Tariff for world trade could properly be import transportation cost minus difference between import price and domestic production price
Note: to understand this post, it may be necessary to read yesterday's post, 'Transportation costs of imported products can result in cheap imports damaging the overall world economy' ( http://davidvirgil.blogspot./2009/04/transportation-costs-of-imported.html ).
Let: Xaw = wage cost in foreign low-wage land for production of product Theta; Xat = transportation cost to move product from location Xa to location A; Xa = wage cost in location A, the high-wage homeland; wdiff= Aw - Xaw.
when the alternative of production in location A the high-wage homeland is used, the money spent producing product Theta, is an amount equal to Xaw, what would be paid if product Theta were to be produced in location Xa, plus wdiff, which is the difference in wage cost between high wage location A and low wage location Xa.
When the alternative of production in location Xa the foreign low-wage area is used, the money spent on product Theta, is Xaw the wages paid to the workers at location Xa, plus Xat, the money paid to transport the product Theta from location Xa where it is built to location A where it is sold.
Thus in the equlibrium condition when Xaw + Xat = Xa, an important comparison becomes wdiff compared to Xat.
Xat money is spent on employing persons to engage in unnecessary busy-work type activity that does not contribute anything to the quality or quantity of product Theta.
Wdiff represents money spent donated or invested by workers in high wage location A, using the money as they see fit; this is money spent on necessities, pleasures, errands of conscience.
Looking at the world as one being, conceivably in one case Mr. World is engaged in moving things from one place to another for no good reason, using time and energy he does not need to expend on moving things from one place to another; and Mr. World is not doing this not because he enjoys moving things from one place to another or because moving things from one place to another accomplishes anything.
In the other case, Mr. World is enjoying purchasing goods and services he wants to purchase or needs to purchase.
It can be a shocking surprising thing, the realization that in the state of equilibrium, in equation terms Xaw + Xat = Aw, the alternative involving production of product Theta at location A the high wage location is superior to production at location Xa the low wage location, from the total world economy perspective.
What one naturally expects, is that in the state of equilibrium, Xaw = Xat = Aw, the production in location Xa and production in location A alternatives, would have equal impacts on the world economy as a whole.
The concept that in the state of equilibrium the produce-in- location-A the high wage location alternative is superior in terms of impact on the global economy, hits the mind and the world like a bolt of lightning; similarly Einstein and others were and still are shocked and surprised by the concepts Einstein's equations pointed to.
The importance of, equationally speaking, location A being superior from the global perspective should not be underestimated, because it leads in the direction of the world becoming competent in the art of applying the proper level and type of transportation-inhibiting tariff; this compared to the world being relatively speaking much poorer, as it is in its present beknighted condition, due to its belief that in ( Xaw + Xat = Aw ) equilibrium type conditions no tariff should be applied.
Tariffs applied to equilibrium ( Xaw + Xat = Xa ) or near-equilibrium conditions would have the maximum beneficial effect on the world's economy, if tariff were to be applied in the right amount.
Looking at and using as a basis the equilibrium equation, Xaw + Xat = Aw, I produced a first estimate regarding what the tariff applied to conditions of near-equilibrium or equilibrium ( Xaw + Xat = Aw) should be.
The first estimate, is that a tariff placed on generally speaking all imports in the world should be:
Xat which is the cost transporting product from Xa to A, MINUS Pdiff which is the difference in price when produced at location A compared to location Xa; Pdiff = Aw - (Xaw + Xat).
This tariff may not be perfect from the impact-on-world-economy or fairness perspectives. However extremely complicated, verbose, unpredictable tariff laws that are constantly tinkered with, and that vary enormously from location to location and product to product, have their own disadvantages which could easily outweigh the disadvantage of a very simple, consistent, comprehensible, easy to work with tariff.
Plug in various possible numerical values for Xaw, Xat, Aw, and you get impressive results. Try 6 to 9 for Xaw, 1 to 3 for Xat, Xa held steady at 10.
As the Xaw + Xat falls below Aw, the tariff declines to zero.
As the cost gap between the cheaper Xaw + Xat and the more expensive Aw increases, the tariff declines to zero, in honor of price of the import being respectably low compared to the price of domestic production (this could satisfy the free-market purists & unleash positive free-market forces). This allows for a certain level of downwards pressure on the home nation's wages, symbolized as Aw.
With the Xat MINUS Wdiff tariff, as Xat declines, the tariff declines to zero; this promotes trade with importers whose transportation of product costs are low.
The greater Xat - Pdiff is, the higher the tariff is; and as Xat - pdiff declines to zero or a negative number, the tariff declines to zero.
Thus the Xat - Pdiff tariff is directly proportionate to the Xat - Pdiff result, which is the equation I established, which measures the extent to which using imports instead of home production has damaged the global economy, by balancing transportation cost of a imported product against the extent to which the product is cheaper when imported, compared to when domestically produced.
The Xat - Pdiff tariff, would, I now estimate, dramatically and quickly boost the world economy; at the same time, its structure is such that it bends to the winds of free market doctrine, and is unlikely to economically damage the world through excess of tariff. Thus I now see the Xat = Pdiff tariff as an ideal solution for the global economy; it is a tariff that can with ease and simplicity be applied to all imports everywhere.
Note: by transportation costs, Xat, I mean those incurred due to production in location Xa, that would not be incurred if production was at A; factors omitted from the equation are assumed to be the same in both locations Xa and A; the concept can be further developed through inclusion of omitted factors; the equation can be considered with costs defined on the basis of man-hours put into production or transportation, as opposed to money wage costs.
