Why Free Traders (and Policy Fans) of All Political Stripes Should Root for Paul Ryan

A few days ago, I examined Republican Vice Presidential candidate Paul Ryan's congressional votes on subsidies and international trade, and concluded that he had a pretty good, but not great, record.  But that unfortunate fact doesn't mean that I'm not rooting for the guy - I definitely am, and if you support better US trade policies or simply wish for political campaigns to focus more on real policy issues rather than stupid trivia, then you should too.

Regardless of your political affiliation.

In today's Wall Street Journal, the Hoover Institute's Robert Barro begins to explain what I mean by the bold statement above.  He first notes that "The level of economic commentary during the presidential campaign has not been high" - a disturbing fact that I've repeatedly lamented here.  Then, after quickly explaining the basic - and almost universally-accepted - economic truths about the overwhelming benefits of free trade (including outsourcing) and the undeniable harms of "socialistic" business subsidies, Barro discusses why Mitt Romney's selection of Ryan - most definitely not a vocal free trade zealot - matters for these issues:

With the addition of conservative thinker and budget expert Rep. Paul Ryan to the Republican presidential ticket, we can hope that the economic dialogue will become more serious. And perhaps this added substance will extend beyond the important issue of long-term fiscal reform to encompass the enduring but still crucial debate about socialism versus capitalism.

The post-Ryan political conversation thus far appears to be fulfilling Barro's hopes.  For example, earlier this week, the WSJ reported that Ryan's selection has set off a debate about the proper scope of government:

Amid growing complaints about the pettiness of American politics, the 2012 presidential campaign is turning into a far-reaching, big-picture debate over the size and scope of government.

Mitt Romney's choice of Rep. Paul Ryan of Wisconsin, an uncommonly assertive spokesman for free markets and small government, to be his running mate on the Republican ticket has highlighted the differences between them and President Barack Obama...

Until now, in a 2012 campaign bristling with negative attacks and accusations about the character of the two candidates, big policy choices have been eclipsed.

That changes with the selection of Mr. Ryan, author of detailed conservative budget plans that call for major changes to many social programs, offering voters a choice: Are welfare services a safety net, or can they breed dependency? Is Medicare a social contract with the elderly, or unsustainable and in need of repair? And will cuts in government spending hurt economic growth, or foster a more robust private sector?

Myriad stories along the same lines have emerged over the last few days, and it seems that almost everyone with a Twitter or Facebook account has seen or posted something about the Ryan plan, the budget, Medicare cuts or some other serious policy issue.  Contrast this with the last several months of soul-crushing, superficial "debates" about tax returns, Olympic uniforms, who ran Bain Capital and when, fast food chicken, dogs (on car roofs or dinner plates), and... well, you get the idea.  The level of election-related discourse has undeniably improved in the last week.

Now, I have no idea whether this improvement will last through November.  I actually think it will because both sides seem to think that the other's fiscal position is political kryptonite, but, frankly, it's not just the public budget and economics debate that has me rooting for Paul Ryan - it's what a Romney/Ryan victory would mean for the longstanding behind-the-scenes fight between policy advisers and political hacks, especially during campaign season.  As I've repeatedly mentioned here in the context of trade, that fight - one that I've unfortunately experienced firsthand - tends to go something like this:

Adviser: There is ample historical and empirical evidence showing that policy [X] is the superior  position from an economic and moral perspective.

Hack (briefly looking up from his blackberry): Umm, yeah, that's great, dude, but policy [X] polls poorly, and we're just not gonna take the risk in an important election year. On the other hand, the public just loves policy [Y], so we're gonna stick with that, even though we all know it's an inferior position.  Now if you'll excuse me, I gotta jet - need to meet [politician] at Morton's for a fundraiser.

Adviser (mumbling under his breath): I hope you get hit by a taxi.

I The adviser may or may not have said that last thing, but you couldn't really blame him if he did.  This debate plays out over and over in political offices and on related conference calls across the country: principled wonks want a political debate about important policy issues, but political consultants, armed with polls and focus group testing, are scared to death of "real" debates' repercussions and thus seek to avoid them like the plague.  So we're stuck with month-long political fights about whether Harry Reid's friend's cousin's dogsitter saw Mitt Romney's 1997 1040EZ - fights that, by displacing real policy discussions, prevent better public understanding of important issues and thus doom the political discourse to repeat its vicious cycle of vapidity over the next election cycle.

As a result, real policy solutions rarely, if ever, materialize.

This is precisely what's caused our dismal political discourse about international trade, and US trade policy has therefore suffered.  The debate over entitlement reform has faced a similar fate: the debts have mounted as the political can has been kicked down the road, and both parties' political cowardice is to blame.  With the Ryan pick, however, it appears that we'll finally have a substantive debate about the need for serious entitlement reform - an issue that, also like free trade, is politically risky but supported by ample economic evidence (see Barro's op-ed for a refresher course, if needed).  And while it's totally unclear whether a Romney/Ryan victory will actually ensure real entitlement reform, what seems clear is that it should have a serious impact on the future of America's political discourse.  If they win, the wonks finally have proof that forcing a real debate about real policy in the face of uncertain public opinion is not a political deathblow.  In short, it shows that the American people can, given the right message and the right facts, overcome their ignorance, sift through the demagoguery and vote for good policy instead of good hair.

