Home Economic Trends The U.S. Revives the Personal State – Richard Ebeling (08/28/2019)

The U.S. Revives the Personal State – Richard Ebeling (08/28/2019)

It was French king Louis XIV (1638-1715) who famously declared, “L’etat c’est moi” (“I am the state”), indicating his insistence that he possessed absolute power over his subjects and everything else within the reaches of his domain. This week, it was clearer than usual that this is an attitude apparently shared by Donald Trump, president of the United States. 

America seems to be heading for a worsening trade war with China. Over the more than two and a half years since Trump took office as chief executive of the federal government, he has made it abundantly clear that he considers China a threat and an enemy to the country. His recent words seem to suggest that he considers himself to have near wartime-like powers to command and control the actions of the American people. This is a dangerous course for America to be following. 

The U.S.-China Tit-for-Tat Trade War 

The U.S. and Chinese governments have been playing a tit-for-tat economic war with each other, with Trump announcing and imposing tariffs on a variety of Chinese imports, the Chinese government responding with a list of American exports that will be more highly taxed coming into China, followed by trade talks that seem to go nowhere. 

Soon the cycle has begun, again, with new or higher tariffs threatened or placed on Chinese goods, the Chinese saying they will not be bullied and responding in kind with more tariffs on American-made imports, and more going-nowhere trade talks. President Trump recently promised tariff increases on a spectrum of Chinese-made goods that would come into effect in September and October of 2019, in some cases as high as 30 percent.

China’s reaction was to declare that $75 billion more of American goods would be hit with higher tariffs coming into China. Definitely angered that the Chinese government would have the audacity to once more “tat” in response to his “tit,” Trump publicly stated on August 23 that it was time to stop dealing with China. Not just in the sense of a breakdown in government trade negotiations, but in the sense that Americans should stop doing business with or in China. 

My use of “should,” however, is too mild a word. In a series of tweets, Donald Trump “ordered” Americans to do so:

We don’t need China, and frankly, would be far better off without them.… The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.… This is a great opportunity for America.

 “Ordered” — as in, I’m commander in chief, and do as you are told by me, or there will be consequences. 

Trump Sees “Enemies” at Home and Abroad

The author’s new book 

In wartime, there are “allies” and “enemies.” In the context of a war, “enemy” carries with it the connotation of a foreign government and its citizens who are to be fought and defeated. When applied to a citizen of your own country, it carries the meaning of being a “traitor” to the safety, the well-being, and possibly the survival of your own land. It is, therefore, if nothing else, rhetorically ominous when the president of the United States also, on the same day, tweets the following about the chairman of the Federal Reserve: “My only question is, who is the bigger enemy, Jay Powell or Chairman Xi [of China]?”

What is Jay Powell’s unpatriotic “sin”? He did not immediately declare a decrease in Fed-influenced interest rates, and stated at the gathering of global central bankers in Jackson Hole, Wyoming, that trade tensions can be destabilizing to the world economy and cannot be directly controlled through Federal Reserve policy. Clearly, in Donald Trump’s eyes, by saying this Jay Powell was giving “aid and comfort” to the Chinese “enemy”!

Can the president order and command American businesses to stop producing and doing business in China, as well as telling them to move their production activities elsewhere, preferably in Trump’s eyes back to the U.S.? Isn’t this America? Surely we have free enterprise in the United States, right? Think again. 

Presidential Command-and-Control Power

In 1977, the U.S. Congress passed the International Emergency Economic Powers Act (IEEPA). In a declared national emergency, the president has been delegated the authority to, in fact, restrict, prohibit, or restrain private citizens from doing business and a variety of other activities with foreign governments or citizens. For example, in 1983, businessman Marc Rich was found guilty under the act for trading in oil with Iran and had to live abroad and evade arrest until President Bill Clinton pardoned him just before Clinton left office in January 2001. 

President Trump made it clear in comments to reporters that in his view, “I have the absolute right to do that,” that is, to order American companies to stop doing business with China, based on IEEPA, if he were to declare a national emergency in our relations with China. Trump threatened to impose tariffs on Mexico earlier this year under IEEPA if the Mexican government did not restrict the movement of migrants attempting to enter the United States without Washington’s permission, by insisting that the flow of “illegal aliens” constituted a national emergency. 

