Topic: International Economics and Development

Which Part of “Not Green Box” Does the USDA Not Understand?

After a long wait, the United States finally notified the other members of the World Trade Organization of its spending on agricultural programs today. Although timely notification is supposedly a key requirement (and benefit) of the WTO, the U.S. had left members in the dark as to the true nature and extent of its farm subsidies since 2004, and that notification covered only the years up to 2001.

Today’s notification asserts that U.S. spending on so-called “Amber-box” domestic support (that which is linked to production and/or prices of agricultural commodities, and thus is the most market-distorting) was well below its limit of $19.1 billion in every year between 2002-2005 (the period covered by the latest notification). However, sources tell me that the administration admitted in a telephone press conference today that direct payments were classified as “green box” (spending which is at most minimally trade-distorting and therefore not subject to reduction commitments) in their calculations, in direct contravention of a 2005 WTO Appellate Body ruling on U.S. Cotton programs, which stated (at para. 342) “[P]roduction flexibility contract payments and direct payments … are not green box measures exempt from the reduction commitments by virtue of Annex 2 of the Agreement on Agriculture.” (my emphasis)

Seems pretty clear to me.

In other words, if direct payments are properly classified as amber box measures, the United States’ spending might look very different, and may not be below the legal ceiling after all, especially in years 2004 and 2005 (see more here). Members of Congress currently writing a new farm bill might want to keep the threat of WTO litigation (including pending challenges by Canada and Brazil) in mind.

Klein Slanders Friedman

A video interview of Naomi Klein, who’s promoting her new book, has some truly vicious slander of Milton Friedman. Klein says:

I start the book with a quote from Milton Friedman saying only a crisis, actual or perceived, produces real change. And you know Milton Friedman lived by this. His first laboratory was Chile under Augusto Pinoche, where the crisis was the coup and an economic crisis and it was after that that you had the economic shock therapy. And you also had another kind of shock which is torture, which was a way of enforcing these policies.

Klein seems to be insinuating that Friedman somehow orchestrated, supported, or encouraged the coup in Chile, or at least that he was an important Pinochet advisor. She also makes it sound like torturing people was one of Friedman’s policy recommendations. But here’s how Friedman tells the story:

MILTON FRIEDMAN: While I was in Santiago, Chile, I gave a talk at the Catholic University of Chile. Now, I should explain that the University of Chicago had had an arrangement for years with the Catholic University of Chile, whereby they send students to us and we send people down there to help them reorganize their economics department. And I gave a talk at the Catholic University of Chile under the title “The Fragility of Freedom.” The essence of the talk was that freedom was a very fragile thing and that what destroyed it more than anything else was central control; that in order to maintain freedom, you had to have free markets, and that free markets would work best if you had political freedom. So it was essentially an anti-totalitarian talk.

INTERVIEWER: So you envisaged, therefore, that the free markets ultimately would undermine Pinochet?

MILTON FRIEDMAN: Oh, absolutely. The emphasis of that talk was that free markets would undermine political centralization and political control. And incidentally, I should say that I was not in Chile as a guest of the government. I was in Chile as the guest of a private organization.

It’s true, of course, that Pinochet employed some of the economic policies Friedman had been advocating for decades, that some of Pinochet’s advisors had studied economics at the University of Chicago, and that Friedman subsequently cited the success of those policies. But just as Michael Moore’s endorsement of Cuba’s health care system doesn’t constitute endorsement of Castro’s dictatorial rule, so Friedman’s endorsement for Chilean tax or pension policies don’t constitute an endorsement of coups, purges, or torture.

There’s also some ideological slander at the heart of Klein’s argument, which she lays out later in the video. Klein seems to believe that Haliburton and Blackwater—companies that thrive on wartime corporate welfare—represent Friedman’s ideal society. Not only is this obviously wrong on a theoretical level, but it’s also flatly at odds with Friedman’s stated views. Milton Friedman was an opponent of the Iraq war and has been vociferous critic of corporate welfare for decades. Conflating Friedman’s advocacy of limited government with Bush’s interventionist foreign policy and profligate domestic spending illustrates either a failure to grasp the basics of Friedman’s position or a calculated attempt to play to the prejudices of her intended audience, many of whom will lump together anyone they don’t agree with as “right wingers,” even if they have little in common with one another.

Those Silly Europeans

American politicians like to concoct silly ways to waste money and misallocate resources. But European lawmakers always seem to out-do them — perhaps because the Europeans have several centuries of additional experience with government.

A good example is a European Commission-led effort to promote multilingualism. The more substantive point is that the bureaucrats in Brussels are foolishly trying to pretend that English is not the language of international business. But the most amusing part of the EU Observer story is reading that the European Commission has a commissioner for multilingualism:

Europeans should learn more foreign languages and not think that a “lingua franca” — one language used internationally — is enough, EU commissioner for multilingualism Leonard Orban said on Wednesday.

What’s next, a commissioner for watching paint dry? A commissioner for shoelace regulation?

Three Cheers for the World Bank

I admit I’m committing an ideological sin, but the World Bank has released its 2008 “Doing Business” report, which ranks 178 countries on regulatory impediments to entrepreurship, and it is a first-rate publication. I realize the World Bank should not exist, and I’m quite aware that many of their activities in other areas hinder economic growth, but this report is very helpful in promoting regulatory competition among jurisdictions. I’ll atone for my sin by coming up with a reason to criticize the international bureaucracy in the near future, but this EU Observer story shows how Doing Business creates pressure for regulatory liberalization:

Thanks to regulatory reforms, Eastern Europe and Central Asia have surpassed East Asia for ease of doing business, a World Bank report says. The report, called “Doing Business” compares and ranks 178 economies and seven regions on the basis of ten indicators related to business regulations. …Several of the region’s countries have also overtaken some Western European economies. Estonia and Georgia for instance, the region’s two top performers, have surpassed most EU members and both hold a spot in the top twenty.

