Tag Archives: Force

Trump is clearly no economist.

       There are a lot of Republicans these days embracing the anti-trade rhetoric of Donald Trump and, simultaneously, screaming about the ineffectiveness and unfairness of wealth redistribution through the welfare state. Interestingly enough, these two positions are equivalent to one another. You cannot be for trade protection (such as tariffs) and against wealth redistribution; they are fundamentally the same thing. Let me illustrate how.

   Wealth redistribution operates under the principal that government takes (forcibly, mind you) money from Susan and gives it to Tom. Susan is guilty of no crime besides being in an electoral minority, but nevertheless she incurs the wrath of Tom’s jealousy and greed of her accomplishments and higher earnings. Tom’s greedy vengeance is carried out by elected officials who are able to send men with guns to Susan’s house (if she doesn’t pay) to do what would be illegal for Tom to do himself, which is to steal from Susan.

     Now, this redistribution is all based on the premise that Tom should be allowed to do as he wishes (i.e. work less hours, invest less effort in his own skill set, and engage in more recreation) and still be provided with all the basic needs that life requires (including many that life does not require like cell phones, etc).   In effect, the welfare state makes inefficiency a right, one that can be subsidized. Productive capability is discounted in favor of lifestyle choice.

       This brings us now to trade protection and why the two things are indifferent. Let us imagine that Susan is now a consumer and Tom is a worker at an auto plant. We are told that tariff’s on foreign auto makers will “help” our economy (incidentally, zero of this claim is backed up by well-established economic principals or any evidence) so that Tom can keep his job and manufacturing will not be “shipped” overseas. Instead our government will place a 10% tariff on those evil foreign automakers that, for some reason or another, can supply us vehicles at a fraction of the price of Tom’s employer. If the foreign car is $20,000 and Tom’s car is $22,000 before the tariff, this new 10% tax (tariffs are taxes on consumers, by the way) will make them essentially the same price[i].

      So, now Susan (and everyone else) must pay $2,000 more per vehicle for Tom to remain employed (not to mention increased sales taxes, etc.) in his current occupation. If Susan chooses to purchase the foreign car, the government will profit after placing no value into the production of said vehicle much like the mobster running a protection racket. If Susan chooses to purchase the car Tom makes, she will pay a greater price to subsidize Tom’s relative inefficiency; because, if Tom were as efficient as the competition, his autos would be priced accordingly. Tom gets to keep his job that he is not as good at as the competitor is while everyone that purchases a car pays more to ensure this. The government has then taken money from every consumer (a tax) and given it to Tom to subsidize his inefficiency (we could just as easily call this welfare…see paragraph 3, sentence 2).

       If 50,000 people buy a car in a given year, the result is $100M that cannot be spent elsewhere or saved for the future (either choice is an investment in economic growth). Incidentally, this most adversely affects those families making relatively less money—that is right, the much maligned middle class and poor; rich people are not concerned with trivial little tariffs and will buy the foreign car anyway if they want to.

       If you think (rightly) that a redistributive tax hurts the economy by reducing consumption, which in turns reduces the amount of production required, and thus lowers employment you cannot simultaneously think a tariff—which accomplishes the same thing at an even greater cost—will not hurt the economy. Well, you can…but it is no less fantasy than unicorns or Bigfoot. Holding this belief would have led the government to ban the car to protect the wagon builder or ban the light bulb to protect the candle maker. Mass production of food through technological advances would have been outlawed so we could maintain the same volume of farmers, plow makers, and ox breeders (a decision which would have increased the likelihood of starvation due to poor conditions, a concern we no longer carry as humans in the U.S.).

       We must resist the urge to fall into emotional, unsupported arguments—such as those being made by Donald Trump—that tariffs will help the American worker and engaging in trade is bad. I know what you may be thinking now: “we want trade, but fair trade.” Did I get that right? That is hogwash, too. In no way, does us buying goods at a cheaper price—enabling us to consume more and thus produce a wider array of products ourselves—ever, never , never, ever hurt us. If this principle is true, why not only buy things from within your town, or county, or state and really help your local economy boom? If you think unemployed people in your town just need a chance, quit buying things from the mall, Walmart, or Amazon. The reason you do not do this is that you know deep down it is malarkey. Politicians like Trump can use nationalistic hubris to motivate an adverse response that goes against your own best interest. History has known another politician who was effectively able to do this…Adolf Hitler.

