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sajahmeoli (61.14)

Watermelon, Wine and Why Not

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April 26, 2011 – Comments (5)

I have a memory of being parked on the side of I-40 just east of the Arizona, New Mexico border eating a watermelon. Why? Well, at that time (30 years ago) Arizona was not allowing fruit in from other states--or at least not from New Mexico. We had learned that if we had certain/any (do not recall) fruit and vegetables in the vehicle, the personnel at the state line would confiscate what we had. If I remember correctly, the policy was in place to help keep certain pests or diseases away from Arizona's crops. Whatever the specific reason might have been for the policy, it resulted in a pretty steep tariff.

Tariffs (or outright proscriptions) for particular foodstuffs are still in force in a number of states. I find it particularly interesting to see how states handle something as common as wine. Unless one runs a winery or is otherwise licensed to transport or store wine, one may well be in violation of state laws because one picked up a few bottles while on vacation. In the state of South Dakota, for example, it is not permissible to transport more than 1 gallon of wine across the border from another state. And, one must have purchased it for one's own use. Further, if one found a lovely vintage while traveling through Oregon but would simply like to ship some to one's home, one cannot legally do that.

Exactly what bearing does such a topic have on investing? We invest in businesses which engage in trade. These businesses, and our investments, tend to do well when the market is less restricted and we have greater access to consumers of our products and services. We talk of NAFTA, an agreement whereby the US and Canada and Mexico all happily go to the marketplace together, but how much damage do states do their own economies by either passing laws which prohibit the free trade of goods across state lines and/or by actively seeking to protect local industry at the expense of their own citizens?

So, why not build such tariffs between the states? For starters, doing away with interstate tariffs was part of the reason for forming the United States. Perhaps those folks knew what they were doing after all.

5 Comments – Post Your Own

#1) On April 26, 2011 at 11:24 PM, TMFAleph1 (95.98) wrote:

The stretch of I-40 between Albuquerque and Flagstaff is absolutely out of this world. Certainly one of the most beautiful roads in the world.

Alex Dumortier

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#2) On April 27, 2011 at 2:46 AM, FleaBagger (29.37) wrote:

A lot of us have blogged things much more tenuously related to investing than that. I just wanted to point out that burdensome government regulation, including taxes and tariffs, benefit large corporations, and not just a little. As Bastiat said, we must look not just at what is seen, but what is unseen. When government increases the fixed costs of a particular kind of business by, for instance, $20 million, all of the small companies that were treading water and tiny companies with less than about $25 or $30 million in revenue are eliminated immediately, and slightly larger companies have to pass on much higher costs per unit than the larger corporations. Walmart can absorb all the increased costs by using $x.96 instead of $x.95 as their pricing meme. In fact, the increased business from the loss of competition can allow them to absorb the costs without increasing prices at all and increase prices, revenue, and everything their shareholders love - the gradual scale of monopoly.

What of taxes and tariffs, which are scaled costs instead of fixed costs? With taxes, the code is so complicated that the more accountants you have, the more money you keep. See GE. As the larger corporations can afford more tax accountants, the complexity of the tax code, and even higher taxes themselves, can increase large caps' profits by tying the hands of the smaller competition, even driving them out of business.

Tariffs are perhaps the most transparent of all the ways the government grants privilege and advantage to larger companies, and in fact can be targeted to benefit smaller companies than most regulatory costs. It's simple: if your customers are importing from overseas what you're trying to sell them, your prices (and margins) go up by the same amount as the tariff. Up go your revenues and your margins, and everything else your shareholders like.

The government exists for the benefit of large corporations (and others who curry political favor), and it serves them well. Always has, always will. 

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#3) On April 27, 2011 at 9:03 AM, sajahmeoli (61.14) wrote:

TMFBullinBear,

It is indeed a lovely stretch of highway. I hope to get back there sometime soon.

FleaBagger,

Tariffs and taxes do disproportionately influence small business--another good reason to reduce/do away with tariffs and massively simplify taxes. After all, just about every business starts as a small business before it grows. If one removes the environment in which a small business can get off the ground, it means less competition and less innovation for the market as a whole.

It is true that government and large businesses have vested interests in supporting each other--and that large businesses have become particularly good at working regulatory puzzles, but there is more to government than economics. I hold out hope that our government may become less useful as a tool for organizations and more useful as a guarantor of freedoms for individuals.

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#4) On April 27, 2011 at 9:16 AM, Jbay76 (< 20) wrote:

I hold out hope that our government may become less useful as a tool for organizations and more useful as a guarantor of freedoms for individuals.

I wouldn't hold my breath if I were you

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#5) On April 30, 2011 at 7:12 PM, devoish (99.07) wrote:

Oftentimes small business' are exempted from regulations because of their being more burdensome on a smaller income, and because smaller business' do not have the same impacts as larger ones.

I am pretty sure that states have the right to affect regulatory standards of their own.

The last thing I want is some d-bag politician telling me health insurance is affordable because some high deductible, no coverage policy is available in some other State.

Best wishes,

Steven

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