Reason Foundation - Policy Areas (Reason Foundation) Endangered Species and the Export-Import Bank <p>In an interesting twist, the Endangered Species Act may prevent the U.S. government from subsidizing an iron ore mine in Australia.&nbsp; Three U.S. environmental pressure groups <a href="">are challenging</a> the decision by the U.S. Export-Import Bank to provide a loan to the Roy Hill iron ore mine project in Western Australia.&nbsp; If the challenge is successful, the loan may be withdrawn.</p> <p>The link between the Endangered Species Act and the Export-Import Bank is that under the Act federal agencies are required to assess whether their actions will negatively impact endangered and threatened species, including the 628 foreign species currently listed.&nbsp; If there are negative impacts, then the proposed action, such as loan for the iron mine, can be terminated for being in violation of the Act.&nbsp; Several environmental pressure groups claim the port being built by the mine's owners to export the iron ore will negatively impact a number of endangered species, including<a href=""> sea turtles, the saltwater crocodile and dugong</a> (a relative of the manatee).</p> <p>The Export-Import Bank approved the loan because the mine's owners have agreed to purchase U.S. mining equipment, such as giant dump trucks from Caterpillar and rail equipment from General Electric, and this is supposedly good for the U.S. economy.&nbsp; In reality, the Export Import Bank is a prime example of corporate welfare, as Reason has detailed&nbsp;<a href="">here</a> and <a href="">here</a>, as well as cronyism because powerful, politically connected companies tilt the process in their favor to the detriment of less powerful companies.&nbsp; In the case of the Australian mine, Cliffs Natural Resources, which owns four iron ore mines in Minnesota and Michigan, opposed the Export-Import Bank loan because it would undercut their operations and&nbsp;<a href="">cost an estimated $1.8 billion to the U.S. iron ore industry</a> over the eight-year life span of the loan.&nbsp; Such is the zero-sum game of the Export-Import Bank and the government picking winners instead of the marketplace.</p> <p>If projects like the Australian mine are such good opportunities for U.S. corporations to make money, then let them assume the risks, not U.S. taxpayers who are on the hook if Export Import Bank loans go bad.&nbsp; It's also strange that the $694 million Export Import Bank loan is being&nbsp;<a href="">portrayed by mine proponents</a> as jeopardizing the future of the mine, when it's only a relatively small part of the $7 billion the mine's owners are trying to raise.</p> <p>With the Export Import Bank's charter due to expire in September, there is increasing pressure to abolish the Bank from across the political spectrum, including Republicans like <a href="">Representative Jeb Hensarling of Texas</a> and <a href="">Senator Mike Lee of Utah</a>,&nbsp; to Democrats such as <a href="">Senator Elizabeth Warren of Massachusetts</a>, and <a href="">Senator Bernie Sanders of Vermont</a>, who is an Independent but usually votes with Democrats.&nbsp; While opposition to the Export-Import Bank tends to come from those against of corporate welfare, such as <a href="">Ralph Nader</a>, and fiscal conservatives, including a <a href="">coalition led by Americans for Prosperity</a>, the loan for the Australian iron mine shows that opposition can come from unusual sources, including environmental pressure groups wielding the much-feared Endangered Species Act.</p> 1013932@ Thu, 17 Jul 2014 11:53:00 EDT (Brian Seasholes) We Must Take UNâ??s Internet Grab Seriously <p>Thanks to our friends Jerry Brito and Eli Dourado at George Mason University's Mercatus Center, and the anonymous individual who leaked a key planning document for the International Telecommunication Union's <a href="">World Conference on International Telecommunications (WCIT)</a> on Jerry and Eli's inspired <a href=""></a> site, we now have a clearer view of what a handful of regimes hope to accomplish at WCIT, scheduled for December in Dubai, U.A.E.</p> <p class="MsoNormal">Although there is some danger of oversimplification, essentially a number of member states in the ITU, an arm of the United Nations, are pushing for an international treaty that will give their governments a much more powerful role in the architecture of the Internet and economics of the cross-border interconnection. Dispensing with the fancy words, it represents a desperate, last ditch effort by several authoritarian nations to regain control of their national telecommunications infrastructure and operations</p> <p class="MsoNormal">A little history may help. Until the 1990s, the U.S. was the only country where telephone companies were owned by private investors. Even then, from <span style="text-transform:uppercase">AT&amp;T </span>and GTE on down, they were government-sanctioned monopolies. Just about everywhere else, including western democracies such as the U.K, France and Germany, the phone company was a state-owned monopoly. Its president generally reported to the Minster of Telecommunications.