The nature of black markets: why making commodities illegal is ineffective.

I think it is important to characterize the commodity in very a generalized manner—at least for now—therefore we will refer to our commodity in question as a widget. Now, it is of no consequence what a widget is because, when analyzing the effects of a black market, the only relevant factor is that widgets were made illegal by lawmakers. It is important to begin with a basic definition of a black market:

“A black market or underground economy is the market in which goods or services are traded illegally. The key distinction of a black market trade is that the transaction itself is illegal. The goods or services may or may not themselves be illegal to own, or to trade through other, legal channels.”

It is important to note that the definition also identifies that the goods (in our example widgets) need not be illegal to own. This refers to situations where taxation or regulations are used to limit, control, or inhibit the trade of a good or service (i.e. high cigarette taxes). However valid this discussion is, it will not be the focus of this conversation as we are assuming our commodity has been made illegal for the sake of simplicity.

Black markets develop because making a product illegal does not cause people to stop using it; instead, it merely marginalizes consumption, the production, and the distribution to those who are willing to accept and operate under greater degrees of risk. I know this may sound a little confusing which is why I created a graphic that illustrates the levels of acceptable risk for different groups of society:

Risk flow chart

In this graphic we can observe that the lower two segments (5 & 6) are those people who enjoy or are comfortable with greater risk levels; next (segments 3&4) we can observe the greatest amount of people as the average level of risk takers which would be generally averse to great risk, but partaking in some low/moderate risk; finally, in our upper two segments (1 & 2) we can see a portion of the population who range from mostly risk averse to almost exclusively averse to risk. This understanding of risk tolerance is important in the realization that making commodities illegal only serves to focus use and production on the risk loving segments which are most likely to partake in other risky behaviors (e.g. crime, violence, etc.) regardless of their use of a certain commodity. This reality is why the argument of illegality for the purpose of public safety is largely invalid.

Let us return to our concept of widgets again. If widgets are made illegal then we have some serious problems: 1) people are still demanding this product (although demand is now almost exclusively coming from groups 5&6 and a small part of group 4) so new producers will enter the market to meet this demand and receive the greater profits now offered by an illegal trade operating at monopoly pricing. 2) By compressing consumption to the risk loving segments we create a self-fulfilling prophesy – that the people using the widget will also be breaking other laws [don’t believe me?…look at why prohibition did not work for alcohol].

We can see a new and growing market segment dominated by those who are more predisposed to risky (read: criminal) behavior. Also, we have reduced competition in the production of widgets which would generally (particularly in a highly criminalized black market) lead to the production of “crappier” products at higher prices. Therefore, the risk factors of our widgets become even greater due to the lower quality. Additionally, in this market with limited competition, lower quality requirements, and huge profit margins we will observe more criminal (mob-like) activities in the production and distribution of our widget. In essence, criminal producers compete with force instead of with price or quality (or both) to gain customers; this has many negative effects on the communities in which these suppliers operate.

We are also presented with a consumption level distortion. The new consumer group—which is also isolated to higher risk tolerances—engages in the same activities they would have likely done anyway; however, now our widgets are given the credit (blame) for these activities. This creates somewhat of a paradox in that the results of prohibition become the best argument for prohibition because the correlation between widget use and other risky/criminal behavior increases due to us arbitrarily slicing segments 1, 2, 3, and most of 4 off of the consumer base. We have not eliminated any undesirable by-products of consuming widgets; we have merely magnified the (rudimentary) perception of the widgets’ effect on producing these negative by-products.

Why is this important? First, there are little to no positive effects of making products illegal beyond people making themselves feel better that they may have coerced others into not engaging in an activity this other person condemns [think Michael Bloomberg and soft drink sizes]. Second, by isolating supply to risk loving individuals we fuel illegitimate activities and isolate supply into the hands of people willing to exercise the most risk. Not only have we criminalized users, we have laid the foundation to launch a whole new and highly profitable enterprise that relies on criminal activity and violence as the primary means to restricting market entry. This incorporation excludes traditional competitive means (product differentiation and price) in favor of force, violence, intimidation, and a new criminal recruitment system resulting in social problems in these communities as well as losses in property values, tax revenues, and legitimate employment opportunities.