If Romney/Ryan lose, however, the policy advisers - and the political discourse more broadly - are in pretty deep trouble for the foreseeable future.  In the aforementioned internal debate, the hacks will have not only those risky poll numbers, but also the following conversation-ending addendum:

"And you do remember what happened with Romney and that Ryan guy, right?  Yeah, that's what I thought."

And at that point, I will pack up my briefcase and move to the countryside, forever unable to turn on the TV for fear of watching yet another bipartisan assault on outsourcing or Medicare reform or whatever.  (Shudder to think.)

So I root for Paul Ryan.  He might not be the best free trader; he might not be my "perfect candidate"; and his victory might not even ensure a conservative solution to our real entitlement crisis.  But if he loses, lord help us, the hacks will have won, and our political discourse will get even worse.

And our TV-watching won't be the only thing to suffer.

American Subsidy Madness, Ctd. (UPDATED)

A couple weeks ago, I lamented the hundred billion dollars in annual business subsidies that the US government doles out every year.  Today from Cato's Thomas Firey comes another eye-opening - and sigh-worthy - stat about the United States' addiction to spending: the 2.4 trillion - with a "T" - dollars in borrowed money that the US government has spent on "stimulus" measures since 2008:

[The Stimulus] was just one of several fiscal stimulus bills that Washington adopted, beginning with the February 2008 Economic Stimulus Act and continuing through to early this year. Some of those bills were explicit stimulus measures; others were ostensibly intended to address other policy goals, but were engineered to provide fiscal stimulus by borrowing and spending money now, and then using future government revenues to pay off that borrowing (perhaps when God grants St. Augustine chastity and continence)...

#	Name	Stimulus (Billions)	Became Law	Public Law	Note
1.0	Economic Stimulus Act of 2008	$167	2/13/2008	110-185	A ”timely, targeted, and temporary fiscal stimulus.”
1.0.1	Unemployment Compensation Extension Act of 2008	$5.7	11/21/2008	110-449	Extends unemployment insurance, using borrowed funds so as to provide stimulus.
2.0	American Recovery and Reinvestment Act of 2009	$819	2/17/2009	111-16	This package of public works projects, tax breaks, unemployment insurance extension, and other spending would keep unemployment below 8%.
2.0.1	Cash for Clunkers Extension	$2	8/7/2009	111-47	Continues the subsidy for new car purchases that was first enacted as part of ARRA.
2.1	Worker, Homeownership and Business Assistance Act of 2009	$44.7	11/6/2009	111-92	Extends and expands the homebuyer tax credit program.
2.2	Temporary Extension Act of 2010	$8.1	3/2/2010	111-144	Extends unemployment insurance, using borrowed funds so as to provide stimulus.
2.3	Hiring Incentives to Restore Employment Act	$17.6	3/18/2010	111-147	AKA the “Jobs for Main Street Act,” this “jobs bill” would ”spur job growth and strengthen the private sector.”
2.4	Continuing Extension Act of 2010	$18.1	4/15/2010	111-157	Extends unemployment insurance, using borrowed funds so as to provide stimulus.
2.5	Homebuyer Assistance and Improvement Act of 2010	$145	7/2/2010	111-198	Extends the deadline for submitting paperwork for homebuyer credit.
2.6	Unemployment Compensation Extension Act of 2010	$33.9	7/22/2010	111-205	Extends unemployment insurance, using borrowed funds so as to provide stimulus.
2.6.1	United States Manufacturing Enhancement Act of 2010	$3	8/11/2010	111-227	Reduces or suspends various import duties.
2.7	Small Business Jobs Act of 2010	$85.4	9/27/2010	111-240	Expands SBA loan programs and provides other small business assistance.
3.0	Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010	$916.8	12/17/2010	111-312	A package of tax breaks, including a cut in the Social Security payroll tax, an extension of the Bush income tax rates, and an extension of unemployment insurance.
3.1	Temporary Payroll Tax Cut Continuation Act of 2011	N/A	12/23/2011	112-78	Extends the Social Security payroll tax cut, extends unemployment insurance, and other provisions.
4.0	Middle Class Tax Relief and Job Creation Act of 2012	$167.6	2/22/2012	112-96	Extends the Social Security payroll tax cut, among other provisions.
SUM:		$2,433.9

That is a truly breathtaking figure - even for someone like me who tracks this stuff pretty closely and has thus become pretty numb to crazy US budget figures.  And this, of course, is on top of the myriad "regular" subsidies (e.g., the billions of taxpayer dollars spent yearly on federal government support for agriculture) that are part of the annual US budget.  It all leaves me with one simple question:

When exactly is this government "stimulation" supposed to pay off?

UPDATE: And just so we're totally clear here, Cato's Tad DeHaven helpfully reminds us today that America's subsidy addiction is a bipartisan affliction:

Last week, the House Energy and Commerce Committee passed the “No More Solyndras Act.” As Taxpayers for Common Sense notes, however, the bill should probably be called the “More Solyndras Act” because it would still allow the Department of Energy to approve loan guarantee applications that were submitted by Dec. 31, 2011....

