Archives: 07/2008

EPI Gets Trade and Jobs Story Wrong Again

According to a report released today by the Economic Policy Institute, trade with China has caused a loss of 2.3 million American jobs since the Asian giant joined the World Trade Organization in 2001. The study will get a lot of coverage, but its numbers and methodology are shockingly flawed.

This is a well-traveled road for EPI and the report’s main author Robert Scott. Scott has authored other reports that have come to the same conclusion about NAFTA and earlier periods of trade with China. The methodology virtually guarantees a finding of job losses: It assumes that imports displace a certain number of workers while exports create new jobs, and since we run trade deficits with China and Mexico—surprise!—trade with those countries leads to net job losses.

I’ve dissected the flaws of EPI’s approach elsewhere, but to just summarize what everyone should keep in mind when you read about the EPI report:

EPI exaggerates the number of American companies and workers who compete directly against Chinese imports. Many of our main imports from China—shoes, clothing, toys, and consumer electronics—were being imported from other countries before China’s emergence as a major supplier. In fact, as imports from China have risen since 2001 as a share of total imports, imports from other Asian countries have been in relative decline. So imports from China do not typically displace U.S. production but instead displace imports from other countries. In fact, in the past year, the U.S. unemployment rate has been heading up as our overall trade deficit has been heading down.

EPI ignores the creation of jobs elsewhere in the economy that are made possible by trade and globalization. Exports aren’t the only channel through which trade and globalization creates jobs. Foreign capital flowing into the United States—the flip side of the trade deficit—creates jobs through direct investment in U.S. companies and indirectly by lowering interest rates, which stimulates more domestic investment.

Even when trade does displace workers, in a flexible and growing economy, new jobs will be created elsewhere. As I reported in my October 2007 study “Trading Up,” job losses in manufacturing during the past decade have been more than offset by net job gains in better-paying services sectors.

Since China joined the WTO in 2001, U.S. exports to China have shot up by 22 percent per year, the U.S. economy has added a net 6 million new jobs, real compensation per hour earned by U.S. workers—that is, wages plus benefits adjusted for inflation—is up 9 percent, and manufacturing output is up 10 percent. Last year, America’s supposedly beleaguered manufacturers earned collective profits of $305 billion, more than five times what they earned the year China joined the WTO.

As we struggle through a domestic slowdown and rising prices for consumers, we could use more trade with China, not less.

The Stevens Scandal

Don Boudreaux of George Mason University sent out the following missive about Ted Stevens’s indictment. I don’t see it posted at Cafe Hayek, though it might yet be. But since I can’t improve on his pithy commentary, I offer it here:

I’m delighted to see Sen. Ted Stevens face jail time for his crimes while in office. To charge him with concealing gifts totaling $250,000, however, is the equivalent of charging a confessed mass murderer with jaywalking. If that’s the only way to bring the criminal to justice, fine. But Sen. Stevens’s most significant misdeeds - ones of which he boasts! - are his decades-long success at directing billions of taxpayer dollars to special-interest groups for no reason other than the fact that he possessed the power and position to buy himself even greater security in office by doing so.

Of course, punishing all the criminals guilty of THAT offense would depopulate Capitol Hill.

Building Afghanistan

Building a state in Afghanistan is the job of the Afghans. The United States can help, especially with infrastructure projects and military training, but our principle objective there should not be counter-insurgency, but counter-terrorism. That mission requires no surge in American or NATO forces.

Don’t take it from me, take it from Rory Stewart, the crazy Scotsman and former employee of the British Foreign Office, who walked across Afghanistan in 2002 with a dog, lived to write a great book about it, and now lives in Kabul.

Stewart’s article is latest in an outbreak of Afghanistan surge skepticism.

Treating Angelenos as Children

A law that would prevent fast-food restaurants from opening in South Los Angeles neighborhoods was unanimously approved by the LA City Council on Tuesday.

