Topic: Trade and Immigration

Prosperity Creates More Leisure, But Is “Unfair” to the Rich

An article at Slate.com looks at data showing a big increase in leisure time, especially among those with lower incomes:

In 1965, the average man spent 42 hours a week working at the office or the factory; throw in coffee breaks, lunch breaks, and commuting time, and you’re up to 51 hours. Today, instead of spending 42 and 51 hours, he spends 36 and 40. What’s he doing with all that extra time? He spends a little on shopping, a little on housework, and a lot on watching TV, reading the newspaper, going to parties, relaxing, going to bars, playing golf, surfing the Web, visiting friends, and having sex. Overall, depending on exactly what you count, he’s got an extra six to eight hours a week of leisure—call it the equivalent of nine extra weeks of vacation per year. For women, time spent on the job is up from 17 hours a week to 24. With breaks and commuting thrown in, it’s up from 20 hours to 26. But time spent on household chores is down from 35 hours a week to 22, for a net leisure gain of four to six hours. Call it five extra vacation weeks.

And because those with lower incomes have disproportionately gained from this trend, the author mockingly asks whether they should be forced - as part of the campaign to reduce inequality - to donate unpaid labor to the “less fortunate” with more money but less free time:

…a certain class of pundits and politicians are quick to see any increase in income inequality as a problem that needs fixing—usually through some form of redistributive taxation. Applying the same philosophy to leisure, you could conclude that something must be done to reverse the trends of the past 40 years—say, by rounding up all those folks with extra time on their hands and putting them to (unpaid) work in the kitchens of their “less fortunate” neighbors. If you think it’s OK to redistribute income but repellent to redistribute leisure, you might want to ask yourself what—if anything—is the fundamental difference.

Lies, Damn Lies, and Statistics

According to statistics, the average French worker has more productivity than the average American worker. But as George Mason University’s Don Boudreaux notes, averages often are misleading. His recent Christian Science Monitor article explains that the average worker in some nations is more productive only because people with fewer skills do not have jobs and thus are not workers — and that’s hardly a sign of a healthy economy:

[W]hat would happen to average worker productivity if Uncle Sam were to impose a minimum wage of $500 per hour? The correct answer is: “The productivity of the average worker would skyrocket!” This achievement, however, would be no cause for celebration, for this higher productivity would result chiefly from the firing of all workers incapable of producing at least $500 worth of output per hour. Measured productivity in America would jump impressively even as the U.S. economy tanked and most workers were cast into lasting unemployment.

…For example, if teenagers, immigrants, and other lower-skilled workers start entering the labor force in larger numbers, they will lower the average wage rate because lower-skilled workers generally are paid lower wages than those paid to higher-skilled workers. This fall in the average wage rate, however, does not signal that workers’ fortunes are declining. In fact, in this case it is evidence of economic health: The economy is sufficiently flexible to provide jobs to workers who haven’t yet acquired valuable skills. A less-flexible economy, such as France’s, which makes it difficult for lower-skilled workers to find jobs, will not “suffer” any such fall in its average wage rate. But that fact, surely, is small comfort to the many poor people left unemployed.

An Extra $15 Billion for Farm Programs

Further to David’s post yesterday, some telling details about the Senate Budget Committee’s ideas for “fiscally responsible” farm policy. Starting on page 54 of this document, section 306 the “Deficit-Neutral Reserve Fund for the Farm Bill” (which is a cute name – what chances do you give of this staying a “reserve fund”?) states that:

The Chairman of the Senate Committee on the Budget may revise the allocations, aggregates, and other appropriate levels and limits in this resolution for a bill, joint resolution, amendment, motion, or conference report that- 

  1. reauthorizes the Food Security and Rural Investment Act of 2002;
  2. strengthens our agriculture and rural economies;  
  3. provides agriculture-related tax relief; 
  4. improves our environment by reducing our Nation’s dependence on foreign sources of energy through expanded production and use of alternative fuels; or 
  5. combines any of the purposes provided in paragraphs (1) through (4); 

by the amounts provided in that legislation for those purposes up to $15,000,000,000 over the total of fiscal years 2007 through 2012, provided that such legislation would not increase the deficit over the total of the period of fiscal years 2007 through 2012.

Farm lobby groups were relatively happy with the 2002 Farm Bill, and would be still were it not for the inconvenient fact that market prices of some commodities are so high, and projected to remain high, that government spending on price-linked subsidies will probably be relatively low over the next few years (falling from about $15 billion annually to about $8 billion). Apparently, high market prices are not sufficient to please some farm groups, hence the extra $15 billion of your money that the Senate has seen fit to allocate to “any of the purposes provided in paragraphs (1) through (4).”

On today’s agenda, a group of congressmen are introducing a bill regarding the reauthorization of the farm bill. From the press release (via Ken Cook):

The bill reforms the Farm Bill to make a major new investment in the development of renewable energy on American farms, promote resource conservation, provide consumers with healthier food choices, and boost farm profitability. The Healthy Farms, Foods, and Fuels Act of 2007 also includes provisions to reduce greenhouse gas emissions on farms and fight global warming, and to expand programs to bring healthier foods to school cafeterias.

That’s quite a wish list.

Cato’s Center for Trade Policy Studies is on the case, though. Stay tuned for our alternative ideas for the farm policy, released shortly.

