Boeing, Yes. Carrier, No.

Posted on December 8, 2016 by Robert Ringer Comments (29)

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Politically speaking, the Carrier deal was an attention-getting triumph for the King of Populism, but where his anti-free-trade tactics will ultimately lead is far from certain. International trade and all that goes along with it — tariffs, currency manipulation, job losses and job gains, etc. — is impossibly complicated and to a great extent unpredictable.

The one thing history has taught us, however, is that trade wars, directly or indirectly, have a tendency to lead to shooting wars. This certainly was the case when the United States put Japan in an economic straightjacket with a series of sanctions and embargos that led to the historic attack on Pearl Harbor (an attack that FDR knew about in advance, but did nothing to stop).

That said, I don’t believe that anyone can accurately predict where Donald Trump’s anti-free-market policies will lead, because the long-term results are likely to be very different from those achieved in the short term. What should be very visible in the short term, however, is a big increase in employment, and there’s no question that the employment stats will be a great optic for Trump.

Before I go any further, however, let me make it clear that, all other things being equal, any kind of government interference in the marketplace is anti-freedom and immoral. A privately owned business has a moral right to build manufacturing facilities — or even move its main office — anywhere it chooses.

Thus, in theory, I come down on the side of unconditional free trade. However, what complicates things is when there is little or no reciprocation from one country to another. For example, if far more U.S. companies move out of the country than the number of foreign companies that move in, it’s a sure loser for the United States.

Likewise, if a country charges tariffs on U.S. goods, but can ship products to the United States without having to pay tariffs, the relationship is not really free trade. Thus, to the extent China does not allow goods from the U.S. to cross its borders without restrictions, the U.S. submits to being a sacrificial lamb by allowing the unconditional importation of Chinese products.

Furthermore, and most important, the low-visibility effect of government interference in the marketplace is that it transfers wealth from one group to another. When companies are forced to do their manufacturing in the United States, where the labor-cost differential can be ten times or more greater than in a third-world country, the consumer is, in effect, transferring wealth from his pocket to U.S. workers by paying higher prices for the goods he purchases. In simple terms, then, the higher prices are really nothing more than an invisible tax.

But it’s not quite that simple. If government drastically lowers corporate taxes (not to mention individual taxes) and, even more important, eliminates business-killing regulations, then a company has a chance to make up all or most of its increased labor costs by virtue of operating in the U.S. This is the easiest way to keep companies like Carrier from jumping ship.

(I, for one, have always advocated a zero tax rate for corporations, because I don’t believe in double taxation. And, make no mistake about it, double taxation is what you get when a corporation pays taxes, then its shareholders are taxed again on their dividends.)

Of course, true free-traders believe that a company should be given low tax rates, be freed of most regulations, and still be able to locate its operations to a low-labor-cost country. And, morally speaking, I agree — but it’s not a perfect world.

The short-term consequences of all this could be a bonanza for Donald Trump. It could put millions of people back to work, which in turn would increase economic growth, because those workers would have money to buy goods and services they could not previously afford. In addition, as both John F. Kennedy and Ronald Reagan proved, tax revenues would actually increase as a result not only of more people working, but because they would have more spendable income.

So, taking into account the dynamism of the Trump phenomenon, coupled with the optics of a lower unemployment rate and increased government revenues, it’s likely that people will be quite pleased with Trump’s first-term results.

Now, allow me to throw a monkey wrench into the equation by getting at the heart of the issue that no one is ever willing to even mention: American workers are overpaid! I know it’s heresy to say, but it’s true, and it’s the reason we now find ourselves faced with an insoluble trade situation. If someone in another country is willing, without coercion, to do an American worker’s job at a lower wage, then that worker is, by definition, overpaid.

Believe me, I like to see hard work rewarded and I like to see people happy, so if I could wave a magic wand and make it happen, I would like to see every American worker make as much money as possible. But what makes me feel good does not necessarily coincide with either morality or the economic facts of the marketplace.

As consumers, we all want to pay the lowest possible prices for the things we buy. So when we have to pay higher prices because government forces companies to manufacture their products at home where the price of labor is many times the cost of labor in other countries, it’s simply transferring wealth from consumers to workers.

