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Wayfair Harms People, as I Said it Would

Shortly after the Wayfair decision was made by SCOTUS last year I weighed in on what the likely fallout would be.  Since then, I’ve watched various organizations attempt to deal with it, which is to say, my prices for certain things have gone up.   I said at the time,

Ironically, the people who most despise the rich and big businesses and advocate for more regulations fail to understand that the rich and big businesses are far more able to work through regulations.  Your rich fat cat can afford to pay top dollar for smart accountants and lawyers… your average small businessman can’t.  So, for all the talk about people hating on big corporations like Amazon or Walmart, etc, the ones who will suffer are the very people the bleeding hearts say they want to help.   (Quick side note to the bleeding hearts:  please stop trying to help.  I beg you. You’re killing us.)

I also said at the time,

As it stands, the only prudent action–since I’m not a rich fat cat, and I care about my neck–is to simply withdraw from the marketplace, or at least strictly confine my activities to my own state, along with perhaps a small handful of states with easy to understand systems for collecting sales taxes. All the other states will just be out of luck, deprived of my products.

That is in fact what I’ve done.  I’ve withdrawn from the marketplace.  I’ve scaled back my activities.  I had some people who worked for me–they do not do so anymore, and I haven’t replaced them.  You can blame the Wayfair decision as being an important catalyst in that, but to be fair, the oppressive costs of employment taxes and the hassle and legal nightmare of complying with those laws, played a part too.  “Your rich fat cat can afford to pay top dollar for accountants and lawyers… your average small businessman can’t.”

So, sucks to be the persons I would have hired.  Hey, don’t worry.  Walmart is hiring!

Beyond these practical consequences, there were the great philosophical difficulties I mentioned in the original post.

While I have been cognizant of various ways the Wayfair decision has played out in my own life, I haven’t seen many articles about how it is impacted others, apart from the fact that the various states are giddy over their new revenues.  Then, I saw this article, with the headline: California hits Philly-area Amazon seller with $1.6 million sales-tax bill.

Before I discuss that article a bit, let me get into just a little bit more philosophy–or, shall I call it, “a reality check.”

Bastiat discussed it in reference to ‘broken windows’ more than a hundred years ago in an essay in a book called “That which is seen, and that which is unseen.”  Some folks were saying things to the effect that you could puff up the economy by going around breaking windows, which would then spur business and employment opportunities:  the glass window business would get new sales, and people would get new jobs replacing windows.  Bastiat certainly recognized that the window business would be happy about being chosen as the ‘winner’ by the government, labeling this the ‘seen’ effects.  But the unseen effects are the ways that the business owners would have utilized their money if they had not needed to buy new windows.

These effects are ‘unseen’ because they never happen.  They can’t happen, because the money that would have gone towards doing it are forced into fixing windows.  It’s called logic, Jim.  Would they have purchased more products to sell to the community?  Would they have invested the money into opening up new businesses (and thus creating new employees in this fashion)?  Would they have innovated?  Invented?  Invested in start-ups?  Well, sure, maybe they would have ‘hoarded it’ (SELFISH RICH BASTARDS!  EAT THE RICH!… sorry, slipped into my AOC-Warren-Sanders mode there for a minute).

We’ll never know, because it never happened.  The business owners do not broadcast their decisions, in many cases simply because they never had an opportunity to make the decision at all, being deprived of the very thing that would have enabled contemplating a decision at all.  At best, breaking the windows is a wash (no pun intended), where it accomplishes exactly the same as if the business owner had not needed to buy new windows, just in some area less visible to the “smart” and “omni-benevolent” people.  At worst, it does not just throttle growth, but it retards it or even stamps businesses out of business altogether.  After all, if people keep busting up your windows, you may eventually decide it is just not worth the hassle staying in business at all.

What I have described here is not a particularly complicated idea.  It has been around for years, as the reference to Bastiat shows.  But, apparently it is way too much for your average statist, judging by how carelessly they go about choosing ‘winners and losers’ without any sense at all that there could be unintended consequences of their actions and proposals that they will never be aware of, even if they decided they should look.  But most of the time they don’t even think its necessary to look.  Frankly, I don’t think most of them care.

