Archives: 11/2010

New Paper on the Generalized System of Preferences

I have a new paper out today on the Generalized System of Preferences, the program by which the U.S. government allows certain imports from most developing countries to enter the U.S. market duty-free. The program has benefits: some producers in some poor countries are able to sell more than they otherwise would in the U.S. market, and U.S. consumers benefit to the tune  of hundreds of millions of dollars a year because of the tariff exemptions.

But the GSP still represents managed trade, and poorly managed at that. The program is designed so certain goods in which poorer countries tend to have a comparative advantage – textiles, for example – are excluded from the program, mainly because of the influence of the U.S. textile lobby. There are limits on how much of a particular product a beneficiary country can export duty-free, which means that truly efficient and competitve exporters are shut out.  The very existence of the program has proved a stumbling block to (superior, if not first-best) multilateral trade liberalization, because GSP beneficiary countries don’t want reductions in general tariffs to erode their preferential access.

With the GSP expiring at the end of the year (more here on possible vehicles for its passage [$]), it is a good time for Congress to consider radically changing this program. The best way to secure an open, prosperous world economy is to allow trade to flow freely across borders. If that is a bridge too far for politicians, they should at least consider some of the other reforms I suggest to make the GSP more open to more products, and to reduce the interference these programs impose on voluntary, peaceful exchange. Opening the U.S. market on a permanent and non-discriminatory basis should be the ultimate goal.

Earmarks and the Constitution

Today POLITICO Arena asks:

Is Senate Minority Leader McConnell’s announcement yesterday that he will support a moratorium on earmarks a sign that establishment Republicans are caving in to the tea party faction of their party?

My response:

Far from a sign that ”establishment” Republicans are “caving in” to the Tea Party faction soon to arrive here, Senate Minority Leader McConnell’s announcement yesterday that he “will join the Republican Leadership in the House in support of a moratorium on earmarks in the 112th Congress” suggests that Republicans may be rediscovering their roots in limited government, however reluctantly for some. At the same time, McConnell’s unusually long press release brings out two main difficulties surrounding the subject: first, and most important, the overall growth of spending; and second, the question of who decides where that spending goes.

On the second question, McConnell is clearly right: It’s hardly an improvement if ending earmarks amounts simply to giving the president the discretion to determine where spending goes. And on that point he contrasts earmarks he himself has made toward projects that properly were federal – e.g., cleaning up a dangerous chemical weapons site in his state, which presidents in both parties had ignored – with the Stimulus Bill, “which Congress passed without any earmarks only to have the current administration load it up with earmarks for everything from turtle tunnels to tennis courts.”

To be sure, there’s enough mischief at both ends of Pennsylvania Avenue to go around, but it’s the growth of spending, most on matters unauthorized by the Constitution, that is far and away the larger problem. McConnell calls for congressional oversight “to monitor how the money taxpayers send to the administration is actually spent.” Far more important will be hearings to determine whether Congress has constitutional authority to appropriate money on any particular matter in the first place.

Thus, the new Congress needs to see through the false alternative the earmarks debate has engendered. At bottom, it’s not a question of whether Congress or the president shall decide. Rather, after administration input, all but ministerial spending decisions belong to Congress – as constrained by the Constitution. Thus, if the voice of the electorate is to be respected, new and old members alike need to attend first to their oath of office.

Stopping the ‘Culture of Spending’

Sen. Mitch McConnell’s quick reversal on the subject of earmarks was a surprise, but that quick, largely symbolic win against profligate spending certainly won’t translate into a more permanent movement without sustained effort. Shortly after McConnell made his speech supporting a “moratorium” on earmarks, I spoke with Matt Kibbe of Freedomworks about turning the enthusiasm for smaller government into that enduring force. He said understanding public choice gives lawmakers a better shot at turning popular anger at government into reductions in its size and scope. Freedomworks recently held orientation sessions for freshmen members of Congress. A primer in public choice was on the agenda.

Cato’s Government Failure: A Primer in Public Choice is a good place to start to understand the mechanics of government dealmaking.

Provenge Controversy Argues for Medicare Vouchers

The new prostate-cancer vaccine Provenge (manufacturer: Dendreon) appears to extend life by an average of four months at the relatively high cost of $93,000 per patient.  This week, Medicare bureaucrats will conduct a national coverage analysis before deciding whether Medicare will cover the vaccine.  This “unusual“ step has sparked charges that government bureaucrats are rationing medical care to save money.

Today’s Washington Post includes letters from two cancer survivors that neatly illustrate why the government should not be in the business of providing health insurance or purchasing medical care at all.  Cancer Survivor #1 argues that Medicare should cover Provenge:

“Expensive” treatments have given me many extra years with my family. I witnessed my older daughters graduate from high school, start college and celebrate events doctors told me I would never see…Time is precious, life is priceless and every breath is a gift.

Cancer Survivor #2 says no way:

As a 63-year-old cancer survivor, would I forgo just four more months of life if it would cost $93,000? Yes, in a heartbeat…Let’s quit trying to live forever and put those millions of dollars into educating the next generation.

If the government stayed out of health care, or just subsidized Medicare enrollees with a voucher, then both cancer survivors would get their wish.  Cancer Survivor #1 could purchase coverage for expensive cancer treatments.  Cancer Survivor #2, and millions like her, could buy lower-cost insurance and donate the savings to scholarships.

Yet politicians and government bureaucrats dictate what type of insurance Medicare enrollees get, which means they also decide what enrollees will not get.  And no matter where they draw the line, someone loses.  Either Cancer Survivor #1 won’t get her expensive medical treatment, or Cancer Survivor #2 won’t be able to fund scholarships for kids.