I would need a very large book to get into all the factors that make trade such a complicated issue, but for now I will mention just one other factor that is important in the real world of perception as opposed to the world of theory: Even though forcing companies to manufacture goods in the United States is an immoral transfer-of-wealth program, and thus anti-freedom, higher employment in the United States has very visible benefits — particularly political benefits.

The political benefits are obvious, but the economic benefits are also real. As just one example, if more U.S. workers are employed, service businesses benefit from an increase in customers and an increase in their willingness to pay higher prices. The greater the number of people who are employed and the higher their wages, the greater the sales that businesses —e.g., restaurants, retail stores, and the entertainment industry — can expect to achieve.

So even though I, like all the economic experts and pundits you watch on television, cannot accurately predict the final outcome of this complex problem, I would advise the King of Populism to tread very carefully when it comes to preventing companies from moving offshore or slapping tariffs on foreign-made goods. As I said, the short-term benefits are very (favorably) visible, but long term it could be a disaster for America.

Trump’s time would be much better spent if he went after government contractors (as he did with Boeing) and used his negotiating skills to put an end to the gravy train of inflated, over-budget costs. Cutting government waste, fraud, and abuse has long been something of a bad joke in politics, because no politician has ever had the guts to take on the heavy hitters who have a vested interest in waste, fraud, and abuse.

And guess what? Donald Trump is the first president in my lifetime who doesn’t need to worry about that problem, because he doesn’t owe anything to the heavy hitters (I hope). So, in an imperfect world, I believe more Boeing-type solutions would yield greater economic benefits for U.S. businesses and consumers than Carrier-type smack downs.

That said, since it’s impossible to get everything you want in a world where governments have a monopoly on the use of force, if Trump dramatically cuts stifling regulations on companies and reduces corporate taxes to 15 percent, it might just prove to be a tolerable tradeoff for his anti-free-trade policies and he won’t have to use strong-arm tactics to keep companies and jobs in the United States.

Fingers crossed that DT will listen closely to the free traders he’s assembling in his camp.

Robert Ringer

+Robert Ringer is an American icon whose unique insights into life have helped millions of readers worldwide. He is also the author of two New York Times #1 bestselling books, both of which have been listed by The New York Times among the 15 best-selling motivational books of all time.

29 responses to “Boeing, Yes. Carrier, No.”

  1. Reality Seeker says:

    Firstly, it must be recognised that free trade ( like free markets) doesn't exist. So when some pencil pusher from the government shows up at your business and says, " hi, I'm from the government, and I'm here to help", don't believe it.

    Genuine free trade would mean genuine open borders. Think about that. Then, think about all those lovely Latinos flooding over. Still like the idea? Free trade and free markets mean that I as a free individual am free to commodiously do business with whomever and whenever and wherever I want. Somebody gave the concept a name: it's called Laissez-faire……..Free from government.

    Without being free from government intervention it is impossible to have free trade. So you might as well forget about free trade. So what other choices are there? Many. But I think America is on the right track. Why? Because America is an empire. And a successful empire must put itself first. How? By dominating the trade routes; by dictating the trade deals; by being the final authority on trade laws; and most importantly: an empire must control the money and credit supply.

    Finally, a modern-day empire must supply generous amounts of bread, circus and medical care to its citizens. And President DT is the right choice for all of the above. What could go wrong? Plenty.

    The greatest challenge President DT will face is funding the American Empire. The biggest question President DT should be asking himself is " can the central banking system handle the strain"?

    If the central banking system holds up, the Empire holds up and just maybe advances….

    • Jim Hallett says:

      Also, do not forget the inside manipulators in the evil Fed, who would love to see Trump (and American markets with him) FAIL. As long as the immoral Fed exists, there can be NO true free market or real capitalism, so it becomes a matter of marginally-best choices. Reducing taxes and regulations are a MUST, despite the libtard "progressives" blindspot to such policies. Since China is such a huge player in the "trade game", it is the country that most affects things here. The imbalance between tariffs (imports and exports) will never be ideal, so you are right that the Donald must negotiate the best deal for America, even if it is not pure freedom. If he can get America out of the "world's bully" status as far as invading and occupying their country, I think the world can live with a few mandates from the U.S. regarding trade matters.

