Quotulatiousness

December 30, 2025

Tariffs are an economic burden, even when you claim they’re paid by foreigners

Filed under: Business, Economics, Government, USA — Tags: , , , , — Nicholas @ 04:00

At the Foundation for Economic Education, David Hebert responds to a recent pro-tariff puff piece from financial columnist, Matthew Lynn:

As Lynn acknowledges, “the tariffs are a tax”. Because they are a tax, they are going to be paid by someone in some form. You can’t have money flowing into the Treasury without someone paying that extra money in some way. Broadly speaking, we can divide the potential payors of American-imposed tariffs into three camps: American consumers, American importers, and foreigners.

One of the oft-cited effects of a tariff is to reduce the amount of imports coming into America. This makes sense and is in fact one of the numerous goals administration officials have pointed to. Insofar as American consumers and importers end up paying the tariff, they will buy less of the now-more-expensive foreign products. We’re already seeing this happen in the US, which Lynn alludes to throughout his article.

If foreigners pay the tariff, they’ll sell less of the now-tariffed goods to the US. This will, as President Trump and others have correctly identified, hurt their bottom line. To offset at least some of this, these countries will try to sell more of their products to their domestic consumers or consumers in countries other than the US. This is exactly what we have seen and what we are seeing, as other countries around the world are securing new trade deals with one another and deliberately excluding the United States from said deals.

So, Lynn is correct to point out that foreign corporations have incurred costs because of the Trump tariffs. However, despite his repeated implication to the contrary, this is not money that goes to the US Treasury. Volkswagen, for example, has raised the price of its 2026 models by up to 6.5 percent, largely due to tariffs, and has indicated that this is just the beginning. That’s more money coming out of American consumers’ pockets. At these higher prices, American consumers are purchasing fewer Volkswagens than last year. Volkswagen’s losses from the tariffs include an almost 30 percent decline in profits from auto sales. Importantly, sales that do not happen count toward the reduced profit that Volkswagen reported but generate no tariff revenue for the Treasury to collect. That Lynn, a financial commentator, does not understand this distinction is deeply troubling.

Who Really Pays the Tariff?

Lynn’s central argument rests on a fundamental confusion between what economists refer to as the “legal incidence” and the “economic incidence” of a tax. Legally, because tariffs are a tax on imports, it is the US importers who must write the check to Customs and Border Protection. But this says nothing about who actually pays the tariff.

For example, when landlords’ property taxes go up, who pays? The landlord will obviously write the check to the county assessor, but unless Lynn thinks that landlords are running charities, that cost gets passed on to tenants in the form of higher rent, less frequent maintenance, or fewer included benefits (utilities or access to designated parking, for example). The legal incidence falls on the landlord, but the economic incidence falls disproportionately on renters, i.e., young Americans already besieged by high housing costs.

Tariffs work the same way. US Customs and Border Protection bills the American importer directly, which is the legal incidence of the tariff. But the economic burden gets distributed among American consumers, American importers, and foreign exporters, depending on the particulars of the individual markets.

Lynn cites the Harvard Pricing Lab finding an approximately 20 percent “pass-through rate,” meaning that American consumers are only paying about one-fifth of the tariff costs. He treats this as a permanent feature of the tariff regime and as proof that foreigners are footing the bill. But the question isn’t who writes the check today, it’s who bears the cost over time. And here, the evidence directly contradicts Lynn’s fables.

As we have seen, pass-through rates are not static, but evolve over time as markets adjust. And every piece of evidence suggests that the pass-through rate has been and is continuing to rise rapidly. Goldman Sachs and the Council on Foreign Relations tracked the evolution over just this administration. Their findings are stunning: In June, US businesses absorbed about 64 percent of the tariff costs, American consumers about 22 percent, and foreign exporters about 14 percent in the form of reduced profits. Just four months later, American businesses absorbed just 27 percent, while American consumers absorbed 55 percent and exporters absorbed 18 percent. Projections for 2026 continue the trend with consumers absorbing 67 percent, exporters 25 percent, and importers just 8 percent.

The logic behind this is simple and has been echoed by President Trump and Scott Bessent themselves. In the initial months following Liberation Day, American importers could not quickly shift to alternative suppliers, giving them little leverage to demand price cuts from existing foreign vendors. Many American importers also believed (or hoped?) that the tariffs were simply a negotiating tool that would be bargained away. Having built up inventories before April, they were able to avoid raising consumer prices, with the belief that the “temporary pains would be worth the long term gains.”

That’s no longer the case. As the BLS notes in its latest import price index report, the price of imports has barely changed. This matters because US importers, not foreign sellers, are legally required to write the tariff check. American buyers pay the foreign company’s price, then pay the tariff on top of it. If foreigners were truly absorbing the tariffs, they’d have to lower their prices to compensate, and we would see a decrease in the import price index. We haven’t. The index is flat, which is evidence that the burden of the tariff is, as economists warned, being paid disproportionately by Americans in one form or another. As the Council on Foreign Relations analysis points out, by October, importers have “had time to seek alternative suppliers, giving them a bit more negotiating leverage.” More importantly, the “trade deals” that the administration has inked have made it clear that substantially higher tariffs are here to stay. All of this gives importers and retailers good reason to continue passing more of the costs along to consumers.

We are already seeing evidence of this happening. The Federal Reserve Bank of Boston’s survey of small and medium-sized businesses, for example, confirms this dynamic. Firms expecting tariffs to persist for a year or longer plan to pass through three times more of their cost increases to consumers than firms expecting short-lived tariffs. As of August, over 45 percent of affected businesses expected their costs to be impacted for longer than a year.

But how does all of this compare to the pass-through rate felt during the 2018–2019 tariffs? The Harvard Pricing Lab — the same data that Lynn cites — actually undermines his entire argument. After just six months, the 2025 tariff pass-through rate is indeed around 20 percent. But if we compare this to the 2018 tariffs, the difference is night and day. After Trump’s first-term tariffs, the pass-through rate stayed under 5 percent after a full year. This isn’t evidence that these tariffs are working. It’s evidence that these tariffs are hitting consumers harder and faster than the previous round.

December 14, 2025

QotD: Why are Castles?

