Bastiat On Economic Protectionism

A PETITION From the Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.

To the Honourable Members of the Chamber of Deputies.

Open letter to the French Parliament, originally published in 1845 (Note of the Web Publisher)

Gentlemen:

You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.
We come to offer you a wonderful opportunity for your — what shall we call it? Your theory? No, nothing is more deceptive than theory. Your doctrine? Your system? Your principle? But you dislike doctrines, you have a horror of systems, as for principles, you deny that there are any in political economy; therefore we shall call it your practice — your practice without theory and without principle.
We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us ^[1].
We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.
Be good enough, honourable deputies, to take our request seriously, and do not reject it without at least hearing the reasons that we have to advance in its support.
First, if you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged?
If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth.
If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and rapeseed. These rich yet soil-exhausting plants will come at just the right time to enable us to put to profitable use the increased fertility that the breeding of cattle will impart to the land.
Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion.
The same holds true of shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honour of France and of gratifying the patriotic aspirations of the undersigned petitioners, chandlers, etc.
But what shall we say of the specialities of Parisian manufacture? Henceforth you will behold gilding, bronze, and crystal in candlesticks, in lamps, in chandeliers, in candelabra sparkling in spacious emporia compared with which those of today are but stalls.
There is no needy resin-collector on the heights of his sand dunes, no poor miner in the depths of his black pit, who will not receive higher wages and enjoy increased prosperity.
It needs but a little reflection, gentlemen, to be convinced that there is perhaps not one Frenchman, from the wealthy stockholder of the Anzin Company to the humblest vendor of matches, whose condition would not be improved by the success of our petition.
We anticipate your objections, gentlemen; but there is not a single one of them that you have not picked up from the musty old books of the advocates of free trade. We defy you to utter a word against us that will not instantly rebound against yourselves and the principle behind all your policy.
Will you tell us that, though we may gain by this protection, France will not gain at all, because the consumer will bear the expense?
We have our answer ready:
You no longer have the right to invoke the interests of the consumer. You have sacrificed him whenever you have found his interests opposed to those of the producer. You have done so in order to encourage industry and to increase employment. For the same reason you ought to do so this time too.
Indeed, you yourselves have anticipated this objection. When told that the consumer has a stake in the free entry of iron, coal, sesame, wheat, and textiles, ``Yes,'' you reply, ``but the producer has a stake in their exclusion.'' Very well, surely if consumers have a stake in the admission of natural light, producers have a stake in its interdiction.
``But,'' you may still say, ``the producer and the consumer are one and the same person. If the manufacturer profits by protection, he will make the farmer prosperous. Contrariwise, if agriculture is prosperous, it will open markets for manufactured goods.'' Very well, If you grant us a monopoly over the production of lighting during the day, first of all we shall buy large amounts of tallow, charcoal, oil, resin, wax, alcohol, silver, iron, bronze, and crystal, to supply our industry; and, moreover, we and our numerous suppliers, having become rich, will consume a great deal and spread prosperity into all areas of domestic industry.
Will you say that the light of the sun is a gratuitous gift of Nature, and that to reject such gifts would be to reject wealth itself under the pretext of encouraging the means of acquiring it?
But if you take this position, you strike a mortal blow at your own policy; remember that up to now you have always excluded foreign goods because and in proportion as they approximate gratuitous gifts. You have onlyhalf as good a reason for complying with the demands of other monopolists as you have for granting our petition, which is in complete accord with your established policy; and to reject our demands precisely because they are better founded than anyone else's would be tantamount to accepting the equation: + x + = -; in other words, it would be to heap absurdity upon absurdity.
Labour and Nature collaborate in varying proportions, depending upon the country and the climate, in the production of a commodity. The part that Nature contributes is always free of charge; it is the part contributed by human labour that constitutes value and is paid for.
If an orange from Lisbon sells for half the price of an orange from Paris, it is because the natural heat of the sun, which is, of course, free of charge, does for the former what the latter owes to artificial heating, which necessarily has to be paid for in the market.
Thus, when an orange reaches us from Portugal, one can say that it is given to us half free of charge, or, in other words, at half price as compared with those from Paris.
Now, it is precisely on the basis of its being semigratuitous (pardon the word) that you maintain it should be barred. You ask: ``How can French labour withstand the competition of foreign labour when the former has to do all the work, whereas the latter has to do only half, the sun taking care of the rest?'' But if the fact that a product is half free of charge leads you to exclude it from competition, how can its being totally free of charge induce you to admit it into competition? Either you are not consistent, or you should, after excluding what is half free of charge as harmful to our domestic industry, exclude what is totally gratuitous with all the more reason and with twice the zeal.
To take another example: When a product — coal, iron, wheat, or textiles — comes to us from abroad, and when we can acquire it for less labour than if we produced it ourselves, the difference is a gratuitous gift that is conferred up on us. The size of this gift is proportionate to the extent of this difference. It is a quarter, a half, or three-quarters of the value of the product if the foreigner asks of us only three-quarters, one-half, or one-quarter as high a price. It is as complete as it can be when the donor, like the sun in providing us with light, asks nothing from us. The question, and we pose it formally, is whether what you desire for France is the benefit of consumption free of charge or the alleged advantages of onerous production. Make your choice, but be logical; for as long as you ban, as you do, foreign coal, iron, wheat, and textiles, in proportion as their price approaches zero, how inconsistent it would be to admit the light of the sun, whose price is zero all day long!