Sensing an opportunity to embarrass Republicans, Rep. Ed Markey (D-MA) offered an amendment that would have completely ended the Title 17 loan guarantee program. Most of the committee’s Republicans promptly embarrassed themselves by joining all Democrats in voting down the amendment 3-39. Republicans Mike Pompeo (Kansas), Michael Burgess (Texas), and Steve Scalise (Louisiana) were the only members to vote to abolish the program.

This isn’t the first time that Republicans have joined Democrats to save the program. Back in June, an amendment that would have shut down the Title 17 loan guarantee program failed 136-282 with 127 Republicans joining 155 Democrats to defeat it. Only 54 percent of freshmen Republicans from the so-called “Tea Party Class” supported the amendment.

Sigh.

Is The Obama Administration Really This Clueless About US Companies' Global Competitiveness? (UDATED)

In Sunday's Chicago Tribune, Caterpillar CEO Doug Oberhelman explained why his manufacturing powerhouse has no plans to expand business operations in its home state of Illinois.  The whole op-ed is worth reading, but here are the money grafs:

Despite the fact that we announced plans for dozens of new factories in the last few years and our United States workforce increased by more than 14,500 in the past 10 years, we haven't opened a new factory in Illinois in decades. Our Illinois workforce is at the same level it was 10 years ago. Caterpillar recently informed several Illinois communities that they are not in the running for a new factory we will build in the U.S., ultimately adding 1,400 jobs — work that's now done in Japan. In that case, logistics was a key factor, but even if it were not the case, when Caterpillar and most other companies look to locate a new factory in the U.S., Illinois is not in the running.

It doesn't have to be that way.

About 10 months ago I wrote a letter to Illinois political leaders expressing my hope that the state would undertake long-term, fundamental reforms so Illinois could compete for jobs and long-term business investment that drives growth.

To date, we haven't seen much change.

The governor's recent three-year projection of state revenue and spending proves that even with the income tax increase, Illinois has not done what is necessary to balance its budget. Major credit agencies have downgraded the state's bond rating. The state passed some changes to workers' compensation last spring, but it wasn't enough. Illinois will still be among the most expensive states in the nation for workers' compensation insurance. Our own comparison of workers' compensation costs showed Illinois was far more costly than neighboring Indiana, which is consistent with a comparative study by Oregon, which also shows Illinois is much more expensive than Indiana, Iowa and Kansas in workers' compensation insurance rates.

What's the solution? For starters, Illinois needs to adopt a long-term sustainable state budget that relieves pressures on taxpayers. Unlike some, I do not favor an early rollback of the temporary tax increases in Illinois; but they should expire as planned. Keeping the temporary tax increases in place for now gives the state time to develop a multiyear plan that balances the state budget. In addition, the state needs to dramatically lower workers' compensation costs. Some say these changes are not politically possible in Illinois. But if Illinoisans put pressure on both parties to make these types of improvements, I think the state can become a place that can successfully compete for business growth and new jobs.

Let me be clear. Caterpillar is not threatening to leave Illinois. Rather, we want to grow our presence here. For Illinois to really compete for new business investment and growth, the state must address these matters.

In short, high taxes, fiscal profligacy and bad regulation - not the absence of state subsidies or other taxpayer-funded "incentives" - prohibit Caterpillar from both locating new business operations in Illinois and remaining globally competitive (a critical issue for the export-dependent company).  Mr. Oberhelman was speaking about state-level policies, but the principles he describes apply equally to national policy.

Unfortunately, the Obama administration does not appear to understand these principles and is instead cluelessly pursuing the exact opposite course.  I've already explained repeatedly how existing US regulations - and new ones like ObamaCare - are doing a number on American businesses' ability to compete on the global stage, so I won't get into that again tonight. [UPDATE: Brand new - and totally depressing - stuff from The Economist on how the United States "is being suffocated by excessive and badly written regulation."]  Instead, I'd like to review the administration's brand new budget plans and their impact on American corporate competitiveness.

In short, it ain't pretty.

On tax policy, the budget keeps the United States' corporate tax rate at one of the highest levels in the world, even though pretty much every other industrialized economy has lowered their rates (charts courtesy of AEI's Jim Pethokoukis):

Pethokoukis cites to studies showing how high corporate tax rates lead to lower growth, and then explains that President Obama's budget not only retains our sky-high 35% stautory rate but also "raise the corporate tax burden by some $350 billion over ten years."  This insanity includes $30 billion in new taxes on oil & gas companies, even though they are fueling (pun intended) the current economic recovery and already pay a much higher effective tax rate than other US manufacturers:

Smart.  Meanwhile, our northern neighbor (and a major global competitor) Canada lowered its corporate tax rate again to a jealousy-inducing 15% on January 1, 2012, making Canada the #1 country in the world to do business, according to Forbes Magazine.  Congrats, Canada.  You big jerks.  (As I said, I'm jealous.)

