October 10, 2012 1:58PM

Candidate Romney Has a Plan for Agriculture

Republican presidential candidate Mitt Romney was campaigning in Iowa yesterday and, inevitably, went native. He — oh, hey, what a coincidence! — also released a 16‐​page white paper outlining his plan for rural America, which consists of four main ideas:

  • Implement effective tax policies to support family farms and strong agribusiness.
  • Pursue trade policies that expand upon the success of the agriculture sector, not limit it.
  • Create a regulatory environment that is commonsense and cost‐​effective.
  • Achieve energy independence on this continent by 2020.

These aren’t the typical subsidize‐​and‐​control policies that are usually associated with agricultural policy in the United States (which is not to say they are good ideas). But Mr. Romney betrayed his bias towards managing things — in a “commonsense” and “cost‐​effective” way, of course — in his remarks to the crowd. Politico reports:

“The big difference between the president and me, he has no plan for rural America, no plan for agriculture, no plan for getting America back to work,” Romney said. “I’m going to make sure I help the American people, and the American farmer, and get America working again.”

A quick fact‐​check: Obama does have a plan for agriculture. He endorsed the Senate‐​passed farm bill, and he (and his wife) have meddled plenty in agriculture and food policy in this country. But that’s not the point I am trying to make here.

Instead of launching and bragging about his “plan,” Mr. Romney would better serve the American people by giving them a clear alternative to current farm policy: an alternative that consists of no plan for agriculture, or rural America generally, at all. Let those folks get on with the business of farming, and give American taxpayers and consumers a break.

October 10, 2012 1:15PM

Mitt Romney Will ‘Champion Free Trade’

Putting all of his China‐​bashing aside for a moment, Mitt Romney announced the following in a speech on Monday:

I will champion free trade and restore it as a critical element of our strategy, both in the Middle East and across the world. The President has not signed one new free trade agreement in the past four years. I will reverse that failure. I will work with nations around the world that are committed to the principles of free enterprise, expanding existing relationships and establishing new ones.

The point about President Obama not signing “new” free trade agreements is kind of a technicality. He did sign some, but the negotiations originated with the Bush administration, so they weren’t “new,” according to Romney.

But I’m more interested in Romney’s “championing” of free trade. Which nations will he be negotiating with? He mentions countries that “are committed to the principles of free enterprise.” That kind of sounds like the language used by California Rep. Devin Nunes, which I mentioned last week. Nunes proposes starting free trade negotiations with the EU and Brazil. Is this what Romney has in mind as well? As noted in my earlier post, I’m pretty skeptical of the chances of success for both of these. But Romney doesn’t get that specific in terms of trading partners, so I’m not sure exactly what he intends. Even more reason to be skeptical.

October 10, 2012 11:49AM

Zycher, Fuller and Moore Discuss Military Spending and the Economy

Two months ago, Cato published a study by economist Benjamin Zycher, a senior fellow at the Pacific Research Institute, that showed that military spending contributes very little to GDP growth, and concludes that cuts would have very little long-term impact on GDP. On the contrary, Zycher estimates that cuts on the order of $100 billion a year would reduce costs in the wider economy by $135 billion per year. I wrote about that study when it was published here.

These findings conflict directly with two studies prepared for the Aerospace Industries Association (AIA) by George Mason University Professor Stephen Fuller. In October 2011, Fuller argued that a reduction of $45 billion in DoD procurement spending would result in a decline of about $86.5 billion in GDP in 2013, and the loss of 1,006,315 full-time, year-round equivalent jobs. Earlier this year, in July, Fuller expanded his research to include the effects of sequestration on both defense and non-defense spending. He concluded that such cuts will reduce the nation’s GDP by $215 billion, and cost 2.14 million jobs. Interestingly, Fuller's second study concludes that cuts to non-defense spending will have a greater impact on economic activity than defense spending cuts.

As defense spending advocates continue to make the case against sequestration (or, to be more precise, that portion of sequestration that applies to the Pentagon) they have relied heavily on Fuller's research to buttress their arguments. In his acceptance speech before the Republican National Convention Mitt Romney asserted that the president's "trillion dollar cuts to our military will eliminate hundreds of thousands of jobs." The GOP platform claims "Sequestration [would accelerate] the decline of our nation’s defense industrial base,…resulting in the layoff of more than 1 million skilled workers," and later contends "If [Obama] allows an additional half trillion dollars to be cut from the defense budget,” that would harm “our national security and a struggling economy that can ill afford to lose 1.5 million defense-related jobs."

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October 10, 2012 8:54AM

Iran’s Lying Exchange Rates

On September 24th, the Iranian government announced that it would adopt a three-tiered, multiple-exchange-rate regime. This wrong-headed attempt to exert more control over the price of domestic goods and combat inflation has failed (and will continue to fail). Since the rial began its free-fall in early September, international observers and the Iranian people have struggled to understand the implications of this exchange-rate regime.

Iran has a history of implementing a variety of multiple-exchange-rate regimes – with mixed results, to say the least. Indeed, at its peak of currency confusion, the Iranian government set seven different official exchange rates. As the accompanying chart illustrates, the story of Iran’s hyperinflation has been one of divergence between the official and black-market (read: free-market) exchange rates.

