A loss for Americans & Mexicans

Donald J. Boudreaux |

 

I'm all for cutting taxes. But I oppose selective tax breaks given to a particular business in exchange for that business agreeing to act in ways that it would not otherwise. Such selective tax breaks are merely bribes to entice particular businesses to do the government's bidding.

Such a bribe was negotiated by President-elect Donald Trump and Vice-President-elect Mike Pence (still governor of Indiana) to be paid by Indiana to Carrier's parent company, United Technologies, in exchange for abandoning plans to move 1,000 jobs to Mexico. 

Unsurprisingly, politicians and Carrier's workers are delighted. But even The New York Times was favorably impressed. It reported that this deal “also signals that Mr. Trump is a different kind of Republican, willing to take on big business, at least in individual cases.” (I'll bet lots of big businesses are salivating at the prospect of being “taken on” this way by President Trump!)

President Obama's press secretary, Josh Earnest, praised the deal as “good news.”

But there is no “win” or “good news” here for anyone but Trump (who scored political points) and United Technologies workers and shareholders (whose incomes now are subsidized by taxpayers).

What this deal boils down to is Trump and other politicians spending other people's money to bribe a corporation to continue to operate in an economically inefficient manner. The total of resources used to produce air conditioners will be greater than necessary. This in turn means output of other goods and services will be lower, and air-conditioner prices will be higher, than otherwise.

Yet Trump and Pence will point with pride to the jobs they “saved,” wrongly claiming that helps to make America great again. And the vast majority of Americans will swallow this claim. They will not understand that these jobs were saved only by forcibly transferring resources from them to United Technologies.

The reason for this misunderstanding isn't hard to discover. The saved jobs are concentrated in one place. Those workers are aware that, without Trump's intervention, they would have had to find other jobs.

But the cost of saving these jobs is spread over more than 6.5 million Indianans whose taxes are effectively raised by this intervention, and by hundreds of millions of consumers who will pay higher air-conditioner prices. Not realizing their loss, they remain silent despite the total of these losses being greater than the total gains to United Technologies and its workers.

Also among the losers, of course, are the Mexican workers denied an opportunity to build better lives for themselves and their families. Trump's crony-capitalist trade policy, therefore, is at odds with his desire to keep poor Mexicans from emigrating to the United States. Mexicans whose economic opportunities improve through trade with Americans are less likely to emigrate northward in search of higher-paying jobs.

Yet Trump would rather wall us Americans off from our neighbors to the south — making both America and Mexico poorer — than allow us all to be united by the peaceful and enriching bonds of commerce.

Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.