The economic stupidity of the Carrier bailout

The ethical question is more complicated than the pop-cons let on, too. Our government runs deficits, which means that a federal tax credit of $1 million given to Smith is $1 million in taxes that eventually will have to be paid — by Jones, and Wilson, and Humperdink — with interest. Carrier is a division of United Technologies (the Otis elevator and Pratt & Whitney engines people), which is first and foremost a government contractor, a firm that derives at least a quarter of its revenue from government contracts, and 10 percent of it from Pentagon contracts alone. It is a company that has competitors — competitors who employ Americans and pay taxes, just as Carrier does. These firms and their employees are put at an economic disadvantage by the subsidies paid to Carrier thanks to Trump and Pence. That means that some of these companies probably will be less profitable, and that they will not hire people they otherwise would have hired. But you’ll see no Trump press conference celebrating that. This is a case of Frédéric Bastiat’s problem of the seen vs. the unseen. The benefits are easy to see, all those sympathetic workers in Indiana. The costs are born by sympathetic workers, too, around the country, and by their families and by their neighbors. But those are widely dispersed, so they are harder to see and do not hit with the same dramatic impact.

But the math is the math is the math. Trump and Pence are trying to sell you a free lunch, the same way the Keynesians and their magical spending multiplier do when they promise that government stimulus programs (Trump is pushing one of those, too) will somehow magically pay for themselves.

There is no magical revenue fairy. And, as a budgetary matter, targeted tax benefits are identical to spending, both for the government and for the beneficiary. This is not a question of ethics but a question of accounting. Somebody always has to pay the bill, eventually. It probably won’t be the pop-con on the radio telling you that we can make money by giving it away, so long as we give it away to the right sort of people: Solyndra bad, Carrier good.