August 7, 2020 9:42AM

“Seemingly Out of Nowhere”

A few short interminable months ago, COVID-19 had made it almost impossible to find hand sanitizer, disinfecting wipes, and other cleaning products at the local grocery store or online. The shortages not only sent Americans scrambling for supplies (I actually mailed my mom some Clorox Wipes), but also elicited calls from both the right and the left for major changes to U.S. trade and economic policy. Florida Senator Marco Rubio, for example, in April wrote in the New York Times that our empty shelves proved that America, suffering a “severely diminished” manufacturing base due to U.S. politicians’ decades‐​long “choice to facilitate offshoring,” needed a “sensible industrial policy” that included “the re‐​shoring of supply chains integral national interest.” Sure, Rubio argued, “some heroic businesses have shifted production to help fill this gap and produce masks, hand sanitizer and other goods,” but “the nation is still behind” because “we by and large lack the ability to make things.” Scott Paul of the union‐​backed Alliance for American Manufacturing made similar claims on those very same pages a few days earlier. Others implored the president to invoke the wartime Defense Production Act to “contract with companies throughout the country to widely produce and distribute free soap and hand sanitizer.” Others still said that the sanitizer shortages of March and April called both global supply chains and capitalism itself into question. “Medical masks are already in short supply, and everyday items such as hand sanitizer have become difficult to find,” said progressive economist James K. Galbraith in March, because “[T]he heavily globalized, consumer‐ and finance‐​driven U.S. economy was not designed for a pandemic.”

Fast forward to today: “Walk into any drug store, grocery chain or market today, and you’ll be hit with a wall of hand sanitizers and cleaning products that help fight against the coronavirus.” Wow!

So how did this amazing change occur? Did President Trump use the Defense Production Act to force U.S. companies to make these essential goods? Or did Congress, at Senator Rubio’s prodding, enact a “sensible industrial policy” that restored our manufacturing base, re‐​shored our supply chains and thus ended our “dangerous dependency” on foreign countries? Did we finally throw out global capitalism and “design” a better economic system?

Actually, it was just the market at work:

Lesser‐​known brands have popped up seemingly out of nowhere.

Although Brands International has always been in the business of making sanitizer, albeit on a smaller scale, the pandemic led it to ramp up production and focus solely on hand sanitizer, according to Mark Rubinoff, the Canadian company’s founder and CEO.

Brands International’s 10 production lines were converted to only making Germs Be Gone hand sanitizer. The company sold about 35 million bottles of sanitizer this year, up from 1 million in all of 2019.

SmartCare, a value‐​products brand of California‐​based Ashtel Studios, has been producing sanitizer since 2014. President Anish Patel said he had planned to build the brand this year and talk to retailers to get it into stores — and then Covid‐​19 came to the US and demand was “explosive.”

“What we had planned was going to happen in three‐​to‐​four years happened in a couple months,” he said.

The company already sold soaps, bath tissues and kitchen towels at Walgreens, CVS, Menards and Meijer. Patel said those relationships helped SmartCare set up an ever‐​expanding delivery schedule.

Israeli company Albaad, which makes wet wipes and feminine hygiene products, was started nearly 35 years ago and expanded to the US in 2004 with a production facility in North Carolina. Albaad CEO Dan Mesika said that demand is so high for wipes that the company has been getting requests via its website from individuals desperate to find wipes, asking them to send to their homes.

To help meet demand, the company developed Cleanitize disinfecting wipes, which Albaad expects to be released in September or October.

Walgreens and CVS started looking in some atypical places for hand sanitizer when demand outstripped supply. They placed orders to M. Skin Care and Miss Spa for hand sanitizer in the late spring. They had made hand sanitizer for the drug store chains off and on over the past decade, but the brands weren’t producing it at all this time last year, according to President Lisa Ashcraft. The company’s sanitizer products hit stores nationwide by June.

