How the Vaping Ban Will Hit Small Businesses

David Boaz

Sudden concern over lung illnesses possibly associated with vaping has led to a rash of state and federal bans on flavored vaping liquids. Public attention has focused on the biggest e-cigarette company, Juul, which has taken to running full-page ads in newspapers proclaiming that its products are safe and only for sale to adults.

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But in this case, like many others, the dirty little secret of regulation is that it ends up imposing more costs on small companies than on the biggest players. Juul, which received a $12.8 billion investment from Altria (formerly Philip Morris), can afford legal and regulatory compliance costs that may squeeze out its smaller competitors.

Travis Pritchard, manager at Vaporz in Whitesboro, N.Y., told the Washington Post, “After the mom-and-pop stores are essentially flushed out of New York, the only devices you’ll find are Juuls.”

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University of Notre Dame economist Benjamin Pugsley agreed: “When you have regulations that are increasing the entry cost of any particular industry, that tends to favor the large incumbents.”

The same phenomenon has occurred in many industries over the years.

Prohibition in the 1920s shut down many small brewers and distillers, but the big companies such as Anheuser-Busch and Brown-Forman, the makers of Jack Daniel’s, had the resources to wait out the 14-year ban and emerged bigger than ever.

In 2016 the European Union passed sweeping new regulations on tech firms to protect data privacy. Big companies like Facebook and Google fought hard against the new rules. But once the legislation passed, they invested big in dealing with it. They mobilized hundreds of people in Europe and the United States, many of them highly paid lawyers, to study the detailed law and review contracts and internal procedures. They had frequent contact with EU regulators.

Smaller companies didn’t have such resources. Some online-ad companies including Verve and Drawbridge pulled out of Europe. Journalists began to report that the regulations were disproportionately burdensome to smaller firms. Investors worried that smaller firms couldn’t handle the compliance costs. The Wall Street Journal reported that “some of the restrictions are having an unintended consequence: reinforcing the duopoly” of Facebook and Google.

Meanwhile, about the same time, California legalized marijuana. As a libertarian, I applaud that move. People would no longer be arrested for buying, selling, or using marijuana. We can expect less crime, more legal jobs, and rejuvenated cities.

But there's a catch. California didn't just repeal laws and stop arresting people; instead, it set up a regime of taxes, licensing fees and regulation. And again we see that big companies are better prepared to deal with regulation and paperwork.

Scott Wilson of the Washington Post reported, “Fewer than 1 in 10 of [Humboldt] county’s estimated 12,500 marijuana farmers are likely to make it in the legal trade....Less than 1% of the estimated 69,000 growers statewide have received a permit to farm marijuana since the beginning of the year." Large agricultural companies started planning to cultivate cannabis on an industrial scale. Long-time small growers saw the legalization law as just another way to put them out of business.

These aren’t isolated cases. As a Small Business Association study in 2010 found, “Small businesses, defined as firms employing fewer than 20 employees, bear the largest burden of federal regulations. . . . 36% higher than the regulatory cost facing large firms.”

Goldman Sachs CEO Lloyd Blankfein noted in 2015 that new regulations created a “moat” around his firm:

"In some ways, and there are some parts of our business, where it’s very hard for outside entrants to come in, disrupt our business, simply because we’re so regulated. You’ll hear people in our industry talk about the regulation. And they talk about it, you know, with a sigh: Look at the burdens of regulation. But in some cases, the burdensome regulation acts as a bit of a moat around our business.”

There are some understandable rationales for regulations — to protect consumers or workers, safety or the environment, to ensure competition, to stabilize markets. The costs and benefits of each regulation — and the aggregate burden of regulations — should be debated. But one thing is clear: the more complex and costly regulations are, the more they will disproportionately burden smaller companies and start-ups compared to large incumbents.

If we want an economy and society characterized by innovation, progress, competition and upward mobility, let's not regulate smaller businesses out of existence.

