Showing posts with label Adversary Economics. Show all posts
Showing posts with label Adversary Economics. Show all posts

Saturday, February 12, 2011

Mankiw: You Don't "Win the Future"

Greg Mankiw has a great op-ed in tomorrow's NYT about the wrongheadedness of trying to "win the future," as President Obama challenged us to do in his State of the Union Address.  Mankiw hits on several of the fundamental issues that I've discussed here, including the President's continued - and misguided - adherence to what I call "adversary economics."  I highly recommend the whole thing.  Here's a sample:
[C]alling on Americans to “win the future” misleads us about the nature of the policy choices ahead. Achieving economic prosperity is not like winning a game, and guiding an economy is not like managing a sports team.

To see why, let’s start with a basic economic transaction. You have a driveway covered in snow and would be willing to pay $40 to have it shoveled. The boy next door can do it in two hours, or he can spend that time playing on his Xbox, an activity he values at $20. The solution is obvious: You offer him $30 to shovel your drive, and he happily agrees.

The key here is that everyone gains from trade. By buying something for $30 that you value at $40, you get $10 of what economists call “consumer surplus.” Similarly, your young neighbor gets $10 of “producer surplus,” because he earns $30 of income by incurring only $20 of cost. Unlike a sports contest, which by necessity has a winner and a loser, a voluntary economic transaction between consenting consumers and producers typically benefits both parties.

This example is not as special as it might seem. The gains from trade would be much the same if your neighbor were manufacturing a good — knitting you a scarf, for example — rather than performing a service. And it would be much the same if, instead of living next door, he was several thousand miles away, say, in Shanghai.

Listening to the president, you might think that competition from China and other rapidly growing nations was one of the larger threats facing the United States. But the essence of economic exchange belies that description. Other nations are best viewed not as our competitors but as our trading partners. Partners are to be welcomed, not feared. As a general matter, their prosperity does not come at our expense....

The president is right that we should encourage a greater number of highly educated foreigners to migrate here. Because skilled workers pay more in taxes than they receive in government benefits, increasing their supply would reduce the fiscal burden on the rest of us. But if these foreign students decide to return home, as many do, we shouldn’t worry that they are competing against us.

Instead, we should view higher education in the United States as one of our most successful export industries. The United States has 5 percent of the world’s population but most of the best universities. Is it any wonder that students from many nations flock here to learn? And as they do so, they create opportunities for Americans — from the professors who teach the classes to the grounds crews who maintain the campuses.

When the foreign students head home, they take the human capital acquired here to become productive members of their own communities. They spread up-to-date knowledge, so it can foster prosperity everywhere. Some of this knowledge is technological. Some of it concerns business, legal and medical practices. And some is even more fundamental, such as the values of democracy and individual liberty. Nothing could be better for the United States than these thousands of American-trained ambassadors who have seen at first hand the benefits of a free and open society.
Good stuff.

