Protecting Vested Interests

"There were and there will always be people whose selfish ambitions demand protection for vested interests and who hope to derive advantage from measures restricting competition. Entrepreneurs grown old and tired and the decadent heirs of people who succeeded in the past dislike the agile parvenus who challenge their wealth and their eminent social position. Whether or not their desire to make economic conditions rigid and to hinder improvements can be realized, depends on the climate of public opinion. The ideological structure of the nineteenth century, as fashioned by the prestige of the teachings of the liberal economists, rendered such wishes vain. When the technological improvements of the age of liberalism revolutionized the traditional methods of production, transportation, and marketing, those whose vested interests were hurt did not ask for protection because it would have been a hopeless venture. But today it is deemed a legitimate task of government to prevent an efficient man from competing with the less efficient. Public opinion sympathizes with the demands of powerful pressure groups to stop progress. The butter producers are with considerable success fighting against margarine and the musicians against recorded music. The labor unions are deadly foes of every new machine. It is not amazing that in such an environment less efficient businessmen aim at protection against more efficient competitors."

—Ludwig von Mises, Human Action

Shame on You, Socialists

American socialists not only pit workers against entrepreneurs; they also pit rich American workers against the poor workers of the rest of the world. Shame on you, socialists!

TGIF: Tariffying Trade-Warmonger Trump

"The word tariff, properly used, is a beautiful word. One of the most beautiful words I’ve ever heard. It’s music to my ears." —Donald Trump

The once and possibly future president threatens to wage economic warfare against countries and companies everywhere if they don't knuckle under to his nationalist demands. He promises to impose tariffs on American firms that calculate that moving operations to Mexico or other foreign locations makes good business sense. He's also ready to strike at allied countries that irritate him by, say, slighting the dollar. (Watch or read his economic-policy speech.)

To his credit he promises to lower taxes on investment and to cut the regulatory burden. He also wants lower energy prices, which would be good all around, but exactly how matters. He's no laissez-faire advocate.

At any rate, Trump's determination to restore the American economy to what it was when much of the world lay in ruins after World War II suggests that, despite all the changes since then, he would much do more than de-tax and deregulate. For example, he promises to lure foreign companies here. Again, how? His government would no doubt play an active role in what should be private matters. He's already promising to make the taxpayers pay for business infrastructure projects. As he said about the audio industry, "It’ll be like it was 50 years ago." He won't be able to turn the clock back, but he can do much damage trying.

This is economic nationalism. He sees the world as an arena in which countries—as if they were companies—compete against one another: for one country to win, the others must lose. Powered by this worldview, Trump wants to be the CEO of the company known as the United States.

His vision is dangerously wrong. The world is not an arena in which countries compete with one another, where one nation's gain is the others' losses. That American manufacturers routinely buy foreign-made materials, tools, machines, and semi-finished products demonstrates this. We have a global division of labor in which capital, resources, and all kinds of goods have been able to move across national boundaries fairly freely as market forces require. As a result, world poverty has diminished unbelievably, and Americans are richer than ever. (The rough spots can be attributed to unabated domestic government intervention.) This progress has been in the making for about 80 years, but the liberalization responsible for it has been reversed recently—to the world's detriment.

Trump understands none of this, and he has no incentive to do so. Since entering politics, his demagogic promise has been to wreak vengeance on the world for, as he sees it, taking advantage of the United States. This is his aggrieved-nation shtick. The U.S. government has been the biggest bully since 1945, but Trump would have gotten nowhere politically had he promised to stop throwing America's weight around. Instead, he portrays the United States as a pitiful giant that has been everyone's chump. It's nonsense.

What's foreign to Trump's mentality is any notion of an unplanned, spontaneous market order built on individual freedom and choice, which is at the heart of sound economics. He must see himself as a hands-on CEO who can solve any problem. That's the last thing we need. He should read Leonard Read's "I, Pencil." (The video version is here.)

In a word, Trump is an economic warmonger, a not-too-distant cousin of a regular warmonger. As the old free traders said, "When goods can't cross borders, soldiers will."

It would be one thing if Trump were promising to shrink the government so much that businesses everywhere wanted to flock to these hospitable shores. But his "New American Industrialism" is an old-fashioned industrial policy in which he or his team of experts would pick winners to carry out his glorious vision. Which firms and industries get protected or subsidized and which don't? Those decisions would be made on a political, not an economic, basis. The problem is that Trump and his experts could not know what they would need to know to carry out their plan. Only the free market—through the unhampered price system—can produce that knowledge, which would be widely dispersed, often tacit, and therefore unavailable to a central bureaucracy. Even the great Donald Trump cannot defy the laws of economics.

What would Trump do if other countries tried to make their economies more hospitable to the world's businesses, say, through rigorous liberalization? Would he up the statist ante? The economic nationalist is not likely to back down.