Ok, well, sure, that's just tax policy.  I'm sure that those taxes are being well spent in the Obama budget and making sure that the United States house is totally in order, right?  Wrong (again via Pethokoukis, who's clearly been on a roll this week):

Pethokoukis concludes that the President's Budget "makes no effort to deal with Medicare, Medicaid, and Social Security — the long-term drivers of U.S. federal debt. The debt curve never gets bent, as the above White House(!) chart shows. It just goes up and up and up — until the heat death of the universe or the economy is struck by a Greek-style debt crisis."  Holy souvlaki, Jim!

So the Obama budget kills US companies on regulations, taxes and debt, but how does the administration propose to help them?  Targeted subsidies for US manufacturing, of course.  The administration's "Blueprint to Support U.S. Manufacturing Jobs, Discourage Outsourcing, and Encourage Insourcing" pays lip service to broader tax reform, but never once actually provides even a hint as to what such reform would look like. Instead, it just provides a laundry list of new tax subsidies for US manufacturers - including expanding "domestic production incentives," a new "Manufacturing Communities Tax Credit," and temporary tax credits for "domestic clean energy manufacturing."  (The plan also proposes - in tellingly vague fashion - to eliminate tax breaks for "shipping jobs overseas," but we all know what a political joke that is.)

Unfortunately, the administration's manufacturing blueprint - which continues the President's long-held preference for manufacturing - is just as misguided as their broader tax and fiscal plans.  As I've repeatedly noted, the prioritization and subsidization of US manufacturing over other sectors of the domestic economy (like our expanding and globally dominant services sector) is completely misguided, especially as some sort of "plan" to solve the country's high unemployment.

But, hey, don't take my word for it.  The former Chair of President Obama’s Council of Economic Advisers (Christina Romer) thinks the same thing, recently arguing in the New York Times that Obama's "singling out of manufacturing for special tax breaks and support" was wrongheaded because none of the primary rationales for subsidizing the American manufacturing sector - market failures, jobs or income distribution - actually holds any water.  She concludes:

AS an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class. But public policy needs to go beyond sentiment and history. It should be based on hard evidence of market failures, and reliable data on the proposals’ impact on jobs and income inequality. So far, a persuasive case for a manufacturing policy remains to be made, while that for many other economic policies is well established.

As I noted when Romer's op-ed first came out, smart people on the right and left might disagree about the solutions to our current mess, but at least we they all can agree that the solutions do not involve targeted subsidies for the US manufacturing sector.  If only Dr. Romer had explained this obvious fact to President Obama when his office was a just few doors down the hall.

When Caterpillar realizes that Illinois' tax, spending and regulatory policies prevent it from competing in the global economy, it can - and often does - choose to simply move its operations to a state with a better business environment.  Indeed, the migration of American companies from poorly-managed, debt-ridden states like Illinois and California to leaner, meaner states like Texas is well-established.  Unfortunately, those migrating businesses won't escape bad federal policies so easily.  And if President Obama and his team don't soon get their fiscal and regulatory acts together quickly, Caterpillar and others might not be moving South to Texas but instead heading North to Canada and thus out of the country altogether.

Everything You Need to Know About Obama's Trade "Enforcement" Budget (and the Political Problems with Romney's China Trade Plan)

President Obama officially released his 2012 budget today, and, as expected, it proposes significant new funds for the super-duper trade enforcement team - the "Interagency Trade Enforcement Center" - that he outlined during his recent State of the Union Address.  Because the substance and future of both the President's budget and the ITEC is in serious doubt (as I've already noted), it's probably a waste of time to spend too much virtual ink on the proposals and their implications.  But just in case you're just dying for commentary, here's all you really need to know about the whether the proposed agency is a good or bad thing for US trade policy (and what "enforcement" really means): the President's plan is strongly supported by the vehemently anti-trade United Steelworkers Union (USW).  In fact, USW President Leo Gerard issued a lengthy press release lauding the plan:

President Obama has acted to enforce America's laws against unfair trade since coming to office and announced in his State of the Union address last month, a clear commitment to this effort. The USW is especially pleased to know the President's budget will be asking for millions of dollars to arm his new Interagency Trade Enforcement Center (ITEC) with the resources needed to fight for American jobs.

Too many American workers have had their jobs stolen from them by foreign unfair, predatory and illegal trade practices. Many of our trade competitors agree to the rules, but then fail to abide by them. Enforcing our laws – and the commitments other countries have made – must be high priority. President Obama is devoting resources to accomplish that goal....

In his State of the Union message, the President highlighted the success of the trade case brought by the Steelworkers against a flood of tire imports from China that had been decimating employment here. His leadership has helped to return the industry to stability, put American tire builders back to work and has stimulated the expansion of production and investment here at home. His efforts deserve, and have, our sincere gratitude.

Yes, yes, the President's Chinese tire and other trade remedies efforts just might deserve, and have, the union's sincere gratitude, but, as I've repeatedly noted here, they - or, more accurately, the skyrocketing prices, injured retailers and consumers, rampant trade diversion and economic uncertainty that they created - certainly deserve everyone else's extreme ridicule and disdain.  And if the USW's anti-trade policy and the Chinese tire tariffs are an indication of what President Obama's new budget is going to buy us (on credit!), then we once again can be thankful that the plan won't be carried out.

