Charts of the Day: It's Getting Better All The Time

Great stuff from Steve Horwitz over at Austrian Economists on the modern enrichment of America's poor:

% Households with:	Poor 1984	Poor  1994	Poor 2003	Poor 2005	All 1971	All 2005
Washing machine	58.2	71.7	67.0	68.7	71.3	84.0
Clothes dryer	35.6	50.2	58.5	61.2	44.5	81.2
Dishwasher	13.6	19.6	33.9	36.7	18.8	64.0
Refrigerator	95.8	97.9	98.2	98.5	83.3	99.3
Freezer	29.2	28.6	25.4	25.1	32.2	36.6
Stove	95.2	97.7	97.1	97.0	87.0	98.8
Microwave	12.5	60.0	88.7	91.2	1.0	96.4
Color TV	70.3	92.5	96.8	97.4	43.3	98.9
VCR	3.4	59.7	75.4	83.6	0.0	92.2
Personal computer	2.9	7.4	36.0	42.4	0.0	67.1
Telephone	71.0	76.7	87.3	79.8	93.0	90.6
Air conditioner	42.5	49.6	77.7	78.8	31.8	85.7
Cellular Telephone			34.7	48.3	0.0	71.3
One or more cars	64.1	71.8	72.8 (2001)		79.5
source:  http://www.census.gov/population/www/socdemo/extended-05.html and prior years

As we can readily see, America's poor (i.e., those officially below the poverty line) own a lot more household "necessities" today than they did only 20 years ago.  And what about the gap between rich and poor?  On that issue, Horwitz offers a follow-up chart:

% Households with:	Poor 2003	Rich 2003	2003 gap	Poor 2005	Rich 2005	2005 gap	Gap change
Washing machine	67.0	94.8	27.8	68.7	95.2	26.5	-1.3
Clothes dryer	58.5	93.6	35.1	61.2	94.3	33.1	-2.0
Dishwasher	33.9	86.1	52.2	36.7	88.4	51.7	-0.5
Refrigerator	98.2	99.6	1.4	98.5	99.8	1.3	-0.1
Freezer	25.4	44	18.6	25.1	43.7	18.6	0.0
Stove	97.1	99.6	2.5	97.0	99.7	2.7	0.2
Microwave	88.7	98.6	9.9	91.2	98.8	7.6	-2.3
Color TV	96.8	99.5	2.7	97.4	99.5	2.1	-0.6
VCR	75.4	97.7	22.3	83.6	98.5	14.9	-7.4
Personal computer	36.0	87.9	51.9	42.4	92.7	50.3	-1.6
Telephone	87.3	98.6	11.3	79.8	97.1	17.3	6.0
Air conditioner	77.7	90.3	12.6	78.8	89.1	10.3	-2.3
Cellular Telephone	34.7	88.6	53.9	48.3	92.4	44.1	-9.8

As the chart makes clear, the gap has narrowed in 10 of 13 categories in only 2 years, and the only product with a large increase is landline telephones - something that is easily explained by the large increase in poor cellphone ownership.  Finally, these charts inspired Mark Perry to issue his own awesome chart on the cost of these household necessities in terms of hours worked to pay for them:

Very cool.  As we can see from Perry's chart, the average American today has to work far fewer hours than they did in 1973 to buy basic household items.  As such, they're far better off today than they were back then. Indeed, all of these charts make clear that we should be very, very suspicious when we hear politicians lamenting the worsening state of America's "poor."

I think the charts speak for themselves, but I'll still offer up a post-script: one of the big things driving these figures is open trade with China and other low-cost countries. Indeed, according to University of Chicago's Christian Broda and John Romalis, "[M]uch of the rise of measured income inequality has been offset by a relative decline in the prices of products that poorer consumers buy." And China, as the primary manufacturer of such "products," is one of the main drivers of their price declines.

Great Moments in Central Planning

I know this is pretty low-hanging fruit, but at a time when the President and his congressional allies are proposing to reorganize and control both the American healthcare and energy sectors, such stories can't be repeated enough. Last we checked in with the US biofuels industry, we saw subsidized firms bankrupt and/or under investigation and politicians burying a government study showing ethanol production was wasting taxpayer money and maybe even bad for the environment. Now, we find out that government subsidies have resulted in significant overproduction of ethanol, and there's nowhere to put it all:

Two years ago, Congress ordered the nation’s gasoline refiners to do something that is turning out to be mathematically impossible.

To please the farm lobby and to help wean the nation off oil, Congress mandated that refiners blend a rising volume of ethanol and other biofuels into gasoline. They are supposed to use at least 15 billion gallons of biofuels by 2012, up from less than seven billion gallons in 2007.

But nobody at the time counted on fuel demand falling in the United States, which is what has happened during the recession. And that decline could well continue, as cars become more efficient under other recent government mandates.

At the maximum allowable blend, in which gasoline at the pump contains 10 percent ethanol, updated projections suggest that the country is unlikely to be able to use all the ethanol that Congress has ordered up. So something has to give.

“The market is full,” said Jeff Broin, chief executive of Poet, a company in Sioux Falls, S.D., that produces ethanol.

In theory, the Environmental Protection Agency has the power to solve this problem by tweaking the mandates imposed by Congress, and it may act as early as next week.

Each potential solution would anger one interest group or another, so the agency has been subjected to fierce lobbying, including from members of Congress lining up behind various factions. One possibility is to raise the maximum proportion of ethanol in gasoline to 15 or 20 percent.

But that idea is opposed by some carmakers and pollution experts. They contend that high ethanol blends can cause damage to cars, including making catalytic converters run hotter.

The Alliance of Automobile Manufacturers says it believes this could cause the converters, components that help control pollution, to fail at around 50,000 miles. They are supposed to last for 120,000 to 150,000 miles. “We are sensitive to the issues facing the ethanol industry, but the government must make decisions based on sound science,” said Dave McCurdy, president and chief executive of the alliance, in a letter to the E.P.A.

Another possibility is that the agency could waive the mandates requiring use of a large volume of biofuels. But that would anger farmers, who sell a great deal of corn to ethanol factories, and the members of Congress who represent them. It might also undermine the efforts of companies that are investing millions in factories to make ethanol from waste materials, like corncobs, straw and garbage.

“Ethanol is the only viable, competitive alternative to foreign oil,” said Tom Buis, chief executive of Growth Energy, the ethanol trade group that filed the petition with the E.P.A. to increase the blending percentage. “If we’re going to become less dependent on foreign oil, we’ve got to move forward.”

A third possibility is that the E.P.A. could announce that it is waiting for more data on how cars perform at higher blends, but that would merely put off the hard decision.

When Congress wrote the rules, in 2007, gasoline consumption had been growing for years, and it looked as if the nation would be able to use considerably more ethanol in the future. Gasoline consumption hit a peak of 3.4 billion barrels that year.

But gasoline demand fell in 2008, after soaring gas prices early in the year were followed by the economic crisis. Consumption was slightly less than 3.3 billion barrels last year, and it could end 2009 at about the same level.

