Topic: Trade and Immigration

America’s Subsidized (and Amazingly Wealthy) Farmers

In a speech in Indiana last week, U.S. Secretary of Agriculture Michael Johanns reminded his farm-sector audience that U.S. farmers have perhaps never had it so good:

“For the last three years in a row, farm net worth has grown by an amazing, if not eye-popping, $90 billion per year, and we expect the same to be true in 2006. Farm equity, ladies and gentlemen, well, it’s at a record high today: just an unbelievable $1.6 trillion. And we expect the debt-to-asset ratio, by the end of the year, to be the lowest in 45 years.”

So can somebody explain to me again why the federal government subsidizes and protects American farmers at a cost to American taxpayers and consumers of $40 billion a year?

Schumer’s Epiphany?

I had to do a double take of the by-line of an unabashedly pro-capitalism op-ed (subscription required) in today’s Wall Street Journal. Yes, indeed, that was Sen. Chuck Schumer (D-NY) who co-authored a piece with New York City mayor Michael Bloomberg on the need to rethink stifling regulation of America’s financial services industries, and to consider tort reform.

Lamenting the relative decline of NYC as the world’s financial capital, Schumer and Bloomberg identify stifling regulation and frivolous law suits in the United States as major factors contributing to London’s and Hong Kong’s relative ascent as premiere locations for initial public offerings in recent years. Among the facts they cite is that in 2005, only one out of the top 24 IPO’s was registered in the United States, while four were registered in London. Moreover, “next year more money will be raised through IPOs in Hong Kong than in either London or New York.”

Schumer and Bloomberg cite regulatory costs that are 15 times higher in the United States than in Britain, an adversarial relationship between “tough cop” regulators and business in the United States, and the surging costs of securities-related class action suits as key factors driving business away from New York’s financial houses. The auditing expenses associated with the requirements of Sarbanes-Oxley are deemed to have grown “beyond anything Congress had anticipated.”

These are indeed serious problems, but it’s hard not to laugh about the irony. Schumer’s never met a regulation he didn’t like. He’s never been a friend of business. Of course he voted for Sarbanes-Oxley, along with all of his colleagues in the Senate, but he also led the charge against Kelloggs, General Mills, and the other cereal companies in the 1990s, when the price of Lucky Charms became unacceptably high to him. Just last summer, Schumer urged federal regulators to examine the behavior of oil companies to make sure they weren’t holding back production. And Schumer has been quick to ascend the podium to decry America’s growing trade deficit, urging, at times, government intervention to “correct” that growing problem.

That Schumer is suddenly opposed to stifling regulation and is saying things that are sure to upset the trial lawyers is welcome news. But it is likely just a fleeting flirtation with enlightenment. Let’s see what happens when someone points out to the Senator that New York’s capacity to attract IPOs, and the foreign investment that follows, is more a cause of the U.S. trade deficit than any “unfair trade” practices he assails. Which cause will he champion then?

The Upside of Nature’s Wrath

Fourteen months after Katrina devastated large swaths of the Gulf Coast, the Commerce Department has finally gotten around to promulgating new regulations that could relax antidumping and countervailing duty restrictions for a temporary period after the next national emergency.

In the weeks following Katrina, some observers (including this one) pointed to the absurdity of maintaining restrictions on foreign cement, lumber, and steel when the costs of those crucial building materials comprised a substantial chunk of the projected reconstruction bill.  Of course, trade restrictions raise the cost of production to U.S. businesses and the cost of living for U.S. citizens everyday.  But the effects of the hurricane provided an extreme example of the lunacy of trade restrictions, which is what was necessary to get the Commerce Department to acknowledge that its protectionist trade policies carry real costs.

The scope of circumstances that will trigger temporary lifting of trade remedy restraints prospectively is a bit unclear, but it requires the president to authorize Commerce “to permit the importation of supplies for use in ‘emergency relief work’ free of antidumping and countervailing duties.”  Considering that emergencies are typically met with a costly (and often mismanaged) federal response, a regulation that actually mandates loosening the federal noose is welcome news indeed.

Now, all we need is a president who will consider it “emergency relief work” to educate policymakers about the predictable impact of constrained supply on price. 

America’s National Truck?

As another election approaches, Americans have probably grown jaded toward politicians who use naked appeals to patriotism to win votes. Now patriotic appeals are being enlisted to sell pickup trucks.

Baseball fans watching the World Series game Friday night witnessed an ad by General Motors that had nothing to do with the finer qualities of its Silverado pick up truck. Set to the driving beat of a John Mellencamp song, “Our Country,” the ad flashed images designed to tug at the heart of every red-blooded American. (It certainly tugged at mine.) Here’s how a New York Times story today described the ad:

As the commercial begins, an industrial history rolls out, touching the usual icons of the Statue of Liberty, busy factory workers and Americans at their leisure. But then a more conflicted narrative emerges, quickly flashing on bus boycotts, Vietnam, Nixon resigning, Hurricane Katrina, fires, floods, then the attacks of Sept. 11, replete with firefighters.

All that’s missing is a plague of locusts, until the commercial intones ‘This is our country, this is our truck’ as a large Silverado emerges from amber waves of grain.

The not-so-subtle message is that if you are a real American, you buy a real American vehicle. Of course, this is not the first time patriotism has been exploited to sell a product, but the ad obscures an important fact about the American automobile industry: it is far more diverse today than the Big Three of Ford GM, and Chrysler.

