unintended consequences

The Hidden Costs of Tariffs

This news report from the Washington Post is a striking example of the absurd costs of complex tariff systems:

Brand-new Ford Transit Connect vans, made in Spain, are dropped off at U.S. ports several times a month. First, they pass through customs — and then workers hired by the automaker start to rip the vehicles apart. The rear seats are plucked out. The seat belts in back go, too. Sometimes, the rear side windows are covered with painted plates. Any holes left in the floor are patched over. 

Why? Because there’s a 25 percent tariff on imported pickup trucks and work vans, but only a 2.5 percent tariff on passenger vans. So even with all the extra effort of building a passenger-quality van, and then dismantling it, it’s still cheaper to do that than to pay a substantial tax on the import. 

The story is also a reminder of how bad policies can linger for decades. In the early 1960s Europeans increased their purchases of American chicken. European governments responded by imposing tariffs on chicken imported from the United States. In retaliation, President Lyndon B. Johnson imposed a 25 percent tariff – known as the “chicken tax” – on potato starch, dextrin, brandy, and light trucks. Tariffs on the other products were eventually lifted, but the high tax on light trucks remains. Thus the counterproductive construction and destruction. And by the way, this is no secret; the Wall Street Journal wrote about Ford’s practice in 2009.

The Post goes on to report:

Tariff engineering has a long history.

In the 1880s, the Supreme Court ruled it was acceptable for a sugar importer to intentionally darken refined sugar with molasses to lower the grade and secure a lower duty. Three decades later, the court took up the case of a company accused of trying to evade a 60 percent duty on strung pearls by instead shipping loose pearls with holes pre-drilled for stringing. Those faced only a 10 percent duty….

For example, some athletic shoes, such as Converse All-Stars, come with just enough fuzzy cloth on the rubber soles to qualify them as lower-duty slippers. In the early 1980s, the United States imposed a tariff on motorcycles with engines larger than 700 cubic centimeters in a bid to protect U.S.-based Harley-Davidson, so Japanese companies turned to making 699-cubic-centimeter motorcycles instead.

[See https://www.cato.org/publications/policy-analysis/taking-america-ride-politics-motorcycle-tariffs]

Haitian Guest Workers Overstayed Their Visas Because the Government Cancelled the Program for Them

The Trump Administration recently ordered the Department of Homeland Security (DHS) to stop issuing H-2A visas for temporary agricultural work to Haitians.  One of the reasons given for not allowing Haitians to use the visas was their high overstay rate of about 40 percent in 2016, meaning that about 40 percent of Haitian workers on the H-2A did not leave at the end of the season as they were supposed to.  Depending exactly how

Micro-Housing, Meet Modern Zoning

Beginning in 2009, developers in Seattle became leaders in micro-housing. As the name suggests, micro-housing consists of tiny studio apartments or small rooms in dorm-like living quarters. These diminutive homes come in at around 150–220 sq. ft. each and usually aren’t accompanied by a lot of frills. Precisely because of their size and modesty, this option provides a cost-effective alternative to the conventional, expensive, downtown Seattle apartment model.

Markets Find a Way

Under new rules in the District of Columbia, residents are allowed to possess, smoke, and grow marijuana, but they are not allowed to sell it. So, as Aaron C. Davis writes in the Washington Post, this presents an interesting question: How is the marijuana grown in D.C. supposed to get to people in the city who want to smoke it? And it turns out that in a few short months the enterprising people of Washington have found several opportunities:

A fitness instructor who took up the hobby six months ago has amassed enough pot to make tens of thousands of dollars selling it. Instead, he’s begun giving away a little bit to anyone who pays for a massage. The instructor asked not to be named out of concern that he or his home, where he sometimes serves clients, could become targets for criminals.

T-shirt vendor in Columbia Heights who declined to comment may be working in a similar gray area. College students say the roving stand has become known to include a “gift” of a bag of marijuana inside a purchase for those who tip really well. And recently, dozens of people paid $125 for a class in Northwest Washington to learn about cooking with cannabis from a home grower. Free samples were included.

Andrew Paul House, 27, a recent law school graduate, may be the best early test case for whether home growers can find a way to make money from their extra pot.

House has started a corporation and a sleek Web site to order deliveries of homegrown marijuana to D.C. residents’ doorsteps — “free gifts” in exchange for donations to the company, akin to a coffee mug given to donors by a public radio station.

Who Could Have Seen That Coming?

Several recent news stories report information that was hardly surprising to anyone who has studied economics or read Cato at Liberty. We talk a lot about unintended or unanticipated consequences around here, but in these cases the consequences were anticipated and even predicted by a lot of people.

First, consider this front-page story from the Washington Post on Monday:

The [fast-food] industry could be ready for another jolt as a ballot initiative to raise the minimum wage to $15 an hour nears in the District and as other campaigns to boost wages gain traction around the country. About 30 percent of the restaurant industry’s costs come from salaries, so burger-flipping robots — or at least super-fast ovens that expedite the process — become that much more cost-competitive if the current federal minimum wage of $7.25 an hour is doubled….

Many chains are already at work looking for ingenious ways to take humans out of the picture, threatening workers in an industry that employs 2.4 million wait staffers, nearly 3 million cooks and food preparers and many of the nation’s 3.3 million cashiers….

The labor-saving technology that has so far been rolled out most extensively — kiosk and ­tablet-based ordering — could be used to replace cashiers and the part of the wait staff’s job that involves taking orders and bringing checks. 

Who could have predicted that? Well, Cato vice president Jim Dorn in his 2014 testimony to the Maryland legislature. Or Bill Gates around the same time.

Then there’s this all-too-typical AP story out of California:

Life under Prohibition

Washington, D.C., has the highest percentage of marijuana smokers in the nation, reports the Washington Post. “More than 11 percent of Washingtonians older than 26 reported smoking marijuana in the past year – the highest percentage of any state in the nation, according to a 2007 survey by the U.S. Substance Abuse and Mental Health Services Administration.”

Wednesday Links

  • If the health care overhaul bill were a medical product it would have to come with a warning label, which could read something like this: Warning: This product will increase your health insurance premiums, make your children poorer and won’t make you healthier. That’s not all. There’s more.
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