Topic: Trade and Immigration

Subsidies Fail to Save French Farms

French farmers harvest billions of euros every year in government support through the Common Agricultural Policy (CAP). Yet those lavish subsidies and trade barriers have failed to achieve one of their primary objectives: saving the French family farm.

According to a study just released by the French Statistical Institute (INSEE), and reported in today’s Financial Times, an average of 100 French farms have gone out of business EVERY DAY for the past 50 years. The number of farm workers in France has dropped by two-thirds in the past 25 years. France’s farm exports have been declining by 3.4 percent per year since 1999, and farm household income has actually fallen during the past decade, while the incomes of non-farm households in France have been going up.

The decline of the French farm has occurred despite, or perhaps because of, the generous support of the CAP. France’s farmers receive the equivalent of $11.6 billion a year in handouts, more than one fifth of total European Union spending on agriculture. Those subsidies have arguably kept French farms from becoming more competitive and thus contributed to their long-term decline.

When the EU’s farm commissioner, Mariann Fischer Boel, warned that French farmers should seek second incomes outside the farm sector to survive, the French farm minister denounced her comments as “an insult to the social model to which European citizens are profoundly and legitimately attached.”

Is an agricultural “social model” that costs billions of euros a year and only adds to the decline of the French farm worth holding on to?

Rock on, Canada

I realize I have already blogged about agriculture today, and normally I would spare you a second blog entry, but there has been an important development in agricultural trade circles. Canada has requested consultations (the first step in a full-blown trade dispute) with the United States over U.S. farm programs.

Specifically, the Canadians want to discuss the subsidies given to U.S. corn farmers, and the damage they did to other world corn producers because of price suppression effects. Enquiring minds in Canada also want to know more about the amount of trade-distorting support that the United States paid to its farmers overall in “certain years” (the press release doesn’t specify which).

It’s hard to say at this point what effect, if any, this development will have on the U.S. farm bill debate, or the WTO negotiations in the Doha round. But it would be a stupid brave Congress indeed that paid no heed to the WTO effects (in litigation or negotiation) of American farm subsidies when drafting a new farm policy. History has shown that the costs of farm welfare to consumers and taxpayers tend to get short-ish shrift when juxtaposed with the farm lobby, but firms facing possible retaliatory sanctions or failed market access ambitions as a result of an adverse ruling against the United States might carry more weight.

Has U.S. Income Inequality Really Increased?

There are frequent complaints that U.S. income inequality has increased in recent decades. Estimates of rising inequality that are widely cited in the media are often based on federal income tax return data. Those data appear to show that the share of U.S. income going to the top 1 percent has increased substantially since the 1970s. A new study by Cato scholar Alan Reynolds shows that these claims are wrong in both their premises and their conclusions. In “Has U.S. Income Inequality Really Increased?,” Reynolds concludes, “There is no clear evidence of a significant and sustained increase in the inequality of U.S. incomes, wages, consumption, or wealth since the late 1980s.” Cato will also host an event on income inequality on January 11.

Some Quick Links on Farm Policy Reform

Cato’s Center for Trade Policy Studies is putting together its ideas for a sensible farm policy (the current farm bill comes up for renewal later this year). Needless to say, the Cato plan will look substantially different from the anachronistic, interventionist pork-fest that was the 2002 Farm Bill.

In the meantime, those interested in U.S. farm policy might like to check out the following links: today’s editorial in the Washington Post and an article by Jonathan Rauch in Friday’s National Journal. Both contain plenty of arguments for what is wrong with U.S. agricultural policy today and are best read on an empty stomach. For a good overview of the farm bill debate, this article by Catherine Richert (Congressional Quarterly) is a pretty good bet.

High-Tech Immigrants vs. Low-Tech Congress

Any scan of the business pages will reveal anecdotally that foreign-born scientists, engineers, and entrepreneurs are playing an important role in our high-technology economy. A Duke University study released yesterday on ”America’s New Immigrant Entrepreneurs” confirms that fact.

Conducted by a team of researchers at Duke’s Pratt School of Engineering, the study surveyed thousands of U.S. high-tech companies and examined a decade of patent records. The study found that:

  • One-quarter of all engineering and technology companies launched between 1995 and 2005 had at least one key founder who was foreign-born. Those companies with at least one immigrant co-founder produced $52 billion in sales and employed 450,000 workers in 2005.
  • India was the most common home country among the foreign-born entrepreneurs, followed by the United Kingdom, China, Taiwan, and Japan. Most of the immigrant-founded companies were in the software and innovation/manufacturing services sectors.  
  • Foreign nationals living in the United States were listed as inventors or co-inventors on almost a quarter of the patents filed from the United States in 2005.

Many members of Congress worry that the United States may be losing its edge in high technology industries. Yet the same Congress maintains a cap of 65,000 on H1-B visas that allow highly skilled immigrants to live and work in the United States, a cap that falls far below the actual needs of our nation’s resurgent high-tech sector.

The Duke study shows clearly why Congress should raise the cap — unless congressional leaders believe America already has too many high-tech companies and patents too many new inventions. 

Start the Engines on the Inequality Debate

With the Democrats taking over Congress, most pundits are expecting much debate about income inequality in 2007. Indeed, the debate has already begun in the blogosphere over Alan Reynold’s recent op-ed in the Wall Street Journal.

For other takes, check out econ bloggers Greg Mankiw, Brad DeLong, and Tyler Cowen and Alex Tabarrok’s Marginal Revolution.  

A few observations: 

  • Alan’s full paper on trends in income inequality will be released by Cato in the second week in January. 
  • Please join Alan, Diana Furchtgott-Roth, and Gary Burtless for a discussion of income inequality at Cato on January 11.
  • I believe Alan has uncovered some very interesting information on the use of tax return data to illustrate income trends over time. Trends have been influenced by the rising amount of business income that is now reported on individual tax returns instead of business returns, the 401(k) explosion, and the effects of two types of stock options on reported income.
  • I’m no expert on income trends, but I know enough to see that there are huge data issues here. You simply can’t look at a raw IRS or Census table and make a hard conclusion about income trends. You need to think about what is included and excluded from “income” at each point in time. 
  • The much-cited Piketty-Saez data on the share of income going to those at the top do not reveal a steady rise over recent decades. Instead, most of the rise comes sharply in a single two-year period, 1987-1988. That should make economists and pundits skeptical about whether the supposed inequality trend is actually related to long-term changes such as international trade or wage premiums for college grads.
  • I think it’s still an open question whether income inequality has increased or decreased in recent decades, but we’ll see what the experts say on January 11.

The iPod Nano: Assembled in China, designed and enjoyed in America

Among the Christmas presents in our house this year were two iPod Nanos. On the back of each of these nifty devices is the inscription, “Designed by Apple in California. Assembled in China.”

That tells a more accurate story than the more common but misleading “Made in China.” As with many other high-tech devices, iPods are indeed assembled in China, but the real guts of the device—the design, the brand name, the more sophisticated components—come from countries outside of China.

To those obsessed with the trade balance as a zero-sum scorecard, another iPod imported from China merely adds to our growing bilateral trade deficit with China. Granted, assembling iPods does create jobs for Chinese workers that probably pay higher than average wages, so China does benefit. But who is getting rich from all the iPods Americans bought this Christmas, and who is getting the most enjoyment from them?

The answer: Americans.