Filed under: Europe, Government, History, Military, Quotations — Tags: , , , — Nicholas @ 01:00

Castles differ from that other standby of medieval fortifications — city walls — in one crucial way, and that difference sheds a lot of light on their military application.

The walls of Cittadella, Italy (photo by Edoardo Bortoli, CC BY-SA 4.0).

A massive city wall, like the one shown above, has the very clear purpose of limiting access to a city or town. Close the gates, and no one can get in. Try to get in, and we’ll shoot you! The walls are meant to protect the settlement, both its inhabitants as well as its structures and physical wealth.

A castle, on the other hand, has a much smaller footprint than a city. It might only be a few buildings and a courtyard. Indeed, as we’ll see later in the series, the earliest castles (the classic “motte and bailey” design) were relatively small fortifications of earth and timber, capable of being built in a matter of days.

Image of a motte and bailey style castle. This particular one would take much longer than a few days to make, but it’s worth noting that even this “primitive” castle of timber and earth would have been a serious problem for any attacker. (Duncan Grey – Display Board of Huntingdon Hill Motte and Bailey Castle – CC BY-SA 2.0).

Especially if a lord was not in residence, a castle might only have a garrison of a few dozen, a far cry from the walls around urban centers that protected thousands or tens of thousands of lives!

So why bother?

Because, unlike a city wall which is meant to defend everything within it, a castle isn’t built in order to protect a tiny bit of land on top of a hill. Instead (say it with me, class): a castle is built to deny an enemy freedom of movement.

It’s not about what’s inside the walls. It’s about what’s outside the walls.

A castle allows you to control a disproportionately large area of land.

That control matters a great deal, because land was the source of wealth in pre-modern contexts. In societies where 80-95% of the populace were farmers, wealth and power came from controlling arable land. Capital did not derive principally from urban centers — wealthy and valuable as those were.1

Before we go further into how that impacts war and politics, I want to take a moment and dig deeper into why a castle allows its owner to control the land, because it’s something that’s usually glossed over, and understanding this dynamic will have a significant bearing on everything else we talk about here.

The Ugly Nature of Rule

As I’ve explained before, in order to actually rule an area, the ruler needs to have a monopoly on legitimate violence within that area. The emphasis here is on legitimate violence, which is significantly different than just “brute force”; force alone will always be a temporary and unstable method of rule. [You can read this explainer for more on that.] A ruler’s legitimacy allows that monopoly to continue unopposed.

One of the main reasons why a ruler needs that monopoly is that it allows for the collection of resources for use by the state. I’m going to lump all this together under the word “taxes”, but to be clear: in pre-modern societies, “taxes” could include manual labor commitments, payments in kind (in crops, in material, etc.), or in cash.

For all that, the ruler needs his agents to have unfettered access to the country he aims to rule; his tax collectors, law enforcers, merchants, judges, and certainly his lords and military all need to be able to move freely throughout the realm in order to do all the necessary business of maintaining law, order, and the collection of taxes.

Those are the most basic elements of statehood, the most basic mechanism of ordinary, everyday governing.

Castles fit into that system the same as any other governmental or administrative center: it’s a place to collect and store resources, a place for state agents to shelter, a locale for arbitration of justice, a residence for a lord … A castle can be a courthouse, police station, secret service listening post, governor’s mansion, and revenue service office all in one.

And a castle is fortified for much the same reasons that governmental buildings across history have always been fortified.

Even if the majority of a subject populace believes your rule is legitimate — a big if! — then there will still be people who chafe at the collection of taxes and who feel wronged by the administration of justice. Those outliers — if indeed they even are outliers — might try something stupid, like taking back their resources or stabbing your thugs peace-loving tax collectors. Better to have everything locked up, right?

And if the castle is large, and visibly imposing? Well that doesn’t hurt, does it?

That’s the every-day purpose of castles, at least in the sense that on any average Tuesday morning, that’s what the castle is for. That’s what people in the castle are doing. Ruling.

Eric Falden, “What Were Castles Actually For?”, Falden’s Forge, 2025-07-29.

    1. There are exceptions, of course, such as thassalocratic polities. But sea-faring societies don’t built castles and are therefore WAY outside the bounds of this discussion.

December 4, 2025

The Swiss vote overwhelmingly against a new wealth tax

Filed under: Europe, Government, Politics, USA — Tags: , , , — Nicholas @ 04:00

As the California government wants to impose a new wealth tax, it’s worth checking how similar schemes are viewed in other jurisdictions. The Swiss voters were given an opportunity to scalp their very richest citizens and permanent residents with a proposed wealth tax, but it went down with 78% voting against it:

“Switzerland on Sunday overwhelmingly rejected a proposed 50% tax on inherited fortunes of 50 million Swiss francs ($62 million) or more, with 78% of votes against the plan, an outcome that even exceeded the two-thirds opposition indicated in polls,” Reuters reported this week.

All Swiss cantons already tax assessed gross worldwide assets, minus debts and with exceptions, making it one of the few countries in the world to retain a wealth tax. But competition among cantons keeps the tax burden relatively low and, as the Tax Foundation notes, “the Swiss wealth tax acts as a substitute for a capital gains tax and an estate tax, which are common in other countries”. The referendum would have imposed an additional and very steep national tax.

This was actually the second recent failed attempt to impose a national wealth tax on inheritances. Seventy-one percent of Swiss voters rejected a 2015 proposal for a 20 percent tax on estates and gifts of over 2 million francs. The revenues would have been earmarked for old-age pensions.

‘Inequality in Opulence is Better than Equality in Poverty’

The 2025 tax scheme openly played to envy. It was targeted at combating “inequality” by seizing half the assets of the rich and allocating proceeds to offset the climate damage they allegedly cause.

Finance Minister Karin Keller-Sutter opposed the proposal, warning that “many wealthy people would simply emigrate to avoid the tax and keep their wealth”. She also pointed out that while all but two of the country’s 26 cantons tax inheritances, “the people have abolished inheritance tax for children and spouses in many cantons”. She added, “I think it is right that what was developed in the nuclear family can be passed on”.