Wednesday, January 26, 2011

SOTU Round-up

There's far too much good commentary on last night's Go America Pep RallyState of the Union Address for me to list it all here, but these are the ones that I liked the best (other than mine, of course):
  • Cato's Sallie James briefly explains why the President's "competitiveness" theme is misguided and dangerous.  She even channels the Sane Paul Krugman of Yesteryear ("SPKY"): "When it became clear that President Obama would make 'competitiveness' a theme of his SOTU address, I looked forward to seeing Paul Krugman’s statement pointing out how much nonsense that is. Here he is, after all, in his excellent 1997 book, Pop Internationalism (MIT Press): 'International trade, unlike competition among businesses for a limited market, is not a zero-sum game in which one nation’s gain is another’s loss. It is [a] positive-sum game, which is why the word 'competitiveness' can be dangerously misleading when applied to international trade.' Sure enough, President Obama’s speech last night was peppered with references to 'the competition for jobs,' 'new jobs and industries take root in this country, or somewhere else,' 'the competition for jobs is real,' etc. And of course there was a healthy dose of the usual mercantalist obsession with exports."  I'd only add that this type of "adversary economics" - i.e., discussing the global economy as a war to be won against our trading partners - is nothing new for this President, and I've critiqued it many times on this blog.  No need to do it again tonight, but I'm sure I'll be hitting it again soon.
  • Cafe Hayek's Don Boudreaux provides some must-read clarity for those poor, misguided soles out there who thought that Obama's "pro-business" and jibberjabber would be warmly welcomed by those who believe in and support free markets.  My favorite lines: 
"In a free market, businesses profit only by pleasing consumers. But a business that obtains special favors from government can profit without pleasing consumers. And it’s here that trouble starts. Consider Obama’s commitment to make America more 'competitive.' (He used variations of the word 'compete' nine times in his address as part of his argument that American firms and workers are threatened by their foreign counterparts.) 'Competition' sounds good. But businesses don’t like competition; they like protection from competition – along with subsidies, special tax breaks, and other government favors that relieve them from the need to cater energetically to consumer demands. So a pro-business president is prone to curry favor with businesses by shielding them from competition."
"Did you know that in the decade from 2000 through 2009, the total amount of foreign direct investment (FDI) received by China was $686 billion, while the total amount of FDI received by the U.S. was $1.8 trillion – by far the largest inflow of capital from foreigners received by any country on earth? America’s receipt of FDI dollars exceeded China’s by 162 percent. On a per-capita basis, the figure is even greater: The amount of FDI America received per person from 2000 through 2009 was ten times (!) greater than was received by China. So when Obama said in his speech on Tuesday night that 'We need to out-innovate, out-educate, and out-build the rest of the world,' he wrongly implied that America currently doesn’t do so well in the international economy. But it does – which is not to say that there isn’t a lot of room for improvement. The president is correct that tax and regulatory reforms – along with reining in Uncle Sam’s deficit spending – are in order. Especially welcome is his call to lower corporate tax rates. And if calling such reforms 'competitiveness policies' improves their chances of being implemented, I’m all for it. But let’s not be fooled into thinking that America’s current economic troubles are caused by America’s open participation in global trade."
  • AEI's Phil Levy succinctly labels it A Disappointing Speech and - gasp! - also channels SPKY: "In advance of the president’s State of the Union speech, I wrote about the need for difficult choices and serious stances on trade and the deficit. I didn’t hear any of that in the address. On trade, the president’s positive agenda was largely limited to endorsing his minor reworking of the three-year-old free trade agreement with Korea. He also mentioned vague plans to rework the Colombia and Panama agreements (after only two years of inaction!). I heard no mention of seeking trade negotiating authority, despite the recent efforts of Senator Rob Portman (R-Ohio) to get it for him. Nor was there any initiative to advance the global trade talks that the president has repeatedly pledged to conclude. Instead, there was an unhelpful jingoistic refrain about international competitiveness and economic threats from abroad (see Paul Krugman for why this is misguided)."
  • And speaking of SPKY, since all the cool kids seem to be quoting him, I guess I will too: "The view that nations compete against each other like big corporations has become pervasive among Western elites, many of whom are in the Clinton administration. As a practical matter, however, the doctrine of "competitiveness" is flatly wrong. The world's leading nations are not, to any important degree, in economic competition with each other. Nor can their major economic woes be attributed to "losing" on world markets. This is particularly true in the case of the United States. Yet Clinton's theorists of competitiveness, from Laura D. Andrea Tyson to Robert Reich to Ira Magaziner, make seemingly sophisticated arguments, most of which are supported by careless arithmetic and sloppy research. Competitiveness is a seductive idea, promising easy answers to complex problems. But the result of this obsession is misallocated resources, trade frictions and bad domestic economic policies."  Sadly, that was written in 1994, and SPKY is today little more than a collection of words on the InterTubes.  And even more sadly, our current President, despite all his talk of "winning the future" and dominating the 21st century, is, as deftly pointed out by the AmSpec's Phil Klein sounding a lot like his Democratic predecessor back in 1994.
  • Finally, Judy Shelton of the Atlas Economic Research Foundation has an excellent op-ed on the problems with the President's approach to doubling exports and "investing" in the future.  She wisely notes: "The only way to increase real wealth is through productive activity that generates true gains in economic output leading to higher future living standards; if wages are going up while purchasing power is going down due to inflation caused by government deficit spending, the gains are illusory.  If you have faith that America can compete in the global marketplace without resorting to monetary artifice, you will not be quick to embrace a strategy that elevates government industrial policy over private sector decision-making and free-market outcomes."  Exactly.

