Cafe Hayek: Making Americans Poorer

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April 02, 2008

Making Americans Poorer

Don Boudreaux

"Clinton Proposes Plan to Make Firms Inefficient" would have been a more accurate headline to this report at Newsweek.com. I sent this letter in response:

Courting blue-collar votes, Hillary Clinton promises to use "tax incentives to persuade companies to 'insource' jobs in the United States" ("Clinton proposes plan to keep jobs in US," April 2). Because firms 'outsource' jobs only when doing so lowers firms' costs of production, Mrs. Clinton's proposal amounts to bribing American firms not to lower production costs whenever possible. She wants to encourage American firms to produce inefficiently, which is to say wastefully. In short, she wants us to be poorer than we would otherwise be.

Mrs. Clinton's proposal is further evidence that good politics typically is bad economics.

Sincerely,
Donald J. Boudreaux

Posted by Don Boudreaux in Politics, Trade | Permalink

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Comments

I don't get it. What exactly is the plan or is this just more politician hot air?

Posted by: Mcwop | Apr 2, 2008 11:47:55 AM

Any comprehension of economics is not required of politicians.

This is because any comprehension of economics is not required of voters.

Fiat economics produces fiat economic policies.

Posted by: Sam Grove | Apr 2, 2008 11:51:45 AM

The National Association Of Manufacturers reports that Pennsylvania international exports in 2005 totalled $22 billion. Those exports accunt for 30% of the state's manufacturing output. We can assume that 30% of Pennsylvania's 655,000 manufacturing workers, plus many more employees in supporting businesses, depend on those exports.

I wonder if Hillary bothered to point out that her strategy would risk retaliation by our trade partners.

Posted by: John Dewey | Apr 2, 2008 12:20:02 PM

Mcwop,

Her plan is to subsidize unproductive industries because she thinks that will create job growth. And by "create job growth" I mean get her elected. In politics, destroying three jobs in the pursuit of the appearance of the creation of each new job is just good economics.

Posted by: Methinks | Apr 2, 2008 12:21:28 PM

The U.S. International Trade Administration reports that 217,000 Pennsylvania jobs are dependent on the state's international exports. I'll bet Newsweek hasn't provided that information to readers.

Posted by: John Dewey | Apr 2, 2008 12:28:22 PM

From the article:
"At an economic summit in Pittsburgh on Wednesday organized by her presidential campaign, Clinton was expected to propose the elimination of tax breaks for companies that move jobs to other countries and use the savings to provide $7 billion a year in tax incentives to persuade companies to "insource" jobs in the United States."

If the extortion (elimination of tax breaks) is successful in preventing outsourcing, where will the $7B come from to provide the bribes? Option A: print it, and we know how well that is working, or b) take it from the workers whose jobs she is supposedly saving.

The other problem is incentives. If I own a business in PA, it would seem that a threat of outsourcing might get my company some corporate welfare in the form of tax breaks.

Another problem is that the reduction in efficiency will harm a company's competitive position, resulting in a stagnation of growth. It should seem obvious that improved efficiency would increase the number of jobs, both here and overseas, and open up new foreign markets by creating new consumers who can afford the product they are producing.

Posted by: Kevin S. | Apr 2, 2008 1:05:02 PM

Don,

"Because firms 'outsource' jobs only when doing so lowers firms' costs of production, Mrs. Clinton's proposal amounts to bribing American firms not to lower production costs whenever possible."

Your statement is patently false. They outsource when they think that outsourcing will lower the cost of production; this does not always prove to be true, and sometimes, the tradeoffs involved in lowering the costs turn out to be worthwhile. While I agree with your general sentiment, there is no need to overstate your case as well. Outsourcing doesn't always work, and sometimes firms make stupid decisions.

No need to hand them subsidies to be even more stupid, however, so I agree on that.

Enjoy.

Posted by: Austin | Apr 2, 2008 1:10:06 PM

The most useful factiod that I have ever come across for use in discussions like this (and by "like this", I mean anything insinuating that corporations are bad and need governmental oversight in order to do any good for their workers...which is just about any conversation regarding profits) is the insanely (to my mind) low profit margin that the vast, vast majority of corporations actually make.

To be able to say..."you realize, of course, that this may well raise the cost 1-2% for companies", and then have the response be "so, they gouge everyone anyway!?," and then be able to counter with sub-10% profits for fortune 500 companies. People really are shocked about that.

I'd love to have some specific numbers...especially for wal-mart...what has their profit margin been?

