Obama's Trade Rep admits pandering

I do appreciate the public choice ramifications of democracy, but I still don't totally understand why things like this happen mere months after a president takes office, during a crisis that few believe will still be with us during the run-up to the 2010 election:

[Probable U.S. Trade Representative] Kirk [...] is viewed by many as a pragmatist who in the past has supported the notion of free trade.

Yet the administration, analysts say, is also up against an American public that is increasingly blaming the open U.S. trade policies of the past as part of the toxic mix at the root of the nation's economic problems. Kirk suggested as much yesterday.

"It is true that cheaper foreign products helped squeezed American families stretch their dollars, and the sale of our goods and services abroad support American families," he said. "But it is also true that the overarching benefits of trade are difficult to appreciate when a plant closes in a small community because of increased foreign competition."

Take out the words "families" and "community," and that looks like it could have come straight out of a public choice textbook arguing why inefficient interest group politics are inevitable in a democracy.

Also, I'd be interested to know, before the dawn of the eternal election campaign, were presidential administrations less likely to engage in this sort of blatant populism early on in their terms? I suspect the answer was no, which sort of invalidates the premise of the question – i.e., the eternal election isn't really a modern invention.

How some tariffs can actually be pro-free trade

Here's something you don't see every day: anti-protectionist tariffs. The European Commission is reportedly considering tacking import tariffs on biodiesel from the US in order to counter the subsidies that American producers receive from their own government. The tariffs will be tailored to, among other things, the amount of subsidies that the fuel receives back in the US:

The level of tariffs would be tailored to individual companies to reflect the types and amounts of the fuel they produce, and the amount of subsidies and other support they receive from American authorities, the diplomats said.

While this action would cancel out the effects of some of the American subsidies, there's still the matter of the European subsidies. The obvious reason for the encouragement of biodiesel is that it's more environmentally-friendly than fossil fuels, though I wonder if this is really the case.

US trade policy pushes Cambodian girls into prostitution, US foreign policy causes Cambodia to arrest them

Radio Free Asia has a sad article on young Cambodian girls being pushed into prostitution, made all the more horrific because it seems that US trade and foreign policy is exacerbating the trend. The US is working in a few ways that harm these young girls: they push for labor standards that make employing these girls legally more expensive, and thus they are left to professions not subject to the law. But more directly, they pushed for anti-trafficking laws that the Cambodian government interpreted as a directive to crack down on prostitution, driving prostitutes deeper into the underworld and away from the protection that legal tolerance provides to these most vulnerable of businesswomen.

In his NYT column two weeks ago, Nicholas Kristof did a good job of summing up the ways that US pressure on Cambodia's labor standards has decreased employment opportunities:

Cambodia has, in fact, pursued an interesting experiment by working with factories to establish decent labor standards and wages. It’s a worthwhile idea, but one result of paying above-market wages is that those in charge of hiring often demand bribes — sometimes a month’s salary — in exchange for a job. In addition, these standards add to production costs, so some factories have closed because of the global economic crisis and the difficulty of competing internationally.

The Radio Free Asia article explains how the worsening plight of prostitutes is thanks to US foreign policy, and how NGOs are willing partners in crime:

In February 2008, the Cambodian government began enforcing the new “Law on the Suppression of Human-Trafficking and Sexual Exploitation” after years of U.S. pressure to crack down on sex trafficking.

Human rights groups, however, say the law and its enforcement have made life harder for the women they aim to help.

Prostitutes caught in police raids are made to pay fines of up to U.S. $200 for their release, the 17-year-old girl said.

“They take us to district police headquarters and take our money. If we don’t have the money, we will be kept in custody for two or three days. So we have to run for our lives when we see police approaching us.”

“Police arrest us in the hope that the brothel owners will pay, but if we don’t have anyone to pay for our release we will be sent to one of the nongovernmental organizations (NGOs). It’s o.k. to live at the NGOs, but then our families have nothing to eat,” she said.

“If [the NGOs] want to help me, they should also help my family. Otherwise I can’t quit.”

Anti-protectionist street protests in the Russian Far East

Not something you see every day – crowds clamoring for free trade. Via Cathy Young, the Moscow Times reports that inhabitants of Russia's far eastern territory have taken to the streets to protest a new tax that I presume would fall mostly on cheap used Asian cars imported via China (in Eastern Europe and its colonies in the far east, used cars are a big deal).

In a rare example of grassroots political power, angry protests by drivers prompted lawmakers in the far eastern Primorye region on Monday to ask the country's two leaders to delay raising import duties on foreign cars. [...]