No one should be surprised that Ludwig von Mises—the unparalleled champion of peace through full liberalism—had much to say about economic nationalism. In Human Action, he wrote: "Economic nationalism is incompatible with durable peace.... It is an illusion to believe that a nation would lastingly tolerate other nations’ policies which harm the vital interest of its own citizens."

Trump might endorse Mises's last sentence, but he'd be missing the point. Other countries would respond to Trump's program. If he responds in turn, he will hurt Americans for sure (and perhaps foreigners). Consumers will largely pay the tariffs and, along with import-using American manufacturers, face higher prices. That's the point!

Freedom in the economic sphere, as in all other spheres of life, is in the deepest interest of all citizens. Protectionism and other interference are not. One industry or firm may calculate that if it can win protection from the state, it will prosper even if others suffer. But protection granted to one interest will encourage others to ask for it too. Now the original gain begins to dissolve. As Mises put it in Socialism: An Economic and Sociological Analysis,

A system which protects the immediate interests of particular groups limits productivity in general and, in the end, injures everybody—even those whom it began by favouring.... The greater the protection afforded to particular interests, the greater the damage to the community as a whole, and to that extent the smaller the probability that single individuals gain thereby more than they lose....

[I]f all particular interests were equally protected, nobody would reap any advantage: the only result would be that all would feel the disadvantage of the curtailment of productivity equally. Only the hope of obtaining for himself a degree of protection, which will benefit him as compared with the less protected, makes protection attractive to the individual. It is always demanded by those who have the power to acquire and preserve especial privileges for themselves. [Emphasis added.]

Why would they all lose? Because, as we've known at least since David Ricardo formulated the law of comparative advantage (or what Mises called the law of association), the division of labor and free exchange bring specialization that yields immense gains to all—even when an individual, group, or nation is less efficient than others at producing a whole range of goods.

Trump displays the words Made in the USA onstage. The wiser course is to specialize and to trade with others rather than trying to produce everything. Market price signals, not Trump, should be our guide. If the frontiers were closed to foreign goods, Mises wrote in Socialism, "Capital and labour would have to be applied under relatively unfavourable conditions yielding a lower product than otherwise would have been obtained."

Thus Trump's blustering warfare would shrink incomes and risk conflict by disrupting the signals that channel productive energies to where consumers most want them.

TGIF: Damn Consumers!

Global free trade is about individual, not national, freedom—for consumers and producers who import raw materials, tools, and semi-finished products.

Aside from its role as an aspect of personal liberty, free trade's efficiency benefits have been well-established since the early 19th century. In this respect, domestic and global trade are the same. Trade restrictions disrupt the productive process, making it less efficient and hence less beneficial to consumers. "All that a tariff can achieve," Ludwig von Mises wrote in Human Action, "is to divert production from those locations in which the output per unit of input is higher to locations in which it is lower. It does not increase production; it curtails it." But people's interests are in expanded, not curtailed, production.

Unfortunately, free trade does not enjoy wide support today. Both major parties oppose it. They don't even pay lip service to it. They think buyers, especially consumers, buy the wrong things from the wrong people. Consumers are an unruly and capricious bunch. They prefer less-expensive, high-quality foreign-made products over more-expensive, lower-quality American-made products. What's overlooked is that they also upset American businesses and workers for reasons other than foreign competition, such as innovation and changing tastes. Also overlooked is that if we can get a better deal from abroad, American labor and resources are freed up for other things.

Government policy favors producers (including workers) over consumers and intermediate buyers. This is idiotic since, as Adam Smith pointed out: "Consumption is the sole end and purpose of all production." This doesn't mean that the government should favor consumers. It means laissez faire.

No one has argued for the wisdom of unfettered international exchange than Henry George. In his 1886 book, Protection or Free Trade, George wrote: "Free trade consists simply in letting people buy and sell as they want to buy and sell. It is protection that requires force, for it consists in preventing people from doing what they want to do."

This runs contrary to the view of the two major parties, which believe that individual liberty should be tolerated only if it conforms to the "national interest" as they define it.

George added:

If Americans did not want to buy foreign goods, foreign goods could not be sold here even if there were no tariff. The efficient cause of the trade which our tariff aims to prevent is the desire of Americans to buy foreign goods, not the desire of foreign producers to sell them…. It is not from foreigners that protection preserves and defends us; it is from ourselves. [Emphasis added.]

Then comes the killer line: "What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war." 

How does the protectionist respond to that? Any response would repudiate Adam Smith's wisdom. The major point of The Wealth of Nations is that well-being consists not of piles of gold in government vaults but rather of access to goods. Biden, Trump, and the anti-economists they rely on want you to forget that.

A tariff is a tax. But unlike other taxes, the aim is not to raise revenue. The purpose of a protective tariff is to raise prices and limit choice in the domestic market. That's supposed to punish the foreigner and help domestic competitors, but it's an odd way to do it because many other Americans are harmed. Even the intended beneficiaries are harmed. Many imports are not consumer products. They are inputs that American manufacturers need to make consumer products. The tariff raises producers' costs, drives marginal firms out of business, disemploys workers, and degrades the surviving firms' competitiveness internationally. Even the workers in protected industries then face higher consumer prices, offsetting the benefits they expected from the tariff.

