Senile Industry Protection: A Proposal

Abstract

Two separate and distinct forces will lead to certain American industries losing their international competitiveness over time. The first force is the gradual increase in net transfer receipts (mainly dividends, fees, and interest) that result from our increasing net creditor position. Slowly but surely, increasing receipts of this nature must diminish receipts from the net exports of goods and services. The second force is the acquisition of technology and skills-a closing of the skill gap-by competing industries in other nations [3; 4]. If in these industries the level of costs does not vary significantly with output, the switch from a sound industry supplying the domestic market to that of an industry decimated by cheap imports can be painfully sudden. This paper is addressed to this problem. One of the weaknesses of economic analysis based upon the concept of equilibrium and upon comparative statics in particular is the lack of attention paid to the problems of adjustment to the ultimate equilibrium. The case for free trade rests in essence upon an equilibrium model of a stationary state. Once the concepts of disequilibrium and adjustment are introduced, the prima facie argument for free trade loses some of its force. Nevertheless, positive costs of adjustment-even though recognized-pale into insignificance when compared with the gains to be derived from a perpetuity of optimum resource allocation.' One qualifi-