Cotton Subsidies and the Upside of Wasteful Government Incompetence

An internal audit by the U.S. Department of Agriculture of the “Economic Adjustment Assistance to Users of Upland Cotton Program” (EAAP) has revealed widespread misuse of subsidies given to owners of textile mills.  The program pays mills based on how much cotton they buy and requires that they spend the money on capital improvements at the mill.  It turns out some owners were just buying whatever the heck they wanted with the money—and that’s probably a good thing.

The primary purpose of the EAAP is to increase the demand for cotton.  The money goes to the mills, but the intended beneficiary is the cotton farmer, who gets an overpaying customer.  By conditioning the payment on an equivalent reinvestment in the cotton mill, the program also hopes to artificially increase the supply of cotton mills.  This, too, is meant to benefit cotton farmers by keeping their customers invested in buying their product. 

If the textile mill owners are using the subsidies to purchase—as the Washington Free Beacon reports—“Ford Explorers, artwork, sound systems, and elephant lamps,” then the program is ultimately less distortive of the U.S. and global cotton market.  That’s a good thing.  If the government is going to take money from some people and give it to others, at the very least we should hope that they do it in the least destructive way possible.

On the other hand, if the mill owners get the money with no strings attached, that increases the incentive for them to take the subsidy in the first place.  My guess, though, is that paying people to buy things they actually want is less distortive than paying them to buy things the government wants them to buy.

So, a toast to government incompetence (this time).  If someone’s going to do bad things, I’m glad it’s these idiots.

Russia, Sanctions, and Food

The Russian government announced on August 6 that it will ban imports of most food and agricultural products from Australia, Canada, the European Union, Norway and the United States for one year.  The full extent of the ban, as well as its effects on exporters and Russian consumers, are not yet clear.  It is interesting, though, to contrast this action with an earlier effort to use food sanctions as a diplomatic weapon:  the 1980 embargo of U.S. grain sales to the Soviet Union. 

The Soviets had invaded Afghanistan in December 1979 with 80,000 troops and 1800 tanks.  President Carter responded by cancelling private contracts to supply 17 million metric tons (MMT) of U.S. wheat and corn to the Soviet Union.  However, he chose to allow shipment of 8 MMT that had been agreed as part of the 1975 U.S.-Soviet Grains Agreement.  Sales in excess of the level assured in the Grains Agreement were embargoed.

Because grains are relatively fungible, and because numerous countries had surpluses available for export, the Soviets were able to replace most of the embargoed grain from willing suppliers.  Argentine agriculture did particularly well during that timeframe.  U.S. agriculture did not do so well.  Market prices had been relatively high, in large part due to strong export demand.  When a considerable portion of that demand evaporated with the stroke of a pen, commodity prices fell precipitously. 

The grain embargo became a potent political issue in the 1980 presidential campaign.  Ronald Reagan’s opposition to the embargo helped to boost his campaign in rural areas.  He took office in January 1981 and revoked the embargo three months later.

In retrospect, the grain embargo generally is seen as supporting the proposition that economic sanctions often inflict greater costs on the country imposing them than on the country at which they are aimed.

The new sanctions are expected to cut off some $15 billion in Russian imports from the EU.  Russia has been Europe’s second largest (behind the United States) export market for foodstuffs, accounting for 10 percent of the EU’s total foreign sales.  The United States has a smaller stake, with only $1.3 billion of food/ag exports to Russia.  That country has been the third largest market for U.S. poultry exports.  About 7 percent of U.S. poultry exports – valued at over $300 million – were shipped to Russia last year, down from 20 percent as recently as 2008.  Russia’s WTO commitments should prevent import restrictions based on political pressures.  Nonetheless, trade in poultry appears to have fluctuated over time in response to the influence of Russia’s domestic poultry producers.  (It’s worth noting that Russia’s import ban does not include either baby food or wine.  It’s not clear how those omissions should be interpreted.)

Police Misconduct — The Worst Case in July

Over at Cato’s Police Misconduct web site we have identified the worst case for the month of July.

It was the case of Eric Garner, who was killed by New York City police officers using a banned chokehold maneuver. A cell phone video of the incident shows Garner (who stood at least 6’3” and 350+ lbs.) arguing with police officers in an agitated state, then pulling back when officers tried to arrest him. Almost immediately, one of the officers started using an illegal chokehold maneuver to subdue Garner, at which point the 350+ pound asthmatic can be heard saying “I can’t breathe” repeatedly.  Garner was pronounced dead a short time later.  The medical examiner has ruled the death a homicide.

Garner was accused of and being arrested for selling single, untaxed cigarettes on the street corner.

Chokeholds have been banned since 1994 because they were determined to be too dangerous. Every officer and recruit is trained not to use them.  In response to the incident, NYC Police Commissioner Bill Bratton has ordered a top-to-bottom review of use of force training methods, with retraining programs likely to follow. It’s a good step, but it won’t do Eric Garner and his six children any good.

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The sexting case from Virginia is too awful and bizarre not to include as a “runner up” for the worst case in July.

Seventeen-year old Trey Sims had been arrested for allegedly sending a video of his erect penis to his girlfriend, also a minor. Prince William County prosecutors charged the teen with two felony charges: for possession of child pornography and manufacturing child pornography. These charges could have landed him in jail until he reached 21 years of age and then put him on the sex offender list, potentially for the remainder of his life. All for ‘sexting’ his girlfriend.