As the British free traders used to say: incomes buy more under free trade. That means incomes buy less under protectionism.

Protectionism squanders scarce resources, restricts individual freedom, and hampers the pursuit of happiness. "This is the crux of the matter," Mises wrote. "All the subtlety and hair-splitting wasted in the effort to invalidate this fundamental thesis are vain."

Restricting Production

"At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. As against these popular fallacies there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.

"While government has no power to make people more prosperous by interference with business, it certainly does have the power to make them less satisfied by restriction of production."

Ludwig von Mises, Human Action

Tariffs Violate Freedom

Debate goes on over who suffers from U.S. tariffs. Biden and Trump, for example, think U.S. tariffs on Chinese goods hurt China, not Americans. This is nonsense. Even if they hurt Chinese producers (who can sell their goods elsewhere), the tariffs still hurt Americans. Whatever the Chinese do, prices in America for the relevant consumer and producer goods, imported and domestic, will rise—that's the point of the tariff—and choice will shrink. Here's what Henry George had to say in Protection or Free Trade:

If Americans did not want to buy foreign goods, foreign goods could not be sold here even if there were no tariff. The efficient cause of the trade which our tariff aims to prevent is the desire of Americans to buy foreign goods, not the desire of foreign producers to sell them.... It is not from foreigners that protection preserves and defends us; it is from ourselves.

He also wrote:

Free trade consists simply in letting people buy and sell as they want to buy and sell. It is protection that requires force, for it consists in preventing people from doing what they want to do. Protective tariffs are as much applications of force as are blockading squadrons, and their object is the same—to prevent trade. The difference between the two is that blockading squadrons are a means whereby nations seek to prevent their enemies from trading; protective tariffs are a means whereby nations attempt to prevent their own people from trading. What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war. [Emphasis added.]

 

This Is the State

 

Trump: Another Special-Interest-Pandering Politician

Trump promises to slam a 100-percent tariff on [Update:] imported cars made in Chinese-owned factories in Mexico. He announced this not to a group of prospective car buyers but to a group of car makers. So what else is new? Car buyers, who outnumber the well-organized car makers but are not themselves organized, would have to pay more for cars they do not want if Trump got his way. That's the point.

This is America first? No, it is not. It is "An Interest Group Whose Votes I Want" First versus everyone else. That's always the case with protectionism. Stopping consumers from buying whatever they want helps some (in the short term) at the expense of the rest. Calling the favored group "America" is self-serving special pleading. Trump's good at that. He thinks he knows better than you.

Trump is just another special-interest-pandering politician. Many people are fine with that because they misunderstand markets and dislike foreigners. But as Adam Smith taught us long ago, the wealth of a nation is determined by the people's free access to the world's products and not by how much they are cut off from those products. We produce to consume. We don't consume to produce.

David Friedman cleverly points out that cars can be produced in two ways: the old-fashioned factory way and by, say, growing grain, loading it on ships headed to, say, Japan, and welcoming the returning car-laden ships. Both production methods are legitimate, and which one prevails should be left to free people making choices in a spontaneously ordered marketplace. Trump obviously never learned about the law of comparative advantage.

TGIF: Tariffs Tax Consumers

We seem to forget that a tariff is a tax. It is formally levied on importers, not on foreigners or things, but since it can usually be passed along, it ends up as an indirect tax on consumers.

The point of tariffs is to protect certain domestic businesses and their employees from formidable foreign competitors by raising import prices and reducing consumer choices. Higher prices! Less choice! Raising import prices gives domestic businesses room to raise their prices -- that's the point. Why have a tariff otherwise? (Tariffs intended to raise revenue rather than protect domestic companies have been imposed in the past, but in those cases, the government wanted people to buy the imports or else no revenue would have been raised.)

To put it mildly, taxes are bad. They are the government's way of taking money from people by force -- stealing -- and preventing them from spending it on their own purposes, activities that would have benefited others through production and trade. In a free society individuals are supposed to be at liberty to set and pursue their own goals. A society in which the government preempts individuals' goals is not fully free.

Even if under some market circumstances importers and foreign exporters have to pay some of a tariff, it's still an indirect tax on other Americans. Diverting money from importers and exporters to the government leaves them fewer dollars to spend or invest here. That's an unseen loss. Was Trump, who promises new anti-China and universal tariffs, daydreaming when he attended the Wharton School all those years ago? What's Biden's excuse? He's left most of Trump's 2017-2020 tariffs in place.

Advocates of tariffs think the taxes will protect American businesses and jobs. But as Milton Friedman liked to remind us, there's no such thing as a free lunch. Even if some jobs are preserved or even restored, it comes at a high price. And, as the radical liberal economist Frédéric Bastiat would say, the price is imposed on a large unseen group of people. That includes people who can least afford it. That's not fair.

