Tag: consumers

Trade-Skeptical Harold Meyerson Makes One Valid Point

Harold Meyerson, with whom I’ve rarely found occasion to agree, makes one point in today’s column (“Go Slower on Free Trade”) that didn’t cause my eyes to roll: that the Obama administration has been relentlessly secretive about the goings-on in the Trans-Pacific Partnership trade negotiations.

I cannot corroborate Meyerson’s claim that the administration has granted access to the negotiators and the negotiating text to “roughly 600 trade ‘advisers’ from big businesses,” but has excluded everyone else, including Congress. It may be true, but then again… Certainly, Congress (by which I mean Congress, and not just a few Senate Democrats) is very much in the dark about the details of these negotiations, and that presents an enormous logistical problem.

Article I, Section 8 of the Constitution vests power in the Congress “To regulate Commerce with foreign Nations,” which covers trade agreements. Traditionally, Congress has temporarily extended that authority to the executive branch, given the impracticability of having 535 trade representatives with 535 different agendas negotiating with foreign governments. That temporary grant of “fast track” or “trade promotion” authority is not a blank check. It comes with a list of congressional demands – items that can, cannot, must, and must not be included in the agreement. It is like doing the legislative process in reverse in the sense that amendments are articulated as conditions BEFORE the agreement is reached. Ideally, those congressional demands would be formalized before the negotiations BEGIN so that there are no false starts.

But with the administration still aiming to conclude negotiations in October, no fast track legislation in sight, and anti-trade legislation metastasizing in a Congress that has largely been excluded from shaping the deal’s terms, there are long battles ahead.  Meyerson’s counsel that we “go slower on free trade” is probably already a done deal.

As to the rest of Meyerson’s claims that trade is a boon for big business, which comes at the expense of workers and consumers, we have harvested countless forests here at Cato explaining why that is just false. The most persistent U.S. trade barriers are imposed on food (tariffs and tariff-rate quotas), clothing (tariffs), and shelter (trade remedies restrictions on lumber, steel, cement, paint, nails, appliances, flooring, furniture, etc.), making them the most regressive taxes in the U.S. system.  Lower-income Americans (those for whom Meyerson claims to speak) devote larger shares of their budgets to these basic necessities than do white-collar fat cats.

I’ll leave you with these three charts, which demonstrate positive relationships between import and jobs, price decreases over time for heavily traded items, and price increases over time for less frequently traded services, all exposing the errors of Meyerson’s claims.

Occupational Licensing: It Isn’t Just for Doctors and Lawyers Any More

“Cat groomers, tattoo artists, tree trimmers and about a dozen other specialists across the country …  are clamoring for more rules governing small businesses,” reports the Wall Street Journal in a front-page story today. “They’re asking to become state-licensed professionals, which would mean anyone wanting to be, say, a music therapist or a locksmith, would have to pay fees, apply for a license and in some cases, take classes and pass exams.” And despite all the talk about deregulation and encouraging entrepreneurship, “The most recent study, from 2008, found 23% of U.S. workers were required to obtain state licenses, up from just 5% in 1950,” according to Morris Kleiner of the University of Minnesota.

The Cato Institute has been taking on this issue for decades. In 1986 Stanley Gross of Indiana State University reviewed the economic literature on the impact of licensing on cost and quality. Kleiner wrote in Regulation in 2006:

Occupational regulation has grown because it serves the interests of those in the occupation as well as government. Members of an occupation benefit if they can increase the perception of quality and thus the demand for their services, while restricting supply simultaneously. Government officials benefit from the electoral and monetary support of the regulated as well as the support of the general public, whose members think that regulation results in quality improvement, especially when it comes to reducing substandard services.

Adjunct scholar Shirley Svorny noted that even in the medical field, “licensure not only fails to protect consumers from incompetent physicians, but, by raising barriers to entry, makes health care more expensive and less accessible.” David Skarbek studied the temporary relaxation of licensing requirements in Florida after Hurricanes Katrina and Frances and concluded that Florida should lift the rules permanently. In his book The Right to Earn a Living: Economic Freedom and the Law, Timothy Sandefur devotes a chapter to “protectionist” legislation such as occupational licensing.

The CPSC’s Defective New Complaints Database

We are told constantly that government can play a beneficial role in the marketplace by taking steps to make sure consumers are more fully informed about the risks of the goods and services they use. But what happens when the government itself helps spread health and safety information that is false or misleading? That question came up recently in the controversy over New York City’s misleading nutrition-scare ad campaign, and it now comes up again in a controversy over a new database of complaints about consumer products sponsored by the federal Consumer Product Safety Commission (CPSC).

