July 2012

July 13, 2012 11:43AM

Bonfire of the Inanities

Don’t get angry because Congress refuses to cut spending. Don’t be upset that our beloved legislators have abandoned efforts to rein in runaway debt. Pay no mind to the fact that Congress has left us in the dark about the tax rates we and our employers will face in just six months. In fact, forget all of the reasons that explain why a whopping 86 percent of the public disapproves of the job Congress is doing.

We’ve got bigger fish to fry. And we can fry them on Harry Reid’s bonfire.

Words can’t express the indignation felt by the Senate majority leader over the U.S. Olympic team’s uniforms being manufactured in China. He wants the uniforms put on a pile and burned.

Look, politicians are as likely to pass up an opportunity to exploit patriotism in an election year as a dog is to remain parched upon the ringing of a nearby bell. But really, what exactly is un‐​American about Chinese‐​made Olympic uniforms? It’s quintessentially American. Probably 80 percent of the clothing in 99 percent of American closets is made in China. And the rest is made in other foreign countries. We don’t make clothing in the United States anymore (with a few small exceptions). But we design clothing here. We brand clothing here. We market and retail clothing here.

The apparel industry employs plenty of Americans, just not in the cutting and sewing operations that our parents and grandparents endured, working long hours for low wages. Congressman Steve Israel, citing 600,000 vacant manufacturing jobs (though I’m not sure what that number means), calls the Olympic Committee’s decision to outsource manufacturing uniforms to China “not just outrageous,” but “plain dumb.” Does Mr. Israel realize that the U.S. Olympic team is privately funded, and that the funders—unlike Congress—feel obligated to stay within budget?

Does Mr. Israel actually believe that producing those couple of hundred uniforms in the United States would spark an employment renaissance? How about if Congress decides what the 2013 tax rates will be today, as opposed to tomorrow? That one extra day of certainty would create far more jobs for a longer period than the one‐ or two‐​day production run necessary to make those couple hundred uniforms.

If you are still not convinced that our policymakers’ objections are inane, consider this: As our U.S. athletes march around the track at London’s Olympic stadium wearing their Chinese‐​made uniforms and waving their Chinese‐​made American flags, the Chinese athletes will have arrived in London by U.S.-made aircraft, been trained on U.S.-designed and -engineered equipment, wearing U.S.-designed and -engineered footwear, having perfected their skills using U.S.-created technology.

Our economic relationship with China, characterized by transnational supply chains and disaggregated production sharing, is more collaborative than competitive. The real competition will be happening in the gyms, pools, and on the fields. Let the games begin.

July 13, 2012 8:08AM

Roberts Was Against Treating the Mandate as a Tax Before He Was For It

divOn March 27, during the part of the Obamacare oral argument devoted to the individual mandate, Solicitor General Verrilli said that the Court has an “obligation to construe it as an exercise of the tax power, if it can be upheld on that basis.” To that, Chief Justice Roberts responded quite critically, interrupting the solicitor general and asking why then didn’t Congress call it a tax. The Chief does not seem particularly convinced on this issue, with the SG having a nonsensical answer of “there is nothing I know of that illuminates that.”

Yet, that is the exact issue he later accepted.

Here is the full exchange (from pages 49–50 of the transcript), including the preceding relevant exchange between Justice Kagan and the SG:

JUSTICE KAGAN: I suppose, though, General, one question is whether the determined efforts of Congress not to refer to this as a tax make a difference. I mean, you’re suggesting we should just look to the practical operation. We shouldn’t look at labels. And that seems right, except that here we have a case in which Congress determinedly said this is not a tax, and the question is why should that be irrelevant?

