Paul Krugman "Was" Right

Before discussing Paul Krugman and how right he was, let's first take a look at the Spiegel Online report EU To Impose Tariffs on Chinese Solar Panels.

Back in 2008, the German solar manufacturing industry was riding the crest of a wave of growth fuelled by generous subsidies and high demand. That year, the darling of the German solar industry, SolarWorld, logged a 31 percent annual increase in revenue for a total of €900 million ($1.18 billion) and expanded its operations by opening North America's largest solar cell plant.

Four short years later, in 2012, the company announced €492 million in losses, and today SolarWorld is in the midst of a major debt restructuring deal to stave off bankruptcy.

Ironically, SolarWorld made it just long enough to see the success of the effort it spearheaded to slap tariffs on Chinese companies it suspected of conducting price dumping in order to wipe out the competition.

On Wednesday, the European Commission in Brussels agreed to impose punitive tariffs of 47 percent on Chinese solar goods.

Last year, China sold €21 billion worth of solar panels and related components in Europe. But all of that is just about to get a lot more expensive with a 47 percent cost increase on panels made in the country. The levies are likely to see a response from China, which has already threatened tariffs seen as reactive in an industry that grew by a power of ten in the last five years as solar panels dropped in price by more than 75 percent. And as with any quickly growing industry, the road has been rocky and strewn with wrecks.

SolarWorld helped launch the anti-dumping case with a formal complaint filed together with other solar companies with European Commission last July and a similar case in the United States that resulted in tariffs of up to 250 percent on Chinese solar module manufacturers.

Clean Energy Hypocrites

Please note the irony in these tariffs. The EU is hell bent on promoting "clean energy" but does not want clean energy if the cost is too cheap. Obama's position is similar.

Supposedly China is dumping solar panels below cost? So what? If the EU and US were really interested in clean energy and reducing emissions, the only thing better than cheap solar panels would be free solar panels.

Step back for a second and think of the benefits of free panels. On one side of the equation, the EU and US would lose a few hundred solar panel making jobs. However, hundreds if not thousands of businesses and individuals would employ solar panels if they were free.

Think of all the trucking jobs, dock unloading jobs, and installation jobs, that would result from free solar panels. Whatever jobs were lost in manufacturing (if any), would come back 100 times over in other jobs.

Ironically, and in spite of all the protests from manufacturers, I rather doubt any manufacturing jobs were lost in the first place.

Did you catch the key words in the first sentence in the Spiegel article? Here is the key sentence again: "Back in 2008, the German solar manufacturing industry was riding the crest of a wave of growth fuelled by generous subsidies and high demand."

Without generous subsidies, the European solar panel manufacturers were not profitable in the first place.

And so the clean energy hypocrites are also trade hypocrites. It's OK for the EU to offer energy subsidies but not China.

The economic illiterates in Brussels would tax the sun for providing free energy if they could. However, they cannot do that so they tax the closest thing.

Mittal urges EU to protect itself against China imports

With that backdrop, it should not be surprising to learn Mittal urges EU to protect itself against China imports.

Lakshmi Mittal has urged Europe to erect trade barriers to protect its manufacturers as the Indian steel tycoon attacked policy makers for stifling demand through tough austerity measures.

The owner of the world’s biggest steelmaker by sales said the future of EU manufacturing depended on politicians in Brussels helping industry face what he said was unfair competition from China.

The London-based entrepreneur said Brussels should consider applying higher tariffs on imports of Chinese-produced steel, similar to the ones to be imposed on solar panels made in China. He argued that Chinese producers of steel were over producing, lowering the price of the metal globally.

Insanity of Protectionism

Cheaper prices are a good thing. The cheaper steel prices, the cheaper cars and anything made out of steel will be.

Whatever consumers do not spend on steel, they will spend on something else. Once again there will be more doc unloading jobs, more trucking jobs, more installation jobs, etc., etc.

Cheaper prices of goods and services is always a good thing.

What About Krugman?

So what does this have to do with Krugman? Actually, everything. After all, Krugman "was" right.

The key word is "was". Before Krugman's mind turned to mush (probably a result of acquiring the "conscience of a liberal"), he was on the right side of free trade.

In 1997 Krugman wrote a brilliant article "In Praise of Cheap Labor", stating "Bad jobs at bad wages are better than no jobs at all".

I wrote about Krugman's position in Fair Trade is Unfair; In Praise of Cheap Labor; Are Bad Jobs at Bad Wages Better than No Jobs at All?

Please check it out. Krugman "Was" Right. However, the definition of "was" requires one to go back to 1997 to see just that.

Petition of the Candle Makers

The EU's preposterous "unfair advantage" argument was lampooned by French economist Frederic Bastiat back in 1845 when he penned 'Petition of the Candle Makers'.

In his article, candle makers were incensed that the light of the sun could be had for free. The sun's unfair trade advantage was to the "detriment of fair industries" who could not compete against the sun's price.

Something had to be done to "shut off as much as possible, all access to natural light, and thereby create a need for artificial light" so that "industry in France will encouraged".

For further reading, and a case involving alleged "unfair competition" from Skype, please see Extremely Difficult to Keep Up With Economic Stupidity.

How and Why We Forget the Obvious

It is a simple statement of fact that the more goods and services we receive for our money, the better off we all are. The cheaper, the better!

Time and time again we forget free trade and lower prices are a benefit!

We forget because unions, socialists, and corporations forced to compete against the sun (or Skype), scream "unfair advantage" at the top of their lungs, via political contributions to politicians willing to "tax the sun" to be re-elected.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com