4 ms·

In the long run, tariffs basically all fall on the consumer because producer and distributor behavior is near infinitely elastic. Econ 101 predicts that the pa

by mlyle 1y ago

In the long run, tariffs basically all fall on the consumer because producer and distributor behavior is near infinitely elastic. Econ 101 predicts that the party who is less able to adjust behavior in reaction to the tax pays most of the tax. In the short run, this isn't true: firms have goods they need to move.

tsunamifury 1y ago
We are in a world economy which actually needs demand more than supply. This is your missing analysis.
- mlyle 1y ago
  "We need demand more than supply" is a macro diagnosis. But tariff incidence is a micro question. Elasticity analysis doesn’t care whether the world has a demand shortfall or a supply glut. It asks: when a tax raises transaction costs, which side is less able to change behavior? In the long run, suppliers usually have more flexibility than consumers.
  - tsunamifury 1y ago
    I can't believe I'm going to look like I'm defending this but here it goes: The market 'offering' the most demand to the global economy right now is America, by far and away, with a distant second of Europe and Middle East. America has chosen to use tariffs in an attempt to 'tax the demand offered' to the global economy in order to stop the localize debt accumulation of that demand, along with other justifications (rightly or wrongly) of stabilizing global trade and currency. This is at least the THEORY on Tariffs. Its makes a bit more sense than the 'grrr 1950's trade imbalance' story media keeps spinning, but whatever I'm not going to defend it any more than that.
    - mlyle 1y ago
      I'm not talking about trade imbalance. I'm simply saying, tax incidence is predicted by elasticity, and in the long run suppliers have very high elasticity. You can possibly improve trade imbalance with tariffs (though retaliation makes it hard). But it's hard to escape your consumers paying most or all of the costs of those tariffs.
      - tsunamifury 1y ago
        I think we agree if I'm understanding you correctly, yes the Suppliers have more elasticity and must ultimately absorb this. I'd say the remaining problem left in our analysis is massive inequality in America leading to enormous consumer elasticity in a small ultra-wealth portion. This I can't figure out
        mlyle 1y ago
        That's the opposite of how tax incidence works. Elasticity means you can change your amount produced in response to changes in price. Producers can’t easily change output, so they bear more of the tax burden themselves. But in the long run, producers can reallocate or exit until they’re producing at minimum(average total cost), which makes supply more elastic and shifts most of the burden onto consumers. This is stuff that's covered in week 4 of a basic microeconomics class. It gets a little fancier with imperfect competition or heterogenous agents, etc, but predicting tax incidence is basically dominated by this even in advanced microeconomics.
        tsunamifury 1y ago
        Sure ok. You’re being weirdly belligerent.
        mlyle 1y ago
        You came here in your first comment blindly disagreeing with "This is your missing analysis." Then you seemed determined to misunderstand, e.g. > > But it's hard to escape your consumers paying most or all of the costs of those tariffs. > I think we agree if I'm understanding you correctly, yes the Suppliers have more elasticity and must ultimately absorb this. This is really simple fundamental microeconomics stuff. If you want to understand it, there's plenty of sources online. If you want to argue it, you should learn the basics first.
        tsunamifury 1y ago
zahlman 1y ago
This model predicts much higher prices overall than actually observed, especially on the goods deemed most essential (like food). There are many reasons that companies cannot simply charge "what the market will bear".
- mlyle 1y ago
  You’re mixing up two different questions. "What the market will bear" is a monopoly pricing story. Food is messy because it's a commodity with a whole lot of substitution-- consumers have a high elasticity as a result. We are talking about elasticity's prediction for the share producers and consumers each pay when there is a cost structure or tax change. Incidence theory is well validated and fits observed evidence remarkably well, including in 2019 studies of the effects of the 2018 trade war.

by mlyle 1y ago

tsunamifury 1y ago

We are in a world economy which actually needs demand more than supply. This is your missing analysis.

mlyle 1y ago
"We need demand more than supply" is a macro diagnosis. But tariff incidence is a micro question. Elasticity analysis doesn’t care whether the world has a demand shortfall or a supply glut. It asks: when a tax raises transaction costs, which side is less able to change behavior? In the long run, suppliers usually have more flexibility than consumers.
- tsunamifury 1y ago
  I can't believe I'm going to look like I'm defending this but here it goes: The market 'offering' the most demand to the global economy right now is America, by far and away, with a distant second of Europe and Middle East. America has chosen to use tariffs in an attempt to 'tax the demand offered' to the global economy in order to stop the localize debt accumulation of that demand, along with other justifications (rightly or wrongly) of stabilizing global trade and currency. This is at least the THEORY on Tariffs. Its makes a bit more sense than the 'grrr 1950's trade imbalance' story media keeps spinning, but whatever I'm not going to defend it any more than that.
  - mlyle 1y ago
    I'm not talking about trade imbalance. I'm simply saying, tax incidence is predicted by elasticity, and in the long run suppliers have very high elasticity. You can possibly improve trade imbalance with tariffs (though retaliation makes it hard). But it's hard to escape your consumers paying most or all of the costs of those tariffs.
    - tsunamifury 1y ago
      I think we agree if I'm understanding you correctly, yes the Suppliers have more elasticity and must ultimately absorb this. I'd say the remaining problem left in our analysis is massive inequality in America leading to enormous consumer elasticity in a small ultra-wealth portion. This I can't figure out
      - mlyle 1y ago
        That's the opposite of how tax incidence works. Elasticity means you can change your amount produced in response to changes in price. Producers can’t easily change output, so they bear more of the tax burden themselves. But in the long run, producers can reallocate or exit until they’re producing at minimum(average total cost), which makes supply more elastic and shifts most of the burden onto consumers. This is stuff that's covered in week 4 of a basic microeconomics class. It gets a little fancier with imperfect competition or heterogenous agents, etc, but predicting tax incidence is basically dominated by this even in advanced microeconomics.
        tsunamifury 1y ago
        Sure ok. You’re being weirdly belligerent.
        mlyle 1y ago
        You came here in your first comment blindly disagreeing with "This is your missing analysis." Then you seemed determined to misunderstand, e.g. > > But it's hard to escape your consumers paying most or all of the costs of those tariffs. > I think we agree if I'm understanding you correctly, yes the Suppliers have more elasticity and must ultimately absorb this. This is really simple fundamental microeconomics stuff. If you want to understand it, there's plenty of sources online. If you want to argue it, you should learn the basics first.
        tsunamifury 1y ago

zahlman 1y ago

This model predicts much higher prices overall than actually observed, especially on the goods deemed most essential (like food). There are many reasons that companies cannot simply charge "what the market will bear".

mlyle 1y ago
You’re mixing up two different questions. "What the market will bear" is a monopoly pricing story. Food is messy because it's a commodity with a whole lot of substitution-- consumers have a high elasticity as a result. We are talking about elasticity's prediction for the share producers and consumers each pay when there is a cost structure or tax change. Incidence theory is well validated and fits observed evidence remarkably well, including in 2019 studies of the effects of the 2018 trade war.