Ross Kaminsky: Protectionism is Political Pandering

It is a misguided and foolish attempt to try and buy votes without appearing to buy votes.

Good article about how protectionism is pretty much vote buying, or pork barrel politics.

As one of history’s great economists, Frédéric Bastiat, put it in 1848: “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

Trump and Clinton are bad economists indeed. If an American worker loses a job due to a factory moving overseas, they see only the impact on that worker. They neglect the benefit to consumers of buying products for less money, leaving us all with the opportunity to save for retirement or buy a nicer home or safer car or take that island vacation we’ve been dreaming of. They also ignore the many new jobs which are created by the ability of businesses to purchase their inputs at lower cost.

And nobody talks about what should be your fundamental right to buy what you want from whom you want without pandering politicians telling you to pay one-third more because they’re trying to scrounge up some votes in Ohio.

Pork barrel politics or rent seeking is where politicians and special interests take advantage of the power of government and economic biases of the public. In the case of protectionism it is taking advantage of the general public’s poor grasp of economics and understanding of the more goofy aspects of our national accounting and the general anti-foreign sentiment of the populace.

Yes, a worker’s job might go overseas. And yes that is a cost. But with foreign trade there is also a benefit. And while protectionism can possible avoid the cost of a worker’s job going overseas it also comes with a cost imposed on all others. It is no different that promising a benefit to subset of the voters paid for by the entire population. Further, other jobs may depend on foreign trade, so it is entirely possible you can prevent one job from going overseas at the expense of yet another job. And even if we engage in protectionism it is not a sure fire method of keeping that job from simply disappearing. Protectionism will likely result in less demand, so that job could simply disappear as the firm employing the worker shuts down.

And as I noted when we look at history when the Smoot-Hawley bill was passed our trading partners immediately retaliated by raising protectionist barriers to U.S. goods. So while an industry that was losing out to foreign competition might have felt less pressure from that competition those industries that relied heavily on exporting to other countries were adversely effected, for example agriculture. After the passage of Smoot-Hawley agriculture prices plummeted. It would be fair at that point to ask, “Why did Washington D.C. hate farmers so much?” Exports for steel and automobile exports also dropped significantly. What effect would an 80-85% drop in the exports in those industries have on employment in those industries?

Further, protectionism reduces competition. Reducing competition gives the remaining firms in the market increased market power–i.e. they can increase their profits by increasing their price. And how is that accomplished? By reducing output, and if you reduce output you also are going to reduce demand for the inputs. So even the industries this misguided policy is supposed to help might still lead to fewer jobs in those industries.

And even if our trading partners did not retaliate their incomes would go down due to protectionist policies…because they are not selling to us and losing that income. That income which is, in part, used to buy goods and services that the U.S. does export.

The bottom line is that a net reduction in overall global trade may not make the intended beneficiaries better off and will undoubtedly make everyone else worse off. It is a misguided and foolish attempt to try and buy votes without appearing to buy votes. And I should note we have done this before. That whole “ownership society” nonsense with getting everyone into a home irrespective of credit worthiness, lowering down payments to obtain a mortgage right down to zero, refinancing to 125% of your home’s value? Yeah, that was in part driven by politician’s desires to buy votes without appearing to buy votes. Instead of a more simple and better policy such as subsidizing down payments for a house, the policies ended up putting tremendous amounts of risk into the financial system to the point where the risk was systemic. The point is, if we want to help somebody whose job has gone overseas….we should help the guy whose job has gone overseas. Directly. Work on a policy to help such people that does not create bad incentives and will make such a transition less costly for those adversely effected. Trying to back door the help so as avoid the appearance of taking money from one group and giving it to another rarely tends to work out for anyone. And that is what we are talking about in the end. Almost all government policies end up taking from group A, which is usually large and diffuse, and giving it to group B which is usually small and concentrated.

Link via Don Boudreaux at Cafe Hayek.

FILED UNDER: Economics and Business, , , , , , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Keithp says:

    What is not taken in to account is the other kind of “protectionism” that is also political pandering in much of the cases. This is excessive regulation and control of the methods of production by the government, which in itself is an ends. If you want to not have protectionism in one case it needs to be eliminated in the other case for equity in result and benefit. This regulatory and taxation protectionism is not a benefit in most cases and eliminates competition just as the other does. Cost/benefit analysis needs to be done on all regulation and taxation and with a lot less emphasis on benefit. There is great exaggeration in stressing what in reality is a minimal benefit in nearly all cases where they even do such a thing. Things like the new FSMA is a disaster of cost and will give no real benefit and force more food production overseas where less control is possible because of WTO agreements, etc. Not even close to a level playing field. Even a distributor of canned goods (or a small store with a central distribution hub) will have to undergo complicated food processing regulations when none are needed at all. We are shooting ourselves in the foot so to speak and the protectionism goes both ways and the ones I bring up are far more costly and little benefit.

