The Principles of Free Trade

As follows is a line-by-line rebuttal of “Free trade isn’t a principle, it’s a policy,” by Garrison Grisedale, appearing in the September 6, 2018 edition of the Hillsdale Collegian. 

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For decades, the Beltway offered America an unflinching bipartisan consensus: Free trade, and all of its consequences, is an unmitigated good. Any deficiencies that might arise as are ultimately for the best. 

Mr. Grisedale begins with an unusual assertion, that the prevailing political opinion over the past several decades has been the full-throated support of free trade. While much of the “establishment” politicians have been nominally in support of free trade, actual protectionist policies have continually been sustained, though there has been positive movement in favor of more free trade. 

Take, for example, the import restrictions in the U.S. Sugar Program, designed to support domestic sugar production at the expense of consumers, and those producers who use sugar as productive inputs (candy manufacturers, for instance.) 

But the American people weren’t buying what Washington, D.C., was selling. 

According to a 2018 poll by the Pew Research Center, 56% of Americans surveyed believe free trade agreements to be positive, while 30% were opposed. Though a similar poll conducted in 2016 showed slightly more negative numbers (51% in favor, 36% opposed), Mr. Grisedale’s use of public opinion polls, by an overwhelmingly economically ignorant electorate, is not the firmest ground to stand on when defending an idea. 

President Donald Trump’s simple idea on trade is that we live in a world of nations competing for power, strength, and prestige. Thus, the political concerns associated with international trade ought to take precedence over economic considerations. The nation does not serve the economy; the economy serves the nation. 

In short, President Donald Trump’s support of protectionism is rooted in a plethora of economic fallacies, tied to his fairly overt nationalism. 

To begin with, nations do not trade, individuals do. While we colloquially say “the United States” trade with “China,” this is merely shorthand for “individuals who reside within the United States” trade with “individuals who reside within China.” There is nothing sacrosanct about only trading within the borders of a particular nation. 

If one is really concerned with political matters, and the idea of “the nation,” it’s baffling that this could translate into support for protectionism. 

Protectionism only benefits a small, concentrated class (domestic producers of the protected good) at the expense of all consumers within a nation, along with other classes of producers who use that good as input for their production. Take, for example, President Donald Trump’s proposed tariffs on steel and aluminum. 

While this does result in narrow gains to production and employment for producers and refiners of steel and aluminum within the United States, it results in far greater costs for anyone who consumes a product made with steel or aluminum, as well as any producer of goods which require steel and aluminum as inputs (car manufacturers, for example). 

Free trade, therefore, is not a principle but a policy. It can be good or bad depending on the situation. It must be subject to the national interest. Free trade is a principle which, properly understood, should manifest as a policy. 

It is a principle insofar as it reflects something desirable to strive towards, rooted in an understanding of truth and liberty (which Hillsdale students are purportedly supporters of, Politics department notwithstanding), and it is a policy that ought to reflect that principle. 

Free trade is objectively and absolutely good. I do not deny that free trade has costs: it does. Domestic producers who are unable to compete with overseas producers who operate at a comparative advantage (an economic principle originally expounded by nineteenth century economist David Ricardo) will go out of business. This, in turn, will result in less employment in that sector. 

These costs, concentrated though they are, are enormously outweighed by the benefits of free trade to consumers and all other producers. If one posits that free trade must be subject to “the national interest,” then one must be overwhelmingly in favor of free trade. 

Consider China: Our biggest competitor and economic counterpart places enormous tariffs on U.S. goods and the U.S. ran a trade deficit of $375 billion in the last year alone. 

The assumption that, because the nation of China places tariffs on U.S. goods, that the United States must also place tariffs on Chinese goods, is fallacious. For one, tariffs overwhelmingly harm domestic consumers and producers (beyond a narrow protected class), not those overseas. 

Mr. Grisedale’s assertion can be compared to me shooting myself in the foot, on the premise that my neighbor is also shooting himself in his foot, in some sort of convoluted and misled scheme of false revenge. Trade deficits are not inherently, or even typically, bad things. It simply means that individuals within the United States imported more goods than they exported. 

And many of the American dollars that China receives as a result of this deficit are used to purchase U.S. debt and U.S. assets. 

Mr. Grisedale’s next argument is particularly bizarre. The balance of payments which he alludes to here is an identity of economics. That is, it is not a theory. It is objectively true based on the very definition of terms. A simplified version essentially reads that Capital Account + Current Account = 0. 

The Current Account is largely the exchange of goods (the source of the trade deficit or surplus), while the Capital Account pertains to transfers of money as investments. Given the identity, a Current Account Deficit (which, in this simplified world, we’ll assume to represent merely a trade deficit) by definition, MUST correspond to a Capital Account Surplus. 

U.S. dollars are generally used to purchase U.S. goods and services (or, to invest in companies who produce within the United States.) It is not some elaborate geo-political conspiracy that individuals in China purchase assets or investments within the United States, it is a blatantly obvious fact of life. 

China also engages in mass-scale intellectual property theft (both outright and through coercive government regulation), copyright infringement, dumping, and currency manipulation. China is the largest carbon dioxide emitter in the world and Chinese vegetable protein imports were so laden with toxic chemicals that the Food and Drug Administration issued a recall in 2007. 

In this tirade against various Chinese government policies (including a laughable condemnation of China for “coercive government regulation” while simultaneously supporting protectionism), Mr. Grisedale fails to make any sort of reasonable justification for restrictions on trade. 

China also uses the U.S.’s flexible free trade policies to flood our nation with drugs. Fentanyl, an opioid roughly 50 times stronger than heroin and 100 times stronger than morphine, is the deadliest drug in the U.S. and killed nearly 30,000 Americans in 2017, according to the National Institute on Drug Abuse. A 2017 congressional report identified China as the primary source of origin for fentanyl in the U.S. Chinese fentanyl makes its way into the U.S. in three primary ways: China ships the drug into the U.S. directly, smuggles it in through Canada and Mexico, or sends the raw chemicals (and sometimes lab infrastructure) to Mexican drug cartels to then disperse. 

