There’s Nothing Free

By Walter E. Williams
Editors Note: AmmoLand News welcomes Walter E.Williams to our growing list of the best and brightest conservative commentators.

Taxes
There's Nothing Free
Walter E. Williams
Walter E. Williams

USA – -(Ammoland.com)- It was Nobel laureate economist Milton Friedman who made famous the adage, “There's no such thing as a free lunch.”

Professor Friedman could have added that there is a difference between something's being free and something's having a zero price.

For example, people say that there's free public education and there are free libraries, but public education and libraries cost money.

Proof that they have costs is the fact that somebody has to have less of something by giving up tax money so that schools and libraries can be produced and operated.

A much more accurate statement is that we have zero-price public education and libraries.

Costs can be concealed but not eliminated. If people ignore costs and look only to benefits, they will do darn near anything, because everything has a benefit. Politicians love the fact that costs can easily be concealed. The call for import restrictions, in the name of saving jobs, is politically popular in some quarters. But few talk about the costs. We know there are costs because nothing is free.

Let's start with a hypothetical example of tariff costs. Suppose a U.S. clothing manufacturer wants to sell a suit for $200. He is prevented from doing so because customers can purchase a nearly identical suit produced by a foreign manufacturer for $150. But suppose the clothing manufacturer can get Congress to impose a $60 tariff on foreign suits in the name of leveling the playing field and fair trade.

What happens to his chances of being able to sell his suit for $200? If you answered that his chances increase, go to the head of the class. Next question is: Who bears the burden of the tariff? If you answered that it's customers who must pay $50 more for a suit, you're right again.

In his 2012 State of the Union address, President Barack Obama boasted that “over 1,000 Americans are working today because we stopped a surge in Chinese tires.” According to a study done by the Peterson Institute for International Economics, those trade restrictions forced Americans to pay $1.1 billion in higher prices for tires. So though 1,200 jobs were saved in the U.S. tire industry, the cost per job saved was at least $900,000 in that year. According to the Bureau of Labor Statistics, the average annual salary of tire builders in 2011 was $40,070.

Here's a question for those of us who support trade restrictions in the name of saving jobs: In whose pockets did most of the $1.1 billion that Americans paid in higher prices go? It surely did not reach tire workers in the form of higher wages. According to the Peterson Institute study, “most of the money extracted by protection from household budgets goes to corporate coffers, at home or abroad, not paychecks of American workers. In the case of tire protection, our estimates indicate that fewer than 5 percent of the consumer costs per job saved reached the pockets of American workers.” There is another side to this. When households have to pay higher prices for tires, they have less money to spend on other items — such as food, clothing and entertainment — thereby reducing employment in those industries.

Some people point out that other countries, such as Japan, impose heavy tariffs on American products. Indeed, Tokyo levies a 490 percent tariff on rice imports to allow Japanese rice growers to gain higher income by charging Japanese consumers four times the world price for rice. Therefore, some suggest that Congress should even the playing field by imposing stiff tariffs on Japanese imports to the U.S. Such an argument differs little from one that says that because the Japanese government screws its citizens, the U.S. government should retaliate by screwing its own citizens. Putting the issue in another context:

If you and I are at sea in a rowboat and I commit the foolish act of shooting a hole in my end of the boat, would it be intelligent for you to retaliate by shooting a hole in your end of the boat?

About Walter E.Williams

Walter E. Williams is a professor of economics at George Mason University. Williams is also the author of several books. Among these are The State Against Blacks, later made into a television documentary, America: A Minority Viewpoint, All It Takes Is Guts, South Africa's War Against Capitalism, More Liberty Means Less Government, Liberty Versus The Tyranny of Socialism, and recently his autobiography, Up From The Projects.

  • 10 thoughts on “There’s Nothing Free

    1. Everything in this article is true, but it ignores one real world fact; a nation which makes and sells nothing, soon owns nothing, not even itself. Tariffs are the only tool governments have to address unfair practices among trading parters. It also ignores the real elephants in the room, these being the Federal Reserve, high business taxes, and the SCOTUS ruling that granted corporations the same rights as individual citizens. Boot the FED, overturn that ruling so that corporations can be effectively sanction when they misbehave, and lower taxes to levels comparable to current tax havens such as Ireland, and the need and call for tariffs will quickly fade away.