Philosopher Olivier Massin, a professor at the University of Neuchâtel, criticized the motivation driving much of the campaign for the tax. He wrote that “inequality is by nature neither good nor bad” and that envy is the main driver of egalitarianism. “Envy being inglorious, we grimace in indignation, making what is ultimately only the expression of resentment a moral cause.”

Massin added that “inequality in opulence is better than equality in poverty”.

And Switzerland is undoubtedly “opulent” — or, at least, prosperous — with a per capita gross domestic product of $103,669 as compared to $85,809 for the U.S., according to the World Bank. It builds that wealth with a second-place score in the current Index of Economic Freedom (the U.S. is now ranked at 26), suggesting that less government meddling in economic matters is the best way to increase prosperity.

November 26, 2025

The importance of “a bicycle shop in Bermuda” to Mark Carney’s financial affairs

Filed under: Cancon, Government, Law, Media, Politics — Tags: , , , , , , — Nicholas @ 03:00

It’s no secret that Prime Minister Mark Carney is a rich man. When he entered politics, he put his financial holdings into a blind trust to satisfy the federal government’s ethical and conflict of interest rules. But through this arrangement, he still owns significant positions in companies whose fortunes can (and are) affected by the actions of his government. On Monday, this was discussed at some length by a Parliamentary committee in Ottawa, as reported on his Substack by Dan Knight:

On November 24, in a basement room of West Block, MPs spent two hours asking a very simple question that everyone in Ottawa is suddenly pretending is complicated:

If Mark Carney gets richer when Brookfield does better, and Brookfield is running big climate and infrastructure funds out of what one MP described as a bicycle shop in Bermuda, how on earth is that not a problem for the Prime Minister of Canada?

The man in the hot seat was Justin Beber, Chief Operating Officer of Brookfield Corporation. His job was to calm everyone down. Instead, under oath, he calmly confirmed just about everything the government would rather you didn’t think about too hard.

He started with the corporate biography. Brookfield, he reminded the committee, is a massive global investor headquartered in Toronto. It has more than 600 direct employees in Canada, more than 15,000 workers in its operating businesses, and it paid over $750 million in federal tax last year, not counting provincial and local taxes. All of that is true. None of it changes the basic conflict: the sitting Prime Minister still has long-term compensation that rises when Brookfield, and certain Brookfield funds, succeed.

Conservative MP Michael Barrett went straight there. He asked Beber whether, when Brookfield’s value increases, the value of stock options and deferred share units also increases. Beber said yes. Then Barrett asked whether that changes if those options and units are placed in a blind trust. Beber said no. It does not. The economic reality is exactly the same: if Brookfield’s share price goes up, those instruments are worth more, whether they are in Mark Carney’s brokerage account or parked with a trustee behind frosted glass.

[…]

Cooper spelled out why it matters. Carney, he said, knows what kind of public policy could improve the success of the fund. The fund’s success determines his future bonus pay. Without knowing who the investors are or all of the fund’s positions, Canadians have no way to see where those incentives may line up — or collide — with the national interest. These are not theoretical conflicts. They are simply invisible ones.

Eventually, after some confusion over terminology, Beber did confirm that Transition Fund I has invested in 20 companies and that their names are listed in the ethics annex. Only one of those firms, Entropy, is in Canada. The rest of the portfolio, and the roster of big-money investors behind it, sits offshore, beyond any serious public scrutiny, while the Prime Minister’s upside rides on how well those bets pay off.

The tax side of the story is just as revealing. Bloc MP Luc Thériault put it bluntly: tax avoidance is not a conspiracy theory, it is a business model so widespread that the OECD and G20 built an entire 15 percent global minimum tax regime to deal with it. He cited Canada Revenue Agency estimates of tens of billions of dollars in lost federal revenue each year, including billions attributable specifically to tax avoidance. He asked Beber whether Brookfield engages in tax avoidance. Beber refused to use the term. “We practice tax planning”, he said, like “any other company”. He repeated that Brookfield pays all taxes that are “due and payable” in the jurisdictions where it operates.

That phrase sounds reassuring until you remember who writes the rules that decide what is “due and payable”, and who benefits when the system can be routed through Bermuda via something that, on paper, looks like a bicycle shop.

[…]

At some point, the pattern becomes impossible to ignore. The Prime Minister of Canada left a giant global investor with standard executive incentives, kept his vested long-term instruments, retained a carried interest in a $15 billion Bermuda-run climate fund that will operate into the 2030s, and knows exactly which sectors that firm is betting on. His government is now pouring public money and regulatory support into many of those same sectors. The firm uses structures justified as “tax transparent” that just happen to run through low-tax jurisdictions, including one address a Conservative MP described as a bicycle shop in Bermuda. The man running the firm’s operations will not say the Prime Minister’s potential upside is small. He will not say the global minimum tax is being met in practice. He will not disclose who the fund’s other investors are.

You do not need to be an expert in securities law to see the conflict. You do not need to be an expert in global taxation to see why a bicycle-shop registration in Bermuda is not about cycling. You just need to watch what they are desperate not to talk about directly: the hard link between public power in Ottawa and private profit offshore, wrapped in legal jargon, buried in annexes, and shielded from sunlight by a blind trust and a lot of very careful answers.

November 22, 2025

Democrats may come to regret their “refuse illegal orders” messaging

Filed under: Bureaucracy, Government, USA — Tags: , , , , , — Nicholas @ 04:00

Many current and former military folks ridiculed the Democrats for their sudden discovery of the right (and obligation) to refuse illegal orders … which has been part of western military doctrine since the end of World War Two. I poked some fun at them as well, but J.D. Tuccille points out that it’s a weird stance for the party that is always fully in favour of government agents’ maximizing their powers:

I favor government employees defying orders and sabotaging the instruments of the state as much as the next libertarian (well, maybe a little more). But I suspect the Democratic lawmakers urging members of the military and the intelligence community to “refuse illegal orders” haven’t entirely thought through their positions. While their advice is commendable so far as it goes, as officials of a political party known for its expansive view of the role of government their words are likely to come back and bite them on their collective asses. It’s hard to imagine them being so enthusiastic about a reboot of this message directed at the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF), Environmental Protection Agency (EPA), and IRS agents under a Democratic administration.

