Archives: 10/2012

Ed Crane’s Freedom Legacy - Peace and Free Enterprise

A Wall Street Journal editorial this morning heaps much deserved praise on the Cato Institute’s founder and recently retired president, Ed Crane, for his near-lifelong commitment to limited constitutional government and the “freedom legacy” he has entrusted to the next generation. Hundreds of millions of Americans and perhaps billions more people around the world are freer – or at least less tightly shackled by the freedom-encroaching tendencies of government – on account of the ideas that Crane and the Cato Institute have helped keep alive, proliferate, and popularize. The WSJ is gracious in acknowledging Crane’s critical contribution.

At the risk of appearing to make the perfect the enemy of the good, however, there is one characterization in the editorial that is inaccurate – the characterization of Cato’s foreign policy as “isolationist.” The editorial implies disagreement with Cato’s foreign policy prescriptions, which is presumably a reference to Cato’s opposition to the war in Iraq or Libya or Syria, or to the prospective war in Iran. After “validated,” I would characterize Cato’s positions on those matters as being in lock step with the precepts of limited, constitutional government: “non-interventionist,” in foreign policy parlance, which is a far cry from “isolationist.”

As director of the Herbert A. Stiefel Center for Trade Policy Studies at Cato, I can assure you that our unfettered advocacy of real free trade is the antithesis of isolationism. We in the trade center believe to our cores that Americans should be free to transact (as sellers, buyers, investors, workers, or collaborators in transnational production/supply chains) with whomever we choose, wherever they live. We believe that foreigners who want to work in the United States should be given green cards to do so and that foreign governments’ policies should treat Americans in the same regard. We believe that foreign investment should be welcomed almost unconditionally in the United States (the exception being the rare and narrowly-defined cases of clear threats to national security), and that Americans who want to invest their assets abroad should be free to do so without being punished through taxes and regulations or demonized by politicians for “shipping jobs overseas.”

We advocate person-to-person, business-to-business, mutually beneficial engagement between Americans and people in every country without exception and with minimal roles for governments. That is hardly an isolationist foreign policy. That is a recipe for peace and prosperity. That is part of Ed Crane’s freedom legacy.

The Proposed U.S. – EU FTA: The Good, the Bad, and the Ugly

Over the past year or so, there has been a slow and steady effort to generate support for a U.S.-EU free trade agreement. The Obama administration is now behind this, and there is no reason to think a President Romney would change gears. Thus, regardless of the outcome of the Presidential election, this trade initiative is likely to go forward.

So should free traders be excited by the prospect of a trade agreement with the EU? Maybe a little. But before getting too wound up, it’s worth taking a look at the possible details of such an agreement, as set out in an interim report by a U.S.-EU “High Level Working Group”. As indicated by the post title, there are things to like, but also some things not to like – the Good and the Bad. I’ll go through the list roughly in order of those I am most to least happy with, quoting the report and offering some comments. I will conclude with the Ugly. (See if you can guess what it is.)

Tariffs

The goal would be to eliminate all duties on bilateral trade, with the shared objective of achieving a substantial elimination of tariffs upon entry into force and a phasing out of all but the most sensitive tariffs in a short time frame. In the course of negotiations, both sides would consider options for the treatment of the most sensitive products.

This is pretty good, but not great. Note the part about “options” for “sensitive products.” How many of these would there be? This language makes me nervous.

Services

The aim of negotiations would be to bind the existing autonomous level of liberalization of both parties at the highest level of liberalization captured in existing FTAs, while seeking to achieve new market access through efforts to address remaining long-standing market access barriers, recognizing the sensitive nature of certain sectors.

This is all sounds good (except for that reference to “sensitive” sectors again).

But then it goes off in a different direction:

the United States and the EU would include binding commitments to provide transparency, impartiality and due process with regard to licensing and qualification requirements and procedures, as well as enhancing the regulatory principles included in current U.S. and EU FTAs.

“Impartiality” and “due process” are useful concepts in domestic law. But can they be effectively used in international trade agreements?  Are these concepts appropriate for binding international agreements, or do they turn trade agreements into a kind of global constitution?

Government Procurement

The goal of the negotiations would be to enhance business opportunities through substantially improved access to government procurement opportunities at all levels of government on the basis of national treatment.

While there is a good free market objection that governments spend too much on procurement, nonetheless, if they are going to spend, it would be better to do so in a non-protectionist way.  This part of the report is good. It promotes economic welfare through non-discrimination in government procurement. We buy their products and services, and they buy ours. Note, of course, that it refers to “substantially improved access,” not full free trade. But it is still an improvement over today’s situation.

Investment

The aim would be to negotiate investment liberalization and protection provisions on the basis of the highest levels of liberalization and protection that both sides have negotiated to date.