As part of the Consumer Product Safety Improvement Act of 2008 (CPSIA), Congress mandated that the CPSC create a “publicly available consumer product safety information database” compiling consumer complaints about the safety of products. Last week, by a 3-2 majority, the commission voted to adopt regulations that have dismayed many in the business community by ensuring that the database will needlessly include a wide range of secondhand, false, unfounded or tactical reports. The Washington Times editorializes:

…[Under the regulations as adopted last week] anybody who wants to trash a product, for whatever reason, can do so. The commission can leave a complaint on the database indefinitely without investigating its merits “even if a manufacturer has already provided evidence the claim is inaccurate,” as noted by Carter Wood of the National Association of Manufacturers’ “Shopfloor” blog….

Trial lawyers pushing class-action suits could gin up hundreds of anonymous complaints, then point the jurors to those complaints at the “official” CPSC website as [support for] their theories that a product in question caused vast harm. “The agency does not appear to be concerned about fairness and does not care that unfounded complaints could damage the reputation of a company,” said [Commissioner Nancy] Nord.

Commissioners Nord and Anne Northup introduced an alternative proposal (PDF) aimed at making the contents of the database more reliable and accurate but were outvoted by the Democratic commission majority led by Chairman Inez Tenenbaum. Nord: “under the majority’s approach, the database will not differentiate between complaints entered by lawyers, competitors, labor unions and advocacy groups who may have their own reasons to ‘salt’ the database, from those of actual consumers with firsthand experience with a product.” Commissioner Northup has published posts criticizing the regulations for their definitions of who can submit a report, who counts as a consumer, and who counts as a public safety entity.

For those interested in reading further, Rick Woldenberg, a leading private critic of the law who blogs at AmendTheCPSIA.com, has critically commented on the politics of the proposal here, here, here, here, and here. More coverage: ShopFloor with followups here and here, New York Times, Sean Wajert/Mass Tort Defense. I’ve been blogging for the past two years at my website Overlawyered about the wider problems with the CPSIA law, including its effects on books published before 1985, thrift stores, natural wooden toys, ballpoint pens, bicycles, plush animals, Irish dance costumes, rocks used in science class and many more. Most of these problems remain unresolved thanks to the inflexible wording of the law as well as, sometimes, the unsympathetic attitude of the commission majority. I’ve heard that bringing overdue investigative oversight to the ongoing CPSIA disaster is shaping up as a priority for many incoming lawmakers on the (newly Republican-led) House Energy and Commerce Committee, whose outgoing chair, California Democrat Henry Waxman, is closely identified with the law and its consumer-group backers.

Government Cheese

Self-anointed elites have been relentless in prodding government planners to apply their enlightened solutions for the purported benefit of the ignorant masses. As a result, the federal government has become a Super Nanny monitoring and guiding the intimate activities of the nation’s 300 million inhabitants. However, the government is not altruistic and does not have the solutions for how people should live their lives.

The amalgamation of programs and regulations that constitute the federal government is basically a reflection of the myriad special interests that have won a seat at Uncle Sam’s table. Government consists of fallible men and women who are naturally susceptible to pursuing policies that have less to do with the “general welfare” and more to do with rewarding the privileged birds incessantly chirping in their ears.

One result is that government programs often work at cross purposes. A perfect illustration is the confused U.S. Department of Agriculture, which spends taxpayer money subsidizing fatty foods while at the same time setting nutritional guidelines with the purported aim of getting Americans to eat healthier.

The New York Times explains:

Domino’s Pizza was hurting early last year. Domestic sales had fallen, and a survey of big pizza chain customers left the company tied for the worst tasting pies.

Then help arrived from an organization called Dairy Management. It teamed up with Domino’s to develop a new line of pizzas with 40 percent more cheese, and proceeded to devise and pay for a $12 million marketing campaign.

Consumers devoured the cheesier pizza, and sales soared by double digits. “This partnership is clearly working,” Brandon Solano, the Domino’s vice president for brand innovation, said in a statement to The New York Times.

But as healthy as this pizza has been for Domino’s, one slice contains as much as two-thirds of a day’s maximum recommended amount of saturated fat, which has been linked to heart disease and is high in calories.

And Dairy Management, which has made cheese its cause, is not a private business consultant. It is a marketing creation of the United States Department of Agriculture — the same agency at the center of a federal anti-obesity drive that discourages over-consumption of some of the very foods Dairy Management is vigorously promoting.

