Tariffs are Taxes and Taxes are Tariffs

Government is force. Anyone who disagrees is invited to try peaceful noncompliance with government. Try not paying taxes, smoking cannabis, working for less than minimum wage, or do anything peaceful that’s against the government’s rules. If they find out and you continue to peacefully refuse to comply, they will eventually assault you and put you in a cage (euphemistically called arrest and imprisonment). If you go one step further and use self defense with a gun (the only realistic way to defend yourself against police), you’ll probably end up getting shot.

Government does things that would be considered criminal if done by ordinary people. It repeatedly takes your money with the threat of force (arrest, or death if you resist that) and calls it taxation. It forbids acts between consenting adults for their own good (any black market activity, any regulated activity). It murders people and calls it war. It prevents the free association of its subjects with other people in the name of restricting immigration. Practically everything it does would be considered criminal if done by an ordinary person.

Even the most minimal night-watchman state, funded by voluntary donations, would still be coercive. At the very least, it would have to prohibit any competing protection services. Otherwise it would risk being competed out of existence.

That government is evil shouldn’t be a controversial point. Economists justify government on the grounds that public goods cannot be produced voluntarily and hence coercive government measures are justified.

Philosophical anarchism is the position that government is a necessary evil, to be done away with if there were a viable alternative. This should be the default position on government, held by any decent person with an intact moral sense. (I go further and advocate market anarchism as a viable alternative.)

Government is force, and force should be used sparingly if it must be used at all. It seems to me that most people have forgotten this; they would prefer profligate use of government over sparing use. Thus, people need constant reminding that government rules are backed by coercive police power (and that markets are voluntary). In most cases, markets can solve whatever problems government is supposedly solving, and much more efficiently to boot. As such, we ought to be doubly reluctant to use government: for both moral and economic reasons.

Economists are united in support of free trade. Free trade brings great benefits: productivity is increased due to greater specialization from division of labor and all participants enjoy gains from trade. Any restrictions on trade move us away from this optimum. To the extent that beneficial trades are foregone, prosperity is sacrificed and waste is promoted. But the logic of the argument applies not only on the level of nations—it also applies with full force on the level of individuals.

The argument for free trade is a simple, logical proof. Trade is defined as voluntary exchange. From this it follows that all trades are mutually beneficial (ex ante). In other words, each party in a trade expects to benefit. If this were not so, then the exchange would not occur. Nobody will make a trade that they believe will leave them worse off. One would only make a disadvantageous exchange if it were involuntary—but this violates our definition of trade as voluntary exchange. Evidently, if all trades are undertaken because both parties expect to benefit, then any restriction of trade can only serve to eliminate gains from trade. Unrestricted free trade maximizes prosperity. This follows directly from the logic of voluntary exchange.

Now, if economists contend that tariffs are bad because they eliminate mutually beneficial exchanges and breed inefficiency, then they must also oppose sales taxes. For what is a sales tax but a tariff on trade between individuals? Sales taxes increase the cost of trades, eliminating mutually beneficial exchanges. They discourage specialization and trade, and encourage inefficient self-sufficient production.

Furthermore, this principle applies to all taxes that add to the marginal cost of production and trade. An income tax, for example, increases the marginal cost of producing for trade (a portion of each additional dollar earned is lost as taxes). This discourages production and reduces prosperity. It also encourages inefficient self-sufficient production (they don’t tax the work you do for yourself… yet). The only tax that wouldn’t harm incentives to produce and trade would be a tax of fixed amount unrelated to income or wealth (also known as a head tax). Of course, taking peoples’s money via taxation harms them, but a head tax wouldn’t do the added damage of reducing the incentive to produce and trade. Needless to say, a head tax would never be implemented in practice, as it would effectively end the welfare state.

In conclusion, if economists are to be consistent in their principled support of free trade, they must also oppose sales taxes on exactly the same grounds. If a tariff is a bad way to raise government revenues, then so is a sales tax. By the same principle, they must also oppose any tax related to income or wealth. These taxes harm the incentives to produce and trade. If economists are not willing to accept these conclusions, then they must also weaken their support for free trade.

Libertarian Anarchy

Philosophical Anarchism — Government as Necessary Evil