The unexpected outcome of last month’s election loosed the horrors of the liberal imagination. The America that we all “knew” to exist doesn’t. “They” are coming to round up all of society’s victims.
Of course, we’re still waiting. (With luck, Hollywood celebrities will be the first to go to the camps.) And we’re likely to continue waiting for quite some time.
But while Donald Trump has generally pleased the Right with his Cabinet appointments, he has demonstrated that he cares little for the rule of law and believes not at all in free markets. Arbitrary presidential intervention in the economy “is the way it’s going to be,” he declared, and “corporate America is going to have to understand.” This should worry anyone committed to free enterprise and limited government. And requires that Republicans in Congress and elsewhere to keep him within legal bounds.
The Carrier deal fulfills the worst of the president-elect’s inclinations. Forget the overall argument for trade. Americans are better off if they are able to purchase cheaper products from abroad. Lower-priced goods and services are particularly important for those of modest means, who gain the most from free trade.
Moreover, job growth is stronger if the economy is more competitive. Jack up the price of steel and automobiles are more expensive, etc. If Trump closes off the economy, he shouldn’t expect the rest of the world to rush to buy U.S. goods and services. No surprise, the majority of Americans favors a more open economy.
Trying to “save” high-cost jobs is expensive. Indeed, protectionism routinely spends far more per position than workers receive. It would be better to cut out complicated trade restrictions and simply pay people directly. Except that the public would then know how much they actually were paying for other people’s jobs. Politicians prefer to hide the expense.
So it is with Carrier. Those employed are happy to keep their jobs. The rest of us will bear the cost, however. The Donald wanted a high-profile political win. The issue well illustrates the lessons of Public Choice economics: visible, clamorous interests gain at the expense of the inert general public.
Congress engages in boundless special interest spending for the same reason. Well-organized looters strip the Treasury bare because Americans won’t lobby to save the buck or two that the ethanol producers, sugar growers, exporters, overseas investors, apartment owners, labor unions and so many others mulct from individual taxpayers. Conservatives always decried this process. They shouldn’t embrace it with a nominal Republican as president.
The financial pay-off in the Carrier deal is one problem. Vice President-elect Mike Pence is still Indiana’s governor, so he was able to raid that state’s coffers to the tune of $7 million. Unlucky Hoosiers. (If Donald Trump, who criticized corporate subsidies for job creation during the campaign, is as rich as he claims to be, he should have offered to pay!)
Since Carrier is owned by United Technologies, a defense contractor, one could imagine promises, or threats, also being made regarding the firm’s future access to military dollars. Trump claimed not to have mentioned the issue, but he didn’t have to. UT’s CEO indicated it was this possibility that caused him to shift course. Former Treasury Secretary Larry Summers called the episode “more of a mugging than a bribe.”
State subsidies are a common though counter-productive means to pay firms to come or stay. Trump’s high profile ploy has increased expectations of future pay-offs, meaning the price will increase. Anyone who could plausibly shift production abroad in the future need merely hint about the possibility while indicating their willingness to be bought off. How can President Trump say no?
Of greater concern, however are the president-elect’s threats. Not his drive-by-tweeting, despite the unease that it might engender simply because of the president’s reputation as “the most powerful man on earth.” But his threat to punish and reward companies as he sees fit. The rule of law is supposed to treat all who are equally situated equally. Yet Carrier is not the only U.S., let alone Indiana, company with plans to outsource production.
Moreover, taken literally, Trump intends to make the economy quite unfree. For instance, while celebrating his crony capitalist “success” in Indiana, he declared: “Companies are not going to leave the U.S. anymore without consequences.” Indeed, he added, “Leaving the country is going to be very, very difficult.” Trump tweeted “Any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. … without retribution or consequence, is WRONG!” He threatened to impose a 35 percent tariff in retaliation. That is, he would tax Americans buying those companies’ products. Companies should “be forewarned prior to making a very expensive mistake!”
This policy is what one would have expected from a left-wing redistributionist and government-planning enthusiast. Everything that has ever been produced here must always be produced here. Consumers should always sacrifice their interests to influential and well-organized bands of producers. Government officials know who should make what where and are entitled to treat companies accordingly.
A similar philosophy appears likely to dominate the incoming administration. At the Carrier plant, supposed conservative stalwart and Vice President-elect Mike Pence declared that “The free market has been sorting it out and America’s been losing.” Trump added, “Every time, every time.” Donald Trump’s America doesn’t sound that much different from Bernie Sanders’ America.
But the problem is not just economic. It is the prospect of one person, whatever his intentions, utilizing essentially unaccountable, untrammeled power. And there’s no reason to believe that Trump or his successors would feel constrained to only exercise their power for “good” reasons. What if a firm is seen as obstructing what the president sees as “important” national objectives? What if a company’s chief executive simply has the temerity to criticize the president or his policies?
The president-elect attacked Boeing for the potential $4 billion cost of replacing Air Force One, threatening to cancel the contract. Of course the deal is expensive. Any one-off project is going to cost more than a mass production model. Of course money could be saved somewhere, especially if the government reduced its technical requirements. But few people want to skimp when the president’s safety and effectiveness are at stake.
It is unlikely that Trump has a clue as to what the new AF1 should include or cost. Yet his verbal assault came suspiciously soon after the company’s CEO criticized Trump’s counterproductive protectionist plans. And observers have noted that few businesses are willing to challenge policies that would hurt them as well as America. Reported the Washington Post: “At another time, talk of a steep, punitive tariff would have provoked outrage from U.S. corporations. But faced with an impulsive tweeter-in-chief, corporate America’s response has been muted.”
Pharmaceutical companies also may find themselves in Trump’s cross-hairs. The president-elect declared to Time: “I don’t like what has happened with drug prices.” So what are his plans? There could be no doubt: “I’m going to bring down drug prices.” That sounds good, until companies cut research since they can’t count on a return sufficient to cover the costs of failures as well as successes.
Ironically, Trump’s decision to not just politicize but penalize business decisions in response to market forces will discourage foreign investment, now about $3 trillion. America long has been seen an economic sanctuary in an unstable world. But if the whims of the president rather than dictates of law come to drive U.S. economic policy, companies will have good reason to look for other homes for their money.
Of course, the U.S. is not the only country where even large companies act supine when faced by demands from an overbearing government executive. One element of South Korea’s ongoing political crisis is the fact that the president’s shamanist friend shook down major firms for foundation contributions. Company executives admitted that they were afraid to rebuff a request that appeared to have presidential backing. Explained Huh Chang-soo, who heads GS Group and chairs the Federation of Korean Industries: “It’s a South Korean reality that if there is a government request, it is difficult for companies to decline.” It’s not a model America should emulate.
Federal industrial policy long has had its fans, but allowing government to pick winners and losers is bound to be a dismal failure. Worse, though, would be a presidential industrial policy, by which Trump would attack or promote companies based on the phase of the moon, or whatever else happened to motivate him that day. Despite his abundant belief in himself, not everything he does is “terrific.”
Donald Trump is a new phenomenon, but the specter of presidents browbeating business is not. President John F. Kennedy was determined to roll back steel industry price hikes, and both yanked federal contracts and loosed antitrust attorneys in an attempt to enforce his will. The companies ultimately capitulated, at least in the short-term. But no one ultimately benefited from such an abuse of power.
There’s already too much crony capitalism in the American economic system. If the president-elect continues to attack the principles of limited government and individual liberty, congressional Republicans will need to step in. Ultimately the people must say stop.