Lawmakers Say: Refuse Illegal Orders

In a video message released this week, Democratic Sens. Elissa Slotkin of Michigan and Mark Kelly of Arizona, and Reps. Chris Deluzio of Pennsylvania, Maggie Goodlander of New Hampshire, Chrissy Houlahan of Pennsylvania, and Jason Crow of Colorado, introduce themselves with emphasis on their past roles in the military and intelligence agencies.

“We want to speak directly to members of the military and the intelligence community,” they say. “We know you are under enormous stress and pressure right now. Americans trust their military, but that trust is at risk. This administration is pitting our uniformed military and intelligence community professionals against American citizens. Like us, you all swore an oath to protect and defend this Constitution. And right now, the threats to our Constitution aren’t just coming from abroad, but from right here at home.”

That’s a nice lead-in. Then we get to the heart of the message: “Our laws are clear. You can refuse illegal orders. You can refuse illegal orders. You must refuse illegal orders. No one has to carry out orders that violate the law or our Constitution.”

Stirring stuff. And accurate. Referencing a Vietnam War-era atrocity, retired General Philip M. Breedlove, former Supreme Allied Commander in Europe, told NewsNation regarding the video, “Since My Lai, the way we have interpreted this is, as a combatant, as a military officer, you are not obligated, not obligated, to carry out an illegal or an immoral order. You simply refuse the order.”

[…]

Take Advice to Refuse Illegal Orders Seriously, and Apply It Universally

So, if we’re to take seriously — and I believe we are well-advised to do so — the six Democratic lawmakers’ advice that “no one has to carry out orders that violate the law or our Constitution,” there are interesting implications for our political culture. That’s because much of what the federal government does on a daily basis flouts constitutional protections and offends human decency.

So, how would Slotkin and Kelly, and Deluzio, Goodlander, Houlahan, and Crow, respond to campaign a few years from now under the next Democratic administration urging ATF and IRS agents, federal regulators, and general workers to refuse orders? How would they treat an attempt to recruit more whistleblowers like Manning and Edward Snowden?

Don’t get me wrong, I think the advice the lawmakers offer is praiseworthy. But I look forward to seeing it applied universally and becoming a permanent feature of our dealings with government. I suspect that likelihood hasn’t occurred to those six legislators, but thanks to them for showing the way.

In counterpoint to my original take on the issue, on the social media site formerly known as Twitter, Cynical Publius expresses his belief that the Democrats are actually encouraging disobedience to legal orders that they happen to dislike:

I’m not sure I’ve ever been angrier at Democrats than I am right now.

As a career Army officer, I take this latest nefarious chicanery from these filthy Congressional Democrat veterans quite personally,

It is loathsome and disgusting. You know, I know, they know and even their brainwashed acolytes know that what they are REALLY doing is encouraging active duty service members to refuse to follow lawful orders under the guise of pretending the orders are “unlawful”.

What these Democrat filth are doing is encouraging a form of military coup where service members get to decide not to do things they disagree with politically by pretending those otherwise lawful things are “unlawful”.

This is the greatest threat to US internal stability since the last time Democrats started a civil war. A military ruled by politics is no military at all. Instead, it is a group of armed thugs akin to the South American military juntas of the 1970s.

I cannot overstate what an extreme threat this situation is to our nation.

This is a precursor to civil war, initiated and deliberately created by traitorous elected officials hiding behind the honor of the uniform they once wore but now disgraced.

I have never been angrier.🤬

October 15, 2025

QotD: Taxes in a zero elasticity world

Filed under: Economics, Government, Quotations — Tags: , , , — Nicholas @ 01:00

The problem with most politicians is when they enact a law, they seldom ask, “Then what?” They assume a world of what economists call zero elasticity wherein people behave after a tax is imposed just as they behaved before the tax was imposed and the only difference is that more money comes into the government’s tax coffers. The long-term effect of a wealth tax is that people will try to avoid it by not accumulating as much wealth or concealing the wealth they accumulate.

Walter E. Williams, “Let’s Not Waste a Crisis”, Townhall.com, 2020-05-12.

September 27, 2025

Canada’s supply management cartels benefit “an affluent few, burdening the poorest, and creating needless friction with allies and trading partners”

Filed under: Bureaucracy, Business, Cancon, Government, Politics, USA — Tags: , , , , , — Nicholas @ 04:00

In Reason, J.D. Tuccille explains to an American audience why Donald Trump has been playing hardball with Canada on trade issues:

President Donald Trump justifies his enthusiasm for prohibitively high tariffs by insisting the U.S. is being “ripped off” by other countries. It’s a strange argument, since people only trade with one another if they see benefit in the deal. But the president is right to complain that other governments impose trade barriers of their own that are often every bit as burdensome as the high taxes Americans pay on imports. If foreign officials honestly wish to restore something like free trade, they should emphasize dropping their own barriers in return for lower U.S. levies. Case in point: Canada, which sends three-quarters of its exports across its southern border but imposes damaging restrictions on imports.

In a February proclamation of trade war on the world, Trump announced, “the United States will no longer tolerate being ripped off” and complained that “our trading partners keep their markets closed to U.S. exports”. The first part of that claim is silly. But the second part has a kernel of truth.

A glimpse at that truth came in June when Trump angrily posted that Canada “has just announced that they are putting a Digital Services Tax on our American Technology Companies” and, as a result, “we are hereby terminating ALL discussions on Trade with Canada”.

The threat had the desired impact. Canada rescinded the tax immediately before it was supposed to take effect. While nominally targeted at all large tech companies, in practice that meant American companies and everybody knew it, since U.S. firms dominate the industry.

But that was only the tip of the iceberg when it comes to Canada’s trade barriers. Also in June, international trade attorney Lawrence Herman, a senior fellow at Canada’s C.D. Howe Institute, bemoaned proposed legislation in the Canadian parliament that he characterized as “yet another regrettable effort to enshrine Canada’s Soviet-style supply management system in the statute books.”

He added, “the bill would prohibit any increase in imports of supply-managed goods – dairy products, eggs and poultry – under current or future trade agreements”.

The legislation about which Herman complained has since become law.

