Managed Trade for Sugar from Mexico?

Mexican Economy Secretary Ildefonso Guajardo was in Washington this week arguing on behalf of an agreement to suspend the U.S. antidumping/countervailing duty (AD/CVD) investigation against imports of sugar from Mexico.  The case will soon enter its final phase, with the U.S. International Trade Commission (ITC) expected to determine early next year whether the U.S. sugar industry has been injured by imports from Mexico. 

In the context of North American sugar politics, an agreement to suspend the AD/CVD process and implement a managed-trade arrangement makes some sense.  Both U.S. and Mexican sugar industries already are more or less wards of the state, or at least are very heavily guided and controlled by their respective governments.  Both governments have given indications that they are interested in settling this dispute.  The history of bilateral sugar trade has been dominated by government intervention rather than by free-market economics.  It seems almost natural to take the next obvious step by allowing Mexican sugar to enter the United States only under terms of a suspension agreement (i.e., with the quantity limited or the price set high).

It’s worth mentioning that Mexican sugar growers are the only ones in the world currently allowed to sell as much sugar as they wish in the U.S. marketplace.  Even U.S. growers are not permitted to do so.  Years ago they gave up that right in exchange for retaining an almost embarrassingly high level of price support.  That strong price incentive was inducing them to grow more sugar than the market could absorb.  Under the provisions of the U.S. sugar program, that excess sugar could end up being owned by the U.S. Department of Agriculture at considerable expense to taxpayers.  So U.S. sugar growers made the decision to sell less sugar, but keep the price high.

Mexican growers, on the other hand, obtained unfettered access to the U.S. market in 2008. That followed a contentious period of bilateral trade in sugar and high-fructose corn syrup (HFCS) dating to 1994, which was when the North American Free-Trade Agreement (NAFTA) began to be implemented.  In a nutshell, the United States adopted a much more restrictive approach to imports of Mexican sugar than Mexico thought had been negotiated, and the Mexicans reciprocated regarding imports of HFCS. 

Given that historic context, the open access to the U.S. market enjoyed by the Mexicans since 2008 seems to be rather an anomaly.  Why not go back to the good old days of closely managed trade? 

Less Is More in the Federal Government

Daniel Henninger nailed it in his article “Killer Bureaucracies,” which discussed the poor performance of so many federal agencies recently. He called for “scaled-down, distributed public responsibilities” to reduce bureaucratic failure.

To that end, Congress should pursue three reforms:

  1. Eliminate bureaucracies that we do not need. Departments that mainly pump out subsidies and intrude on properly state, local, and private activities should be terminated, including the Departments of Agriculture, Education, and Energy. Federal organizations that perform useful business functions should be privatized, including USPS, FAA, TSA, Amtrak, TVA, and the Army Corps of Engineers.
  2. When feasible, scrap department superstructures—such as Homeland Security—because they add complexity and blur responsibility. Homeland agencies, such as the Secret Service and Border Patrol, should stand on their own, have narrowly-defined tasks, and report directly to the president.
  3. Assign the oversight for each agency to a single House and single Senate committee so that citizens know which politicians are to blame for failures. Homeland Security is currently overseen by more than 90 committees and subcommittees, but that’s absurd because when every politician is responsible, none of them are.

The federal bureaucracy can work better, but only if it is much smaller.

Washington Should Back out Of Iraq’s New Civil War

George W. Bush’s foolish invasion of Iraq sowed the wind.  Now Iraq, its neighbors, and America are reaping the whirlwind.  Some Iraqi officials are calling for the return of U.S. combat troops.  Washington should say no.

American conservatives traditionally rejected domestic social engineering.  But the neoconservative takeover of the Republican Party pushed the GOP into social engineering on a global scale. 

Alas, it didn’t work out that way in Iraq.  At the cost of several thousand dead the U.S. opened a geopolitical Pandora’s Box, unleashing a sectarian-guerrilla conflict which claimed hundreds of thousands of Iraqi lives. 

Bush’s legacy was a corrupt, authoritarian, and sectarian state, friendly with Iran and Syria.  Even worse was the emergence of the Islamic State, ripping Iraq apart, seizing large chunks of Syria, threatening Kurdistan, committing murder and mayhem, and threatening to destabilize Jordan, Lebanon, and Turkey.   

The Iraq disaster’s architects, however, insisted that nothing had been their fault.  Indeed, Iraq hawks claimed, the fault for Iraq’s collapse was entirely President Obama’s since he followed the Bush withdrawal schedule

In fact, even had the administration succeeded in maintaining a garrison, little likely would have changed.  Washington’s only leverage would have been to threaten to withdraw its troops, which, of course, would have frustrated its objective of staying.

Worse would have been deploying American troops against the Maliki regime’s domestic enemies.  That would have made Washington an active combatant in sectarian conflict, tied America even closer to Maliki, and turned U.S. forces into a lightning rod for discontented Iraqis. 

How should Washington respond today?  Renewed American intervention is no less likely to again stir the whirlwind.  As I note on Forbes online:  “bombing jihadist radicals, supporting authoritarian regimes, taking sides in sectarian conflict, playing multiple sides in Syria, hectoring allied states, and pursuing new but still unattainable objectives in the Middle East offer a multitude of opportunities for bloody blowback.”

In fact, the Islamic State became a significant U.S. interest only because Washington termed it one.  ISIL’s fighters are insurgents, not terrorists.  The Islamic State stands apart from al-Qaeda because the former is seeking to become an organized government rather than a terrorist group. 