Thousands of drivers took to the streets in several far eastern cities and towns Sunday to protest the tariffs, blocking traffic, clashing with police, openly insulting Putin and Medvedev and even calling on Putin to resign.

Putin's decree would increase the prices for imported cars by between 10 and 20 percent, a move the government has defended as a way of protecting domestic auto makers during the growing financial crisis.

The Primorye region's representative in the Federation Council, hockey legend Vyacheslav Fetisov, met with regional car dealers in Vladivostok on Monday and promised to pass on their request to the government to call off the tariffs, which they say would ravage their business.

Then again, I don't know if clamoring for reduced tariffs on cars really counts as libertarian activism when you think about it...

The political economy of cucumber curvature

A lot of people have heard about the EU's ridiculous restrictions on selling misshapen fruits and vegetables, recently in the news because many of the rules were relaxed. But just today, after years of having read probably a dozen stories on the matter, I finally found the first real analysis of why the rules were enacted in the first place. The Christian Science Monitor reports:

Farmers in sun-challenged Britain and other growers across northern Europe have protested for years against the regulations, claiming the standards force them to waste more than 20 percent of their crops. [...]

The decision to relax most of the rules drew strong criticism from farmers in Spain and Italy, who, with help from the Mediterranean sun, pride themselves on the production of the continent's most geometrically perfect fruits and vegetables. The farmers fear the change opens the door to competition from less scrupulous growers outside Europe, namely places where labor is cheap.

That 20% figure seems suspiciously high, though I'm not an agronomist – but if it's true, then that's a serious trade barrier that's just been lifted. It's ironic (but all too predictable) that the EU, an organization designed primarily to foster free trade among members, would foist this protectionist regulation on members whose national legislatures had not adopted it.

Impairing creative destruction

Last week we heard that Detroit was getting a bailout to the tune of $25 billion, and today we heard that it's a done deal that'll be signed as early as this weekend. US News & World Report gives the details:

• Adjusted for inflation, the Chrystler bailout of 1980 cost $4 billion, while today each big three US carmarkers is getting $5 billion, with $10 billion left over for suppliers.
• The law actually requires nothing of the automarkers. It mandates uses for the money (fuel-efficient technology and some other things), but money is fungible if they were already planning on spending that much money on whatever it was that it was earmarked for.
• Chrystler is owned by a private equity firm, and is not a publicly-traded company. I.e., unless you happen to have a couple billion dollars, you don't have a stake in it.
• Without the money, at least some of the automakers would probably go bankrupt. There is a very real chance that this is preventing or delaying the creative destruction that is necessary in a capitalist system.
  
• "There's more aid coming." According to the article, Detroit is going to try again next year for another $25 billion.

What I implied last week – that Detroit got the bailout as a sort of consolation prize – turns out to be only 76% true:

It might seem like a stealth rescue, but the plan has been in the works for at least 18 months. Approval for the loans was first included in last year's Energy Independence Act. Earlier this year, the automakers sought a first installment of loans totaling about $6 billion. But the nationwide credit crunch severely crimped their ability to borrow, and besides, next to bailouts like $200 billion for Fannie Mae and Freddie Mac, a mere $6 billion started to seem unduly modest. So Detroit raised the ante to $25 billion, the most allowed under current law.

Oh Detroit, don't think we forgot about you!

I have to admit, I didn't see this one coming: virtually every major political and American auto industry players has all but confirmed that Detroit will also get a bailout, to the tune of a $25 mbillion loan guarantee. Political considerations (Michigan and Ohio are big industrial states) meant that Obama, McCain, Pelosi, Reid have already voiced their support for the plan. After negotiations, the chairman of Chrystler said the negotiations were "successful," and the head of Ford said that "It was a great day."

Hobbled with the detritus of a failed healthcare system, a trade policy inclined towards anti-competitive protectionism, and the perverse incentives of government handouts, no loan guarantee is even going to begin to fix Detroit's, and the nation's problems. The auto industry in America is inextricably linked to the nation's nationalized road system and individual state and municipal land use regulations, and it will rise and fall based on the degree to which our laws favor automobiles and roads.