</p> <p class="MsoNormal">Since most phone companies were large state agencies, the ITU, as a UN organization, could wield a lot of clout in terms of telecom standards, policy and governance--and indeed that was the case for much of the last half of the 20th century. That changed, for nations as much as the ITU, with the advent of privatization and the introduction of wireless technology. In a policy change that directly connects to these very issues here, just about every country in the world embarked on full or partial telecom privatization and, moreover, allowed at least one private company to build wireless telecom infrastructure. As ITU membership was reserved for governments, not enterprises, the ITU's political influence as a global standards and policy agency has since diminished greatly. Add to that concurrent emergence of the Internet, which changed the fundamental architecture and cost of public communications from a capital-intensive hierarchical mechanism to inexpensive peer-to-peer connections and the stage was set for today's environment where every smartphone owner is a reporter and videographer. Telecommunications, once part of the commanding heights of government control, was decentralized down to street level.</p> <p class="MsoNormal">There's no going back. Even authoritarian regimes understand this. Fifty years ago, when a third-world dictatorship faced civil strife, it could control real-time information by shutting off its international telephone gateway switch. Not so today. So much commerce, banking, transportation and logistics depends on up-to-the-second cross-border data flow that no country, save for truly isolated regimes such as North Korea, can afford to cut themselves off the global Internet, even for one day.</p> <p class="MsoNormal">That's why it's no surprise that the authoritarian regimes of China and Russia, supported by even more despotic states such as Iran, are spearheading the UN/ITU effort. Their politically repressive regimes can't function with the Internet, but their economic regimes, tied as they are to world trade, can't function without it.&nbsp;That's why attempts at Internet control have to be more nuanced and cloaked in diplomacy.&nbsp;</p> <p class="MsoNormal">As we see in the leaked documents, their agenda is masked as concerns about computer security and virus and malware detection, or in arguments about how nation-states have a historically justifiable regulatory responsibility for setting technical standards for IP-to-IP connections. But dig deeper and you find their proposed solutions would give them the power to read emails, record browser habits and extort fees from web sites and services such as Google, Facebook and Twitter (if they aren't going to block them completely).</p> <p class="MsoNormal">In the long run, it is doomed to fail. As an organism, the Internet defies top-down control. Every time a country attempts to impede certain types of Internet communications, via firewalls, filters, or outright domain name blocks, individuals create workarounds. It's not that difficult.</p> <p class="MsoNormal">That simple fact might engender complacency among netizens here in the U.S. And besides, speaking out against ominous plots by UN agencies makes us sound too much like the nutty neighbor with the backyard bunker.</p> <p class="MsoNormal">But there are serious risks to what the ITU and the UN are attempting. Even if only gets part of what it wants, the ITU's Internet grab stands to seriously damage the global free and open Internet.</p> <p class="MsoNormal"><strong style="mso-bidi-font-weight:normal">First, as a multi-lateral "international" agreement, the ITU plan will give repressive regimes cover for Internet clampdowns.</strong> Even if the U.S. does not sign on, all it will take is buy-in a few other Western governments, who might just see the treaty as convenient <a href="">(see the U.K.'s recent Home Office ideas)</a>, to allow the more egregious dictatorships in the world to take repressive action. <span style="mso-spacerun:yes">&nbsp;</span></p> <p class="MsoNormal">The U.S. should be leading all democratic governments in speaking out against the ITU plan. A weak-willed "I'm-OK-you're-OK" approach, or worse, a non-judgmental relativism that suggests American ideas of Internet freedom should defer to a more repressive country's "national culture," are simply not acceptable. <span style="mso-spacerun:yes">&nbsp;</span></p> <p class="MsoNormal"><strong style="mso-bidi-font-weight:normal">It seeks to displace multi-stakeholder development. </strong>The collaborative culture of the Internet, driven by consensus and undergirded with a commitment to open standards and platforms, is the ITU's primary target. When a nation-states make rules for phone networks, they can specify equipment, favor their domestic manufacturers, create cumbersome compliance rules, and ban possession of non-compliant devices all with the force of heavy-handed law. This is hardly far-fetched. Ethiopia has made Internet phone calls (i.e. Skype) illegal.