Posted on October 24, 2019  Posted to Cato@Liberty

Design, Doorknobs, and the Great Enrichment

David Boaz

As Americans become older and wealthier, there's growing interest in "aging-in-place design" for our homes. In the Washington Post, Stephanie Brick notes that aging-in-place

actually falls under the umbrella of universal design, which is becoming better known in the design industry as inclusive design. This is design — from the full architecture of a building to minute details such as material or fixture selections — that creates an equal experience for people across a wide spectrum of abilities.

Although many of us hearing this would naturally think of the Americans With Disabilities Act (ADA), Brick notes that inclusive design is not just "a set of minimum requirements to be met" but a "holistic strategy" that seeks make living spaces accessible in multiple ways for many kinds of people, now and in the future.

What occurred to me as I read the article is that this is a manifestation of our increasingly affluent society. The average new single-family home today is about 1000 square feet bigger than new homes in 1973, even as household size has declined. Homes are safer, more luxurious, and more technologically advanced than they were a decade or a generation ago. Inclusive design is part of that trend. Deirdre McCloskey writes in her imminent book that "the greatest, yet regularly overlooked, fact about the modern world" is the Great Enrichment, the fact that we are roughly 3,000 percent richer than our ancestors in 1800. And that enrichment continues, in the United States and in increasing parts of the world.

Of course, there are always tradeoffs in design choices. Stephanie Brick notes that "knobs can be difficult to grip for someone with arthritis or who has limited mobility. Lever handles for doors and faucets, as well as pulls for cabinetry hardware instead of knobs, are a simple adaptation." But at the same time as Brick's article appeared, a Wall Street Journal "Mansion" section article addressed the damage pets can do to houses, including a $1.25 million Colorado home: "Another $1,000 was spent to replace door levers with doorknobs because the pups were sneaking into guest rooms and gobbling up things like vitamins." Inclusive or not, no design is going to satisfy every customer.

Posted on October 1, 2019  Posted to Cato@Liberty

China Celebrates an Anniversary of a “People’s Democratic Dictatorship”

David Boaz

Next Tuesday the People's Republic of China is celebrating the 65th anniversary of its founding on October 1, 1949. Quite an extravaganza is planned, even as protesters in Hong Kong plan a counter-rally. China's opposition to democracy in Hong Kong and in China itself is not just the recalcitrance of cranky old men. It's part of the Chinese Communist state's founding mission.

Take the speech of Mao Zedong on July 1, 1949, as his Communist armies neared victory. The speech was titled, “On the People’s Democratic Dictatorship.” Instead of life, liberty, and the pursuit of happiness, it spoke of “the extinction of classes, state power and parties,” of “a socialist and communist society,” of the nationalization of private enterprise and the socialization of agriculture, of a “great and splendid socialist state” in Russia,and especially of “a powerful state apparatus” in the hands of a “people’s democratic dictatorship.”

Tragically, unbelievably, this vision appealed not only to many Chinese but even to Americans and Europeans, some of them prominent. But from the beginning it went terribly wrong, as really should have been predicted. Communism created desperate poverty in China. The “Great Leap Forward” led to mass starvation. The Cultural Revolution unleashed “an extended paroxysm of revolutionary madness” in which “tens of millions of innocent victims were persecuted, professionally ruined, mentally deranged, physically maimed and even killed.” Estimates of the number of unnatural deaths during Mao’s tenure range from 15 million to 80 million. This is so monstrous that we can’t really comprehend it. What inspired many American and European leftists was that Mao really seemed to believe in the communist vision. And the attempt to actually implement communism leads to disaster and death.

Fortunately, after Mao died in 1976, China changed rapidly. In far-flung parts of the country, villages and communes had already begun recreating markets and individual plots of land. Mao's old comrade Deng Xiaoping, a victim of the Cultural Revolution, had learned something from the 30 years of calamity. He began to implement policies he called “socialism with Chinese characteristics,” which looked a lot like freer markets—decollectivization and the “responsibility system” in agriculture, privatization of enterprises, international trade, liberalization of residency requirements.

