Posts tagged ‘NAFTA’

Progressivism as Deep (little-c) Conservatism

At least in economic policy, progressives like Barack Obama are deeply conservative.  They want industries, jobs, real earnings, and class positions to be stable and predictable.  No one ever believes me when I say this, but look at the policies.  Trade protectionism protects current industry incumbents and workers, at the cost of poorer future performance due to lack of competition.  Unions attempt to lock in current jobs through numerous controls on work rules, slow or stop changes in technology and work processes that have the effect of eventually castrating the company (think GM).  Socialized medicine tries to lock in the current standard of care for everyone, while reducing the possibility of future improvements.  Redistribution attempts to lock in the current standard of living for everyone while reducing the possibility of future improvements.  I discussed this more European model last week.

I like how Shannon Love summarized it in the context of Obama:

Obama has no concept of business as a creative and experimental endeavor. On some deep unconscious level, he assumes that material wealth is something akin to a natural phenomenon for which no group of humans can take credit. Therefore, he sees distribution as the only serious economic issue and ignores how politics interferes with the actual process of wealth creation.

Though to be fair, I am not sure McCain or GWB understand this either.     (or here in 2005)

I always laughed at Democrats that tried to woo me to their party.  Now I laugh at Republicans too.  MoveOn may get mileage out of attacking Bush, but he has done more for the left/liberal cause than Clinton.  Clinton had NAFTA, welfare reform, and (moderated by an aggresive Republican Congress) fiscal sanity.

Cargo Cult Economics

The Democratic party, which so often accuses others of adopting superstition over science, are themselves pursuing Medieval economics:

The Democratic Party's protectionist make-over was completed yesterday,
when Nancy Pelosi decided to kill the Colombia free trade agreement.
Her objections had nothing to do with the evidence and everything to do
with politics, but this was an act of particular bad faith. It will
damage the economic and security interests of the U.S. while trashing
our best ally in Latin America.

The Colombia trade pact was signed in 2006 and renegotiated last year
to accommodate Democratic demands for tougher labor and environmental
standards. Even after more than 250 consultations with Democrats, and
further concessions, including promises to spend more on domestic
unemployment insurance, the deal remained stalled in Congress.
Apparently the problem was that Democrats kept getting their way.

I am sure the Columbians, who for years have been told by the US to export something other than cocaine, are scratching their heads at this rebuff when they actually try to do so.  My sense is that the Democrats are reacting to this ugly picture of US manufacturing output post NAFTA:

Manufacturing

We can see that since the passage of NAFTA in the mid-1990s that US manufacturing output has, uh, has.... can that be right?

Arizona Politicians Pursue Protectionism -- Against New Mexico

Taking the economically illiterate but apparently politically powerful notion that it is important that commerce across arbitrarily selected geographic boundaries be minimized, some Arizona politicians are taking the argument to the next, ridiculous level:  Not content to blame perceived problems in the state economy (which has outperformed most other states) on NAFTA, Mexico, or Mexican immigrants, Arizona politicians are now blaming them on New Mexico.

An Arizona energy regulator is frustrated that Arizona Public Service
Co. is passing up in-state wind-energy for power from New Mexico and
Utah....

The state's largest utility buys 90 megawatts of energy from the
Aragonne Mesa Wind Project near Santa Rosa, N.M., and officials have
informed Corporation Commissioner Kris Mayes of plans to buy more
renewable energy from out of state, including from a Utah
geothermal-power plant.

"I am concerned that such out-of-state purchases hinder the development
of renewable energy here in Arizona, and potentially deprive our state
of much needed economic development," Mayes said in a letter to APS,
echoing concerns she raised at a regulatory meeting last week.

Of course, everyone knows that silly government energy mandates have much more growth potential than, say, low electrical rates.  So obviously the power company is just being treasonous in buying power from the cheapest sources:

When APS [one of our electric utilities] chose to buy power from the Aragonne project in New Mexico, it
rejected a similar proposal from a company that wanted to build a wind
farm in northern Arizona, which wasn't built because of the decision
from APS, Mayes said.

Brandt said the New Mexico project was better for customers.

"We put all these projects out with a competitive bid," Brandt said.
"Then we select the resource that comes out the best. It's not always
the cheapest. It's a combination of price, reliability and do-ability,
all the things a common businessperson would look at."

