Do Free Market Policies Lead to a "Race to the Bottom"? (Hint: No)

The recent entry of Texas Governor Rick Perry into the Republican presidential race has produced a stampede of bad op-eds and blog posts from Democrats and other liberals seeking to discredit him and/or Texas' amazing successes.  There are a lot of bad hit-pieces out there at this point - and a lot of great rebuttals (see, e.g., here, here, here, here and especially here) - but for my money the worst so far is today's Politico op-ed by Delaware Governor Jack Markell, who warns that Governor Perry's radical, free market ideas would lead to a "race to the bottom" in the United States:

Perry argues that if the nation adopts his approach to business development — based on less regulation, less taxation and less litigation — the economy “will absolutely take off like a rocket.”

Perry’s priorities are not unimportant. But there are lots of countries with no regulation, little taxation and no real threat of litigation — usually also where wages are low and much of the wealth resides with a tiny slice of the elite.

That’s a lousy model for middle-class Americans....

The model favored by Perry is fueled by low-wage jobs, which creates a race to the bottom. The middle-class model involves competing with other countries in a race to the top — to attract research and development operations, high-end manufacturing, design shops and the like.

Now, leaving aside the fact that it's a total myth that the jobs created in Texas are all low-wage "McJobs," or that Perry adopted some sort of scorched earth campaign against government spending - on education, infrastructure or anything else - during his tenure as Governor, I'd like to focus tonight on Governor Markell's main message: that fiscally conservative, free market, "tea party" policies have lead to a "race to the bottom" around the world and would inevitably do the same here in the United States.  Is that really a credible premise?  Are the free market countries championed by fiscal conservatives all banana republics with "low wages" and tremendous income inequality?

In short, no.  Not at all.

Indeed, had the Governor even done the most basic of research, he would have seen that the most "free market" ("free-marketest"?) countries in the world, praised by conservatives and libertarians alike, are also some of the wealthiest, most modern and, in many cases, most "progressive."  For example, the Heritage Foundation's Index of Economic Freedom, which examines countries against a series of fiscally-conservative benchmarks (e.g., low taxes, limited regulations, free trade, small government), lists such backwards, downtrodden places as Hong Kong, Singapore, Australia, New Zealand, Switzerland, Canada, Ireland, Denmark in its top ten "most free" countries.  Indeed, the only country that could possible meet Governor Markell's misleading description is Bahrain.

Meanwhile, the libertarian Frazer Institute's Economic Freedom of the World Report, using similar measures of economic freedom (including limited government), lists most of the same countries that Heritage's Index identified: Hong Kong, Singapore, New Zealand, Switzerland, Chile, Canada, Australia, Mauritius, and the United Kingdom.  What horrible, dangerous countries!

Oh, wait.

On the other hand, the countries that rank near the bottom (or, on Gov. Markell's apparent scale, the top!) of these lists are such liberal paradises as Cuba, Iran, North Korea, Venezuela, Myanmar, Zimbabwe and Libya.

Sign me up!

In all seriousness, this simple example makes it abundantly clear that the Governor has no idea what he's talking about when he says that, if President Rick Perry turned the United States into some sort of "tea party paradise," it would inevitably turn into a third-world disaster zone.  The world's real free market paradigms, according to the very fiscal conservatives that Governor Markell openly derides, are some of the richest, healthiest and most developed countries in the world.  Considering that a simple Google search makes this fact abundantly clear, the Governor's either really slow or really disingenuous.

I'm guessing the latter, but, well, you never know.

But, hey, maybe the Governor has some fantastic ideas of his own that could somehow trump the centuries of proven prosperity that free market capitalism has repeatedly provided across the globe:

Building a sizable, vibrant and growing middle class requires great schools, a highly trained workforce and an attractive and exciting quality of life. That’s why initiatives like common core standards, heightening our focus on STEM education (science, education, engineering and math) and investing in our state and national parks and open space continue to be so important.

Yes, nothing will get this country back on its economic feet faster than Government spending (sorry, "investment") on our state and national parks and, umm, "open space."  We're saved!

Ugh.

No wonder liberals are openly wishing for an alien invasion.  They've clearly run out of earthly ideas.

Umm, Yeah, About that Awesome Chinese Industrial Policy

Many misguided souls on both the left and the right (although moreso on the left) look at China's impressive economic growth and openly yearn for the US government to adopt a China-esque industrial policy.  Smart guys like Dan Ikenson and Jonah Goldberg routinely discredit the industrial policy dreamers by pointing out the myriad economic and moral failings of a command economy like China's (or of similar industrial policy experiments here at home).  However, I'm not sure that I've ever seen or read anything that better elucidates the problems of top-down industrial planning than this relatively new video on China's "ghost cities."  It's a little long, but well worth your time:



There are so many fantastic lines and scenes in this piece that I don't even know where to begin. (I especially liked the veiled shot at the New York Times' braintrust for so openly praising China's super-awesome - and now empty and decaying - Mall of the Future.)   Indeed, I think you could write an entire masters thesis on how perfectly this one little video reveals the economic and moral failings of Keynesianism central planning.  For now, however, I'll just posit a simple question: after watching this video, how can anyone - anyone! - seriously advocate copying China's state-run approach to economic policy?

