New Essays in Cato Growth Forum

Here are today’s new essays in the Cato Institute’s online forum on reviving growth:

1. Edward Glaeser targets land use restrictions – and five other barriers to growth.

2. Susan Dudley wants to reform the regulatory process.

3. James Pethokoukis takes aim at the crony capitalist alliance.

4. Andrew Kelly calls for better integration of school and work.

5. Bowman Cutter looks for a path to the “good economy.”

Google’s Search “Monopoly”

Last week, while we Americans were “unbundling” the various parts of our turkeys, the European Parliament was talking about unbundling Google’s various features:

Members of the European parliament voted overwhelmingly on a measure aimed at keeping companies, such as Google, from dominating the search engine market.

The motion “calls on the [European] Commission to consider proposals with the aim of unbundling search engines from other commercial services as one potential long-term solution” to ensure fair competition.

While the vote was largely symbolic, its outcome could put EU anti-trust commissioner Margrethe Vestager under pressure to pursue complaints against Google, which critics say squeezes out its competitors using unfair advantages.

The Economist weighed in with a bit of criticism:

The European Parliament’s Googlephobia looks a mask for two concerns, one worthier than the other. The lamentable one, which American politicians pointed out this week, is a desire to protect European companies. Among the loudest voices lobbying against Google are Axel Springer and Hubert Burda Media, two German media giants. Instead of attacking successful American companies, Europe’s leaders should ask themselves why their continent has not produced a Google or a Facebook. Opening up the EU’s digital services market would do more to create one than protecting local incumbents.

The good reason for worrying about the internet giants is privacy. It is right to limit the ability of Google and Facebook to use personal data: their services should, for instance, come with default settings guarding privacy, so companies gathering personal information have to ask consumers to opt in. Europe’s politicians have shown more interest in this than American ones. But to address these concerns, they should regulate companies’ behaviour, not their market power. Some clearer thinking by European politicians would benefit the continent’s citizens.

Building on these points, I’d go even further.  It seems to me there is pretty clear demand for a privacy-focused internet company.  But I don’t see why governments need to get involved here.  Instead, companies – European ones, and others, too – just need to recognize this demand, and jump into the market with some competing products.  There are fewer barriers to entry in this market than most other markets; someone just needs to be willing to take a risk.

Carbon Dioxide Enrichment of Peach Trees: How Sweet It Is!

In our all-too-politically-correct world, carbon dioxide (CO2) frequently gets a bad rap, demonized for its potential and unverified effects on climate. However, if the truth be told, carbon dioxide is a magnificent molecule, essential to nearly all life on Earth. It is the primary raw material from which plants construct their tissues and grow during the process of photosynthesis. Perhaps it should come as no surprise, therefore, that plants perform this essential function ever better as atmospheric CO2 levels climb ever higher, a fact demonstrated in literally thousands of laboratory and field studies (see, for example, the Plant Growth Database of the Center for the Study of Carbon Dioxide and Global Change). And because plants are the ultimate food source for animals and humans, we are all indebted to CO2 for its role in sustaining and promoting the growth of plants everywhere.

But there are other benefits to atmospheric CO2 enrichment beyond enhancing plant growth, as illustrated in the recent study of Xi et al. (2014). Publishing in the professional journal Food Chemistry, the six-member team of Chinese horticultural and food scientists “investigated the effectiveness of CO2 enrichment for improving fruit flavor and customer acceptance of greenhouse-grown peaches.” 

The rationale for their study stems from the fact that peaches are widely cultivated in greenhouses throughout northern China. Under such controlled conditions, the trees are afforded protection from the natural environment, including damaging low temperatures and high winds. But this protection does not come without a price—plant photosynthesis can cause CO2 levels inside closed greenhouses to decrease during daylight hours to values below 200 parts per million, which values are half or less than half the CO2 concentration of normal outside air. As a result, Xi et al. state these “low CO2 levels may be a limiting factor for the productivity of fruit trees cultivated in greenhouses,” and they may negatively impact the “development of fruit flavor quality” and aroma, which is not good for those in the peach growing business! Thus, the six scientists set out to explore how enriching greenhouse air with CO2 might mitigate these potential problems.