This similarly bizarre paragraph manages to try to pin the blame on drug overdoses on free trade, even while noting that two of the three primary conduits of fentanyl into the United states (smuggling and raw chemical shipping for later manufacture) occur beyond the confines of legally sanctioned trade. 

In any case, Mr. Grisedale seems to be trying to portray overdose deaths commonly attributed to fentanyl, and other opioids, on either a deliberate and malicious move by China, or the necessary consequence of free trade. 

Free trade does facilitate the ability for individuals to purchase desired goods from overseas, but I can’t find any reason to blame free trade for overdose deaths. It’s roughly akin to blaming free trade in automobiles for the approximately 40,100 people killed in vehicle deaths in the United States in 2017. 

A yearly $800 billion trade deficit in goods worldwide has hollowed out the manufacturing base which once catapulted the United States to the the status of a world power. Is this what free trade looks like? 

Mr. Grisedale now attempts to blame the trade deficit for a “hollowing out” of a manufacturing base in the United States. To begin, a trade deficit is not causal. Rather, it’s a reflection of millions of choices and exchanges that individuals make on an annual basis. The trade deficit exists, as outlined above, merely because individuals in the United States choose to import more goods than they choose to export. Once again, there is nothing inherently wrong with this. 

Further, manufacturing output in the United States is essentially as high as it has ever been. According to data from the St. Louis Federal Reserve, manufacturing output in Q2 2018 was just below its pre-Great Recession peak. 

While there are certainly fewer workers employed in manufacturing than there have historically been in the United States, attributing this change to foreign competition is patently false. It is, instead, the result of increased technological innovation and capital investment, boosting the productivity of the average individual worker, with a natural consequence of fewer workers needed. 

The men who transformed America into an industrial superpower didn’t think so. The American founders saw the need for the protection of domestic industry, and the second bill ever passed by Congress, the tariff of 1789, stated that its explicit goal was the “encouragement and protection of manufactures.” 

It’s unsurprising that such a passionate defender of protectionism, on grounds that ignore basic economics, also ignores basic history. While protectionism was a secondary goal for the Tariff of 1789, the primary purpose was to collect revenue for the newly formed federal government which, over a hundred years prior to the passage of the 16th Amendment in 1913 which instituted the federal income tax, had few other means to collect revenue. 

Regardless, arguing for the wisdom of a policy merely on the basis that it was prominent in early American politics does not offer firm ground to stand on. While I agree with Mr. Grisedale that the Founders of the United States have many qualities which warrant admiration, their economically ignorant endorsement of protectionism is not one of them. 

His analysis on the positive impact of this protectionism at promoting economic and industrial growth in the United States is similarly flawed. I’ll refer to Scott Lincicome’s excellent paper on the subject, “Doomed to Repeat It: The Long History of America’s Protectionist Failures,” for further reading. 

To provide just a small excerpt on Lincicome’s remarks: 

“But more importantly, we live in a strikingly different world today than the one inhabited by supposed protectionist champions such as Alexander Hamilton and Abraham Lincoln. Trade among nations was far less developed; trade barriers were generally higher everywhere; national economies were much less diversified, reliant mainly on agriculture and only later on some basic manufacturing; communications and shipping were inefficient and costly; and there was no rules-based multilateral trading system for countries to commit to trade liberalization and for adjudicating disputes.” 

America’s greatest statesmen drew upon the founders’ wisdom. Henry Clay imagined his “American System” of tariffs, domestic commerce, and internal improvements to ensure domestic vitality. Honest Abe warned in an aside conversation that “abandonment of the protective policy by the American government [will] produce want and ruin among our people.” And William McKinley, a man from whom the president draws great inspiration, invoked the first law of nature in his defense of protectionist measures: the law of self-preservation. 

Mr. Grisedale is correct that Henry Clay, Abraham Lincoln, and William McKinley were all ardent defenders of protectionism, but that doesn’t make him, or them, correct in their assessment of its economic impact. 

Clay’s interventionist “American System,” which served as a large source of inspiration for Lincoln’s similar machinations, is rooted in the false assumption that government action is necessary for economic growth. The argument goes that, absent excessive tariffs and public works projects for the development of infrastructure, economic growth would be impossible.

Never mind the abundance of privately owned, funded, and operated toll roads in the United States during this era. Never mind that contributing industrial growth solely to protective tariffs (which, indeed, probably played some small role) is economic lunacy. Never mind the fact that domestic commerce proceeded, and always will proceed, even without government intervention (following Adam Smith’s dictum on man’s propensity to “truck, barter, and exchange.”) 

Lincoln’s wild predictions on the downfall of American society without protectionist tariffs is likewise deluded. Throughout American history, as trade became freer, and competition increased, Americans enjoyed a higher standard of living and greater levels of wealth. 

McKinley’s bizarre claim that the United States is in danger of failing to exist by the removal of tariffs echoes those of Lincoln. His fallacious use of war-like language to describe trade is not new, nor is it any less false than it was a century-and-a-half ago, when French political economist Frederic Bastiat wrote the following in Economic Sophisms: 

“And yet, what analogy is there between an exchange and an invasion? What possible similarity can there be between a warship that comes to vomit missiles, fire, and devastation on our cities, and a merchant vessel that comes to offer us a voluntary exchange of goods for goods?" 

Protectionism has long been a part of the great Republican tradition. With domestic protection in mind, Warren Harding and Calvin Coolidge ushered the United States into the “Roaring 20’s.” Even Ronald Reagan turned to tariffs to save the U.S. auto industry from Japanese competition. 

In a rare first, Mr. Grisedale gets a historical fact correct. The Republican Party has historically been a proponent of protectionism. He is wrong to assert that this protectionism was the cause for subsequent economic growth in the 1920s. In fact, increased protectionism under Republican President (Herbert Hoover) in the form of the Smoot-Hawley Tariff was a major contributing factor to the ongoing Great Depression, inviting numerous reprisals and starting a trade war. 