</p> <p class="MsoNormal"><strong style="mso-bidi-font-weight:normal">It seeks to normalize government regulation of the Internet.</strong> For more than 30 years, deregulation has been the predominant policy toward the Internet. This trend has managed to hold on despite numerous attempts at censorship, "neutrality" regulation and price controls. The most common proposition we hear runs to the effect of the Internet has become so important that it needs regulation. Frankly, the Internet has survived and thrived since its beginning without top-down state regulation. Worldwide access continues to grow. By and large, international data networks operate reliably and inexpensively. If anything, the burden of proof for regulation of the 'Net should be ever higher. Why, exactly, do we need an international regulatory regime for the Internet? So far those who would impose one haven't said so. And sorry to say, because citizens are taking to the streets with&nbsp;their iPhones and demanding basic freedoms is not an acceptable reason.</p> <p>&nbsp;</p> 1012962@ Thu, 21 Jun 2012 17:06:00 EDT (Steven Titch) Video: French and Greek Elections Were Not Proof Austerity Doesn't Work <p>Over the weekend France elected a new president, the Greeks shuffled their&nbsp;parliamentary&nbsp;make up, and Germany's leading party lost some local elections. The votes are viewed as a push back against the way European governments have handled the continent's&nbsp;sovereign&nbsp;debt crisis. Some&nbsp;analysts&nbsp;have been quick to argue that this proves austerity doesn't work.&nbsp;</p> <p>And that is the basis of the debate in the video below, a panel discussion from RT last night. However, I argue that this doesn't&nbsp;prove much of anything about austerity in general. Citizenry are not to be blamed for being upset with austerity measures. The whole point is that it doesn't feel good to get your fiscal house in order after a spending binge. The democratic reaction doesn't suggest the viability of the plan's capacity to achieve its goal of reducing government debt.&nbsp;</p> <p><iframe frameborder="0" height="315" src="" width="420"></iframe></p> <p>While the elections don't say anything about the viability of the idea of austerity, at least the Greek election suggests that the form that austerity has taken in Greece is not the best approach. The big winners in the parliamentary&nbsp;elections were groups that&nbsp;despise&nbsp;outsiders and want to take back control of their country. Their win was the Greek people (at least the very low 65 percent of them that turned out to vote) saying it is unfair for Greece to take sharp budget cuts while still being saddled by the Euro so that the rest of Europe can avoid GDP losses that would occur if Greece left the European monetary union today. Eventually they will have to leave, but for now Europe gets to wall off that threat and plan for an orderly break.</p> <p>In France, the election could also be seen as a nationalistic movement. All&nbsp;indications&nbsp;are that the vote was more anti-Sarkozy&nbsp;then pro-Hollande. There is a bit of populism that likes his tax the rich mentality. But&nbsp;Hollande&nbsp;seem to win over France with his Mr. Normal pitch vs.&nbsp;Sarkozy's&nbsp;flashy&nbsp;style that has worn out its welcome in France. Moreover, there could be some frustration in France that&nbsp;Sarkozy&nbsp;allowed Germany so much run of the house on the debt crisis negotiations. Germany will now have to deal with a more&nbsp;nationalistic government when sorting out coordinated actions to bail each other out.</p> <p>(Side note on Greece: it is unlikely they will be able to form a government that lasts. The two parties receiving the most votes only form about 30 percent of the parliament, making it necessary for a big tent coalition to work out in order to avoid a new election. And even if that happens, such a coalition will be very susceptible to the need to make big decisions on budget cuts and handling negotiations with the rest of Europe. Further complicating the matter is the scatter shot approach that the Greek populace took in their choice of representatives this year. Not only did a far-right, neo-nazi group get 20 seats, but a far-left, old line communist group also got more votes then they'd seen in a long time. History does not need to be consulted that far back to suggest that the combination these two failed ideologies mixing as one is not likely to be the chemistry needed to get Greece on solid footing.)&nbsp;</p> 1012874@ Tue, 08 May 2012 10:18:00 EDT (Anthony Randazzo) Refining the Story of the Financial Crises in Europe and the USA Insight Turkey Vol. 14 / No. 2 / 2012 <p>A significant amount of research has already been made about&nbsp;the financial crisis. But a midterm primer is nevertheless necessary;it is critical to assess the nature of the crises to ensure that the proper lessons are learned.