Tag: unions

High Noon for U.S. Trade Policy

This morning, the U.S. International Trade Commission issued an affirmative determination in a so-called “Section 421” or “China-Specific Safeguard” case that imports of consumer tires from China are causing market disruption in the United States. That may sound like just another day in Washington, but the decision could very well be the catalyst for the most consequential event in trade policy since the Bush steel tariffs of 2002. It will certainly force a defining moment for a president who has preferred obfuscation to clear direction on trade policy.

Under the statute (which became U.S. law as a condition of China’s accession to the World Trade Organization in 2001), the ITC has 20 days to provide remedial recommendations to the president and the U.S. trade representative. Those recommendations are likely to include quotas, tariffs, or some combination that will ultimately curtail the supply and raise the prices of all tires in the United States – not just those imported from China. However, the president has the discretion to deny import “relief” if he determines that such restrictions would have an adverse impact on the U.S. economy that is clearly greater than its benefits, or if he determines that such relief would cause serious harm to the national security of the United States.

I will forego my own explanation as to why restrictions would have an adverse impact that is clearly greater than its benefits, and instead give you the statement of the U.S. Tire Industry Association, which represents “all segments of the tire industry, including those that manufacture, repair, recycle, sell, service or use new or retreaded tires, and also those suppliers or individuals who furnish equipment, material or services to the industry.” Suffice it to say that no producers of tires in the United States supported this petition, so it is not a matter of U.S. tire producers against Chinese tire producers. It is really nothing more than a matter of a U.S. union objecting to management’s decision to produce its lowest grade (lowest quality, lowest priced, lowest profit margin) tires abroad. Yet the consequences of trade restraints could affect interests across and throughout the economy, particularly if China responds in kind.

During the Bush administration, there were six Section 421 cases filed by domestic parties, four of which were found by the ITC to warrant import relief. In each of those four cases, President Bush exercised his discretion to deny relief. The tires case is a test case for President Obama. Will 421 fly under this president? Or will it remain the dead letter that petitioners considered it to be under President Bush?

The stakes are much higher for Obama than they were for Bush because the unions (the United Steel Workers union is the petitioner in the tires case) and the Chinese both feel more emboldened in their positions now. Bush didn’t win the near-unanimous support of organized labor in his elections, nor did he promise to get tough on Chinese trade practices, as Obama did.

Instead, Bush set the precedent of denying relief. And he did it four times. So, the Chinese see this firmly as a matter of presidential discretion – unlike antidumping or countervailing duties, which run on statutory auto pilot without requiring the president’s attention or consent. In other words, although there are over 50 outstanding U.S. antidumping and countervailing duty orders against various Chinese products, none of them is considered to reflect the direct wishes of the U.S. president, and thus don’t rise to the level of a potentially explosive trade dispute. But trade restraints under the 421 will no doubt be considered by the Chinese to be a directive of the U.S. president, thus the offense taken and the consequences wrought could be profound.

The good news is that President Obama will finally be forced to take a stand – to match his words and deeds. After a campaign in which trade was disparaged, President Obama’s first 100 days were characterized by a conciliatory tone and some enlightened actions. He told the Mexican president and the Canadian prime minister that he no longer wanted to reopen NAFTA. He spoke out against the most protectionist provisions of the Buy American language in the so-called stimulus bill. He repudiated protectionism and pledged to avoid new protectionist measures at the G-20 and before other international gatherings. His Treasury Department declined to label China a currency manipulator. And his trade representative set about articulating a pro-trade agenda, including support for a push to pass pending bilateral trade agreements and concluding the Doha Round.

But there’s been very little follow through and trade partners are beginning to doubt his sincerity. Efforts to schedule votes on pending trade agreements have been shunted aside as too controversial to happen before health care reform legislation. In the meantime, imports are being turned away from U.S. procurement projects on account of some mindless Buy American caveats and overzealous interpretation of other Buy American rules by project administrators, which is inciting copycat rules in Canada and China.

