The iPod Nano: Assembled in China, designed and enjoyed in America

Among the Christmas presents in our house this year were two iPod Nanos. On the back of each of these nifty devices is the inscription, “Designed by Apple in California. Assembled in China.”

That tells a more accurate story than the more common but misleading “Made in China.” As with many other high-tech devices, iPods are indeed assembled in China, but the real guts of the device—the design, the brand name, the more sophisticated components—come from countries outside of China.

To those obsessed with the trade balance as a zero-sum scorecard, another iPod imported from China merely adds to our growing bilateral trade deficit with China. Granted, assembling iPods does create jobs for Chinese workers that probably pay higher than average wages, so China does benefit. But who is getting rich from all the iPods Americans bought this Christmas, and who is getting the most enjoyment from them?

The answer: Americans.

Jailed for a Blog


Please Help This Young Man

Yesterday’s International Herald Tribune ran this article by my admired friends Dalia Ziada and Jesse Sage:

CAIRO: In a cramped jail cell in Alexandria, Egypt, sits a soft-spoken 22- year-old student. Kareem Amer was sent to prison for over a month for allegedly “defaming the president of Egypt” and “highlighting inappropriate aspects that harm the reputation of Egypt.” Where did Amer commit these supposed felonies? On his weblog.

If the Alexandria prosecutors’ standards of censorship were applied in the United States or Europe, thousands upon thousands of bloggers would be behind bars. The basic right of individual free expression is sadly not respected in today’s Egypt. Yet the authorities’ decision to jail an obscure student for his writing reveals a larger struggle for free speech playing out between dissident bloggers and state prosecutors across the Middle East.

That gives the basics of the case. The entire article is available here.

Thousands have already signed the online petition (but more are needed for it to be effective). Others are writing respectful letters (the only kind that work) to the Egyptian authorities. Resources, including banner ads for blogs and websites, information, press coverage, and more, are available at www.FreeKareem.org.

A Ford, Not a Lincoln

 …that’s how Gerald Ford described himself once, and there’s a lot to like in that phrase.  It reflects a disarming personal modesty and a modest approach to the most powerful office in the world: two things we could use more of in our presidents. 

Far too often, Americans look for heroism in their chief executives, a tendency that’s undemocratic and dangerous.  It would be wiser to judge presidents through the prism of the med-school precept: “First do no harm.”  And by that standard, Gerald Ford did pretty well. 

Aside from Chevy Chase’s pratfalls, one of the first things that comes to most Americans’ minds when they think of Gerald Ford is the Whip Inflation Now campaign, with its chirpy little “WIN” buttons.  Granted, the campaign was ridiculous: an exercise in futility roughly equivalent to Yippies trying to levitate the Pentagon.  But better a silly campaign than a destructive one: compare WIN to Nixon’s wage and price controls.  In the Whip Inflation Now speech Ford refused to seek comprehensive price controls, and he later made some progress towards getting rid of some price controls on oil.

Coming to power after three imperial and lawless presidents, Ford was sensitive to the temptations of power and the dangers of the White House “bubble.”  He ordered his staff to read Twilight of the Presidency, written by LBJ’s former press secretary and special assistant, George Reedy.  The book is a scathing critique of the modern presidency, particularly the president’s utter isolation from normal life, perpetually surrounded by supplicants and sycophants jockeying for his attention, which, as Reedy saw it, was “the cause of the many aspects of presidential behavior that are so strikingly similar to the conduct of kings and czars during the great days of monarchy.”  (Unfortunately, the book seems not to have made much of an impression on Ford staffers Dick Cheney and Donald Rumsfeld.)  Despite two attempts on his life in the space of three weeks, Ford refused to retreat behind a palace guard, bravely resisting Secret Service attempts to isolate him from the public.
 
Ford wielded the veto pen vigorously, as it should be wielded: 

Ford vetoed more bills relative to time in office, an average of 26.4 a year, than all but three Presidents: Grover Cleveland, Franklin D. Roosevelt, and Harry S. Truman. Most of the vetoes by Cleveland, Roosevelt, and Truman, however, had been of private bills, passed at requests by members of Congress to deal with particular problems of individual constituents. All but five of Ford’s sixty-six vetoes were of bills dealing with substantive policy issues.  Many of Ford’s vetoes were delivered against major appropriations bills, passed by the Democratic Congress to counter the deep recession of 1974-1976. Such budget-breaking expenditures, the President argued, would set off a new round of inflation.

