Is dumping a bad thing?

Many times Asian nations are accused of "dumping", that is, selling a product in North America for below what it actually costs to produce the product. Dumping seems terribly unfair. Although when you think a moment, this goes on all the time. Microsoft gives away many useful software tools other companies used to charge money for. Outside of the subway station I use every day there are two free daily papers competing with paid dailies. Stores use the "loss leader" strategy to bring in people. In our role as consumers, someone thrusting something into our hands for free that we used to pay for does not offend us.

When I think about dumping I follow this thought experiment: imagine Saudi Arabia one day announces it is giving a brand new Hyundai Sonata to every man and woman in North America. They're giving it to us for free. This would be the ultimate form of dumping, wouldn't it? GM, Chrysler, and Ford would, no doubt, be highly opposed to this move. It would severely affect their car sales for years to come. The Big Three would immediately suggest "we" should not allow this. The podcast EconTalk always makes the point we need to get away from thinking of economics in terms of a collective "we". If Saudi Arabia was going to give you, and only you, a free Sonata, you'd probably take it and you'd see no problem with that. If Saudi Arabia was going to give one to everyone on your street, again, that would be no problem. What if Saudi Arabia was giving one to everyone in your neighborhood or your town or your state/province? How big of a "we" does something have to be before you or I decide maybe it's best if the government steps in and keeps you or I from taking advantage of what, as a consumer, is a fantastic deal.

Of course the Big Three are going to lay off people in droves because anyone who was about to buy a car that year no long has to buy a car. Sure some people will still buy a Corvette or an SUX6000 because they want more than four wheels and an AM/FM radio. But over all, most people thinking of buying a car would probably figure the Sonata is good enough and not buy a GM Galapagos. That's bad. But wait. Now all those people who were saving money to buy a car or were budgeting $400 a month for a car payment now have lots of money to do something else with. If you saved up $20,000 to buy a new car and that car appeared magically in you driveway, what would you do with the $20,000? You'd take a nice vacation, for starters. So instead of Ford getting your money, the tourism industry gets a hunk of it. I'd head to Vegas. Why should a factory worker's job be any more important than a hotel maid's job? The hotel maid isn't thinking of the economic role of "we" and bowing out of employment so the factory worker can keep his/her job.

People who never considered driving now drive. We need more gas stations, repair bays, and car washes. Stores sell more little rubber cactus dolls you stick on the end of your antenna and it looks like the sucker is dancing while you drive. So many inexperienced drivers are going to create a lot of dings and there's going to be a big demand for auto body shops.

Okay sure there's going to be a huge environmental cost but let's say the Saudis were simply tired of being in the oil business and wanted to commit economic suicide and gave everyone in North America a hybrid that burns only methanol. 150 million methanol burners in every drive way in America would certainly kick start a bio-fuel revolution. Bear in mind this is just a thought experiment so I can add any little twist.

Now many of us would think the end result is a lot of well paid auto workers are laid off. Of course, Microsoft engineers get paid a lot of money to develop Windows and Office. If we all switched to Linux or OpenOffice, those well paid engineers would be out on the street as well. When you use craigslist to post a free ad, you're damaging the major cash cow of your daily paper. Your daily paper has a lot of well paid unionized people on staff.

So, at the end of the day, if a nation or company wants to expend treasure to give you something for free or below cost, how does it really hurt you?

-- Karl Mamer