Beyond helping us understand the true intent of President Obama's "enforcement" plans, the USW press release also provides further proof that placating anti-traders with token acts or promises of protectionism is a fool's errand, especially for Republican politicians.  After Gerard finished praising the President for his commitment to painful protectionism enforcement, he then lays into GOP hopeful Mitt Romney, alleging that  "[t]his President's budget makes an important investment in trade law. The Republican candidate, Mitt Romney, would jeopardize our successes and reverse course on enforcing the rules."  Gerard then spends a couple paragraphs hitting Romney - who, by the way, is campaigning in Michigan right now - for his views on the China tires case and the auto bailouts.

Yet never once does Gerard - who literally just finished praising President Obama's aggressive China protectionism - heap similar praise onto Romney for his even more aggressive stance on China trade and currency (a stance that even Obama won't take).  Now, I certainly think that Romney's China currency stance is misguided from a legal, moral and economic perspective, but some pro-Romney cynics have argued that, those fair criticisms aside, his policy is smart politics because it will attract votes and support in heavily-unionized swing states like Ohio, Pennsylvania and, yes, Michigan.  I disagreed with such political calculations (and continue to do so), and Gerard's statements provide support for my view that Romney's China trade plans are not only bad policy, but also bad politics.

Protectionists will just never - ever - be placated with token protectionism (especially when it's a Republican politician doing the placating).

Now, leaving the USW and other professional protectionists aside, Romney's China currency plan is already revealing another big political flaw: the policy's economic and legal failings undermine much-deserved criticism of Obama's very bad record on trade policy (another problem I noted a few months back).   Indeed, just a few days ago, NYU law professor Robert Howse dismissed a very good op-ed by Columbia's Jagdish Bhagwati that absolutely destroyed Obama's latest trade pandering.  Howse did so not by addressing the substance of Bhagwati's claims, but instead by simply pointing to Romney's even worse stance on China trade.  I'm quite sure that if Romney's the nominee, we can expect similar diversions from Obama supporters between now and November.  And considering just how bad President Obama's trade policy has been over the last few years, it's a real shame that the likely Republican standard-bearer won't be able to mount an effective, full-throated criticism.

Sounds depressingly familiar, now that I think of it.  Sigh.

Newsflash: Nobody's Actually Getting Poorer

One of the more repeated bits of conventional wisdom out there is that, while the last few decades have been quite good for America's "rich," our poor and middle class have really struggled.  For example, here's President Obama trotting out the conventional wisdom in his recent middle finger to Paul Ryan speech on deficit reduction:

In the last decade, the average income of the bottom 90 percent of all working Americans actually declined. Meanwhile, the top 1 percent saw their income rise by an average of more than a quarter of a million dollars each. That's who needs to pay less taxes?

Leaving aside the speechwriter's apparently bad grammar (I think it's "fewer" taxes), an interesting new study (h/t Mark Perry) from the Employment Policies Institute calls President Obama's basic assertion that the "rich got richer, and the poor got poorer" into question.  Here's The Daily Caller with a good summary of the new study:

Research, published at The Journal of Policy Analysis and Management, from Cornell economist Richard Burkhauser, Joint Committee on Taxation economist Jeff Larrimore, and Indiana University economist Kosali Simon, however, suggests that the president’s piece of conventional wisdom isn’t entirely accurate. According to the findings, while the rich have indeed been getting richer, for the last 30 years so too have the poor and middle class.

Burkhauser told The Daily Caller that Obama’s suggestion that the poor are getting poorer understates the amount of income to which Americans actually have access. The president does not take into account, Burkhauser explained, tax unit shifts, government transfers, and other sources of income such as health care benefits.

“The bottom line is [conventional wisdom] asks what’s been happening to private personal income over time and they are right if you look at that for tax units, things do not look very good for the middle class,” he said. “But if you take other things into account, the reason the country has not gotten in a civil war is because things are not that bad. In fact everybody has done better.”

Burkhauser’s research shows what has actually been happening to the lives of Americans over the last thirty years — not just counting the amount of money individuals made in the market, but the actual income that people get in their hands to spend.

“This isn’t a zero sum game, where one group wins at the expense of others,” Burkhauser said. “The growth in productivity of Americans in the top twenty percent of tax units increased the size of the economic pie sufficiently to register major gains across the entire distribution of after-tax income.”

Burkhauser's findings add to a growing body of work which demonstrates that policymakers' (and rent-seekers') breathless concerns over American "income inequality" could be totally overblown, and thus that the redistributionist/statist policies that they justify based on said inequality should be met with serious skepticism.  One of the things not covered by Burkhauser but explained here frequently is the role that trade with China and other low-cost nations plays in further shrinking the great divide between rich and poor because the benefits of "cheap" imports are disproportionately enjoyed by lower income Americans. (In short, "rich" people don't shop at Wal-Mart or Target, so they don't get as much benefit from free trade with China than do frequent Wal-Mart/Target shoppers.)

So if America's poor and middle class have actually been earning more than originally thought (and more than they did only a few years ago), and if through free trade (and other things like technology) they can afford a lot more with those earnings, then should we really follow the President and his buddies into the tax-happy abyss based on an increasingly incorrect conventional wisdom about wage stagnation?

I think not.