These are not cherry‐​picked examples, either. While most name brands are still sold out due to persistently high demand, a quick Amazon search shows dozens of other brands of hand sanitizer, cleaning wipes, and other cleaning products that were in critical short supply just a couple months ago. You can also get face masks (even N95s) or other important COVID-19 consumer goods if you still need them. Certainly, things aren’t perfect out there (the CNN article above notes, for example, that “some companies have resorted to putting sanitizer in unusual bottles” due to materials shortages), but these new producers and their products show how the market — not any government plan or policy — can quickly adjust in response to unexpected situations and thereby meet our essential material needs. It’s also a real testament to the incredible hard work and ingenuity of U.S. retailers and global manufacturers, driven by the aforementioned market signals.

“Seemingly out of nowhere,” indeed.

Of course, there are things that governments can do to facilitate these necessary market adjustments, but the most important ones mainly involve just getting out of the market’s way. The CNN article notes, for example, that the Food and Drug Administration “temporarily ease[d] restrictions on manufacturers looking to make sanitizer, outlining that ‘the agency does not intend to take action against manufacturing firms that prepare alcohol‐​based hand sanitizers for consumer use.’ ” In this regard, we seem to be following Korea’s lead, which years ago implemented detailed “pandemic preparedness” regulations that allow for the swift approval and production of testing and other essential medical equipment. Other actions, such as refraining from onerous anti‐​gouging laws that prevent price signals that would encourage new production and discourage hoarding, could also help speed adjustment. In general, however, all those tales of the death of American manufacturing and the failures of free markets and global supply chains thus far seem greatly exaggerated.

Maybe we don’t need to abandon capitalism after all.

August 6, 2020 1:40PM

Will President Trump Do to Essential Medicines What He Did to Washing Machines? (Let’s Hope Not.)

Speaking today at a Whirlpool factory in Clyde, Ohio, President Trump will credit his January 2018 decision to impose 50% “safeguard” tariffs (at Whirlpool’s request) on imported washing machines with creating 200 Ohioan jobs and spurring new domestic investment in appliance manufacturing across the country — a testament to the President’s economic nationalist policy and vision. Continuing that vision, Trump will also announce he’s signing an Executive Order that “instructs the government to develop a list of ‘essential’ medicines and then buy them and other medical supplies from U.S. manufacturers instead of from companies around the world.”

If news reports are correct, however, President Trump will omit several crucial details about Whirlpool and his washing machine tariffs – details that caution against following a similar economic nationalist path for essential drugs and other medical goods.

  • First, those tariffs dramatically raised prices for both washers and dryers, which economists last year calculated cost American consumers an additional $1.5 billion per year. Had U.S. retailers been unable spread out the washers’ cost increase to dryers, that already‐​high 12% price increase would have almost doubled. Given these higher costs, and even factoring in the additional tariff revenue collected by the U.S. government, the researchers found that – even under the rosiest job creation scenario — each new American appliance manufacturing job cost U.S. consumers $817,000 per year. Yikes.

Washer prices increased after tariffs
  • Second, according to an August 2019 examination of the tariffs’ effects by the United States’ International Trade Commission (ITC), which recommended the tariffs and is required by law to review them periodically, the tariffs have not produced a thriving domestic industry. Although capacity and employment reportedly increased, for example, actual production declined, “resulting in declining capacity utilization, lower productivity levels, and higher unit labor costs.” (The ITC also noted the aforementioned price increases.) Indeed, Whirlpool itself told the Commission that the safeguard “has fallen short of delivering the intended remedial benefits to the continuously operating U.S. producers” due to “unanticipated” responses to the tariffs by foreign exporters (absorbing some of the tariff cost), U.S. importers (stockpiling), and consumers (buying fewer appliances). [Ed. note: all of these actions are common and expected market responses to tariffs.]
  • Finally, it’s doubtful that President Trump will mention Whirlpool’s own financial difficulties – caused in large part by other Trump tariffs. In particular, Trump’s “national security” tariffs on steel and aluminum cost the company $300 million per year, collapsing its profits and stock prices (which peaked in January 2018 after the tariffs were announced but never recovered). Whirlpool was also affected by Trump’s “Section 301” tariffs on Chinese imports and unsuccessfully sought exclusions therefrom. (Economic nationalism for thee, but not for me.) The ITC’s 2019 report notes that other U.S. appliance manufacturers faced similar cost pressures due to the steel, aluminum and China tariffs (which raised all prices, not just those for Chinese imports).