The Rule of Law versus the Rule of Men

Donald Trump, and many other presidents before him and no doubt too many who may follow him, in fact, has such command-and-control authority under legislation duly passed by the U.S. Congress. But its spirit and application is very far from any compatibility with a reasonable notion of a general and impartial rule of law. Indeed, such legislation is a threat to human liberty. John Locke expressed this in his Second Treatise on Government (1689): 

Freedom of men under government is to have a standing rule to live by, common to everyone of that society, and made by the legislative power erected in it; and not to be subject to the inconsistent, unknown, arbitrary will of another man.

Nobel laureate economists Friedrich A. Hayek and James M. Buchanan, and many others, have emphasized that a sustainable and functioning free society is dependent on a rule of law that primarily is composed of “end-independent rules,” that is, laws that are procedural in that they specify and enforce the rules of human interaction while leaving the purposes and actions within those rules up to the social participants to decide and follow. This is in contrast to end-dependent rules that specify the particular outcome desired and which direct the actual actions by individuals considered to be required to attain it.

End-Independent vs. End-Dependent Rules of the Game

Using the metaphor of a sports game, economist Karl Brunner (1916–89) explained the difference between end-independent and end-dependent rules in an article discussing “The Limits of Economic Policy” (1985): 

The difference between [end-independent rules and end-dependent rules] may be usefully explained with the metaphor of a football game. The policy-makers would be represented by the commissioner of the football league and the players represent agents in the socio-economic game.

[End-independent rules] limit policymakers to formulate, monitor and enforce the general rules controlling the detailed plays of the game. The choice of strategies, tactical procedures and all the varied details of the play are left to the players. [End-dependent rules] empower the commissioner to shape both the general rules and much detail of the play in a shifting pattern in accordance with the state of play. 

[The end-independent rule] approach to policy analysis thus understands policy not as a choice of specific actions but as a choice of general rules usually embedded in a set of institutions.

Rules of the Road as End-Independent

The notion of the “rules of the road” is also often used as an example of end-independent rules. The rules of the road specify and delimit how motorists may travel on the road, but do not dictate the reasons or destinations for which those motorists wish to use the thoroughfares or their destinations. Thus, the rules of the road require each driver to stay within the designated speed limit, to pull over when an emergency vehicle is passing with its lights flashing and siren blasting, to stop at intersections when required by stop signs or when traffic lights are red, to put on the indicator light when changing lanes or turning right or left at an intersection. 

But as long as any driver follows these general rules of the road, he is free to travel on the thoroughfares when he wants, for the purpose he may have in mind, and alone or with passengers accompanying him in the automobile. The rules of the road are meant to facilitate and coordinate the actions of a multitude of drivers —, not to direct them where to go or why, but to minimize delays and accidents through the expectations and actions required by others and oneself. 

This is in contrast to what is sometimes referred to as end-dependent rules. These are rules that define the desired outcome or goal and direct the necessary actions and interactions among social participants to bring about the wanted end result. With our example of rules of the road, end-dependent rules would specify the purpose, the route, the time, and the outcome assigned to each traveller using his automobile. 

Each of us assigns ourselves tasks for which we use our automobile; that is, we each construct our own end-dependent purpose for which we plan our actions to attain a desired end. But this is different, and inconsistent with the liberty of each in a free society, if those in government (elected officials or bureaucrats with delegated authority) can impose goals and tasks for each individual to follow according to the political planner’s purpose rather than those desired and designed by the individual members of society in free association with others. 

End-Independent Rules Are Essential for a Free Society

If this seems a long way off from President Trump’s recent tweet pronouncements, it, in fact, gets to the heart of the matter. A society of freedom and free enterprise rests on and requires a legal order of primarily end-independent rules. Only under such a system can individuals “know their rights” and have the liberty to act on them as they think best to peacefully and honestly go about the business of living and earning a living. 

