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BOHANON & STYRING: Look beyond those happy Carrier employees

December 10, 2016

Economic AnalysisFate has ordained central Indiana as one of the first tests of Trumponomics. Carrier is keeping 800 or so jobs otherwise destined for Mexico in exchange for a $7 million state tax break and a public “attaboy” from the president-elect. We see smiling Carrier employees. We see Mr. Trump holding a victory celebration at the Carrier plant. 

These are the good things we see on TV. Who can’t be happy for Carrier workers now contemplating a Merry Christmas? But 19th century economist-journalist Frederick Bastiat warns us to look for the disastrous things we don’t see:

“There is only one difference between a bad economist and a good one: The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen. Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.”

The Carrier deal should send us searching beyond happy Carrier employees for what disastrous consequences might be lurking unseen. The $7 million benefit over a 10-year period is peanuts compared to the near $65 million in annual savings Carrier would garner from the Mexico move. So what other considerations went into the calculation? Was a “threat” made to Carrier parent United Technologies? “Bad stuff will happen if you don’t change course. Defense contracts will be withheld, regulatory scrutiny will be enhanced, a 35 percent tariff will be imposed on your Mexican products.”

Let us be clear: We have no evidence that such a negative quid pro quo occurred in this case. Yet this fear is neither slanderous nor unfounded given President-elect Trump’s public pronouncements.

Crony capitalism cuts both ways. Yes, big corporations and special-interest groups can fleece the taxpayer. But big government can also jawbone, threaten and cajole corporations to political ends. The bedrock foundation of a free enterprise system is the rule of law, which means all firms are subject to the same rules. To make a particular company a target for selective government benefits or penalties erodes that bedrock. This is the great evil to come.•

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Bohanon is a professor of economics at Ball State University. Styring is an economist and independent researcher. Both also blog at INforefront.com. Send comments to ibjedit@ibj.com.

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