“Patriotism,” Samuel Johnson famously said, “is the last refuge of a scoundrel.” The great English writer did not mean that patriotism is bad, but that people sometimes use it as a shield when their arguments lack substance.
The same thing happens in debates about economic policies. People whose reasoning is flawed frequently use terms that could provoke knee-jerk reactions. Manipulative words to look out for include “cartel,” “monopoly” and “multiplier.”
Take a recent example from a news story on how new steel tariffs have increased costs for steel users. The article cites an Iron Range mining spokesman who asserts that “foreign steel cartels could dictate prices to U.S. customers in the absence of a strong U.S. steel industry.
“Once this country has no resource for virgin ore, look out what happens to the prices for steel coming in from Brazil, Russia and all the other countries. It will be no different than what we deal with in the petroleum industry today.”
One frequently hears this argument for import restrictions. Low import prices are driving domestic producers out of business but once that happens an international cartel will boost prices through the ceiling. The problem is it never happens. International cartels have failed in nearly every commodity where they have been formed. Coffee, cocoa, tin and copper producers have all tried to form cartels and all have failed. Repeatedly, in the case of coffee and tin.
It is ludicrous to think that a global industry such as steel, with hundreds of firms in dozens of countries, could suddenly become an effective cartel. Steel prices are low now precisely because the industry is very competitive. The idea that producers from the EU to Brazil, Korea, Lithuania and China could somehow form an effective price-fixing group flies in the face of years of historical experience.
OPEC, the crude oil cartel, is often cited as an example of such a price-fixing entity. But except for brief episodes where OPEC actions have caused price spikes, OPEC is a singular failure at price fixing. Adjusted for inflation, gasoline is as cheap as in the 1960s and OPEC’s market share, and the market value of its members’ oil reserves has slipped steadily for a decade.
It can often be heard in economic arguments that a particular firm or sector is a monopoly. Yes, monopolies exist, but there is much less monopoly power in the U.S. economy today than at nearly any time in the previous century.
Steel and autos used to contain substantial elements of monopoly power. Both sectors now are much more competitive than 40 years ago, largely because of import competition. Nor is there much monopoly price-setting power in grain handling despite frequent charges to the contrary. The most egregious cases of monopolistic abuse tend to be in areas such as employment ad rates in single-newspaper cities, where the public takes little notice.
Whenever anyone pushes for public subsidies to a private facility, whether a sports stadium or a new tax-increment-financed corporate headquarters, they are likely to argue that the new facility will have “multiplier effects.” That is, the project will engender added, nonsubsidized economic activity.
This may be true, but nearly every new investment includes such multiplier effects. The “multiplier” for private, nonsubsidized small businesses is frequently proportionately greater than for the big projects that usually get explicit or implicit public funding.
Shallow arguments involving supposed cartels, monopolies and multipliers have been used by business and political interests for decades. At the political level, Social Security has emerged as a similar hot-button term to defend the most indefensible actions.
Another recent news article noted that Congress may soon raise the statutory ceiling on the national debt. This is a purely symbolic action, somewhat like the dieter who absolutely swears off any after-dinner snacks, but three days later decides that a big bowl of ice cream would taste good during the 10 o’clock news.
If a nation spends more than it takes in, its national debt will rise, regardless of what pious resolutions Congress has passed. The way to stop the debt from rising is to tax more or spend less. It is as simple as that.
The national debt is once again rising because the Bush administration and Congress opted to cut taxes while increasing security spending. Connecting the debt increase to anything else is, to use Johnson’s words, “the last refuge of a scoundrel.”
© 2002 Edward Lotterman
Chanarambie Consulting, Inc.