Here, there are two very different concepts included. Investment “liberalization” is great. By all means, let’s make sure foreign investors are welcome and not subject to discrimination, in both the U.S. and EU. But “protection” of foreign investors is something else entirely, as the rules on this issue in other agreements go far beyond a simple non-discrimination requirement.  Furthermore, of all the groups that need “protection” in this world, I would put “foreign investors” near the bottom of the list.

Rules

(a) trade facilitation/customs; (b) trade-related aspects of competition and state-owned enterprises; (c) trade-related aspects of labor and environment; (d) horizontal provisions on small- and medium-sized enterprises; (e) strengthening supply chains; and (f) access to raw materials and energy.

In this hodge-podge of items, we have some good and some bad. It’s great to make customs procedures more efficient; but including labor and environment provisions in trade agreements makes the whole exercise seem more like global governance than free trade.

Regulatory Issues and Non-Tariff Barriers
Here, there are several issues that are difficult to understand. First, it is important to note at the outset that existing international trade rules do not allow discriminatory laws and regulations. That’s a core principle of the GATT/WTO, and has been since 1947. So, keep that in mind when you hear calls for trade agreements to address “regulatory issues and non-tariff barriers.” They are already addressed in important ways.

Getting specific, the report calls for the following related to Sanitary and Phytosanitary (SPS) issues (e.g., food safety) and Technical Barriers to Trade issues  (TBT) (e.g., product regulations):

• An ambitious “SPS-plus” chapter, including establishing a bilateral forum for improved dialogue and cooperation on SPS issues.
• An ambitious “TBT-plus” chapter, including establishing a bilateral forum for addressing bilateral trade issues arising from technical regulations, conformity assessment procedures, and standards.

It is not at all clear to me why existing WTO SPS and TBT rules are insufficient.

The report also asks for:

• Horizontal disciplines on regulatory coherence and transparency for goods and services, including early consultations on significant regulations, impact assessment, upstream regulatory cooperation, and good regulatory practices.
• Provisions or annexes containing additional commitments or steps aimed at promoting regulatory compatibility over time in specific, mutually agreed sectors.

Here, I agree that there may be benefits from regulatory cooperation. But I’m not sure why they should be held hostage to free trade agreements. If the idea is to promote things like mutual recognition (say, in the auto industry), couldn’t it just be done now?

Finally, the report says:

In view of the importance of developing an ambitious and realistic approach to regulatory differences that unnecessarily impede trade, the two sides would invite stakeholders to present, before the end of the year, concrete proposals to address the impact on trade of those differences.

As noted above, the principle of non-discrimination has long been a core part of international trade rules. The principle mentioned here – “regulatory differences that unnecessarily impede trade” – is potentially much broader, as it intrudes into domestic policy-making to a greater degree.

Intellectual Property

Both the EU and the United States are committed to a high level of intellectual property protection, including enforcement, and cooperate extensively through the Transatlantic IPR Working Group. Both sides agree that it would not be feasible in negotiations to seek to reconcile across the board differences in the IPR obligations that each typically includes in its comprehensive trade agreements. Before the launch of any negotiations, both sides would further consult on possible approaches to deal with IPR matters in a mutually satisfactory manner.

It has never been clear to me why intellectual property should be included in trade agreements at all. Now the U.S. and the EU, who often push for strong protection in this area, will work together to achieve very tough international rules (except where they can’t agree, as with geographical indications, which will be left out).

—————————————————————

So, that was the Good and the Bad, all mixed together. Now let me wrap this up with the Ugly: No coverage of agricultural subsidies, or possibly agriculture trade of any sort! That means excluding one of the biggest sources of protectionism, not to mention two other big ones, with trade remedies and aircraft subsidies also out. Those are some serious omissions.

Oh, and one other thing: Free trade with just the EU is not really free trade!  It is discriminatory trade, with EU products and services favored over other countries’ products and services.

I don’t mean to rain on this free trade parade.  But keep all that in mind when evaluating this proposal.

Economic Lessons from Obituaries

Where is the best place in the newspaper to learn about how the economy works?

In today’s Washington Post the business section has the usual stories about Ben Bernanke’s manipulations, government debt, and regulatory issues. But there is little on the innovation and dynamism that is at the heart of long-run economic growth.

It is entrepreneurs who create growth, and they are often best covered in the obituary section of the paper. Today the WaPo has a Bloomberg story about the passing of Albert Ueltschi, “who founded aviation-training company FlightSafety in 1951 [and] expanded it into an international powerhouse.”

Here are a few highlights:

As pilot of Pan American’s first corporate plane … Ueltschi hit upon the idea of opening a testing and training center for the booming aviation industry in the 1950s.

