Tariffs Remove Options and Necessarily Reduce Economic Well-Being

There is a principle in economics that says, other things being equal, one cannot improve people’s economic well-being by adding constraints to their choices.

For example, tariffs add constraints by directly or indirectly increasing the prices that buyers must pay to acquire the goods that, absent the tariffs, they prefer to buy from foreign suppliers. They will adjust in various ways when tariffs are imposed or increased, of course, but even after the adjustments, their economic well-being will be less than it would have been if new or increased tariffs had not been placed on imported goods.

You simply can’t make people better off by removing options from them. The protectionist’s claim to the contrary flies in the face of irrefutable economic logic.

A protectionist might claim, however, that this consideration must be “balanced” by considering how domestic sellers gain when tariffs reduce the competition they face from foreign suppliers. This “balancing,” however, is nothing more than an observation that thieves who break into a home and tie up the homeowners, thereby constraining them by removing their options to protect their property, can then make off with stolen property. This sort of “gain” is not what economics is about; this is what crime is about.

Continue Reading

All Hail the Entrepreneurs (and the Carnitas They Bring Us)

Those of you who regularly visit my Facebook page or see my posts at The Beacon blog may recall that I have posted from time to time about Lucio, my hero and savior.

His heroism pertains to his dedicated entrepreneurship in the service of the consumer (that’s where I come into the story, as a purchaser of the fruits, vegetables, and assorted other foodstuffs he brings to my gate three times each week from markets more than a hundred miles away).

His salvation has nothing to do with my immortal soul, but everything to do with my mortal body, which, thanks to him, I am able to nourish regularly with high-quality food.

A few days ago, in response to our special request, he brought something we had never bought from him before: a substantial portion of carnitas (a dish akin to pulled pork in the USA), along with some serious salsa picante and a bag of delicious pico de gallo. I used the tortillas I had on hand to make these ingredients into two outstanding tacos for my lunch that day, and I ate more of the meat with boiled eggs for dinner. I still had enough left for another two or three nice meals. And the price was certainly affordable.

This might all seem completely ordinary to you, but bear in mind that I am able to enjoy these culinary delights even though I live at the ends of the Earth, at the far reaches of the Mexican state of Quintana Roo. For Lucio’s making it possible for me to live here so well, I feel much indebted to him.

All hail the ordinary, unsung entrepreneurs of the world who feed not only Paris and New York, but also poor little Xcalak. Markets don’t arise and function automatically. Entrepreneurs establish them and keep them going incessantly. It’s not the government that stands between the people and starvation. It’s the entrepreneurs.

Continue Reading

Nationalism, the Ideological Delusion at the Heart of Protectionism

Every economic entity, whether it be an individual, a family, or a firm, faces a constant choice with regard to how it will secure the goods and services it desires in order to carry out its economic plans: make or buy?

Most individuals and families give little conscious thought to their making this choice. Yet they make it all the same. Many individuals do many things for themselves, such as house cleaning, home maintenance, personal care of various sorts, meal preparation, and so forth. They do not pause often to consider whether they would be better off to purchase these things, although they might purchase them, and some individuals do. One can hire housekeepers, groundskeepers, meal providers, and many other services. In some cases, provision of these services amounts to a large industry catering to individuals and families who have decided that buying is better than making, that market transactions are better than self-sufficiency.

In contrast, business firms commonly give serious, explicit attention to how they should answer the make-or-buy question, and many specialize in a narrow range of activities, relying on market purchases to provide every item they can buy at a lower cost than that at which they could make it for themselves.

When someone decides to buy rather than make, it is normally the case that no one objects or attempts to impede the transaction. In some cases, local providers of certain goods and services have tried to shield themselves from the competition of providers in other states, but in many, if not all, cases the U.S. Supreme Court has ruled that such state-level protectionism is contrary to the Constitution’s Interstate Commerce Clause. As a result, the United States of America has long been a vast free-trade area, and this condition explains in no small part how Americans have succeeded in lifting their level of living steadily over the past two centuries, notwithstanding the transitory inability of various suppliers to meet the “outside” competition successfully.

In regard to competitors located outside the national boundaries, however, the situation has often been seen as different and as warranting government action—tariffs, import quotas, prohibitions of trade in certain items, special regulatory, licensing, or documentation demands laid on imported goods or importers, and so forth—aimed at keeping American producers free of foreign competition.

Along with the demands for such government restriction and penalization of international purchases has grown up or been imported from elsewhere a doctrine—protectionism—aimed at making such selfish and predatory use of government power appear to be broadly beneficial to the nation as a whole, not simply to the domestic providers who cannot meet the foreign competition. Although protectionism has had a multitude of promoters through the ages, from the man in the street to the occupant of the White House, it has always been a bogus doctrine, making claims that cannot be upheld by solid economic theory or sound economic history. Analysts going back to Adam Smith, James Mill, and David Ricardo have debunked protectionism’s claims, as have many economists in the following centuries.

