Steel yourself; who will you lay off ?

Steel prices are very low. This reflects over-production of steel and low demand at the present moment. This has caused many problems to those in the steel industry and Tata, the company which owns the steel mills in the UK, has met and considered the situation and believes that they can not make a profit from their present UK sites and are aware that they are running a loss of £1,000,000 a day while they are operating. They are looking to sell these loss-making sites and review their operations.

This has lead, understandably, to feelings of shock and alarm in the UK where redundancies and site closures seem probable. Nowhere is this more important than in Wales,where the site in Port Talbot, is the major component of the local and national industry. The inevitable cry of “something must be done” to save the industry has rung out in the press and the media and many politicians and pundits have give their opinions on what to do.

An early call has been for tariffs to be levied against Chinese steel. To make their product more expensive and to counter the effect of dumping cheap Chinese steel on the UK market. This has been a popular call as people note that America has already done so. The opposition parties have used the failure of the government to agree tariff rises in the European Union as a stick with which to beat them, and the parties supporting Brexit have used it as a stick to bang the Brexit drum – “if we were out of the EU we could set our won tariffs“.

But what is the intention of tariffs ? Tariffs will make the Chinese imported steel more expensive. This may make the state of Chinese steel plants less economically viable and they may have to close. It is probably better to consider the state subsidies that the Chinese use to make their steel cheap as less a means to dump cheap steel on others but rather as a way to dump redundancies on others. If the state supports their foundries, they do not need to close the one in Liaoning the one in Port Talbot can go instead. By using tariffs we retaliate in kind, government intervention to artificially alter economic viability. So tariffs give us our first question. Do we lay off Wei Jiang or make Owen Jones redundant?

sack

This might sound a difficult decision as Wei Jiang already has the harder life and poorer economic circumstances already. It seems unfair to punish him further because of his hard work and industry.  However, Owen Jones lives closer, votes in our elections and appears on our TV screens, he might even be a relative. Therefore, we will go with the tariffs and opt to lay off poor Wei Jiang.

Unfortunately our redundancies have not stopped yet. In addition to the knock on effect in China, where Wei’s local garage and shop go out of business (making Biyu and other unemployed) there are knock-on effects here also.

Steel is now more expensive, our own and also that coming from China. Thus products using steel are more expensive, tractors for example. So it is more difficult to sell tractors as ours cost more than they did before. Further, because of the effect on the Chinese economy they are less able to buy tractors as they have problems with the failure of their steel industry and rising unemployment. So to keep Owen in his job we are also making the decision to lay off someone in car or tractor making. Is this what we want to do with our tariffs, keep Owen and lay off Mike Howson ?

sack2

These ideas of high tariffs and consequent impaired competitiveness of other areas of British industry lead people to think that influencing the market alone can not do the job. We don’t really want to make redundant people in other areas of our manufacturing industry, so what can we do ?

What about taking the steel industry out of the market ? We could decide that some things are just too important to be left to the market. Perhaps state intervention is the way to go. With nationalisation we can take over the Steel industry and protect it for the benefit of our national interests. It may sound odd, that in a time when all pointers are suggesting that the steel industry is not the place to be investing in, that the government decides that this is the best place for its money. However, we would be using state money to keep Owen Jones in a job and supporting the local economy, and we might avoid laying off poor Mike Howson.

Alas, it is not so easy ! If we take over Tata’s problem with losses of £1,000,000 a day we will have to cope with these financial difficulties. Now the question becomes where does the money come to pay for the steel works, which government spending will we redirect to keep the foundry working ? In other words do we lay off a home help, or a nurse ? What about Mary Simpson, the nurse in the local hospital, could she go ?

sack3

The problems with tariffs and nationalisation, with all state manipulation of the market, there are long term costs and loss of efficiency. Some of these effects we can anticipate many of the longer and unintended outcomes we can’t even guess at. What we need to be doing in Wales is finding an alternative to the Steel industry. We need to be successful at different things, we need to retrain Owen as a web designer, a research assistant, a wind turbine blade technician, a financial advisor, a tourist adviser, a translator, anything other than a skilled worker in an industry that is no longer competitive here.  We need more barristas and lawyers than blacksmiths and lamplighters. If we don’t wish to become some form of industrial heritage museum we better start planning for this and using the market to guide our plans.

Ebay teaches me some economics.

Ebay teaches me some economics.

Him: Do you want to put a ‘ buy it now ‘ price on the e-reader?

Me: I am not sure what price to put

Him: I’d be happy to give you £20 to save you time.

Me: Let me think about it,  cheers.

I sat back and started to think. What is the value of my old e-reader? Should I go with this offer of quick and ready money or should I wait? how much is it worth, I don’t need it any more it is just collecting dust. It is not long until Xmas, do they go up in price in anticipation of becoming prrsents, or do they drop when everyone upgrades courtesy of Santa? New readers are on the market has this dropped prices? On the other hand if I don’t sell it, it will just lie depreciating.

Then I remembered the Austrian economists. It is the free market which allows us to know the value is things. It is the absence of the market which causes problems for, so called, planned economies.

I could look at prior auction results and see the prices realized. I could check other small ads and ask around. Or I could just trust to the market and let the listing run, let the market decide.

I waited and watched as the number of watchers slowly increased and the number of bids likewise. The market did is work and the price that pleased both the buyer and myself was found.

For interest I checked what we agreed and discovered it was very similar to other prices agreed. The same result in Europe and America, the same through Ebay and on comparable sites. With very little work on my part we had agreed on the right price. As I had read before the best way to discover value and to have the best information was to trust to the market.

Similarly the gentleman who wanted the “Buy it now” option also knew this. He hoped that by avoiding the market I might remain ignorant and that he could take advantage of this. I am glad I did not.


P.S. The e-reader went for five times the suggested price by my helpful friend.