Sunday, July 11, 2010

Maybe Our Astronauts Aren't Unionized

One of the "big" stories roaming the blogosphere last week was the absurd (and admittedly a little troubling) statements by NASA head administrator Charles Bolden that, when he became head of the US space agency, President Obama explicitly tasked him with three things (emphasis mine):
One, he wanted me to help re-inspire children to want to get into science and math; he wanted me to expand our international relationships; and third, and perhaps foremost, he wanted me to find a way to reach out to the Muslim world and engage much more with dominantly Muslim nations to help them feel good about their historic contribution to science and engineering -- science, math and engineering.
Yes, you read that correctly, the President's "perhaps foremost" task for the American space agency chief was, not to explore new worlds or discover super-awesome things that we haven't even thought of yet, but instead to make the Muslim world feel all warm and fuzzy about itself.  Now, as expected, Obama's critics had a field day with this news, and the White House quickly responded with these handy talking points:
NASA assistant administrator for public affairs Bob Jacobs told ABC News that “Administrator Bolden understands that NASA's core mission is exploration, both in space and in scientific endeavors here at home. Inherent to the success of that mission is cooperation and collaboration with other nations which are equally committed to this effort, including expanding the range of countries with which NASA engages and partners.”

In response to criticism, White House spokesman Nick Shapiro said in a statement that “The President has always said that he wants NASA to engage with the world’s best scientists and engineers as we work together to push the boundaries of exploration. Meeting that mandate requires NASA to partner with countries around the world like Russia and Japan, as well as collaboration with Israel and with many Muslim-majority countries. The space race began as a global competition, but, today, it is a global collaboration.”
Leaving aside the abject boneheadedness of Bolden's original comments, the White House spin here is eminently reasonable - rapid advancement of the highest-tech manufacturing demanded by deep space exploration requires specialization and collaboration in order to produce the best product in the most efficient manner.  So if the Russians dominate at rockets, and the Americans dominate at computer systems, and the Japanese dominate at, umm, laser beams (ok, I have no idea - everything I know about space comes from 80s movies and TV), they should each should focus on what they do best and then collaborate to produce the best spaceship (or robo-jetpack?).   Although this actually is rocket science, the concepts are certainly not new - specialization and comparative advantage have been around for a long, long time.

What is new, however, is that such sound economic theory is coming from this White House.  And that's not partisan hyperbole.  Really.

You see, President Obama is not a big fan of international collaboration in manufacturing, even though global supply chains and realtime logistics are standard practice these days.  Instead, he likes to preach what I like to call "adversary economics" - the archaic idea that global manufacturing is all about "us" versus "them," and "they" are gunning for "our" jobs.  In no area is the President's approach more clear than in "green" energy and manufacturing.  For example, here's the President in his first speech to Congress in February 2009:
We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet, it is China that has launched the largest effort in history to make their economy energy efficient. We invented solar technology, but we’ve fallen behind countries like Germany and Japan in producing it. New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea. Well I do not accept a future where the jobs and industries of tomorrow take root beyond our borders – and I know you don’t either. It is time for America to lead again.
That sure doesn't sound like a guy embracing the spirit of collaboration, now does it?  Indeed, as I noted last week, the President's adversarial approach to global economics has drawn criticism from several American CEOs who recently noted that that Obama simply doesn't understand how today's global economy operates and just how important global collaboration is for modern manufacturing.  As Cato's Dan Ikenson recently wrote:

During the past few decades, a truly global division of labor has emerged, presenting opportunities for specialization, collaboration, and exchange on scales once unimaginable. The confluence of falling trade and investment barriers, revolutions in communications and transportation, the opening of China to the West, the collapse of communism, and the disintegration of Cold War political barriers has spawned a highly integrated global economy with vast potential to produce greater wealth and higher living standards.

