Quotulatiousness

January 9, 2018

The ongoing financial catastrophe that is the National Shipbuilding Procurement Strategy

Filed under: Australia, Bureaucracy, Business, Cancon, Military — Tags: , , , , , — Nicholas @ 03:00

Ted Campbell rounds up recent discussions of the Canadian government’s farcical National Shipbuilding Procurement Strategy (NSPS):

There is a somewhat biased but still very useful look at the successes of the National Shipbuilding Procurement Strategy (NSPS) in the Ottawa Citizen by Howie Smith who is the Past President of the Naval Association of Canada. Mr Smith is a retired Canadian naval officer who has provided consultancy services to several firms pursuing opportunities within the projects of the National Shipbuilding Strategy, which is why his article is somewhat biased. Mr Smith is responding to a recent report by Professor Michael Byers of the University of British Columbia, who is also a biased commentator on defence issues, which said that the NSPS “was flawed from the outset” and “According to Byers, the Liberal government should open-up the non-contractually-binding umbrella agreements with Irving and Seaspan, then cancel and restart the Canadian Surface Combatant and the Joint Support Ship procurement programs with fixed-price competitions involving completely ‘off the shelf’ designs.”

It is important, I believe, to understand why Canada needed something like the NSPS in the first place. The notion came in about the middle of the Harper government’s term in office – in around 2010. I think that two problems confronted the government:

  • The Canadian shipbuilding industry was, once again, “on the ropes;” Davie, Canada’s largest shipyard was in bankruptcy and the other yards were too reliant on government contracts; and
  • Both of the major federal fleets (the Royal Canadian Navy and the Canadian Coast Guard) were approaching “rust out,” again.

The solution to the first problem was to modernize the yards and make them internationally competitive … but that would cost money and private investment money is scarce ~ especially for shipbuilding, plus under the international trade rules to which Canada has agreed direct government subsidies to commercial shipyards are prohibited. The solution to shipyards that are too reliant on government contracts was ~ wait for it ~ another big government contract that would allow them to modernize themselves.

That indirect government subsidy is perfectly legal if the contracts are for navy and coast guard ships because “national security” is a big loophole in international trade law.

Both Professor Byers and Mr Smith have some good points … but neither is 100% correct. The NSPS was and remains a sound idea … the costs, which is the real crux of Professor Byers’ complaint, are not relevant because the defence and coast guard budgets are being (mis)used for industrial development ~ those are not the real costs of warships: they are the real costs of warships PLUS the cost of yard modernization.

The new surface combatant project is, as Mr Smith says, the biggest and costliest peacetime military procurement ever … and the NSPS is working just about a well as any “system” would at bringing it to fruition. At some point in the future a government will have to decide if Canada gets fewer ships than it needs or spends more more money than it wants … or, most likely, both.

That last sentence has always been the most likely outcome: the RCN will get fewer ships than it needs, and those ships will be significantly more expensive per hull than they need to be. The need for modern naval vessels isn’t the top priority … it’s probably not even in the top three priorities as far as the government is concerned (directing money to the “right” recipients, pandering to provincial sensibilities, lots of photo ops, and then maybe the actual needs of the RCN and CCG).

Update: Of course, it’s not like Canada is unique in the problems we have in military procurement … Australia is also struggling in a similar way:

The [Royal Australian] Navy’s program to replace the Collins Class submarines is known as SEA 1000. It involves modification of a French Barracuda Class submarine from nuclear to diesel-electric propulsion, plus other changes specific to Australia.

The 12 new submarines, to be known as Shortfin Barracudas, are intended to begin entering service in the early 2030s with construction extending to 2050. The program is estimated to cost $50 billion and will be the largest and most complex defence acquisition project in Australian history.

[…]

Then there’s the decision to build them in Australia. The Abbott government’s 2016 Defence White Paper only committed to building them in Australia if it could be done without compromising capability, cost or project schedule. That changed because of South Australian politics, and the new submarines could now be more appropriately described as the Xenophon class.

Even if all goes well, the cost of building warships in Australia will be 30 to 40 per cent more than if they were built overseas. However, the plan to build them in Adelaide at the Australian Submarine Corporation, the same group currently building the Air Warfare Destroyer, years late and a billion dollars over budget, adds to a sense of foreboding.

