Rare Sighting of Pro-Trade Democrats Rumored, Unconfirmed

Just when it seemed that control over the direction of U.S. trade policy was hopelessly and totally in the grips of congressional forces of darkness, there is a faint glimmer of hope that some Democrats might remember the days when they weren’t forced to consider trade a dirty word.  Given where things stand today, that’s not a trivial matter.

In a letter (sorry, subscription required–see excerpt below) dated May 2, six members of the House Ways and Means Committee (five of whom are Democrats!) urged Commerce Secretary Carlos Gutierrez to abandon (or at least work to minimize the disruption to trade caused by) his Department’s Import Monitoring Program of Textile and Apparel Products from Vietnam.  The novelty alone of a letter from Congress urging the administration to tread lightly where imports are concerned warrants this post.

As you may recall from a previous post, the Bush Administration felt it had to buy off opposition to the bill that granted Permanent Normal Trade Relations (PNTR) status to Vietnam.  Prominent holdouts demanding compensation were Sen. Elizabeth Dole (R-NC) and Sen. Lindsey Graham (R-SC), and the price, ultimately, was a commitment from the administration to monitor imports and to self-initiate antidumping cases if the situation warranted. That commitment from the administration was unprecedented, unnecessary, and disappointing.  Today it is reported to be scaring away investment in the Vietnamese industry and deterring trade between Vietnamese producers and U.S. customers. On trade policy, Democrats have earned most of their scorn by marching to the tune of labor unions, which would just as soon permanently separate U.S. customers from their foreign sources.  But Democrats also count among their constituents importers, distributors, wholesalers, retailers, producers, truckers, warehouse operators, port employees, and consumers who suffer when supply chains get tangled and severed.  The authors of the letter acknowledge:

Congressional passage of [PNTR] for Vietnam was intended to provide benefits for both United States businesses and consumers, as well as strengthen the U.S.-Vietnam relationship and provide opportunities for economic growth that would benefit the Vietnamese people.  We are deeply concerned that the disruption in trade caused by the import monitoring program is cutting away at many of the benefits of granting PNTR status to Vietnam.

Well put, indeed! Hopefully, the congressional trade leadership was copied because its recently unveiled New Trade Policy for America reflects predominantly an antitrade perspective that has been allowed to fester and metastisize within the Democratic caucus.

Shouting “There’s No Fire” in a Burning Theater

In today’s Washington Post, government schooling advocate Gerald Bracey argues that American education is just fine, thanks. He makes this case by noting that NAEP 4th grade science standards are set too high. Only 29 percent of kids are deemed “proficient” on that test, while the U.S. ranked third in an international test of 4th grade science a few years ago. If these are the only data you look at, Bracey’s argument is not ludicrous on its face. If you look at all the available data on U.S. student performance, it is.

Jerry has a habit of glossing over the evidence on the performance of older U.S. students and young adults. I ran into this eight years ago when I had an on-line exchange with him over my book Market Education. As I explained then:

While U.S. students sometimes do well and usually do adequately at the 4th grade, their performance deteriorates significantly by the 8th grade, and they hit rock bottom by the 12th grade. American 16-25 year olds are among the most illiterate in the world, with nearly a quarter scoring at the lowest possible level measured by the International Adult Literacy Survey. Since most Americans are chiefly concerned with how well their children are prepared for adult life at the end of their education, the appalling performance of U.S. high-school seniors and recent graduates represents a genuine and not a manufactured crisis….

Regrettably, but not at all surprisingly, little has changed in the intervening years. I updated my analysis of U.S. peformance in an international context when the latest TIMSS and PISA tests were released two years ago. The data continue to show that “the notion [our] public school problems are confined to inner cities, and that our wealthy suburbs produce world-beating high school graduates is a myth.”

Sunni Tribes Pushing Back on Al Qaeda…in 2003

Pat Lang posts a fascinating narrative from a retired senior Army intel officer regarding his dealings with tribal sheiks in Anbar province in December 2003 and January 2004. Essentially, the officer relates that the tribes in Anbar province wanted to ally with the Americans in fighting against al Qaeda at that point, but a plan the Army intel officer drew up was killed for a variety of bureaucratic reasons. He concludes by noting that “[w]ith or without our support, they wanted to do this – they did not want AQ in there screwing up their areas and their lives.”

