January 2012

Occupy Wall Street Protesters Make Demands

by Ryan Young on October 5, 2011 · 107 comments

in Economy, Features, Sanctimony, Zeitgeist

Post image for Occupy Wall Street Protesters Make Demands

Until recently, I haven’t been paying much mind to the Occupy Wall Street protests. They’re a lot like Tea Party protesters. They’re upset with the status quo, and are being quite vocal about it. But — also like the Tea Partiers — they lack a unified voice. What do they want?

That incoherence was partially solved when one activist posted a list of thirteen demands on OccupyWallSt.com. It doesn’t stand for the whole movement, obviously. Some protesters are focused on different issues than the ones he chose. But it’s reasonable to assume that most of the protesters would agree with most of his demands.

From an economist’s perspective, the demands are both fascinating and disheartening. Fascinating because people who haven’t studied economics believe some really strange things; disheartening because many of the policies would hurt the very people they’re meant to help. Intentions are not results.

Let’s take a quick look at each of the demands. I have left his grammatical errors intact:

Demand one: Restoration of the living wage. This demand can only be met by ending “Freetrade” by re-imposing trade tariffs on all imported goods entering the American market to level the playing field for domestic family farming and domestic manufacturing as most nations that are dumping cheap products onto the American market have radical wage and environmental regulation advantages. Another policy that must be instituted is raise the minimum wage to twenty dollars an hr.

He’s being far too moderate here. Take as true that importing goods across international borders kills jobs. Well, as a matter of logic, importing goods across state borders is no different. Oregonians should be forbidden from importing goods from Californians. Inter-city free trade has the same harmful effects. Consistency demands banning that, too. Even inter-household trade kills jobs under this line of thought.

If the protesters arbitrarily draw the line at the national level, then there is an inconsistency in their thought. And economists from the left and the right have been openly poking fun at that inconsistency for over 200 years.

And why only a $20 minimum wage? Think big. If Congress can raise living standards simply by mandating higher wages, why not $200 per hour? Why not $2,000 per hour?

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Barone is Right: Appeasing Protectionists Is a Bad Idea

by Ivan Osorio on October 5, 2011

in Deregulate to Stimulate, Economy, Labor, Politics as Usual, Trade

President Obama is finally sending three pending trade agreements — with South Korea, Colombia, and Panama — to Congress for a vote. The three trade deals were ready for this moment before Obama entered the White House. So what’s taken so long?

Quite simply, as Michael Barone notes in his Washington Examiner column today, the president wanted to avoid angering his political allies in organized labor.

[Obama] could have sent [the treaties] 985 days earlier; negotiations were completed in 2006 and 2007. Or, if he were concerned they’d be deep-sixed when his fellow Democrats controlled Congress, he could have sent them 274 days earlier when Republicans took over the House.

To be sure, they are opposed by many labor union leaders and congressional Democrats. There is a nostalgia among many union and party old-timers for the days, more than 30 years distant, when the auto and steel workers’ unions had nearly 2 million members.

Now each has less than half a million. But the old-timers seem to feel that somehow something like those olden days can be brought back if they oppose FTAs.

Indeed. In the new CEI OnPoint, “Free Trade without Apology,” CEI Adjunct Fellow Fran Smith and former CEI Research Associate Nick DeLong document how  efforts at appeasing organized labor — in the hopes of blunting union opposition to trade deals — have been not only ineffective, but harmful.

Union leaders have taken all concessions they’ve been offered only to ask for more. This has led to trade agreements becoming weighted down with provisions governing labor and environmental issues (to appease environmentalists) which have nothing to do with trade. And those provisions have only gotten longer and more onerous in each subsequent agreement.

Organized labor’s success in getting labor issues included in trade negotiations is a relatively recent phenomenon. The 1985 U.S.-Israel free trade agreement was the last American trade deal that did not include labor and environmental provisions. Since that time, the U.S. has entered into 10 free trade agreements covering 17 countries.