This follows the prize fiasco of the Collins Class submarine project. Their construction by the Australian Submarine Corporation ran years behind schedule, many millions over budget, and finally delivered a platform that the Navy has struggled to even keep operational.

And then there is the question of whether the new submarines will arrive before the Collins Class subs are retired, scheduled for 2026 to 2033. Even if delivery occurs on schedule, the first will not enter service until 2033. At best there will be one new submarine in service and a nine year gap between the retirement of the Collins Class and the introduction into service of the first six of the twelve new submarines.

Given this, the government has apparently committed an additional $15 billion to keep the 30 year old Collins submarines bobbing in the water. It’s like refurbishing a World War 2 German U-Boat for the mid-1990s.

The elements are all there for the submarine replacement program to become the procurement scandal of the century. Our Shortfin Barracudas will probably be the most expensive submarines ever built anywhere in the world.

For a lot less money, we could achieve a far more potent submarine capability. For example, off-the-shelf Japanese Soryu submarines cost only US$540 million. Modified to meet additional Navy requirements, they were quoted as costing A$750 million. If we simply bought twelve of those, the total cost to the taxpayer would be less than A$10 billion.

Equally, the existing nuclear Barracudas only cost $2 billion each, so we could get twelve of those for $24 billion.

For such an important defence capability, the government’s failure to guarantee Australia is protected by submarines is nothing less than gross negligence.

December 13, 2017

QotD: Licensing and entrepreneurship

Filed under: Bureaucracy, Business, Quotations, USA — Tags: , , — Nicholas @ 01:00

Much as I love Silicon Valley, its cultural dominance has disastrously corrupted our sense of what entrepreneurship is. Talking about starting your own business, and too many people think the measure of success is whether you can sell the thing for at least a couple of hundred million dollars. Most entrepreneurship is considerably more humble than that; it is individuals with some talent, or a willingness to work hard, who want to sell their services to the public. They may never employ another person; they may not even work full time themselves. And these people never buy gracious mansions, or endow scholarships, or get buildings named after them. They just make their own lives a little bit better, hopefully, in the process of doing the same for their customers. We are artificially stopping that process, in order to protect insiders who already have the job.

That’s great for the insiders, who get above-average job stability and wages. But it’s terrible for the folks who are outside. And the more industries we put under the control of such regimes, the more the outsiders will show up in our economic data as people permanently stuck at the bottom.

We can do better than that. The problem is that such regimes are politically very stable, because the benefits are highly concentrated, while the costs are diffuse. Every licensed interior designer is passionately interested in shutting out unlicensed competitors, but their potential customers probably have better things to do than phone up their senators to demand to know why they can’t hire this chap they just met who has absolutely splendid taste in early Chippendale.

Megan McArdle, “You’re Gonna Need a License for That”, Bloomberg View, 2016-05-17.

October 31, 2017

How Sugar Subsidies Ruin Halloween

Filed under: Economics, Government, Health, Politics, USA — Tags: , , — Nicholas @ 06:00

ReasonTV
Published on 30 Oct 2017

This Halloween while you’re getting pudgy from candy, crony capitalists are getting rich off of sugar subsidies. The system is rigged through price controls, subsidies, and tariffs, all designed to protect the sugar industry from competition – and basic math. In the latest “Mostly Weekly” Andrew Heaton tears into the Willy Wonkas gaming the system, and shows why an open market can more than handle your sugar craving.

October 26, 2017

The “sacred” Supply Management system Canada is fighting to preserve

Filed under: Business, Cancon, Education, Politics — Tags: , , — Nicholas @ 03:00

The way our politicians talk about the supply management system, you’d think it was one of the founding issues of Confederation. They’re almost literally willing to abandon the NAFTA talks to preserve this encrusted bit of crony capitalist market distortion that hurts most Canadians in the wallet, to keep domestic producers happy. Matthew Lau explains the system our government is willing to crash the entire economy to save:

The United States wants Canada to end supply management, which impedes agricultural imports – dairy, eggs, and poultry. Canada’s trade negotiators and politicians steadfastly refuse, and in their defense of the policy call up an astounding piece of logic: that the less Canadians have, the richer we are.

Canada’s Agriculture Minister insists that supply management is an “excellent system” and that “to deal with anything else is simply a non-starter.” Supporters on the left argue that the policy is necessary to protect domestic farmers from unfair competition from American farmers who receive government subsidies.

