Something something free market dark side….

Let’s talk about Carrier. As a native Texan, I love their products. Their air conditioning systems make life down here in the armpit of America bearable. (Side note, if Florida is America’s wang and the Gulf Coast is the armpit, where does that leave the rest of America’s anatomy? I’ll leave that for a future post.) Apparently, they were all set to send some jobs out of Indiana to Mexico, where they’d save $65M buckaroos in operating costs (I’m guessing mainly salaries and benefits, but also production costs from cheaper factories).  Now, though, thanks to the direct involvement of Donald Trump and soon-to-be-former Indiana Governor Mike Pence, Carrier will be leaving approximately 1,000 of the 1,400 jobs they had planned to move here in the US. Yes, that’s right. Our President-elect directly negotiated with a privately-held company and the State of Indiana to prevent that company from moving jobs overseas.

Leaving aside the fact that Carrier’s parent company collects approximately 10% of it’s annual revenue from federal contracts (approx. $6 billion, y’all), and may have been threatened with being cut-off from those sweet federal dollars, are we not worried about free markets? Governments staying out of business affairs? Leaving corporations free to do what they feel is in their best interests? Every year around election time I hear arguments about “free markets,” “capitalism,” “keeping government out of business,” “small government,” “de-regulation,” and so on and so forth. The argument goes that we need to support the free market! De-regulate everything and ensure corporations can manage their own affairs! If corporations are allowed to make money for themselves and their shareholders, it will provide a fertile breeding ground for jobs, which means more opportunities for employees, economic growth, etc. The problem is that this is not reflective of reality.

According to this article by the Cato institute, and this article by FreedomWorks, Big Business and Big Government are likely to go hand in hand. While politicians and their constituents like to talk about the dangers of Big Government, regulations, and direct governmental involvement in corporate affairs (Socialism! Communism! Oh my!), corporate lobbyists are more likely to push for regulations that provide barriers to entry in an industry, thereby making it more difficult for smaller enterprises from encroaching on bigger entities. And when it comes to State and Federal contracts, corporations are really sensitive to the Big Government Cash Cow.

So why does Carrier matter? There are two issues in this that I’m most concerned about:

  1. Should the government directly intervene in corporate decisions? Don’t people keep saying that’s bad for the free market economy and capitalism?
  2. Now that Trump has shown that the “consequences” for threatening to move jobs overseas is tax cuts and government contracts, isn’t that going to encourage more companies to threaten offshoring so they can get in on the tax cut deal?

I’m not an economist by training, and frankly as a CPA I think it’s more like voodoo than the cold hard reality of accounting. However, I’m still unclear on how this helps the economy. Trump prevented a little under 1,000 jobs from moving to Mexico, at a cost of $7M in lost tax revenue to Indiana taxpayers. That’s great for the 1,000 people whose jobs are staying, not so great for the people whose jobs are getting cut. Companies around the US are considering offshoring every day – is Trump going to be able to personally negotiate with every single one of them? It seems odd and unlikely, and I’m not fond of the precedent he’s setting, or the disappointment that’s going to occur when he can’t negotiate with every company that threatens to offshore jobs. However it turns out, I’m not excited about what seems like a token gesture after the campaign to make it look like he’s doing something of substance.

2 thoughts on “Something something free market dark side….

    1. Yeah, I don’t think it’s going to be the end of Capitalism, but it does sound like the Crony Capitalism we’ve seen in some of the socialist countries. I’ve heard several references to this being similar to what Hugo Chavez did in Venezuela and what’s been done in France, both of which are socialist countries. It’s not new practice to be sure, but it’s the first overt direct involvement I can remember in my lifetime here in the U.S. I’m not excited about the precedent this sets, but I’m really unhappy with the prospect of international trade agreements unraveling.

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