As seems to the case with each of Mr. Grisedale’s desperate appeals to the authority of history (wherein anything a Republican president does is inherently good and wise), the tariffs enacted under Ronald Reagan for the purposes of protecting domestic car manufacturing are not any better merely because he was the one who ordered them. 

As is the case with all tariffs, such moves only served to prop up an industry that was flagging due to an inability to compete with superior product. American consumers suffered with greater restrictions (in the form of higher prices) on purchasing the car they would like, and their alternative was an inferior American made car. 

But when NAFTA went into effect in 1994 the U.S. lost is economic advantage. Since then, the U.S. has bought $1.1 trillion more in goods from Mexico than it has sold, according to the U.S. Census Bureau. And when China joined the World Trade Organization in 2001, the U.S. became vulnerable. America bought $4.4 trillion more in goods from China than it has sold, the U.S. Census Bureau reported. 

In the latest in a series of spurious claims, Mr. Grisedale now asserts that the mere presence of a national trade deficit is a negative, claiming it illustrates a loss of “economic advantage.” Instead, it actually represents an increase in the use of comparative advantage, wherein the lowest cost and most efficient producers gain market share at the expense of higher cost, less efficient producers. The only losers in this scenario are the producers who couldn’t stand up to competition. 

He repeats the odd charge against China, and it is no more true against China than it was when it was directed towards Mexico. 

American politicians are hollowing out the heartland, wasting away our country’s domestic industry, undermining our industrial base, and lowering American wages. All for cheaper foreign trinkets. It’s reminiscent of Voltaire’s “Candide,” in which the main character’s mentor, Dr. Pangloss, maintains an illogical optimism, telling Candide not to worry despite his many misfortunes. Regardless of what might happen, Pangloss says, and as bad as it might seem, this is the best possible scenario in the best of all possible worlds. 

Despite remaining the world’s largest economy, Mr. Grisedale continues to insist that the United States is being “hollowed out,” and domestic industry (which is at a near record-high) is “wasting away.” Wages also continue to increase, on average, in manufacturing. 

The assertion that all the United States gains from freer international trade is “foreign trinkets” is laughable. Whether through raw materials, varied agricultural products, consumer electronics, or thousands of other goods and industries, Americans overwhelmingly benefit to a tremendous extent from free trade. 

What Voltaire proposed mockingly, through Pangloss, the free traders say with a straight face. 

I agree that the current trade policies in the United States are not the best possible scenario: it’s not completely free. If President Trump continues to have his way, however, it will move further and further away from that ideal. 

The benefits of free trade are economic fact. Those like Mr. Grisedale can choose to ignore that fact for a fanciful interpretation of history and economics, but truth remains truth. 

But the American people aren’t buying what they’re selling. 

Here, unfortunately, I must agree once again with Mr. Grisedale. Some Americans are increasingly becoming proponents of protectionism, to the peril of their own economic well-being and happiness. 

Like Mr. Grisedale, I’ll also conclude with a great piece of literature from the Western canon. Here are some appropriate lyrics from “Stargazer” by Rainbow, appropriate for any pro-Trump protectionist wondering why they’ve suddenly become less prosperous: 

All eyes see the figure of the wizard 
As he climbs to the top of the world 
No sound, as he falls instead of rising 
Time standing still, then there's blood on the sand 

Oh I see his face! 
Where was your star? 
Was it far, was it far 
When did we leave? 
We believed, we believed, we believed

Liberty Needs To Get a Little More Personal

Imagine you’re walking down the street. A man stands on the corner, screaming into a megaphone, passing out pamphlets. You’re not sure what he’s saying. Something about ‘workers of the world”, and “the 99%”. Discarded pamphlets litter the sidewalk. You pass by without a second glance.

The man on the corner put all his efforts into trying to talk to groups, to collectives. Maybe some who are already receptive to his ideas, or share his worldview, might stop and listen. But you, on the street, couldn’t care less. The man didn’t want to focus on the individuals walking down the street, but huge groups.

The man’s messaging problem wasn’t unique to anti-globalist protestors and wannabe socialists. Libertarians and classical liberals often make the same mistake. We need to focus more on individuals, and not broadly defined groups. Too often, the ideas of liberty are spread through measures too broad and unfocused to sway more than a handful, as though we’re shouting to a disinterested crowd on a street corner.

The Problem with Group Messaging

The problem with speaking to people as groups is that the individual tends to get lost in the process. Nobody reacts to an idea the same as somebody else. People tend to react to ideas based on their priors, and their past. For everyone reached by the man screaming in the street, another fifty ignore it entirely.

Calls to liberty sounded out to groups and collectives ignore reality. People don’t act collectively. Thought and action are only possible through the individual. Ludwig von Mises put the idea more succinctly in Human Action, saying “Only the individual thinks. Only the individual reasons. Only the individual acts”.

The solution to this problem can be found in the writings of another Austrian economist. F.A. Hayek once wrote in “Scientism and the Study of Society” that “every important advance in economic theory during the last hundred years was a further step in the consistent application of subjectivism.”

Focus on the Individual

Both individualism and subjectivism come together to form a new strategy for propagating liberty. Liberty needs to get a little more personal. Everyone looks at the world in a different way. Everyone has unique life experiences, thoughts, and ideas.

The best designed messages try to appeal to the most common ideas and worldviews, trying to reach as many minds as possible by painting with a broad brush. This is not enough.

The spread of ideas can only come through the minds of individuals. Society can only change and improve as individuals do. Leonard Read writes in Talking to Myself that “I prefer to live in an improving society, but this is impossible unless there are improving individuals”.

There is an intrinsic dignity in every human person, and in their thoughts and ideas. Those who wish to spread a message of liberty need to understand that many are not being reached.

A Personal Appeal

To be sure, the liberty movement has made much progress over the years. As recently as 2013, up to 22% of Americans either lean libertarian, or are consistent libertarians, according to a Public Religion Research Institute poll conducted that year.

But this is not enough. Proselytizing freedom requires an individual and a personal appeal. It necessitates an understanding of another person’s thoughts, wants, and life experience.