He said APS would rather support Arizona power projects, but so far those that have bid on power have not been competitive.

Of course, all of this, even taking the cheapest source, is more expensive than electricity would be without these mandates:

When the Corporation Commission approved the renewable-energy standard
in 2006, officials estimated it would raise an existing monthly tariff
on customer bills from less than 50 cents to $1.05 to help APS meet the
goal, but those projections have gone up. Regulators are expected to
set a new limit on the tariff in the next month, according to Mayes and
APS officials, with some proposals nearing $2.

The protectionist argument is summed up:

"This is Arizona ratepayer money that is currently going to other
states that ought to stay in Arizona," she said. "We are in an economic
downturn. It's a terrible time to be investing out of state."

Yes, yet another blow is struck against economic literacy and the concept of division of labor.  Just how arbitrarily small does a geographic area have to be before protectionists will accept that this area does not need to be self-sufficient of all products and services?

 

The Irrational Voter

Much has been made of late of the irrational voter, a voter who demands of politicians government economic measures that actually are not in his/her long-term best interest.   For example, a large number of voters want the government to shut down NAFTA, thinking this is in their economic best interest when in fact the evidence is pretty strong that for most of them, it is not.   

What is a gung-ho but thoughtful politician to do?  Do you listen to your experts, who council free trade, or do you pander to the masses?  Do you stick by our trading allies, or do you begin your kindler-gentler foreign policy by unilaterally abrogating treaties with our neighbors. 

Well, if you are the modern presidential candidate, you tell the masses what they want to hear, and then tell our allies you are just kidding.

Update: Cato brings us a great example from North Dakota

There's No Shortage, Just A Price You Don't Like

In the absence of government meddling (e.g. price controls) healthy markets seldom create true shortages, meaning situations where one simply cannot obtain a product or service.  One might think there was a shortage, for example, of Superbowl tickets, since there are only a few available and tens of thousands, maybe hundreds of thousands, of people who would like to attend.  But in fact one can Google "Superbowl tickets" and find hundreds available.  You may not like the price ($3500 and up for one ticket), but they are available for sale.

Yesterday, the AZ Republic lamented that there is a shortage of truck drivers nationwide:

Trucking companies across the country are facing a shortage of long-haul drivers....

High driver turnover has traditionally been a problem throughout the
trucking industry. But retirements and growing shipping demand have
made the shortage of long-haul drivers more acute. Fewer drivers means
delayed deliveries and higher delivery costs that could be passed on to
consumers. The
issue is especially crucial for the Phoenix area, which touts itself as
a shipping hub for businesses fed up with the costs and congestion
around Los Angeles-area ports. The Valley also is headquarters to two
of the country's biggest for-hire trucking companies: Swift
Transportation and Knight Transportation....

Trucking experts say the problem goes beyond a labor shortage in the industry. They call it a threat to the economy.

"Our country needs to figure out how to fix this," said Ray Kuntz,
chairman and chief executive of Watkins and Shepard Trucking in Montana
and chairman of American Trucking Associations. "Our economy moves on
trucks."

Here is the key fact:

"¢ Long-haul wages vary by company and are typically based on
experience, safety record and commercial-driver's-license endorsements.
Long-haul drivers with two or more years of experience usually earn at
least $50,000 to $60,000 a year.

"¢ An entry-level driver with no over-the-road experience starts in the high $30,000 range. Team drivers can earn more.

There is no way in a Platonic vacuum to determine if a wage is too high or too low.  But the driver "shortage" gives us a really good hint that maybe these salary levels are no longer sufficient to attract people to the rather unique trucking lifestyle.  I probably could write a similar article about how there is a shortage of Fortune 500 CEO's or airline pilots who will accept a $30,000 starting salary.  The problem then is not shortage, the problem is that wage demands are rising as trucking is out-competed for talent by alternative careers.   In fact, there is not shortage, but a reluctance by trucking firms to accept a new pricing reality in the market for drivers.

By the way, to some extent this "shortage" is indeed an artificial creation of the government.  Under NAFTA, Mexican truckers were long-ago supposed to have been given access to the US market, but overblown safety concerns have been used as a fig-leaf to block the provision as a protection for US truckers and a subsidy to the Teamsters.  If a truck driver "shortage" is really a national economic problem, then let's stop blocking this NAFTA provision.  But my sense is that the trucking companies in this article would freak at this, because they are not really concerned about the national economy but, reasonably, with rising wages hurting their bottom line.  My guess is this article is the front-end of a PR push to get states like Arizona to subsidize ... something.  Maybe truck driver training.  Look for such legislative proposals soon.

