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Some Economics

The WSJ Econoblog has been pretty interesting this week, if you’d like to see Tyler Cowen beat the hell out of John Irons RE: Trade, go here

Irons falls into the main trap of the anti-globalization wingnuts, namely he thinks pollution havens exist:

But should we allow ourselves to be taken advantage of when countries with lower environmental standards or fewer worker protections beat us in the race to the bottom?

I hold only a BS in Economics, Irons is a Ph.D., he should know better than this. Pollution havens do not happen in the real world because the ability for countries to change tax policy exists. Do some countries have lower environmental standards? Yes, yes they do, but those standards will not be changed to attract Foreign Direct Investment (FDI) because lowering taxes achieves a higher net welfare gain. Lower taxes decrease government revenue, but don’t allow additional negative externalities, and still manage to attract FDI. Furthermore, environmental regulations can be thought of as a luxury good: once you have a sufficient level of income you tend to pollute less. See Also: Environmental Kuznets Curve.

Cowan’s money quote, which is right on:

Poor countries should not have the same environmental and labor standards that the U.S. does; they simply cannot afford them and do not have the requisite legal structures to enforce them. The best way to improve their standards is to help them grow rich, so outsourcing is part of the solution in this regard. And outsourcing no more destroys American jobs than does technical progress.

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