We could use a top-down weighting to modify the incentive topology such that local production of widgets is financially advantageous.

We could call this system “tariffs”.

A bit of a digression about tariffs:

Something that doesn't make sense about political discussions around tariffs (at least in the U.S.) is that it seems like the overwhelming narrative is that "tariffs are bad for business, so we shouldn't have them if we can possibly avoid it". We don't talk that way about other taxes. If you said "we shouldn't have corporate income taxes because they're bad for business" the Republicans would mostly nod along, and the Democrats would say, "Wait, hold up there. Of course they're bad for business, but the point is to raise revenue to pay for other things. Governments need revenue from somewhere." But then when it comes to tariffs for some reason it's treated differently and Democrats are suddenly on board with lowering taxes, with the whole debate being in the context of whether protectionism versus free trade is better for local business (with both major parties mostly leaning towards free trade), and the aspect of revenue isn't even part of the discussion.

Tariffs are great for local businesses and bad for consumers. They can also be good for lower-skill local employees. They are bad for multinationals.

I think this is a little too reductive. Local businesses are consumers too, just in the middle of the chain. If they get hurt as consumers more than they gain in reduced competition they hurt.

I'm not so deeply read on this, but I'd imagine this is why things like brexit and tariffs get sold but result in everyone being net worse off.

Brexit was never about tariffs, the Brexiteers all promised tariff free access to the EU and to be fair to them that is largely what we got.

A significant burden is actually the lack of regulatory alignment. Before Brexit there was a largely customs-check free flow of goods in and out of the EU. Now we have more delays and paperwork. This is not a tariff, but it imposes costs like one.

That is true although it doesn't really change the point. The proponents for Brexit mostly wanted to free themselves from EU regulation and the voters wanted to cut down on immigration. The only people complaining about tariffs were remainers (including myself), we were arguing they would increase and we were wrong.

Tariffs will be good for some portion of local _producers_. They’re generally bad for everybody else, and the list of local producers they’re good for is not always very long. If your business is selling products, you don’t want your products tariffed. If you need to import parts of your supply chain to make stuff, you don’t want that tariffed either.

> lot of other Democrats would say something more like "Of course they're bad for business; that's the point! We hate business and we want to punish it for being business."

That's an extraordinary suggestion. Why would any political party adopt that position?

Because it's popular. Vilification of merchants for being merchants is a tradition at least as old as recorded history. Vilification of the rich for being rich is much less old, but it's a quite robust tradition of the American Democratic party. Vilification of "corporations" for being corporations is even more robust.

>Vilification of the rich for being rich is much less old

The idea of struggle between the lowly commoners and the powerful elites goes back to at least the Roman Republic if not even further.

https://en.wikipedia.org/wiki/Secessio_plebis

Sure, but that's not at all the same as the idea that the wealth of the rich demonstrates that they are evil.

There's been pretty extensive study in macroeconomics, over the last 2 centuries, of which taxes are worst for the economy. The tl;dr is that the worst taxes are those that change consumer behavior the most (unless the change in consumer behavior is the goal, as with sin and externality taxes), while the best change consumer behavior the least. This is because of deadweight losses: when consumer behavior changes to avoid the tax, that a.) directly reduces mutually beneficial transactions and b.) means that the tax rate needs to be higher to collect an equivalent amount of tax dollars, because consumers change their behavior to avoid it, and the higher rate itself further distorts the market.

So land taxes, VAT, and income taxes are good; capital gains taxes are middling; sales taxes and luxury taxes and tariffs are bad. Tariffs are among the worst in this hierarchy because their incidence is - to an economist - arbitrary. In classical economics, specialization is good, and industries should go to whichever country is most efficient at providing them. Any sort of national tariff interferes with that: to the extent that the tariff succeeds at collecting revenue, it does it by making consumers choose an inferior product (in the sense that without the tariff, they would've chosen differently).

I'd expect the political rebuttal to that is "But national security - we want to make sure all our homegrown industries are competitive and we can make complete supply chains within our borders." I suspect there's an element of Lake Wobegone self-deception in there though: people think that they're better at everything than they really are. When nations cut themself off from the global economy, they often think that they've made themselves self-sufficient right up until a foreign power that's been trading the whole time shows up in your capital city with a fleet of gunboats to forcibly open your country to world markets.

> Tariffs are among the worst in this hierarchy because their incidence is - to an economist - arbitrary. In classical economics, specialization is good, and industries should go to whichever country is most efficient at providing them. Any sort of national tariff interferes with that: to the extent that the tariff succeeds at collecting revenue, it does it by making consumers choose an inferior product (in the sense that without the tariff, they would've chosen differently).

