Wednesday

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 9 The Real Economy in the Long Run
Chapter 25 of 36 Production and Growth
Section 16 of 22
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Things government can promote and strengthen to increase productivity and living standards include:
1· saving and investment
2· investment from abroad
3· education
4· health and nutrition
5· property rights and political stability
6· free trade
7· research and development
8· population growth
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6· Free trade
Some of the world's poorest countries have tried to achieve more rapid economic growth by pursuing inward-oriented, protectionist policies.
With these policies, they attempt to increase productivity and living standards within the country by avoiding trade interaction with the rest of the world.
Their domestic firms often convince policymakers of the infant-industry argument claiming protection is needed from foreign competition to initially succeed and then grow.
This infant-industry argument together with a general dislike and distrust of foreigners has often led policymakers in less developed countries to impose tariffs and other trade restrictions.
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Most economists today believe poor countries are better off embracing outward-oriented pro-trade policies that join these countries with the world economy.
Trade in a way is a type of technology.
When a country exports wheat and imports textiles the country benefits as if there has been a technology invented for turning wheat into textiles.
A country through elimination of trade restrictions will experience the same kind of economic growth that occurs after a major technological advance: lower prices, greater quantity, better products.
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The adverse impact of inward-orientation featuring anti-trade protectionism becomes clear when considering the small size of many less developed economies.
The total GDP of Argentina [in 2005] is about the same as the U.S. city of Philadelphia.
Imagine the result if the Philadelphia city council were to prohibit city residents from trading with people living outside the city limits.
Philadelphia would need to
· produce all the goods it consumes
· produce all its own capital goods, and not import the most modern equipment from outside
Living standards in Philadelphia would fall immediately and get worse over time.
This is what happened when Argentina pursued inward-oriented protectionist policies throughout much of the 20th century.
By contrast South Korea, Singapore, Taiwan have pursued outward-oriented, pro-trade policies and enjoyed high rates of economic growth.
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The amount a nation trades with others is determined not only by government policy but also by geography.
Countries with natural seaports can trade easier than countries without seaports.
Many of the world's major cities, including New York, San Francisco, and Hong Kong are located alongside oceans.
Landlocked countries tend to have lower levels of income.
Many African continent countries are landlocked, without access to the sea.
This is part of the reason why many of them are poor.
But they needn’t be poor because of geography.
27 U.S. states are landlocked, not alongside an ocean, and are as prosperous as states with ocean access.
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Since infant-industry protectionist policies mostly fail why do politicians institute them?
Grok:
Politicians institute infant-industry protectionist policies despite their failures primarily because of self-interested political incentives that align concentrated benefits for specific groups with diffuse costs borne by the broader public.
Businesses in targeted sectors lobby aggressively for tariffs, quotas, or subsidies, offering campaign contributions, political support, and visible "successes" like ribbon-cuttings or job announcements in key districts, while diverse and unorganized consumers and downstream industries face higher prices and inefficiencies that are harder to organize against.
Once granted, protections create vested interests that make removal politically costly.
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"Infants" rarely mature and instead gain power to perpetuate barriers, turning temporary policy into permanent rent-seeking (government-created and protected profits) opportunities.
Nationalistic rhetoric about building domestic strength, strategic autonomy, or countering foreign competition provides convenient cover, allowing politicians to claim they are fostering long-term growth even when evidence shows net welfare losses, complacency, and cronyism.
In short, the policies persist not because they reliably work economically, but because they serve politicians' reelection needs and connected firms' profits far better than transparent alternatives including free trade.
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landlocked countries are poorer
nairiku kuni wa yori mazushī