  2. michael reynolds says:

    @Keithp:

    CDC estimates that each year roughly 1 in 6 Americans (or 48 million people) get sick, 128,000 are hospitalized, and 3,000 die of foodborne diseases.

    You know what’s a “disaster of cost?” Having your kid die of botulism or e coli because some corporate scumbag puts his own personal profit ahead of food safety. Shove your cost/benefit analysis right up your ass and go shill somewhere else.

  3. sam says:

    “Yes, a worker’s job might go overseas. And yes that is a cost. But with foreign trade there is also a benefit. And while protectionism can possible avoid the cost of a worker’s job going overseas it also comes with a cost imposed on all others.”

    But what if a massive transfer of jobs overseas results in profound political instability? How do you measure that cost? How do you measure the cost of a demagogue harnessing the despair of these displaced workers? Doesn’t the Case-Deaton study raise a red flag that we fail to pay heed to to our peril?

  4. Andre Kenji says:

    The problem is not protectionism. The problem is that the idea that you can have a large numbers of people being paid large salaries to do unskilled work on factories is an illusion. In fact, in the United States, automation is a much bigger problem for unskilled workers than either immigration or outsourcing.

    When Conservatives attack increases on the minimum wage saying that it would increase unemployment and when everyone attacks China they are attacking the wrong problem.

  5. Michael Robinson says:

    Steve, I do wish you would do that article on entitlement reform.

    Social Security and Medicare are political pandering, too, after all.

  6. Bob@Youngstown says:

    @Keithp: Scarcasm follows:
    And by God we can lower the cost of air travel if we could only use nuts and bolts made to lower standards.

  7. Davebo says:

    @Bob@Youngstown:
    Actually the cost of air travel seems to have no rhyme or reason these days.

    A round trip to Paris for me now is almost double what it was when oil was at $100 a barrel and yes, I get fuel contracts but still.

    I can’t believe it’s all just demand.

  8. michael reynolds says:

    Let me just say, as much as I love me some money and admire entrepreneurs and believe in trade, the utter swinishness of American businessmen, so perfectly embodied by Martin Shkreli, leaves me largely indifferent to the fate of big business.

    On any given day I have far more beef with business than I do with the government. I would never favor violent means even to deal with filth like Shkreli, but at the same time the prosecutor would not want me on the jury trying his killer.

    We’ve allowed this culture of amorality, assholery and despicable levels of greed in American business, which is hurting support for business and hurting the country. The kind of businessman who shrugs off a few hundred or a few thousand deaths with cost-benefit arguments needs a lesson in good old-fashioned, all-American, traditional remedies. Like tarring and feathering.

    As a matter of fact, maybe we could work out a deal: we eliminate regulations on food safety if every time there’s a preventable death we can drag some Archer Daniels executive into the street and tar and feather him, burn his house down and blow up his inevitable BMW. Let’s see how little regulation they want when the consequences come right back at them.

  9. Pch101 says:

    Telling right-wingers that their failed theories haven’t failed is the lowest form of pandering.

    I like cheap goods as much as the next guy, and I understand that trade has its benefits. But you aren’t providing any answers, either. (And I’m sorry, but “suck it up” is not an answer.)

  10. stonetools says:

    You know economics has moved on since 1848-or even since 1944, when Frederich Hayek got it wrong with the “Road to Serfdom.” Just sayin’.

    Bang on about protectionism all you like-there are real costs to international trade, both economic and political, and pretending there isn’t is just wishful thinking.
    Generous assistance to those workers and geographical areas disadvantaged by international trade is the best solution. Removing any tax advantages for investing and moving jobs off shore are also steps that should be taken. The Democrats favor both approaches and the Republicans of course oppose both.
    So is Mr Verdon going to be voting Democratic this November? I expect not, somehow.

  11. Pch101 says:

    Of course, the irony of this whole thing is that the glorious antebellum years that are lionized by the American right were built on high import tariffs and land theft from the native peoples.

    Which is to say that the supposed early glory days of the US were built on mercantilism, except that the US annexed most of the land that it stole instead of relegating it to colonial status.

    It is no surprise that the Republican party was once a strong supporter of tariffs. As the party of industry, it was happy to protect its own. The GOP changed because the demands of its industrial donors changed, not due to a devotion to free market principles.

    More recently, one of the last American mercantilists was Ronald Reagan. Not only did his administration attempt to devalue the dollar in order to reduce the trade deficit, but his administration negotiated “voluntary” trade quotas with the Japanese automakers in order to encourage them to build US factories. The devaluation plan failed, but the transplant factory effort was a success.

  12. Thor thormussen says:

    Cost/benefit analysis needs to be done on all regulation and taxation and with a lot less emphasis on benefit.

    Why don’t we do a cost/benefit on the thousand billion dollars a year we throw at the military, sometimes over their objections. That would make a significant dent, not some stupid bullshit designed to let polluters pollute more. China’s the same size as the US, and they seem to be defending the same size area, in a more chaotic part of the world, on 80% less than we spend. Russia defends the same area on a fraction too. That’s $800 Billion in potential savings a year.

