Topic: General

Mercantilist Logic Flounders at Sea

The good news from the listing cargo ship near Alaska’s Aleutian Islands is that all 23 crew members were plucked safely from the ship by helicopter last night. (See news story.) The bad news is that the 5,000 cars aboard the ship bound from Japan to Canada may not survive the mishap.

Come to think of it, would it be such bad news if those 5,000 cars sank to the bottom of the ocean? According to the mercantilist mindset that seems to dominate Washington’s discussion of trade policy, the loss of merchandise in transit from one country to another may be the best of all possible worlds.

Mercantilism is a centuries-old approach to trade that believes that exports are the big payoff from trade and imports a burden. By definition, then, a trade surplus signals success for trade policy and a trade deficit failure.

From a mercantilist point of view, then, the loss of those 5,000 cars at sea should be a blessing to the global economy. The people of Japan would have occupied themselves producing those 5,000 cars for export, while the people of Canada would not have shoulder the “burden” of accepting them as imports. Japan can add to its trade surplus without Canada being forced to suffer a deficit.

The great French economist Frederic Bastiat exposed this fallacy more than 150 years ago in an essay, “The Balance of Trade” (Chapter 6 of his Economic Sophisms). If the mercantilists are right, we should all be praying for bad weather in the sea lanes carrying all those cars, shoes, shirts, and laptop computers to our showrooms and store shelves.

Rent-Seeking Weasels

We’ve all heard about how actor-director Rob Reiner sponsored an initiative in California in 1998 to raise cigarette taxes to fund preschool programs. Reiner then became chairman of the state agency created by the initiative. And then he funneled $230 million of state spending through the ad and PR agencies that had worked on the initiative. And then he spent another $23 million of state money to support Proposition 82 this spring, to create universal preschool programs. He had to resign from his position, and voters turned down Prop 82.

But he’s not the only person sponsoring an initative that would benefit himself, his family, or his friends. A wealthy real estate developer who thought stem cell research would benefit his diabetic son spent $3 million of his own money to get Californians to create a $3 billion taxpayer-funded stem cell research organization, which he then became chairman of.

And now comes Vinod Khosla, a founder of Sun Microsystems and former partner in the fabulously successful Silicon Valley venture capital firm Kleiner, Perkins, Caufield and Byers, and recently number 1 on Forbes magazine’s Midas list of “the people who most successfully use venture capital to create wealth for their investors.” He’s been the subject of two admiring profiles in the Washington Post (one reprinted from Slate) in the past two days for his latest venture: ethanol. If Vinod Khosla says ethanol is a good investment, don’t bet against him. Or against fellow Silicon Valley megamillionaire Bill Gross, who says that “reinventing energy … dwarfs any business opportunity in history.”

But if it’s such a good investment, why is Khosla ”supporting an initiative on this fall’s ballot in California that would tax oil companies to generate $4 billion to help encourage the use of alternative energy,” as Slate writer Daniel Gross notes? Khosla told Post columnist Sebastian Mallaby that he wants just a little help from the federal government, too: “Khosla wants government to require auto companies to make more flex-fuel cars that run on gasoline or ethanol… .  Khosla wants government to require big gasoline distributors to install ethanol pumps at a tenth of their gas stations.” Oh, and a better subsidy.

Taxing your competitors to subsidize your industry is a rent-seeker’s dream. Usually you have to be more subtle about it. But if you have a “green” business idea, you can get liberal journalists to write gushing stories about you without even stopping to ask, “Hey, aren’t you going to benefit from these initiatives and laws you’re pushing? Isn’t that sort of like, you know, corporate welfare? Like we’re always accusing the oil industry of?”

We shouldn’t bet against Khosla. But if his latest investment is really such a great business opportunity, we should feel free to vote against subsidizing it.

Hillary’s Health Care Initiative Gets off to a Bad Start

Pop quiz.  Finish the following sentence:

No factor does more to hold back America’s economic growth and keep American workers from earning as much as they deserve than _________________.

A. the soaring cost of health care [16.5 percent of GDP]

B. the soaring cost of government [31.4 percent of GDP]

If you understand the “greater than/less than” thing, you picked B.  But if you are Sen. Hillary Rodham Clinton, you picked A.  In fact, that is how Senator Clinton completed the first sentence of the “Affordable Health Care” section of her “American Dream Initiative,” released yesterday. 

Just one sentence into her vision for health care, and I am already disappointed.

