Topic: Government and Politics

The Real Scandal of ‘Tariff Suspensions’

By
Daniel Griswold

Two weeks ago (yes, I know, an eternity in blog time, but I’ll explain in a moment), the Washington Post published a gotcha front-page expose on a long-established if little noted congressional practice of suspending miscellaneous tariff duties. The article, headlined “A Quiet Break for Corporations” (September 20, 2006), supposedly uncovered yet another pork-barrel scandal. The real scandal of the story, however, is not that U.S.-based producers seek relief from damaging tariffs, but that those tariffs exist in the first place.

For years, Congress has voted regularly on miscellaneous tariff bills that suspend a hodgepodge of duties on obscure products that often are not even made by companies in the United States. In those cases, the tariffs don’t even perform the dubious duty of “protecting” domestic producers.  They only make it more expensive if not impossible for consumers and producers to import certain products.

The Post article emphasized the potential revenue lost to the government by suspension of the duties, while downplaying the costs to consumers and importing producers from the artificially higher prices imposed by the tariffs. Economics 101 teaches that with almost any tariff, the damage to the economy from higher prices and less efficient production will outweigh the duties collected by the government.

The story implied a scandal in the fact that some American companies would actually be hurt by suspension of tariffs on their foreign competition. But since when is it the duty of the government to protect certain producers against their competition? Should the same government that harasses U.S. companies with anti-trust laws be shielding other U.S. companies from the same competitive forces that anti-trust laws supposedly promote? If Americans can buy dog collars more cheaply from a foreign producer, the federal government should keep its nose out of the deal.

One example in the story involves the proposed suspension of duties on basketballs and volleyballs imported by the sporting-goods company Spalding. Again, the real scandal is why the government imposes any duties at all on such goods. The federal government should not be raising revenue with a special “basketball tax,” in the process making basketballs more expensive for American kids while hurting the sales of an American company.

Supposedly adding to the scandal is that fact that many of the “beneficiaries” of the suspended duties would be foreign-owned affiliates located in the United States, especially German and Swiss chemical companies. That fact does not make the special duties any less damaging to the U.S. economy. Foreign-owned affiliates in the United States employ nearly six million Americans (one out of eight manufacturing workers), pay domestic taxes, and serve American customers.

The story tried to clinch the scandal thesis by citing campaign donations and lobbying expenses by the companies seeking removal of the damaging tariffs. Again, the real scandal is not that these companies are trying to change laws that damage them, but that they need to seek specific relief in the first place.

Import duties invite corruption by giving the government power over a range of otherwise innocent and private transactions. A policy of free trade, without arbitrary duties aimed at punishing foreign producers and protecting domestic ones, would eliminate any need to lobby the government over the imposition or suspension of duties. The latest Economic Freedom of the World  report shows that nations with relatively free and open economies are generally less corrupt than those with closed and government-dominated economies. (Check out the chart on page 26.)

By repealing targeted tariffs that damage our economy and that should never have been imposed in the first place, the proposed miscellaneous tariff bill would make our system a bit less corrupt, not more so.

P.S. So why am I blogging about all this two weeks after the fact? I did not want to jeopardize the chances of the Washington Post actually publishing an edited version of this critique in its letters to the editor section. My patience was rewarded this morning with publication of an edited version of my letter.

Topics: 
General, Government and Politics, International Economics and Development, Trade and Immigration

Things to Do in Washington When You’re Dead Weight

By
Brandon Arnold

As public choice theory tells us, bureaucrats tend to act in their own self interest, even though that often comes at the expense of taxpayers. If you’re not yet sold on public choice theory, consider one of the topics at the annual conference of the Senior Executives Association.

Fearful of the possibility of impending budget cuts, this recent meeting of high-ranking federal employees featured a session on “Survival Skills for the Coming Budget Crunch.”

This session could have been an opportunity to instruct senior managers on ways they could reduce or eliminate unnecessary expenditures, pare down the size of their staff, and shed duplicative operations.

Or it could be a lesson on gaming the system and saving one’s own hide.

Here’s how the Federal Times described it:

Managers should consider declaring a crisis in their programs, said Andy Uscher, SEA’s corporate relations director. They should develop relationships with budget examiners and build political support.

If possible, Uscher said, they should connect programs to national security or the president’s management agenda.

They can also argue that cuts have already occurred or assert that reductions would actually increase costs, he said.

They should consider using contractors or consultants instead of new employees, Uscher added.

“Contracting is just not tracked as much as people are,” he said.

So if you’re a senior official in the federal government facing the prospect of a cut to your budget, you should cozy up to politicos, intentionally overstate the importance of your agency, and lie about the implications of budget cuts?

It’s no wonder that the dismal status quo reigns supreme in Washington.