Eight years after the Israel agreement, the Clinton administration, as part of a deal to ratify the North American Free Trade Agreement (NAFTA), pushed Mexico and Canada to sign the North American Agreement on Labor Cooperation (NAALC) and North American Agreement on Environmental Cooperation (NAAEC) as side letters to the trade pact. That was the first time that labor and environmental objectives were directly linked to international trade negotiations. From that point onward, interest groups of various stripes have lobbied hard to include a host of irrelevant political agendas in trade negotiations. Organized labor and environmental groups have been especially active in this effort.

The NAFTA labor provisions were still not enough to satisfy Big Labor. Four years after the labor cooperation agreement was passed, the AFL-CIO stated in a public comment that the agreement had been “ineffective in promoting the concerns of workers beset by stagnant wages and job insecurity.” Rather than appease, the NAFTA labor provisions only whetted the union leaders’ appetites. To this day, unions continue to pressure Congress for more stringent labor obligations in current and future agreements.

It’s time to end this game, which only advantages protectionist lobbies.

For more on trade, see here and here.

Jerrold Nadler’s Fiscal Fantasies: Herbert Hoover Increased Spending, He Did Not “Slash the Budget” During the Great Depression

by Hans Bader on October 5, 2011

in Economy, Employment, Politics as Usual, Sanctimony

Attacking the idea of a Balanced Budget Amendment, “Congressman Jerrold Nadler (D-NY), the top Democrat on the House Judiciary Subcommittee on the Constitution,” issued a press release on October 4 promoting the falsehood that Herbert Hoover cut spending during the Great Depression, when in reality, Hoover more than doubled government spending as a percentage of GDP:

“Did Herbert Hoover win the last election?” asked Nadler. “If, in the middle of a recession, when tax revenues are down, and unemployment is up, we begin to slash the budget in ways my Republican colleagues are now suggesting, much less the far more draconian measures that this amendment would require, we will go from the Great Recession, right into another Great Depression. It’s been tried before, and if we want the Constitution to enshrine Hooverism for all time, we will get what we deserve.”

Nadler is wrong about the facts here, as he so often is. As I recently noted in the Edmonton Journal:

Former U.S. president Herbert Hoover did not practice austerity, so it is incorrect for politicians to claim that he “helped plunge his country into the Great Depression through austerity measures.”

Hoover’s administration increased federal government spending from three per cent of the U.S. economy in 1929, the year he took office, to eight per cent in 1933, the year he left office.

The U.S. budget deficit became so large as a result that by 1932, the country’s government was spending more than $2 for every dollar it took in.

It was not austerity that caused the Great Depression, but misguided government meddling in the economy, such as the Smoot-Hawley Tariff of 1930.

That increased tariff backed by Hoover ignited devastating trade wars between the U.S. and other countries that wiped out countless jobs.

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Poll: 14 Percent Approval Rating for Congress

by Ryan Young on October 5, 2011 · 1 comment

in Deregulate to Stimulate, Economy, Politics as Usual

The Washington Post does not paint a pretty picture:

For most it’s not just a casual dislike of Congress: Sixty-two percent say they “strongly disapprove” of congressional job performance. An additional 20 percent “somewhat” disapprove.

Only 3 percent of Americans said they “strongly approve” of the performance of lawmakers on Capitol Hill — essentially as low as possible, given the poll’s margin of error of four percentage points.

Congress is doing all it can to placate people who want it to do something, anything to help the economy. The trouble is that those somethings and anythings have been spectacularly ineffective.

Lawmakers need to do something about their do-something bias. Instead of more bailouts, financial regulations, stimuli, cash-for-clunkers, jobs bills, and the like, Congress should try a deregulatory stimulus. Besides stimulating the economy, it would likely stimulate approval ratings, too.

