Topic: Trade and Immigration

Hungry Congressional Staffers Discover the Value of Trade

Under current ethics rules, members of Congress are allowed to receive gifts of snack food from companies located in their states or districts, as long as the snacks are available to office visitors.  While constituents visiting the Capitol may be getting to enjoy home-grown treats, the real beneficiaries here are the office employees who have privileged access to free snacks.

Yesterday Politico ran a light-hearted story about a thriving, informal market that has developed for congressional staffers to trade these free snacks.  It’s funny and you should read it in its entirety.  In order to be insufferably pedantic, I thought I would share a few thoughts on how this peculiar market, like all markets, developed as a way for individual humans to improve their lives through trade.

The rules create a peculiar inconvenience for hungry staffers, as they can only get free snacks produced by a company in their boss’s district.  Some offices only have Pepsi products while others only have Coke.  Some have healthy food and some have junk food.  Free snacks are great and all, but what do you do when the snacks you have aren’t the snacks you want?

The problem here is a non-optimal distribution of snacks, and the solution is trade.

Dozens of junior staff who spoke with POLITICO described an elaborate barter system based on local products. Pepsi is swapped for M&M’s, and Coca-Cola for Craisins.

Some of the foods that are most highly in demand are also well supplied in Capitol Hill offices, while others appeal to more particular tastes.  These realities shape their value as products to trade. 

Frito-Lay chips and Mars candy are the most common — and perhaps the most commonly traded — snacks on the Hill. Both manufacturers have operations in several states.

And orange juice, it turns out, is a hot commodity on the Hill, trading at times for as many as five bags of Lay’s chips.

Not all products on the political circuit are well-known brands. Sen. Richard Blumenthal (D-Conn.) has Ola! all natural granola, Rep. Sam Graves (R-Mo.) has Cherry Mash, a chocolate cherry treat, and Rep. Dave Reichert (R-Wash.) has Aplets & Cotlets, a square fruit puree and nut snack that isn’t all that tradable.

Free Market Ideologues at the Ex-Im Gate

Media have framed the debate over Export-Import Bank reauthorization as yet another battle in the war being waged by free market extremists to wrest control of the Republican Party from what they see as the infidels of the business establishment. That simplistic narrative, perpetuated by an irrepressible disdain for anything that whiffs of Tea Party ideology, has brought editorial boards and journalists from the Left to stand shoulder-to-shoulder with the multinational corporations they normally demonize in an effort to beat back a common foe.

But the compelling case against Ex-Im is less an ideological than a moral one.  It is not merely that Ex-Im puts taxpayer resources at risk or that the Bank’s operation encourages too close a relationship between big business and government or that resources are being used inefficiently.  Anyone concerned about economic fairness should see the virtue in terminating a program that benefits some companies at great expense to many, many others.  But the window to that view has been shuttered by a media that finds it more important to portray the reformers as childish idealists throwing tantrums.

Ex-Im is a government-run export credit agency that arranges special financing to facilitate sales between U.S. companies and foreign customers.  Barring congressional reauthorization, its charter will expire on September 30. Supporters claim that since exports are good for growth and job creation and since the Bank “creates” exports, failure to reauthorize will hurt the economy.  But that conclusion rests on the illusion of single-entry accounting.  It fails to consider the substantial, but more difficult to observe costs.

There are opportunity costs, representing the growth that would have occurred had Ex-Im’s resources been deployed more efficiently in the private sector. There are intra-industry costs – those incurred by the unsubsidized competitors of firms receiving Ex-Im subsidies.  And there are “downstream” industry costs borne by producers whose domestic suppliers receive export subsidies.  These downstream firms are hurt because crucial inputs become more expensive, while their foreign competition gets subsidies from U.S. taxpayers.

More Foreign Competition in Software and Internet Services?

We’ve gotten used to American dominance in the internet/software industries.  That may not last forever:

Over the weekend, China announced that it was planning to launch a homegrown operating system to replace Windows and Android for running the nation’s desktop and mobile devices. The first iteration of this “Made in China” OS could roll out as early as October

There is some good and bad with this.  The good is that more competition in these industries would be great.  While there is already a fair amount of disruption and innovation here, there are also some key products/services where a couple firms are pretty dominant.  Consumers would benefit tremendously from more competition.

Ensuring Safe Food in a Free Market: A Lesson from China

Many Americans view the dissemination and enforcement of food safety standards as a basic function of government, and it’s difficult for them to imagine a world where food is both safe and unregulated. Libertarians can point out that the safety of a product is, just like quality and price, something that consumers directly care about and as such will be most effectively preserved in a competitive free market.  But it’s one thing to make abstract economic arguments and quite another to have real life examples.

