by | BLOG, BUSINESS, ECONOMY
Don Boudreaux is one of the authors of Cafe Hayek, a fantastic, long-running newsletter on economics. If you aren’t reading it, you should. Below is his short and marvelous analogy, “Trade is a Technology.” I have reproduced it below.
“You ask: “What is the shortest best way to prove the case for trade freedom?”
I’m afraid that no such proof is possible. Ultimately the decision to support or oppose free trade rests on a value judgment. That free trade is the best, or even an acceptable, policy cannot be established in the same way that we can establish the truth of the Pythagorean theorem. There are, however, arguments to be made that reveal surprising, attractive powers of free trade – arguments that, when presented amicably, are effective in opening people’s eyes to important and beautiful aspects of trade. I encourage you to read carefully Frédéric Bastiat’s Economic Sophisms; in it you’ll find unmatched brilliance at exposing fallacies that infect the case for protectionism. Read also Russell Roberts’s The Choice, Doug Irwin’s Free Trade Under Fire, Dan Griswold’s Mad About Trade, and Pierre Lemieux’s What’s Wrong With Protectionism?
But let me offer one argument for trade that satisfies at least your criterion for ‘short.’ It’s this: trade is a technology that enables human beings to transform almost anything into almost anything else. You produce whatever you choose to produce and then exchange that output for whatever it is you wish to acquire. You can today produce outputs different from those that you produced yesterday and still acquire today the same things that you acquired yesterday. Or you can produce today the same things that you produced yesterday, yet transform those outputs today into things different from those that you acquired yesterday.
Trade truly is a marvelous technology! If trade were an actual, physical machine it would be hailed as one of the greatest inventions of all time. And so when government restricts your ability to transform what you produce into outputs produced by foreigners, government artificially restricts the operation of this technology. Protectionism is akin to sabotaging a machine. (In fact, at work here are real machines: cargo ships, which are effectively sabotaged by protectionism.) We recognize that such sabotage is destructive when done to the likes of factories, tractors, trucks, and computers. We should recognize also that it’s destructive when done to trade.”
Sincerely,
Donald J. Boudreaux
Professor of Economics
by | ECONOMY, TAXES
In the WSJ this week, Phill Gramm and Don Boudreaux do an excellent job detailing the devastating effects Trump’s tariffs have had on the American economy. How can protectionists like Trump and his allies not understand that tariffs are destructive? A tariff is basically a tax on imports. It is championed as a means to boost domestic production and government revenue, but this is far from economic reality. Tariffs clearly and consistently hurt the consumer and taxpayer by driving costs up to everybody in amounts far in excess of any short term benefits.
Tariffs add to inflation and put American companies at a disadvantage because foreign countries can (and do) retaliate by putting their own tariffs on our exports. This slows manufacturing growth, increases prices, and makes the economy more sluggish. On the other hand, free trade creates better choices for consumers and more global opportunities for American companies, resulting in lower costs and an expanded job market.
To suggest a tariff is a pro-growth economic policy is utterly ridiculous. Tariffs don’t strengthen American manufacturers; they are cronyism of the highest order. Protectionists are economically ignorant and tariffs have proven (yet again) to be disastrous for our economy.
by | BLOG, ECONOMY
Maritime unions have a long history of lobbying for rules and regulations, stifling innovation, and sabotaging operations, all in the name of benefiting their members. The most recent example of this is the tension between employers and the International Longshore and Warehouse Union (ILWU) at the West Coast ports of Los Angeles and Long Beach, which serve as the busiest gateways for imported consumer goods in the United States. The ILWU’s impact is particularly strong because it controls virtually all longshore labor for all West Coast ports. Maritime unions are the reason why, despite being the number one global superpower, America consistently ranks like third world countries, behind Asian nations and other Western countries in terms of shipping efficiency on a global scale.
Maritime unions have a unique history that continues to contribute to their strength today. In the past, life on a ship was unlike any other form of private employment. Captains held significant power, acting as legal judges, juries, and executioners while at sea. They had the authority to administer corporal punishment until the 1890s. However, as the old adage goes, power corrupts, and absolute power corrupts absolutely. Now, maritime unions have the nation’s economy in a devastating stranglehold.