      • Reality Seeker says:

        Jim,

        "It becomes a matter of marginally-best choices" is mostly a true fact of life. And the reason why is because there are no intellectual giants alive who could help President Trump build a dynamic monetary system which could fund a Dream Empire… Marginal brains equal marginal choices. That's the problem. Lack of brain power.

        Yes. President DT has credit and monetary options that he probably doesn't even know about. And probably never shall. Yes, DT has aces he doesn't even know exist. For example, America used to have two dollars; one foreign and the other domestic. The foreign dollar had a higher silver content than the domestic dollar. Reinstating a dual monetary system ( absent precious and semi-precious backing) would have many advantages for the American Empire. The problem President Trump has is ignorance. Trump would need a Carl Menger to help chart monetary and credit reform. And there is no such intellectual giant alive; however, a committee of lessor intellects could analyse how Carl solved Austria's problem of simultaneously issuing a gold backed currency, silver backed and unbacked paper-currency, i.e., a tri-currency system. Carl's work combined with America's historical use of a dual system, could be used as a template for a modern, dual-paper-dollar system. This monetary system, in turn, could be used to dominate the world banking system, world trade and rebuild the domestic economy….

        President Trump needs boatloads, planeloads and truckloads of what Mises called fiduciary media in order to fund the Empire. President Trump needs massive credit expansion. And I doubt that the current central banking system can handle the strain. Let's hope it can. The US ten year and US thirty year bond rate has already risen 70% since July. If, indeed, the interest rate cycle has finally turned, President Trump could easily become President Hoover. And let me tell you something: President Hoover was a very intellectually and politically adroit man. President Hoover's grasp of economics was far stronger than Trump's grasp. I've read and analyzed Hoover's memoirs. And if a man like him was overcome by the economic cycle, Trump has little chance..

  2. Figmo says:

    Trump's policy is directed at American owned companies who act against America's interests by going to foreign countries. costing American jobs. I see no evidence that he will be seeking to impose tariffs on goods produced by foreign companies in foreign countries and therefore the "anti-free trade" label does not apply. The "stick" is the 35% tariff on US owned companies. The "carrot" is lower taxes and far far fewer burdensome regulations. It is a brilliant plan.

    • patg2 says:

      Trump has talked about bad trade deals with China. I think he has shown plenty of evidence he plans to do things like impose tariffs.

  3. texas wolfie says:

    A little off topic but can anyone remember a president-elect getting all the negative press before he even shows up for work? Obama sure did not with the exception of that idiot preacher J. Wright.

    • Blank Reg says:

      But then look at all the positive good he's done before even taking office! 50,000 new jobs and $50B investment from Japan, in the telecom business. Trump doesn't even take office for another 45 days or so, but he's already acting like he's the President. And the defeated Obamunists – including Obama himself – lets him get away with it. Trump gets you to see past the sale. And everyone is buying in. The Inaugural will be formality, at best. DT is already President. The "transition" will hardly be noticeable.

  4. Richard Head says:

    Robert's post and Reality Seeker's reply bring two thoughts to mind:

    1) The Empire Strikes Back?
    2) The Emperor has no clothes.

    Robert, I am worried you are bending on your Life-Guiding Principle No. 1: Never compromise your integrity, for anything or anybody. In the process, you appear to be giving P-e Trump the green light to double the gross federal debt as Reagan, Bush 43, and Obama each have done. $40 Trillion GFD here we come. YIKES!

    Nonetheless, thank you both for sharing your consciousness. "Exciting" times are ahead.

    Best,

    D.I.C.K.
    @politicalfolks

    • RealitySeeker says:

      Richard Head,

      Interesting pen name. I like it because I like rebels. And only a rebel would name himself Head.

      I also like Natural Law. I like Ayn Rand, Ludwig von Mises, Spooner and Rothbard to name just a few…. But I like reality more. And the reality is that the Law of the Jungle ( aka the Law of the Swamp) is what currently governs mankind…… unfortunately.

      China is the number one threat. Not Russia. Not Iran. Not even ISIS. President Trump understands that China must be delt with and put back in its place. Frankly, I would recommend increasing business and trade with other Asian countries and crushing China. The Russian sanctions imposed by Washington was a mistake. China is the real enemy…..

