Thursday Quick Hits

Here's some more light reading to get you ready for the weekend:

• Cato's Sallie James is back banging her TAA drum again (fortunately for us); this time, she exposes the "flawed logic" behind certain misguided arguments in support of TAA.  James actually raises some of the same arguments that I raised in my comments to this post (but to much better effect, as usual).  Meanwhile, the GOP appears to be stiffening in the face of the Obama administration's TAA demands.

• David Harsanyi beautifully explains why "Buy American" is inherently un-American.  Here's my favorite part: "Nobel Prize-winning economist and New York Times columnist Paul Krugman once explained in his book 'Pop Internationalism' that if he could stress one thing to students, it would be that 'international trade is not about competition, it is about mutually beneficial exchange.' Wasserman Schultz is bright, so she must know all about the counterproductive history of protectionism. Then again, when she says 'Buy American,' maybe she just means 'Buy Union' — buy union because taxpayers subsidize GM and it pays workers and they subsidize unions that subsidize the right candidates. A mutually beneficial exchange."

• Jonah Goldberg quickly explains why E.J. Dionne's liberal fantasies about copying Chinese and European industrial policy are anything but "innovative."

• Utterly unsurprising news of the day: the government subsidizes consumption of Chevy Volts, and people - this time, car dealers - end up gaming the system.  Shocking, I know.

• Iowa Congressman Steve King calls for an end to US Ethanol subsidies.  Yes, you heard that right - a guy representing IOWA supports terminating America's Corndoggle, yet certain presidential candidates (and the current guy in charge) refuse to do so.  Panderiffic! 

• After five grueling months of not-trying-at-all, Treasury Secretary Tim Geithner announces that the administration's vague-and-not-very-bold corporate tax reform "plan" is on indefinite hold.  Meanwhile, "Executives from major U.S. businesses told lawmakers Thursday that they would be willing to give up major tax breaks in exchange for a lower top corporate tax rate." Great timing as usual, Mr. Secretary (and the USA still has the highest corporate tax rate in the industrialized world - sweet).

• More swine at the trough - this time, textile congressmen are "worried" about the imaginary textile section of a thus-far-imaginary FTA, the Trans-Pacific Partnership.  Somewhere, the ghost of Mancur Olson is nodding with approval.

That's all for tonight.  Go Mavs!

Chinese Industrial Policy, ctd.

Last week, I posted an amazing video of China's "ghost cities and malls" which unquestionably demonstrated the myriad problems with the country's centrally-planned economy, despite its eye-bugging growth.  Adding further empirical support to my anecdotal evidence is a great new paper from Heritage Foundation's Derek Scissors which compares the US and Chinese economies and asks "which is bigger [and] which is better."  If you've seen last week's video, Scissors' answer shouldn't surprise you in the least.

After thoroughly analyzing each country's GDP, employment, economic freedom, energy & environment, international trade position, fiscal policies, labor productivity and other factors (and be sure to check out the snazzy charts), Scissors rightly concludes:

The PRC’s rise from poverty due to the marvelously successful market reforms introduced in 1978 has obscured serious economic weaknesses compared to the U.S. These weaknesses have been exacerbated in important ways by renewed Chinese state intervention starting around 2003. America should not lose track of its advantages over China—in wealth but also in natural resources, and in surprising areas such as employment. Most important, the U.S. should not make the error of mimicking unwise Chinese policies, and should instead focus on getting the American house in order.

I couldn't agree more, and have said as much many times here.  Scissors then advises:

To compete successfully with China, the U.S. should:

Limit federal control of lands to defense needs and preservation of natural and cultural phenomena. The Department of the Interior should avoid resource management, shown to distort the economy and reduce prosperity;

Immediately and sharply cut the federal deficit. Congress must ignore claims that deficit spending somehow creates wealth, as it actually forces the nation’s capital toward low returns;
In particular, reduce subsidies of every kind. At this point, energy subsidies are especially damaging; and

Ensure a well-educated and growing labor force. The Departments of Education and Justice should stress immigration transparency and education diversity, where the U.S. has an edge over China.

To encourage mutually beneficial Chinese development, the U.S. should:

Focus on subsidies as the biggest Chinese trade distortion. The Department of the Treasury, the United States Trade Representative, and Department of Commerce should estimate Chinese subsidies for the purposes of reducing them through bilateral and multilateral negotiations; and

As part of these negotiations, should offer to welcome Chinese investment in natural resources in exchange for greater American access to the PRC market.

I agree with all of Scissor's analysis and recommendations, except for this last one.  Not to nitpick, but conditioning Chinese investment in American resource development (e.g., lumber, iron, oil, gas, etc.) on reciprocal access to the Chinese market strikes me as wrongheaded for two basic reasons.  First, such intervention is completely at odds with the paper's strong (and totally correct) free market message.  Indeed, one of the paper's primary conclusions is that the weaknesses in China's economy "have been exacerbated in important ways by renewed Chinese state intervention," yet it recommends American intervention in the US investment market by restricting China's access thereto.

Second, and as I've noted here many times, this kind of reciprocal trade and investment policy  needlessly (albeit implicitly) demonizes foreign investment by casting it as a "concession" that we must begrudgingly give up in order to win access to China's market.  In short, it makes Chinese (and other foreign) investment in the American economy seem like a bad thing, because it depicts China's giving us money (and American jobs and growth) is the price we have to pay to get that sweet, sweet export market.  This, of course, is totally incorrect from an economic perspective, but it's also wrongheaded from a messaging perspective because it teaches the American public to oppose foreign investment.  And I'm quite sure that there are other things that we could use - things we (or our politicians) actually don't want to give up like our agriculture or "green energy" subsidies - as a bargaining chip to gain more access to China's market.

But hey, like I said, that's nitpicking.  The paper's still an excellent effort overall, and well worth your time.

Umm, Yeah, About that Awesome Chinese Industrial Policy

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



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