Posted by: shawn | Apr 2, 2008 1:19:07 PM

Austin --

Of course, if the firm makes a stupid outsourcing decision, then there's no need for government intervention at all -- the company will (if it acts sanely) bring those jobs back. And, if it doesn't act sanely, it will be driven out of business by its saner competitors.

Posted by: Chris | Apr 2, 2008 1:28:34 PM

Too many people are dollar fixated. The focus on trade is always about where the dollars go, not on what we get for them.

And with jobs, it's always about 'creating' jobs, not about expanding the economy. They keep shooting for the secondary effect without realizing the importance of the primary cause.

A growing economy naturally creates more jobs, while progressives exhibit the assumption that meaningful jobs can be created by fiat, by declaration.

Not do they have any idea how many people have been marginalized out of the job market by their 'formalization' of employment.

Posted by: Sam Grove | Apr 2, 2008 1:33:45 PM

Shawn, over the past 10 years the highest net margin for Wal-Mart was 3.6%. It ranged from 3.06 to 3.6%.

Posted by: Mcwop | Apr 2, 2008 1:42:44 PM

mcwop...perfect; thanks so much. any other pertinent numbers would be welcome...or you can point me to where one can find that on the web?

Posted by: shawn | Apr 2, 2008 3:11:04 PM

mcwop,

Can you provide a source on the Wal-Mart profit margin?

I mean that sincerely, not snidely (it can be so hard to tell the difference on comment threatds). Given that Wal-Mart's business model has been to offer lower prices, which requires them to always look for ways to lower costs, I would assume that their profit margin would generally be quite low.

Posted by: James Hanley | Apr 2, 2008 3:52:16 PM

“We reward companies like Exxon-Mobil who park $56 billion in profits overseas because they don’t have to pay a dime in U.S. taxes on those profits. And we’re using your tax dollars to reward companies that ship your jobs overseas,” said Clinton. “My insourcing agenda is based on a different approach. I believe our government should get out of the business of rewarding companies for shipping jobs overseas, and get back into the business of rewarding companies that create good, high-wage jobs – with good benefits – right here in America.”

Hillary Clinton

Makes sense to me. Go Girl!!

Posted by: muirgeo | Apr 2, 2008 4:18:33 PM

Isn't this just a copy to Obama Patriot employer proposal? He'd like to lower taxes on employers who pay at least as much as avg as the poverty level, X% of healthcare, neutral to unions, etc.

Here's a link to an editorial in the WSJ from a couple weeks ago:
http://online.wsj.com/article/SB120407121574294919.html?mod=todays_us_opinion

She isn't doing anything Obama hasn't already done. Just a little different so she can say her plan is better.

Posted by: hutch | Apr 2, 2008 4:37:28 PM

Wouldn't it just be easier to reduce the corporate tax rate to a more reasonable amount -- one more in line with most other nations? That in itself would make it cost efficient to produce goods here, compared to other countries, given that our workers are constantly rated as the most productive in the world.

Posted by: rvturnage | Apr 2, 2008 5:23:38 PM

"I believe our government should ... get back into the business of rewarding companies that create good, high-wage jobs – with good benefits – right here in America.” - Hitlery Clinton

"Makes sense to me. Go Girl!!" - Murthaduck

Less than a month ago Murthaduck was lamenting the fact that he appeared to be the only one commenting on this blog who is opposed to corporate welfare.

Once again, he chimes in and reminds us that he may be the only regular on this blog who is in favor of corporate welfare. Gil may also support corporate welfare, since he's Murthaduck with an accent.

I believe our government should get out of the business of rewarding companies.<- (that's a period).

BTW, Murthaduck,

Most oil companies would prefer to refine their oil in the United States, but (usually) Democrat politicians have made it virtually impossible to build refineries in this country. So now not only are we importing oil, we're also importing gasoline. Do you support welfare for them build refineries here and "in-source" those jobs? Those are certainly high-paying jobs.

Posted by: brotio | Apr 2, 2008 6:10:50 PM

EDIT: My sentence should have been, "Do you support welfare for them TO build refineries here and "in-source" those jobs?"

Posted by: brotio | Apr 2, 2008 6:18:45 PM

Once again Methinks, you nailed it. Well said.

Posted by: mnm | Apr 2, 2008 6:25:45 PM

I believe our government should get out of the business of rewarding companies.<- (that's a period).
brotio

So then you are in favor of getting rid of patent law and corporate charters right?

