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Jan 27

Radical Agenda EP250 – Mexican Tax Dance

Perhaps the greatest victory of the Trump administration is their ability to turn communists into free marketeers just by floating a trade proposal. Simultaneously, they have managed to turn free market “economists” who are usually so concerned with the unintended consequences of a policy, into people who literally can’t see passed the first consequence of said policy.

Radical Agenda EP250 - Mexican Tax Dance

Radical Agenda EP250 – Mexican Tax Dance

Even I get a little tired of watching people cheerlead for Trump once in awhile, so last night I decided to watch MSNBC for a little bit as a substitute for self mutilation. Once Rachel Maddow was finished spinning an insane conspiracy theory about Trump getting Russian spies black bagged in Russia, the economic analysis came pouring in.

Earlier that day, White House Press Secretary Sean Spicer suggested that a 20% import tariff on goods coming into the United States from Mexico, might resolve our trade imbalance with our southern neighbor. Mexico currently taxes imports from the United States.

Generally speaking, I’m not a big fan of giving money to the government. They don’t tend to spend it wisely, and I’m generally skeptical of people who threaten my life to get my money. But watching people panic over this and scream about the poor American consumer ultimately paying the tax is just too stupid to take seriously.

Yes, of course, all taxes are ultimately paid for by individuals, not countries or corporations. Whether they pay it as a line item or the cost is simply built into the price, all taxes are taxes on humans. This is a truism, not a headline. To hear some people tell it, this is some kind of economic breakthrough they didn’t quite understand when they were using subsidies to claim health care costs had gone down under Obamacare.

A 20% tariff on Mexican imports would not directly result in a 20% increase in the cost of goods or services currently purchased from Mexico. Rather, it places a great deal of pressure on Mexico to negotiate with the Trump administration in good faith on a whole range of issues including trade and immigration, which will have more far reaching impacts on all manner of economic activity.

An import tariff sets in motion far more than just an increase in prices.  The intention of tariffs is (often) as much to impact domestic economic behavior through avoidance, as it is to raise revenue when avoidance becomes impossible. The cost differential created by the tariff provides incentives for domestic production, so in many cases you’ll pay a little bit more for a domestic product which previously couldn’t compete. But you won’t be paying  the 20% import tariff because the domestic product is cheaper than the import plus the tariff. Saying that consumers pay the tariff is thus true in a sense, but for the most part, nobody is going to be paying it at all, and that’s the whole entire point. I won’t say this “creates jobs” but it does help to decide where jobs are created, and such a policy does incentivize those jobs be created on this side of the border, which has far reaching economic impacts as well.

Likewise, even though individuals ultimately end up paying tariffs, individuals do have this funny habit of forming economic entities known as nations. So when Donald Trump says “Mexico is going to pay for the wall” and organizes United States economic policy to deprive the Mexican economy of X number of dollars it would have gotten from the United States under existing economic policy, he is still telling the truth, albeit in an indirect manner that requires two seconds of thought.

There are reasons to oppose the policy, such as the fact that we’re just covering up the symptoms of other bad economic policies like labor regulations and minimum wage. But only the most autistic of libertarians will even think it through this far. Certainly no liberal economist is going to try and tell us there could be consequences for artificially driving the cost of labor through the roof, while simultaneously flooding the market with cheap migrant labor.

So forgive me if I’m less than convinced of your economic insights, when your capacity for strategy leaves you unprepared for a game of tic tac toe. You might want to recognize the frivolity of your efforts and graduate to checkers, before you critique the genius of chess players.

There’s a lot more to get to, plus your calls at 747-234-2254 or RadicalAgenda on Skype.

Join us, this and every Friday, as well as Mondays and Wednesdays from 5-7pm Eastern for another exciting episode of the Radical Agenda. It’s a show about common sense extremism where we talk about radical, crazy, off the wall things like trade policy.

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