January 2012

Free Trade Agreements are Not that Free

by Daniel Rivera Greenwood on October 4, 2011 · 1 comment

in Features, International, Trade

Post image for Free Trade Agreements are Not that Free

Business Insider reported that the Free Trade Agreements with South Korea, Colombia, and Panama were sent to Congress today for their vote and approval by the House and Senate. The Trade Adjustment Assistance program, last major hurdle to the trade agreements, was voted and passed by the Senate a couple of weeks ago. This expensive (and expanded) program, geared towards appeasing union and worker pressures and fears of job displacement, was set as a condition by some Democratic congressmen and senators as a precondition to the vote on the Free Trade Agreements.

While any step towards the liberalization of trade should be welcomed and celebrated, it is strange that “free” trade agreements are not that free. In “real” free trade, domestic producers should be able to buy their preferred inputs, and consumers should be able to buy their preferred goods regardless of their country or region of origin. Free Trade Agreements are actually negotiated by bureaucrats, who get to choose what goods and services pay tariffs and which ones do not. This is similar to picking “winning and losing” economic sectors, producers, and consumers.

For example, the Congressional Research Service reported that Korean bureaucrats excluded rice from negotiations. Under these conditions, United States’ rice exporters will have a hard time selling their grain to South Korean consumers, due to Korea’s high tariffs and strict quotas on rice imports. Korean negotiators also restricted South Korean citizens’ access to United States’ beef, whose tariff will be phased out during the 15 years following the implementation of the agreement. This means Koreans will pay higher prices for rice and beef, in part thanks to negotiators who decided that protecting the domestic producers of these goods are more important than the rest of the Korean population.

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Today’s Links: October 3, 2011

by Nicole Ciandella on October 3, 2011

in Odds & Ends

OPINION

NEAL STEPHENSON: “Innovation Starvation”
“Believing we have all the technology we’ll ever need, we seek to draw attention to its destructive side effects. This seems foolish now that we find ourselves saddled with technologies like Japan’s ramshackle 1960’s-vintage reactors at Fukushima when we have the possibility of clean nuclear fusion on the horizon. The imperative to develop new technologies and implement them on a heroic scale no longer seems like the childish preoccupation of a few nerds with slide rules. It’s the only way for the human race to escape from its current predicaments. Too bad we’ve forgotten how to do it.”

GARRETT EPPS: “A Constitutional Law-Nerd’s Take on Upcoming Supreme Court Cases”
“Between now and the Affordable Care Act case, court watchers must keep themselves amused. Much of the Court’s docket as announced thus far consists of workmanlike statutory cases concerned with topics like insider trading and consumer arbitration; cases that have huge practical impact but are devoid of drama. There are some important criminal-procedure cases as well. Better court-watchers than I will offer comprehensive term previews over the weekend. I offer here a con-law nerd’s highly quirky list of a few cases that I will be watching over the next few months, sorted by oral argument date.”

THE ECONOMIST EDITORIAL: “In Praise of Chaos: Governments’ Attempts to Control the Internet Should be Resisted”
“The internet’s openness fosters two of its great virtues. First, it has encouraged innovation. In rich countries the internet has generated as much as 10% of GDP growth over the past 15 years, according to the McKinsey Global Institute, a think-tank. Second, because nobody controls the internet, it has proved hard to censor. And despite (or perhaps because of) this lack of governance, the network has proved surprisingly resilient. More than two billion people are now connected to the internet. The many predictions of collapse have not yet proved correct.”

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Shuttlyndra and Bipartisan Crony Capitalism

by Rand Simberg on October 3, 2011 · 3 comments

in Politics as Usual, Space

Over at Pajamas Media today, I tell a tale of crony capitalism that makes Solyndra look like a model of government probity and wisdom:

No, it’s not Solyndra — it’s much worse, at least in terms of the amount of money proposed to be wasted on it, and in other ways as well.

Let’s call it “Shuttlyndra,” aka NASA’s Constellation, then called the Space Launch System, aka the Senate Launch System. The Solyndra scam wasn’t a federal contract per se — it was based on taxpayer-guaranteed loans, which meant that the taxpayers would never have to pay off if it had worked. Shuttlyndra isn’t just a contract, but multiple sole-source, no-bid, cost-plus contracts, guaranteeing that the taxpayer money will be spent. And because of the nature of the contracts, in which the contractors are reimbursed for time and materials regardless of results, and there is no real competition, there is an excellent chance that the taxpayer won’t get much for the money — at least if its predecessor program, Constellation, is anything to go by.

NASA spent ten billion dollars on Constellation over five years, and had little to show for it except a very expensive and flawed suborbital test of a dummy first stage, and a half-built capsule with uncertain requirements. There is absolutely nothing to indicate that anything has changed in terms of management at NASA to overcome the ongoing moral hazards that created the waste the first time. It is really an intrinsic feature of traditional NASA contracting that has resulted in failure after failure after failure of NASA programs in their stated purpose. These failures are never punished because in the minds of those primarily responsible for funding it on the Hill, the real purpose is that the jobs continue to flow.

The saddest thing, perhaps, is that, unlike the supposedly novel approach to solar cell production ostensibly being pioneered by Solyndra, it’s not even particularly high technology. The program is premised on the notion that we have to maintain the same decades-old “space infrastructure” that we’ve had since the 1970s, by continuing the obsolete and costly Shuttle technology into perpetuity. At least if Solyndra’s promises had been kept, we would have had a useful new technology. But all that SLS gives us is a heavy-lift vehicle that will fly rarely, for which no payloads have been defined or budgeted.

But the biggest difference between Solyndra and Shuttlyndra is the scale of the waste of taxpayer funds — and that’signoring the billions already wasted. Shuttlyndra is planned to consume eighteen billion dollars in the next few years, and much more before it can do anything useful. Compared to that, the half billion wasted on Solyndra is couch-cushion change. And Shuttlyndra will be the negative gift to the taxpayer that keeps on giving, eating up billions of dollars per year that could be spent on actual useful space hardware for sending humans beyond earth orbit, until it’s finally canceled (if the porkmeisters in Congress ever allow it to happen).

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What if NFL Players Were Paid Like Teachers?

by Ryan Young on October 3, 2011 · 2 comments

in Politics as Usual, Zeitgeist

I’m not a big fan of football analogies in politics (think of former Sen. George Allen absurdly carrying a football wherever he went), but Fran Tarkenton has a good one:

Imagine the National Football League in an alternate reality. Each player’s salary is based on how long he’s been in the league. It’s about tenure, not talent. The same scale is used for every player, no matter whether he’s an All-Pro quarterback or the last man on the roster. For every year a player’s been in this NFL, he gets a bump in pay. The only difference between Tom Brady and the worst player in the league is a few years of step increases. And if a player makes it through his third season, he can never be cut from the roster until he chooses to retire, except in the most extreme cases of misconduct.

This would incentivize mediocrity, not excellence. It is also almost exactly how government-run K-12 schools are structured. Reform ideas that ignore those incentive problems are doomed to fail. Adding some competition to the existing near-monoply would do much to give teachers the same incentive to make the most of their talent that athletes currently enjoy.

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