Tag: Mises Does Not Approve

The Fragility of the Centrally Planned System

If COVID-19 has accomplished nothing else positive, it has been doing a wonderful job of illustrating the fragile nature of the centrally planned system under which we suffer.

At the tail end of last year the City of Minneapolis, for the good of Mother Gaia, required stores to charge a nickle for every plastic bag. This policy was put into place to encourage people to use reusable bags. Now many stores are banning reusable bags because they can spread disease.

The City of Minneapolis has also been waging a war against personally owned automobiles. I guess when you spend over $2 billion on trains you really want people to use them. But cramming a bunch of people into a small train car or bus is an ideal environment for a spreading contagion. To mitigate this problem, Metro Transit has asked people to avoid getting onto buses and train cars with 10 or more passengers. Oh, did I mention that Metro Transit also reduced service and suspended it entirely between 11 p.m. and 4:30 a.m.? So don’t wait too long for the next bus or train!

Another centralized system that is under a great deal of stress is, as you might guess, the unemployment application system. Some people in Minnesota who have applied for unemployment benefits aren’t getting their checks and are unable to get a hold of anybody in the bureaucracy who can help them. To help alleviate the pressure, Minnesota is asking people to apply for unemployment benefits on specific days based on their social security number. Hopefully you don’t need your benefits right away!

In addition to a stressed unemployment system, Minnesota is also facing a lack of intensive care beds. Perhaps the State of Minnesota shouldn’t have put a moratorium on the construction of new hospitals into law.

These are just a handful of local examples. On a national scale the system is falling to pieces. The Federal Reserved has announced that it will print infinite money to alleviate the crisis brought on by national and state level economic shutdowns. Everybody will receive money, but they won’t be able to buy anything with it for very long.

Killing Yourself Slowly

Trump is working to take this country back to the good old days of mercantilism when governments decided who would succeed and who would fail. Implementing tariffs was just the first act in his strategy to provide a supposed advantage to American companies. His latest act was far more blatant. He issued an executive order to prohibit Huawei from the United States market. In the aftermath of this executive order Google has revoked Huawei’s use of its services, including its Play Store:

President Trump issued an executive order last week banning “foreign adversaries” from doing telecommunication business in the US. The move was widely understood as a ban on Huawei products, and now we’re starting to see the fallout. According to a report from Reuters, Google has “suspended” business with Huawei, and the company will be locked out of Google’s Android ecosystem. It’s the ZTE ban all over again.

That’ll give a much needed boost to American device manufacturers, right? You know, all of those device manufacturers who manufacture their devices in China, where Huawei is headquartered. Because I’m sure this executive order won’t result in any reciprocation from the Chinese government.

But even if we set aside the likelihood of a Chinese retaliatory response, this executive order sends a rather clear message for companies headquartered outside of the United States. That message is that they shouldn’t rely on products or services from companies headquartered in the United States. Huawei can still use Android since it’s an open source project (a good reason to prefer open source code to closed source code) so it doesn’t have to write an operating system for its devices from scratch. It does have to figure out a replacement for Google’s proprietary bits though. There are several solid third-party clients available for Android that allow access to online calendaring, contacts, and e-mail services. Many of those clients are also open source. Huawei could utilize them in place of apps like Google Calendar, Google Contacts, and Google Mail (Google Maps is the tough one to replace but a third-party client could be written for it). So it would only need to worry about distribution and it has enough funding to build its own app store (it could also use something like F-Droid, but that’s unlikely). It could also make licensing money off of its app store by providing access to other Android device manufacturers who had their access revoked by Google due to an executive order.

Foreign companies aren’t going to stop doing business when the figurehead of the United States puts his signature on a piece of paper. They’re going to either make or buy replacements for everything can no longer use. If this behavior of barring foreign companies from business in the United States continues, companies headquartered outside of the United States are going to become more and more wary of relying on American products and services and instead seek foreign alternatives. American companies like Google will find themselves more and more isolated from the global market. The constantly dwindling market size will cause them serious economic hardship, which will translate into economic hardship for their employees.

Isolating domestic businesses from foreign markets is slow economic suicide.

This Time Will Be Different

Albert Einstein is often credited with say, “The definition of insanity is doing the same thing over and over again, but expecting different results.” General Motors (GM) announced that it would be laying off 15 percent of its workforce. While tariffs aren’t entirely to blame for GM’s problems, they did contribute:

When President Trump announced tariffs last summer, Detroit’s Big Three automakers — GM, Ford and Fiat Chrysler — all trimmed their profit forecasts for the rest of the year, citing the rising commodity costs that would lead to hikes in prices and manufacturing costs. GM took a hard stance, warning of the fallout within the auto industry and saying that the tariffs risked “undermining GM’s competitiveness against foreign auto producers by erecting broad brush trade barriers that increase our global costs” in comments filed with the Commerce Department in June.

So tariffs didn’t bring economic prosperity to the automobile market (or any other market) so the solution must be more tariffs:

Donald Trump has renewed threats to impose tariffs on imported cars after General Motors announced job cuts and plant closures.

