Cut Taxes, Save the Poor

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Usually the debate between tax-and-spend liberals and cut-taxes conservatives is a fight about raising taxes on the rich or lowering taxes for the rich. Instead of wading into those troubled waters, I would like to propose a policy of cutting taxes on the poor and the lower middle class. As a byproduct, the system would fund charity to feed the hungry, house the homeless, and provide medical treatment for the poor and mentally ill.

State and local sales and property taxes hit the poor hard, while the tax laws ensure that only the prosperous benefit (though not very much) from donating to charity. I would change this, as follows:

1. Congress should pass a law providing a federal income tax credit equal to the amount of sales taxes and property taxes paid at the state and local level. Sales taxes hurt the poor: the rich don't notice them, but the poor and the middle class feel them painfully. The rich can afford to pay property taxes, but they bleed other homeowners dry, meanwhile driving up rents and home prices. States and localities are involved in providing essential public services, but the federal government can cut taxes on the poor by defunding nonessential federal programs. For people too poor to pay income taxes, a cash tax refund should be issued in the approximate amount of their sales and property taxes. This would effectively repeal those taxes. Technology exists to track how much sales tax a poor or middle-class person has paid. To assuage the fears of privacy advocates, tracking sales taxes could be an opt-in feature chosen by people who want the rebate for it. Or people could keep their own records of what sales tax they paid and report it to the IRS.

Sales taxes hurt the poor: the rich don't notice them, but the poor and the middle class feel them painfully.

2. Add the charitable deduction on top of the standard deduction, thus drawing in people who don’t itemize deductions and encouraging everyone to give more to charity and less to taxes.

3. Limit eligible charitable deductions to charities that feed the hungry, house the homeless, or provide medical treatment to the poor or the mentally ill. This will funnel charitable dollars to the vulnerable and needy, lessening the ability of liberal politicians to exploit government power in the name of need. Within the realm of such vital services, remove all red tape to make it easy for any charity to gain IRS status for the right kind of donations.

4. By statute, eliminate liability for a charitable donor's honest errors in estimating the cash value of goods and services he has donated. Create a safe harbor so that if any reasonable person could have purchased the donated goods or services for $X amount, then the IRS may not challenge or litigate when the donor claims a tax deduction of $X. This will set the middle and lower middle classes free from the fear of using charitable contributions to avoid paying taxes.

Funneling charitable dollars to the vulnerable and needy would lessen the ability of liberal politicians to exploit government power in the name of need.

5. Institute a charity multiplier of 2x or 3x. For example, if someone donates $300 to a charity, he avoid paying $900 of federal income taxes. This will encourage people to donate to vital charities while achieving a massive de facto tax cut.

This policy package, if passed in its entirety, would help the poor by cutting taxes on both rich and poor. Congress should do this, and we libertarians should advocate it.




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Four Theories about the Great Depression

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More than most people, libertarians have beliefs about the Great Depression. Having spent several years studying the matter, I have some conclusions about four such beliefs: first, that what caused the depression was the Federal Reserve allowing a drop in the money supply; second, that what made it terrible was the passage of the Smoot-Hawley Tariff, which collapsed America’s foreign trade; third, that the New Deal really began under Herbert Hoover; and fourth, that what lengthened the Depression was fear of what the New Deal government would do.

In addressing these questions, I am relying heavily on my hometown newspapers — the Seattle Times, Seattle Post-Intelligencer and Seattle Star — because newspapers are “the raw material of history.” They are not the only sources available, and they have their mistakes, omissions, and biases. But they are broader than politicians’ collected personal papers and broader, in a different sense, than the economists’ statistical tables. As sources for general research about a period, I like newspapers best. I know newspapers. I spent 37 years working for newspapers and magazines, about half that time on the business and financial pages.

The first of the four beliefs, associated with Milton Friedman and the Chicago School, is that the Federal Reserve was responsible for turning a recession into a depression — the deepest and longest in American history — by shrinking the money supply. It’s true that there was less money in people’s pockets, and that was a bad effect. But when economists talk about the Fed shrinking the money supply, they mean shrinking the money available to the banks — and during most of the Depression banks were loaded to the gunwales with money. With few willing and qualified borrowers, they simply parked depositors’ money in US Treasury bonds and local bonds and warrants (thereby helping to finance their local governments and the New Deal). Bankers talked about this on the business pages, and showed it in the year-end bank balance sheets presented in newspaper display ads. For those reasons I find it difficult to indict the Fed for starving the banking system of money.

