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Monday, April 29, 2013

 

"Army Says No To More Tanks, But Congress Insists"

"'When an institution as risk averse as the Defense Department says they have enough tanks, we can probably believe them,' Kennedy said."

I read an article on NPR a few days ago titled "Army Says No To More Tanks, But Congress Insists" that I thought was very relevant to our discussion about Mises' "Liberal Foreign Policy" a few weeks ago.

http://www.npr.org/templates/story/story.php?storyId=179606996

We discussed how it is possible that our spending on an overseas military may yield a net-zero use of the productive resources that need to be shifted from the domestic, private sector to the military. However, much of the time the use of the resources proves to be worse. In this case, legislators trying to achieve protectionist economic goals are pushing for more Abrams tank production while the Army itself is saying they do not want them. 

According to Gen. Ray Odierno, the Army's chief of staff, "If we had our choice, we would use that money in a different way." According to the article--and I'm not sure I needed it to tell me this after the first few paragraphs-- is that the reasons are entirely political. The article states that the two champions of more tanks are legislators from Ohio, the location of the plants that make them. These Congressmen, and others in support, will first and foremost say that national defense is a key goal of their platform. However, when they are confronted with the fact that the Army itself does not want them, they shift their statements to include rhetoric often associated with most interventionist economic policies. They cite the fact that the Abram's tank production requires a large network of contractors throughout the country, all of which will inevitably have to make employment cuts. These "highly specialized" jobs cannot be lost, as the skill set will disappear and ""When we start to lose this base of people, what are we going to do? Buy our tanks from China?" (Verhoff). 

As we are nearing the end of the semester, I'm sure I don't have to explain how these kinds of statements are ludicrous. Any public debate where people begin to talk about specific outcomes via government is usually inconsistent with a government for liberty. As I mentioned earlier, this is a very good example of how it is difficult to shift factors of production to an overseas military and have it be equal to the production if it were being used domestically (but at least our tanks are not being produced only to be destroyed in large numbers). However, it is also a perfectly adequate example of any other interventionist policy. With the statements from the Army, it practically forces the legislators to lay out their true intentions on the table. They may or may not believe that what they are doing actually is consistent with liberty and free trade, but they certainly know it will get them the votes and money of the contractors and workers that it benefits. The fact of the matter is that this type of policy is only prolonging shifts in production that are going to inevitably occur. One man in the article even claimed that these jobs are not nearly as specialized as they are made out to be, and are easily replaceable if we need more production of tanks in the future. It does not make sense to me how voters still buy into this kind of political rhetoric when the true situation is so cut-and-dry; when the 'consumers' of the tanks (albeit artificial), which are the reason for production in the first place, even say they have no interest in acquiring more. 

Wednesday, April 17, 2013

 

Government is Force (Feb Posting)

Over the course the semester, I have benefited from examining some of the literary works of notable Austrian Economists. Although I have had difficulty adjusting my thought process from a neoclassical economic one to an Austrian one, I have especially become fond of the work of Murray Rothbard.
To be sure it took me a while to appreciate some the philosophical implications of Rothbard’s work. And while I have made every attempt to partition my neoclassical academic training from my new Austrian academic training, inevitably the sound arguments from the Austrian School have slowly taken over the neoclassical.
One particular position Rothbard has, that I have come to be fond of, is his view of the “role of the State—the government.”
Rothbard writes in For a New Liberty, “Only the government, in society, is empowered to aggress against the property rights of its subjects, whether to extract revenue, to impose its moral code, or to kill those with whom it disagrees.”
Government uses its coercive power to tax to compel its citizens to pay for services and goods he or she may not otherwise use. I get taxed to pay for our police departments and our Sherriff’s Office, but I have never called on them for service. I am compelled to pay taxes to support our local fire department, but I have never used them to extinguish anything.
Grocery stores do not force me to purchase groceries from them. I willingly enter into a free-exchange agreement to purchase foodstuffs from them. Clothing stores do not compel me to purchase clothes from them. I voluntarily purchase clothing or other goods from them as a consumer.
But government forces and compels its citizenry to purchase goods and services through the threat of coercion. To be sure we can all refuse to pay taxes. But the State will compel payment by the threat of wage garnishment or imprisonment. The State will get its share because the State can freely exercise its force wantonly.
There is no protection from government. The military is government. The police are the State. There exists no protection from the freely exercisable force that is government.
As stated in class, “Government is force.”

Thursday, April 11, 2013

 

Rent Seeking

 

            In today’s political climate, special interest groups and “lobbying” are a constant topic of discussion. Many special interest groups or individuals attempt to use government to provide them with special privileges in the market. Economists refer to this activity as “rent seeking.” In a marketplace, competition provides incentive for other players to enter the market in order to reap the same benefits, thus lowering the cost of goods and services over time. With the ability to use force, Politicians are sought out by individuals in the market in an attempt to keep others out of the market so that they may eliminate competition and see higher profits for themselves. This, of course, is harmful to consumers.