It’s next to impossible for a think tank or a news website to make such a highly personal appeal. That has to fall to individuals. A personal appeal can only be made by those who understand the person they’re appealing to.

In the modern liberty movement, dozens of think tanks, staffed by an army of policy wonks and communications specialists, pop out cutting edge research and easy-to-read publications. It’s remarkably easy for libertarians to read these, plop them up on social media, and be done with it.

The converted see these pieces, nod in assent, and move on. The rest ignore it, and forget about it within the hour. Ideas aren’t spreading, but the liberty faithful are sated.

There is no master strategy. There’s no grand plan. Liberty can only grow when its proponents take the time to listen, and to understand the vast diversity in individual philosophies, worldviews, thoughts, feelings, and life experiences.

It doesn’t take a dozen think tanks, multiplied among every interest group and policy area, to make the case for liberty. It requires millions of individual minds, across a plethora of personal relationships and networks. It takes time, and it takes effort.

A philosophy of liberty can only make so much progress through impersonal means. To take it to the next level, libertarians and classical liberals need to make liberty a little more personal.

The Boardwalk of Huff Park

Recently, I moved to the northeast side of Grand Rapids, after having spent the past twenty years south of the city in Caledonia. With three weeks between the end of finals and my internship, I had a lot of time to kill.

To fill some of that time, I decided to walk around the streets and sidewalks to familiarize myself with this foreign land. Huff Park is within walking distance, so I started there. Yesterday, walking down a trail I hadn't seen before, I came across a sign hanging on a chain blocking the path.

The original message of the sign was weathered and undecipherable. Someone had crudely scraped "STOP" on the sign. I stepped over the chain. A colorful sign informed me I was on the Huff Park Boardwalk. I didn't see any immediate danger, so I kept moving.

The boardwalk seemed fine. The sign had mentioned it was built with plastic boards, which seemed to be holding up. Soon, the reason behind the sign became clear. At intervals, the boardwalk had sunken into the wetlands, and water spilled over the boards. Some enterprising individual had procured more boards, and laid them over the water so walkers could pass. 

While the boardwalk wasn't in great shape, it was largely serviceable. Friends of Grand Rapids Parks, "an independent, citizen led, nonprofit enterprise" had replaced some of the broken boards on their own accord, as seen below.

Rather than petition the city government to use taxpayer funds to fix the decrepit boardwalk, the self described "friends" of the park did it on their own.

In 2013, passionate park enthusiasts urged voters to support a ballot proposal that would add a new city property tax to revitalize and repair city parks. The tax would yield about $4 million a year, with an average cost to the homeowner of around $45. The proposal passed with 60% support later that year.

Part of that money, around $900,000, goes towards replacing the boardwalk in Huff Park. Though the total cost to the project is $1.2 million, the remaining $300,000 comes from the state government, through the Michigan Natural Resources Trust Fund. Taxpayers from across the state, not just the city of Grand Rapids, are paying for the Huff Park boardwalk repair. 

Should the city government be responsible for these parks? A better question might be, should the taxpayers be?

Most would say yes. Park enthusiast Tommy Allen defended the proposal, writing passionately about the importance of parks (and new property taxes). On Friends of Grand Rapids Parks, Allen says "But these actions, while necessary and vital to shore up the losses, are unfortunately not going to be enough to bring about the solutions we need to advance in the years ahead after a decade of depreciation on our parks from use."

The Executive Director of Friends of Grand Rapids Parks, Steve Faber, agrees, claiming "...there isn't much more that can be done to patch it up. What really needs to be done is to rebuild the boardwalk." 

Why can't individuals who want to fund the parks to do on their own? Is it right that a small numerical majority of voters can add to the tax burden of thousands of homeowners in the city? According to Election Magic, the proposal passed by a little over 3,000 votes. Turnout for the proposal was around 15,000 voters, total. Most wards had below 25% turnout.

The City of Grand Rapids has a population of around 200,000. With the passage of this ballot measure, a small number of voters (and taxpayers) forced a tax on a much, much larger body of taxpayers. This is a gross injustice.

Some may benefit a nicer boardwalk, and some may not. Some might think the increased tax burden is worth it, and some might not. Either way, they're paying. 

Local Government, "Blight", and Legal Plunder

In The Law, Frédéric Bastiat writes on the dangerous idea of "legal plunder", saying...

"Under the pretense of organization, regulation, protection, or encouragement, the law takes property from one person and gives it to another; the law takes the wealth of all and gives it to a few — whether farmers, manufacturers, ship owners, artists, or comedians."

This definition of "legal plunder", taking property from one to give to another, encompasses all sorts of government activity. At a local level, it's easy for a municipal government to wave its hands and claim that policies of legal plunder - where property and wealth is taken from one group of individuals and given to another - is really in the common interest of all. 

One example is the idea of urban "blight". Originally a biological term referring to dying plants, the term has been appropriated by governments to mean some sort of decrepit or decaying building. To combat this blight, local governments seek to demolish or other renovate these buildings (often with taxpayer funds). Justifications for this include: higher property values (and thus, higher tax revenues for the municipality), public safety concerns, and economic development. 

Pictured: Blight (?)

To use a local example, the city of Hillsdale recently voted to demolish three structures deemed "blighted". One such structure, the remains of a burned-down house, was on the property of a local woman. She protested the move heavily, but the city council voted to demolish it all the same.

The councilors had a host of justifications for their vote, including the public safety risk that a child might fall into a basement and be injured. Mind you, this has yet to happen, but we must be vigilant all the same!

The cash-strapped city government may have been partially motivated by the promise of a $24,275 grant from the state of Michigan, meant to cover the costs of demolishing blighted property. Who benefits in this scenario? Certainly not the taxpayers as a whole. Taxpayers in the city of Hillsdale pay state taxes, which the state then sends back to the city of Hillsdale to tear down houses. The rise in the value of their property from less nearby blight is likely to be negligible, and probably not even cover the taxes they had to pay for the pleasure. 