(p.s. If the middle class has experienced a 30-40% increase in "total income" since 1979, and 1979 is when US manufacturing jobs peaked, then what does that say about another bit of conventional wisdom re: the alleged "superiority" of such jobs?  Hmmmm.)

UPDATE: Cato's Alan Reynolds has more on the issue here.

Tuesday Quick Hits

Work's been pretty rough these last few days, but here are some quick hits to get you through the slower blogtimes:

• "Zeroing" took yet another hit last week: this time by the Court of Appeals for the Federal Circuit, which ruled last Thursday that the Department of Commerce needs to revisit its use of the WTO-illegal methodology in antidumping annual reviews because (i) DOC had abandoned the practice in investigations; and (ii) the US government had failed to offer a good (well, any) reason for the different approach in reviews.  WorldTradeLaw.net's Simon Lester offers some good commentary on the CAFC decision, and the WSJ rightfully applauds it: "thanks to statistical sleight-of-hand, American consumers have paid billions of dollars more over the years in higher prices either because antidumping duties raised prices on imports or because those duties sheltered domestic companies from downward price competition. This was bad economics, and now it turns out it was bad law, too. The World Trade Organization has dinged Washington repeatedly for zeroing. Commerce and Congress have done their best to avoid complying, at considerable expense to American credibility abroad. Most recently, Commerce attempted to stop zeroing for new antidumping investigations while keeping the practice for existing duties, to placate both the WTO and domestic protectionists. Last week's appellate court ruling puts an end to that charade by finding that under existing U.S. law Commerce has to either zero in all cases or zero in none. Since the department has abandoned zeroing for new investigations, there's reason to hope the Obama Administration will disavow zeroing entirely instead of searching for some way around a carefully reasoned and forceful appellate ruling."  Indeed.  I'd only add that the US courts have been the last refuge of America's zeroing proponents (i.e., protectionists) and their buddies in Congress, so the CAFC's latest decision must have them squirming something fierce this week.  And that thought makes me smile.

• Politicians of both parties are lining up in support of the US-Colombia FTA - a strong signal that the Obama administration could finally send the Agreement to Congress sometime soon (everybody likes a winner!).  Dem Senators Baucus and Kerry gave the FTA a nice (albeit mercantilist) plug in a recent WSJ op-ed, and the (admittedly dwindling) New Democrat Coalition in the House fired off a letter to the President calling on him to submit all three pending FTAs asap.  Meanwhile the US business community is also upping the pressure, as this US Chamber blogpost and Caterpillar ad make clear.  Eternal optimist Monica Showalter of IBD has gleefully noticed all of this news and notes something important on Facebook: "With Obama and Santos scheduled to meet Thursday, and Santos refusing up until this point to meet Obama unless there's free trade - I think it is going to happen."  A very insightful point, and I hope she's right, but I'll believe it when I see it.  (Although this announcement re: the Canada-Colombia FTA certainly adds more pressure on the USA.) [Update: Monica has more in this new IBD editorial.]

• Speaking of that Kerry-Baucus op-ed, Cafe Hayek's Don Boudreaux gives it "two cheers," and withholds the third because of something that I've been arguing here for a long time: "A third cheer would be in order had not the senators relied upon a wholly mistaken reason to justify this particular move toward freer trade. In their essay, U.S. imports and American consumers are mentioned a total of zero times, while U.S. exports and American producers (such as farmers, firms, and workers) are mentioned 23 times.... The senators’ argument for freer trade in this particular case undermines the larger effort to persuade the public that free trade is to everyone’s long-term advantage – an advantage that is measured by increases in what we’re able to consume and not by increases in what we must sacrifice."  Exactly!!

• Cato's Ted Galen Carptenter explains why China's inevitable rise to superpower status isn't so inevitable, and why the United States has a lot to say about it.

• The Mercatus Center's Veronique de Rugy explains something I already know and have known for a few years now: the Alternative Minimum Tax sucks and should be eliminated asap.  Mind-blowing fact: "Congress created the AMT in 1969 to prevent 155 wealthy taxpayers from using deductions and credits to avoid paying any federal income taxes....  According to the Congressional Budget Office, last tax season 4.5 million taxpayers were affected by the alternative minimum tax, an increase of more than 4 million taxpayers since 1970."  Sonova...

• The WSJ Asia pens an excellent editorial on how the Japan tragedies have clearly revealed just how dependent American businesses and workers are on imports in this modern era of global supply chains.  The whole thing is worth reading, but here's my favorite passage: "Despite the fears of Japanese products a generation ago, in reality those imports have allowed America to keep its place as the world's largest economy by a country mile. We hope someone on President Obama's economic team is taking note. Trade opponents can always point to the jobs they claim trade has "cost" Americans, but it's rarer to see such an obvious example of how Americans are hurt when trade is suddenly interrupted. The point extends to imports from everywhere. American auto-industry fears over car imports from South Korea have so far helped block ratification of a Korea-U.S. free-trade agreement. That bit of politics hurts Americans who would export to Korea under the deal, but it also hurts the Americans who would benefit from Korean imports. Such as, say, small businesses that use pick-up trucks and currently face higher domestic prices and less competition thanks to a 25% tariff on imported trucks."  Amen.

