Tag: Mises Does Not Approve

Unsurprising Results

What happens when your government decides to place additions taxes in the form of tariffs on imported materials that your business relies on? You face the possibility of going out of business:

Steel tariffs could force the nation’s largest nail manufacturer to close or move to Mexico.

The Mid-Continent Nail plant in Poplar Bluff, Missouri, laid off 60 of its 500 workers last week because of increased steel costs. The company blames the 25% tariff on imported steel. Orders for nails plunged 50% after the company raised its prices to deal with higher steel costs.

The company is in danger of shutting production by Labor Day unless the Commerce Department grants it an exclusion from paying the tariffs, company spokesman James Glassman told CNN’s Poppy Harlow.

Shocking, I know.

This isn’t the first business to announced difficulties due to Trump’s new tariffs. Harley Davidson announced that it will move at least some production outside of the United States to get around the new tariffs. More dominoes are likely to fall as well.

“But, Chris, why don’t these unpatriotic companies buy American steel instead,” you ask? Because America doesn’t produce a whole lot of steel and what steel it does produce costs more than imported steel. “Well these tariffs will cause domestic steel production to increase, right?” Not so much. Profit is only one reason for the lack of domestic production. There is also a terrible amount of red tape strangling steel production. The environmental regulations on mining raw materials are many and when those regulations are finally dealt with the refineries get to deal with a bunch of additional environmental regulations. Labor is another factor. American labor isn’t cheap, especially when employers are required to pay Social Security, Medicare, disability, and other mandatory benefits for each employee they hire. Then there is the simple fact that a lot of Americans don’t want a job working in mines or refining metals.

Domestic manufacturers import foreign steel because it’s cheaper but foreign steel is cheaper due to many factors. While the recently implemented tariffs are likely to encourage some increase in domestic steel production, the additional steel probably won’t be enough to satisfy domestic needs and will almost certainly be more expensive than foreign steel, which means domestic manufacturers will still have to move outside of the country if they want to keep their prices at a level to which consumers have become accustomed.

With Friends Like the United States, Who Needs Enemies

A lot of people refer to Trump as a fascist. While he (along with almost every other politician) certainly displays a lot of fascist tendencies, I think it would be more accurate, at least economically, to refer to him as a mercantilist. His policies have been aimed at discouraging importing goods in favor of internal trade. While many people still believe that mercantilism is a sound economic policy, it wrecks havoc on international relations:

The US is to impose tariffs on steel and aluminium imports from key allies in Europe and North America.

The US said a 25% tax on steel and 10% tax on aluminium from the EU, Mexico and Canada will start at midnight.

The move immediately triggered vows of retaliation from Mexico, Canada and the EU, which called the tariffs “protectionism, pure and simple”.

With friends like the United States, who needs enemies?

Mercantilism falls apart because it discourages international trade. First one nation implements a policy that harms another nation. Then that nation implements its own policy in retaliation to harm the first nation. This cycle can continue until trade between the two nations halts entirely.

I know a lot of people believe that this will bring prosperity to the United States. However, if you believe that policies like this will bring back the good old days of the 1950s where a single factory worker could buy a house, truck, and boat, you’re sorely mistaken. Manufacturing is highly automated, which reduces the number of available factory jobs. Moreover, the regulatory red tape makes many economic activities such as resource extraction, resource refinement, and manufacturing cost prohibitive. In addition to all of that, the United States has been out of the game for so long that it lacks the experience and knowledge necessary to mass produce many desired consumer goods. Overcoming all of those issues will take a significant amount of time and even if they are overcome, the available market will be tiny because foreign nations will have already implemented retaliatory policies prohibiting trade with the United States (not having the biggest market in the world, China, available would itself strongly discourage manufacturing goods in the United States).

It Doesn’t Matter What the Majority Says

Every political argument seems to eventually boils down to polls. It makes sense since polls indicate what the majority wants and the majority should be listened to, right? If, for example, the majority of Minnesotans support stricter gun laws, then the politicians should respect their desires, right?

A majority of Minnesotans support stricter gun laws in the United States, including wide backing for a ban on military-style rifles and for raising the age for gun purchases from 18 to 21, a new Star Tribune Minnesota Poll has found.

This is usually the point where I would point out the way polls are manipulated to get desired results. For example, if you poll urban individuals about gun control, you’re likely to get a different result than if you poll rural individuals. Likewise, if I’m a publication with a predominantly Democratic readership, the results of my poll about gun control laws are going to differ from the poll results achieved by a publication with a predominantly Republican readership.