</p> <p>This journal article aims to present a history on the causes of the financial crisis that first emerged in the U.S. in 2007. Then it will analyze the roots of&nbsp;the current state of the economic crisis in Europe and the U.S. It will also assess the effects of the crises on the European and American economies.&nbsp;Consequently, a range of topics are discussed in the article, some of which have received deeper treatment elsewhere in economic literature, but have not been pieced together to provide a coherent past and present picture of the situation.&nbsp;The article concludes briefly on how this story relates to today&rsquo;s economic environment and the next steps that need to be taken going forward.</p> <p>Dr. Murat Yulek is vice dean of&nbsp;THK University in Ankara, Turkey and can be reached at mayulek&#64;;Anthony Randazzo is director of economic research for Reason Foundation and can be reached at&nbsp;anthony.randazzo&#64;;The article was originally published by the journal&nbsp;<a href="" target="_blank">Insight Turkey in Vol. 14, No. 2</a>.</p> <p>&nbsp;</p> 1012850@ Mon, 09 Apr 2012 00:00:00 EDT (Anthony Randazzo) Why is Europe So Delusional on Greece? <p>Earlier this week I noted that Europe was <a href="" target="_blank">trying to buy time</a> with this bailout package offer. Here are a couple of more clarifying explanations for <span style="text-decoration: line-through;">why the EU&rsquo;s economic ministers are lying to us about this bailout of Greece having the possibility of success</span> what Europe is trying to buy. Hans-Werner Sinn being <a href=",1518,816410,00.html" target="_blank">interviewed</a> by Spiegel Online:</p> <p style="padding-left: 30px; ">SPIEGEL ONLINE: Why are the euro-zone countries so adamant that Greece must remain in the currency?</p> <p style="padding-left: 30px; ">Sinn: This isn't really about the country. The Greeks are being held hostage by the banks and financial institutions on Wall Street, in London and Paris who want to make sure that money keeps on flowing from government bailout packages -- not to Greece, but into their coffers.</p> <p style="padding-left: 30px; ">SPIEGEL ONLINE: What about the contagion that a bankruptcy or a Greek exit would involve? Financial markets may speculate that other countries will suffer a similar fate as Greece.</p> <p style="padding-left: 30px; ">Sinn: There may be contagion effects. But I think this argument is being instrumentalized by people who are worried about losing money. People keep on saying "the world will end if you Germans stop paying." In truth only the asset portfolios of some investors will suffer.</p> <p>And then there is Bill Frezza <a href=" " target="_blank">writing for Forbes</a> about the endless attempts to avoid a &ldquo;credit event&rdquo;:</p> <p style="padding-left: 30px;">Now those same idiotic bankers, along with the French and German politicians they control, are conspiring with the Greek government to pretend they can fix the problem by forcing private bondholders to &ldquo;voluntarily&rdquo; swap one set of worthless bonds for another set of worthless bonds, without acknowledging a default that in a sane world would be all but inevitable.</p> <p style="padding-left: 30px;">The reason for this urgency? Private holders of these worthless bonds also hold hundreds of billions in insurance that would have to be paid to them should those bonds fail. And who are the sellers of these insurance policies? Why, the same idiotic bankers who control the French and German politicians!</p> <p>European politicians don&rsquo;t want their banks going down, and banks figure this bailout is the cheaper option. Sounds like incentives to lie.</p> 1012647@ Fri, 24 Feb 2012 14:32:00 EST (Anthony Randazzo) Surveying the State of Global Freedom <p>In the Coke Zero commercial, an impatient young man says, "It's 2010. Weren't we supposed to have time machines by now?" Human rights supporters have equal cause to ask, "Weren't we all supposed to have democracy by now?"</p> <p>In 1992, after the collapse of the Soviet empire, Francis Fukuyama wrote that "for a very large part of the world, there is now no ideology with pretensions to universality that is in a position to challenge liberal democracy, and no universal principle of legitimacy other than the sovereignty of the people." A host of despots, however, has managed just fine without a universal principle.</p> <p>The world is freer and more democratic than it was then. But advances have been stymied by dozens of repressive regimes. The human rights group Freedom House said in January that the previous four years made up "the longest continuous period of deterioration" in the nearly 40 years it has kept tabs. This year brought no evident turnaround.