Walter Williams on Trade, Politics

Dr. Walter Williams is the John A. Molan distinguished professor of economics at George Mason University in Virginia, but he is also well known for his extensive publications, syndicated column, and national radio and television appearances, including some relief pitching for Rush Limbaugh.

He was in Raleigh recently to speak at the inaugural event of the new Center for Citizenship, Enterprise, and Government and was interviewed by Carolina Journal.

CJ: You have been in North Carolina as part of the announcement of a new organization in the state that is devoted to promoting leadership and promoting better education of free-market principles among others for people who are interested in public policy.

In your role as sort of an apostle for freedom, do you find it difficult sometimes to get people in public life to apply what they say they believe in theory to practice?

Williams: Well, yes. It is very difficult. One of my jobs as an American is to try to sell my fellow Americans on the moral superiority of liberty, and in order to have liberty we must have limited government.

And many people find that they can use government to support their own agenda, and that is the problem. They will say, “I believe in liberty,” but they will do things the exact opposite.

That is just like a husband who says, “I believe in fidelity,” and he is running around with all the women.

CJ: Yes. This would be similar to the Saturday night/Sunday morning Baptist problem. There are lots of Sunday morning Baptists who don’t act that way on Saturday night.

Williams: That is right.

CJ: One example that comes to mind in North Carolina we see frequently— business leaders who in general espouse vaguely market-oriented principles.
They may vote for candidates who speak in those terms.

But then they come to the local government or the state government and say, “Give me money. Give me a special tax break. Give me a subsidy, because if not, I may go to a state that will.”

Williams: We should not be surprised when we see this, because Adam Smith, who wrote The Wealth of Nations, the so-called father of economics — he recognized that in many cases businessmen were the enemy of freedom.

He has a quote there. He says that very seldom do businessmen get together when the conversation does not turn into a conspiracy against the public.

So I am not surprised at all that businessmen are leading the charge against free market principles.

CJ: But a lot of times when we have this debate for example about incentives — or corporate welfare I think would be a more accurate term — the argument is OK, you are right in theory. We shouldn’t be subsidizing business. I agree with you.

But if North Carolina doesn’t offer tax credits for job creation or some kind of subsidy program to a company that is looking to relocate in perhaps one of several competing states, they will just go somewhere else. You are right in theory, but in practice we have to do this.

Williams: You know, the way I look at that — it is like if I beat you up, physically, and then I put Band-Aids on you to take care of you. Well, you should say, “Well, Williams, stop beating me up.”

Now, many state governments make a very, very difficult environment for businessmen to operate in. They have this law that regulates their activities; they have all kinds of taxes, which raises the cost of business.

Now for North Carolina, if I were the governor, if I were in charge in North Carolina, I would eliminate those disincentives for businessmen to come in.

I would reduce taxes. I would reduce the level of regulation and reduce other things that raise the cost, that make our businessmen in our country less competitive with respect to the rest of the world.

CJ: Speaking of the rest of the world, there is another application of this problem going on in North Carolina politics right now, and that is the resurgence of protectionism.

Some of them are suffering under that competition. Some of them have been laying off or even going bankrupt. The reaction has been, “Protect us.” And politicians, Democrats and Republicans, including some of President Bush’s folks in Washington and some of our own Republicans in North Carolina, have been saying, “Well, China is not playing fair.”
In principle we are free traders. But in practice, it’s “let’s slap a 27 percent tariff on Chinese goods.”

Williams: There are a couple of things. I think that the problem that businessmen face in North Carolina is not with the Chinese. It is with their fellow American consumers. That is their fellow American consumers say, “We prefer cheaper prices to higher prices.”

Now, if they can convince their fellow Americans to buy U.S.-made goods then they would be off the hook. So their war is against the American consumer.

But in addition, so far as levying tariffs on foreign products, it doesn’t make sense. For example take the Bush administration’s steel tariffs.

It is estimated that it costs Americans something like $800,000 a year to save a $55,000-a-year job. Does that make any kind of sense whatsoever? It doesn’t. It would be better — I would much rather see Congress enact an Aid to Dependant Steel Workers Act or an Aid to Dependant Textile Workers Act and give them — let’s say in the case of steel people — give them $75,000. Say, “Just go lay out on the beach and enjoy yourself.” That would be cheaper than $800,000 to save one job.

CJ: It would also be in the interest of public accountability because it would clarify what is going on which is that you are essentially offering a welfare benefit to a class of people.

Williams: Absolutely right.

CJ: And that is really what you are doing with tariffs. It just doesn’t seem that way.

Williams: That is absolutely right. And to use terms like protectionism and things like this to protect American industry — what it really is is ripping off American consumers.

As a matter of fact, during the Chrysler bailout I was testifying in Congress. I said, “Instead of imposing tariffs on foreign cars, why don’t we just have and Aid to Dependant Auto Workers Act?”

Of course that did not go over big. But see, the question, as you said…

CJ: Are you responsible for the Chrysler bailout? [LAUGHTER] That is pretty depressing.

Williams: …as you identified, it would make the transfer of wealth from consumers to these particular interest groups — it would make it explicit and less likely to happen.

CJ: There is a specific allegation here, too, which is that the Chinese are manipulating their currency, the yuan, that had been set a certain ratio to the dollar, pegged to the dollar.

There also is a similar allegation about the yen in Japan. But the argument is that they have artificially kept the value of their currency low, and if they would just let the currency float, which essentially means let the dollar fall in value, we would all be better off.

Williams: I think there are — a couple of colleagues of mine have done studies, and there is no evidence of manipulating the currency.

But suppose there were. Isn’t it wonderful for foreign countries, particularly a poor country like China, to send us free goods?

We ought to be happy. And so we can let these other workers just kind of take off, and we will be better off. We can just get them on welfare and we all will be better off.

CJ: Are you optimistic or pessimistic, perhaps in the long run, that politicians in our state, across the country, will come to apply the principles they say they believe in theory to practice?

Williams: I think that if they have more pressure from free-market think-tanks they may indeed.
But if left to their own devices, I would say no.

CJ: And so you are saying we need more ideas in the marketplace, more support for people who make the right decisions, and more criticism for those who make the wrong decisions?

Williams: That is absolutely right.