Instead of focusing on why polls are irrelevant due to ease of manipulation, I’m going to focus on an even lower level assumption made by people who cite polls: that a majority is right. Take it away, Mises!

Stating that the majority supports a law is irrelevant because there is no inherent wisdom in the majority. For example, if a majority favored a law that required the first born son of every family to be sacrificed to Beelzebub, would you agree that a law requiring that be passed? I’m guessing most people wouldn’t because it’s an awful idea. I’m also guessing that some proponent of democracy will dismiss my example and by extent my argument as being ridiculous, which it is because I chosen it specifically to illustrate my point in the most hyperbolic manner possible. To appease those individuals though, I will present a more realistic example.

Let’s say a few individuals own businesses in a poor neighborhood. The majority of people living in the town decide that they want to revitalize that neighborhood. To accomplish this they demand that the city government pass a new property tax to raise funds for revitalization efforts. Interestingly enough, the demanded property tax is high enough that it would force the poor businesses in that neighborhood to close shop. Should the will of the majority be followed even though it’s obvious that their idea of revitalizing the neighborhood is to use the city’s tax code to run poor individuals out of town?

The premise of democracy, that the will of a majority should become the policy of the State, is flawed at its very foundation because it necessarily assumes that what a majority wants is correct. This is why I dismiss arguments based on the will of a majority outright. Saying that a majority supports something is no different than saying that you personally support something. Saying that you or a majority support something isn’t an argument in support of that thing, it’s merely an expression of personal preference. And, unfortunately for you, I don’t give a shit about your personal preference.

You Get a Job! You Get a Job! You Get a Job!

Bernie Sanders seems to think that he’s still relevant even though his party during the last presidential nomination process actively conspired against (which isn’t to say he would have gotten the nomination if his party didn’t conspire against him). His latest announcement is a plan to guarantee every American a job:

Sen. Bernie Sanders (I-Vt.) will announce a plan for the federal government to guarantee a job paying $15 an hour and health-care benefits to every American worker “who wants or needs one,” embracing the kind of large-scale government works project that Democrats have shied away from in recent decades.

Somebody has to build and staff the gulags! Of course this is Bernie Sanders we’re talking about so…

A representative from Sanders’s office said they had not yet done a cost estimate for the plan or decided how it would be funded, saying they were still crafting the proposal.

Why am I not surprised?

Make-work programs sound like a good idea on paper… to the economically illiterate. The problem is that they operate outside of the market, which means there is no feedback mechanism that indicates whether the work is in demand or not. Instead they are decreed by whatever politicians crafted the plan. That usually translates into those politicians’ cronies receiving labor subsidized by tax payers in order to cut their costs. I wouldn’t be surprised if Sanders’ plan resulted in Lockheed’s next manufacturing plant being built by government subsidized labor. Sure, that may not be his intention but once the program exists his intentions will be irrelevant, only the intentions of those who control the program will matter.

Consumers Always Lose Trade Wars

Trade relations between the United States and China had been relatively smooth in recent years. Had is the keyword there. Trump decided to provide some protection to his cronies by implementing a series of tariffs to artificially raise the price of imported goods. He sold these tariffs as job creators. Not surprisingly, China retaliated with its own tariffs. Now Trump is planning to retaliate against China’s retaliation with even more tariffs:

US President Donald Trump has instructed officials to consider a further $100bn (£71.3bn) of tariffs against China, in an escalation of a tense trade stand-off.

These would be in addition to the $50bn worth of US tariffs already proposed on hundreds of Chinese imports.

China’s Ministry of Commerce responded, saying China would “not hesitate to pay any price” to defend its interests.

Tit-for-tat trade moves have unsettled global markets in recent weeks.

Governments and their cronies are the only winners in a trade war. Tariff profits go into government coffers while domestic cronies can increase their prices since goods from their imported competitors are now artificially higher. Meanwhile, consumers are forced to pay artificially higher prices for goods. If, for example, a $100 tariff is put on all imported cell phones, the government pockets an extra $100 and you pay $600 for a cell phone that used to only cost $500.

As this trade war wages, consumers are going to get raked over the coals. The only upside is that in the end this will screw over the United States government as well since it will lose tariff profits when imported goods become so expensive that consumption drops significantly.