With consumers buying more fuel-efficient cars these days, and carmakers rushing to bring even more of those to market, gasoline demand may not recover much in coming years, even as ethanol production soars.

As of yet, not all gasoline is blended with 10 percent ethanol, but that saturation point is rapidly approaching. Under the present rules, the nation could hit the upper limit of its ability to consume ethanol in 2011.

Mr. Buis and others argue that Congress or the E.P.A. must do something if the country is to move to a new generation of biofuels that do not compete with food crops. The possibilities include ethanol made from wood chips, waste paper or agricultural waste like straw and corncobs.

Congress has also passed mandates for the blending of this type of fuel, so that the nation’s total consumption of all renewable fuels, in vehicles and other equipment, is supposed to reach 36 billion gallons in 2022.

Perhaps the easiest way for the country to absorb all the excess ethanol would be to make wider use of an ethanol blend called E85, which contains 85 percent ethanol and 15 percent gasoline. Most cars on the road cannot use it, but in recent years, millions of “flex-fuel” cars have been sold, especially by General Motors. (Any car with a yellow gasoline cap can use E85.)

The problem is that at current prices, E85 does not make economic sense for drivers, and most of them use regular gasoline in their flex-fuel cars. That means gasoline stations have little incentive to install pumps for E85. The fuel can be found in the Corn Belt but is not readily available elsewhere in the country.

Gasoline was selling on average Thursday for $2.63 a gallon, while E85 was selling for $2.23 a gallon. That might make E85 sound like a bargain, but cars go fewer miles on a gallon of ethanol than of gasoline. Adjusted for that factor, E85 on Thursday was effectively 31 cents a gallon more expensive than gasoline.

A return of $4 gasoline might change things, by making E85 a relative bargain and spurring wider use. So would an unexpected spurt in total fuel demand. Otherwise, it is not at all clear how the nation’s coming surplus of ethanol can be absorbed.

Gregory M. Scott, executive vice president of the National Petrochemical and Refiners Association, drives a flex-fuel car in the Washington area, but said he had never put E85 in it.

He said the amount of renewable fuel that Congress had mandated refiners to use, and the amount that can be blended for conventional automobiles, were on a collision course.

“At some point,” he said, “those two lines cross.”

Let's see: intense lobbying, bureaucratic paralysis, a complete disconnect from market forces, and boatloads of unintended consequences. Sounds awesome! Let's do that for health care pronto!

Then again, let's not.

CRUd

From the Times Online (UK) comes more mind-boggling news out of East Anglia's Climate Research Unit (CRU):

Scientists at the University of East Anglia (UEA) have admitted throwing away much of the raw temperature data on which their predictions of global warming are based....

The data were gathered from weather stations around the world and then adjusted to take account of variables in the way they were collected. The revised figures were kept, but the originals — stored on paper and magnetic tape — were dumped to save space when the CRU moved to a new building.

The admission follows the leaking of a thousand private emails sent and received by Professor Phil Jones, the CRU’s director. In them he discusses thwarting climate sceptics seeking access to such data.

In a statement on its website, the CRU said: “We do not hold the original raw data but only the value-added (quality controlled and homogenised) data.”

The CRU is the world’s leading centre for reconstructing past climate and temperatures. Climate change sceptics have long been keen to examine exactly how its data were compiled. That is now impossible.

Roger Pielke, professor of environmental studies at Colorado University, discovered data had been lost when he asked for original records. “The CRU is basically saying, ‘Trust us’. So much for settling questions and resolving debates with science,” he said.

Jones was not in charge of the CRU when the data were thrown away in the 1980s, a time when climate change was seen as a less pressing issue. The lost material was used to build the databases that have been his life’s work, showing how the world has warmed by 0.8C over the past 157 years.

He and his colleagues say this temperature rise is “unequivocally” linked to greenhouse gas emissions generated by humans. Their findings are one of the main pieces of evidence used by the Intergovernmental Panel on Climate Change, which says global warming is a threat to humanity.

Over the last week, we've discovered (i) that some of the biggest scholarly proponents of anthropogenic global warming (AGW) - including the folks at CRU - have been fudging data, destroying evidence and silencing skeptics; and (ii) that the basic data upon which the case for AGW is based have been destroyed.  Meanwhile, President Obama announced last Wednesday his intention to attend the December UN Climate Change Conference in Copenhagen and to publicly commit to spending untold billions of dollars to cut global greenhouse gas emissions in order to thwart AGW.

Shouldn't these significant revelations maybe give our gung-ho President pause?  He's about to commit the United States to spending billions and billions of dollars to combat something that has just been called seriously into question and that can never again be recreated.  And yet off to Copenhagen he goes, and his journey is reported as if nothing's awry.  Am I missing something here?

Now I know what Mugatu felt like...

Mugatu

botz | MySpace Video

Doing "The Robot" - Literally

Breakdancing + Robot + Japanese Screaming = Video Gold



Pop-n-lockers everywhere just got served. (Whatever that means.)

Anti-Globalization Movement Stays Classy, Becomes Tiny

Breaking reports of violence and mayhem in advance of the WTO's ministerial meeting in Geneva are utterly unsurprising and par for the course these days:

Anti-capitalism protesters smashed the windows of banks, shops and cafes in central Geneva and set cars on fire on Saturday during a demonstration against the World Trade Organisation.

And do you know what else is apparently par for the course for today's anti-globalization crowds? Absurdly tiny numbers. Here's the same Reuters/NYT report:

The violent protesters were a minority in an otherwise good-natured crowd of about 2,000 people, accompanied by a dozen tractors and a marching band, who were demonstrating against a three-day WTO conference starting on Monday.

Now, 2000 people might sound like a lot, but it's actually rather small when compared to earlier manifestations of anti-trade animus. As I noted a while ago, "The granddaddy of the modern anti-globalization movement - the 1999 protests against the World Trade Organization's Ministerial Meeting in Seattle - drew over 40,000 protesters.... The follow-up to Seattle - the April 2000 protests against the annual World Bank and IMF meetings in Washington, DC - featured at least 10,000 protesters, summoned about 1,500 additional cops, and shut down most of DC."  Indeed, today's marchers are even less that the 4500 or so protesters that showed up to the September 2009 G20 meetings in Pittsburgh.

The large and (unfortunately) influential protests of Seattle and Washington also featured similar acts of vandalism and general anarcho-stupidity.  And while that protest-staple remains, there are far fewer attendees.  When seen through this prism, it becomes clear that, while the protesters' sorry act might be the same as a decade ago, their numbers have shriveled to the point of turning such anti-capitalist protests into nothing more than a pathetic sideshow rather than a (supposedly) eye-opening event.

Oddly, the NYT/Reuters article above fails to provide this perspective.  Gee, I wonder why?

(Ed. note: I don't  actually wonder why.)

China Currency Debate Continues, But Should It?

