Posted by Marc Hodak on May 7, 2007 under Collectivist instinct | 
Last week, Harvard professor Dani Rodrick pointedly rebutted what he considered a misconception about the universal benefits of free trade–what one might call the libertarian fallacy:
So here is a straightforward economics question: under what conditions will trade liberalization enhance economic performance? If you answered “under any and all,” you flunk. Here is the correct answer:
* The liberalization must be complete or else the reduction in import restrictions must take into account the potentially quite complicated structure of substitutability and complementarity across restricted commodities.
* There must be no externalities or microeconomic market imperfections other than the trade restrictions in question, or if there are some, the second-best interactions that are entailed must not be adverse.
* There must not be any increasing returns to scale, or else activities with scale economies must expand “on average.”
* The home economy must be ���small��� in world markets, or else the liberalization must not put the economy on the wrong side of the ���optimum tariff.���
* The economy must be in reasonably full employment, or if not, the monetary and fiscal authorities must have effective tools of demand management at their disposal.
* The income-redistributive effects of the liberalization should not be judged undesirable by society at large, or if they are, there must be compensatory tax-transfer schemes with low enough excess burden.
* There must be no adverse effects on the fiscal balance, or if there are, there must be alternative and expedient ways of making up for the lost fiscal revenues.
* The economy must not have a trade deficit that is already “too large,” or else nominal wages or the exchange rate must adjust to compensate.
* The liberalization must be politically sustainable and hence credible so that economic agents do not fear or anticipate a reversal.
I could expand the list, but you get the point. And all of this is needed just to ensure static benefits. If you want dynamic (growth) benefits, we would have to add an even larger number of other prerequisites.
Each of these items is debated in the higher reaches of academia, but it is not my intent to join that debate here. My concern is much more practical.
It turns out that the same day Rodrick posted this list, President Bush appointed a new “manufacturing czar.” I don’t know what the United States needs with a “manufacturing czar,” but one would hope that he would account for at least some of Rodrick’s points in recommending trade policy.
So, which points do you think a “manufacturing czar” would consider from Rodrick’s menu? I say only this one:
* Will this policy result in more votes or fewer votes for our party’s candidates in the next election?
You say that wasn’t one of Rodrick’s points? I would say that all of Rodrick’s considerations would be (and have been) ultimately bent around this one point.
Consider what happened last time Bush tried to appoint a manufacturing czar who at least somewhat reflected a healthy view of competition in our manufacturing sector:
Democrats questioned why the Bush administration chose Raimondo to guide government efforts to stop the hemorrhage of U.S. manufacturing jobs, while he had laid off 75 of his workers in 2002 after announcing he was building a $3 million plant in China.
Raimondo defended his company’s operations in China, saying the Chinese plant didn’t mean lost jobs for his four U.S. plants but rather was an effort to sell into the Chinese market. Behlen manufactures steel buildings and farm equipment.
Sending jobs offshore is a touchy issue for the Bush administration in an election year.
The beauty of polarized politics is that you get to the point where politicians don’t even pretend to disguise their true motivations. In the moments that those motivations coincide with economic reasoning, it can be considered a happy accident. To believe otherwise could be called an anti-libertarian fallacy.
Posted by Marc Hodak on May 4, 2007 under Movie reviews |
Every now and then I get to do something really “New York,” like attending a screening at the Tribeca Film Festival hosted by the producer. Yesterday, I saw The Hammer, a movie co-written by and starring Adam Corolla. It’s a humorous take on the boxing underdog story.
Here Corolla, as aging slacker Jerry Ferro, is the underdog by virtue of being a hapless 40 year-old who suddenly finds himself an aspirant to a spot on the Olympic boxing team. Snicker if you will, but it’s no more far-fetched than a 60-year old guy straining to credibly portray a middle-aged boxer fighting a champion in the prime of his career. Except The Hammer is much funnier–intentionally so.
In fact, this is a perfect vehicle for Corolla. His acting skills are lightly taxed as he portrays a construction worker and boxing teacher, roles he had in real life before his career as an entertainer. He even gets to show off his native jump-roping and unicycling skills in a semi-parody of the training montage.
While this film tracks a fairly staple plot line, like the break-up with the girl who loses faith in him so he can transition to the one who believes in him, it plods along this path with just enough footwork to keep one’s interest. This otherwise predictable line connects the discrete points in the movie where Corolla gets to let loose. His verbal flurries prove to be just as potent as his physical ones.