The chicken tariff spat that killed Detroit

The NYT has an editorial online about the unintended consequences of government interference in the market. The editorial traces the roots of American auto makers' disproportionate share of the light truck market (a declining one in the face of $100+ barrels of oil) to a retaliatory trade war started in the 1960s. Germany, in an attempt to protect its own domestic poultry market, convinced the European Common Market (the second incarnation of what has become the EU) to triple the tariff on frozen chicken imported from the United States. The US retaliated, imposing a 25% tariff on light truck imports, a move directly targeted at Germany's Volkswagen automaker. However, the tariff was also imposed on Japanese imports, giving Detroit an advantage when it came to competing with the Japanese over the American auto market. The chicken tariffs ended long ago, but American carmakers got too cozy with the benefits from the light truck tariff, and now it's coming back to bite them in the ass with that market in free-fall and consumers going for smaller cars. A nice example of the unintended consequences of government action.

Interstate protectionism strangles wind power

The NYT has an article about a large impediment to more widespread wind power adoption: an outmoded and overloaded transmission system. Energy transmission, like just about every other step in the energy chain, is a highly regulated industry in the US, with state governments taking the lead in deciding how the transmission systems should work. Surprise surprise, the states act in irrational ways, and essentially enact protectionist policies, aimed at keeping energy within the state. One consequence of this is that the infrastructure needed to get wind power from producer (the Great Plains region, and especially the Dakotas) to consumer (the densely-populated coasts) isn't getting built:

The cost would be high, $60 billion or more, but in theory could be spread across many years and tens of millions of electrical customers. However, in most states, rules used by public service commissions to evaluate transmission investments discourage multistate projects of this sort. In some states with low electric rates, elected officials fear that new lines will simply export their cheap power and drive rates up.

The problem of interstate protectionism became so bad that Congress stepped in, but with the inevitable backlash:

In a 2005 energy law, Congress gave the Energy Department the authority to step in to approve transmission if states refused to act. The department designated two areas, one in the Middle Atlantic States and one in the Southwest, as national priorities where it might do so; 14 United States senators then signed a letter saying the department was being too aggressive.

I can't find anything about the letter online, but I'd be curious to see how many of those 14 senators are from Great Plains states.

Naomi Klein's misguided understanding of capitalism

Normally I wouldn't waste time trying to debunk Naomi Klein, but her use of the term "capitalism" to describe decidedly statist policies has really been getting to me lately. In an article for The Nation called "Disaster Capitalism, State of Extortion" she again pulls what I like to call "pulling a Naomi Klein" – she berates the Bush administration for its obeisance to markets, admits that it's interfering with markets, and concludes capitalism is therefore the problem. The article is a bit schizophrenic (but then again, when are here thoughts not?), but focuses on three main issues: oil in Iraq, oil in Anwar, and the food crisis.

On Iraqi oil, apparently she thinks that no-bid contracts are the paragon of capitalism, and even that these uncompetitive contracts "will raise more money" – but how handing over concessions to a company without looking for higher bidders will raise more money, she never explains. Furthermore, she never explains why a capitalist – that is, someone with a single-minded drive for profit – wouldn't put a contract out for competitive bidding. On Anwar she makes a little more sense, saying that the resources up there are miniscule compared to the global market for oil.

But on food prices, she again loses it. Despite a leaked report by the World Bank that says the rises in food prices are largely due to pro-ethanol, anti-capitalist state intervention in agriculture, she conveniently ignores the fact that capitalism is obviously the solution to the food crisis, not the problem (Raționalitate on food here). She goes on a little rant about genetically modified crops, saying "there is no evidence that GMOs increase crop yields, and they often decrease them." This might be true (though I kind of doubt it), but if it were, then what's the problem? Has the Bush administration been forcing farmers to use GM crops? If they're so ineffective, then wouldn't those greedy profit seekers not use them? And in the same breath that she deprecates GM crops, she berates corporations for patenting those oh-so-ineffective crops and depriving others of their use. Although attacking intellectual property as it relates to food genetics is certainly justified, she implicitly associates intellectual property with a free market agenda, despite the divide among libertarians on whether IP is justified (and, hence, whether or not it qualifies as "capitalist"). Those who come out (to some degree or another) against IP range from the traditionally libertarian to the hard-core anarcho-capitalists (not to mention myself), though you'd have no way of knowing that from her article.

Naomi Klein almost always has legitimate points, but she's often profoundly confused about the difference between capitalism and statism. What she calls "disaster capitalism" (a favorite topic of hers – she even wrote a book about it) is more accurately termed state capitalism, but don't count on Naomi to be able to discern distinctions so subtle.

Edit: Cato actually has a takedown of Klein's aforementioned book here if you're interested – I haven't read her book, and I've only skimmed this article, but from what I've read of Klein's, debunking her is a job that anyone with half a brain could do pretty well.

