Tag: taxes

The Human Toll of Globalization

The Portly Politico32 Comments

Last week’s posts shared a similar theme:  the costs of unbridled free trade; the benefits of cutting corporate and income taxes to unleash economic growth; and the human side to economics that academics tend to miss.

The first and third topics referenced above came into sharp relief as I read an excellent piece by Chadwick Moore, “Left for Dead in Danville: How Globalism is Killing Working Class America.”  It’s a long-form piece of journalism for Breitbart, but it is well worth the read.  I encourage all of my readers to set aside twenty minutes to read it and its terrifying account of globalization gone wrong.

My post today simply seeks to offer up a summary of Moore’s findings, presenting them in an easily-digestible form for those who don’t have the time or inclination to read his full-length piece.

The conceit of the piece is simple:  Moore visited Danville, Virginia, a former textile mill town located on the Dan River, and very close to North Carolina.  The town was once—and “once” doesn’t mean “a hundred years ago,” but about twenty years ago—a thriving town that supported a solid middle-class through its robust textile industry.  Civic pride was abundant, and the Dan River Mill supported a number of youth and community activities and functions that are familiar to anyone who has grown up in a small town.

Then came NAFTA in 1994, followed by China’s entrance into the World Trade Organization in 2000.  After years of struggling to compete with foreign competition, Dan River Mills shut down in 2006 (it had been open since 1882).

As the town’s economy declined and unemployment skyrocketed, social problems grew.  Drug use increased dramatically, as did crime, and formerly-safe, middle-class neighborhoods devolved into dangerous slums.  More than a quarter of the town’s population is on food stamps.

Race relations also grew worse.  The town had enjoyed peaceful, working relationships between black and white citizens, who worked together happily in the mills and other businesses.  Now, the KKK plans rallies, preying off the desperation of the unemployed (the town is roughly half white, half black).

Moore gives a good bit of space to quoting Michael Stumo, the CEO of the Coalition for a Prosperous America.  Stumo elegantly explains the problem in Danville—as with many other small towns in Middle America—tracing it to China and the World Trade Organization.  Some choice bits to chew on:

“‘When China joined the WTO in 2000 with 1.3 billion people underemployed, it began pulling them out of the rice paddies, the farms, and rural areas, and putting them to work. The Chinese under-consume. They produce more than they consume, [in] a country that’s four and a half times as big as ours and relying on the American consumer to fund their path to wealth and doing so with a state-directed economy, which is different than communist, it’s a strategic mix of state capitalism with a little bit of private sector in it. We always thought communism would fail, but China found central planning 2.0 and is pretty good at it,’ he says….

‘We have free trade within the 50 states,’ Stumo says. ‘By impoverishing our middle class with this offshoring driven by free trade policy, you’re killing the U.S. consumer market, which drives growth, because they have no money. Five or ten percent cheaper prices is overwhelmed in this stage by lack of production and stagnant wages,’ he says. ‘The U.S. middle class cannot afford to fund the rise of other countries anymore.

‘Industry doesn’t stand still; industry is always incubating—you give up the jobs, the wealth creation, the supply chain clusters in communities, and that affects the service sector around them,’ Stumo says. ‘You pull those plants out, and a lot of people are out of work, and then the whole general wage level drops because burger-flipping isn’t an upward pressure on wages, but production is.'”

A degree of globalization, in an age of mass transit and mass communications, inevitable.  And open trade with lower tariffs generally is beneficial.  But naïvely-open trade with dishonest trading partners with slave-level wages primarily benefits the dishonest party.  Yes, there are some winners in the United States—I certainly enjoy a higher quality of life because of cheap electronics from abroad, for example—but as I wrote last week, isn’t it worth paying a little more for your television or washing machine, if it means an American keeps his job.

My thinking on this is simple:  the actual, physical and mental of work, in and of itself, important.  Yes, we could pay everyone a guaranteed basic income, or help people through more assistance programs (ignore the astronomical costs of those programs for the moment), but even if they worked beautifully in the material sense, they will, in the long-run, lead to a deterioration of real skills and, more important, a spiritual vitality.

I strongly believe that the three keys to happiness are faith, family, and work, in that order.  Work is ennobling, even if it is unpleasant at times.  As such, if the government is going to do something, would it not be wiser to offer assistance that requires work?

Tariffs accomplish this goal to some extent, and are entirely constitutional (indeed, one of the authors of the Federalist Papers, Alexander Hamilton, argued for them as Secretary of Treasury).  They also produce revenue for the federal government, and could be used to offset further reductions in corporate and income tax rates.

