Friday, February 20, 2004

Protectionism Hurts Michigan Workers

An interesting article by GR Spring & Stamping Inc. CEO Jim Zawacki shows how economic protectionism hurts American - and Michigan - jobs. He clearly states the case that the steel tariffs that (thankfully) the World Trade Organization forced the US to repeal, increased steel prices domestically and internationally. The results of protectionist tariffs were higher costs for domestic steel-consuming industries, such as GR Spring & Stamping. When their costs increased, so did their prices to customers, making them less competitive internationally.

Interestingly, he also points out that protecting inefficient domestic steel foundries made the US less competitive on the international market. China's steel consumption continues to increase, but due to higher US prices of steel, caused by protectionist tariffs that prevent the industry from becoming more efficient, less of China's comsumption is of American steel.

One of Mr. Zawacki's quotes hits the nail on the head: "Here in the U.S., 190,000-200,000 people make steel. More than 12 million people work for companies that use steel, and those companies are being forced out of business because they simply can’t purchase their raw materials. "

Protectionism hurts America in the long run and makes us less competitive on the global market. All of this was dealt with very effectively by Frederic Bastiat, who wrote a book called Economic Sophisms. It amazes me that free trade is still such an enormous issue with so many people opposed when all those anti-trade arguments were laid to rest 150 years ago. This isn't a new debate - just one where the old arguments are recycled over and over.

Wednesday, February 11, 2004

Governor Proposes Higher Cigarette Taxes (again)

Once again, Governor Granholm proposed raising the cigarette tax in Michigan. It seems that the policy of attempting to tax-out undesirable behavior is once again in vogue. Since no one (at least yet) is dumb enough to call for an outright ban of cigarettes, taxing them into oblivion seems to be acceptable.

However, what the governor and other policy-makers seem to be unable to grasp is the law of supply and demand. There will always be a demand, and the government is attempting to limit supply by increasing cost beyond the means of a number of people. But to policy-makers, that is the end of it. Those people will simply give up and go home. Not so in the real world. This is how a black market forms.

Just ask Sgt. Alain Giroux, a member of the Royal Canadian Mounted Police, who testified to the US Congress that a $1.50 per pack tax on cigarettes in Canada (Granholm is proposing increasing the MI tax to $2.00) has lead to an explosion of the cigarette black market. He estimates that 40% of Canada's cigarette sales are now on the black market. Of course, as with any black market that is forced to operate outside the protection of the law, organized crime and violence have flourished.

The same article points out that where cigarette taxes increase, cigarette sales decrease, but cigarette smoking does not decrease, which indicates the rise of the black market.

Not only do these policies increase the size of black markets, they then are used to justify even more government growth, as more police are needed to counter this new black market and the resultant increase in crime. Once again, the taxpayers get it stuck to them twice.

Monday, February 2, 2004

Hold on to Your Wallet!

The era of big government is just beginning...

The newly-installed Grand Rapids mayor George Heartwell gave his second state of the city speech last week at the Rotary Club downtown. His message? More government is needed to improve the regional economy.

He essentially outlined three initiatives that included more funding for downtown, a bigger regional mass-transit system, and more centralized land-use planning.

First, the mayor wants to continue the improvement of the GR downtown district. Sure, downtown's been doing well over the last decade, but the best way to continue that improvement is to keep taxes low. The continuation of renaissance zones seems to be the most effective tool to increase investment. In fact, renaissance zones should be expanded to all of downtown - or even all of the city... then we'd see some enormous growth rates in Grand Rapids. However, the mayor prefers to use taxpayer dollars to subsidize new business growth - as the governor proposed at her state of the state address. No one seems to realize that this $500 million in proposed venture capital has to come from somewhere... and when was the last time bureaucrats were successful in conjuring up the best investment avenues for money?

Second, and perhaps most laughably, even the new mayor is stumping for light rail service. Nevermind the fact that light rail in most urban and suburban areas is a colossal waste of money, except for in the most densely-populated cities - we need to go for it! (See Myths of Light Rail Transit) And where is the money for this going to come from? That's right! Not the people riding the system, but you and I, the faithful taxpayers of the Interurban Transit Partnership (ITP) service area. The current system subsidizes each rider with taxpayer dollars to the tune of $6 per rider - only 13% of revenue is generated by bus fairs.

Finally, the mayor wants further expansion of the Grand Valley Metro Council, the regional super-government wannabe organization. Wyoming has smartly refused to join, and kudos to them for that decision. The mayor wants to strengthen the GVMC's land-use powers. In other words, they want to be able to tell you where you can and can't live. As the mayor talks out of one side of his mouth about regional planning, which drives up the cost of housing for everyone, he also talks about affordable housing. One government-caused problem (a housing shortage, which drives up prices), needs to be solved by more government! A perfect circle. Who said politicians don't do everything they can to make themselves important?

I thought we had learned our collective lesson that increased government spending and revenue is a gigantic drag on the economy - but apparently not. Is it any wonder that Michigan, a high-tax state, has an unemployment rate way above the national average? Maybe it's time to study a little economics and let the market correct our past public policy mistakes.