Because those forced to foot the bill are not readily identifiable, the overall cost of the tariffs is also unseen and hence unappreciated. Most of us have no sense of the damage the protectionists have done. One study estimated that a single round of Trump anti-China tariffs cost the "typical household" $831 a year. Even when some jobs are saved, the price per job is stupendously expensive. As Donald Boudreaux and Phil Gramm wrote in the Wall Street Journal (paywall), Trump's tariffs to "close the 'washing-machine gap' ... cost $815,000 per job saved, and ... his steel tariffs ... cost ... more than $900,00 per job saved." Think of the opportunities forgone! Think of the opportunities forgone! And remember, for semi-finished goods, some American companies' output is other American companies' input -- meaning higher production costs than foreign companies face. (See "Who Really Pays the Tariffs? U.S. Firms and Consumers, Through Higher Prices.")

Some people will argue that America's astounding economic success in the 19th century is attributable to protective tariffs. The land of the theoretically free certainly had outrageous tariffs from the start. But beware of the post hoc ergo propter hoc fallacy (after this, therefore because of this). America had something else besides tariffs: largely free enterprise and low taxes inside a large free-trade zone. That's a much better explanation; it has a solid theory behind it. (See Donald Boudreaux's "Tariffs and Freedom.") Slavery was the worst departure from classical liberal, or libertarian, principles, but there were other, though less monstrous departures. The tariff was one of them.

Slavery and the tariff had something in common. Both prevented people from freely doing what would do the most good for themselves and others. Through private property, free exchange, and the price system, unmolested markets tend to channel workers' efforts and scarce resources to the activities that best accord with consumers' and hence entrepreneurs' most intense demands. Enslaved people, forcibly and cruelly barred from free labor markets, were forbidden to choose what they would have anticipated as their most rewarding work. That was one way in which slaves suffered, but the prohibition also made almost everyone else poorer than they would have been. How so? As Adam Smith showed in 1776, specialization through the division of labor makes us richer. The bigger the market, the better.

We got rid of slavery, thank goodness. When will we finally get rid of that other mark of tyranny: the tariff and other forms of protectionism? And when will we finally stop taking protectionist demagogues seriously?

TGIF: Fins Left, Right, and Center

Th[e] central question is not clarified, it is obscured, by our common political categories of left, right, and center.

--Carl Oglesby, Containment and Change

You got fins to the left, fins to the right
And you're the only bait in town.

--Jimmy Buffett, "Fins"

Champions of individual liberty and its prerequisites can't help but be disheartened by today's political landscape. For decades the Respectable Center has delivered perpetual war, domestic surveillance and secret police, a national vice squad on steroids, uncontrolled spending, soon-to-be-insolvent "entitlement" programs, sky's-the-limit borrowing, Fed monetization, alternating inflation and recession, at-best-sluggish economic growth, impediments to economic mobility, and other bad things.

That's what the "adults in the room" have given us, and that's what they will keep on giving us. The remarkable improvement in living standards that has reached virtually all levels of American society has occurred demonstrably in spite of, not because of, the government.

No wonder many people are looking for an alternative. So what about the most prominent alternatives? Those would be the nihilist identitarian left and the angry populist, or class-oriented, right and left. The outlook is no less good there.

We can dispatch the identitarians quickly. This is the group whose members think that what matters most about people is their membership in tribes defined by unchosen incidental characteristics. Actual liberals -- those who favor individualism and individual freedom  -- can muster no enthusiasm for a program that holds the pseudoscientific category of race, the reality-based categories of sex and sexual orientation, or the abused and worse-than-worthless category of gender as central both to personal identity and social status.

So let's turn to right and left populism. Class leftism may seem promising, but when class analysis comes from ignorant prejudice against commerce and contract, it's fraught with danger. Class populists (left and right) have never learned that the bogey "corporate power" requires the state's power and can't exist without it. I call it "the most dangerous derivative." (See my "Wall Street Couldn't Have Done It Alone." For an alternative, pro-market class analysis, see Social Class and State Power: Exploring an Alternative Radical Tradition.")

If populism simply meant the rejection of rule by elites, what sensible person could object to it? Over the last few years we've seen what elites with political power can do when they control public health.

Unfortunately, we cannot judge political movements only by what they oppose. What do they favor? Aye, there's the rub. The populists on both sides will say they favor freedom and democracy, but those two standards clash with each other. If the majority rules, what happens to the minority's rights and freedom? The populist might concede that some matters ought to be beyond the reach of the majority -- political expression, for example -- but what and how many matters? The committed democrat will want to keep those matters to the barest minimum -- in the name of freedom. It's a scam.