The factory floor is no longer contained within four walls and one roof. Instead, it spans the globe through a continuum of production and supply chains, allowing lead firms to optimize investment and output decisions by matching production, assembly, and other functions to the locations best suited for those activities. Because of foreign direct investment, joint ventures, and other equity-sharing arrangements, quite often "we" are "they" and "they" are "we." And because of the proliferation of disaggregated, transnational production and supply chains, "we" and "they" often collaborate in the same endeavor. In the 21st century, competition is more likely to occur between entities that defy national identification because they are truly international in their operations, creating products and services from value-added activities in multiple countries. There is competition between supply chains, but only after there is cooperation and collaboration within supply chains.
Global supply chains, transnational sourcing and investment and realtime logistics are not science fiction.  They're very real, and by maximizing specialization and comparative advantage, have dramatically accelerated innovation and production.  The result: immense benefits for the world's companies and consumers that were unfathomable only a generation ago.  Dan gets it.  American CEOs get it.  But, on everything except space exploration, President Obama just doesn't get it. 

So why, pray tell, is global collaboration good enough for exploring other planets but not for (among other things) saving our own?

Unfortunately, I can think of only two answers to that question, and neither flatters the White House.

Monday, February 1, 2010

Adversary Economics, ctd.

I was planning to blog on this tomorrow, but Stossel beat me to the punch:
Watch out, says a front page article in this Sunday's New York Times... like former Soviet premier Nikita Khruschchev, those ultra-wise economic planners in the Chinese government are going to bury us!
China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world’s largest maker of wind turbines, and is poised to expand even further this year.

China has also leapfrogged the West in the last two years to emerge as the world’s largest manufacturer of solar panels...
Vaulting and leaping, oh my! The Olympics ended 15 months ago, but the New York Times editorial staff can't resist Olympian metaphors. Too bad they (and the president) are also stuck in a Cold War mindset.
President Obama, in his State of the Union speech last week, sounded an alarm that the United States was falling behind other countries, especially China, on energy. “I do not accept a future where the jobs and industries of tomorrow take root beyond our borders — and I know you don’t either,” he told Congress.

The United States and other countries are offering incentives to develop their own renewable energy industries, and Mr. Obama called for redoubling American efforts. Yet many Western and Chinese executives expect China to prevail in the energy-technology race.
Let them. The only way China will "prevail" in the green energy race is if they dump more money on politically correct, money-losing forms of energy production. If China wants to waste its money to scare the New York Times, providing consumers artificially discounted energy as part of the deal, they are welcome to it.
...China’s commitment to renewable energy is expensive. Although costs are falling steeply through mass production, wind energy is still 20 to 40 percent more expensive than coal-fired power. Solar power is still at least twice as expensive as coal.
Got that? China will leave America in the dust because they are committed to spending more money for the same amount energy they can get from other sources. Do we have to go through this again? How many times does History need to bash the New York Times over the head with the failures of central planning before they understand?
Bravo.  More good analysis on this nonsensical NYT article is here.  My earlier thoughts on the President's misguided and antiquated "Adversary Economics" are here.

Monday, January 11, 2010

Adversary Economics, ctd.

Two points I failed to mention in last night's critique of President Obama's adversarial approach to international economics:

(1) Adversary Economics has been a consistent theme for this President.  Indeed, in his February 2009 speech to a joint session of Congress (aka fake State of the Union Address), Obama spoke in very similar "us versus them" terms:
We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet, it is China that has launched the largest effort in history to make their economy energy efficient. We invented solar technology, but we’ve fallen behind countries like Germany and Japan in producing it. New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea.

Well I do not accept a future where the jobs and industries of tomorrow take root beyond our borders – and I know you don’t either. It is time for America to lead again.

(2) US green subsidy programs do produce one thing other than "fraud, corruption and immense lobbying bills": boatloads of harmful unintended consequences.  I've mentioned this fact repeatedly in earlier blog posts, so I'm annoyed at the initial oversight.  But it does give me an opportunity to point out another ridiculous case of green subsidies' awful unintended consequences, as noted in a fantastic article on new biomass subsidies from Sunday's Washington Post:
It sounded like a good idea: Provide a little government money to convert wood shavings and plant waste into renewable energy.

But as laudable as that goal sounds, it could end up causing more economic damage than good -- driving up the price of raw timber, undermining an industry that has long used sawdust and wood shavings to make affordable cabinetry, and highlighting the many challenges involved in decreasing the nation's dependence on oil by using organic materials to create biofuels.