    If costs and benefits matter to you, that’s easily the best place to start.

  13. Thor thormussen says:

    On any given day I have far more beef with business than I do with the government.

    People make fun of the DMV. That’s stupid “Government ain’t do nothin right” bullshit. Given the choice between dealing with Comcast/ATT/Bank of America, or the DMV, I’ll take the DMV every day and twice on Sunday.

    The government works better than many companies, because the person at the DMV may be indifferent, but the claims adjuster at Blue Cross gets a bonus for figuring out how to screw you over.

  14. stonetools says:

    BTW, I clinked on the link. Ross Kaminsky’s profession is radio host. Cafe Hayek is some kind of libertarian website.
    I’d kind of like to hear what actual, working economists are saying about all this.

  15. stonetools says:

    Krugman(Nobel Prize for trade policy):

    A Protectionist Moment?: … if Sanders were to make it to the White House, he would find it very hard to do anything much about globalization — not because it’s technically or economically impossible, but because the moment he looked into actually tearing up existing trade agreements the diplomatic, foreign-policy costs would be overwhelmingly obvious. …
    But it’s also true that much of the elite defense of globalization is basically dishonest: false claims of inevitability, scare tactics (protectionism causes depressions!), vastly exaggerated claims for the benefits of trade liberalization and the costs of protection, hand-waving away the large distributional effects that are what standard models actually predict. I hope, by the way, that I haven’t done any of that…
    Furthermore, as Mark Kleiman sagely observes, the conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins — but we now have an ideology utterly opposed to such redistribution in full control of one party, and with blocking power against anything but a minor move in that direction by the other.
    So the elite case for ever-freer trade is largely a scam, which voters probably sense even if they don’t know exactly what form it’s taking.
    Ripping up the trade agreements we already have would, again, be a mess, and I would say that Sanders is engaged in a bit of a scam himself in even hinting that he could do such a thing. Trump might actually do it, but only as part of a reign of destruction on many fronts.
    But it is fair to say that the case for more trade agreements — including TPP, which hasn’t happened yet — is very, very weak. And if a progressive makes it to the White House, she should devote no political capital whatsoever to such things.

    (My emphasis)

  16. Moosebreath says:

    “Furthermore, as Mark Kleiman sagely observes, the conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins — but we now have an ideology utterly opposed to such redistribution in full control of one party, and with blocking power against anything but a minor move in that direction by the other.”

    This is exactly right. Over the weekend, I have seen variants of this argument made at least half a dozen times in these threads, and never once has Steve V. bothered to respond to it.

  17. Pch101 says:

    @Moosebreath:

    Mr. Verdon’s view is that if you get punched in the face by the invisible hand that it was your and/or the guvmint’s fault.

    Free markets never misfire. They’re just magical that way.

  18. MarkedMan says:

    Steve, my problem with your analysis is similar to my problem with libertarianism: it’s a bubble of theory in the absence of the harsh needle of reality. The other players are not abiding by your rules. In the long run that may work against them and for us, but most people don’t have ‘the long run’. We only have our lifetimes in which to see the results. If pretty little theories don’t give a return in a reasonable amount of time then they aren’t with much.

  19. grumpy realist says:

    @Thor thormussen: Heck, if we’re going to do a cost-benefit analysis, let’s look at the US Post Office. Rather than the fixed prices for First Class, Second Class mail, let’s start charging what it really costs to schlep stuff out to the rural boondocks. As it now stands, people who live in rural areas are getting a huge subsidy by the very same postage prices paid by people in cities mailing within the same city.

    But still the same people who whine up and down about The Ebil Gummit start bitching like crazy whenever anyone suggests getting rid of their rural mail delivery or start charging what it really costs. Ha ha.

  20. Scott O says:

    It is a misguided and foolish attempt to try and buy votes without appearing to buy votes. And I should note we have done this before. That whole “ownership society” nonsense with getting everyone into a home irrespective of credit worthiness, lowering down payments to obtain a mortgage right down to zero, refinancing to 125% of your home’s value? Yeah, that was in part driven by politician’s desires to buy votes without appearing to buy votes. Instead of a more simple and better policy such as subsidizing down payments for a house, the policies ended up putting tremendous amounts of risk into the financial system to the point where the risk was systemic.

    I know this is off topic but what were these policies you speak of? As far as I’m aware the government had nothing to do with “getting everyone into a home irrespective of credit worthiness, lowering down payments to obtain a mortgage right down to zero, refinancing to 125% of your home’s value”.

  21. steve says:

    “That whole “ownership society” nonsense with getting everyone into a home irrespective of credit worthiness, lowering down payments to obtain a mortgage right down to zero, refinancing to 125% of your home’s value?”

    Nope, you don’t get away with that. 40% of GDP growth in that period went to the financial industry. They were doing that because they were making money, lots of it. (Funny how a tax increase, in libertarian world, of a few percent will make people stop working, but bonuses in the millions don’t affect people at all.)