U.Chicago's Gary Becker and Richard Posner have on their blog a must-read exchange re: China currency and who ultimately benefits/suffers from it.  The whole thing is worth reading, but before discussing the nitty-gritty highlights, the debate's mere existence is important and noteworthy.  That reasonable, very smart minds still differ about the China currency conundrum and its effects should make everyone very, very suspicious of various' partisans dogmatic sermons on the evils of China's currency "manipulation" and its myriad harms for the US economy. Obviously, this issue is not as open-and-shut as the finger-pointing yellers in Washington want us to believe.

Now back to the actual substance of the very-smart-guys' blog entries. First (alphabetically), is Becker who, after dispatching with some recent history of Chinese efforts to keep the RMB artificially low, explains why he thinks that China's policies actually benefit, in the aggregate, the United States and harm China:

[I]n good part due to the low value of its currency, China has run substantial surpluses on its current trade account as it imports fewer goods and services than it exports. The result is that China has accumulated enormous reserves of assets in foreign currencies, especially in the form of US government assets denominated in dollars. As of September of this year, China had the incredible sum of over 2 trillion dollars in foreign currency reserves, such as US Treasury bills. This is by far the highest reserve in the world, and it amounts to the enormous ratio of more than one quarter of China's GDP of about $8 trillion (purchasing power parity adjusted).

I am dubious about the wisdom of both America's complaints about China's currency policy and of China's responses. On the whole, I believe that most Americans benefit rather than are hurt by China's long standing policy of keeping the renminbi at an artificially low exchange value. For that policy makes the various goods imported from China, such as clothing, furniture, and small electronic devices, much cheaper than they would be if China allowed its currency to appreciate substantially in value. The main beneficiaries of this policy are the poor and lower middle class Americans and those elsewhere who buy Chinese made goods at remarkably cheap prices in stores like Wal-Mart's that cater to families who are cost conscious.

To be sure, US companies that would like to export more to China are hurt by the maintenance of the Chinese currency at an artificially low value relative to the dollar. As a result, employment by these companies is lower than it would be, so that this may contribute a little to the high rate of US unemployment. But I believe the benefits to American consumers far outweigh any loses in jobs, particularly as the US economy continues its recovery, and unemployment rates come back to more normal levels.

Since the opposite effects hold for China, I cannot justify their policies from the viewpoint of their interests. Their consumers and importers are hurt because the cost of foreign goods to them is kept artificially high. Their exporters gain, but as in the US, that gain is likely to be considerably smaller than the negative effects on the wellbeing of the average Chinese family.

I reach similar conclusions about China's accumulation of their excessive reserves. The US has little to complain if China wants to hold such high levels of low interest-bearing US government assets in exchange for selling goods cheaply to the US and other countries. China's willingness to save so much reduces the need for Americans and others to save more, but is not differences in savings rates also part of the international specialization that global markets encourage? To be sure, why China is willing to do this is difficult to understand since they are giving away goods made with hard work and capital for paper assets that carry little returns.

One common answer is that China hopes to increase its influence over economic and geo-political policies by holding so many foreign assets. Yet it seems to me just the opposite is true, that China's huge levels of foreign assets puts China more at the mercy of US and other policies than visa versa. China can threaten to sell large quantities of its US Treasury bills and other US assets, but what will they buy instead? Presumably, they would buy EU or Japanese government bills and bonds. That will put a little upward pressure on interest rates on US governments, but to a considerable extent, the main effect in our integrated world capital market is that sellers to China of euro and yen denominated assets would then hold the US Treasuries sold by China.

On the other hand, the US can threaten to inflate away some of the real value of its dollar denominated assets-not an empty threat because of the large US government fiscal deficits, and the sizable growth in US bank excess reserves. Inflation would lower the exchange value of the dollar, and also of the renminbi, as long as China keeps it tied to the dollar. That would further increase the current account surpluses of China, and thereby induce China to hold more US and other foreign assets, not a very attractive scenario to China....

This seems quite right to me.  First, Becker's comments on China's debt holdings being a problem for China echo those of Dan Drezner, and I also find this angle compelling.  And Becker's certainly right about the benefits of low-cost Chinese imports for lower-income and cost-conscious American families.  It's basically a big tax cut for the Wal-Mart crowd. 

But Becker leaves out a very important point: the other "major beneficiaries" of China's currency policy are the many US manufacturers that use low-cost Chinese inputs (steel, etc.) to produce globally competitive downstream products.  Afterall, about 55% of all US imports are capital goods and equipment (i.e., industrial inputs), so it's not just lower-income American consumers that benefit from low-cost imported products (although they certainly do too).  Because of this import distribution and China's currency policy, import-consuming US industries' revenues and employment levels are significantly higher than they would be if China appreciated the RMB.  Indeed, as I noted about a week ago, the Congressional Research Service explained this fact in a 2009 report when it forecast that aggregate US employment wouldn't change much if China appreciated its currency - it would just shift from import-consuming industries to export industries.  So China's currency policy is actually more beneficial to the United States than even Becker leads on.

Now on to Posner, who disagrees with Becker and thinks that China benefits from its "mercantilist" currency policy, and that the US is on the losing end.  But the "harm" that Posner points out is not what you would think - or that the protectionist dogmatists in Congress (and elsewhere) want us to believe:

Could China have sensible reasons for such an odd, old-fashioned policy ("mercantilism"--the maximization of a nation's cash or cash-equivalent reserves--famously attacked by Adam Smith more than two hundred years ago)? It could. The immense exports that China's skewed exchange policy has fostered provide employment for a large number of Chinese. Their wages are low, but at least they have jobs. Of course they might have jobs if the dollar were cheaper relative to Chinese currency. China would import more and export less. It would manufacture less, because many workers would be required for the expanded system of domestic distribution that would be necessary if domestic consumption (both of Chinese manufactures diverted from export to internal markets and of imported goods). It would manufacture a different mixture of goods, because of competition from imported goods, but above all it would need a much more elaborate system of wholesale and retail distribution, and perhaps a different commercial culture. The transition to a modern consumer society with its credit cards and product warranties and malls and the rest would be difficult. In the interim there might be widespread unemployment; shifting employees from manufacturing to distribution, or from one type of manufacturing to another, doesn't happen overnight. And China doesn't have the kind of social safety net that we do, to catch the unemployed before they reach the bottom. Because of the limitations of domestic consumption, Chinese are great savers, and this relieves the pressure the government would otherwise feel to provide social services. That provision might strain the government's administrative abilities.

China has a long history of political instability, and there is tension between its dictatorial communist government and its largely free-enterprise economy. It is naturally reluctant to take chances on changing its economy from one of producing manufactured goods for export to one of manufacture and distribution primarily for domestic consumption....

Would we benefit from China's abandoning mercantilism? As Becker points out, our consumers benefit from the artificially low prices at which Chinese goods are sold in this country. At the same time, our dependence on China's financing our public debt weakens our ability to influence Chinese policy on issues of urgent concern to us, such as the threat of nuclear proliferation posed by North Korea, Iran, and Pakistan, and the need to take effective steps to limit global warming.

