Exhibit A: Industrial policy that protects the few at the expense of the many – Carrier keeps jobs in Indiana but on the backs of taxpayers and consumers

I just received an article from the Wall Street Journal that indicated that Carrier has agreed to keep roughly 1,000 jobs in a manufacturing plant rather than shift the employment to Mexico. Rather than celebrate this as a great example of private and public partnership and the deal-making style of Trump that successfully and benevolently puts Americans first, I am going to put a different, and perhaps unpopular, spin on this and call it what I believe it to truly be – arbitrary manipulation and industrial policy developed by government for the benefit of the few at the expense of the many.

Of course, the “saving” of 1,000 jobs is a positive thing on the surface, and it will no doubt lead to declarations of success and subsequently votes for the protectionist politicians who promoted it well into the future. Less visible will be the unintended consequences and foregone opportunities of non-government intervention. I will start with the obvious and work my way to the more philosophical, but just as important, reasons to decry, rather than to celebrate, such government interventions:

• The 1,000 jobs were kept and promoted at a hefty price tag per worker. At a $7,000,000 tax incentive agreement, this works out to $7,000 per job “saved.” This means the rest of Indiana taxpayers are subsidizing this arbitrary policy. No doubt, you will find many lower-paid workers subsidizing their higher-paid brethren. I am sure the Indiana taxpayer could think of a million different things they could do with that $7,000 to help their own careers and families. This is the unintended consequences that are diffused and don’t get highlighted in the media that happens with industrial policy. This is also what happens when rent-seeking corporations get the ear of government officials who control too many of the levers of economic policy. They get to decide how to use our tax dollars and declare it a successful investment with little accountability or visibility to what ends those dollars could have gone to had they left them in our pockets.
• The inability to shift labor to take advantage of wage rate/productivity imbalances leaves costs higher for American consumers in the long-run. Once again, this is government meddling in support of one small class of citizens at the expense of the many.
• Preventing Mexico from taking advantage of their comparative advantages in their specific mixture of labor force participation, wages, and productivity will continue to put pressure on their citizens but not allowing them to grow economically, which further puts pressure on its citizens to immigrate. Being able to take advantage of cross-border trade is mutually beneficial and is not the zero-sum game that protectionists such as Trump believe it to be. The great irony is that plugging one “problem” of imbalanced trade only exacerbates another one of immigration- or at least in the sense that self-described American Economic Nationalists believe trade and immigration to be problems.
• Sustaining or creating new abusive and arbitrary government power to take tax dollars from citizens in support of the few establishes/continues a dangerous precedence. What well-connected company or connected political body will take their turn next in using their connections to politicians to extract resources from the rest of us under the auspices of “America first?” Do we really trust the government to pick and choose these winners wisely and with all of our freedom, liberty, and economic interests in mind? I hope to someday make this a rhetorical question.
• I keep coming back to this point from previous posts – but what right does the government have to tell me as a consumer where I can and can’t buy goods? By implication – browbeating, cajoling, and incenting them to stay (using my money) in America through taxpayer funds is ultimately an act to usurp my rights to buy goods from the provider who can make the highest quality good at the lowest cost and in the end is little more than theft of my resources to support their own arbitrary decisions.

Finally, freedom and liberty requires a tradeoff of uncertainty in outcomes that don’t always redound to every individual, but is the only way with which we can grow economically (and in turn emotionally and spiritually) in the long run. The fundamental question then becomes do we want to bequeath to our future generations and children an open and dynamic society where people are free to create the exciting and enriching occupations of the future, or do we want to confine them to the known quantities of the past and present?  We shouldn’t demand equality in outcomes, but rather demand the equality of opportunity combined with blind justice – good arbitration when conflicts arise over contracts between free people. Otherwise, we should keep government at a safe arm’s length that is akin to a good and impartial referee who knows a foul when it sees it and has a consistent redress for those fouls irrespective of the player that committed them. Instead, what we have these days is a referee who changes the rules in the middle of a game to the advantage of his favorite and most well-connected players. On this note of equality of opportunity and why it is extremely important, I land with a powerful excerpt from Deirdre McCloskey’s remarkable book, Bourgeois Equality, of which I have written more at length about in a separate post, but for today’s topic pull out this specific section:

The ideas of equality [in the English and Scottish Enlightenment period] led to other social and political movements not uniformly adorable. Hannah Arendt remarked in 1951 that ‘equality of condition…is among the greatest and most uncertain ventures of modern mankind.’ Alexis de Tocqueville had said much the same a century earlier. And Scottish equality has a harsh, even tragic side. It entails equal reward for equal merit in a marketplace in which others, by freedom of contract, can also compete. As John Stuart Mill put it in On Liberty, ‘Society admits no right, either legal or moral, in the disappointed competitors to immunity from this kind of suffering; and feels called on to interfere only when means of success have been employed which it is contrary to the general interest to permit – namely, fraud or treachery, or force.’ Yet in the real world, unhappily, if the poor are to be raised up, there is no magic alternative to such competition. An ill-advised and undercapitalized pet store, into which the owner pours his soul, goes under. In the same neighborhood a little independent office for immediate health care opens half a block from a branch of the largest hospital chain in Chicago, and seems doomed to fail the test of voluntary trade. Although the testing of business ideas in voluntary trade is obviously necessary for betterment of the economy (as it is too by non-monetary tests for betterment in art and sport and science and scholarship), such failures are deeply sad if you have the slightest sympathy for human projects, or for humans. But at least the pet store, the clinic, the Edsel, Woolworth’s, Polaroid, and Pan American Airlines face the same democratic test by trade: Do customers keep coming forward voluntarily? Does real income rise?

We could all by state compulsion backed by the monopoly of violence remain in the same jobs as our ancestors, perpetually “protected,” though at $3 a day. Or, with taxes taken by additional state compulsion, we could subsidize new activities without regard to a test by voluntary trade, “creating jobs” as the anti-economic rhetoric has it. Aside even from their immediate effect of making national income lower than it could have been, perpetually, such ever-popular plans – never mind the objectionable character of the violent compulsion they require – seldom work in the long run for the welfare of the poor, or the rest of us. In view of the way a government of imperfect people actually behaves in practice, job “protection” and job “creation” often fail to achieve their gentle, generous purposes. The protections and the creations get diverted to favorites. Laws requiring minority or female businesses to be hired, for example, tend to yield phony businesses run in fact by male whites. In a society run by male whites or inherited lords or clan members or Communist Party officials, or even by voters not restricted by inconvenient voting times and picture IDs, the unequal and involuntary rewards generated by sidestepping the test of trade are seized by the privileged. The privileged are good at that.