Listening to the classical economists in this case is a lot like listening to a paperclip optimizer complain about all the non-paperclip production that wastefully divert resources away from more paperclips. They have a point, but only from a perspective that leaves a lot of important stuff out.

> When nations cut themself off from the global economy, they often think that they've made themselves self-sufficient right up until a foreign power that's been trading the whole time shows up in your capital city with a fleet of gunboats to forcibly open your country to world markets.

That's a straw-man, though. I don't think anyone in favor of tariffs or protectionism is advocating for a pre-Meiji like economic isolationism.

Also military vulnerability is not the sole territory of protectionism:

When nations make themselves over-dependent on the global economy, they often think that they've made themselves competitive right up until a foreign power they've outsourced their gunboat production to cuts them off from their just-in-time supply of spare parts and shows up to their capital city with a fleet of gunboats to forcibly subject them to a new political or ideological regime.

The point is if you ramp up costs and inefficiencies in your economy you're making yourself uncompetitive globally and that can have lots of undesirable consequences, including strategic ones. There is of course a balance to be struck. Are we taking advantage of efficient production abroad to cut prices for consumers, or are we becoming excessively dependent on foreigners?

Whichever it is, the point is that tariffs are the worst way to coerce change in an economy. There's no guarantee they will have anything like the effect intended, because the point in the economy where they're levied (importing X) is completely different from the point in the economy we're trying to change (locally making X). Even if they do, the costs of the change can be incredibly high. If you want to promote local production, just subsidise local production. It's generally a bad idea, but the least worst by a long mile.

> Are we taking advantage of efficient production abroad to cut prices for consumers, or are we becoming excessively dependent on foreigners?

Another important point is that outsourcing as-actually-implemented isn't usually seeking "efficient production," just labor arbitrage.

> If you want to promote local production, just subsidise local production. It's generally a bad idea, but the least worst by a long mile.

I'm also fine with subsidies, but often that seems more difficult to sustain politically. It seems like tariffs and subsidies go hand in hand rather than be an either/or policy (e.g. use tariffs to fund the subsidies).

Labor arbitrage is efficient production. If you can outsource a job for less than it costs domestically, it means labor is underutilized in the foreign country and can be employed for higher-value uses.

Pretty much any arbitrage is an economic inefficiency being exploited, whether it's financial (information inefficiences), shipping/merchants (geographic & local preference inefficiencies), storage (time preference inefficiencies), outsourcing (labor), etc. And in the course of exploiting it, it makes the inefficiency go away.

> Labor arbitrage is efficient production. If you can outsource a job for less than it costs domestically, it means labor is underutilized in the foreign country and can be employed for higher-value uses.

I think the key points are 1) that's not the kind of thing the word "efficiency" typically brings to mind, and 2) there are quite valid political reasons to want to discourage that kind of "efficiency."

In a lot of cases a better alternative to subsidies is just to have the government be a buyer for locally-made products. That way you're not just handing people money, the government is actually getting something. That seems like it should be more politically viable. That's assuming the government has some use for the things being subsidized.

> In classical economics, specialization is good, and industries should go to whichever country is most efficient at providing them. Any sort of national tariff interferes with that: to the extent that the tariff succeeds at collecting revenue, it does it by making consumers choose an inferior product (in the sense that without the tariff, they would've chosen differently).

The problem with that argument is that in a modern globalized world, what you're often doing is buying products at a lower cost because the negative externalities aren't reflected in the price. Products are often cheaper in countries with few environmental regulations and exploitative labor practices. Free trade can be a race to the bottom.

The general argument that tariffs between countries that are roughly equal in terms of wages, regulations, human rights, and so on causes more economic harm than the revenue it generates seems plausible though.

> When nations cut themself off from the global economy, they often think that they've made themselves self-sufficient right up until a foreign power that's been trading the whole time shows up in your capital city with a fleet of gunboats to forcibly open your country to world markets.

Japan still did a lot better for itself than most other places that western gunboats showed up in the high colonial age. Is this not because it had a healthy political economy, and could meet foreign demands while still continuing "national" development?

Yeah Germany came very close twice to winning both world wars. The Soviets won the lion's share of the territorial spoils of WW2 despite emphatically not being a free trade power.

The Union won the Civil War despite almost alienating Great Britain and coming within a hair of war with the Brits multiple times. The Confederates were the free trade power supported by Europe throughout the entire war. As Ulysses Grant said during the final days before the Confederate surrender, "The British mark was on every battlefield of the war." Didn't work out for the free-trading Rebs the way that they hoped, but them's the breaks.