    “They also ignore the many new jobs which are created by the ability of businesses to purchase their inputs at lower cost.”

    Again, only in libertarian world do these jobs magically appear right away to replace the ones lost.

    Steve

  22. DrDaveT says:

    @Thor thormussen:

    China’s the same size as the US, and they seem to be defending the same size area, in a more chaotic part of the world, on 80% less than we spend.

    If it were about ‘defense’, that might be a reasonable comparison. But defense is never about defense, at least not among the world’s superpowers. It’s about force projection.

    China is trying to project coercive force over East Asia and its periphery. The US is trying to project coercive force everywhere, from pole to pole and ocean bottom to ionosphere. Which do you think is more expensive?

  23. Just 'nutha ig'rant cracker says:

    @Thor thormussen: A friend of mine used to do insurance law as a paralegal. He would sometimes ask the opposing counsel representative–usually a member of the insurer’s claims department–why the company was fighting a claim when they knew that they would lose.

    The answer that he always got was “since we have in-house counsel, our costs are the same regardless of whether we fight claims or not, so we fight every claim without regard to effectiveness because it costs us nothing. (Additionally, some representatives noted that since fighting claims reduced the number of claims/year adjusters could clear, fighting them all lowered bonuses to adjusters for clearing claims quickly.)

  24. Guarneri says:

    @Keithp:

    I haven’t seen your name here before. But these commenters are nuts (witness a clueless Reynolds who s reduced to invoking the most dire of circumstances to attempt to make a case; a true purveyor of straw man/extremist tripe). Good luck.

  25. Guarneri says:

    Find the Nirvana under a Democrat leadership. Find Obama’s wonderful economy. That’s right, you can’t.

    http://www.zerohedge.com/news/2016-08-14/heres-why-wages-have-stagnated-and-will-continue-stagnate

    Milwaukee is the latest city to burn under massive black unemployment and widening income inequality. Funny thing among you zeros, no invective for Obama. Politics over people indeed. And Hillarybwill be more of the same. Hooray for our side !!

  26. Slugger says:

    In addition to straightforward buying and selling, international trade is an instrument of international politics. The biggest example of this is the trade in sugar where the US has had price supports for two hundred years and quotas to award favored nations. I have heard very little about the strategic impact of the TPP. It gets defended by people who believe in free trade without talking about how this would impact the US position if rivalry between China and Japan or China and Vietnam were to heat up. Much of our foreign policy is closely tied to trade.

  27. Pch101 says:

    But these commenters are nuts…

    That’s certainly true. There’s even some clown here who is sooooo dumb that he takes Zero Hedge seriously.

  28. Gustopher says:

    Give or take any trade program is policy that benefits some over others, and pandering is just policy that doesn’t benefit you personally, so I really wonder whether the title has any meaning other than “I don’t like protectionism”

    And even that is using a very broad stroke with the word protectionism. The most protectionist people around now would be radical free marketers a generation ago.

  29. DrDaveT says:

    @Guarneri:

    Find the Nirvana under a Democrat leadership. Find Obama’s wonderful economy.

    Because the Democratic control of Congress meant that Obama could… oh yeah. Right. Never mind.

    When are you guys going to stop blaming Obama for failing to make the GOP do the right thing?

  30. Alfred E. Neuman says:

    “..protectionism is pretty much vote buying, or pork barrel politics”

    So trade protections is politicians enacting laws consistent with the will of the people when they should be saying damn the will of the people and giving then the free trade agreements that would want to have if they were only well educated enough to know what is good for them. Government by philosopher kings not democracy.

    The real world history of the United States is that trade protection work for the benefit of the whole nation while free trade works for the few. The few get free trade bonus checks which they can take to the bank while the many get low prices that are not low enough to cover the decreases wages necessary to get the lower prices.

  31. michael reynolds says:

    @Guarneri:

    Don’t be even dumber than you usually are, Drew. He’s a shill. And quite possibly a bot.

  32. Eric Florack says:

    @Keithp: you mean like the regulations imposed in the supposed interest of saving the environment?

  33. grumpy realist says:

    @Eric Florack: Hey, if you don’t mind if your kid gets mercury poisoning…..

    Sometimes I think that Libertarians don’t understand the concept of chemistry.

  34. KM says:

    @michael reynolds :

    We’ve allowed this culture of amorality, assholery and despicable levels of greed in American business, which is hurting support for business and hurting the country. The kind of businessman who shrugs off a few hundred or a few thousand deaths with cost-benefit arguments needs a lesson in good old-fashioned, all-American, traditional remedies. Like tarring and feathering.

    This is actually one of the things that the “invisible hand” is implied to do that gets conveniently glossed over. After all, if you are a poor peasant with only one choice of tanner in the immediate vicinity, how do you prevent yourself from getting screwed and bring sacred market pressure to bear? Easy! You and all of your friends form a mob and threaten his greedy ass. Since you most likely know where he lives (small towns and all), there’s a very good chance good less odious behavior is a guarantee.

