In a post-truth world, guess who’s back?
The Austrian School of Economics tells us why The Carrier “deal” is not so bad.
Don’t ask me why, but instead of finishing some work, I stumbled upon an article explaining why Mr. Trump’s deal with Carrier was really a good thing. As I skimmed through it, a few things made sense (especially the parts where conservative think tank writers criticized the deal) and then I got to this passage:
Decades ago, economists like Mises and Rothbard were already arguing that tax breaks are not economically or ethically equivalent to receiving subsidies.Simply put, being permitted to keep your income is not the same as taking it from competitors. Exemptions and loopholes do not forcibly redistribute wealth; taxes and subsidies do, thereby benefiting some producers at the expense of others.
So basically, people and companies that have enough power to hold governments hostage are not only smart and justified, but are good players in a free market system. Here’s my response:
Assuming a perfect globalized free market, are you suggesting that the costs to provide infrastructure, an educated work force, and the security to protect property rights either do not exist, or are paid for by each company? In that hypothetical situation (a magical world known as the Austrian School of Economics*), I can see where you could make the argument that tax relief is not a subsidy.
But the reality is, Carrier will move most of its jobs to Mexico, yet continue to enjoy the benefits of selling in the American market:
- They will deliver their products by traveling on roads and bridges financed by U.S. taxpayers.
- Their property rights will be protected by the police and fire fighting forces paid by U.S. taxpayers.
- They will succeed in selling their products because of a trained American salesforce, with the U.S. taxpayer footing the bill their education.
- If they don’t pay their people well enough or provide health care insurance (as is the case with Walmart and other huge corporations), those American employees will end up in emergency rooms across the country and the U.S. taxpayer will once again be stuck with the tab.
Like any company that outsources American jobs, Carrier enjoys reduced costs of sales (cheap foreign labor and avoiding costly U.S. employee health and safety regulations), without paying their fare share (taxes and maintaining worker health and safety) to enjoy the use of our markets.
In other words, Carrier has simply transferred some of the costs of doing business onto the U.S. taxpayer, while continuing to enjoy full private ownership of the revenues.
If this is not a form of forced wealth redistribution, what is?
Exemptions, loopholes, tax breaks, and subsidies are not just corporate welfare; they are a form of socialism. But in this case, the forced wealth redistribution flows to the rich and powerful.
The underlying assumption of free market capitalists is that when businesses act on their own behalf it benefits society as a whole. This is clearly not the case with Carrier. Not only do they pick the U.S. taxpayers’ pockets, but smaller local businesses are placed at a competitive disadvantage.
One of the main purposes of government is to facilitate economic growth and ensure an even playing field. The Carrier deal does neither.
You wrote, “Yes, entrepreneurs who take advantage of tax breaks will incur fewer costs than entrepreneurs who don’t. But this doesn’t show that exemptions or loopholes provide unfair advantages; in fact, just the opposite — it shows that taxes penalize entrepreneurs unlucky enough to be left holding the bill.”
The idea that Carrier is a model of intelligent and efficient long term economic behavior to be emulated by everyone, reminded me of the “Tragedy of the Commons.”
And this is the great divergence between the key principles embraced by the Founding Fathers, and those who believe that government is the problem because it restrains free market capitalism.
For those of you who are unfamiliar with the Commons, it is part of the preamble to the Constitution:
“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution…”
Thom Hartmann does of great job of explaining what it means:
The Commons is what makes our country great. We all share the benefits and the responsibility for keeping it going for future generations:
In essence, the commons means everything that belongs to all of us, and the many ways we work together to use these assets to build a better society. This encompasses fresh air and clean water, public spaces and public services, the Internet and the airwaves, our legal system, scientific knowledge, biodiversity, language, artistic traditions, fashion styles, cuisines and much more. Taken together, it represents a vast inheritance bequeathed equally to every human — and one that, if used wisely, will provide for future generations.
This is one of the big lies behind the Austrian School of Economics, the works of Ayn Rand and the bubble inhabited by Libertarians who want to dismantle government. Without the Commons, and a government to protect it, while insuring an even playing field for everyone, there is no such thing as a self-made man. And the president-elect is the perfect example of a person living in this illusion.
The Carrier deal is the first example of what happens when a serial abuser of our system is given the reins of power.
Giving individual companies like Carrier special treatment is not only a bad policy for all the reasons stated by conservatives like David Boaz and James Pethokoukis, it is simply one more step in breaking our system beyond repair by rewarding the desires of those companies who have the leverage to hold state (or Federal) governments hostage.
For Carrier, as they remove two-thirds of the jobs to Mexico, they have relocated without consequence, received a ton of concessions and the promise of future help. On the surface, it appears they have beaten the deal-maker-in-chief and the Keebler elf sitting in the Indiana governor’s mansion like a proverbial drum that was made in China.
But that’s not the end of the story.
Trump will use the deal not only for short term political gains, but it will put him in a position to tell each company “Someday, and that day may never come, I will call upon you to do a service for me.” And in Trump’s case, unlike Vito Corleone, you can bet that day will come quickly.
*History has disproven the Austrian School of Economics again and again. While the US used a small stimulus package to combat the effects of the financial meltdown, and number of European governments tried austerity programs. We survived, while their economies cratered.
Even Alan Greenspan admitted the error of free market capitalists in his testimony before Congress. He sounds almost child-like in his surprise:
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”
Just a few articles that describe why the Austrian School of Economics is the worthless refuge of Randists and Libertarians. Even a former member of that school notes serious flaws and argues that it should not be a separate school: