Hypocrisy Is Baked Into The Policy Process

By Veronique de Rugy

I have written in the past about the profound inconsistencies that exist in government. For instance, Congress routinely passes legislation that works against the consequences of existing statutes. A good example is the nest of legislation regulating agriculture. It includes provisions that increase the price of food (e.g., the sugar program) and others that lower the price of food for some buyers (e.g., food stamps).

Also, inconsistency exists between the actual effects of many programs and the stated purposes of those programs. For example, the Export-Import Bank is sold as an agency that helps small businesses, while in fact most of its benefits flow to the likes of Boeing and a handful of other large firms. Next, there are programs that are supposed to help new firms gain access to capital to invest in new technologies but which, instead, end up being cheap-loan programs for large firms with ample borrowing power. The 1705 loan program is a case in point.

Inconsistencies are visible when politicians claim that war is the best way to peace, and when they admit that prohibition of alcohol failed in the 1930s even as they insist that the prohibition of drugs today will somehow work. And then, of course, there are the inconsistencies between what politicians say on a campaign trail and what they do once in office (candidate Obama’s promise to close the Guantanamo Bay prison and the attacks on the Ex-Im Bank by candidates Obama and Trump are such examples). These inconsistencies are on top of the inconsistency of supporting programs that hurt the exact people the politicians claim to want to help. Think here of rent control or minimum-wage statutes.

I could go on and on. Instead, I will give you the most recent example of such political inconsistency.

It involves trade and the celebrated outcome of a recent dinner between Presidents Trump and Xi during the G20 summit in Buenos Aires. As a reminder, one of Trump’s stated goals of the dinner was to get a commitment from the Chinese to change some of their “unfair” trade practices in exchange for the Trump administration’s abandoning its threat to hike tariff rates on $250 billion of Chinese exports to the United States. After the dinner, Trump took a victory lap and announced that the Chinese agreed they would make a deal but that until then they had agreed to a few things, including to immediately buy an unspecified amount of American soybeans and other agricultural products.

Whether such an agreement was actually made and, if so, whether the Chinese will keep their word are questions I won’t get into. What I will mention is how surprised I am that everyone seems to think that China’s committing to buy more U.S. soybeans is itself a great thing. Remember: exports are valuable goods that we give up; they themselves are costs rather than benefits.

In my opinion, this celebration of increased American exports is yet another sign of the inconsistency of our “leaders.” They promise to enrich us — meaning, to arrange for us to be able to afford more goods and services — while they make and celebrate deals under which we ship more goods to foreigners and receive fewer goods in return.

In addition, the trade war started because Trump believes that it’s appropriate to tax the hell out of American consumers in order to push the Chinese to stop what he considers to be unfair trade practices. These practices range from alleged theft of intellectual property, to Beijing’s operation of state-owned enterprises (SOEs), to differences between Chinese tariff rates and American tariff rates.

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Let’s focus on China’s state-owned enterprises — steel in particular. As the theory goes, by heavily subsidizing some of its state-owned steel producers, Beijing creates overcapacity. This overcapacity causes the global supply of steel to be too high and thus the world price of steel to be too low. American producers thereby suffer lost sales.

True enough. This very top-down industrial policy of Beijing’s does indeed create conditions in the global market that are unfavorable to American steelmakers. But let me ask this: if the Chinese government’s intervention into the steel market is so bad, why isn’t it equally bad when this same government directs other SOEs to buy more U.S. soybeans?

Here lies the inconsistency: in one case we lament China’s use of SOEs while in another case we celebrate this use. Why? Both the “overproduction” of steel and the immediate purchase of U.S. soybeans, which will cost the Chinese significantly more than Brazilian soybeans, are a tragedy for the Chinese people because their government forcibly diverts resources from other, presumably more productive, sectors of the Chinese economy toward these two activities.

I don’t hear many people complaining about all the stuff that the Chinese aren’t producing and exporting as a result of their authoritarian government’s artificial stimulation of Chinese steel production and Chinese soybean consumption.

So the next time you encounter people lamenting China’s industrial overcapacity, shed a tear for the Chinese people for it is they who pay for these economically destructive policies. But also recognize that some American non-steel production is higher as a result of Beijing’s policy of diverting so many resources into Chinese steel factories. Additionally, point out the muddy thinking of those who, after jeering China for its use of central power to enable Chinese factories to sell more to Americans, cheer the use of China’s central power to compel the Chinese people to buy more U.S. stuff.

Finally, if you have enough juice left in you, ask them why they have no issue with the U.S. government using its power through the Ex-Im Bank to artificially shift capital and other resources toward foreign companies that buy Boeing planes — a shifting that necessarily reduces sales made by other American firms.

 


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AIER Senior Fellow Veronique de Rugy is also a Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist. Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy.

This article was sourced from AIER.org


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