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It takes a global supply chain to make a permanent marker, regardless of where it’s assembled.
Remember the old cliché of a pessimist seeing a glass half empty rather than half full? I’m a pessimist by nature, always imagining the downside of something, except when it comes to women. (In their case the downside reveals itself after a while, but the start is always brilliant.) I suppose my pessimism derives from […]
Shortly after the “Liberation Day” tariffs were announced back in April, Janet Bufton wrote an excellent post about whether or not Adam Smith would approve of those so-called “reciprocal” tariffs. I also riffed off her post here. In both cases, we argued these tariffs were not compliant with Smith’s argument and thus he would not have approved of them.
Six months later, we have four pieces of good evidence that U.S. tariffs would not have met with Smith’s approval.
First, as I have discussed before, these tariff rates are unrelated to any restrictions foreign nations have placed on U.S. exports. Rather, they are based on trade deficits and the opaque motivations of the executive branch.
Second, the handful of “deals” motivated by these tariffs have resulted in higher tariffs, not lower ones.
Smith’s discussion on reciprocal tariffs is in Book 4, Chapter 2 of The Wealth of Nations (WN, pages 467–468 of the Liberty Fund/Glasgow Edition). Smith writes:
There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods.
Note the two conditions for tariffs required for Smith to qualify them as good policy:
- The tariffs result in the repeal of foreign nations’ tariffs,
- The domestic tariffs are temporary and short-lived, and are repealed once the foreign nation’s reductions take effect.
In some cases, the new trade deals have led to lower tariffs on U.S. exports. So, the first condition is met. But all of these result in higher tariffs on foreign goods being made permanent. The second condition is not met.
The third piece of evidence is that the Trump Administration has often and repeatedly cited mercantilist justifications for the tariffs (e.g., their arguments before the U.S. International Trade Court, Federal Court of Appeals, and likely the Supreme Court that trade deficits constitute a national emergency). Reciprocity or negotiation is frequently omitted or given short shrift. Smith rather explicitly calls these types of arguments “absurd” (WN 488).
Fourth and finally, the Trump administration is counting on decades of tariff revenue. That certainly means these are not temporary negotiation tools. It doesn’t make sense to speak of permanent tax revenue from a temporary tariff.
Adam Smith certainly would not approve of these tariffs. Rather, he would have rejected them. Smith dismisses the mercantilist grounds on which they’re based as “absurd.” On revenue grounds, they violate his maxims (WN 825–827), including the maxim that taxes shouldn’t be arbitrary (WN 825). Given how often these tariffs are adjusted or imposed without warning, they violate the non-arbitrary maxim.
There is a habit of inventing post hoc justifications for tariffs on Smithian grounds. Rather, I think we should just take Donald Trump and his administration at their word. They are mercantilists, through and through. And Adam Smith did not approve of mercantilism.
The post Adam Smith Would Not Approve: The Evidence appeared first on Econlib.
The evidence becomes overwhelming that Americans opposed seemingly light taxes, not because they were paranoid, but because the taxes were charged in silver bullion, a money few colonists used on a regular basis and most never had. Thomas Paine had outlined the logic of resistance in June 1780. “There are two distinct things which make the payment of taxes difficult; the one is the large and real value of the sum to be paid, and the other is the scarcity of the thing in which the payment is to be made.”…Adam Gordon, an MR for Aberdeenshire who was traveling in Virginia in 1765, wrote that he was “at a loss to find how they,” some of the wealthiest colonists in the New World, Virginia’s slave-driving tobacco planters, “will find Specie, to pay the Duties last imnosed on them by the Parliament.”
That is from the new and excellent Money and the Making of the American Revolution, by Andrew David Edwards.
The post Why did the colonists hate taxes so much? appeared first on Marginal REVOLUTION.
The False Claims Act lets whistleblowers sue private firms on behalf of the federal government. In exchange for uncovering fraud and bringing the case, whistleblowers can receive up to 30% of any recovered funds. My work on bounty hunters made me appreciate the idea of private incentives in the service of public goals but a recent paper by Jetson Leder-Luis quantifies the value of the False Claims Act.
Leder-Luis looks at Medicare fraud. Because the government depends heavily on medical providers to accurately report the services they deliver, Medicare is vulnerable to misbilling. It helps, therefore, to have an insider willing to spill the beans. Moreover, the amounts involved are very large giving whistleblowers strong incentives. One notable case, for example, involved manipulating cost reports in order to receive extra payments for “outliers,” unusually expensive patients.
On November 4, 2002, Tenet Healthcare, a large investor-owned hospital company, was sued under the False Claims Act for manipulating its cost reports in order to illicitly receive additional outlier payments. This lawsuit was settled in June 2006, with Tenet paying $788 million to resolve these allegations without admission of guilt.
The savings from the defendants alone were significant but Leder-Luis looks for the deterrent effect—the reduction in fraud beyond the firms directly penalized. He finds that after the Tenet case, outlier payments fell sharply relative to comparable categories, even at hospitals that were never sued.
Tenet settled the outlier case for $788 million, but outlier payments were around $500 million per month at the time of the lawsuit and declined by more than half following litigation. This indicates that outlier payment manipulation was widespread… for controls, I consider the other broad types of payments made by Medicare that are of comparable scale, including durable medical equipment, home health care, hospice care, nursing care, and disproportionate share payments for hospitals that serve many low-income patients.
…the five-year discounted deterrence measurement for the outlier payments computed is $17.46 billion, which is roughly nineten times the total settlement value of the outlier whistleblowing lawsuits of $923 million.
[Overall]…I analyze four case studies for which whistleblowers recovered $1.9 billion in federal funds. I estimate that these lawsuits generated $18.9 billion in specific deterrence effects. In contrast, public costs for all lawsuits filed in 2018 amounted to less than $108.5 million, and total whistleblower payouts for all cases since 1986 have totaled $4.29 billion. Just the few large whistleblowing cases I analyze have more than paid for the public costs of the entire whistleblowing program over its life span, indicating a very high return on investment to the FCA.
As an aside, Leder-Luis uses synthetic control but allows the controls to come from different time periods. I’m less enthused by the method because it introduces another free parameter but given the large gains at small cost from the False Claims Act, I don’t doubt the conclusion:
The results of this analysis suggest that privatization is a highly effective way to combat fraud. Whistleblowing and private enforcement have strong deterrence effects and relatively low costs, overcoming the limited incentives for government-conducted antifraud enforcement. A major benefit of the False Claims Act is not just the information provided by the whistleblower but also the profit motive it provides for whistleblowers to root out fraud.
The post Privatizing Law Enforcement: The Economics of Whistleblowing appeared first on Marginal REVOLUTION.
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