Paternalist? You bet. Violation of equal protection? It would seem so. The City Council trusts white people, but not the blacks and Latinos who live in South Los Angeles, to make their own food decisions? Ouch.

But I was particularly struck by this statement from Councilwoman Jan Perry, sponsor of the measure: “I believe this is a victory for the people of South and southeast Los Angeles, for them to have greater food options.”

Greater food options? All the council is doing is banning some restaurants. How will that give residents more options? Maybe – maybe – other restaurants will open in South Los Angeles because fewer fast food restaurants will open over the coming year. But residents will still not have “greater food options,” just different options, courtesy of those who know best.

Thomas Sowell wrote in Knowledge and Decisions of the “surprising … persistence and scope of the belief that people can be made better off by reducing their options.” Twenty-eight years later, the belief persists. But now people who reduce other people’s options claim they are increasing options. That’s progress, of a sort.

The citizens of South Los Angeles should rebel against the unchosen nannies who think that they can run adults’ lives better than those adults can run their own lives.

Depth Takes a Holiday

In yesterday’s New York Times, David Brooks lamented the yawning chasm in educational attainment that divides America: the children of wealthy and highly-educated parents graduate from high school and go on to college vastly more often than those of lower-income, less educated parents. Here, he is on solid ground. But, columnists being columnists, Brooks goes on to give us his unsubstatiated opinion that: “Barack Obama’s education proposals… flow naturally and persuasively from this research,” while “McCain’s policies seem largely oblivious to these findings,” as exemplified by the Republican’s “vague talk about school choice.”

A look at the evidence reveals Brooks’ intuition to be exactly backwards.

Senator Obama’s education platform can verily be described as more of what the federal government has already been doing: more spending on government pre-school programs aimed at ever-younger children, especially the fifty-year-old Head Start program; tweaking of the No Child Left Behind act to make it look a little more like it did in its first four decades, when it went under the name Elementary and Secondary Education Act., etc.

But these programs were in full blown operation during the entire period, from the seventies to the nineties, during which Brooks notes that ”America’s educational progress slowed to a crawl.” So Brooks is arguing that doing more of the same is a “natural” and “persuasive” solution to our longstanding educational problems. His hope in this regard is indeed audacious.

And what of McCain’s “vague talk” about private school choice programs? Is it really irrelevant to the educational attainment gap that Brooks is so concerned with? If Brooks had spend just a few minutes Googling the issue he would have come across the nationwide study by University of Chicago economist Derek Neal showing that urban African Americans are vastly more likely to graduate from high school, gain acceptance to college, and graduate from college if they attend Catholic rather than public schools. He would have found the similar findings by Evans and Schwab. He might even have come across the two separate studies of the Milwaukee voucher program showing significantly higher graduation rates for the poor students attending private schools under that program than for students in the Milwaukee public school system. 

People who actually care about the socio-economic divide in our nation should familiarize themselves with the evidence before trying to influence public opinion on presidential candidates or policies.

E-Verify: More Study Needed

Though reauthorization of E-Verify was briefly in doubt, it appears now that congressional authorizers have agreed on a way forward, and that the program needs a lot more study.

A bill on the House floor today would extend E-Verify as a “voluntary” program for 5 years and require much more study of the system and its problems. The consensus at the beginning of the year was that Congress would require every employer in the country to use it by the end of the year.

Since then, flaws in the E-Verify database and tracking system have come to light and it has become more clear that “internal enforcement” of immigration law means tracking and databasing all Americans. My paper on the subject is called “Franz Kafka’s Solution to Illegal Immigration.”

E-Verify is losing its luster. In the reauthorization bill, Congress has tasked the Government Accountability Office with conducting two studies to explore problems with the system and the policy. One will look into the large number of erroneous “tentative nonconfirmations,” their causes, and potential remedies. DHS sought to glide past these issues in its advocacy for E-Verify this year. The other will look at how E-Verify would effect small businesses (and also small non-profits and municipalities). Current users of E-Verify tend to be large employers that are motivated (by threat of enforcement or past enforcements) to comply scrupulously with the law. The already low quality of the E-Verify system’s results will drop when other employers not so motivated begin to use it.

