Bill Niskanen did most of his thinking and analysis on paper, in his many books and articles. He didn’t seek out television appearances, though he certainly made a few during his years with Cato. But one television appearance stands out in my mind, when he debated Rep. Richard Gephardt on PBS’s NewsHour about Gephardt’s bill that would have required economic retaliation against countries that have huge trade surpluses with the United States. Alas, I can’t find the exact date for this pre-Internet appearance — possibly 1988, when Gephardt ran for president and made protectionism a big part of his campaign — and I have only a clip of one of Bill’s answers. But it confirms the “Blunt Libertarian Economist” headline that the New York Times used on its obituary:

Some interesting links on agriculture in the news today.

First, a terrific front-page article in the New York Times, about what my friend Vince Smith so accurately calls the “bait-and-switch” farmers are proposing in their offer to give up direct payments (subsidies that flow to farmers regardless of prices or production) in exchange for a new revenue insurance program. As Vince so rightly points out, because the new revenue targets will be based on today’s current record crop prices, “If farm prices move back towards what are widely viewed as more normal levels than their current levels, farmers will be compensated for going back to business as usual.” Vince blogs here about the proposed new revenue assurance program, and how it could end up costing us just as much as the current set of programs.

Farmers and their congressional sponsors are still blathering about “proportionality,” essentially saying that they should not have to contribute any more to budget cuts than any other area of the federal government. Here, for example, is a corn farmer, towing the party line:

“We are very much aware of the budgetary constraints of the federal government,” said Garry Niemeyer, an Illinois farmer who is president of the National Corn Growers Association. “We want to do our part as corn growers to help resolve those issues, but we only want to do our proportional part. We don’t want to have everything taken out on us.” [emphasis added]

This is wrong-headed. I’ve said it before, I’ll say it again: “proportionality” implies that everything the federal government currently does is equally valid. That is nonsense. Some programs are legitimate, some less so. Some—like farm subsidies—not at all. Spending cuts should be made on the basis of legitimacy, not by some abstract formula equally applied. We should be reshaping (in a downward direction) the federal government here, not trimming a topiary hedge.

Second, Bloomberg​.com has a good overview on the current state of the negotiations between the Congressional agriculture committees and the deficit-reduction supercommittee regarding the cuts to farm programs. The leaders of the agriculture panels have written a letter to the supercommittee, saying that cuts to agriculture programs should be limited to $23 billion and those cuts “should absolve the programs in our jurisdiction from any further reduction.” So there.

Finally, here are Senators Mark Kirk (R‑Ill.) and Sen. Jeanne Shaheen (D‑N.H.) on the wasteful and expensive sugar program.

Texas Gov. Rick Perry has been beaten up in recent GOP presidential primary debates over his signing of a bill in 2001 giving in-state tuition to illegal immigrant kids in Texas. Look for the issue to come up again at tonight’s debate in New Hampshire.

In a free society, so-called DREAM Act legislation would be unnecessary. Opportunities for legal immigration would be open wide enough that illegal immigration would decline dramatically. And higher education would be provided in a competitive market without state and federal subsidies. But that is not yet the world we live in.

On the federal level, the proposed Development, Relief and Education for Alien Minors Act would offer permanent legal status to illegal immigrant children who graduate from high school and then complete at least two years of college or serve in the U.S. military. Legal status would allow them to qualify for in-state tuition in the states where they reside, and would eventually lead to citizenship.

Those who respond that such a law would amount to “amnesty” for illegal immigrants should keep a couple of points in mind.

First, kids eligible under the DREAM Act came to the United States when they were still minors, many of them at a very young age. They were only obeying their parents, something we should generally encourage young children to do.

Second, these kids are a low-risk, high-return bet for legalization. Because they came of age in the United States, they are almost all fluent in English and identify with America as their home (for many the only one they have ever known). “Assimilation” will not be an issue.

They also represent future workers and taxpayers. The definitive 1997 study on immigration by the National Research Council, The New Americans, determined that an immigrant with some college education represents a large fiscal gain for government at all levels. Over his or her lifetime, such an immigrant will pay $105,000 more in taxes than he or she consumes in government services, on average and expressed in net present value (see p. 334). In other words, legalizing an immigrant with post-secondary education is equivalent to paying off $105,000 in government debt.

According to estimates by the Immigration Policy Center, the DREAM Act as introduced in 2009 would offer immediate legalization to 114,000 young illegal immigrants who have already earned the equivalent of an associate’s degree. Another 612,000 who have already graduated from high school would be eligible for provisional status and would then have a strong incentive to further their education at the college level to gain permanent status. If all 726,000 of them studied at college and became legal permanent residents, it would be equivalent to retiring $76 billion of government debt.