      • Kevan Rowlee says:

        Pro war, policemen of the world, Israel First neocons are who govern the United States … and have since Bush #41. IMO … our neocons and the FED are our real enemies. The neocons and FED are the "swamp that needs to be drained" in Washington DC.

        • RealitySeeker says:

          I have been a part of both the Ron Paul and Alex Jones "end the Fed" protests…. America is a WefareWarfare Empire. Yes. And there is no walking it back. The Libertarian Party has become a joke. Ron Paul is basically out of the game. Rand got his head handed to him by Crocodile Dundee ( aka Donald Trump) and any hope of returning to a republic is as dead as Ayn Rand. In fact, there is nobody who even comes close to Ayn Rand, F.A. Hayek and Ron Paul in their prime. So without the intellects to lead the way back, it's totally hopeless.

          Get used to being a citizen of the Empire. And choose your Ceaser wisely….

    • Robert Ringer RJR says:

      I'm not giving Trump a green light to do anything. The national debt can never be repaid, but perhaps drastic reductions in regulations and taxes – not to mention welfare and other wasteful programs – could boost the economy enough to keep America afloat indefinitely – or at least until the next American-hating president gets into office.

  5. Jean says:

    One yuge question here is whether P-E Trump is willing to go after one of the root causes of government waste, which is baseline budgeting. Imagine an employee being told, "Son, I'd like to give you a raise but you've saved too much of your income this year, so I see no reason to raise your salary." What would the employee then do? Plunge headlong into a spending spree, incurring lifelong debt in order to "earn" his or her raise and justify raises in subsequent years. This is exactly what baseline budgeting does to every government agency and department. I've been on both sides of the equation -as a government supplier who was provided a "wish list" by a procurement officer and told to use up the money that the agency had left over, and as a government employee who was encouraged to locate "needy" people so as to inflate agency financial needs – and as a taxpayer, hated both roles. The mindset of those working for and working with the government needs to change in order to effect a change in direction with regard to waste, fraud and abuse of our money.

  6. Gary says:

    Reducing or eliminating corporate taxes will increase economic activity and yes, it will also increase government revenues and therein lies the problem. Increasing government revenues increases the size and scope of government. That's not good. If you give politicians more money they will spend it. This happened with JFK and Reagan.

    What should be done along with the increased economic activity is to simultaneously reduce the size of government. Do away with the EPA, Dept. of Commerce, Dept. of Energy, Dept. of Education and the DHS.
    I think that would get rid of at least 1 million government employees. Let them get jobs in the private sector if the can. If they can't then they should move to a socialist country – France, England, Germany, Italy, Russia, etc. which will be more accommodating to their mind-set .

  7. TN Ray says:

    It will be interesting to see how labor unions affect the Trump increased American job force. It's hard to have good pay for workers while simultaneously supporting union leaches. If the American workers buy back into the union grievances the result will then be reduced productivity, increased labor cost, and non competitive products. Then businesses either go out of business, or, if we buy American we pay too much. As Robert points out, basically a "tax" on the American consumer. Remember the old jingle "Look for the Union label"….I sing it with the following verse: "so you'll know what NOT to buy". I might be willing to pay more for made in America. But, not to support Union parasites.

  8. Frank says:

    Free trade is an ideal which does work, all things being equal; however, all things are rarely equal and we should negotiate individual trade agreements to make them acceptably more equal or beneficial to each party subject to any specific agreement. This creates or simulates the economic bounds within which economic principles actually work. Robert, I am in favor of free trade but only if that free trade benefits me or my country.

  9. Guido says:

    Tortoise:

    After all these decades, you're still pushing the same theoretical garbage that has so often plunged this country into economic despair, if not chaos. Here are some truths for you to digest:

    1. No corporation enjoys the right to conduct business in a foreign nation. Indeed, the Constitution gives exclusively to Congress the right to regulate commerce with foreign nations.

    2. The public alone authorizes and recognizes corporations as fictional legal entities. The public may therefore condition the granting or the continuation of corporate charters on any basis. Trump's approach to Carrier was benign. He would accomplish more with a different approach, i.e., work with the states to ensure that corporate charters are subject to revocation if the corporation attempts to bite the hand that endows it with its legal authority to operate.