[…]

More skeptically, Fraser Institute senior fellow Fred McMahon notes, “supply management is uniquely Canadian. No other country has such a system. And for good reason. It’s odious policy, favouring an affluent few, burdening the poorest, and creating needless friction with allies and trading partners.”

McMahon elaborates that the supply management process is controlled by agricultural management boards which “employ a variety of tools, including quotas and tariffs, and a large bureaucracy to block international and interprovincial trade and deprive Canadians of choice in dairy, eggs and poultry”.

But as we’ve seen so many times over the years, it disproportionally benefits Quebec, and the Liberals desperately need those Quebec votes to stay in power, so the government would rather destroy the national economy rather than give up on our Stalinist supply management cartels.

September 18, 2025

NYC smokers get most of their cigarettes from the black market

Filed under: Bureaucracy, Business, Government, Health, USA — Tags: , , , , — Nicholas @ 03:00

Smokers in New York City pay very high taxes for their nicotine delivery systems, so it shouldn’t have surprised public health officials that many would turn to the black market … but the state and local taxes add so much to the price of a pack of cigarettes that most of the supply now comes from the black market:

“Enjoyin’ a cigarette at busy Time Square, NYC” by Mel Schmidt is licensed under CC BY 2.0 .

In 2023, New York raised its cigarette excise tax by $1.00 to $5.35 per pack. New York City imposes its own tax of $1.50 per pack, and that’s before you include federal and sales taxes, making for the most expensive smokes in the country. That is, cigarettes are expensive in New York for those who pay those taxes. But state officials were warned that such a high rate would drive consumers to the black market, and that’s exactly what happened. According to recent research, more New Yorkers than ever are turning to tax-evading illicit sources for their nicotine needs.

Taxes Into Good Health — or Not

When the New York excise tax was hiked, the Albany Times-Union noted, “it’s the nation’s highest and brings a pack of cigarettes at many retailers to about $12 … Health advocates hailed the increase, saying it will lead to fewer smokers and cancer deaths. Anti-tax groups, though, predicted it will increase trafficking in illicit untaxed cigarettes in the state.”

Health advocates like taxing vices on the theory that raising taxes simultaneously generates government revenue while escalating prices for allegedly bad things — like cigarettes — out of reach of many consumers. What they rarely consider is that there are other options, such as buying cigarettes smuggled from jurisdictions with lower levies.

“New York has created a cigarette-smuggling empire, and the worst is yet to come,” Todd Nesbit, an economics professor at Ball State University, and Michael LaFaive, of the Mackinac Center for Public Policy, warned even before the 2023 tax increase. “It’s the unavoidable consequence of the state’s decades long history of raising the cigarette tax.”

“If enacted, consumers will go across borders to do their shopping or rely on black-market suppliers,” agreed the Tax Foundation’s Adam Hoffer. “Tax revenues will fall, illicit activities will thrive, and law enforcement spending will need to increase.”

In fact, as Nesbit, LaFaive, and Hoffer emphasized, even before the dollar-per-pack tax hike, more than half of cigarettes sold in the state of New York lacked local tax stamps and were smuggled from elsewhere. Since 2023, illicit dealers appear to have claimed even more market share.

September 15, 2025

QotD: Federal equalization payments

Filed under: Cancon, Economics, Government, Quotations — Tags: , , — Nicholas @ 01:00

Perhaps the most fascinating component of [Prof. Thomas] Courchene’s paper is his subtle discussion of what, precisely, equalization is for. Is it meant to render every province in Canada equally well off in general? Or is it meant only to correct inequities introduced by the provinces’ different geographic and natural circumstances? Or is it meant even more narrowly, as a scheme to ensure that the federal government doesn’t accidentally worsen those inequities? Or it is meant merely to discourage culturally harmful labour migration?

There is no official answer to this question, and all the possible answers lead to moral and mathematical absurdities. It’s not just that we don’t know whether equalization works, as Terence Corcoran observed in the Financial Post yesterday. We literally don’t even know what it’s meant to accomplish

Colby Cosh, “Economist plays ethicist”, National Post, 2005-09-01.

August 25, 2025

QotD: The rise of the state … the rise of the egregore

Filed under: Books, Bureaucracy, Government, History, Quotations — Tags: , , , , , — Nicholas @ 01:00

You may have noticed that [Against the Grain author] James C. Scott is not a fan of the state. He tends to describe it as a sort of alien intrusion into the human world, an aggressive meme that’s colonized first our material environment and then our minds, imposing its demands for legibility in order to expropriate innocent peasants:

    Peasantries with long experience of on-the-ground statecraft have always understood that the state is a recording, registering, and measuring machine. So when a government surveyor arrives with a plane table, or census takers come with their clipboards and questionnaires to register households, the subjects understand that trouble in the form of conscription, forced labor, land seizures, head taxes, or new taxes on cropland cannot be far behind. They understand implicitly that behind the coercive machinery lie piles of paperwork: lists, documents, tax rolls, population registers, regulations, requisitions, orders — paperwork that is for the most part mystifying and beyond their ken. The firm identification in their minds between paper documents and the source of their oppression has meant that the first act of many peasant rebellions has been to burn down the local records office where these documents are housed. Grasping the fact that the state saw its land and subjects through record keeping, the peasantry implicitly assumed that blinding the state might end their woes. As an ancient Sumerian saying aptly puts it: “You can have a king and you can have a lord, but the man to fear is the tax collector”.

This “state as egregore” language recurs throughout the book. Scott writes that the state “arises by harnessing the late Neolithic grain and manpower module as a basis of control and appropriation”. It “battens itself” on the concentration of grain and manpower to “maximiz[e] the possibilities of appropriation, stratification, and inequality”, and with its birth “thousands of cultivators, artisans, traders, and laborers [are] … repurposed as subjects and … counted, taxed, conscripted, put to work, and subordinated to a new form of control”.1 But it’s vital to remember that this metaphor is just a metaphor: the state isn’t actually an alien brainworm or a memetic infohazard that will hijack your neocortex the moment you set eyes on a triumphal arch and force you to spend the rest of your life making lists of things and renaming roads with numbers;2 it’s just an institution that people have invented, because hierarchy and inequality are inescapable facts of life in a society of any scale and the state is a particularly effective bundle of social technologies to leverage those hierarchies. There’s a reason that, after states had their “pristine” invention at least three separate times, they’ve proliferated across every part of the world that can support them!