In all, a potential 2.1 million kids could eventually be eligible for permanent legal residency under terms of the DREAM Act, representing a potential fiscal windfall to the government of more than $200 billion. Not to mention their potential contributions to our culture and economy.

According to a story in Politico today, Senator Jeff Sessions of Alabama has been whipping his Republican colleagues to vote in favor of the China currency legislation that appears to be headed for passage in the Senate. (My Cato colleague Dan Ikenson has explained why raising tariffs on imports from China would be a mistake.)

The Politico story says that Sessions is “traditionally a proponent of free trade,” but his actual voting record indicates otherwise. According to the trade vote data base we maintain on the home page of the Herbert A. Stiefel Center for Trade Policy Studies at Cato, Sen. Sessions has voted in favor of lower trade barriers on a bare majority (26 out of 49) of the significant trade votes we’ve recorded.

Since 1997, Sen. Sessions has voted in favor of protectionist farm bills (2002, 2007, 2008), banning safety-certified Mexican trucks from U.S. roads (2007), country-of-origin labeling (2003), the WTO-illegal Byrd amendment (2003, 2005), the original Schumer-Graham bill to impose a 27.5 percent tariff against imports from China (2005), sugar import quotas (1999, 2000, 2001), and steel import quotas (1999)

Meanwhile, he’s voted against the Morocco free-trade agreement (2004), trade promotion authority (1998, 2002), and normal trade relations with Vietnam (2001) and China (1997, 1999).

And to top it all off, it was Sen. Sessions who single-handedly scuttled renewal last year of the Generalized System of Preferences, the long-standing program that had allowed certain imports from poor countries to enter the United States duty free. As my Cato colleague Sallie James has chronicled (here and here), the good senator refused to allow the program to be renewed because of a dispute affecting a small number of his constituents who are employed making sleeping bags.

Like too many of his fellow senators, Sen. Sessions supports our freedom to trade only as long as it does not affect any noisy special interests in his own state.

The all-too-early death of Steve Jobs was reported on the day that President Obama made another defense of his so-called jobs bill. Which one actually benefited (or would benefit) Americans and the American economy? Lots of people have talked about the way Steve Jobs changed technology, changed business, changed the world. And I trust there’ll be no more churlish complaints about his alleged lack of philanthropy. As Dan Pallotta definitively pointed out,

What a loss to humanity it would have been if Jobs had dedicated the last 25 years of his life to figuring out how to give his billions away, instead of doing what he does best.… [T]he world has no greater philanthropist than Steve Jobs. If ever a man contributed to humanity, here he is.

Two years ago Portfolio magazine did a great graphic on “The Steve Jobs Economy,” trying to assess just how much value he himself had created for the economy. The conclusion: Jobs’s personal wealth at the time was estimated at $5.7 billion. But he was generating $30 billion a year in revenue for Apple, its partners, and its competitors (who were spurred to get better). Here’s the analysis (sorry for the imperfect tear sheet):

Click image to enlarge. And for text but not graphics at Portfolio, click here.

According to Portfolio and the experts it consulted, Jobs was producing $30 billion a year in value for various companies. And of course that means that consumers believed they were getting at least that much value themselves, or they wouldn’t buy the products. That’s a wealth creator. And that number pales in comparison to this one: After returning to Apple in 1997, Jobs took the total value of the company from about $2 billion to $350 billion.

How much value is the Post Office creating this year? Or Amtrak? Or Solyndra? And if you point out that the Post Office does create value for its customers even though it loses money every year, I would ask, how much more value might its competitors create, if it allowed competition?

Instead of another bag of taxpayers’ money for state and local governments and politically favored businesses, a real jobs program would encourage the next Steve Jobs to create value. What would that involve? Keep taxes on investment and creativity low. Reduce the national debt and its threat of huge tax hikes to come. Ease the burdens of regulation, especially regulations that make it difficult to open a business, hire and keep the best employees, and develop new ideas. Open the huge, stagnant postal and schooling businesses to competition, innovation, and entrepreneurship. Repeal some of the licensing laws that now afflict 1,100 occupations. Renew progress toward free trade. Make it smart for businesses to invest their time, money, and brainpower in productive activity, not lobbying.