Newspapers have their mistakes, omissions, and biases. But they are broader than politicians’ collected personal papers and broader, in a different sense, than the economists’ statistical tables.

A variant of this argument is that the Fed mistakenly turned a recession into a depression by raising interest rates.

Overall the Fed lowered interest rates in the depression. In the two years following the Crash of 1929, the Fed cut its rate on short-term loans to banks, going down from 6% to 1.5%. But to stop the outflow of the Treasury’s gold during the currency crisis of September 1931, the Fed temporarily raised the rate to 3.5%. This 2% bump is the “mistake” that the economists holler about. At the time the Fed did this, critics said it would retard recovery, and when recovery didn’t come, the critics pronounced themselves right. But at the time, the financial editor of the Seattle Times noted that the Fed’s supposedly stimulative 1.5% interest rate hadn’t done anything to stimulate recovery. (The Keynesians would later say the Fed was “pushing on a string.”) Investors weren’t holding back because of two percentage points. They were holding back because they were afraid to borrow at all.

I’m not a historian of the Fed, and am not claiming the Fed made no mistakes. But pinning the depression on the stinginess of the Fed to the banks doesn’t seem right. If it were true, the interest rates would have been higher. Also, there would have been furious complaints in the newspapers, even in Seattle. And I didn’t see it.

During most of the Depression banks were loaded to the gunwales with cash. With few willing and qualified borrowers, they simply parked depositors’ money.

The second belief is that the Smoot-Hawley Tariff caused the Depression by posting the highest taxes on imports in the 20th century. The figure usually cited is that the average tariff rate under Smoot-Hawley was 59% — a horrible rate. This, however, was the rate on dutiable goods, and excludes the many goods on the free list. The average rate on all goods was 19.8% — still bad, but something less than torture.

Free traders always reach for the Smoot-Hawley argument. I have heard it not only from libertarians but from supporters of the WTO, TPP, NAFTA, and the promoters of trade in my hometown. And politically, I am on free traders’ side. I agree that the Smoot-Hawley Tariff, signed in June 1930 by Herbert Hoover, was bad medicine. And in this case, there was protest in the newspapers, with voices saying it was a terrible, self-defeating law, and predicting that other countries would retaliate. The newspapers ran stories when the other countries did retaliate.

Smoot-Hawley was also a contributing cause of the collapse in the international bond market in 1931, because it made it more difficult for America’s debtors — Britain, France, Germany, Brazil, Bolivia, Peru, and others — to earn the dollars to repay their debts. But this one bad law cannot bear all the blame for the subsequent implosion of America’s imports and exports.

I can think of four reasons why. First, the Depression was already on, so that by June 1930 imports and exports were already headed downward. Second, if you want to blame tariffs, put two-thirds of the blame on the tariffs in place before Smoot-Hawley was signed, which were an average of 13.5% on all goods. Third, in 1930 exports made up only about 5% of US output (versus 12.5% today), so that the shrinkage in trade, though dramatic in itself, was only two or three percentage points of the overall economy.

This one bad law cannot bear all the blame for the subsequent implosion of America’s imports and exports.

Finally, in September 1931, the British Commonwealth went off the gold standard. The British, Australian, and Canadian currencies were immediately devalued by 15 to 20%. Austria, Germany, Japan, and Sweden also went off gold, effectively devaluing their own currencies. The products of these fiat-money countries immediately dropped in price relative to the products of the United States. One example: Swedish wood pulp pushed US pulp out of world markets, so that almost all the pulp mills in Washington state shut down.

When Franklin Roosevelt came into office in March 1933, he ended the convertibility of the dollar into gold at the old rate of $20.67 an ounce. The reason for doing this was not a shortage of gold; the Treasury had stacks of it. The reason was to match the foreign devaluations and make American goods competitive again. And it did. Trade, the stock market, and the real economy jumped immediately when the dollar went off gold. From April to July 1933 there was a kind of boom, even though Smoot-Hawley was still in effect. (The boom ended because of the National Recovery Act and some other things, but that is another story.)

If you focus on principles, which libertarians like to do, you can lose sight of magnitudes and proportions that matter more.

The third belief, that Herbert Hoover was an interventionist and implemented a kind of proto-New Deal, is a thesis of Murray Rothbard in America’s Great Depression. Rothbard recounts that after the Crash of 1929, Hoover called leaders of industry to the White House and made them promise not to cut wages. The theory at the time was that this would maintain “purchasing power” and thereby prevent a depression. That was a precedent for the New Deal. It was noted at the time by business columnist Merryle Rukeyser (father of Louis Rukeyser, host of PBS-TV’s “Wall Street Week” from 1970 to 2002). Merryle Rukeyser wrote in December 1929 of the Hoover meetings, “The old-fashioned idea of leaving such matters to the individualism of business leaders — known as the doctrine of laissez faire among economists — has been formally laid to rest and buried.”