Sunday Quick Hits

Lots going on over the last week, and I'm traveling today, so let's just get right to it:

• Economist Ray Fair explains in detail why he believes that RMB appreciation will be a net negative for the US economy.

• Ever wonder why so many politicians campaign with impunity against free trade in Democrat primaries?  Well, this fun new survey suggests that they're just playing to their target audience. (Snicker snicker.)

• Chinese officials assert that American legislation (or administrative action) to attack China's currency policies through US anti-subsidy laws would violate WTO rules.  As I've already noted, they are probably right.

• In one quick little blog post, Paul Krugman finally admits that (a) he doesn't understand global trade rules; and (b) he just doesn't care about them.  Krugman disregarding the rule of law?  Shocking, I know!  Of course, he could've read this helpful blog entry and saved himself the embarrassment.

• The Bush Institute's Jim Glassman hosts an interesting video debate on "Doubling Exports - Rhetoric or Reeality?" between Cato's Dan Ikenson and Public Citizen's Lori Wallach.

• Speaking of Ikenson, he provides the "Charts of the Week" - maybe even the month - which clearly and concisely demonstrate just how critical import competition is for American families and businesses.

• And then Ikenson's colleague Dan Griswold unpacks the most recent US trade data to explain how - assuming you're a sane, apolitical person (I know, I know) - the stats argue against attacking China's currency.

• More on ObamaCare and America's global competitiveness: here's a handy listing of all the US companies that have announced tax hits (and the amount of the hit) because of the new US healthcare law.  Ouch.

• The Peterson Institute's Gary Hufabauer and Theodore Moran explain how the recently-passed American Jobs and Closing Tax Loopholes Act will destroy American jobs and hobble US exports.  They show that the legislation's "tax measures would cost $14 billion over 10 years for the foreign operations of US-based multinational corporations."  Awful.

• And speaking of awful American fiscal policy, Art Laffer explains how the seemingly-inevitable tax increases in 2011 (when the Bush tax cuts expire) will crush any US economic recovery, while Mark Calabria shows that Obamanomics is already doing a number on the struggling US labor market.  Oh, goody.

• Finally, the Atlas Institute's Tom Palmer explains free trade in under 3 minutes in the following video.  A little basic for readers of this blog, but a nice thing to share with family/friends who don't obsess about this stuff like I do.

Happy Earth Day

The inimitable George Carlin pretty much sums it all up.  (Language warning, as if you didn't know that already.)



The planet is fine. Humans, on the other hand.....

Quote of the Day

Comes from Richard Barley of the Wall Street Journal:

[W]hy should China agree to make itself less competitive for the benefit of high-deficit nations? [Bank of England Governor Mervyn] King argues that the crisis was a result of the inability to cope with huge capital flows from China, India and elsewhere as a result of globalization. But the other key factor, surely, was monetary policy in low-saving nations like the U.K. and U.S. that encouraged asset-price inflation and risk-taking. A tightening of policy earlier would no doubt have damaged these economies, but might have occurred before imbalances grew to the dizzying proportions they did. There is no law of economics that requires already indebted nations to keep borrowing and consuming.

Indeed. As I've said a few times, China's currency and trade policies can only contribute to (allegedly) problematic "global imbalances" because the US, UK and other developed governments can't stop spending, printing and borrowing money. If they could stop, then what China did wouldn't matter too much. But of course, American and British leaders can't impose any semblance of fiscal restraint - now or ever - so they blame China, much like a compulsive gambler blames his bookie.

Are you listening, Mr. Krugman?

White House to Push for "Singapore/Zurich Full Employment Act of 2010"

Ok ok, that's not what they're calling it, but they would if they had any sense of reality (or sick humor).  From today's Wall Street Journal:

The Obama administration is aiming to hit banks with a fee to recoup losses associated with the government's bailout of financial firms and the auto industry, administration officials say.

The White House hopes the fee will soothe the public's anger at financial firms. Most big banks that received public funds have repaid the government, but the industry is seen by many as having survived thanks to taxpayer support, and is now enjoying a profit rebound as the economy struggles. This month, many large banks will resume paying big bonuses to employees.

Much remains uncertain about how such a fee would work. The administration is wrestling with who should pay, when it should be implemented and what would happen if banks pay more than the government-bailout program ultimately loses. Auto makers aren't currently targets of the fee idea.

Even though the proposal is still under discussion, it is expected to be included in the White House's budget, due next month, if only conceptually. It's expected to cost large banks billions of dollars and could also affect bank customers if firms pass along the cost.

To be fair, I guess they could also call it the "New Bank User Fees Act of 2010."

Drive-by Economics

Perhaps realizing that he hadn't filled his monthly quota for columns bemoaning Chinese monetary policy and mercantilism, Paul Krugman published yet another one on New Years Eve  - just under the December wire!  The details of Krugman's latest New York Times column need not be discussed in this blogpost, as it's pretty much identical to its October and November brethren, and I've already said my peace on those.  But Krugman's December China currency column still warrants mention here because in it he reaches a new low when covering a subject over which his expertise should be unquestioned - international trade.  In the middle of his column, Krugman unleashes this doozy (emphasis mine):

Meanwhile, that [Chinese] trade surplus drains much-needed demand away from a depressed world economy. My back-of-the-envelope calculations suggest that for the next couple of years Chinese mercantilism may end up reducing U.S. employment by around 1.4 million jobs.