Topics: 
General, Government and Politics

GOP: Online Gambling Poses Threat to U.S. Port Security

By
Radley Balko

Late Friday night, the U.S. Senate passed a ban on Internet gambling.  The ban now awaits President Bush’s signature.

Sen. Bill Frist attached the ban to the port security bill at the last minute on Friday, conveniently allowing the ban to go forward without any debate.  That also means any senator who rightly believes that online poker is none of the government’s business would also have to vote against a national security bill to vote against the ban – making that senator a ripe target for charges of being soft on terrorism.

The major gaming sites – that is, the legitimate companies regulated by British law and traded on the London Stock Exchange – announced over the weekend that they’ll cease offering service to U.S. customers the moment President Bush signs the bill.  What does that mean?  Well, it means the shady, fly-by-night sites that aren’t regulated or publicly traded will now thrive with U.S. customers.  These gray- and black-market sites are more prone to fraud, more likely to be involved in organized crime, and don’t include the child-protection measures the major sites have implemented.

For all the talk from Sen. Frist, Sen. Kyl, and Rep. Goodlatte about the dangers of this “unregulated” industry, the bill they’ve just passed will actually put the well-regulated gambling sites out of reach of U.S. customers.  The end result?  Online poker and other gaming sites will soon be even less regulated, more likely to attract children, and more likely to defraud U.S. consumers than ever before.  Meanwhile, one of the most addictive forms of gambling – state lotteries – will soon make an en masse move online, thanks to an exemption in the bill that effectively creates an online monopoly for them.

In short, in an intrusive, big government effort to protect Americans from themselves, Congress has passed a futile, hypocritical, counter-productive, protectionist piece of legislation that will make it more difficult for millions of Americans to engage in an activity most participate in responsibly and moderately.  For those people, the bill will probably work.  But it’ll do little to prevent problem gambling, children’s access to gaming sites, or online fraud.

One can’t help but think that for Frist, none of that matters so long as the bill helps Republicans keep control of the Senate come November.

Topics: 
General, Government and Politics

A Disservice to the Poor

By
Brandon Arnold

There’s much ado at the Legal Services Corporation (LSC), the federally funded organization intended to provide legal assistance to the poor.

Last month, the AP catalogued a pattern of excessive spending at the LSC. Then, as I indicated in my National Review Online article, the LSC Board contemplated firing the employee who had unearthed much of the extravagance. This employee, LSC Inspector General Kirt West, has also found other questionable practices at the LSC and begun an investigation of the Board itself. 

Earlier this week, at a congressional hearing, the chairman of the LSC Board denied that board members had considered dismissing West. This was shocking given strong evidence to the contrary — namely, meeting transcripts from January in which the board’s vice-chair said of West, “[H]e’s got to shape up or we will ship him out.” At the same meeting, another board member said flatly, “He doesn’t belong as the Inspector General of this organization.” 

This is yet another sorry chapter in the history of the LSC. For over 20 years, this organization has continued to misuse taxpayer dollars to advocate political causes. Is it time to pick up the mantle of Ronald Reagan and finally abolish the LSC?

Topics: 
Government and Politics, Tax and Budget Policy

America’s “Help Wanted” Signs

By
Daniel Griswold

While the U.S. House and Senate compete with each other to see who can authorize the longest wall along our border with Mexico, evidence continues to grow that the U.S. economy could use more foreign-born workers. Here are three examples from just the past few days:

The Washington Post reported this morning, in an article headlined, “Visas for skilled workers still frozen,” that the number of H1-B visas available each year remains capped at a number far below the ongoing needs of U.S. employers. As the article explains: “[M]any of the country’s largest technology companies and most prestigious research laboratories have said they are unable to find enough U.S.-born scientists and similar workers to fill their openings. … But only 65,000 H-1B visas are issued each year, and demand has been so high recently that all of them are taken instantaneously.”

Earlier in the week, the president of the Federal Reserve Bank of Dallas, Richard Fisher, noted in a speech in Monterrey, Mexico, that the U.S. economy has reached full employment and is beginning to feel the pinch of labor shortages in certain sectors. As Fisher told his audience:

I am hearing more and more reports about the difficulty of finding labor to work our oil fields or run our chemical plants. Bankers complain of a paucity of bank clerks and tellers. Truckers are experiencing a shortage of drivers. In Houston, we are hearing complaints about the difficulty of finding cashiers for retail establishments. A major hotelier told me last week that there is a shortage of housekeeping staff. … companies are now voicing the kinds of complaints about labor shortages most often heard in a full employment economy.

