Back in 2015, I wrote about the scandal involving former House Speaker Dennis Hastert and said we got the right result (legal trouble for Hastert) for the wrong reason (government spying on financial transactions).
Something similar happened over the weekend with the G-7 meeting.
Largely because of his misguided protectionist views, Donald Trump refused to sign a joint statement with the other G-7 leaders (Germany, France, Italy, Canada, Japan, and the United Kingdom).
Trump’s protectionism is deeply troubling. It threatens American prosperity and could lead to tit-for-tat protectionism that caused so much damage to the global economy in the 1930s.
That being said, we shouldn’t shed any tears because a G-7 Summit ended in failure or that Trump didn’t sign the communique.
To be sure, the vast majority of the language in these statements is anodyne boilerplate. Sort of the international equivalent of “motherhood and apple pie.”
But it’s not all fuzzy rhetoric about “inclusive growth” and “clean water.” The bureaucrats who craft these statements for their political masters regularly use the G-7 to endorse statist policies.
It’s all very reminiscent of what Adam Smith wrote about how people in the same profession would like to create some sort of cartel to extract more money from consumers.
But Smith went on to explain that such efforts can’t succeed in the private sector unless there is some sort of government intervention to prohibit competition.
Unfortunately, when politicians meet to craft cartel-type policies to extract more money from their citizens, they rely on the power of government to enforce their anti-market policies.
Let’s look at some of the dirigiste language in the communique from this weekend, starting with the ever-present embrace of class warfare tax policy and support for tax harmonization.
…support international efforts to deliver fair, progressive, effective and efficient tax systems. We will continue to fight tax evasion and avoidance by promoting the global implementation of international standards and addressing base erosion and profit shifting. …We welcome the OECD interim report analyzing the impact of digitalization of the economy on the international tax system.
Keep in mind that “international standards” is their way of stating that low-tax jurisdictions should have to surrender their fiscal sovereignty and agree to help enforce the bad tax laws of uncompetitive nations (such as G-7 countries).
And the BEPS project and the digitalization project are both designed to help other governments skim more money from America’s high-tech companies.
The G-7 communique also endorsed the anti-empirical view that more foreign aid and higher taxes are necessary to generate more prosperity in the developing world.
Public finance, including official development assistance and domestic resource mobilization, is necessary to work towards the achievement of the Sustainable Development Goals of the 2030 Agenda.
The statement also recycled the myth of a big gender wage gap, even though even the female head of Obama’s Council of Economic Advisers admitted the wage gap numbers are nonsense.
Our path forward will promote women’s full economic participation through working to reduce the gender wage gap.
And there was the predictable language favoring more government intervention in energy markets, along with a threat that the hypocritical ideologues at the United Nations should have power over the global economy.
We reaffirm the commitment that we have made to our citizens to reduce air and water pollution and our greenhouse gas emissions to reach a global carbon-neutral economy over the course of the second half of the century. We welcome the adoption by the UN General Assembly of a resolution titled “Towards a Global Pact for the Environment” and look forward to the presentation of a report by the Secretary-General in the next General Assembly.
Given the G-7’s embrace of one-size-fits-all statism and government cartels, let’s look at how Professor Edward Prescott (awarded the Nobel Prize in economics in 2004) modified Adam Smith’s famous quote.
I’ll close by reporting that I asked several experts in international economics, mostly from the establishment (and therefore instinctively sympathetic to the G-7), whether they could tell me a single pro-growth accomplishment since these meetings started in the 1970s.
They couldn’t identify a single concrete achievement (several said it was good for politicians from different countries to develop relationships and some speculated that useful things may get done in so-called side meetings, but all agreed those things could – and would – happen without the G-7).
So why spend lots of money just so a bunch of politicians can have an annual publicity photo? And why give their retinues of hangers-on, grifters, hacks, and bureaucrats a taxpayer-financed annual vacation?
