The Root Cause of Big Money in Politics

Many are upset that wealthy people like Elon Musk and other special interest groups are making large political campaign contributions. Some believe that money and greed harm the democratic process and that we should get money out of politics. The question we should be asking is why do so many special interest groups spend millions of dollars on political campaigns in the first place? Is it because these special interests care deeply about defending individual liberty and the ideals of the US Constitution? The economist Walter E. Williams responds that “A much better explanation for the millions going to the campaign coffers of Washington politicians lies in the awesome growth of government control over business, property, employment and other areas of our lives... The greater their power to grant favors, the greater the value of being able to influence Congress...” (p. 96-97). If we are worried about politicians granting privileges at the expense of other Americans, then we should consider curbing the government’s power to grant those privileges.

Reference

Walter E. Williams (2008). Liberty vs. the Tyranny of Socialism: Controversial Essays. Hoover Institution Press.

Exploitation by Multinational Corporations

Multinational corporations are often accused of exploiting workers in developing countries by providing them meager wages and sweatshop working conditions. Does the United States have a moral obligation to restrict imports from developing nations to discourage this exploitation? I personally believe that all workers should be treated with dignity and respect by their employers, but trying to eliminate so-called sweatshops in the name of helping foreign workers may end up making them worse off. Douglas Irwin argues that the problem for workers in developing nations is not the existence of sweatshops, but rather “the lack of good alternative employment opportunities” (p. 246). If a person voluntarily works in what we believe are exploitative conditions, it is because that job is better than the alternatives. The last thing we want to do is to make someone worse off in the name of fighting a moral crusade against exploitation. Irwin describes what a Cambodian immigrant told him about sweatshop labor: “In comparison to the hot, humid conditions of agricultural work, where you stand exposed to the sun in muddy fields and have to rip leeches off your legs every few hours, a factory is one of the few places in Cambodia where a person doesn’t sweat so much” (p. 246).

Reference

Douglas A. Irwin (2020). Free Trade Under Fire (5th Edition). Princeton University Press.

The Welfare State and Inflation

Investopedia.com defines “inflation” as “a gradual loss of purchasing power that is reflected in a broad rise in prices for goods and services over time” (https://www.investopedia.com/terms/i/inflation.asp). When prices rise, some are quick to blame the increase on greedy corporations, who seek to maximize profit at the expense of the working consumer. Others blame the increase in prices on the government increasing the money supply by spending more than it confiscates. Henry Hazlitt argues that although it is true that many factors can cause the prices of individual commodities to fluctuate, when most or all prices rise together (but not necessarily at the same rate), the likely culprit is the government spending more money than it brings in via taxation. Hazlitt states: “When the welfare state spends recklessly, runs chronic deficits, expands credit, and prints more money, prices begin to soar...A rise of nearly all prices or of most prices out of tens of thousands, indicates the operation of a common cause...Prices do not rise today because businessmen have suddenly become greedier than they were yesterday.” (p. 29-31).  When program and policy evaluators try to identify the “root causes” of an affordability crisis associated with rising prices, they should ask whether the deficit spending to fund the programs they are evaluating may be contributing to the problem.

Reference

Henry Hazlitt, (1969). Man vs. The Welfare State, Ludwig von Mises Institute, p. 29-31.

Fears of Monopoly in a Relatively Free Market

There are few things that scare Americans more than the idea of a business monopoly. If a business is too large and competitors are too few, the successful business can raise prices as high as it wants to exploit the consumer. The rich monopolist gets richer, and the American workers become poorer. The economist Ludwig von Mises argues that the fear of monopoly in a free market is exaggerated for the following reasons. First, if a company were to raise prices because they are the only provider of a good or service in a given region, “that would stimulate the formation of rival firms whose competition would break the monopoly and restore prices and profits to the general rate (p. 64). Second, there are very few commodities on planet Earth that cannot be substituted with some other commodity. If a company has a monopoly on the production of steel, people can use alternatives such as aluminum. This requires a monopolist to keep prices down so as not to encourage the use of substitute commodities. Third, even if a monopoly is formed, it cannot raise prices ad infinitum because at some point the price would be so high that demand would drop to where they would make less profit than if they had charged lower prices (p. 66).  Due to these constraints on big business in a market economy, many economists argue that if a monopoly does form, it is not the result of a free market, but it is the result of government intervention that protects certain companies or industries from competition.

Reference

Ludwig von Mises, (1962). Liberalism: The Classical Tradition, Liberty Fund Inc. p. 64-66.

If Tariffs Are Bad, Then Why Does China Have Them?

Dr. Victor Davis Hanson posted a video in which he asked the viewer “If tariffs are so destructive to a nation’s economy, then why are countries with high tariffs like China booming economically?” My question to Dr. Hanson is “if trade barriers are so beneficial, why did countries like China and India experience rapid economic growth after they significantly reduced their trade barriers?” The economist Douglas Irwin writes that during the reign of Chairman Mao Zedong, China was almost completely closed off from international trade until 1979. They had a centrally-planned economy and they reduced their reliance on imports by producing most everything themselves. While this policy built up their manufacturing capacity, the Chinese people remained in poverty, having a per capita income on the level of Burma and Mozambique in the 1980s. When Deng Xiaoping rose to power in China, the country slowly began to decentralize its economy, increase trade, and allow foreign investment. China’s rapid growth is correlated with a decrease in their trade barriers. Irwin states that “In 1992, the weighted average tariff on manufactured goods [in China] was over 45 percent. Since China joined the WTO in 2001, the country’s average tariff has fallen to less than 7%” (p. 217). China has achieved its most significant per capita GDP growth since the 2000s. Of course, not all of China’s success is due to more open trade, but it was “a vital component of its broader reforms and [has] played a critical role in its economic success” (p. 218).

Reference

Douglas A. Irwin, (2020). Free Trade Under Fire (5th edition). Princeton University Press. pg. 217-218.