Category Archives: Internventionism-economic

Riding the brakes?

Do you remember when those hurricanes hit Texas and Florida last month and since some people couldn’t access their money to buy food and other supplies the government just waived the law against theft so people could get what they needed more quickly? Yeah, me neither. But in fact the government did waive one law last month: the Jones Act. This waiver applied to affected ports in Texas, Florida, and Puerto Rico.  But I thought laws were the very immovable bedrock upon which society was based. How can such pillars of civilization be summarily set aside? The answer is that such “laws” are not really law at all. They are but mere whims and cronyist preferences of those with the power to rule over we mere peasants. These “laws” rather than preventing victimization they instead create victims by benefiting one party at the expense of another.

The Jones Act of 1920 artificially restricts the transport of goods between US ports to only those vessels owned, operated and principally manned by US citizens. In other words no “ferners” can move goods from US port to US port. It was established for putative national security interests post World War I, predicated (as all such protectionist measures are) on a fear of the big “what if” nightmarish scenario of US goods being transported mainly by foreigners….shudder. Of course such a policy is amenable to the autarkist interests of any nation eager to engage in war.

So while the Act has benefited the US merchant marine industry, it has been at the expense of consumers, principally those on US protectorate islands (like Puerto Rico) who by necessity must have nearly all goods brought in by ocean. A 2012 study showed that it cost nearly twice as much to ship to Puerto Rico from the US as it would were a non-US vessel permitted to make such shipments. Another study showed it costs Puerto Rico $537 million per year. In other words $537 million more goes to US vessels (seen benefit) and $537 million fewer dollars goes to those businesses and industries (unseen harm) where that money would have been spent had it stayed in the pockets of the Puerto Rican people.

If a law becomes an obstacle in times of distress then think of what it does in normal times. Although one can get from point A to B while riding the brakes on a full tank, does it really require running on fumes to realize perhaps this constant braking is not a good idea? It is time to remove all such artificial drags on the economy. The role of government is to protect our rights, not to benefit one group at the expense of another.

 

Fallacies

Just as the warm, moist air of late summer engenders the destructive fury of hurricanes, so too do these storms bear the perennial fruit of economic ignorance. Like clockwork the talking heads either eagerly forecast economic prosperity or decry the mendacity of the evil price “gouger.” Or both. The former is the classic example of the broken window fallacy, which like a case of herpes, will never be fully expunged from humanity’s collective consciousness. The error lies in focusing on seen benefits while ignoring unseen harm. We are implored to consider the benefits of jobs that will be created as we set about rebuilding lost homes, towns, and infrastructure. But this economic activity is not enhanced; rather merely diverted. All the money spent on rebuilding would have, absent the hurricanes, been spent on other goods and services. It is those markets and industries that will in turn see economic decline as fewer people spend in those areas. Even if argued that the rebuilding funds come exclusively from the savings coffers of insurance carriers therefore it wasn’t going to be used anytime soon, that still does not change the economic dynamics. A huge influx of “new” cash competing for a fixed amount of supplies does nothing but cause prices to rise for everyone else (e.g. building supplies will be in higher demand therefore all users of such supplies nationwide will experience higher prices). These higher prices mean, again, fewer dollars to spend on other goods. The only sense in which one could argue that net economic activity increases is if we assign no value to leisure. Certainly if one works 12 hours a day rather than 8 to both rebuild what was lost and maintain what one still has, then output is indeed greater. But is that the world we want to live in, where we sacrifice leisure in the name of economic output? Why we don’t need a destructive storm to achieve that, just pass a law enforcing a 16 hour work day and we could double GDP overnight! Destruction is not the path to an economic free lunch. Everything has a trade-off. The only path to prosperity is through savings, capital accumulation, and investment of that capital toward avenues that make production more efficient (i.e. cheaper).