Yet it lives on, and even now it is thriving ideologically and politically in many quarters, and the question is, why? What accounts for the fact that a doctrine few people would invoke to justify government interference with competition from outside the neighborhood, the city, the state, or the region nevertheless seems to many people to make sense at the national level?

To ask the question is almost to answer it. People who would balk at city, state, or regional protectionism will not only tolerate national protectionism, but actually hail it as a godsend for overall national prosperity. The doctrine of nationalism, a dangerous brew in which Americans have long indulged to great excess is the cause of this bizarre public sentiment. If you told the people of Cleveland that the city must practice protectionism against all other cities, states, and regions, they would account you crazy. But if you tell them that the entire nation must put protectionism into practice, many of them will swallow the proposal with gusto.

What is this mystical magnetism that nationalism exerts on so many Americans? It is the wholly superstitious conviction that some special, deep, and overriding solidarity binds them to a particular group of almost 330 million strangers, people they have never met, never will meet, and with whom in many cases they have practically nothing in common. Indeed, in many cases, if any given American were to meet with a great many of his “fellow Americans,” he would find them altogether odious. On the other hand, he might find, should the occasion arise, that he has much in common with many Canadians, Guatemalans, and Kenyans. (I myself have done so in all these cases and an abundance of others, so my example is scarcely far-fetched.)

In history, nationalism has served as a powerful means whereby ambitious would-be national leaders have forged groups of unrelated and sometimes hostile people into a unitary political entity with the enlarged force that resides in sheer numbers. Nevertheless, the substantive moral irrelevance of nationalism arises from, if nothing else, the mere accident of one’s having been born within the boundaries that contentious rulers happen to have established in their struggles with the rulers of adjacent territories. Genuine, morally defensible loyalties cannot be justified on the basis of accidents beyond one’s choice or control.

Yet, however morally irrelevant nationalism ought to be, it is in practice often of life-and-death importance, and during recent centuries, hundreds of millions of persons have regarded it as so important that they would fight and die in loyalty to the political leaders of “their” nation-state or gladly send their sons to be slaughtered in the same cause. If it is potent enough to cause men to march in legions over the cliffs into oblivion, it is certainly powerful enough to prop up the economically and morally bankrupt practice known as protectionism, and it does so quite commonly throughout the world.

Continue Reading

Good and Decent Neighbors

Many of us are trusting our neighbors much more than we should. We suppose that these neighbors would never burglarize our homes in our absence or accost us on the street and thrust upon us the choice, “Your money or your life?” And in most cases we are probably right to make these assumptions.

Yet, in many cases these same neighbors are striving to elicit the services of a criminal middleman — actually an enormous, highly organized criminal gang — that would extort money from us and put it to uses our neighbors approve, often uses of direct benefit to them.

So, really, amigos: is there any substantive difference? In both cases we are threatened by thugs who will rob us stealthily (e.g., by burglary or by inflation of the money stock) or who will harm us if we fail to comply with the demands made and, in effect, transfer at least a portion of our money to our neighbors against our free will.

This is not how good, decent people treat their neighbors.

Continue Reading

The Gordian Knot of Entrenched Special Interests

Some economic/governmental problems cannot be solved. Too many powerful interests have become deeply entrenched in the existing, massively complicated system constructed over many decades by political maneuvering. The politicians cannot cut this Gordian Knot because they are themselves completely under the sway of the entrenched interest groups.

The U.S. healthcare system is such a problem. It will never be solved in any meaningful sense of the word. It will, however, prove unsustainable, and it won’t take a very long time to become so. When the existing mess collapses of its own weight, interest groups and politicians will enter into a great struggle for positions in which they can continue to exploit government power under the new, revamped system constructed on the ashes of the old, unsustainable, terminally messed up system.

Continue Reading

Many Different “Problems,” Identical “Solution” in Every Case

Terrible working conditions
Lots of poor people
Industrial and financial instability
Economic depressions that won’t self-correct
Inadequate supplies of “affordable” housing
Widening economic inequality
Racial and ethnic discrimination
“Market failures” of many kinds
Environmental degradation
Threatened or disappearing species of animals and plants
Global cooling
Global warming
Climate change

These are among the many problems that people have perceived as plaguing economically advanced societies during the past century or so. They differ greatly and involve different causes, mechanisms, and consequences.

Yet in every case the solution has been widely seen as the same: vastly enlarging the power of government. It’s almost enough to make a skeptic wonder whether each perceived or proclaimed problem has been intended from the start to serve as a pretext for a government power grab—especially when one appreciates that somehow the problems that enhanced government power is supposed to solve never get solved to the satisfaction of those who sought the power, but only cry out in their view for even greater augmentation of government power.

Continue Reading