The plan for the past 10 years of developing the road system transportation more than the railroad system in Korea seems to have overlooked the long term effects on social costs. For instance, it is obvious that road-centered construction increases the use of private passenger cars and traffic congestion costs and it generates negative effects on natural ecosystems, CO2 air pollution included. This kind of policy relies on short term benefits as it continues developing a network already in place. On the other hand, developing the railroad system means looking at long term benefits for everybody and this policy is actually part of a longer term plan up to 2019. Railroad transport ensures good accessibility and mobility, while ensuring sustainability and restraining the use of private passenger cars. It would also be more protective of the environment, which is a positive long term effect for everybody.
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The chapter is about the relationship between production and employment, actually about full production and full employment. Hazlitt shows that it is a basic economic goal of any nation or of any individual to get more production with less effort. He notices that along history it often happens that emphasis is laid more on full employment than on full production, full employment becoming thus an end itself. Yet, full employment is not enough to bring wealth to a country, as the cases of China and India prove. Hazlitt considers that merely turning full employment into a fetish explains why so much attention is given by legislators who present Full Employment bills instead of Full Production bills, as well as by labor unions who are tolerated for their hundreds of make-work practices. All this happens in spite of the idea that “the progress of civilization has meant the reduction of employment, not its increase.”
Hazlitt mentions that the issues related to tariffs and trade policies and their reasons have not changed for centuries. He indicates Adam Smith’s fundamental proposition in “The Wealth of Nations” which says that the interest of people is and must be to buy what they want from those who sell it cheapest. We understand that free trade also led to “the specialization of labor.” Some things cost more to make than to buy. This is true both for a family as it is for a country. The tariff issue brings us to the central fallacy we learned about in ‘The Lesson’, i.e. considering the immediate effect on a special group and neglecting the long-run effects on the consumers and the other producers and we have the example of the American woolen sweaters manufacturer protected by a tariff against the English manufacturer. Hazlitt shows that tariff barriers reduce average productivity of labor and capital. Raising tariffs can have negative effect on transport efficiency and forget the consumer’s interests and tariff helps only the protected producers, not all producers. An interesting idea is that tariff in the long run reduces efficiency, production and wealth. The concluding idea is that tariff benefits special interests at the expense of everyone else’s.
There are times when some X industry is saved by action of the Congress for political reasons, as for example were the coal and silver industries, which led to unexpected effects of consumers trying to find other sources of power. Saving X industries can be done by preventing other firms from getting into them or by supporting them with government subsidy. The first solution deprives the capital and labor of liberty of choice and eventually makes it less efficient, leading to lower living standard. This would influence wages and capital returns in other industries, lowering them, meaning that “X industry would benefit only at the expense of the A, B and C industries.” In the case of direct subsidy, both the taxpayers and the other industries would lose (by shrinking). Hazlitt considers it a real error that all industries “must be simultaneously expanding”. It is natural that old industries shrink or die in order to allow the capital and labor for new industries to develop.
The chapter is about the effort of interested groups to “boost” certain prices against natural market levels, action called stabilizing. Hazlitt is surprised that in spite of previous bad examples this is still happening. Such restrictionists urge the government to act by giving loans to farmers in order to make them hold their crops off the market. In a natural supply-and-demand market the professional speculators will take the risks of farmers and millers and the result will be “to stabilize the price of farm commodities the year round.” But if the government intervenes politically, “the farmer is encouraged, with the taxpayers’ money to withhold the crop “off the market. This means artificial shortage and that “the interests of the producers have been put first.” It has bad effect on consumers who pay higher prices and spend less on other products. The capable farmers do not need loans, only the poor farmers are kept in business. This is another case of a small group benefiting to the loss of someone else.
CHAPTER 11: THE GOOD NEWS ABOUT ASIAN SWEATSHOPS
The idea of globalization is to circulate a movement of global standard. When global standard is set, resources, services and labors can move freely from one country to another. Behind the globalization, trades between countries make the movement easier. The aim of the trade is to better off both sides and to benefit both sides, it is known best to produce specialized products; products that one country can produce with maximum efficiency. Therefore, specialization is the first step towards open trade. One country is at its highest productivity when it produces its specialized goods. Globalization is about open trade and open trade is about specialization. Higher economy output can be brought through higher productivity. Specialization can be worked when the opportunity cost is the least in the process of producing certain goods.
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Sweatshop refers to the business moving its company to foreign countries to produce more at lower wages and worse environment. The environment and wage issues of developing countries are known for a long time. However, they are not still solved. The wage is lower than expected and the working hour is longer than it should have been. Nevertheless, these environments are known as signs of poverty, not the causes. What makes this scenario worse is that these workers are not forced to work in these environments. They voluntarily work. For them, working for Nike is better paid than working for domestic companies or begging. It is obvious that agricultural area has worse conditions. Nevertheless, Multinational Corporation is not shocked at all about these poor conditions. Forbidening the entrance of these corporations cannot be the solution. However, allowing more Multinational Corporations to be built will strength the labor competition. More workers will be needed for them and in this process, wages will increase. In addition, they will educate and provide skills.