Maybe because people ignored his October and November hysteria on China's currency policies, Krugman felt the need to amp it up a notch by putting a zany job-loss number in the middle of his monthly China regurgitation.  Maybe Americans just don't get too agitated by warnings of "global imbalances," and - let's face it - everybody knows that "jobs" are 2010's super-sexy-it-word.  I dunno.  But what I do know is that not a single word before of after the passage above explains how Krugman came to this eye-popping "back-of-the-envelope" statistic.  Indeed, we don't even know if he was using one of those small envelopes that come with grocery-store floral bouquets, or one of those huge envelopes that we lawyers use to serve confidential 500-page documents to our adversaries (hey, maybe it was the envelope in which his Nobel Prize Certificate was mailed).  Krugman never says.  Instead, he just spits out the stat and then keeps rambling on about China's mercantilism, the obvious wisdom of Keynesian economics, and, naturally, how he's smart and everyone else is stupid. (Duh.)

My only guess is that Krugman derived the "1.4 million" number using the flawed, completely debunked method - founded by the union-sponsored protectionists at the Economic Policy Institute - that mindlessly translates bilateral trade deficit figures into "lost job" numbers (down to the ridiculous decimal point!).  That would be a really bush-league move, even for Krugman, but who knows?  It's certainly simplistic enough for an envelope-doodle. But the fact that only Krugman knows how he came up with his new "statistic" exposes it as absolutely, completely worthless for public consumption or discussion.

Yet there it is, and I'm left wondering how many times I'm now going to have to hear (and rebut) this fake number - "1.4 million 'Merican jobs!" - over the next few months as politicians and career protectionists demagogue away on the evils of China's trade and currency policies.  Unfortunately, once these stats - especially those originating from a Nobel Laureate and liberal icon like Krugman - are irresponsibly strewn across the interwebs, they never, ever go away, regardless of their actual veracity.  (Indeed, those EPI numbers have been proven worthless for years now, and yet politicians still campaign on them.  Good ol' Public Choice Theory!) 

And considering how important and delicate the issue of US-China trade relations will be for 2010 and beyond, Krugman's nonchalant ejaculation of this fake statistic onto the pages of the New York Times and lord-only-knows-how-many other websites and blogs is the height of journalistic - and economic - malpractice.

But I guess at this point that I really shouldn't be surprised by any of this.  For years I'd read a stupid quote from a Krugman column on an issue other than international economics, and I'd say to myself, "Man, I wish this guy would just stick to trade and economics instead of this drivel."  But with columns like this, I can't even say that anymore.  He's officially unreadable on all fronts.  And considering the invaluable contributions that Krugman made to the free trade cause in the 1980s and 90s, that's a really, really depressing conclusion.

I Think This Means Glenn Beck Is Winning

So a friend of mine received Glenn Beck's book, Arguing with Idiots, for Christmas today. The book was purchased new from the Barnes & Noble at St. Johns Town Center in Jacksonville, Florida.  And as my friend thumbed through the pages, this fell out:

Ahh, yes, nothing like directing folks to MediaMatters for some pure, unbiased reporting on the media.  (The provided link is criticism of MediaMatters' bias by NBC of all places; and when NBC calls you biased, well, you get the idea.  This Politico exchange on MM is also kinda fun.)

Anyway, I'd say ol' Glenn must be doing something, ahem, right if his books have been targeted for nutroots propagandizing.  (And I'd also say that it's time the nutroots updated their enemies list, considering that John McCain's name is still on it.  That is so 2008.)

Final thought: if calling out the media is "working the refs," then what's papering conservative books with links to lefty websites?  Maybe "spiking the Gatorade"?

Merry Leftmas, everybody!

Dumbest. Idea. Ever?

Ok, maybe not ever, but this is pretty darn dumb. From the braintrust over at the progressive "think tank" Demos comes a brilliant way to encourage economic development and growth in the developing world. And by "encourage" I of course mean "completely undermine." (Oh, and it might just harm the very environmental objectives they're looking to promote.)

In their op-ed in The Hill, authors David Callahan and Cristina Vasile argue, among other things, that the United States Generalized System of Preferences should be updated to eliminate tariff benefits for developing countries that fail to implement and enforce any new multilateral climate treaty:

If the Obama administration and congressional leaders want public backing for a climate treaty, along with Senate ratification, they need to start thinking harder about how to enforce the deal. Realistically, there is only one way to achieve this goal: Use trade rules to penalize countries that violate a new climate treaty.

[An] important step would be to include environmental criteria in trade preference programs, particularly the Generalized System of Preferences, which cut tariffs for developing nations that meet various eligibility criteria.

In 2008, developing countries imported just over $30 billion worth of products into the United States duty-free under GSP. This amounted to over $850 million in savings for countries like Brazil, India, and Indonesia. Nations in Africa, South America, and the Caribbean also realized millions in savings thanks to regional trade preference programs....

Specifically, the GSP should be amended to stipulate that beneficiary countries enforce all global environmental treaties they are party to, as well as uphold their domestic environmental laws.