Unionized dockworkers in U.S. ports are open for fewer hours per week than virtually every other port around the world, due to labor contracts. Secondly, the cost is significantly prohibitive, a west coast union dock worker makes an average $171,000/year plus free healthcare. Lastly, and arguably the most damning is unions have fought for decades to stop automation and modernization. They’re also fighting automation on ships too, refusing to service vessels that reduce crew size and increase efficiency via automation.
Maritime unions’ have killed the shipping industry. The 2020 World Bank/IHS Markit “Container Port Performance Index” revealed that none of the U.S. ports made it into the top 50 global ports for efficient ship handling. Among U.S. ports, Philadelphia ranked the highest statistically at 83, followed by Virginia at 85 and NY/NJ at 89. Oakland secured the 332nd position, while LA/LB disappointingly ranked at 328 and 333, respectively.
These negotiation issues are further exacerbated by the current Biden administration’s refusal to acknowledge the crippling monopoly power granted to maritime unions. Allowing maritime unions to continue holding America’s shipping industry hostage will only widen the growing gap between us and the rest of the world.
by | ARTICLES, BLOG, ECONOMY, NEWS
Robert Poole, Director of Transportation Policy over at the Reason Foundation, does as decent job laying out “the case for changing the way air traffic control is provided in the United States.” He points out that many major countries have changed the way air traffic control systems are funded in recent years, and the United States should consider adopting some form of their models. This is a thoughtful piece and well worth the read. I have included it below as well as his full pdf report.
“This report provides an overview of the case for changing the way air traffic control is provided in the United States. While this country still has the world’s largest air traffic control system, it is no longer the world’s most advanced. Over the past three decades, more than 60 developed countries have converted their air traffic control systems from tax-funded government agencies to some form of public utility. These countries include Australia, Canada, Germany, Italy, New Zealand, and the United Kingdom.
This idea has been proposed many times in the United States, dating back to the 1970s. The Clinton administration made several large-scale attempts that led to only minor reforms in how the Federal Aviation Administration operates the air traffic control system. The Federal Aviation Administration (FAA) attempted funding reform during the George W. Bush administration but was unsuccessful.
Research papers and several book-length studies find that the utility model, in which the air traffic control provider is paid directly by its customers and is able to issue long-term revenue bonds for large-scale facility and equipment modernization, works better than tax-supported systems operated as government agencies.
A much larger effort began during the Obama administration and continued in the Trump administration, driven largely by the business community and various aviation stakeholder groups. It led to the House Transportation & Infrastructure Committee twice approving enabling legislation for an air traffic control utility corporation, but neither bill reached the House floor.
Recent air traffic problems—the NOTAM fiasco, a spate of close-call runway incursions, and FAA’s inability to implement digital/remote control towers as air traffic control utilities in other countries are doing—have raised new interest in air traffic control reform in this year when FAA must be reauthorized by Congress.
The 2018 defeat appeared to foreclose further attempts at creating a U.S. air traffic control utility for the duration of the five-year FAA reauthorization period. With so many topics on its agenda and very limited floor time, any stand-alone air traffic control bill apart from the next FAA reauthorization bill would have been highly unlikely.
The 2013–2018 air traffic control reform effort garnered much greater support than any previous effort. Openly supporting the bill were all the major passenger and cargo airlines, controllers’ union Nair traffic controlA, unions representing pilots and flight attendants, six former U.S. Department of Transportation secretaries, all three former chief operating officers of the Air Traffic Organization, 13 former senior Clinton administration officials, transportation experts from a long list of noted think tanks, taxpayer and consumer groups, and the editorial boards of many leading newspapers,including the Chicago Tribune, Miami Herald, Orlando Sentinel, The Wall Street Journal, Washington Post, and USA Today.
Unfortunately, there was never a real, substantive debate on the case for an air traffic control utility corporation. Instead, a propaganda war largely bankrolled by business jet organization the National Business Aviation Association (NBAA) made untrue allegations and stepped up its opposition efforts after the bill had been revised to reflect legitimate concerns of general aviation, small airports, and rural America. Thus, while the United States retains the world’s largest air traffic control system, it also remains an outlier as:
- The only developed country that is not charging airspace users for air traffic control services;
- One of the few that still has not separated safety regulation from air traffic control service provision; and,
- A major nation whose air traffic control provider still has difficulty developing and implementing new technology and procedures in a timely and cost-effective manner.