Conservatives have argued the same. Current Parliament Member and former International Trade Minister, Ed Fast argued in a recent essay that America simply wants access to the Canadian market “to deal with its own problem of overproduction, to the detriment of Canadian farmers.”

Here is what all proponents of supply management are arguing: If we allow the Americans to send us milk, then their problem of overproduction becomes our problem. Don’t you see how problematic it is, how much poorer we will become if we allow them to send to us the fruits of their overproduction, and at a low price to boot? Don’t you see how much richer we would be if we had less milk?

The less milk we have, the higher the price of milk, the more we can “ensure that producers receive a reasonable return,” as Ed Fast put it – and having ensured that producers receive a reasonable return, certainly we shall all be richer. What could be more reasonable than ensuring Canadian producers receive a reasonable return?

In case the lunacy isn’t quite clear, he also offers a suggestion for a new supply management system for Canadians to “enjoy”:

If we’re made richer by having less dairy, poultry, and eggs, then why stop there? Why not create scarcity in all the other sectors in order to boost the domestic economy? For instance, consider that Ontario’s manufacturing sector has lost several hundred thousand jobs in the past twelve years or so. So according to the supply management logic employed by politicians, how can we revive this industry?

By destroying automobiles of course. And then throw up a tariff to make the purchase of automobiles abroad prohibitively expensive, in order to make sure the Americans, as well as other foreign producers, can’t take “unfair advantage” by inflicting us with cheap automobiles to deal with their problems of overproduction.

The result of such a policy would be that the price of automobiles would rise, thus enabling domestic manufacturers to earn reasonable returns. Destroying automobiles and instituting a tariff would revive the automobile manufacturing industry in Ontario and create thousands of jobs. If the Liberal government thinks supply management is an “excellent policy” they’d probably think this automobile policy is a panacea.

Indeed, the logic, or rather illogic, of the automobile policy is only an amplification and expansion of supply management. Both rest on the idea that we are richer when we have less.

July 23, 2017

Canada won’t give up on supply management, for fear of Quebec backlash

Pierre-Guy Veer provides a guided tour of Canada’s supply management system, with appropriate emphasis on the role Quebec dairy producers play in keeping the anti-competitive system in place:

Spared by the North American Free Trade Agreement in 1994, the Canadian milk supply restrictions are “in danger” again. Because of trade negotiations with the US and Europe, foreign farmers want better access to the Canadian market.

However, hearing complaints from the US about unfree dairy markets comes as paradoxical. Indeed, since the Great Depression, the dairy industry has been anything but free. It profits from various subsidies programs including “the Dairy Price Support Program, which bought up surplus production at guaranteed prices; the Milk Income Loss Contracts (MILC), which subsidized farmers when prices fall below certain thresholds, and many others.” It even came close to supply management in 2014, according to the Wilson Center.

But nevertheless, should US farmers ever have greater access to Canadian markets, it won’t be without a tough fight from Canadian farmers, especially those from the province of Quebec. Per provincial Agriculture Ministry (MAPAQ) figures, the dairy industry is the most lucrative farm activity, accounting for 28% of all farm revenues in the province, but also 37% of national milk revenues in 2013. “La Belle Province” also has 41% of all milk transformation manufacturers in Canada.

As is almost always the case with “protected” domestic markets, the overall costs to the Canadian economy are large, but the potential benefit to individual Canadian consumers for getting rid of supply management is relatively small (around $300 per year), but the benefits are tightly concentrated on the protected dairy producers and associated businesses.

But even though the near entirety of the population would profit from freer dairy markets, their liberalization will not happen anytime soon.

Basic Public Choice theory teaches that tiny organized minorities (here: milk producers) have so much to gain from making sure that the status quo remains. A region like Montérégie (Montreal’s South Shore) produced over 20% of all gross milk revenues in 2016. There are 23 out of 125 seats in that region, making it the most populous after Montreal (28 seats). So if a politician dares to question their way of living, milk producers will come together to make sure he or she doesn’t get elected. Libertarian-leaning Maxime Bernier learned it the hard way during the Canadian Conservative Party leadership race; producers banded together – some even joined the Conservative Party just for the race – and instead elected friendlier Andrew Scheer.