Gun rights advocates make this argument quite accurately and succinctly when they state that: “making guns illegal would only keep them out of the hands of the law abiding population who do not commit crimes anyhow.” This is a very astute observation. Unfortunately, this same group often fails to realize that the same is true for our widget example, or drugs, or prostitution, and was found empirically to be true with alcohol. Making any of those things illegal did not eliminate the use of them; it merely marginalized use and created a criminal enterprise where one did not previously exist. Does prohibition result in decreased use?…only a little because, if the product is inherently risky, a vast majority of the population will avoid it anyway. Does prohibition make society safer? No, in fact the evidence would indicate the opposite.

So, why does our society struggle with this idea? Because liberty is scary to so many people! Of course, liberty—like so many other things—is really only a good idea for ourselves, not for others. The false premise that one group of people has the responsibility or authority to try and save others is preposterous and, I would argue, excludes the people who hold that idea from having any real profound understanding of the concept of Natural Rights or the ideas that our founders held so dear in creating this greatest of countries. The land of the free has become the land of the busybodies, intent on utilizing their votes to gain access to the force that government wields to make individuals “mind” them. I do not wish to have a nanny state economically nor do I wish to have one for individual choices. Incidentally, one thing everyone should keep in mind, you do not get one of those without the other.

Government is Force: The Uncomfortable Truth People Wish to Avoid.

It stands to reason that where there’s sacrifice, there’s someone collecting sacrificial offerings. Where there’s service, there’s someone being served. The man who speaks to you of sacrifice, speaks of slaves and masters. And intends to be the master.

—Ayn Rand

     Our society speaks of things like social justice as if it were a victimless activity. As though giving to someone deemed “less fortunate” entails only the act giving without the taking. Where then does this magical manna come from if not from another citizen? Clearly it comes from someone who is rich or simply has what some deem to be “too much,” right? Let’s assume it does, is the moral righteousness of theft based on the size of the victim’s bank account? If that is in fact the case, should not most white collar crimes be considered righteous?  Or, for example, if you carjack a Maserati are you not merely taking what is not deserved by the owner of that car?

       The rich are hardly the only ones who are victims of our entitled society; anyone who falls into some sort of minority can find themselves targets of our burgeoning tyranny of democracy. If the limits on individual rights to property are up for a vote, then where do the limits of the state lay? In a society which justifies activity by a majority (more aptly, plurality) opinion, no limits exist; instead, the law is a shifting tide dictated by mob behavior and “popular” ideas. I can take your money, your property, and (more poignantly accurate) your very life as long as I can convince enough of my fellow citizens to direct the government to forcibly remove those things from you at the point of a gun.

          You say that no one is taking another’s life, but only their money; excess money at that? How is it exactly that we earn money? Time! Time of our life spent producing, thinking, building, growing, and teaching; and by endorsing the government confiscation and redistribution of people’s money we are very much endorsing the taking of people’s lives; one hour at a time. You cannot ask another for $10 without considering that the money you ask for represents a portion of their life spent earning (assuming they have earned that money). Likewise, you cannot empower government to separate them from that same $10 by force without considering that government has taken the time that money represents from them.

      The cold reality that people wish to ignore is that if that person gets paid $10/hr. then your government has exercised your desire to steal that hour from them; forcibly take those minutes, those breaths, and those heartbeats from them as if they rightfully belong to you or someone else. That activity relegates that producer to the role of slave and you take on the role of slave owner. What gives us the right to prey on our fellow citizens? Nothing! Still, we try to justify it with absurd notions of social justice and fairness. Those who are comfortable voting the confiscation of other’s money are no different than the pimp on the street corner preying on their hookers or the mobster running a protection scheme on businesses. Try as we may to justify our actions as assistance or some altruistic heroism; we are merely common thieves who ply our trade at the ballot box because we lack the courage to steal from others in person.