Authoritarian Economics

August 26, 2019

 

Trade has been much in the news this past week as the President went off on a tirade in which he amped up the trade war he ignited with China.  His tweets ignited a firestorm and a massive sell off in the markets on Friday: 

 

Replying to @realDonaldTrump

...unfair Trading Relationship. China should not have put new Tariffs on 75 BILLION DOLLARS of United States product (politically motivated!). Starting on October 1st, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25%, will be taxed at 30%...

 

64.9K

4:00 PM - Aug 23, 2019

 

Replying to @realDonaldTrump

...Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1st at 10%, will now be taxed at 15%. Thank you for your attention to this matter!

 

71.7K

4:00 PM - Aug 23, 2019

 

Trump went even further suggesting that we could do without China and “ordering” U.S. companies to plan for alternatives to doing business with China:

....better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing..

9:59 AM · Aug 23, 2019·Twitter for iPhone

 

He might actually have the power to do this under the Emergency Economic Powers Act of 1977 and/or the Trading with the Enemy Act, both of which are part of a tradition of Congress irresponsibly ceding much authority to the executive branch.  Either way we should look at this as nothing more than a continuation and acceleration of a trend toward authoritarian control of the U.S. economy and society. This is a bipartisan trend that had been going on since at least FDR in the 1930s.  In fact, the one thing every president has in common is that they all have expanded the boundaries of executive power.  Barrack Obama ruled much by executive order as did his immediate predecessors and the current crop of Democratic presidential hopefuls has promised to continue the trend.  This is not unique to Trump or a recent depredation of our “hallowed” democratic institutions.

 

The bottom line is that across a whole range of issues from Federal Reserve activity, federal spending, the out of balance entitlement programs, federal regulation and increasing scope of U.S. overseas activity this nation is progressing on a path toward an increasingly centralized command and control economy and society.  Far from pushing back on this trend almost the entire ideological spectrum is in agreement with the trend.  In fact, as the deleterious consequences from these policies mount, more people are persuaded that heavier government control is the solution to their frustration as they cannot understand the difference between being “pro-business” and “pro-market”.  The only distinction anyone makes is that they should be the ones in command and control, not Trump.  The Democrats are hard pressed to attack the underlying philosophy of trade restrictions since they offer policies much the same.

 

That this is and should be anathema to anyone who believes in a free society should be obvious.  Who is anyone to tell any of us with whom we should interact, whether it be commerce or any other type of relationship?  Who is the government to tell us whom to hire, whom to buy from or whom to befriend?  The very idea that they can bespeaks of a mindset in which the government owns and controls everything and “generously” grants us our rights and privileges.   Sorry, but this is patently immoral and should be rejected by people of faith most especially.

 

More disturbingly we should understand where all of this will lead.  The only reason why any nation would want to produce everything it needs itself (economic autarky) is preparation for war.  A peaceful nation need not fear interdependence and an intertwined economic relationship.  The economist Ludwig von Mises understood this clearly in this insightful piece.  The most trenchant quote from which is “As long as the peoples cling to the Montaigne dogma and think that they cannot prosper economically except at the expense of other nations, peace will never be anything other than a period of preparation for the next war.”  This is exactly the underlying philosophy of the U.S. governing class. We can see the trajectory of this line of thought as our posture toward China has morphed from that of a purely economic antagonist toward one of political and geostrategic rival. As Bastiat said if goods can’t pass through borders, armies likely will.  This is all disturbingly dangerous.

 

In keeping with my long-standing position that God created a world where what is immoral is also impractical it should surprise no one that these trade policies are economically damaging. The fallacy of protectionism is that a manufacturer who may go out of business and shed jobs can be propped up with no overall damage to the economy.  If the government raises the prices of foreign goods via tariffs, then any money spent at home and any subsequent jobs “saved” are offset by the goods not manufactured and the jobs not created with the money that now goes to domestic manufactures.  All that has been done is shift the production of goods to less efficient businesses, thereby costing productivity and thus reducing wealth.  In fact, given the nature of interrelated supply chains, even those who were ostensibly helped by tariffs can end up hurt by them as this story outlines.

 

It is not an argument to say that the Chinese cheat.  I’m sure they do.  They do not protect intellectual property any more than the U.S. did in the 19th. century, as this tale of Dickens’ problem will show.  Developing nations rarely offer such protections until they begin to produce something themselves worthy of protection.  It is up to individual firms to decide if granting technical access and not having complete copyright protection is on balance worth it to them to be in the second biggest economy on the planet (so big that Trump’s claim we would be better off without China is laughable).  It is not Trump’s place to make that decision for them.   Yes, China subsidizes production, as do all nations.  The best policy is, of course, reciprocal, totally free trade.  Next best is unilateral free trade.  I mean we are not going to conquer China and turn them into a U.S. state, so we might as well make the best of a less than perfect situation.  Ultimately, I suspect, the Chinese taxpayer would get tired of subsidizing U.S. consumption, but in the meanwhile, we might as well let them, and go on and produce other things with the savings those subsidies provide.

 

In the end we must allow free trade because the only way for foreign entities to buy U.S. goods is to sell their goods here, the same way that we have to sell our labor to buy our food at the supermarket.  In the end, exports pay for imports and vice versa.  For instance, if an importer pays a Chinese firm in dollars that firm will now either buy U.S. goods or invest in U.S. businesses or sell dollars to another firm who buys U.S.  goods or invests in U.S. businesses.  These accounts must, by construction, balance.  The superficial balance of goods surplus/deficit is irrelevant.  I know this is eyes glazing over stuff, but it is important to understand the basics to see how ridiculous these policies are on a practical level.  To bring it down to a very practical level think about the fact that asking a nation to make all its own goods is as damaging as trying to produce all the goods yourself that are in your house.

 

Command and control economics are about controlling people by dictating with whom they can interact with as well as controlling the fruits of their labor.  This is patently immoral.  It also ends up damaging ourselves every bit as much as our purported economic “enemy”.  It also morphs economic competitors into geostrategic rivals, and since they all possess nuclear weapons, is an exceedingly dangerous thing for the planet.  As always, we give effective witness to our faith in the political realm by working for peace and free enterprise.

 

Praise Be to God

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