(Alas, he had limited success, as can be seen from this study [.pdf] by Cato’s Steve Slivinski).  Not all of his vetoes were wise, but many were, including the veto threat that went down in history as “Ford to City: Drop Dead!”

As president, Gerald Ford did less harm than most of those who came before him, and most of those who followed.  As the New York Times puts it in today’s obituary, “he placed no intolerable burdens on a weary land, and he lived out a modest philosophy.”  In a healthier political culture, that wouldn’t sound like faint praise. 

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Gerald Ford Helped Lead GOP Away from Isolationism

During a speaking trip to Grand Rapids, Michigan, a couple of years ago, I whiled away a few spare hours touring the Gerald R. Ford Presidential Museum.

The news stories today about Ford’s death rightly focus on his “accidental presidency,” his pardon of Richard Nixon, and the important if transitional role he played in helping our nation recover from the trauma of Watergate and the fall of South Vietnam.

One underappreciated aspect of Ford’s record that I learned from my visit to the museum in Grand Rapids is that he was a committed internationalist. When Ford won his first race for Congress, in 1948, he ran as an internationalist Republican, defeating an isolationist incumbent.

It is easy to forget today, but before World War II, the Republican Party was the protectionist, isolationist party. Republicans sponsored the 1930 Smoot-Hawley tariff bill that deepened and prolonged the Great Depression, contributing to a downward spiral in global trade and feeding the resentments that set the stage for World War II.

After the war, Republicans such as Sen. Arthur H. Vandenberg of Michigan broke from the party’s past to work with Democrats to forge a bipartisan trade and foreign policy. In the late 1940s, the United States not only joined NATO but also the General Agreement on Tariffs and Trade. Under this bipartisan consensus, U.S. government barriers to international trade and foreign investment continued to fall from their peaks in the 1930s to their relatively low levels of today.

Gerald Ford’s presidency and career are open for critique, but on the basic question of whether the United States should engage in the global economy or wall itself off in fear, Gerald Ford was on the right side of history.

Seventh (Grade) Sense

My young colleague Jessie Creel has an even younger sister, Mary, who sounds like a future libertarian debater. Jessie tells me that a speaker from Fannie Mae recently visited Mary’s 7th-grade class at a Maryland Catholic school to discuss poverty. The speaker said, “I love my job because I make money helping people.” And Mary raised her hand and said, “What job doesn’t help people?”

Sounds like a natural economist.

An Oil Royalty Mystery

With oil prices still above $60 a barrel, do oil companies need inducements to find and produce more oil? That’s the underlying question of today’s NYT front-page article about an Interior Department report questioning the value of royalty rebates and tax breaks for gas and oil production.

The rebates are targeted at expensive and difficult exploration, usually in deep water or that requires deep drilling. The intention is to incentivize that exploration, allowing the United States to increase its domestic reserves using “unconventional oil.”

But it’s unclear how effective the incentive is, given the expense of producing such oil. Here’s the article’s punchline:

[The report] estimates that current inducements could allow drilling companies in the Gulf of Mexico to escape tens of billions of dollars in royalties that they would otherwise pay the government for oil and gas produced in areas that belong to American taxpayers.

But the study predicts that the inducements would cause only a tiny increase in production even if they were offered without some of the limitations now in place.

The article notes that royalties and corporate taxes deliver into federal coffers about 40 percent of the revenue produced from oil and gas extracted from federal property. The worldwide average government take is about 60–65 percent. A 40 percent federal take may have been fair at a time when oil prices and profits were lower, the article suggests, but the government should be getting a much higher cut from today’s prices.

Reading the article, I thought about a question that my colleague (and boss) Peter Van Doren has often asked: Why do we have federal royalty payments at all? Why not, instead, use the initial mineral rights auction as the sole source of government revenue from extracting oil or gas? 