The price gouger fulfills a valuable economic role, namely the rationing of constrained supplies in direct correlation to need. The feedback is immediate and perfect. There is no need for the imprecision of someone overseeing how much has Person A bought in such and such time period if rationing is imposed by pubic or private diktat. This issue is not so much of a fallacy since people do generally understand principle that if supply goes down prices will go up. Rather, it is more of an issue of emotion; each person’s barometer of what a “fair” increase amounts to varies. The fallacy is in believing that someone charging an “unfair” amount deserves to be thrown in a cage. As much as people would like to redefine words, “victim” does not describe someone who paid more than they would have preferred. So, no victim, no crime and thus any laws against price “gouging” are themselves victimizing when those with a true need find nothing but empty shelves. Trading willfully unobserved harms for spurious benefits leaves us all vulnerable.

The March on Windmills

The Women’s March on Washington DC (and around the world) this past January 21 was supposed to “send a message” to the new Trump administration. But rather than address his actually harmful stated goals (tariffs, wall building, etc.) they’d rather tilt at the imaginary windmills of things he never even touched on once. The inanity of it all cries out to be addressed; therefore I give my blow by low critique from their entire Unity Principles. Enjoy.

“We believe that Women’s Rights are Human Rights and Human Rights are Women’s Rights.”

Well duh, hard to argue with a tautology.

“We must create a society in which women”

So that would cover all women, irrespective of all other sub-categorizations, right? No, ok, so apparently “women” is unclear and you find it necessary to further qualify it…

“including Black women, Native women, poor women, immigrant women, disabled women, Muslim women, lesbian queer and trans women”

You forgot short women, skinny women, fat women, old women and young women. So I guess those women don’t qualify for the right to be

“free and able to care for and nurture their families, however they are formed, in safe and healthy environments free from structural impediments”

I wasn’t aware women are not being permitted to care and nurture their families was a thing. When did they pass that law?

“Women deserve to live full and healthy lives, free of all forms of violence against our bodies.”

Wait so men don’t deserve these things? I thought women’s rights were human rights and men are human… so why not be a bit more inclusive here with “people deserve”? Oh right, identify politics derives its power from the notion that we must separate ourselves into little political fiefdoms rather than accept the proposition we are all simply human beings with identical individual rights.

“We believe in accountability and justice in cases of police brutality and ending racial profiling and targeting of communities of color. It is our moral imperative to dismantle the gender and racial inequities within the criminal justice system.”

Can’t disagree with that… then again this sort of thing grew substantially during Obama’s 8 years… where were the marches and protests by millions of women highlighting his actual failures to address this vs. your mere fear that Trump might not focus on it.

“We believe in Reproductive Freedom. We do not accept any federal, state or local rollbacks, cuts or restrictions on our ability to access quality reproductive healthcare services, birth control, HIV/AIDS care and prevention, or medically accurate sexuality education. This means open access to safe, legal, affordable abortion and birth control for all people, regardless of income, location or education.”

Right, in other words “I have a right to free stuff… it is my right that you use a gun to take money from people in order that I don’t have to suffer the indignity of being asked to actually pay for $20 worth of birth control pills”

“We firmly declare that LGBTQIA Rights are Human Rights and that it is our obligation to uplift, expand and protect the rights of our gay, lesbian, bi, queer, trans or gender non-conforming brothers, sisters and siblings.”

So LGBTQIA people don’t have the right to vote, hold a job, own a home, get married, get a driver’s license, go to school? Wow, that’s news to me. What rights is it they don’t have again?

“We must have the power to control our bodies and be free from gender norms, expectations and stereotypes.”

Right, body control is fine as long as you use it in those ways officially sanctioned by the left. Two bodies engaging in trade requires “regulation” (the market). A body being forced to labor for another is perfectly fine (taxation). The right to “be free of people thinking x about me” is the right to use violence to control the bodies of others by curtailing their free speech and free thought lest someone’s feelings get hurt… cause hurt feelings are the worst possible thing in the world. Far worse than Obama drone-bombing brown women and children on an almost daily basis. But we only care about brown women and children in the United States. Those in other countries aren’t Americans so we don’t care about them. We don’t march for them.

