The Carrier scandal

Here’s Larry Summers on the recent Carrier fiasco:

Market economies can operate anywhere along a continuum between two poles.

I have always thought of American capitalism as dominantly rule and law based. Courts enforce contracts and property rights in ways that are largely independent of just who it is who is before them. Taxes are calculable on the basis of an arithmetic algorithm. Companies and governments buy from the cheapest bidder. Regulation follows previously promulgated rules. In the economic arena, the state’s monopoly on the use of force is used to enforce contract and property rights and to enforce previously promulgated laws.

Even though we know of instances of corruption, abuse of power, favoritism and selective enforcement, we take this rules-based system for granted. But looking around the world today or back through American history, this model is hardly a norm. Many market economies operate what might be called ad hoc or deals-based capitalism: Economic actors assume that they have to protect their property and do their own contract enforcement. Tax collectors use discretion in assessing taxes. Companies and governments buy from their friends rather than seek low-cost bids. Regulators abuse their power. The state’s monopoly on the use of force is used to enrich and satisfy the desires of those who control the apparatus of the state.

This is the world of New York City under Tammany Hall, of Suharto’s Indonesia, and of Putin’s Russia.

Reliance on rules and law has enormous advantages. It greatly increases predictability and reduces uncertainty. It reduces expenditures on both guarding property and seeking to appropriate property. It promotes freedom because most of the people most of the time do not take political positions with a view to gaining commercial advantage. The advantages of the rule of law are so great that I would claim that there is no country more than 2/3 as rich as the United States that does not have a strong tradition of the rule of law-based capitalism.

And here is Kevin Williamson:

A tax cut and spending are different things, even if the budgetary effects are exactly the same.

But in the matter of industry-specific or firm-specific tax benefits of the sort extended to Carrier in Indiana, they do not have a leg to stand on. These are straight-up corporate welfare, ethically and fiscally indistinguishable from shipping containers full of $100 bills.

Those who take the opposite view work very hard to make a case that there is some kind of important ethical distinction between giving somebody something and declining to take something away from them. But relieving someone of an ordinary expense incurred in the normal course of affairs — as opposed to changing general tax law — is a gift. This is true both as a matter of law and of our ordinary experience. If I am, for example, a car dealer trying to win influence with a politician, and I sell him a new car at $50,000 under the price that I charge other customers, then I have paid him a $50,000 bribe. People go to jail for that. You’ll recall that part of the Barack Obama-Tony Rezko scandal was the accusation that Rezko had arranged for the promising young politician to buy a house at $300,000 under its asking price. Rezko didn’t give Obama $300,000 in this scenario — he just saw to it that Obama didn’t have to spend that $300,000. That is why bribery laws generally specify “any pecuniary benefit” rather than a duffel bag full of cash. . . .

Carrier . . . is a company that has competitors — competitors who employ Americans and pay taxes, just as Carrier does. These firms and their employees are put at an economic disadvantage by the subsidies paid to Carrier thanks to Trump and Pence. That means that some of these companies probably will be less profitable, and that they will not hire people they otherwise would have hired. But you’ll see no Trump press conference celebrating that. This is a case of Frédéric Bastiat’s problem of the seen vs. the unseen. The benefits are easy to see, all those sympathetic workers in Indiana. The costs are born by sympathetic workers, too, around the country, and by their families and by their neighbors. But those are widely dispersed, so they are harder to see and do not hit with the same dramatic impact.

January 20, 2017, will be a momentous day for me. For the first time in my life, the US President will no longer be the de facto leader of the free world. (I suppose Angela Merkel will take over that role.)

PS. This caught my eye:

President-elect Donald Trump told Philippines President Rodrigo Duterte that he is going about his controversial fight against drugs “the right way,” Duterte said.

Duterte says he was greatly pleased with the “rapport” he had with the newly elected U.S. president.

Duterte made the comments to reporters in Davao City on Saturday after a brief phone call last night with President-elect Donald Trump. Government officials earlier passed along snippets of their conversation.

“He was quite sensitive to our war on drugs and he wishes me well in my campaign and said that we are doing, as he so put it, ‘the right way,’ ” the President said.

Duterte’s “policy” is mass murder.

HT: David Levey