The Economics of Gun Control

Excerpted from Making Economic Sense

There is a continuing dispute about whether President Clinton is an Old "tax-and-spend" (read: socialistic) Democrat, or a New "centrist" Democrat. What a centrist New Democrat is supposed to be is vague, but the two examples of the New Democrat noted so far seem indistinguishable from the Old.

The first proposal was Clinton's collectivist "national service" program, in which the taxpayers provide college educations for selected youth. In return, the youth volunteer for governmental or community boondoggle-jobs, which are somehow held up as morally superior to productive paying jobs in the private sector which actually benefit consumers.

The latest, and supposedly major piece of evidence for Mr. Clinton's "newness" is his emphasis on battling crime. But his crime control seems to consist in warring against every other entity except the real problem: criminals. Instead, there are drives to outlaw or severely restrict symbolic violence (toy guns, "violent" computer games, television cartoons, and other programs), and weapons which can be used either by criminals or innocent people in self- defense.

So far, guns are the favorite target of the new prohibitionist tendency. May we next expect an assault on knives, rocks, clubs, and sticks?

The latest gun control proposals from the Clinton administration provide an instructive, if unwitting, lesson in the economics of government intervention. Until this year, if you wanted to become a federally licensed gun dealer, you only needed to pay $10 a year. But the "Brady Bill" raised the federal license fee to $66 a year a more than 500% increase at one blow. Even this is not enough for Secretary of the Treasury Lloyd Bentsen, who proposes to raise fees by no less than another tenfold, to $600 a year.

One fascinating aspect of this drastic rise in license fees is that Bentsen actually proclaims and welcomes its effect as a device to cartelize the retail gun industry. Thus, Bentsen, in the non sequitur of the year, complains that there are 284,000 gun dealers in the country, "31 times more gun dealers than there are McDonald's restaurants."

So what? What is the basis for this asinine comparison? Why not a comparison with the total number of all restaurants? Or all retail stores? More to the point, who is to decide what the optimum number of gun dealers, McDonald's, shoe stores, all other retail outlets, etc. is supposed to be? In a free- market economy, the consumers make such decisions. Who is Bentsen or any other government planner to tell us how many of any kind of business establishments there should be? And on what possible basis are they making these selections?

Bentsen goes on to proclaim that the reason for so many gun dealers is that the license is cheap. No doubt. If we charged a $10 million a year license fee for each and every retail establishment, we might be able to deprive American consumers of all retail outlets of any kind.

Bentsen's proposal cheerily estimates that the enormous rise to $600 a year would eliminate 70-80% of existing gun dealers, who would be discouraged from renewing their licenses. The National Association of Federal Licensed Firearms Dealers reports that gun dealers are split on the increased license fee: large dealers, who could live with the increase, favor it precisely because their smaller competitors would be driven out of existence. Small dealers, who would be the ones driven out, are of course opposed to the scheme.

Indeed, the Bentsen plan explicitly terms the larger dealers, who sell from retail shops, "true" or "legitimate" gun dealers; whereas the smaller dealers, who sell from their homes or cars, are somehow illegitimate and are supposed to be driven out of business.

In addition to the fee increase, the Treasury wants to expand its pilot program in New York City, which it deems more successful. Here, City police and thuggish officers from the Treasury Department's notorious Bureau of Alcohol, Tobacco, and Firearms "pay a visit" to anyone applying for federal gun permits, explain the laws, and ask in detail what kind of sales operations they have in mind. These intimidating "visits" resulted in the withdrawal or denial of 90% of the applications, in contrast to the usual 90% approval rate.

There are several instructive lessons from this scheme and from the arguments in its favor.

First, a license "fee" is a euphemism for a tax, pure and simple.

Second, increased taxes discourage supply and drive firms out of business. The unspoken corollary, of course, is that the lower supply will raise prices and discourage consumer purchases.

Third, increased business taxes are not necessarily opposed by the taxed businesses, as is generally assumed. On the contrary, larger firms, especially those outcompeted by smaller competitors with lower overhead costs, will benefit from higher fixed costs imposed on the entire industry, since the smaller firms will not be able to pay these costs and will be driven out of business.

Fourth, here we have an example of a major force behind increases in taxation and government regulation: the use of such intervention, especially by larger firms, to cartelize the industry. They want to cut supply, and the number of suppliers, and thereby raise prices and profits.

In the gun control struggle, this measure is backed by a coalition of liberal anti-gun ideologues and big gun dealers – a perfect example of the major reason for continuing expansion of the welfare state: alliance between liberal ideologues and sectors of big business.

The most preposterous argument for the fee increase was offered by Bentsen and particularly by Senator Bill Bradley (D-N.J.), who has been unaccountably hailed by some Beltway thinktanks as a champion of the free market. They said the raise is needed to cover the expenses of government licensing, which cost $28 million last year, while taking in only $3.5 million in fees. There is, of course, a far better way to save money for the taxpayers, the sudden subjects of Bentsen-Bradley solicitude: abolish gun-dealer licensing altogether.