The changes in China over the past generation are the greatest story in the world—more than a billion people brought from totalitarianism to a largely capitalist economic system that has eroded the continuing authoritarianism of the political system. But on its 70th birthday, the CCP still rules China with an iron fist. There is no open political opposition, and no independent judges or media. President Xi Jinping has become more authoritarian, and has concentrated more power in his own person than any ruler since Mao. Some say China is becoming "the perfect dictatorship." But there are rumblings of dissent inside the Chinese leadership. Maybe the passion and endurance of the Hong Kong protests, coming on top of the oppression of the Uighurs and the Hui, closures of liberal think tanks, tightening of economic controls, and a general increase in repression, will be a beacon that will help China return to its faltering path toward openness.

Posted on September 26, 2019  Posted to Cato@Liberty

Trumpian Conservatives and the Fever Swamps

David Boaz, Caleb O. Brown

Conservatives’ tolerance for illiberal views needs to end sooner than later. Do libertarians have a similar problem? David Boaz makes his case.

Posted on September 24, 2019  Posted to Cato@Liberty

No Enemies to the Right?

David Boaz

Conservatives have long criticized liberals for what they see as a policy of “no enemies to the left.” That is, they said, liberals might not be socialists, communists, or revolutionaries, but they forbore criticizing such people.

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And they have a point. The Washington Post has mentioned Angela Davis in several articles this year, always describing her as an “ activist” and not as a former longtime leader of the Communist Party. Davis has received many awards for her supposed activism for human rights and the environment – as well as the Soviet Union’s Lenin Peace Prize, called the Stalin Prize until 1957.

Senator Bernie Sanders says he advocates “democratic socialism” as found in Denmark and Sweden, but he honeymooned in the Soviet Union, defended the communist government of Nicaragua, and signed a letter of support for Venezuela’s disastrous strongman Hugo Chavez. And none of his opponents for the Democratic presidential nomination have called him out for that.

But now conservatives have a problem of their own. Call it “no enemies to the right.”

William F. Buckley Jr. the founder and editor of National Review, was known for kicking the fringe organs like the John Birch Society out of the conservative movement.

As one of his biographers wrote, Buckley “stood guard over the movement he founded and—in what he called his greatest achievement—kept it free where he could of extremists, bigots, kooks, anti-Semites and racists.”

Buckley made some missteps of his own early on. But he did show evidence of changing with the times. As his National Review colleagues put it in announcing his death, “He created modern conservatism as an intellectual and then a political movement. He kept it from drifting into the fever swamps.”

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It would be helpful if those on the left would stop suggesting that everyone on the right is a racist. But it would also be good if those on the right would admit that there are racists and banish them for the good of their cause.

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But things have changed since Buckley’s death in 2008, as many conservatives seem to have lost interest in drawing bright lines between themselves and the fever swamps. Just consider a few recent cases.

The venerable CPAC, the Conservative Political Action Conference, run by the American Conservative Union, a venue at which Ronald Reagan gave influential speeches, in 2017 invited Milo Yiannopoulos, a guy who sent racist tweets to other writers before being permanently kicked of Twitter for harassing Leslie Jones, who makes anti-Semitic remarks about others, and falsely accuses transgender people of disproportionate crime rates, to be a keynote speaker. CPAC then disinvited him after revelations that he defended sex between adult men and teenagers on a radio show. But they were proud to have him when he was merely a bigot.

The next year CPAC doubled down, inviting Marion Maréchal-Le Pen, granddaughter of Jean-Marie Le Pen and niece of National Front leader Marine Le Pen, to speak. Marion told the Washington Post, “I am the political heir of Jean-Marie Le Pen. He was a visionary. He was right about a lot of things.” One of the things Le Pen was best known for was declaring the Holocaust “a mere detail in the history of the Second World War.”

The Claremont Institute, whose mission is to “restore the principles of the American Founding,” awarded a Lincoln Fellowship to Jack Posobiec, a blogger who has promoted the Pizzagate and Seth Rich conspiracy theories, tweeted about “white genocide,” and dropped racist and Nazi code words into numerous tweets. Think of him as a straight and less hip Milo.