Urged on by government warnings about saturated fat, Americans have been moving toward low-fat milk for decades, leaving a surplus of whole milk and milk fat. Yet the government, through Dairy Management, is engaged in an effort to find ways to get dairy back into Americans’ diets, primarily through cheese.

Your tax dollars are being used by the USDA to help Domino’s Pizza (and Taco Bell, Pizza Hut, Wendy’s, and Burger King according to the article) sell its product. Of course, the government isn’t trying to help these fast food giants so much as it’s trying to help a particularly favored special interest: farmers.

While calls to get rid of subsidies for Dairy Management would obviously be on target, the better move would be to get rid of the entire USDA, which the New York Times comically refers to as “America’s nutrition police.” The USDA has been around for almost 150 years, and yet Americans have never been fatter. If there’s a solution to America’s obesity “problem,” it won’t be found in Washington. In a free society, the only solution is to make individuals responsible for the consequences of their own decision-making.

See these essays for more on downsizing the U.S. Department of Agriculture.

Your Health Insurance, Designed by Lobbyists

Christopher Weaver of Kaiser Health News has an excellent article in today’s Washington Post on the various government agencies that will now be deciding what health insurance coverage you must purchase, and how many of those decisions will ultimately fall to lobbyists and politicians:

For years, an obscure federal task force sifted through medical literature on colonoscopies, prostate-cancer screening and fluoride treatments, ferreting out the best evidence for doctors to use in caring for their patients. But now its recommendations have financial implications, raising the stakes for patients, doctors and others in the health-care industry.

Under the new health-care overhaul law, health insurers will be required to pay fully for services that get an A or B recommendation from the U.S. Preventive Services Task Force…[which] puts the group in the cross hairs of lobbyists and disease advocates eager to see their top priorities – routine screening for Alzheimer’s disease, diabetes or HIV, for example – become covered services.

And it’s not just the USPSTF that will be deciding what coverage you must purchase:

[P]lans must also cover a set of standard vaccines recommended by the Advisory Committee on Immunization Practices, as well as screening practices for children that have been developed by the Health Resources and Services Administration in conjunction the American Academy of Pediatrics. Health plans will also be required to cover additional preventative care for women recommended under new guidelines that the Department of Health and Human Services is expected to issue by August 2011.

The chairman of the USPSTF says the task force will try “to stay true to the methods and the evidence… the science needs to come first.”  A noble sentiment, but as my colleague Peter Van Doren likes to say, “When politics and science conflict, politics wins.”  Witness how industry lobbyists have killed or neutered every single government agency that has ever dared to produce useful comparative-effectiveness research.  (You’re next, Patient-Centered Outcomes Research Institute!)

When government agencies are making non-scientific value judgments–e.g., are these studies reliable enough to merit an A or B recommendation? what should be the thresholds for an A or B recommendation? will the benefits of mandating this coverage outweigh the costs?–politics does even better.  Witness Sen. Barbara Mikulski (D-Md) overruling a USPSTF recommendation when she “inserted an amendment in the [new] health-care law to explicitly cover regular mammograms for women between 40 and 50. “

Speaking of value judgments, the one flaw in Weaver’s article is that it inadvertently conveys a value judgment as if it were fact.  He writes that the mandate to purchase coverage for preventive services is “good news for patients” and that 88 million Americans “will benefit.”  Whether the mandate is good news for patients depends on whether patients value the added coverage more than the additional premiums they must pay.  (The administration estimates that premiums for affected consumers will rise an average of 1.5 percent.  One insurer puts the average cost at 3-4 percent of premiums.  Naturally, some consumers will face above-average costs.)  Whether the benefits outweigh the costs is ultimately a subjective determination. (The best way to find out, as it happens, is to let consumers make the decision themselves.)

Pearlstein Wants Tough Trade Measures Against China…and the U.S.

Steven Pearlstein’s ready for the nuclear option.  With the conviction of a man who knows he won’t be held accountable for the consequences of his prescriptions, Pearlstein says the time has come for action against China.  Hopefully, those whose fingers are actually near the button will recognize Pearlstein’s suggestion for what it is: an outburst of frustration over what he considers China’s insubordination.

In his Washington Post business column yesterday, Pearlstein criticizes U.S. policymakers for blindly adhering to the view that China will inevitably transition to democratic capitalism, while they’ve excused market-distorting protectionism, mercantilism, and state dominance over the economy in China.  Pearlstein writes:

Up to now, a succession of administrations has argued against directly challenging China over its mercantilist policies, figuring it would be more effective in the long run to let the economic relationship grow deeper and give the Chinese the time and respect their culture demands to make the inevitable transition to democratic capitalism.

