Taxes should be specific: US-China Trade issues

When you look at what China imports, a lot of the cheap goods they import are actually inferior goods.  And many of those are just that, and in fact some are getting to be too inferior, as seen by the rising levels of product recalls from China.  The point of this is that there is a high but very elastic demand for these goods because of the recession.  As the US economy improves, many will be happy to abandon these goods and that sector of the market will shrink rapidly.  The deadweight loss in this case would be too high to justify anything beyond minimal taxes, and the overall market for Chinese imports will shrink without inferior goods.  Until that time, the goods are being bought and sold through US distributers and this creates US jobs (in retail etc), which are important in the current economy.  Chinese currency manipulation is another component that makes the cheap inferior goods possible.  Floating the currency would at this point very detrimental to the elastic market and have a negative impact.  Therefore regulations should be minimal for the elastic imports market during the recession so that the trade of these items continues to fuel economic growth. (See Pro-currency manipulation arguements in regard to economic growth.)

There is, however, an inelastic market for normal goods made in China.  Indeed, as Sara Bongiorni found out in "A Year Without Made In China", it is nearly impossible to avoid consuming Chinese imports.  For these imports, the deadweight loss will be lower and a higher tax can be implemented without a large impact on the economy.  Regulations and restrictions could help, especially those that aim to level the playing field- China has regulations in place against imports from the US, for example (see Economics Help, and 247WallSt).  The overall goal would be to force the end of currency manipulation over the next few years as the US economy improves and to strengthen the presence of US goods in China.  Floating the currency has the advantage of raising the prosperity of Chinese citizens, which would give them more income with which to purchase US goods.

Are Farm Subsidies Wasteful Spending?: Technology vs Subsidy

I did some research on the subject, and thanks to USAspending.gov and EWG.org, as well as many other websites that want to broadcast government info, found that the US government awarded about $2.5B for agriculture-related research and about $16.4B for farm subsidies including crop insurance in 2009.  The less widely broadcasted info is why this continues, and apparently the whole subject is more twisted than you might expect.  Foremost, institutions at the cutting edge of crop technology- including and especially those that create new GMOs- can then trademark the discovery and turn around and charge farmers a much higher price for their product (see an interesting article about this in usatoday.com and usagovernmentspending.com for more raw data).  Farmers must then be subsidized at higher rates or their insurance subsidy must be raised in order to compensate for the increased value of the crops.  So basically, the government funds research to increase efficiency, helps the discoverers make millions by granting a patent, and then pays the extra cost that has been passed down to the farmers throu the subsidies.  It looks to me like an absolute disaster. 

BUT: Agencies such as WHO and UN come into play on the research side, saying that the food supply will need to increase to meet the demands of a rapidly growing population, as well as to grow crops to survive disasters such as flooding and global warming.  (The disasters ironically would be good for market prices, however).  So for short-term market, I would vote on the side of decreasing research funding immediately and over the long-term decrease subsidies.  The way I see it now, without the constant input of fresh technology, the cost of insurance would eventually decrease and the prices would go up, lowering the need for subsidies.  Plus with prices going up and fewer subsidies paying farms to under-produce, the supply would increase.

After a little background reading about OPEC, I really saw the Big Oil cartels in a new way.  First, it is clear that they are purposefully drilling at below capacity and or selling at so that they can keep a shortage and hike up prices more than the competitive market would allow if there were a higher supply.  (Before this week's lesson, I have to honestly say I did not fully understand why OPEC was doing this.)  Since the market is mostly inelastic in the short-run, the demands remain the same and countries essentially must pay the price to have oil (I see there are other posts about elasticity so I'll leave that alone for this post).  OPEC countries realized the inelasticity of the market after they placed an embargo on the US for the US defense of Israel in a Middle-East conflict.  Realizing the power they had over market prices, those Arab countries formed a cartel in the early 1980s that literally dominated the market, and used shortages to essentially charge whatever price they wanted.  

However, the market since then has become more competitive as more suppliers entered the market, moving the supply curve to the right and thus driving down prices (although supply is still short of demand).  With OPEC in check a little, the market is now more competitive, which is good.  Which is why, on a strictly economic basis, drilling for oil in Alaska would make sense as far as lowering prices for oil.  Even at the current prices which are relatively low, however, world supplies are kept short.  The market proving to be elastic as countries like India continue to develop mean that oil-producing countries must still step up production if they want to keep a share of the market.  OPEC says they're drilling at much higher capacity now than ever before.  Although keeping the supply low would still help prices, they would lose their market share.  More increases in the supply curve are now being balanced by increases in the demand curve, so prices overall are pretty stable and relatively more fair than when OPEC was completely in charge.  However, no oil producer wants to cut themselves out of the profits that can be made through the short supply, so they have to constantly be looking at demand and then falling short of that.

A little story about price gauging I read in Mankiw's textbook Principles of Applied Economics on how price gauging has its benefits got me thinking: Maybe this Big Oil/ OPEC strategy is not actually that bad.  It means that there will be enough oil for those that really need it and keeps demand in check for this valuable non-renewable resource.