That company today is FlightSafety International Inc., which bills itself as the world’s leading aviation-training company, teaching pilots, aviation mechanics, flight attendants, dispatchers and others each year.

After graduating from high school in 1934, he opened a hamburger stand and used the proceeds to take flying lessons. A year later he borrowed $3,500 to buy an open-cockpit bi-wing airplane, the Waco 10, and made it his next business venture. “I took people up for a dollar a hop, gave lessons, and even put on air shows.”

[I]n 1951, Ueltschi borrowed $15,000 by mortgaging his house and opened FlightSafety at LaGuardia’s Marine Air Terminal.

In subsequent years, Mr. Ueltschi worked his tail off juggling two jobs and building what would become a multibillion part of the U.S. economy. The government did not build FlightSafety. Nor did the government build the thousands of other firms and industries that comprise the bulk of the U.S. economy, such as the electric guitar industry, as I discuss here.

To revive the economy, we need fewer central planners like Ben Bernanke and more decentralized business-builders like Albert Ueltschi. We need more firms like FlightSafety and less like Solyndra. Both candidates for president are promising to create jobs, but what we really need is for the government to get out of way of the people who create companies and industries.

A Few Notes:

Here’s a brief history of FlightSafety and pilot training. As in some other tech industries, it appears that the government helped to boost the demand for this industry’s services. But the basic innovations and advancements were made by gutsy individuals taking risks in the marketplace.

A final note is that the Washington Post does run some articles on live entrepreneurs, not just deceased ones. For example, Thomas Heath’s column is often very interesting and inspiring.

Money and Politics in the Tennessee Democratic Party

Buried inside a Washington Post feature on “America’s worst candidate” is this revealing look on politics as it is played:

Tennessee Democrats, who’d watched their conservative voters drift to the GOP, finally lost the state House in 2010. That had been a financial lifeline for Democrats, since the legislature has broad powers over patronage.

“That pretty much was the end,” said [Will T. Cheek, a Nashville investor who has been a member of the state Democratic Party’s executive committee since 1970]. “Because we have nothing left. In the other low points, we had the Election Commission, we had the Building Commission. . . . If you wanted to get state deposits into your bank, those were all ours. And that’s where you’d raise your money.”

Losing those powers “really kicked the props out from under the financing of the party,” Cheek said.

House Committee Threatens to Subpoena Documents Related to IRS’s Illegal ObamaCare Taxes

Last Friday, House Oversight Committee chairman Darrell Issa (R-CA) and colleagues sent a letter to Treasury Secretary Timothy Geithner and Internal Revenue Service Commissioner Douglas Shulman accusing Treasury of “either willfully misleading the Committee or…purposefully withholding information that is essential to the Committee’s oversight effort.”

As Jonathan Adler and I document in our forthcoming Health Matrix article, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA,” the IRS has announced it will impose ObamaCare’s taxes on employers and individuals whom Congress expressly exempted from those taxes, and will send potentially hundreds of billions of taxpayer dollars to private health insurance companies, also contrary to the plain language of the statute. Oklahoma attorney general Scott Pruitt has filed a legal challenge to the IRS rule that imposes those illegal taxes.

On August 20, the committee sent IRS commissioner Shulman a letter requesting “all legal analysis, internal or external, conducted by the IRS which authorizes IRS to grant premium-assistance tax credits in federal Exchanges,” and “all documents and communications between IRS employees and employees of the White House Executive Office of the President or any other federal agency or department referring or relating to the proposed IRS rule or final IRS rule.”

When Treasury responded for the IRS on October 12, according to committee member Rep. Scott DesJarlais (R-TN), it “failed to include a single document, memorandum, communication, or email created before the publication of the proposed rule on August 17, 2011”—i.e., when all the interesting discussions would have occurred. The committee’s second letter complains, “Treasury did not provide a single piece of evidence to support its claim that IRS complied with the standard process when issuing this rule.”

Thus, the committee threatened, “If you do not provide all of the requested information by Thursday, October 25, 2012, the Committee will consider the use of compulsory process.” Developing…

For more on this issue, see here, herehere, here, here, here, and here.

How Not to Fact Check a Presidential Debate

After last night’s debate, I watched the postgame on the Fox News Channel.

They had some problems with their fact checking.

They got off to a solid start, going through the back-and-forth on whether or not the Obama administration attempted to get a Status of Forces Agreement in Iraq that would have exempted U.S. troops from being subject to Iraqi law and therefore left them in the country. Governor Romney was right on that one, and Fox called it for Romney.

Then Chris Wallace decided to “fact check” the repartee over Romney’s point that the U.S. Navy has fewer ships than it has had since 1917. Just as a refresher, here are the relevant bits:

ROMNEY: Our Navy is old — excuse me, our Navy is smaller now than at any time since 1917. The Navy said they needed 313 ships to carry out their mission. We’re now at under 285. We’re headed down to the low 200s if we go through a sequestration. That’s unacceptable to me.

