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 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 April 27, 2007 under Collectivist instinct |
On the fine Coyote Blog, a commenter recently used the term “giving back” to describe taxes paid in support of social programs. I don’t know how the term “giving back” ever got equated to paying taxes, but this use of the term really needs to be taken out to the back forty and shot.
I liken it to the idea that people used to have (and many still have) about praising Jesus: “If it’s the right thing to do, why not have a law?” Because, as Jefferson pointed out, threatening sanctions against unbelievers taints everyone’s religion. If your neighbor sings in church, is it an expression of piety or fear? If there’s a law, one can’t know. Part of the genius of the Founding Fathers was their realization that laws enforcing religion potentially subject all religious expression to question. They saw religious freedom as perfecting their ability to express their beliefs.
A similar argument attaches to “giving back” by way of taxation. Sure, most people don’t want to see the poor, especially the elderly poor, suffering. But as it stands now, no one can say that we take care of our poor because of collective compassion when the threat of violence stands right behind that “compassion.” One can argue whether or not our poor would be worse off without transfer payments, but one cannot call government transfer payments “giving back” since there is no choice about the “giving,” even if much of it may have otherwise been freely given absent coercion.
Posted by Marc Hodak on April 21, 2007 under Collectivist instinct |
The WSJ makes hay about SEC Chairman Christopher Cox:
Instead of the split, partisan votes that had become the norm under his predecessor, Mr. Cox, a former California congressman, brought a politician’s desire to seek the broadest support possible. The commission unanimously approved rules relating to disclosure of executive pay and using technology to improve the proxy process. Under his leadership, every vote on a proposed rule has resulted in a 5-0 decision.
But now, critics are expressing frustration with this approach, arguing that because of the time Mr. Cox takes to reach a consensus the SEC is moving too slowly on important topics, leaving Wall Street and investors without guidance on key issues. The debate gets to the heart of big questions about the role of an SEC chairman: Should he push for fewer, unanimous decisions that will endure? Or should he target contentious changes, even if he alienates colleagues and interest groups?
Actually, Mr. Cox’s approach is consistent with a minimalist approach to regulation that he clearly espoused as a congressman–only adopt regulations that nearly everyone thinks are reasonable. The real reason his approach is irking his critics is that these critics are invariably special interest groups, organizations that must now work harder than just drum up support in the majority to satisfy their parochial interests. His critics like regulation, and they want more of it.
Wall Street and investors, if anything, suffer from too much “guidance.” I would guess that Chairman Cox would probably prefer to knock down a good deal of regulation, if his was the only vote that counted. Unfortunately, he’s in charge of a regulatory agency, not a deregulatory agency. This is the best one can do when one truly cares about investors as a whole.
As mentioned in the article, even Cox couldn’t do anything to stop the new “compensation lawyer full employment act” passed under the banner of enhanced executive compensation disclosure, despite my best attempt.
Posted by Marc Hodak on April 18, 2007 under Collectivist instinct |
Here is what WaPo had to say about Our Dear Senator:
“Schenectady Mayor Brian Stratton needed help: Bechtel Plant Machinery, a prominent local employer, had announced it was relocating to Pittsburgh.
“On Nov. 15, Clinton called Stratton, Schumer and Rep. Michael R. McNulty (N.Y.) to her Senate office for a meeting with Bechtel officials. Stratton described Clinton as ‘totally enraged and totally engaged’ and said she demanded to see the data that had informed Bechtel’s decision.
“Schumer reminded the executives that Bechtel relied heavily on federal contracts, that Democrats were now the majority party, and that Clinton was a member of the Armed Services Committee. Her presumed front-runner status for the 2008 Democratic nomination was never mentioned, Schumer said. But he described it as ‘the 800-pound gorilla in the room.’
“Two weeks later, Bechtel announced it was suspending the move. Relocating remained the better option, Bechtel executive T.F. Hash wrote to the senators. But he added: ‘I am, however, mindful of the difficulties this decision has placed on our employees and the community.’
The Bechtel executive’s note reminded me of statements read by hostages, plainly under duress, when they’re placed before the media.
It’s clear that the Post is heralding this as a political achievement. It’s clear that Ms. Clinton is quite proud of this vignette, too. In fact, I was made aware of it by her own staff who felt that it “might be of interest” to me. Yeah, it was.