Trade Telltale

Since the “Great Compromise” on trade policy between the administration and Congress last spring, I have been outspokenly skeptical about prospects for further trade liberalization before 2009.  In that deal, the administration bowed to the wishes of Congressional Democrats to include enforceable labor and environmental provisions in pending and prospective trade agreements. 

For that accommodation, the Congressional leadership was supposed to help secure passage of the pending bilateral agreements with Peru, Panama, Colombia, and Korea.  Almost immediately, though, the leadership voiced additional concerns about Colombia and Korea, which are widely considered to be very long-shots at best.

But after visiting Peru last month and getting his own fingerprints on the final details of the deal, House Ways and Means Committee Chairman Charles Rangel of New York returned home and voiced his support for the agreement.  And, it appears, there is support for the Peru agreement among members of Ways and Means and Senate Finance.  Several Congressional staffers have suggested that if the Peru vote garners relatively strong Democratic support, there may be hope for the others.

The problem, however, is that the House Democratic Caucus may not be prepared to follow.  Remember all of those freshman Democrats who campaigned in ’06 on an anti-trade message?  It seems they won’t go quietly into the night.  Whereas the veteran Democratic trade leadership may be inclined to use protectionist rhetoric to shift the terms of the trade debate in their favor, the new blood in their caucus is more inclined to believe it.  In that regard, the Rangels and Levins and Baucuses on the Hill (guys that probably know better) have helped create a potential Frankenstein.

On Friday, rank and file Democrats addressed a letter ($) to their Caucus Chairman, Rahm Emanuel of Illinois, asking that the next caucus meeting be devoted to the U.S.-Peru Agreement.  The letter notes that there isn’t much support for the agreement among Democrats and that the Ways and Means Committee markup scheduled for tomorrow will prove divisive.

There were only seven signatories to the letter and it is unclear how representative it is of Democratic sentiments.  But if the topic proves divisive and rancorous – a development Nancy Pelosi wants to avoid – it will be interesting to see which side the House Speaker chooses to rein in.  The outcome of this potential impasse will tell much about the direction Democrats want to go on trade.

European Central Bank Mocks French Fiscal Policy

An amusing public fight is taking place, with Germany and the European Central Bank on one side and France on the other. I’m not sure whether this calls for a surrender joke or a wry reference to the Iran-Iraq war and how it would be nice for both sides to lose, but I will demonstrate uncharacteristic maturity by instead focusing on the policy implications.

The French, not surprisingly, are wrong. They have been badgering the European Central Bank to mimic the mistakes of America’s Federal Reserve by creating too much liquidity in order to artificially lower interest rates.

Germany is on the side of the Central Bank, which wisely has focused on maintaining the value of the currency (which helps explain why the dollar has been falling compared to the euro). As part of this spat, the head of the European Central Bank very publicly pointed out the wretched state of France’s bloated government budget. The EU Observer reports:

European Central Bank (ECB) chief Jean-Claude Trichet has said that France’s public finances are in “very great difficulty.” “In 2007, according to statistics from the European commission, France will be the country spending the most in public expenditure in relation to gross domestic product, not only within the eurozone but among the 27 members of the European Union”, Mr Trichet told Europe 1 radio on Sunday (23 September). On top of that, “the development of France’s public finances has on average been significantly worse than that of other European countries”, he added. …Mr Trichet’s comments also come as a reply to French president Nicolas Sarkozy, who has repeatedly criticised the ECB lately on a number of points, notably for not cutting interest rates. …Mr Trichet, who has also repeatedly stressed the need for the ECB to remain independent from any political pressure and has been riled by Mr Sarkozy’ comments, pointedly took Berlin as an example of a government which has managed to lower its public expenditure. Currently, Germany’s public spending is nine percentage points of GDP lower than that of France, which has to “adapt faster”, if it wants to benefit best from a global economy, Mr Trichet said.

Europeans Do Not Want American-Style Capitalism

The Financial Times reports on a poll showing that Europeans generally want more government intervention and have little desire for an “American-style” capitalist system. At the same time, the Europeans have little faith that they can compete in the modern economy. It is unclear, though, whether they understand that their support for bigger government is a reason why Europe has trouble competing with the rest of the world:

Europeans have little faith that their continent can compete economically with fast-growing Asian countries – but are even more convinced that it should not become more like the US. …multinational corporations are seen by Europeans as more powerful than governments, while those polled generally believed that regulations protecting workers’ rights should be strengthened rather than relaxed. …When asked whether Europe’s economy should be more like that of the US, the results were clear-cut. Those saying it should not, included 78 per cent of Germans, 73 per cent of the French, 58 per cent of the Spanish. In both Italy and the UK, 46 per cent opposed the US model. …Asked if a free-market, capitalist economy was the best system, Spanish and German respondents agreed overall, but the French and Italians did not. The British were less clear, although there was more support than opposition for a “capitalist” system.

The unintentionally amusing (or sad) part of the story is that America does not have an “American-style” capitalist system. The difference between the United States and Europe is that America has a medium-size welfare state while most European nations have large-size welfare states. The difference is not trivial, which is why America is more prosperous, but Europeans have a very distorted view of the United States thanks to ideologically biased information sources such as Michael Moore and CNN International.