So Rothbard had a point: in principle, Hoover was an interventionist. But if you focus on principles, which libertarians like to do, you can lose sight of magnitudes and proportions that matter more. The larger fact is that the Hoover and Roosevelt regimes were hugely different in what the federal government undertook to do, what constitutional precedents they set, how many people they employed, how much money they spent, and how much they affected the world we still live in.

The fourth belief, that the New Deal prolonged the depression by frightening investors, is the thesis of libertarian historian Robert Higgs in his essay, “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed After the War.” (Reprinted in Depression, War and Cold War, Independent Institute, 2006.) Higgs argues that the Depression lasted for more than ten years because of “a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns” during the later New Deal of 1935–1940.

I can’t comment on much past the beginning of 1935, because that’s where I am in my reading. But I can verify that “regime uncertainty” was real, and that I saw evidence of it beginning in mid-1933, when the initial Roosevelt boom faltered.

At first Forbes advised his business readers to swallow it and said he was loyally swallowing it himself.

In the newspapers I read, the best barometer of this is B.C. Forbes’ business-page column. Forbes — the founder of the eponymous magazine — was very much a pro-capitalist guy. (The magazine calls itself a “capitalist tool.”) Forbes once wrote that his job as a newspaper columnist was to explain the economy to ordinary readers by interviewing industrialists and bankers. Much of the time Forbes was a transmission belt of their doings, thoughts, and feelings along with his own.

It was predictable that Forbes would not like the New Deal. At first he advised his business readers to swallow it and said he was loyally swallowing it himself. But he quickly began choking on the two principal “recovery” programs, the Agricultural Adjustment Act (AAA) and the National Recovery Administration (NRA). The NRA’s boss, Gen. Hugh Johnson, was a loud, imperious man who had been President Wilson’s boss of military conscription during World War I. During the early New Deal, Johnson helped to popularize two expressions: to chisel, meaning to lower one’s price below the government minimum, and to crack down, meaning to punish. In July 1933, Johnson went right to work, cracking down on the chiselers in American industry.

General Johnson was the closest that peacetime American business ever had to a military dictator. In August 1933, Forbes called him “a Vesuvius, in epochal, thundering eruption . . . Not even Teddy Roosevelt in his most explosive days matched General Johnson’s Titanic energy and action — or his wielding of the big stick.”

And: “Mussolini has nothing on him in readiness to undertake multitudinous tasks and to swing the Big Stick.” (This was when Italy’s dictator, Benito Mussolini, was popular with many Americans.)

General Johnson was the closest that peacetime American business ever had to a military dictator.

In the fall of 1934, when Gen. Johnson was replaced by labor attorney Donald Richberg, Forbes wrote: “Reason is expected to replace ranting swashbucklerism.” Forbes loved to publicize good omens, but during these years he was repeatedly disappointed.

In March 1934, Forbes quoted an anonymous industrialist (probably Charles Schwab of Bethlehem Steel, whom he named elsewhere in the column): “No, don’t quote me as saying anything that would sound like criticism of the administration or any branch of it. It’s too dangerous. I don’t want to be cracked down on at this time when Washington has unlimited power to do what it likes.”

Later in the same month Forbes wrote, “The fear today is not of the law but of bureaucrats. Few employers regard themselves as in a position to stand up against dictation as Henry Ford has done.” (Ford had refused to accept the NRA’s “voluntary” price and production controls, and was not allowed to display the Blue Eagle and its motto “We Do Our Part.”)

One of Forbes’ October 1934 columns was an open letter to Franklin Roosevelt, titled in the Seattle Post-Intelligencer “Mr. President, All Employers Aren’t Crooks.”

Forbes loved to publicize good omens, but during these years he was repeatedly disappointed.

Forbes is not the only wellspring of business angst. Here is Merryle Rukeyser, a man more sympathetic to the New Deal than Forbes, in September 1934: “Business men are in a timid mood because of lack of assurance as to their tax liability and as to the attitude of the powers that be toward business profits.”