    3. For decades, you and the "free market" crowd have told us that "corporations don't pay taxes; they merely pass the cost of those taxes along to their customers, suppliers, and employees." So how would a zero corporate tax rate (a ridiculous notion by itself) help the corporations if they already pay zero taxes? You never lament the fate of the one who is truly double-taxed: the average American worker. He pays both an income and a Social Security-Medicare tax on each dollar that he earns. In fact, he pays his Social Security-Medicare tax on dollars that he has never actually received–because those dollars were already taken away from him by federal income tax withholding. That is true double taxation.

    4. The idea that the American worker is "overpaid" is nonsensical. Were you overpaid when you were making ample commissions from million-dollar plus real estate deals? Or were you not really working when you made those deals? In reality, it is the American NON-worker who is overpaid. I mean those Americans who rake in interest, dividends, capital gains, rents, royalties for "work" (if it ever was such) that has ceased long ago. Does your "overpaid" theory also apply to companies If I can purchase a product or service in another country cheaper than I can purchase it in this country, but I do not, then "by definition" doesn't that mean the American company is overpaid?

    5. You, and others, have perverted the meaning of the term "free trade." How could Carrier's moving entire factories from the United States to Mexico come under a true free trade definition? In that scenario, what is the trade? In reality, your "free trade" is no trade; it's a free ride for a corporation that derives its rights and powers from its creators–the up-to-now sap American public.

  10. drbsci says:

    My view is simplistic. The problem is not free trade. It is the welfare state.
    Consider two transactions. In one, some rich guy spends or invests $X and, on average, gets $X worth of production in return. In the other, the IRS makes him spend it on someone who is unable or unwilling to produce anything. Subtract the overall effect on GDP in the first example from that in the second. The result is minus epsilon (chump change)(the cost of IRS enforcement plus actually doling out the cash) minus $X. In other words, GDP went down by a little more than the recipient got. Welfare is always heavily negative sum, not zero sum. As welfare *directly* eats away at capital that would otherwise have been formed, wages go down because the opportunity to produce goes down. It's illusory that the jobs went overseas. They just couldn't be created here profitably because of inadequate investment.
    Besides, compare the model for free trade with reality. The model is still valid, except that instead of buying actual American goods and services or investing in American companies, foreigners often are "investing" in government waste by buying government bonds which, in turn, often are transfer payments that bought nothing.
    If this is unclear, it's because it is hard for me to prove what is axiomatic to me.

  11. Jay Smith says:

    Speaking to an Iraqi gentleman in Sydney, Australia. He was bemoaning the unaffordability of housing and the high cost of living. He and others that he personally knows are considering selling up and moving to America – I guess he smells money…

  12. Mike Riley says:

    Your best piece of thinking yet Robert. Thank you for helping me to better understand this dichotomy between free trade and coerced patriotism. Your thought about having to pay more for American made goods as merely a hidden tax is brilliant.

  13. Mesmerizing analysis on trade. Recognizing difference between patriotism and actual growth of the economy has different and unique faces.
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  14. A few consideration are absent from Robert's reflection. 1. About the worker being overpaid…the first thing is that you need to make an adjustment to the relative costs of living between let's say China and the USA. This should give a more relative balance of the proportional level at which you are renumerating each worker. Second, you caNnnot make abstraction that the Chinese worker does not live in a Democracy. This is what we are profiting from. These workers, in many cases, are like prison workers here. In many states, detainees can still work to earn a bit of money, extremely low wages. Should this be the base for comparision between how much we pay our workers, when they don't live in a democracy, where one is free, and individuals are sovereign, not the State or the Corporation. So, when you take these considerations into the equation, it is difficult to say that the American worker is overpaid, unless you believe most American workers should work from a prison camp outlet.
    There is cost for Democracy that our leadership increasingly refuses to account for. In this world of relativeness, making a balance act of relative mutable mobile opportunities has become a circus for our biggest authorities, be they public or private…in this juggling act, every cycle when they eventually drop the ball, we are the one hitting the wall.

