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National Review
National Review
24 Jul 2024
George Leef


NextImg:The Corner: The Harm the Economic Populists Do

It appears to be the case that economic populism now dominates both of our major parties. In his latest Bastiat’s Window post, Bob Graboyes decries this development.

The Democrats continue to claim, as they have since Grover Cleveland left office, that the country needs to tax the rich more and spend the money on programs to help the poor. Why shouldn’t we?

Graboyes points to some inconvenient history — the luxury-goods tax of the early 1990s. He writes:

Regardless of who writes the check, the larger burden falls on the side of the market that is less price-sensitive—the side that has fewer options. In the case of luxury goods, it turned out that the rich could easily change their spending habits and purchase luxury goods not encompassed by the tax. Put a big tax on yachts, and some rich people will simply stop buying yachts and start buying waterfront condos, islands, ski chalets, works of art, or whatever else strikes their fancy. On the other hand, the people who build yachts are blue-collar folks with limited employment options. They either sell the boats for less or they stop selling altogether.

That is to say, taxes aimed at rich people have unintended consequences that are bad for non-rich people. The Democrats, however, don’t expect their voters to think past Stage 1 (as Thomas Sowell likes to say) to contemplate the prospect that the things rich people do with their money mostly benefit those who are not rich. Declaring that you’re with “the little guy” when you promise to tax the rich more is a shrewd political move, but harmful economically.

Bad economic results can always be blamed on someone else, and they provide the excuse for still more government intervention.

How about the GOP? It is now dominated by economic nationalists who want to use tariffs to beat the bad Chinese and “revive” American production.

Graboyes doesn’t like that any better:

Some tariff advocates make the mistake of assuming that the burden of tariffs on Chinese goods will fall exclusively on the Chinese, and some free-trade advocates err in the opposite direction—claiming that the burden will fall exclusively upon American consumers. As with the yacht tax, the burden of a tariff will fall on both sides, with the greater impact falling on the more inelastic side of the market—the side with fewer options. I suspect that the free-trade advocates are closer to the truth than the pro-tariff side, but that’s an empirical question and will differ from product to product.

Populism and protectionism — a terrible, dangerous combination.