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Saturday, April 14, 2012

Economics in One Lesson by Henry Hazlitt

“Parity” Prices

There is one argument for parity prices that should be dealt with before we leave the subject. It is put forward by some of the more sophisticated defenders. ‘Yes,” they will freely admit, “the economic arguments for parity prices are unsound. Such prices are a special privilege. They are an imposition on the consumer. But isn’t the tariff an imposition on the farmer? Doesn’t he have to pay higher prices on industrial products because of it? It would do no good to place a compensating tariff on farm products because America is a net exporter of farm products. Now the parity-price system is the farmer’s equivalent of the tariff. It is the only fair way to even things up.

The farmers that asked for parity prices did have a legitimate complaint. The protective tariff injured them more than they knew. By reducing industrial imports it also reduced American farm exports, because it prevented foreign nations from getting the dollar exchange needed for taking our agricultural products. And it provoked retaliatory tariffs in other countries. Nonetheless, the argument we have just quoted will not stand examination. It is wrong even in its implied statement of the facts. There is no general tariff on all “industrial” products or on all nonfarm products. There are scores of domestic industries or of exporting industries that have no tariff protection. If the city worker has to pay a higher price for woolen blankets or overcoats because of a tariff, is he “compensated” by having to pay a higher price also for cotton clothing and for foodstuffs? Or is he merely being robbed twice?
Let us even it all out, say some, by giving equal “protection” to everybody. But that is insoluble and impossible. Even if we assume that the problem could be solved technically—a tariff for A, an industrialist subject to foreign competition; a subsidy for B, an industrialist who exports his product—it would be impossible to protect or to subsidize everybody “fairly” or equally. We should have to give everyone the same percentage (or should it be the same dollar amount?) of tariff protection or subsidy, and we could never be sure when we were duplicating payments to some groups or leaving gaps with others.
But suppose we could solve this fantastic problem? What would be the point? Who gains when everyone equally subsidizes everyone else? What is the profit when everyone loses in added taxes precisely what he gains by his subsidy or his protection? We should merely have added an army of needless bureaucrats to carry out the program, with all of them lost to production.
We could solve the matter simply, on the other hand, by ending both the parity-price system and the protective-tariff system. Meanwhile they do not, in combination, even out anything. The joint system means merely that Farmer A and Industrialist B both profit at the expense of Forgotten Man C.
So the alleged benefits of still another scheme evaporate as soon as we trace not only its immediate effects on a special group but its long-run effects on everyone.

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