Fox News host Laura Ingraham criticized social media companies for trying to “silence conservative voices.” She posted a graphic listing such maligned intellectuals as conspiracy theorist Alex Jones, Milo himself, professional victim Laura Loomer, and noted anti-Semite Paul Nehlen—just the sort of fever swamps Buckley tried to steer clear of.

Conservatives have heavily touted a study of political bias on social media, claiming that of 22 prominent, politically active individuals known to have been suspended by Twitter since 2005 and who expressed a preference in the 2016 U.S. presidential election, 21 supported Donald Trump. But as Zach Graves of the Lincoln Network noted, along with a couple of legitimate conservatives, the 21 are largely “a who’s who of outspoken or accused white nationalists, neo-Confederates, holocaust deniers, conspiracy peddlers, professional trolls, and other alt-right or fringe personalities” – including the American Nazi Party and former Ku Klux Klan leader David Duke.

It would be helpful if those on the left would stop suggesting that everyone on the right is a racist. But it would also be good if those on the right would admit that there are racists—and banish them for the good of their cause.

From the perspective of a libertarian outsider looking in, it’s time for conservatives to decide: do you believe in liberty, limited government, equality under the law, the rule of law, the Declaration of Independence, and the Constitution? If so, you don’t belong anywhere near the fever swamps. You have enemies to the left, but also enemies to the right. Redraw those red lines. Put those guardrails back up.

Posted on September 16, 2019  Posted to Cato@Liberty

No Enemies to the Right?

David Boaz

Conservatives have long criticized liberals for what they see as a policy of “no enemies to the left.” That is, they said, liberals might not be socialists, communists, or revolutionaries, but they forbore criticizing such people.

, ,

And they have a point. The Washington Post has mentioned Angela Davis in several articles this year, always describing her as an “ activist” and not as a former longtime leader of the Communist Party. Davis has received many awards for her supposed activism for human rights and the environment – as well as the Soviet Union’s Lenin Peace Prize, called the Stalin Prize until 1957.

Senator Bernie Sanders says he advocates “democratic socialism” as found in Denmark and Sweden, but he honeymooned in the Soviet Union, defended the communist government of Nicaragua, and signed a letter of support for Venezuela’s disastrous strongman Hugo Chavez. And none of his opponents for the Democratic presidential nomination have called him out for that.

But now conservatives have a problem of their own. Call it “no enemies to the right.”

William F. Buckley Jr. the founder and editor of National Review, was known for kicking the fringe organs like the John Birch Society out of the conservative movement.

As one of his biographers wrote, Buckley “stood guard over the movement he founded and—in what he called his greatest achievement—kept it free where he could of extremists, bigots, kooks, anti-Semites and racists.”

Buckley made some missteps of his own early on. But he did show evidence of changing with the times. As his National Review colleagues put it in announcing his death, “He created modern conservatism as an intellectual and then a political movement. He kept it from drifting into the fever swamps.”

,

But things have changed since Buckley’s death in 2008, as many conservatives seem to have lost interest in drawing bright lines between themselves and the fever swamps. Just consider a few recent cases.

The venerable CPAC, the Conservative Political Action Conference, run by the American Conservative Union, a venue at which Ronald Reagan gave influential speeches, in 2017 invited Milo Yiannopoulos, a guy who sent racist tweets to other writers before being permanently kicked off of Twitter for harassing Leslie Jones, who makes anti-Semitic remarks about others, and falsely accuses transgender people of disproportionate crime rates, to be a keynote speaker. CPAC then disinvited him after revelations that he defended sex between adult men and teenagers on a radio show. But they were proud to have him when he was merely a bigot.

The next year CPAC doubled down, inviting Marion Maréchal-Le Pen, granddaughter of Jean-Marie Le Pen and niece of National Front leader Marine Le Pen, to speak. Marion told the Washington Post, “I am the political heir of Jean-Marie Le Pen. He was a visionary. He was right about a lot of things.” One of the things Le Pen was best known for was declaring the Holocaust “a mere detail in the history of the Second World War.”

