14 Dec 2016

One Last Post on the Trump Carrier Stuff

Economics, Trade, Trump 25 Comments

Following up on this post, let me reframe things in the following way. NOTE: I truly am not posting these thoughts as a, “Nana nana boo boo, what a bunch of hypocrites!” I really just think this is curious/interesting, and so I’m encouraging people to dig through their intuitions and see if they can refine them into a coherent framework that still spits out their desired answer on each question.

Suppose I approach an American who is a big fan of free-market economics and libertarian political philosophy. I say to him (let’s assume a guy):

There’s a manufacturing company, let’s call it A, that competes with dozens of American manufacturing companies, that I will call B, C, D, E, … Z. Now it just so happens that right at this moment, company A faces lower taxes and regulations than do B, C, D, … and Z. It is obvious that this disparate treatment makes it harder for these companies to compete with company A. Now the question:

Should the US federal government adjust its own policies vis-a-vis company A, to remove this competitive advantage and force it to sell products to American consumers on the same playing field as companies B, C, D, …. Z? If you so desire, you can split your answer up into economics and political justice.

Given the commentary I’ve seen on social media the past month, I am pretty sure that the typical male American free-market economics libertarian would say, “Before I answer your question, you need to tell me: Is company A located inside or outside the United States? My answer depends critically on this point.”

Especially since this typical person is a fan of open borders and often complains about “arbitrary lines that bureaucrats draw on a map,” I find this response quite interesting.

25 Responses to “One Last Post on the Trump Carrier Stuff”

  1. Ryan Murphy says:

    If it’s taxes, then I want all taxes to be uniform, because I don’t believe you reduce government spending by cutting taxes for certain individuals. You will just increase the deficit or raise taxes for others.

    If it’s a regulation, I’m not sure what my answer would be. If it looks more like the Uber situation, I favor the unequal treatment. If it looks more like the tax situation, I would not favor it.

    I favor allowing foreign countries to subsidize American consumers by cutting taxes or skirting regulations because none of that has any of the aforementioned public finance implications. It’s about public finance, as I said in the last post when I kept mentioning public finance. And any “solution” that would involve leveling the playing field somehow among producers is clearly worse.

    Maybe you should just take it for granted when I (or others? I’m not sure who you are directing this to) say this about textbook neoclassical public finance. Not everything is a libertarian purity test.

    • Andrew_FL says:

      “You will just increase the deficit or raise taxes for others.”

      What amounts to a theory that any taxes someone does not pay are ultimately paid by someone else. Strikes me as dubious both as a positive proposition and atrocious as normative ethic proposition.

    • Bob Murphy says:

      Oh Ryan, why do you vex me so? I’m going to rearrange the order of some of your answer, when I respond.

      Ryan: “Maybe you should just take it for granted when I (or others? I’m not sure who you are directing this to) say this about textbook neoclassical public finance. Not everything is a libertarian purity test.”

      OK, but by the same token, when I tell you I’m *not* doing a libertarian purity test, maybe you can believe me too? I’m going to proceed to show you why your answer, on its own terms, is at best incomplete.

      Ryan: “If it’s taxes, then I want all taxes to be uniform, because I don’t believe you reduce government spending by cutting taxes for certain individuals. You will just increase the deficit or raise taxes for others.”

      Oh OK. So if Company A happens to be in Germany and it pays no VAT when it exports products to Americans, then by your principle above you must favor the US gov’t levying a compensatory tax on those German imports. This will (a) make the tax treatment more uniform and (b) bring in revenue to the US Treasury, lowering the deficit and hence the burden on future US taxpayers.

      Oh shoot, no that’s not at all what you think, you reverse yourself a few sentences later:

      Ryan: “I favor allowing foreign countries to subsidize American consumers by cutting taxes or skirting regulations because none of that has any of the aforementioned public finance implications.”

      So tariffs don’t have public finance implications? Is that what they say in the public finance textbooks?

      • Ryan Murphy says:

        I do not think it is a mainstream position in public finance that the VAT export exemption makes the field uneven. If I believed that the exemption created a wedge, that would be something to fight out at the WTO. If it doesn’t create a wedge, then the tariff has greater excess burden then other methods of raising revenue.

        I’ll get away from the peculiarities of the VAT. In the case of a flat-out export subsidy, I suppose the presence of the subsidy distorts the allocation of resources, and a tariff could be “fix” the distortion. But for people living in the United States, there is no difference between the subsidy in the foreign country and if it is actually cheaper to produce in the foreign country. It’s just a bad policy for the taxpayers of the foreign country. I see no policy implications for the United States.

        • Bob Murphy says:

          Thanks Ryan. Just to be clear, I appreciate your comments and I know you are stating standard results from public finance. I’m just quibbling over the application of the various principles to this specific case.