Ultimately, the social and civic costs of unbridled, unfocused free trade seem too steep.  Read Moore’s observations about the flood of drugs and despair into this once-civic-minded, prosperous town, and understand that the 10% discount you enjoy on your consumer goods is seldom worth the human toll.

To clarify once again, I’m not arguing we return to the massively high tariffs of the late-nineteenth and early twentieth centuries.  That would be economically disastrous in other ways, and would further enhance our federal government’s penchant for corporatist back-scratching and favoritism.  But some judicious, targeted tariffs, especially against nations like China, are wise.  Why should we be subsidizing China’s growth at the expense of our own?

One final thought:  as I wrote Friday, a married man used to be able to raise his kids on a gas station pump-boy’s salary.  Sure, life was lean, and there weren’t a ton of crazy gadgets to play with or luxuries to enjoy, but the kids grew up well enough and the wife could stay home to raise them.  Are we really that much better off now, when both husband and wife slave for 40+ hours a week (and usually longer), outsource their parenting responsibilities to daycare and public schools, and can’t get out from under student loan, home, car, and consumer debt?

There are a host of factors driving the modern scenario of today versus the “blue-collar father” of yesteryear, but surely one economic solution is to stop burrowing out our families and towns in favor of frosty, urban cosmopolitanism and aloof globalism.  I care about the people of China, and I’m glad to see they’re no longer trapped in rice paddies and collectivized farms, but—like our great President Trump—I care about my country and fellow countrymen first.  So should the United States government—it’s job is, literally, to put Americans first.

Q&A Wednesday – Tax Cuts, Trade Wars, Etc.

The Portly Politico13 Comments

Two of my most loyal readers, Megan and Frederick (I highly recommend the latter’s corporate history blog, CorporateHistory.International), both chimed in via Facebook about Monday’s post on tax cuts.  Frederick pointed out a potential downside to corporate tax cuts—what’s to stop large multinationals from investing that money in physical plants and employees overseas, notably in China?  Megan asked me to elaborate further on tariffs in relation to that very question.

Being a conservative, I like to conserve things—traditions, morals, civil society, working institutions, etc.—but most especially effort.  I’m a strong believer in the dictum, “Work smarter, not harder” (although you need a healthy dose of the latter, too).  As such, I’m adapting my Facebook response to them here.

I think the question of tariffs and trade wars is hugely interesting, and needn’t be bogged down in tedious charts and numbers.  What I do believe is that President Trump has ripped the façade from the bipartisan push for globalism, and particularly demonstrated the real, human cost of unbridled free trade.

I used to be 99% a free trader, with 1% reserved for mild tariffs on national security-related goods, like steel.

Now I’m probably more 85% free trade, 15% tariffs. A tariff is a tax, yes, and it’s borne not just by foreign nations exporting goods to the US, but also by American consumers, who have to pay more for goods that are protected (and, thus, more expensive and potentially of a lesser quality than they would be in a competitive, free market).  That disclaimer aside, it seems like paying a few more bucks for your washing machine is a good way to keep Americans employed and earning a decent wage.

If you take that reasoning too far you fall into the dilemma of minimum wage increases, which increase unemployment (especially for unskilled, young, and minority workers) and raise costs, so that any increased wages enjoyed by the beneficiaries are eaten away by the increased costs of consumer goods—all served up with a side of higher unemployment.

That said, judicious tariffs—I’m not arguing for the high, blanket tariffs of the late nineteenth century, which wouldn’t work well in our modern, interconnected economy—especially related to key industries like steel, could keep a lot of Americans working, and would allow blue-collar workers to earn a wage that wouldn’t require years of expensive schooling.

Also, I think targeted tariffs against unequal trading partners—I’m thinking primarily of China—would level the playing field, and prevent some of the outsourcing and capital flight that might occur with a corporate tax cut (or, more likely, increase). It’s unreasonable to expect American workers—with all their labor protections, etc.—to compete with near-slave wage Chinese workers. China’s currency manipulation to make its exports artificially cheaper, as well its rampant intellectual property theft, needs to be combated, and if it means getting our cheap plastic Happy Meal toys from Vietnam (or the USA!) instead of China, so be it.

The current “trade war” with China sees Americans in a much better position than the Chinese. China needs those exports, but the USA can stand to experience some minor drag to its GDP growth given the massive growth we’re seeing with the tax cuts (not just the corporate tax cut, but also the 20% deduction for small business pass-through earnings, which is YUGE for small business growth—a key driver of employment in our country). I see it as a trade-off—pay a little more for some consumer goods, but create imbalance in the Chinese economy and force them to play ball on par with the Western world and Japan.