On the provincial level, all political parties in the National Assembly openly support milk quotas. From the Liberal Party to Coalition Avenir Québec and to Québec Solidaire, no one will openly talk against milk quotas. However, and maybe unwillingly, separatist leader Martine Ouellet gave the very reason why milk quotas are so important: they keep the dairy industry alive.

May 17, 2017

QotD: Britain’s post-Brexit access to the single market

Filed under: Britain, Business, Economics, Europe — Tags: , , , — Nicholas @ 01:00

You see, they think they are granting us a privilege by allowing us to sell them things. This is ludicrous of course, it is imports which make us richer, not exports. But let us humour their delusion for a little. The standard EU position is that if the companies and people of a country are to gain access to the Single Market then they must pay for that privilege. This cannot be about the imports that those people gain from the Single Market of course because that is always under their own domestic control. No, the EU’s insistence really is that if Switzerland gets to sell cuckoo clocks into the EU, Norway can ship fermented sharks heads and the like, then this is a privilege. And that access to the Single Market means that Switzerland and Norway must pay the EU for that privilege. And they do.

[…]

If you get to sell things in Europe then you’ve got to pay the tithe to the EU itself. Reminds me rather of Fat Tony and friends running a nice little protection racket but then much of the EU reminds me of that.

OK. But who should be paying that tithe?

Well, actually, the first question is whether that tithe is worth paying. As up above, it’s imports that make us all generally richer and that’s all under our control anyway. Exports do make some people richer – the people who profit from making exports of course. And that’s not us in general, that’s not Britain, nor the British, and it’s most certainly not the taxpayers who are made richer by exports. So, obviously, it should not be the taxpayers paying the tithe in order to gain access to that market for those exports which don’t profit them.

The people who should be paying the tithe are the people who profit from the tithe having been paid. Those very exporters. Which gives us the solution to who should be paying the tithe. And an interesting side effect of this will be that we will find out whether it’s worth paying at all.

The people who should be paying the tithe are the people who profit from the tithe having been paid. Those very exporters. Which gives us the solution to who should be paying the tithe. And an interesting side effect of this will be that we will find out whether it’s worth paying at all.

Actually, we could in fact argue that a payment into the EU budget in return for Single Market access is illegal state aid. And thus not allowed under the usual rules of trade with the EU. Because it is state aid. Exporters will face tariffs if the payment is not made. The payment thus benefits exporters. But the payment is made by taxpayers, this is thus aid from taxpayers to exporters. It’s a subsidy for exports – something that isn’t allowed.

[…]

The crucial point is that the benefits, as far as the UK is concerned, of Single Market access lie with those making the exports. Thus those making the exports should be those paying the cost of Single Market access. If those who benefit think it not worth the cost then no one should be paying such bribes illegal state aid access fees. And simply by applying the costs, correctly, to those who benefit we find out which is the truth.

It’s very difficult indeed, nay impossible, to see the down side of this suggestion. If exporters want Single Market access then exporters can pay for it, not taxpayers. If they won’t pay it then it’s not worth it, is it?

Tim Worstall, “Absurd But It Works – Ensure EU Single Market Access Post-Brexit With Export Taxes”, Forbes, 2016-06-27.

May 3, 2017

Softwood lumber, again

Filed under: Business, Cancon, Economics, USA — Tags: , , , — Nicholas @ 03:00

Last week, Megan McArdle provided a quick look at the son of the bride of the revenge of the softwood lumber dispute monster:

According to American lumber producers, this is because of the nefarious subsidies the Canadian government has granted to its timber producers. In America, most softwood timbering takes place on private land, and the lumber is priced to recover the full cost of owning and maintaining many acres of trees. In Canada, forest resources tend to be owned by the government, which sets “stumpage fees” (the cost for cutting down a tree, which used to be assessed per stump and is now usually assessed by board feet or cubic meters [PDF]).

The American producers complain that these fees are set too low, providing an unfair subsidy for Canadian timber, especially because British Columbia (which has a lot of timberland) bans the export of Canadian logs, so that American lumber mills are unable to get in on this sweet, sweet deal.

For variety, American producers occasionally also complain that Canada is “dumping” (basically meaning that a country is selling goods in a foreign market below the price at home. Since this is — except in rare cases such as pharmaceuticals — a stupid business practice, accusations of dumping tend to exceed actual instances by a healthy margin.)

