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American Focus > Blog > Economy > The Obvious Superiority of Collective Choices?
Economy

The Obvious Superiority of Collective Choices?

Last updated: March 16, 2025 7:37 am
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The Obvious Superiority of Collective Choices?
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When an outside entity expresses interest in investing within a specific territory that includes your group, it becomes essential to secure your group’s consent. This premise appears self-evident. In a collective decision-making process, individual opinions yield to the will of the majority; after all, the individual is but one voice among many. Or so the argument goes.

Regulating foreign capital inflows aligns neatly with a collectivist and mercantilist viewpoint on societal interactions (Gillian Tett, “Tariffs on Goods May Be a Prelude to Tariffs on Money,” Financial Times, March 14, 2025):

Could Trump’s war against free trade signal a similar assault on the free flow of capital? …

Might tariffs on goods be merely the first step toward imposing tariffs on money? …

Not long ago, such ideas would have been dismissed as ludicrous. Historically, most Western economists have viewed capital inflows as beneficial for the U.S. economy. …

In fact, six years ago, Democratic Senator Tammy Baldwin and her Republican counterpart Josh Hawley introduced the Competitive Dollar for Jobs and Prosperity Act, advocating taxes on capital inflows and a Federal Reserve policy that favors a weaker dollar.

As financial analyst McNair suggests, “the strategy itself is more coherent and far-reaching than most observers recognize.”

To be clear, Tett does not advocate for a tax on capital inflows; she explicitly states that she is “not endorsing” such measures.

There are compelling reasons to generally challenge the prevailing belief in the primacy of collective decisions, which is deeply rooted in the minds of politicians from both major parties. Opposing the collective control of capital inflows is essential; defining the group and the territory where collective decisions can suppress individual rights is inherently arbitrary. This brings us back to the political we I referenced earlier. Does it represent the 49.8% of voters who supported Donald Trump in the last election? What about the Condorcet paradox and its myriad extensions, which often reveal the logical inconsistencies within democratic majorities?

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Any policy or political decision involves a moral judgment about distribution, as famously illustrated by welfare economics. Any collective choice that isn’t unanimous inevitably leads to some individuals being exploited by others, making the moral judgment behind such decisions arbitrary at best. To navigate this moral quagmire, the public choice school of economics, notably James Buchanan and Gordon Tullock, proposed a theory of a unanimous yet limited social contract.

It’s hardly surprising, then, that capital controls—whether on inflows or outflows—create numerous complications. When politicians and bureaucrats dictate allocation, they often undermine market signals and incentives. Those with the power to tax also have the ability to regulate or prohibit, potentially imposing prohibitive tax rates or threats thereof. A tax on capital inflows would inhibit American businesses from seeking foreign lenders or investors. It could also restrict foreign tourists’ ability to acquire American dollars. Imagine a future where, after decades of isolationist policies, Americans might have to pay to receive remittances from family members living abroad. Let’s not forget that Argentina was once among the wealthiest nations at the dawn of the 20th century. Likewise, if inflows can be collectively controlled, why not outflows, such as investments or travel abroad?

The collective consists of individuals, whereas individuals do not comprise collectives. There is no inherent reason to prioritize the collective over the individual. If there exists any foundational principle of politics, it should be the primacy of the individual, recognizing that all individuals are to be treated equally. Otherwise, we risk endorsing a system where some individuals dominate others. Historical theories of self-regulating social order, developed since the 18th century, suggest that spontaneous societal coordination can occur efficiently, provided certain conditions are met.

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In conclusion, the argument for the superiority of the collective and its decisions is far from obvious.

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Are individuals composed of countries? A complicated question for DALL-E

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