Stormy Weather


I was stuck in Washington and not at all sure I'd be getting out. "The storm of the century" had shut down the airports for the last two days and now, as my flight time approached, nobody would tell me whether my plane would in fact be taking off. The airline, the media, my friend whose cable system broadcasts Dulles flight times—all were maddeningly unhelpful.

All told me the airport was closed. All said it might or might not open in time for takeoff. My flight hadn't been canceled, but then that's what they always say until you've waited an hour or two in the terminal.

Still, decisions had to be made: to pack or not to pack, to stay put or to spend $40 on a possibly futile cab ride. It was a decidedly aggravating situation—making plans without critical information, knowing that some authority out there could wipe out those plans without warning.

It was a lot like being a business person, or a taxpayer, or a property owner in the age of fickle big government. And it reminded me of two articles I'd read the day the storm hit.

The first, on the front page of The New York Times business section, told how U.S. discount chains were opening stores in Mexico. Over the last several years, the Mexican government has lifted tariffs in anticipation of the North American Free Trade Agreement. As a result, discounters can import goods from the United States, and shoppers in Mexico City can sample the high-volume, low-price deals of Sam's Club (a Wal-Mart offshoot) and Price Club. This is just one instance of the opportunities and investments NAFTA has inspired.

But it is, like my eventual cab ride to Dulles, a leap of faith. It could be ruined if the Mexican government devalues the peso to make imports more expensive. "A steep devaluation would undo the warehouse club approach," Jaime Gonzalez Solana, director general of Price Club of Mexico, told the Times. "It is out of the question for us, and we are not worried that it will happen."

There is more than a touch of bravado in those words. The risk is very real, and the Mexican government isn't the only risk factor. The vacillating Clinton administration and the antitrade Democrats in Congress may well doom NAFTA.

Indeed, even as the Times was heralding the news about Wal-Mart and Price Club, The Washington Post's front page was reporting that the treaty is in trouble—and so are businesses that assume it's a done deal. "Apparently the business community thinks this is a leadpipe cinch," said Rep. Robert T. Matsui (D–Calif.). But, he suggested, businesses are making a big mistake. The House votes just aren't there.

"I question whether or not we will have the ability to pass NAFTA at any point in the future unless there is a greater grass-roots interest," said Matsui. And, he might have added, unless the president pressures wavering members of Congress to back the deal.

Consumed with selling his short-term economic program, the president isn't paying attention to the long-term consequences of letting NAFTA go down without a fight. The policy wonk in Bill Clinton surely knows trade is good for the economy, but the please-everyone politician is afraid to take on Congress, the unions, and the environmental lobby.

Despite surging exports to Mexico—up from $12 billion in 1986 to $44 billion last year, thanks to Mexico's tariff reductions—a lot of trade-phobic lawmakers want to block the treaty. They would punish Mexico for liberalizing its policies and hammer businesses, north and south, that were foolish enough to take the United States at its word. In the name of jobs, they would impose trade sanctions on their own country.

"Nothing distinguishes more clearly conditions in a free country from those in a country under arbitrary government than the observance in the former of the great principles known as the Rule of Law," wrote F. A. Hayek in The Road to Serfdom. "Stripped of all technicalities, this means that government in all its actions is bound by rules fixed and announced beforehand—rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one's individual affairs on the basis of this knowledge."

It's safe to say that Hayek was not describing the United States in 1993. The actions of Dulles airport in the aftermath of a blizzard are more predictable than the actions of the federal government—and more likely to be based on neutral principles.

But individuals still have to make decisions, despite the turbulence of public policy. And those decisions, if made on a broad enough scale, serve to lock in the public policy of the day.

Consider the health-care mess. It derives, at least in part, from the steeply progressive tax rates and roaring inflation of the 1970s.

Inflation is about as unsettling a policy as there is. Combine it with bracket creep that gives the tax man a bigger chunk of every raise, and you turn wage-earning taxpayers into gerbils running on a wheel, struggling desperately to stay in the same place.

In the '70s, both unions bargaining collectively and individuals bargaining independently tried to beat bracket creep by taking more and more of their compensation in non-taxable benefits, notably greatly expanded health coverage and retirement benefits. From 1970 to 1980, the proportion of total compensation made up by fringe benefits increased by more than 50 percent.

Workers couldn't control their take-home pay—that was in the hands of the government—but they could bank on the security of their fringes. And now, of course, we find big companies unable to keep their pension and retiree health-insurance promises. And we're stuck with a health-care system in which patients have no incentive to watch costs.

The Clinton administration promises to fix all that with its own health-care plan, which will not include the critical reform of taxing health benefits as income. Unless Hillary Clinton and her team undergo a radical change of attitude, we can expect further turbulence ahead—the turbulence created as price controls ripple through the medical system.

"The world is interconnected in a lot of ways. Once you change prices in one area, it has effects that you can't foresee," Harvard economist Gregory Mankiw told The Washington Post in this context. "That is why central planning in the Soviet Union broke down. I don't think Clinton planners will be any better than planners were in the Nixon era or in the Soviet Union."

The Clinton administration loves planning; that is its uniting ideology, the one consistency in an otherwise inconsistent administration. Unfortunately, as Thomas Sowell has aptly noted, "What is politically defined as economic 'planning' is the forcible superseding of other people's plans by government officials." For the next four years at least, all our plans may be grounded in Washington.