Free Trade and Snow Plows

I always like thinking of examples to use when explaining policies to my friends. Last night was no different.

Desolate Huntington

As I left Capitol Hill, I took DC 295 southbound, and as I made my way home, I saw a row of about 6 huge snow plows with Maryland tags and a Maryland business advertised on their sides. They followed me from D.C. into Maryland, and across the Woodrow Wilson Bridge into Virginia. I tried to remember their company’s name, but a call with my mom cleared my memory, and now I forget.

So I called 1-800-FOR-ROAD. They have these ads on the radio where some lady talks about what you can do with this number. Report pot holes, signs down, etc. She tells you that you can call them for anything transportation related. I spoke with a lady with a southern accent named Mary. I was up front, and told her that I never thought I’d call this number, but the ads say we can call about anything related to transportation. She told me to ask away…

I asked her (even though I was 99% sure I knew already) if Virginia, specifically VDOT, uses contractors to remove snow. Snow removal varies in all states, and coming from Shaker Heights, Ohio, which has a crazy fleet of trucks for snow removal, tree trimming, garbage removal, etc. — having private contractors do the work is pretty much foreign to me. Virginia loves private contractors.

She confirmed that the state uses contractors from surrounding states, as long as they meet insurance, training, and other standards. Doesn’t matter if they’re from Maryland, D.C., West Virginia, Delaware, North Carolina, Ohio. Wherever. If they meet Virginia’s criteria, it’s a relatively open market. Obviously, trucks from Wisconsin or California aren’t going to drive here for a snow storm, as that is cost prohibitive.

It got me thinking. Very often, friends and other people suggest we move to the protectionist policy of “Buy American.” Very simply, the policy is that governments, or sometimes private individuals, are required to get services or goods from American companies. I’m fine with people who like to “buy local” or buy within their state or country. It’s their choice. What I’m not fine with, is government mandates that require such action, be the mandates for governments, businesses, or individuals. All are bad economic theory, and calling it a “theory” is being generous.

The easiest way to demonstrate why this theory is a bad idea is as follows: let’s apply the principle to other similar circumstances.

If a city, say, Alexandria, starts a “buy local” campaign, but buys government cars from a dealer in Richmond, is that hypocritical? Obviously, one cannot adhere to such an idea completely, because no place has the natural resources, labor pool, or experience to support every single type of industry needed. Not every city has a car dealership, salt mines, oil refineries, fields for crops. New York City would be screwed if it weren’t for trade.

People, governments, and businesses, often need to buy goods or services from other places. And when they do so, they look for the best service at the best price. Even when local alternatives are available, those metrics are usually no different.

If local producer A charges more for a similar product than local producer B, you buy from local producer B. In simple terms, that is what economics is about: the most efficient allocation of scarce resources. “Buying local” when other competitors that aren’t local offer better goods or services at better prices, only makes people poorer. And at the end of the day, it perpetuates the existence of an inefficient economic actor that the market would have eliminated otherwise.

Consider the following: You live in Washington, D.C. at the corner of 6th Street, SE, and Southern Avenue. It’s a year ago, and it’s snowmageddon. D.C. requires snow shoveling outside of your private property or business, and you either don’t have the time or ability to shovel the snow. Although the $25 fine is less than most D.C. parking tickets, you want to honor the spirit of the law, but have to hire somebody to do it for you. There’s a kid/company down the block at 6th and Galveston, SE, who is willing to do it for $30, but another neighborhood kid/company who lives at the corner of Maury Ave. and Aurdey Lane in Maryland, is willing to do it for $15. If you do nothing, you could get fined $25. Who are you going to hire, assuming the services provided are comparable? Obviously, the kid from Maryland.

And while he lives in another state, he actually lives roughly the exact same distance from you as the kid/company in D.C.

But what if D.C., in an effort to bolster economic activity in the district and southeast, requires businesses, government, and individuals to purchase goods/services from D.C. businesses, or face a fine (tariff) of $25. Now, the kid/company in D.C. whose prices were initially higher is now “cheaper.”

This has a few effects, some of which we’ll examine:

  1. It encourages people to resort to the black market.
  2. If the black market not an option, it burdens them with costly paperwork to prove they’re “buying D.C.” to authorities.
  3. It provides a disincentive for D.C. kids/businesses to be competitive, as what was once a free market, is now an oligopoly.

Now some people might read this, and think: why in the heck is Virginia not using Virginia businesses to plow Virginia roads? The answer is simple. If the state is mostly responsible for plowing the roads, as it is in Virginia, the market allows Virginia businesses to choose whether to compete for VDOT contracts or private contracts for malls, parking lots, or businesses. Limiting competition for Virginia contracts will likely result in higher prices because competition is diminished.

Put another way: it would result in higher prices for private businesses to hire folks to plow their lots since resources become more scarce if a “buy Virginia” mandate exists. Both make Virginia and its businesses poorer, resulting in higher prices for consumer goods/services and likely higher taxes or less money for other programs.

Obviously, the free market benefits Virginia when it comes to snow removal. Imagine what a freer market would do for American consumers if there weren’t import quotas, tariffs, and other bureaucratic barriers to free trade?

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