Congress has a chance to act immediately to make this change because the current version of the GSP is set to expire at the end of this month. By voting to include environmental criteria in the GSP, Congress can send a message — both to the U.S. public and to the world — that the United States is serious about enforcing a climate treaty.

Forging a new linkage between trade and the environment need not mean that poor countries lose their access to U.S. markets. A period of transition would be needed as the new rules take effect. After that, steps would be taken to address violations over time, with the United States providing financial and technical assistance to help countries live up to their environmental obligations — not just to a climate treaty but to other pacts designed to protect the planet.

Developing countries have their own reasons to go green, of course, and new trade rules can help empower environmentalists in those countries.

Studies show that poorer regions will be hurt most by climate change, and many people in these places are already suffering from unchecked air pollution, contaminated drinking water, and deforestation. Meanwhile, the development benefits of such steps as investing in renewable energy or preserving biodiversity are becoming ever more evident.

Too often, environmentalists in places like Asia and South America find themselves impotent in the face of powerful interests who argue that nothing should stand in the way of economic growth. New U.S. trade rules would help change that balance of power and foster more sustainable patterns of development....

Ok. Let me tick off a few of the many, many problems with this silly idea:

1) The purpose of GSP and other unilateral preference programs is to encourage economic growth and development in the world's poorest countries by offering them duty-free access to the US market. Today, the only way for poor countries to develop their economies and become rich (i.e., able to afford fancy alternative fuels and climate mitigation technologies) is to burn fossil fuels. This is why developing countries at Copenhagen are demanding bazillions of dollars from the US, EU and others (who, you know, developed using traditional energy and thus are responsible for the lion's share of historic carbon emissions) - they simply can't develop without emitting tons of carbon unless they get that cash (or so the theory goes). To implement a rule under GSP and other preference programs that essentially removes tariff benefits - a key avenue for economic growth - for countries that actually pursue and begin to achieve such growth both defies basic logic and completely undermines the programs' primary development objectives. In other words, it's stupid.

2) The authors' tacitly recognize problem #1 (hence, the "transition period") but think that more foreign subsidies ("financial and technical assistance") can solve it (helping developing countries "live up to their environmental obligations"). Such a "solution" is the height of naivete: in many of these countries - especially sub-saharan African ones - corruption is so bad that a vast majority of such aid will end up in the pockets of the ruling class, rather than spent on complying with global climate treaties or enforcing domestic environmental regulations. The result: fat dictators, bankrupt companies AND a still-dirty country. Awesome.

3) The authors are certainly right that "developing countries have their own reasons to go green." Yet they utterly fail to realize that if rich countries simply help developing countries, you know, DEVELOP, such countries will go green on their own once they're rich enough to do so. (Everybody wants clean air and water - they just want food, shelter and security first.) Policies like GSP - by encouraging private sector growth through free trade - accelerate developing countries' economic growth (and subsequent environmental improvement). So why on earth would we want to take that away? Indeed, even the threat of taking it away can retard development - a prime reason why GSP supporters have long advocated longer-term extensions of preference programs to increase the reliability of the programs' tariff benefits and encourage long-term contracts.

4) Naturally, the authors also completely fail to recognize that the primary beneficiary of that "$850 million" in tariff savings isn't the developing country exporters, but rather US consumers that purchased the subject products. Indeed, under US law, exporters don't pay tariffs - importers (and then consumers) do. So the Demos "plan" might actually result in a billion-dollar tax increase for American families and businesses (while also discouraging economic development in poor nation, of course). Perfect medicine for the ailing domestic and global economies, huh?

5) Most ridiculously, the Demos strategy could actually discourage developing countries from entering into multilateral climate treaties. Think about it: if you're a a developing country, and you're told that all of these billions of juicy tariff benefits could disappear if you fail to implement a global climate treaty (based, of course, on the United States' own definition of what qualifies as "proper implementation"), would you take that risk? Or would you refuse to sign on or - even smarter - try to sandbag the entire treaty altogether? I dunno about you, but that's a pretty easy call for me. Now, the authors might argue that the new GSP provisions could automatically apply to all countries that refused to join the treaty (although they didn't say that), but then the United States is essentially attempting to force developing countries to sign on to an agreement. Something tells me that such an encroachment on these countries' national sovereignty wouldn't be too well-received by progressives' cherished "global community."

I could go on, but you get the idea. This is a wretched proposal. Of course, I normally would've ignored the op-ed altogether, except for three things: (i) it was in The Hill (and thus might actually be read by an aspiring staffer); (ii) GSP re-authorization is up this month; and (iii) according to Wikipedia, Demos' "...first group of fellows and board members included... Barack Obama, then a state senator in Illinois." So this outfit might actually have a voice somewhere in the administration.

Shudder to think.

Bob Herbert v. The Market

Bob Herbert has a new op-ed in the NYT breathlessly applauding "green entrepreneurship" in struggling Detroit:

I found real reason to hope when a gentleman named Stan Ovshinsky took me on a tour of a remarkably quiet and pristine manufacturing plant in Auburn Hills, which is about 30 miles north of Detroit and is home to Chrysler’s headquarters. What is being produced in the plant is potentially revolutionary. A machine about the length of a football field runs 24 hours a day, seven days a week, turning out mile after mile after mile of thin, flexible solar energy material, from which solar panels can be sliced and shaped.