Some property owners may benefit, if they were planning on demolishing the property regardless (as is often the case). Only now, the taxpayers are footing the bill. The city is happy if the move generates slightly more tax revenue, years down the line, due to marginal increases in property value.

Would the city of Hillsdale be a little bit nicer if these plans go through? Probably. Is it worth perpetuating a system of legal plunder that transfers wealth from many taxpayers to a few beneficiaries? Probably not. 

Hillsdale students should oppose local corporate welfare

[This piece first appeared in the Hillsdale Collegian (3.31.2016)]

Cor­porate welfare is alive and well, even here in Hillsdale.

The Michigan Economic Devel­opment Cor­po­ration is the insti­tution responsible for orga­nizing and directing cor­porate welfare in the state of Michigan. According to their website, the MEDC offers “business assistance services and capital programs for business attraction and accel­eration.” In practice, this amounts to allo­cating tax dollars as direct sub­sidies to busi­nesses, often coupled with special tax breaks.

The MEDC recently funded two projects in Hillsdale. The first was an $82,865 subsidy to Mar-Vo Mineral Company to purchase the old FW Stock and Sons Mill (“Mar-Vo moves in, ‘breathes life’ into abandoned mill,” Sep­tember 17, 2015). The second was the heftier $785,000 “com­munity devel­opment block grant” for the purposes of ren­o­vating an old factory into apartments (“Former fur factory fitted for flats,” March 17, 2016).

Pro­ponents trotted out familiar arguments to justify the taxpayer subsidy of private enterprise, noting that the projects would revi­talize downtown Hillsdale, as well as create jobs and housing. While these are cer­tainly benefits, the arguments ignore the costs. For one, similar arguments are made across the state to justify cor­porate welfare, resulting in almost $600 million doled out in “grants, programs, and projects” in 2015.

Orga­ni­zations like the MEDC are an affront to the free market, and little more than a vehicle for crony cap­i­talism. Unlike a private investor, the MEDC can only get funds through taxation. So tax­payers from across the state of Michigan, from Houghton to Detroit, are obligated to sub­sidize busi­nesses to the tune of hundreds of millions of dollars a year. Despite the gross injustice of being forced to sub­sidize projects that most receive no benefits from, cor­porate welfare persists. Why?

The answer is simple. Busi­nesses and private indi­viduals realize that, rather than trying to succeed or fail in the market, it is easier to get help from the state. Under the guise of “economic devel­opment,” or “jobs,” or “revi­tal­ization,” they can earn sub­sidies from the MEDC, and stick Michigan tax­payers with the bill. The benefits are con­cen­trated to busi­nesses and politically-connected indi­viduals, while the costs are dis­persed over millions of Michiganders.

Frederic Bastiat, a 19th-century French political economist, noted that eco­nomics involves looking at the seen and the unseen. In terms of cor­porate welfare, the seen effects are the projects they fund. New apartment buildings, bustling fac­tories, and so on. The unseen is more complicated.

Think of what $600 million could have done in the hands of Michigan res­idents, rather than in the hands of gov­ernment bureaucrats fun­neling the money to special interests. Private indi­viduals, working in the free market, fund projects they think will be prof­itable, and decline those which seem likely to fail. In this system, busi­nesses only profit by pro­viding what the con­sumers want, and not by lobbying the gov­ernment for subsidy. All of these potential oppor­tu­nities are nec­es­sarily unseen, because they never came to be. Instead, tax­payers are stuck with a bill of almost a million dollars to build apartments in a small, out-of-the-way city in southern Michigan.

Students of Hillsdale College, an insti­tution that stands for defending liberty, should oppose this great injustice. The MEDC is nothing more than dressed-up cor­porate welfare, existing to benefit special interests at the expense of the state as a whole, and the tax­payers that have to foot the bill.

A Bug's Life: Family-Friendly Libertarianism

A Bug's Life, Pixar's second studio film, was one of my favorites as a child. While scrolling through the channels today, I saw it was on, and decided to watch. The computer animation (state of the art in 1998) hasn't aged well, but the voice work remains phenomenal.

The plot is simple enough. A colony of ants collects a yearly offering of food for roving grasshoppers, under the threat of violence should the offering stop. An oddball ant, Flik, accidentally knocks the offering over, but is later ultimately successful in stopping the grasshopper oppression.

 According to Franz Oppenheimer (echoing Bastiat) in The State, there are two fundamental ways for man to meet his ends. The choice is between work, and robbery. Early human history was marked by two distinct types of societies: sedentary farmers, and roving herdsmen. The state originates when the herdsmen, realizing their superior military prowess, extort the farmers for food and tribute rather than working for it.

This conception has parallels to A Bug's Life. The peaceful ants are sedentary farmers, and harvest the fruit and grain on their island, as they have since the formation of their colony. At some point, the grasshoppers (herdsmen) instituted the annual offering, opting to extort food rather than work for it. The ants, for the most part, have grown to accept their lot in life as the nature of the world.

Oppenheimer's portrayal of history can easily be extended to modern times. The state uses taxation (under the constant threat of violence) to fund its projects, while the taxpayers, who have no monopoly on legal force, work to meet their ends. 

The protagonist of A Bug's Life, Flik, is an oddball and something of an outcast. Early on, he is mocked and discouraged from using his new inventions to harvest the grain on the island, rather than doing it by hand. After inadvertently ruining the offering, he sets out on a quest to find "warrior bugs" to fight off the grasshoppers when they return.

Sedentary farmers will try to fight back, using their own armies, but are generally less adept at the harshness of war than the herdsmen. Recruiting mercenaries to fight on their behalf seems a logical step, but it invites the risk that they will simply do the same as the marauders. 

Ultimately, Flik (and the circus troupe he recruited in lieu of "warrior bugs") convinces the colony to fight back through deceit, rather than outright war. Constructing a fake bird, the bane of all bugs, they plan to scare off the grasshoppers when they return. Though this plan is ultimately unsuccessful, the ants eventually unite to drive off the invaders forever.

The movie also addresses the importance of individualism, though seemingly glorifying the collective of the colony. Ultimately, the ants never would have driven off the grasshoppers without the leadership of Flik. Daring to stand up to the grasshoppers (even if he's alone), he inspires other individual ants to rise up and join him.

