Even Trump Can't Abolish Economic Laws

Posted: Jun 24, 2019 10:57 AM
Even Trump Can't Abolish Economic Laws

Source: Bo Rader/The Wichita Eagle via AP

Economic laws don’t have a political party. They don’t care who is president, which party controls Congress, or how many protesters march for or against particular policies. Understanding those principles allows you to understand most of what goes on in society, even in those areas we don’t normally consider economic.

Political manipulators use the law, and sometimes physical force, to enhance or suppress supply, demand, or prices to bring about their perceived good results. In all cases, however, the three factors are inextricably linked, with the dynamic system reacting to interference in one by automatically adjusting the others. That initiates the unintended consequences that always take people by surprise, but shouldn’t. These things are timeless and immutable. Even four thousand years ago, records of government price controls demonstrate the effects just as clearly as in the present day.

Whether you think President Trump is a hero or a villain, he has engaged in a good deal of economic manipulation that tends to offset gains resulting from reducing regulatory burden and from lowering tax rates. Again, whether you see him as a master gamesman who is playing his hand brilliantly for the benefit of the American people or as a demagogue who is endangering world peace, recent events clearly demonstrate that policies have negative consequences for at least some people. 

The ongoing tariff war does have some winners, those industries for which prices in competitive countries have been raised, increasing domestic profits and, in many cases, increasing employment, the steel industry for example. Since steel is a component in many products, though, and a significant factor in production of most, the higher prices are paid not by foreign competitors but, rather, by all domestic consumers. The automobile you buy is made with lots of steel. Artificially high steel costs mean that you pay for those extra steel worker jobs, not our government and not a foreign company or government.

The tariff war has hurt other industries, though, with agriculture in the news lately. U. S. farmers, being very productive, rely on foreign markets to sell surplus crops. Retaliatory tariffs in other countries have increased the cost of farm exports to foreign buyers, and thus decreased the quantity that those buyers demand, sometimes drastically. This automatically means that the price must drop, which hurts farmers hard as profits dry up. 

As with every industry in every age, if big surpluses remain over time, which there are and have been in agriculture long before the present tariff squabbles, that indicates that the quantity supplied is too high for the level of demand. Generally, when supply is greater than demand, less efficient suppliers become unprofitable and go out of business, reducing oversupply. The only way that any business, including farms, can continually produce large surpluses is if they are subsidized, prices are controlled, supplies artificially removed from the market, or some other manipulation.

With 1.4 billion (with a b) pounds in government cheese stockpiles, market manipulation has clearly been going on for a long time. In recognition of the difficulties faced by farmers under the tariff spat, 16 billion more dollars will flow to the industry, much of it to buy more farm products. Those stockpiles need to go somewhere. If they go back to the market in the future, they will depress prices then. If they go to foreign aid, they will depress prices for local farmers in recipient countries. It’s pretty hard for poor farmers to compete against free products. 

Whatever happens, the obvious fact staring at us is that economic laws aren’t repealed by political will or even compassionate feelings. When it comes to politics, someone ultimately pays the price, and it is usually not those who get the benefit.