NYT: a bit behind the times on Obama and ethanol

Fun fact about this blog: by far the single largest driver of visitors to it is a single trackback link on a post about Obama, McCain, and ethanol on Gary Mankiw's blog. Anyway, because of that link (which I can't see in Safari, but can in Firefox) and the NYT's story about Obama and ethanol that appeared on A1 below the fold today, I've been getting a lot of hits.

Anyway, the article was a pretty standard critique about Obama's pro-ethanol fuel policies and his ties to lobbyists, including the obligatory reference to agribusiness rent-seekers extraordinaire, Archer Daniels Midland ("ADM: supermarket to the world," to NPR listeners). However, something that struck me as a little bizarre and unbecoming of the Times' stature was that throughout the whole article, the author never once mentioned the fact that Obama recently stepped off a bit from his ethanol platitudes and admitted that it might not be such a great idea, after all. Since then, I don't remember having heard him talk about it, but then again I also have been trying my damnedest not to hear the presidential candidates at all. But it seems like something that might have warranted at least a mention, eh?

American steel makes a comeback

According to the WaPo, steel is experiencing a resurgence in America. On the back of the declining dollar, skyrocketing demand overseas, and leaner plants, Amex's steel index has grown by 50% annually for the past half-decade. The Post also mentions that organized labor's diminished role at the plants might have something to do with American steel's competitiveness:

Part of the credit for steel's rebirth goes to the pragmatism of the United Steelworkers. The union become a supporter of mill consolidations, agreed to more job flexibility in labor contracts and went along with a move to replace guaranteed pensions with defined-contribution plans. The union was able to extract agreements from owners to streamline companies' management ranks and set aside a share of profits to fund health-care and prescription drug plans for retirees and their families who had lost them in the wave of bankruptcies. [...]

The mills themselves emerged much leaner and more technologically advanced, allowing many fewer workers to make roughly the same amount of steel.

Back in the 1970s, there were more than 500,000 steel workers in the United States, a number that has been reduced by more than two-thirds, even as the number of workers has edged up in recent years, according to the American Iron and Steel Institute. The amount of labor required to manufacture a ton of steel has gone from roughly 12 man-hours to about 1.2, analysts say. Steel workers continue to be well paid, union officials say, earning $65,000 a year or more, when incentive pay, profit sharing and a modest amount of overtime are included.

"Labor has become much less of a factor in the cost of steel," Rhody said. "That particular part of the equation has equalized, making domestic steel much more competitive."

Astute recent historians might remember that Bush slapped some tariffs on steel in 2002, but those restrictions were lifted by 2003. However, the Post article doesn't mention the voluntary export restraints that China placed on its steel industry, which likely boosted the ability of American firms to sell their steel on world markets. I'm not sure what the extent of these barriers were, or if they're still in place.

Millionaire corn farmers of the world, unite!

For all the farmer couples out there earning earning $2 million a year, never fear: you're still getting your subsidies! In case there was any doubt, the latest incarnation of the farm bill passed the Senate with flying colors (only fifteen senators had the common sense to vote against it). Though Bush promised to veto the bill (a rare moment of sanity), the point is moot, given that the bill passed both the House and Senate with enough votes to override a veto.

And how do the presidential candidates compare on this issue? The SF Gate has no love for Obama on the issue:

Democratic presidential contender Sen. Barack Obama of Illinois, who has based his campaign on a promise to end special-interest politics in Washington, issued a statement praising the farm bill, which is laden with special-interest subsidies. Obama said the bill will "provide America's hard-working farmers and ranchers with more support and more predictability."

The incredibly irrelevant Hilary Clinton had the gall to chide McCain for his opposition to the bill. Though McCain is admittedly bad on economics, he took the high road and voted against this bill (from Time: "For now, we need to put an end to flawed government policies that distort the markets, artificially raise prices for consumers, and pit producers against consumers. We’ve once again failed farmers in that regard, which is why I oppose this bill.").

In addition to the absurd economic distortions and general government waste in the bill, the soon-to-be law is guaranteed to piss off the world and hamper the Doha round of trade liberalization.

Obama backpedals on ethanol

Barack Obama, this campaign season's über-champion of ethanol subsidies, is starting to retreat from his position:

With the world teetering on the edge of a full-blown food crisis, it may be time to cut back on biofuel, said Barack Obama yesterday.

In an interview on NBC's Meet the Press, the Democratic presidential candidate said "there's no doubt that biofuels may be contributing" to falling food supplies and rising prices.

