry, he has taken an extreme risk. Such great risk requires a carefully planned exit strategy. Failure to plan for loss of occupation may result in extreme hardship which is a great motivator to plan ahead.

If the subsidizing country were to shift its subsidy to another industry for whatever reason, the supply shock that would strike would be perfectly alright, since consumers don't have the right to the product of an industry if no one is making it.

I'm not sure I follow this scenario. Yes, consumers don't have a right to any product, but what has that to do with subsidizing an industry. If consumer demand a product, someone will produce it. Any lack of supply is only temporary.

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