U.S. Trade Policy Attacks U.S. Energy Policy, Both Hurting

First there were oil and gas export restrictions, then pipeline injunctions, now import restrictions on the steel needed for exploration and extraction.  Washington is coming from all angles to kneecap the energy boom sparked by the horizontal drilling and fracking revolutions – a once in a generation supply-side shock, which otherwise promises to attract a flood of foreign investment and serve as a wellspring of economic growth and job creation.
 
The most recent assault on our “All of the Above” energy policy comes via our fantastically self-destructive trade policy. Last Friday, in a final antidumping determination, the U.S. Department of Commerce found exporters from nine countries to be dumping “Oil Country Tubular Goods” (OCTG) – a class of steel products used primarily in oil and gas well projects – in the U.S. market. The most important foreign source of OCTG in the case was South Korea, whose exporters were found NOT to be dumping in the preliminary determination issued back in February.
 
But in the intervening months, the U.S. steel industry and the Congressional Steel Caucus impressed upon the bean counters at Commerce that the methodology they used for the Korean preliminary determination was inferior to an alterative they favored.  Without getting too into the weeds here, as tends to happen when exposing the dishonesty of the antidumping regime, suffice it to say that the revision from 0% dumping margins to 10%-16% for Korean exporters was primarily the result of Commerce changing its estimate of what the home market profit rate “should be.”
 
For the preliminary determination, that estimate was based on Korean OCTG producers’ experiences (with OCTG and other products).  For the final determination, Commerce changed its estimate to one based on a University of Iowa graduate student’s estimation of the profit experience of a single Argentine OCTG producer named Tenaris.  That’s right!  The cost of steel for U.S. oil well projects will rise – maybe 16% – because some student was messing around with @functions on Microsoft Excel.
 

Pennsylvania Lawmaker Portraits Now Come With Conviction Footnotes

Truth in legislative portraiture from the Pennsylvania State Capitol, as reported by Kris Maher in the Wall Street Journal: “On Tuesday, officials in the capital, Harrisburg, placed plaques beneath the portraits of three former state House speakers and a former Senate president pro tempore listing when the lawmakers left office—and when they were sentenced to prison.” The idea was a compromise between those who felt the portraits should be taken down entirely and those who favored keeping them on display with no mentions of criminality. The plaques cost $63.75 each, and if their shaming presence even slightly improves lawmakers’ incentives to avoid corruption, they could prove a good investment: 

Pennsylvania was ranked the fifth most corrupt state in a recent study that analyzed federal data from 1997 to 2008. During that time, malfeasance among state officials appeared to boost per capita spending by about 5% in the 10 states with the highest levels of corruption, the study published in Public Administration Review found.

Paul Light on Government Failure

Paul Light of Brookings and NYU is a top expert on the federal bureaucracy. He has a new study on federal government failures over the 2001 to 2014 period.

Light’s paper is useful. He identifies 41 major federal failures, examines the reports completed on each, and classifies the types of mistakes that took place. From the 9/11 terrorist attacks to the recent veterans health care scandal, Light points to failures in both “operations” and “oversight.”

Certainly, government operations and oversight fail frequently. But I look at many of Light’s 41 events and see more fundamental failures than he does. Federal policies, for example, often distort the economy in ways that are bound to cause problems. Federal interventions based on coercion are generally worse than solutions developed in the private, voluntary sphere of society.  

Light classifies the 2008 financial collapse as a failure of federal “oversight.” He says, “after years of risky investments and with little regulation, the banking system collapsed under the weight of toxic assets created by risky mortgage loans, poorly understood financial instruments, and a credit crisis that froze the economy.”

But it was government policies—such as Federal Reserve interest rate policies and federal housing subsidies—that incentivized the bad behavior on Wall Street. Federal oversight may have been poor, but the main problem was that government-created distortions cascaded and undermined markets.

On Hurricane Katrina, Light notes that the federal emergency response was a failure in operations, and it is true that FEMA officials were mired in confusion and indecision when the storm hit. However, it was decades of misguided policies that encouraged many people to live in low-lying and dangerous areas in New Orleans in the first place, which made the disaster much worse.