Media Name: Iran-IRRUSD-@Liberty-10-09-2012.png

This divergence is a product of the declining value of the rial – freely traded on the black market. In consequence, prices are rising dramatically in Iran – by almost 70% per month, according to my estimates. That said, in order to make sense of this phenomenon, it is necessary to understand the system whose failure we are witnessing.

Currently, Iran has three exchange rates:

  • The Official Exchange Rate: 12,260 IRR/USD
  • The “Non-Reference” Rate: 25,480 IRR/USD
    • Purportedly 2% lower than the black-market rate
    • Available to importers of important, but non-essential goods, such as livestock, metals and minerals
  • The Black-Market Exchange Rate: Approximately 35,000  IRR/USD
    •  The last freely-reported black-market rate was 35,000 IRR/USD (2 October 2012). The most recent anecdotal reports confirm this number as the current exchange rate.
    • The Iranian government (read: police) has recently cracked down on currency traders and has also censored websites that report black-market IRR/USD exchange rates.

This complex currency system results in lying prices that distort economic activity. By offering different exchange rates for different types of imports, the Iranian government is, in effect, subsidizing certain goods – distorting their true price. In consequence, any fluctuations in the black-market exchange rate – and, accordingly, in the price level – will be amplified to different degrees for different goods. The end result for Iranian consumers is confusion and mistrust, which, as we have seen, are feeding the panic that has been driving the collapse of the rial and Iran's hyperinflation.

For the latest news on Iran's hyperinflation, follow my Twitter: @Steve_Hanke

October 10, 2012 8:51AM

Want Privacy Choice? Papa’s Gonna Give You One

I was interested by the title of a paper called "Behavioral Advertising: The Offer You Cannot Refuse" by a small coterie of privacy activist/researchers. I love the Godfather movies, in which the statement, "I'm going to make him an offer he can't refuse," is a coolly tuxedoed plan to threaten someone with violence or death. I don't love the paper's attempt to show that government "interventions" are superior to markets in terms of freedom.

Behavioral advertisers are no mafiosi. They are not in the business of illegal coercion. They're not in any kind of illegal business, in fact. The choice of title suggests that the authors may be biased toward making targeted advertising illegal. (The lead author argued in 2004 that Gmail should be shut down as a violation of California law.)

What was most interesting, though, was the paper's unspoken battle with lock-in, or path dependence. That's the idea in technology development that a given state of affairs perpetuates itself due to the costs of changing course.

The QWERTY keyboard is a famous example of lock-in. The story with QWERTY is that keys on early mechanical typewriters were arranged so that commonly used letters wouldn't strike one another and jam together. The result was an inefficient arrangement of keys for the fingers, but it's an arrangement that has stuck.

The reason why it has stuck is because of switching costs. Everybody who knows how to type knows how to type on a QWERTY keyboard. If you wanted to change to a more efficient keyboard, you'd have to change every keyboard and everyone's training. That's a huge cost to pay in exchange for a modest increase in efficiency. So we've got QWERTY.

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October 9, 2012 3:52PM

Thoughts on Little America and Afghanistan

I recently finished reading Rajiv Chandrasekaran's Little America: The War within the War for Afghanistan. The entire book is terrific. I highly recommend it. But one chapter in particular—Chapter 7, "Deadwood"—spoke to some of the things that my colleagues and I have written over the years concerning America's nation-building problems.

Most Americans have by now moved on from the war in Afghanistan (even though the U.S. military has not) and are focused on, in President Obama's words, "nation building here at home." But we still haven't closed the book on the theories of nation building that arose after 9/11, including the belief that the United States needs to repair failed states, or rescue failing ones, lest terrorists from these states travel thousands of miles to attack Americans. Last month, for example, Mitt Romney's senior foreign policy adviser Richard Williamson praised Bill Clinton's nation-building adventures in Bosnia and Kosovo. Williamson told NPR's Audie Cornish that the U.S. government must "help in reconciliation, reconstruction, helping institutions of law and order, security be built" after authoritarian regimes collapse. From the belief that we must repair failed states flows logically the belief that we can.

These beliefs are, in fact, myths. Cato has published many different papers, articles, and book chapters challenging the claim that fighting terrorism, or preserving U.S. security generally, requires us to engage in nation building abroad. We have been equally emphatic on the point that our efforts are likely to fail, no matter how well intentioned. Little America provides additional evidence to support that argument, although I doubt that was Chandrasekaran's object.

Take, for example, the case of Summer Coish, the striking and extraordinarily motivated woman who wanted to go to Afghanistan so badly that she appealed directly to Richard Holbrooke. She got her wish—eventually. Despite the fact that the president's designated point person on Afghanistan and Pakistan had marked her for the fast track, it took 14 months before she was cleared to travel to there.

Once she arrived, Coish's dream of helping the Afghans emerge from decades of war and desperate poverty crashed against the reality of a soul-crushing bureaucracy. Security regulations made it nearly impossible for Coish and other civilians to regularly interact with Afghans, and few embassy staffers exhibited any desire to do so. "It's rare that you ever hear someone say they're here because they want to help the Afghans," Coish told Chandrasekaran after she had been there a few months. Instead, Chandrasekaran observes, "everyone seemed bent on departure."

The work itself was painfully dull. Coish concluded that most of it could have been accomplished in Washington, at far less cost to the taxpayers. The reason for the costly in-country presence? The need to count them as part of the vaunted "civilian surge."

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