Posted by: muirgeo | Apr 2, 2008 6:35:20 PM

Her plan is to subsidize unproductive industries because she thinks that will create job growth.

Posted by: Methinks

No I think she's talking about helping productive industries that actually add to the productivity pie as opposed to paper pushing industries that eat from the productivity pie at the expense of real workers.

Hell if she wanted to do something idle she'd bury jars of money and pay people like you to dig them up. But since we're already kinda doing that, with the actual digging replaced by pushing papers around, I'm thinking she's looking for a new approach. Don't worry though I'm sure there'll be some retraining for those with no actual productive skills.

Posted by: muirgeo | Apr 2, 2008 6:43:10 PM

Do you support welfare for them build refineries here and "in-source" those jobs? Those are certainly high-paying jobs.

Posted by: brotio |

Yes, I support unregulated refineries as well as nuclear storage (rusty barrels are fine) as long as it's within 100 yards of your residence.

Posted by: muirgeo | Apr 2, 2008 7:02:33 PM

"No I think she's talking about helping productive industries that actually add to the productivity pie as opposed to paper pushing industries that eat from the productivity pie at the expense of real workers."

Muirdonkey,

Do you deny Y(k,l) = k^a*l^b ?

Posted by: Jay | Apr 2, 2008 7:05:03 PM

Mrs. Clinton can't do math. What jobs aren't being created? Which ones aren't paying their employees fairly?

From the BLS:
Total Labor force increase: + 24%
Increase in hourly wages (inflation adjusted): + 11%

Check it: http://data.bls.gov/cgi-bin/surveymost?bls

You'll need to adjust for inflation yourself.

“We reward companies like Exxon-Mobil who park $56 billion in profits overseas because they don’t have to pay a dime in U.S. taxes on those profits."

muirgeo quoting Mrs. Clinton

This might be a bit over your head muirgeo but I'm going to say it anyway. Corporations don't exist; they're a legal fiction. Consider for a moment: a corporation is a locus of contracts filled by people working toward a common goal. As such, when you tax it, you aren't taxing a "thing" you're taxing a "who." So, she would either be taxing the employees of the firm, some of which will be the on low end of the income spectrum that she so desperately claims to want to protect, or she, more likely, taxes the consumer, also, possibly low end income.

Muirgeo, did you, in your medical practice, turn a profit last year? Do you think that you ought to have to pay a ridiculous amount of taxes on that income?

Posted by: mnm | Apr 2, 2008 7:08:34 PM

-muirgeo

Two questions
1. What's a "real worker"?
2. Banks push a lot of paper. Do you use a bank or do you keep your money in a mattress?

Posted by: mnm | Apr 2, 2008 7:12:55 PM

"So then you are in favor of getting rid of patent law and corporate charters right?"

Patent law - yes
Corporate charters - yes

Not that I'm in favor of doing away with contracts that create either, I just see no reason for government involvement in either.

Posted by: Randy | Apr 2, 2008 7:14:41 PM

But since we're already kinda doing that, with the actual digging replaced by pushing papers around, I'm thinking she's looking for a new approach. - muirpid

Fascinating. Since you know what I - in your words, a paper pushing asshole jerk cocaine-addicted monkey - do on Wall Street, perhaps you can explain it to the rest of the class. To date, you've claimed expertise on the simplest of loans but have not yet been able to explain how one works. You've claimed that derivatives are theft and, yet, you don't know what a derivative is. You've accused Victor Niederhoffer of being a "money changer" (as in the biblical money changers - Jesus got rid of them, they work with money, these WS guys work with money, ergo WS people are bad), yet you don't know what a money changer is either. When someone so ignorant has such strong opinions and is completely incapable of even the feeblest of defenses for his positions, we call that person a moron. A Muiron, if you will.

Posted by: Algore's poolhouse | Apr 2, 2008 10:16:20 PM

OK. This is the last time I allow someone else's teenager on my computer. The above is my post.

Posted by: Methinks | Apr 2, 2008 10:17:59 PM

I like Algore’s poolhouse as much.

Has a nice hypocritical ring to it…

Posted by: Mesa Econoguy | Apr 2, 2008 10:21:47 PM

"Muirgeo, did you, in your medical practice, turn a profit last year? Do you think that you ought to have to pay a ridiculous amount of taxes on that income?"

I'm sure that for Muirgeo profits are only a means to donate more money to the poor.