@2009 David Virgil Hobbs
Let: Xaw = wage cost in foreign low-wage land for production of product Theta; Xat = transportation cost to move product from location Xa to location A; Xa = wage cost in location A, the high-wage homeland; wdiff= Aw - Xaw.
when the alternative of production in location A the high-wage homeland is used, the money spent producing product Theta, is an amount equal to Xaw, what would be paid if product Theta were to be produced in location Xa, plus wdiff, which is the difference in wage cost between high wage location A and low wage location Xa.
When the alternative of production in location Xa the foreign low-wage area is used, the money spent on product Theta, is Xaw the wages paid to the workers at location Xa, plus Xat, the money paid to transport the product Theta from location Xa where it is built to location A where it is sold.
Thus in the equlibrium condition when Xaw + Xat = Xa, an important comparison becomes wdiff compared to Xat.
Xat money is spent on employing persons to engage in unnecessary busy-work type activity that does not contribute anything to the quality or quantity of product Theta.
Wdiff represents money spent donated or invested by workers in high wage location A, using the money as they see fit; this is money spent on necessities, pleasures, errands of conscience.
Looking at the world as one being, conceivably in one case Mr. World is engaged in moving things from one place to another for no good reason, using time and energy he does not need to expend on moving things from one place to another; and Mr. World is not doing this not because he enjoys moving things from one place to another or because moving things from one place to another accomplishes anything.
In the other case, Mr. World is enjoying purchasing goods and services he wants to purchase or needs to purchase.
It can be a shocking surprising thing, the realization that in the state of equilibrium, in equation terms Xaw + Xat = Aw, the alternative involving production of product Theta at location A the high wage location is superior to production at location Xa the low wage location, from the total world economy perspective.
What one naturally expects, is that in the state of equilibrium, Xaw = Xat = Aw, the production in location Xa and production in location A alternatives, would have equal impacts on the world economy as a whole.
The concept that in the state of equilibrium the produce-in- location-A the high wage location alternative is superior in terms of impact on the global economy, hits the mind and the world like a bolt of lightning; similarly Einstein and others were and still are shocked and surprised by the concepts Einstein's equations pointed to.
The importance of, equationally speaking, location A being superior from the global perspective should not be underestimated, because it leads in the direction of the world becoming competent in the art of applying the proper level and type of transportation-inhibiting tariff; this compared to the world being relatively speaking much poorer, as it is in its present beknighted condition, due to its belief that in ( Xaw + Xat = Aw ) equilibrium type conditions no tariff should be applied.
Tariffs applied to equilibrium ( Xaw + Xat = Xa ) or near-equilibrium conditions would have the maximum beneficial effect on the world's economy, if tariff were to be applied in the right amount.
Looking at and using as a basis the equilibrium equation, Xaw + Xat = Aw, I produced a first estimate regarding what the tariff applied to conditions of near-equilibrium or equilibrium ( Xaw + Xat = Aw) should be.
The first estimate, is that a tariff placed on generally speaking all imports in the world should be:
Xat which is the cost transporting product from Xa to A, MINUS Pdiff which is the difference in price when produced at location A compared to location Xa; Pdiff = Aw - (Xaw + Xat).
This tariff may not be perfect from the impact-on-world-economy or fairness perspectives. However extremely complicated, verbose, unpredictable tariff laws that are constantly tinkered with, and that vary enormously from location to location and product to product, have their own disadvantages which could easily outweigh the disadvantage of a very simple, consistent, comprehensible, easy to work with tariff.
Plug in various possible numerical values for Xaw, Xat, Aw, and you get impressive results. Try 6 to 9 for Xaw, 1 to 3 for Xat, Xa held steady at 10.
As the Xaw + Xat falls below Aw, the tariff declines to zero.
As the cost gap between the cheaper Xaw + Xat and the more expensive Aw increases, the tariff declines to zero, in honor of price of the import being respectably low compared to the price of domestic production (this could satisfy the free-market purists & unleash positive free-market forces). This allows for a certain level of downwards pressure on the home nation's wages, symbolized as Aw.
With the Xat MINUS Wdiff tariff, as Xat declines, the tariff declines to zero; this promotes trade with importers whose transportation of product costs are low.
The greater Xat - Pdiff is, the higher the tariff is; and as Xat - pdiff declines to zero or a negative number, the tariff declines to zero.
Thus the Xat - Pdiff tariff is directly proportionate to the Xat - Pdiff result, which is the equation I established, which measures the extent to which using imports instead of home production has damaged the global economy, by balancing transportation cost of a imported product against the extent to which the product is cheaper when imported, compared to when domestically produced.
The Xat - Pdiff tariff, would, I now estimate, dramatically and quickly boost the world economy; at the same time, its structure is such that it bends to the winds of free market doctrine, and is unlikely to economically damage the world through excess of tariff. Thus I now see the Xat = Pdiff tariff as an ideal solution for the global economy; it is a tariff that can with ease and simplicity be applied to all imports everywhere.
Note: by transportation costs, Xat, I mean those incurred due to production in location Xa, that would not be incurred if production was at A; factors omitted from the equation are assumed to be the same in both locations Xa and A; the concept can be further developed through inclusion of omitted factors; the equation can be considered with costs defined on the basis of man-hours put into production or transportation, as opposed to money wage costs.
@2009 David Virgil Hobbs
Labels: costs, equation, formula, global economy, imports, tansportation, tariffs
posted by David Virgil at 1:50 AM
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