A doubter might argue that a handful of newspaper columns aren’t enough to prove Higgs’ thesis. I suppose so; but how would you prove it? It is about a state of mind — “confidence” — and how do you demonstrate that except by considering what people say and do? In fact, investors talked and acted as if they lacked confidence; statistics show a shortage of long-term investment. And in fact, there were statements by Roosevelt and by Hugh Johnson, Harold Ickes, Henry Wallace, Rexford Tugwell, and other New Dealers that might very well cause investors to lack confidence. And it was not only the New Dealers, but also their opponents on the left: Dr. Francis Townsend, who wanted every American over 60 to have $200 a month of government money (about $3000 in today’s terms); Upton Sinclair, the Democratic nominee for governor who wanted to set up a socialist economy in California; Father Coughlin, a radio priest who ranted against the rich; and Sen. Huey Long, the “Kingfish” of Louisiana who called his program “Share the Wealth,” and who was stopped only by an assassin’s bullet. This was a different time — and newspapers give you a flavor of it.

Of the four beliefs about the Depression I mentioned at the beginning, I think Robert Higgs’ “regime uncertainty” is most clearly verified. (Read his essay!) The crucial fact about the Depression of the 1930s is not that America got out of it; it always gets out. It’s that the getting out took more than ten years, which was longer any other depression in US history, and that Canada, Britain, Germany, and most other countries got out sooner, and that it took a worldwide war and the eclipse of the New Dealers for America to get all the way out.

Investors talked and acted as if they lacked confidence; statistics show a shortage of long-term investment.

But I don’t think the depression of the 1930s — the onset of it, the depth of it, the duration of it — was caused by any single thing. The commercial world is more complicated than that. I think the Austrian theory of overinvestment, or “mal-investment,” explains much of the setup of the crash, because in the late 1920s and into 1930 there were a lot of bad investments in real estate, commercial buildings, holding companies, and junky stocks. The Crash in 1929 shrank people’s assets and, more important, their confidence — for years. The Dow Jones Industrials went down almost 90%. The reparations owed by Germany to Britain and France, the sovereign debts owed to the United States by Germany, Britain, and France, as well as to Brazil and other South American republics, all had something to do with it, because in 1931 this grand edifice of debt went down in a heap. The bond market was so thoroughly wrecked that counties, cities, school districts, and corporations were locked out of long-term borrowing for several years. Smoot-Hawley and the whole movement toward economic nationalism had a bad effect. The gold standard deepened the Depression because it imposed a discipline on government finances — heavy spending cuts — at a time when they were painful, and when some countries freed themselves of that discipline it shifted the pain to the other ones. Finally, the anti-capitalist political currents and the ad hoc, experimental, extralegal character of the New Deal frightened investors, whose long-term commitments were needed for economic recovery.

That’s the best I can do. I’m still reading old newspapers.




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I Need a Land Line!

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Don’t get me wrong — I’m into big tech. I use my pocket-sized computer about nine hours a day, according to Apple’s built-in surveillance report — which I never asked for and would be perfectly happy never to see again. It’s as bad as having to see the calorie count when I’m standing in line at Cinnabon.

But here’s the deal: my cellphone is no longer a phone. I can type on it, write articles on it, make lists on it, communicate with my family all over the world via text message and email on it, watch TV and movies on it – heck, I can even make movies on it. But try to talk on it? Like a phone? Forget about it. A phone needs a tower — a tower that communicates with the phone.

I haven’t been able to talk to my mother for at least five years because she doesn’t do texting or social media and my phone doesn’t do phone. Oh, it tries. But it doesn’t succeed. Halfway through a sentence it cuts out, leaving my mother to think that I just hung up on her. (Not only does she not speak text, she does not understand that cellphones don’t speak phone.) My sister, who lives in the 20th century with my mother, wrote me a scathing letter last year complaining that my kids keep hanging up on Grandma without saying goodbye. I tried to explain, but they don’t get it. Not enough cell coverage? They use a land line.

We want all our perks and benefits, but we want someone else to provide them.

It’s especially problematic in New York, where skyscrapers bounce signals off the walls, and in southern California, where the residents suffer from NIMBYism (among a multitude of other sanctimonious social ills). I have homes in both places, and it’s driving me crazy.

NIMBYism — Not In My Back Yard — is just one of many symptoms of the growing fascination with socialism. We want all our perks and benefits, but we want someone else to provide them. We want our cellphone reception to be clear and constant, but we don’t want an unsightly, and potentially dangerous, cell tower within ten miles of our darlings. (I find it ironic that people don’t want a cell tower installed within ten miles, but they give said darlings cellphones from infancy and sleep with their own phones under their pillows.)

Hence, I need a land line.

