Apr

2

Tariffs Are Awful, but the Income Tax May Be Worse

Every fiber of my economic being cries out against tariffs. If they are so good, why doesn’t each state in the US have one against the products of all of the other 49? That is, Ohio could “protect” its industries against the incursions from Arizona. This is obviously silly. One of the important reasons America is so prosperous is that we have a gigantic, internal, free trade area.

[ … ]

So is there any economic case for tariffs, given the foregoing? Yes, paradoxically, there is—in a way, if the alternative is a tax that’s even worse.

Larry Williams comments:

Tariffs are what made America so powerful when instituted by Hamilton. It’s all about what you place them on Hamilton did it with brilliance.

Stefan Jovanovich responds:

I think more credit goes to Thomas Willing, the President of the Bank of the United States. He understood that tariffs would allow the United States to conduct the same wonderful sleight-of-hand that allowed the national Money to be gold and silver coin while the actual currency became bank notes. The Chair's question - if tariffs are so great, why doesn't every state have them - was answered by the Federal Constitution, which took away from the States the power to issue their own bills of credit as legal tender and the power to regulate interstate commerce. As LW and the Chair both note, it was the ability of the United States to have an ever-growing domestic market that made the U.S. so powerful. People were willing to bring their "real" money to the U.S. to speculate in what is still the largest open market in the world AS LONG AS THEY HAD THE ABILITY TO PICK UP THEIR CHIPS AND TAKE THEIR MONEY HOME. Apologies for the SHOUTING but every "crash" has had as its catalyst the threat that the U.S. would impose capital controls - either directly or by depreciating the dollar by executive order.

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