“We believe in an economy powered by transparency, accountability, security and equity”

What does this even mean? Today’s menu consists of word salad.

“All women should be paid equitably”

They are already, if they weren’t then female unemployment would be 0% and it’s not, so case closed.

“with access to affordable childcare, sick days, healthcare, paid family leave, and healthy work environments.”

“Access” – another euphemism for “point a gun at that guy so he gives me stuff I want for free”. To claim you have a right to anything that can only exist by the labor of another is to say you own the labor of others. We have a word for that. I’ll let you figure it out on your own.

“All workers – including domestic and farm workers, undocumented and migrant workers – must have the right to organize and fight for a living minimum wage.”

Sure, fight all you want, but you don’t have the right to use violence, at the individual or state level, to get what you want. Of course let’s just ignore the fact that this thing that you want to control (the state) so you can have your grab bag of “rights” is also the thing that defines people as “undocumented” or “migrant” and limits their rights to begin with.

“We believe Civil Rights are our birthright, including voting rights, freedom to worship without fear of intimidation or harassment, freedom of speech, and protections for all citizens regardless of race, gender, age or disability.”

And these things don’t already exist? I’m sorry, I must have missed the part when Trump campaigned on a platform of repealing the Civil Rights Act and the 1st Amendment.

“We believe that all women’s issues are issues faced by women with disabilities and Deaf women.”

You already included “disabled women” above in your laundry list of female subgroups. But I guess the irony of treating the disabled differently by pointing them out in particular is lost on you. Oh, and when did deafness not become a disability? So blind women are disabled but deaf women are not? So confusing…

“Rooted in the promise of America’s call for huddled masses yearning to breathe free, we believe in immigrant and refugee rights regardless of status or country of origin. We believe migration is a human right and that no human being is illegal.”

Agreed – of course Obama deported more “illegals” over 8 years than even Bush. So there’s that. But why let partisanship get in the way of holding your leaders accountable.

“We believe that every person and every community in our nation has the right to clean water, clean air, and access to and enjoyment of public lands.”

I guess the irony is lost on you that you are beseeching the government to maintain this right when in fact it one of the world’s biggest polluters. It also uses as a perennial excuse it’s own failure to protect the environment to justify even more funding. Normally doing a poor job gets you fired, not a raise.

“We believe that our environment and our climate must be protected, and that our land and natural resources cannot be exploited for corporate gain or greed – especially at the risk of public safety and health.”

Yes it would be far better to let everything in the world lie fallow and unused. This is Snow Globe Environmentalism – the notion that the Earth is a static bubble that man must not disturb. Everything has a trade off. The balance is found through the discovery process of the market price system. Not by top down edicts that would condemn 95% of the human race to death if they got their way (through elimination of electricity and mechanized agriculture).

We now return you to our regularly scheduled apoplectic Trump bashing for things we think he might do.

A Kontradiction

A recent Washington Post article purports to bail Paul Krugman (New York Times columnist and Nobel-winning “economist” aka water boy for Hillary Clinton and the DNC) out of a glaringly breathtaking contradiction. Krugman’s 180° flip involves his sudden hawkish attitude toward budget deficits whereas when it looked as though Clinton’s coronation was imminent last fall it was “spend baby spend” time. A one Matt O’Brien with the Post now tries to rescue Krugman from his own Kontradiction (def. Kontradiction: the fairly regular phenomenon whereby Paul Krugman supports the exact opposite of something he previously wrote while himself remaining unaware of his own hypocrisy). For a complete takedown of Krugman on this issue listen to ContraKrugman.