Then too it seems that the only way in which we can buy those cheap goods from China is to borrow from China. We buy more from China than we sell to it and so China accumulates dollars to bridge the gap, dollars that it then lends to the U.S. Treasury. The effect is to reduce pressure on our government to pay down our immense and growing public debt either by raising taxes or by cutting spending.

While I disagree with Posner that China's debt holdings necessarily reduce US influence on key policy issues, and think (again) he misses the big benefits that US manufacturers (and their workers) reap from low-cost Chinese inputs, his final point - i.e., that the present China currency policy reduces the federal government's need to get its own fiscal house in order - is interesting and deserves discussion.  It is true that the Feds have in China a "whale" - a willing buyer of US debt, even as it becomes increasingly diluted.  But I'm skeptical that a significant deceleration of China's debt purchases would affect the current government's insatiable desire for expansion through spending.  Just consider recent events: China's US debt holdings have plateaued (actually decreasing slightly) in the last few months, and the US budget deficit for 2009 was announced to be a staggering $1.4 trillion (about 10% of GDP).  Yet the response of Congress and the Obama adminstration has been to steamroll a multi-trillion dollar debt-bomb in US healthcare "reform" (yet another huge expansion of our already-broken entitlement system), and to contemplate untold billions on a second/third stimulus"jobs bill."  Such federal "responses" sure seem to indicate that our bloated government's fiscal profligacy is less the result of external forces like China's currency policy and far more the result of political entrenchment, manipulation and mismanagement (and, of course, a wholly complicit electorate).

Thus, it appears that only a groundswell of electoral opposition to (admittedly bipartisan) federal spending stupidity will prevent a debt-induced economic collapse (i.e., inflation, high interest rates, unemployment, economic stagnation, etc.).  Revaluing China's currency will only make the collapse happen more quickly.  In other words, the only thing that will keep America's fiscal freight train from going over the cliff is to pull the emergency brake, not to move the cliff closer to the oncoming train.  I respect Posner a lot, but unless I'm missing something, his version of "starve the beast" doesn't seem to mesh with recent reality (or Washington unreality).


These disagreements aside, Posner's other point seems the most important from a practical perspective: the institutional structure of the Chinese economy/society would prevent any quick and significant change in China's current mercanilist growth model, regardless of whether China let the RMB float.  And it will take many years for this structure to change.  In this way, Posner's comments argue strongly against a US policy of demanding RMB appreication in order to quickly "rebalance" the US-China trade deficit.  It just can't work in the short term, as the 2006-2008 RMB appreciation proved.  Instead, China needs to continue its slow transition from a system predicated on export-led growth to one driven by domestic consumption and featuring a proper institutional framework.

And US politicians (and pundits) need to back off the currency talk and turn their pointy little fingers inward.

(Yeah, like that'll ever happen.)

Table of the Day: Laffer's Revenge

The conventional wisdom around Washington is that, while cutting certain taxes (e.g., capital gains) spurs tax revenues, similar supporting evidence for personal income tax cuts is pretty flimsy.  The following chart, courtesy of Cato's Dan Mitchell, sure seems to turn that conventional wisdom on its head:

As Mitchell puts it:

The table ..., which is based on data from the IRS’s Statistics of Income, shows what happened to tax collections from upper-income taxpayers between 1980 and 1988... [T]he IRS figures clearly show that lower tax rates were followed by more rich people, more taxable income, and more tax revenue. For those keeping score at home, that’s a perfect batting average for supply-side economics

Very cool.

Happy Thanksgiving

So much to be thankful for. Family, friends, health, success, happiness...

And, of course, the ability to create silly internet cartoons starring the President, Rahmbo, Axelrod, and SEIU's Andy Stern. Take it away, boys:

Try JibJab Sendables® eCards today!

From my house, to the White House, to your house...

Happy Thanksgiving.

-Scott

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?)

Dueling Climate Headines... and Realities

Holy disconnect, Batman!

• WSJ: Climate Emails Stoke Debate.  "The scientific community is buzzing over thousands of emails and documents -- posted on the Internet last week after being hacked from a prominent climate-change research center -- that some say raise ethical questions about a group of scientists who contend humans are responsible for global warming."
  

• NYT (opinion): ClimateGate: The Very Ugly Side of Climate Science. "If you are a fan of science, this is a pretty grim day. If you are a fierce partisan on either side of the global-warming issue, you are either gnashing your teeth or clicking your heels. If you are a government official heading to Copenhagen soon for the climate summit, you are probably wondering what the hell you’re supposed to think now."
  

• PJTV: Three Things You Absolutely Must Know About Climategate. "First, the scientists discuss manipulating data to get their preferred results.... Secondly, scientists on several occasions discussed methods of subverting the scientific peer review process to ensure that skeptical papers had no access to publication.... Finally, the scientists worked to circumvent the Freedom of Information process of the United Kingdom."

• AP: Obama says 'step closer' to climate deal. "US President Barack Obama said Tuesday the world has moved "one step closer" to a "strong operational agreement" on climate change at next month's Copenhagen summit after his talks with Indian and Chinese leaders."
  

The absurd - and potentially disastrous - disconnect between current events and the President's "climate progress" reminds me of a classic scene from the movie "Planes, Trains and Automobiles":



Let's hope the President and his fellow leaders wake up before impact.

Some Needed Perspective on "Trade War" Reporting

Although I have no scientific data to back this up, I think it's safe to say that I take a backseat to very few people in my criticism of recent US trade policy. That said, I've grown quite concerned with a growing number of media reports that a recent spike in US trade remedies (i.e., antidumping and countervailing duty) cases is a scary signal of burgeoining US protectionism or an impending "trade war" with China.  For example, last week the AFP reported:

Tensions between the world's number-one and number-three economies intensified last week when the US slapped anti-dumping tariffs of up to 99 percent on imports of some Chinese steel products used in the oil industry.

Similar statements have appeared in lots of recent op-eds and wire service reports, each pointing to a 2009 increase in antidumping and CVD cases as hard evidence that a tit-for-tat trade war between the United States and China is brewing. (Insert ominous "dah-dah-duhhhh" here.)

Such "analysis," however, demonstrates a basic misunderstanding of how AD/CVD cases are initiated and decided in the United States, and it might actually do free traders a disservice.  Sure, China is complaining, but that's hardly anything new.  The fact is that US government does not bring AD/CVD cases.  They instead are the result of massive petitions filed under US law by private domestic companies (or coalitions of companies) and/or their unions pursuant to their commercial interests.  Such petitions typically take months to produce, costing hundreds of thousands of dollars in lawyer and economist fees - hardly an efficient retaliatory weapon.  The US government (through the Department of Commerce) can, by law, have a small role in the crafting of an AD/CVD petition but only in a basic advisory capacity (e.g., to assist the petitioner with meeting the basic legal criteria for a proper petition) and little more.  And once filed, cases are essentially on "autopilot," with DOC's initiation of the case, as well as affirmative preliminary determinations by the DOC and the US International Trade Commission, all but certain (a common free trader complaint against the law, actually).  Meanwhile, the President himself has no formal role in the process.

