Basic tariff theory
The writer outlines the calculus of basic tariff theory in these ten pages of new PDF notes. The notes detail quantitatively the essential analytical reasons the economics profession recommends free trade between nations.
As far as the writer is aware, such notes—written for a serious audience of mathematically inclined non-economists, pitched at the MBA level—have never heretofore appeared on the World Wide Web.
Admittedly, the writer tends to disbelieve the notes’ conclusion—or rather, more precisely, he believes that their mathematics are correct but does not believe in the prudence of their translation to finely tuned practical policy—but he has not prepared the notes because he believes in them. He has prepared them rather because the economics profession believes in them. Foremost among those we wish to convert to the good cause of economic nationalism stand the leading members of the economics profession and, perhaps more importantly, graduate students in economics at our leading universities (the latter of whom, after all, besides still having open minds where their professors’ minds are too often wrongly closed, necessarily tend to represent economics’ rising generation). Such folks deserve respect for their knowledge and expertise even when you and I disagree with their conclusions. One way to show respect is to have taken the time to acquaint oneself with their strongest arguments before presuming to dispute their faulty findings.
They won’t listen to you or to me, after all, so long as they think us untutored. Therefore, if you lack an advanced degree in economics but can handle the requisite single-variable calculus, then you may find it worth your time to study the notes.
As for the rest of you, if calculus is not your thing, don’t let it trouble you overly much. You can page through the notes and look at the graphs if you like but your intuition in the matter is quite right: radical free trade is a horrifically bad idea. The main reason many free traders, including far too many U.S. Congressmen, sophomorically believe in the idea is because they do understand just barely enough calculus to grasp its analytical rationale, because it pleases their vanity to contemplate your supposed ignorance in the matter—or, more likely and worse, because like John McCain they do not understand quite enough calculus and are worried that you might notice. Either way, you and I are not obligated to honor their vanity.
But for those that wish to understand the basic theory in detail, to study the notes could be a profitable exercise nonetheless.
Howard J. Harrison
The Economic Nationalist
March 29th, 2009 at 10:31 pm
Howard,
I am one of those who will have to glance at the charts rather than go through the math in detail, but this looks like a very valuable contribution to the discourse. I hope it will be widely read. Kudos for your work on putting this together.
March 30th, 2009 at 3:02 pm
Howard, you have done quite a piece of work here. Congratulations!
I should first say that this is a bit more than we talked about in my high school economics class 50+ years ago. Come to think about it, I cannot recall what we did talk about in there.
It all hinges on a series of models, some of which are less than obvious. The first of these is in your eq(1), the production frontier model. As I think about it, I can rationalize that, sort of.
Eq(2) is really straight forward and not open to any challenge at all. And then there is your optimization.
But then we come to this thing you called “utility” and your eq(12). If we solve eq(12) for U, the result, using a more Fortran type notation is
U = y1^b1 * y2^b2
something which you brushed on past as, “the typical function”. In my wildest imaginings I cannot understand what this means. Would you care to give us a plausibility argument for this definition?
I have not gotten any further than this in reading it, so I cannot comment on the rest, other than to nit-pick on point. In many places where you speak of forming a derivative, what you actually do is to form a differential. Other places, such as p. 6.
March 31st, 2009 at 4:59 am
Dr.D:
The utility model you refer to seems to go by the names of Cobb and Douglas, which doesn’t mean anything, especially, except that the economics profession uses it often enough to give it a name. I think that the idea is that one is supposed to need at least a little of each good in question, but that large amounts of either are not of much use.
Personally, I tend to agree with you: the model is pointy-headed nonsense.
The review is well appreciated.
Stephen:
You did right. To glance at the charts is about what those notes are worth. The theory is sort of a calculus-macho exercise; it’s not worth much otherwise. Caught up in the equations one tends to forget to ask whether the equations actually represent anything enduring or real.
Howard
March 31st, 2009 at 1:30 pm
“Personally, I tend to agree with you: the model is pointy-headed nonsense.”
Well, that was refreshing, but it does not go very far to build confidence!