But more interesting than “are we better off with the state?” is to ask ourselves, as Ronald Blythe does in Akenfield, what has been lost. Here Scott offers some fascinating musings on the way not merely the state but the entire agriculturalist life-world limits us:

    We might … think of hunters and gatherers as having an entire library of almanacs: one for natural stands of cereals, subdivided into wheats, barleys and oats; one for forest nuts and fruits, subdivided into acorns, beechnuts, and various berries; one for fishing, subdivided by shellfish, eels, herring, and shad; and so on. … one might think of hunters and gatherers as attentive to the distinct metronome of a great diversity of natural rhythms. Farmers, especially fixed-field, cereal-grain farmers, are largely confined to a single food web, and their routines are geared to its particular tempo. … It is no exaggeration to say that hunting and foraging are, in terms of complexity, as different from cereal-grain farming as cereal-grain farming is, in turn, removed from repetitive work on a modern assembly line. Each step represents a substantial narrowing of focus and a simplification of tasks.

The Neolithic Revolution, he argues, was like the Industrial Revolution, a great boost to human productivity and social complexity but at the same time a de-skilling. The surface area of our contact with the world shrank from hundreds of plants and animals, used in different ways at different times of year, to a mere handful of domesticates whose biological clocks became the measure of our lives. Of course, the modern contact area is smaller still — dimensional lumber purchased from a store in place of felling and milling your own trees, natural gas at the turn of a knob with nary a need to build a fire — and is sometimes reduced all the way to your fingertip on a smooth glass screen. The ease and efficiency are undeniable, and I’m sure a forager or premodern farmer would kill for Home Depot and seamless pizza delivery (I certainly wouldn’t want to give them up). But there has been “a contraction of our species’ attention to and practical knowledge of the natural world” because that knowledge and attention is no longer necessary, and I think that Scott is right to suggest that there is something richer about a more extensive involvement with the world. That said, Scott’s case is somewhat overstated: after all, even hunter-gatherers have specialized craftsmen who engage deeply with particular materials at the expense of other endeavors, and farmers3 have a far more intimate relationship with their animals than a hunter does with his many different kinds of prey. Similarly, farmers may be on one particular bit of land but (especially in a preindustrial context) all that plowing and hedging and draining and spiling, not to mention the gathering of various woodland foodstuffs, can rival forager familiarity when it comes to their bit of landscape. (My new favorite poem is Kipling’s “The Land“, on just this idea.)

Scott closes the book with an elegy for the “late barbarians”, who had the best of both worlds: healthier and longer-lived than farmers, and with greater leisure, they were “not subordinated or domesticated to the hierarchical social order of sedentary agriculture and the state” but were still able to benefit tremendously from lucrative trade with those states. Unfortunately, much of that trade was in weaker non-state peoples whom they captured and sold as agricultural slaves, thereby “reinforc[ing] the state core at the expense of their fellow barbarians”, and much of the rest was in their own martial skills as mercenaries (which of course also served to protect and expand the influence of the state). It’s a salutary reminder for the aspiring modern barbarian: the best place to be is just outside the purview of the state, where you can reap its benefits4 without being under its control. But beware, because in a world of states even those “outside the map” must fill niches created by the state. It’s great to have a cushy work-from-home laptop job that lets you live somewhere nice, with trees and no screaming meth-heads on your subway commute, but more land comes under the plow every year, and your time, too, may come.

Jane Psmith, “REVIEW: Against the Grain, by James C. Scott”, Mr. and Mrs. Psmith’s Bookshelf, 2023-08-21.

  1. And of course Scott argues that the state is a parasite in the most literal way, since the word derives from the Greek παρά “beside” + σῖτος “grain.”
  2. Although this would be a pretty sweet novel, sort of a Tim Powers alt-history: anarcho-primitivist occultists go back in time to ancient Mesopotamia to destroy the me of kingship and render the state metaphysically impossible. Someone write this.
  3. Like Scott, in fact, who keeps sheep on 46 acres of Connecticut. There’s a funny little aside in the book where he complains about people using “sheeplike” in a derogatory sense, given that we’ve spent several millennia selectively breeding sheep to behave that way.
  4. Better yet, wait for the peasants to do the reaping then ride in on your shaggy little ponies and take it all. Uh, metaphorically.

August 9, 2025

Carney hints at backing away from Trudeau’s digital policy catastrophes

Filed under: Cancon, Government, Media, Technology, USA — Tags: , , , , , , , — Nicholas @ 04:00

Michael Geist on the possibility that Prime Minister Mark Carney is starting to recognize just how damaging to Canadian interests the previous government’s various online bills have been:

Digital policies did not play a prominent role in the last election given the intense focus on the Canada-U.S. relationship. Prime Minister Mark Carney started as a bit of a blank slate on the issue, but over the past few months a trend has emerged as he distances himself from the Justin Trudeau approach with important shifts on telecom, taxation, and the regulation of artificial intelligence. Further, recent hints of an openness to re-considering the Online News Act and heightened pressure from the U.S. on the Online Streaming Act suggests that a full overhaul may be a possibility.

This week’s decision to let the CRTC’s decision on wholesale access to fibre broadband networks stand is a case in point. Last November, the Justin Trudeau-led government sent the CRTC’s initial ruling back to the Commission for reconsideration, noting that it “has concerns about future and ongoing investments in broadband infrastructure and services in Ontario and Quebec, including in rural, remote and Indigenous communities, and concerns that those investments could, if they are unprofitable, lead to a decline in quality and consumer choice in the retail Internet services market”. Nine months later, the CRTC came back with the roughly same ruling. That led to yet another request for a cabinet review but this time the government stood by the CRTC despite significant industry opposition. New leader, dramatically new approach.

The CRTC is example was preceded by the decision to eliminate the digital services tax. While the strategic approach seemed misguided – dropping the DST should have garnered more than just an agreement from the U.S. to return to the bargaining table – some noted at the time that perhaps Carney wasn’t a supporter of the DST and had few qualms with rescinding it. The tax had been a foundational part of the government’s campaign to “make web giants pay” but in a matter of 72 hours in late June it was gone.