Chinese Currency Bill Will Do Little to Improve Economy

by Daniel Rivera Greenwood on October 5, 2011 · 7 comments

in International, Trade

Reuters and the Los Angeles Times report that a United States bill aimed at China’s currency policy is making its rounds around Congress. This bill would allow the United States government to slap countervailing duties on products from countries found to be subsidizing their exports by undervaluing their currency. Senator Charles Schumer (D-NY), one of the main bill supporters, said that “we simply have no choice but to defend and protect U.S. jobs and the U.S. economy.” Not only is Sen. Schumer’s view and bill wrongheaded, it is also dangerous as it can trigger retaliatory measures from China, which would cause harm on domestic consumers.

In 2010, China exported US$ 365 billion worth of goods to the United States, representing 19 percent of all U.S. imports. Most of these goods are electrical machinery (25 percent) and power generation equipment (22 percent), products that are geared towards the United States manufacturing sector. The traditional “Made in China” labeled goods (toys, footwear, plastic stuff) represents a much smaller amount of the United States — China trade deficit.

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Today’s Links: October 4, 2011

by Nicole Ciandella on October 4, 2011

in Odds & Ends

OPINION

JOHN F. COGAN and JOHN B. TAYLOR: “Stimulus Has Been a Washington Job Killer”
“Temporary, targeted tax reductions and increases in government spending are not good economics. They have repeatedly failed to increase economic growth on a sustainable basis. What may come as a surprise is that such policies are not good politics either. Their inability to deliver promised economic benefits has invariably led disappointed voters to turn against those politicians, Democratic and Republican, who have supported them.”

MARK SCHNEIDER and JORGE KLOR de ALVA: “Cheap for Whom?”
“Most people recognize that the price of public universities is underwritten by subsidies that they receive through direct government appropriations, but information on the size and distribution of those subsidies across schools is usually buried in obscure data and reports. Most private institutions also receive government subsidies, especially through their tax-exempt status. For the best-known—and best-endowed—not-for-profit colleges and universities, such as Harvard, Princeton, and Yale, these tax subsidies can be substantial.”

RICHARD RAHN: “Thoughts on Liberty”
“How free is Turkey? Turkey is almost entirely Muslim but lacks most of the repressive characteristics of many of the Arab Muslim countries. It has a largely free market with a high rate of economic growth. But it ranks in the middle among other countries in terms of economic freedom and per capita income. It also has less religious freedom and freedom of speech than is common in most of Europe and the United States and, thus, less liberty.”

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Capital Gains Taxes are Too High, and are a Tax on Savings that Punishes Thrifty People for Inflation

by Hans Bader on October 4, 2011 · 1 comment

in Economy

Capital gains taxes are much too high, rather than too low. They are effectively a tax on savings, since when your investments go up solely due to inflation, you have to pay capital gains tax on them when you sell them, even though you didn’t really get any richer. Thanks to capital gains taxes, you get punished just for living during a period of inflation. As I noted recently in The Washington Times:

Warren Buffett was wrong to suggest that capital gains taxes are too low (“Calling Buffett’s bluff,” Comment & Analysis, Monday). They are actually much too high, since they force people to pay taxes when they sell a stock based on inflation that occurred after they bought it.

Impoverished investors can be forced to pay capital gains taxes even during huge slumps in the stock market, when inflation masks the slump. Capital “gains” are not indexed for inflation; the seller pays tax not only on the real gain in purchasing power, but also on the illusory gain due to inflation. The liberal economist Alan Blinder, a former Federal Reserve Board member, conceded in 1980 that “most capital gains were not gains of real purchasing power at all, but simply represented the maintenance of principal in an inflationary world.”

Between 1970 and 1980, U.S. stock prices fell by half after being adjusted for inflation. But if you sold stock in 1980, after a decade of getting poorer and poorer you would have had to pay capital gains tax, since inflation made stock prices rise in nominal terms. That inflation penalty – not favoritism toward the rich – is why capital gains have historically been taxed at lower rates than other kinds of income, like Warren Buffett’s salary.