This film lacks the quirky unexpectedness one, well, expects in an independent film. Corolla is exactly as you’ve always seen him–wry and funny. Heather Juergensen plays the cute, but appropriately wary foil to Corolla’s relentless charm, though she eventually dissolves into the role of slushy love interest. Many of the scenes get stolen by Ferro’s side-kick, “Oz,” played with gusto by Oswaldo Castillo. In fact, when the film seems like it’s getting too tired to continue, Corolla somehow manages to kick up enough dust with the other characters to keep it going, including his erstwhile rival, played by newcomer Harold House Moore.
Overall, I was pleasantly surprised by the movie. I expected something artsy, i.e., risky in a way that sometimes works, but often doesn’t. What this movie delivered instead was a conventional story, not extraordinary, but with some good punches thrown in.
Posted by Marc Hodak on under History |
This day in 1626, Peter Minuit landed on this rocky island at the mouth of the Hudson. As everyone has been taught in school, the natives sold Manhattan to Minuit for $24 of beads and trinkets.
Rubes or victims? The $24 sale price has been used, in turn, to show how naive the natives were, or how badly the Europeans abused the natives in land transactions. Very likely, neither view is warranted. While it’s true that native Indians did not have the same view of property rights as the Dutch, there is plenty of evidence that they did trade in similar rights. According to one scholar, the rubes, in this case, were not the Indians, but the Dutch. You see, Minuit bought Manhattan from the Canarsee tribe–a Lenape tribe from Brooklyn. The Canarsee didn’t yet have a bridge to sell Minuit, so they made do instead with selling the Dutch an island they did not own. The tribe that was really screwed, here, were the Weckquaesgeeks, an Algonquin tribe that hunted the island, but favored the more forested, northern parts.
A good deal? The sale price and centuries that have passed are often used to illustrate the power of compound interest. The $24 figure itself is rather dated–it was calculated in the 1840s based on the value of cloth, trinkets, hatchets, etc. then estimated at 60 guilders. The translation of 17th century Dutch guilders to modern US currency would equate to roughly $600–still quite a bargain. The finance textbooks tells us that if the Lenape Indians had invested that sum at a rate approximating the 6-7% average real return on investment of American assets over that 350+ year period, that they could easily buy back all of Manhattan–land and buildings–with their profits.
Of course, the natives, even if they had been disposed to such an investment, had no financial markets available to provide such an opportunity. That would have to await the development of the very properties they had just sold.
Posted by Marc Hodak on May 3, 2007 under Unintended consequences |
Last year, the French-speaking Belgian news outlets sued Google to remove all links from Google News to their web-sites. Why? Because Google News was making ad revenues based, in part, on the availablity of content generated by the Belgian news sources, which weren’t seeing any of that money.
So, a Belgian court ordered Google to eliminate the links, and to post the court’s notice on Google.be for five days. That was enough to earn this decision some notoriety, in part because the court imposed a one million euro per day penalty for failing to comply with its order, and a 500,000 euro per day fine for failing to post the notice. Google promptly complied with the order by removing the links and, for good measure (“to avoid legal trouble”), all searchable references to the newspapers themselves; “Le Soir” or “La Libre Belgique” wouldn’t even come up on a web search.
Most people or businesses would not sue to be “disappeared.” People usually pay fees or ransoms to prevent that from happening. The French, who are paranoid about the declining use of their language, are particularly sensitive to American media ignoring their creations. If Google had a policy of linking everyone’s news except the French-speaking Belgians’…well, you don’t even want to know what that deluge would have looked like. In this instance, the Belgians imposed the threat of fines to achieve the opposite of what they would have wished in a sane, if imperfect world–fines far out proportion to the value created by those papers, let alone any losses they may have conceivably incurred as a result of Google’s links.
In fact, the economic losses were probably non-existent. In today’s world, most economists would have assumed the unpaid links created value for the publishers. In copyright law, that doesn’t matter; copyright holders are entitled to make decisions regarding their content, even if they make those decisions like ignorant yokels. The Belgians won on principle.
Then they saw what happened to the traffic to their web site.
In today’s news (AP-english version), the Belgian papers once again agreed to let Google News link to their websites, without any compensation.
Posted by Marc Hodak on May 2, 2007 under Collectivist instinct |
That’s really what we have today, and the Democrats finally want to do something about it because it hits their blue state, urban constituencies hardest. Of course, their prescription is exactly the right one for discouraging economic growth–increase the income threshold for the AMT, increase tax rates on the highest earners, and raise the tax rate on dividends and capital gains.