The core of O’Brian’s defense of Krugman’s reasoning is that at a Federal Funds rate of 0.25% government borrowing exerts no upward pressure on interest rates (because the private sector is not borrowing). But at a rate of 0.50% now magically the reverse happens; more, not fewer, businesses are interested in borrowing at a higher rate (?) and so government borrowing will exert upward pressure on rates and crowd out private borrowing. So because rates are today a hairs-breadth higher than last fall a flip on deficit policy is warranted. The special pleading is strong with this one. His argument only works if you carve out this nonsensical exception to the normal laws of supply and demand. Government borrowing at any interest rate will crowd out the private sector and cause rates to rise. This doesn’t magically change the closer one gets to a rate of zero.

However, that is not the most inane contention in O’Brian’s article. He states:

“If businesses won’t borrow even when interest rates are zero, the government can do so without having to worry that it’s using money the private sector wants.”

Let’s just tick off everything wrong with this statement. Businesses are still borrowing; to suggest otherwise is dishonest to put it mildly. Second, the Federal Funds rate (0%) is reserved exclusively for interbank overnight loans at the Federal Reserve. So no, businesses were not stupidly passing up 0% rate loans. Lastly, government borrowing would impact money the private sector is competing for even if somehow the government was the only borrower. Borrowing equals taxation. Although one-half of the borrowing equation is voluntary, the other unseen half (repayment) is not. This is a classic case of Bastiat’s “seen and unseen”. Every dollar someone lends to the government is one dollar less they have to spend elsewhere. It shifts spending from those industries otherwise favored by individuals and toward those favored by government. Although the individual lending favors investment, their investment dollar is still directed to government ventures rather than private ones. Whether you agree or disagree with how the funds are redirected is irrelevant, the fact of the matter is it occurs, therefore the private sector is impacted. The next unseen effect is loan repayment. Government bonds, and the interest they earn, can only be paid back by either (a) increased borrowing or (b) increased taxes. To the extent more of (a) occurs than (b) debt will skyrocket into a death spiral. This is our present situation. But if (b) is used to return funds then obviously all we have done is shift the tax burden from the present into the future. Future taxpayers must then support themselves and us.

I agree with 2017 Krugman. Deficits do matter. Deficits are an immoral act of violence. Deficits are the product of borrowing and borrowing is political cowardice. It takes no courage to give your constituents gifts that their grandchildren will have to repay. Government debt is even more morally repugnant than taxation. At least with taxation the present generation must bear the burden of the policies it puts in place. If the burden becomes too great, then democratic methods (in theory) will push for a change in policy. But borrowing unfairly shifts our burden onto a generation that never had a voice in the decision. Borrowing breaks the democracy feedback loop and permits unlimited dumping of the costs of current policy onto the future. There is so much concern over how our actions today affect the climate for future generations but ironically no concern whatsoever how our spending today will impact the standard of living for future generations who are forced to repay our profligacy. But I suppose Krugman would find no Kontradiction there.

Mother may I?

You walk outside one morning and witness your neighbor struggling to move a tree that has fallen across his driveway. Do you (a) ask him how you can help or (b) compose a letter to request a hearing before the town council in order to request permission to assist your neighbor? You request contains a detailed outline of your proposed methods of assistance whereupon you dutifully wait 2-3 weeks for a response back from said council. If you’re like 99.999% of people on this planet you go with (a). And that right there is what the free market is all about. People identifying a problem encountered by their fellow man, visualizing a solution, and then offering that solution If the solution is desired then people will show their acceptance by voluntarily engaging in trade in order to obtain said solution. If not desired then no such trade takes place.

But that is not the world we live in. There is no free market in the US or anywhere else in the world. There must be a defect in humanity that inflicts some with the instinct to force their ideas of what is normal or right or fair onto those that happen to be in proximity to them. In other words, we have a “permission market” – if you wish to solve a problem and offer the solution to the world you must first seek out the permission of these self-anointed guardian and kiss their ring on bended knee.