The Good News behind Today’s Trade Deficit Report

America’s broadest trade account reached another record deficit in 2006, according to a report this morning from the U.S. Commerce Department. The U.S. current account deficit reached $857 billion last year, which will predictably unleash a lot of wailing and gnashing of teeth in Washington today about the alleged failure of U.S. trade policy and the menace the deficit poses to U.S. economic growth.

The deficit doomsayers are wrong yet again. Far from being a sign of failure, today’s report contains a lot of good news if you care about the freedom of Americans to engage in international commerce. U.S. exports of goods and services last year were up by 12.7 percent from 2005, and imports grew by 10.5 percent, stoked by strong demand from American consumers and producers alike. Driving the record deficit last year were continued inflows of foreign capital, including a 67 percent jump in foreign direct investment. Growing levels of trade and foreign investment have boosted U.S. growth, job creation, and rising real wages.

As I have argued for a long time now, the trade deficit does not mean what our politicians and cable commentators keep telling us it means. For example, in a Free Trade Bulletin of mine published this week, I found no evidence that rising trade deficits are associated with slower economic growth. In fact, more robust economic growth typically translates into a rising current account deficit. 

If the expanding current account deficit is a drag on growth, somebody forgot to tell the U.S. economy.

Dice-K Takes American Job

Russell Roberts of George Mason University writes about Japan, China, and the trade deficit scare in the Wall Street Journal. Along the way he notes:

The story of the baseball off-season is the Red Sox spending $100 million to bring Daisuke Matsuzaka from Japan to the United States. Dice-K, as he’s known, is the ultimate import. He takes away a job from an American pitcher.

Russ is mocking the protectionist argument, of course. But he could have drilled in on this point more than he did. We often hear that immigrants “take American jobs.” But really, when America welcomes software engineers from India or magazine editors from England or the laborers who built my house from El Salvador, they don’t necessarily take anybody’s job. An expanding economy–expanding partly because of the immigrants–may well need more engineers, editors, or laborers than it would have needed in the absence of immigration.

But Dice-K actually is taking someone’s job. He’s going to pitch in the major leagues. There’s a fixed number of major league teams, and pretty much a fixed number of pitchers on each team. If the Red Sox hire Dice-K, they’re going to fire or not hire some other pitcher. Probably some good ol’ boy from the American South, whose next best alternative is, yes, being a greeter at Wal-mart. Maybe even one of my Kentucky relatives. Hey, maybe Pat Buchanan’s onto something here…

British Trade Association Warns against Growing Burden of Government

The Institute of Directors is urging the UK government to slow the growth of government in order to protect England from becoming an uncompetitive continental-style welfare state. The group notes that Spain successfully has reduced the burden of government by nearly 11 percentage points of GDP. A smaller burden of spending, the group explains, would facilitate much-needed tax reforms, including a lower corporate rate and the abolition of the death tax. Tax-news.com reports:

As part of its Budget submission, the Institute of Directors (IoD) has warned the UK government that economic policy now stands at a “fork in the road,” and that the level of taxation now stands at a “tipping point” as international companies begin to seek out more tax competitive jurisdictions in increasing numbers. The IoD argues that the UK government now faces a choice of continuing along its present path towards an economy that will mirror that of other EU economies with large governments, or of pursuing polices that aim to reduce the size of the state towards the levels seen in the US, Australia, Ireland and Switzerland, where public spending is between 34% and 37% of GDP. …Miles Templeman, Director General of the IoD commented: “There is nothing inevitable about a rising burden of public spending and taxation. Other countries have achieved huge reductions in the spending to GDP ratio. The UK should take Spanish lessons. Since 1993 public spending in Spain has fallen by 10.8% of GDP – from 48.6% to 37.8% of GDP in 2007. The optimal size of Government in the UK is well below its current size. …Unfortunately, the current size of the state in the UK is not globally competitive.” …The Institute also called on the government to consider its previously announced proposals to simplify the capital gains tax system and abolish inheritance tax, while calling for the proposed planning gain supplement to be abandoned.

U.S. Economic Misery — or Delusion?

Opponents of trade liberalization are painting themselves into a corner. They repeat endlessly that rising imports and trade deficits are bad for the U.S. economy and American workers. Imports and the trade deficits they fuel supposedly reduce U.S. employment and wages and impoverish American households as we borrow more and more and sell off the family jewels to support consumption. And since imports and trade deficits keep expanding, our economy must be getting worse, right?

Wrong. This morning the Labor Department reported that the U.S. unemployment rate fell again last month, to 4.5 percent, which must be full employment by anybody’s definition. Almost 100,000 net jobs were added in February, despite cold weather that crimped construction. Those job gains come on top of a revised net gain of 372,000 jobs in December and January, bringing net employment growth in the past four years to 6.5 million. Today’s report also confirms that real wages continue to rise for American workers.

Adding to the favorable picture, the Federal Reserve Board reported yesterday that the net household wealth of American families in the last quarter of 2006 reached a record $55.6 trillion. And that is net wealth: what we own after subtracting mortgage, consumer and other debts. Our net wealth is up 43 percent in the past four years, driven by increases not only in home values but also stock prices.

Granted, our infinitely complex, $13.5 trillion economy will have its ups and downs, but the current reality simply does not square with the politically tainted picture of economic misery and hopelessness being portrayed by certain critics of trade.