The Claremont Institute, whose mission is to “restore the principles of the American Founding,” awarded a Lincoln Fellowship to Jack Posobiec, a blogger who has promoted the Pizzagate and Seth Rich conspiracy theories, tweeted about “white genocide,” and dropped racist and Nazi code words into numerous tweets. Think of him as a straight and less hip Milo.

Fox News host Laura Ingraham criticized social media companies for trying to “silence conservative voices.” She posted a graphic listing such maligned intellectuals as conspiracy theorist Alex Jones, Milo himself, professional victim Laura Loomer, and noted anti-Semite Paul Nehlen—just the sort of fever swamps Buckley tried to steer clear of.

Conservatives have heavily touted a study of political bias on social media, claiming that of 22 prominent, politically active individuals known to have been suspended by Twitter since 2005 and who expressed a preference in the 2016 U.S. presidential election, 21 supported Donald Trump. But as Zach Graves of the Lincoln Network noted, along with a couple of legitimate conservatives, the 21 are largely “a who’s who of outspoken or accused white nationalists, neo-Confederates, holocaust deniers, conspiracy peddlers, professional trolls, and other alt-right or fringe personalities” – including the American Nazi Party and former Ku Klux Klan leader David Duke.

It would be helpful if those on the left would stop suggesting that everyone on the right is a racist. But it would also be good if those on the right would admit that there are racists—and banish them for the good of their cause.

From the perspective of a libertarian outsider looking in, it’s time for conservatives to decide: do you believe in liberty, limited government, equality under the law, the rule of law, the Declaration of Independence, and the Constitution? If so, you don’t belong anywhere near the fever swamps. You have enemies to the left, but also enemies to the right. Redraw those red lines. Put those guardrails back up.

Posted on September 16, 2019  Posted to Cato@Liberty

Key Concepts of Libertarianism

The key concepts of libertarianism have developed over many centuries. The first inklings of them can be found in ancient China, Greece, and Israel; they began to be developed into something resembling modern libertarian philosophy in the work of such seventeenth- and eighteenth-century thinkers as John Locke, David Hume, Adam Smith, Thomas Jefferson, and Thomas Paine.

Individualism. Libertarians see the individual as the basic unit of social analysis. Only individuals make choices and are responsible for their actions. Libertarian thought emphasizes the dignity of each individual, which entails both rights and responsibility. The progressive extension of dignity to more people — to women, to people of different religions and different races — is one of the great libertarian triumphs of the Western world.

Individual Rights. Because individuals are moral agents, they have a right to be secure in their life, liberty, and property. These rights are not granted by government or by society; they are inherent in the nature of human beings. It is intuitively right that individuals enjoy the security of such rights; the burden of explanation should lie with those who would take rights away.

Spontaneous Order. A great degree of order in society is necessary for individuals to survive and flourish. It’s easy to assume that order must be imposed by a central authority, the way we impose order on a stamp collection or a football team. The great insight of libertarian social analysis is that order in society arises spontaneously, out of the actions of thousands or millions of individuals who coordinate their actions with those of others in order to achieve their purposes. Over human history, we have gradually opted for more freedom and yet managed to develop a complex society with intricate organization. The most important institutions in human society — language, law, money, and markets — all developed spontaneously, without central direction. Civil society — the complex network of associations and connections among people — is another example of spontaneous order; the associations within civil society are formed for a purpose, but civil society itself is not an organization and does not have a purpose of its own.

The Rule of Law. Libertarianism is not libertinism or hedonism. It is not a claim that “people can do anything they want to, and nobody else can say anything.” Rather, libertarianism proposes a society of liberty under law, in which individuals are free to pursue their own lives so long as they respect the equal rights of others. The rule of law means that individuals are governed by generally applicable and spontaneously developed legal rules, not by arbitrary commands; and that those rules should protect the freedom of individuals to pursue happiness in their own ways, not aim at any particular result or outcome.