It's not actually the 'own' that people think it is. Free trade is not a cheat code for permanent global domination. It's effective but it has limitations and weaknesses. The type of arrogance that leads to the belief that it grants an aura of invincibility is just hubris.

The nations that use autarkic measures are not just stupid morons who are and were doomed to lose ahead of time: that's just believing our own Atlanticist war propaganda too much. Make no mistake, the modern sea powers have come very close to defeat and humiliation many times over the last couple centuries, and one of them was effectively annihilated (the British) in part due to the tidal wave of Asian nationalism.

Transaction based taxes (VAT, income taxes, sales taxes) decrease the distance money can travel away from the government.

I don't know if it is true but I make this prediction: High transaction taxes correlate with or even cause expensive government projects, excessive public sector employment and excessive welfare.

Edit: Greece was the first country that popped into my mind. I didn't know anything about the tax situation in Greece and simply googled "greece has excessively high income taxes" only to find this article: https://www.intereconomics.eu/contents/year/2011/number/2/ar...

Summary: Greece indeed has an impressively high progressive income tax. Young people aspiring to salaried jobs want to work in the public sector to decrease distance to the government. Half the households are self employed to avoid high income taxes and social contributions because of their high distance away from the government.

The high taxrates in Greece are a necessity because nobody pays tax anyway.

So, the rich are rich enough to avoid paying taxes, and the poor get fucked even more

What is the difference between sales tax and VAT?

VAT applies at a flat rate at all levels within the supply chain, sales tax is only collected from the consumer with the final sale. Under a 5% sales tax, the consumer pays $50 on a $1000 iPhone when they buy it at retail. Under a 5% VAT, Apple pays 5% of its profits (not revenue), then whoever makes the lithium-ion batteries pays 5% of its profits, then whoever mines the lithium pays 5% of its profits, and on down the value chain.

Among other economic effects, VATs do not incentivize vertical integration. With a traditional sales tax, corporations can avoid paying the tax by bringing all the suppliers in-house so that there's no transaction to tax. With a VAT, it's all the same: either you pay the tax or you pay the supplier and the supplier pays the tax.

> Under a 5% VAT, Apple pays 5% of its profits (not revenue)

Apple pays 5% on the value it added, not on its profits on the phone.

If they buy $500 in components from upstream suppliers and sell the phone for $1000, they’ve added $500 of value (on which they’ll remit VAT), but not achieved $500 of profits on that phone. (They have labor and other overhead.)

That is not correct. VAT is added in the supply chain as a flat rate on price, then you keep an account of in-going and out-going. Then the state makes up the difference in the end of the fiscal year depending on if your customers were other businesses or consumers.

This is precisely to prevent your easily spotted mistake of promoting vertically integrated companies.

VAT doesn’t accumulate like that. If my business pays VAT on some goods it gets to claim that back at the end of the quarter. For most business it’s neutral (apart from the paperwork).

> For most business it’s neutral (apart from the paperwork).

Ehhh, I guess it is neutral if your expenses are the same as your revenue. That is no profit.

VAT is calculcated on 'the value you add'. What you owe is that amount minus the VAT paid on your expenses.

It's neutral up the chain, so if my supplier charges 20% vat then I charge 20% vat it doesn't result in the consumer paying 44% vat.

Companies don't pay VAT, it is a consumer-only tax. In countries having VAT, companies always treat VAT as an item-in-transit in their books.

In your Apple example, the consumer pays the $1000 plus the 5% VAT to Apple, and Apple sends the 5% VAT to the IRS. If Apple bought components for that phone that included VAT, the supplier providing the components sends that VAT to the IRS, and Apple can claim that VAT from the IRS.

There is no difference in outcome. VAT is paid on every stage on inputs by companies BUT they claim it back and if the input comes from a different country they don't pay VAT in the first place. The only one not being able to claim it back is the consume, like a sales tax. It makes detecting fraud easier since you can see a companies input vs output vs profit.

It's simply not possible for the US, or any of the developed nations to expand local production like that at any economically significant scale. We just don't have the work force to do it. Before the pandemic hit developed world employment was at a peak, and we're rapidly hoovering up unemployed labour back into work, mainly as Leisure & Hospitality, and Transport & Logistics ramp back up to capacity.