In a Cato Free Trade Bulletin published over the summer, my colleague Dan Ikenson and I showed that, while Ford and GM in particular have struggled with declining sales and huge losses, the U.S. automobile market remains healthy. Last year, American workers produced about 12 million cars and light trucks domestically, including those made in factories owned by Honda, Toyota, Nissan, and BMW. American families can chose from a wider range of affordable, quality vehicles than perhaps ever before.

The Big Three have been losing market share, not because Americans are any less patriotic than in the past, but because Americans are increasingly exercising their freedom to decide for themselves what  is “our truck.”

Growing Well

Robert Frank has an excellent column on happiness, well-being, and economic growth in today’s New York Times. Frank rightly notes that the fact that self-reported life satisfaction does not increase with economic growth does not imply that growth is optional.

Many critics of economic growth interpret this finding to imply that continued economic growth should no longer be a policy goal in developed countries. They argue that if money buys happiness, it is relative, not absolute, income that matters. As incomes grow, people quickly adapt to their new circumstances, showing no enduring gains in measured happiness. Growth makes the poor happier in low-income countries, critics concede, but not in developed countries, where those at the bottom continue to experience relative deprivation.

All true. But these statements do not imply that economic growth no longer matters in wealthy countries. The reason, in a nutshell, is that happiness and welfare, though related, are very different things. Growth enables us to expand medical research and other activities that clearly enhance human welfare but have little effect on measured happiness levels.

Frank is right. Happiness is a component of welfare or well-being, but well-being includes much more than happiness. Health, longevity, opportunity, the realization of potential, and meaningful work are aspects of well-being that go beyond how good we feel. Growth promotes all those things. But there is also some decent evidence, which I report in this Prospect article, that economic growth has about as strong a positive correlation with self-reported happiness as anything else. Furthermore, I say:

The fact that average self-reported happiness has not risen with average incomes does not imply that there is no point in becoming richer. A steady rate of growth may be necessary to keep happiness and other good things at a high stable level. (Imagine a guillotine, on which a kitten is strapped, connected to a bicycle that must be pedalled ever more quickly to keep the blade aloft. Slow down, and the kitten gets it.) In The Moral Consequences of Economic Growth, Harvard economist Benjamin Friedman argues that steady economic growth “fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness and dedication to democracy”—a list I doubt any politician would come out against.

Frank also mentions Friedman in this regard, to good effect. In short, the evidence clearly points to the fact that economic growth is incredibly good for well-being, as Frank explains so well, and that it correlates positively with happiness as strongly as almost any other variable. (Life-expectancy or economic freedom look even better, depending on the study you consult.) There is no good happiness-based case against growth, and there is an exceedingly strong well-being-based case for growth.

Be Careful What You Wish For…

A couple of people over recent days have asked my opinion on the prospects for reform of agriculture policy should Democrats take over the House and/or the Senate. My usual reply is to lament the depressingly bipartisan nature of support for farm subsidies and trade barriers, and to also point out that the recent farm bill (implemented by a Republican congress) has been one of the most expensive in history: $23 billion last year. In a nutshell, I had thought that the prospects for reform could not be any worse under the Democrats than under Republicans.

It turns out that I may be wrong (yes, it happens occasionally). In a recent press release from Texas A&M University, the ranking member of the House Agriculture Committee (and probable chairman of that committee should the Democrats regain the majority in the House), Colin Peterson (D-MN) seems to support extension of the current farm bill, egregious though it is, but with yet more pork added.

Rep. Peterson would implement permanent crop disaster relief (I have blogged on this idea previously), and was indirectly quoted as calling renewable energy derived from crops ”the most exciting development in agriculture in his lifetime.”

Rep. Peterson does seem to have a point about the scope for the addition of expensive and agriculture-irrelevant rider amendments to ad-hoc disaster relief bills, but describing a permanent disaster relief program as a way to “save taxpayer dollars” is disingenuous, to say the least.

Rep. Peterson seems to have no truck with the idea that agriculture should contribute to deficit reduction, either: “I reject the idea that because we have a $9 trillion deficit, we have to get rid of farm programs. We didn’t cause that problem. In fact, agriculture was the only government initiative that actually spent less than was projected, $13 billion less so far. Besides, if you got rid of all agriculture programs, it wouldn’t make a dent in the deficit. So we need to do what’s right for agriculture, and that’s where I’m coming from.”

On ethanol, which my colleague Jerry Taylor has blogged about here, Rep. Peterson wheeled out the old “foreign oil dependency” issue and put his full support behind investing significant resources (that’s your resources) into more research into bio-fuels, describing the profits that investors are making currently from ethanol as “obscene.”

You said it, sir.

Vegemitegate: the Saga Continues

An update from my post yesterday on the supposed ban on Vegemite: its not true. According to this article, it is all just a misunderstanding between friends:

Under US regulations, folate can be added only to breads and cereals. One of the Vitamin B components (in Vegemite) is folate,’ [FDA spokesman] Herndon explained. ‘In and of itself, it’s not a violation. If they’re adding folate to it, boosting it up, technically it would be a violation. But the FDA has not targeted it and I don’t think we intend to target Vegemite simply because of that.’

OK, Mr. FDA. I’ll call off the hounds. But I will be testing your system in January when I return from Australia with a year’s worth of Vegemite in my suitcase.