Last week, I was sharply critical of President-elect Donald Trump’s effort to pressure Carrier into keeping jobs in Indiana, on the grounds that it was a step toward degrading American capitalism from being rules-based to being deals-based. The Carrier case has generated much discussion, so I want to follow up and make clear why my concerns are now considerably greater than they were even last week.-RW
First, no one should be confused: This was more of a mugging than a bribe. The tax incentives offered by Indiana total $7 million over 10 years, or less than $1,000 per job-year. Incentives at this level would be standard in any business location decision. So, given the stakes involved, the decision was surely based on a reasonable judgment by United Technologies (the parent company of Carrier) that it did not want to be on the wrong side of the incoming president.
Second, the president-elect made clear that he wanted the deal to be seen as a precedent and would plan on pursuing policies of this kind in the future. It polled well and was hailed by some, such as Peggy Noonan and Steven Pearlstein, as successful symbolic politics. On the current trajectory, micro-intervention policies are surely likely to grow, so the question of their ultimate consequences is not a small one.
Third, apart from the process and values questions stressed in my distinction between rules and deals capitalism, there is a certain incoherence in the economics here. If it is cheaper to produce air conditioners in Mexico than in America, won’t Mexican production by non-American companies ultimately render Carrier in Indiana noncompetitive? If Carrier does not export capital to Mexico, won’t Mexico run a larger surplus with America? And isn’t this what the president-elect sees as bad? If foreign companies are allowed to run production chains that include Mexico and American companies are not, won’t American employment ultimately suffer?
Wednesday, December 7, 2016
Larry Summers: Donald Trump is Practicing Presidential Extortion of Companies for Symbolic Political Gain
It is interesting when you see lefties, who are all about central planning, coming out against interventions, but former Treasury Secretary Larry Summers is correct here:
at 12:01:00 AM