Frédéric Bastiat (1801-1850), Sophismes économiques, 1845

What You Weren't Told About The Minimum Wage by Skyler Lehto.

I came across this Video by Skyler Lehto on his YouTube channel. It raises what I believe to be the greatest argument against any artificial raise in minimum wages in the United States. Transcribed under this video is the complete text. 

Last year, President Obama proposed a hike in the federal minimum wage from $7.25 to $9.00 an hour. After the predictable failure of his proposal, Obama and his party have returned with the Harkin/Miller proposal to raise the minimum wage to $10.10 an hour. What I’m going to do in this video is make several points to confront the myths and address the reality behind the minimum wage. 

Point #1 

Elizabeth Warren’s assertion about a $22-an-hour productivity-adjusted minimum wage is highly misleading. 
First of all, the fact that the minimum wage has fallen behind in value does not mean that the jobs themselves have been held back just as much. In fact, over the past 34 years for which the BLS has maintained this data, the percentage of jobs paying at or below minimum wage has fallen precipitously. So the fact that the minimum wage is lower does not necessarily mean that most low-end workers are worse off for it. What’s more, the federal minimum wage law in 1960 did not apply to as many sectors of the economy as it does today, so Warren’s comparison is not entirely commensurable. Second, her suggestion overlooks a very crucial distinction between average productivity and marginal productivity. Not only did she cherry pick one of the highest estimates of productivity growth, but the statistic that Warren uses is based on an aggregate measure of productivity growth for the whole economy. However, we have to recognize that different jobs have changed in marginal productivity by vastly different amounts. Given the changes in technology and composition of the economy since 1960, some types of jobs have grown tremendously in productivity, whereas others have not grown nearly as much. Economists refer to this phenomenon as skill-biased technological change. As Christopher Wheeler notes in his 2005 St. Louis Fed study, increased wage dispersion since 1983 is significantly correlated with the increased relevance of college education and occupational computer use. Long story short, if we want more workers to earn $22 an hour, it requires getting more people the skills to actually take on these higher productivity jobs. 

Point #2 

The minimum wage is not a big stimulus to the economy. Many proponents of a higher minimum wage argue that giving workers more money to spend will set off a virtuous cycle leading to more jobs and more economic growth. Putting the transient nature of Keynesianism aside, the quantitative effect of a minimum wage increase on spending is actually quite trivial, because only a small portion of workers earn at or near the minimum wage, and much of their increased spending would come at the expense of others. As Obama's former chief economist Christina Romer writes, “the income increase from the higher minimum wage would be about $50 billion. Even assuming all of that higher income was redistributed from the wealthiest families, the difference in spending behavior is likely to translate into only an additional $10-20 billion in consumer purchases. That’s not much in a $15 trillion economy.” Now granted, that was in consideration of the $9.00 minimum wage proposal. But even if the minimum wage hike boosted total spending by as much as $40 billion, that would still amount to less than one quarter of one percent of GDP, which isn't much to get excited about.

Point #3

Australia’s minimum wage is not $16 an hour in US terms. People who make this claim are not doing the currency conversion properly. The exchange rate between two currencies in the foreign exchange market does not necessarily reflect what the currencies are valued at domestically. The nominal exchange rate is often skewed from the real exchange rate due to various factors, such as taxes on imports and exports, or international financial flows that favor one currency over another. Making an accurate price comparison between two countries requires taking account for something called purchasing power parity. Doing this, we discover that Australia’s minimum wage is actually $10.51 in US terms. While that is measurably higher than the US, it’s a far cry from the $16 an hour that many have suggested, and it doesn't come without its share of unintended consequences. Along these lines, people will also occasionally cite higher minimum wages in Canada. But applying the same process to Canada using Ontario’s minimum wage results in a figure of only $8.03 in US terms. 

