Topic: International Economics and Development

Cato Unbound - Migrating Toward National ID?

The current Cato Unbound, Mexicans in America, is the usual provocative and wide-ranging fare.  There’s no lack of issues - or passion - in the debate about immigration.

One item in the current discussion that piques my interest - indeed, concerns me - is the formative consensus that “internal enforcement” of the immigration laws is a good idea. 

University of Texas at Austin economics professor Stephen Trejo writes:

Given that most illegal immigrants come to the United States to work, why don’t we get serious about workplace enforcement? Retail stores are able to verify in a matter of seconds consumer credit cards used to make purchases. Why couldn’t a similar system be put in place to verify the Social Security numbers of employees before they are hired? …  I suspect that we could do much more to control illegal immigration by directing technology and other enforcement resources toward the workplace rather than toward our porous southern border.

Doug Massey, co-director of the Mexican Migration Project at the Office of Population Research, Princeton University, has interesting information and ideas for reform to which he would adjoin ”a simple employment verification program required of all employers to confirm the right to work.”

It does sound simple - until you step back and realize that the simple idea they’re talking about is giving the federal government the power to approve or reject every Americans’ job application.  Does anyone think that this power, once adopted - and the technology put in place to administer it - will be limited to immigration law enforcement?

To do this, all people - not just immigrants, all people - would have to be able to prove their identity to federal standards, likely using some kind of bullet-proof identity document (even more secure than current law requires).  That will soon be in place thanks to the REAL ID Act.  Once we’re all carrying a bullet-proof identity document, do you think that its use will be limited to proof of identity for new employees?

It’s easy to see how facile acceptance of internal immigration law enforcement adds weight to arguments for expanded government control and tracking of all citizens.  There are plenty of reasons to be concerned with internal enforcement, and the national ID almost certainly required to make that possible.  Many of them are discussed in my book, Identity Crisis: How Identification is Overused and Misunderstood.

How Well Does the Swedish Welfare State Serve Its Poor?

The American Left romanticizes the benefits of Scandinavian welfare states – to the point that one is sometimes reminded of Minnie the Moocher’s dream about the King of Sweden (“he gave her things that she was needin’…”).

Tim Worstall dispels that dream in today’s TCS Daily, pointing out that:

In the USA the poor get 39% of the US median income and in Finland (and Sweden) the poor get 38% of the US median income…. Which is really a rather revealing number don’t you think? All those punitive tax rates, all that redistribution, that blessed egalitarianism, the flatter distribution of income, leads to a change in the living standards of the poor of precisely … nothing.

Not Your Father’s Auto Industry

If you’re tempted to believe the proliferating rhetoric about America’s withering automobile industry, please listen to Dan Griswold’s Cato podcast today or read the paper he and I wrote on the subject before deciding to drink the Kool-Aid.

The declining fortunes of American icons Ford and GM have inspired numerous commentaries about the demise of the U.S. automobile industry. But the top 10 selling cars and top 10 selling light trucks in the United States are all made in America. U.S. output of motor vehicles and parts was also 68 percent higher in 2005 than in 1993, which compares favorably with overall manufacturing output growth of 56 percent over the same period.

How can that be, you might ask, when Ford and GM lost a combined $16.7 billion in 2005 and together plan to eliminate more than 60,000 jobs in the next few years?

Well, this isn’t your father’s automobile industry.

The days when the “Big Three” and the U.S. auto industry were synonymous, and when seeing a foreign car on the street prompted rubbernecking are long gone. Today Honda, Toyota, and Nissan (and other Japanese, German, and Korean companies) are all important and growing players in the U.S. auto industry.

Since the early 1980s, Japanese—followed by German and Korean—automakers have been building production facilities in America. These companies, which employ American workers, pay local and federal taxes, and buy most of their parts and materials from other U.S. suppliers, are every bit as much a part of the domestic auto industry as the Big Three (or “Big Two and a Half,” now that Chrysler is just a division of Daimler-Chrysler). While the Big 2.5 still dominate U.S. production, the foreign-owned share continues to rise, approaching one-third of total domestic production today.

That’s great news for U.S. consumers, whose choices are no longer constrained by the high-priced, low-quality offerings of what was once a domestic oligopoly. Since 1993, the general price level in the United States has risen 38.2 percent, but the price level of a new vehicle has increased by only 4.1 percent.

Certainly, the shifting industry landscape has produced winners and losers within the United States. Most of the foreign nameplate plants have been built in the American South, or otherwise outside of the rust belt states (with a few notable exceptions). But none of these plants, save one (a joint venture involving GM), employ unionized workers, and their market shares have been increasing. Of course, there’s much more to this changing picture than the fact that one group is unionized and the other isn’t, but it is an interesting fact, no?

The state of Michigan has by far been the biggest loser in this transformation. The state has seen a large decline in jobs (and tax revenues), and the auto industry promises to be the marquis issue in this fall’s governor’s race. The Republican nominee, Dick DeVos, recently lambasted the Bush administration for not doing more to arrest the decline of Michigan’s auto producers. Unfortunately, that’s par for the course for Republicans of late, who increasingly seem to have never met a bailout they didn’t like.