Technically a Gulag Is a Retirement Plan

A writer for Pravda Salon was giddy when he learned that some millennials aren’t bothering to save for retirement because they’re expecting a great socialist revolution within their lifetime:

Wood, 32, a political consultant, told me via Twitter that she felt similarly. “I don’t think the world can sustain capitalism for another decade,” she explained. “It’s socialism or bust. We will literally start having resource wars that will kill us all if we don’t accept that the free market will absolutely destroy us within our lifetime [if] we don’t start fighting its hegemony,” she added.

Technically spending your golden years in a gulag is a retirement plan.

I don’t think these millennials are complete fools but I do believe that they have been suckered by socialist propaganda. It’s no secret that the United States is becoming more of a shithole every year. Unemployment is at record lows… but more and more employment is becoming part time. Costs of healthcare and college are through the roof and the only reason people haven’t been forced to abandon hospitals and colleges is because they’ve taken on tons of debt. Speaking of debt, the national debt continues to rise at an astronomical rate. While the United States may not have prison camps per se, a massive percentage of the population is currently being held behind bars and many of those prisoners are stuck working for Federal Prison Industries. It’s also no coincidence that this degradation coincides with the United States abandoning capitalism for socialism, which is why socialists have to keep desperately parroting the claim that the United States is a capitalist nation and that all of its ills are being caused by capitalism.

A nation that operated under capitalism wouldn’t have Social Security, Medicare, Medicaid, a Federal Deposit Insurance Corporation, or any other government provided welfare program. In order to provide all of those programs a government must necessarily nationalize a portion of businesses. Of course, politicians in the United States don’t use the term nationalization. Instead they call their seizing a portion of a company’s wealth taxation. Whether one calls it nationalization or taxation the result is the same, the government claims a portion of every business in the country. Every business owner works first for the State and secondly for themselves.

I Am Altering the Deal

I have a theory that the biggest threat a government poses to an economy isn’t any specific set of regulations but constantly changing regulations. One day your business venture is perfectly legal, the next day it’s illegal:

The 2015 Butte wildfire had ripped through nearly 71,000 acres in Amador and Calaveras counties and left millions of dollars in damages behind. More than 900 structures were destroyed in the two counties, according to Cal Fire. Some residents left the community, deciding not to rebuild.

County supervisors embraced legalizing cannabis as a way for the local economy to generate revenue that could help it recover. Enticed by cheap land and friendly laws, the rural county of 45,000 people saw an influx of pot growers.

Not long after, however, anti-pot supervisors, including Mills, were elected to the five-member board. They had promised to ban cultivation in Calaveras County. In January they scored a victory with a 3-2 vote ordering growers to cease operations by June.

With a single vote a bunch of perfectly legal businesses became illegal. While the farmers are talking about suing, they won’t be able to operate their farms during the lawsuit, which could last years, and may not win anyways.

I think this story also explains the obsession most business ventures have with maximizing profits at all costs. Anti-capitalists like to blame capitalism for this obsession but any capitalist would tell you that maximizing long term profits is a better way to maximize overall profits… unless you’re operating in an environment where your business might be declared illegal overnight. I’m of the belief that business ventures are obsessed with short term profits at all costs, at least in part, because they have no idea what the rules regulating their business will be tomorrow. You can’t make any realistic long term goals when you don’t know what the rules will be tomorrow, in a month, or in a year.

This story will likely incentivize cannabis growers in California to maximize short term profits and give little through to long term profits. And when they do, anti-capitalists will blame capitalism instead of the real culprit, government.

Playing with Other People’s Money

Is government deficit spending good? If you ask the party in power, yes. If you ask the party out of power, no. The Republican Party likes to advertise itself as being fiscally conservative, which is a label that implies an opposition to deficit spending. And the Republicans did decry deficit spending… during the reign of Barack Obama. But now their party is in power so deficit spending is a good thing:

On Wednesday, Congressional leadership seemed united behind a budget deal that looks truly awful — at least if you care about the country’s financial future. The bipartisan deal blasts through budget caps and could return the U.S. to trillion-dollar deficits in short order. Right after getting historic tax reform passed, politicians apparently seem content to toss a huge future tax hike onto the next generation. After all, the bills will eventually come due.

And they are serious bills indeed. The proposed deal would include a one-year debt limit suspension, while raising defense spending by $80 billion and non-defense expense by $63 billion. The budget for 2019 would see similar increases, and over the 10-year window, this Chuck Schumer-Mitch McConnell budget could result in $1.5 trillion more added to the national debt.

The poles have flipped. Now the Democratic Party is suddenly concerned about deficit spending.