The only way out is Medicare vouchers.  In addition to being the most plausible way to reduce Medicare spending, vouchers are the only way to protect Medicare enrollees from government rationing.

Fiscal Commission Compared to Clinton

The Obama fiscal commission’s draft report suggested that federal spending be reduced from 25.1% of GDP today to 22% by 2020, and lower after that. That’s a reasonable goal for a centrist kind of commission, but let’s remember that spending was just 18.2% in President Clinton’s last two fiscal years, 2000 and 2001.

For the final report, the commission’s staff might look to Clinton’s budgets for guidance. The chart shows federal spending as a share of GDP in fiscal 2001 and fiscal 2012. Fiscal 2001 was Clinton’s last year, and it was before all of President Bush and Obama’s spending increases. I choose 2012 as the end year because most of the “stimulus” spending will be finished by then, defense is supposed be down a bit as foreign troops are partly withdrawn, and the economy will have hopefully recovered. Based on President Obama’s Mid-Session Review, spending in fiscal 2012 will be 23.0% of GDP.

Total federal spending is expected to increase 4.8 percentage points of GDP between 2001 and 2012. The chart shows that increases have occurred in every part of the budget–entitlements, defense, and domestic spending. Thus, the Obama fiscal commission is on the right track to propose cuts across all areas of the budget. However, it needs to be about 4 percentage points of GDP more aggressive in downsizing the government to get us down to Clinton-level spending.

Will Obama Rise Above a Divided Nation?

Today POLITICO Arena asks:

Would Obama be more effective if he were to limit himself to one term?

My response:

It’s possible that Obama is self-absorbed enough to believe that he could unite the nation by announcing that he intends to be a one-term president and then, as Schoen and Caddell suggest, devoting all of his energy to solving the nation’s problems. After all, his speeches abroad early last year suggested that he and many of his devotees, including members of the Nobel Peace Prize Committee, believed that he possessed similar powers over international problems.

But as both domestic and international reality has set in, as it has a way of doing, we’ve seen how it afflicts those whose grasp of it is less than sure. They long, disingenuously or not, for some mythical age of domestic comity, forgetting that the nation has ever been divided, even under George Washington, no less. Today, however, the issues that divide us are fundamental. Indeed, electoral majorities in California and New York have just reminded us of something the ancients understood, that democracy at bottom is a struggle between those who imagine the state to be their spiritual and material benefactor, including the perpetrators of that view who stand to profit from it, and those who have a more limited, arms-length understanding of the state.

As between those two camps, there’s not much in common. A wise politician will grasp that reality and pitch his tent accordingly. Thus far, Obama has grasped that, but he’s pitched his tent in the wrong camp.

Mao’s Last Dancer

The movie “Mao’s Last Dancer” is a sleeper hit, says the Los Angeles Times:

It features no big-name stars, drew mediocre reviews and traffics in the esoterica of Chinese ballet.

And yet “Mao’s Last Dancer,” the true story of a ballet performer who defected to the United States in 1981, has become one of the season’s biggest art-house hits.

Bruce Beresford’s Australian-produced film tells of Li Cunxin, an 11-year-old Chinese boy plucked from his rural village in 1972 under the reign of Mao Zedong to dance for the Beijing Ballet. While in residence at the Houston Ballet a decade later, he defected to the United States after a politically charged standoff that involved the FBI and diplomats from China and the U.S.

It’s been in theaters for three months, and I finally saw it this weekend. You can’t usually wait that long to see an indie film, but this one’s been hanging on under the radar. It’s a great story about Chinese communism, politically controlled art, and one individual who chooses freedom. In a climactic scene, the Chinese consul tells Li “the Party knows what’s best for you” and Li responds, “I know what’s best for me.” (The language is a little different in Li’s autobiography.)

The New York Times dismisses the movie as “nothing more than an old-fashioned tear-jerker,” complaining that it is

stuck in an earlier era of heavy-handed clichés about Chinese innocence and American experience. The juxtaposition of wide-eyed villagers and labored aphorisms with shopping malls and casual sex may accurately reflect Mr. Li’s book, but on screen it feels absurdly outdated.

Um, yes. The movie is set between 1972 and 1981. That was Mao’s China, even the China of the Cultural Revolution and the Gang of Four, and then the very earliest days of the liberalization under Deng Xiao-ping. Today it looks dated, as do most movies set 30 or more years in the past. Anyone who has visited China recently might not realize just how stunning the Houston skyline would have looked to Li in 1981. But I saw the Shanghai skyline seven years later, in 1988, and I know that Houston would have seemed a different world to Li at that time.

No doubt the Times reviewer also disliked the scenes in Chinese schools where students are told that China has the highest standard of living in the world, while the “capitalist and imperialist nations” live in unimaginable horror. And maybe the scene of Madame Mao visiting the Beijing ballet academy and demanding that the students perform only revolutionary ballet. But that was the reality of Maoist China.

I’ve written before about the remarkable dearth of anti-communist movies in Hollywood, especially when you consider that communism lasted far longer and killed far more people than national socialism, about which there have been many movies. Of course, this movie wasn’t produced in Hollywood; it was produced in Australia by the Australian director Bruce Beresford (“Breaker Morant,” “Tender Mercies,” “Driving Miss Daisy”). And “Mao’s Last Dancer” is as much a story of individualism and breaking out of a world that would hold you down (not unlike “Billy Elliott” or “October Sky”) as it is a political movie.

The fact that Li was allowed to visit the Houston Ballet temporarily in 1981 was a sign of the changes that were happening in China, and the country has made much more progress since then. But China is still not comfortable with this story, and the producers were forced to shoot some scenes in secret after being denied permission to film in China.

With Christmas movies coming, “Mao’s Last Dancer” won’t be in theaters much longer. See it now.