Such automaticity, and the lack of White House involvement, means that it's a real stretch to claim that the filing of an AD/CVD petition - or the subsequent initiation of case against China, the preliminary domestic injury determination by the ITC or the preliminary calculation of antidumping or CVD duties by DOC - is a sure sign of US protectionism.  Indeed, even a final injury determination or the actual imposition of AD/CVD duties isn't a good indicator of surging American isolationism: according to a plethora of studies, the filing of an AD/CVD petition almost always results in the final imposition of remedial tariffs (unless respondents hire my firm, of course).

Yet even if one were to conclude that the simple initation of an AD/CVD case amounts US "protectionism," the number of AD/CVD cases in 2009 is well within recent historical norms. According to DOC statistics, the United States has initiated 22 AD or CVD cases against China on 12 products so far in 2009. That might sound like a lot, but consider that in 2008 there were 15 AD/CVD cases against China, and 19 such cases in 2007. (These elevated numbers actually have persisted ever since the "free trade" Bush Administration changed its decades-old policy in 2006 and started applying the CVD law to imports from China and other "non-market economies.")  Sure, you can blame US trade law for producing such numerous and seemingly pre-ordained outcomes, but it was doing that long before President Obama took office.

By contrast, the President's decision to impose prohibitive tariffs on Chinese tires under Section 421 of US trade law was both completely discretionary and the first of its kind.  As such, it warrants intense criticism and serious concern about increased White House protectionism and the future of US trade policy.

With the 421 decision, the White House's failure to engage at the WTO, its shelving of pending FTAs with Colombia, Panama and South Korea, its refusal to resolve te Buy American and Mexican Trucks disputes, and USTR's increased "enforcement efforts," free traders have plenty of bad moves to criticize, and journalists have plenty of troubling signs to report.   But when these well-meaning souls add AD/CVD initiations to the list, they risk undermining their message for those policymakers and readers who understand the difference between "typical" and "extraordinary" US trade policy.  Such a move, therefore, could actually end up hindering the important causes of trade liberalization and US accountability, rather than promoting them.

Currency and the Trade Deficit: Krugman v. Krugman

Nobel Laureate, and former Enron adviser, Paul Krugman is really worried about the US-China trade deficit and global trade imbalances more generally. He has now devoted two near-identical NYT op-eds to the issue, each essentially complaining that it's all China's fault.  Here's the latter Krugman column on the subject:

Despite huge trade surpluses and the desire of many investors to buy into this fast-growing economy — forces that should have strengthened the renminbi, China’s currency — Chinese authorities have kept that currency persistently weak. They’ve done this mainly by trading renminbi for dollars, which they have accumulated in vast quantities.

And in recent months China has carried out what amounts to a beggar-thy-neighbor devaluation, keeping the yuan-dollar exchange rate fixed even as the dollar has fallen sharply against other major currencies. This has given Chinese exporters a growing competitive advantage over their rivals, especially producers in other developing countries.

What makes China’s currency policy especially problematic is the depressed state of the world economy. Cheap money and fiscal stimulus seem to have averted a second Great Depression. But policy makers haven’t been able to generate enough spending, public or private, to make progress against mass unemployment. And China’s weak-currency policy exacerbates the problem, in effect siphoning much-needed demand away from the rest of the world into the pockets of artificially competitive Chinese exporters.

But why do I say that this problem is about to get much worse? Because for the past year the true scale of the China problem has been masked by temporary factors. Looking forward, we can expect to see both China’s trade surplus and America’s trade deficit surge....

Unfortunately, the Chinese don’t seem to get it: rather than face up to the need to change their currency policy, they’ve taken to lecturing the United States, telling us to raise interest rates and curb fiscal deficits — that is, to make our unemployment problem even worse.

And I’m not sure the Obama administration gets it, either. The administration’s statements on Chinese currency policy seem pro forma, lacking any sense of urgency.

That needs to change. I don’t begrudge Mr. Obama the banquets and the photo ops; they’re part of his job. But behind the scenes he better be warning the Chinese that they’re playing a dangerous game.

As Dan Drezner humorously points out, Krugman wrote the "exact same column" last month (that's nice work if you can get it).  In each case, he blames global macroeconomic imbalances on China's currency policy, and his recipe for reducing, or "re-balancing," the US-China trade deficit rests solely on the appreciation of China's currency against the dollar.  Such appreciation, so the theory goes, would make US goods relatively cheaper (especially as the Dollar declines against other currencies too) and Chinese goods relatively more expensive, and the trade deficit will magically shrink.  Presto!

For the time being, I'm going to put aside my doubts that the US-China trade deficit is the big problem right now.  I'm also not going to focus on the historical evidence (pointed out by me and a few others) that currency appreciation - including the RMB's - hasn't "cured" past trade imbalances.  Instead, let's just look at Krugman's theoretical argument that currency policy alone can "fix" the trade deficit.  Is that sound liberal economic theory?  Coming from a famous liberal columnist and Nobel Laureate in trade and economics, one would sure assume so.

Well, as my mom would say, you know what happens when we assume, now don't you?

A quick review of the literature calls Krugman's basic "currency-only" theory into question, even among liberal economists.  These folks say that currency policy alone cannot guarantee a change in trade balances.  Instead, they argue that any US government policy to reduce the trade deficit must involve a combination of currency depreciation and corresponding fiscal discipline.  Indeed, even Paul Krugman himself doesn't believe that currency policy alone can rebalance US trade.  Here he is in his 1997 treatise The Age of Diminished Expectations on the subject:

Unless we are prepared to raise domestic saving, which essentially means a sizable cut in the budget deficit, any attempt to reduce the trade deficit will come at the expense of higher interest rates and lower investment...

The orthodox recipe for reducing a trade deficit is to combine currency depreciation with fiscal austerity. The United States has been willing to try the first, but not the second. So we can legitimately ask whether it makes sense to try to do anything about the dollar until there are clear signs that a budget solution is in sight....

The textbook recipe for curing a trade deficit calls for a lower dollar combined with a lower budget deficit. If we have no intention of actually cutting the deficit anytime soon, then it's too soon to seek a lower dollar.

In other words, attempting to reduce the US trade deficit through currency policy is pointless - and maybe even very painful - unless the US government also stops spending with reckless abandon.  Yet twelve years after Krugman penned the above passage, he seems to have forgotten this economic "orthodoxy."  His op-eds make no mention of the necessary fiscal austerity that must accompany dollar depreciation (which is essentially what forced RMB appreciation is) in order to guarantee a rebalancing of the US trade deficit.  Instead, he blames China's undervalued currency, and by extension the overvalued dollar, for the US-China trade deficit and claims that RMB appreciation alone can achieve the trade rebalancing that America so desperately needs.  Indeed, Krugman today praises "cheap money and fiscal stimulus" and derides China's calls on the US to "curb fiscal deficits," despite the fact that he wrote a decade earlier that liberal fiscal policies would undermine any effects that currency changes would have on the trade deficit.  So what possibly could explain Krugman's curious change of heart?