So again, what about the freedom of the minority, the smallest of which is the individual? Populists evade the question by resorting to what the classical liberal Benjamin Constant called the "liberty of the ancients." In his 1819 essay, "The Liberty of the Ancients Compared with that of the Liberty of the Moderns," Constant pointed out that our notion of liberty has changed since antiquity. For the ancients, liberty consisted exclusively of the freedom to participate directly in the political process. As Constant went on:

But if this was what the ancients called liberty, they admitted as compatible with this collective freedom the complete subjection of the individual to the authority of the community. You find among them almost none of the enjoyments which ... form part of the liberty of the moderns. All private actions were submitted to a severe surveillance. No importance was given to individual independence, neither in relation to opinions, nor to labor, nor, above all, to religion. The right to choose one's own religious affiliation, a right which we regard as one of the most precious, would have seemed to the ancients a crime and a sacrilege. In the domains which seem to us the most useful, the authority of the social body interposed itself and obstructed the will of individuals. Among the Spartans, Therpandrus could not add a string to his lyre without causing offense to the ephors. In the most domestic of relations the public authority again intervened. The young Lacedaemonian could not visit his new bride freely. In Rome, the censors cast a searching eye over family life. The laws regulated customs, and as customs touch on everything, there was hardly anything that the laws did not regulate.

The world of 1800s modernity, Constant continued, had a different notion: liberty consisted not only of the freedom to participate in governance but also of the right to live a private life, including the right to use one's property unmolested. As he put it:

First ask yourselves, Gentlemen, what an Englishman, a French-man, and a citizen of the United States of America understand today by the word "liberty". For each of them it is the right to be subjected only to the laws, and to be neither arrested, detained, put to death or maltreated in any way by the arbitrary will of one or more individuals. It is the right of everyone to express their opinion, choose a profession and practice it, to dispose of property, and even to abuse it; to come and go without permission, and without having to account for their motives or undertakings. It is everyone's right to associate with other individuals, either to discuss their interests, or to profess the religion which they and their associates prefer, or even simply to occupy their days or hours in a way which is most compatible with their inclinations or whims. 

Clearly, the populists subscribe to the ancient notion of liberty, and they may not take umbrage at that statement. Whether left or right, they prefer the coercive communitarian politics of antiquity to the individualism and voluntaryism of Enlightenment liberal modernism.

So no wonder they support restrictions on imports and exports, which interfere with our freedom to trade with whoever is willing to trade with us; immigrant restrictions, which interfere with non-Americans' freedom to improve their situation and Americans' freedom to associate with them in all kinds of fruitful ways; and antitrust prosecutions of private tech companies, which interfere with freedom of enterprise and private property.

In each case the populists reject the proven bountiful spontaneous order of markets in favor of collectivist answers both to real and imagined problems. That is, instead of opposing government policies that create and exacerbate problems that are mistakenly attributed to free trade, the free movement of people across arbitrary national borders, and Big Tech as such, they propose that "we" directly address those problems at the ballot box and in the halls of Congress and the offices of unaccountable regulatory agencies. It's social engineering plain and simple.

However, contrary to populist fantasies, there is no "we" that actually rules. For one thing, who is to be included in -- and excluded from -- the "we"? That's a political, not a metaphysical, decision. At best, it's an exercise in question-begging.

Moreover, the voters' diverse views and feelings are always filtered through politicians and bureaucrats, whose frame of reference is partly defined by well-connected special interests. Those are the people who will say what if any products we may buy from and sell to non-Americans; which non-Americans we may and may not socialize with, hire, sell to, and rent to; and what disfavored private companies may do with their own assets.

In other words, populism in the end resembles elitism -- except, as Bryan Caplan argues, at least elites tend to be more economically literate than the masses and so might be "the lesser poison." In public opinion polling, the more-educated respondents are more likely to be favorable to trade with foreigners and immigration. Caplan credits elites with watering down the masses' most extreme demands for protectionism and closed borders, if not quashing them entirely. As he once tweeted, "Elites' problem isn't being 'out of touch' with masses. Elites' problem is denying how irrational masses really are." For any card-carrying populist, this is heresy. (See Caplan's book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies. I review it here.)

To their credit, the populists of left and right support free political speech (although they erroneously apply the same standard to the government and to private firms) and oppose foreign military intervention. But this group -- which comprises such otherwise diverse people as Batya Ungar-Sargon of Newsweek, Glenn Greenwald of System Update, Brendan O'Neill of Spiked, and Tucker Carlson of Fox News -- would have the government spend the savings due to a noninterventionist foreign policy domestically rather than leaving it in the pockets of the taxpayers, who after all are the ones who earned it through the production of wealth for consumers.

Contrary to the populists, the alternative to democracy is not some flavor of authoritarian elitism. It's what's F. A. Hayek called the market order, which is rooted in individual freedom -- in a word, libertarianism.

TGIF: Double-Rigging of the Auto Market

U.S. government interference with our lives often resembles a Russian matryoshka doll: regulation is nested in more regulation. Take the provision of Biden's pending Build Back Better bill that would create a big tax credit for people who buy U.S.-built electric vehicles (EV).