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The Physics Nobel and Human Achievement

by Ryan Young on October 4, 2011

in Culture, Zeitgeist

While we’re on the topic of human achievement, The Daily Caller was kind enough to run an article I wrote about this year’s physics Nobel laureates, Saul Perlmutter, Brian Schmidt, and Adam Reiss. They discovered the accelerating universe. Here’s a taste:

Perlmutter, Schmidt, and Reiss have shrunk man’s already tiny position in both space and time. But they — and we — still stand tall. If little old us can look through a metal tube with glass discs stuck in it (or radio telescopes, which rely on light we can’t even see), and infer from dim and ancient supernovae, millions of light years away, that the universe’s expansion is accelerating — well, that’s a very big achievement for such a small species.

And we’re capable of much, much more. Our universe may die in ice in the distant future. But until then, we will live well. Or rather, we will so long as human achievements like Perlmutter, Schmidt, and Reiss’ are encouraged, valued, and rewarded.

Read the whole thing here. Interested readers might also enjoy Mario Livio’s book The Accelerating Universe and Fred Adams and Greg Laughlin’s Five Ages of the Universe: Inside the Physics of Eternity.

The Future of Air Travel?

by Ryan Young on October 4, 2011

in Mobility, Space, Tech & Telecom

For thousands of years, no human traveled faster than a horse. Napoleon’s armies were no mobile than Caesar’s. That changed almost overnight with the automobile and then the airplane. Despite that rapid progress, flight times from New York to London have barely budged in 50 years.If anything, it’s slower now that the Concorde is out of service.

That could change in the next 15-20 years with the dawn of space tourism. A spacecraft has to travel about 17,000 miles per hour to stay in orbit. A partnership between KLM airlines and a wealthy Formula One mogul hopes to make first-generational suborbital crafts that can reach 2,200 miles per hour, with an eventual goal of hitting 13,750 miles per hour.

This is good for more than space tourism — a trip from London to Sydney would take an hour and 45 minutes. That’s about the same as a flight today from New York to Chicago.

Caesar and Napoleon would be astonished. Hopefully this venture doesn’t experience the crony capitalism problems that NASA has had with a similar project.

The Economic (Un)Development Administration

by David Bier on October 4, 2011

in Economy, Employment, Stimulus to Nowhere

Last Friday Iain Murray and I published an op-ed in The Washington Times, which described how government spending fails to create economic growth. We show how the Economic Development Administration’s spending reshuffles economic resources with several recent examples. Here is the first part of the article with links to the sources:

Government spending fails to stimulate economic growth because, quite simply, we do not see that it depends on resources taken from elsewhere in the economy. That’s how EDA economic grants work. Consider the recent case of its $2 million grant to Visalia, Calif., in the San Joaquin Valley. The EDA claimed the project would create 250 jobs and attract $10 million in private investment. When VWR, a medical supplies manufacturer, decided to build a 500,000-square-foot warehouse in Visalia’s newly expanded industrial zone, the EDA claimed the spending was a success.

But the agency ignores the unseen cost. In this case, VWR closed a warehouse 200 miles away, in Brisbane, in the San Francisco Bay Area, to take advantage of the subsidies offered in Visalia. According to the University at California at Berkley, the closing will result in the loss of 331 jobs and millions of dollars in economic activity in Brisbane.

The EDA claims that its funding role “prevents a ‘race to the bottom’ in which cities, counties and states undercut each other in order to attract short-term growth.” Yet that is exactly what the EDA grants accomplished in this case. Once the EDA incentivized VWR’s relocation, Brisbane policymakers proposed subsidies of their own in an effort to persuade the company to stay. Politically favored businesses win at the expense of taxpayers and their less well-connected competitors. Jobs are not created but merely shifted from one place to another.

The Economic Development Administration demonstrates a point that researchers over at the Mercatus Center have made about the stimulus, namely that government spending inefficiently shifts wealth and resources to political favored firms and locations, but doesn’t build new wealth to grow the economy.

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