</p> <p>That is fine with the rulers of China. Liu Xiaobo was awarded the Nobel Peace Prize for his efforts to advance democracy and free speech, which had also earned him an 11-year prison term. The December event was the first time neither the winner nor his representative was allowed to attend since 1935, when the Nobel Committee honored a dissident in Nazi Germany.</p> <p>In North Korea, the ailing Kim Jong-il installed his son Kim Jong-un as heir apparent&mdash;proving that Marxism can coexist with monarchy. A former Nobel Peace Prize laureate, Burma's Aung San Suu Kyi, was released from seven years of house arrest after her jailers won elections that were widely denounced as rigged.</p> <p>A secret Pentagon cable published by WikiLeaks said Defense Secretary Robert Gates told his French counterpart that "Russian democracy has disappeared." Elections in Belarus were not free enough to deprive re-elected President Alexander Lukashenko of his claim to be the last dictator in Europe.</p> <p>The American effort to spread democracy in the Middle East and Muslim world encountered fierce headwinds. Afghan President Hamid Karzai took over an election commission after it had the nerve to find rampant irregularities in the election he won last year. Unhappy with the U.S. government, he told the American ambassador, "If I had to choose sides today, I'd choose the Taliban."</p> <p>Iraq held elections that didn't produce a new government until nine months later, during which time authorities banned political demonstrations. In Egypt, the opposition Muslim Brotherhood went from 88 seats in parliament to one. "At least get creative in how you rig the elections," one newspaper publisher implored President Hosni Mubarak, who has been in power for 29 years.</p> <p>On the other side of the globe, 85 percent of Venezuelans said they don't want their country to resemble communist Cuba. But President Hugo Chavez nationalized hundreds of businesses, closed down the last remaining opposition TV station, and expelled a member of the European Parliament for calling him&mdash;I am not making this up&mdash;a "dictator."</p> <p>Retired Cuban autocrat Fidel Castro, meanwhile, admitted the communist economic model "doesn't even work for us anymore." The number of political prisoners in Cuba fell to the lowest level since 1959.</p> <p>Haiti suffered a horrendous earthquake, a cholera epidemic and a chaotic national election spoiled by violence and fraud. Nicaraguan President Daniel Ortega made it plain he will run for re-election in 2011 even though the Constitution forbids him from seeking another term.</p> <p>In Africa, there are modest signs of progress. The number of coups on the continent fell by more than half in this decade compared to the one before, and 48 countries were scheduled to go to the polls this year.</p> <p>Successful, credible votes took place this year in Tanzania and Somaliland. Guinea's military junta yielded to civilians after the country's first democratic election.</p> <p>But many exercises in democracy were a sham. Sudanese President Omar al-Bashir, wanted by the International Criminal Court on war crimes charges, won after warning that if international poll watchers caused trouble, "we will cut off their fingers." The president of Ivory Coast lost a November election but has refused to step down, raising the specter of renewed civil war.</p> <p>This year served mainly to vindicate the desires of tyrants and the fears of pessimists. To recapture the sense that the world is destined for universal democracy, you'd need a time machine.</p> <p><strong>COPYRIGHT 2010 CREATORS.COM</strong></p> 1011006@ Fri, 23 Dec 2011 07:00:00 EST (Steve Chapman) How Economic Freedom Can Ensure an Arab Autumn <p>The self-immolation of a young Tunisian street vendor Tarek Mohamed Bouazizi helped spark the Arab Spring. The first of many protestors in 2011 sharing the honor of&nbsp;<a href=",28804,2101745_2102138_2102235,00.html" target="_blank">Time magazine Person of the Year</a>, Bouazizi was denied the right to trade, having his produce repeatedly stolen by police while being harassed by corrupt government officials. It is fitting, then, that the circumstances leading up to his tragic protest are also emblematic of underlying causes of the revolution.</p> <p>Frustration over poor economic conditions and political repression ultimately boiled over into the sweeping protests displayed on television screens around the world. The narrative heard in the U.S. is that the Arab Spring is about democracy. Yet this lack of political representation is merely a symptom of the fundamental lack of economic freedom in Arab countries.</p> <p>Every index of economic freedom&mdash;from The Wall Street Journal and The Heritage Foundation&rsquo;s index to the Fraser Institute&rsquo;s index&mdash;indicate that nearly all Arab countries in North Africa and the Middle East have high levels of economic repression. This denial of economic liberty resulted in the rampant corruption, runaway inflation, and instability that berthed the Arab Spring.