Confessions of a Former (and Maybe Future) Hawk

Once upon a time, way back in 2002-03, I had my own blog. Unsurprisingly, given the times, I wrote frequently about issues relating to the war on terrorism. I took a hawkish line, supporting the U.S. invasion of Iraq and the resort to force, if necessary, to prevent other terror-sponsoring states like Iran from developing nuclear weapons. Based on my blog writings, I was invited to participate in a Reason online debate with John Mueller back in November 2002 on whether to go to war with Iraq. I argued vociferously in the affirmative.

The views I expressed were extremely controversial within Cato and the larger libertarian camp. Cato’s foreign policy scholars, reflecting the “orthodox” libertarian opposition to an interventionist foreign policy, strongly opposed the Iraq invasion. But for a minority of policy staffers at Cato, as well as many other libertarians, waiting for the other guy to take the first swing no longer seemed to make sense in a post-9/11 world.

Since the fall of Baghdad, I haven’t written a word about foreign policy. Virtually all my writing energies have been directed elsewhere: to a book, due out next spring, that examines the effect of mass affluence since World War II on American politics and culture. Much has changed in the past three-plus years, including my own views as I struggle to make sense of ever-changing circumstances. As a one-time outspoken “libertarian hawk,” I feel a responsibility to explain where I stand now and how I got here. Given recent (and incorrect) speculation about my views on the brewing crisis with Iran, now is as good a time as any.

First, on Iraq, my support for the invasion was based on the assumption of active biological and nuclear weapons programs. That assumption, of course, proved incorrect. I also failed to anticipate the Sunni insurgency that has been at the root of Iraq’s post-Saddam problems. And, perhaps most egregiously, I placed my trust in the Bush administration to assess the Iraqi threat accurately and do all within its power to make the occupation of Iraq a success. That trust, however foolishly offered, was badly betrayed.

So, if I had it to do all over again, would I oppose the invasion? Honestly, I don’t know. I just can’t quite bring myself to wish Saddam back in power and, with the sanctions regime probably moribund by now, enjoying $75 a barrel oil and emboldened by having survived the Gulf War and its protracted aftermath. On the other hand, I certainly wish that the United States had not assumed responsibility for Iraq’s post-Saddam future. That mission was undertaken on the basis of totally erroneous expectations regarding its difficulty and without any Plan B in the event of unforeseen problems. Consequently, the occupation has been a fiasco – failing to accomplish its objectives, costing thousands of U.S. lives and hundreds of billions of dollars, tying down a major chunk of the U.S. military in what appears to be an exercise in futility, and highlighting the limits of U.S. power and resolve in a way that encourages our enemies.

And what to do now? For a long while I kept hoping that political progress in Iraq would lead to progress in subduing the insurgency. It hasn’t, and now the country seems to be spiraling into sectarian civil war. I don’t see any prospect for things to get better in the foreseeable future, and thus I see no U.S. interest in maintaining our presence there. So I’m in favor of getting out. We rid Iraq of a horrible tyrant and gave the country a new constitution and government. It’s up to the Iraqis now, for better or worse.

Meanwhile, the experience of the past few years, including but not limited to the experience in Iraq, has led me to reconsider my earlier support for preventive military action against Iran. I cannot say that there are no conceivable circumstances under which I would support such action. But for the time being, I do not think that preventing an Iranian bomb is worth hazarding another war – especially since it is probably the case that we still have several years before Iran succeeds in its quest for nukes, and it is certainly the case that our non-military options are far from exhausted.

My change in views is not due to any deep-seated philosophical reversal. Today, as before, I’m afraid I’m immune to the attractions of any grand foreign-policy abstractions, whether realist, idealist, or otherwise. And I’ve yet to find refuge in any bright-line rules on when military force is and isn’t called for. To my mind, international relations is a field that just isn’t amenable to much theoretical illumination.

As a libertarian, I have a healthy appreciation of the law of unintended consequences. Accordingly, I start with a strong presumption against doing anything as drastic as going to war. Unlike many of my fellow libertarians, however, I believe that this presumption can be rebutted in cases other than an outright or imminent attack on the United States.

