FW: [FAIRTAX_DD] "Economists Against Protectionism" by Pat Toomey, Wall St. Journal
From: FAIRTAX_DD@yahoogroups.com [mailto:FAIRTAX_DD@yahoogroups.com] On Behalf Of bill spillane
Sent: Wednesday, August 01, 2007 5:55 PM
Subject: [FAIRTAX_DD] "Economists Against Protectionism" by Pat Toomey, Wall St. Journal
Calling all FairTaxers to send a brief note to the Wall Street Journal in response to the
following article. Editor <wsj.ltrs@wsj. com>
Part of "what ails us" in the matter of foreign trade is the large self inflicted bullet
wound in our foot which has been administered by the income tax code.
We have, ouselves, administered protectionist tax measures on ourselves, but they protect
our "trading partners", not us. The WSJ has repeatedly pointed out that corporate taxes
are passed on to either owners, employees, or customers - that's us!
Our "trading partners" are laughing all the way to the bank.
Eliminating business taxes, income and payroll, would put the U.S. on an even playing
field, unassailable by WTO standards, and accomplish what the protectionists want while
helping U.S. business and our economy.
The best way to eliminate the harmful taxes is the "FairTax", HR 25 and S1025.
"Economists Against Protectionism"
By PAT TOOMEY
August 1, 2007; Page A15, Wall Street Journal
On May 4, 1930, 1,028 economists signed a petition urging Congress and President Herbert
Hoover to reject the Smoot-Hawley Tariff Act, arguing that "increased restrictive duties
would . . . operate, in general, to increase the prices which domestic consumers would
have to pay." Neither Congress nor the president listened, but the stock market certainly
Though many associate the Great Depression with the stock market crash on Oct. 29, 1929,
the market actually rallied during the six months following Black Tuesday, while the
defeat of Smoot-Hawley appeared likely. The market turned south again in April 1930 as
those hopes of defeat gradually dimmed.
The Dow Jones Industrial Average sank a full 8%, from 250 to 230, over just two trading
days in June 1930, in direct response to the Senate's passage of Smoot-Hawley and
Hoover's announcement that he would sign it. Exacerbated by other flawed governmental
policies, an international trade war continued to drive the market down until the Dow hit
a low of 41 on July 8, 1932, having lost 89% of its value from its September, 1929 high.
It would be 25 years before the market recovered its 1929 peak.
Unfortunately, Congress is suffering from a bad case of amnesia. Over the past several
months, protectionism has reached a fever pitch with lawmakers in both Houses clamoring
to attach their names to as many as 50 anti-trade bills.
In the Senate, Max Baucus (D., Mont.) and Chuck Grassley (R., Iowa) have joined longtime
protectionists, Chuck Schumer (D., N.Y.) and Lindsey Graham (R., S.C.), in sponsoring
legislation to punish China for currency intervention. Tomorrow, hearings in the House
Ways and Means Committee commence with a host of protectionist measures on the agenda,
including legislation by Reps. Timothy Ryan (D., Ohio) and Duncan Hunter (R., Calif.)
that would allow the Commerce Department to increase duties on China. Not to be outdone,
the top-tier Democratic presidential candidates are falling over themselves to reject the
free trade policies of Bill Clinton's Democratic Party.
In this respect, Congress hasn't changed much over the past 77 years. Thankfully,
economics hasn't changed much either: 77 years after 1,028 economists stood athwart
protectionism yelling "stop!" a new batch of economists are just as determined to turn
back the rising protectionist tide.
The Club for Growth is disseminating a petition advising Congress "against imposing
retaliatory trade measures against China." Like its historical counterpart, this petition
is signed by 1,028 economists from the left and the right. They come from all 50 states
and include four Nobel laureates, three former chairmen of the Council of Economic
Advisors, former members of Congress, a former Treasury secretary, and economics
professors from our country's most prestigious universities.
While the signatories on this petition will certainly disagree on a host of other issues
-- at least 20 signed a 2003 petition against the Bush tax cuts -- they all agree that,
in the words of the petition, "there is no foundation in economics that supports punitive
Adam Smith long ago observed that "It is the maxim of every prudent master of a family,
never to attempt to make at home what it will cost him more to make than to buy." As
members of Congress should know -- but unfortunately don't -- the maxim of the family
applies equally to a nation. This simple truth explains the irresistible logic of free
Free trade among and between people of various nations is the mechanism that allows
producers to maximize their comparative advantage while consumers maximize the value they
receive for their dollar. Free trade allows American producers to sell jets and software
to the Chinese, while American consumers buy toys and apparel from China -- a win-win
proposition for both buyer and seller.
Protectionists attempt to disrupt the market's natural tendency to seek efficiency by
imposing tariffs in order to artificially increase the price of foreign goods relative to
domestic competition. Thus, tariffs are simply a tax on American consumers, and it would
be Americans, more than the Chinese, who pay the price. The very people Sens. Schumer and
Graham claim to help will suffer from the higher prices, fewer jobs and potential trade
war that will result from their legislation.
As the Club for Growth petition demonstrates, support for free trade is virtually
universal among reputable economists. More importantly, history has shown the devastating
consequences of protectionist policies. Let's hope Congress steps back from this
precipice and rejects the misguided policies of Smoot, Hawley, Schumer and Graham.
Mr. Toomey is the president of the Club for Growth. More information about the petition
is at www.clubforgrowth. org