[…]

The history of litigation on this is long, rich and arcane. Since the 1980s, the U.S. and Canada have been locked in a cycle whereby the U.S. complains that Canadian softwood lumber is too darn cheap, complaints are filed with various entities, and eventually both sides decide it’s easier to come to some sort of settlement rather than subject everyone to another endless hearing on the minutiae of the lumber industry. Then an agreement expires, American lumber producers say “Now’s our chance, guys! We’re going over the top!” and the magical cycle of birth and death, conflict and resolution, begins once again in the forest lands.

When trade bodies get around to ruling, those rulings are often mixed: “Yeah, okay, maybe there’s some subsidy in there somewhere, but you Americans are wildly overreacting, so cool it with the huge tariffs.” Which was basically my take on the dispute in 2004, when I last covered it. Research does not reveal any good reason to revise that view, especially because Canadian stumpage has evolved somewhat over the years. British Columbia now uses auctions [PDF] in its coastal forest areas, which should tend to drive the price of stumpage there to par with the world market.

We should also note that any subsidy, however bad for American softwood lumber producers, is actually good for the vast majority of Americans who do not work in forestry. This morning, people were throwing wild numbers around about how much a tariff would increase the price of a house or a box spring. I’d take those numbers with a hefty dose of salt, but undoubtedly, they will drive the price of softwood lumber products up somewhat, which means less money in the pocket of you, The Modern American Consumer. So even if American timber producers were completely right and their tariff were warranted, the American consumer would suffer.

April 20, 2017

Without our sacred supply management, it’d be “Human sacrifice! Dogs and cats living together! Mass hysteria!”

Filed under: Business, Cancon, Economics, Politics — Tags: , , , , — Nicholas @ 05:00

Colby Cosh saddles up old Rocinante and has a tilt at the ludicrous supply management regime in milk:

You remember how Chobani, a hipster yogurt business based in New York state, got a temporary permit to sell the product in Ontario and won over customers. You know how it tried to meet our supply-managed dairy system halfway by making plans for a factory in Kingston. You know how milk processors waged berserker war in court to prevent the permit from being renewed, and closed ranks to deny the company a supply of Canadian milk.

And, most of all, you know how the product disappeared from our shelves, how Canadians still seek it out on cross-border trips, and how slow and confused the dairy cartel was about meeting the new demand for extra-heavy yogurt. None of this is going to be too easy to explain to a four-year-old.

I hasten to add that I am not seriously playing the “Won’t someone think of the children” card so beloved of politicians, newspaper columnists, and other shameless scum. The four-year-old will get over it. She’ll grow up in a free-trade Canada in which she does not have to accept a world of consumer second-bests, simulacra, and make-dos, except possibly in the dairy section. She can have no personal memory of Seventies Canada — never know what it is like to switch from Eaton’s to The Bay just to buy slightly different versions of the same low-quality, unfashionable crap. The question I grew up with was “Why does Canada have seemingly permanent poorer living standards than the U.S.?”; now it is just “Why are the cheese sections in our grocery stores so pathetic?”

So, Mad Max to the rescue? Not if champion protectionist Steven Blaney can stop him:

… supply management froze the world of Canadian dairying at a perfect moment for Quebec, and so the system has become a sacred cow made of other, literal cows. Because economists and intellectuals know that supply management is a transfer of wealth from consumers of all classes to a few thousand affluent farmers, the beneficiaries reinvest a great deal of the profit in hapless, defensive public-relations efforts that only tend to make us loathe them more.

They have even found a political champion in Steven Blaney, the cadaverous oddball from the Eastern Townships who is in the Conservative leadership race to play milk spoiler to fellow Quebecer Maxime Bernier. Bernier wants to retire supply management by buying farmers out of their quotas with a national tax on dairy, lasting for a fixed period.

This is a generous approach to free trade in dairy: it is a buyout of unearned entitlements. Producers who want to leave the industry would do so with an enormous grubstake — the kind of which workers laid off from regular jobs can only dream. Those who hang in there would get to keep something like the present value of their annulled production quotas as they face new careers in an honest-to-God marketplace (which is what some of them very much wish to do).