Limited Government. To protect rights, individuals form governments. But government is a dangerous institution. Libertarians have a great antipathy to concentrated power, for as Lord Acton said, “Power tends to corrupt and absolute power corrupts absolutely.” Thus they want to divide and limit power, and that means especially to limit government, generally through a written constitution enumerating and limiting the powers that the people delegate to government. Limited government is the basic political implication of libertarianism, and libertarians point to the historical fact that it was the dispersion of power in Europe — more than other parts of the world — that led to individual liberty and sustained economic growth.

Free Markets. To survive and to flourish, individuals need to engage in economic activity. The right to property entails the right to exchange property by mutual agreement. Free markets are the economic system of free individuals, and they are necessary to create wealth. Libertarians believe that people will be both freer and more prosperous if government intervention in people’s economic choices is minimized.

The Virtue of Production. Much of the impetus for libertarianism in the seventeenth century was a reaction against monarchs and aristocrats who lived off the productive labor of other people. Libertarians defended the right of people to keep the fruits of their labor. This effort developed into a respect for the dignity of work and production and especially for the growing middle class, who were looked down upon by aristocrats. Libertarians developed a pre-Marxist class analysis that divided society into two basic classes: those who produced wealth and those who took it by force from others. Thomas Paine, for instance, wrote, “There are two distinct classes of men in the nation, those who pay taxes, and those who receive and live upon the taxes.” Similarly, Jefferson wrote in 1824, “We have more machinery of government than is necessary, too many parasites living on the labor of the industrious.” Modern libertarians defend the right of productive people to keep what they earn, against a new class of politicians and bureaucrats who would seize their earnings to transfer them to political clients and cronies.

Natural Harmony of Interests. Libertarians believe that there is a natural harmony of interests among peaceful, productive people in a just society. One person’s individual plans — which may involve getting a job, starting a business, buying a house, and so on — may conflict with the plans of others, so the market makes many of us change our plans. But we all prosper from the operation of the free market, and there are no necessary conflicts between farmers and merchants, manufacturers and importers. Only when government begins to hand out rewards on the basis of political pressure do we find ourselves involved in group conflict, pushed to organize and contend with other groups for a piece of political power.

Peace. Libertarians have always battled the age-old scourge of war. They understood that war brought death and destruction on a grand scale, disrupted family and economic life, and put more power in the hands of the ruling class — which might explain why the rulers did not always share the popular sentiment for peace. Free men and women, of course, have often had to defend their own societies against foreign threats; but throughout history, war has usually been the common enemy of peaceful, productive people on all sides of the conflict.

… It may be appropriate to acknowledge at this point the reader’s likely suspicion that libertarianism seems to be just the standard framework of modern thought — individualism, private property, capitalism, equality under the law. Indeed, after centuries of intellectual, political, and sometimes violent struggle, these core libertarian principles have become the basic structure of modern political thought and of modern government, at least in the West and increasingly in other parts of the world.

However, three additional points need to be made: first, libertarianism is not just these broad liberal principles. Libertarianism applies these principles fully and consistently, far more so than most modern thinkers and certainly more so than any modern government. Second, while our society remains generally based on equal rights and capitalism, every day new exceptions to those principles are carved out in Washington and in Albany, Sacramento, and Austin (not to mention London, Bonn, Tokyo, and elsewhere). Each new government directive takes a little bit of our freedom, and we should think carefully before giving up any liberty. Third, liberal society is resilient; it can withstand many burdens and continue to flourish; but it is not infinitely resilient. Those who claim to believe in liberal principles but advocate more and more confiscation of the wealth created by productive people, more and more restrictions on voluntary interaction, more and more exceptions to property rights and the rule of law, more and more transfer of power from society to state, are unwittingly engaged in the ultimately deadly undermining of civilization.

From Chapter 1, “The Coming Libertarian Age,” The Libertarian Mind, by David Boaz (New York: Simon & Schuster, 2015). See also www.libertarianism.org.