    • Jim Hallett says:

      Some of the points you bring up about comparisons to China are indeed worth considering, but democracy is NOT where one is free, nor was it ever the goal of the Founders. Democracy is simply mob rule, and NO majority ever has the right to force any minority into anything without their consent, which is why America has degenerated from a republic where individual freedom was more highly-regarded than today's "progressive libtard democracy nightmare, where govt. is given the right to interfere into EVERYTHING, and to steal whatever to fund such interference! I do not want democracy here or anywhere, but rather the absence of RULERS. When rules are adopted based on property rights and a market is free (which it can never be with an evil beast like the Fed controlling the money supply), people make voluntary decisions, and need NO outside person or authority to make their decisions for them, and surely not to immorally steal their wealth.

      • To the point, and I concure on many of your observations. I believe that despite democracies never being perfect, what our "democracy has become" is not what the Fathers had in mind…but we have departed somewhat from the initial proposition. This is why I have started reading Scalia. I had always observed him from a distance, feared him because the media told me so, but progressively got to discover him. The Founding Fathers had set rules, rules that protected individual rights, not group rights. And the current minoritist culture is effectively a heavy strain on The original democracy, but as you very well know, since you are an adept of this site, the Frankfurt School, which created Feminism as an Intellectual Movement, is responsible for the current state of "democracy". The Originalist movement born in the late '60s, and incarneted since 1986 in the Supreme Court by Scalia was in reaction to the damage done, through the minoritist culture, among others, by the cultural revolution of the 50s and 60s at our Institution of Democracy. I believe in Rules, good rules, good laws, that are respected, I believe in Society. I don't believe in pure expression of Power(s), I couldn't find my Freedom in such an environment. For me the abstraction of "Free markets" is just that, an abstraction, it cannot be experienced as Civilized humans. Without society, espescially as imagined, coined, by the intellectuals of the 18th century, we loose the capacity to experience truly our Freedom, our Lives and our Eudaimonia. Pleasure to meet you by the way.

  15. Rick D' says:

    " When companies are forced to do their manufacturing in the United States, where the labor-cost differential can be ten times or more greater than in a third-world country, the consumer is, in effect, transferring wealth from his pocket to U.S. workers by paying higher prices for the goods he purchases. In simple terms, then, the higher prices are really nothing more than an invisible tax." Way to go Robert. Milton Friedman could not have said it better.

    Are American workers overpaid? I lived and worked in a UAW town for over 10 years. One day one of my friends mentioned that he would be laid off by Oldsmobile for a month. I said, "I'm sorry." He said: "Don't br, I get full pay, the UAW calls it a sabbatical!

  16. Rick D'Amico says:

    " When companies are forced to do their manufacturing in the United States, where the labor-cost differential can be ten times or more greater than in a third-world country, the consumer is, in effect, transferring wealth from his pocket to U.S. workers by paying higher prices for the goods he purchases. In simple terms, then, the higher prices are really nothing more than an invisible tax." Way to go Robert. Milton Friedman could not have said it better.

    Are American workers overpaid? I lived and worked in a UAW town for over 10 years. One day one of my friends mentioned that he would be laid off by Oldsmobile for a month. I said, "I'm sorry." He said: "Don't br, I get full pay, the UAW calls it a sabbatical!

  17. patg2 says:

    I agree there should be no corporate income tax. There's another problem you didn't mention. This is a hidden tax on the consumer. The corporation has to pass on these costs in increased costs of its product. However, I would disagree that American workers are overpaid. The cost of living here is much higher than in other parts of the world, so there isn't that much difference in buying power. Another factor is that as I understand it, most countries don't have property tax. That means that a family can stay in the same home for generations, and not have housing costs, because the home has long since been paid for. I am thinking primarily of countries that usually receive the benefit of American outsourcing. Cutting government regulations is good, although there are probably some essential regulations that should stay. I would rather see large corporations pitted against government so that there is a balance, and the little guy isn't the direct target. A regulation that prevents a company from selling genetically modified food, or toxic pharmaceuticals and pesticides, would be a good regulation. Some of the largest corporations have proven to be very, very immoral and unethical. They will do what they can get away with. The consumer is the victim, and has no clout. I am all for privatizing a lot of this, but that has to happen.

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