NAFTA Years Later

[SlowwHand]

You best watch that mouth, Plan Austral.

[Master Zen]

Originally posted by Plan Austral
My bad, Slowwhand looks leftist!

What? where? what am I missing...

[Japher]

Sloww a lefty

that hurt

[yavoon]

Imran they're only inefficient because we pay our workers 20-100 times more. I don't consider that a genuine inefficiency. regardless of how much the third world ppl "want" the jobs or not.

[Dinner]

Originally posted by Master Zen
Slow erosion of industrial capacity which ends up giving the jobs to hardly-paid chinese sweatshop laborers is only good for the company's pockets, not for the country as a whole.

Yes, it is. Let's say Fruit of the Loom Co. closes down it's tea shirt making plant in Alabama due to cheaper competetion from US owned factories in Mexico. The 1000 workers were already paid poorly by American standards (remember they had to compete agaisnt both Chinese and Latin American textile workers) so maybe they paid $8-$12 depending on their level. Those workers are pissed off and so are their families and the city the factory was in loses out on the tax money the factory provided. These guys are all losers in the free trade system.

So who are the winners? The Mexicans who got the new jobs of course, as is, the company & its share holders since they get to stay in business and not go bankrupt. Is there anyone else? Yes, everybody who buys a teas shirt now only has to pay say $8 instead of say $12 for a pack. That's a 33% savings for each and every person who buys a tea shirt. Since costs have decreased demand will probably go up and that is good news not only for the company and its workers but also the cotton growers, the machinary company which makes the mass production of textiles possible, the distributers, the retailers, and the banks who finance the opporation are now all making more money.

Economists have been mulling over this information for decades and most of them have come to the conclusion that the net increase in jobs and income from growing business in efficient industries far out weights the minor loses of jobs and income from less efficient industries. Also there is a net bust to the economy when capital which was tied up in money losing (or even low return) business gets redirected into faster growing, higher return industries. All of that adds up to a big boost to business, to tax reciepts, and to jobs. Plus lower prices for consumers to boot.

[LTEC!]

Originally posted by Master Zen
PRD!!!

I would never join that party, they are rebelious idiots who have no ****ing clue on how to run a country, just complain and ***** about things and organize riots. Much less PAN who are a bunch of pro-US pro-Catholic elitist lying scum, oh and no words can express the contempt I feel for PRI...

So, that leaves me with no party to identify which, and hence, no party to vote in the next elections (something which I don't plan on doing). So, consider me an "enemy of the state" for all that means, and an enemy of the political system as a whole, not just any party in particular.

For the record, I am a leftist in economic affairs (which is strange since I am studying in a very elitist school) but very much an authoritarian if I were to run this joint. God help us if I ever do...

You and 3/4 of the country. Which elitist school is that?

[Master Zen]

Originally posted by LTEC!


You and 3/4 of the country. Which elitist school is that?

UDLA

[Master Zen]

Originally posted by Oerdin


Yes, it is. Let's say Fruit of the Loom Co. closes down it's tea shirt making plant in Alabama due to cheaper competetion from US owned factories in Mexico. The 1000 workers were already paid poorly by American standards (remember they had to compete agaisnt both Chinese and Latin American textile workers) so maybe they paid $8-$12 depending on their level. Those workers are pissed off and so are their families and the city the factory was in loses out on the tax money the factory provided. These guys are all losers in the free trade system.

So who are the winners? The Mexicans who got the new jobs of course, as is, the company & its share holders since they get to stay in business and not go bankrupt. Is there anyone else? Yes, everybody who buys a teas shirt now only has to pay say $8 instead of say $12 for a pack. That's a 33% savings for each and every person who buys a tea shirt. Since costs have decreased demand will probably go up and that is good news not only for the company and its workers but also the cotton growers, the machinary company which makes the mass production of textiles possible, the distributers, the retailers, and the banks who finance the opporation are now all making more money.

Economists have been mulling over this information for decades and most of them have come to the conclusion that the net increase in jobs and income from growing business in efficient industries far out weights the minor loses of jobs and income from less efficient industries. Also there is a net bust to the economy when capital which was tied up in money losing (or even low return) business gets redirected into faster growing, higher return industries. All of that adds up to a big boost to business, to tax reciepts, and to jobs. Plus lower prices for consumers to boot.

You are assuming perfect competition which is hardly ever the case. Assuming an initial price of $12 for a pack of Ts and an oligopolic market structure (which believe me, is much more frequent than anything approaching perfect competition) the price would not necessarily drop as the marginal income of the firm would still be below the demand, hence, you jack up the price and keep profits. Even if you could sell the Ts at $8 you wouldn't, they'd still be at $12 so it really makes no point from a consumers' perspective whether the plant relocates or not as it will not bring down the price in most cases.