• Last week USTR released its annual national trade estimate (NTE) report on foreign trade barriers.  It's never anything earth-shattering (and involves a lot of cut-and-pasting from previous years), but it's still a good place to find the next US WTO dispute or two.  (If you don't mind wading through the chaff.)

• Paul Ryan: Stud.

Now that should keep you busy until I come up for air...

America's Cotton Problem

A little heralded congressional vote last week shows just how hard it will be to reform America's bloated, trade-distorting farm subsidy programs and, more generally, get the US government's insanely profligate spending problem in check.  On Friday, the US House of Representatives overwhelmingly rejected a bi-partisan amendment to the 2010 continuing budget resolution that would have ended $140 million in annual bribespayments to Brazilian - yes, Brazilian - cotton farmers.  The payoffs, which I've repeatedly blogged on, resulted from a ludicrous deal between the Obama administration and the Brazilian government to stave off Brazil's imposition of retaliatory tariffs on US exports due to the United States' refusal to amend its cotton subsidy programs so that they complied with WTO rules (the cotton subsidies had been repeatedly ruled WTO-inconsistent in dispute settlement proceedings).

Cato's Sallie James provides some good analysis (and much-needed hostility) on the amendment's failure:

Republicans -- those stalwart fiscal conservatives! -- voted 75 in favor and 164 against. The Democrats showed more courage and voted in favor of the amendment 108 to 82. (These numbers are according to C-SPAN; I will post an update if they prove to be incorrect)....

The Hill article (linked to in the first paragraph of this post) points out that some members (presumably the Republicans who voted against the amendment) were concerned that "the move [to cease the payments to Brazil] could create a trade war if Brazil decided to retaliate."  It doesn't seem to occur to those concerned members that one way to avoid a trade war would be to abide by international obligations and cease subsidizing U.S. cotton farmers. It would also shave a few million from that huge deficit about which they profess to be concerned.

Sallie's point is exactly right.  If House members are truly concerned about a trade war with Brazil, then the sane, fiscally-conservative approach is not to continue paying $140 million in Brazilian hush money but instead to eliminate the offending cotton programs (and other US farm programs that are either unnecessary or WTO-inconsistent).  That this very sensible thought didn't even register in the US Congress is a testament to just how entrenched agriculture interests are on Capitol Hill.

And unfortunately, it gets worse.

Congress' latest vote on, and apparent support for, cotton subsidies is particularly egregious given the fact that the current environment for reform is pretty much perfect.  First and most obviously, the US government is flat broke, and the new Congress has a massive new contingent of Tea Party-driven budget cutters who - one would think! - would be open to ending the Brazilian bribes and embracing significant and immediate cuts to WTO-illegal US farm subsidy programs.  Second, those bribes and the US cotton program are taking place during a period of record cotton prices and unprecedented investment in American cotton production:

[Cotton] prices hit a 150-year-high last week, more than double what it was a year ago. (What happened 150 years ago? The Civil War began, and cotton jumped to $1.89 a pound. What do you think Rhett Butler was trying to smuggle past those Union gunships?)

Also having an effect: droughts and flooding in China, Pakistan and Australia, plus restrictions on exports from India. Plus, the world’s economy looks a little better than it has in the recent past. People can afford clothes.

At the same time, the Virginia Department of Agriculture and Consumer Services announced today that cotton acreage in the state is expected to increase by nearly 27 percent, from 82,250 acres in 2010 to an estimated 105,000 acres this year. In 2007, Virginia farmers planted only 58,000 acres. The last time the state topped 100,000 acres was 2006. Part of this is smarter agriculture and innovative research. Part of it is supply and demand.

Third, the WTO's Doha Round negotiations will probably die if not completed by the end of 2011, and as Phil Levy and I wrote in December, a bold US commitment on farm subsidy cuts and cotton reforms will be essential to completing a final deal.

Given these facts, there might never be a better time than right now for cotton subsidy cuts, and yet the House - and all those new fiscal conservatives - have once again refused to address the broader cotton issue and instead prefer to continue embarrassingly paying off Brazilian cotton farmers.  Awful.

Moreover, the House's latest cotton episode reveals a far more serious problem with the future of America's inefficient, outdated farm policies and US budget-cutting efforts more generally.  If the US House of Representatives can't make some basic cuts to American cotton subsidies amidst serious budget shortfalls, a wave of new budget-conscious GOP freshmen, record high cotton prices, unprecedented private investment in American cotton, and a Doha Round on life support, then what hope is there for a serious US farm subsidy reform proposal as part of Doha or otherwise?  And if (allegedly) fiscally conservative House Republicans can't defund the WTO-illegal US cotton programs or, at the very least, stop the insanity of sending 140 million in taxpayer dollars to Brazil's farmers every year, then why should we think that they'll have the courage to tackle the much more politically-sensitive and important budget reforms that will be absolutely essential to getting our crippling budget deficit in check?

After last Friday's vote on the cotton bribes, the answers to these bigger questions don't look too promising.

Discrimination Against Foreign Insurers in the 2011 Budget?

