Clarifying My Comments on the Twitter Exchange Between Rep. Amash and Scott Adams
[UPDATE: Amash clarified what happened; see the bottom of the post. Now I can sleep peacefully.]
In Episode 799 of the Tom Woods Show, I was the guest and we were talking about the Carrier deal. Tom brought up the fact that I had mentioned on Twitter that I thought Rep. Justin Amash (R-MI) had misunderstood (at least initially) the point that Dilbert creator Scott Adams brought up.
I’ve had a few people challenge me, saying that *I* was the one missing things. I wasn’t going to bother with this, because I don’t want it to seem like I was taking Trump’s (or Adams’) side on the broader debate. FOR THE RECORD: I TOTALLY AGREE WITH JUSTIN AMASH’S DEFENSE OF FREE TRADE, AND HIS OPPOSITION TO TRUMP’S THREATS AGAINST U.S. COMPANIES THAT ARE CONSIDERING OUTSOURCING.
However, since I guess the cat’s already out of the bag, I might as well be clear on exactly what motivated my remarks on Tom’s show. One last thing, though: If you go and listen carefully, I hedged and said something like, “At the very least, one reading Amash’s tweets would understandably *think* that he didn’t get the point.”
So anyway, here we go. I’ll paste in a selection of Amash’s tweets taken from the debate, with my commentary following each:
This would be a 35% tax on all Americans—a tax that especially hurts low-income families. Maybe the slogan should be #MakeAmericaVenezuela. https://t.co/eNBpbJWEOf
— Justin Amash (@justinamash) December 4, 2016
This is what got the ball rolling. Clearly, at this point Amash is thinking of a general tariff that actually gets implemented. If he *weren’t* thinking that, then the 35% figure would be wrong (because it would be arbitrary). For example, suppose it would only take, say, a 28% tariff to scare every US firm and keep it from outsourcing. Well then, if Trump had threatened a 28% tariff, then no company would move, and Amash would tweet, “This is a 28% tax on all Americans…” If Trump then jacks it up to 35%, it would still be the case that no company moved, but that wouldn’t make their products more expensive yet again. In that case, Amash would still have to write, “This is a 28% tax on all Americans…”
Thus, at this initial stage, when Amash is first responding to Trump’s twitter rant, it is clear that Amash is thinking the 35% tariff will actually be triggered, and *that’s* why Amash is (correctly!) saying it’s not just a penalty on the outsourcing company, but on American consumers.
In the next stage, Scott Adams replies:
No, the whole point is that no company would move with that risk hanging over them. So no tax is triggered. https://t.co/1XJnuiuIyp
— Scott Adams (@ScottAdamsSays) December 5, 2016
OK, so we see that Adams is challenging the initial logic. (By the way, I had never considered this possibility until Adams brought it up. I don’t know whether Trump himself was thinking this.) OK fair enough. Let’s see what Amash says in reply:
No. American consumers are taxed even if no companies move. Tariff increases production costs & limits competition. This is basic economics. https://t.co/JjBAnpflbE
— Justin Amash (@justinamash) December 5, 2016
OK, so *this* is the point where I, Bob Murphy, jumped into the twitter debate. At this point, it sure seemed like Amash missed what Adams had argued. For one thing, Amash is talking about a tariff increasing production costs. But in this scenario, there IS NO tariff. Rather, it’s the THREAT of a tariff that is doing the work.
That may sound like quibbling to some (and we’ll get to that in a moment, over the narrow vs. broad use of the term “tax”), but look how weird Amash’s usage would be in other circumstances. Suppose Trump says, “If a CEO wants to outsource, I will shoot him in the head.” Then Amash says, “Outrageous! Bullets hurt brains.” Then Scott Adams says, “No, the idea is that no CEO will want to get shot in the head, so no outsourcing.” Them Amash comes back and says, “No, even if no company moves, the bullet still causes damage. This is basic physiology.” Wouldn’t people think Amash had misunderstood?