Nevertheless, the debate has moved significantly in the direction of corporatization. In the 1970s and 1980s, it was widely assumed that the provision of air traffic control services was inherently governmental, since this service was provided by national governments in nearly all countries during those decades. The idea of separating aviation safety regulation from the provision of air traffic control services was unheard of.
Today, the inherent conflict of interest in having the same agency do both is recognized by the International Civil Aviation Organization (ICAO) and has become non-standard in practice world wide.
Second, the importance of a self-supporting utility model for air traffic control is now widely understood and in operation in more than 60 countries. Prior to the emergence of air traffic control utilities beginning in 1987, most governments already charged air traffic control fees, mostly in accord with ICAO charging principles, but the revenues went into the national government’s coffers, to be allocated to whatever purposes the national legislative body decided upon.
The move toward self-supporting air traffic control utilities has created a worthwhile customer/provider relationship that replaces the air traffic control provider’s dependence on politically determined funding. The self-supporting model also permits the issuance of revenue bonds to finance long-lived capital modernization efforts, which was not possible prior to self- support, since the air traffic control user fee revenues belonged to the national government, not the air traffic control provider.
Third, we have seen empirical evidence of a changed organizational culture in many of the ATC corporations. They are generally able to hire and retain experienced managers, engineers, and software experts, thereby regaining control of technology development from aerospace companies on whom they were formerly overly dependent. This is leading to reductions in overhead costs, more cost-effective technology improvements, and increases in productivity.
Governance is still a work in progress, with many of the government corporations being dependent on one or two government shareholders. By contrast, the stakeholder board concept has proved workable and effective for more than two decades at Nav Canada, the world’s second-largest air traffic control provider and widely considered one of the best. A governing board representing all the principal aviation stakeholders gives the air traffic control provider a governance model much like the user cooperative model well-known in the rural utilities sector in the United States. It is a model that may offer governance improvements to many air traffic control providers currently organized as government corporations.
To sum up, the world of air traffic control has changed markedly in the decades since the corporatization of Airways New Zealand in 1987. The United States is the last major country that stands apart from this reform. It is conceivable that the growing track record of self-supporting air traffic control corporations will lead to some version of this model being adopted in the United States within the next decade.”
Get the report here
by | BLOG, ECONOMY, GOVERNMENT
The news coming out of the science world regarding the breakthrough in fusion is exciting. The ability to have a sustaining clean energy source has been a part of science research for at least the last 60 years. But missed in the discussion is its true importance – that the movements towards wind and solar energy (“wse”) are just a waste.
The drawbacks and costs of using wse to produce low carbon energy are well known. They are expensive, unreliable, and environmentally damaging (using toxic metals, huge amounts of space, etc). Use of wse will diminish global economies by trillions of dollars hurting poor people and countries most of all. And in the end, even under the most austere de-carbonization policies, the effects on actual temperature reduction will only be a fraction of a degree.
But we have been told that in order to have any chance of saving the planet by reducing CO2, , we must go in this direction. In other words, if climate change is an existential threat, there’s nothing else we can do — we have to do it or else the world will be destroyed. Right?
Wrong. How stupid are we all going to feel if we spend the next decades destroying economies worldwide through unsound green policies only to discover that cold fusion (or some other non carbon energy source) made those policies just useless!
At the start of the twentieth century. New York City thought it was going to be destroyed by horse manure. Indeed, in 1898, the first international urban-planning conference took place in the city. It only lasted three days instead of ten, because no one in attendance could come up with a viable solution to the massive, growing amount of horse manure that was produced in the city. At the time, roughly 100,000 horses created 2.5 million pounds per day of manure. NYC was not the only city facing such a problem. Just a few years earlier, the Time of London carried an article in which its author forecasted that in “50 years every street in London would be buried under nine feet of manure.”
But the manure problem was solved not by efficient waste removal policies – it was solved by the automobile. No one anticipated that the cure for the manure was not horse-related; it was a new invention. All the time and energy spent fixing the manure problem was all for naught.
Perhaps it’s not worth going through all this green policy, expending trillions of dollars and upending economies, if in 10-15 years we have cold fusion or another non-carbon energy source. Human ingenuity has always been the source of the solutions. Fossil fuels itself was the solution to inefficient energy sources of its day. Wouldn’t it be that much more rational to spend money on new energy sources instead of wse? Bjorn Lomborg, among many others, have been advocating this for years.