Of course, the Islamic State’s objectives could change.  But butchering two Americans who fell into its hands illustrated the group’s monstrous philosophy, not its threat potential.  Ironically, Washington’s attempt to thwart the group’s regional ambitions might push ISIL toward al-Qaeda and the terrorism business. 

Moreover, the administration’s strategy is a bust.  U.S. airstrikes have not prevented the group from advancing.  Yet Washington’s tepid intervention has discouraged the countries with the greatest interest in defeating the Islamic State, most notably Turkey, from taking action.

Worse, Washington has stepped up its commitment to overthrow Syria’s Assad regime.  President Bashar al-Assad is an ugly character, but his army is the best force currently opposing ISIL.  Aiding the so-called “moderate” insurgents in Syria could tie down government forces, enabling the Islamic State’s black flag to eventually fly over Damascus.

The only serious alternative to fully reentering the war is to step back, making clear that the Islamic State’s neighbors will bear the cost of any further advances.  Iraq desperately requires a political solution separating anti-Baghdad Sunni tribes and former Baathists from their ally of convenience, ISIL. 

Jordan and the Gulf States also have much at stake and military forces available for use.  Most important is Turkey, which alone has some 400,000 men under arms.  Washington should inform Ankara that there will be no NATO involvement in a problem Turkey should confront.

The administration’s Iraq policy has failed.  The U.S. is more entangled in war; Americans have been killed in retaliation for Washington’s intervention; the Islamic State is still advancing. 

U.S. officials should back out of Iraq, not jump in.  This may be President Obama’s final opportunity to avoid a lengthy conflict which could come to define his legacy as the 2003 Iraq War came to define that of George W. Bush.

The Great Society Meets the Taxpayer

President Lyndon Johnson’s legacy was the so-called Great Society (read: entitlement programs). As these programs have matured, along with the U.S. population, the proportion of the people dependent on the State has soared. Indeed, spending on entitlement programs gobbles up bigger and bigger chunks of the federal budget.

As the population grows older, entitlements will grow. Worryingly, the ratio of people receiving government benefits to those paying taxes will continue to climb, too. As the accompanying chart shows, those who receive government goodies already number the same as those who pay taxes (the ratio is one). With the steady progression of the ratio, it will be very hard to put the genie of the Great Society back in the bottle. Can you just imagine how difficult it will be to cut entitlement programs when those who are dependent on the government outnumber taxpayers by two to one?

The Cost of Ebola and the Misery Index

For a clear snapshot of a country’s economic performance, a look at my misery index is particularly edifying. The misery index is simply the sum of the inflation rate, unemployment rate, and bank lending rate, minus per capita GDP growth. 

The epicenter of the Ebola crisis is Liberia. As the accompanying chart shows, the level of misery, as measured by the misery index, has decreased since Charles Taylor ruled Liberia.

That said, the index was still quite elevated, at 19.4, in 2012. Yes, 2012; that was the last year in which all the data required to calculate a misery index were available. This inability to collect and report basic economic data in a timely manner is bad news. It simply reflects the government’s lack of capacity to produce. If it can’t produce economic data, we can only imagine its capacity to produce public health services.

With Ebola wreaking havoc on Liberia (and neighboring countries), the level of misery is, unfortunately set to soar.

Friedman Prize Winners in the News

Every two years, the Cato Institute awards the Milton Friedman Prize for Advancing Liberty to an individual who has made a significant contribution to advancing human freedom. More than anything, past winners have embodied the old adage that the price of liberty is eternal vigilance.

It should therefore be no surprise that Milton Friedman Prize winners continue to show up in the news, pushing for freedom and standing up to power. In recent days, three awardees have appeared in the news because of their unyielding commitment to the principles of individual liberty, limited government, free markets, and peace.

Mao Yushi

In September, the ruling Communist Party in Beijing announced that the people of Hong Kong, who have enjoyed considerable autonomy since the city’s transition from a British protectorate in 1997, could only vote for electoral candidates that were pre-approved by the Communist Party. Protesters bravely took to the streets and have faced strong-arm tactics from the police, including beatings and pepper spray. Beijing has refused to budge and this week “made its highest-level denunciation yet of the protesters,” reports the New York Times, “accusing them of pursuing a conspiracy to challenge Beijing’s power over the city.”

The authorities in Beijing aren’t satisfied with cracking down on protests in Hong Kong; they are also curtailing freedom on the mainland. Mainland supporters of the protesters are being arrested. And as the Washington Post reported this week, “books by scholars considered supporters of the demonstrations are suddenly becoming harder to find,” as Beijing imposes an apparent ban on material critical of the government.

Mao Yushi, awarded the Milton Friedman Prize in 2012, is one of those scholars. Mr. Yushi is an economist and one of China’s most outspoken activists. In response to the news that his books were being censored by Beijing, Yushi wrote, “A national government organ is daring to risk universal condemnation, in open opposition to the constitution. What is our government actually trying to do?” His internet post was then swiftly deleted by government censors.

Fortunately, Mao Yushi has overcome much worse repression. Under Mao Zedong, Yushi wrote in the Washington Post just weeks before the Hong Kong protests broke out, “I was labeled a ‘rightist’ and persecuted, along with thousands of others. We were removed from our posts and sent to the countryside for ‘re-education.’ I was reduced to the lowest human form, constantly stalked by the nightmare that I could never shake: hunger.”

Read Mao Yushi’s article in the latest issue of The Cato Journal and the corresponding Op-Ed in the Washington Post.