As if the Obama administration's run-of-the-mill protectionism weren't enough to worry (and complain) about, the Heartland Institute's Eli Lehrer finds a hidden nugget in the White House's 2011 Budget:

Most U.S. reinsurance comes from offshore companies. Because these companies often insure against events (like Tokyo earthquakes and U.K. floods) that probably won’t happen simultaneously with disasters in the United States, the process reduces prices by letting companies profit off of one type of coverage when they lose it on another. Right now, these offshore companies pay federal excise taxes roughly equivalent to U.S. corporate income taxes. The administration’s budget would give U.S.-based companies an advantage by imposing a burdensome tax on many offshore companies’ affiliated reinsurance transactions while allowing deductions for the same sort of transactions by U.S.-based companies. This has trading partners worried: When the Senate considered a similar proposal last year, the European commission strongly hinted that a trade war could result.

Read the whole thing here.  I don't know about a "trade war," but a quick glance at the United States' reinsurance services commitments through the WTO appears to show that the type of discrimination against foreign reinsurance that's contemplated in the 2011 budget could violate the United States' services obligations.  Thus, at the very least, a WTO dispute against the US could be on the horizon if the budget provision ever became law.  (Obvious Disclaimer: that's 3 minutes of quick review, not a legal opinion.)

Now, there's no immediate chance that this proposal will become law, but it certainly provides a great example of the White House's inattention to international trade rules and the United States' obligations under those rules.  (Shocking, I know.)

Definitely makes you wonder what other bits of trouble are buried in that budget, huh?

UPDATE: Cato's Sallie James adds some good perspective: "[T]his wouldn't be the first time that the US flaunted its obligations under GATS. US - Gambling was a shocking breach of rules that still is not fully resolved.... Antigua, I believe, is big in reinsurance, so this would be the second time US arrogance hit them hard."  Me: Those poor Antiguans - they give us gambling, reinsurance and sandy beaches, and this is how we show our gratitude?   How embarrassing.

Budget Gimmicks in a Trade Bill?

I fully admit that I'm not a tax/budget geek, but a tax provision slipped into a benign trade bill has set off my libertarian spidey-senses. BNA (subscription) explains:

Legislation (H.R. 4284) to extend the Generalized System of Preferences and the Andean Trade Preference Act, signed by the president Dec. 28, contains an offset that would increase 2014 estimated tax payments for corporations with at least $1 billion in assets in 2013.

The act (Pub. L. No. 111-124) increased by 1.5 percent the portion of corporate estimated tax payments due in July 2014 through September 2014.

It amended the Tax Increase Prevention and Reconciliation Act of 2005 to increase estimated tax payments for such corporations due in July, August, and September 2014 to 101.75 percent of what was otherwise due, according to the Congressional Research Service.

JCT estimated that the provision would increase revenues by $806 million in fiscal year 2014 and decrease revenues by $806 million in fiscal year 2015.

The measure passed the House Dec. 14 and the Senate Dec. 22, in both cases under a suspension of the rules by voice vote and unanimous consent, respectively.

The final law is here, and the legislative language is as follows:

SEC. 4. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

The percentage under paragraph (1) of section 202(b) of the Corporate Estimated Tax Shift Act of 2009 in effect on the date of the enactment of this Act is increased by 1.5 percentage points.

The CBO scoring of the law is here. The CBO scoring matches the JCT estimate above, saying that this tax measure will goose federal revenues by $806 million in FY14, but immediately reduce them by the same amount in FY15.  So what gives?

I googled around and found only one analysis of the underlying "Corporate Estimated Tax Shift Act of 2009," from a random blog which calls the Act "good for the government, which extracts money from the business community sooner than planned."  So by increasing the percentages in the underlying Act, a random, non-germane provision of the GSP bill seems to extract even more money from big business "sooner than planned."

But why?  Normally, I'd just blow this minutia off, but considering the ridiculous budget gimmicks that the 111th Congress has attempted to pull off in order to secure its overreaching agenda, I'm calling "shenanigans."  So, any tax/budget specialists out there care to opine as to why the government is trying to squeeze out an extra 800 million at the end of FY14 instead of letting it go as planned into FY15?

Headline Of The Week

Courtesy of the brilliant euphamists at the New York Times:

"$1.4 Trillion Deficit Complicates Stimulus Plans"

Umm, yes, I would say that an annual US budget deficit of 1,417,000,000,000 (three times larger than any deficit ever) would complicate Democrats' efforts to further explode the deficit by spending more money that we don't have on things that don't work.  How complicated!

My preferred headline: 

"-$1.4 Trillion.  Holy Crap."

Ever Wondered What a Trillion Could Buy?

I've never really had a problem grasping the sheer insanity of federal spending stats, probably because I spent my youth dreaming of someday being Montgomery Burns. But for those that do, I recommend seeking out a few good visuals and anecdotes. This guy is great at it, and all his vids are must-watch. I also really like this one:



When the President first announced his "budget cuts" in April, it was reported in Time that the White House worked closely with behavioral economists who told him that "normal people" are "insensitive to scope." In other words, most folks simply can't comprehend the difference between a million and a trillion bucks. While a cheapskate like me can't fathom such insensitivity, it's good to know that there are smart, creative people out there doing fantastic work to relay the mind-boggling scope of current and proposed federal programs to the general public.