You want new industry in the United States, with astonishing technological advances, new mass production techniques and jobs, jobs, jobs? Try energy.

Mr. Ovshinsky knows as much or more about the development and production of alternative energy as anyone on the planet. He developed the technology and designed the production method that made it possible to produce solar material “by the mile.” When he proposed the idea years ago, based on the science of amorphous materials, which he invented, he was ridiculed.

But the thin-film photovoltaic solar panel was just one of his revolutionary ideas. He invented the nickel metal hydride battery that is in virtually all hybrid vehicles on the road today. And when I pulled into the parking lot outside his office in Bloomfield Hills, he promptly installed me in the driver’s seat of a hydrogen hybrid prototype — a car in which the gasoline tank had been replaced with a safe solid-state hydrogen storage system invented by Mr. Ovshinsky.

Within minutes, I was driving along a highway in a car that produced zero pollution. No carbon footprint whatsoever. How’s that for a wave of the future?

The point is that these (and many more) brilliant, innovative technologies are here. They are real, tangible. They exist. What’s needed now is the will to develop policies that will vastly expand these advances and radically reduce their costs. The United States should be leading the world in the creation of whole new energy technologies and industries, instead of allowing the forces of the old carbon-based industries — coal, oil, gasoline-powered vehicles — to stand obstinately in the way of real progress.

“Now,” Mr. Ovshinsky told me, “is when we have to build the new industries of the future.” He has always been driven by the desire to use science and technology to solve the real-world problems of real people, and that has meant creating employment and stopping the pollution of the planet. He and his late wife, Iris, formed a company (to become known as Energy Conversion Devices) in Detroit in 1960 with the idea of using their considerable talents, as he put it, “to do good, to change the world.”

After nearly a half-century of revolutionary innovations with the company, Mr. Ovshinsky retired two years ago to focus his attention on the difficult and time-consuming effort to make solar energy economically competitive with coal and oil. “I know solar energy can’t live up to its possibilities unless it’s a hell of a lot cheaper,” he said.

He believes he has assembled a team that, with sustained, intense work under his direction — and if sufficient funding can be secured — will bring the price of solar power below that of coal and oil within a few years.

What’s weird is that this man, with such a stellar track record of innovation on products and processes crucial to the economic and environmental health of the U.S., gets such little attention and so little support from American policy makers. In addition to his work with batteries, photovoltaics and hydrogen fuel cells, his inventions have helped open the door to flat-screen televisions, new forms of computer memory and on and on.

So when Stan Ovshinsky tells us that we should be putting our chips on hybrid and electric vehicles, and that solar and hydrogen power can be the cornerstone of an industrial renaissance in the U.S. as well as a cleaner planet, we should be listening very, very closely.

As oil defined the 20th century, new forms of energy will define the 21st. The U.S. has the opportunity, the intellectual resources and the expertise to lead the world in the development of clean energy. What we’ve lacked so far has been the courage, the will, to make it happen.

With all due respect to Mr. Ovshinksy, Herbert's column is classic liberal jibberjabber and proof positive that professional journalists should not write about US economic policy.  First, as I've pointed out several times, the US manufacturing sector is the largest in the world (by value) and was setting annual performance records before the current recession.  So Herbert's melodramatic yearning for an "industrial renaissance" completely disregards reality. You see, something needs to be "dead" before it can be "reborn," and the US manufacturing sector is far from dead. You'd think that an award-winning journalist would understand such basic rule of language and logic, but obviously Mr. Herbert doesn't.

Second, how exactly are fossil fuels "standing obstinately in the way of real progress"?  The answer: by being the cheapest, most plentiful and most efficient fuel on the planet (as Ovshinsky readily admits in his "hell of a lot cheaper" comment).  Indeed, there's nothing that the oil, gas and coal industries are doing to stifle green innovation other than - the horror! - exist and profit.  To the extreme and as-yet-unparalleled benefit of the entire world. So spare me the victimology, Mr. Herbert.

Third, if a clean fuel source that could actually compete on price and output with fossil fuels were only a "few years" away, why isn't private investment flooding in to Mr. Ovshinsky's business?  Seriously, I would cash in my 401(k) and take out a second mortgage to invest in a company that I KNEW was going to be cranking out a real, green, "economically competitive" energy alternative in the next few years.  And so would everyone else.  Yet Mr. Ovshinsky can't secure "sufficient funding" from the private sector. The fact is - and Herbert knows this - that these "potentially revolutionary" technologies are, as the descriptive makes clear, totally unproven, and their actual ability to compete with fossil fuels in the near future is far from certain.  These technologies can't even compete right now when the government (a) subsidizes the hell out of them; and (b) makes fossil fuels artificially expensive.  Herbert's solution: "American policy makers" should funnel more federal taxpayer dollars - "our chips," he euphamistically calls them - to support Mr. Ovshinsky's neat projects. 

There's only one (more) problem: the federal government is absolutely awful at picking market winners.  For some strange reason, a bunch of lawyers in Washington just can't seem to figure out which "revolutionary technology" will be the one to finally knock fossil fuels off their perch as the world's primary energy source.  The ongoing tragicomedy of US biofuels policy is a prime example of this indisputable fact.