It couldn't be that he's penned a boatload of columns (see, e.g., here, here, here and here) breathlessly imploring the government to print, borrow and spend money like Charles Barkley in a Las Vegas champagne room, could it?  No, that can't possibly be it because such a bush-league move not only would be disingenuous, but it also could lead a complicit White House to pursue policies that do nothing to change the trade deficit and instead create a devastating combination of "higher interest rates and lower investment." So I guess the economic "textbooks" must've changed since 1997, right?

Riiiiiight.

Sarah Palin Is the Howard Stern of Politics

If you had any lingering doubts about the interplanetary force that is Sarah Palin, the following information should end them. According to Google, Sarah Palin's last name was searched more over the last week than the last names of President Obama, VP Biden, former GOP nominee John McCain, and current GOP 2012 front-runner Mike Huckabee.

Combined.

Of course, not all of these searches are by Palin supporters. Indeed, according to recent polls, Palin's hated nearly as much as she's loved. But the search levels do show public interest and the intensity of that interest. And it is high. Very, very high.

It reminds me of a classic exchange from Howard Stern's movie, Private Parts:

Researcher: The average radio listener listens for eighteen minutes. The average Howard Stern fan listens for - are you ready for this? - an hour and twenty minutes.
Pig Vomit: How can that be?
Researcher: Answer most commonly given? "I want to see what he'll say next."
Pig Vomit: Okay, fine. But what about the people who hate Stern?
Researcher: Good point. The average Stern hater listens for two and a half hours a day.
Pig Vomit: But... if they hate him, why do they listen?
Researcher: Most common answer? "I want to see what he'll say next."

It appears that, love her or hate her, people - including the media - are desperate to see what Sarah does next. It remains to be seen whether that power turns out to be a good thing for the GOP.

Bhagwati: Carbon Tariffs Are Hypocritical, Disastrous

I know that this is my second post applauding Jagdish Bhagwati in the last month, but his recent interview with Reason Magazine warrants the love. Most of the interview is typical Bhagwati - quickly and ably explaining the undeniable case for unfettered global trade and the abject stupidity of both protectionism and the politicians/interest groups that push it. He also reiterates the criticism and fears of President Obama's current trade (non)policy that I've been screaming since this blog first began.

But in my humble (ha!) opinion, Bhagwati's interview is most valuable when it gets to the issue of climate change and the US threats to unilaterally apply carbon tariffs to imports from developing countries that refuse to employ "adequate" climate change regulations:

reason: Do you think a global externality problem like global warming poses a fundamental threat to free trade?

Bhagwati: I think it depends on the way you do it. First, you’ve got to decide whether there is a problem of an externality. I have doubts about these scientists who claim to have a consensus on global warming because, you know, Freeman Dyson, a great scientific figure, says these guys are really low-level scientists and I’m told by many that they, in fact, are. And if they reach a consensus, I don’t care. I mean, that’s the consensus of incompetents.

But so long as only the scientists were talking about global warming, nobody paid the slightest attention. Remember, not a single senator voted for the Kyoto resolution back in the ’90s. Even Al Gore and Clinton had to walk away from Kyoto. But then the polar bears were threatened, the glaciers began to melt, and then that great French film about the penguins which touched all our hearts came out. So these were three whammies. Even if you live in Peoria you will understand, wrongly maybe, that global warming is a problem. I tell all my students: If they think of something like that for free trade, please let me know.

What countries like India and China are saying is that if the CO2 was accumulating and it’s going to create a disaster, then that took a lot of time to establish. So they want the West to bear primary responsibility for the damage it has caused in the past. If America applies some kind of a carbon tax and it says that if India and China don’t impose a similar tax, it’s going to use what is called border tax adjustment, then that is protectionism. And there’s no reason why Indians and Chinese have to accept this. Just as America was not willing to accept it when it didn’t sign onto Kyoto and Europe started threatening a countervailing duty on American exports. But everybody reacted to that talk and said this is a cockeyed thing to do. Peter Mandelson, who was the EU Commissioner, said it was very unwise because the United States will retaliate.

It’s ironic that we are now using exactly that kind of threat on India and China. But America’s fuel tax is so much lower than that of most other countries, except the Middle East. So India and China are going to hit us because we had a low gas tax for a long time. And all hell would break loose. India and China are big guys. They can get legal [World Trade Organization] retaliation against the U.S. Or India could take away contracts from Boeing and give them to Air France. It can have nuclear reactors go to France rather than to G.E. Caterpillar would be shut out.

So I suggest a different way. If in our own U.S. system you’re going to get your companies to clean up under the Superfund Act, that’s a tort principle which we accept. Then we ought to be willing to pay in some form to other poor countries for the past damages. The West has completely ignored this suggestion so far. It has provided maybe a few million dollars in assistance to Third World countries for this purpose. But if the West seriously starts contributing to this fund, Third World countries could get anywhere from $150 million to $1 billion to mitigate global warming.

reason: This is a political non-starter, you know.

Bhagwati: Yes. But the president actually has made some remarks about border tax adjustments not being such a good idea. He’s got to do more than that. He’s got to say this is a crazy thing to do. He’s still very cool—he needs to lose his temper once in a while. Because it’s too important. The U.S. is one of the biggest trading nations in the world. We want the rule of law. We don’t want retaliation, which would be massive. India and China are not Zaire or Zimbabwe. They’re not little countries you can push around. We don’t want to unleash that kind of trade war, because it would be very hard to control, I’m afraid.

Great stuff (especially that line about a "consensus of incompetents").  Sadly, however, I think Bhagwati is fooling himself if he honestly thinks that President Obama will ever "lose his temper" and fight for free trade.  The political will necessary to make such a stand is pretty huge.  Even though all the arguments - moral, economic and historical - would support it, standing up for free trade would require a direct confrontation with US labor unions and certain rust-belt Senators (*cough*Sherrod Brown*cough*) who dominate key swing states (Ohio, Pennsylvania, Michigan, etc.) and are essential to holding that precious 60-vote margin in the Senate.  Each is loudly in favor of carbon tariffs (and other forms of protectionism), and this White House has provided very few indications that it is willing to directly challenge these entrenched protectionists anytime soon.

So inaction and delay will rule the foreseeable future (better that, I guess, than outright hostility to trade, but it's still disappointing).

I hope I'm wrong; really, I do. But it sure doesn't look like it.

Protectionism's Unreported Victims

Journalists love to write about the downtrodden victims of import competition, and who can blame them?  Such stories provide the type of fear-mongering, guilt-inducement and myth-reinforcement that American readers eat up!  (Or something.)  Well, regardless of the reasons, the interwebs are chock-full of stories of unemployed textile workers, closed paper mills, scared telemarketers and other general domestic mayhem caused by the omnipotent bogeyman that is "Globalization." The media just can't seem to get enough.