    Honestly, how else are people supposed to influences the markets when there are limited choices? It’s not like there were 2+ groceries per village back in the day. Boycotting only works if you have an alternative for your needs…. and the threat to one’s self and property should greed take hold is a remarkable incentive to not piss off one’s customers.

  35. Slugger says:

    I think that Guarneri has a point when he raises the issue of rioting in Milwaukee in a thread on trade policy. Trade policy does have impacts that are not uniformly spread out. Fewer trade barriers that may have positive outcomes in the aggregate can result in displacements that typically have big impacts on the paycheck-to-paycheck people. While the invisible hand of the market does its creative destruction/construction resulting in overall growth, it can be pretty tough on someone who finds three months without a paycheck a big challenge. Not all that long ago, our government recognized this problem and rescued Harley-Davidson from collapsing which a dedicated libertarian would have opposed. Today, Harley-Davidson is a bright spot in Milwaukee’s economy. Other enterprises in Milwaukee have not been so favored. The town is shrinking in population. Economic stagnant is not irrelevant to rioting. An economic policy that allows the entire Midwest to turn into central Detroit might not be such a good thing even if it comports with Ayn Rand’s vision of the good.

  36. Jeremy says:

    @michael reynolds:

    You know, I wonder how much of that is business, and how much of that is caused by government involvement.

    Look, I’m not going to say that businessmen are saints — because none of us are. But when one factors in the high level of cronyism in our current economy, I wonder if that has changed something.

    In a traditional example of a capitalist economy, an entrepreneur makes money by fulfilling consumers’ needs better than anyone else. Entrepreneurs compete to serve you. They don’t have government regulations protecting their entrenched business, they literally live and die by consumer decisions.

    But now enter the cronyist system we have today, where collusion between big business and big government is the name of the game, where there is a revolving door between lawmakers, regulators, and lobbyists, where big corporations put pressure to have government right rules favorable to them and blocking competitors from ever entering their markets. This is where politics interjects into the economy, and as many have noted, politics makes us worse. It makes us civic enemies, rather than being civic friends. It turns things into vicious zero-sum games, and likely is a source of that amorality, assholery, and despicable amounts of greed you complain about. Politics is all about that.

    Obviously there are always going to be terrible people, even in business. I would just question how much of that is actual business, and how much has been distorted by 50+ years of government meddling and relying on regulations and lobbyists to beat your competitors, rather than actual serving your consumers better.

  37. Moosebreath says:

    @Jeremy:

    You speak as if we did not have a long history of pre-regulatory society with businesses selling food they knew was spoiled, substances they knew did not help people and claiming they were medicines, etc.

    Or to put it another way, every regulation ever proposed was done so to ameliorate a problem which the market was not resolving on its own.

  38. Andre Kenji says:

    Trade protections work when a country is a developing it´s industry. Sometimes I think that Trump want to transform the United States into Brazil, because he is basically defending industrial policy and import substitution. THAT can increase the price of consumer goods and make the economy less efficient.

    On the other hand, there are many tariffs for agricultural products(Specially sugar, corn,etc) that makes food more expensive(In fact, sugar tariffs are the main reason that many companies are moving their production to Mexico).

  39. al-Alameda says:

    @Guarneri:

    Find the Nirvana under a Democrat leadership. Find Obama’s wonderful economy. That’s right, you can’t.

    http://www.zerohedge.com/news/2016-08-14/heres-why-wages-have-stagnated-and-will-continue-stagnate

    Norvana? That’s some kind of conservative dreamland notion.
    Why conservatives refuse to put any context to our economic performance is interesting indeed. As you probably know by now, Obama was bequeathed an economy that was nearly pushed off a cliff. By inauguration day 2009 the economy shedding jobs at a rate of over 700,000 per month, over 20% of America’s wealth was vaporized, and many more businesses were on the precipice because credit markets were locked up. Since late 2009 we have been on a steady path of modest growth, declining unemployment, and the equities markets have generally performed well.

    Is it ideal or nirvana-like as you prefer? Of course not,

  40. al-Alameda says:

    @Eric Florack:

    @Keithp: you mean like the regulations imposed in the supposed interest of saving the environment?

    Ask the residents of Flint Michigan how they feel about clean water regulations.

  41. Jeremy says:

    @Moosebreath: Which I noted in my post. Of course there are assholes.

    “Or to put it another way, every regulation ever proposed was done so to ameliorate a problem which the market was not resolving on its own.”

    Right. Every regulation. Not a single one was passed in order to protect a campaign contributer from competition in the marketplace.

  42. Pch101 says:

    @Jeremy:

    We tried your way and it failed. The regulations were created because your approach was already attempted and it didn’t work.

  43. grumpy realist says:

    @Jeremy: Some were, but the bulk of regulations have been passed to solve problems.