Yet Herbert boldly insists that policymakers must have the "courage" and the "will" to throw more taxpayer debt (we have no actual "money" these days) at yet another technological "miracle."  And this time, we should ignore the market's sage counsel and just take the advice of Bob Herbert and his B.S. degree (not a joke!) from Empire State College.

I don't  know about you, but I'll keep listening to the market, thanks.

(Exit questions: How much of his own money do you think Bob Herbert has invested in Mr. Ovshinsky's business? Or does his call for "courage" apply only to other people's money?)

Can We Officially Declare "Clunkers" An Abject Failure? (Answer: Yes)

A little over 2 weeks ago, I documented why the "successful" Cash for Clunkers ("C4C") program was actually anything but. As I said then, "Only in Washington can a plan to give away free money over three months, which was delayed, then collapsed after 4 days and was riddled with administrative problems, be deemed a 'success.'" I also highlighted other problems, namely (1) the unintended consequences of the program - harming used car and parts dealers and the poor people who shop there; (2) the incompetence of government management - including how the program would probably have no positive economic or environmental effects; and (3) how ripe the program was for fraud and abuse.

Nevertheless, as I not-so-boldly predicted the Senate approved another $2 billion of funding for the program, and the US government tore a rotator cuff patting itself on the back. Everyone cheered... well, everyone except the poor, independent car dealers, used parts sellers, and taxpayers not in the market for a new car (or wanting to game the system for a free wad of money). But government was happy because car dealers and American automakers were loving the influx of customers. And the government loves itself some auto-money. WOO HOO!

Now, only 2 weeks later, dealers aren't so happy anymore. The Detroit News reports that the Transportation Department is “ramping up efforts to speed payments to dealers under the $3 billion ‘cash for clunkers’ program.” It's hiring 1,100 workers (stimulus!) to process voucher payment requests by tapping the Enterprise Services Center in Oklahoma City, Okla. I guess that would be good news if we didn't also hear today from the AP, which informs us that dealers “have reported submitting tens of thousands of dollars — in some cases more — worth of rebates to the federal government for repayment that are still outstanding. Many report they have been repaid for only a small fraction of the deals they made under the program, creating strain on cash flows at dealers nationwide.” Uh oh. And the Chicago Sun-Times piles on: “dealers across the country, who have been giving discounts to car buyers, are still waiting for their money.” While “problems with applications have been reduced, getting approval for reimbursement requests still faces ‘significant hurdles,’ said John Lyboldt, vice president for dealer operations at the National Automobile Dealers Association.” Things have gotten so bad that a lot of dealers are thinking of dropping out of the program, says the Milwaukee Journal Sentinel.

Ok, so new car dealers aren't big fans anymore, but at least Ford, GM and Chrysler are psyched, right?

Wrong, as the FT reports:

According to data published by the National Highway Traffic Safety Administration on Monday, Americans are using the scrappage incentives to buy more vehicles from Toyota than any of the three Detroit carmakers.

...

The top models bought since the scheme began on July 24 are the Toyota Corolla, Honda Civic and Ford Focus, all small sedans. Three of the top five are Toyotas.

The popularity of smaller models underlines the price paid by the Detroit companies for their strategy to all but cede the passenger car market to their foreign rivals during the 1990s as they concentrated on bigger and more profitable sport-utility vehicles, pick-up trucks and minivans.

Ugh. Ok, so dealers AND the Big Three aren't huge fans, but, well, umm, at least the economy is cranking now, right?

Wrong again, as MarketWatch informs us (emphasis mine):

U.S. retail sales unexpectedly fell 0.1% in July, as soft sales for most types of merchandise offset a boost from the government's cash-for-clunkers subsidy, the Commerce Department reported Thursday.

It was the first decline for seasonally adjusted sales in three months. The report shows that consumer spending is still weak despite attempts by the government to stimulate demand. Sales at most kinds of stores declined in July.

Economists surveyed by MarketWatch were looking for sales to rise 0.8% in July after an upwardly revised 0.8% increase in June. See Economic Calendar.

"We know a clunker when we see one, and the July retail sales report was a real clunker," wrote Richard Moody, chief economist for Forward Capital.

...

The government subsidy that gives owners of older, less-efficient vehicles as much as $4,500 toward the purchase of a new one had a major impact, as auto sales rose 2.4%. Analysts expect the program will have an even larger effect on auto sales in August. The program was running for just one week during July.

Excluding autos, retail sales fell 0.6%, against an expectation of a 0.1% increase. Sales excluding autos rose 0.5% in June and are now down 8.5% in the past year.

The cash-for-clunkers program may be having a negative impact "as consumers shift dollars to paying for their new vehicles instead of other purchases," said Adam York, an economist for Wells Fargo Securities.

"The consumer is still under considerable pressure tied to a weakening labor market, a negative wealth effect and tight credit conditions," said David Greenlaw, an economist for Morgan Stanley. "Also, it appears that the recent tax stimulus is having limited impact. We look for a modest pop in consumer spending in the third quarter driven by the success of the 'cash for clunkers' followed by a return to a more tepid pace in the fourth quarter."

Wait, so people who bought cars didn't also buy other stuff? NO WAY!! On the bright side, this dispels the "magic beans" theory of liberal economics.

But with car dealers, the Big Three, and the US economy all hating on C4C, the environment - mother Gaia herself - still has gotta be a (small) fan of a program that takes all those carbon-emitting clunkers off America's roads, right? Right?!?