My only real concern with this approach is there is no limiting principle (although that’s true for any type of tax, and we have to have some of them), which makes me wary as a limited-government Jeffersonian, but the Hamiltonian commercialist in me sees this moment in history as one in which we can uniquely leverage our economic clout to improve our own economy and our position internationally, and we can afford to go through a trade war longer than China (or Mexico, or Europe).

Everyone loses if a trade war lasts too long, but I think the Chinese will blink first. American workers will be the ones to benefit.

One additional thought, which will require more elegant development in a future post:  even with the inefficiencies and deadweight loss that would occur from overly-high tariffs, wouldn’t protecting domestic jobs be a more effective and fulfilling way to provide a living for blue-collar workers than the current welfare system?  Instead of a massive, government-run bureaucracy administering a complex and redundant system of bennies, society could bear the cost through paying a bit more for consumer goods.  Such a system would create more semi-skilled positions in some industries, and I’d rather we subsidize people through work than to subsidize them not to work.  Again, that’s a very rough sketch, but some food for thought.

Regardless, tariffs are not an unalloyed evil, nor is free trade an unalloyed good.  There’s room for both.  Economics suggests that the balance should favor the latter more heavily than the former, but we can temper the massive social disruption that unbridled globalization unleashes.

Tax Cuts Work

The Portly Politico20 Comments

Back in December, I wrote a post on the old blog begging Republicans to pass tax cuts.  When they did, I danced around my house like a silver-backed gorilla on Christmas.

I cannot understand objections to the Tax Cuts and Jobs Act, other than fiscal conservatives’ fear of increasing deficit spending.  By that I mean I can intellectually understand objections in an abstract, academic sense, but I’m unable to accept those arguments as valid in this case, and many of them are specious.

The historical record is clear:  tax cuts works.  Be it cuts on income, corporate, estate, or sales taxes, cutting taxes, in general, stimulates economic growth and usually increases government revenues.

Take the example of Calvin Coolidge, whom we might call the godfather of modern tax cuts.  As president, Coolidge used his predecessor’s Budget and Accounting Act of 1921 to carefully monitor and eliminate excess government spending.  He also signed into law the Revenue Act of 1926, reducing the top rate to 25% on incomes greater than $100,000.

By the time he left office, the government had increased revenues (due to the stimulative effect of the tax cuts on the economy—rates fell, but more people were paying greater wages into the system), federal spending had fallen, and the size and scope of the federal government had shrunk, a feat no other president has managed to accomplish.

The perennial wag will protest, “But what about the Depression?”  Certainly, there were a number of complicated reasons that fed into the coming Depression, but the stock market crash—really, a massive correction—did not cause the Depression.  Had the government left well enough alone, the economy should have adjusted fairly quickly, although modern SEC rules and regulations were not in place.  That’s a discussion for another post, but I suspect that Herbert Hoover’s signing of the Smoot-Hawley Tariff (1930)—a tax increase on imports—did much to exacerbate the economic situation, and a decade of FDR’s social welfare experiments injected further uncertainty into markets.

But I digress.  Subsequent presidents have championed tax cuts in the Coolidge vein, albeit without the corresponding emphasis on spending cuts.  John F. Kennedy pushed for tax cuts, which threw gasoline onto the fire of the post-war American economy.  Ronald “Ronaldus Magnus” Reagan’s tax cuts created so much prosperity, the ’80s are remembered for hair metal and cocaine; had he not had to spend the Soviets out of existence (and faced a Democratic Congress), he could have cut spending, too.

President Trump’s tax cuts have breathed new life into a sluggish, post-Great Recession recovery.  Jobs growth is increasing month after month, and wages are rising, slowly but surely.  Black unemployment is down from 7.7% in January to 5.9% as of May—the first time it’s ever been below 7% since the government began keeping statistics in 1972.

Leftists object that the cut to the corporate tax rate benefits big fat cats instead of everyday Americans, but the statistics suggest otherwise (see the article linked in the previous paragraph for more good news).  Further, Leftists moan and groan when companies put increased revenues into dividend payments to stockholders, as if this move is detrimental.  On the contrary, as more Americans invest in mutual funds in their 401(k)s or IRAs, they stand only to gain from these investments.  Progressives only see these investments as “big company benefits,” without following through on what that money does.

Of course, that’s because the Left’s focus is emotional (not economic), and worries about all the sweet government gigs that majors in Interpretative Queer Baltic Dance Studies will lose without the federal government’s largesse.  Getting voters off the welfare rolls further inhibits the Democratic Party’s mantra of “Soak the Rich,” as upwardly-mobile workers naturally want to keep a good thing going.