The government has also shifted its approach on AI regulation. After months of supporting Bill C-27 and the EU-style AI regulatory approach, a new government brought a new minister and a new approach. Evan Solomon, the newly installed AI and Digital Innovation Minister, used his first public speech as minister to pledge that Canada would move away from “over-indexing on warnings and regulation” on AI. That too represents a significant shift in approach, particularly since Trudeau had embraced the EU style regulatory model.

Then there is the Online News Act and Online Streaming Act. When asked about the Online News Act this week, Carney seemed to suggest he was open to change, stating “this government is a big believer in the value of … local news and the importance of ensuring that that is disseminated as widely and as quickly as possible. So, we will look for all avenues to do that.” While that isn’t a clear commitment to change, it is far from an ironclad commitment to legislation is viewed by many to have done more harm than good. Further, reports indicate that the U.S. Congress is escalating pressure to rescind the Online Streaming Act, which may put that law on the chopping block, particularly if a court appeal strikes down elements of the bill or the CRTC’s implementation of the law puts the bill on the Trump radar screen.

July 21, 2025

QotD: The parasitic classes

Filed under: Bureaucracy, Economics, Education, Government, Quotations — Tags: , , , , — Nicholas @ 01:00

A parallel case may be found in the “civil” services, regulating authorities, non-profits, &c. Jobs in these areas, which command high salaries and pensions, and present delicious opportunities for graft, are outwardly the opposite of productive. They parasitically consume, on a colossal scale, the resources of the productive.

Look into almost any kind of “charitable” activity, such as social work, and one will find that only a tiny proportion of the cash “trickles down” to the characteristically desperate “clients”. And when it does, they use it to buy not only drugs and licker, but truly useless things, such as lottery tickets.

“Education” systems, in the modern West, exist chiefly to enrich semi-literate, unionized schoolteachers. In many parts of Ontario, for instance, a teacher will make at least double what the average parents make, and therefore feel justified in sneering. The teachers naturally consider that the little ones belong to them, for they are the necessary source of their income. What rights should parents have to interfere in their upbringing?

My best argument for the parasite class (always granting that some may be sincere), is that they protect society from gathering excessive wealth, or living lives of too much ease. Without them, we might easily suffer from the vices associated with too much freedom.

How I preferred the deadbeat, layabout, very English London of the Labour Party, when I lived there in the ‘seventies — to the cosmopolitan, rich, over-swept London of the Thatcher years. There are some advantages to socialism.

And there are other arguments, too, for putting depraved Leftists in power, though on examination they reveal special pleading. For instance, teachers may claim to offer child-minding services, so that mothers, especially, can go to work. But it is because heavy taxation requires the dual income, or women to do horrible and demeaning paid work when their husbands run away, that these services were ever made necessary.

The government does, arguably, “create” employment. Among the most farcical examples are the tax lawyers and consultants. Taxpayers need these to navigate incredibly elaborate tax codes, for their own protection. Only a professional can find the loopholes. Whereas, a comprehensible, flat tax system would put all these “experts” out of business. It would shrink revenue departments spectacularly, and by extension, threaten to shrink taxes. To a professional politician, this would never do. It would shrink his power.

David Warren, “Answering to a ‘need'”, Essays in Idleness, 2020-06-18.

July 12, 2025

QotD: Ancient empires

Filed under: Economics, History, Quotations, Technology — Tags: , , , — Nicholas @ 01:00

The earliest “empires” were Security oriented. A band of hunter-gatherers — who had no concept of individual property, and just took whatever they needed from the environment — finally settled, and became farmers. Fencing and cultivating and irrigating, and building surpluses which could be traded for items that would improve living standards. (Farmers in areas that CAN’T store surplus — mainly tropical areas with year round crops — never made it further than village level agriculture, whereas farmers in areas with storable annual crops like grain — which can be stored and TAXED — went on to found empires …)

Unfortunately the initial problem with being farmers surrounded by hunter-gatherers who don’t understand property, is that such hunter-gatherers look at those nicely fenced grains and enclosed cows and sheep and goats as wonderfully convenient places to hunter-gather … (There is a reason the boundaries between hunter-gatherers and farmers are violent places, and all the crap written about “frontier wars” and extermination and the rest is just a shorthand for — these two cultures cannot co-exist peacefully … Nomads are different … they trade, therefore they understand property, therefore they can co-exist with farmers — though they will still raid where they can, be they Mongol or Viking!)

So farmers immediately face a law and order issue, which can only be solved if there is enough surplus available to provide a tax base that will allow an authority figure (chief, king, emperor, etc.) to employ people to provide protection. At village level that is usually a warrior caste who can keep the competition at bay, but once surplus gets to a level that allows higher tech, that will mean states or empires.

To put that in perspective, if your local community collects a surplus, and can afford a local chief/lord/king to provide protection, the resulting tax system is almost always (in recorded human cultures) based on a percentage of production. (In fact the earliest versions of written communication are almost always record keeping for crops and taxation.) This means that the local lord immediately has both the majority of excess funds locally, and a strong incentive to increase local production so his take will increase.

When I ask the average class of secondary school students what sorts of things the local lord could invest in to improve productivity, they get the idea pretty quickly. Irrigation for fields; animals for farm work; blacksmiths for tools and axles; wheelwrights; roads; bridges; mills; markets; guards; etc. This list is common to most parts of Europe, Africa, Asia, Central and South America and Australasia. The only places it never develops are the very early farming communities in places like New Guinea that have no storable or taxable food items to allow such a development.

So all early farming societies that can tax — without exception — become tax based hierarchical cultures. Some are even referred to as kingdoms or empires. And they are based on the idea of keeping the farmers safe, so they can be taxed.

These early empires are all Security empires. In the Middle East they are often shown as large sprawls across the map, but such sprawls are fairly fanciful. In practice they usually refer to rich farm based river valleys, with an extended hinterland based on nomadic tribes that are trading with/employed by/or paid tribute to by the “imperial authority” simply to keep other outsiders at bay.

