Sunday, November 28, 2010

North Wrong on Tariffs

Former Arkansas Resident Gary North
I don’t relish taking a contrary view to Gary North. On a very basic level, I’d like to be Gary North. That is, a man who makes a living giving his opinions on various topics of interest to him. I would like to be, like North, a man who, even if he is not well-known by the nation as a whole is highly respected within his own subculture. We met a few times through a mutual friend, and I found him to be a scholar and a gentleman whom I respect.

That being said, I’m not so sure North would respect me. The reason is that I support the use of tariffs. North’s position is that you can’t be an economist and support tariffs. This is the biggest disagreement I’ve had with Gary North since Y2K.

In his recent Lew Rockwell article “Sitting Ducks: Why the Tea Party Movement is Vulnerable to Economic Charlatans, Ignoramuses, and Statists” North singles out tariffs as the key issue. While I can’t argue with the gist of his title, because I’ve seen it happen on more things than just economics, I can’t agree with his contention that people who support tariffs should not really be considered economists. That’s far too broad a brush to use when dealing with matters as complicated as public policy. I'd like to make the limited-government case FOR the judicious use of tariffs.

Can one support tariffs without being an “ignoramus” or a “statist?” Are all those who support tariffs “unfamiliar with economic logic?” Gary North seems to think the answers to those questions are “no” and “yes” respectively, and I think he’s wrong.

(continued on the jump)


Blogger Mark Moore (Moderator) said...

I understand his principle, but I believe he is confusing a different set of premises than his own with “ignorance”. He writes, “Conservatives debate over which kinds of government intervention are productive, but there is not much debate on the fundamental question of the legitimacy of government intervention against voluntary transactions. I am not talking about trade in certain goods or services that are considered inherently immoral or destructive, such as prostitution and addictive drug usage. I am speaking about the exchange of goods and services that are not considered immoral, and that individuals want to purchase. For some reason, conservatives believe the state can be a tool for increasing personal wealth as well as national wealth, without hampering the economic liberties of others in the society.”

I would reply that government does have legitimate functions, and those functions must be funded somehow, and that means taxation. Each method of taxation is government interventionism. I reject the implication that only tariffs represent government interventionism. All methods of tax collection involve government interventionism. Therefore the best public policy is to select the method of taxation that is least interventionist for the citizens.

If one chooses an income tax, then it is the central government’s business to know how much you earned and from who you earned it. That’s intrusive and interventionist. If one chooses a sales tax, the misnamed “fair tax”, then the situation becomes even worse. It is now the government’s business to know where every dollar I spent goes so that they may collect taxes on the commerce. They become suspicious of favors that I and my neighbors do for one another, lest they become untaxed transactions.

Off all methods of tax collection, a low and uniform tariff must be the least interventionist for the average citizen. The tax is collected at the border and afterward it is no business at all of the general government who bought those wares and how much they paid for them. Likewise, the profits of the seller are none of the general government’s concern. They need not fear being hauled before Congress to defend what some demagogue might call an “obscene” profit. All that’s known is that the goods came in, and the foreigners paid the tariffs. It is not even necessary for the government to know which citizens purchased the goods. And I can even decide how much in taxes I wish to pay by refusing to buy foreign goods. The average citizen could withhold funding from the government without the government being able to trace it back to them!

From all this it is clear that tariffs, so long as one is using them to replace existing revenues rather than add to them, are most suitable for minimizing the regrettable necessity of government interventionism to collect taxes. So tariffs are not intrinsically bad, rather they are a tool that can be used for the wicked purpose of using the government to screen out competition for one narrow group at the expense of everyone else, or they can be used for the good purpose of obtaining necessary revenues in a way that leaves the average citizen with as little contact as possible with their government.

7:02 PM, November 28, 2010  
Blogger Mark Moore (Moderator) said...

