Perverse Incentives

Another great argument for free trade is the conversion of tax avoidance to productivity: the same argument that is (appropriately) made for simplifying the domestic tax code.

Professor Mankiw links to a WSJ article that defies credulity. How's this for "Broken Windows:"

BALTIMORE -- Several times a month, Transit Connect vans from a Ford Motor Co. factory in Turkey roll off a ship here shiny and new, rear side windows gleaming, back seats firmly bolted to the floor.

Their first stop in America is a low-slung, brick warehouse where those same windows, never squeegeed at a gas station, and seats, never touched by human backsides, are promptly ripped out.

.The fabric is shredded, the steel parts are broken down, and everything is sent off along with the glass to be recycled.

Why all the fuss and feathers? Blame the "chicken tax."

The chicken tax -- the mohair subsidy's poultrified (-fried?) cousin -- is an LBJ-era trade spat that lives on. Western Europe taxed chicken from the US, so President Johnson taxed cargo vans. So now, the Turks make "passenger vans" with seats and windows that are removed and shredded. Presto, chango! Instant cargo van.

Any similarity you may feel between Chinese tires and chickens is all in your head. We wouldn't do anything that stupid -- this is the 21st Centaury!

Economics and Markets Posted by John Kranz at September 22, 2009 1:40 PM