          For example, if Carrier moved outside the US, then the US government would no longer get revenue from it. But I haven’t seen people worrying that “allowing Carrier to leave would force the US government to raise everybody else’s taxes.” Yet if Carrier stays in the US, and Trump/Pence cut its taxes, then people worry, “This forces the government to raise everybody else’s taxes.”

          Yes, we can take it a step further and say that if Carrier leaves the country, then the laid off US workers get jobs elsewhere and pay taxes etc., but the train of thought goes a lot deeper than I saw most people taking it.

          My takeaway is that people were acting as if the analysis here were obvious, and only a fool or devil could deny it, when I think it’s a lot more complicated.

  2. Tel says:

    If “A” has some advantage like low tax, and it’s a completely comoditized market, then over time B, C, D … Z will be wiped out, leaving only A. Thus whoever thought they were collecting tax from B, C, D … Z is going to find themselves with a revenue shortfall. The outcome might be good in terms of lowering overall tax (one way to lower tax is find a high taxed industry and then bankrupt the entire industry). This reminds me of the Sheriff in Blazing Saddles who holds himself as a hostage.

    If “A” is inside the country, then when the inevitable happens and A is the only industry remaining, government will almost certainly forget whatever promise they made about low tax and start taxing A to make up for the lost revenue from all the others. If “A” is outside the country then government needs to look at some other industry and repeat the process.

    When I say “over time” what I mean is some time beyond the next election, or in other words, something that never happens so there’s no need to consider it.

  3. Harold says:

    If A is inside the USA, then the “just happens” part may be ignoring an important aspect. How did A get this beneficial treatment? If we pander to A in this case we are creating a moral hazard that will encourage B, C, D and E to do the same. If, for example, this was capturing children and threatening to kill them we would not wish to encourage such behavior. So I claim we cannot look at any real situation in isolation as a “just happens”.

    Having said that, it is worthwhile thinking abut hypotheticals to clarify our thinking as long as we recognize that we are not looking at reality.

    I cannot speak for free market libertarians, but I assume you are suggesting that they would say that for foreign companies the competitive advantage should not be removed, but if inside the USA the competitive advantage should be removed.

    They would obviously prefer removing the advantage by adjusting its policies vis a vis B,C and D by lowering taxes on them rather than raising taxes on A.

    Next favored would be spreading the tax equally across A, B C and D. Third favorite would be raising tax on A and least favorite would be leaving A with the advantage.

    I am not sure that this is the case. Given a “just happens” situation I think many free marketeer libertarians would prefer to leave the lower tax on A to raising tax on A.

    In the real world of course we do not get a “just happens” in this way, so we would have to consider moral hazard also.

  4. Josiah says:

    Wouldn’t the standard free market view be that the U.S. government should adjust its policies to the other companies, rather than to company A.

    For example, if a taxi company is having trouble competing with Uber because it has to comply with regulations and pay taxes that Uber doesn’t, then the free market response would be to eliminate the taxes and regulations on taxis, rather than raising taxes or imposing new regulations on Uber.

    • Dan says:

      It should be, but for some reason a lot of libertarians are now saying they oppose tax cuts if they aren’t fair. And the definitions of fair have seemed to be pretty arbitrary and inconsistent.

      • Josiah says:

        Suppose Trump went on television and said “The tax burden is too high. So what I want everyone to do is send in a video explaining why I am great. I will pick the best video and that person will get an exemption from paying income taxes.”

        How should this be viewed from a free market perspective? You could say “This isn’t ideal, but at least someone is getting their taxes cut.” But the change is so small as to be virtually meaningless.

        On the other hand, there are some serious second order costs to the initiative. Not only will people be wasting lots of time and energy making videos, but maybe people will also be less willing to speak out against the government because they are afraid it will hurt their chances of getting the tax cut.

        I’d say there are similar dangers with the Carrier deal. Instead of trying to figure out how to compete with foreign manufacturers, companies will pay lobbyists to get them favorable tax treatment. And Trump can use the prospect of dolling out the tax cuts as a way to curry political favor (I think Bob wrote a post a while back suggesting that these were inconsistent worries, but I think they can both be true).

        • Dan says:

          The state gives tax breaks for all kinds of incentived reasons. I don’t think the state should be involved in marriage at all, but I’m not asking them to raise married couples’ taxes to make things fairer for me. As long as the tax cut isn’t tied to the person/business initiating violence against an innocent person, I’ll take it.

    • Bob Murphy says:

      Except Josiah that “Uber” sounds German and authoritarian. So if Trump approves of Uber continuing to operate without taxi medallions, then apparently we should crack down on it.

  5. Giovanni T Parra says:

    The error Bob is making in all his points is to consider a government act as pure, without other consequences, implications or a hidden agenda: I believe that in most cases if the State stops collecting taxes from some specially-chosen individual it is more unlikely to reduce taxes for the others — and more likely to raise taxes, or inflate more, or to lead to a situation in which the chosen company destroy its competitors and then gets swallowed by the State etc. That is what we ought to expect from the State. In this case it doesn’t seem so clear that “every tax reduction is good”.