In a matter of months, the Biomass Crop Assistance Program -- a small provision tucked into the 2008 farm bill -- has mushroomed into a half-a-billion dollar subsidy that is funneling taxpayer dollars to sawmills and lumber wholesalers, encouraging them to sell their waste to be converted into high-tech biofuels. In doing so, it is shutting off the supply of cheap timber byproducts to the nation's composite wood manufacturers, who make panels for home entertainment centers and kitchen cabinets.

While it remains unclear whether Congress or the Obama administration will push to revamp the program, even some businesses that should benefit from the subsidy are beginning to question its value....

The new subsidy provided a critical boost to an industry that took off in the late 1970s after the federal government mandated that utilities obtain part of their supply from independent power producers. Many of these contracts have now expired, leaving the industry struggling to compete in light of low natural gas prices and higher wood costs.

The future of the biomass program -- which will eventually include a subsidy to get farmers to grow crops such as switchgrass and an array of trees and shrubs -- could be determined by the Office of Management and Budget, which has been reviewing the federal rule for the program since September. In the meantime, federal money has started to flow: The administration sent $23 million to the state offices of the Farm Service Agency in the fall, and is poised to distribute another $514 million.

Biomass energy representatives, such as the Biomass Power Association president, Bob Cleaves, said those subsidies are critical to support a sector that currently supplies half of the nation's renewable energy (the other half coming from wind, solar and other sources). Seven of Maine's 10 biomass energy plants would have shut down without the new influx of funds, he said.

"The industry needs help," Cleaves said. "Is the country not prepared to spend half a billion dollars on half the country's renewable energy resources?"

The Agriculture Department, for its part, says it has no choice but to implement the subsidy the way Congress envisioned it under the 2008 farm bill. That legislation made no distinction between a waste product with little market value, such as corn husks, and the sawdust that sells for roughly $45 a dry ton.

Farm Service Agency Administrator Jonathan Coppess said his agency is strictly adhering to the statute's language and intentions. "We understand that policymaking, legislation and rule making are perfecting processes, not perfect processes, and we look forward to providing the best regulation possible to implement an important program with significant potential to benefit our national energy and agricultural economies," Coppess said in a statement....

The federal government can provide up to $45 a ton in matching payments to businesses that collect, harvest, store and transport biomass waste to an authorized energy facility. That means sawdust or wood shavings may be twice as valuable if a lumber mill sells them to a biomass energy company instead of to a traditional buyer.

This is bad news for the composite panel industry, which turns these materials into particleboard and medium-density fiberboard, and outranks the U.S. biomass industry in terms of employees and economic impact, with 21,000 employees and annual sales of $7.9 billion, according to 2006 U.S. Census data.

The biomass subsidy program could "wipe us out," said T.J. Rosengarth, the vice president and chief operating officer of Flakeboard, the largest composite panel producer in North America. "You can say, 'I've made more alternative energy,' but at what expense?"

The much larger pulp, paper, packaging and wood products industry, which ranks among the top 10 manufacturing employers in 48 states, is just as worried. The American Forest and Paper Association sent a letter to OMB on Oct. 27 warning that the biomass program "could have the unintended consequence of jeopardizing the forest products industry and the many jobs it sustains, as well as the significant quantities of renewable energy it produces."

I don't know about you, but my favorite part is the bureaucratic buck-passing.  Fantastic.

(H/T Phil Levy)

Sunday, January 10, 2010

The Problems with Obama's "Adversary Economics"

Over at the International Economic Law and Policy Blog, Simon Lester points out a recent speech by President Obama announcing billions in Stimulus* funding (read: targeted subsidies) for "green manufacturing" projects in the United States.  Here's Bloomberg reporting on the announcement:
The Obama administration today announced that 183 companies, including PPG Industries Inc. and Itron Inc., will get a total of $2.3 billion worth of tax credits for clean-energy manufacturing projects in 43 states.

The tax credits are part of the $787 billion stimulus President Barack Obama pushed through Congress last year, and announcement of the companies that got the credit coincides with a Labor Department report that the U.S. lost 85,000 jobs in December....

“Building a robust clean-energy sector is how we will create the jobs of the future -- jobs that pay well and can’t be outsourced,” Obama said in remarks today at the White House.