None of this inspires confidence about the President’s new economic nationalist plans to revive domestic production of pharmaceuticals and other “essential” medical goods. Granted, at this stage President Trump’s new executive order sounds more like a campaign message than a serious policy change, and it involves Buy American rules, not tariffs. However, the administration has already announced subsidies for new domestic production of both pharmaceutical inputs and finished generic drugs – despite serious questions about the need and implementation of such plans – and economic nationalist policies have a long history of snowballing. (In fact, Trump’s washing machine tariffs were actually the third time that Whirlpool had petitioned and received government protection from imports.) It’s quite logical to assume that subsidized national champions making low‐​margin bulk commodities like generic drugs and their ingredients will seek more government help when faced with intense, lower‐​cost import competition, and that the government will at that point have a strong incentive to provide it.

If Trump’s washing machine tariffs are any indication, however, we should all hope that they pass on the chance – especially for something far more essential than a washer‐​dryer.

August 5, 2020 2:59PM

Nice Video Streaming Business You Got There…

On Monday, Americans witnessed a stunningly brazen act of what can only be called political gangsterism. Speaking from the White House, Donald Trump declared that for “security reasons” the popular video sharing platform TikTok—which is owned by a Chinese company called ByteDance—would be “shut down” in the United States on September 15, unless it were purchased by Microsoft or another American firm. Moreover, since the government was effectively forcing the sale by threatening to shutter TikTok, Trump expected the U.S. Treasury to get a piece of the action—though the exact legal mechanism by which the government would take payment for this “service” was left vague. It’s worth quoting Trump’s explanation at length:

I did say that if you buy it, whatever the price is, that goes to whoever owns it, because I guess it’s China, essentially, but more than anything else, I said a very substantial portion of that price is going to have to come into the Treasury of the United States. Because we’re making it possible for this deal to happen. Right now they don’t have any rights, unless we give it to ’em. So if we’re going to give them the rights, then it has to come into, it has to come into this country.

It’s a little bit like the landlord-tenant [relationship]. Uh, without a lease, the tenant has nothing. So they pay what is called “key money” or they pay something. But the United States should be reimbursed, or should be paid a substantial amount of money because without the United States they don’t have anything, at least having to do with the 30%.

So, uh, I told him that. I think we are going to have, uh, maybe a deal is going to be made, it’s a great asset, it’s a great asset. But it’s not a great asset in the United States unless they have the approval of the United States. So it’ll close down on September 15th, unless Microsoft or somebody else is able to buy it, and work out a deal, an appropriate deal, so the Treasury of the — really the Treasury, I suppose you would say, of the United States, gets a lot of money. A lot of money.

Let’s not mince words: This is the Mafia’s business model. “We’ll threaten your competitor, forcing them to sell the business cheap, but we expect our cut in return.” The national security powers of the executive branch are now officially muscle for hire.

But how—one might reasonably wonder—could an app best known for videos of teenagers dancing and lip-syncing pose a national security threat in the first place? A threat so dire it justifies the use of emergency powers to close down an expressive platform used by millions of Americans every day? Can a president even do that?

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August 5, 2020 11:47AM

Your License, Or Your Conscience? A Tale of the Pandemic

The story of one man’s stand on principle and the patients who were saved, from Jewish family weekly Mishpacha via Ira Stoll:

Early on, a talmid called with a complicated question. As an operator of several nursing homes, he was being forced to accept residents who’d tested positive for the virus as they were released from hospitals that no longer wanted them. Despite the clear danger to their current residents and staff, the nursing homes were being given no choice.

Rav Shmuel told him unequivocally that to accept these patients was a form of retzichah, murder, since it put the other residents at serious risk. But then, on a conference call, the governor informed all nursing home operators that failure to accept the patients would mean losing their licenses.

The talmid called Rav Shmuel again. Lose your license, the Rosh Yeshivah ruled, but you can’t put your elderly residents in danger.

The nursing home operator listened to his rebbi.

Weeks later, he stood tall as the only major nursing home operator in the state of New Jersey who didn’t lose a single resident to Covid‐​19.

The full article, a profile of Rav Shmuel Kamenetsky, is here.