Also tariffs cost a fortune to the economy and generally depress consumption a lot more than they boost employment. One reason is investors are very wary of capitalising local production baed on tariffs that could disappear at any time. It's a very precarious basis on which to build a business. The increased costs to customers per job can be hundreds of thousands of dollars.

I'm absolutely no fan of subsidies, they're a terrible distortion of incentives, but they're many, many times less godawfully wasteful than tariffs. It's also much easier to see where the money goes and measure success (or, more likely, failure).

So at the same time, people are complaining that automation is killing workplaces, and that there is not enough workforce?

People have been complaining about automation since there has been automation.

I’m not familiar with the US, but here in the UK we’ve had fairly low unemployment for a while, in particular long term unemployment was under 400k, most unemployed were between jobs. We also had a lot of unfilled positions. The skills gap was and still is a pressing problem.

Somebody will bring up strong AI. I’ve been hearing about that being imminent my entire life, no joke, and I’m 55 in a few weeks.

Automation probably kills the higher paying jobs first because that provides the most return. Lower paying jobs get automated last, and those seem to be where employers are having problems hiring.

How long until your favorite restaurant gets rid of servers? You will order through a screen at your table, then they will conveyer belt your food to you.

Automating servers has been tried since the early years of this decade, by McDonalds in particular, and that same company is now hiring again paying $15 per hour for those same very simple positions.

Automation isn’t going to happen like that, although I am unsure what the obstacle is for something as basic as fast food.

All the tech is there. Automatic burger machines have been here since the 70s. Ordering can be done through a phone app. Where is the bottleneck?

Now if selling hamburgers can not be automated I would like to know how something more complex like political strategism or software engineering or market analysis is supposed to be automated.

Higher paying jobs take more skills, experience and judgement so are harder to automate. The first jobs to be automated were repetitive labour.

Yes but they were still higher paying jobs than the server at your local eateries.

tariffs have this bad political smell and nobody in power wants to die on that hill.

maybe we can tax long chain logistic to hell and back instead.

Or carbon taxes - at least until shipping and air freight go green

You can follow this pattern right down to the individual level, too. We train and work as deep specialists at the expense of general capabilities down to and including our ability to provide the basics of life without sourcing them from those same complex supply chains. The economic incentive for this is very strong, and the same weaknesses creep in the longer the situation continues.

Not so clear how to foster redundancy coming back in at that level.

Any supplier who could actually sell right now would be able to take advantage of this market and build serious market share. So it’s a company with these reserves that will do well in a similar situation.

It might do well in these crises, but if it can't survive the times where everything works well, then it doesn't help.

>> Any supplier who could actually sell right now would be able to take advantage of this market and build serious market share. So it’s a company with these reserves that will do well in a similar situation.

> It might do well in these crises, but if it can't survive the times where everything works well, then it doesn't help.

See also: all the new US N95 respirator manufacturers that popped up during the pandemic. Now they're laying off most of their staff and most will likely go bankrupt, because their customers went back to buying cheaper Chinese masks as soon as they could.

That’s fair, but I think we will see a swing to vertically integrated supply chains to address some of this risk.

We already have, its just not visible. Those who had stockpiles of chips (Toyota, many other japanese companies affected by the 2011 tsunami) were able to supply and provide products, thus taking market share - or sell chips at a larger price as demand sored. This strategy of holding strategic reserves on premium goods already paid for itself. Similar to that, the scalpers - horders of rare/in demand products fullfill that job in capitalism - at the risk of sitting on a pile of lowprice good.

We are going to see a bullwhip effect [1], it's just where and when it happens. I heard two things this morning about more car shortages (due to chips), Manheim auto auction has had extremely low volume this year, cars going at auction for more than they sold at retail 3 years ago. Some of this I think is sticky (I don't see new car dealers lowering their prices or being willing to negotiate quickly), others though I think will have a drop as inventory picks up.

Sell high buy low. I just don't know what to sell at the moment.

[1] https://en.wikipedia.org/wiki/Bullwhip_effect

Hence Apple thriving, and likely continuing to take market share.

I read a few articles in the past year, since supply issues first began showing up, praising both Apple and Toyota for being less reliant on supply chains out of their complete control.

In the last week, I've read several more doomsday articles like this one warning us it's going to get worse before it gets better, and both Apple and Toyota have been mentioned as now having to delay releases or scale back sales targets.

That’s only assuming they are allowed to raise prices without being sued for price gouging.

They don’t even need to raise prices necessarily to a gouging level - they can just sell product while others can’t. Build brand loyalty, take market share.

Just selling products while others can't isn't enough to pay for the cost of the inefficiency when there's no crisis.