GENERAL VERRILLI: I don’t think that that’s a fair characterization of the actions of Congress here, Justice Kagan. On the—December 23rd, a point of constitutional order was called to, in fact, with respect to this law. The floor sponsor, Senator Baucus, defended it as an exercise of the taxing power. In his response to the point of order, the Senate voted 60 to 39 on that proposition. The legislative history is replete with members of Congress explaining that this law is constitutional as an exercise of the taxing power. It was attacked as a tax by its opponents. So I don’t think this is a situation where you can say that Congress was avoiding any mention of the tax power. It would be one thing if Congress explicitly disavowed an exercise of the tax power. But given that it hasn’t done so, it seems to me that it’s—not only is it fair to read this as an exercise of the tax power, but this Court has got an obligation to construe it as an exercise of the tax power, if it can be upheld on that basis.

CHIEF JUSTICE ROBERTS: Why didn’t Congress call it a tax, then?


CHIEF JUSTICE ROBERTS: You’re telling me they thought of it as a tax, they defended it on the tax power. Why didn’t they say it was a tax?

GENERAL VERRILLI: They might have thought, Your Honor, that calling it a penalty as they did would make it more effective in accomplishing its objective. But it is—in the Internal Revenue Code it is collected by the IRS on April 15th. I don’t think this is a situation in which you can say—

CHIEF JUSTICE ROBERTS: Well, that’s the reason. They thought it might be more effective if they called it a penalty.

GENERAL VERRILLI: Well, I—you know, I don’t—there is nothing that I know of that illuminates that, but certainly…

What a difference a few weeks make.

H/​t to a frequent co‐​author who must remain nameless due to his current occupation.

July 12, 2012 4:44PM

GOP Freshmen Vote to Move Farm Bill Out of Committee

In the latest example of the so‐​called “Tea Party Class” of House Republicans not living up to the hype, GOP freshmen on the House Agriculture Committee voted overwhelmingly to approve a bloated $957 billion farm subsidy/​welfare bill.

The overall vote was 35–11. Only 4 Republicans voted against it – the rest appear to be Democrats who weren’t happy that the bill doesn’t spend more money on food stamps. Republican freshmen occupy 16 of the 25 GOP seats on the committee. Only 3 out of the 16 voted against the bill.

  • Bob Gibbs (Ohio)
  • Tim Huelskamp (Kansas)
  • Marlin Stutzman (Indiana)

Here are the names of the 13 GOP freshmen who supported it:

  • Austin Scott (Georgia)
  • Scott Tipton (Colorado)
  • Steve Southerland (Florida)
  • Rick Crawford (Arkansas)
  • Martha Roby (Alabama)
  • Scott DeJarlais (Tennessee)
  • Renee Ellmers (North Carolina)
  • Chris Gibson (New York)
  • Randy Hultgren (Illinois)
  • Vicky Hartzler (MO)
  • Robert Schilling (Illinois)
  • Reid Ribble (Wisconsin)
  • Kristi Noem (South Dakota)

The question now is whether the House Republican leadership will allow the bill to come to the floor. According to the Washington Post, Speaker Boehner hasn’t decided:

Agriculture Chairman Frank Lucas, R‐​Okla., feels the committee did “an awful lot of good work,” Boehner said at a weekly news conference. But “no decisions about it coming to the floor at this point,” Boehner said…“There are some good reforms in this bill. There are other parts of the farm bill that I have concerns with,” Boehner said. He referred to what he said was “a Soviet‐​style dairy program in America today and one of the proposals in this farm bill would actually make it worse.”

Boehner has voted against farm bills in the past so he’s probably not eager to get this one to the floor, especially since advocates for free markets and limited government rightly consider the bill to be a disaster. But Boehner helped create this dilemma for himself when his Steering Committee gave Frank Lucas the chairman’s gavel after the 2010 elections. As Chris Edwards and I noted in a recent op‐​ed, Lucas is a big supporter of farm subsidies and takes pride in having been named a “Wheat Champion” by the National Association of Wheat Growers.

Back in December 2010, I wrote that “An indicator of the incoming House Republican majority’s seriousness about cutting spending will be which members the party selects to head the various committees.” Lucas’s chairmanship indicated that when it comes to bloated farm bills, the House leadership wasn’t serious. If this bill is allowed to reach the floor, any doubts will have been erased.