    You may think that licensing hairdressers is silly, but think about it: a lot of dyes and perms use pretty nasty chemicals. You don’t want to have some doofus decide to take some short cuts (hey! I’ll give you a perm AND dye your hair AND make it shiny all at the same time!) and mix together something that emits chlorine gas, do you? Or do you think that injuring the lungs of your customers is just something to wave off, no biggie?

    Also I suggest you read up on the history of the FDA and the FAA before grumping about regulations. Particularly the history of FAA regulations. You do realize that behind 99% of those regulations was an air crash in which someone died?

  44. DrDaveT says:

    @Jeremy:

    Right. Every regulation. Not a single one was passed in order to protect a campaign contributer from competition in the marketplace.

    The solution to corrupt regulatory practices is to prosecute the corrupt, not to abolish regulation. You might as well claim that the best solution to the problem of quack medicine is to eliminate medical licensing.

    As others have already pointed out, we know exactly what unregulated capitalism looks like. It looks like The Jungle and Johnstown and Love Canal and Bhopal, coupled with Dickensian levels of wealth disparity.

    You might be surprised to learn that this was predicted by Adam Smith himself, in those parts of The Wealth of Nations that libertarians never read, where he speaks (at length) about the necessity of government regulation to prevent the development of monopolies and cartels, and what these days we would call “negative externalities”.

  45. Moosebreath says:

    @Jeremy:

    “Which I noted in my post. Of course there are assholes.”

    If such people are present in virtually every industry and in sufficiently large numbers to get noticed as such, perhaps you need a different description. Like standard business practices.

  46. Grumpy Realist says:

    @Moosebreath: that’s the major problem we have at present. Companies are now licensed by law to act like psychopaths purely for profit. Whereas they were supposed to work toward some “greater good” which combined some arcane set of balancing factors such as “benefit for shareholders, plus benefit for employees, plus benefit for community”, relatively recently we had some court decisions (out of Delaware, natch!) which claimed the only target corporations have to worry about is “return to shareholders.” With the result that there’s nothing holding corporations back.

  47. Grumpy Realist says:

    Which is another reason why Steve’s analyses are hogwash. You can’t have a system in equilibrium where half of the players get to act like psychopaths and the other half can’t. Not and have a system worth preserving.

    At some point the peasants are going to say:”we don’t care if you’ve had enough agency capture so you can say all your actions are legal. A bas les aristos!” At which point you can babble about the supposed “legitimacy” of your views up to the point where you get hanged from a lamppost. Sorry, you have no authority.

    As said, read up on history. I’m sure Louis XVI was the rightful king of France. That didn’t protect him from getting his head chopped off.

  48. Just 'nutha ig'rant cracker says:

    @KM: As I noted in another post, one of Smith’s givens from another book is that capitalist-system exchanges of goods and services will be moderated by “the impartial observer”–a metaphor for the human conscience–urging you to be fair to your trading partner. Marx’s contribution to that conversation was to note that many people had the ability to ignore that observer and its exhortations.

    Of course, Adam Smith also believed in a labor market where 1) virtually all employment paid living wages and 2) where Say’s Law worked–workers withdrawing their labor to drive up prices when wages became too low.

  49. Just 'nutha ig'rant cracker says:

    @Slugger: The difference depends on whether on calculates “good” on the basis of the individual or the society. Genuine trade policy needs to balance both concerns. Schumpetter (?) not withstanding, outsourcing high wage full-time employment and replacing it with low wage part-time employment is not creative–only destructive. And it doesn’t spell “e-c-o-n-o-m-i-c g-r-o-w-t-h,” either.

    Even conservatives have figured this out–now that we have “that niCLANG” in office. The only guy that doesn’t realize it seems to be Verdon, but I suspect that he really does realize it, too; he just can’t quite verbalize the idea.

  50. Just 'nutha ig'rant cracker says:

    @DrDaveT: I find myself wondering how Adam Smith would react to the current real estate market in many areas considering his belief in one of the functions of government being to discourage speculation.

  51. Ben Wolf says:

    @Jeremy: Crony capitalism is the inevitable outcome of market fundamentalism, aka the supposed free market ideological movement. Such economic regimes, because they are not natural to human societies, require even greater government intervention and involvement than mixed economic systems. Each time markets fail a wave of new regulation and financial resources is released to stabilize them. The complexity requires close cooperation of regulators (cops) with those they police; the regulators almost invariably come to identify with the interests of these firms. Enforcement is neglected and a new crisis emerges. This is repeated until the regime can no longer sustain the cycle due to political/social opposition.

    The problem is not politics but the utopian notion that politics can be eliminated by reliance upon autonomous markets which produces these dynamics.

  52. Eric Florack says:

    @grumpy realist: so let me understand this. You think that increasing wages is going to prevent poisoning of any kind?

    We need to talk about a few gallons of Florida that I have on hand just waiting for you

  53. Eric Florack says:

    @Pch101: no, the regulations were attempted because there was a demand for the government to do something. Of course the failure there is not understanding that creating a law doesn’t solve the problem

  54. Pch101 says:

    @Eric Florack:

    You seem to reside in some fantasy land which didn’t have tainted food, bogus drugs that didn’t work, and steering columns that wouldn’t impale their drivers.

