Fate 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.•
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 firstname.lastname@example.org.