– September 27, 2019
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Via a friend, I learned of new tariffs on tart cherries from Turkey just in time for the days we’re going to spend talking about the effects of tariffs in principles of macroeconomics. The new tariffs are making Michigan cherry farmers “celebrate” even though they make Americans poorer on net. Meanwhile, probably 99.9% of the people affected by the tariffs don’t know about them, don’t care about them, or believe mistakenly that the tariffs are actually good for the American economy.

Why? The tariffs are obviously good for Michigan cherry farmers. They can sell more cherries at higher prices since the tariffs are protecting them from lower-cost Turkish competition. More money goes into their pockets–and according to the conventional wisdom, this makes us all richer because fewer dollars leave the US. Michigan cherry farmers spend their higher incomes on American-produced goods, which creates a prosperity-boosting ripple effect.

At least that’s the story a lot of people believe. It’s true that less money leaves the US, but it’s also true that we expend more resources and get fewer cherries in the bargain. Cherry consumers obey the law of demand, so at the higher, tariff-inflated cherry prices they buy fewer cherries. This includes people who buy cherries by the bag at the grocery store, and it also includes people who make and sell cherry pies and other products that use cherries. American cherry farmers produce a larger share of US cherry consumption, but overall cherry consumption is lower–and we’re worse off for it.

Cherry tariffs have a second important effect: we waste resources producing cherries in Michigan that would have been cheaper had we bought them from Turkish farmers. This would have freed up the labor, land, tools, and so on that people are currently using to grow cherries in Michigan so it could be redeployed elsewhere.

“Doing what, exactly?” I hear you asking. This is where economics can’t be very specific. The highest-value uses of the resources currently being used to grow cherries have to be discovered, and this is where markets are crucial. American consumers who save money on cherries would do something with it, and the resulting pattern of bids and asks would transmit the relevant knowledge about what is most valuable where.

Suppose the new cherry tariffs cost Americans $1 each, on average. That’s $1 they aren’t spending on other goods and services like apples, iPhones, haircuts, or oil changes. Think it possible that when your local oil change place has to lay someone off that it might have at least something to do with cherry tariffs.

If it’s not $1 people aren’t spending, it’s the $1 people aren’t saving. $1 may not seem like much, but when you add that up across over three hundred million Americans, you’re talking about real money that isn’t available for someone who is applying for a business loan, a mortgage, a home equity line of credit, or something else.

“But what if they don’t spend it or save it and instead just stuff it in a mattress?” At first glance, this seems like a knock-down argument in favor of tariffs (or, for that matter, private profligacy and government spending). As Steven Landsburg argued in his classic defense of Ebenezer Scrooge, however, taking a dollar out of circulation and stuffing it in a mattress (or burning it) reduces the money supply and, therefore, reduces prices ever so slightly. For this reason, I’ve heard it suggested only semi-seriously that if Bill Gates really wanted to redistribute his fortune, he would sell everything, convert it all into hard cash, and then light it on fire. By so doing, he would be renouncing the claims he might have on the fruit of others’ labor and making everyone else’s dollars go just a little bit further.

If tariffs are such a terrible idea, why are they so popular? It’s clear why they’re popular among Michigan cherry farmers and people who depend on the Michigan cherry industry. Cherry tariffs funnel money directly into their pockets. This doesn’t explain, however, why the average voter isn’t outraged. After all, the tariffs have transferred wealth out of our pockets, wasted resources that would be better used elsewhere, and reduced the number of tart cherries we are able to enjoy. What gives?

There are two explanations, both having to do with voters’ incentives. First, there’s the problem of concentrated benefits and dispersed costs. I don’t know exactly how much the new tariffs will cost me, but it probably isn’t much more than a cup of coffee or a meal. I don’t have an incentive to go to the legislative barricades over $5 or $10. Cherry farmers with hundreds of thousands if not millions of dollars on the line, however, have a much stronger incentive to lobby their congressional representatives, make friends at the US Department of Agriculture, and so on. Cherries, cherry pies, cherry jam, and other cherry products are delicious, but my family doesn’t spend enough on cherries every year to make it worth our while to lobby for lower cherry tariffs or track the legislation very closely.

Consider this May 8 entry in the Federal Register that includes a call for comment: “Tart Cherries Grown in the State of Michigan, et al.; Free and Restricted Percentages for the 2018-19 Crop Year and Revision of Grower Diversion Requirements for Tart Cherries.” Curious, I copied and pasted it into Google Docs and discovered that it’s almost 6,000 words long. I got down to “it does not trigger the requirements contained in Executive Order 13771,” before I decided to do something else. And Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs,” is over 900 words long.

Maybe I’m failing in my civic duty. A better explanation, however, would be that even if I were motivated solely by the purest altruism, there are probably more effective things I could be doing than reading page after page after page of cherry marketing regulations. In the words of economists and political scientists, I’m rationally ignorant. In my individual capacity as a citizen, learning a lot about cherry marketing regulation isn’t going to do a whole lot to change things–and so I choose to remain largely ignorant of the subtleties and nuances of cherry marketing regulations and do something else with my time.

“Rational ignorance” helps us understand why cherry growers rather than cherry consumers control the flow of legislation and regulation, but it only goes partway. In his 2007 book The Myth of the Rational Voter: Why Democracies Choose Bad Policies (you can get a short version from the Cato Institute here), Bryan Caplan develops an idea he calls “rational irrationality.”

Rational irrationality is a kind of rational ignorance carried a step further. As Caplan points out, the usual stories about rational ignorance and the like don’t tell us why agricultural subsidies, tariffs, and so on are hugely popular even among the people who are hurt by them. International trade is a perfect example: the average voter likely thinks that the new cherry tariffs will make Americans richer, on net, even though economists have been banging the free-trade drum for about two and a half centuries and even though there is an overwhelming consensus among professional economists that free trade is better for a country than protectionism. In short, most voters hold irrational beliefs about international trade: they claim to want prosperity, but they vote enthusiastically for policies like cherry tariffs that make us poorer.

In a twist on the “rational ignorance” explanation, Caplan points out that it’s simply expensive to change one’s economically irrational beliefs. First, there is a social cost: if all your friends think cherry tariffs will Make America Great Again, then it could be socially awkward to be the person who is jumping into the conversation with “actually…” followed by a long disquisition on the law of comparative advantage. 

Second, updating your irrational beliefs carries high costs and low benefits. Learning economics is pretty hard, and the better vote you cast when you go into the voting booth armed with your new understanding of the economics of international trade isn’t likely to actually change anything. As much as I would like to think we all have the moral fiber necessary to help us overcome overwhelming incentives, it simply isn’t a very good description of the world we live in.

Tariffs make us worse off, but they are relatively easy to implement and hard to repeal because of the incentives inherent in the political system. Understanding a problem is the first step toward fixing it, however, and with the 100th birthday of the economist James M. Buchanan coming up, maybe we should be hopeful, if not necessarily optimistic, that public understanding of economics will someday advance to the point that tariffs are just a little bit lower than they are now. 

If the result of all the efforts of all the economists over all of history results in tariffs that are one percentage point lower than they would otherwise be, we will have earned our keep.

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Art Carden

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Art Carden is a Senior Fellow at the American Institute for Economic Research. He is also an Associate Professor of Economics at Samford University in Birmingham, Alabama.

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