Here’s a follow-up letter to a new correspondent.
Mr. K__:
Thanks for your follow-up email, and no need to apologize for what you call your “continued confusion about tariffs as taxes.” It’s I who apologize for communicating unclearly. So, especially because you’re not the only person who I managed to confuse, I’ll take one more stab at explaining my disagreement with John Lott.
As I read Lott’s op-ed, he criticizes economists for an offense that few of us commit, namely, refusing to see that tariffs can, in principle, serve as part of an ‘efficient’ (or least-inefficient) system of revenue collection. John mistakenly takes Phil Gramm’s, my, and other economists’ objections to the use of tariffs as tools of protectionism as being also objections to the use of tariffs as tools to raise revenue.
Perhaps Phil Gramm, Larry Summers, I, and other critics of Trump’s trade policy are unfair in taking Trump’s motives to be overwhelmingly protectionist. Perhaps because our eyes and ears are stuffed with the administration’s, and its NatCon fans’, incessant complaints of imaginary problems such as the “hollowing out” of America’s economy, of the dangers of U.S. trade deficits, of how foreign countries have long cheated Americans’ of economic opportunity, of the need to ‘reshore’ manufacturing, and of the damage done to the welfare of working Americans by cheap imports and foreign trade restrictions, we unjustly discount the seriousness of the administration’s boasts about the rivers of additional revenue the tariffs will allegedly raise. Still, the objections to Trump’s tariffs – and I am 100 percent certain about what Phil Gramm and I object to – are objections only to Trump’s protectionism.
Consider this analogy. Suppose that an informed economist, believing that the hysteria of environmental fanatics is wrongheaded and a source of harmful economic policies, expresses opposition to gargantuan hikes in carbon taxes that are imposed by a Democratic administration – an administration that is forever bragging that its carbon taxes will “solve” the long-standing scourge of climate change by creating a glorious “green energy” future. This economist opposes these carbon taxes because he believes both that the problem these taxes are said to ‘solve’ is unreal or dangerously exaggerated, and that the taxes themselves will be counterproductive; they’ll cause more harm than good.
So this economist publicly makes his case against carbon taxes. His case might be sound or unsound, but either way his opposition to carbon taxes is to their use as a tool for re-engineering the economy toward “green energy” through a draconian effort to significantly reduce carbon emissions.
Now along comes, say, Joe Stiglitz to accuse this economist of failing to understand that carbon taxes could well be part of an optimal fiscal system for raising revenue. Stiglitz correctly notes that all taxes distort private economic decision-making, so there’s nothing unique about carbon taxes on this front. Surely, Stiglitz explains, there is a real possibility that there exists some above-zero rate of carbon taxation that ought to be used, for fiscal purposes, so that taxes on other activities can be efficiently reduced.
In this hypothetical, Stiglitz misreads the economist’s objection to carbon taxes. The economist’s objection is to the punitive taxation of a category of economic activity that this economist believes – contrary to environmentalists – is productive and worthwhile. This economist argues that the economic engineering aimed at by carbon-tax proponents will worsen economic welfare, not improve it.
This economist’s objection isn’t to using carbon taxes as part of an optimal system of taxation; that is an entirely separate issue. This economist’s objection is to government efforts to re-engineer the economy away from carbon fuels and toward “green” energy. And so Stiglitz’s criticisms miss the mark.
I concede that there might be a subtlety in John Lott’s argument that I’m missing. He’s a serious, top-notch economist; disagreeing with him makes me uneasy. I’m not certain that my criticism of his op-ed is correct. But I am certain of this: Phil Gramm’s and my objections to Trump’s tariffs are objections exclusively to Trump’s protectionism; we did not intend to imply any objection to revenue tariffs.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
