Topic: Trade and Immigration

Mismeasuring Progress

It is shocking to discover just how much of the debate over politics and policy rests on semi-arbitrary government standards for measuring things. For example, if you believe the Consumer Price Index speaks with absolute authority, then you will believe obviously absurd things, like the idea that real wages have stagnated. Virginia Postrel has a nice short essay in Forbes [free reg. req.] on this aspect of the mismeasurement of economic progress. If Bureau of Labor Statistics true-believers are right, then

… you have to wonder who’s buying all those flat-screen TVs, serving precooked rotisserie chicken for dinner or organizing their closets with Elfa systems. “Anybody who thinks things are getting worse should go to Best Buy and notice the type of people who go to Best Buy,” says economist Robert J. Gordon of Northwestern University.

Gordon is the author of a much-cited study showing that from 1966 to 2001 real income kept up with productivity gains for only the top 10% of earners. What the pessimists who tout his study don’t say is that, while Gordon does find that inequality is increasing, he’s convinced that the picture of middle-class stagnation is false.

“The median person has had steadily improving standards of living,” he says. But real incomes have been understated. The problem lies in how the U.S. Bureau of Labor Statistics calculates the cost of living.

Similarly, the American Enterprise Institute’s Nicolas Eberstadt has a terrific essay on the bizarre and inaccurate method by which the government calculates the poverty rate in the new Policy Review. Eberstadt shows that the official poverty statistics often get things backwards, indicating that poverty is getting worse when it is in fact getting better according to a number of other noncontroversial measures of economic well-being:

The official poverty rate is incapable of representing what it was devised to portray: namely, a constant level of absolute need in American society. The biases and flaws in the poverty rate are so severe that it has depicted a great period of general improvements in living standards — three decades from 1973 onward — as a time of increasing prevalence of absolute poverty. We would discard a statistical measure that claimed life expectancy was falling during a time of ever-increasing longevity, or one that asserted our national finances were balanced in a period of rising budget deficits.

Journalists unfortunately tend to take government numbers as gospel, and therefore end up communicating to the public a badly distorted picture of the state of our economy and society. And far too often intellectually savvy commentators who ought to know better repair to government statistics as if they are pure data, untainted by systematic methodological bias. However, far from a neutral picture of empirical economic reality, we get a funhouse mirror. I don’t think there is any intentional bias in these measurement methods. But there sure is ideological resistance to replacing them with more empirically adequate measures. Things really are getting better all the time, but “reality-based” economic measures might get in the way of some people’s pet policies. And we can’t have that! I think we’ll eventually get better official methods for measuring real income and poverty, but not without a fight.

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.

Happy Birthday, Welfare Reform

Ten years ago today, Bill Clinton signed welfare reform into law. As we look back on the results of those 10 years, it’s worth reflecting on just how wrong the critics were.

At the time the bill was signed, the welfare rights lobby warned that “wages will go down, families will fracture, millions of children will be made more miserable than ever.” One frequently cited study predicted that more than a million children would be thrown into poverty. 

Rep. Jim McDermott wasn’t satisfied with that prediction — he raised the estimate to 2.5 million starving children. Welfare advocates painted vivid pictures of families sleeping on grates in our cities, widespread starvation, and worse.

The New York Times claimed “the effect on our cities will be devastating.” Sen. Frank Lautenberg  (D-NJ) predicted “Hungry and homeless children” would be walking our streets “begging for money, begging for food, even…engaging in prostitution.”  The Nation warned bluntly, “people will die, businesses will close, infant mortality will soar.”

If one listened to the welfare lobbies, you would have expected to be stepping over bodies in the streets every time you left your house.

Now, with 10 years of experience, we can see that those claims were about as correct as claims of weapons of mass destruction in Iraq. Welfare rolls are down. Roughly 2.5 million families have left the program, a 57 percent decline. Undoubtedly, some of this was due to a growing economy, especially in the late 1990s, but welfare rolls remain down despite the post-9/11 economic slowdown.

At the same time, poverty rates today are below the rates before welfare reform was enacted. Child poverty rates declined from more than 20 percent in 1996 to 17.8 percent today. Roughly 1.6 million children were lifted out of poverty. Perhaps even more impressively, the poverty rate among black children has fallen at the fastest rate since figures have been recorded. 

Dependent single mothers, the group most heavily affected by welfare reform, account heavily for this decline. Since the enactment of welfare reform, the poverty rate for female-headed families with children has fallen from 46 to 28.4 percent. The decline in poverty among female-headed households has been greater than for any other demographic group.

Most of those who left welfare found work, and the vast majority of them work full-time.  It is true that most first jobs found by those leaving welfare are entry-level positions — on average, they earn about $16,000 per year. That’s not much, but for many it leaves them better off than they were before. Moreover, studies show that as these former welfare recipients increase their work experience, their earnings and benefits increase. And, for better or worse, many continue to receive other forms of government assistance.

Surveys of former welfare recipients indicate that they believe their quality of life has improved since leaving welfare. And they are optimistic about the future. A majority of former welfare recipients believe that their lives will be even better in one to five years. Many of the former recipients actually praise welfare reform as a stimulus for their beginning to look for work and as an opportunity for a fresh start, and a chance to make things better for themselves and their children. Both the women and their children appear to benefit psychologically from the dignity of working.

Certainly, I’ve had my own criticisms of welfare reform. It didn’t go far enough toward making people truly independent of government. It is too prescriptive, setting too many detailed rules for states to follow. The recent reauthorization of the reform added a worthless $1.7 billion program to encourage marriage. And, Congress has failed to build on welfare reform to restructure other federal anti-poverty programs.

