Monday, June 13, 2011

Monday Quick Hits (World Champion Dallas Mavericks Edition)

I'm sure that you, like me, are still tired from celebrating the Mavs' ridiculously unexpected victory last night. So here's a little pick-me-up:
  • WTO Director General Pascal Lamy explains that, because of global supply chains, value-added is a much better way to measure trade flows, and old school trade stats "give us a distorted picture of trade imbalances between countries." A full WTO report on this issue gives us a detailed understanding of the abject absurdity of politicians' breathless claims about global trade imbalances based on the old metrics.  For example, on our elected officials' currency demagoguery, Lamy stated: "When products include many parts made in many other countries, the effect of an isolated exchange rate appreciation or depreciation to the selling price in export markets will be reduced to the domestic content of these exports, to its 'value added content'. This may explain why empirical studies about the impact of exchange rate changes on imbalances tend to show they only have limited or ambiguous effects."  Translation: the demagoguery is pretty much baseless.  Heritage's Bryan Riley has more on our misleading trade stats here.
  • In a must-read editorial, George Will absolutely destroys the White House's refusal to submit pending FTAs to Congress without congressional assurances on expanded Trade Adjustment Assistance.  My favorite lines: "A government borrowing $58,000 a second cannot afford Obama’s policy of Stimulus Forever, and there is this problem with TAA at any level: It is unjust to treat some workers as more entitled than others to protection from the vicissitudes of economic dynamism. Consider a hypothetical Ralph, who operated Ralph’s Diner until Applebee’s and Olive Garden opened competitors in the neighborhood. With economies of scale and national advertising budgets, those two franchises could offer more choices at better prices, so Ralph’s Diner went out of business. Should he and his employees be entitled to extra taxpayer subventions because they are casualties of competition? Why should someone be entitled to such welfare just because he or she is affected negatively by competition that comes from abroad rather than down the street? Because national trade policy permits foreign competition? But national economic policy permits — indeed encourages, even enforces — domestic competition. In 2001, when approximately 80,000 people worked in 7,500 music stores, the iPod was invented. Largely because of that and other technological changes, today only about 20,000 people work in 2,500 music stores. Should those 60,000 people be entitled to extra welfare because they are “victims” of technology? Does it matter if the 60,000 have found work in new jobs — perhaps making or selling electronic devices? In 2008, Americans bought 1.4 billion books made of paper and 200 million e-books. Soon they will buy more e-books than paper books, and half the nation’s bookstores will be gone. Should the stores’ former employees be entitled to special assistance beyond unemployment compensation? Reactionary liberalism holds that existing jobs must be protected with policies that reduce the economic dynamism that would mean a net increase in American jobs. So the dreary probability is that even if the TAA entitlement were re-enriched to stimulus levels, Democrats would again move the goal posts, concocting new objections to the trade agreements."  Yep
  • Speaking of TAA, I quite enjoyed this NYT op-ed from former Bush official Matthew Slaughter and former Clinton official Robert Lawrence about how to resolve the White House's self-imposed TAA/FTA impasse.  Their solution: (i) pass the FTAs as soon as humanly possible, and then (ii) scrap TAA and the current mishmash of other federal unemployment benefits and replace the ancient, broken programs with a more streamlined and rational system that is market-friendly and doesn't discriminate against Americans who lost their jobs due to technology or something other than (allegedly) trade policy.  I don't agree with everything they propose, but I love this idea (and have advocated something similar for a few years now): "enabling unemployed workers to make penalty-free withdrawals from savings accounts like 401(k)’s and I.R.A.’s to finance costs like occupational retraining and relocation."  Sadly, the chances of this deer-in-the-headlights White House actually doing something as rational and economically-beneficial as the Slaughter/Lawrence plan are, well, not good.
  • Is the, ahem, "Chicago way" coming to Geneva?  The Peterson Institute's Gary Clyde Hufbauer reports on what he sees as a very troubling development at the WTO: USTR's attempt to block Appellate Body member Jennifer Hillman from serving a second term on the world's most important arbiter of trade disputes: "The United States has never before blocked its Appellate Body appointee from serving a second term. Since the USTR has offered no explanation for blocking Hillman, suspicions are bound to arise that the United States is displeased with her decisions on the AB and wants to name a judge who is more attentive to US positions in future cases. These suspicions are bound to erode confidence in the WTO judicial system, and create a chilly reception for Hillman’s successor appointee. 'Judicial independence' is a hallowed American concept, now enshrined in the WTO.... But as a member of the bar, as well as President, Obama should seriously reconsider this damaging precedent."
  • Does CNBC get just how contradictory this ridiculous news story about the Japan tragedy and the US trade deficit is?  Compare and contrast (emphasis mine): "The after-effects from the March earthquake and tsunami in Japan left behind one on the US economy: An unexpected shrinking in the massive trade deficit. But that improvement may not last long….  Most of the $3.1 billion decline came from Japan and a $2.5 billion drop in auto-related imports. The tsunami devastated the Japanese auto industry, slowing parts distribution and production essential to US car manufacturing and sales."  So to recap: choking off essential inputs for US manufacturers is a "positive impact."  Riiiiight.  (h/t Bryan Riley) 
  • The Mises Institute's Jeff Tucker explains how US treatment of Vietnamese catfish basa and swai is an "archetype of disgusting protectionism."  Yep.
  • In case you're wondering, inflation and rising labor costs aren't isolated to China.  According to the WSJ, India's facing similar issues: "Maruti Suzuki India, the local unit of Suzuki Motor, is facing what's become a familiar hazard in the country: labor action. On Wednesday, a strike by about 2,000 workers at one plant entered the fourth day. With $9 million of potential revenue lost each day from the closure, the total is about $32 million, or close to 1.5% of last quarter's revenue. Maruti's troubles are the latest reminder of the effect of labor unrest as workers demand better wages and benefits, triggered partly by high inflation. Last month, a similar protest by the employees of national carrier Air India lasted nine days, causing a revenue hit of $30 million. In 2010, Hyundai Motor India had to rehire most of the employees it had sacked after a two-day protest that cost a similar amount."
  • Slate's Bryan Palmer explains why Europe "sucks" at innovation.  The intro reads like an article from The Onion: "The French government has banned television reporters from using the words Twitter and Facebook when referring generically to social media, because all that free advertising gives the companies an unfair advantage." Sacre bleu! 
  • Bloomberg's editors go back to basics, explaining why protectionism is politically attractive yet economically stupid.  The whole thing is worth reading, but I really enjoyed this quote: "Furthermore, the benefits of free trade do not require reciprocity. Avoiding tariffs and quotas is good for us whether China, Japan or Europe follow suit."  Exactly.
  • In case you need further evidence of the White House's secret understanding of free trade's myriad benefits, here's video of CIA Director (and current Secretary of Defense nominee) Leon Panetta explaining the strategic importance of free trade, especially with our allies in Korea, Colombia and Panama (start at 6:04, with Sen. Rob Portman's smart line of questioning):

Panetta: Senator, I think that when it comes to protecting our security there are number of areas that have to be addressed and one of those obviously is not just the military responsibility but there is an economic side of this that plays a very important role in terms of promoting better security. The ability of these other countries to develop trade with us to develop their economies creates greater stability within those countries. I think that’s a fact and to the extent that we can help promote that kind of trade, that we can promote that kind of economic development, I think it assists these nations in their ability to achieve stability. Columbia is a good example. They have done a great job going after narco trafficking. If we can help, you know be able to help them develop their economy, that could become another added factor in providing greater security in that region and the same thing is obviously true for Korea.
That's all for tonight.  Go Mavs!

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