Hopper, the leader of the grasshoppers, argues that as soon as one ant stands up to their violent system, they all might. Though A Bug's Life has some praise for the collective (all the ants in the colony standing together to fight off the grasshoppers), Hopper recognizes they would do so if one individual ant chose to act.

Additionally, Flik's harvester invention represents technological innovation and capital investment, which ultimately makes the ant colony better off. By the end of the film, the ants have adopted his harvesting machine, which leads to specialization of labor and ultimately makes the colony more prosperous.

A Bug's Life addresses several crucial political and economic concepts, such as the origin of the state, individualism, the inherent theft in taxation, and more. There are few films, let alone ones aimed at children, that so clearly and concisely illustrate these ideas.

The Economics of Politics in Star Wars - Return of the Jedi

The final film of the original trilogy, Return of the Jedi, concludes in the downfall of Emperor Palpatine. Until now, the entire Star Wars saga detailed Palpatine's rise to power, from political manipulation to engineering a galactic war, and his gradual expansion of that power through military might.

After spending forty years tightening his grip over thousands of systems across an entire galaxy, Palpatine faces the threat of defeat from the increasingly powerful Rebel Alliance.

Desperate to keep a firm grip on any wavering planets, Palpatine orders the construction of a second Death Star, more powerful than the first. The Rebel Alliance plans to strike a shield generator on the forest moon of Endor, in order to weaken the defenses of the Death Star enough to attack the core. Though the strike team (led by Leia and Han) is ultimately successful, the Alliance is forced into a pitched battle above Endor.

Rebel intelligence suggested the second Death Star was lightly guarded  and inoperative, both leis deliberately planted by Imperial intelligence officers. Here, one can again the importance of the control of information in maintaining control of empire.

During the battle, Luke Skywalker fights against Darth Vader (his father, the former Anakin Skywalker) on board the Death Star. Palpatine, hoping to repeat the downfall of Anakin as seen in Revenge of the Sith, tries to sway Luke with promises of ultimate power. When he refuses the give in, the Emperor moves to kill him. Darth Vader, when faced with the chance to save his son or let him die, opts to betray the Emperor and throw him deep into core of the Death Star.

Though the Imperial military would survive for another year (before their defeat at the Battle of Jakku), the apparatus of empire has been permanently damaged. The logical successor to the Emperor, his apprentice Darth Vader, was his killer, and soon dies from injuries regardless. Part of the trouble of concentrating supreme power into one individual (or one office) is the chaos that can result on the death of that person. The Empire post-Palpatine was the collapse of his bureaucratic system of government. With no clear strongman holding the disparate Empire together, it began to fracture, and fall apart.

Ultimately, the Emperor failed due to his own hubris. Upon hearing that Anakin Skywalker was the alleged Chosen One who would bring balance to the Force, Palpatine set about grooming the young and powerful Jedi for his eventual fall to the dark side, if only to spite the Jedi Order by corrupting the supposed Chosen One. Vader's eventual rejection of Palpatine, and the dark side, led directly to Palpatine's downfall, fulfilling his alleged prophecy.

All that said, the Rebel Alliance was still successful in their attack on the Death Star. For all of Palpatine's political genius, he was unable to detect the hints of Rebellion already stirring in the first days of Empire. The courageous few Senators dedicated to restoring the Republic, including Bail Organa, Mon Mothma, and Garm Bel Iblis, secretly funded and began the Rebel Alliance, all while publicly supporting Empire.

Palpatine was always convinced of his ultimate power, especially after the fall of the Republic. Though he had indeed amassed massive control over the galaxy, he was unable to fully control everything. The Rebellion grew in the shadows, remnants of the Jedi Order (like Obi-Wan Kenobi) survived in seclusion, and his death came at the hands of his most trusted subordinate. Empire cannot last in perpetuity, and the power of any individual can never be ultimate.

Bernie Sanders versus Interest Rates

The amount of sheer economic ignorance coming from Bernie Sanders on the campaign trail is staggering. In a blind seething rage against business, big business, oil, Wall Street, banks, and corporations, Sanders fails to demonstrate even a tenuous grasp on basic economics. Recently, he (or whichever staffer runs his Twitter) spoke out against high interest rates, calling them "usury".

Usury was once defined to be loans with any level of interest, and was nearly universally condemned for much of human history. Today, most accept the necessity of interest, and understand its benefits. Some, like Bernie Sanders, still condemn a modern usury, any loan with an arbitrarily "excessive" rate of interest.

The economic reasons for lending at interest are simple. In the market for loanable funds, there are two key groups. The first group, savers, are those who willingly forgo immediate consumption in order to save for the future. From the largest venture capitalists to a student with a savings account, these are all savers. From their perspective, the interest rate is the reward they get by delaying consumption.

The second group, borrowers, want to access these savings for a variety of purposes, usually investment. Sanders is specifically referring to consumer loans rather than investment. A consumer loan is one made to a consumer for immediate consumption spending. "Payday lenders" offer short-term loans to consumers. From the perspective of borrowers, the interest rate is the cost of immediate consumption versus waiting.

The interest rate varies depending on many factors, one of which is risk. For short-term consumer loans, there is sometimes a high degree of risk. Namely, the risk that the consumer will be unable to pay back the loan (and default). Since payday loans, and other consumer loans, have a substantially higher risk than other loans, it makes sense for there to be a higher interest rate.

Sanders is clearly trying to tap into a populist,  anti-business, and anti-bank sentiment in order to drum up more support. Were he to succeed, and interest rates were capped at 15%, those he's trying to protect would lose out. People take payday loans, at the "usury" rates, because they see it was the best option available to them. When the alternative is losing your car or your house, some are willing to take out a payday loan. The highest interest rates are to consumers with the highest risk, either because of previous default or a particularly desperate situation.

If interest rates on consumer loans were capped, many of these lenders would no longer find it viable to lend to those who most desperately need it. The risk would be too high without a higher interest rate. Bernie Sanders, in his crusade against banks and business, is actually harming the people he's trying to help.