Wellllll.... maybe not. In fact, a brand new study (PDF) by economists Lucas Davis and Matthew Kahn shows that, when factoring the large international trade in used cars between the US and Mexico, C4C and programs like it might actually increase global carbon emissions over the long term. Here they are explaining why in a new op-ed (caution: nerdspeak and euro-spelling ahead):

Under the US “cash for clunkers” programme, billions of dollars are being allocated to pay drivers to purchase a new vehicle and scrap their old automobile. This column says the programme will reduce international trade in used cars, which significantly benefits consumers in developing economies. Such trade also increases the average emission efficiency of automobiles in both the US and developing nations, which raises the possibility that “cash for clunkers” might raise global emissions.

In other words, people who say C4C will help reduce carbon emissions totally failed to consider international trade in used cars. These clunkers are typically less efficient than the average American car, but they're far more efficient than the Mexican averages. By destroying the clunkers, C4C will dramatically reduce the used car trade between the US and Mexico. This will not only harm poor Mexican car-buyers (who must pay more for a smaller supply of used vehicles), but it also could decrease the average fuel-efficiency of Mexican cars and thus increase total carbon emissions in Mexico (where more polluting cars aren't replaced with less-polluting American clunkers). The result: more overall pollution, not less. Quick conclusion: yet another one for the "nasty unintended consequences" file.

So who the hell is still calling this program a "success"? Anyone? Anyone? Bueller?

(Ok, ok, other than the tiny percentage of American consumers who are getting free money, of course.)

NYT: We're Totally Cool With Fear-Mongering When Global Warming's Involved

The New York Times editorial board has long been a vocal critic of politicians who use alleged threats to national security as a way to advocate policy. The editors routinely rebuke such "fear-mongering," and in a 5-minute search of the NYT archives, I found examples of this criticism here, here, here, here and here. Indeed, the chant of "fear-mongering" has been a staple of NYT editorials over the last eight years. In one called "The Politics of Fear" they wrote:

This administration has never hesitated to play on fear for political gain, starting with the first homeland security secretary, Tom Ridge, and his Popsicle-coded threat charts. It is a breathtakingly cynical ploy, but in the past it has worked to cow Democrats into silence, if not always submission, and herd Republicans back onto the party line.

That must not happen this time. By now, Congress surely can see through the president’s fear-mongering and show Mr. Bush the exit from Iraq that he refuses to find for himself.

Oh snap! In a September 2004 editorial "Preventive War: A Failed Doctrine," the Times rattled off this doozy right in the middle of the presidential election season:

If facts mattered in American politics, the Bush-Cheney ticket would not be basing its re-election campaign on the fear-mongering contention that the surest defense against future terrorist attacks lies in the badly discredited doctrine of preventive war. Vice President Dick Cheney took this argument to a disgraceful low last week when he implied that electing John Kerry and returning to traditional American foreign policy values would invite a devastating new strike.

Clearly, these folks really, really hate fear-mongering!

(Well, at least they did.)

(Back when Dubya was in the White House.)

(And when the issue wasn't the Left's cause de celebre.)

(And when legislation on that issue wasn't teetering on the brink of failure in the Senate.)

Here's the lede story from the front page of today's New York Times (Page A1, column 1, above the fold, emphasis mine):

CLIMATE CHANGE SEEN AS THREAT TO U.S. SECURITY

WASHINGTON — The changing global climate will pose profound strategic challenges to the United States in coming decades, raising the prospect of military intervention to deal with the effects of violent storms, drought, mass migration and pandemics, military and intelligence analysts say.

Such climate-induced crises could topple governments, feed terrorist movements or destabilize entire regions, say the analysts, experts at the Pentagon and intelligence agencies who for the first time are taking a serious look at the national security implications of climate change.

Recent war games and intelligence studies conclude that over the next 20 to 30 years, vulnerable regions, particularly sub-Saharan Africa, the Middle East and South and Southeast Asia, will face the prospect of food shortages, water crises and catastrophic flooding driven by climate change that could demand an American humanitarian relief or military response.

...

If the United States does not lead the world in reducing fossil-fuel consumption and thus emissions of global warming gases, proponents of this view say, a series of global environmental, social, political and possibly military crises loom that the nation will urgently have to address.

This argument could prove a fulcrum for debate in the Senate next month when it takes up climate and energy legislation passed in June by the House.

Lawmakers leading the debate before Congress are only now beginning to make the national security argument for approving the legislation.

Senator John Kerry, the Massachusetts Democrat who is the chairman of the Foreign Relations Committee and a leading advocate for the climate legislation, said he hoped to sway Senate skeptics by pressing that issue to pass a meaningful bill.

Mr. Kerry said he did not know whether he would succeed but had spoken with 30 undecided senators on the matter.

...

“I’ve been making this argument for a number of years,” Mr. Kerry said, “but it has not been a focus because a lot of people had not connected the dots.” He said he had urged President Obama to make the case, too.

Mr. Kerry said the continuing conflict in southern Sudan, which has killed and displaced tens of thousands of people, is a result of drought and expansion of deserts in the north. “That is going to be repeated many times over and on a much larger scale,” he said.

...