Worth keeping in mind the next time the president insinuates that if we leave Iraq al Qaeda is going to take over.

Bush Says He’ll Veto Hate Crimes Bill

I have an article over at NRO that critiques the hate crimes legislation pending in the Congress.  Interestingly, Bush took a strong stand against hate crimes legislation when he was the governor of Texas.  He refused to sign the James Byrd Hate Crimes Act, saying “all crimes are hate crimes.”

Just this morning, the White House has announced its intention to veto the hate crimes measure.  This is a most welcome development as the bill is an affront to the constitutional principle of federalism.

Will Democrats Impose French-Type Tax Rates on America?

The alternative minimum tax is a wretched system affecting a couple of million taxpayers per year, but the AMT is scheduled to expand dramatically if current law is left untouched. Democrats do not like this tax, largely since it indirectly takes away the state and local tax deduction – and thus aggravates taxpayers in high-tax, Democratic states like New York and California. The AMT should be abolished, but the question is whether the elimination of this built-in tax hike will be “paid-for” with a tax increase on other taxpayers. Steve Moore of the Wall Street Journal opines on the growing possibility that Democrats will try to increase income tax rates on the so-called rich, even if it means that tax rates in America will climb above the oppressive levels found in welfare states like France and Germany:

Democrats want to go after high-income earners, whom they call “rich.” What is surprising is how high rates must be raised to make their plan’s numbers add up. The top AMT rate would increase to 31.5% from 28%. Democratic tax experts also recommend eliminating the lower rate for capital gains and dividends for those subject to the AMT. This would raise the capital gains tax rate to about 31% from its present 15% rate. …The changes in the AMT rate, and the treatment of dividends and capital gains, still leaves Mr. Rangel at least $600 billion short of paying for the AMT fix. House Democrats have acknowledged that to close this final gap, they will have to look to personal income taxes. Rep. Richard Neal of Massachusetts, the head of the Ways and Means tax panel, says this will require raising the top tax rate of 35% by no more than three to five percentage points. Mr. Neal should check his math. Tax experts on Capitol Hill and in the Treasury Department calculate that to get $60 billion a year from the top 1% of income earners would more likely require rate hikes of 10 to 15 percentage points. This would lift the top federal marginal income tax rate as high as 50%. “I can’t think of a better way to throw the economy into recession and end the bull market expansion of recent years than to raise tax rates like this,” warns Michael Darda, chief economist for MKM Partners. It’s hard to argue with that assessment. Overnight, the U.S. would go from being a nation with one of the lowest set of income-tax rates to one of the highest in the developed world. …In countries as diverse as Ireland, China, India, Japan, Russia and Hong Kong, tax rates are flat or falling, part of a world-wide effort to reward growth and get more of it. Yet Reaganomics, alive nearly everywhere else, is dead in the halls of the United States Congress.

HSAs: Goodman vs. Reinhardt

Over at The John Goodman Health Blog, there is an important exchange between Goodman (“the father of health savings accounts”) and Princeton economist Uwe Reinhardt, who writes in the comments section.   

Reinhardt rightly chides supporters of health savings accounts (HSAs) for their obsession with high-deductible health insurance.  Why call HSAs consumer-directed health care if the government tells HSA holders what type of insurance they must purchase?  Reinhardt appears to have missed the fact that Goodman shares this criticism.  In a 2005 paper, Goodman proposes removing all restrictions on what type of insurance HSA holders may purchase. 

Goodman’s proposal remains vulnerable to another of Reinhardt’s criticisms, however.  Goodman would allow people to contribute unlimited amounts of money to an HSA tax-free.  As Reinhardt argues, retaining the tax preference for HSAs would still require Congress “to specify what can and can not be financed out of the tax-favored HSA…If Congress did not specify it, would ‘recuperative’ trips to Hawaii or Monaco qualify?”  The only way to end such silliness is to eliminate all tax preferences for health care.

Unfortunately, Goodman’s proposal does not seem headed in that direction.  Allowing unlimited tax-free HSA contributions would complicate the elimination of such tax preferences in the future (in addition to expanding the economic distortions created by existing tax preferences for health care). 