Nuclear fusion, the combining of hydrogen atoms to produce tremendous amounts of clean energy, is the real solution for the green movement.
by | BLOG, ECONOMY
A recent article in the WSJ, “Is the U.S. Moving On From Free Trade? Industrial Policy Comes Full Circle” should have ultimately been an Op-Ed because it was a baseless attack on the concept of free-trade. It starts out okay, pointing out that free markets, free trade and globalization have been the bedrock of a healthy US economy, especially since WWII. But then the author ignorantly blathers on and ultimately concludes that globalization based on neoclassical free-trade doctrine is wrong.
After World War II, government spending (military, etc.) dried up overnight. But it was a free-market, non-coercive environment at the time that allowed private investment to flourish and more than make up for the decline in government spending. What we currently have is a problem caused by runaway government spending. Government spending wholeheartedly crowds out private spending, substituting inefficient political and crony-based spending for free-market, give-the-public-what-they-want spending.
Likewise, economically stupid policies like tariffs against China were instituted and have yet to be repealed. Tariffs clearly and consistently hurt the consumer and taxpayer by driving costs up to everybody in amounts far in excess of any benefits given to those crony beneficiary companies. They don’t strengthen American manufacturers; it is cronyism of the highest order.
One of the most important takeaways from the COVID affair is the clear evidence of how critically important free markets are. While the free market developed workarounds for providing necessities and developing relevant new products, the government couldn’t get out of its own way in terms of what it was trying to do, while an overabundance of regulations hampered its responsiveness.
Trying to suggest that more government intervention in the economy is the solution and not the problem clearly is economically ignorant.
by | BIDEN, BLOG, ECONOMY, ELECTIONS, LAW, POTUS, SOCIAL SECURITY
In a now-deleted Tweet written a week before midterms, President Biden tried to take credit for the Social Security increases that recipients will receive in 2023. The White House twitter account gleefully announced that “Seniors are getting the biggest increase in their Social Security checks in 10 years through President Biden’s leadership.”
The problem is that Social Security increases are based on a formula known as COLA, or cost-of-living adjustment, which measures inflation and the Consumer Price Index. The CPI was up 8.7% in the year-over-year comparison and therefore, seniors will receive an 8.7% adjustment.
It’s worth it to note that this increase is actually the largest since 1981, not just 10 years, because inflation is the worst it has been in four decades. One could argue that indeed it is his leadership (via his atrocious economic policies, mind you) that is the basis for the escalation in prices. But COLA increases and decreases have been tied to the CPI since the 1970s. That’s the law, not the President.
by | BIDEN, BLOG, ECONOMY, HYPOCRISY
Biden told one of the biggest whoppers of his presidency during a speech today when he went after oil and gas companies and accused them of “war profiteering” after companies posted record profits. But what he purposefully left out was the fact that his own war on energy has directly contributed to the situation. Don’t forget that Biden once vowed to “end fossil fuels”.
It is laughable that Biden chastised Exxon, Shell, and other companies, saying “They have a responsibility to act in the interest of their consumers, their community and their country, to invest in America by increasing production and refining capacity” when one of his very first acts of his presidency was to cancel the permit on the Keystone pipeline so that it came to a screeching halt.
One week after taking office, he delivered on his campaign promises to ban “new oil and gas permitting on public lands and waters” by signing an Executive Order doing just that.
Emboldened by Biden’s alternative energy push, three Democrats submitted the “Fossil Free Finance Act” to Congress in September 2021, which would have ordered “the Fed to take unprecedented steps meant to steer financial support away from oil, gas, coal and companies by unraveling banks who refuse to comply.”
Likewise, Biden pushed for Sarah Bloom Raskin to be named to the Federal Reserve Board until she withdrew her nomination in March 2022. Raskin’s vision was that financial regulators move toward policies that will “allocate capital and align portfolios toward sustainable investments that do not depend on carbon and fossil fuels.”
If there is any actual “war profiteering,” it’s the war on fossil fuels Biden and the Democrats have been waging, causing oil and gas companies to change their investment strategies since they have been stymied by this administration since day one.