After an initial coding of failures between “operations” and “oversight,” Light does proceed to look more deeply into why the government failed in each of the events. He finds multiple causes behind all of the failures, with the most common factor being poorly designed policies.

Still, there are deeper reasons why the government fails than the potentially fixable problems that Light identifies. Superficially, the veterans health care scandal is just a failure of “operations,” but the fundamental problem is the federal attempt to centrally plan an industry rather than relying on markets.

Light’s study is a thoughtful piece that will hopefully generate a broader discussion about government failure. The 15 factors in this recent testimony are my initial stab at identifying some of the more fundamental reasons for government failure.

Politicians Befriend Big Business, Undermine Free Market

The recent primary defeat of House Majority Leader Eric Cantor was one of the bigger shocks to American politics in some time. Congressional leaders, known to bring home the bacon for local folks, usually are handily reelected.

But Cantor’s loss will do more than simply reshuffle the biggest offices on Capitol Hill. He gave lip service to fiscal responsibility but was, argued Nick Gillespie of Reason, “atrocious and hypocritical in all the ways that a Republican can be,” constantly voting to grow government.

Indeed, Cantor’s constituency was as much corporate America as it was Virginia voters. Business was counting on him to help reauthorize the Export-Import Bank, known as “Boeing’s Bank” for lavishing extensive benefits on one company; extend terrorism risk insurance, which transfers financial liability for loss from firms to taxpayers; and preserve Fannie Mae and Freddie Mac, which nearly wrecked the economy while subsidizing homeowners, builders, and lenders. 

Hold Pakistan Accountable For Blasphemous Oppression

In a world aflame, religious minorities are among those who suffer most.  Pakistan is notable for its failure to protect religious liberty, the most basic right of conscience.

The State Department recently reported on Pakistan that “The constitution and other laws and policies officially restrict religious freedom and, in practice, the government enforced many of these restrictions.  The government’s respect for and protection of the right to religious freedom continued to be poor.”

Minority faiths frequently face violent attack.  Although Islamabad does not launch these assaults, it does little to prevent or redress them.  This failure, the State Department explained, “allowed the climate of impunity to continue.”

The most common tool of persecution may be the charge of blasphemy which, explained the U.S. Commission on International Religious Freedom, is used to “target members of religious minority communities and dissenting Muslims and frequently result in imprisonment.”  The blasphemy laws are made for abuse:  “The so-called crime carries the death penalty or life in prison, does not require proof of intent or evidence to be presented after allegations are made, and does not include penalties for false allegations.”

With evidence unnecessary, the charge is routinely used in personal and business disputes.  Penalties are not limited to the law.  Since 1990, at least 52 people charged with blasphemy have been killed before reaching trial.

CBO Long-Term Spending Projections

The Congressional Budget Office has released new long-term projections of federal spending and debt. Without reforms, spending is expected to rise steadily and dangerously as a share of the economy in coming decades. The chart below shows spending under CBO’s “extended alternative” scenario, which assumes that politicians keep current policies in place. Spending would rise from 17.6 percent of GDP in 2000, to 20.4 percent this year, to 31.8 percent by 2040.

Under that scenario, federal debt held by the public would rise from 74 percent of GDP this year to a giant 170 percent by 2040. But if spending and debt were to rise along that trajectory, we would surely have a major financial and economic meltdown long before we got to 2040.

Our fiscal outlook is actually much worse than reflected in this scenario. That’s because under the basic extended alternative, CBO does not take into account the negative effects of rising spending and debt on GDP over the long term. CBO does have a special chapter in their report looking at some of these negative effects—but only some of them. In this testimony, I mention reasons why the outlook is worse than under the CBO baseline.

    

Bulgaria Wins Balkan Prize

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 89 countries based on misery. The table below is a sub-ranking of all Balkan states presented in the full index.

 

All of the Balkan states in my index suffer from high unemployment and relatively high levels of misery.

That said, the least miserable Balkan country is Bulgaria. For all of its problems, including a recent bank run, the country’s currency board system - which I, as President Stoyanov’s adviser, helped design and install in 1997 - provides monetary and fiscal discipline, and produces positive results in a region plagued with problems.