The government has no business interfering in the marketplace—particularly one that is working so well for the vast majority of Americans. But if there is any action the Bush administration can and should take—which would incidentally help U.S. auto producers—it would be to revoke some or all of the 160 antidumping measures in place against 21 different types of steel products from 32 different countries. U.S. government intervention on behalf of the domestic steel industry has created a dangerously concentrated market, and without adequate steel imports, steel producers can and have run roughshod over their customers, including the auto producers.

Ultimately, the decisions that brought successful foreign nameplate auto producers to invest in U.S. facilities, as opposed to exporting from production platforms abroad, are based on a variety of factors that are subject to change. Market considerations like transportation costs, labor and materials costs, access to transportation, and access to materials all ultimately contribute to such investment decisions. When access to raw materials is hampered, and thus more costly (as it is with steel in the United States), the benefits of the other considerations are mitigated.

Today, U.S. prices for corrosion-resistant steel (the primary component used in auto bodies) are $100 per ton higher in the United States than in Europe, and $200 per ton higher than in China. At some point, the price differentials will render production of autos abroad for export to the United States more cost-efficient than investment in the United States. If Honda, Toyota, Nissan (and for that matter, Ford and GM) reach that conclusion, then we’ll be witnessing a genuine crisis in the U.S. automobile industry.

Social Security – Worldwide Failure

Social Security may still be something of the political third rail in this country, but the rest of the world continues to turn away from the traditional government-run model for retirement programs. A new survey by HSBC of industrialized countries finds that only 30 percent of their citizens believe that government should be primarily responsible for funding their retirement, compared to 43 percent who believe that individuals should bear the cost of the own retirement.

Regardless of country, there is little confidence in Social Security. Just 29 percent believe that their governments will be able to pay the benefits it has promised. When asked how to reform their country’s Social Security systems, 37 percent favored the introduction of some form of mandatory savings or personal account program, while just 13 percent would increase taxes to pay for promised benefits.

Exporters as Hostage-takers?

I subscribe to a useful digest of farm policy news called FarmPolicy. It’s a great little news service for those interested in agricultural issues.

Today in FarmPolicy, my attention and pique were raised by an article that included a statement from Sen. Ken Salazar (D-Co), who said that farming should be an integral part of national security. According to Salazar:

I would hate to think of a day where the United States of America becomes hostage to other countries (that export food to the U.S.), in a way that we are held hostage over our energy needs

I know of only two other countries that pursue a policy of total self-sufficiency in food(which seems to be what the senator is advocating): North Korea and Zimbabwe.

And we all know how well that’s going…

If you are interested in agricultural policy, Cato will be holding a forum next week to discuss the new Farm Bill. The forum will feature the secretary of agriculture, Mike Johanns, as well as Cal Dooley of the Food Products Association and Robert Thompson, one of America’s most respected experts on U.S. farm policy. Please join us.

Spoke Too Soon

Last week in this space, I lamented a couple of the routine, tiny steps that carry us further down the path to bigger and more intrusive government.

By giving state food stamp programs greater access to personal information about Americans, Congress had masked the cost of rescuing Americans from Lebanon. The result was a bill that expanded the federal role in international rescue while spreading personal information about us a little further.

This weekend I discovered the rest of the story. In a separate bill, Congress made available yet more funds for rescuing Americans from Lebanon. Additional cost, 17 cents per U.S. family.

As Tom Palmer pointed out, Lebanon has been a dangerous place as a matter of common sense and announced U.S. policy for quite some time. I suspect that he, like I do, wants Americans to travel far and wide, experience the world, and make friends. But it’s not the federal government’s responsibility to subsidize that process by rescuing Americans when they encounter danger. Americans who need rescue should foot the bill.

Winning with Zero

Though prospects for broad reform of the U.S. antidumping law are tied to the now-moribund Doha Round of trade negotiations, curtailing antidumping abuse is still viable through other channels. Yesterday, the Appellate Body of the World Trade Organization ruled that the U.S. dumping calculation technique known as “zeroing” violates the WTO’s Antidumping Agreement.

In determining margins of dumping (which dictate the prospective antidumping duties applied to affected imports), the Department of Commerce typically compares a foreign exporter’s U.S. and home market prices. There are usually dozens or hundreds (sometimes thousands) of comparisons made, each generating a margin of dumping, which can be positive, negative or zero.

Before averaging the individual dumping margins to produce an overall antidumping duty rate, the DOC perpetrates some sleight of hand by setting all of the negative dumping margins to zero. This, of course, has the effect of seriously inflating the overall rate and dissuading subsequent importation.

Zeroing is probably the most distortive of a multitude of methodological tricks the DOC undertakes in the name of fighting unfair trade. In previous research, Brink Lindsey and I looked at 18 actual dumping cases and found that had the DOC not engaged in zeroing, the antidumping duty rates would have been, on average, 89 percent lower.

If the United States complies with yesterday’s ruling and ceases the practice in all cases prospectively, the antidumping law will remain a nuisance, but its capacity to seriously obstruct trade will be weakened considerably.