Obama said that, while the U.S. has “pioneered the use of clean energy,” it is being “outpaced” by countries including China, Germany and Japan.

“I don’t want the industries that yield the jobs of tomorrow to be built overseas,” he said. “I don’t want the technology that will transform the way we use energy to be invented abroad.”
The full text of the President's remarks are here, and they leave Lester wondering, to paraphrase, (i) whether a "competitive" approach to green manufacturing is the right one, or (ii) whether a better policy would be one focused on international cooperation and domestic consumption, rather than (assisted) production.

Well, please allow me to answer those questions with a resounding NO and YES.  Indeed, I see at least four big problems with the President's approach - all of which would be remedied by Lester's suggested alternative. 

(1) We stink at subsidizing green projects.  Leaving aside the fundamental issue of whether the federal government should (or may) force US taxpayers to subsidize certain industries, the US Government has proven itself completely incapable of picking winners and losers in the green energy field.  From President Carter's $20 billion (54 billion in 2009 dollars) boondoggle, the disbanded Synthetic Fuels Corporation, to more recent disasters with ethanol and other biofuels, the lesson is clear: we absolutely suck at trying to predict and subsidize the US energy market.  And despite blowing billions and billions of taxpayer dollars on "energy independence" and "green" policies, the only thing these programs have actually produced is fraud, corruption and immense lobbying bills.

(2) An "adversarial" approach to manufacturing and trade policy defies 21st century economic realities.  Even if the US government were able to "successfully" subsidize green industries without all the graft and excess, the President's "us versus them" approach ignores the modern realities of globalized supply chains and their immense benefits.  As Cato's Dan Ikenson recently wrote:
During the past few decades, a truly global division of labor has emerged, presenting opportunities for specialization, collaboration, and exchange on scales once unimaginable. The confluence of falling trade and investment barriers, revolutions in communications and transportation, the opening of China to the West, the collapse of communism, and the disintegration of Cold War political barriers has spawned a highly integrated global economy with vast potential to produce greater wealth and higher living standards.

The factory floor is no longer contained within four walls and one roof. Instead, it spans the globe through a continuum of production and supply chains, allowing lead firms to optimize investment and output decisions by matching production, assembly, and other functions to the locations best suited for those activities. Because of foreign direct investment, joint ventures, and other equity-sharing arrangements, quite often "we" are "they" and "they" are "we." And because of the proliferation of disaggregated, transnational production and supply chains, "we" and "they" often collaborate in the same endeavor. In the 21st century, competition is more likely to occur between entities that defy national identification because they are truly international in their operations, creating products and services from value-added activities in multiple countries. There is competition between supply chains, but only after there is cooperation and collaboration within supply chains.
Indeed, Lester's original blog post points out some of this cooperation, citing a new joint venture between California-based eSolar Inc. and China's Shandong Penglai Electric Power Equipment Manufacturing Co., in which eSolar will provide the technology and information for Shandong to build concentrated solar thermal power farms.  And I've noted a similar cooperative effort at a Texas wind farm that used German turbines assembled at a Chinese plant that was 75% owned by GE.  So a simplistic and archaic approach of tossing taxpayer cheese at "American" companies so they can beat "foreign" companies utterly ignores current market realities and their myriad benefits for global consumers (and in this case, the planet).

Finally, even when "their" successes aren't part of a cooperative effort, the idea that Americans won't benefit from other countries' advances reflects debunked ideas from a bygone era. As GMU economist Tyler Cowen recently noted:
To the extent that the rest of the world becomes wealthier, there’s more innovation, as my colleague and co-blogger Alex Tabarrok, professor of economics at George Mason University, argued recently. China, for instance, is moving toward the research frontier in areas such as solar power, scientific instruments, engineering and nanoscience, all of which can benefit the United States. Unlike the situation of just a few decades ago, a genius born in Mumbai now stands a good chance of becoming a notable scientist, whether at home or abroad.

It might be pleasant to boast that America is — or should be — a world leader in every area, but the practical reality is that if some other country solves the problem of green energy, so much the better for us.