Posted by: The Dirty Mac | Apr 2, 2008 10:42:12 PM

I'm wondering about these "real" workers myself. The last couple of times I looked inside a factory, the workers were 99% illegals. I realize that a couple of observations is lame compared to a detailed analysis, but I suppose a lot of factory owners aren't going to be zealous to participate in this sort of inquiry.
I hate to say it, but it's getting to the point where I see "made in USA" and I think pfffft, yeah right, what'd they do, glue the label on the box here?
I hope I'm wrong, somebody please stomp these alegations assunder.

Posted by: Raker Tooth | Apr 2, 2008 10:59:01 PM

Mesa,

Ya' gotta love a kid with a sense of humour. A teenager who can see through populist BS. Rare.

Posted by: Methinks | Apr 2, 2008 11:30:12 PM

Raker, mnm,

Muirpid repeatedly uses the term "real workers" in the same way that Hillarity Clinton used the term "real people" when addressing those who died in the twin towers on 9/11. As in "...and many of those who died were not just Wall Street employees but real people like secretaries and maintenance workers."

This is not unlike the term "working families" when talking about taxes. "Working families" work for their wages but high wage earners don't work and get paid the big bucks to...uh...well...pay taxes.

Posted by: Methinks | Apr 2, 2008 11:36:40 PM

That's scary in it's own way. I recall a couple things I read somewhere, no documentation on hand:
In the time of "The killing fields", people who wore glasses were assumed to be intellectual, and were shot.
In the French revolution, some women cut off their hair, so as to not be more beautiful than other women.
Mustn't be unequal, must we now?

Posted by: Raker Tooth | Apr 3, 2008 12:38:33 AM

Methinks:

But this is part of the overall Marxist pattern the last 160 years or so right? To demonize the professional class and glorify the laborer class. It's ugly appeal is in its simplicity.

Posted by: FreedomLover | Apr 3, 2008 2:35:54 AM

"So then you are in favor of getting rid of patent law and corporate charters right?" - Murthaduck ("the children they've killed in cold blood")

I don't see how enacting patent laws so that a genius like John Moses Browning had an incentive to put that brilliant mind of his to work bringing us firearms innovations that may never have occurred if they hadn't occurred to him is the same as forcing me to give GE some of my money so that you can pay less for a solar panel.

The patent office doesn't subsidize anyone. If you're granted a patent, it's still up to you to convince somebody that they should pay you for your invention. A bit different than YOU telling me I have to pay GE so that you can purchase GE's invention at a lower price (to you).

I asked you an honest question several times: Please explain how it's noble and good to subsidize GE, but bad to subsidize others, and you got snotty because I pointed out that after vehemently opposing corporate welfare, you've changed your tune and wrote that corporate welfare is OK if the corporation makes products that you desire.

I answered you directly, now try and answer me directly: Why do you think it's moral to force me to give GE money so that you can pay less for GE's products?

Posted by: brotio | Apr 3, 2008 3:52:08 AM

Ok, something is driving me nuts. There seems to be a meme spread all over the leftist blogosphere that Iraq has cost $3 trillion. Now the author of this obvious travesty is Nobel-prize winning economist Joseph Stiglitz.

http://en.wikipedia.org/wiki/Stiglitz

Reading this biography, it's clear the guy is an outright Communist, why he was awarded a Nobel Prize is beyond me.

Posted by: FreedomLover | Apr 3, 2008 4:18:38 AM

My challenge to Murthaduck and Stiglitz:

Don't put down the "failure of free markets" when such a thing doesn't exist. You and fellow travelers have already rigged the system with big government millstone around America's neck. How can we know what the free market is capable of when you and your fellow Communist assholes won't allow it?

Posted by: FreedomLover | Apr 3, 2008 4:20:49 AM

Construction unions have been doing this kind of thing forever. They keep a fund used to pay contractors the balance between their bids and the non-union bids. In essense, paying themselves to work.

Posted by: tsmock | Apr 3, 2008 6:16:03 AM

Methinks,
I know what he meant. I just wanted to see him say it, although I suspect that won't happen.

Posted by: mnm | Apr 3, 2008 7:52:57 AM

Source for Wal-mart and other profit margin numbers:

http://morningstar.com/

Some content is pay, but much is free (profit margins is free).

Just type in the stock symbol, then when info comes up go to left nav and select the Key Ratios link.

Mcwop

Posted by: Mcwop | Apr 3, 2008 9:15:03 AM

mcwop...you're awesome. thanks.

Posted by: shawn | Apr 3, 2008 9:28:07 AM

Actually brotio plenty of Libertarians are anti-I.P. Although I'm for I.P.