Is Cheap Oil Bad?

Scrolling through Facebook this morning, I came across someone upset over the recent fall in oil prices. The source of their frustration was the layoffs and economic slowdown associated with falling oil prices in the oil and natural gas industry. The price of oil has indeed fallen, and the oil industry is undergoing a temporary bust as a result, but is that a bad thing?

This article from the New York Times offers a good explanation for economic reasons for falling oil prices. In short, the supply of oil has dramatically increased in recent years, especially from the United States. Additionally, OPEC is continuing to pump out oil, rather than artificially restrict output to raise the price, as they have done in the past.

The sentiment that low prices are a problem is not a new one. Frédéric Bastiat, a Classical French Economist, tackled the issue in his essay "Abundance - Scarcity". He noted that when prices are high in a particular industry, such as oil, those working in that industry benefit. This leads many to conclude that high prices are desirable in all industries, leading to tariffs, barriers to trade, and other means of artificially raising price.

Bastiat saw an inherent conflict  between producers and consumers. Producers want to sell goods for as high a price as they are able, and consumers want to obtain goods as cheaply as possible. However, he also noted that "Man is at once producer and consumer". Anyone in the oil industry, though they produce oil, also have to consume food, water, shelter, and so on. While it would benefit farmers or contractors to have the price of food and shelter high, it would not benefit those who consume what they produce. For any individual working in any given industry, it is almost certain that they consume far more, both in quantity and in diversity, than what they produce.

This was Bastiat's key insight. When prices are high for one industry, say oil, that leaves consumers less wealth to spend on other goods. Expensive oil may lead to growth and stability in the oil industry, but it comes at the expense of growth in any other number of industries. Every consumer of oil benefits from a lower price, just as every consumer of bread benefits from a falling price of wheat.

Bastiat saw wealth in the abundance of commodities, not in the money a select few might earn due to high prices.

"Men are not fed on money. They do not clothe themselves with gold, or warm themselves with silver. What does it matter whether there is more or less money in the country if there is more bread on our sideboards, more meat in our larder, more linen in our wardrobes, more firewood in our cellars."

Cheaper and more abundant goods means a wealthier society. Those who fear falling oil prices would do well to heed the lesson of Bastiat.

The Economics of Parks and Recreation - Swing Vote

[Heavily conceptually inspired by "The Economics of the Office"]

Parks and Recreation, a mockumentary style comedy in the vein of The Office, explores the lives of employees at the Parks and Recreation department in the fictional Indiana city of Pawnee. One of the main sources of conflict in the show is between the Director of Parks and Rec, the grizzled anti-government Ron Swanson, and the Deputy Director, the cheery (and pro-government) Leslie Knope. Eventually, Leslie is elected to City Council, and starts a crusade for more and more government involvement in the lives of the citizens of Pawnee. 

One such crusade, as seen in the episode "Swing Vote", is to stop the closing of the Pawnee Palms Public Putt-Putt, a government subsidized mini-golf course. Ron Swanson, ever the budget hawk, has moved to cut funding, citing his belief in "cutting useless government projects". Ron notes the course costs taxpayers $9000 a year to fund, and views it as little more than government waste.

The issue will be decided by a City Council vote the next day. A desperate Leslie tries to whip votes to "save" the course, citing how it's "good for families" and "a job creator".

Leslie's second argument, that the subsidized course is a "job creator", is one of the most persistently enduring economic fallacies. The city of Pawnee is not "creating" any jobs at all. All they are doing is transferring wealth from one group (the taxpayers) to another (those who are employed by the Public Putt-Putt). While jobs may exist as a result, these aren't "created" in the same sense that someone could create new jobs by opening a new restaurant and employing people there. Jobs of that sort wouldn't exist without providing real, economic value to the patrons of the restaurant, the employer, and so on. Government jobs, like at the Public Putt-Putt, don't face the same constraints. They shall continue to exist as long as they are funded by the government, which they often are.

One Councilman, Jeremy Jamm, holds the swing vote on the issue. Leslie, eager to get his vote, takes him golfing at the Public Putt-Putt, and plies him with copious amounts of snow cones to try to sway his favor. Leslie's actions show the way that many decisions are actually made in government, through trading favors and excessive lobbying. Ostensibly acting for the "public good", Jamm is actually making his vote based on what he personally can get out of it. Individuals still face incentives, even in government, as stated in public choice theory.

Ron Swanson, sensing that Leslie might try to influence Jamm, also arrives at the course. He consistently states the downsides of the course, namely, that "this ridiculous play palace costs the taxpayers thousands of dollars a year". Leslie responds by again noting that "everyone loves it". Some people may in fact enjoy the Public Putt-Putt (at the government subsidized pricing), but all taxpayers might not. Ron is defending those taxpayers (likely including himself) that do not enjoy Putt-Putt, and are yet forced to pay for it through their tax dollars.

Eventually, Jamm is swayed to Ron's side (after Ron beats Leslie in a game of mini-golf). An angry Leslie confronts Ron the next morning, who cites his principles as the reason for his opposition. Jamm later meets Leslie in her office, brazenly offering to switch his vote for the right offer. Leslie seems sickened by his political graft, but Jamm notes that this system of trading favors for political support "is just how people like us [politicians] operate".

Leslie, apparently drawing a line in the sand, refuses to make a deal, and Putt-Putt is defunded. However, she later notes a plan to authorize funding through a ballot proposal, which she believes will pass. Putt-Putt's passing is a classic example of concentrated benefits, dispersed costs. Those who stand to benefit (former employees of the Public Putt-Putt, former patrons) will eagerly vote for its authorization. The apathetic (or indifferent) taxpayers who don't support Putt-Putt will likely not find it worth their time to go vote to save a few cents on taxes per year.

This process is repeated over and over, for all kinds of government projects, and eventually those few cents add up. That is why there is consistent government growth. That is why so many boondoggles, like a publicly subsidized mini-golf course, exist. When economic decision-making is politicized, this is the end result.