No one is going around asking business owners what kinds of things they didn’t do because they didn’t have the resources to do them because the government took those resources.  There are no charts, graphs, or questionnaires.   Warren recently proposed a 52 TRILLION dollar ‘plan’ for providing health care for all.  (The annual budget for the US is 4 trillion which covers everything… military, infrastructure, etc… and tax revenues don’t even cover that!  Thus, the 20 trillion dollar plus deficit).    Assuming it has the effects she says it will, do you think she is at all interested in what the effects would be if Americans had that 52 TRILLION dollars sucked out of their own budgets?  Is she going to bother to look?  Of course not.

She would say that she’s only going to hit the ‘rich’ as though this means it won’t hurt the ‘poor’, but she doesn’t take into account how many people are going to remain ‘poor’ because a rich person didn’t have the resources to invest, innovate, hire, build, etc.  There will be no attempt to measure it… and, as Bastiat and I are contending, much of it would be virtually impossible to measure even if one did try.

Think of it like this.

Let’s say you have $100 and you are on your way to the local store to buy a bunch of stuff, some needed, some discretionary.  When you go into the store, you will evaluate what you are going to buy based on the money that you have.  You won’t go looking at the $100 stereo if you also need to buy milk, bread, oil for your car, diapers, etc, etc.   It’s not exactly conscious… its just reality.  But now let’s say that before you get to the door, your local taxman clubs you over the head (or threatens to do so) and takes $80 of your dollars.  Now you enter the store with just $20.

Simply based on your new reality of only have $20, you will limit your thinking to only that which you can afford to buy, and you will prioritize appropriately.  The business owner will never know you were interested in the $50 microwave and the taxman will never know that thanks to his policies, a microwave was not purchased.  This has largely to do with the fact that you yourself didn’t know you would have bought a microwave, because from the beginning, you never had enough money to consider such items.

(This is the ‘best’ case scenario, wherein statists are blissfully unaware of the results of their conduct.  Even worse, actually, are the ones who KNOW what kinds of things will unfold.  Obama, Gruber, Sunstein, and Rockefeller III come to mind.)

I’ve taken the time to spell this out a little because unless people get it through their thick heads what kinds of things happen when you get into the ‘business’ of ‘picking winners and losers’ great harm is going to happen–not the least of which will be harm to people that were ostensibly supposed to be helped.  So, if you REALLY CARED about people, you’d rethink your socialist mindset completely.

But I would be remiss if I laid it all at the feet of the statists.  After all, South Dakota is a conservative-ish state, and they didn’t have any problem pursuing the collecting of sales taxes from around the country.  These people, whom we will presume are largely Republicans, ought to have known better.  They would argue that they needed that cash to run their state.  How about another thought:  instead of ‘breaking windows’ and enacting numerous government programs, leave the ‘windows’ be altogether, and scale back the government programs?

This is consistently a problem with Republicans around the country, and is certainly the case in Wisconsin, where I live.  Rather than focus on issues genuinely worthy of governmental action, they are constantly looking for new ways to spend our money–and this they call ‘governing.’   Compared to the statists, they are much more attentive to unintended consequences, but let’s face it, the more ‘moderate’ Republican stance towards government spending increasingly seems ‘moderate’ only because the statists have gone bloody insane, and if such a thing were possible, becoming even more insane, every day.

There is also something to be said about the firestorm that falls on Republicans when even the mere hint of cutting back on government programs is given, let alone carried out.

Nonetheless, the Republicans are often likewise ignorant of the “unseen” consequences.  In Wisconsin, the most glaring recent example is the Foxconn fiasco, where huge tax breaks were given to woo this company to put down roots in the state.  All it proved was that, yes, taxation is a deterrent to investment and economic development.  If the benefits of having Foxconn in Wisconsin were so great–great enough to warrant tax incentives, and removing government obstacles–should not the same argument apply to everyone else in the state?  Doesn’t the same argument hold that letting people keep their own money to spend as they see fit with removed government obstacles mean that the benefits would well outweigh the tax revenue received?

Hmmmmmmmmmmm.

Ok, so with all this said, let’s consider the fate of our poor businessman stuck with a 1.6 million dollar tax bill.

Brian Freifelder, who sells clothing, shoes, and groceries on Amazon.com out of a small warehouse in Bensalem, is caught in what his tax lawyer called “an interstate commerce speed trap.”

The 36-year-old Bucks County resident recently received a jaw-dropping notice from California that he could owe as much as $1.6 million for sales tax that he didn’t collect from consumers who bought his goods through Amazon.

That’s just for the first six months of this year.