North goes on, and he again misdiagnoses the problem as an inability to reason rather than different, and in some cases more accurate, premises. He writes, “Yet what I have found for over 50 years is that in certain limited areas, the logic of freedom, meaning the logic of free trade, is not believed by people who say that they do believe in these principles. They accept arguments in favor of free trade as long as the trade takes place inside national borders. But as soon as they get to the border between two countries, they abandon any commitment to the logic of free trade. This has persuaded me that conservatives do not really understand the logic of free trade.” And “There is something persuasive to them about the belief that government intervention at a national border is productive, even though they firmly assert that similar restrictions are unproductive at state borders, county borders, and city borders.’

I believe that some of the misunderstanding is because many conservatives have an intuitive grasp that much of the trade coming from overseas is not really “free” trade in any legitimate sense. While they are all for free trade within a free nation where they have confidence in the system, they are not willing to give unfree societies they same blank check access to markets. What I am getting at here is that not only are low and uniform tariffs logical and morally justified under a non-interventionist limited-government framework, but under some circumstances increased tariffs are justified as well.

For example, workers in communist China have a very limited ability to leave the country if they decide there are better economic opportunities for them elsewhere. The population is not “free” in this important sense, therefore any economic transactions in which they engage are not “free” either. It would be more akin to prisoners being allowed to compete for jobs within their prison, or slaves competing for jobs on the plantation. Those are not “voluntary” economic transactions, except within the limited context of the prison or plantation.
How does one have free trade with a nation whose media is state controlled and communications are censored? If the factory down the road is poisoning its workers and polluting your village, will the media tell you about it, or will they stay silent because of bribes or because the government is a “partner” in the business? How can a worker decide, “I will not work at that factory unless they pay me more because of the poor safety record it has” if no such information is available?

People in Communist China cannot make free choices about whether or not to seek a better life elsewhere, nor can they make informed decisions about their choice of work within China. Therefore, while they have rip-roaring capitalism in China, China is not a free market. It’s the world’s largest concentration camp. It is the equivalent of a plantation owner claiming a free market because of the way he sells his cotton and buys and sells his slaves. It’s a free market for him, but not his workforce.

7:05 PM, November 28, 2010  
Blogger Mark Moore (Moderator) said...

In an honest free market the costs of a good or service are born by those who benefit from the good or service and not transmitted to others. A thief selling hot stereo equipment to a fence represents a free market transaction, but not an honest free market transaction, because costs are born by the original owner of the stereo even though he does not get benefit from the exchange.

Another example of profiting at the expense of others: factories in China dump pollutants into the ocean, and into rivers. They shift the costs of their mess unto the rest of their country, while keeping the profits. Cost-shifting is a sophisticated form of theft. In the store where I work, all of the cloth sofas are made in the USA, almost all of the leather ones are from China. Why? Because we can compete on a level playing field, but processing leather is messy and there are a lot of chemicals involved. Here, we make factories clean up their mess. In China, they can just cost-shift it.
This does not even consider China’s currency manipulation. China will not let its currency float. Its currency is not allowed by its government to go up or down compared to the dollar based on free-market forces. It engages in deliberate currency manipulation such that its currency is an estimated 35% undervalued relative to the dollar. That alone means that our exports to them are 35% higher than they otherwise would be and their imports to us 35% lower.
All of this amounts to government interventionism. All of it produces misallocation of resources and distortions. Eventually, it’s going to produce an economic disaster. The biggest policy mistake you could make would be to have our economy irretrievably intertwined with their misallocation bubbles when it all blows up on them. If we are economically interconnected with an unfree society, when they go down, we go down too.

7:06 PM, November 28, 2010  
Blogger Mark Moore (Moderator) said...

The way to prevent this mistake is to use tariffs on societies who lack free movement of labor, who lack a free and independent media, who lack basic pollution control laws, and who will not subject their currency to the market. In situations where true free trade is impossible because the trade partner is an unfree society, tariffs can make the overall economic activity more like what a true free market would produce than not having the tariff. It’s like a firewall between your economy and an interventionist misallocated economy. While it’s true your consumers would pay more during the initial phase, they would also be spared participating in the pain of the inevitable bust that comes from excessive government economic interventionism. In this way, tariffs can function as an insurance policy to restrict the spread of contagion.

7:07 PM, November 28, 2010  

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