Even worse, Biden continued his war by threatening to impose a new tax on excess earnings if companies don’t start investing and lowering prices, saying, “if they don’t, they’re going to pay a higher tax on their excess profits and face other restrictions.” But such a tax, should it come to fruition, would actually discourage investment in new production, thereby exacerbating the very problem that Biden himself has manufactured!
After two years of demonizing the oil and gas industry and choking off new growth, Biden now wants to blame them for higher energy prices. But who in their right mind would invest in such an odious (and now economically risky) environment? This is exactly what Biden wanted, except now it is threatening the Democrats’ standings in the upcoming midterm elections.
by | ARTICLES, BLOG, BUSINESS, ECONOMY
Though the head of JP Morgan Chase feels that the economy is still doing okay, he foresees a recession in 6-9 months. This is due in part to “the impact of runaway inflation, interest rates going up more than expected, the unknown effects of quantitative tightening and Russia’s war in Ukraine.” He further implored that the Fed “waited too long and did too little” as inflation increased to its highest rate in 40 years. Though they are aggressively raising rates now to curb inflation, raising them too much too fast can also cause problems. The Fed is widely expected to raise the rate another 3/4 point at its next meeting in a few weeks.
by | ARTICLES, BIDEN, BLOG, ECONOMY
What is happening, as demonstrated by the Census, is that the government largess is taking some people out of poverty, but it is having an even greater and more dangerously perverse effect. It’s making people overall worse economically and preventing them from moving up to the middle class while expanding the lower levels and destroying a generation of minorities. Biden is the poster child for the very people he’s supposed to be helping and he’s made it worse for them. This article in the WSJ, “How Welfare Left Americans Poorer” explains the terrible and true cost of transfer payments. I have reproduced it below.
The Census Bureau released its 2021 income report Tuesday, and the political spin is that unprecedented pandemic transfer payments lifted millions out of poverty. It’s more accurate to say that most Americans are worse off than before the pandemic owing in part to . . . unprecedented transfer payments.
Lifting government lockdowns last year should have caused millions of Americans to return to work and raised average incomes. That didn’t happen. Real median pre-tax household income fell $402 last year to $70,784 and was $2,024 lower than in 2019. The total number of workers didn’t budge between 2020 and 2021.
Millions of Americans whose hours were cut during lockdowns did return to full-time work, but many laid-off Americans stayed home. The number of full-time, year-round workers increased by 11.1 million last year, but their real median earnings declined 4.1%.
Rising prices (see nearby) may have reduced the incentive to work as the purchasing power of paychecks declined. But the Census report also underscores the outsize effects of the March 2021 $1.9 trillion spending bill, which helped drive the “supplemental” poverty measure (which accounts for transfer payments) to a record low even though the official poverty rate didn’t improve.
The $300 a week unemployment benefit boost finally lapsed last September, but transfer payments on the whole grew last year. These included the $3,600 child tax credit; $1,400 payments for each adult and child; food stamps averaging about $230 a person a month; expanded Affordable Care Act (ACA) premium subsidies, and more.
The ACA subsidy enhancement, in particular, has enabled pre-Medicare age Americans to retire early. Adding up all of last year’s government largesse, a lower-income family with two young children would have received nearly $24,000 in “free” cash, which doesn’t even include the cost of government health coverage.
We’ve written about how a March 2020 law restricts states from ending Medicaid for people no longer financially eligible as long as the national pandemic emergency is in effect. The same law suspended food stamp work requirements and raised benefits. When leisure pays as much as work, fewer work.
Democrats highlight the Census Bureau’s finding that 1.1 million fewer Americans were without health insurance last year than in 2020. But the bigger story was the shift from private to government health coverage. The number of people with private plans fell by 1.5 million while enrollment in Medicaid increased by 3.2 million and Medicare by 1.7 million.
This underscores warnings that Medicaid and ACA subsidy expansions might induce small employers to drop coverage, especially as they have to pay more to attract workers. Medicaid spending has increased by about a third during the pandemic and amounted to $33,000 last year for each new Medicaid enrollee.
Government had to support struggling Americans when government shut down the economy in 2020. But Democrats used Covid to expand the welfare state long after the crisis has passed. Americans are paying for it via inflation that has eroded their incomes.
Real median post-tax income including transfer payments declined last year by 1% for all households, 2.9% for those without children and 4.2% for seniors. Most Americans are worse off than they would have been had that $1.9 trillion bill never passed.