The US President tweeted that tariffs were “being studied” and that duties could have stopped the GM closures.

Tariffs have done nothing by damage to the economy so the solution is obviously more tariffs! There really should be a constitutional amendment that requires all incoming presidents to read the collected works of Ludwig von Mises and pass a comprehension test to guard against this kind of economic stupidity.

What’s even worse than the fact that the United States has a president that is committing economic seppuku is the fact that his successor will likely leave all of the tariffs in place. For some reasons politicians have an aversion to undoing the bad policies of previous politicians.

Fiscally Conservative

If you ask most people what one of the major difference between the Republican and Democratic parties is, they will tell you that the Republican Party tends to be more fiscally conservative. The Republican Party is in power now so a wave of fiscal conservation is upon us, right? Not so much:

The U.S. federal budget deficit rose in fiscal 2018 to the highest level in six years as spending climbed, the Trump administration said Monday.

The deficit jumped to $779 billion, $113 billion or 17 percent higher than the previous fiscal period, according to a statement from Treasury Secretary Steven Mnuchin and Office of Management and Budget Director Mick Mulvaney. It was larger than any year since 2012, when it topped $1 trillion. The budget shortfall rose to 3.9 percent of U.S. gross domestic product.

It turns out that neither party is fiscally conservative. And really, why should they be? They’re not spending their own money. They’re not even primarily spending out money. They’re spending the money that they’re printing. Since they can print an infinite amount of money, there is no motivation for them to spend less… at least until the whole financial system collapses due to an irreconcilable misallocations of resources. But that’s a problem for the next generation, right?

Jacking Up the Rent

If the primary difference between capitalist and socialist nations is that in capitalist nations property is held in private, then the United States is solidly a socialist nation. While the fiction of private property exists, the reality is that all property is owned by the State. That is why you have to pay rent on your property. And like any good landlord, the State can up the rent when it so chooses:

Hennepin County officials said Tuesday they need to raise $43 million more in property taxes next year, in part to pay for personnel and the surging costs of protecting children from abuse and neglect.

County Administrator David Hough proposed a 5.5 percent increase in the property tax levy during his budget presentation to the County Board. The proposal is a response to what Hough said were “significant ongoing challenges” faced by the county. He pointed to the massive new spending in recent years aimed at child protection services, which has drawn millions from budget reserves.

Of course it’s for the children. That makes it easy to criticize anybody who opposes the rent hike by claiming that they hate children.

Less surprising than claiming that the increase is for the children is the fact that the politicians are also claiming that this increase won’t impact people too much:

Property taxes pay for a third of the $2.4 billion county budget. If the levy is approved, the owner of a $281,000 house — the median value for the county — would pay $75 more in county property taxes, Lawless said.

If you can afford a home, you can afford an additional $75 a year, right? Maybe. It really depends on the family. Moreover, the politicians are only stating what this increase will add. What they’re ignoring is all of the previous increases. $75 might not be much on a $281,000 property but over the decades the increase has probably been notable. Add that to the fact that property value is assessed by the State and you realize that, in addition to the previous increases, the properties themselves are probably assessed much higher now than they were a decade or two ago. Couple these points with the fact that wages have stagnated and the cost of goods has increased due to inflation and suddenly this seemingly minor rent increase adds up to being far less minor. But none of that matters to the State. If you can’t pay your rent, you’ll be evicted.

Creating Jobs

If you ask an advocate of tariffs what punishing consumers is supposed to accomplish, amongst other things they will claim that tariffs create domestic jobs. That ignorance is based on the belief that foreign companies don’t employ people domestically but since we live in a global economy, a lot of foreign companies hire domestic employees. So tariffs often destroy jobs rather than create them:

Alibaba’s founder and chairman Jack Ma says the Chinese mega e-commerce company no longer has plans to create 1 million jobs in the US, citing the ongoing trade conflict as the reason Alibaba is retracting its promise to Donald Trump. A new round of tariffs between the US and China will make mutual trade more difficult.

Who would have guessed that alienating one of the largest economies on Earth would have consequences?

Buying Less for More

The Trump administration has decided to devalue your dollars even more by placing additional tariffs on Chinese goods:

The US is imposing new tariffs on $200bn (£150bn) of Chinese goods as it escalates its trade war with Beijing.

These will apply to almost 6,000 items, marking the biggest round of US tariffs so far.

Handbags, rice and textiles will be included, but some items expected to be targeted such as smart watches and high chairs have been excluded.

The Chinese commerce ministry said it had no choice but to retaliate but is yet to detail what action it will take.

The US taxes will take effect from 24 September, starting at 10% and increasing to 25% from the start of next year unless the two countries agree a deal.

