Thursday, December 16, 2010

Happy Birthday, (Original) Tea Party!

There are taxes, regulation, a massive corporate bailout, and a popular uprising called "the Tea Party"—but it’s not 2010. It’s 1773, and today marks the 236th anniversary of the Boston Tea Party. The similarities are illuminating. By the 1760s, American colonists consumed more than a million pounds of tea each year. Britain, which produced the stuff in India, should have been swimming in revenues from the trade. But taxes and regulation, as they often do, fouled the situation. Parliament’s taxes doubled the cost of British tea compared to rival (and illegal) imports. So rather than pay the taxes, the colonists smuggled their tea. Conservative estimates suggest that more than three-quarters of the tea consumed in America was bootlegged. One Massachusetts governor wrote that “carts and other carriages are heard to be continually going about in the dead of night, which can be for no other purpose than smuggling.” The practice was so widespread that the famed evangelist George Whitefield preached against it when he visited the colonies: “What will become of you who cheat the King of his taxes?” As new taxes were levied, the colonists imposed widespread boycotts on British goods, including tea. Taxes and tax evasion weren’t the only problems, however. British trade regulations prevented the British East India Company, a private corporation of merchants, from selling their tea directly to the colonies. Instead, the company was forced to sell the tea to auction houses in England, an intermediary step that further drove up prices. To make matters worse, inefficiency, incompetence, and corruption marked the organization in the late 1760s. Ruin was inevitable. By the fall of 1772, the British East India Company owed the government more than £1 million. The British government had no desire to see its debtor go out of business. It was, in the parlance of our time, too big to fail. So early in 1773, Parliament pushed a bailout package for the British East India Company called the Tea Act. The bill extended a massive loan—well over what was already owed—and more government control over the company’s governance...more

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