Point #4

The minimum wage does little to reduce poverty. Supporters of a minimum wage hike usually take it as an article to faith that it will effectuate a reduction in poverty by raising incomes for the working poor. Yet the vast majority of empirical evidence suggests otherwise. Most studies, such as Neumark and Wascher in 1997, Vedder and Gallaway in 2001, Sabia and Burkhauser in 2010, and Sabia and Nielsen 2012 find that minimum wage hikes have no significant effect towards reducing poverty. This is because there are several factors either trivialize or negate the positive effects of a higher minimum wage. First of all, 80 percent of minimum wage earners are not in poverty. The mean household income for a minimum wage worker is around fifty-one thousand dollars a year, because most minimum wage workers are actually second and third earners in their household. Three out of five minimum wage workers end up getting a pay raise anyway within their first year. As it currently stands, the median age of a minimum wage worker is 24, and single parents working full time only constitute four percent of minimum wage workers. Ironically enough, raising the minimum wage is least likely to benefit the workers who actually are in poverty, because as their income rises, many see their government benefits sharply reduced. And of course, the minimum wage is going to have a hard time reaching the 65 percent of impoverished adults who are not employed. To make matters worse, raising the minimum wage comes with adverse side effects. Among these include higher food prices, and a decrease in employment opportunities, which brings me to my next point. 

Point #5 

The minimum wage worsens unemployment for the low-skilled. Now this point has been heavily researched and discussed amongst economists, especially with the new minimum wage research that has proliferated since the 1990s. Nearly two-thirds of new minimum wage research studies indicate a negative employment effect associated with the minimum wage. But a few studies have purported to find a zero or positive effect of the minimum wage on employment. One such study was done by David Card and Alan Krueger in 1994. More recently, another was done by Dube, Lester and Reich in 2010, and another by Allegretto, Dube, and Reich in 2011. These studies have numerous flaws, as David Neumark and William Wascher have pointed out. Most of the details are too extensive for this video, but I would like to indulge in the following. Suppose it were true that the minimum wage has zero effect on the quantity of labor employed by low-wage employers. In that case, it would still be likely to have deleterious effects on the employment prospects of the low-skilled because of something called “labor-labor substitution.” Hypothetically speaking, even if employers paid for the higher minimum wage entirely through prices, productivity, and reduced turnover, the positive supply effects of a higher wage would give the employer a larger labor pool to draw from. Consequently, they would be able to select more-skilled applicants at the expense of those who are less-skilled. And to add insult to injury, lower turnover means fewer job openings for those looking to get a foothold in the job market. Thus, a higher minimum wage would still make it more difficult for the low-skilled to find employment, even if the employer’s elasticity of labor demand were zero. So it should come as no surprise that when we segment the labor force by skill level, as economist Antony Davies and many others have done, we find that a higher minimum wage is correlated with higher unemployment for the lowest-skilled members of the work force. This is also why in their meta-study of new minimum wage research, Neumark and Wascher concluded that, “the studies that focused on the least-skilled groups provide relatively overwhelming evidence of stronger dis-employment effects for these groups.” All in all, three-quarters of economists recognize that   the minimum wage has negative effects on the employment of low-skilled workers. 

Point #6 

The minimum wage hurts the disadvantaged. Most advocates for a higher minimum wage are undoubtedly motivated to improve the well-being of the worst-off members of society. But good intentions are no excuse for bad results, and the minimum wage is just that for the lowest-skilled members of the workforce. Not only does the minimum wage make it more difficult for less-skilled prospective workers to find jobs, but evidence suggests that it also has a long-term negative effect. A 2004 study from Neumark and Nizalova found that exposure to a higher minimum wage during young adulthood is associated with lower earning several years later, and that the main reason for this is a deprivation of work experience during younger years. They also found that this effect was more pronounced for blacks than any other racial group. This is unsurprising, given how black teenage unemployment is exceedingly high, in great part due to the minimum wage. 

So there you have it. Average productivity is not the same as marginal productivity. $16 in Australia is not the same as $16 in the US. Being on the minimum wage is not the same as being in poverty. Raising the minimum wage is not the same as helping the disadvantaged. Good intentions are not the same as good results. And for those reasons, raising the minimum wage is not the same as a good idea.

Special Thanks to Skyler Lehto for permission to transcribe as well as my wife for transcribing this.