“It’s absurd. I haven’t sold enough inventory over time to warrant a tax bill like that. You could take every sale I’ve ever done. You could take the biggest sellers on Amazon, and I don’t think they would have a bill like that. They’re trying to scare people,” Freifelder said last week.

Ok, so right off, let’s acknowledge that this $1.6 million dollar bill is probably an error made by some bureaucrat in California and will be rectified in due time.  This aspect of it only points to the general incompetence of government, and not necessarily ‘broken windows.’ No harm, no foul?

Well, let’s look again:  “what his tax lawyer” …. in other words, money he could have spent in other ways, he now has to spend on a lawyer.  Good for lawyers, I guess, right!

But is that all?  Let’s read on:

That uncertainty caused by California’s tax strategy has caused Freifelder to hit the brakes on the growth of his business, Philadelphia Media Exchange Corp., which reached $3 million in revenue last year, he said.

It is a shame that I have to spell this out, but this does not mean Freifelder is a rich bastard.  It is $3 million REVENUE.  That’s gross.  We are not told what he has left over after all his expenses, but I assure you, it is far less than $3 million.  Having clarified that, we come to the important phrase: “Freifelder to hit the brakes on the growth of his business.”

Reading on:

The business had been growing steadily since 2000, when Freifelder’s love of rap music, but distaste for the prices of compact discs at Best Buy and Sam Goody, led the teenager to eBay, where he would buy 100 CDs for $200, keep those he wanted, and resell the others.

In 2005 he started selling on Amazon and at flea markets, such as the Tacony Palmyra Flea Market in New Jersey. He opened his first store, Fivedollarcd, in the Tacony section of Northeast Philadelphia in 2010, expanding to the sale of video games and consoles. Another store in Mayfair followed.

Here is a guy that kept building.  Then competition hit (streaming services) and he did what business people do–they adapt.

so he closed the stores and by 2015 had moved on to what is called “retail arbitrage” of clothing, shoes, and grocery items bought on sale or clearance at Marshalls, TJ Maxx, Ross, Burlington, and other stores, and sold for more on Amazon.

This is the free market at work.  Invest, re-invest, adapt, etc.  Others are doing the same.  No one is picking winners and losers, and thus appropriating to themselves the responsibility to ‘pick’ wisely–and therefore being the ones to blame when they don’t.  Rather, the race occurs, and the results fall where they may.

Freifelder was not just enriching himself:

At its peak before the sales tax scare, Freifelder had eight employees, three full-time and five part-time in the warehouse, and three contractors who shopped for him.

His efforts, his risks, his investments, yielded income enough to give 3 people enough to live on and perhaps the other 8 were doing well thanks to Freifelder, too.  And now?

Now he’s down to one employee in the warehouse. He still has the three contractors. Plus, his wife helps a couple days a week.

Do you think the Republicans in South Dakota factored into their cost/benefit calculus for their government programs the consequences to 10 people in Pennsylvania?  Are we quite certain that at least 10 people in South Dakota are better off to the extent that it was justified to pursue a policy that would harm others elsewhere?  We already know the Democrats in California don’t care, but the Republicans in South Dakota certainly should have.

At any rate, try to think like Bastiat when you read this sentence:  “Now he’s down to one employee in the warehouse. He still has the three contractors. Plus, his wife helps a couple days a week.”

So, that’s 2 people without a job.  We don’t know what his wife was doing before, but we know what she has to do now.  She had to give up something (the ‘unseen’) in order to do help at her husband’s place of work (the ‘seen.’)  Does that mean they now have to pay for childcare?  Does it mean she gave up another job, putting another business in the lurch, having to retrain someone else?  Or did that other business decide not to hire someone to replace her, scaling back their own activities, and right on down the line?  We don’t know; the article doesn’t tell us, and probably it would be too much work to really track it all down, anyway.  But rest assured, there were ‘unseen’ consequences.

If someone were an ethical and moral individual, even if they thought it was ok to tax people and corporations, they would want to ensure that the negative aspects of their policies were outweighed by the positive ones.  But if I am right (and I absolutely am), it is not practically possible to really calculate all of the consequences in order to work that formula out.  If you choose to proceed with your policies, unaware of the negative consequences spreading out like waves beyond your ken, possibly creating MORE harm than good (but never knowing for sure if you did, or did not), does that make you an unethical and immoral person?

Why, yes it does.

It is because of the fact that there are waves of interlinking consequences to taxation, many of which cannot be known even if you wanted to find them out, that taxation should be as limited as possible and government programs should be unequivocally necessary and appropriate for governments to be doing.  A military defending us from foes, foreign and domestic, would be an example.  The argument could be made that certain things like roads would be an example.