Supporters of the so-called China Currency legislation fall into two camps. There are those frustrated by the fact that the Chinese government no longer asks “How high?” when U.S. policymakers shout “jump!” For this camp, the legislation is a therapeutic exercise in venting – the legislative equivalent of road rage. It might make trade relations and the economy worse, but boy does teeing off on those Chinese upstarts sure feel good. This is hardly the recipe for smart policy.

The other camp of supporters believes that the Currency Exchange Rate Oversight Reform Act of 2011 will, in fact, produce a positive outcome. This camp accepts three sequential premises (whether they realize it or not): (1) the legislation under consideration will compel China toward faster yuan appreciation; (2) a rising yuan will reduce the bilateral trade deficit, and; (3) a smaller bilateral trade deficit with lead to U.S. job creation. In short, this camp sees the legislation as a jobs bill.

But the likelihood of that sequence of events playing out is remote. Indeed, the ensuing analysis finds the legislation under consideration to be at least 300 percent more likely (or, if you prefer, four times as likely) to destroy U.S. jobs than it is to create them.

Let’s start by evaluating the second premise. What is the likelihood that a rising yuan will reduce the bilateral trade deficit? Well, from 1997 to July 2005, the yuan was pegged at a dollar value of about 12.08 cents. Between July 2005 and July 2008, the value of the yuan in dollar terms increased by 21 percent to 14.64 cents. Surely, proponents of the legislation would want to cite the dramatic reduction in the bilateral trade deficit that followed this period of yuan appreciation to support their position. Alas, during that period, the bilateral trade deficit increased by 33 percent from $202 billion to $268 billion. Since June 2010, the Yuan has appreciated by another 7 percent against the dollar. And the bilateral trade deficit? It’s on target for to be one-third larger in 2011 than it was last year.

So, recent evidence doesn’t support the premise of an inverse relationship between the value of the yuan and the size of bilateral U.S. deficit. Instead, both have increased simultaneously. Yet proponents of the law insist that a rising yuan will lead to a reduced bilateral deficit. Where is any evidence of this?

The truth is that the relationship between currency values and final goods trade flows has been complicated by the fact of intermediate goods trade. Globalization and the proliferation of transnational supply chains—which means far more intermediate goods trade than in the past—has dulled the impact of currency values on final goods trade.

Only about half of the value of Chinese exports to the United States is actually Chinese value. The other half is value from components produced in other countries. When the yuan appreciates, those imported intermediate goods become less expensive to Chinese producers, who can then reduce their prices for export and preserve their market shares abroad. Despite the 21 percent appreciation of the yuan between 2005 and 2008, U.S. imports increased by 39 percent.

(This analysis goes into detail about the points raised in the previous three paragraphs.)

Though recent history suggests the probability is very much lower, let’s give currency legislation proponents the benefit of the doubt and assume a 50 percent chance that future yuan appreciation will reduce the bilateral trade deficit.

The next necessary condition in the sequence is that the smaller bilateral trade deficit creates U.S. jobs. That is the premise of the oft-cited study from the Economic Policy Institute that claims the bilateral deficit with China cost 2.8 million U.S. jobs between 2001 and 2010. The study’s author asserts: “Increases in U.S. exports tend to create jobs in the United States, and increases in imports tend to lead to job loss. Thus, a growing trade deficit signifies growing job loss.”

Well, that assertion is demonstrably false – as evidenced by the chart in this post. Instead of an inverse relationship between the bilateral trade deficit and jobs, there appears to be a positive relationship. Just have a look: when the deficit increases, U.S. employment rises; when the deficit shrinks, U.S. employment declines.

In the quarter century between 1983 and 2007, as real GDP more than doubled and the real value of U.S. trade increased five-fold and the U.S. trade deficit increased from $73 billion to $655 billion, the U.S. economy created 46 million net new jobs, or 1.84 million net new jobs per year. And as economic growth came to a halt and then turned negative during the recent recession, trade contracted by 12 percent, the deficit fell from $655 billion in 2007 to $363 billion in 2009, and the economy shed over six million jobs. This experience is diametrically opposite the contention of EPI.

Despite ample doubt that a shrinking trade deficit leads to U.S. job creation, let’s assume—again to err on the side of currency legislation proponents—that the likelihood of that unlikely occurrence is 50 percent.

Now, let’s go back and evaluate the first premise of this chain of premises – that the legislation will be an effective prod that compels the Chinese government to allow faster appreciation. Remember the logic of the second camp: the legislation compels faster yuan appreciation, which reduces the bilateral deficit, which spurs U.S. job growth.