A recent example of this ring kissing involves a company “VidAngel” – a streaming service brought to market by two brothers who wanted to stream movies to their home with certain profanity or violent acts omitted. They searched high and low and when they couldn’t find anyone offering such a service, they started one! As an aside, this is how many such innovative companies get a start – unable to find a solution to a problem the entrepreneur solves the problem and then markets it to others with the same problem. CEO Neil Harmon recently explained on the Tom Woods Show podcast that when they started out they knew there would be copyright challenges to what they were attempting (witness the fall of Aereo, another innovative problem solving company) so they made sure to strictly follow the letter of the law. Their service, they contend, falls under the Family Movies Act, which gives consumers the right to filter movies they own – on videotape. So in order to comply with that antiquated provision they actually purchase on the consumer’s behalf a DVD or Blu-ray disc that is dedicated to only that consumer. Then their software allows the consumer to selectively remove certain words or content. Don’t like the “f” word – then delete away! Ok with profanity but don’t want violence? No problem! They were not secretive about their business. They requested licensing arrangements from all the studios. Some granted a license, but for those that did not, they followed the disc per consumer route. Then the big three (Disney, Warner Bros and Fox) decided to put an end to their little endeavor – not alone mind you, but with the help of the United States Federal Government. You see government is here to protect our rights, even the imaginary ones (copyright, trademark, patent and before that, slavery). VidAngel has now been shut down due to an injunction issued from U.S. District Court in California.

Even in the permission market it’s not enough to ask and get permission, you are also subject to the mercurial whims of those in power. Almost enough to make one have second thoughts about starting a business…nah… regulatory uncertainty would never have an impact on business starts and job growth.

The Rise or Fall of Socialism

Is socialism on the rise (Bernie Sanders)? Or is it on the decline (Venezuela’s economic implosion, Brazil’s impeachment of their socialist President, Cuba and North Korea’s decades of abject poverty)? To be fair, one could likewise cite the relative success of China, Denmark, Norway, or Canada as proof of socialism’s success. Why the difference? Why are some putatively socialist countries not total economic basket cases whereas others clearly are? To uncover the answer we must understand why some groups of people come together and achieve their goals while others fail. In any endeavor there is a group of individuals who have tight control over the means of goal achievement. This allows them to direct those means so as to ensure an efficient operation that will achieve the desired ends. Does that not remind you of something else? Like say a business perhaps? The reality is that the modern nation-state is simply a really big company, with shareholders (citizens), a board of directors (congress/parliaments) and a president running the show. Unfortunately this is one corporate stock you can’t sell if you disagree with how the company is being run.

So if states are structured as a business, why do some fail and some thrive? For the same reasons any business might fail or thrive. Success entails the optimization of three factors: consent, control, and resources. All factors play a role, however any one of them can overwhelm the others. This is the reason we see very different outcomes in a variety of nominally socialist countries, e.g. Venezuela vs. Denmark. It is not enough to cite Cuba (excessive level of state control) as a failure and therefore close the case on socialism. Were that the case then one would be susceptible to charges that capitalism can’t “work” because sometimes a business goes bankrupt. However it is just as disingenuous for those on the left to cite oil-rich Norway (abundant resources) as proof of socialism’s success. If Cuba had Norway’s oil resources it would be faring far better. Or maybe not, as in the case of oil rich Venezuela which too suffers from excessive state control of the economy and is presently circling the drain.

Countries that exert a high degree of control (totalitarian) over their citizens will always experience less “success” than those that exert little control. Less control means greater freedom to innovate and solve problems from the bottom up rather than the top down. Formerly socialist/communist countries (China, Vietnam) that have embraced the benefits of freedom (that is, free vs. state managed markets) within their borders have seen improved standards of living relative to those that have not (Cuba, North Korea, Venezuela). As a country or business grows in size, efficient control becomes exponentially more difficult. This is due to the Hayekian knowledge problem. Stated simply it is the reason that a family farm runs smoothly but a state run collective not so much. Unfortunately, those in charge don’t realize they lack the appropriate knowledge and thus make sledgehammer style choices that only serves to undermine the endeavor. The solution to the size-control problem is to move toward less control and smaller size through decentralization. Large businesses with autonomous subsidiaries have mastered this problem well.