So here’s my offer to AT&T. You can put your cell tower in my backyard. I live at the top of a hill overlooking a canyon. People will benefit from my cell tower for miles around. And if you hide it inside one of my majestically towering juniper trees, no one will even see it.

People don’t want a cell tower installed within ten miles, but they give their children cellphones from infancy and sleep with their own phones under their pillows.

All I want in exchange is lifetime phone, internet, and cable service for me and my family in perpetuity. And a new phone every two years for free, as you used to do. That’s it, and you can have the top of my juniper tree. Deal?

I tried to call you with this offer, but my phone kept cutting out. So send me a text. Or better yet, let’s do lunch.




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More Trumpeterian Trade Follies

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President Trump is nothing if not consistent on the matter of international trade. The Boss has had few fixed positions over the years. He’s been a Democrat — and a generous financial party donor, even giving money to Crooked Hillary — then a Republican when it suited him; pro-abortion then anti-abortion; pro-immigrant before becoming the king of nativism; religiously indifferent before his newfound flourishing of faith; and so on. But his opposition to global trade has never wavered.

When pressed, of course, he will feign support for free trade if it’s “fair” — “fair” being what philosophers call a “weasel-word.” It allows the speaker to shift meanings to suit the context. If we are talking about China, Trump says its trade is unfair because it steals intellectual property and forces our companies to share technology with Chinese companies — both practices that, all economists agree, violate the World Trade Organization rules — and because it has a large balance of trade surplus with the US — something that most economists view as usually not a problem, because any trade surplus is invariably balanced by an investment deficit.

Trump has had few fixed positions over the years. But his opposition to global trade has never wavered.

But Trump’s virulent attack upon NAFTA was merely based on the fact that Mexico posted a modest balance of payments deficit with us and Canada an even smaller one. Neither country, please note, has routinely (or even occasionally that I have heard reported) stolen our technology or forced transfers of it as the price of doing business in its markets. El Jefe, who apparently cannot grasp the concept of comparative advantage, has never understood that in any free trade deal with Mexico, a fair amount of low-level manufacturing would shift there, but a fair amount of agricultural production would move from there to the US. Both things happened, but most American critics of NAFTA never noticed the shift of agriculture to the US, just as Mexican critics of NAFTA never noticed the shift of manufacturing to their country.

I recall a business ethics class in which one of my students — a gabacho like me — waxed emotional about “Mexicans stealing our jobs”, while another student — una Mexicana — waxed equally emotional about how gringo farmers were stealing the jobs of campesinos. I suggested that this is what the law of comparative advantage would predict: in the case of a country blessed with a grotesque amount of deeply fecund land trading freely with a country blessed with a grotesque number of deeply hard-working but low-skilled laborers (and less fertile land), low-level manufacturing moves to the labor-heavy country, while agricultural production moves to the fertile-land-heavy country — to the obvious general benefit of both sides. At this, the clearly puzzled students fell silent.

Several recent stories bring to light the economic consequences of Trump’s economic incomprehension. The first is about the debate over the USMCA — the new agreement between the US, Mexico, and Canada that is intended to replace NAFTA. Our own International Trade Commission, a bipartisan body that is tasked with evaluating trade deals for Congress, has said that the effects of the new trade agreement would be limited, eventually raising the GDP of America by only 0.35%, while adding maybe 176,000 jobs. These are meager results compared to the benefits that the existing NAFTA has delivered. And the ITC found that (if the new agreement is ratified) the cost will be a considerable rise in prices for American-made cars — in great part because it requires Mexican companies to raise wages artificially to bring them closer to American unionized auto wages. Specifically, the agreement says that 75% of a car’s value must come from North America, 45% of the car must be made by workers earning $16 per hour or more, and more local aluminum and steel must be used.

He has never understood that in any free trade deal with Mexico, a fair amount of low-level manufacturing would shift there, but a fair amount of agricultural production would move from there to the US.

This is a great deal for Trump’s rentseeking union supporters, but a screw job for the American consumer. The ITC estimated that small American cars will rise 1.6% in price, leading to a 2.35% drop in sales — sales that are already shaky.

Worse yet, some economists predict that many auto industry companies will simply pay the tariffs rather than agree to the outrageous rules and regulations imposed by the unions’ catspaw Trump — ironically, a man who brags about eliminating regulations! This will again directly raise prices to consumers.

Another article reports on the aftermath of Trump’s reckless and thoughtless decision to pull out of the Trans-Pacific Partnership (TPP). He figured that he killed the agreement when he announced that the US would drop out of the deal (negotiated under the Obama administration); however, the remaining 11 countries went ahead, renamed it the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and ratified it in 2018. In its first year, it is already producing great results for the countries in it, though not of course for us.

