Archives: 04/2013

Trade Pessimism Reigns Supreme

The Economist magazine has an article worrying that the proposed US-EU trade talks – discussed in this Cato paper and at this recent event – are floundering.  They say, “[r]ight now, the pact is in trouble, beset by small-mindedness and mutual suspicion.”  All is not lost, though: “Time, then, for a big push on both sides; this pact can still be saved.”

Now, I can see why people get concerned about trade negotiations.  Many of them drag on for years, and the prospects for completing large-scale negotiations look dim these day.  But there’s something that should be kept in mind about the US-EU talks:  They haven’t even started yet!  The negotiations won’t start until July, and it’s still only April.  So everyone needs to relax a bit.

Having said that, I can see why people would express concern.  The pre-negotiation jockeying suggests there will be serious difficulties.  For example, France wants “cultural sectors,” like TV, radio and film, exempted.  On this point, the Economist notes:

European governments recently sent trade officials to Brussels to a first meeting on their offer to America. Led by the French, envoys from southern and eastern Europe called for a long list of red lines. These covered the usual stuff: agriculture, public services and “audio-visual” content (eg, bungs for French cinéastes, airtime quotas to keep Flemish hip-hop on the radio). That appals Team Obama, though not because Americans are blameless. From financial services to air passenger services, America maintains lots of barriers to trade. The real fear is that if Europe starts setting out red lines, trade sceptics in America will draw their own.

There is no doubt that this kind of economic nationalist thinking gets in the way of trade liberalization.  Instead of recognizing the benefits of opening the domestic market to imports, too many countries try to “protect” their economy from foreign competition.  The reality is that the economy benefits from this foreign competition, and governments should be fighting to see who can liberalize the most.

Unfortunately, based on what they see as rational domestic political calculations, governments do not think or act this way.  They try to use trade negotiations to open up export markets, while maintaining import protection.  Not surprisingly, this undermines the potential benefits of the negotiations, and makes it very hard to get deals done.

In order for the proposed US-EU pact to avoid stalling out, as some other trade negotiations have, some realism could be helpful.  We shouldn’t expect a trade deal to lead to complete and total free trade.  At best, it will simply make some progress towards more liberalization.  And if it can do that, that’s a good thing.

To make real progress, though, trade negotiators need to change their mindset.  Protection from foreign competition is not something to be maintained through special exceptions in trade deals; rather, protection is bad for the economy as a whole (despite any benefits to particular interest groups), making us all worse off.  If some day trade officials can recognize this basic economic truth, trade negotiations will become much easier!

Tax Revenues from Legal Marijuana Overstated

There are plenty of reasons to legalize marijuana. But one that has received perhaps too much attention is tax revenue. In this Cato Daily Podcast (Subscribe! via iTunes), senior fellow Jeff Miron argues that tax revenue estimates are simply too rosy.

Miron’s 2010 report, The Budgetary Impact of Ending Drug Prohibition, estimates that the overall fiscal impact (including tax revenue) of legalizing marijuana nationwide could be tens of billions of dollars, the revenue boost that legalization supporters trumpet is overstated.

Doing Business Under Attack

The Doing Business project is among the World Bank’s most useful activities – both for scholars and, more importantly, for policymakers who are interested in pursuing pro-market reforms. It is disheartening to see that the review of the project, initiated last year by the Bank’s President Jim Yong Kim, has been hijacked by groups like Oxfam, Christian Aid or CAFOD, which are trying to erode the project’s analytical sharpness and destroy its role as a focal point for economic reformers in low- and mid-income countries. Perhaps they would like to see it scrapped altogether.

Marian Tupy and I are discussing the controversy, and offering arguments in favor of the Doing Business project in our article at Foreign Policy. Bottom line:

It is true that Doing Business is not an ideal metric of business environment: Nothing is. Yet over the past decade the survey has proven an extremely useful tool both for scholars and businesspeople who want to compare the ease of actually conducting business in different countries, and for policymakers trying to foster the development of the private sector. Unless someone comes up with a better alternative, discarding or watering down this metric is likely to lead to less well-informed choices about policy.

We may disagree about the relative importance of a good business environment for poor countries. Yet few would suggest that it should be simply ignored. It’s difficult to avoid the impression that Doing Business is currently coming under attack by groups with ulterior motives, groups who are inimical to a pro-market and pro-growth policy agenda. Given the extraordinary economic and human progress achieved in the last few decades through deliberate improvements to business environment, one hopes that the Doing Business project remains central to the World Bank’s portfolio of activities.