Tell me, in the textile industry, are clothes cheaper in constant price terms than they were in the 80's? Nope.

Same with electronics in case the idea crossed your mind. Every piece of little cool hardware has price discrimination in the inital stages of the product life, and it is that which brings down the price to an equilibrium level later, NOT cheaper production in sweatshops.

[Lawrence of Arabia]

NAFTA is good. Anything which promotes free trade is good.

[Adam Smith]

Originally posted by Master Zen
You are assuming perfect competition which is hardly ever the case. Assuming an initial price of $12 for a pack of Ts and an oligopolic market structure (which believe me, is much more frequent than anything approaching perfect competition) the price would not necessarily drop as the marginal income of the firm would still be below the demand, hence, you jack up the price and keep profits.

The price will drop in any type of market structure. In setting a price, firms trade off the money they can make by raising price to existing customers versus the money they can make by lowering price to win new customers. A monopoly will drop its price half as much as a competitive market would. A Cournot oligopoly (strong product differentiation, automobiles as a possible example) would drop its price two thirds as much. A Bertrand oligopoly (little or no product differentiation, eg., natural resources) would drop its price almost as much as a competitive market would. IIRC, the only market structure where free trade does not work well is where there is one world-wide natural monopoly. In this case, the benefits of having multiple suppliers of the traded goods may be outweighed by the cost of having a number of inefficiently small suppliers. Aside from possibly Microsoft, there are not many examples of this type of situation around.

edit: typos

[Master Zen]

Originally posted by Lawrence of Arabia
NAFTA is good. Anything which promotes free trade is good.

Gee that was a very convincing argument...

[Sava]

[Master Zen]

Originally posted by Adam Smith
The price will drop in any type of market structure. In setting a price, firms trade off the money they can make by raising price to existing customers versus the money they can make by lowering price to win new customers. A monopoly will drop its price half as much as a competitive market would. A Cournot oligopoly (strong product differentiation, automobiles as a possible example) would drop its price two thirds as much. A Bertrand oligopoly (little or no product differentiation, eg., natural resources) would drop its price almost as much as a competitive market would. IIRC, the only market structure where free trade does not work well is where there is one world-wide natural monopoly. In this case, the benefits of having multiple suppliers of the traded goods may be outweighed by the cost of having a number of inefficiently small suppliers. Aside from possibly Microsoft, there are not many examples of this type of situation around.

edit: typos

Show me a firm that maximizes neo-classically and I'll show an elephant that plays golf...

Remember the times when CDs were considered to be the solution to music piracy? The times before mp3s? CD STILL cost the same than back in the the pre-CD-R era which just goes to prove that they were screwing with the consumers back then. I remember also with computer games that one of the arguments of the anti-pirate lobby was that diskette piracy was driving up the costs of games. When CD games came out the price remained the same even though 1) there was nowhere near the piracy back then there is now hence firms would not be losing $$ in that sence and 2) the cost of a CD was much less than the cost of some 10 diskette games

So, despite the theory, in practice, firms do not lower prices as nice and sweet as our Industrial Organization textbooks teach us...

BTW: Microsoft is not a natural monopoly. A natural monopoly is one in which there are physical limitations for completitiveness. Railroads are an example since it is never convenient to compete by laying a speparate track where one already exists. Nothing physical prevents any software company to potentially compete with Microsoft.

[Adam Smith]

Foooooore!

Originally posted by Master Zen Show me a firm that maximizes neo-classically and I'll show an elephant that plays golf...

So all these rapacious international firms that are making obscene profits and robbing people blind are not maximizing profits? They are leaving money on the table? How kind of them.

As far as the examples, is it not possible that some part of the cost structure changed in the intervening years?

[Master Zen]

Re: Foooooore!

Originally posted by Adam Smith
So all these rapacious international firms that are making obscene profits and robbing people blind are not maximizing profits? They are leaving money on the table? How kind of them.

No, I said they do not maximize neo-classically. Frankly I'm not too much of a fan of the theory as the best description of firm behavior. Not coincidentally, none of my microeconomics teacher have ever believed it either... unfortunatelly it is the theory with the most solid mathematical base thus the one that is shoved down our throats. Just looking at for example, the manager-shareholder dilema in US firms is convincing arguments that firms don't maximize neo-classically, also considering the rival interests of firm groups... you get the picture.

As far as the examples, is it not possible that some part of the cost structure changed in the intervening years?

Yes, I agree, it is a possibility. I am not thoroughly convinced about it though but it is something I would like to do more research on one day...

-MZ