Not only would the government distort the domestic auto market by rigging it in favor of electric vehicles over conventional ones, but it also would rig the EV market, Trump-style, in favor of U.S.-made products. This implies that "foreign" EVs are so attractive to American buyers that the domestic offerings need help from the state to compete. That's an argument against the provision right there. If the vehicles that American companies and workers turn out aren't what American buyers would want to buy without subsidies, the manufacturers shouldn't be protected from that important information.

Why not? Because markets exist for consumers and not for producers. Makers of trade policy have no political incentive to operate on that principle because manufacturers of a given product can easily organize for government protection of their livelihoods and reward the politicians who do their bidding. Unfortunately, the same cannot be said for consumers, who have too many other things to worry about. Any kind of trade restrictions hurt them because prices will be higher and product variety will be constrained, especially if a trade war breaks out through tit-for-tat retaliation.

Trade wars end up hurting producers as well, of course. Even without a trade war, when Americans buy less from foreigners, foreigners, having less money, will buy less from Americans and other foreigners. The bad effects ripple globally.

Understandably, electric-vehicle makers in Canada and Mexico are especially upset. Who could blame them? The San Diego Union-Tribune reports, "Canada and Mexico worry the provision would lead to dramatic reductions in EVs purchased in their respective countries and violates the U.S.-Mexico-Canada Agreement, or USMCA, the trade pact the three countries passed last year to replace NAFTA."

So much for the alleged free-trade zone of North America.

But things are not quite so simple as the provision's backers make out, demonstrating that Donald Trump had no monopoly on willful ignorance about the reality of trade. The inhabitants of the United States, Canada, and Mexico do more than trade finished consumer goods with each other. For many years North America has been a single highly integrated market for producers' goods.

According to the Union-Tribune, Canada's consul general for Southern California, Nevada, and Arizona, Zaib Shaikh, points out that, in the newspaper's words, "Determining the country of origin of a given vehicle is complicated because the auto industry of the three North American countries has become so highly integrated."

In other words, It's not clear what an American, Canadian, or Mexican EV is exactly. “'When you think about vehicles assembled in Canada, they’re actually 50 percent U.S.-made,' Shaikh said, 'because the supply chain works so that things are crossed over six or seven times across the border' before a vehicle is finally assembled."

It's hardly the first time that the authors and backers of legislation were ignorant about the thing they sought to regulate.

As already noted, tilting the market toward American manufacturers, even if that were possible today, is not the only objectionable feature of the provision. The provision also aims at tilting the market toward EVs and against vehicles with internal combustion engines. EV purchasers would gain $12,500 in tax credits by 2027. This is in pursuit of the Biden administration's goal of cutting carbon-dioxide emissions 50-54 percent from the 2005 level by 2030 and reaching net-zero emissions across the economy by 2050.

Those targets are important for many people on the fallacious grounds that carbon dioxide is a pollutant that is ruinously warming the climate when in fact it is plant food that is greening the earth and bringing other palpable benefits to mankind. (Thanks to technology, the real pollutants in gasoline are already controlled in today's clean cars.)

To the extent that human-generated CO2 emissions through the use of fossil fuels have contributed to mild global warming since the Industrial Revolution began, they have helped to improve the lives of human beings everywhere by making the natural world more hospitable. During this time, population, life expectancy, and per-capita wealth have grown, while extreme poverty, infant mortality, and deaths from weather extremes have plummeted. Cold kills more people than heat, and the longer growing seasons made possible by warming help feed the world's nearly 8 billion people at a lower cost.

For the foreseeable future, nothing will be able to compete with fossil fuels in providing reliable, inexpensive, and abundant energy -- something billions of people in the developing world desperately need if they are to achieve the living standards that we in the West take for granted.

So rigging the market in favor of electric vehicles is a dumb idea.

Finally, we might welcome tax credits because they provide a chance to keep more of our money, but this principle is a snare and a delusion.  The power to tax (that is, steal) is bad enough without it also being a politician's tool to manipulate market outcomes. That only adds injury to injury.

TGIF: A Public Choice Perspective on Trade

Let's say you could make a strictly economic case for government interference with people's trading activities, that is, with their ability to cooperate freely with others across the world. (I have no idea what "strictly economic case" even means, but stay with me.) Would we free traders have to give up? No way.

Why not? Because we could deploy solid persuasive public choice arguments against such interference. I like to think of the Public Choice school of political economy (Buchanan, Tullock, et al.) as emphasizing the incentive problem inherent in government policymaking. Where the Austrians emphasize varieties of the knowledge problem -- policymakers cannot know what they must know to plan our economic activities intelligently -- the Public Choice school focuses on, among other things, the perverse incentives that policymakers, bureaucrats, and citizens face.

Before public choice came along, people tended to operate on a public-interest model of policymaking. They simply assumed that when a man or woman moved from the profit-seeking private sector to the (misnamed) public, or political, sector, he or she suddenly became single-mindedly devoted to the public interest. Egoism gave way to altruism. (Note the additional assumptions that there is such a thing as the public interest and that "public servants" know what it is.) This devotion need not be examined or even questioned; it was axiomatic. If a politician was exposed as corrupt, he was merely an outlier, like the supposed lone "bad apple" who slaughtered noncombatants at My Lai during the U.S. government's war in Vietnam.