House, Senate Pass Different Bills: To Become Law Anyway?

Something fishy happened on Friday, and without further action in Congress it should scuttle the legislation to exempt the Federal Aviation Administration from sequestration-based spending limits. But maybe the old saying, “close only counts in horseshoes and handgrenades,” also applies to Senate unanimous consent agreements. If President Obama gives the bill five days of public review under his Sunlight Before Signing promise, perhaps it can be hashed out before anyone does anything foolish.

You’re probably aware of the background: Across-the-board spending cuts were threatening air travel delays because of FAA furloughs. Late last week, the House and Senate both passed bills to allow the Department of Transportation to move money around, clearing up that problem. (No new spending; just movement of funds from lower priorities to air traffic control.)

As I detailed on the blog late Saturday, the Senate and then the House passed identical bills, but determined to see the House version passed into law. Because the House would pass its bill after the Senate was gone for the week, the Senate agreed to automatically pass a bill coming from the House “identical” to the one it had passed. Problem solved.

But on Friday afternoon, after the House had passed its identical bill, sponsor Rep. Tom Latham (R-IA) came to the floor and asked unanimous consent to change the word “account” to “accounts” in his bill. The change is a mystery. My guess is that the reference to a singular appropriation account would not allow needed flexibility because there are many FAA accounts. But the change also made the sentence ungrammatical as it has a second reference to a singular account.

Whatever the reason, there was a reason. And after changing the legislation, it was no longer identical to the Senate-passed bill. Thus, the bill sent to the Senate could not be automatically passed. Accordingly, the bill does not go to the president and does not become law.

Now, is the difference between the singular and the plural of the word “account” small enough that the Senate can go ahead and treat the bills as identical? That threatens the meaning of the word “identical.” It certainly mattered in the House. Procedure expert Walter Oleszek calls unanimous consent agreements of this type “akin to a negotiated ‘contract’ among all Senators, [which] can only be changed by another unanimous consent agreement.”

The House-passed bill not being identical to the Senate-passed bill, the better approach is to find that the Senate unanimous consent agreement does not apply, and the House bill should sit in the Senate awaiting further action.

At the time of this writing, no public sources indicate that H.R. 1765 has been passed in the Senate, presented to the president, or signed. If President Obama does receive the bill, he should give it the five days of public review that he promised as a campaigner in 2008. This would allow things to get sorted out, so that we avoid the constitutionally embarassing spectacle (and future Jeopardy/Trivial Pursuit item) of a president sitting down to sign a piece of paper that is not actually a bill readied to become a law.

New York Is Open for Business, Cuomo Style

Danny Hakim of the New York Times tells us how state government works under Andrew Cuomo, in an in-depth investigation of the Empire State Development Corporation:

New York State’s economic development agency created a new position last June, and then found a candidate to fill it: a young man named Willard Younger, who had just graduated from Colgate University with a degree in classics and religion. He became a special projects associate, at a salary of $45,000 a year, according to state personnel records.

His father, Stephen P. Younger, is a lawyer and power broker in legal circles who was a member of one of Gov. Andrew M. Cuomo’s transition teams. He has also donated $26,000 to Mr. Cuomo’s campaigns over the years, disclosure records show.

The next month, the agency hired 23-year-old Andrew Moelis, a University of Pennsylvania graduate, for another new position, strategic planning associate, at a salary of $75,000 a year.

Shortly before Mr. Moelis’s first day of work, his father, Ron Moelis, a prominent real estate developer, gave $25,000 to Mr. Cuomo’s re-election campaign, according to the records.

Check out the return on investment available to political donations: give $25,000, get $75,000 within a year. I wonder if any of Mr. Moelis’s real estate developments offered such an ROI. As I wrote many years ago in the Wall Street Journal:

Business people know that you have to invest to make money. Businesses invest in factories, labor, research and development, marketing, and all the other processes that bring goods to consumers and, they hope, lead to profits. They also invest in political processes that may yield profits.

If more money can be made by investing in Washington than by drilling another oil well, money will be spent there….