It’s rare that we get to see into the heart of coercion. We got this glimpse because the Senators from New York apparently have no shame about conspiring against the citizens of the United States to deprive a legitimate company of the opportunity to fairly compete in government contracts. When I see displays of raw power like this supposedly exercised on my behalf, I wonder what I could do to help those without the guns. I wonder how I could apologize to Bechtel for being complicit by virtue of my citizenship. I wonder how the public and the press could be so morally barren as to applaud this kind of behavior. I wonder…where the heck are the Senators from Pennsylvania?
Posted by Marc Hodak on April 3, 2007 under Collectivist instinct |
I’ve driven down to Maryland many, many times over the years. It’s where I’m from, and most of my family still lives there. At the Delaware border, there was a quaint sign saying “Welcome to Maryland – The Free State.”
Now, Maryland has a lot to recommend for it–lovely rivers, Chesapeake crabs, green hills as far as the eye can see. Freedom, not so much. Few states are bluer than Maryland. Marylanders love government, and not just because so many of them are federal workers. Their liberalism runs much deeper than that. For me,the only way to view the “Free State” motto on the welcome sign was with a sense of humor.
Well, the old motto is gone. Now the sign just says, “Maryland Welcomes You.” No pretense about freedom. In a way, the change represents a kind of truth in advertising. I just wonder if the bureaucrats who made the change were conscious of this truth?
Posted by Marc Hodak on March 31, 2007 under Collectivist instinct |
If you didn’t think that anything could enhance one’s experience at the Grand Canyon, think again. The Hualapai Indians have created a stunning new attraction there–The Skywalk. This bridge 4000 feet above the canyon floor looks like an experience that would leave one breathless. However, this journalist’s description of his first steps out over the abyss revealed less about his spiritual awakening or engineering prowess than of his collectivist instincts:
The Skywalk’s builders have said repeatedly that the deck is extremely durable. It’s essentially a huge steel horseshoe, capable of withstanding 100 mph (160 kph) winds and holding several hundred 200-pound (90-kilogram) people at a time.
I had no reason to doubt them. But out on the edge, my mind was racing: I tried to remember if any government regulatory agency had checked how well this thing was anchored to the cliff.
This is plainly an emotional reaction to a scary situation. But I think this comment is scary, and I have an emotional reaction to it: Why the f*@k would anyone trust that a government regulatory agency has a greater interest in or expertise about the soundness of this structure than would the tribe that financed it, the engineers that built it, or the insurer bearing its risk?
And yet, I can’t say I’m surprised. News writers are notoriously wary of private agents and their self-interests versus “the government,” as if its agents were somehow endowed with a greater degree of expertise or caring for their fellow man. They often can’t fathom that, even regardless of their economic interests, the owners and operators would be any less concerned about their guests tumbling down the side of the Grand Canyon than some bureaucrat with a tape measure and some forms to fill out. It kind of leaves me breathless.
Posted by Marc Hodak on March 18, 2007 under Collectivist instinct |
Tyler Cowen has created a kerfuffle among libertarians by suggesting that they should stop worrying and learn to love big government. He says:
The more wealth we have, the more government we can afford. Furthermore, the better government operates, the more government people will demand. That is the fundamental paradox of libertarianism. Many initial victories bring later defeats.
I am not so worried about this paradox of libertarianism. Overall libertarians should embrace these developments. We should embrace a world with growing wealth, growing positive liberty, and yes, growing government. We don���t have to favor the growth in government per se, but we do need to recognize that sometimes it is a package deal.
Cowen is a thoughtful commentator on politics and economics, but I think that he suffers here from a version of Stockholm Syndrome. He accepts the growth of government as an inevitable complement to growth of wealth. He refers to government as a kind of discretionary product upon which ���people��� can choose to spend that wealth. Aside from the questionable conflation of which people are making which choices, I believe that his conclusion fundamentally misreads history.
The global trend is clearly toward greater wealth and greater freedom. The trend in America, however, appears to re-inforce the notion of a “package deal” that Cowen is espousing. But the U.S. is not evidence of a counter-trend so much as an example of a fortuitous starting point as a libertarian’s wet dream that could not last.
Read more of this article »