    What’s funny is that conservatives and libertarians pretend to be such a practical bunch, when I have never seen a larger or more obtuse group of utopians. It’s no wonder that you need your own media — the real world simply has no place in forming your beliefs.

  55. DrDaveT says:

    @Eric Florack:

    so let me understand this

    Now that is an unrealistic utopian goal if I ever saw one.

    You think that increasing wages is going to prevent poisoning of any kind?

    No, we think that regulating businesses — with enforcement — is going to all but eliminate poisoning of the deliberate-or-negligent kind.

    Which it has. Today, it’s a huge national story if a few hundred people are made very ill by E. coli or Listeria and a few of them die. It’s an outrage, and the perps pay huge fines or even go out of business if they were negligent. In 1910, it happened every week, and was not considered newsworthy. If you think there is no causal link between the Pure Food and Drug Act (and its successors) and that change in routine corporate hygiene and public expectations, I would love to hear your alternative explanation. I collect fairy tales.

  56. the Q says:

    The blurb above “About Steve Verdon” says he graduated with a BA in Econ. from UCLA.

    Ok, that says it all. UCLA’s Econ Dept was a right wing, Milton Friedman, strict monetarist kook factory that lionized supply side and no doubt cast its toxic philosophy on a young Verdon and he regurgitates the total narrow minded bullschit in his econ writings in this blog.

    No doubt this guy worshiped Bill Allen, the chair of the dept for many years and a man I debated with many times as guest lecturer at the old GSM, now called the Anderson School.

    Steve is a true non thinking believer in the efficiency of markets to the detriment of common sense, as were his mentors at UCLA.

    Lets look at Stanley Hammer….old venerable New England companies that for 200 years build tools in the USA. They were one of the first to shut down and move production to Mexico citing the labor costs which were 1/10th the American wages. They needed to stay in the parlance of free markets Verdons, “competitive globally”.

    So, Steve, my boy, you would think that $10 hammer would go DOWN in price to reflect the decreased labor input to say $3. However, as we all know, that hammer is still $10 or more. So where did the “profit” go?

    Lets look at Carrier, who has plans to relocate to Mexico for the same labor cost reasons. So I guess according to Steve Verdon economics, we can expect that air conditioner to go from $500 to $150, right SteveO?

    But it won’t. Because this “free trade” that Steve gushes over is a scam. What is really happening is the labor cost goes way down, and the capitalist pockets the difference. Hence, huge income distortions and inequality the last 20 years.

    Hey Steve, the reason we have millions of illegal Mexicans in the LA area? NAFTA, that great “free trade pact” with our corn subsidies to American farmers, completely wiped out the small corn farmers in Mexico, with many fleeing north to escape the consequences of starvation. Who can blame them? Yet, the costs of free trade in educating their offspring, policing, jailing them etc in the US etc is not calculated in any of the free traders benefit analysis.

    In short, Steve is one of the UCLA econ clones who just can’t shake the addiction to worn, discarded, bourgeois econ policies he learned when he was a 19 year old undergrad. Steve, grow up.

  57. stonetools says:

    Million Friedman once argued that there was no need for an FDA because drug manufacturers would be motivated to test their drugs and make them safe for their customers. He said that it was sufficient for drug companies to “self-certify” their products. if companies made a mistake and put on unsafe drug on the market, why the consumer could sue the company and get sufficient legal redress.
    Then came the thalidomide crisis. Turns out it’s hard to compensate someone for a baby born with flippers for arms and legs-especially if those companies go bankrupt.

    n the early sixties, pictures of children with horrific birth defects, particularly underdeveloped legs and arms, began to appear in the media. These birth defects were soon linked to the drug thalidomide, which was widely prescribed throughout the world to prevent morning sickness in pregnant women. The United States was largely spared this tragedy thanks to the work of one woman, Dr. Frances Oldham Kelsey, a new employee of the Food and Drug Administration (F.D.A).

    After the success of thalidomide in Europe, the drug company William S. Merrell petitioned the Food and Drug Administration in 1960 to be allowed to market the drug in the United States. Dr Kelsey was assigned to review the application. Dr. Kelsey, who has a Ph.D. in pharmacology as well as a medical degree, had been on the job for only a month, but was troubled by the lack of evidence that the drug was safe for human use. Dr. Kelsey pressed the company for additional research. Her insistence on sufficient documentation kept thalidomide off the U.S. market for over a year, sufficient time for doctors to uncover the link between thalidomide and birth defects. In 1962, the drug was taken off the market, but not before 10,000 children had been impacted. It is estimated that 40 percent of babies with thalidomide-induced birth defects died before their first birthday. The thalidomide tragedy, with its shocking pictures, was widely covered in the media.