Conservative concerns of deficit spending are more grounded in economic reality, and while the federal deficit seems like an abstraction to most Americans, it does present a looming crisis.  Perpetual indebtedness in a personal sense seems inherently immoral if undertaken as a financial strategy unto itself (taking out a loan for a car, a house, a business, or education is one thing; living off of borrowed money, and borrowing more, with no intention of paying it back is quite another; I’m referencing the latter situation); the government should be held to the same standard.

That said, the problem of the federal deficit is a longstanding issue that has more to do with excessive and wasteful spending.  The stimulative effect of the tax cuts, by putting more people to work, will increase revenues.  The most pressing concern now is for Congress to make the income tax cuts permanent—another no-brainer, win-win move for all concerned.

Taxes are a necessary evil—we need the military, roads, and the like—and there comes a point of diminishing returns with cuts just as there are with increases, but allowing Americans to keep more of their money is, in almost every situation, the better choice, both economically and morally.

Pizza Paving Potholes

The Portly Politico6 Comments

I love pizza and politics, and writing about both runs in the family.  So while looking for South Carolina’s primary election results this morning at thestate.com, I was intrigued to find the following headline:  “Tired of potholes? Domino’s Pizza helps pay for road repair. How to nominate Columbia.”

The State‘s article links to Domino’s Pizza’s Paving for Pizza program (how’s that alliteration?).  Here’s the gist of it:  nominate your town using your zip code, and Domino’s might pitch in some dough (tee hee) to fill its potholes.  They’ve already done it in several cities around the United States, from California to Texas to Delaware.

Every South Carolinian knows that one of our major issues is the poor state of our roads.  Indeed, last year the legislature passed a gas tax hike, the first phase of which kicked in at the beginning of 2018.  That tax will raise the tax by $0.02/gallon each year for six years, ultimately topping out at $0.12/gallon by 2023.

It also introduced increased fees for registering vehicles from out-of-state, and raised registration fees for hybrid and electric vehicles (which put more miles on roads using fewer gallons of gas, meaning hybrid and electric owners pay less in gas taxes—ergo, the State wants to get their cut from those drivers, too).

(Remember, South Carolina drivers, you can save your receipts from the gas pump starting this year—2018—and deduct what you paid in gas taxes from your SC income tax when you file for FY2018.  It has to be gas purchased in South Carolina—of course—and the receipt has to show the number of gallons purchased.  Hold on to those bad boys!)

So, what does this have to do with pizza?  Domino’s—like many companies in South Carolina and throughout the nation—needs good roads to deliver its gooey pies safely and efficiently.  Bad roads, littered with potholes, negatively impact Domino’s business, incurring expensive tire replacement and vehicle repair bills (and preventing your mushroom-and-pepperoni pizza from arriving in thirty minutes or less).

As such, Domino’s has a vested interest in seeing that roads are repaired.  Rather than lobbying for more roads funding or pushing for a gas tax, though, Domino’s decided to act directly in its economic interest—that is, to have better roads—and has committed to helping communities fill their potholes.

This kind of public-private partnership is innovative (and good marketing—I’m dedicating an entire wall-o-text to Domino’s Pizza!), and it demonstrates that free-market principles can work to the benefit of all parties.  Domino’s and its drivers get safer roads; residents of a “Paving for Pizza” town also enjoy safer roads; State and local governments save on astronomically expensive road repairs (I once heard a Florence County, SC Councilman say that it costs $1 million to repave one mile of road—yikes!); and taxes on gas or property don’t have to increase, which hurts everyone.

Kudos to Domino’s for taking a proactive approach to solving a public problem.

4.8% Economic Growth?!

The Portly Politico24 Comments

Remember when President Obama, in Carter-esque fashion, gravely warned the American people that 2% annual GDP growth was the new normal?

The parallels between Obama and Carter’s doom-and-gloom economic forecasts–and between Reagan and Trump’s pro-American optimism–once again come to the fore with the latest predictions from the Atlanta Fed.

A piece at Breitbart notes that annualized GDP growth for the second quarter of 2018 is a whopping 4.8%.  And that’s despite threats of a trade war.

Maybe the scare over tariffs is premature, or the United States is in a position to benefit from playing some hardball on trade.  Free trade is not an unalloyed good, though it is certainly beneficial, and tariffs are not unequivocally bad.

Mostly, though, it seems that the tax cuts are working.  America is getting its economic groove back.  Trump is making America great again by getting government out of the way and letting business thrive.