What we have discovered, however, is that the Chinese don’t view the transition as inevitable and that, in any case, they really aren’t much interested in relationships. If anything, they’ve proven to be relentlessly transactional. And their view of business and economics remains so thoroughly mercantilist that they not only can’t imagine any other way, but assume that everyone else thinks the way they do. To try to convince them otherwise is folly.

Pearlstein’s suggestion that the Chinese “aren’t much interested in relationships” strikes me as frustration over the fact that China is no longer a U.S. supplicant.  Perhaps the truth is that China isn’t much interested in a one-way relationship, where it is expected to meet all U.S. demands, while seeing its own wishes ignored.  Calling them “relentlessly transactional” is accusing them of naivety for missing the bigger picture, which, for Pearlstein, is that the U.S. is still top dog and China ignores that at its peril. 

Pearlstein is not the first columnist to criticize the Chinese government for putting its interests ahead of America’s (or, more accurately, putting what it believes to be its best interests ahead of what U.S. policymakers believe to be in their own interests).  In a recent Cato policy paper titled Manufacturing Discord: Growing Tensions Threaten the U.S.-China Economic Relationship, I was addressing opinion leaders who have staked out positions similar to Pearlstein’s when I wrote:

Lately, the media have spilled lots of ink over the proposition that China has thrived at U.S. expense for too long, and that China’s growing assertiveness signals an urgent need for aggressive U.S. policy changes….

One explanation for the change in tenor is that media pundits, policymakers, and other analysts are viewing the relationship through a prism that has been altered by the fact of a rapidly rising China.  That China emerged from the financial meltdown and subsequent global recession wealthier and on a virtually unchanged high-growth trajectory, while the United States faces slow growth, high unemployment, and a large debt (much of it owned by the Chinese), is breeding anxiety and changing perceptions of the relationship in both countries….

Of course, the U. S. is the larger economy and the chief designer of the still-prevailing global economic architecture.  But the implication that that distinction immunizes the U. S. from costly repercussions if U.S. sanctions were imposed against China is foolish.  But that’s exactly where Pearlstein’s going when he writes:

Getting this economic relationship back into balance is the single biggest challenge to the global economy, not just because of its direct effects on China and the United States, but the indirect effects it has on the rest of the world. The alternative is a return to living beyond our means, a further erosion of our industrial and technological base and a continued loss of ownership of business and financial assets.

By balancing the economic relationship, presumably Pearlstein is speaking about the need to reduce the bilateral trade deficit, which spurs a net outflow of dollars to China, some of which the Chinese lend back to Americans, who in turn can then buy more imports from China, and the cycle continues.  But to tip the scales in favor of the blunt force action he recommends later, Pearlstein characterizes Chinese investment in the United States as living beyond our means, losing ownership of “our” assets, and eroding our industrial and technological base.  That is a paternalistic and inaccurate characterization of the dynamics of capital inflows from China.

First, let’s remember that the Chinese aren’t holding a gun to the heads of the chairs of our congressional appropriations committees demanding that politicians borrow and spend more on senseless programs.  It’s absolutely priceless when spendthrift members of Congress, oblivious to the irony, blame the Chinese for having caused the U.S. financial crisis for providing cheap credit to fuel asset bubbles when it was their own profligacy that brought the Chinese to U.S. debt markets in the first place.  Stop deficit spending and the need to borrow from China (or anywhere else) goes away. 

Likewise, it is a sad commentary on the state of individual responsibility in the U.S. when a prominent business writer thinks the only way to keep consumers from living beyond their means is to deprive their would-be-creditors of capital.  It sounds a bit like the same tactics deployed in the U.S. War on Drugs.  Blame the suppliers.  The fact that U.S. savings rates have been rising for two years suggests that responsible Americans are interested in rebuilding their assets without need of such measures.

There are other destinations for capital inflows from China, which (despite Pearlstein’s disparaging allusions) should be entirely unobjectionable.  Chinese investment in U.S. corporate debt, equities markets, real estate markets, and direct investment in U.S. manufacturing and services industries does not erode our industrial and technological base.  It enhances it.  It does not constitute a loss of ownership of business and financial assets, but rather a mutual exchange of assets at an agreed price.  When Chinese investors compete as buyers in U.S. markets, the value of the assets in those markets rises, which benefits the owners of those assets when there is an exchange.  Chinese purchases of anything American, with the exception of debt, do not constitute claims on the future.  Accordingly, the economic relationship can achieve the much vaunted need for rebalancing without need of attempting to forcefully reduce the trade deficit by restraining imports.