Cato's Dan Griswold does a fantastic job debunking the myth that imports cause a majority of American unemployment here and in his great new book Mad About Trade.  But what Dan doesn't mention in his blog entry is the other, totally unreported side of this coin: the very real victims of American protectionism.  About a month ago, I discussed how US tariffs regressively punished - through higher prices - American consumers of basic necessities like food, clothing and shelter.  Well, as the following examples from the last few weeks make clear, there are many other ways that protectionism can harm American businesses, workers and families:

• Reuters reports that the US operations of GPX International Tire have filed for Chapter 11 bankruptcy because of 44% antidumping duties on Chinnese imports of off-road tires.  The duties - different from those imposed by President Obama under Section 421 of US trade law - have jeopardized about 100 jobs at GPX's US facilities in Malden, Massachusetts.

• The AP reports that "Brazil has released a preliminary list of U.S. goods that could be hit with tariffs in response to a World Trade Organization ruling on illegal American cotton subsidies." According to the report, Brazil will hit American fruit farmers, juice producers and pharmaceutical companies with $295 million in annual sanctions as a result of the United States' failure to eliminate the protectionist subsidies to well-connected cotton growers.  The final list is expected to be submitted to the WTO by Nov. 30. Then the targeted American businesses will start paying $295 million in new taxes per year.
  

• Canada's Financial Post reports that the Stimulus* Bill's Buy American provisions are causing pipe fittings in California to be ripped from the ground for the second time in six months because they were stamped "Made in Canada."  The move has cost Cambridge Brass Inc., a Canadian brass fittings manufacturer, more than $1.5 million and has caused it to fire 63 workers since Buy American was introduced last spring.  Similar pain is being felt all over Canada, but for those of you who care only about American jobs, the Financial Post story highlights that US input manufacturers also are suffering from Buy American because many of the materials that the Canadian firms use to manufacture their products come from places like Texas.  Even Cambridge Brass is owned by AY-MacDonald, a US company with headquarters in Michigan.  And of course, the Canadians are threatening to retaliate against other US exporters, as rumors of a US-Canada settlement have faded.
  

• DelmarvaNow informs us that Chinese tariffs on US chicken exports - retaliation for the President's decision to impose prohibitive tariffs on Chinese tires at the request of the United Steelworkers - could seriously hurt small American chicken farmers in tiny towns like Delmar, Maryland that depend on chicken farming. In the piece, chicken grower Betty J. Hastings, a 25-year veteran of the business, describes the situation as "scary."

• MySanAntonio reports that Dallas-based Mary Kay cosmetics is paying $450,000 per month in Mexican tariffs imposed on US cosmetics exports (among others) as direct retaliation under NAFTA for a congressional ban on Mexican trucks from US roads.  (The ban - imposed under the 2009 Omnibus Appropriations Act - was a direct sop to the Teamsters union.)  MySanAntoinio also reports that the ban not only has resulted in tariffs on US exports ($2.4 billion total per year), but also has prevented Mexico's Estafeta - the "FedEx of Mexico” - from delivering letters and packages to US recipients. The result: Estafeta has refused to set up US operations (and hire US workers) until the spat is resolved, and US recipients of those letters/packages pay higher delivery prices.

So there you have it: layoffs, bankruptcies, hidden taxes, frightened old ladies, destroyed property, international intrigue, and congressional payoffs to crony interest groups - all the makings of high political drama!  Yet protectionism stories like these just don't seem to pique the interest of most "mainstream" media outlets, and instead, we readers are treated to trite, MadLib-esque reports of downtrodden mill-worker X and increased import Y from country Z.

No wonder the newspapers are going bankrupt.

UPDATE5: Lies, Damned Lies and Stimulus* Statistics

This ABC report pretty much speaks for itself:

More than 50,000 jobs, or one out of every 10 jobs the White House says were "saved or created" by their economic stimulus plan, came from projects that reported spending no money yet, according to a government report obtained by ABC News.

The report by the Government Accountability Office analyzes the administration's October 2009 report on jobs saved or created by the $787 billion stimulus program and finds a "range of significant reporting and processing problems that need to be addressed." ...

The new GAO report finds that 58,386 of the more than 640,000 "saved or created" jobs listed on recovery.gov are from stimulus projects where no money has yet been spent.

On the flip side, the report finds nearly 10,000 projects that report spending a total of $965 million without creating any jobs at all.

The report also raises questions about how closely the contracts are being monitored. Twenty-five percent of the more than 130,000 primary contracts listed were not marked as having been reviewed by any government agency, and less than 1 percent of subcontracts were reviewed.

Here's the ABC video report. Oy vey.

Is a Recovery Strategy Based on Exports and Manufacturing Jobs Realistic?

In President Obama's speech in Japan over the weekend, he stressed the need to increase US manufacturing exports in order to create new, well-paying American jobs:

[T]his new strategy will mean saving more and spending less, reforming our financial system and reducing our long-term deficit. It will also mean a greater emphasis on exports that we can build, produce, and sell all over the world. For America, this is a jobs strategy. Right now, our exports support millions upon millions of well-paying American jobs. Increasing those exports by just a small amount has the potential to create millions more. These are jobs making everything from wind turbines and solar panels to the technology you use every day.

The Japan speech was not the first time that Obama mentioned exports as a key to future American job growth. Just two weeks ago at a meeting of his Economic Recovery Advisory Board, he spoke about "export-driven growth, manufacturing growth, growth that pays high wages and provides high living standards for a broad-based middle class."

Clearly, exports, and the manufacturing jobs they create, are an integral part of the administration's jobs strategy. But is that a wise approach? The facts seem to say "no."

First, let's make clear that there is very little connection between manufacturing output and those "high wage, middle class" manufacturing jobs that the President lauds. As Cato's Dan Ikenson pointed out in a recent op-ed, "American real manufacturing value-added — the market value of manufactured goods, over and above the costs that went into their production — reached a record-high level in 2007 (the last year for which final data are available), breaking the record set in 2006, which broke the record set in 2005, which broke the record set in 2004."  Yet over that same period (2004-2007), the US lost about 100,000 manufacturing jobs per year. (As an aside, let's just note again that the US remains the world's largest manufacturer - about 2.5 times more than China, by value.)

Second, it's important to understand that the disappearance of manufacturing jobs is not an America-specific phenomenon.  As this awesome chart derived from Bureau of Labor Statistics employment data readily indicates (h/t ToGetRichIsGlorious), developed countries - the US included - have been hemorrhaging manufacturing jobs for decades:

The chart also makes clear that America's "consumption culture" can't be blamed for the loss of manufacturing jobs.  According to the CIA's World Factbook, Germany, the United States, Japan, Italy, France, the Netherlands and the UK are all among the world's top ten merchandise exporters; according to the OECD, some are net importers, and others are net exporters.  Yet the long-term employment trend for each country is decidedly downward (but for a few random upticks).  So neither a country's total exports output nor its trade balance is a magical recipe for increasing - or even retaining - manufacturing jobs.