A critical and often overlooked factor in the success of a state is consent. Without consent the process will be crippled if participants undermine or refuse it. This is a key difference between business endeavors and state endeavors; states always compel those who do not consent to participate. Businesses cannot force people to work for them or for customers to buy their products. Apathy was not an option when it came to the rise of 20th century socialism. The motto of Russia, China, Vietnam, and Cambodia: join us or die. Democracies maintain an illusion of consent that mollifies a credulous citizenry into the quiet acceptance of being ruled. They are better than dictatorships, but not by much, and fall far short of the benefits one would see with true pluralism.

To make America great again we must recognize that while our resources are substantial our size puts us at a disadvantage. The only way to overcome that disadvantage is to loosen, not tighten, the reigns of economic control and to foster true consensual pluralism by permitting those who wish to not participate in the dominant system to work toward building alternatives that will expand, not constrain, choice.

Honey I Shrunk the Seat!

Senator Chuck Schumer (D-NY) recently introduced an amendment to an FAA reauthorization bill that would have required the FAA to set minimum values for how narrow and close commercial airline seats may be. Fortunately, this amendment was rejected last week.  While those of us who have flown in recent years (and experienced firsthand the “Honey I Shrunk the Airplane Seat” phenomena) can all certainly sympathize with the goals of such legislation, it would nevertheless be a gross violation of the rights of the airlines to dictate how they may or may not utilize equipment THAT THEY OWN. Of course there already exists an ever-expanding regulatory framework that strangles other businesses similarly. So how is this any different? It’s not. And that’s what is so scary – it was rejected not on principal but rather because it was visible. Visible government intrusions send the wrong vibe to a supposedly freedom loving populace. But invisible intrusions go on every day and are of course perfectly fine. If the death penalty were required to take place in public it would be ended immediately; but when done behind closed doors the public in general couldn’t care less.

Such reflexive urges to regulate by those “in charge” of our lives are a predictable outcome of their glaring ignorance of basic economics. It is the usual story: government engages in Practice A which stealthily causes Harm B and so our great benefactors must now step in to save us from the very harm they caused in the first place. For example, the federal government, through its puppet the Federal Reserve, is constantly inflating the US dollar. This steadily erodes the value of said dollar until after many years the drips of annual inflation have carved a canyon of lost value. There are two ways to respond to this declining value: raise prices, or, maintain prices while reducing quantity/quality. For example, boxes of cereal now contain 15% less than they did only a few years ago but are marketed at the same price point. It is a surreptitious form of inflation that consumers don’t immediately recognize but is just as injurious to their buying power as is rising prices.

Competition has become so fierce that a game of chicken has ensued where no one wants to be the first to raise nominal prices. This has occurred with airlines as well. Although ticket prices may have risen or fluctuated with fuel prices, such prices are, all things equal, less than they otherwise would have been had seat sizes not shrunk. Getting 10-15% more seats on a plane means lower average cost for each flyer. It is simply a natural response to the incentives created by government interference in the economy (Fed money printing). Eventually seat sizes will decline to a level where ridership will drop off. At that point the industry will know they can go no lower. But that is how the market works; the feedback of profit and loss tells businesses if they are doing good or doing poorly. Top down regulations subvert that process and prevent the voice of the consumer from being heard.

Actually, progressives like Schumer should appreciate the spectrum of market prices engendered by this seating freedom. It incentivizes those who value comfort over money to pay ever-increasing prices for the larger seats. These higher prices can be used to subsidize other ticket classes thereby expanding fare access through lower prices or halting the size decline. By allowing consumers to vote with their dollars the market delivers what consumers, in aggregate, are willing to accept. While any single consumer may disagree with where that point is, it should no more be the right of a minority of consumers to dictate to all what they should be able to buy any more than a minority of busybody senators should be able to dictate to a nation how they may live their lives.