Every dollar spent by the federal government ends up in someone’s pocket as a salary, a transfer payment, a subsidy, a purchase or a loan. But there are other valuable services available, too: regulations that eliminate or hamstring your competitors, for instance, or a tax provision that induces consumers to purchase your product.

But “jobs for the boys” can also be a way to reward political supporters. And if it’s a job for your own boy, so much the better.

Agencies like this can also be very helpful to a politician with larger ambitions:

Empire State has also hired friends of Mr. Cuomo who may help form his political brain trust should he decide to run for president in 2016.

James P. Rubin, a former State Department spokesman, was hired at the agency in 2011 as counselor on competitiveness and international affairs, with a salary of $150,000 a year. Mr. Rubin’s appointment was seen by political consultants as a move by Mr. Cuomo to add a foreign policy hand to his stable.

Empire State hired 49 people in the first 20 months of the Cuomo administration, according to personnel records obtained by The Times. Nearly a third were the governor’s political associates, donors and friends, or their relatives, the records and interviews show.

At least seven of the new hires with connections were placed in newly created positions.

We hear a lot about austerity in government today. We hear that “state and local government coffers [are] empty.” We hear that spending has been “cut to the bone.” I’d say that the Empire State Development Corporation would be a good place to save the New York taxpayers $741.8 million this year.

Further Thoughts on Sensible Gun Legislation

In an op-ed on the New York Times web site yesterday, I voice my belief that the gun control bill authored by Sens. Joe Manchin and Pat Toomey, if properly modified, can and should pass with the support of gun rights advocates.

In the interest of being as specific as possible, I’d like to expand upon the sentiments expressed in that piece.

When the Senate rejected the Manchin-Toomey compromise on gun background checks, opponents of the bill were condemned for ignoring polls signaling up to 90 percent public support. The stonewalling by gun rights supporters was indeed a mistake—not just on the politics, but on the substance as well. In exchange for the modest, reasonable, and constitutional augmentation of background checks, there was plenty in the legislation for gun rights proponents to embrace.

Manchin-Toomey may be re-introduced. Gun rights advocates can seize the opportunity to address some of their own priorities while avoiding being labeled as obstructionists once again.

Here are the parts of Manchin-Toomey that gun rights proponents should be happy about, with a few recommended changes: 

‘Crony Capitalism’ Is Not Capitalism

David Brooks has a piece in the New York Times this morning that’s worth reading, “Health Chaos Ahead,” even if it misses a crucial aspect of its subject. Obamacare is off to a rough start, he argues, and it’s only going to get worse. He says he’s talked to a bipartisan group of health care experts, and even some of the law’s supporters “think the whole situation is a complete disaster”—many predicting that it will collapse. Yet “a clear majority,” he adds, including some of the law’s opponents, believe that after a few years of messiness we’ll all settle down to a new normal.

That’s hard to believe, given the “cascades” of problems Brooks goes on to discuss: structural, technical, cost, adverse selection, and provider concentration cascades. That last one is especially noteworthy because, as Brooks says, “the law further incentivizes a trend under way: the consolidation of hospitals, doctors’ practices and other providers.”

That it does. So why does Brooks himself seem to believe that the system will survive? It’s because, even if the law’s unpopularity costs President Obama and the Democrats control of the Senate in 2014, the giant insurance companies and health care corporations spawned by Obamacare will come to the fore to defend it. “Having spent billions of dollars adapting to the new system, they are not going to want to see it repealed or replaced.”

He’s doubtless right about that, but it’s not simply because they want to preserve their “sunk costs” in the new system that these “rent seekers,” as economists call them, are and will continue to be the system’s biggest defenders. These are the same institutions, after all, that were onboard with Obamacare from the start. And they were onboard because, working hand-in-hand with government, they sought to gain advantages over smaller competitors that invariably find it difficult and often impossible to compete in so highly regulated a market as we have here.

Call it “crony capitalism,” yet it’s not capitalism at all. Labeled most charitably, it’s cartelism. But the root of the problem is not with the corporate importunings of Congress. It’s with congressional acquiescence. They’re the people who take an oath to uphold our Constitution for limited government. I’ve always thought that the snake, in the Garden of Eden, got a bum rap. Yes, he was tempting Eve, but she could have just said “no.” Maybe the 114th Congress will have enough members, viewing the health care disaster unfolding before them, who will just say “no.” Then we might start returning to real capitalism.