Topic: International Economics and Development

Expanded Trade Adjustment Assistance Passed in House

Following on from my earlier post, the U.S. House of Representatives just passed the Trade and Globalization Assistance Act of 2007, although with insufficient votes to override a veto, as threated in yesterday’s Statement of Administration Policy (available here). The new legislation would roughly double the level of federal spending on the trade adjustment assistance program, by expanding the income and health care benefits to new categories of workers and increasing training (keep in mind this is the same program that the Government Accountability Office has admitted was “ineffective”).

TAA moves on to the Senate next, where we might see a bit more of a fight: the Chair and Ranking Member of the Senate Finance Committee are at odds over possible changes to the program.

[Hat tip: Our crack Government Affairs team.]

Arabic Lamp of Liberty Re-Lit!

Arabs have had almost no access to the literature and the ideas of liberty….until now. The Misbah al Hurriyya (“Lamp of Liberty”) project of the Cato Institute is bringing Adam Smith, John Stuart Mill, Ludwig von Mises, F. A. Hayek, Milton Friedman, and many more thinkers to the Arab public. The team behind the Lamp of Liberty, notably Editor Fadi Haddadin and Business and Promotions Manager Ghaleb Hijazi, have outdone themselves with a newly redesigned website for the project: www.misbahalhurriyya.org.

It’s got more than a new look, though. Now you can see the incredible success of Ghaleb’s syndication of hundreds of articles to the Arab press, find information on Misbah al Hurriyya books, including John Stuart Mill’s On Liberty, Ludwig von Mises’s Economic Policy, F. A. Hayek’s The Road to Serfdom, Johan Norberg’s In Defense of Global Capitalism, and the Economic Freedom of the World Report, and browse through hundreds of studies, articles, and essays. The site also features Mudawwanat al Hurriyya (“Blog of Liberty”), an interactive map of economic freedom (in the bottom left corner), policy debates, video streaming of interviews, online books, and much, much more.

Even those who can’t read Arabic will appreciate the ingenuity and brilliant design of the site. And when you know that it’s presenting a positive alternative to the violence, oppression, and poverty that have plagued so much of the Middle East and North Africa, you will know that the positive attractions of what Adam Smith called “the simple system of natural liberty” – rather than more violence and military force – are a powerful response to the ideas of statism and intolerance. Ideas aren’t generally defeated with mere force; ultimately, it takes another idea.

The re-designed Arabic Lamp of Liberty will be joined soon by its Kurdish [www.chiraiazadi.org] and Persian [www.cheragehazadi.org] sister projects. They’re all part of Cato’s Center for Promotion of Human Rights family of projects, including the existing Spanish [www.elcato.org] and Russian [www.cato.ru] projects (each with books, podcasts, websites, and more) and forthcoming Portuguese, Azeri, French, and African (in English, French, and Portuguese) initiatives. Ten team members of the African initiative will meet in Tanzania at the African Resource Bank meeting in a few weeks. Anyone who’s interested in supporting the promotion of libertarian ideas and policies around the world should contact the Institute. (Any funds specified for a particular language or region will be spent only on works in that language or region.)

When Protectionists Meet Welfare Kings

Yesterday the House Ways and Means Committee approved by a margin of 26-14 a bill (H.R. 3920) to expand and extend (until 2012) the Trade Adjustment Assistance Program, which provides extra welfare and training to workers who lose their jobs as a consequence of import competition or outsourcing. The new bill would expand trade adjustment assistance to cover more workers beside those who work in the manufacturing industry, including service employees, who currently cannot get benefits under TAA if their jobs are moved overseas. It also increases the benefits and training available to trade-displaced workers, and the “incentives” for states to increase unemployment insurance coverage. It is still unclear just when this bill will face the full House, or what any alternatives will be.

I have a trade briefing paper, forthcoming soon, on this topic and I wrote an op-ed yesterday, arguing that TAA should be cancelled rather than extended. Here’s why: first, fewer than 1 in 30 unemployed people can point to import competition or outsourcing as the reason for their unemployment. Changes in consumers’ tastes, changes in technology and increasing productivity is far more likely to be a cause of unemployment (more from my colleague Dan Griswold here). So TAA is yet another example of special interests receiving special treatment.

Second, while TAA for workers cost a “mere” $800 million or so in 2006, we can expect that cost to rise as more workers are included (more than 80 percent of American workers work in the services sectors, although many of those are non-tradeable) and Congress sees fit to spend more of your money on wage insurance, training and the like.

Third, although hints have been made that the preferential trade agreement with Peru is predicated on passage of TAA extention, the historical bargain between free-trade advocates and workers–that any trade liberalization would be accompanied by extra welfare benefits for those who lose their jobs– is no longer certain. For sure the bilateral deal with the most to offer economically, that with South Korea, looks all but doomed.

The moral case for TAA is dubious at best. A lack of prospects for commercially meaningful trade liberalization tips the balance.