For their experimental design, Xi et al. (2014) divided a greenhouse into two parts using a hermetic barrier wall, supplying one side with CO2-enriched air and the other with ambient air to be used as the control. The enriched side of the greenhouse was maintained at an atmospheric CO2 value of 360 ppm (approximately twice that of the control) from 12:00 to 16:00 each day during the main CO2 shortage period, while “fruit sugar, organic acids, volatile contents and consumer acceptability were investigated, focusing on the period of postharvest ripening.”

With respect to their findings, the Chinese researchers report that net photosynthesis was significantly increased in the trees growing in the CO2-enchanced portion of the greenhouse despite their receiving only a mere 4 hours of CO2 enrichment per day above those growing in the ambient or control portion of the structure. Elevated CO2 also improved fruit flavor and aroma, significantly increasing dominant sugar levels (sucrose and fructose), fruity aroma compounds (lactones), and floral scent compounds (norisoprenoids), while decreasing compounds that contribute to fruit sourness and undesirable aroma volatiles (Table 1). 

Table1. Percent difference of various peach fruit compounds from trees grown in CO2 enriched air, relative to trees grown in ambient air, as measured in fruit picked on the day of harvest and five days after harvest.  Data derived from Table 1 of Xi et al. (2014).

Table1. Percent difference of various peach fruit compounds from trees grown in CO2 enriched air, relative to trees grown in ambient air, as measured in fruit picked on the day of harvest and five days after harvest. Data derived from Table 1 of Xi et al. (2014).

As a result of their findings, the authors conclude that “CO2 enrichment can significantly improve the flavor quality of ‘Zaolupantao’ peach fruits grown in greenhouse and their consumer acceptance.” And if it can do that from a mere four hours of CO2 enrichment per day in a greenhouse, imagine what 24 hours of enrichment might promise for other fruiting plants growing out-of-doors, in natural environments, under present-day global atmospheric CO2 concentrations of 400 ppm and above? Hinting at the possibilities, Xi et al. cite the work of researchers studying other fruits, where similar CO2 benefits have been reported for tomato (Shahidul Islam et al., 1996; Zhang et al., 2014), strawberry (Wang and Bunce, 2004; Sun et al., 2012), and grapes (Bindi et al., 2001).

Yes, truth be told, atmospheric CO2 is a magnificent molecule, and those who continue to demonize it based on potential and unproven climatic effects, should wake up and smell the peaches—or they should at least eat one and taste how sweet its biological benefits can be!


References

Bindi, M., Fibbi, L. and Miglietta, F. 2001. Free air CO2 enrichment (FACE) of grapevine (Vitis vinifera L.): II. Growth and quality of grape and wine in response to elevated CO2 concentrations. European Journal of Agronomy 14: 145–155.

Shahidul Islam, M., Matsui, T. and Yoshida, Y. 1996. Effect of carbon dioxide enrichment on physico-chemical and enzymatic changes in tomato fruits at various stages of maturity. Scientia Horticulturae 65: 137–149.

Sun, P., Mantri, N., Lou, H., Hu, Y., Sun, D., Zhu, Y., Dong, T. and Lu, H. 2012. Effects of elevated CO2 and temperature on yield and fruit quality of strawberry (Fragaria x ananassa Duch.) at two levels of nitrogen application. PLoS ONE e41000.

Wang, S. Y. and Bunce, J. A. 2004. Elevated carbon dioxide affects fruit flavor in field-grown

strawberries (Fragaria x ananassa Duch). Journal of the Science of Food and Agriculture 84: 1464–1468.

Xi, W., Zhang, Q., Lu, X., Wei, C., Yu, S. and Zhou, Z. 2014. Improvement of flavor quality and consumer acceptance during postharvest ripening in greenhouse peaches by carbon dioxide enrichment. Food Chemistry 164: 219-227.

Zhang, Z.M., Liu, L.H., Zhang, M., Zhang, Y.S. and Wang, Q.M. 2014. Effect of carbon dioxide enrichment on health-promoting compounds and organoleptic properties of tomato fruits grown in greenhouse. Food Chemistry 153: 157-163.

The Washington Post On Dodd-Frank’s Conflict Minerals Fiasco

Economic sanctions, when they have an effect at all, tend to inflict misery on a targeted region’s civilian populace and often drive it further into dependence on violent overlords. That truism will surprise few libertarians, but apparently it still comes as news to many in Washington, to judge from the reaction to this morning’s front-page Washington Post account of the humanitarian fiasco brought about by the 2010 Dodd-Frank law’s “conflict minerals” provisions. According to reporter Sudarsan Raghavan, these provisions “set off a chain of events that has propelled millions of [African] miners and their families deeper into poverty.” As they have lost access to their regular incomes, some of these miners have even enlisted with the warlord militias that were the law’s targets. 