Still, by almost any measure you can think of, it is clear that the critics of welfare reform were quite simply wrong.

That’s worth keeping in mind when those same Chicken Littles raise similar scare stories about the proposed reform of other government programs, from Medicare and Medicaid to Social Security. Once again, we are hearing that any changes, reductions, or “privatization” of these programs will lead to widespread poverty, suffering, and other disasters. For example, they claim that allowing younger workers to privately invest a portion of their Social Security taxes through personal accounts will leave seniors eating cat food. But given their track record, maybe we should be a little bit skeptical the next time they predict the sky is falling.

Every Day in Every Way …

Big-ticket items drive most discussions of politics and government, but let’s not forget to lament the small advances that help make big government what it is.

At the outbreak of hostilities in southern Lebanon, my well-traveled colleague Tom Palmer expressed dismay that Americans overseas should expect a lift home courtesy of the U.S. government when they’ve gotten in harm’s way. Alas, by the end of July, Congress passed the Returned Americans Protection Act of 2006, which raised by $5 million the fiscal year 2006 limit on emergency assistance funds provided to U.S. citizens returning from foreign countries. Score one for bigger government — and for less responsible people.

But the bill actually results in reduced spending, saving about three cents (net present value) per U.S. family. How could this be?

A little legislative artifice did the trick. You see, the bill also allowed state food stamp agencies access to the National Directory of New Hires. They can use this database to verify employment and wage information for food stamp recipients using information on every newly hired American worker’s employment, wages, and receipt of unemployment insurance. With access to these data, state food stamp agencies will be able to better verify the income of their beneficiaries and reduce overpayments.

Created “for the children“ — a tool for tracking down deadbeat dads — the National Directory of New Hires is slowly but surely being put to new uses, including now more careful administration of food stamps. For tens or hundreds of reasons that are largely good, systems like the NDNH database will expand until the point is reached where we are all under comprehensive surveillance. 

Lost privacy is a cost of large government. In this case, the government has monetized worker data to economize on food stamp programs, masking the cost of scooping up American travelers caught overextended abroad. 

A little more spending here, a little more surveillance there. Every day in every way …

Bashing Wal-Mart (and Millions of Shoppers)

Can Democrats ride what they see as a populist wave of anger against Wal-Mart to success in the 2006 elections and beyond? According to a New York Times story this morning:

Across Iowa this week and across much of the country this month, Democratic leaders have found a new rallying cry that many of them say could prove powerful in the midterm elections and into 2008: denouncing Wal-Mart for what they say are substandard wages and health care benefits …

The focus on Wal-Mart is part of a broader strategy of addressing what Democrats say is general economic anxiety and a growing sense that economic gains of recent years have not benefited the middle class or the working poor.

This new strategy tells us much more about the lingering anti-business, anti-market and, yes, elitist mindset of the Democratic Party’s national leaders than it does about Wal-Mart itself.

Wal-Mart and other price-conscious discount retailers are really a working family’s best friend. They operate in the marketplace as representatives for millions of consumers, ensuring that they get the best and lowest prices possible from wholesalers and producers. Tens of millions of American shoppers vote with their feet every week by visiting their local Wal-Mart.

If Wal-Mart offers wages and benefits that are below the national average, it is not because of company policy but because of the realities of the marketplace. Retail jobs in general offer below-average compensation because the jobs tend to be lower-skilled and less productive than most other jobs. Even so, Wal-Mart’s wages within the retail sector are competitive. A worker at Wal-Mart is more likely to have health insurance and be paid more than a worker with similar skills at a small, “mom and pop” retailer.

The denunciation of Wal-Mart is largely driven by politics. Labor unions, a key Democratic Party constituency, see non-unionized Wal-Mart stores as a threat to their efforts to organize retail workers, especially those in the grocery sector.

Democrats will need to decide who they want to represent: Tens of millions of cost-conscious, lower- and middle-income shoppers, or noisy but far less numerous union members who do not like competition.

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.

Every Day Brings an Emergency

The U.S. Farm Bill is due to be redrafted in the first half of next year and Cato will be part of what is shaping up to be a lively debate. The recent round of WTO negotiations were one hope for reducing the costly distortions that agricultural subsidies impose, but we all know what happened there. (The WTO news release can be found here if you are not up to speed).

The 2007 Farm Bill, then, provides the next best opportunity for much needed reform. But, considering the noises coming from Congressmen, we reformers have our work cut out. Consider this recent pearl, offered by Sen. Chuck Hagel (R-Neb.):”The fact is we know there is emergency assistance required every year, whether it’s for drought, floods or whatever natural cause…” Webster’s Encyclopedic Unabridged Dictionary of the English Language defines an emergency as “a sudden, urgent, usually unforeseen occurrence or occasion requiring immediate action.” I don’t think something (a different ‘something’ all the time, according to the Senator) that happens with certainty every year fits that definition.

Senator Hagel went on to say…”Why don’t we craft a farm bill that is visionary, relevant, real and deals with the challenges we know agriculture producers deal with?” I am sure the Senator meant the question to be rhetorical, but I agree with the Senator – why don’t we craft a Farm Bill that is visionary, relevant and real. A vision of farmers making a living from markets, relevant to the fact of the significant cost of these programs, and real – as in, real different to the last farm bill (a huge step backwards from the relatively tame 1996 farm bill). As for the challenges, surely farmers, like other small (and not so small) businesses should be able to deal with challenges unassisted by government (read: taxpayer and consumer) support?

I’m an Australian so I know something about drought. I’m also an economist, so I know something about comparative advantage. Maybe if every year is a disaster year in some place, then farmers shouldn’t be farming there….