The time has come for the president to stop wavering and to take decisive actions on trade policy. Of course, he will have until September 17 to render his decision about whether to grant or deny relief in the tires case. Between now and then he should conclude that trade restrictions are not the appropriate course – that among other problems, they will also undermine his economic and diplomatic objectives. And while he’s denying relief, he should take some advice from Scott Lincicome and me to speak the truth about trade to those constituencies who will feel betrayed. Directly and honestly making the case for trade to those who doubt is more durable than rationalizing each pro-trade decision, which has been the norm for too long in Washington. Besides, the polls show that Americans have already turned the corner and are moving away from their misguided flirtation with protectionism. That may help inspire an uncommitted president to take the baton.

Michael Lind’s Economic Philistinism

In a recently published article for the journal Democracy, Michael Lind of the New America Foundation lays out “The Case for Goliath” (registration required) – i.e., for returning to the good old days of price-and-entry regulation and cartelized industries. No, seriously.

I’ll give Lind credit for daring to go where his fellow devotees of “nostalgianomics” fear to tread.  Many on the left these days look back fondly at the ’50s and ’60s when activist government and strong unions coincided with a narrowing income distribution. What they fail to recognize, or at least admit, is that the political economy of that supposed golden age rested on a systematic muting of competition, both by circumstance and deliberate policy.  The devastation of Europe and Japan in World War II, price-and-entry controls, high trade barriers, and the threat of antitrust enforcement against industry leaders all combined to make heavy unionization and above-market wages for union workers economically viable.

This glaring oversight is understandable. There is, after all, overwhelming economic evidence that competition beats cartelization of industry hands down. When government restricts entry by new firms, the predictable result is a stifling of innovation. For example, consider this admission by former FCC chairman Michael Powell: “Because the history of the FCC is, when something happens that it doesn’t understand, kill it. We tried to kill cable. We tried to kill long-distance. When [MCI founder] Bill McGowan starting stringing out microwave towers that threatened AT&T, the FCC tried to stop him. The FCC tried to kill cable because it was going to threaten broadcasting.” (For more details on the the FCC’s lamentable track record, see here.)

The upshot is that progressive fantasies of a return to the good old days are just that – fantasies. Private-sector unions have withered and shrunk not because of changes in labor law, but because unionized firms haven’t been able to hack it in the new, more competitive marketplace (see “Auto industry, U.S.”). So the only way to get back to the days of Big Labor is by throttling the main engine of innovation and productivity: competition. And, well, that just doesn’t sound very progressive, does it?

Lind, though, grasps the nettle and chooses cartels and unions over economic progress. He does try to argue that we can have our cake and eat it too, but his case boils down to a crude post hoc ergo propter hoc fallacy: the big move toward cartelization in the ’30s was followed by good times in the ’50s and ’60s (let’s not talk about the ’70s), so therefore cartelization was good for the economy!  Yes, and the Union won the Civil War with inferior generals, so perhaps poor military leadership is a key to victory. The fact is, the strong economic performance of the early postwar decades occurred in spite of, not because of, widespread restrictions on competition.

Though the anticompetitive nostrums Lind peddles are pure poison, he nonetheless deserves commendation. By identifying correctly the link between cartelization and strong unions, Lind highlights the essentially reactionary nature of progressives’ infatuation with Big Labor. He has therefore, however unwittingly, performed a public service.

Labor’s Waxing Political Influence

It has long been recognized that many capitalists are the greatest enemies of capitalism.  They want free enterprise for others, not themselves.

Unfortunately, organized labor tends to be even more statist in orientation.  Unions now routinely lobby for government to give them what they cannot get in the marketplace.

Labor influence is greatest in the public sector.  And as government’s power has expanded during the current economic crisis, so has the influence of unions.  Observes Steve Malanga in the Wall Street Journal:

Across the private sector, workers are swallowing hard as their employers freeze salaries, cancel bonuses, and institute longer work days. America’s employees can see for themselves how steeply business has fallen off, which is why many are accepting cost-saving measures with equanimity – especially compared to workers in France, where riots and plant takeovers have become regular news.

But then there is the U.S. public sector, where the mood seems very European these days. In New Jersey, which faces a $3.3 billion budget deficit, angry state workers have demonstrated in Trenton and taken Gov. Jon Corzine to court over his plan to require unpaid furloughs for public employees. In New York, public-sector unions have hit the airwaves with caustic ads denouncing Gov. David Paterson’s promise to lay off state workers if they continue refusing to forgo wage hikes as part of an effort to close a $17.7 billion deficit. In Los Angeles County, where the schools face a budget deficit of nearly $600 million, school employees have balked at a salary freeze and vowed to oppose any layoffs that the board of education says it will have to pursue if workers don’t agree to concessions.