If it wasn’t bad enough already that prosecutors were willing to go forward with such drastic charges—and ones intended to protect children like Trey from adult predators—it gets worse. Manassas city police had already forcibly taken pictures of the teen’s penis when he was arrested, but that, apparently, wasn’t enough. Commonwealth’s attorney Claiborne Richardson told the teen’s lawyer that he either had to plead guilty or they would obtain a search warrant for pictures of his erect penis—which would be obtained by bringing the teen to a hospital and forcing him to take an erection-inducing drug while police officers took pictures of his forcibly-erect penis. Apparently, special software would then be used to compare the penises. When he did not plead guilty, substitute Juvenile Court Judge Jan Roltsch-Anoll granted the search warrant.  Thankfully, it was never actually served.

When word got out about what was happening, the government agents backed off a bit.  Sims just recently agreed to a year of probation to avoid the more serious charges.

Industry Groups Cloaked with State Power Shouldn’t Get Antitrust Immunity

Under a 1943 Supreme Court decision called Parker v. Brown, state governments and private parties who act on state orders are typically immune from prosecution under federal antitrust laws. Thus, while private parties who create cartels face severe penalties, state governments can authorize the same anti-competitive behavior with impunity. 

Still, the Supreme Court has held that this kind of immunity only applies if the private parties who engage in cartel behavior are “actively supervised” by state officials. A case now before the Supreme Court, N.C. State Board of Dental Examiners v.FTC, presents an opportunity to expand on that directive.

Beginning in about 2003, the North Carolina Board of Dental Examiners issued cease-and-desist orders to beauticians and others who were offering “teeth whitening” services (in which a plastic strip treated with peroxide is applied to the teeth in order to make them brighter). Although teeth-whitening is perfectly safe—and can even be done at home with an over-the-counter kit—the state’s licensed dentists want to limit competition in this lucrative area.

The Board is made up entirely of practicing dentists and hygienists and is elected by other licensed dentists and hygienists—with no input from the general public—and evidence later revealed that the Board issued orders on this subject in response to complaints from dentists, not consumers. The Federal Trade Commission charged the Board with engaging in anticompetitive conduct. Although the Board argued that it should enjoy Parker immunity, the FTC, and later the U.S. Court of Appeals for the Fourth Circuit, rejected that argument, holding that the Board was not “actively supervised” by the state, but was instead a group of private business owners exploiting government power.

Virginia Reaches Deal With Uber and Lyft

Today the Commonwealth of Virginia reached a temporary agreement with Uber and Lyft, both of which provide ridesharing services via their apps. Under the terms of the agreement, both companies have been granted broker’s licenses and are allowed to operate provided they meet a number of conditions, which are outlined in today’s press release from Virginia Attorney General Mark Herring’s office.

Uber and Lyft have both praised the agreement, which comes two months after the Virginia DMV issued the companies cease and desist letters.

It is welcome news that Virginia Gov. Terry McAuliffe and Attorney General Herring have worked out an agreement with Uber and Lyft. However, the agreement is temporary and lawmakers in Virginia and elsewhere in the U.S. need to implement permanent legislation that allows for innovative companies such as Uber and Lyft to fairly compete against taxis, as R Street Institute policy analyst Zach Graves stated in a news release:

Public interest advocates should be wary that this is only a temporary measure, and the battle over transportation services regulation in Virginia is certain to come up again in the 2015 legislative session. Ultimately, policymakers in Virginia and other states need to advance legislation that offers permanent legalization for all transportation network companies, without imposing additional anti-competitive regulations at the behest of the Taxi industry.

How the Sharing Economy Can Help Developing Nations

While many sellers and buyers in the so-called sharing economy might like it for its convenience, there is a case to be made that in the developing world decentralized and peer-to-peer economies could help solve a crippling informational problem in environments with weak property rights and bad regulatory regimes.

Writing in Forbes earlier this week, Adam Ozimek, Director of Research and Senior Economist at Econsult Solutions, Inc., pointed out that the rating systems used by companies such as Uber and Airbnb allow for customers to “do what we previously thought tight regulations and even natural monopolies were needed to do.” Before the rise of the technologies that allowed for Uber and Lyft to exist, the taxi industry could argue that customers might face rip-offs or safety concerns in the absence of regulation. Thanks to the rating system used by companies in the sharing economy, this informational problem can be overcome.

To Edit or Not to Edit … Wikipedia

On Wikipedia’s list of Wikipedia controversies, you can read up on U.S. congressional staff edits to Wikipedia, which drew attention in mid-2006 because edits coming from Capitol Hill often sought to whitewash the pages of members of Congress. Most Hill staff know better than to do that now, but attention to Wikipedia editing in Congress has spiked again thanks to a new Twitter feed: @congressedits.

(How does it work? Congress has fixed, known IP addresses, and Wikipedia displays the IPs of users who are not logged in. Scan Wikipedia for edits coming from those IP addresses and you know which edits are being done by non-logged-in, Capitol Hill Wikipedians.)

So, is congressional Wikipedia editing bad? Not necessarily.

In a recent 90-day period, there were almost 400,000 hits on Wikipedia articles about bills pending in Congress. This makes Wikipedia a major source of information about congressional activity for average Americans. Getting content on Wikipedia from some of the most knowledgeable potential editors — congressional staff — could help Wikipedia deliver government transparency on a grand scale, positioning the public to demand better outcomes.

For this to happen, though, Wikipedians on the Hill must navigate Wikipedia rules around notability, neutrality, and conflicts of interest. Perhaps more challenging, Capitol Hill’s consensus on Wikipedia editing must shift from aversion to embrace.

We’ll be discussing congressional Wikipedia editing and the sea change to government transparency it might produce at a noon-time session on the Hill August 18th. The event is open to all, but Hill staff interested in improving congressional and government transparency are particularly welcome to join the discussion.