The Same Old Story
I belong to the fifty-plus percent of Americans who are vested in the stock market. Mind you, as a fiscally cautious investor my exposure to the vicissitudes of the S&P 500 is relatively minor; most of Trina’s and my assets are lodged either in lifetime annuities or in modest interest-bearing CD’s. Still, equities do find a place in our portfolio, which has prompted me, during this time of economic turbulence, to watch the Markets more closely.
As anyone who has been paying the least attention knows, the President’s new tariff regime has led to much of this turmoil, which has now leached into the bond market, the trade in dollars and consumer confidence. And of course, the President’s application of his infallible “intuition” is causing the terms and conditions of these tariffs to shift almost on a daily basis.
Commentators seem at a loss the figure out exactly what Donald Trump’s endgame might be since his stated reasons for such an extreme policy don’t make much economic or political sense. But if we remember that Trump has always looked first to his own personal aggrandizement, that’s probably where we ought to focus. What’s in it for him?” we need to ask.
Although the scale of Donald Trump’s self-dealing as President may be unprecedented, it is hardly unique. In the past, tariffs and their enforcement mechanisms created an environment in which corruption easily took root. Part of the reason is that – prior to the introduction of a national income tax in 1913 - the lion’s share of federal revenue came from tariffs. Moreover, more employees worked in customs than any branch of government other than the Post Office.
As part of the effort to curtail tariff fraud and evasion and keep the revenues flowing, inspectors received a cut from all the penalties and fines imposed by the administration (this “moiety system” was meant to incentivize those charged with pursuing violators).
It wasn’t all that difficult to game this sprawling system. The historian Peter Andreas notes that in a single year a customs official working at the New York City office (the busiest in the country), pocketed $56,120 in fines – far more than his salary and, in fact, more than even the U.S. President earned at the time. That official’s name was Chester Arthur who, Andreas writes in Smuggler Nation:
… was so notorious for abusing the (tariff/customs) system that the President asked him to resign – and when he refused, it took years to force him out. Arthur went on to become the twenty-first president of the United States.
The federal government could rely on tariff-generated income in the late 19th century because the bureaucracy was so much smaller and government services practically non-existent: no regulatory state, no Social Security or Medicare, no Forest Service or National Parks, no money for research, no support of education and nutrition. This was a bare-bones operation.
All of which may provide some insight into current efforts to “gut” so many of our Federal Agencies and deprive myriad worthy entities of life-sustaining funds. Mr. Trump and his Project 25 handlers clearly intend to take us back to the Gilded Age – also known as the era of the Robber Barons. Why else would they suggest terminating the income tax (or slowly reducing it as a source of vital revenue) while simultaneously boasting of “trillions of new dollars” brought in through high tariffs? For Trump and the newly minted titans of Silicon Valley this would be an Ayn Randian paradise bereft of social services and other forms of government-funded “waste.”
Can the MAGA cult, whose diehards insist that “Trump is right about everything,” sustain itself through such a catastrophic transition? That’s not something I’d want to place a bet on.
P.S. – If you read one commentary on the clear and present danger now facing us, let it be “A Warning Out of Time” by Aziz Huq. This short essay appears in the May issue of The Atlantic. Unfortunately, we’re already halfway there.
