All Commentary
Thursday, May 1, 1986

Perspective: New Cars, Used Buyers

For the sixth straight year, Japan has bowed to U.S. political pressure and imposed quotas on its auto exports. What will this mean for American consumers?

First, less competition. With fewer Japanese imports, consumers will have fewer cars from which to choose.

Second, higher prices. By restricting competition, the quotas have raised the prices of both Japanese imports and American-made cars. Estimates of these price increases run into the hundreds and thousands of dollars. By any estimate, the quotas have cost U.S. consumers billions of dollars.

Third, fewer U.S. exports. The fewer dollars we spend overseas, the fewer dollars foreigners will have to buy American goods. By restricting imports, we also restrict exports.

Fourth, no net saving in jobs. As Professor Hans F. Sennholz has demonstrated in his series of articles on the labor market (see page 186 for this month’s article), unemployment is primarily a wage-rate phenomenon. To the extent that quotas enable U.S. auto workers to raise union wage-rates above market-clearing levels, unemployment actually rises.

No Peanuts

With the plight of American farmers so much in the news, we welcome this month’s article from attorney Dennis Bechara, “The Continuing Plight of Agriculture.” In seeking the causes of the farm crisis, Bechara found a maze of regulations which waste scarce resources, raise consumer prices, and harm the very farmers they are supposed to help. For example:

“In 1949, Congress granted the then existing peanut farmers an allotment, or a license, to grow peanuts and thereby closed the doors to others. Thereafter, nobody without such a license could grow peanuts. At the present time, about half of all peanut growers rent their allotments from the owners of such licenses. The cost of such rental payments is then calculated into the price support system, which in turn, raises the subsidy to the peanut grower. In addition, since 1977 the amount of peanuts that may be marketed domestically has been artificially limited, so that the price of peanuts has increased. In 1981, the program was amended to allow anyone to harvest ‘additional’ peanuts so long as these are destined either for export or for oil or meal uses.

“The domestic price of peanuts is much higher than the world price. This, in turn, has led to import and export controls. For example, ‘additional’ peanuts may be exported, but peanutbutter made from these additional peanuts cannot be exported. On the other hand, foreign manufacturers can use these additional peanuts to make peanut butter, and then export it back to the United States. The peanut program costs American consumers approximately $250 to $300 million a year in higher prices.”

Mr. Bechara’s article begins on page 178.

Thirty Years Ago

In the May 1956 Freeman, financial consultant Anthony M. Reinach provided a clear illustration of the costs of government intervention:

“There was once a time when the Czechoslovakians were the most efficient makers of shoes. They traded their shoes to Americans for automobiles, farm equipment, and other things which we produced more efficiently than they or our competitors. Our own shoe manufacturers were therefore faced with converting their production to something wherein they, too, would be competitively productive. But they feared change. So, cloaking their fear in a worthy cause, they sought government ‘protection.’ Aid was forthcoming in the form of a tariff on Czech shoes.

“Prices of shoes went up. A few wealthy citizens felt that they could no longer afford as many shoes as they once had, and the less wealthy were obliged to own fewer shoes or deprive themselves of something else they may have wanted. Some, who could afford to wear shoes at Czech prices, now chose to go shoeless rather than pay the new ‘protected’ prices.

“Although we are mainly concerned with the consumer, it can also be seen that government interference affects others. For example, some marginal retail shoe stores were now forced out of business, and more prosperous stores found themselves less prosperous through loss of trade. The same holds true for the shoe im porters, wholesalers, jobbers, and others. The Czechs, of course, have had their shoe market curtailed. And the manufacturers of those items which had been used in trade for the Czech shoes were injured in proportion. This is only part of the picture, but it does serve to illustrate the endless harm generated when government enters the market place.”

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