 

On Political Calibration

If I had to choose one word that describes why I despair of politics, it is "calibration."  Recently, it has been observed that Ron Paul, for example, cannot possibly win because he sticks to a basic set of beliefs and never calibrates his message to the electorate and recent polls.  On the other end of the scale, Hillary Clinton is famous for endlessly calibrating everything she does in the hopes of maximizing the votes she receives.

Calibration is one of those dangerous words that tend to obfuscate the underlying reality.  Because, there are only two possible definitions of calibration as used in this political context:

  • Lying, i.e. telling the electorate what they want to hear with the intention of acting differently once in office
  • Total nihilism,, i.e. willingness to shift beliefs based on whatever is effective

Russell Roberts describes the situation pretty well:

But there is little difference between Republican and Democratic
Presidents in what they actually do. In what they say? Sure. Both
Reagan and Bush talk about individual responsibility and the market
blah blah blah. Bill Clinton talked more about feeling people's pain
and the downtrodden blah blah blah. Similarly, in the current
presidential campaign, there are stark rhetorical differences between
say Giuliani and Romney on the one hand and Obama and Clinton on the
other.

But will the actual results be different? Will Hillary double the
minimum wage? Change our health care system to be more socialized?
Eliminate corporate welfare? Will Giuliani make the health care system
less socialized? Eliminate the minimum wage? Get rid of farm subsidies?
Stop spending federal money on education?

Most of it is talk and it's not just because change is hard to
achieve. It's because they really don't want change. Did Bill Clinton
get rid of income inequality? Dent it? The share of income going to the
top 1% rose throughout most of the Clinton administration. Was it his
policies? The steady rise in the share of income going to the top 1%
started rising in 1976. Was it Carter's doing?

Was Bush or Reagan a hard core free trader in practice? Nope. They
used protectionism when it was politically expedient. Just like Bill
Clinton signed welfare reform and NAFTA and then chose not to enforce
the truck provision of NAFTA because the Teamsters didn't like it.

Government gets bigger under both Republicans and Democrats. What
they spend money on is a little different, yes. But to hate George Bush
for being a free market guy is to miss what is really going on. And to
hate Hillary because she doesn't understand the power of markets and to
love, say, Mitt Romney, is to misunderstand both of them. They use
rhetoric to dupe you. Don't be duped.

This all leads to the question of into which category should we place Paul Krugman - lier or nihilist?

Paul Krugman worries that,
although trade between high-wage countries is mutually beneficial,
"trade between countries at very different levels of economic
development tends to create large classes of losers as well as winners"
- and so is suspect because it likely harms ordinary American workers
("Trouble With Trade," December 28).

A famous trade economist
argues that this concern is misplaced.  In a 1996 essay, this economist
- responding to a protectionist who fretted that western trade with
low-wage countries would harm workers in the west - wrote that this
protectionist "offers us no more than the classic 'pauper labor'
fallacy, the fallacy that Ricardo dealt with when he first stated the
idea, and which is a staple of even first-year courses in economics. In
fact, one never teaches the Ricardian model without emphasizing
precisely the way that model refutes the claim that competition from
low-wage countries is necessarily a bad thing, that it shows how trade
can be mutually beneficial regardless of differences in wage rates."

Oh - the economist who wisely warned against the pauper-labor fallacy is none other than Paul Krugman.

Bush Sucks

Chris Edwards of Cato has the numbers:

Edwards_0907

I always laughed at Democrats that tried to woo me to their party.  Now I laugh at Republicans too.  MoveOn may get mileage out of attacking Bush, but he has done more for the left/liberal cause than Clinton.  Clinton had NAFTA, welfare reform, and (moderated by an aggresive Republican Congress) fiscal sanity.  While he too had an Iraq-like war in Kosovo, he never got sucked into the sweeping nation-building Bush has taken on.

Bush II is also leading this poll for the modern inductee to the free market hall of shame.