Only in such a social environment can people be confident that they may design courses of action as both consumers and producers to pursue their desires and attempt to achieve their ends without the fear, concern, and unpredictability of what the government authorities may do tomorrow or the next day in terms of their respective individual rights of free use of themselves and the property they have honestly created or acquired through voluntary exchange with others on a competitive and open market. 

End-Independent Rules and a Worldwide Economy

Through the associations and transactions of the marketplace, highly intricate, complex, and multidimensional relationships have been generated through which what is now a worldwide network of specialization and division of labor interconnect and make interdependent literally hundreds of millions and, now, billions of people. 

The supply chains of production and sale stretch over countries and continents. The resources and raw materials extracted in one part of the world may go halfway around the earth to be refined and molded into useful forms of component parts and related tools of production; then they may be sent to other countries on the planet to be worked up into some partial or finished form before being passed on, again, in another country or continent where the product will be put into its completed design, and after which the final consumer product will be sold to a retailer next door or back, again, to a faraway place somewhere else on the globe where a willing buyer is waiting. 

A Pretense of Knowledge, Including by Presidents

It is absurd and arrogant for anyone — even a president of the United States armed with a 24-hour Twitter feed — to presume to know how, where, and for what those owning or managing private enterprises should go about doing their business, either in the U.S. or in another part of the world, including China.

The rules of the road of individual rights, private property, voluntary association, and free exchange have enabled American producers to each make what they consider to be the best and most profitable choices and decisions concerning the locations of their manufacturing facilities, the networks of market partners to assist to bring their respective products to the end consumers, and to do so in a way that enables the greatest productive efficiencies and cost minimizations so as to bring their product or service to the buying public on the most competitive terms possible, as they see it, all things considered. 

Such end-independent rules of society ensure two things: First, they ensure that each individual has a wide degree of liberty and latitude to guide and direct his or her own life. That is, to be a free person in a political setting in which government and the law secures each from the molestation of others who would threaten our lives, plunder our possessions, or defraud us in the transactions into which we enter. 

And, second, they enable each individual to use his or her own knowledge and abilities as they consider most profitable in achieving their goals and purposes. Not only does this give the individual the freedom to decide how best to find their niche in the social system of division of labor to earn a living. It also means that, as Hayek in particular emphasized, all the rest of society can benefit from what others know and can do that can never be known or appreciated in the same detailed and changing ways by everyone else in a dynamic world. 

Donald Trump’s Arrogance and Ignorance

But along comes Donald Trump, certain and sure that he knows where people should do business, with whom they should interact and where, and for what purposes. Armed with the IEEPA, he threatens to transform even more of the economic rules of the game into end-dependent rules for American business to follow. 

He “orders” American enterprises to withdraw from their business activities in China. They are to disrupt their market-established supply chains of manufacturing and production; they are to stop purchasing Chinese commodities or finished goods; and they are to move their facilities and their productions to the United States.

How does Donald Trump know where is the most cost-efficient location for the manufacturing of goods? How does he know the best sources for raw materials or component parts? How does he know the right assembly plants for the construction of finished goods? How does he know what and who would be the next-best (but less cost-efficient) locations and suppliers for American businessmen outside of China and preferably, for Trump, back in the United States?

Answer: He does not. Oh, Donald Trump may claim that he is the smartest person he has ever met (which he said during the 2016 presidential campaign in explaining why he did not draw upon and use many “expert” advisors on policy issues). But his knowledge is far too humanly limited for him to play economic central planner — which is precisely what he is asserting as his ability and legislative authority to do. 

Trump Is Threatening Economic Fascism

And, no, President Trump is not playing at being a “socialist.” There is another name for what he says he has the right to do in commanding the direction and forms of economic activity within and outside of the United States: economic fascism. 

Unlike traditional socialism, under which the means of production are directly nationalized and their use centrally planned by the government, Trump’s model is the other variation of the modern collectivist theme. Formal private ownership of resources and enterprises is retained, but government dictates to private enterprisers what and how they are to go about their business. It is the model followed in Mussolini’s Italy and in Hitler’s Germany. Private enterprise is no longer free enterprise.