July 12, 2012 2:21PM

H/T Justice Clarence Thomas

It’s now been two weeks since the landmark decision upholding Obamacare. Most of the attention has, understandably, been on Chief Justice John Roberts since he turned out to be the pivotal vote in the 5–4 split on the Supreme Court. Still, for anyone who takes seriously the fact that the Constitution established a federal government of limited and enumerated powers, there is one Supreme Court Justice that consistently stands head and shoulders above the rest–and that’s Clarence Thomas.

Thomas’s opinion in the Obamacare case was quite short–just a few paragraphs–and that’s because he previously filed a lengthy opinion in the landmark Lopez ruling in 1995, the first ruling in some 60 years where the Supreme Court finally applied the brakes to federal laws that were based upon a boundless reading of the commerce clause. Thomas explained how the federal government had assumed vast powers under the commerce clause that were inconsistent with the original understanding of the Constitution. After having explained his view at length, Thomas now files only terse opinions that refer readers back to what he said in the Lopez case.

In 2010, for example, when the Supremes upheld a federal criminal law against a constitutional challenge, Thomas said the Court’s majority “genuflects” to the doctrine of enumerated powers but then “endorses the precise abuse of power that Article I is designed to prevent–the use of a limited grant of authority as a ‘pretext … for the accomplishment of objects not intrusted to the government.’ ” The other justices tend to ignore Thomas’s reasoning. They satisfy themselves with a bland … “Our precedents about the commerce clause say it is a very broad power, etc etc”

Thomas rarely asks questions during the Court’s oral arguments. He prefers to stay out of the spotlight and let his written opinions speak for themselves. And because his views are clearly articulated, everyone (academics, reporters, Supreme Court advocates) knows where he stands, so they focus on the “swing vote” and speculate about which direction some justice will “swing.”

Be that as it may, let’s not take Justice Thomas for granted. He regularly calls out the Emperor for not having any clothes. Since one can safely assume that George H.W. Bush did not plan that out (his other selection to the Supreme Court was David Souter, after all), luck was in play.

For more on the Obamacare ruling, go here. For a good book about Clarence Thomas’s views, go here. If you’re not ready for a book, do check out Thomas’s opinions in these cases: Lopez (1995), Morrison (2000), Sabri (2004) Raich (2005), and Comstock (2010). David Bernstein has some related thoughts here.

July 12, 2012 2:01PM

Class Size, Dropouts, & the Windy Atlantic

In Monday’s Wall Street Journal, I argued that America has too many public school employees, and has wasted those employees' talents on a mass scale. Jordan Weissmann, an associate editor with The Atlantic, disagrees, accusing me of running “roughshod over a lot of important nuance.” As it happens, no nuances were injured in the composition of my piece.

Let’s consider Mr. Weissmann’s cruelty-to-nuance claims in turn. First, he feels that I ignored “significant evidence that smaller classrooms do indeed improve student performance,” citing two sources. The first source is an unsigned web-page by the “Center for Public Education” that is so biased in its selective coverage as to not be worth serious consideration. The second is a scholarly paper by Alan Krueger, author of one of the two best-known literature reviews of the subject.

What Weissmann doesn’t mention is the work of Eric Hanushek, author of the other best known literature review on class size. Krueger contends that class size reduction is usually educationally beneficial and cost effective, Hanushek argues the contrary on both points. It’s easy to compare their evidence and arguments because both contributed at length to the book: The Class Size Debate, published by the left-of-center Economic Policy Institute. It is a testament to how comfortable Hanushek is with the strength of his case vis-à-vis Krueger’s that he links to a full .pdf of that book from his own web pages at Stanford University. I understand why. When Hanushek looked at the most methodologically sound estimates—those that measure changes in student performance over time instead of at just a single point in time—he found that 89% show either no statistically significant advantage or a significant negative effect to smaller classes. To arrive at his opposing conclusion, Krueger had to, among other things, overweight the lower quality studies.