Well, here’s an interesting story from China, as reported by Reuters last week:

A Chinese retailer is offering insurance to customers who buy infant milk powder, highlighting the lengths to which companies are going to address concerns about food safety in China.

Suning Commerce Group Ltd, which owns the Redbaby chain of stores, told Reuters it had launched the policy this week, backed by China’s second largest insurer, Ping An Insurance Group.

The policy stipulates that if a brand of milk powder is recalled, customers who bought cans from any Redbaby store or its e-commerce website would be paid up to 2,000 yuan ($325) per can, with payments capped at 100,000 yuan.

“In recent years, the milk powder market in China has been in a mess,” Suning said in an email.

When a Hamburger Becomes a Doughnut and Other Lessons About Tax Inversions and Globalization

So Burger King plans to purchase Canadian doughnut icon Tim Hortons and move company headquarters north of the border, where corporate tax rates are as much as 15 percentage points lower than in the United States.  Expect politicians at both ends of Pennsylvania Avenue to accuse Burger King of treachery, while spewing campaign-season pledges to penalize these greedy, “Benedict Arnold” companies.
 
If the acquisition comes to fruition and ultimately involves a corporate “inversion,” consider it not a problem, but a symptom of a problem. The real problem is that U.S. policymakers inadequately grasp that we live in a globalized economy, where capital is mobile and products and services can be produced and delivered almost anywhere in the world, and where value is created by efficiently combining inputs and processes from multiple countries.  Globalization means that public policies are on trial and that policymakers have to get off their duffs and compete with most every other country in the world to attract investment, which flows to the jurisdictions where it is most productive and, crucially, most welcome to be put to productive use.
 
Too many policymakers still believe that since the United States is the world’s largest market, U.S.-headquartered companies are tethered to the U.S. economy and committed to investing, hiring, and producing in the United States, regardless of the quality of the business and policy environments. They fail to appreciate how quickly the demographics are changing or that a growing number of currently U.S.-based companies do not share their view. Perhaps too many are unaware of how the United States continues to slide in the various global rankings of attributes that attract business and investment. The leverage politicians have over America’s corporate wealth creators has diminished.

The Threat of Poorly Performing Vacuum Cleaners

I don’t follow domestic regulation as closely as many people at Cato, but I keep an eye on it in relation to “regulatory trade barriers” that are being addressed in trade negotiations. In that context, I came accross this EU attempt to crack down on high-wattage vacuum cleaners:

Consumers are being urged to buy powerful vacuum cleaners while they can after it emerged that some of the most powerful models on the market will disappear in September when a new EU rule comes into force.

An EU energy label, to be introduced from 1 September, means manufacturers will not be able to make or import vacuum cleaners with a motor that exceeds 1,600 watts.

European commission spokeswoman for energy Marlene Holzner said in a blog: “As a result of the new EU eco-design and labelling regulations, consumers will also get better vacuum cleaners. In the past, there was no legislation on vacuum cleaners and companies could sell poorly performing vacuum cleaners.”

Oh, the humanity! Companies might sell “poorly performing vacuum cleaners” to an unsuspecting public! And only legislation can save the day!

Or – and I know this might sound crazy to some people – we could just rely on consumers to evaluate the vacuum cleaners, buying the better ones and leaving the “poorly peforming” ones on the shelf.

Free Trade Within Countries

Trade policy people spend most of their time talking about free trade between countries.  But there is still some work to do on free trade within countries.  Some Canadians are making a push right now, as Canadian business groups are calling for Canada’s leaders “to dismantle internal trade barriers and ensure the free movement of goods, services, capital and labour between all parts of the country.”

If that sounds odd, don’t get the wrong idea.  It’s not as though Canadian provinces are imposing tariffs on each other.  Rather, this is part of a more advanced notion of free trade, where you have a “single market” for goods and services.  So for example, these groups complain that:

Different regulations and standards means that manufacturers may need to adapt their machinery in order to produce containers such as dairy creamers, butter and drinkable yogurts for sale nationally across all provincial jurisdictions.

Or:

massage therapy is regulated in some provinces but not all, meaning that a professional would have to become certified in order to be allowed to practice.

These issues are difficult to address between sovereign nations, although people are trying, most notably in the Transatlantic Trade and Investment Partnership negotiations.  But within countries, it seems like this is something that could and should be dealt with.  Here in the U.S., we have the famous problem of not being able to buy health insurance across state lines.  The current effort in Canada seems like a valuable one; it might be useful to have a similar review of internal trade barriers here in the U.S.