A switch to auction-only taxation would yield much more money to the federal government up-front, as oil and gas companies would bid heavily for the leases. (I’ll be agnostic on whether the government receiving more money is a good thing.) An auction-only process would also be much more transparent and would do away with the “gaming” of royalty payments. And, perhaps most importantly, an auction-only process would better align oil companies’ incentives with consumers, vis-a-vis the current system.

In essence, the federal government uses a two-step tax process on oil and gas: up-front payment from the auctioning of the right to extract from a certain reserve, and ongoing royalty payments calculated from the amount of hydrocarbons extracted. To participate in the auction, oil and gas companies must estimate the value of the hydrocarbons they expect to extract over time, subtract the royalty payments they would have to make, and then determine how much of the remainder they would be willing to offer to the government as an auction price.

This system gives a decided advantage to oil companies that are willing to “game” the royalty system. Those firms can outbid competitors, because the gamers know their royalty payments would be lower than the other firms’ payments would be.

To get rid of the gamers’ advantage, the feds need only scrap the royalties scheme. That would force oil companies to bid heavily during the lease auction, where cheating is much more difficult. The brilliant feature of an auction is that it forces all parties to reveal exactly how much they value the product that is up for bid.

That feature would do away with the need to incentivize firms to tap into expensive but worthwhile unconventional gas and oil. Suppose there are two gas reserves up for auction: one an easy-to-tap reserve on government land in Wyoming and the other a similar-size reserve in the deep waters of the Gulf of Mexico. Extraction firms would bid heavily on the Wyoming reserves, but they would also bid (albeit not as much) on the Gulf reserve if they thought it worthwhile. No explicit incentive system would be needed — the firms would simply reveal to the auctioneer their own estimates of the Gulf reserve’s value.

Switching from an auction & royalty system to a straight royalty system would also better align oil and gas companies’ interests with consumers. Currently, as a well nears the end of its productive life, royalties would encourage the operator to take the well out of production sooner, because each hydrocarbon produced means more revenue taken from the oil or gas company and given to the government. By changing the tax to an up-front auction payment, oil and gas companies would have the incentive to continue operating the well until every profitable hydrocarbon has been extracted. That incentive change would be especially beneficial to consumers in times of tight supply and high prices.

As the NYT article notes, members of the incoming Democratic congressional majority are declaring that they will cut back on the royalty relief and tax cuts given to oil and gas companies. They would do the nation’s taxpayers and consumers an even bigger service if they would reconsider the royalty system altogether.

Sandy Berger: Oops, I Must Have Accidentally Stuck the Wrong Papers in My Briefcase, Hidden Them under a Construction Trailer, Come Back to Get Them, and Cut Them into Shreds

The Washington Post reports

On the evening of Oct. 2, 2003, former White House national security adviser Samuel R. “Sandy” Berger stashed highly classified documents he had taken from the National Archives beneath a construction trailer at the corner of Ninth Street and Pennsylvania Avenue NW so he could surreptitiously retrieve them later and take them to his office, according to a newly disclosed government investigation.

The documents he took detailed how the Clinton administration had responded to the threat of terrorist attacks at the end of 1999. Berger removed a total of five copies of the same document without authorization and later used scissors to destroy three before placing them in his office trash, the National Archives inspector general concluded in a Nov. 4, 2005, report.

After archives officials accused him of taking the documents, Berger told investigators, he “tried to find the trash collector but had no luck.” But instead of admitting he had removed them deliberately — by stuffing them in his suit pockets on multiple occasions — Berger initially said he had removed them by mistake.

The fact that Berger, one of President Bill Clinton’s closest aides from 1997 to 2001, illicitly removed the documents is well-known: A federal judge in September 2005 ordered him to pay a $50,000 fine for his actions and forfeit his security clearance for three years.

What Berger did, and the ham-handed and comical methods by which he did it, are freshly detailed in the National Archives report, which the Associated Press obtained first under a Freedom of Information Act request.

Although the report reiterates that Berger’s main motive was to prepare himself for testifying before a commission investigating the Sept. 11 attacks, it makes clear that he not only sought to study the documents but also destroyed some copies and — when initially confronted — denied he had done so.

His lawyer, Lanny Breuer, said in a statement yesterday that Berger “considers this matter closed, and he is pleased to have moved on.”

More special rules for Washington insiders?