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News & Commentary

Washington Logic

September 22, 2006

by Sheldon Richman

Sheldon Richman is the editor of The Freeman and "In brief."

Washington is a funny place, with its own unique "logic." It's a "company" town, the "company" being the federal government, the "product" being public policy. As a result, an odd sort of "thinking" is encouraged there. It's not like other places. Or it wasn't before the accelerating centralization of power in recent times.

A good example of Washington logic was featured on page one of Wednesday's Washington Post. Here is the headline:
A Quiet Break for Corporations
Tariff Suspensions, Often Initiated by Companies Based Overseas,
Keep Millions of Dollars From Flowing to the Treasury Each Year
The story explained that Congress has the power to pass three-year suspensions of tariffs on specific goods. The bills do not name the companies that would benefit from suspensions, but the Post learned that most of the lobbying is done by large foreign-based multinationals with American affiliates. As it reported, "Lawmakers usually introduce the provisions at the behest of companies in their districts. Many of those companies and their executives have given federal campaign contributions totaling millions of dollars."

Thus the newspaper presents tariff suspensions as examples of special-interest lobbying and legislation.

If you sense something screwy about this story, it's only because you are not using Washington logic. Elsewhere, the negation of a true statement is false. If it is truly said that "the dog is brown," it cannot be true that "the dog is not brown."

But things are different in Washington. There negation does not have the same logical implication.

You might think that if it is truly said that a tariff on imports is a special-interest measure which costs taxpayer-consumers money, then the suspension of a tariff cannot also be a special-interest measure that costs taxpayer-consumers money.

But in Washington you would be wrong. According to the Post, that's exactly what a tariff suspension is. To think like this, you have to see tariffs (which, remember, are taxes on imports) as affecting only companies and the U.S. Treasury. So if an American company successfully lobbies Congress for a tariff, that company and the Treasury win, and the foreign-based competitor loses. If the tariff is removed, the first company and the Treasury lose, while the foreign-based company enjoys what the Post calls a "tax break."

The Treasury in this view is equated with the taxpayers, which is like equating a thief with his victim: "Over time, the changes [in tariffs] cost taxpayers hundreds of millions of dollars in lost revenue, a Washington Post analysis of U.S. trade data found" (emphasis added).

Get that? The taxpayers lose when tariffs are suspended.

Where, you might wonder, are the consumers in this picture? Don't they pay through higher prices whatever the Treasury gains in tariff revenues? And if the Treasury loses money when a tariff is suspended, don't consumers gain that amount in lower prices?

Question: would you rather have money in your pocket as a consumer or in the Treasury as a taxpayer?

The point apparently is too simple for policy-wonk reporters. They seem not to understand that tariffs are sought by domestic companies that would like to charge higher-than-market prices but can't because foreign competitors won't let them. The tariff forces those competitors to raise their prices to cover the tax, making the domestic company's price more attractive. Now consumers must pay higher prices than they would have without the tariff. In other words, the beneficiary of the tariff gets something he can't get in peaceful voluntary exchange. That makes it a government privilege.

Who's the Special Interest?

The Post article begins by focusing on a family-owned company in Auburn, New York, that makes dog collars. The owners of Auburn Leathercrafters awoke one morning to learn that the 2.4 percent tariff on the imports they compete with was about to be suspended thanks to lobbying by Wal-Mart, which has an obvious interest in low-cost products. The Post portrays the six-person company as the victim of secret special-interest maneuvering. One of the owners is quoted saying the tariff suspension (now rescinded) would have wiped out the company.

But who's the special interest here? In the amoral world of Washington politics, someone who lobbies against a tariff is as suspect as someone who lobbies for it (if not more so). In the Washington worldview all private interests are equally legitimate (or illegitimate) and the benevolent state exists to sort things out while maximizing the return to the Treasury ("taxpayers"). And since big companies, such as Wal-Mart, often lobby for things not rightfully theirs, it is usually assumed that anything they lobby for must be illegitimate.

As the Post put it, "One of [Auburn Leathercrafter's] small advantages over imports was about to disappear, thanks to a little-noticed proposal in the Senate."

This advantage that Auburn Leathercrafters almost lost is the state-sponsored ability to force consumers to pay higher prices. To be precise, the tariff is a disadvantage imposed on foreign competitors and American dog owners, making imported collars more expensive than they would be in free exchange.

So it's the tariff that is a special-interest measure and an unjust cost to taxpayer-consumers.

But if that's the case, then suspending the tariff can't also be a special-interest measure. When a thief is made to stop stealing, we don't speak of his loss of advantage. We speak of justice.

Tariff suspensions of course would be impossible if there were no tariffs to suspend -- which is how it should be. But a no-tariff policy would deprive congressmen of power. The authority to grant selective tariff suspensions is undoubtedly a good source of campaign donations and other benefits, so for officeholders, there is no advantage in scrapping the protectionist system. Note also that suspensions are temporary, assuring that lobbyists must return periodically to renew them. Of course opponents of suspensions also represent potential campaign contributions. Do you see why politicians tend not to be attracted to freedom? What would they have to do?

The Post story will probably set off the next spasm of campaign-finance reform. Some crusader for good government will wave the clipping as he implores Congress to further restrict political donations and spending lest more tariff suspensions be purchased in smoke-filled rooms.

Once again the point will be missed: special interests would have nothing to buy if government had nothing to sell.