No, that does not mean that Donald Trump is Hitler or Mussolini. But it does mean that if he were to declare a “national emergency” in terms of U.S. relations with China (or any other countries), he could then claim that under the International Emergency Economic Powers Act of 1977, he has the authority and power to command how and where and with whom a wide variety of American enterprises may do business. It would represent a partial “nationalization” of the economic decision-making of private enterprises by transferring their control into the hands of the man in the Oval Office in the White House. 

Trump and the Arbitrary Rule of Men

Recall John Locke’s concern with the rule of men in place of the rule of law, in the context of the end-independent rules talked about earlier. Freedom, Locke said, was inconsistent with the “unknown, arbitrary will of another man.” 

Now think about Donald Trump. He declares that China is acting in ways that he considers “bad” for America. He announces that he is imposing even more and higher tariffs on the importation of Chinese goods. The Chinese government does not cower in fear of (in Trump’s own self-description in a passing glib remark to reporters) “the chosen one” meant to save America from “bad” foreign trading partners. 

Trump issues his tweets saying America will be better off without China, he “orders” American businessmen to quit business with the Chinese, and he calls the Federal Reserve chairman an “enemy.” The stock markets tank. 

Then, while attending the meeting of the G-7 in France the next day, reporters ask him if he has any second thoughts about his “orders” to American business and the announced higher tariffs on Chinese goods. He replies, “Yeah, sure, why not? Might as well, might as well.… I have second thoughts about everything,”

If this had been a trading day in New York, rather than a Saturday, stock markets would most likely have climbed out of the previous day’s hole, as they waited for every word spoken by the “chosen one” who can determine the economic fates of so many in America and other places in the world on the basis of declared “powers” of economic command and control. 

But shortly after making his “regrets” remark, they were clarified by his administration. “His answer has been greatly misinterpreted,” White House Press Secretary Stephanie Grisham said. “President Trump responded in the affirmative — because he regrets not raising the tariffs higher.” And Treasury Secretary Mnuchin declared that Trump “doesn’t have second thoughts about what he has done.… He is as determined as ever on this issue.” 

Again, if Saturday had been a trading day, the markets would, no doubt, have been whipsawed back in a downward direction with this clarification that the president had only one regret, that he had not increased tariffs on Chinese goods even higher.

What can seem more like the “rule of men” instead of the rule of law, when hour by hour, day by day, week by week, month by month, no one can be sure what Donald Trump will do by either threatening to change or actually changing the rules of the game under which American enterprisers are attempting to plan and direct their businesses at home and abroad to better serve the wants and desires of the consuming public? 

Freedom Requires Restraints on Those in Government

Conservatives and Republicans rail against the dangers confronting the country if Trump is not reelected and the “progressives” and democratic socialists of the Democratic Party take over the White House and the rest of Congress. And, indeed, their proposed policies would be a disaster for America. 

But what are we offered instead? A president who never speaks of liberty or limited government, but who worships at the altar of aggressive economic nationalism, which means more and more government control over the marketplace. That means decreased standards of living as American businesses are bullied or forced to produce where costs are higher and qualities of workers and materials for manufacturing are lower. Under economic nationalism, they are to face a tightening set of end-dependent “rules of the game” based on the president’s tweeted commands and threats to American business about what they are to do on a changing basis, seemingly minute by minute, as swirling “greatness” dreams dance in Donald Trump’s head. 

In 1798, Thomas Jefferson warned of the dangers arising from the political rule of men, and the importance of jealously guarding our liberties through clearly defined constitutional restraints on what government could do, which always means government doing things to people:

Free government is founded in jealousy, and not in confidence, it is jealousy and not confidence which prescribes limited constitutions, to bind down those we are obligated to trust with power; … our Constitution has accordingly fixed limits to which, and no further our confidence may go.… In questions of power, then, let no more be heard of confidence in men, but bind them down from mischief by the chains of the Constitution.

The tragedy of our circumstances is that whether they are Republicans or Democrats vying for governmental power, they all want to impose their respective versions of a central plan and a system of command and control over the American citizenry. The choice seemingly facing the people of the United States in the coming presidential and congressional elections is either economic fascism and aggressive nationalism or democratic socialism and the tyranny of identity politics. In other words, political and economic collectivism in any direction we turn.