I want to make sure that we have the ships that are required by our Navy. Our Air Force is older and smaller than at any time since it was founded in 1947.

[…]

OBAMA: …I think Governor Romney maybe hasn’t spent enough time looking at how our military works.

You mentioned the Navy, for example, and that we have fewer ships than we did in 1916. Well, Governor, we also have fewer horses and bayonets, because the nature of our military’s changed. We have these things called aircraft carriers, where planes land on them. We have these ships that go underwater, nuclear submarines.

And so the question is not a game of Battleship, where we’re counting ships. It’s what are our capabilities…

So how did Fox fact check this go round? Here’s what Chris Wallace said:

Well, as it turns out, in the middle of the debate, after he heard this, a Marine tweeted Fox News and said, “The Marines still use bayonets,” so it may not be clear who doesn’t really understand what the military currently uses.

I always thought Chris Wallace was a pretty sharp guy, but this makes me question that judgment. The point wasn’t that bayonets don’t exist anymore, or that they aren’t issued to Marines—they are. The point was that fighting wars is very different than was fighting wars in the early 20th century. Bayonets are not causes of mass death in combat as they were, say, right around 1916 (see photo). The point was that simply tallying the number of ships isn’t apples to apples because one American warship can do so much more today than one warship could back then.

The more precise point would be that we currently measure our navy in terms of tonnage. But don’t take it from me, take it from former Bush/Obama defense secretary Robert Gates:

As much as the U.S. Navy has shrunk since the end of the Cold War, for example, in terms of tonnage, its battle fleet is still larger than the next 13 navies combined—and 11 of those 13 navies are U.S. allies or partners.

Wallace’s idea that what he was doing was somehow a “fact check” overlooks the point that there wasn’t a fact in dispute. There was an argument, slightly more complicated than a simple factual dispute. And Obama’s argument, that the nature of militaries and combat has changed dramatically—nuclear weapons, anyone?—since 1916 and that we measure combat power differently as a result, was clearly correct. Even trying to count the number of bayonets would have been a silly effort to miss the point.

It is disappointing in the extreme to see VP candidate Paul Ryan on television this morning in one breath seemingly understanding Obama’s point, then immediately claiming not to understand the point (“to compare modern American battleships and navy with bayonets, I just don’t understand the comparison…”)

Election 2012: Thank God it’s almost over.

Has Mitt Romney Ditched His Neoconservative Talking Points?

We don’t want another Iraq, we don’t want another Afghanistan. That’s not the right course for us. - Mitt Romney, Presidential Debate, Boca Raton, Florida, October 22, 2012

With these words, Mitt Romney might have made the final, crucial connection to an American public tired of more than a decade of war, and desperate not to start any new ones.

Obama did his best to remind voters of why they haven’t trusted Republicans on foreign policy since 2005. He uttered the word Iraq 10 times. Romney mentioned it three times, once by accident—referring mistakenly to “the president of Iraq—excuse me, of Iran”— and once to explicitly and categorically deny that he had any intentions of going back down that road by launching another war.

Such sentiments can’t make Romney’s neoconservative advisers happy. They are the ones who sold the war in the first place, they peddled a “surge” in a desperate attempt to create a narrative that resembled victory, and it is they, who, to this day, proudly declare that the war was worth fighting. Their every statement betrays how truly marginalized they are, isolated from a public that can see the facts plainly before it, and concludes something very different: this war was a horrible mistake, and one that we are determined not to repeat. Indeed, the Wall Street Journal all but avoided commenting on the substance of Romney’s statements last night—probably because there wasn’t much substance.

Questions remain, however. First, is Mitt Romney truly committed to avoiding Iraq-style wars in the future? If so, why did he choose to surround himself with so many of the war’s most fervent advocates? Second, why is he opposed to additional reductions in the Army and Marine Corps, forces that grew specifically to fight the war that was supposed to be a “cakewalk” but that turned out to be something very different? If Mitt Romney doesn’t intend to engage in costly, open-ended nation-building missions abroad, why does he need a conventional military geared for that purpose? And, third, what lessons from the Iraq war inform his conduct of foreign policy? Was Iraq a good idea, poorly executed, or was this a bad idea from the get-go?

A recent article explained how Romney wanted to draw distinctions between himself and President George W. Bush, starting with the war in Iraq. “The idea that Romney is following the George W. Bush approach is a caricature the Democrats want to draw,” a senior Romney foreign policy adviser told the Los Angeles Times’s Paul Richter, “We’re not going to help them with that.”

They didn’t last night. We’ll find out soon enough if it worked.