There are a couple of important economic lessons that the American people should learn. I’m going to title one “the seen and unseen” and the other “narrow well-defined large benefits versus widely dispersed small costs.” These lessons are applicable to a wide range of government behavior, but let’s look at just two examples.
Last week, President Donald Trump enacted high tariffs on imports of steel and aluminum. Why in the world would the U.S. steel and aluminum industries press the president to levy heavy tariffs? The answer is simple. Reducing the amounts of steel and aluminum that hit our shores enables American producers to charge higher prices. Thus, U.S. steel and aluminum producers will earn higher profits, hire more workers and pay them higher wages. They are the visible beneficiaries of Trump’s tariffs.
Then there’s the phenomenon of narrow well-defined large benefits versus widely dispersed small costs. A good example can be found in the sugar industry. Sugar producers lobby Congress to place restrictions on the importation of foreign sugar through tariffs and quotas. Those import restrictions force Americans to pay up to three times the world price for sugar.
A report by the U.S. Government Accountability Office estimated that Americans pay an extra $2 billion a year because of sugar tariffs and quotas. Plus, taxpayers will be forced to pay more than $2 billion over the next 10 years to buy and store excess sugar produced because of higher prices. Another way to look at the cost side is that tens of millions of American families are forced to pay a little bit more, maybe $20, for the sugar we use every year.
You might wonder how this consumer rip-off sustains itself. After all, the people in the sugar industry are only a tiny percentage of the U.S. population. Here’s how it works. It pays for workers and owners in the sugar industry to come up with millions of dollars to lobby congressmen to impose tariffs and quotas on foreign sugar. It means higher profits and higher wages. Also, it’s easy to organize the relatively small number of people in the sugar industry.
The costs are borne by tens of millions of Americans forced to pay more for the sugar they use. Even if the people knew what the politicians are doing, it wouldn’t be worth the cost of trying to unseat a legislator whose vote cost them $20 a year. Politicians know that they won’t bear a cost from sugar consumers. But they would pay a political cost from the sugar industry if they didn’t vote for tariffs. So they put it to consumers — but what else is new?