For instance, the General Department of Vietnam Customs has reported that Vietnam’s exports to Japan are up by 11.2%, and those to Canada are up by 36.7%, in the first two months of this year compared with last year. Japan reported that last year its beef imports rose 25% from the same period. New Zealand has seen a rise of 133% in beef exports to Japan, and Canada a rise of 345% this year over last.

In its first year, the renamed Trans-Pacific Partnership is already producing great results for the countries in it, though not of course for us.

The rise in beef imports threatens to trigger a Japanese protection mechanism that will jack up tariffs on beef imports from an insane 38.5% to a truly absurd 50%. This will not affect CPTPP ranchers, but it will non-CPTPP ones. More generally, as the Asian region continues its rapid economic growth, the US will be at a distinct disadvantage in exports to the region, compared with the CPTPP ones.

As another article notes, Japan is willing to deal. It has indicated that to avoid tariffs on its cars, it will open up its agricultural market. If Trump simply can’t stomach joining the CPTTP, he can still do a bilateral deal. We can only hope that he does. And Our Oyabun seems to think that he can get better deals if they are bilateral rather than multilateral, apparently under the schoolyard-bully theory that he can use his personal power to force concessions out of the other side.

That’s the theory. So far it hasn’t worked out.

Two other articles point out the idiocy of Trump’s trade policy. The first reports the results of the steep tariff on imported washing machines he ordered a year ago. Faced with stiff competition from evil Asian competitors — you know, horrible people who work harder, for less money, and produce a superior product! — especially the companies LG and Samsung, domestic company Whirlpool got the president to impose a whopping 50% tariff on all imported washing machines. That was a year ago. A new research report written by economists at the Federal Reserve and the University of Chicago gives the results. Profits at Whirlpool have risen a stunning fourfold, to $471 million; but only a measly 1,800 jobs are owing to this high tariff. Samsung plans to open a plant here employing 1,000 people, LG one employing 600, and Whirlpool — the crony capitalist villain of this story — will add a risible 200 jobs.

American consumers were ripped off to the tune of $1.5 billion. That works out to $800,000 for each of the 1,800 jobs!

What is the cost of this “fair-trade” charade? Prices on imported washing machines went up $86 on average (that is, about 12%). Of course, Whirlpool did not keep its own prices low — it jacked them up 13% to 17%! Hence Whirlpool’s whopping half-billion-buck profit. The report estimates that American consumers were ripped off to the tune of $1.5 billion. That works out to $800,000 for each of the 1,800 jobs! That was your tax dollars at work.

Another article reminds us that while China’s trade with us has been flawed by its often dishonest trade practices, we ourselves don’t exactly have clean hands. Consider “anti-dumping duties.” In America, as in most other countries, domestic companies that can’t compete with foreign ones routinely claim that the foreigners are “dumping.” Dumping is the (alleged) practice of selling what is traded in the foreign market for less than what is charged to home customers, or below the cost of production. Most economists doubt that this routinely occurs — it would cost a company a lot of capital to sell below market in another country to get a monopoly, especially when you realize that such a monopoly would be impossible to sustain. When the “dumper” raised prices back up, domestic firms would just start making the product again.

Trump has systematically used dumping charges to protect chosen industries here. China has been the target of 40% of American dumping investigations, and the US imposes the heaviest duties on Chinese companies — duties that have been rising recently. These charges are often dubious. The US protects its own industries, often by comparing a foreign company’s prices here only with full prices in that company’s home market, disregarding discounted prices it charges at home. Moreover, price deductions for such things as overhead and salespersons’ salaries are capped for sales at home but not here. In other cases, where the home market prices are lower, our trade officials simply ignore them.

We keep pulling these stunts, even though the WTO has shot many of them down. Funny, President Trump never mentions how we stick it to other countries. No, he has demagogically persuaded a large part of the American public that we are pure victims in these trade games.

Trump’s tariffs will cost the average American family over $800 per year. The amount will rise dramatically if he applies those tariffs to all Chinese imports.

Two other articles put a nice cap on this discussion. No doubt to Trump’s amazement, the Chinese are playing hardball. Their tariffs on our agricultural goods have devastated many of our farmers. Brazil — which long ago negotiated a free trade agreement with China — has now replaced us as China’s major supplier of soy beans and other crops. In fact, Brazil is opening more of its lands to cultivation, in order to increase exports. In soybean production, US exports to China fell from $12.3 billion in 2017 to a pathetic $3.2 billion last year.