Ya think!? This being politics, I know it's too much to ask, but it would be nice to hear an apology from Obama for almost single-handidly pushing ethanol to the forefront of the presidential campaign, inspiring a chorus of me-toos from Camp Hillary (though McCain's generally held the high ground, he too occasionally becomes intoxicated on the Iowa spirits).

Edit: Obama's been pretty quiet about the subject of ethanol subsidies since his almost mea culpa, but the NYT didn't give his change of heart any play in an A1 article it ran about his stance on ethanol in June 2008.

Farmers farming

All sorts of juicy little bits about the infamous Farm Bill in a "NEWS ANALYSIS" from the NY Times (pun entirely unintentional).

Not to get your hopes up, so I'll just say it right now: no big changes for the farm bill. The mammoth thing is $300 billion and covers five years (!!), and it ends up in the low single-digits as a percent of federal spending. However, the ramifications are huge: payments to farmers encourage the planting of certain commodities, much of which is used as animal feed. So, farmers of wheat, soy, corn, rice, animals, and even tobacco receive lower prices, which inevitably (given the finite nature of the world) leads to higher prices for literally everything else in the world, but mostly for unsubsidized foods: fruits and vegetables. Oh yeah, and there's that whole food-pricing-shooting-through-the-roof and agribusiness-making-huge-profits thing. But hey, maybe they really need the money!

One of the bill's defenders, Sen. Tom Harkin of Dakota, comes up with the entirely unconvincing argument that "expecting the huge farm bill to address current challenges is like asking a farmer to go out and grow corn for tonight’s supper." To me, the fact that it's so difficult to change the farm bill (uh, why would it be so difficult, anyway?) would seem to be more of a reason to start now, rather than wait. "The senior Republican on the House Agriculture Committee, Representative Robert W. Goodlatte of Viriginia" blames it on the Democrats with their ethanol – definitely partially their fault, but it's amazing that these people can use the "what he's doing is worse" argument with a straight face, as if your duty to the nation depends on how well someone else is doing their job.

Rep. Kind, who obviously never got the memo about how governments work:

“It really is astounding,” said Representative Ron Kind, Democrat of Wisconsin, who has pushed for broad changes in farm subsidy programs. “It’s as if this farm bill is being negotiated in a vacuum.”

Astounding? More like par for the course. Oh, and your candidate for change? He issues incredibly misleading communiqés in which he hopes you'll confuse millions and billions, all the while being a big backer of farm subsidies' evil twin: ethanol subsidies.

Lying would-be presidents

During this election season, an article from Reason reminds us of something very important: the presidential candidates are lying. George Bush lied about shrinking government (and yet was the first president in history to sign off on a $2 trillion federal budget, and then later the first to sign off on a $3 trillion budget) and about a "humble foreign policy" with no "nation building" (and here we are with wars fast approaching the cost of WWII, and which have lasted longer than it did, anyway). But what's most interesting about the article is something I'd never known before: FDR campaigned on a platform that looks downright libertarian in retrospect. An excerpt from the article on the Democrats' manifesto for the 1932 election:

The very first plank calls for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government." (It also asks "the states to make a zealous effort to achieve a proportionate result.") Subsequent planks demand a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concludes with a quote from Andrew Jackson: "equal rights to all; special privilege to none." It sounds more like Ron Paul than Pelosi.

And of course, the Democratic primaries aren't even over and we already have some hard evidence that Obama hasn't been exactly been honest with his anti-NAFTA electioneering, and then there's the strong anecdotal evidence that Hilary Clinton hasn't been, either (as I recall, someone very close to her championed the passage of that bill as president in the early '90s...now if I could just remember his name!).

The bigger issue, I think, is why this isn't an issue. Why do presidential candidates get to lie their way through the elections, and then totally change their position when they're actually in office? Why, during their inevitable incumbent campaigns, are they not shamed for their lies four years earlier? You'd think that in the world of 24/7 cable news, with constant harping on the smallest of issues, these bald-faced lies would be rating-gettings for the networks. But apparently not.

Crashing the party in London

It looks like the Chinese government is taking the heat in London. The Communist Party's big PR bungle (thinking the Olympics would impress the world) is mounting. It's a good sign for those who hope that China's big coming is ruined (I count myself proudly among them), because there are still four months until the start of the Olympics, and the world is simmering with protectionist disconnect. The Democratic primaries and ensuing presidential race don't help matters, as Clinton and Obama are already falling over themselves to suck up to the ghost of John Edwards. Given McCain's absent understanding of economics, I'd be surprised if he and Obama (or, in the case of an inconveniently-timed Black Panthers endorsement, Clinton) don't start arguing over who can protect American jobs as well as they do in Gaza.