Most often, rent seeking takes the form of occupational licensure; where government limits the number of entries into the market below the level of competition there would otherwise be in a free/competitive market. There are literally thousands of examples of rent seeking in the United States alone. A good example right here in Colorado would be the monopoly on Taxi Cab drivers in the city of Denver. For nearly 50 years, the city had only three taxi cab companies. The city, through the power to permit licenses, denied entry to any companies that made an attempt to enter the market. This placed the three existing companies at a competitive advantage, and left the consumers paying higher prices.

When companies attempted to enter the taxi business, the city would deny them entry because they would take business away from the existing companies and that would be “unnecessary.” This type of arbitrary decision making is obviously harmful to the market process in various ways. Not only are competitors forced to stay out of the market, but consumers are stuck with higher prices. Also, productive resources are spent by the special interest groups on political affairs rather than in the market where they would benefit consumers. The problems that rent seeking creates will continue as long as government has the power to force potential players out of the market.

The problem is in concentrated benefits and dispersed costs. Existing businesses have an incentive to “seek rent” from government due to the increased profits that are at stake for them. Therefore, they are willing to spend a lot of time and resources in an effort to convince legislators to pass laws that work in their favor. The rest of the population, mainly consumers, have hardly any knowledge of these events, nor do they see much incentive to spend a large amount of time and recourses fighting their case just to save $20 on their next cab ride in Denver Colorado, which most consumers will probably never notice. Most people are unwilling to spend hundreds, perhaps thousands, of dollars just to save $20. This is not a problem; it’s great that people act rationally. The problem is that we have sanctioned government’s ability to use force in the market.

The only solution to this problem is to remove the government’s power to influence the market. As long as the government’s power to arbitrarily choose the success of certain players in the market is legitimized by our society, then individuals will continue to spend time and resources seeking that power, instead of providing for consumers in a competitive market. If government did not have the power to use force in such a harmful way, then the market process would provide consumers with products and services at the lowest cost, while supplying incentives to innovate and spend more time and resources doing so, rather than seeking rent from the legislators and the political process.

Monday, April 01, 2013

 

United States Sugar

     One thing it seems many of my peers are aware of, even outside economics, is the high price of sugar in the US. In fact, we were recently discussing different types of exchange in an Anthropology class, and many students seemed to be aware of protectionist trade policies, and especially the fact the sugar in the US is sold at a much higher price than other places of the world. I recently read an article that I believe explores most of the important implications of interventionist policies that often go unmentioned...

http://www.npr.org/2013/03/28/175569499/farm-bills-sugar-subsidy-more-taxing-than-sweet-critics-say

     Essentially, the price of sugar in the US is due to "a complicated combination of import restrictions, production quotas and a kind of guaranteed price." Chris Edwards of the CATO institute calls it "essentially a Soviet-style control on production." Basic economic principles will tell you that these types of policies will undoubtedly create some kind of a surplus, but the article became much more interesting when it discussed the loan program for sugar refineries. In order to encourage them to buy more sugar from the producers, they take out government loans using the sugar itself as collateral. So we have an ill-effect of government intervention (sugar surplus), and now another policy to combat the effects of it. Now the incentives for refineries are to either sell their sugar at market prices, or simply 'give' the sugar back to government and keep the loan money. As economics students, I'm sure you see how this could easily go awry, and apparently this year, it is expected to. When the loans cannot be repaid, the government plans to buy the excess sugar and sell it at a loss to ethanol producers, at the expense of the taxpayer. 
     The article humorously said that there is an ongoing feud between "Big Sugar" versus "Big Candy." The President of Jelly Belly said he only wishes that producers would have to compete in an open market, and he even opened up a manufacturing plant in Thailand partly to avoid the trade restrictions. This is yet another effect that I doubt politicians or big sugar saw coming, the adaption of the entrepreneur. Jack Roney, of the American Sugar Alliance, argues that sugar market policies are "the most successful of any US commodity policy," and that they almost never cost the US taxpayer anything. After reading the article, it seems that they are very ineffective, and Roney apparently does not understand that artificially high commodity prices is, in fact, an unseen cost to the masses, even without direct taxation.
     Roney even adds that his opposition is simply profit-seeking, is not doing any of its lobbying for the benefit of the consumer, and that getting rid of the policies would cost thousands of sugar jobs (and then proceeds to blame the problems on the tariff-free Mexican imports, suggesting that they, too, need to be regulated). I cannot say I would not expect a response along these lines, as this is the kind of rhetoric that usually gets the policy there in the first place. He discusses profit in a negative light, and uses emotional arguments about jobs and exploited consumers to garner support. 
     Overall, although it is somewhat brief, I believe this article brings to light many concepts we have discussed in class. Primarily, it shows the 'chain reaction' of interventionist policy--how much must be done just to combat the problems of the previous intervention, and suggests who is really paying for it. It exemplifies policy that obviously benefits one group with the often-unseen costs to everyone else. However, I do not understand how more people are not upset about paying nearly twice the price for sugar as the rest of the world. Maybe they buy into the rhetoric that it benefits sugar producers, and see it as a good thing, but perhaps do not draw a line to how they end up paying for it. Maybe the consumers lack the organizational power of the sugar lobby. Whatever the reason, more people should recognize how these sugar trade policies, and others like them work--and mainly understand that there is no free lunch. 



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