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December 4, 2011

FLASHPOINT: Christmas trees and crony capitalism

I’ve been involved in selling fresh Christmas trees for as long as I can remember. Our family vacations often consisted of walking grower’s fields with my dad, tagging the trees that he wanted for the upcoming season.

So my interest was piqued when word got out that a federal bureaucracy, the United States Department of Agriculture (USDA), working in cahoots with some Christmas tree growers, tried to slap a “tax” on every fresh Christmas tree sold.

In government parlance, this particular scam is called a “market order.” In effect, a business owner or small group of owners captures the force of government for individual gain.

Now, in my view, true free-market capitalism has showered more benefits on the human race than any economic system devised. It perplexes me that so many seem to hold this system in contempt, declaring it based on greed and corruption.

My experience in both retail commerce and municipal government has taught me otherwise. This federal market order is a perfect illustration of why some possess such a misguided understanding of markets and capitalism.

In a nutshell, a trade association of Christmas tree growers sought to coordinate their marketing to gain greater sales and, it was hoped, greater profits. Nothing wrong with this — so far.

But they faced a problem: If they spent their own money on the expanded marketing effort, non-participating growers might also have benefited. Economists call it the “free rider” problem.

If, however, the big growers could require the small growers to kick in some money, then everyone would carry a share of the load and everyone might, or might not, benefit. Finally, if everyone were forced to pay in, there would be a large pot of money to market the product.

As a practical matter, though, Christmas tree growers can’t force other Christmas tree growers to do anything. All they can do is try to convince the other growers of the benefits versus the costs. That’s a hard thing to do, this free-market stuff being tougher than it looks.

Enter the government official with rule-making authority. The whole picture changes. The official can force everyone to participate, and he doesn’t have to convince anyone of anything. He simply imposes the tax and lets the folks in police uniforms deal with the occasional recalcitrant grower.

Simple, easy, and very much not  free-market capitalism. For as with nearly all arrangements of this type, there is a small group of winners and a significantly larger group of losers.

The winners in this case are the biggest growers, who end up controlling that large pot of free money to promote their products. Government bureaucrats win by adding to the list of justifications for their existence, i.e., “You can’t eliminate the USDA because someone has to administer the Super Duper Fresh Christmas Tree (SDFCT) marketing plan. Who would perform this vital government function if we lose our jobs?”

The losers are as easy to identify: every person who might buy a fresh Christmas tree. Indeed, in the end it is always the consumer who pays every tax. But it also is the taxpayer, who will continue to support this particular unnecessary segment of an ever-expanding bureaucracy.

Finally, some bad news if you think this is only a problem for those who must deal with the large, anonymous federal bureaucracy.

In your city, the same scams and schemes are going on. The names and beneficiaries are different: “economic development incentives” or “public-private partnerships” or “Tax Increment Finance Districts” or “investing in ourselves” or some other serious-sounding political label. The difference is only a matter of degree.

One can only hope that the proposed 15 cents extra for our Christmas trees is the drop that begins a flood of citizen indignation.

Ryan Cummins, an adjunct scholar of the Indiana Policy Review Foundation, owns and operates a specialty retail business in Terre Haute. He served two terms on the Terre Haute City Council, included a year as finance chairman.

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