Last week, President Obama had Mr. Peabody fire up the Way Back Machine for another trip to retrieve some failed and dangerous economic policies from the past. This latest little exercise in dumpster diving economics may not even be known to you since it was not widely reported by the national media which is disappointing but not surprising.
After all, on Tuesday we had the example of Charlie Gibson, retiring host of the increasingly misnamed World News Tonight, claiming on a Chicago radio station that he had no knowledge of the scandal involving the community organizing group ACORN.
Since I'm certain that better than 98% of the people reading this column know most of the story of that group's misadventures over the last week and a half, we must assume that Mr. Gibson and his cohorts are either hopelessly lost or willfully uninformed.
In any case, it serves as something by way of explanation why many of you don't know that the president imposed a tariff, otherwise known as an import duty or heightened cost, on tires made in China.
This action will have a number of consequences, some of them immediate and some of them slightly more long-term. First, tires will get more expensive and secondly, the Chinese are pointing out that this violates World Trade Organization rules and commitments the United States made at the G20 financial summit just last April (remember that campaign rhetoric about how the United States was going to be a team player on the world stage?).
The response by the Chinese to this action was to threaten retaliation against imports of US poultry products and automobiles. Moreover, the hyper deficit creation policies of the present administration has turned China into the United States largest lender and if continued they will likely become our financial overlords. So why get them all riled up at a time of economic instability?
The answer is not really that difficult if you know who was doing the asking for the tariff. The answer is a union, namely the United Steelworkers, who represent unionized members of American tire manufacturers and are an important mechanism for the promotion of the Obama health-care initiative.
Tariffs have been found to be a universally poor choice to control economic policy but one that is often greedily grasped to satiate the demands of various interest groups. Their use has not been limited to either left or right leaning administrations and the most disastrous of recent memory was the Smoot -- Hawley Tariff Act of 1930 which was signed by President Hoover.
When Herbert Hoover was running for president in 1928 he promised to help out the agricultural industry, which was suffering due to increased production of foodstuffs in Europe. Once the act was proposed, all sorts of interest groups got on board and ended up imposing tariffs on a number of sectors of imports, resulting in other nations imposing tariffs on our products. This created even less demand in the United States and according to the Journal of Monetary Economics, decreased the United States Gross national product by up to 2%.
Between 1929 to 1932 US exports to Europe dropped from $2.34 billion to $784 million and certainly contributed to the length of the Depression. Other protectionist legislation at the turn of the 19th century probably contributed to the growth of the trusts, which ended up controlling large segments of the United States economy, lowered foreign competition and minimized the market for the products of small business.
Special duties or taxes have a short-term benefit to the group that is rewarded by the government’s elimination of a consumer choice but soon even that group begins to suffer as other workers lose purchasing power as jobs become scarce due to retaliatory foreign tariffs on their products.
This economic truism is hardly unknown but is often obscured by the lure of short-term political gain as one seeks to buttress support amongst one's allies in desperate political times. I doubt we will see a report from Mr. Gibson on this topic either.