QotD: Free trade versus freer trade

Filed under: Economics, Quotations — Tags: , , , — Nicholas @ 01:00

No trade agreement is necessary for a government to adopt this ideal policy [true free trade]. And because real-world trade agreements universally fail to achieve complete free trade, real-world trade agreements are universally less than ideal. Each such agreement can and should be criticized for failing to achieve an ideal that is economically not only possible, but easily economically possible and immensely beneficial.

But political realities being unavoidable – and freer trade being superior to not-freer trade – freer trade is an acceptable real-world outcome. In my assessment (as in the assessment of many others), most so-called free-trade agreements make trade freer. (A more-accurate name for them would be “freer-trade agreements.”) And for this reason such agreements deserve the support of proponents of free markets if the only plausible option is the status quo of not-freer trade.

For free-market proponents to oppose freer trade because it isn’t fully free trade is akin to opposing cuts in marginal tax rates because the proposed cuts don’t eliminate taxes altogether. It’s akin to opposing legalization of marijuana if not all drugs are legalized. Or akin to a refusal to join with, or to support, those who oppose raising the minimum wage on the grounds that those opponents aren’t actively working for a complete abolition of minimum wages.

It is true that NAFTA, WTO agreements, TPP, and other such bilateral and multilateral freer-trade agreements leave in place many trade barriers and specify the always-too-slow timing of tariff reductions. But these arrangements are no more instruments of “managed trade” than are government policies that prohibit the sale of some drugs, sex, and body organs – and impose taxes on the sales of all other goods, – instruments of “managed consumption.” While I argue for eliminating all of these promotions and taxes, if such elimination isn’t politically feasible, then any move to reduce the number of prohibitions and the rate of taxation will make market freer and, hence, worthy of the support of proponents of free markets.

Don Boudreaux, “Bonus Quotation of the Day…”, Café Hayek, 2016-11-22.

February 11, 2017

Ici Londres: Protectionism never works

Filed under: Economics — Tags: , , — Nicholas @ 02:00

Published on Feb 8, 2017

February 8, 2017

Seeing the elephant (economic edition)

Filed under: Cancon, Economics, Politics, USA — Tags: , , , , — Nicholas @ 04:00

Stephen Gordon says it’s a dangerous fantasy to think that the Canadian economy could cope with a Prime Minister who tries to “get tough” over Il Donalduce‘s trade concerns:

Pierre Trudeau once described the Canadian relationship with the United States as “like sleeping with an elephant. No matter how friendly and even-tempered the beast … one is affected by every twitch and grunt.” It is now Prime Minister Justin Trudeau’s bad luck – and ours – to be bunking down with a surly and irascible elephant.

It’s worth dwelling on just how asymmetric the economic relationship is between Canada and the United States. It’s sometimes pointed out that Canada is the largest market for U.S. exports, and that’s true as far as it goes. But U.S. dependence on the Canadian export market is an order of magnitude smaller than Canadian dependence on exports to the U.S. Exports of goods and services to the U.S. accounted for 22.8 per cent of Canadian GDP in 2015; U.S. exports to Canada were only 1.9 per cent of U.S. GDP.

There’s not much that could or should have been done to reduce this dependence on the U.S. market. All the factors that determine the volume of trade flows — physical proximity, market size, linguistic and cultural ties, similar legal systems and so forth — all point to the U.S. It’s always been a good idea to promote trade links with other countries, but the U.S. would still be our dominant export market even in a world in which the Comprehensive Economic and Trade Agreement and the Trans-Pacific Partnership were already in place.

So it really doesn’t make sense to think that a Canadian Prime Minister can “stand up” and “fight back” against U.S. sanctions, or that Canada’s bargaining position would be somehow strengthened if another person were running the government. The trade numbers would still be the same.

February 4, 2017

“Buy American!” is great politics, but terrible economics

Filed under: Business, Economics, Politics, USA — Tags: , , — Nicholas @ 03:00

Colin McNickle explains why protectionist policies like “Buy American” are good for politicians but bad for producers and consumers:

Lost in all the rah-rah-sis-boom-bah-ing of President Trump wanting to use American steel only in the Keystone XL, Dakota Access and other U.S. oil pipelines is this fundamental economic fact:

The price of that steel will be higher. In some cases, markedly so. And we all will be made poorer. Not in effect, but actually.

How so?

As Hoover Institution scholar David R. Henderson once explained it:

“Almost all economists say [‘Buy American’ is] nonsense. And the reason is: We should buy things where they’re the cheapest. That frees up more of our resources to buy other things, and other Americans get jobs producing those things.”