Pearlstein continues:

So if the urgent need is to rebalance the global economy by rebalancing the U.S.-China economic relationship, we are probably going to have to begin this process on our own. And that means establishing some sort of tariff regime that will increase the cost of imports not just from China, but other countries that keep their currencies artificially low, restrict the flow of capital or maintain significant barriers to imports of goods and services. The proceeds of those tariffs should be used to encourage exports in some fashion…

This relationship, however, is one that must be actively managed by the two governments. It should be obvious by now that their government is rather effective at managing their end of things. It should be equally obvious that we cannot continue to rely on free markets to manage our end.

So Pearlstein comes full circle.  He wants the U. S. to impose tariffs on Chinese imports, subsidize U.S. exports, and institute top-down industrial policy.  In other words, he wants the U.S. to be more like China. 

Of course, I would argue, we already have something that encourages exports.  They’re called imports.  Over half of the value of U.S. imports are intermediate goods—capital equipment, components, raw materials—that are used by American-based producers to make goods for their customers in the U. S. and abroad.  Furthermore, foreigners need to be able to sell to Americans if they are going to have the dollars to buy products from Americans.  And finally, if the U.S. implements trade restrictions on China to compel currency revaluation or anything else, retaliation against U.S. exports is a given.

In short, imports are a determinant of exports.  If you impede imports, you impede exports.  So Pearlstein’s idea that we can somehow subsidize exports by taxing and reducing imports is not particularly well-considered.  And though it may be tempting to look at China’s economic success as an endorsement or vindication of industrial policy, it is difficult to discern how much of China’s growth can be attributed to central planning, and how much has happened despite it.  But in the U.S., where one of our unique and core strengths has been the relative dynamism that has produced more inventions, more patents, more actionable industrial ideas, more freeedom, and more wealth than at any other time in any other nation-state in the world, it would be imprudent bordering on reckless to suppress those synergies in the name of industrial policy.

In the end, I rather doubt that Pearlstein is truly on board with the course of action he suggests.  In response to a question presented to him on the Washington Post live web chat yesterday about how the Chinese would react if his proposal were implemented, Pearlstein wrote:

They’d make a huge stink. They’d cancel some contracts. They’d slap on some tariffs of their own. They’d launch an appeal with the World Trade Organization. It would not be costless to us – getting into fights never is. But after a year, once they saw we were serious, they would find a way to begin accomodating [sic] us in significant ways, and if we respond with a positive tit for tat, things could finally improve. They’ve been testing us for years and what they discovered was that we were easy to push around. So guess what – they pushed us around.

I’m willing to chalk up Pearlstein’s diatribe to pent-up frustration.  But let me end with this admonition from that May Cato paper:

 [I]ndignation among media and politicians over China’s aversion to saying “How high?” when the U.S. government says “Jump!” is not a persuasive argument for a more provocative posture.  China is a sovereign nation.  Its government, like the U.S. government, pursues policies that it believes to be in its own interests (although those policies—with respect to both governments—are not always in the best interests of their people).  Realists understand that objectives of the U.S. and Chinese governments will not always be the same, thus U.S. and Chinese policies will not always be congruous.  Accentuating and cultivating the areas of agreement, while resolving or minimizing the differences, is the essence of diplomacy and statecraft.  These tactics must continue to underpin a U.S. policy of engagement with China.

You Say You Want Comparative-Effectiveness Research?

Over at CongressDaily, Julie Rovner has a great piece on the difficulties involved in generating and using comparative-effectiveness research (read: evidence that can improve the quality and reduce the cost of medical care). Rovner cites a recent New England Journal of Medicine article about the obstacles to conducting CER, and a recent article from Health Affairs that finds consumers tend to trust their doctor’s judgment more than evidence-based treatment guidelines.

In a paper titled, “A Better Way to Generate and Use Comparative-Effectiveness Research,” I explain how a string of government interventions – from state licensing of medical professionals and health insurance, to the tax preference for job-based health insurance, to Medicare and Medicaid – have reduced both patients’ demand for evidence about which medical interventions work best, as well as the market’s ability to supply that evidence.  In that paper, I predict that efforts like the CER funding in the “stimulus” bill and ObamaCare’s “Patient-Centered Outcomes Research Institute” will fail, just as all such government efforts have failed in the past.

If you want to generate evidence about which medical interventions work best, and have people use that evidence, then you need to liberalize the U.S. health care sector.