Thursday, October 16, 2008

The Infant Industry Argument

Protectionism sucks, according to Blinder. And especially with infant industries: how do we know when they have been on the bottle too long? How can we wean them off? Blinder sees these problems as systemic within the American conception of economics. Too often, he claims, we give certain industries room to grow, or to re-tool themselves for changing in industry, without placing some sort of restriction upon when they need to be able to freely compete in the marketplace. I can't help thinking about biofuel, and in particular the cultivation of ethanol in the United States, which has been repeatedly proven to be the most moronic political boondoggle since Prohibition. We protect corn-based ethanol production under various guises: "national security" concerns because it has something to do with our fuel supply, protectionism of the American farmer, and under the ever expanding "green" label. Yet ethanol in the US has failed to become a viable source of energy, and has along the way helped drive up food prices worldwide. We put large tarrifs on Brazilian ethanol, which is produced at a fraction of the cost of American ethanol, because we believe that this industry will eventually take off.

Blinder says "the infant-industry argument is valid only if the ultimate gains to society will be great enough to repay the losses incurred by protecting in youth." Certainly this already can't be said of ethanol in the US. No one believes ethanol to be a long term fix for oil dependency, yet the political considerations let taxpayer money flow to farmers who would help us greater by letting us eat their corn.

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