To counter the decision by the Chinese to buy more from Brazil, and to keep the support of farmers here, Our Great Protector just announced that he will give another $16 billion in aid to farmers (in addition to the $11 billion he gave them last year). This is the president at work: using billions of our tax dollars to keep the farm states on his side. It’s a great illustration of public choice theory, or venality in office.

While Trump makes the claim that the subsidies for farmers are coming from the tariffs the Chinese are paying, that claim is ludicrous on its face. Tariffs are taxes imposed on foreign goods — but paid by the American consumer. As noted by US News, Trump’s tariffs will cost the average American family over $800 per year. The amount will rise dramatically if he applies those tariffs to all Chinese imports, as he has threatened to do.

Yet another article informs us about another unseen group of Trump’s economic victims, namely, American farm equipment manufacturers. As the piece reports, companies that make combines, tractors, and other farm machinery are looking at a double-Trump-whammy.

Trump’s high tariffs for the steel and other metals that farm equipment manufacturers use will further hurt them.

First, they face a loss in demand as farmers under pressure from low prices for crops choose to defer buying new equipment. US agricultural exports to China in the first few months of this year are down 40% from the same period last year. And in 2018 we shipped to China less than half of what we shipped in 2017. So Deere will cut production 20% in the second half of its fiscal year. Lindsay Corp said its profits will drop by 31%, because sales have declined 16% in the last three months through February. CNH and AGCO also reported lower sales of their machinery in the first quarter of this year, compared to last year. Titan has reported a 35% drop in first-quarter profit in farm machinery sales.

Second, Trump’s high tariffs for the steel and other metals that farm equipment manufacturers use will further hurt the manufacturers. For example, Vermeer Corp., manufacturer of hay balers, said that it will lose $4 million in direct tariff costs in 2019. CNH expects tariffs to drive up its costs by $50 to $100 million, and Deere estimates the tariffs will cost it $75 million. Moreover, both Vermeer Corp. and Lindsay Corp. report paying more for costs because of the tariffs.

Especially worrisome for the American agricultural industry is this question: once China and all the other countries we have hammered get robust supply chains set up with Argentina, Brazil, Canada, New Zealand, and elsewhere, will they resume buying from us when we cease our tariff wars?

There’s no reason to think that Trump is open to a cessation of tariffs, which he seems to love, as an exercise in power.

Now, to this last point, one might cleverly respond that if a cessation of dumping would cause a quick resumption of competition, why wouldn’t a cessation of tariffs cause a quick resumption of competition?

Of course, there’s no reason to think that Trump is open to a cessation of tariffs, which he seems to love, as an exercise in power. But speaking to the general principle: if a country were truly to start dumping with an eye to putting its competition out of business, it would lose massive amounts of profit until it succeeded. Upon cessation of this dumping, the prior competition could just quickly reopen its factories. But when you tariff your own goods, your domestic producers lose market share as other countries create or expand facilities to meet the demand of satisfying your prior customers. But if you stop your tariffs, those other countries would still have their newly created or expanded production lines still in place.

In other words, this feeble reply is a false analogy. Dumping — a phenomenon most economists doubt really exists — would only temporarily shut down some of the pre-existing competitors’ facilities. But tariffs lead to the permanent creation of new facilities of competitors.

Even after any imagined cessation of tariffs, there will be an irreversible loss of trust.

Does anyone really think that after tariffs disappear — if they disappear — that the newly developed farmland in Brazil will just be converted back into rainforest? If you believe that, I have a high-rise Trollop Tower in Manhattan to sell you.

Finally, even after any imagined cessation of tariffs, there will be an irreversible loss of trust. If America, a loud exponent of free markets, private property, and free trade, from the end of WWII until recently, is now willing to wage tariff war for the most trivial of reasons, who will trust such a Republic of Lies?

The even more worrisome question raised above is this: will the tariff war end at all? Perhaps the Chinese have taken the measure of Trump and have concluded that he is a flawed and doomed president, and that they can just outlast him. Moreover, he has just announced that he will reattack — Mexico! His loopy proposal is aimed at getting Mexico to seal its borders, so Central Americans won’t keep coming here. He will start the tariff at 5% on all of Mexico’s exports immediately, and raise it 5% per month until it hits 25%. What a massive misuse of the tariff powers of the president! Trump seems to now view tariffs to be the ultimate skeleton key to open the door for any policy he wishes to achieve.

America will be increasingly consigned to third-rate status in world trade and influence.