The Public Choice school questioned the hitherto unquestionable. Perhaps, its proponents said, if we assume that people acting politically are similar to people acting privately, we could make better predictions about outcomes. This simple move exposed the conventional perspective as naive. Of course, people are people, whether acting privately or politically. All are interested in looking after themselves -- in raising their incomes, influence, and prestige. Political actors are not issued halos and wings when they enter government jobs. But the resistance to the public choice orientation has persisted, and you can detect the opposing model every day -- most especially from newscasters and pundits.

I should add that Robert Higgs makes an important point on this matter. Yes, people are indeed people, but people who are attracted to power are not exactly like the rest of us. Lord Acton famously said that "power tends to corrupt," but Higgs adds, in effect, that power also lures the already corrupted. This makes the public choice case even stronger.

Thus the public choice and Austrian critiques together deliver a one-two knockout punch to government interference with social cooperation. Contrary to the civics textbooks and pundits, politicians and bureaucrats lack 1) insight into what's really good for us who constitute the public and 2) the incentive to pursue it even if they knew what it was. Even if voters sincerely intend to benefit all of society and not just their own personal interests (as Bryan Caplan suggests), that doesn't mean those good intentions will be carried into policy. Human beings enact and execute policies.

Now let's talk about trade. Gather round, folks, and I'll tell you the story of the great Chicken War of the 1960s. In response to lobbying by special interests, France and Germany raised tariffs on cheap American chicken imports. To "retaliate," the U.S. government put a 25 percent tariff on (all countries') light trucks, potato starch, dextrin, and brandy. The truck tariff, which was known as the "chicken tax," was specifically targeted at Germany. The chicken war lasted from 1961 to 1964, and then it ended -- except for one aspect. The tariff on light trucks stayed in place and exists to this day. (For an accounting of the significant unintended consequences of this tariff, see Bryce Hoffman's "If You Aren't Worried about a Trade War, You Don't Know about the Chicken Tax.")

If the truck tax was retaliation for the European chicken tariff, and the chicken tariff disappeared, why does the truck tax still exist?

It's not hard to answer that question. Behind the truck tax was a powerful lobby that didn't give a hoot about America's chicken farmers. That lobby enjoyed its protection against foreign pickup trucks, not only German but also Japanese. So why would the automakers want to let go of their shelter from competition merely because the chicken farmers were freed from their foreign tax? They wouldn't, and they didn't. As a result, Americans pay more for pickups than should have to. (Bryce Hoffman notes that the tariff would have disappeared with the Trans-Pacific Partnership.)

Note the public choice lesson. Bad unintended consequences will likely flow from government policy, regardless of intentions, because it will be driven by concentrated and well-organized special interests and politicians who usually will be more sensitive to those interests, which can deploy money and votes, than to consumers, who are diffuse and unorganized. (We might say that the consumers' interest is the best approximation of the public interest.)

That's only part of the picture. Whenever the government has the power to interfere with our trade, it also has the power to exert leverage on others, including other governments, that may have nothing to do with trade. Thomas Jefferson loved to impose trade embargoes, which he called "peaceful coercion." This week Donald Trump delayed for 30 days the imposition of new tariffs on imported steel and aluminum from the European Union, Canada, and Mexico. He also moved toward canceling those tariffs for Australia, Brazil, Argentina. Is he seeking something in return for scrapping the tariffs? Is he telling the Europeans that if they do not support his hawkish position on Iran, he will go ahead with the trade restrictions? What did he get in return from the other countries?

We don't know. But if Trump has the power to restrict trade, he has the power to forgo restrictions in return for other things he wants -- and those other things are unlikely to be good for most Americans, not to mention the rest of the world.

David Hume said that in proposing government policy, we should assume that the people who will carry them out are "knaves." That of course means trade policy too.

TGIF (The Goal Is Freedom) appears on Fridays. Sheldon Richman, author of America's Counter-Revolution: The Constitution Revisited, keeps the blog Free Association and is executive editor of The Libertarian Institute. He is also a senior fellow and chair of the trustees of the Center for a Stateless Society and a contributing editor at Antiwar.com.

Become a Free Association patron today!

TGIF: The Dangerous Deficit in Trade Understanding

I was chatting with my tobacconist the other day -- I have no rabbi, no priest, no minister, no imam, no chiropractor, and no lawyer, but I do have a tobacconist -- when it struck me that my trade deficit with him is astronomical.

Read TGIF at The Libertarian Institute.

TGIF (The Goal Is Freedom) appears on Fridays. Sheldon Richman, author of America's Counter-Revolution: The Constitution Revisited, keeps the blog Free Association and is executive editor of The Libertarian Institute. He is also a senior fellow and chair of the trustees of the Center for a Stateless Society and a contributing editor at Antiwar.com.