If E-Verify goes forward another five years, technical and programmatic problems will become more clear. But we shouldn’t take our eye off the ball. A national E-Verify system would be used to give the federal government direct regulatory control over law-abiding Americans. Federal authorities would use it to control not just work, but housing, financial services, health care, and access to alcohol, tobacco, and firearms — and these are just the obvious things.

Pots, Kettles, and Sen. Brownback

Via Yglesias, Sam Brownback is outraged that the Chinese government would spy on foreigners on its soil without a warrant. When it was pointed out to him that the United States government is now authorized to conduct warrantless spying in the United States, he had this to say:

We don’t put the hardware and software on hotels. If there is a targeted individual that seems to be a likely prospect of terrorists, they must go through the FISA court and ask for a court to determine that there is probable cause to be able to listen in on that information.

This is a blanket requirement of a hotel to operate a license in China. It is non-specific to anybody. It can be used on journalists. It can be used on athletes – or, excuse me, they’re at the Olympic village – but on their families. It can be used on democracy advocates, human rights advocates, none of which is prohibited. It is real time.

I think there is a huge difference between these two that are taking place.

Well, except there isn’t. All that’s required under the FISA Amendments that the Senate passed a couple of weeks ago is that the government “certify” that the “target” of the surveillance is located overseas. There’s no requirement that the government identify specific targets, and there’s no “probable cause” requirement at all — not even the permissive “agent of a foreign power” standard that had previously governed FISA intercepts.

This means that if the Olympics were held in the United States, the US government could “target,” say, a foreign newspaper such as the Guardian. And as a means of “targeting” the Guardian, it could tap the hotel rooms of all Guardian reporters in the United States.

Now, under the FISA Amendments Act, the government would have to submit a “certification” to a judge describing the eavesdropping plan. And the judge is required to verify that the interceptions are not “targeting” persons located within the United States. But, the government could argue with some plausibility, the “target” of the acquisition is the Guardian, which is located overseas, not the particular reporters who are in the United States. It would be a close legal question. And anyway, the government “is not required to identify the specific facilities, places, premises, or property” in the certification it submits to the judge, so the judge might not even realize that the government is bugging every reporter.

Worst of all, even if the judge rejected the “certification,” the government would have 30 days to continue eavesdropping before it was required to comply with a judge’s order. Since the Olympics are only about 3 weeks long, that means the government could intercept every single call from every single foreign reporter throughout the entire Olympics regardless of what the judge nominally overseeing the eavesdropping said.

Finally, lest we think the United States government would never do such a thing, the FBI repeatedly spied on “democracy advocates” and “human rights advocates” during the Cold War. For example, between 1954 and 1973, the FBI’s New York office alone conducted 433 break-ins of organizations J. Edgar Hoover didn’t like. Targets included the National Lawyers Guild, the Chicago Committee to Defend the Bill of Rights, the American Youth Congress, Vietnam Veterans against the War, Students for a Democratic Society, the Student Non-Violent Coordinating Committee, the Joint Anti-Fascist Refugee Committee, the League of American Writers, the National Mobilization to End the War in Vietnam, the Jewish Cultural Society, the Civil Rights Congress, and dozens of other organizations. And we only know about those break-ins because the head of the FBI field office failed to destroy his records as he had been ordered to do by Hoover. The records of other field offices were destroyed, but there is every reason to think that a similar number of organizations were spied upon in other cities.

Now, I have no evidence that anything of the sort is going on today. But this is precisely why there needs to be judicial supervision of eavesdropping efforts. Because we know from history that without external oversight, power will inevitably be abused. And unfortunately, Sen. Brownback voted for legislation that significantly reduced judicial oversight of wiretapping activities. Brownback is absolutely right to say that domestic eavesdropping shouldn’t occur until the government has demonstrated probable cause to a judge. Too bad he didn’t vote that way.