Topic: International Economics and Development

Solution Already in Place for Chinese Product Safety Problems

The recent spate of recalls involving products manufactured in China has elicited cries from the public for better regulatory oversight and glee from protectionists who seek to demonize all trade with China. But increased government screening or an outright import ban would be unnecessarily intrusive and prohibitively expensive. The solution that makes the most sense is already working.

There is nothing more immediately deleterious to the bottom line than the kind of bad publicity that connotes wanton disregard for the vulnerable and innocent. Think Exxon Valdez and oil-drenched, arctic sea mammals; think Kathy Lee Gifford and allegations of sweatshop labor; and now, think Mattel and sick children. Companies pay dearly even for the perception that they have transgressed.

Large quantities of poisonous products ending up in consumers’ toy chests, medicine chests, and refrigerators constitute serious transgressions, which should be punished and relegated to the very rare occurrence. For its recent woes, Mattel is being punished. The company’s stock value took a hit, its revenues are projected to decline as we head into the holiday buying season, it will incur huge costs refunding and replacing purchases of tainted toys, and it will be spending hundreds of million of dollars to improve its safety audits. Meanwhile, Chinese factories that compete for Mattel’s business have every financial incentive to clean up their own acts.

If Mattel fails to win back the confidence of American parents, it could be facing extinction. But allowing Americans to decide whether they will purchase Mattel products, or other products made in China, is preferable to Congress or the administration making that decision for them.

What Price (Restricted) Freedom?

About six months ago, I did an elegant back-of-envelope calculation about the Western Hemisphere Travel Restriction Initiative’s cost in terms of lost freedom and commerce. I came up with an estimate of about half a billion dollars (net present value).

If that estimate was a little too airy, here’s a clearer cost of WHTI: $944 million over three years. That’s the direct cost we’re paying through the State Department for the WHTI rules.

So now we’re at around $1.5 billion. Will $1.5 billion+ in damage to the United States’ people, possessions, infrastructure, and interests be averted thanks to WHTI? No. As a security measure, it’s Swiss cheese.

WHTI does more harm than good. It is a self-injurious misstep - precisely what the strategy of terrorism seeks to cause.

Siding with Governments over People, Pope Criticizes Tax Havens

It is rather disappointing that so many religious figures think that compassion should be a function of the state and that bigger government is good for the less fortunate. This approach not only undermines personal responsibility, but it also is anti-empirical because of the ever-growing body of evidence showing that high tax rates and excessive spending hinder growth and thus make it harder for poor people to climb the economic ladder.

Notwithstanding this real-world evidence, the UK-based Times reports that the Pope is about to attack tax havens as part of broader call for more redistribution. Not surprisingly, Italy’s Prime Minster is delighted that his nation’s taxpayers are being told to behave like sheep:

In his second encyclical – the most authoritative statement a pope can issue – the pontiff will denounce the use of “tax havens” and offshore bank accounts by wealthy individuals, since this reduces tax revenues for the benefit of society as a whole. …In it the pontiff focused on “those peoples who are striving to escape from hunger, misery, endemic diseases and ignorance and are looking for a wider share in the benefits of civilisation”. He called on the West to promote an equitable world economic system based on social justice rather than profit. …[Italian Prime Minister] Mr Prodi asked, adding: “If memory serves, St Paul exhorted the faithful to obey authority.”

IMF Wants Higher Taxes in Japan

The International Monetary Fund is urging higher taxes in Japan, though this is not exactly newsworthy since the IMF routinely endorses higher taxes in its country reports (Article IV consultations). To be fair, the IMF does say that it would be a good idea to control spending. And the international bureaucracy wants taxes to be raised in a less-destructive manner. Nonetheless, the notion that Japan will be more prosperous with a higher tax burden (which would be used to finance a bigger government) is rather fanciful. Tax-news.com reports:

The International Monetary Fund (IMF) last week published the conclusions reached by its assessment team during the recently completed Article IV consultation with Japan. …The Article IV report continued: “Most Directors considered that given the size of the task at hand, additional revenue measures will be needed, including for base broadening. They indicated that revenue measures could be best identified in the context of a broad reform of the tax system that addresses the challenges posed by Japan’s aging society and globalization. Among possible measures, increasing the consumption tax has the benefit of being less detrimental to growth and equitable across generations. Some Directors, however, viewed the authorities’ focus on expenditure adjustments as broadly appropriate at this juncture.”