Muh’ Science!

Even among those that profess a belief in limited government there is an ready willingness to join hands with the big-government progressives on the subject of science funding. I mean, any fool can see we need government to fund science – no profit-oriented business would fund basic science research if the probability of a marketable product resulting were unknown. A recent article in Scientific American (Feb 2016, pg 11)  editorializes on this very viewpoint – that “without government resources, basic science will grind to a halt.” The irony within the article is that the author doesn’t realize the evidence he cites to advance his position in fact undermines, rather than bolsters, his argument. He claims private profit seeking businesses would never have an incentive to pursue such research… right after citing how such businesses used to do exactly that (AT&T Bell Labs and Xerox PARC). Gee, I wonder why they stopped? You don’t suppose it had anything to do with the ever expanding growth of government funding of basic science research? Indeed, why would any company make investments into basic science research if some other large entity (the government) is going to do it for them by publicly funding the research and freely publishing the results? The author then doubles down on the cognitive dissonance by calling those who believe that profit-driven companies will altruistically pay for basic science naïve. So people are naïve to believe that something that the author just cited as a past occurrence (privately backed basic science research) could occur in the future? Indeed, although it did snow last winter, now that it is summer I think it is naïve to believe it could ever snow again.

Truly there is no clearer case of the cart pushing the horse. The increase in public funding of basic science research was not a response to declining private funding; rather, it caused that very decline by providing an incentive for private industry to shift the risk burden onto the public.

If one is still unable to imagine a world without socialized science funding, then let’s examine history to see what the future might bring. Not only did we have the private labs of AT&T Bell Labs as well as Xerox PARC as free market models, we also had non-profit philanthropic foundations, such as the now over one-hundred year old Research Corporation for Science Advancement. Research Corporation, while philanthropic, follows a sound business model. They invest in basic scientific research at universities and when that research yields results that can be commercialized they package the technology and transfer the patents and use the profits to support future research grants.

Imagine that, a free market approach to funding basic science research that is both sustainable (success breeds more success) and does not require theft (taxation) in order to fund it. These are but a few examples of how the free market did, and can once again, provide support for basic science research and puts the lie to the assertion of the state-worshipers that such things are impossible without government support.

Trade Balance

Last week’s article touched on seen benefits and unseen harms wrought by political intervention into people’s lives. This week we pivot to a somewhat new corollary of that principle, that of imagined harm. This is harm that can’t exist but because of a fundamental ignorance one has an expectation that it will occur. Ignorance of economics leads to a broad range of bad predictions and decisions and even businessmen (e.g. Donald Trump, Warren Buffet, etc) are not immune to such ignorance. Despite Trump’s repeated protestations that “we” (America) are “losing” because of the presence of trade deficits with some countries (notably Mexico and China) there is simply no cause for concern. The current trade deficit between the US and Mexico is $58 billion. That means that Americans purchased $294 billion in goods from Mexico but Mexicans purchased “only” 236 billion in US goods.  In Trump’s mind (and many others) this constitutes a loss. Well if that is so I guess I had better stop buying my groceries from Publix – my family’s trade deficit with Publix is thousands of dollars every year! Yes, I would be much better off if I grew all my own food, than my trade deficit with Publix would be zero. Do you see how ridiculous this sounds now? So to solve a trade deficit Americans should pay even more for the goods they want? This is supposed to somehow compel the Mexican government to coerce its citizens into buying more US goods? How can any government make its people buy more from a particular country? Countries are not monolithic entities; they are composed of individuals.

