The Carrier Deal and Questions of Economic Justice

There once was a man who lived in the hills the French countryside who worked as an iron manufacturer. Mr. Protectionist spent all the time and money he could spare converting ore into iron. He provided for his family and his business functioned well until one day he encountered a problem. A man from Belgium was selling iron at a much lower price than Mr. Protectionist was able to sell. Mr. Protectionist’s most loyal customers—nail-makers, mechanics, blacksmiths, and other metalworkers—began to buy all their iron from the Belgian manufacturer in order increase their own profits. Of course, Mr. Protectionist didn’t like this at all. 

He considered staging a direct intervention. He would stand and fight any nail-maker, mechanic, blacksmith, or metalworker that desired to buy iron from Belgium. “Why must their profit be held as more important that his own?” he reasoned. Before leaving to fight for his cause, however, Mr. Protectionist reconsidered this idea. “What if my fellow countrymen take offense and fight back?” he thought. Additionally, the French border with Belgium is expansive, how could he alone secure the entire border?

It was then that Mr. Protectionist had a brilliant idea! He remembered a friend telling him about the great Parisian law factory. He thought to himself, “Perhaps I can get the law factory to produce a decree saying that all iron from Belgium is prohibited.” So, Mr. Protectionist traveled from the countryside to Paris where he met with the leaders of the law factory. 

He described his situation: “Iron made in Belgium is being sold in France for 10 Francs, which forces me to sell mine at the same price. I greatly prefer to sell it at 15 Francs. I propose that a law be passed prohibiting the sale of Belgium iron in France.” 

Mr. Protectionist continued to explain what would happen if the extra five Francs remained within France. “For each 100 kilograms of iron that I sell to my fellow French countrymen, instead of 10 Francs, I shall earn 15. This will allow me to enrich myself and expand the production of my business. I will be able to employ more people, who in turn will be able to better provide for their families. My family and my employees families will be able to spend more which will greatly benefit the suppliers of the goods and services we demand throughout France.” 

The leaders of the law factory were impressed with Mr. Protectionist’s reasoning. They thought to themselves, “How easy it is to increase the wealth of our people simply through legislation.” So they quickly produced a law that prohibited the sale of Belgium iron in France.

Things happened just as Mr. Protectionist had predicted. His business grew, he was able to hire more employees, his family and the families of his employees flourished, and those who supplied for their wants and needs also flourished. The problem is not that Mr. Protectionist reasoned incorrectly, it is that he reasoned incompletely.

The legislation succeeded in channeling the five-franc premium into Mr. Protectionist’s business. Unfortunately these five francs did not simply magically appear out of thin air, this premium came from the pockets of the nail-maker, the mechanic, the blacksmith, and all the metalworkers throughout France who were forced to pay five francs more for their iron due to the law. The gains to Mr. Protectionist, his business, his family, and the rest were totally offset by the loss to the businesses and the families of the nail-maker, the mechanic, the blacksmith, and all the metalworkers.

This is a paraphrased version of the story told by the French economist Claude-Frederic Bastiat in his classic 1848 essay “What Is Seen and What Is Not Seen”. Although the term did not exist in the 19th century, Bastiat was instrumental in the development of a concept that is now known as ‘opportunity cost’. Bastiat begins his essay with chilling words in light of the current public dialogue regarding trade, domestic jobs, and specifically the recent Carrier deal.

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate, it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.  

The news broke last week that Donald Trump, the president-elect of the United States, persuaded Carrier to keep 1,000 factory jobs in its Indiana facility rather than moving the production to Mexico. What is known so far is that United Technologies Corp.—the parent company of Carrier—will receive $7 million in tax breaks over the next 10 years. Specific details are still murky regarding additional components to this deal as United Technologies Corp. earns about $6 billion annually from US government contracts, a sum that amounts to roughly 10% of it’s annual revenue.

The 1,000 jobs that are “saved” in the Carrier deal is the immediate effect. It is what is seen. Being happy for these 1,000 families is not wrong, it is simply incomplete. A complete analysis also takes into account what is unseen, and is what leads many to conclude that the Carrier deal is an economic injustice.

Although economic justice can be defined in any number of ways, most definitions will include upholding the dignity of all people as capable and responsible economic decision makers. Economic injustice occurs when decisions of consequence are made without the input or consideration of the interests of those who are affected. A complete analysis of the Carrier deal leads to the following questions.

Who will lose their jobs as a consequence of this deal? The obvious answer is workers in Mexico. Does this matter? Are jobs that are in the US more important than jobs that are in Mexico?

Will this tax break be covered by increasing Indiana’s state tax revenues or by cutting state expenditures?

If the tax break is covered by increasing taxes, then who will pay these higher taxes? What types of goods, and industries, will be hurt by the loss in demand due to tax increases? What are the employment impacts of this shift in demand on these industries? What are the implications of this on regional economic development in the United States?

If the tax break is covered by cutting state expenditures, what state services would have been provided with the $7 million? Will these forgone services be funding for education, infrastructure, public transportation, sanitation, or something else altogether? Who will be made worse off due to the reduction in these services? What are the implications of this on economic inequality in the United States?

These questions are difficult to answer definitively, what is unseen is often difficult to foresee, but the consequences are nevertheless real. When we think about the Carrier deal or any other economic injustice we must remember not only the first and immediate effects that are seen, but also the unseen effects that emerge later. Economic justice requires us to undertake complete analysis and to come to grips with the reality that all choices involve trade-offs. Acting justly, loving mercy, and walking humbly with God requires thoughtful consideration of the benefits and costs of our choices.

At the end of the day, the happiness I feel for those 1,000 workers that have kept their jobs is outweighed by the sadness I feel for those who will lose their jobs, those who will pay for this deal, and those who will be hurt by the consequences.

-Jeffrey Bloem is a PhD student in the Department of Applied Economics at the University of Minnesota. He is a graduate of Calvin College. Follow him on Twitter and on his blog