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:
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.

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?
  -RW

6 comments:

  1. So frustrating that the left suddenly becomes concerned about the pitfalls of economic interventionism at the same time as the right's skepticism melts away overnight. It's god damn whack-a-mole.

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  2. what an idiotic interpretation.

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  3. Yadda yadda... another out-of-power party within the duopoly sounding better on issues than the party actually in office. I'm quite tired of only ever finding agreement with those whose words have no chance of affecting policy - especially when you know those words would never sound like anything remotely sensible if spoken from the seat of power.

    In a socialist system, capitalist/constitutional thoughts can only belong to the minority opinion.

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  4. If Carrier moves its production overseas there should be a tariff on all its air conditioners coming back to the US. Why? Because they play by different rules in Mexico. In the US we have many more levels of protection for the environment and the worker so its not a level playing field. A tariff should measure these differences and then tax the goods as they cross the border to give American Companies producing in the US a fair chance. Furthermore, why should we buy goods from companies that pollute, like Chinese steel companies, when we won't allow that here. The comparative advantage principle only applies if there is a level playing field like there once was in the 1800's and early 1900's.

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  5. I like how you describe a case of comparative advantage between nations, and then declare that comparative advantage doesn't exist.

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