David Henderson’s WSJ editorial alternatively puts forth one of my favorite ideas in recent years: don’t get rid of the AMT–transform the AMT into a flat tax, and let the rest of the tax code gradually disappear with inflation. Henderson proposes a couple of tweaks to the AMT to make it really flat: eliminate the few deductions it still offers, and reduce the rate from 26/28 percent back to something more reasonable, if not optimal.
This proposal solves several problems at once. In the near-term, the reduced rates dramatically reduce the number of people getting “trapped” into the AMT. But as incomes continue to rise, the people getting “trapped” are paying a more reasonable rate, say 20 percent on income above the global exemption of $45,000. Over time, that exemption will get inflated away–a good thing in Henderson’s view, as it brings more of the middle class into the tax pool.
Of course, if you’re a liberal Democrat, you’ll hate this idea for the three reasons upon which your politics are based: (1) It’s not punitively progressive on the most productive people in our society, and becomes less so over time, (2) it eventually eliminates “cherished” deductions like home mortgage interest and deductions for state and local taxes and other items favored by the politically well-connected, and (3) it eliminates one’s ability to use the tax code for social engineering.
Unfortunately, Henderson limits his arguments for a flat tax to supply-side theory, making the fairness argument literally as an afterthought. So let me bring fairness front and center:
– It’s unfair for a majority of the people to vote away the wealth of a minority for the simple reason that the minority has more of it, legally earned.
– It’s unfair to create beneficiaries of tax breaks at the expense of those who don’t get them. Why should renters be penalized at the expense of owners in the tax code? Who are these people who usurp this right to decide who is worthy and who isn’t?
– It’s unfair to subject every citizen to rules so dense and incomprehensible that they must hire professionals to comply with the law or, at best, sacrifice several spring days each year to understand what, exactly, is required of them.
OK. Now I feel better.
Posted by Marc Hodak on May 1, 2007 under Collectivist instinct, Revealed preference |
Today is International Workers’ Day throughout the socialist and communist world, including the Daily Kos, who took this opportunity to slam Wal-Mart. They noted that Wal-Mart was investigated by Human Rights Watch, noting that:
Human Rights Watch, a non-governmental group based in New York, is best known for scathing reports on political issues such as the Rwandan genocide and the Congo’s use of children in its military.
The clear implication, of course, is that Wal-Mart’s treatment of its workers rises to a level of concern consistent with genocide and child conscription, because it’s non-union.
My standard for concern about an organization is somewhat different. If an organization has people beating down the doors to get in, it’s probably not a problem how they’re treating their workers. If an institution has people risking their lives to flee, that’s probably an institution that needs some outside monitoring.
The workers of the world deserve better.
Posted by Marc Hodak on under Unintended consequences |
Dr. Hurwitz was convicted on Friday for prescribing pain killers to dealers and addicts. No, the jury didn’t find any criminal intent. No, the jury didn’t think he made money from selling drugs. No, the jury didn’t think he acted from any motive but care for his patients. Apparently, the jury was able to convict Dr. Hurwitz based on the sense that he ignored certain “red flags,” as the prosecutor put it. In other words, Hurwitz was a good doctor, but a bad cop.
On reading the the series of articles by John Tierney (one of few reasons to subscribe to the NY TImes), it’s hard to blame the jury. They were buried under an avalanche of charges and information, and the prosecutor effectively used the specter of “the evil of drugs” that seems to cow so many ordinary people. They are also cowed by the judicial system’s heavy-handed warnings against jury nullification, and must have felt that acquittal on all 59 charges (they convicted him on ���just��� 16) might have been interpreted as such.
I’m sure that more than one juror must have asked during deliberations what might happen when it comes time for them to find treatment for pain if they send this guy to jail. The response from the other jurors would have been, “we aren’t allowed to consider that. The judge said we can only consider the law and the evidence in this case.” Sure enough. But some of those jurors were certainly aware of the secondary consequences of the law and its application, and it no doubt pained them to consider those consequences.
We can’t blame the jury, though. It’s not their sin or the sins of Dr. Hurwitz that we will be paying for. It’s not even the sins of the prosecutor or judge; they didn’t create the law. Is the legislature to blame? Is it the zealous, Orwellian congressmen who seek to make us all soldiers in the “war on drugs?” Or is it the people who elect them, and respond to their pious rhetoric?