Congress added the provisions to Dodd-Frank in a fit of moral self-congratulation over making sure Americans had the chance to be ethical and thoughtful consumers of such products as jewelry and cellphones (as well as thousands of other products, as it turned out, from auto parts to the foil in food packaging). Publicly held companies would be required to report on their supply connections to “conflict minerals” such as tin, tungsten, and gold mined in war-torn areas of the Democratic Republic of the Congo. Lawmakers assigned enforcement of the law to the Securities and Exchange Commission – a body with scant discernible expertise in either African geopolitics or metallurgy – and barbed it with stringent penalties for disclosure violations, to which are added possible liability in class-action shareholder lawsuits.

Reactions to this morning’s Post account frequently employ words like “unintended” or “tragic” to describe the effect on miners of the law, which people in the Congo soon came to call “Loi Obama” – “Obama’s law”.  Unintended and tragic? Maybe. But not unforeseen, because the signs that the law would backfire this way have been in plain sight for years now – as in this 2011 account by Prof. Laura Seay (via) of how “electronics companies now have a strong incentive to source minerals elsewhere, leaving Congolese miners unemployed.” Or this 2011 account by David Aronson in the New York Times of the “unintended and devastating consequences” that he “saw firsthand on a trip to eastern Congo.” Or this more recent paper by law professor Marcia Narine.

But although the evidence has been there for years, the will to believe in the law was too strong – a will fueled by anti-corporate campaigners who take it on faith that when brutalities in the underdeveloped world occur within two or three degrees of separation of the activities of multinational businesses, the right answer must be to blame and shame the businesses.

You might call it an expensive lesson for Americans too, if you assume that anything has been learned. A recent Tulane calculation found that the costs in business compliance have already topped $700 million, with billions more ahead should nothing change. Just this September, the U.S. government conceded that it “does not have the ability to distinguish” which refiners and smelters around the globe are tainted by a connection to militia groups. That is to say, the government has demanded of business a degree of certainty that it cannot achieve itself.  Courtesy of UCLA corporate law professor Stephen Bainbridge, here’s a flowchart of what complying might involve for a given business. 

If the new Republican Congress wants to be taken seriously about fixing counterproductive regulation, it should make the repeal of this law an early priority.

Computer-Aided Reporting: Looking Where the Light Is Good

Upshot (New York Times) writer Derek Willis tweeted this morning, “We need to stop doing stories (and maps) with meaningless data.” At the link, a story on Vox charts the poorest members of Congress. It’s based on a Roll Call story published in September.

His main point, I think, is the failure of the data to reliably reflect what it’s supposed to. The disclosures on which these stories rely don’t include the value of homes members own, for example, and information is reported in broad bands, so it’s probably not very accurate and may be wildly inaccurate.

The data is meaningless in another, more important way. Neither story suggests any correlation between wealth (or its absence) and legislators’ behavior or fitness for office. It’s just a look at who has money and who doesn’t—uninformative infotainment. Maybe some readers stack up inferences to draw conclusions about Congress or its members, but this is probably an exercise in confirming one’s biases.

This illustrates a real problem for computer-aided journalism. When the only data available depicts a certain slice of the world, that will skew editorial judgments toward that slice of the world, overweighting its importance in news reporting and commentary.

In my opinion, reporting on public policy suffers just such a skew. There is relatively good data about campaign financing and campaign spending, which makes it easy to report about. The relatively high level of reporting on this area makes it appear more important while the actual behavior of public officials in office—the bills they sponsor, the contents of bills, amendments, votes, and the results for society—goes relatively unreported.

It won’t be the fix for all that ails reporting on public policy, but our Deepbills project makes essential content of legislation available as data. It vastly expands the territory around U.S. federal public policy that computer-aided jounalists can cover. Deepbills data has been picked up various places, but we need more adoption before it will provide all the value it can to a better-informed public.

Update: On Wednesday, the House Government Reform and Oversight Committee will have a hearing on implementation of the DATA Act, which could yet further expand the data available to journalists, and all of us.