OK, you still don’t believe me? Then what about Amash’s claim in the tweet that, “This is basic economics.” If we interpret the previous sentence to mean, “A tariff is imposed on goods coming into the US,” then yes of course, it IS basic economics. But if we interpret the previous sentence to mean, “No tariff is actually imposed, but the threat of it keeps companies from outsourcing and thereby keeps their production costs artificially high, and makes US consumer prices higher than they would otherwise be,” then HECK NO that’s not basic economics. In fact this is the first time I’ve ever heard such a claim. I *agree* with it, but it’s not basic economics.
Thus, I think I was on solid ground when I said, at this point in the debate, that Amash had missed Scott Adams’ point.
Next, Amash tweeted out a link to Don Boudreaux’s blog post:
Open Letter to “Dilbert’s” Scott Adams https://t.co/w4nhqOmPGX
— Justin Amash (@justinamash) December 5, 2016
Now here I made a mistake. I started skimming Don’s piece, and saw that he immediately said that Amash was right and Scott Adams was wrong. Since at this point I was confident that Amash had misunderstood Adams’ point, I stopped reading (I was in an airport, cut me some slack) and I tweeted that Amash and Don were both missing the point. However, I realized later (when I had time to carefully read Don’s post) that Don fully understood Adams’ point, and gave a great reply.
At this point, let me just post a screen shot of the back-and-forth Amash and I had:
OK, so after I said I thought Amash and Don were missing Adams’ “narrow point,” Amash assures me he gets it. I PROMISE YOU, folks, at this point I totally believed him. After all, Amash is a sharp guy, and Adams’ point wasn’t too hard to grasp.
So I threw in the towel, and said, “OK,” and just clarified why I thought he had been unclear by calling it a tax, rather than a *threat* of a tax. I was ready to walk away; my work was done here. At this point, I would’ve bet $1,000 that Amash understood Adams’ point.
And yet… and yet… look at how Amash then replied to me, in the last item above. The entire point of Scott Adams’ argument was that no tariff would exist. And yet Amash chooses to wrap up the debate by saying, “…the existence of a tariff increases prices…” Again, for someone trying to convince me that he understands we’re talking about a scenario where no tariff exists, summarizing his whole position as being based on the existence of a tariff is a bit confusing.
In light of the above, I stand by my remarks on Tom’s show. After his last comment, I would no longer bet $1,000 that Amash fully grasped Scott Adams’ original point. Maybe he did, maybe he didn’t, but at this point I was once again unsure.
AND JUST TO REPEAT: I TOTALLY OPPOSE TRUMP’S THREATS AGAINST COMPANIES. I SUPPORT AMASH’S DEFENSE OF FREE TRADE.
Update: Amash read this post and then resolved all problems by explaining:
@BobMurphyEcon Ha. Twitter's character limit has made this more complicated than necessary. Tariff can exist (in law) even if not triggered.
— Justin Amash (@justinamash) December 10, 2016
Assume it costs 30% more to produce a good in the U.S. than overseas. Company wouldn’t move, tariff wouldn’t be triggered, but Americans still pay 30% more than they otherwise would, due to “nonexistent” tariff. I think that’s what Amash was talking about.
For sure, that’s what DON was talking about.
But was that what Amash was saying? I honestly have no idea at this point. Notice that you yourself, in describing the scenario, talked about a “‘nonexistent’ tariff.” In particular, you didn’t use the phrase “existence of a tariff” to refer to a tariff that doesn’t exist. So it’s clear to me that YOU get Adams’ point, but I’m still not sure about Amash.
fo sho fo sho bro.
How is the threat of a tax different than an actual tax in economics?
I suppose it’s not stealing if I say, don’t cross that bridge or I’ll rob you. But if I just start stealing from everyone crossing the bridge and everyone knows im doing it. Won’t the change in behavior be the same? Maybe there’s a difference until people catch on but as long as the threat is backed up and as long as I keep stealing, it ultimately seems the same which would make adams’ distinction meaningless.
I can’t tell if I’m misunderstanding you, Adams or Amash anymore. For what it’s worth, I don’t know what constitutes basic economics but I initially thought amash meant what you refer to as not basic. I don’t know if I’ve seen it laid out like that before but it seems like a logical extension of the same “basic” idea.
How is the threat of a tax different than an actual tax in economics?
You just used different words. So they’re different.