Trade is not a zero sum game where one side “wins” and the other side “loses”. Both sides gain or profit from any trade in the sense that if either party did not value the thing they got more than the thing they gave up they would not have engaged in the trade. Trump and his ilk view trade like a game of Monopoly because they fall for the fallacy of anthropomorphizing countries into single actors and then distill all trade down to a single good: money. So in his mind the US gave Mexico $294 and Mexico gave the US $236 – as though they were just swapping currency and nothing else. Yes, that would be a loss, but that is not at all what is going on. It is an absurd distillation of the transactions of millions of individual actors into a meaningless aggregate. To get a clearer picture of what is going we need to disaggregate these numbers. Let’s imagine that Joseph buys $10 worth of goods from José. Joseph now has a $10 item and José has a $10 bill. Who lost here? No one. Trump would view this as a $10 trade deficit. But a deficit implies some sort of debt obligation, that something is owed, but nothing is owed, both sides swapped value for value. Now imagine that José buys $7 worth of goods from Joseph. Joseph now has $3 in goods and $7 cash, or $10 of value. José now has $3 in cash and $7 in goods, again, $10 in value.

Indeed all trade follows the rules of double entry accounting. Mexico’s cash account goes up while their goods account goes down: in balance. The US’s goods account goes up while their cash account goes down: in balance. Claiming a trade deficit exists is the equivalent of looking at only one side of a standard accounting balance sheet and claiming it is not balanced because one refuses to look at the other side of the sheet.

To the extent that jobs and industry are moving out of the US and that this harms in the short term those that lose their jobs perhaps it would be more appropriate to not lay blame at the feet of those business moving away but rather ask the origin of the incentives they are responding to (regulations, unionization, taxes anyone?)

Trading Places

A basic economic principle is the necessity of accounting for both the seen and the unseen (first elucidated by the great French economist Frédéric Bastiat). It provides a basis for understanding how politicians perennially cast themselves in the role of Santa Claus whilst picking our pockets. We are a willing audience to the magician who dazzles us with (for example) public works project (the seen benefit) while remaining unaware of the unseen harms unfolding (those things not done, created, or attempted due to diversion of resources into the political projects). The principal works for any intervention into people’s lives. For example, sanctions or trade embargos are often put in place in order to influence the actions of the leaders of another country. Although there is not a single historical precedent for this ever working, it remains the most popular passive-aggressive tool in the arsenal of the state. The language used to speak of such embargos employs the ruse of anthropomorphization (“America” cuts off trade to “Iran”) in order to hide the underlying reality that rather than the target country being harmed it is the individuals that constitute that country that are harmed. See, it’s not millions of people being made to suffer; it’s just a nebulous non-human “country”. Those who engage in these practices of course understand the reality of weighing human suffering and misery against the greater good of their desired ends. Indeed it was Madeline Albright’s admission that the deaths of approximately half a million Iraqi children during the 1990s sanctions against Iraq were “worth it” in order to achieve their goals (this remark was specifically cited by Osama Bin Laden as one of the many reasons behind the 9/11 attacks).

But that is just the seen harm. There is also an unseen harm levied against US citizens and businesses who are barred from trading with the country embargoed (for example, Iran). Iranians want to buy US made goods. US businesses want to sell those goods. We have a willing buyer and a willing seller being prevented from engaging in trade because of a belligerent busy-body-bully in the middle. Those lost sales for US businesses will not be made up somewhere else – they are simply gone. These missed opportunities lead to more unseen harms – lost jobs, or rather jobs that would have been created but never were.

To the extent US businesses have foreign competitors in countries lacking an embargo against Iran then it is our own government that is pushing sales into the arms of their competitors. Brilliant. Some might say that this loss in sales to US companies is “worth it”, that it is their patriotic duty to suffer through such lost sales in order to help our country battle the existential threat we face from a country… that has never threatened us nor attacked any other country in over two-hundred years. Well that is certainly easy to say when you’re not the one cruising past potential income you are barred from touching. Ask yourself, would you willingly skip annual bonuses if your government told you it would help influence Iran? Yeah, I didn’t think so. And apparently Boeing doesn’t think so either   – this politically well-connected company managed to get itself on a short list of companies exempt from the current trade embargo with Iran. How convenient. Apparently the expediency of pleasing big donors trumps the so-called “national interest” that applies to everyone else. Justice for all indeed.