Picture credit: Carsten Koall/Getty Images
Artillery Row

Reject Naominomics

Ideas like Naomi Klein’s are bad for the economy (and for the environment)

Naomi Klein is well known for producing drivel about economics. My favourite example is her opening story in This Changes Everything. She complains that a high cost Canadian producer of solar panels is forced out of business. There used to be trade tariffs that protected it from cheap Chinese competition. That turned out to be illegal, the tariffs were banned, the expensive Canuck went out of business. Klein’s complaint was that this damaged the fight against climate change. Quite how cheaper — if Chinese — solar cells meant fewer cells installed in that fight against climate change she never explained. It was just there, as a statement — an absence of an expensive Canadian plant, because free trade, meant Gaia was going to boil. Therefore boo to free trade.

Useful advice, given her drivel, is not to do economics like Naomi Klein. Sadly this is not advice that the Biden Administration has taken to heart. The latest foolishness is vast tariffs on imports from China of varied green goods. Even good things for greens — like electric vehicles which will now carry a 102.5 per cent import duty. There’s a small little city-style car that the Chinese sell at home for about $5,500, a longer range one at perhaps $10,000. The claim being made is that this will compete against the American EVs which run at $35,000 and up — and sure, they will compete.

This is the very thing we want of course. Assume that we take the climate change idea seriously, then sure we want everyone to switch to EVs. Humans do more of the things that are cheaper, less of the more expensive. Therefore, cheap EVs are a good thing. In fact, they’re such a good thing that the Inflation Reduction Act and other bits and bobs hugely subsidise the US manufacture of EVs. It’s not just the $7,500 a piece tax credit, there’s a lot more cash flowing through the system than that. 

So, we’ve got a political system that insists on making EVs cheap to save Gaia through massive subsidies, then when someone makes a cheap EV to save Gaia we tax it inordinately to prevent anyone from buying it. This is Naominomics!

But the politics – jobs for union guys in America – is winning. Even to the point that Paul Krugman (whose Nobel is about international trade) agrees

Why not just buy cheap Chinese batteries? Political economy. Given the existential threat posed by climate change, the political coalition behind the green energy transition shouldn’t be fragile, but it is. The Biden administration was able to get large subsidies for renewable energy only by tying those subsidies to the creation of domestic manufacturing jobs. If those subsidies are seen as creating jobs in China instead, our last, best hope of avoiding climate catastrophe will be lost — a consideration that easily outweighs all the usual arguments against tariffs. 

Yes, I know, he’s a Nobel Laureate and I’m not — but it’s still drivel. We want cheap solutions to climate change because that’s the way we’ll do more climate change — humans do more of what’s cheap, as above. So, if someone offers us cheap kit to beat climate change we should use that standard response to cheap goods: “There’s an old line in economics that if another country wants to sell you a lot of useful stuff at low prices, you shouldn’t protest — if anything, you should send them a note of thanks.” Who’s that? Paul Krugman. Sounds better than this current system of massive subsidy to make something expensive at home when we could just buy it doubly cheap (no subsidy and also half or less the headline price) off Johnny Foreigner.

As ever with such trade restrictions there is even grosser nonsense splattered about. I’m particularly taken with the 25 per cent tariff on indium, unwrought. The US produces no indium, doesn’t currently mine the right mineral to do so, doesn’t have a refinery and is wholly dependent upon imports. The only possible US domestic producer of the correct mineral is perhaps a decade away from production and is Australian owned anyway. How on Earth did they convince someone to give them tariff protection? Well, that’s just the way politics works when trade restrictions are being discussed. A proper orgy of idiot economic restrictions.

Far better, apparently, to have subsidies so that it’s doubly more expensive to buy the expensive ones made here

Of course, it’s terribly fun watching J. Foreigners impoverish themselves. Except we’re doing the same. We’re subsidising (£500 million each isn’t it?) a couple of steel plants and there are already calls that we’ve got to have tariffs on steel to protect them. Absolutely no one at all is going to allow wily orientals to sell EVs at that $5,500 (c. £4,000) a pop to British buyers. Far better, apparently, to have subsidies so that it’s doubly more expensive to buy the expensive ones made here. The whining about how all those offshore windmills are made in foreign already reaches fever pitch. 

But, but, jobs will be the cry. Which is to get the whole economic thing the wrong way around. Jobs are a cost of doing something, not a benefit. We’d all vastly prefer that the work — whatever it is — gets done with the minimum of human effort. This is actually why we trade in the first place. 

Given that we are now free of the satrapy of the European Union we can decide our own trade policy. We can even use Ms. Klein as our guide — every compass does have a buttend after all. So, What Would Naomi Do? Great, don’t do that. If some foreigner offers us something cheaper than we can make it ourselves then we should buy it — even if we don’t write the thank you note. This is true even if that cheapness is a result of subsidies in the place of production. That would just be — for example — Chinese taxpayers sending free money to stout Britons. Why wouldn’t we send a little note thanking them for that? 

And for the Lord’s Sake, don’t subsidise production at home then also put up trade barriers, tariffs, to those who can already do it cheaper. The aim is, yes, to get the stuff cheaper? Great, so save Gaia by buying that cheap stuff and leave the subsidies fructifying in the pockets of the populace. 

Having solved that grand question we’re now left with what to call that set of policies we definitely shouldnt follow. Is it Naominomics or Kleinomics?  

Enjoying The Critic online? It's even better in print

Try five issues of Britain’s newest magazine for £10

Critic magazine cover