The “problem” of other countries selling goods at or below cost (in other words, making part of the value of the good a gift to the purchaser) is only a problem for uneconomic domestic producers … it’s great for consumers of that good:

… as Tori K. Whiting, a trade and economics scholar at the Heritage Foundation, reminded in September:

“In response to alleged unfair trade practices, domestic steel producers are advocating for broad import restraints and immediate action by the U.S. government to protect the domestic industry. …

“The U.S. manufacturing and construction industries rely on domestic and foreign steel to create finished products. Tariffs on steel imports limit choices and increase costs for these industries. Those costs are ultimately borne by American consumers and act as a tax on everyday goods made from steel,” she reminded.

And as fellow Heritage legal scholar Alden Abbott added, “(A)nti-dumping is in fact a form of special interest cronyism that imposes high costs on Americans and thwarts beneficial competition.”

“Buy American” makes for great political rhetoric. But the reality is that most Americans would find their pocketbooks heavily pinched if the practice became pervasive and America’s overall standard of living would fall.

January 26, 2017

Autarky is not the answer

Filed under: Economics, History, Japan, USA, WW2 — Tags: , , — Nicholas @ 02:00

Warren Meyer on the idiocy of Trump’s economic nationalist notions:

Think about the corollary of Trump’s economic nationalism, particularly if everyone followed this same approach. If one skews all the rules and taxes and prohibitions so everything must be sourced domestically, then if a country does not have some particular resource or skill domestically, it is out of luck. No domestic rare earth metals? Sorry.

But governments and powerful people seldom calmly accept that something they critically need is not available. They will be tempted to go and take it. The worst, most violent empire building of the last 100-150 years has occurred when countries have pursued economic nationalism. Think of the colonialism of the late 19th century. Today we happily trade with South Africa and other countries for valuable resources, but in that time of economic nationalism, if a country wanted access to these resources, it felt it had to control the land and the people. Hitler in the 1930’s wanted to make Germany self-sufficient in agricultural goods and certain other resources, and the only way to do that was to go and grab other people’s land and resources.

The best example of all of this phenomenon is, I think, Japan in the 1930’s. Japan felt that it was resource poor and under Trump’s theory of economic nationalism, it felt it had to control oil and other resources it did not have domestically. So it plotted to go take it. When the US instituted a trade embargo in these very goods to punish Japan’s aggressiveness in China, it just accelerated Japan’s thinking in this area, convincing it for good it had to control these resources, and it was soon invading the oil-rich islands of what is now Indonesia. This example is all the more telling because Japan actually found true prosperity after the war when it traded peacefully for these resources. Unfortunately, it adopted economic nationalism, via MITI, of another form and helped manage themselves into a 20-year recession, but that is another trade-related story for another day.

January 25, 2017

Protectionism can save jobs … at the cost of even more jobs than it “saves”

Filed under: Business, Economics, USA — Tags: , , , — Nicholas @ 03:00

Mark Perry provides some context to the claim that protectionist policies can save American jobs:

According to Team Trump’s website, we’re told that “blue-collar towns and cities have watched their factories close and good-paying jobs move overseas, while Americans face a mounting trade deficit and a devastated manufacturing base. By fighting for fair but tough trade deals, we can bring jobs back to America’s shores, increase wages, and support U.S. manufacturing.”

Actually, it’s been capital investments in labor-saving technologies like robotics and increasing worker productivity that have led to the large majority of US factory job losses, not trade or outsourcing, as I documented recently here. And there’s been no devastation of America’s manufacturing base; to the contrary, real US manufacturing output has reached all-time high levels in recent quarters.

What’s Trump’s solution to the loss of US manufacturing jobs? America’s “first authentic protectionist to win the White House since the 1920s” has outlined a series of protectionist trade measures including tariffs (30-40-50%), “tougher trade deals” (likely trade deals to protect US manufacturers from foreign competition), “Buy American” policies, and border adjustment taxes, among other strategies to “save American jobs.”