US Finally Fulfills Treaty Obligations, Maybe

After more than a decade, the US may finally allow Mexican truckers on US highways, something we actually agreed to in NAFTA:

The 9th Circuit Court of Appeals in San Francisco late on
Friday denied an emergency petition sought by the Teamsters
union, the Sierra Club and consumer group Public Citizen to
halt the start of a one-year pilot program that was approved by
Congress after years of legal and political wrangling.

I guess I can understand the Teamsters attempt to have the government shield them from competition -- that has practically become a national sport.  And I presume that the Sierra Club has some environmental concerns with Mexican trucks, though that seems flimsy given trucks must meet US environmental requirements and my guess is that Mexican trucks are at least as fuel efficient as US trucks.   But how can a nominal consumer group possibly justify this action?  Blocking competition in any part of the economy can only increase prices and reduce choices for consumers, particularly in an area like trucking that has almost no impact on the safety of the products actually being shipped.   I wish I could say this was some strange exception, but  consumer groups have for years backed protectionist efforts that do nothing but hurt consumers.

Via Cafe Hayek

It's Our Economy, Not Yours, Stupid

Like many libertarians, I lose interest quickly in politics, watching partisans of the Coke party argue why they are so much different than the Pepsi party.  You don't have to watch the whole farce for very long as a neutral observer before you see the same people taking the opposite tack on an issue than they did a few years earlier, only because their guy is in office, so now its more OK than when the other party's guy was doing it.

But I do read a few political blogs from both sides, just to keep abreast of what is going on.  This weekend, both sides managed to irritate me over the same issue.  First, Kevin Drum, from the left, railed on what he called "the GOP economy," complaining that the economy has grown without increasing median wages (note he carefully avoids "total compensation," which has gone up.)  Then Captains Quarters wrote from the right that "The economy continues its growth under the stewardship of the Bush administration."

George Bush does not run the economy.  George Bush does not even make day-to-day decisions that affect the economy.  He has made a few major moves that have economic consequences, with the positive effects of tax cuts probably mostly offset by unrestrained deficit spending, random protectionist acts and new bloated government services.  Bill Clinton, while we have to credit him for NAFTA (see below), was not responsible for the incredible economic expansion of the 90's.  In fact, neither Bill Clinton nor his wife have ever held a job where they produced anything. 

All of which is fine - I am not accusing president's of somehow falling down on the job.  I am merely stating what I thought was obvious.  Wealth is created by the actions and the minds of hundreds of millions of people, to whom the occupant of the White House is largely irrelevant except insofar as the President  substantially increases or reduces the artificial burden of efficiency-sucking government mandates, reporting, and taxes.

I will go into more depth on this in my annual tax day post, but I am increasingly confident of my theory of wealth creation.  Wealth is increased as two things happen:

  • More individuals are more free to (and more likely to) question established beliefs, either scientific (e.g. the earth-centric universe), social (e.g. racial prejudice) or business (e.g. primacy of mainframe computing).
  • More Individuals are more free to act in their own self-interest to pursue the results of their insights and to keep for themselves the proceeds of their efforts.

Since the 1970's, we have seen an explosion in the global economy, which has greatly increased the number of people working on any given economic problem.  For example, instead of just people in Detroit and Germany thinking about how to design and produce cars, we have folks in Japan and South Korea and even China and Brazil questioning the established wisdom from Detroit.  This has resulted not just in better, more affordable cars, but in production and supply chain management techniques that have made nearly every industry you can name more productive. 

Whenever such a change occurs, there are conservative (lower-c) forces that try to halt them.  The Church used its power for a time to resist the heliocentric view of the solar system.  Southern states used Jim Crow laws to resist post Civil War racial and social reforms.  And any number of groups wanted (and still want) to slam the door on the global economy.  Many countries in Europe went down this path.  What has saved the US from the same low-growth fate they have in Europe (and Japan) is that the government, and Bill Clinton in particular, at a critical time resisted the technocratic urge to have the government "do something" about the economic changes flowing from globalization.  Some wanted protectionism, while some wanted a more active hand by the government in "choosing winners" in the economy, like it was perceived that Japan had.  Bill Clinton resisted resisted these voices, most of whom were powerful in his own party, and in fact doubled down on globalization by pushing NAFTA.  For this act of vision, Clinton should be credited, but I still wouldn't call it "his" economy. 