Adding to the evidence, a major report released Wednesday on the need to modernize America’s agricultural policies included a recommendation that Congress enact comprehensive immigration reform. The report, by a task force appointed by the Chicago Council on Global Affairs, noted, “Immigrants today play a vital role in nearly every aspect of our agricultural and food processing system, often taking jobs that are low-paying or shunned by native-born workers.” The report cited Hmong poultry producers in the Ozarks and Hispanic workers in the meat processing plants in the Midwest, calling such workers “vital to the [agricultural] sector’s competitiveness.”

As members of Congress seek to reform U.S. immigration law, they should keep in mind that our nation’s economy is made stronger and more dynamic when peaceful, hard-working people are allowed to come here legally to fill jobs that not enough Americans are willing or able to fill.  

Topics: 
General, Government and Politics, Trade and Immigration

Getting Better All the Time (Generally)

By
Thomas A. Firey

A few weeks ago, Don Boudreaux (on Cafe Hayek) and Will (here at Cato@Liberty) offered a thought experiment challenging the claim that American middle class living standards have been stagnant since the 1970s.

The stagnancy claim is rooted in federal statistics indicating that middle class wages have barely kept pace with inflation. Since childhood, I’ve heard many sober-faced adults (including some of my political science and econ professors in undergrad) voice this claim by saying that my generations would “be the first to have lower living standards than its parents.”

Don and Will respond to this claim by pointing out that the quality of “stuff” that a person can purchase with those wages has increased dramatically over that time. Federal statistics may see no difference between X real dollars spent on an 8-track player in 1970 and the same X real dollars spent on an iPod today, but consumers certainly do (especially joggers who don’t have to lug 8-track players and extension cords on their evening runs).

This response is the thesis of today’s New York Times “Economix” column by David Leonhardt. Leonhardt opens the article describing Chicagoan (and Northwestern economist) Robert J. Gordon and his snowblower:

“People can die from shoveling snow,” Mr. Gordon said. “I bet a lot of lives have been saved by snow blowers.”

…

Yet the benefits of the snow blower, namely more free time and less health risk, are largely missing from the government’s attempts to determine Americans’ economic well-being. The same goes for dozens of other inventions, be they air-conditioners, cellphones or medical devices. The reasons are a little technical — they involve the measurement of inflation — but they’re important to understand, because the implications are so large.

Gordon has worked on quantifying those benefits. The Times nicely captures the contrast between his research and the “stagnancy” federal data in this graphic on the median earnings for men, and notes that women do even better:

Two Views of Pay

This leads to two important conclusions:

  1. Living standards have improved markedly since the early 1980s.
  2. There has been a decline since about 2002.

Cato@Liberty readers may grumble about Leonhardt’s final graf, but the article is a great read.

As for my former profs, instead of their sobering worries, perhaps they should drop some Jiffy-pop in the microwave, turn on their plasma-screen TV, plop a Netflix in the DVD player or flip on the TiVo, and relax.

Topics: 
General, Government and Politics, Trade and Immigration

How I Learned to Stop Worrying and Love Behavioral Economics

By
Mark Moller

Peter raises the threat that behavioral economics poses to free market policy. I’m less concerned about this movement, in large part because its teachings can be turned against central regulators. 

Here’s law professors Stephen Choi and Adam Pritchard, from the conclusion to their excellent 2003 article Behavioral Economics and the SEC (from the Stanford Law Review; working paper version available here):

Regulators are vulnerable to a wide range of behavioral contagion. Regulators may suffer from overconfidence and process information with only bounded rationality. Heuristics play a large role in how regulators make decisions. Even with expertise, regulators may misapply heuristics across the spectrum of different regulatory problems. Regulators may also suffer from confirmation bias, supporting prior regulatory decisions whatever the wisdom of the decisions.

And in groups the decisionmaking of regulators may decline rather than improve. On the one hand, groups and organizational structures may help alleviate some of the mistakes that derive from individually biased decisions. Studies of group decisionmaking provide evidence that the total can indeed be greater than the sum of individuals in enhancing the accuracy of decisions. But cognitive illusions may grip entire groups. Groupthink may also lead to an uncritical acceptance of regulatory decisions.

If both investors and regulators operate under the influence of behavioral biases, the value of regulation in correcting these biases comes into question. If regulators are not well equipped to determine whether regulation will counteract the biases facing investors, regulation may well do more harm than good. Worse still, SEC regulators may suffer greater behavioral biases than securities market participants. Investors that perform poorly will either learn (and perhaps put their money into an index fund or otherwise hire expertise) or exit the market. Private institutions face similar market pressures to serve the interests of their client-investors or perish. Although some types of biases may give institutions a competitive edge, the magnitude of such biases is limited by the cost that they impose on investors. The market may not function perfectly, but regulators under the present regime face no such pressures.

Topics: 
Government and Politics, Regulatory Studies

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