      1. I can see some economic education is needed. When Singapore, Hong Kong, and Macao were independent polities they made nothing and sold nothing (same as now), but they certainly have done well. How about the Swiss? Cayman Islands? Monaco? Year by year manufacturing jobs are being taken by automation, and they are never coming back. Kiosks at McDonalds? How about Amazon’s new automated grocery store? Within 10 years long haul trucking will be done with driverless vehicles. Will tariffs fix that? How long until 3D printing makes the whole idea of a factory obsolete? Can’t happen? Anybody remember when IBM and HP owned the computer business and thought giant mainframes were the wave of the future? When they thought people would come to the great computing center like a pilgrimage to the oracle at Delphi? Who would possibly want one in their home? Government taking money from the people and micromanaging the economy never works. If you think it can be done, grab a deck of cards and tell me the outcome before you deal them. After all it’s only 1.6 million possible combinations. That should be easy compared to guessing the daily interactions of 7 billion people. Do some reading: Rothbard, Hayek, von Mises, Haziltt, or some more of Dr. Williams. Maybe Dr. Sowell, or Dr.Tom Woods.

        1. I was discussing the present day situation, and I did not say that tariffs are a solution. I would disagree with anyone who says they are. My point is that tariffs are one of the few points of leverage, in most situations, that governments can use to press for negotiations when unfair practices, such as currency manipulation or state subsidies, or tariffs themselves for that matter, are in play.

          Your examples are mostly tiny city sized states, and don’t compare well to a nation the size of the U.S.. Hong Kong is where it is because of an excellent natural harbor. For most of its history, it was a wealthy trading port, mostly because of the opium trade. As shipping has become less lucrative, Hong Kong has become a manufacturing and financial center. Macau was a trading port run largely by the Portuguese until the 1860’s. China assumed formal sovereignty over the island nation in 1999 (in other words, they may have a formal government and legal system based on Portuguese law, but they answer to masters in Beijing). The economy is now mostly tourism from mainland China. Singapore is the world’s third largest oil refiner, and the largest manufacturer of oil rigs. That makes up over 20% of their GDP, with integrated circuit manufacture (there’s that word again) making up another 16%. Being a tax haven and major financial market and tourism hub takes care of the rest. Monaco was a colony (owned by somebody else) until the early 20th century. Its military defense is still paid for by France. The main source of income is tourism, however they do now have a growing manufacturing sector, primarily cosmetics. The Cayman Islands are a remnant of the British Empire, still belong to the Crown. Some 40% of the Swiss population are employed in the local manufacturing industry; watches, textiles, machine tools and precision instruments, etc.. Most of it is exported, though the high value of the Swiss Franc compared to the Euro has hurt them recently. Banking, tourism and agriculture make up the rest of the economy.

          In short, none of your examples is applicable to my argument, and nowhere do I see any evidence that we can support a nation the size of the United States off of selling mixed drinks and pot to Chinese tourists (though we do produce both in house). As for the future, I agree, we have some serious challenges ahead. AI, robotics and additive manufacturing are making whole employment sectors disappear (know any CPA’s still working in accounting firms? That’s because they were all replaced a few years ago by software). Ultimately, except for a few high volume products, and things such as raw materials and processed materials (you have to feed the printer something to print with), the factory will literally be in your living room. The Universal Basic Income the socialists are trying to sell is no solution, more like pouring gasoline on the fire. You can watch their ideas collapse around them just by asking them how they intend to pay for these programs.

          Humanity is going to have to make a huge paradigm shift, come up with a whole new way to assign economic value to keep people productive and competitive. What that will look like, I won’t even try to imagine.

    2. The only real question is…

      Do you want the money to end up in China (or other country) or do you want it to end up in America. Yep, we all understand prices on ‘some’ items may go up and but small percent will make it back to the workers, share holders, 401 K’s, savings accounts, tax reductions, et.

      Walter you are wrong on this. Our money needs to stay in our country.

      Randall

    3. These other countries are able to have lower prices because they do not have the benefits we do of vacation days, health care, family leave and so on. So that lower cost represents an unfair advantage to countries that do offer social benefits. Therefore it is not a natural price. The tariff simply raises the cost back to what the real level should have been. I would argue it is always better to have people employed and paying taxes rather than living off of government programs, at almost any cost.

      1. agreed. and environmental protections,can be considered as well. Supporting (Chinese or other potentially adversarial) commercial/military consortiums, and etc.is potent argument for domestic production
        Economics is war in some cases.

      2. TANSTAAFL has been in my lexicon since 1966 when I read the book.
        Many gun people are well familiar with another of his quotes:
        “An armed society is a polite society. Manners are good when one may have to back up his acts with his life.”
        — Robert A. Heinlein

    4. It would seem that the cost of welfare for those unemployed due to exportation of American jobs was not mentioned. What are the other things not mentioned, either positive or negative, about exporting jobs for cheaper rates?

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