Posted on August 20, 2019  Posted to Cato@Liberty

George Will cites David Boaz’s blog post, “Lobbying in Trump’s Washington: New Names, Old Game,” on Sirius XM’s Politics Inside Out

Posted on August 17, 2019  Posted to Cato@Liberty

George Will cites David Boaz’s blog post, “Lobbying in Trump’s Washington: New Names, Old Game,” on Sirius XM’s Politics Inside Out

Posted on August 17, 2019  Posted to Cato@Liberty

The Conquest of the United States by China

In 1898, after the United States’ quick victory in the Spanish-American war, the great Yale social scientist William Graham Sumner gave a speech titled “The Conquest of the United States by Spain.” He told his audience, “We have beaten Spain in a military conflict, but we are submitting to be conquered by her on the field of ideas and policies.”

He argued that early Americans “came here to isolate themselves from the social burdens and inherited errors of the old world” and chose to “to strip off all the follies and errors which they had inherited…. They would have no court and no pomp; no orders, or ribbons, or decorations, or titles. They would have no public debt. They repudiated with scorn the notion that a public debt is a public blessing; if debt was incurred in war it was to be paid in peace and not entailed on posterity.”

The American citizen “was, above all, to be insured peace and quiet while he pursued his honest industry and obeyed the laws.”

But, he said, if America became a colonizing nation like the empires of Europe, we would become afflicted with “war, debt, taxation, diplomacy, a grand-government system, pomp, glory, a big army and navy, lavish expenditures, and political jobbery – in a word, imperialism.” And in that day we would have thrown away the American principle of liberty for “a Spanish policy of dominion and regulation.”

I was reminded of Sumner’s warning when I read a column in the Washington Post by Eswar Prasad, a prominent trade economist at Cornell University and the Brookings Institution. Prasad warns that in its trade war with China the Trump administration seems determined to emulate China:

China might seem in a better position to cope with a trade war, since it is a heavily managed economy and the government squashes political resistance. Yet its every maneuver carries enormous risks. Meanwhile, Trump, who manages a durable and flexible economy, is not exactly seeking victory for the American way of doing business. His approach, in some ways right out of Beijing’s playbook, would make our economy quite a bit more like China’s.

Prasad enumerates some of China’s “advantages” in a trade war: a state-dominated economy, with state-owned banks, and an autocratic government that can shut down dissent and censor bad news. Trump, on the other hand, has the advantage of an “enormously flexible and resilient” economy and bipartisan support for “getting tough on China.” But Prasad warns:

Yet in exercising his power, he could end up making America’s economy a bit more like the state-dominated one operated by Beijing — and, in so doing, permanently damage the U.S. free market. To rescue the agricultural sector from the consequences of the trade war, Trump has already dispatched $28 billion in government subsidies. He has also jawboned American companies to move their production bases back to U.S. shores, rather than letting them make their own commercial decisions. Trump has even pressured the Federal Reserve, whose independence is seen as sacrosanct, to lower interest rates and suggested that the Fed should help drive down the value of the dollar. With such moves, he risks undermining the true strengths of the United States: the institutions that make the U.S. dollar and the American financial system so dominant.

What’s worse, Trump suggests that the rule of law is up for negotiation. After imposing sanctions on Chinese technology companies such as ZTE and Huawei for running afoul of U.S. rules, he hinted that those sanctions could be negotiated away as part of a trade deal.

Much as Sumner worried in 1898 that the United States was trading its peace and liberty for “a Spanish policy of dominion and regulation,” Prasad fears that

China has made its lack of independent institutions a source of strength in dealing with external economic aggression. In that model, Trump sees something Washington should copy — and seems ready to abandon what makes the United States special. 

We faced a similar challenge in the 1980s when powerful American voices called for an industrial policy similar to the one they credited with the success of the then-booming Japanese economy. But critical analysis from Cato scholars and others across the political spectrum stopped that campaign, just in time for us to watch Japan sink into its “lost decade” of economic stagnation.

Sumner got a lot right. The United States did become a globe-circling imperial power burdened by war, debt, taxation, regulation, and rent-seeking. Will Prasad prove equally prophetic? Will we fight a trade war with China, only to discover that we have adopted “a Chinese policy of dominion and regulation”?

Posted on August 13, 2019  Posted to Cato@Liberty

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