The subtler point is that a wealthier China, India, Brazil and Indonesia will lead to more customers for new innovations, thereby producing greater rewards for successful entrepreneurs, no matter where they live. There are so many improvements in cellphones these days because there are so many cellphone customers in so many countries.

To put it bluntly, if the United States takes one step back and the rest of the world takes two steps forward, even in purely selfish terms we should consider accepting the trade-off, if only for the longer run. Most of us gain from the wealth and creativity of other countries, even if we can’t always feel like the top dog.
Unfortunately, it seems that President Obama, with his constant talk of "falling behind" and being "outpaced" or "outsourced," completely fails to grasp these most basic of modern economic concepts.  Instead, he wants to spike "our team's" Gatorade so it can beat the teams of China, Germany, Japan, Korea and elsewhere.  Yet it's silly to think that US government juice can outstrip the exponential benefits of global competition and collaboration, or that another country's successes won't benefit America too.  So while "adversary economics" might make for good soundbites, it has no place in serious economic policy.

(3) The President's approach unnecessarily exposes targeted products to remedial tariffs in key export markets.  Just like steroids can get a professional baseball player suspended, illegal government subsidies can stifle exports of subsidized products.  Under national "countervailing duty" (CVD) or WTO anti-subsidy rules, a "subsidy" is a "financial contribution" (including tax breaks) by a government that "benefits" the recipient of the financial contribution.  If the subsidy is "specific" to an enterprise or industry (or group of enterprises or industries) and it harms other countries' commercial interests, a country may impose tariffs on exports of the subsidized product.  (Note: this is a very simplistic explanation of the law, but it'll do for this blogpost.)  Although I certainly can't be sure from a speech and newspaper article, the tax credits described by Obama appear to be billions of dollars in "countervailable" (national laws) or "actionable" (WTO rules) subsidies to the listed companies.  Thus, even if Obama's new programs are actually successful in boosting US production and exports of green products, those exports could very well get hit with countervailing duties or WTO-sanctioned tariffs because they benefited from "illegal" US subsidies.  In other words, the President's new green program could actually negate targeted manufacturers' ability to compete in foreign markets.  Awesome, huh?

(4) The President's adversarial approach breeds protectionist sentiment at home and abroad.  When the President of the United States constantly describes US trade and economic policies as a competition between "our" companies versus "their"companies, he creates - intentionally or not - a political environment wholly conducive to protecting "our" guys at any cost (including by violating global trade rules).  Indeed, the difference between subsidizing US manufacturers to give their products a competitive advantage over similar Chinese goods and enacting tariffs on those Chinese goods to create a similar advantage is mere semantics.  Both involve distorting markets to unfairly benefit domestic manufacturers - with taxpayers/consumers footing the bill (of course!).  And when the President justifies subsidies by claiming that they are necessary to compete with foreign goods, he also justifies market-distorting tariffs to accomplish the same goal.

Moreover, this sentiment also can easily spill over to the general public.  Americans are generally split about free trade, and recent surveys indicate that public opinion is pretty pliable on the subject.  So when our leaders proudly pursue "us versus them" economic policies, it's not difficult to imagine such rhetoric infecting the general public.

The President's adversarial approach can also lead to reciprocal protectionism in foreign markets.  If the United States subsidizes its own industries as part of a race against foreign countries, those countries might feel pressured (or be lobbied) to subsidize their own industries in an attempt to keep up.  And any US efforts to curtail these and other foreign subsidies would be undermined by the United States' own rampant subsidization.  (Of course, US subsidization of favored industries also begs the question of how Democratic Senators and Congressmen can scream about unfair Chinese subsidies with a straight face, but that's a story for another time.)

In the alternative, the President's adversarial approach could make foreign countries more likely to challenge US subsidies at the WTO or to initiate CVD investigations of US exports.  A cooperative approach would eliminate such motivations, as their commercial interests would be co-mingled with ours.

So to recap: the President's adversarial approach to green manufacturing (i) repeats past failed experiments with green subsidies; (ii) ignores the realities modern global trade and economics; (iii) exposes US exporters of green products to anti-subsidy tariffs in key foreign markets; and (iv) condones and expands protectionist sentiment in the United States and elsewhere, while undermining US efforts to discipline global subsidy use.

But other than that...

(H/T Tom Welch)