The upside of trade wars is that they don’t start out as shooting wars. The downside of trade wars is that they’re a war on consumers. Every tariff means that consumers are stuck paying more for less. A bag of rice that costs $5.00 can suddenly cost $6.25 for no reason other than where it was produced. A cell phone that costs $500 can suddenly cost $625. What makes tariffs a real gut punch though is that since they’re usually calculated by the price of a good, they increase as inflation causes prices to increase. If that $500 cell pone begins to cost $600 due to inflation, the cost with the tariff tax included will be $750.

The only winner in a trade war is the government because it pockets the tariffs.

Government Creates the Problems It Solves

Here’s a familiar story. A government body implements a new policy that causes major hardships for a large number of people then swoops in to “fix” the problem. That’s what’s happening here:

The Trump administration plans to offer up to $12 billion in aid to farmers hit by tariffs on their goods, an emergency bailout intended to ease the pain caused by Trump’s escalating trade war in key electoral states, Secretary of Agriculture Sonny Perdue told reporters Tuesday.

First the government created the problem by implementing tariffs then it offered to redistribute some wealth to those hurt by the tariffs. Of course the redistributed wealth has to come from somewhere, which means another problem will be created by the government that it will then claim to solve.

Domestic Tariffs

Tariffs are in the news after Trump decided that the playing field between the bureaucratically choked United States and the rest of the world needed leveling. But what about domestic tariffs? The states that make up the United States aren’t supposed to implement tariffs against each other but thanks to the Supreme Court they now can:

If an internet retailer in Pasadena, CA sells a good or service to a resident of Washington, D.C., simple logic dictates that the transaction not be sales-taxed in Washington, D.C. It shouldn’t because the business isn’t in Washington. It’s on the other side of the country, and there the business will pay Pasadena taxes. So when judges and politicians talk about the importance of levying sales taxes on outside vendors, what they’re really saying is that they want government to dip its hands into our pockets twice.

Stating the obvious, the internet sales tax isn’t about leveling the tax playing field as much as it’s yet another grab of the economy by politicians. “Grab of the economy” is an apt phrase simply because politicians don’t tax away our dollars to stare lovingly at them; rather they take our dollars for what they can be exchanged for. The more tax dollars that politicians collect, the greater their ability to be size buyers of cars, trucks, land, buildings, and most economy-suffocating of all, human labor. Having decided they’re not collecting enough of what we earn, and plainly averse to competing with other locales when it comes to keeping taxes down, gluttonous local governments naturally love the idea of using internet commerce as another way to take.

About all this, let’s make no mistake about what these tax-thirsty governments are doing. Much like businesses that seek protection from competition, they’re seeking protection from lower-tax cities, states and countries. To be very clear, they’re seeking tariff-protection. Let’s call them domestic protectionists.

The reason the issue of online sales taxes arose is because politicians in tax heavy states were losing out to states with less burdensome taxes. Online retailers can operate anywhere in the world, which means many operate in states with relatively low sales tax. For example, an online retailer could headquarter in Montana, which has no sales tax and sell to somebody living in Minnesota, which has an absurdly high 6.875 percent sales tax. The person in Minnesota will be encouraged to purchase from the online retailer over a local sellers because the local seller will charge an addition 6.875 percent on top of the cost of the good or service. This arrangement upsets the politicians in Minnesota because they lose the opportunity to pocket some of the buyer’s money. If Minnesota can force the retailer in Montana to collect sales tax for it, it wins (and, of course, retailers throughout the country lose because they have to become experts on Minnesota sales tax laws along with the sales tax laws of their own state).

A lot of people believe that arrangement sounds fair (funny enough, they’re often the same people who are currently bitching about federal tariffs). But the alternative, states with high sales taxes having to lower their taxes in order to compete with states with low sales taxes, would be far fairer to consumers, especially poorer consumers to whom an additional 6.875 percent isn’t chump change.

How Tariffs Work

People who subscribe to mercantilism tend to favor internal trading over external trading. If external trading is to occur, they prefer that their nation only export goods while the other nations of the world only import goods. But that ideal is difficult to realize because people in one nation are often interested in the goods and services provided by people of other nations and that interest leads to mutual trade. How can a mercantilist thwart this mutual trade? By imposing artificial barriers on international economic activity. While there are many such barriers that can be raised, the most popular barrier today is the tariff. The Mercantilists imagine that implementing tariffs means that its people will develop a preference for domestic products over foreign products while foreigners will still prefer importing the goods of their nation. Nobody likes an unfair deal so in actuality all that happens is that the nation implementing the tariffs is bypassed:

The European Union and Japan have signed one of the world’s biggest free trade deals, covering nearly a third of the world’s GDP and 600 million people.

One of the biggest EU exports to Japan is dairy goods, while cars are one of Japan’s biggest exports.

The move contrasts sharply with actions by the US Trump administration, which has introduced steep import tariffs.

If the United States won’t play fair, then it won’t get to play at all.

The current administration is playing a stupid game. It’s trying to develop domestic economic activity by artificially raising the price of imported goods even though the United States doesn’t have the experience or capacity to manufacture many imported goods on a scale that can satisfy demands. The result of this game is that consumers in the United States will be forced to pay more for their goods while the rest of the world bypasses the United States.