The dispute was resolved in the UPDATE at the bottom of the post. Amash was thinking as a legislator, that the tariff would actually exist AS LEGISLATION even if it weren’t triggered.
Sort of like, if the top marginal tax rate were 99% for incomes above $1,000,000 and so nobody (on paper) had an income that high, then we would say the tax still exists even though it wasn’t triggered.
Yes, exactly. Justin Amash is saying that the legal existence of tariff has economic effects even when it is not triggered.
Keshav wrote: “Yes, exactly. Justin Amash is saying that the legal existence of tariff has economic effects even when it is not triggered.”
Right, Keshav, after I wrote this post and Amash responded to it, we have resolved our misunderstanding.
If you’re saying, “I would never have been confused at any point in this exchange, Bob,” then OK that’s great. I explained in the body of the OP why I was, and I still think my confusion was understandable.
Yeah, I’d never criticize someone for misunderstanding something. It’s a natural part of the human condition.
By the way, do you now agree that Justin Amash did rebut what Scott Adams was saying?
There’s clearly a difference in terms of government revenue.
Suppose Trump imposes a smallish 5% tariff on all HVAC units coming from Mexico, well the difference in wages might be large enough that the company just pays the 5% and moves their factory to Mexico anyhow. Now government has a steady revenue stream to pay unemployment, or medical benefits. Consumer prices for HVAC units probably would go down, but not as much as they might otherwise have gone down.
As an alternative scenario: Trump might order the border security to shoot on sight anyone caught importing an HVAC unit. So there’s no possible tax revenue collection; but there’s not many people interested in putting their life on the line just to sell an HVAC unit so it will change behaviour, and maybe increase consumer prices. This second scenario ends up costing the government money for enforcement, but they can’t cover any of those costs.
When I read that, I presume that Justin Amash is talking about the opportunity cost of not moving. Seen vs unseen: Amash uses his imagination to estimate that American consumers would be better off with HVAC units made in Mexico. Thus by preventing the move, Trump has made American consumers miss out on the potential benefit they might have gained (thus hurting low-income families).
Scott Adams sees costs only in terms of a tangible amount you need to pay. If there’s no change from the current situation then no direct cost is imposed… but opportunity cost still exists if merely remains unseen.
Hmmm, I think it’s confusing to say “increases prices” when clearly the structure of production has not changed so the prices would not automatically change. Perhaps what he means is that government prevents prices from reducing, which does hurt the consumer, but no actual tax is collected. Perhaps he believes that Carrier would change their business strategy once they understood that Trump was using protectionist policy. Maybe they would, but there’s no proof of that. It’s not impossible that prices might even reduce under protectionism because perhaps Carrier realises there’s better economies of scale, or perhaps it becomes worthwhile investing in some new technology inside the protected market. This is all speculative but not impossible.
I might also point out that modern welfare states impose very strange externalities which IMHO are poorly understood. For example, when the guy next door to me loses his job, government will pay out unemployment benefits and also government will stop collecting tax from that guy… as a result my tax is highly likely to go up (else it gets dumped on the deficit and my children are held to ransom). Thus, I am punished for my neighbour being out of work. However, other people such as government employees and social workers may get a boon if my neighbour is out of work because they have a new client.
“Basic economics” is an abstraction. It only applies more or less in the real world. (Much like frictionless physics.)
I hope this teaches you a lesson about the dangers of always being such an honest guy. 😉
‘ FOR THE RECORD: I TOTALLY AGREE WITH JUSTIN AMASH’S DEFENSE OF FREE TRADE, AND HIS OPPOSITION TO TRUMP’S THREATS AGAINST U.S. COMPANIES THAT ARE CONSIDERING OUTSOURCING.’
So you’re anti-Trump but not always anti-anti-Trump ?
So you’re anti-Trump but not always anti-anti-Trump ?
Usually.
I think Bob would prefer to put energy into addressing the specific non-libertarian things that Trump is doing; rather than boldly cutting down a bunch of artificial straw-men dressed up in MAGA hats and quiffy hair.
It is possible to dislike the fact that Stalin was a mass murderer but still appreciate his impressive moustache. A lot of tribalists find that concept way too subtle.