    Milton Friedman shut up about self certification after that, but still argued that we didn’t need an FDA ( because conservatives never admit they’re wrong). Look at these images of thalidomide babies, conservatives-then come back and tell us again that drug regulation isn’t needed.

  58. DrDaveT says:

    Further, protectionism reduces competition.

    Let me get this straight — having WalMart and Amazon.com sell 90% of everything in the country is somehow more competition than what we had back in the evil protectionist days? Really?

  59. Ben Wolf says:

    @DrDaveT: It’s a silly talking point. No business is going to “compete” when an exporting country is devaluing its currency by 20%.

  60. Pch101 says:

    The Food and Drugs Act of 1906 was inspired by Upton Sinclair’s The Jungle, which was supposed to turn Americans into passionate socialists but instead simply frightened them about the poor quality of their food.

    That was an era when “patent medicines” (snake oil) were the norm. Liberals didn’t concoct a crazy theory about medicines that they didn’t work — these things existed for decades before regulations put most of them out of business.

    Industry has already proven that it doesn’t care about quality when the defects can be concealed from the customer. Not only is it possible for industry to do it, it had a track record of doing it.

    Conservatives form their theories with seemingly zero knowledge of basic historical events. Things that they claim should not happen have already happened. Why should a theory that has already been shown to be false be given any quarter?

  61. Grumpy Realist says:

    @Eric Florack: well, you certainly don’t understand what I said.

    If living in an economy with no regulations is so wonderful, I suggest you move to China. Or Somalia. Just don’t complain when members of your family get very sick or die, hmm? After all, it’s perfectly normal for food manufacturers to use antifreeze in toothpaste, right?

  62. michael reynolds says:

    @Pch101:

    Conservatives form their theories with seemingly zero knowledge of basic historical events.

    Their theories – and to be fair, most ideologies – exclude the ingredient known as homo sapiens.

    The US Constitution didn’t work because it was some perfectly-conceived theory of government, it worked because the Founders were a mix of lawyers and businessmen and planters who had an intuitive grasp of homo sapiens. They anticipated at least some of the many ways human beings would undermine or exploit whatever system was created. They were good anthropologists.

    Libertarians are the equals of communists when it comes to absolute cluelessness about humans. No, businesses won’t ‘self regulate’ because people are greedy, short-sighted swine incapable of pulling their snouts out of the trough so long as there’s a bit of swill left to gobble up.

    You want proof that humans will never, ever self-regulate? Stand on any street corner and see how many regular folks are 30, 50, 100 pounds overweight. They know it’s unhealthy, they know the penalties, and they (me included) still eat that whole pie and lick the dish. Humans are not built for self-regulation, we’re built for heedless greed.

  63. Just 'nutha ig'rant cracker says:

    @stonetools: To take this out of the sphere of obligation to the public and more into the objectivist/libertarian realm of the individual, riddle me this, critics of regulations: How many of you are willing to buy an apartment in a 30-plus story building built to the exacting standards of say, a Donald Trump, in an area with no building codes?

    Let’s add an additional degree of complication and make that a building where Trump has licensed the use of his name for marketing purposes (and did not disclose that information). Any takers?

    Freidman’s faith in the marketplace is just that–faith, and it relies on a market where nearly all players will be spotlessly moral people. Was it Greenspan who noted that no one had any idea that the leadership of the banking industry would sell the long-term interest of the industry for immediate gain? Hmmmm…

  64. Just 'nutha ig'rant cracker says:

    @michael reynolds: Michael, you’re being unfair to swine! My ex-wife raised pigs for home consumption when she lived on a farm and told me that the pigs were the only animals for which bulk food could be provided without measuring it because pigs were the only ones that would stop eating when they were fully fed .

  65. michael reynolds says:

    @Just ‘nutha ig’rant cracker:

    I apologize for my pigist remarks.

  66. DrDaveT says:

    @michael reynolds:

    The US Constitution didn’t work because it was some perfectly-conceived theory of government, it worked because the Founders were a mix of lawyers and businessmen and planters who had an intuitive grasp of homo sapiens. They anticipated at least some of the many ways human beings would undermine or exploit whatever system was created.

    On top of which, they had actual experience with the shortcomings of the Articles of Confederation, and they paid attention to which parts had failed to correctly anticipate how people would behave and what would be needed to counteract that.

    Most people don’t remember that the Federalist Papers are just as concerned with the evils of insufficient government as with the evils of tyranny.

  67. Thor thormussen says:

    Libertarians are the equals of communists when it comes to absolute cluelessness about humans. No, businesses won’t ‘self regulate’ because people are greedy, short-sighted swine incapable of pulling their snouts out of the trough so long as there’s a bit of swill left to gobble up.

    I was driving this morning and someone described Peter Thiel as a Libertar(d)ian. Which is nonsense. If it weren’t for the concept of Intellectual Property, Thiel would have exactly jack shit, and “Intellectual Property” completely violates Libertardian notions of absolute property rights. If you believe in patents and copyright, you can pretend you’re a Majestic Randian Rugged Individual. but you’re not.

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