So I muddle along, weighing the risks of action against the risks of inaction on a case-by-case basis. What has changed, for me, since the spring of 2003 is the weight I assign to the relevant risks. In particular, I currently consider the threat of Islamist terrorism to be far less grave than I feared it to be in the wake of 9/11. Yes, it is a very real threat, and one that should be addressed with the utmost seriousness. But my best reading of the available evidence tells me that both the scale and the sophistication of anti-U.S. terrorist activity are currently rather limited. Consequently, I am less persuaded than before of the need for bold and risky moves against terror-sponsoring states. At the present time, I therefore prefer a more cautious approach in dealing with rogue regimes.

But I stand prepared to flip-flop once again should changing circumstances warrant. In the words of Keynes (whom I don’t get to quote very often), “When the facts change, I change my mind – what do you do, sir?”

The DLC Moves Left?

By teaming up with the Democratic Leadership Council, is Hillary Clinton moving to the center in preparation for a presidential run? Or is the DLC moving left to get closer to the front-runner? Yesterday Senator Clinton released a DLC plan, the “American Dream Initiative,” a laundry list of government transfers and handouts.

The New York Times called the programs “modest” and “relatively small-scale.” Taxpayers might have a different view if they read the Washington Post, which noted that DLC president Bruce Reed estimated the cost of the programs at $500 billion over 10 years – and taxpayers have learned by now that government entitlement programs often cost far more than their advocates estimate in advance. (Remember when Medicaid was projected to cost $1 billion a year? Oops.) And the DLC promises to raise taxes to cover the costs.

There are millions of libertarian-leaning voters disgruntled with the Republicans’ social conservatism, soaring spending, and ill-fated war. And Democrats are doing everything they can to discourage those voters from switching parties.

… and the Banana Republic for which it Stands

From the office of U.S. Rep. Skelton (D - Mo.):

On July 19, the U.S. House of Representatives approved legislation to bar all federal courts from hearing cases related to the interpretation of, or the validity under the Constitution, of the Pledge of Allegiance, or its recitation. Similar legislation has been introduced in the Senate.

This bill should be unconstitutional. To protect the separation of powers, Congress should NOT be able to redefine the duties of the judicial branch and curtail judicial review without amending the Constitution. Otherwise, we could well see a proliferation of court-free zones in which the power of Congress becomes absolute. Wouldn’t that be special.

This insane bit of legislation is of course meant to ensure that public schools can mandate the recitation of the Pledge of Allegiance, which (since 1954) has included the words “under God.”

Is it not embarrassingly ironic to mandate the reading of a pledge that nominally guarantees “liberty… for all,” particularly when that Pledge takes a position on the existence of God?

This isn’t Freedonia, folks, it’s America. Why don’t we try teaching children about liberty by actually, well, respecting it?

You Can Get a Job Without a Degree?

It seems that everyone in the ivory tower is declaring that it will soon be almost impossible to get a good job without first buying their product. Perhaps foremost among these college salespeople are members of the U.S. Secretary of Education’s Commission on the Future of Higher Education, who in the most recent public draft of their proposal to create a “national strategy” for higher education declare that:

The value of a postsecondary credential for future employment and earnings is expected to rise. Ninety percent of the fastest-growing jobs in the new knowledge-driven market economy require some postsecondary education. Job categories with the fastest expected growth in the next decade require postsecondary education; those with the greatest expected decline require only on-the-job training.

That sure sounds like the best way to avoid a low-paying, dead-end career is to run, not walk, to your friendly neighborhood college or university and get that bachelor’s degree! But is the scenario accurate? According to a recent piece on CareerBuilder.com, maybe not:

Though it was once conventional wisdom that you needed to have a four-year college degree to be successful, many employment experts believe that maxim has become myth. While a college education increases a worker’s chances of earning more money, it’s certainly not the only reliable path to well-paid and rewarding work….[A]ccording to the U.S. Bureau of Labor Statistics, eight of the top 10 fastest-growing occupations through 2014 do not require a bachelor’s degree. And these jobs, which include health technology, plumbing, firefighter and automotive repair, are less vulnerable to outsourcing.

So which is it? In the oh-so-near future, will you or won’t you need a college degree to avoid having to live in a corrugated steel hut subsisting on saltines?

The truth is that no one knows: As politicians and economic forecasters have proven time and again, with billions of people worldwide conducting countless business transactions all the time, no one can predict with any certainty what the future will hold. We can, however, confidently predict one thing: Denizens of the ivory tower will themselves get better jobs when increasing numbers of people consume their products, and when politicians give them ever-greater amounts of taxpayer money.

These facts, more than anything else, should make everyone suspicious of ubiquitous college-or-bust predictions.