Enduring Myths that Obscure the Case for Free Trade

Most economists agree that free trade works better than restricted trade to increase the size of the economic pie. By enlarging markets to span national borders, free trade increases the pool of potential producers, consumers, partners, and investors, which permits greater specialization and economies of scale – both essential ingredients of per capita economic growth.

But, in practice, free trade remains elusive. It is the exception, not the rule. Sure, many tariffs and other border barriers have been reduced in the United States (and elsewhere) over the years, but protectionism persists in various guises. There are “Buy American” rules limiting government procurement spending to local firms and US-made products; heavily protected services industries; seemingly endless incarnations of agriculture subsidies; import quotas on sugar; green-energy and other industrial subsidies; shipbuilding and shipping restrictions; the Export-Import bank; antidumping duties; and, regulatory protectionism masquerading as public health and safety regulations, to list some. Ironically, protectionism is baked into our so-called free trade agreements. It takes the form of rules of origin requirements, local content mandates, intellectual property and investor protections, enforceable labor and environmental standards, and special carve-outs that shield entire products and industries from international competition.

Trade agreements may be the primary vehicle through which U.S. trade barriers are reduced, but they are predicated on the fallacy that protectionism is an asset to be dispensed with only if reciprocated, in roughly equal measure, by negotiators on the other side of the table. If the free trade consensus were meaningful outside of economics circles, trade negotiations would be unnecessary. They would have no purpose. If free trade were the rule, trade policy would have a purely domestic orientation and U.S. barriers would be removed without any need for negotiation because they would be recognized for what they are: taxes on domestic consumers and businesses.

U.S. and Russia Must Find Exit to Ukraine Impasse

MOSCOW—The Kremlin was its forbidding worst when I recently visited a dreary, stormy Moscow. Russia is not the Soviet Union, but hopes for the former to develop into a genuinely liberal society have been stillborn.

However, the fact that President Vladimir Putin is an unpleasant autocrat doesn’t change the necessity of Washington and Moscow working together.

Moscow is not threatening any core U.S. interest. Putin’s Ukrainian aggression does not impair fundamental American national interests. There is no indication that Moscow has any ill plans for Europe.

Unfortunately, Washington contributed to the Ukraine imbroglio by foolishly joining Europe in treating Kiev as a geopolitical competition. This allied blunder doesn’t justify Russia’s response, of course, but it precipitated Moscow’s intervention.

Putin demonstrates that even paranoids have enemies. Allied behavior post-Cold War—expanding NATO up to Russia’s border, dismantling Serbia, treating Georgia as a military ally, holding open the possibility of NATO membership for Kiev, and trying to pull Ukraine into Europe’s economic orbit—has consistently ignored or threatened Moscow’s interests.

The result is an economic and political impasse with a risk of military confrontation. Russia’s control in Ukraine will not change unless Moscow suffers decisive military, economic, or political loss.

However, Ukraine’s military is markedly inferior to that of Russia. The U.S. and Europe won’t go to war with nuclear-armed Russia over Ukraine.

While the Kremlin’s unjustified use of force warrants sanctions as temporary punishment, they are counterproductive as permanent policy. The restrictions have hurt the Russian economy, but so far less than the unrelated drop in oil prices.

The Europeans have even less political leverage over Moscow. Russia has moved closer to China, expanding the former’s options. So far Putin’s policy remains popular at home.

Washington and Brussels have no plausible strategy to reverse Moscow’s approach. Even the Obama administration rejects crackpot schemes for military intervention—such as putting American troops into a war zone and daring Moscow to attack.

Non-lethal aid to Kiev wastes scarce American resources. Military assistance would strengthen the Ukrainian armed forces, but the conflict matters far more to Moscow than to the allies, so the former always will spend and risk more to achieve its ends.

Tightening sanctions is another possibility, though historically they have proved to be better at inflicting economic harm than forcing political change. Russia’s economy is likely to withstand, though at potentially high cost, whatever Europe is willing to impose. At the same time the West, too, will suffer economically.

Worst is the economic condition of Ukraine, the epicenter of conflict. The longer the crisis persists, the greater the financial drain Kiev will be for America and Europe.

Unfortunately, Washington and Brussels have no political path to victory. The problem is not just a “frozen conflict” involving Ukraine and separatists, with Kiev broken and bankrupt. The bigger risk is a frozen conflict—essentially a Cold War lite—between Russia and America/Europe.

Which means everyone needs to look for an exit from the current impasse.