I was panicking as I read this piece because I hate misunderstandings like this one but the update made me feel fuzzy inside again.
Bob, I really don’t see what you’re complaining about. Trump proposes a 35% tariff on companies that outsource jobs. Justin Amash responds that that amounts to a tax on all Americans. Scott Adams responds that the whole point is that the tariff will force companies to stay and so the tariff will not be triggered. Justin Amash responds that a tariff even when not triggered constitutes a tax on all Americans. Don Boudreaux makes the same point. The end.
Now I do agree with you on this: “For example, suppose it would only take, say, a 28% tariff to scare every US firm and keep it from outsourcing. Well then, if Trump had threatened a 28% tariff, then no company would move, and Amash would tweet, “This is a 28% tax on all Americans…” If Trump then jacks it up to 35%, it would still be the case that no company moved, but that wouldn’t make their products more expensive yet again.” Tha is one minor thing that Amash got wrong. But I don’t think Scott Adams was pointing that out. Scott Adams was mistakenly thinking that tariffs do not constitute a tax on Americans unless they’re triggered, and Justin Amash and Don Boudreaux refuted that.
Also, I don’t understand this part: “But if we interpret the previous sentence to mean, “No tariff is actually imposed, but the threat of it keeps companies from outsourcing and thereby keeps their production costs artificially high, and makes US consumer prices higher than they would otherwise be,” then HECK NO that’s not basic economics.” If outsourcing reduces consumer prices, then doesn’t basic economics tell us that using force or the threat of force to discourage outsourcing keeps prices artificially high?
“But I don’t think Scott Adams was pointing that out. Scott Adams was mistakenly thinking that tariffs do not constitute a tax on Americans unless they’re triggered, and Justin Amash and Don Boudreaux refuted that.”
Sounds to me that this debate was merely about folks expressing their own definitions of “tax”.
Adams defines tax as money actually taken.
Adams and Boudreaux define tax as the existence of a tax law on paper that is not necessarily exercised.
Oops, that last bit should have read “Amash and Boudreaux…”
I think Amash and Boudreaux are saying something a bit stronger than that: not merely the existence of a law on paper, but the real negative economic effects that follow from the existence of the law on paper.
Yes. They are asserting that the implicit threat affects behavior in itself, and that this is deleterious.
Right, but that follows from the definition they use.
If you asked Adams whether a tax on paper has some real effect on the economy, he would probably agree.
But I think Adams was talking about tax dollar flows only.
How is it not a subsidy to foreign companies to charge American companies an income tax to access America’s division of labor, but not to charge foreign companies a tariff for access to America’s division of labor?
I agree with Tel’s analysis above — I think foreign companies would almost totally absorb a smallish tariff. Access to American markets (or any relatively higher division of labor economy) has a value to their production structure just as much as any other factor of production. My guess is that American consumers will not pay significantly higher prices, the loss will mostly be borne by other factors of production.
If we have to have income taxes, why not tariffs to even things out? Is there something wrong with this analysis?
OK, so I see it’s crickets here, too. I can’t really tell if I’m a moron, or this is just a really hard question. How about this —
Suppose America replaced income taxes with a national retail sales tax. How would this impact the situation?
If you answer “This change in policy would favor domestic companies over foreign companies compared to what we have now, because it would transfer some of the tax burden to foreign companies,” then I think that you agree that the current tax scheme is a foreign subsidy.
To disagree, I think you would have to say…well…something really weird. I’m sympathetic to the idea that people will just change behavior to reflect some immutable underlying reality (well…immutable by taxation anyway) so that it doesn’t really matter how you charge them, it matters more what the overall level of taxation is. But I’m not too sure that anybody really believes that (maybe he’d agree to a 100% income tax on himself, because what-the-heck, nobody really knows where the tax burden falls anyway?)
But maybe I haven’t thought it completely through. And maybe I’m butchering things. Any suggestions?
This sounds like an anecdote from the Reagan era where RR threatened Japanese automobile manufacturers with tariffs if they didn’t raise their prices. Of course it boils down to protectionism/price manipulation. The bottom line is, threats still motivate price movements away from where they’d fall naturally, and this is bad for consumers. Right?