At the beginning of the film American Gangster we see the fictionalized version of Ellsworth “Bumpy” Johnson discussing a shift in American consumerism with his protégé, Frank Lucas. Bumpy seems to be disappointed – almost sickened – by the rise of department stores and discount retailers that buy directly from the manufacturer, cutting out the “middleman” (the distributor). As they enter an electronics store, he makes mention of Asian manufactures putting Americans out of business. (After which he dies, still espousing a disgust for then-modern retail markets as he clutches his chest in pain.)
As I watched the film (one of my favorites in the gangster genre), I immediately thought of our President and his supporters. I thought of capitalism, and protectionism (and the dangers of the latter).
In the film, Frank Lucas takes over Bumpy’s rackets in the heroin trade of late 1960’s era Harlem. He quickly discovers he can make far greater profits buying directly from the Golden Triangle then buying inferior quality product from the Italian Cosa Nostra (The Mafia). Something legitimate retailers had obviously already learned. But why is that?
As we know, one can pay a man in China far less then his counterpart here in America. There are a number of reasons for this but they are irrelevant to the point of this article. The point is that as capitalists we should protect CAPITALISM, not jobs that most American’s do not “own”. (And therefore, can not have them “stolen” – either by foreigners, immigrants or other Americans willing to work for less.)
After traveling to southeast Asia, Frank establishes a connection and begins an immensely profitable black-market business. He quickly positons himself as the top of his trade by selling a superior quality product at a price that is lower than his competition. It is at this point that the parallels dissolve. (After all, we are talking about selling heroin…not radios!)
But it provokes an interesting – and controversial – question. Should we hinder a business owners ability to maximize profits in the hopes that he will give that work to an American?
First, lets flesh out what should be obvious. Even if the manufacturing is done overseas, you still need people on this side of the pond to distribute the product. Warehouses, truck drivers and administration. They all cost money. American money, going into American pockets. Even in the film this is true. Frank Lucas hires his brothers and cousins to oversee the overall flow. He has to pay corrupt police officers to protect the product. He has a processing center filled with employees. I guess the parallels continue. My bad!
To the second point, if the manufacturing is being done by Americans then you need to pay an American salary. That means prices of the product go up, not down.
This is where we enter into President Trumps idea of protectionist laws. Laws that force an employer to buy American at a higher price; often “offset” by tax dollars. (Perhaps this is where the parallels truly disappear.)
Let us look at the two markets: drugs versus electronics.
Drugs are only regulated as far as the business owners need to (admittedly with force) in response to prohibition. The market itself is largely unregulated. (Aside from dealers taking each other out to eliminate competition).
Now let us look at electronics. First, the country we get the electronics from often taxes us. But then we actually tax ourselves once it arrives. Somehow, we can still sell the Asian manufactured product CHEAPER than if it was made in America.
The simple truth here, is that Americans demand a higher quality of life than people in other parts of the world. There is NO evidence that protectionism will do anything more than raise prices on the product, taxes on the tax payer or BOTH!
Instead of creating more laws to protect businesses that clearly can’t compete, we should be investing (privately) in the communities that need jobs the most. These areas have low property values, low rent and the people living their can AFFORD a lower wage. If the business fills a much needed niche then it becomes profitable. Profitable businesses become busier. They hire more people to get the product out. Business traffic goes up even more. Now wages go up. From this we see a higher quality of life and a once impoverished community is now flourishing.
The cold, hard fact is that the free market is the answer. The free market is what drives profits up. It drives advancement up. Protectionism drives taxes up, wages become stagnate and only the top-tier of corporate executives see the profit.
And he (Trump) should know; he has made a fortune on this very business model!
Much like the Mafia Don character in the film, President Trump speaks of the common American laborer. In the film, the character refers to them as the “dairy farmers”. He speaks how the price on a gallon of milk doesn’t reflect the true cost of production. He goes on to say it has to be CONTROLLED, it has to be regulated.
Of coarse anyone who has seen the film knows he – the Mafia Don – only says this because his heroin profits (and those of his friends) are dwindling.
And regulation will always do that. It will kill profits. Whether it is regulations spearheaded by Barrack Obama or Donald Trump. Always!
If President Trump wishes to reduce regulations on businesses here in America, I say GREAT! But he should know that the largest corporations are still going to manufacture overseas. It will always be cheaper to do so. Trying to regulate profits away from their natural direction doesn’t make Donald Trump a great American who cares. It doesn’t make America “great again”. It makes him intellectually dishonest and it hurts the free-market.
Whether you support President Donald Trump or not, as libertarians we have a duty to the free market to speak about this misguided concept. I hope after reading this – Trump supporter or not – you will.