This excellent article was also featured on Only the Money! Blog
Dear [friend], thank you so much for writing to me with your concerns. I happen to share your deep concern for the fate of working class America, especially since the recession (which I justifiably call the Second Great Depression) has fallen the hardest on the backs of the working poor and the middle classes.
I'm also concerned with the fact that so many of our products come from China and other overseas producers. Unfortunately, this is not necessarily the fault of American producers but rather that of government intervention in the economy.
What I'm about to say to you might seem a little crazy, but I urge you to bear with me.
The Myth of Protecting American Industry
Buying American products alone will do nothing to restore our economy, nor will it bring production and jobs back to the country. Instead, what this does is actually raise prices and diminish the quality of domestic products, since producers now know that they have American buyers captive and no longer need to make the best products; they know that the law is on their side.
When I say that I'm all for free market capitalism, it means that the market needs to be truly free and unrestrained in order for consumer sovereignty to take place. By consumer sovereignty, I refer to the old notion that "the consumer is king" or "the customer is always right", and according to this ideology, producers who want to get rich know that the only HONEST way to do this is to produce the BEST QUALITY goods at the LOWEST COST and sell them at the lowest possible price. This is how hard-working Americans have been getting rich for centuries.
Unfortunately, there are those who have found easy ways to get rich through the evils of government intervention. I’ll explain this momentarily.
There have been periods in American history where there were high tariffs on imported goods (and some of these taxes still exist) which were meant to improve conditions for American businesses and consumers, but instead made things worse. The free market is all about competition, and tariffs are essentially meant to kill competition. Not only do tariffs on imports cause many American producers to lose their incentive to produce high quality goods at low prices (because without the competition they know they have their consumers by the throat), but often times foreign countries retaliate. Because our high taxes make it harder for them to sell their countries’ products in America, they in turn set super high tariffs to punish American producers. Therefore, the quality of goods produced at home goes down, the prices of those low-quality goods goes up, and the quality of foreign goods which are often good quality is now super high.
This happened during the Great Depression, and both the Hoover and Roosevelt administrations have blood on their hands. Both administrations, among many other anti-free market crimes, dramatically raised tariffs on foreign goods under the myth that it would boost American industry. They also set minimum wage laws that were meant to protect incomes. Well, guess what the tariffs DIDN’T do for our economy and job creation, and guess how foreign countries reacted to them. Regarding the minimum wage laws, they made production more expensive and unmaintainable for producers, so instead of only having some pay cuts, they ended up having to lay off workers or just went under completely, thus laying off all workers. Furthermore, small and medium-sized employers were no longer able to afford to hire people because they couldn’t pay X dollars per hour. Removing the regulations and interventionist measures that strangle industry will ultimately make it less expensive to create jobs in America, and jobs will migrate back from the third world.
Because of the government stepping in to be the hero, business growth is stunted, and that stunted growth also stunted job creation, and things are more expensive for everyone. Many big businesses will send lobbyists to the federal government because most of this is EXACTLY what they want. They want to be able to charge higher prices for cheaply produced goods, and they want no foreign competition, especially not from foreigners who are probably making things better and selling them cheaper. The one thing these greedy businesses DON’T see is that, while they’ll make a profit from their captive consumers in the short run, everyone gets poor in the long run and these businesses fail and end up having to be bailed out by the federal government. This is not what the free market ever intended.
For more on the evils of regulation, you can check out Frederic Bastiat’s book The Law, which talks about how government intervention and regulation empowers the two main forms of plunder: stupid greed and false philanthropy. The producers getting lazy on the quality of their products because people can only afford to buy American falls under stupid greed. The regulations and minimum wage laws and “job creation” bills, “consumer protection” bills, etc., fall under false philanthropy. You can also see chapter 18 of Jeffery Tucker’s book Bourbon For Breakfast (chapter titled “How Free is the Free Market?”). I also HIGHLY recommend chapters 1 and 2 of Kel Kelly’s book The Case For Legalizing Capitalism, which fully explain the consequences of government intervention on stateside producers as well as international trade (and this book is a lot of fun to read and easy to understand). All three books can be downloaded in full and for free at Mises.org/books.
Continued in part 2: Bailouts, the Federal Reserve, and the Contender