Hanushek’s conclusion is also more consistent than Krueger’s with the national U.S. data. The average American classroom has gotten substantially smaller over the past 40 years (by about 7 students) but achievement at the end of high-school is essentially flat. The only way to counter this evidence is to claim—usually without systematic basis—that children must be so much more difficult to teach today that the gains we would have seen from smaller classes have been eclipsed by this reduced “teachability.” The only systematic study of “teachability” trends of which I am aware does not support that claim—finding net “teachability” to have been mostly flat over time, with some improvement in the past decade.

Hanushek’s conclusion has also been supported by new, large-scale research, published after his and Krueger’s reviews. Harvard researchers Antonio Wendland and Matthew Chingos reported in 2010 that Florida’s state-wide class size reduction had “no discernible impact upon student achievement,” but has so far cost the state roughly $28 billion.

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July 12, 2012 12:20PM

Dematerialization (update)

On June 29, I posted a blog about dematerialization. I used the iPhone as an example of a technological improvement that enables increased output and resource conservation at the same time. I asked the readers of Cato@Liberty to tell me about additional gadgets and physical things (as opposed to services) that they no longer need thanks to their iPhones. Many have written and we have adapted our graphic accordingly. Please share it widely.

July 12, 2012 8:32AM

Outsourcing for Dummies (Including the Willfully Ignorant)

In an era of misinformation overload, it is disheartening to see the Washington Post perpetuating the ignorance surrounding the issue of outsourcing. To be sure, in addressing the topic in Tuesday's paper, writers Tom Hamburger, Carol D. Leonnig, and Zachary A. Goldfarb were merely presenting the case of Obama’s critics "primarily on the political left," who claim the president has failed to make good on his promises to curtail the "shipping of jobs overseas." That conclusion may be accurate. But the article’s regurgitation of myths about outsourcing and trade, peddled by those who benefit from restricting it, gives readers a parochial perspective that leaves them confused and uninformed about the manifestations, causes, consequences, benefits, and costs of outsourcing.

Outsourcing is a politically-charged term for U.S. direct investment abroad. Although the large majority of that investment goes to rich countries, the Post article claims that "American jobs have been shifting to low-wage countries for years, and the trend has continued during Obama’s presidency." While that may be factually true, the numbers are likely fairly small. Many more jobs have been lost to the adoption of more productive manufacturing techniques and new technologies that require less labor. And we, overall, are much wealthier for it.

The article attributes 450,000 U.S. job losses to imports from China between 2008 and 2010 – a figure plucked from an "economic model" at the Economic Policy Institute that has been criticized by everyone in Washington but Chuck Schumer and Sherrod Brown. That estimate is the product of simplistic, inaccurate assumptions equating the value of exports and imports to set numbers of jobs created and destroyed, respectively, as if there were a linear relationship between the variables and as if imports didn’t create any U.S. jobs in, say, port operations, logistics, warehousing, retailing, designing, engineering, manufacturing, lawyering, accounting, etc. But imports do support jobs up and down the supply chain. Yet, so blindly committed are EPI’s stalwarts to the proposition that imports kill U.S. jobs that they even suggest that the number of job losses would have been greater than 450,000 had the U.S. economic slowdown not reduced demand for imports. In that tortured logic, the economic slowdown saved or created U.S. jobs. But I digress.

Contrary to the misconceptions so often reinforced in the media, outsourcing is not the product of U.S. businesses chasing low wages or weak environmental and labor standards abroad. Businesses are concerned about the entire cost of production, from product conception to consumption. Foreign wages and standards are but a few of the numerous considerations that factor into the ultimate investment and production decision. Those critical considerations include: the quality and skills of the work force; access to ports, rail, and other infrastructure; proximity of production location to the next phase in the supply chain or to the final market; time-to-market; the size of nearby markets; the overall economic environment in the host country or region; the political climate; the risk of asset expropriation; the regulatory environment; taxes; and the dependability of the rule of law, to name some.

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