Call it a tale of two economies. Private-sector workers – unionized and nonunion alike – can largely see that without compromises they may be forced to join unemployment lines. Not so in the public sector.

Government unions used their influence this winter in Washington to ensure that a healthy chunk of the federal stimulus package was sent to states and cities to preserve public jobs. Now they are fighting tenacious and largely successful local battles to safeguard salaries and benefits. Their gains, of course, can only come at the expense of taxpayers, which is one reason why states and cities are approving tens of billions of dollars in tax increases.

The government’s increased power over the economy also gives organized labor a new hook to lobby for more special interest privileges.  For instance, the AFL-CIO is arguing that the federal bailout of the auto industry should bar the companies from moving factories overseas.

Explains the union federation:

The pundits and politicians inside the Washington Beltway don’t get: If the United States continues to send its manufacturing jobs [1] overseas—as [2] General Motors and Chrysler are now proposing—the result will be more low-income U.S. families.

So today, workers, economists, academics and business and union leaders, fresh from the “[3] Keep It Made in America” bus tour through the nation’s heartland, brought that message to the policymakers’ doorstep as part of a teach-in on Capitol Hill.

The 11-day, 34-city bus tour showcased the ripple effect on communities of the lost jobs in manufacturing. ([4] See video.) Today, during the teach-in, those who took part brought the stories they heard along the tour and presented principles for revitalizing the auto industry to members of Congress and the press. 

Labor officials have been making similar arguments about bank lending.  If you got bailed out by Washington, then you have an obligation to keep funding bankrupt concerns.  Never mind getting paid back, and paying back the taxpayers.

Markets are resilient, but can survive only so much political interference.  If the American people aren’t careful, they might eventually find themselves living in an economy more appropriate for Latin America than North America.

School Choice Going, Going, Gone Bipartisan (In Some States)

The USA Today takes note of the fact that support for school choice is growing among Democratic, often black, politicians:

While vouchers will likely never be the clarion call of Democrats, they’re beginning to make inroads among a group of young black lawmakers, mayors and school officials who have split with party and teachers union orthodoxy on school reform. The group includes Sacramento Mayor Kevin Johnson, Newark Mayor Cory Booker and former Washington, D.C., mayor Anthony Williams.

I’d only add that this broadening support is hardly limited to black Democrats, and that support for education tax credits is spreading even more quickly among Democrats. And while choice might never become a Democratic “clarion call,” it just might become the new consensus among serious education reformers in both parties.

For instance, a Democrat-controlled and, I assume, mostly white legislature in Rhode Island passed a donation tax credit. And Democratic governor and legislature in Iowa raised their tax credit dollar cap by 50 percent in 2007. The paper mentions black mayor Corey Booker’s support for school choice in New Jersey, but the white, former Democratic state party chair, and current state Senator Ray Lesniak is also pushing for a donation tax credit bill.

The model case is Florida. When the Florida legislature passed its education tax credit program to fund private school choice in 2001, only one Democrat supported the measure. Last year, the state legislature expanded the program with the votes of one third of statehouse Democrats, half the black caucus and the entire Hispanic caucus.

In the past few weeks, nearly a third of Senate Democrats and half of House Democrats voted to significantly expand the program’s revenue base. Virtually all Republicans did the same, and Republican Governor Crist is expected to sign the bill soon. In all, 43 percent of state Democratic legislators in Florida voted in favor of education tax credits.

The toothpaste is out, and the teachers unions can’t put it back in with all the dues money in the world.

Like FDR — In a Really Bad Way

President Barack Obama based his candidacy in part on the promise to set a new tone in Washington.  But we saw a much older tone emerge with his demonization of hedge funds over the Chrysler bankruptcy.  Reports the Washington Post:

President Obama’s harsh attack on hedge funds he blamed for forcing Chrysler into bankruptcy yesterday sparked cries of protest from the secretive financial firms that hold about $1 billion of the automaker’s debt.