Become a Free Association patron today!

TGIF: Economic Nationalism: Elitism in Populist Clothing

My old friend and former American Conservative editor Dan McCarthy gets it all wrong about Donald Trump's "national security" tariffs on aluminum and steel.

Read TGIF at The Libertarian Institute.

TGIF (The Goal Is Freedom) appears on Fridays. Sheldon Richman, author of America's Counter-Revolution: The Constitution Revisited, keeps the blog Free Association and is executive editor of The Libertarian Institute. He is also a senior fellow and chair of the trustees of the Center for a Stateless Society and a contributing editor at Antiwar.com.

Become a Free Association patron today!

TGIF: Trading Places

"What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war." --Henry George

When Donald Trump can propose tariffs on imported steel, aluminum, washing machines, and solar-panels without being roundly booed off the stage, one has to wonder if reason has any power to win the day. Is this truly a democracy of dunces?

Read TGIF at The Libertarian Institute.

TGIF (The Goal Is Freedom) appears on Fridays. Sheldon Richman, author of America's Counter-Revolution: The Constitution Revisited, keeps the blog Free Association and is executive editor of The Libertarian Institute. He is also a senior fellow and chair of the trustees of the Center for a Stateless Society and a contributing editor at Antiwar.com.

Become a Free Association patron today!

TGIF: The Voice of American Workers Is a Charlatan

Donald Trump, the self-proclaimed voice of American working people, has decreed that the prices of washing machines and solar panels shall rise.

So it is written. So it is done.

Read TGIF at The Libertarian Institute.

TGIF (The Goal Is Freedom) appears on Fridays. Sheldon Richman, author of America's Counter-Revolution: The Constitution Revisited, keeps the blog Free Association and is executive editor of The Libertarian Institute. He is also a senior fellow and chair of the trustees of the Center for a Stateless Society and a contributing editor at Antiwar.com. Become a Free Association patron today!

Protectionism, Freedom, and a Frustrating Day at the Pipe Shop

One of my haunts is a local tobacco shop, where I regularly drop in to smoke a few bowls of fine pipe tobacco and talk to a fine group of friends and acquaintances. I go there to relax, which is what pipe smoking is all about, but part of yesterday's visit was anything but relaxing.

I happened to bring up Trump's new tariffs on washing-machine and solar-panel imports, pointing out, of course, that the tariffs are a tax on American consumers and a slap at all Americans who don't make their living in the washing-machine and solar-panel industries. In other words, the special interests triumphed over individual and general welfare.

To my (naive) surprise, the small group of people sitting around what we affectionately call "the table of knowledge" couldn't believe what I was saying. They favored the tariffs because they believed Trump's action would help all Americans and punish the Chinese. That's all they "knew" or needed to know.

When I tried to explain that their belief was mistaken, they would not hear it. It had apparently never occurred to them that the action would harm consumers and Americans who make things other than the targeted goods, that is, the vast majority of the people in the country. (Some America First policy, right?)

It also never occurred to them that we live in a world of scarcity. If Americans and resources are employed to make washing machines and solar panels, they can't be employed to make other things. (That's physics as well as economics.) So my friends did not see that if we buy washing machines and solar panels from somewhere other than America, we can have them plus the other things Americans would produce. But if the government raises the prices of the imports to keep domestic firms going -- which is the point of tariffs -- we won't get those other things.

In other words, along with scarcity, my tobacco brotherhood had no appreciation of the division of labor.

They also did not see that if we have to spend more money on washing machines and solar panels, we'll have less money to spend on other goods and services, harming us both as consumers and as producers of those other goods and services. Nor did they grasp that tariffs reduce the number of dollars foreigners have with which to buy American exports or that an ensuing trade war would also harm American exporters.

To use Paul Heyne's expression, my friends were strangers to the economic way of thinking. They are hardly unusual in that respect. Most people have had no contact with the economic way of thinking when it comes to government policy, although they engage in it whenever they shop.

Think of what this means for the theory of representative democracy? Much of what the government does is interfere with our economic pursuits. Therefore, most of what "our" so-called representatives -- I call them misrepresentatives -- do is enact legislation consciously designed for such interference. That means candidates for office ought to be judged on what they know about basic economics and the consequences of interference. How can we expect people to be competent participants -- informed voters -- in this system if they don't understand the most basic economic principles?

Needless to say, the matter of individual liberty made no difference in the discussion. All they saw was Trump helping "Americans" and slamming foreigners.

Cross-posted at The Libertarian Institute.

Make-Work Is Wasteful

My final column for the American Institute for Economic Research is "Make-Work Is Wasteful."

Consumption Is the Purpose of Production

My column "Consumption Is the Purpose of Production" has been posted at the American Institute for Economic Research.

We Don't Need the Department of Commerce

My latest column for the American Institute for Economic Research is "We Don't Need the Department of Commerce."