The United States government is like a teenager who has racked up thousands in credit card debt. It is so far in debt at this point that it cannot hope to pay it off. Hell, it can barely pay the interest on the debt. And if it’s already so far in the hole that it can’t possibly pay off its debt, why should it care if it goes further into debt?

The national debt can’t be repaid and is therefore no longer a financial point of interest. It’s purely a political point of interest that is brought up by the party not in power to criticize the party in power.

Look at All the Economic Stimulus

A lot of statists cheered when it was announced that the Super Bowl would be coming to Minneapolis. Not only would Minneapolis have the honor of hosting the larger religious festival of the year but its piousness would be rewarded with untold riches from a million, err, 125,000 visitors hurling cash at the local establishments!

As it turns out, the fantastic economic stimulus that was promised was just that, fantasy:

Restaurants along Nicollet Mall and at the Mall of America saw plenty of traffic, but many eateries located away from those immediate areas reported quiet weeks as regular customers stayed at home to avoid the expected Super Bowl bedlam. Downtown Minneapolis skyway eateries also saw customer counts dwindle as the week went on as more downtown workers stayed away from the office and worked remotely.

Super Bowl week was “the worst week ever for us,” said Brenda Langton, co-owner of Spoonriver, located by the Guthrie Theater and just blocks away from U.S. Bank Stadium, site of Super Bowl LII. Sales were down by 75 percent.
Langton also voiced frustration that the media repeated claims by the Minnesota Super Bowl Host Committee that the Super Bowl would draw 1 million visitors, a number that turned out to not reflect the actual number of out-of-towners coming to the area. The big-number prediction wound up scaring office workers and suburban diners away from crowds that never existed, she said.

“The media needs to stop putting the fear of God into everybody and understand that other cities have weathered [the Super Bowl] just fine and not to terrify everyone,” Langton said. “I just want to have people come back downtown and get over the Super Bowl. It was very good for a few people and that’s what happens.”

PinKU Japanese Street Food, a quick-service Japanese restaurant in Northeast Minneapolis, had some of its slowest days of business ever during Super Bowl weekend, said Co-founder and Head Chef John Sugimura On Super Bowl Sunday, for example, the restaurant made just $303, only 15 to 20 percent of its typical Sunday revenue.

While the entire article lies behind a paywall, it’s not a very effective one. Just disable JavaScript for the domain and the story will display. You can also find the contents of the article in the page’s source code.

This news is only surprising to the economically ignorant. Stadiums and large events don’t create wealth. The most they do is shift wealth around. Money that individuals would have spent on other forms of entertainment are instead spent on attending stadium events. Moreover, large events can run the usual customer base out of town. If I’m an employee working near a stadium and want to grab a quick lunch, I’m going to likely avoid any restaurants in my area during stadium events because I’m worried that they’ll be too busy for me to get served within the block of time I have.

The security large events like the Super Bowl employ can also scare people away. I, for one, have a policy against attending events that require military hardware to defend. Any event that’s thought to be a big enough target to warrant such security is riskier than I want to bother with. I also have a general distain for militarization in general so even if the risk isn’t high enough to warrant the security, I don’t feel like living the life of a poor bastard in an occupied foreign city even for only a few hours.

So stadiums and large events merely shift wealth around. A few establishments will enjoy a significant windfall but they are the exception that proves the rule. Most establishments will notice, at most, a minor increase and oftentimes they’ll suffer a notable decrease in business.

War is Good for Business

Working in the military-industrial complex must be nice. While companies in other industries are forced to market their own goods and services, companies in the military-industrial complex enjoy subsidized marketing from the United States government:

WASHINGTON (Reuters) – The Trump administration is nearing completion of a new “Buy American” plan that calls for U.S. military attaches and diplomats to help drum up billions of dollars more in business overseas for the U.S. weapons industry, going beyond the limited assistance they currently provide, officials said.

President Donald Trump is expected to announce a “whole of government” approach that will also ease export rules on U.S. military exports and give greater weight to the economic benefits for American manufacturers in a decision-making process that has long focused heavily on human rights considerations, according to people familiar with the plan.

Not only will military attaches and diplomats provide free marketing but since the weapons sold by the United States have a tendency to fall into the hands of its and its allies’ enemies this proposal could create a continuous cycle of sales. First the United States sell weapons to one of its allies then those weapons fall into the hands of its allies’ enemies then the allies need to buy more weapons to fight off their enemies.