Parties are Partisan, so Get Over It

There is nothing I think is dumber than the standard post-election plea for bipartisanship you see in newspapers after every election.  This election is no exception.  Get over it.  The Democrats won, they have been out of power for a while, and have a backlog of stuff they want to do.  I won't agree with a lot of it, which will put me in the same place I was with the Republican Congress.  I'm going to be pissed when the Democrats try to increase the minimum wage, roll back NAFTA, impose oil windfall profits taxes and raise income taxes.  Just as I was pissed when the Republicans passed McCain-Feingold, the prescription drug boondoggle, steel tariffs, and gave up on social security reform and any meaningful ethics and earmark reform.

Chris Edwards at Cato agrees:

That's nonsense. In a closely divided legislature, partisanship and
attacks on the other team are the logical course for both parties.
Because both parties know that either House or Senate could easily
switch back over in 2008, they will do their best to deny the other
side any legislative victories. The GOP's strategy now will be to show
that the Dems can't get anything done, so they block, filibuster, and
veto. They are the opposition in the House, so their job is to oppose.

The Dems will use their chairmanships and control of the House floor
to schedule partisan hearings and votes to try and make the Republicans
look bad any way that they can. The most important thing for Nancy
Pelosi will be to hold onto the majority and line up some divisive
issues to hammer on to help the party's 2008 presidential nominee. Note
that she won't be scheduling votes on tax hikes anytime soon, because
that would immediately revive the GOP and jeopardize 2008.

I do think the two parties are going to have to figure out how to get some judgeships filled, but I am not holding my breath.  My real wish is that Pelosi would pursue impeachment, not because I think it is justified but because it would tie Congress up into a magnificently entertaining gridlock.  Unfortunately, she has pledged she would not do so.

Postscript:  McCain-Feingold limits expired yesterday, so you have your free speech back.  You may criticize politicians again.

GWB the Spending Champ

President Bush has passed even Lyndon Johnson for the title of worst spender in the last 40 years.  While it is probably not a surprise that real military spending has grown an outrageous 8.8% per year during his tenure, it is amazing to see that domestic spending has grown 7.1% (yes, that's real, excluding inflation) per year.  Absolutely shameful.  More here in this Cato report (pdf).

Revised data released during the summer by the Congressional Budget Office (CBO) provide analysts the ability to make side-by-side comparisons of the spending habits of each president during the last 40 years.1 All presidents presided over net increases in spending overall, though some were bigger spenders than others. As it turns out, George W. Bush is one of the biggest spenders of them all. In fact, he is an even bigger spender than Lyndon B. Johnson in terms of discretionary spending.

It is interesting to note that Bill Clinton, who drove Republicans into a frothing hatred, can rightly be classed, along with Reagan, as one of the two most fiscally conservative administrations in 40 years.  Granted the Republican Congress kept him honest on spending and carved off his roughest edges (e.g. Hillarycare) while Reagan had to fight his Congress tooth and nail, but this spending record in the Clinton years combined with his passage of NAFTA and welfare reform make him a far better free market defender than either of the Bushes that bracket him.  I wonder if, in turn, liberals who are driven into a frothing hatred for Bush, will someday come to appreciate the work he has done for them in expanding the size of government and slowing the pace of free trade.

Free Trade Rules

Free trade, despite it enormous benefits, is constantly under attack.  Yesterday I heard a radio ad, with the sound of a toilet flushing, and the a voice over saying something like "that is the sound of 3 million jobs being lost due to NAFTA".  Since the US unemployment rate when NAFTA was passed was over 7% and is currently under 5.5%, its hard to figure out just how they did their math.  The problem is that it is relatively easy to spot job losses due to foreign competition (cars, apparel, memory chips) and much harder to find the jobs that were created due to lower cost materials supplies and increased exports.

Virginia Postrel has a really nice article in the NY Times (yes, reg required) on how industries and jobs have prospered due to NAFTA.

Economists argue for free trade. They have two centuries of theory and experience to back them up. And they have recent empirical studies of how the liberalization of trade has increased productivity in less-developed countries like Chile and India. Lowering trade barriers, they maintain, not only cuts costs for consumers but aids economic growth and makes the general public better off. 

Even so, free trade is a tough sell. "The truth of the matter is that we have one heck of a time explaining these benefits to the larger public, a public gripped by free trade fatigue," the economist Daniel Trefler wrote in an article last fall in The American Economic Review.

If you don't want to register, she has a longer excerpt at her site here.