I have proposed expanding HSAs in a way that would (1) allow individuals to purchase whatever type of insurance they wish, (2) limit the currently unlimited tax preference for health care, and (3) facilitate the elimination of such tax preferences.  Read more about that proposal here, here, and here.  Or register for the May 24 Cato policy forum where Katherine Baicker, Jason Furman, and I will debate that proposal.

Digging Piracy

Something rather astonishing happened on the Internet on Tuesday. Let me start with a bit of background: Hollywood has an encryption system called AACS that it uses to scramble the content on high-definiton home video discs. Like all copy protection systems, it only took a few months before hackers found security flaws in the system. In the process they extracted a 16-byte key (basically, a very long number) that allows programmers to unlock the encrypted content.

This key had been floating around various minor websites over the last couple of months. But last month, the organization that controls the AACS system began sending cease and desist letters to various ISPs demanding that the keys be taken down from websites that were displaying them. In response, people all over the web began posting copies of the key, which is just a 16-character string.

One of the sites that had the key on it is Digg. Digg is a news website in which all of the news stories are chosen by the collective wisdom of readers. Anyone can submit a story, and then other users can vote for (called “digging”) or against (called “burying”) individual stories. The stories that get the most votes get promoted to the front page where they’re viewed by hundreds of thousands of people.

Somebody posted a story containing the AACS key, and Digg got a letter demanding that the story be removed. Digg complied. Princeton computer science professor Ed Felten describes what happened next:

Then Digg’s users revolted. As word got around about what Digg was doing, users launched a deluge of submissions to Digg, all mentioning or linking to the key. Digg’s administrators tried to keep up, but submissions showed up faster than the administrators could cancel them. For a while yesterday, the entire front page of Digg — the “hottest” pages according to Digg’s algorithms — consisted of links to the AACS key.

Last night, Digg capitulated to its users. Digg promised to stop removing links to the key, and Digg founder Kevin Rose even posted the key to the site himself.

Fred von Lohmann has a good rundown on the legal liability Digg could face from allowing the key to be posted on their site. But more interesting, I think, is the light the incident sheds on the broader debate over Internet piracy.

In a sense, Digg is a microcosm of the Internet at large. What makes the Internet so powerful is that we’re finding more and more clever ways to turn tasks that once required a human being over to machines. In the case of Digg, Kevin Rose found a way to automate the editing process. Instead of having a single human being read through all the stories and select the best ones, he created a system in which readers—who are on the site reading stories anyway—could quickly and easily choose stories for him. This has made the site extraordinarily successful.

But technology is amoral. A system that transmits news and information can just as easily be used to transmit pirated music, encryption keys, or even child pornography. Moreover, you can’t fine a computer algorithm or throw it in jail. Which means that as we automate more and more of our information-distribution systems, there are fewer and fewer ways for the legal authorities to exert control over what kinds of information is transmitted.

In the early days of the Internet, people created special-purpose tools like Napster whose primary use was to swap illicit materials. Copyright holders got those tools shut down. But increasingly, illicit information sharing is being done using the same tools we use to share legal content. Napster’s primary use was to share copyrighted music. But one of its successors, BitTorrent, is widely used to exchange legitimate content, including open source software, computer game updates, and even legitimate movie downloads. It would be unreasonable to outlaw BitTorrent, given how many legitimate uses it has.

On Tuesday, Kevin Rose had only two options: He could allow the encryption key to appear on his site, or he could shut his site down. Shutting his site down wasn’t really an option (it’s a multi-million dollar business) so his only real choice was to allow the content to be transmitted. As a society, we face precisely the same dilemma with regard to the Internet as a whole. People use the Internet to transmit information most of us think they shouldn’t be transmitting. But our only alternatives are to cripple the Internet or turn the country into a police state. Nobody wants to do either of those things, so we’re going to have to live with the fact that any information a significant number of people want to share is going to be shared. We’re going to have to find ways to adjust our copyright system to a world in which anyone who’s willing to break the law will be able to get most copyrighted content for free. As a supporter of copyright, this doesn’t make me happy. But there doesn’t seem to be anything we can do about it.