It is highly unlikely that the legislation will prod China into allowing faster appreciation. If anything, it could prompt China to slow or stop yuan appreciation to make a strong political statement that it will not be bullied – particularly not by a government that doesn’t have its economic house in order. But it is more likely that China would continue to allow appreciation at a pace it deems appropriate. After all, the government favors currency appreciation as an instrument to deal with domestic economic concerns, like rising inflation.

Realistically, China could simply ignore the law, stick with its own timetable for currency appreciation, and contest at the WTO any U.S. actions that come to bear — though any such actions would be at least two years away given the action-triggers and admininistrative timelines of the law. But again, let’s indulge the legislation’s proponents and estimate that there is a 50 percent probability that passage of the legislation will induce China not to accelerate appreciation of the yuan.

Now let’s do the math. If there’s a 50 percent chance that the legislation compels China to allow faster appreciation of the yuan and a 50 percent chance that yuan appreciation reduces the bilateral trade deficit and a 50 percent chance that a smaller bilateral trade deficit leads to job creation, then—under these very generous assumptions—the legislation has a 12.5 percent likelihood of creating U.S. jobs. (Gives a pretty good indication of what Harry Reid thinks of President Obama’s jobs bill that he would keep it sidelined in favor of a bill that has a one-in-eight chance of creating jobs).

Compare that probability to the likelihood that the Chinese government would react to passage of this legislation with retaliatory measures that would make life more difficult for U.S. exporters or U.S. companies doing business in China. What would that do for U.S. jobs? Recall that China imposed trade remedy duties on chicken and auto parts in the immediate aftermath of the U.S. imposition of duties on Chinese tires in 2009 (i.e., China retaliated). Several agencies within the Chinese government has even stated that this currency legislation likely would lead to a trade war.

If we estimate the likelihood of Chinese retaliation, which would adversely impact U.S. employment, to be 50 percent (another conservative assumption given past reactions and current statements), it is fair to conclude that the Currency Exchange Rate Oversight Reform Act of 2011 is a job-destruction bill. With a 300 percent greater likelihood of destroying rather than creating jobs, the laws cosponsors and supporters have not done the proper analysis. But why would they anyway? This whole enterprise is just another Washington diversion from the real solutions at the American public’s expense.

Almost a thousand days into his term, President Obama has at last submitted the trade agreements with South Korea, Colombia, and Panama for an up or down vote in Congress.

All three agreements appear to have majority support in both the House and the Senate. Organized labor is putting up its usual anti-free-trade fight against all three, with AFL-CIO boss Richard Trumka coming out swinging in a Politico op-ed this week. He makes the standard union argument that Colombia is an unworthy free-trade partner because of ongoing violence against union members in that country.

In a Free Trade Bulletin earlier this year, my Cato colleague Juan Carlos Hidalgo and I examined the commercial benefits of the agreement with Colombia as well as the hollowness of the union charge. In the past decade, Colombia has made tremendous progress against violence in general, and especially violence aimed at union members. In fact, as we write in the FTB:

The statistics on the number of killings against union members vary depending on the source, with the figure from the government’s Ministry of Social Protection being lower than that of the National Union School (ENS for its acronym in Spanish), a Colombian nongovernmental organization affiliated with the labor movement. However, both sources show a steep decline in the number of killings since 2001. Moreover, when compared with the total number of homicides in the country, killings of union members clearly have dropped at a faster rate than those of the general population (see Figure 1).

Critics of the FTA fail to recognize that violent crime affects all levels of Colombian society, not only trade unions. What is more, the statistics show that union members enjoy more security than the population at large.

Looking at the homicide rate as defined by the number of murders per 100,000 inhabitants, the rate for the total population in 2010 was 33.9 per 100,000, whereas the rate for union killings was 5.3 per 100,000 unionists that same year (using the statistics of the ENS). That means that the homicide rate for the overall population is 6 times higher than that for union members.

Having just returned from a speaking trip last week to Medellín, Colombia, I can vouch that, after a difficult period of battling Marxist guerrillas and drug cartels, Colombia has once again become a normal country with a growing economy. Medellín is a bustling, business-oriented city with the usual challenges of traffic congestion. The students I spoke with at EAFIT University seemed eager for closer ties with the United States, and they do not understand why it has taken almost five years since the signing of the agreement for Congress to schedule a vote on it.

As I explained in an interview with the city’s leading newspaper (conducted in English, but translated here in Spanish), the politicians in Washington have run out of excuses for not establishing free trade between our two countries.

[Our Cato colleague Doug Bandow made the case for a trade agreement with South Korea in a study we released last year.]