Hedge funds and investment managers were irate at Obama’s description of them as “speculators” who were “refusing to sacrifice like everyone else” and who wanted “to hold out for the prospect of an unjustified taxpayer-funded bailout.”

“Some of the characterizations that were used today to refer to us as speculators or to say we’re looking for a bailout is really unfair,” said one executive who spoke on condition of anonymity because of the sensitivity of the matter. “What we’re looking for is a reasonable payout on the value of the debt … more in line with what unions and Fiat were getting.”

George Schultze, the managing member of the hedge fund Schultze Asset Management, a Chrysler bondholder, said, “We are simply seeking to enforce our bargained-for rights under well-settled law.”

“Hopefully, the bankruptcy process will help refocus on this issue rather than on pointing fingers at lenders,” he said.

I won’t claim any special expertise to parse who is responsible for what in the crash of the U.S.  (meaning Big Three) auto industry.  However, attacking people for exercising their legal rights and trashing those who make their business investing in companies hardly seems like the right way to get the U.S. economy moving again.

During the Depression, FDR’s relentless attacks on business and the rich almost certainly added to a climate of uncertainty that discouraged investment during tough times.  Why put your money at real risk when the president and his cohorts seem determined to treat you like the enemy?  While President Obama need not treat gently those who contributed to the current crisis by acting illegally or unscrupulously, he should not act as if those who simply aren’t willing to turn their economic futures over to the tender mercies of the White House are criminals.

We’ve just lived through eight years of bitter partisan warfare.  The president shouldn’t replace that with a jihad against businesses that resist increased government direction of the economy.

Transparency for Thee but Not for Me

It appears that the Obama administration is high on transparency for everyone but its own allies.  There are a lot of good reasons to reduce federal regulation, but if the Labor Department is going to push coercive unionism, it should require unions to disclose their activities and finances to their members.

Not in today’s world, however.  The Obama administration is moving backwards.  Reports the Washington Times:

The Obama administration, which has boasted about its efforts to make government more transparent, is rolling back rules requiring labor unions and their leaders to report information about their finances and compensation.

The Labor Department noted in a recent disclosure that “it would not be a good use of resources” to bring enforcement actions against union officials who do not comply with conflict of interest reporting rules passed in 2007. Instead, union officials will now be allowed to file older, less detailed conflict reports.

The regulation, known as the LM-30 rule, was at the heart of a lawsuit that the AFL-CIO filed against the department last year. One of the union attorneys in the case, Deborah Greenfield, is now a high-ranking deputy at Labor, who also worked on the Obama transition team on labor issues.

The only people served by this move are union officials who want less oversight over their use of dues payments, much collected from unwilling workers.  The new policy certainly runs counter to the president’s promise to set a new tone in Washington.

(Hat tip to Philip Klein.)

Juan Williams Blasts Obama, Duncan on Vouchers

juan-williamsYesterday on Fox News’ Special Report, Juan Williams had this to say about Obama’s silence and Duncan’s hostility to the DC voucher program, recently put on the chopping block by Democrats in Congress:

This is an outrage to me. … This is so important that you give young people a chance to have an education in America and especially in a failing public school system like you have in the District of Columbia. This voucher system is a direct threat to the unions. And so I think everybody on Capitol Hill, that’s getting money from the NEA or AFT, they should be called on the table. They should ask them, ‘where do you send your kids to school? And are you willing to say these kids getting the vouchers…and doing better than the rest of the kids, that these kids aren’t deserving of an opportunity to succeed in America?’ You just want to scream. Why Duncan and Obama aren’t in the forefront of education reform is an outrage and an insult to the very base that voted for them.

But we don’t have to ask President Obama where he sends his kids to school, do we? We already know he sends them to the prestigious private Sidwell Friends school also attended by several of the poor DC voucher students. But those voucher students will only remain classmates of Sasha and Malia for another year or so. After that, they’re out… because Barack Obama lacks the courage, the wisdom, or both to get his own party behind this program – a program that his own education department has shown is a success. Better results at a quarter the cost, and the reaction of our unified Democratic government ranges from outright opposition to malign neglect.

Future generations will look back on these politicians and bureaucrats as the Oral Faubuses of the 21st century. Like Faubus, they will ultimately fail.

Like Faubus, their names will live in infamy.