Needless to say, I’d much rather focus on defunding the OECD or defanging the IMF. But if Trump’s nonsensical protectionism somehow leads to the disintegration of annual G-7 schmooze-fests, I’ll view that as a silver lining to an otherwise dark cloud.
[…] big nations (the infamous G-7) just announced they want to participate in the proposed tax […]
[…] acting as supranational governments – almost always (as Nobel laureate Edward Prescott observed) with the goal of enabling and facilitating a larger burden of […]
[…] the White House. I’ve written several columns bemoaning his protectionist approach, including a piece just two days ago where I criticized the President for blowing up the G7 summit for the wrong […]
Timothy,
The most recent widespread trade war was in the 1930s, precipitated by Smoot-Hawley from the US. Did that have lots of winners? No.
Do you really believe that ‘sky-high tariffs’ are why today’s affluent countries industrialized? Nonsense.
Tariffs are taxes on trade. US tariffs harm US consumers.
Tariffs provide protection that allows domestic companies to become soft and uncompetitive. Anyway, no company can avoid economic reality forever by hiding behind tariffs.
Tariffs allocate resources from efficient producers to inefficient, making the overall economy worse off.
Sure, steel tariffs help steel companies. But they also hurt the more numerous companies that make steel products, and the consumers that buy those products. Steel product companies that buy from steel companies might rationally decide to move THEIR production offshore where steel is less expensive.
There is too much to go into here, but trade is good for us. And government cannot ‘manage’ this area of the economy any better than other areas.
John Wagner
And yet Germany, the US, and most of the affluent West industrialized through sky-high teriffs on imported goods while Britain stagnated during their rise. History gives a very different verdict than “few winners”.
[…] the White House. I’ve written several columns bemoaning his protectionist approach, including a piece just two days ago where I criticized the President for blowing up the G7 summit for the wrong […]
Acknowledge Trump “no tariffs”
Google has 5000 hits for “No tariffs, no barriers, that’s the way it should be,” Trump. Why are you ignoring this?
Zorba:
The idea is not to perpetuate reciprocal tariffs, the idea is to use them as a negotiating tactic in the short run. With Trump everything is negotiation. Don’t believe a word he says, until you get the final deal. He’s a very different politician.
Reciprocal tariffs have mostly losers and few winners. Consumers on both sides get thinner and Governments get fatter from the taxes. Growth, and thus long term prosperity, is hampered on both sides.
Trade wars are not good or “easy to win.” Usually, trade wars have bigger losers and smaller losers.
Wouldn’t a simple solution be reciprocal tariffs? It’s quite easy to calculate the cost of the ingenious regulatory chicanery used by China, Canada, the EU, and others. Does anyone wonder why nobody drives Ford trucks in the Euro-zone? If we suffer the huge trade deficits it would stand to reason that Germans, as an entirely export-based economy, have the most to lose from a trade war? And lets not forget France saw strong growth and low unemployment during the Depression. Trade wars do have winners.
The US can take either of two approaches. Either they are for consumers in which case all tariffs should be eliminated, OR they are for business, in which case we should duplicate taxes and the tariffs they impose to balance sales of domestic goods with imported goods. There is no case for tariffs in excess of what foreign makers are charging.
If the second choice is made, there is a case for eliminating all taxes from exports. This not only includes corporate taxes, but employment taxes and all such taxes paid by component manufacturers.
My choice would be the first, but only if the foreign country is doing the same. Trump is correct that as a negotiating tool, we should have the option to do the second.
Reblogged this on Freedom Is Just Another Word….
While I agree with most of your astute article I disagree with your opinion regarding Trump’s attacks on foreign tariffs. Americans have no idea of the import restrictions against American goods. Free trade does not exist. Try exporting an American computer, car or television to Mexico. Try exporting US steel, wood, agricultural goods to Canada. I won’t talk about the EEC. Does anyone believe Airbus could compete against Boeing in a free market?
Its about time that we imposed the same restrictions on our “allies” as they impose on us.