A changing climate presents a range of challenges for the military. Many of its critical installations are vulnerable to rising seas and storm surges. In Florida, Homestead Air Force Base was essentially destroyed by Hurricane Andrew in 1992, and Hurricane Ivan badly damaged Naval Air Station Pensacola in 2004. Military planners are studying ways to protect the major naval stations in Norfolk, Va., and San Diego from climate-induced rising seas and severe storms.

Another vulnerable installation is Diego Garcia, an atoll in the Indian Ocean that serves as a logistics hub for American and British forces in the Middle East and sits a few feet above sea level.

Arctic melting also presents new problems for the military. The shrinking of the ice cap, which is proceeding faster than anticipated only a few years ago, opens a shipping channel that must be defended and undersea resources that are already the focus of international competition.

...

“We will pay for this one way or another,” Gen. Anthony C. Zinni, a retired Marine and the former head of the Central Command, wrote recently in a report he prepared as a member of a military advisory board on energy and climate at CNA, a private group that does research for the Navy. “We will pay to reduce greenhouse gas emissions today, and we’ll have to take an economic hit of some kind.

“Or we will pay the price later in military terms,” he warned. “And that will involve human lives.”

Death, destruction and destabilization, oh my! That closing line is even scarier when you say it with an echo ("human LIVES... lives... lives..."). Anyway, quite the sea-change over at the Times, wouldn't you say? Granted, this piece is not an editorial, but I'm willing to wager serious money against any future NYT editorial denouncing Mr. Kerry's use of climate fear and national security to "sway" skeptical colleagues into passing Cap-and-Trade as "breathtakingly cynical."

Any takers? (I didn't think so.)

So to recap:

Bush/Cheney fear-mongering to eavesdrop on US citizens, invade Iraq, get elected, or whatever else = BAD!

NYT/Kerry fear-mongering to pass Cap and Trade = GOOD!

Is Libertarian Opposition "Racist"? (Answer: Of Course Not)

Not much more I can say about this recent blog post by Cato's David Boaz on the left's bizarre reaction to any opposition to Obama's policies, except to demand that you read the whole thing and to tease you with a few money quotes:

The classical liberal ideas of individualism, individual rights, property rights, “negative liberties,” and limited government date back hundreds, even thousands, of years. They find their roots in the Greek and Hebrew conceptions of the higher law, the Scholastic thinkers, the Levellers’ ideas of self-ownership and natural rights, the political theory of John Locke, the economic analysis of Adam Smith, and the political institutions of the American Founding. To suggest that the case for freedom and limited government — or the application of that theory to contemporary proposals for the expansion of government — must be attributable to racism is uncharitable, ahistorical, thoughtless, and indeed contemptible.

It cannot be the case that every parody of a president who happens to be black is racist. And it is not good for democracy to try to counter every opposing argument with such a blood libel. The good news for advocates of limited government is that our opponents are displaying a striking lack of confidence in the actual arguments for their proposals. If they thought they could win a debate on nationalizing health care, or running trillion-dollar deficits, they wouldn’t need to reach for such smears.

Amen, David. Amen.

ObamaCare Acolyte Gets Pwned

In the right corner, Congressman Paul Ryan. In the left corner, Nation editor Katrina vanden Heuvel.

The result: a vicious knockout for Ryan. (The exchange starts at about 3:27.)



Towards the end, you even see MSNBC's referee Carlos Watson try to step in and stop the fight, but Ryan will have none of it. He gets in a few more finishing shots, and she's down for the count.

Awesome.

A Great Day for Labor Unions and Robots; A Crappy Day for the Rest of Us

Today, the minimum wage in the United States increased 70 cents to $7.25.

Please hold your applause.

Being a sane individual somewhat versed in basic economics, I oppose a minimum wage for basic economic reasons. But I could never do adequate justice to explaining the outright idiocy of minimum wage hikes, particularly in this economy, so I'll just do two things here:

(1) Provide you with a couple classic Cato articles and a great IZA study by guys far smarter than me on the minimum wage. The money line from one of the articles:

The idea that legislators can help low-income workers simply by mandating a pay raise is the height of hubris. While the minimum-wage rhetoric may sound good, the reality is quite different. Forcing employers to pay low-skilled workers a higher than market wage — in the absence of any changes in productivity — will decrease the number of workers hired (the law of demand).

(2) Provide you with a quick rundown of the winners and losers from minimum wage hikes:

The Big Winners: Unions (increasing the costs of non-union labor makes union labor relatively more attractive); Robots (ok, not exactly "robots," but devices like self-checkout machines that take the place of low-skilled, low-income laborers who work for big companies); and Businesses in high-minimum-wage states that compete with businesses in states with lower minimum wages (race to the top, economics be damned!).

The Big Losers: Medium-sized businesses (hit hard by increased labor costs); Low-skilled laborers (replaced by robots, downsized outright, or paid even less at businesses not subject to minimum wage laws); American consumers (paying higher prices); and the US economy overall (see IZA study linked above).

Bystanders: Small businesses not subject to the MW increase (think your dry cleaner, unless you use Bibbentuckers or another big chain). Of course, these businesses now have less incentive to grow and hire more people. Fantastic!

Clearly the losers far outnumber the winners in this rundown. And yet....

Ahhh, politics.