Here’s a relevant question to ask: How have protectionist trade policies in the past worked out for the US economy and how expensive is it to save American jobs with the protectionist trade policies Trump is proposing? We can find some answers to those questions in a Federal Reserve Bank of St. Louis research article published in 1988 by three economists “Protectionist Trade Policies: A Survey of Theory, Evidence and Rationale,” which presented a summary of the empirical evidence on trade protectionism from the 1986 book published by the Institute for International Economics Trade Protection in the United States: 31 Case Studies. Even though the research and empirical results are from the 1980s, this article and book provide useful empirical evidence on the costs of protectionism to bring some much-needed sanity to the debate on trade policy to counterbalance the favorable treatment being given to protectionism these days.

Click to see full-size table.

January 21, 2017

Trump and libertarian concerns

Filed under: Government, Liberty, USA — Tags: , , , , , — Nicholas @ 03:00

At Reason, Peter Suderman can only come up with nine reasons for libertarians to be worried about Il Donalduce‘s new regime:

Here are nine reasons why libertarians should be very concerned about a Trump presidency:

1) He has repeatedly promised to deport 11 million undocumented immigrants upon taking office, relying on a “special deportation force” to carry out the task. And even in the occasional moments in which he has seemed to recognize that this task would be logistically impossible, he has continued to insist that he will deport several million people right away, and that other undocumented immigrants who are in the country will not have a path to citizenship unless they leave the country first.

2) More generally, Trump’s attitude toward immigrants and outsiders ranges from disdain to outright hostility. He has called for a ban on Muslim immigration and the closure of mosques, and he opened his primary campaign by declaring that Mexican immigrants to the U.S. were rapists and criminals.

3) Trump has also promised to build a massive, expensive wall along the southern border, and has insisted that Mexico will pay for its construction, an absurd notion that is already crumbling, as the incoming administration has asked Congress, not Mexico, to pay for the wall.

4) Trump has made clear that his administration will take a much more aggressive stance on trade as well. During the campaign, he floated the idea of a 45 percent tariff on Chinese goods, which would be deeply harmful to consumers and the U.S. economy. Since winning the election, his administration has raised the possibility of a 10 percent tariff on all imports, a policy that could spark a global recession. After winning in November, he said he would pull the nation out of the Trans-Pacific Partnership trade agreement on day one of his presidency.

On the other hand, Nick Gillespie and Veronique de Rugy are a bit more upbeat about libertarian causes in Trump’s America:

Donald Trump is nobody’s idea of a libertarian but his presidency provides a tremendous opportunity to advance libertarian policies, outcomes, and aspirations in our politics and broader culture. Those of us who believe in reducing the size, scope, and spending of the federal government and expanding the autonomy, opportunities, and ability of people to live however they choose should welcome the Trump era. That’s not because of the new president’s agenda but because he enters office as the man who will inevitably close out a failing 20th-century model of governance.

Liberal, conservative, libertarian: We all understand that whatever the merits of the great political, economic, and cultural institutions of the last 70 years — the welfare state built on unsustainable entitlement spending; a military that spends more and more and succeeds less and less; the giant corporations (ATT, IBM, General Motors) that were “beyond” market forces until they weren’t; rigid social conventions that sorted people into stultifying binaries (black and white, male and female, straight and mentally ill) — these are everywhere in ruins or retreat.

The taxi cab — a paradigmatic blending of private enterprise and state power in a system that increasingly serves no one well — is replaced by ride-sharing services that are endlessly innovative, safer, and self-regulating. Libertarian Party presidential candidate Gary Johnson’s campaign slogan — Uber everything — was the one self-evident truth uttered throughout the 2016 campaign. All aspects of our lives are being remade according to a new, inherently libertarian operating system that empowers individuals and groups to pursue whatever experiments in living they want. As one of us (Nick Gillespie) wrote with Matt Welch in The Declaration of Independents, the loosening of controls in our commercial, cultural, and personal lives has consistently enriched our world. The sharing economy, 3D printing and instantaneous global communication means businesses grow, flourish, adapt, and die in ways that perfectly fulfill Schumpeterian creative destruction. We live in a world where consuming art, music, video, text, and other forms of creative expression is its own form or production and allows us to connect in lateral rather than hierarchical ways. Pernicious racial and ethnic categories persist but they have been mostly supplanted by a tolerance and a level of lived pluralism that was unimaginable even 20 years ago, when less than [50%] of Americans approved of interracial marriages. Politics, Welch and Gillespie wrote, is a lagging indicator of where America is already heading and in many cases has already arrived.

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