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Classical economics is all about individual decisions and the freedom to buy and sell. But in the real world, we have borders and governments with different priorities. In Class 5, we look at how trade works...and the wild consequences of tariffs.
We'll take you onto the streets of pre-pandemic New York during SantaCon, where the holiday revelers all dress the same: red hat, red coat, red pants and a large belly. The Santa Claus suit is a Christmas icon. But in the world of international trade, it's a problem to be solved.
What's the issue? The US government doesn't think the partying Santas are wearing costumes. It thinks they're wearing clothes. And that matters because costumes and clothes are taxed differently. There is nothing stopping you from wearing a Santa suit to a summer party. So it should, the government argues, be taxed like any other suit.
Costume sellers, hoping to avoid large tariffs on the suit, claim it as a festive article to be taxed like a plastic Christmas tree or tinsel. In court, there are teams of lawyers and huge amounts of money devoted to both sides. And that drives economists nuts. They refer to it as a "dead-weight loss:" a market inefficiency that hurts everyone.
Concepts:
- Gains from trade
- Taxes
- Tariffs
- Dead-weight loss
Assignment:
- Think about something you do everyday and how difficult it would be to accomplish it without trade, if you had to make everything from scratch. Tell us about it. #PMSummerSchool
Music: "Robot Santa" and "Holiday Creatures"
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August 06, 2020 at 03:27AM
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