Gaddafi, Gold, and Libyan Intervention

Over the course of the twentieth century, the United States (and its allies, most prominently the NATO coalition) has increasingly engaged in military intervention overseas. The justifications for intervention were many: maintaining stability, blocking the influence of other foreign powers, and humanitarian.

In 2011, NATO intervened during the Libyan Civil War between longtime Libyan leader Muammar Gaddafi and various rebel groups, acting to enforce a no-fly zone and move towards a ceasefire. The intervention was justified partially on humanitarian grounds. Certain attacks on civilians, according to a UN resolution, could constitute "crimes against humanity".

Buried in one of the 3,000 recently released emails from Hillary Clinton's private server is an intelligence briefing detailing Gaddafi's supply of 143 tons of gold. Additionally, it notes French President Nicolas Sarkozy's reasons for seeking military intervention in Libya, none of which involve protecting from "crimes against humanity". His five reasons, according to the email, were:

1) A desire to gain a greater share of Libya oil production
2) Increase French influence in North Africa
3) Improve his internal political situation in France
4) Provide the French military with an opportunity to reassert its position in the world
5) Address the concern of his advisors over "Qaddafi's" long term plans to supplant France as the dominant power in Francophone Africa

 The email goes on to note that the supply of gold "was one of the factors that influenced" the decision to "commit France to the attack on Libya".

Gaddafi had been stockpiling gold with the hopes of creating a new gold-backed currency, the gold Dinar, to rival the Euro and the Dollar. He had hoped to force acceptance of this new currency by only selling Libyan oil in exchange for the new Dinar. Further, Gaddafi planned to use the gold reserves to make the Dinar a pan-African currency, and eliminate Western influence in the process.

Francophone Africa, the nations of Africa where French is widely spoken, widely uses a currency called the CFA Franc. The CFA Franc is backed by the French treasury, and trades at a fixed rate to the Euro. The ostensible purpose of the CFA Franc is stability in trade between France and nations using it, but it has the added benefit of maintaining French influence in the region.

Gaddafi's gold dinar would have served as a substitute to the CFA Franc throughout Africa. Whether or not the dinar would have replaced the CFA Franc entirely is uncertain, but Sarkozy feared the possibility enough to support military intervention in Libya. Gaddafi was without a doubt an evil man, a dictator, and responsible for the deaths of many innocents. Yet it seems that supporters of military intervention were actually concerned with maintaining Western influence in Libya and the rest of Africa, and not as motivated by humanitarian reasons as they claimed.

The Economics of Politics in Star Wars - The Empire Strikes Back

The Empire Strikes Back, chronologically the fifth Star Wars film, entails the Imperial counterattack against the Rebel Alliance, following the destruction of the Death Star in A New Hope. Though the crown jewel of the Emperor's military complex is gone, most of the massive armada remains. The Rebellion has fled to the far reaches of the galaxy, on the ice planet Hoth, to avoid the grasp of Empire.

Darth Vader, desperate to find the Rebels, orders thousands of probe droids sent throughout the galaxy. When an empire has reached a critical mass of military buildup, the next logical step is surveillance. In order for The Emperor's ultimate quest, absolute power, to be attained, he must necessarily control the information of the galaxy and monitor the activities of its citizens.

Though this may be the first use of these droids, and they're used solely for rooting out "enemies of the Empire", it's not a stretch to assume that the data-gathering capabilities of the probe droids may be used on peaceful citizens in the future.

Thanks to the droid, the Empire discovers the Rebel base and attacks, forcing an evacuation. Han Solo and a Rebel leader, Princess Leia, escape aboard his ship the Millennium Falcon. Eluding Vader, he is forced to call in a team of bounty hunters to search for them. This move shows the limitations of the Empire, powerful as it may be. Individuals operating outside of its control, the bounty hunters, are better equipped to do the job the military can't do. They are free to innovate, to experiment, and to operate independently.

Eventually, the Falcon lands on Cloud City. Cloud City is a small gas mining colony, run by Lando Calrissian. A former smuggler, and friend of Solo, he has decided to take up a more "legitimate" entrepreneurial business, undergoing the risks of starting a new firm. By bearing the risk, Lando stands to succeed or fail based on his own effort. This is the sort of free economic activity the Empire seeks to control.

"We're a small outpost, and not very self sufficient. I've had supply problems of every kind, I've had labor difficulties..."

Lando operates outside of prohibitive Imperial supervision and regulation, allowing him to more easily innovate and turn a profit. Furthermore, he has evaded the industry's own regulator, the Mining Guild. Industrial self regulators, like the Mining Guild, seek to limit entry into a market and artificially prop up prices and restrict competition. Competition like the upstart Cloud City.


Lando: "So you see, because we're a small operation, we don't fall under the jurisdiction of the Empire."

Leia: "So, you're part of the Mining Guild then."

Lando: "No, not actually. Our operation is small enough not to be noticed. Which is advantageous for everybody, as our customers are anxious to avoid attracting attention to themselves."

Han: "Aren't you afraid the Empire's gonna find out about this little operation, shut you down?"

Lando: "It's always been a danger, but it looms like a shadow over everything we've built here...I've just made a deal that will keep the Empire out of here forever."

Lando, desperate to keep the Empire from crushing his business, betrays Han and Leia and surrenders them to Darth Vader. Knowing that he operates outside of Imperial control, the threat of Imperialization "looms like a shadow" over the operation. When the chance came along seemingly guaranteeing independence, he had no choice but to take it.

Though he eventually has a change of heart and joins the Rebellion, Lando's gambit demonstrates the prosperity and freedom that can emerge for all, if the government merely gets out of the way. The Emperor, not content controlling the government and the galaxy with a mighty military force, is intent on economic control as well.

The Empire Strikes Back is often lauded as the best of the Star Wars films. It shows an Empire yearning for complete domination of the galaxy. The beginnings of a surveillance state (justified by the threat of attack, of course) are seen, as is the threat of economic Imperialization over a thriving free enterprise.

(Analysis continued for The Return of the Jedi HERE.)