August 5, 2020 10:12AM

RIP Frank Bond

Frank Bond

Frank Bond, Director Emeritus of the Cato Institute who served on the Institute’s Board of Directors for 26 years, passed away on July 26 at the age of 86.

As a businessman, Frank was ahead of his time. He launched U.S. Health, Inc. in 1959, operating the Holiday Health Spa chain. His was the first publicly traded, multi‐​state health and fitness chain. A four‐​time Chair of the National Fitness Industry Association, Frank was inducted into the Club Industry Hall of Fame. When he sold his company to Bally’s Health & Fitness in 1988, U.S. Health employed over 2,500 people and owned and/​or operated over 120 health clubs.

After the fitness business, Frank formed the Foundation Group to develop residential real estate. His first real estate venture, the 400‐​unit English Country Manor, became the most awarded residential community in Maryland, earning “The Nation’s Most Outstanding Community” award.

Throughout his life Frank Bond was an active participant and generous donor in the libertarian and Objectivist movements. He described himself as “one whose life has been profoundly affected by [Ayn Rand’s novel] Atlas Shrugged.” As early as 1969 he was a funder of the Objectivist‐​libertarian Society for Rational Individualism. Later, in addition to serving on Cato’s board from 1988 to 2013, he was a board member of the Reason Foundation and board chair of the Atlas Society.

Frank was a champion boxer, a fitness buff, an entrepreneur, a philanthropist, and a master of showmanship. His Baltimore Sun obituary says he “was known to those who knew him best as a master of the grand gesture (from surprise cars to surprise weddings) – ‘a wielder of wow’!”

We saw some of that enthusiasm for the grand gesture at the Cato Institute. In 1997 he helped to arrange a conference co‐​sponsored by Cato and the Institute for Objectivist Studies (later the Atlas Society) to celebrate the 40th anniversary of the publication of Atlas Shrugged. To highlight the evening dinner Frank engaged Mr. Universe 1994 to rise slowly from a crouched position to hoist a globe above the crowd, like Atlas of the Greek myth and the Rockefeller Center statue. In 2002 he arranged for the legendary band Three Dog Night to play at the afterparty for Cato’s 25th anniversary. As we prepared to open our expanded headquarters building in 2012, Frank proposed a set of life‐​size statues of great thinkers – including Aristotle, Locke, Jefferson, Rand, and Frederick Douglass – to add a dramatic note to our lobby. In this case his outsized vision and imagination, regrettably, turned out to be larger than our lobby!

We especially appreciate that he urged contributions in his memory to the Cato Institute.

Frank Bond devoted his life to achievement, liberty, and the pursuit of happiness for those he loved. We extend our condolences to his loving wife Arlene; his son Baron, who now serves on Cato’s board, and his wife Mayrav; and all of Frank’s family.

August 5, 2020 9:47AM

The Spread of Anti‐​Dumping Abuse

Many of you are probably familiar with the late 1980s public service announcement where a father is scolding his son about doing drugs, and asks him where he learned this bad behavior. The son replies, “You, all right. I learned it by watching you.” Well, in the field of anti‐​dumping, the practice of which presents its own dangers, that same sort of learning is taking place. Our colleague Dan Ikenson recently wrote about a new set of anti‐​dumping practices established by Congress in 2015, and then implemented by the Commerce Department, through which this agency can calculate a higher rate of anti‐​dumping duties when it is found that a “particular market situation” exists. Such U.S. practices do not go unnoticed, and as we explain below, it appears that in a recent ruling, China has been following the U.S. lead when it comes to finding ways to inflate anti‐​dumping duties based on the existence of distorted markets.

In response to a petition from the domestic industry, in 2019 China’s Ministry of Commerce (MOFCOM) began anti‐​dumping and countervailing duty investigations on imported n‐​propanol originating in the United States (n‐​propanol is a raw material that goes into many products, including pharmaceuticals, food additives, insecticides, and paints). MOFCOM recently released its preliminary ruling in the anti‐​dumping case (there will now be an opportunity for the parties to comment before a final ruling is issued). In this ruling, MOFCOM reached a conclusion that the price of n‐​propanol is distorted in the U.S. market and, therefore, the price there cannot be used for the price comparison that is the basis of determining the amount of dumping. As a result, MOFCOM relied on an alternative calculation methodology — it had not done this before, although it had considered doing so in a couple recent cases — and found dumping margins ranging from 254.4 to 267.4%, which means that, if this methodology is confirmed in the final ruling, tariffs will be applied in those amounts.