This philosophy would probably mean reducing the size and scope of governments by 99%.   So, not going to happen.  But just because no one wants to act morally and ethically (and courageously–scaling back the government even .001 percent will get you the never ending scorn of the NYT, WAPO, and your local Antifa reps), doesn’t mean that they are spared the blame.  If you choose to take the responsibility of choosing winners and losers, you don’t get a pass just because you ‘mean well.’  Taking the responsibility means YOU ARE THE ONE TO BLAME.

In this instance, the Republicans of South Dakota and the Democrats of California have set in motion events they are blissfully ignorant of but have rattled the lives of at least 10 individuals thousands of miles away.  They are responsible for this result, regardless of their ignorance.

If no one is in charge, there is no one to blame except circumstance.  But if someone is in charge, that person is responsible for the results.  I may discourse on that some other time, as it is an important component too.  But, briefly:

Let’s say you decide to threaten to club rich people over the heads if they don’t give money for health care for the poor.  Well, prior to involving the government, health care costs were relatively affordable to all (in the US, you’d have to go back to before the 1960s to find a time when our government wasn’t involved in health care), and while there were people who couldn’t afford it, it was within the realm of possibility to help people out.  If a person needs a heart procedure, and under the free market, the heart procedure costs $100, then a handful of individuals can pitch in to help the person.  But if, thanks to government intervention, the procedure costs $100,000 it now is outside the reach of most people to help out.  Yadda yadda yadda, once the government inserts itself into the matter, it now has the responsibility to make sure everyone is properly served, and if they aren’t, there is no one left to blame but themselves.

If the ‘rich person’ suddenly can’t have a heart procedure because, say, government reimbursement costs are so low that all the heart doctors say “WTF!” and go into early retirement, then you, the government, are to blame for this.  Of course, the same applies to the ‘poor person.’  So, maybe you kinda like sticking it to rich people because it makes you feel warm and fuzzy inside, the paucity of heart doctors has a rippling effect through the whole system–and its your fault.  YOUR FAULT if people die.  YOU set the thing in motion.  YOU  took over the responsibility for managing the system.  YOU ARE RESPONSIBLE.

In the free market, responsibility does not cease to exist, but it is diffused throughout.  No one blames Netflix for putting video rental stores out of business (etc; provided it was done above board), and the rental stores probably just re-tooled, just like Freifelder did.  Moreover, the lesser costs that come from a free market make it more easy for a person to TAKE RESPONSIBILITY FOR THEMSELVES and pick themselves up the ground, and move forward.  One is bound by one’s circumstances and means, but….

…But when the government is involved, the stakes are on magnitudes higher.  The government can take by force and throw people into prison, and shoot them if they don’t comply.  So, is it any wonder that Freifelder decides…

“I’m drastically cutting things back until the dust settles, just because I don’t want to find out I have a ridiculous bill a year or two down the road,” said Freifelder

Freifelder made a decision that no one would even have been aware of except but through this story.  He stood amidst his own circumstances, which no one knows better than he, and made the call as best he could.  It was to protect himself, which is entirely predictable.  Now put in your minds eye the thousands if not tens of thousands of businesses making the same calculations, and not just because of sales tax bills.  Estate bills, Capital gains taxes.  Taxes on top of taxes on top of taxes, each one yet another thing that business owners standing alone in their own circumstances, have to sort through–ultimately making sure they protect themselves by not going bankrupt or worse.  If you support Big Taxation, YOU ARE RESPONSIBLE for the results of these people choose to do.

I know that this is falling on deaf ears.  Even many Republicans insist on spending money that isn’t theirs by availing themselves of the coercive powers of the government, calling what they do ‘governing.’ (As if, scaling back the government in accord to the wishes of their constituents is not ‘governing.’)  Everyone can think of good reasons to dip into the public purse, which means eventually, everyone does.  And after there is a hole in the bottom of the purse and there is no money left?

Well, I don’t know about YOU, but I can’t wait to see the master strokes in ‘governing’ we witness when the US becomes like Venezuela!

Eventually, it all comes crashing down.  The piper must be paid.  That will very much be a consequence that is ‘seen.’  But it can be headed off if we embrace the reality of the ‘unseen.’

I know.  Don’t hold your breath.

He who has ears, let him hear, and plan accordingly.

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