Traditionally they fall when their hinterland nomadic allies are not strong enough to keep outsiders at bay, or become strong enough themselves to try a bit of conquest. At which point of course the conquerors find that they have to adopt the systems of the despised lowlanders they have just conquered if they are to keep the loot coming in and the system going. (One of my favourite historical analogies is the nomadic conquerors crucifying the old king on the walls of his palace and sneering that he could watch his city burn, only for him to point out that it isn’t his city anymore, it’s their city that’s burning …)

Nigel Davies, “Types of Empires: Security, Conquest, and Trade”, rethinking history, 2020-05-02.

July 1, 2025

Like a cheap suit, Canada folds under Trumpian pressure on the Digital Services Tax grab

Filed under: Cancon, Government, Media, Politics, USA — Tags: , , , , , — Nicholas @ 05:00

A couple of days back, I characterized Prime Minister Mark Carney’s determination to push ahead with the Digital Services Tax “insane”, as it was overwhelmingly likely to trigger a strong reaction from the Trump administration. As it did. So, finally recognizing they were in a no-win situation, the federal government announced at the last minute that they wouldn’t be demanding the literally billions of dollars from the US “tech giants” after all. Michael Geist can legitimately say “I told you so” on this issue:

President Trump Attends G7 Summit in Canada by White House https://www.whitehouse.gov/gallery/president-trump-attends-g7-summit-in-canada/ CC BY 3.0 US

After years of dismissing the warnings of likely retaliation, the Canadian government caved last night on the digital services tax. Faced with the prospect of the U.S. suspending trade negotiations, Finance Minister François-Philippe Champagne announced that the government would drop the DST altogether, payments scheduled for Monday would be cancelled, and legislation will be forthcoming to rescind the legislation that created it in the first place. Over the weekend, I wrote about the repeated warnings that the DST was a serious trade irritant with the U.S. that cut across party and presidential lines. While ignoring the risks was bad enough, I argued that Canada played its DST card too early. Rather than delaying implementation in the hopes of incorporating it into a broader trade deal with U.S., it marched ahead, leading to an entirely predictable response from U.S. President Donald Trump. That left Canada in a no-win situation: stick with the DST but face the prospect of higher tariffs or embarrassingly drop the DST (and $7.2 billion in revenue over five years) with only restarting negotiations that were on until government overplayed its hand to show for it.

It is hard to overstate how badly the government managed the DST issue over the past five years. It alienated allies by pushing ahead with the DST despite efforts at an international deal at the OECD, stood alone in rejecting an extension of a moratorium on new DSTs, made the DST retroactive which solidified opposition, and continually downplayed the concerns of successive U.S. Presidents and Members of Congress from both sides of the aisle. Meanwhile, when companies began passing along the costs of the DST to Canadian businesses, it did nothing. And when they urged the government to delay implementation to at least allow for the issue to be incorporated into a broader trade pact, it ignored the advice.

At every step, there were better options. This year, the likelihood that the DST would come to a boil was obvious to anyone who was paying attention. But rather than following the UK strategy, which managed to salvage a smaller DST (2% rather than 3%) as part of a bigger agreement that includes a commitment to support UK digital access to the U.S. market and to negotiate a larger digital trade deal, Canadian officials seemingly assumed that the U.S. was bluffing and would not retaliate.

If this sounds familiar, it is because the Canadian government misreading the tech sector has become a hallmark of its policy. Talk tough, practically dare companies and foreign governments to respond, and then frantically seek an exit strategy when they do. This was the case with the Online News Act and Meta’s blocking of news links, with the government’s AI regulation which new Minister of AI Evan Solomon says will not be re-introduced, with the Online Harms bill, and now with the DST.

June 30, 2025

DOGE couldn’t address the structural problems with the US government

Filed under: Bureaucracy, Government, Media, Politics, USA — Tags: , , , , , , , — Nicholas @ 03:00

At the Foundation for Economic Education, Mohamed Moutii looks at the reasons DOGE was unable to come close to achieving the lofty goals it was launched with:

DOGE’s biggest failure was its inability to deliver its promised sweeping transformation. From the start, its $2 trillion savings target was unrealistic. Cutting nearly 30% from a $7 trillion budget was never feasible, especially with politically untouchable programs like Social Security, Medicare, Medicaid, and Defense off the table.

Musk’s claim that eliminating waste alone could close the gap didn’t hold up. While most budget experts support cutting inefficiencies, they agree that waste isn’t the main driver of the fiscal crisis. Even slashing all discretionary spending would save only $1.7 trillion. The real pressure comes from mandatory programs, which account for nearly two-thirds of the budget, leaving only a quarter of spending truly up for debate.

As reality set in, Musk’s savings claims shrank from $2 trillion to just $150 billion. While DOGE cites $170 billion saved, independent estimates suggest closer to $63 billion, less than 1% of federal spending, with many claims either inflated or unverifiable. Some savings were credited to long-canceled contracts. Though headline-grabbing layoffs and cuts were made, they were often botched, forcing agencies to rehire staff or reverse course. Meanwhile, federal spending rose by $166 billion, erasing any gains. Trump’s fiscal agenda worsens the outlook with the first-ever $1 trillion defense budget, sweeping tax cuts, and protected entitlements — all while annual deficits approach $2 trillion.

Yet DOGE’s failures ran deeper than mere fiscal naiveté. What began as Musk’s role as a “special government employee” quickly expanded into an unchecked exercise of executive power, raising constitutional alarms. His team reportedly accessed classified data, redirected funds, and sidelined entire agencies — actions taken without Senate confirmation, potentially in violation of the Appointments Clause of the Constitution. Legal pushback swiftly followed, with fourteen states suing Trump and Musk over the constitutionality of Musk’s White House-granted authority.

Meanwhile, glaring conflicts of interest became impossible to ignore. Musk’s companies — X, SpaceX, and Tesla — hold $38 billion in federal contracts, loans, tax breaks, and subsidies while facing over 30 federal investigations. His push to dismantle regulatory agencies like the Consumer Financial Protection Bureau (CFPB) — while X launches the “X Money Account“, a mobile payment service subject to CFPB oversight — only deepened concerns. Musk was legally obligated to separate his business dealings from government decisions. One major result has been the impact on Musk’s reputation. Once hailed as a visionary for his promotion of electric cars, he is now viewed unfavorably by many former fans.

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