Now, you may be thinking that there was a typo above, because the amount of dumping couldn’t possibly be over 250%. But those numbers are the correct numbers. You get used to such high numbers when you spend any time with anti‐​dumping, regardless of which country is imposing the duties.

How exactly did MOFCOM decide that the U.S. market was so distorted — by subsidies and other government intervention — that these high tariffs are justified? The domestic industry did not even ask MOFCOM to take this particular approach, and in their anti‐​dumping petition, they asked for tariffs of “only” 154.07%. But MOFCOM looked over at the countervailing duty petition that had been filed simultaneously, saw a whole list of subsidies/​distortions, and ran with that information. It focused on the following (translated from the original Chinese): (1) “U.S. government agency or public body administration of, and constraints on, oil, gas, coal and other resources”; (2) “the implementation and effects of the industrial plans and strategies of oil and gas industries”; (3) “the support measures of the U.S. government in the energy industry”; (4) “U.S. import and export controls in the oil and gas industries”; (5) “financial support of the oil, gas, coal and other industries by the U.S. government”; (6) “government intervention and constraint on prices of oil, gas and coal”; (7) “non‐​market condition in the electricity sector”; (8) “price distortions of ethylene, syngas, and hydrogen”; and (9) “financial supports to domestic chemical companies by the U.S. government.” 

To elaborate on one of these, in their submissions in the countervailing duty case, the domestic industry pointed to the large amount of financial support provided by federal and state governments to U.S. chemical companies, including subsidies for research and development and Ex‐​Im bank loans at the federal level, as well as preferential tax programs and funding at the state level. The petitioners had claimed that Dow Chemical Company received $2.34 billion of subsidies since 2000, Sasol received $1.85 billion, Eastman received $136 million, and BASF received $339 million. In the absence of any rebuttal evidence, MOFCOM concluded that government subsidies had a significant impact on resource allocation in the chemical industry and therefore affect market demand and supply as well as prices. Because of these and other non‐​market conditions, MOFCOM concluded that the costs and prices in the United States could not be used to calculate the dumping margins. Instead, in order to determine the dumping margin, MOFCOM used a different production cost that it calculated on its own.

U.S. government subsidies for the fossil fuel industry are no secret. Estimates vary depending on the method of calculation. According to OECD data on fossil fuel support, the United States provided subsidies of $8 billion for fossil‐​fuel production in 2019. That is a decline from the $15 billion in 2010, but it is still a large amount. Others have offered even larger estimates. A 2015 report by the Overseas Development Institute estimates that the U.S. provides more than $20 billion of subsidies to fossil fuel production annually. And of course, subsidies are common in other sectors as well.

What this means is, with all the subsidies that are out there, governments wishing to inflate anti‐​dumping margins with these and similar methodologies have an easy excuse to do so.

The lesson from all this is that the abusive anti‐​dumping practices documented by Dan and others at Cato over the years have an impact beyond just raising prices for U.S. consumers. Anti‐​dumping authorities in other countries watch how U.S. agencies behave and learn from them. These abusive practices spread, and U.S. companies are faced with them when selling to foreign markets. We can be mad at China for following our lead, but we should be mad at ourselves for getting the ball rolling.

August 4, 2020 9:41PM

In Which a Lobbyist for Private Insurance Companies Defends Taking Coverage away from the Sick

Two weeks ago, a federal appeals court upheld the freedom of consumers to purchase health plans that are exempt from the Affordable Care Act’s costly regulations; that consumers can purchase year‐​round; and that can cover enrollees for a full year—including during the 10‐​month period that the ACA prohibits consumers from purchasing ACA plans. Short‐​term, limited duration insurance (STLDI) plans offer consumers additional choice. Since they are exempt from the ACA, they cost dramatically less than ACA plans and often offer greater choice of health care providers.