Oh, and this just in: Trump has informed Prime Minister Modi (a man he professes to admire) that India — whose alliance we may need to counter a rising China — will shortly lose its designation as a beneficiary developing country. It will be removed from the Generalized System of Preferences, aimed at helping developing countries. We will now start jacking up taxes on Indian trade — starting with washing machines! To this, India has promised jacking up tariffs on American goods. In fine, a new front on the widening trades war.

This all raises the question of whether our standing in the world will recover any time soon. Color me skeptical. Trump’s widespread and indiscriminate use of tariffs, his refusal to join TPP, his upending of NAFTA, his failure to produce any new free trade agreements, his other bullying trade tactics — indeed, his whole crony capitalist betrayal of free market economics — mean that America will be increasingly consigned to third-rate status in world trade and influence.

Trump has made America small again. Quick — somebody order a bunch of “MASA” caps!




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Vivid and Explicit

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  • “As two masked and armed men broke in, Susan Gonzalez was shot in the chest.”
  • “When three armed intruders ... broke into the home of a single woman [Feng Zhu Chen] at 3:44 a.m., she dialed 911. No answer . . . [She] held a phone in one hand and took up her pistol in the other and began shooting. She fired numerous shots . . . After the shooting was over and two of the armed suspects got away and one lay dead, she did get through to the police. The home security camera video is dramatic.”
  • “Nothing in the Second Amendment makes lethality a factor to consider . . . The Second Amendment does not exist to protect the right to bear down pillows and foam baseball bats. It protects guns and every gun is dangerous.”
  • “In the late-15th Century, Leonardo Da Vinci designed a 33-shot weapon.”

These quotations are examples of how US District Judge Roger Benitez used unusually vivid language and illustrations in declaring that a high-capacity magazine ban in California is unconstitutional. The case, Virginia Duncan v. Xavier Becerra, began with a preliminary injunction in July 2017. It is an ongoing battle over banning high-capacity magazines. The latest news, as of this writing, is that his order of March 29, 2019 has been stayed pending appeal. So California can continue to prohibit buying and possessing magazines with a capacity greater than ten cartridges.

As far as I can tell, California first defined and regulated high-capacity magazines by the Assault Weapons Control Act of 1989. The act generally bans magazines with a capacity of more than ten cartridges. The law is absurdly complex, with exceptions for previously acquired weapons (grandfather provisions), for Olympic sport shooting, for active military moving to California, for film industry uses, for people traveling through California, etc. The same act imposes firearm-related rules relating to everything from the length of barrels to the use of shotshells in handguns.

If you did not get rid of your high-capacity magazines, you would become a criminal by simply keeping something that you had legally acquired and owned.

When this law went into effect you could no longer buy high-capacity magazines, but you could keep any that you already owned. The grandfather provisions allowed people who had lawfully acquired high-capacity magazines before the prohibition to keep them. In 2016 the state eliminated that exception. If you legally had high-capacity magazines, you would have to get rid of them. If you did not, you would become a criminal by simply keeping something that you had legally acquired and owned.

In May 2017, the plaintiffs sued in federal district court. They were people who owned high-capacity magazines and people wanted to own high-capacity magazines. The plaintiffs wanted to eliminate the ban entirely.

In June 2017, Judge Benitez issued a preliminary injunction blocking the change in the law that eliminated the grandfather provisions. You could keep your old high-capacity magazines and you could buy new ones.

In July 2018, a panel of the Ninth Circuit Court of Appeals upheld the preliminary injunction. You could continue to keep your old high-capacity magazines and buy new ones.

Heller was the first decision ever to recognize that the 2nd Amendment proclaims an individual civil liberty. The extent of that right will be fought over for a generation at least.

The defendants appealed to the Ninth Circuit Court of Appeals en banc. In April 2019, District Court Judge Benitez stayed part of his own order pending appeal. The effect of the stay is that current law travels back to a time in 2016 before the grandfather provisions were eliminated. You can now keep your high-capacity magazines, but you can’t get new ones.

Be prepared to see litigation like this for decades to come. It’s surprising to realize that the Supreme Court’s 2008 decision, Heller, was the first ever to recognize that the 2nd Amendment proclaims an individual civil liberty. The extent of that right will be fought over for a generation at least. In California alone, two important cases, this one about magazine capacity and Peruta, about concealed carry permits, have been going on for years. Some jurists say that the Constitution is a living document. That has become code for doctrines that change with the times rather than hewing to original intent. The Heller opinion relied on original intent and historical analysis. Duncan v. Becerra refers to Heller and gives us a vivid and explicit 2nd Amendment with no need for a “living document.”




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