The Congressional Research Service also made the latter point (on trade balances and employment) in a June 2009 report on China's currency policy when it said:

[A]n undervalued yuan neither increases nor decreases aggregate demand in the United States. Rather, it leads to a compositional shift in U.S. production, away from U.S. exporters and import-competing firms toward the firms that benefit from Chinese capital flows. Thus, it is expected to have no medium or long run effect on aggregate U.S. employment or unemployment. As evidence, one can consider that the U.S. had a historically large and growing trade deficit throughout the 1990s at a time when unemployment reached a three-decade low. However, the gains and losses in employment and production caused by the trade deficit will not be dispersed evenly across regions and sectors of the economy: on balance, some areas will gain while others will lose. And by shifting the composition of U.S. output to a higher capital base, the size of the economy would be larger in the long run as a result of the capital inflow/trade deficit.

In other words, altering the trade deficit would not affect employment and might actually lead to a decrease in GDP.

Third, and before any of you start shouting that it's the nefarious China that's stealing all of those good-paying manufacturing jobs, they're bleeding these jobs too!  According to a recent op-ed by GMU's Walter Williams, China has lost over 4.5 million manufacturing jobs since 2000 - a lot more, by the way, than the United States (about 3.3 million, according to the BLS).  Williams helpfully adds, "In fact, nine of the top 10 manufacturing countries, which produce 75 percent of the world's manufacturing output (the U.S., Japan, Germany, China, Britain, France, Italy, Korea, Canada, and Mexico), have lost manufacturing jobs but their manufacturing output has risen."

The reason for this is simple: the world's manufacturers keep getting more productive and thus need fewer man-hours to produce more stuff.  Here's Williams again:

According to a report given by Dr. William Strauss, senior economist for the Federal Reserve Bank of Chicago, titled "Is U.S. Losing Its Manufacturing Base?" the answer is no.  In each of the past 60 years, U.S. manufacturing output growth has averaged 4 percent and productivity growth has averaged 3 percent. Manufacturing is going through the same process as agriculture. In 1900, 41 percent of American workers were employed in agriculture; today, only 2 percent are and agricultural output is greater. In 1940, 35 percent of workers were employed in manufacturing jobs; today, it's about 10 percent. Again, because of huge productivity gains, manufacturing output is greater.

Since the beginning of the current recession in December 2007, the United States has lost 8.2 million jobs.  And while I appreciate (really!) the White House's newfound attention to exports (and, by extension, international trade), all of the above data strongly caution against a modern US jobs program that is based, in whole or significant part, upon boosting manufacturing exports. To add millions of jobs under such a plan would defy almost all recent economic experience - in developed, developing, consuming and exporting countries alike.

So I sure hope the President and his crack team of economic geniuses have more up their sleeves than a strategy of "exports, manufacturing, and wind turbines."  Because it sure looks like they're gonna need it.

Obama's Newfound "Focus" on Exports: Reason for Skepticism

As I noted yesterday, President Obama announced over the weekend a new "Asia strategy" that will focus on "re-balancing" the US-Asia trade relationship. According to Obama, increased US exports - boosted by, among other things, expanded market access in Asia - will play a prominent roll in his plan. But just how serious is the administration about boosting exports through trade liberalization policies?

Based on a quick review of the facts, I'd say "not very."

First let's look at two of the key trade policies mentioned by Obama in his Japan speech, the Doha Round and the Trans-Pacific Partnership FTA.  On Doha, Obama claimed that an "integral part" of his strategy would be "working toward an ambitious and balanced Doha agreement."  But as I've noted repeatedly, US trading partners have been complaining about US non-involvement in the WTO's Doha Round since Obama took office in January. And the administration's abject refusal to own the 2008 US commitments on farm subsidy cuts, while it openly demands that its trading partners improve market access, is a clear indication that the White House is not serious about concluding Doha anytime soon.

Obama next stated that "[t]he United States will also be engaging with the Trans-Pacific Partnership countries with the goal of shaping a regional agreement that will have broad-based membership and the high standards worthy of a 21st century trade agreement." However, almost immediately following his speech, Deputy National Security Advisor Mark Froman totally hedged when asked what the President meant:

I think what he meant is that there is an ongoing initiative called the Trans-Pacific Partnership and that our intent is to engage with them to see whether we can shape that initiative into one that is comprehensive and a very high standard and could serve as a platform for further trade liberalization and regional integration in the region. We'll begin those discussions with the current and potential future members of the Trans-Pacific Partnership, and see whether this is something that could prove to be an important platform going forward.

Translation: the US has decided that it will begin the process of seeing whether it will want to seriously consider formally entering into TPP negotiations.  How bold!  In reality, Froman's flaccid statement makes clear that the United States has not committed to formal negotiations to enter the TPP.  But it might, someday.  Meanwhile, completed FTAs with Colombia, Panama, and South Korea remain shelved due to political concerns, costing US exporters billions.

Second, and as I summarized in a recent op-ed, the administration's unilateral trade actions - each designed to secure support for domestic policy priorities - have significantly harmed American exporting interests.  Obama's decision to slap tariffs on Chinese tires under "Section 421" of US trade law has jeopardized American chicken and automobile exports in China, and the administration's decision to sit on a Transportation Department plan to re-admit Mexican trucks on US roads has subjected a wide range of American goods to $2.4 billion in Mexican retaliatory tariffs.  Politics has trumped trade every time.

So pardon me if I sound a tad skeptical of the President's newfound appreciation for exports.  There are plenty of ways that the Obama administration could put its "pro-export" money where its mouth is and immediately and significantly boost sales of US goods and services around the world.  And yet it has done nothing of the sort.  Indeed, its much-heralded announcement to enter into new FTA negotiations (with the TPP) appears to be nothing more than rhetorical window dressing.  So until I see some concrete commitments to real trade liberalization, I'll continue to think that Obama's Asia speeches have little to do with signaling a renaissance of US free trade policies and much more to do with signaling other policy plans at home and abroad.

Op-ed Update

The good folks over at RealClearMarkets have published my op-ed, "President Obama's Accidental War on America's Exporters." It's pretty much the same as what I posted here a week ago, but in case you're interested, it's here.

UPDATE4: Lies, Damned Lies and Stimulus* Statistics

More news rolled in today on the White House's bogus Stimulus* job statistics:

• ABC News:  "Obama Admin Slashed 60,000 Jobs From Recent Stimulus Report." So not only are you saying that the White House was aware of these ridiculous reports, but you're also saying the report could have been a lot worse?!?! Yikes.
  

• Detroit Free Press (courtesy of HotAir): "Billions for state, but where are jobs? Majority of stimulus awards have brought little help." "[The Free Press'] analysis also revealed that others who have been promised or have received stimulus money have overstated -- in some cases greatly -- the number of jobs created or protected."

Finally, the hardworking folks over at the Washington Examiner have done a much better - and more technologically savvy - job than I've done at documenting all of the Stimulus* misreporting.  They've produced an interactive map, available here, which shows that - so far - the White House's report overcounted jobs by at more than 10%.  I say "so far" because not all state newspapers have completed their analyses.

75,343 fake jobs and counting!  Viva la HopeChange!