Last week, I published an oped in The Hill praising the appeals‐​court ruling. I noted that the lead plaintiff in the case is a lobbying group—the Association for Community Affiliated Plans—that represents private insurance companies who sell ACA plans. The group asked the courts to impose a rule that would throw STLDI enrollees out of those health plans after just three months. Insurance regulators at the National Association of Insurance Commissioners have warned such a rule would strip coverage from sick patients, leaving them uninsured for up to an entire year. As it turns out, the regulators were right: when that rule was briefly in place during 2017, it stripped Arizona resident Jeanne Balvin of her STLDI plan, leaving her with $97,000 in hospital charges and no coverage. The court agreed that the rule ACAP desires would create situations where sick STLDI enrollees “could be denied a new policy ‘based on preexisting medical conditions.’”

ACAP admitted in court both that it is seeking that rule because STLDI plans are cutting into its members’ revenues, and that it wants the courts to throw STLDI enrollees out of their plans after three months because that would improve its members’ revenues. I wrote:

Complaining that STLDI plans were cutting into their business, ACAP asked federal courts to remedy that “injury” by reinstating this heartless rule.

To be clear: ACAP is asking federal courts to improve its members’ bottom lines by stripping coverage from their competitors’ enrollees after three months, because doing so will frighten consumers into enrolling in ACAP members’ plans. ACA plans must not be very attractive if the insurers who sell them feel they cannot compete unless the government actively punishes people who choose their competitors’ plans.

Today, The Hill published an equal‐​length rebuttal by Margaret A. Murray, the head lobbyist for ACAP. The oped is heavy on rhetoric. It labels STLDI plans “junk insurance,” for example, a phrase that appears an average of once per paragraph. (More about junk insurance in a moment.) Worse, the oped gets crucial facts wrong.

It claims, incorrectly, that ACA plans neither deny coverage for preexisting conditions nor impose lifetime caps on benefits. On the contrary, for 10 months every year, ACA plans do both. In effect, and with few exceptions, the ACA prohibits enrollment in ACA plans except during a narrow window in November and December. During the other 10 months of the year, the ACA effectively offers a benefit limit of $0. As any honest ACA supporter will tell you, the purpose of that restriction is to block people with preexisting conditions from enrolling in coverage during those 10 months.

For 10 months every year, therefore, STLDI plans offer more comprehensive coverage than ACA plans. You can see for yourself: call up one of the insurance companies Ms. Murray represents and one STLDI issuer, tell them you would like to enroll in one of their health plans right now, and see how much coverage each insurer offers you.

ACA plans deny coverage to people with preexisting conditions in other ways as well. Last week, the Cato Institute held a forum exploring the case of seven‐​year‐​old leukemia patient Colette Briggs. ACA‐​participating plans have repeatedly dropped coverage for Colette’s cancer treatment. Colette’s parents have had to fight with insurance companies, plead with Congress, and go to the media to get ACA plans to cover Colette’s care. They often failed.

ACA plans are treating Colette this way for the same reason economists have found ACA plans are getting increasingly worse for patients with other expensive illnesses: the ACA literally rewards insurers who discriminate against such patients in these ways. Chances are extremely high that ACAP’s members are doing the same. (Who’s selling junk insurance now?) If both ACA and STLDI plans have downsides, why not let consumers decide which they prefer?

There are plenty of other problems with Murray’s oped. It claims STLDI plans engage in misleading marketing, yet it neither substantiates that allegation nor acknowledges the ACA owes its existence to misleading marketing. (Sprechen Sie, “If You Like Your Health Plan, You Can Keep It”?) It derides measures that protect consumers and insurers from fraud as if they were some evil plot. It fails to recognize that when STLDI plans offer less coverage than ACA plans, they are reflecting consumers’ preferences.

But the biggest problem with Murray’s oped is its refusal to take responsibility for ACAP’s actions. Insurance regulators and a federal court have warned ACAP’s desired rule will strip coverage from, and deny care to, sick patients. ACAP has admitted in federal court that it is pursuing that rule in order to improve its members’ bottom lines. Murray’s oped blames everyone else in sight for the damage everyone knows her organization’s actions would cause in the pursuit of more money for its members.