In 1899, William Graham Sumner, a sociology professor at Yale University, gave a speech titled “The Conquest of the United States by Spain.” Why the timing? In 1898, the US government, under President William McKinley, had attacked Spanish forces in both Cuba and the Philippines. Was Sumner getting the attacker and the “attackee” backwards? No. Sumner maintained that the US government was imitating those Spanish governments by engaging in its own conquests. In other words, the US government had given up on its non-imperialist tradition and had, therefore, imported a Spanish idea that was totally antithetical to traditional American ideals. To the extent the US government acted on this new interventionist approach, it was giving up on the ideas that had animated the Revolution that had formed this great country. It was being “conquered.”
We are seeing something similar today in President Donald Trump’s dealings with both China and domestic US companies. China’s government intervenes massively in the Chinese economy, with so-so results. So how does Trump respond? By imitating China’s government. He lets a Japanese company take over US Steel, but only on condition that the federal government gets a “golden share” that gives Trump say over that company’s decisions. He gives Nvidia permission to export to China, but only on condition that the federal government gets 15 percent of the revenues. A similar deal was reached with Advanced Micro Devices (AMD). In short, Trump has given up on the US tradition of relatively free markets. Admittedly, past administrations, both Republican and Democrat, have also gone against the free-market tradition. Think of George W. Bush bailing out General Motors or Barack Obama violating the property rights of Chrysler bondholders. But Trump has considerably upped the ante.
In a similar vein, Steven Greenhut describes Trump’s economic policies as Peronist. [DBx: Collectivism comes in all sorts of different wrappers, every one of which promises that its contents are singularly delicious and nutritious – and every one of which peddles poison.]
Starting in the 1890s, Progressive antitrust regulators targeted what Justice Louis Brandeis labeled the “Curse of Bigness.” In the ideal Progressive world, only government should be big. Progressive Era regulation rose as improved transportation and the growth of nationwide markets allowed economies of scale in production at levels never before achieved. Such efficiency not only increased wages and delivered a cornucopia of increasingly affordable goods and services, it also unleashed a wave of creative destruction as small, inefficient producers were rendered noncompetitive. By attempting to protect noncompetitive producers, Progressive regulation stifled technological change, raised prices and hurt consumers.
As America’s postwar dominance in heavy manufacturing faded in the 1970s, President Jimmy Carter and Sen. Ted Kennedy led a comprehensive effort to promote American competitiveness by lifting the regulatory burden that Progressive Era regulation had imposed on the economy. The Carter deregulation unleashed competition in transportation and communications while focusing antitrust enforcement solely on consumer welfare. Efficiency improved dramatically, prices fell, and the American economy to this day dominates the world in transportation and technology.
The Biden administration rejected the consumer-welfare standard as the test for monopolistic behavior, empowering the FTC and the Justice Department to target tech companies for the crime of being successful. Unconstrained by any need to show that consumers were being harmed as a condition for antitrust intervention, the government was given a license to engage in industrial and social policy under the guise of antitrust enforcement. In addition to opposing bigness, FTC Chairwoman Lina Khan chose labor, environment and social-justice goals as her objectives for regulatory policy.
Since Ms. Khan left, things haven’t gotten much better. Chairman Andrew Ferguson’s views on antitrust echo hers. He has said: “The antitrust laws do not address censorship or political power directly. But by protecting the welfare of consumers and workers, the antitrust laws address economic power.” In a regulatory agency founded to preserve competition in the American economy, Mr. Ferguson used the FTC’s power to prevent political bias just as Ms. Kahn used it to promote a labor, environmental and social-justice agenda.
Congress never granted the FTC authority to set the nation’s censorship, political, labor, environmental or social-justice policies. Once you abandon consumer benefit as the guiding star of antitrust action, antitrust can be used to harm the consumer and the economy, and any president can use it to implement industrial policy, pick winners and losers, or settle political scores. In the process, unbridled antitrust authority threatens both democracy and economic growth.
Wall Street Journal columnist James Freeman is correct:
All Americans should want a reduction in gargantuan federal deficits, but it should happen via spending cuts to a government that has grown far too large. Federal spending has settled at a new nonemergency height of more than 23% of GDP, far above federal revenue.
New burdens on commerce, whether income taxes or tariffs, stunt the growth that generates taxable activity in the first place. We will never climb out of the fiscal hole politicians have dug in Washington without a prosperous economy. Mr. Trump should be leading the campaign to stop digging. Yet the CBO director makes clear that the projected Trump tariff tab has lately been rising sharply.
…..
A virtuous cycle of trade tax reductions could turbocharge the Trump economy. This year’s tariff hikes suggest we’re puttering our way to mediocrity.
Writing at National Review, John Puri decries “Trump’s incredible expanding tariffs.” A slice:
In February, President Trump imposed a 25 percent tariff on all imported steel and aluminum from all countries, hiking the rate to 50 percent in June. There was never a good reason for these tariffs, which have raised input prices for countless domestic manufacturers and builders, but at least they applied only to those two metals. Not anymore. Now, those “steel and aluminum” tariffs apply to pretty much anything you can think of that contains, or could be used to produce, either substance.
The Trump administration announced earlier this week that it had expanded the tariffs to include 407 additional categories of products. Because of America’s incredibly complex tariff schedule of over 17,000 categories — which far predates Trump’s trade war, by the way — the official list of added products is indecipherable. But, according to CNBC, the tariff list “now covers products such as fire extinguishers, machinery, construction materials and specialty chemicals that either contain, or are contained in, aluminum or steel.”
It is tempting to pin today’s price pressures on the new round of tariffs. After all, import taxes raise costs, and history shows they feed into consumer prices. But the data makes it clear that this explanation is far too narrow. Inflation is accelerating even in areas untouched by trade policy. The stickiness of service-sector prices, combined with the lagged way housing costs show up in the Consumer Price Index, demonstrates that inflationary momentum runs comes from more than just tariff pass-throughs. Tariffs add fuel, but they are not the spark.
The more fundamental driver is fiscal policy, and more crucially, the consolidated government budget constraint. As my colleague David Beckworth explains it in this excellent post, at the end of the day “Uncle Sam ultimately has to cover his real obligations. There is no free lunch.” The requirement for the government to pay off its debts must hold one way or another whether through higher taxes, lower spending, more borrowing, or through the inflation tax. This is why today’s inflationary pressures are not just about tariffs, energy prices, or Fed missteps. They are about fiscal pressure and the fiscal dominance they result in.
Fiscal dominance occurs when the government’s financing needs constrain the Federal Reserve’s ability to control inflation. Another way to think about it – fiscal dominance is a situation where the Federal Reserve is tasked with keeping the growth of the debt under control—a role usually reserved to the fiscal authorities.
Megan McArdle talks with the good people at Reason about Trump’s militarization of policing in D.C.