This story, which is so similar to hundreds of other reports on IMF-endorsed tax hikes, raises an interesting question: Does anybody know if the IMF has ever recommended that a country reduce its tax burden?

Conservative Big Spending Goes Global

By now it’s old hat that President Bush, who remains inexplicably popular with conservatives, is the biggest spender since LBJ. Now it turns out that the Conservative government elected two years ago in Canada is trying to match him.

John Williamson of the Canadian Taxpayers Federation notes in the National Post that “the Conservatives’ two budgets boosted spending by $24.4 billion over two years.” OK, it’s not Bush’s trillion dollars. But Canada is a smaller country, and “as a result the size of the federal government has grown by 14%.”

It looks like Patrick Basham was all too prescient when he predicted, to much consternation in Canada, that Harper would become “Bush’s new best friend.” 

Pandering to the Protectionists

Given the audience, one could have expected a goodly amount of protectionist rhetoric from the Democratic presidential candidates in their debate last night at an AFL-CIO forum. But at times it seemed as though they were battling to see who among them could pander the most.

Dennis Kucinich has never been a promoter of open trade and markets, so it is hardly surprising that he said withdrawing from NAFTA and the WTO would be a “first week in office” priority. Thank goodness he’s not a serious candidate. What is worrisome is the cheers his pledge elicited. Do the members of the AFL-CIO truly believe that if two of our largest trade partners (Canada and Mexico) increased their tariffs on American goods, that would somehow benefit them? Is the WTO seen as such a negative force overall that withdrawing from its forums and its legal protections is perceived as wise?

The other candidates, to their credit, did not match Mr Kucinich’s pledge. But that is to damn them with faint praise, however, as most of them did undertake to “revise” trade agreements, including NAFTA, (presumably by putting in more stringent rules on labor and environmental provisions) and to put more emphasis on enforcement of trade agreements. None of them, not even Senator Clinton, whose husband showed a commendable commitment to trade during his time in office, stood up and defended the benefits of trade.

Senator Obama, given the chance to acknowledge the positive effect of trade on working families – i.e., cheap goods – demurred, making an emotive, if economically illiterate, point about how a cheap T-shirt is useless if one doesn’t have a job. As though the U.S. economy was not demonstrating that consumers can have access to cheaper goods as well as record employment.

Perhaps the next Democratic presidential candidates debate should be held at a consumer- or taxpayer-group forum.

Brother, Can You Spare a Z$200,000 Note?

Hyperinflations would be almost comic if it were not for the misery they inflict on the people they affect. In the misruled African country of Zimbabwe, the inflation rate of the Zimbabwean dollar has reached an annualized rate of 13,000 percent. According to a story Thursday in the Financial Times, an IMF official predicts the annual rate could be heading towards an incredible 100,000 percent.

One sure sign of a hyperinflation is that the central bank must issue new currency notes in ever higher denominations so that people won’t have to carry bags or wheelbarrows of money around to make everyday purchases. Sure enough, the government of Zimbabwe is now wrestling with that very question. According to the FT story:

The launch yesterday of a new large-denomination bank note of Z$200,000—worth [US$13] at the official exchange rate and [US$1.30] at the more realistic parallel rate—underlines the disarray. The central bank had wanted to issue a Z$500,000 note, but a bank official said this was vetoed by the finance ministry because senior staff thought such a large denomination would have reinforced an impression that inflation was out of control.

At a 13,000 percent rate, that cat is probably already out of the bag.