Although Government Revenues Are at Record Levels, New York Times Complains About a “Dearth of Taxes”

In a remarkable editorial, the New York Times complains that revenues in America are too low. This is a stunning claim since a cursory look at budget numbers shows that revenues are at an all-time high in both nominal dollars and inflation-adjusted dollars. But the most remarkable part of the editorial is that the Times actually argues that low taxes mean that America is “ill prepared to compete”:

…the taxes collected last year by federal, state and local governments in the
United States amounted to 28.2 percent of gross domestic product. That rate was one of the lowest among wealthy countries - about five percentage points of GDP lower than Canada’s, and more than eight points lower than New Zealand’s. …the meager tax take leaves the United States ill prepared to compete. From universal health insurance to decent unemployment insurance, other rich nations provide their citizens benefits that the U.S. government simply cannot afford. …revenue will prove too low to face the challenges ahead.

The editorial conveniently forgets to explain, though, how America is less competitive because of supposedly inadequate taxation. Is it that our per capita GDP is lower than our higher-taxed neighbors in Europe? No, America’s per capita GDP is considerably higher. Is it that our disposable income is lower? It turns out that Americans enjoy a huge advantage in this measure. Is our economy not keeping pace? Interesting thought, but America’s been out-performing Europe for a long time. Could higher rates of unemployment be a sign of American weakness? Nice theory, but the data show better job numbers in the United States.

But give the New York Times some credit. It is not easy to argue that higher taxes are good for growth. So if you’re going to make a fool of yourself, you may as well cast evidence to the side and jump into the deep end of the pool.

Will Poland Become the Next Flat Tax Country?

Germany’s statist politicians must be a bit uneasy about the recent election results next door. While they are probably happy that the populist-oriented incumbent government - which periodically got into disputes with Germany - was defeated, they will be very dismayed if the victorious Civic Platform Party follows through on promises to implement a 15 percent flat tax. As the biggest “new” member of the European Union, Poland would add considerable fuel to the tax-competition fire if it adopted a simple and pro-growth tax system. The Financial Times reports on the election and the market-oriented reforms advocated by the nation’s new leaders:

Foreign leaders and Poland’s business community on Monday welcomed the victory of the liberal Civic Platform party in Sunday’s parliamentary elections, predicting the revival of contacts iced up under the previous government and the restart of much-delayed economic reforms. …With more than 99 per cent of ballots counted, Civic Platform had 41.4 per cent of the vote, translating into 209 seats in the 460-member parliament. …Civic Platform is likely to form a coalition with the smaller Peasants party, which will have 31 seats. …Some of the most specific comments, concerning the party’s economic policies, were made by Zbigniew Chlebowski, a potential economy minister. He talked of introducing a flat 15 per cent tax by 2009 and said the government would privatise more energetically than its predecessor.

European Politicians Seeking to Export Big Government

The ideal trade policy is unilateral openness, which hopefully would be copied by other nations. But some argue that trade negotiations are a wise strategy, since one nation’s liberalization can be a carrot to obtain liberalization in other nations. Unfortunately, European politicians want to turn this strategy upside down by using liberalization as a stick to encourage other nations to adopt onerous European-style regulatory burdens. The EU Observer reports on this statist French-led gambit:

According to the European Commission, the EU should…”shape” globalisation. …Speaking at the EU summit Friday (19 October), French president Nicolas Sarkozy proved to be the strongest advocate of such a principle. “Let’s not be naive, we must demand a reciprocity”, he said, complaining about the severe environmental and social requirements placed upon EU businesses, but not followed by their non-European competitors.

Why Can’t Republicans Embrace Corporate Tax Cuts Like Canadian Liberals?

When they were in power, Canada’s left-wing party reduced the corporate tax rate from 28 percent to 19 percent. Now they are proposing to reduce the rate even more (and by more than the trivial 0.5 percentage point reduction proposed by the incumbent Conservative Party). As reported by Tax-news.com, the leader of the Liberal Party makes a very strong supply-side/tax competition argument for the lower rate:

Liberal Leader Stephane Dion has pledged to further reduce the Canadian federal corporate tax rate to better compete with other countries and strengthen Canada’s economic sovereignty. …Dion told the Economic Club of Toronto…“A lower corporate tax rate is a powerful weapon in the federal government’s arsenal to generate more investment, higher living standards and better jobs.” …The previous Liberal government reduced the federal corporate tax rate to 19% from 28%. Dion said he would go deeper than the Conservatives have done with their reduction to 18.5% in 2011. …“If you lower the corporate tax rate, you lower the cost of capital for Canadian companies. Therefore, these companies are induced to spend more on capital equipment. As for foreign investment, we need a big hook to snare investment, including Canadian investment, that might otherwise go south of the border. Finally, it would strengthen Canadian companies against foreign takeover,” Dion concluded.