Posted by: Gil | Apr 3, 2008 10:05:41 AM

Why do you think it's moral to force me to give GE money so that you can pay less for GE's products?

Posted by: brotio

Brotio,

I'd rather us subsidize alternative energy then a trillion dollar war for oil. GE benefits from the war on oil because their media outlets do well because "war sells" and GE owns defense contracting industries so they benefit from war there as well. The oil industry has huge unaccounted for externalities. Everything from air pollution to war to effects on Middle East policy and terrorism.

Right now YOU are subsidizing GE's war and Media efforts and YOU are subsidizing Exxon Mobile so they can get their product to the market. The sums are insane compared to what I might suggest we put into subsidizing alternative energy.

Hell I'm planning to decrease subsidies from $1,000,000,000,000 (not counting the lives and limbs and minds lost) to maybe $50,000,000,000.

I'm gonna SAVE you money, give you MORE choice in transportation and energy and make the world a safer place.

OK? There is your answer. Now you tell me why I should sit down and shut up and subsidize GE/ Exxon Mobile/ Hedge Fund Managers/ Bankers and be happy about it when their product is simply a means of transferring wealth AND they use public money to do so.

Very simply Brotio if we are going to subsidize some aspect of the energy industry doesn't it make sense to subsidize alternatives to what we have. Is this really that difficult to understand. Are my ideas really that dastardly compared to what is already going on? Compared to what you are already subsidizing.

Do you support the war Brotio?

Posted by: muirgeo | Apr 3, 2008 11:31:02 AM

My challenge to Murthaduck and Stiglitz:

Posted by: FreedomLover

Go to hell! This economy and the state of our country is the result of dumb-asses like yourself thinking the Republican party stands for freedom. The Republican party is all about selling out the country to the highest bidder. We find ourselves in the second largest heap of crap economy in the last 100 years both following prolonged rule by Republicans. If this economy were happening during a Democratic administration...if this massive war failure and spying on Americans were happening during a Democratic administration the biggest difference is I'd be right there with you calling for heads on a plate. But you are such a God damn ditto-head tool you defend the most inept leaders our country has ever seen because you are so infantile you think this is a God Damn football game and you choose your failed fascist party over your country. So STFU you silly dopey republican tool!

I usually don't respond to you "freedom"-lover because you have nothing of substance ever to say. Your last post was nothing different but my response should cover just about anything you've ever written here. You really are clueless. You really need to pull your head out of your ass and look the guy in the mirror and ask him, HONESTLY, "just what do I stand for?".

Posted by: muirgeo | Apr 3, 2008 11:42:52 AM

muirgeo said:

"I'd rather us subsidize alternative energy then a trillion dollar war for oil."

This is not an argument FOR subsidizing alternative energy. If the 'trillion dollar war for oil' were no longer subsidized, you would be left with no argument justifying subsidizes for alternative energy. Can you make a stand alone argument that answers brotio's question?

"Why do you think it's moral to force me to give GE money so that you can pay less for GE's products?"

Posted by: I_am_a_lead_pencil | Apr 3, 2008 11:54:01 AM

I'd rather us subsidize alternative energy then a trillion dollar war for oil.

I'd rather not subsidize energy at all, becuase it causes distortions, and unintended consequences. Example? Ethanol, and the electric car. Both are cases of government choosing the solution to the problem, which usually fails.

If government is going to get involved, then it should use a price mechanism, which may mean jacking up gas taxes substantially, or a carbon tax. That way the market can find the best solution to deal with the high price. That means it may not be an electric car, but some other technology that gets good mileage, and can drive more than 40 miles on a charge.

Posted by: Mcwop | Apr 3, 2008 11:58:54 AM

Very simply Brotio if we are going to subsidize some aspect of the energy industry doesn't it make sense to subsidize alternatives to what we have.

IOW, you would have government retain the power and authority to subsidize industry and then complain that your recommendations aren't being followed.

Posted by: Sam Grove | Apr 3, 2008 11:59:33 AM

This is not an argument FOR subsidizing alternative energy.

Posted by: I_am_a_lead_pencil

You may be right. We'll never know until we take the first step and stop the current subsidies.

Posted by: muirgeo | Apr 3, 2008 12:05:26 PM

muirgeo,

Would you be okay with no subsidies?

Also, I feel like you are characterizing the position of most people posting here as being infavor of oil-subsidies. I'm pretty sure that most of us are against all subsidies.

Posted by: Deryl G | Apr 3, 2008 1:05:23 PM