    • Dan says:

      No, he’s not making that mistake. He’s specifically addressed that kind of complaint in his response to David Henderson on that previous post, for example.

      Also, can you point to a specific example or two where the state lowered taxes for a specific individual and responded as you said they were more likely to? And how many people need to be a part of the tax cut before you’ll support it?

  6. Geraldo Quagliato says:

    As exemplified by the main post and the Ryan Murphy comment, the fact that some libertarians are contradicting themselves with their position in this issue and the this Carrier issue raises an important concern that should be already present in the import tariffs discussions among libertarians, but it is never mentioned: their medium-term consequences.

    Imagine a situation in which there are many companies producing some good internally in a less performant way than foreign companies do, but can compete with those because of tariffs. It is pretty clear for every non-economist that removing the tariffs would be good for consumers in the short-run, but in the long run that would bankrupt all the internal companies, leading to bad consequences everywhere.

    From the textbook viewpoint, that is nothing, it is just creative destruction and bad firms being driven out of the market for the great good, but in some situations the real-world is not so easy to handle: what if the majority of the country’s GDP is produced by those internally-inefficient-protected companies?

  7. Toby says:

    Don’t Lipsey & Lancaster (1956) pretty much teach us that it depends? https://www.jstor.org/stable/2296233

    Taxes tend to be distortionary but removing one distortion doesn’t necessarily improve matters.

    It’s the same story as with the tax interaction effect for carbon taxes.

  8. Transformer says:

    Would it be inconsistent to say

    – I am against distortionary taxes and tariffs and oppose them whoever imposes them.
    – I am therefore against distortionary taxes and tariffs even if they are proposed in the name of counteracting other distorionary taxes and tariffs?

    • Transformer says:

      should have said “taxes , tariffs and subsidies”

  9. Transformer says:

    It is perfectly reasonable to be in favor of 2 things

    1. Abolishment of all taxes, tariffs and subsidies affecting free trade
    2. For the state to treat all its citizens fairly

    When the state does something that is positive on one, but negative on the other a judgement call is needed.

    For example:

    The govt give s a huge tax break to a single company in return for a favor – then opposition to 2 likely outweighs support for 1

    The govt abolishes 90% of tariffs but says it leaving 10% in place for reasons of National security. Probably qualified support.

    Life is complicated.

    • Bob Murphy says:

      I am in favor of writing “abolition” instead of “abolishment.”

      • Transformer says:

        Is that the official libertarian position or just your opinion?

        • Bob Murphy says:

          What are you talking about? That link backs me up.

          • Transformer says:

            ‘ abolition has always been more common, and it now appears about ten times as often as abolishment.’

            I’m just sticking up for the underdog. I’m against the abolishment of underused synonyms..

  10. Khodge says:

    And this is how we get convoluted, crony-friendly laws.

    We “know” that company A has an advantage? I.e. all variables are known? Better, then, to let the other companies game the system than let the government run the [automobile] industry.

    Note that I am not a big fan of “fair,” especially when the word “government” is used in the same paper/blog post.

    So many of these problems would not exist had there been good economic policies in place. (I read somewhere that this is the only presidency that never had a quarterly GDP over 3.5%.) Trump was elected because incredibly bad governance caused severe over-reaction.

  11. Aisling says:

    As a green, not a libertarian nor a believer in any particular economic system at all, I would suggest you compare the deaths-caused-per-dollar-spent of the government in question versus your company A. And figure out some way to add in non-lethal casualties as well. And you can also try to run a risk assessment on deaths-per-dollar likely to be caused in the future. So in the case of the governments, you might have wars, drone strikes, funding other government’s wars including against their own people, deporting refugees from the wars they have caused, paying other governments or human traffickers to deport refugees for them before they reach their borders, concentration/detention centers, “social cleansing” (shooting homeless people), police brutality in general, if it’s a settler nation government then almost assuredly genocide or at least some level of oppression against the natives, the constant risk of nuclear warfare… and well, it’s a long list of possibilities. For companies/corporations, you potentially have bribing governments to do any of the above or more, possibly just doing those things themselves in some cases, sponsoring/promoting eugenics, polluting people’s air and water (often natives/farmers/ranchers/country folk), chattel slavery in the supply chain (usually raw materials), risk of melting the polar ice caps and potentially drowning a lot of coastal peoples… and again, a long list of possibilities.

    However, in the case of Carrier versus the U.S. Government, it’s probably safe to assume that Carrier has a far lower deaths/casualties per dollar spent than the U.S. Government without actually figuring out how to add it all up. We do recommend, however, that they try to use some of their tax savings on expanding their solar program and conducting an audit for potential forced labor in their supply chain.

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