</p> <p>A number of wide-ranging economic restrictions have damaging consequences for the Arab world. Burdensome governments dominate consumption and investment, replacing individual choices with the politicization and bureaucratization of economic decisions. Property rights are hampered by the lack of an independent justice system. Over-regulation of credit and labor markets obstructs competition, while free trade is limited by restrictions on imports and exports.</p> <p>The best hope to address this myriad of hindrances to economic freedom focuses on opening up international trade. Trade liberalization will not only promote inter-Arab movement of people, goods, and services, but will also encourage the implementation of wider reforms in favor of economic freedom.</p> <p>Removing tariff and non-tariff barriers to trade through the creation of a large free trade area between Arab countries will encourage cooperation between national economies, increasing the market size for the productive businesses of each country. Investment opportunities will naturally rise, and costs will fall as firms benefit from economies of scale. The resultant success of private investment, long supplanted by the oppressive public sector, will encourage Arab countries to further engage in reforms conducive to economic freedom.</p> <p>A free trade area will foster the spread of economic freedom as neighboring countries are allowed to compete for capital and skilled labor. Open borders will stimulate the movement of people and capital as the profit seeking process unfolds, favoring areas that encourage trade and freedom. In order to remain competitive with neighboring economies for valuable tax revenue, each country will be spurred on to undertake deep institutional reforms.</p> <p>Previous attempts to liberalize trade between Arab countries, such as the Cooperation Council for the Gulf Countries or free trade agreements between Morocco, Jordan, Egypt and Tunisia, should be expanded upon. In the past, the creation of such an Arab free trade zone has been blocked by political considerations. Instead, a "bottom-up" approach must be adopted among businesses and civil societies, pressuring Arab leaders to overcome political and personal divisions by forging networks across national borders.</p> <p>Such a strategy has repeatedly proved successful. Arab merchants pressured governors to render trade roads safer. British liberals formed the Anti-Corn League that led to the abolition of protectionist laws. Japanese companies, by developing supply chains during the 1960s with subcontractors from South Korea, Taiwan, and Hong Kong, were able to facilitate the emergence of the Association of Southeast Asian Nations.</p> <p>By building up economic exchanges and strengthening ties between Arab nations, the benefits of trade liberalization will become so evident that politics will be forced to answer to public opinion and satisfy their need for an integrated Arab economic community. This will encourage not only the spread of free market ideas, but facilitate the economic integration of young people by providing sufficient opportunities for investment and jobs. If the people of the Middle East and North Africa are to capitalize on the achievements of the Arab Spring, free trade must be of utmost importance.</p> <p><em>Hicham El Moussaoui is an Assistant Professor of Economics at the University of Sultan Moulay Slimane (Morocco) and analyst for <a href="" target="_blank"></a>.</em></p> 1012438@ Wed, 14 Dec 2011 00:00:00 EST (Hicham El Moussaoui) Greece Will Default <p>The Germans and French got their European Financial Stability Facility expansion last week, though details surrounding how the EFSF will operate remain murky. But now the focus returns to Greece, and whether the Greek government can satisfy demands to avoid technical default.&nbsp;</p> <p>The reality is, though, that Greece is going to default. As our president likes to say, its just simple math. You can take that to the bank. (Just not a Greek bank.)</p> <p>Let&rsquo;s start with the fact that recent projections have the Greeks missing their deficit reduction target <a href=" " target="_blank">considerably</a>:</p> <p style="padding-left: 30px;">Greece is likely to miss the deficit targets agreed as part of July's bailout package, which would cast further doubt on its ability to steer safely through its current financial crisis and will send new tremors through global financial markets.</p> <p style="padding-left: 30px;">As the country's cabinet agreed a controversial plan to begin laying off 30,000 state workers, its latest budget plan indicated a deficit of 8.5% of GDP this year, missing the 7.6% target agreed with the European Unionand the IMF. In 2012 the deficit is expected to fall to 6.8% of GDP &ndash; above the year's 6.5% target. A recession that has been worse than expected is behind much of the increase. According to Reuters, Greece expects its economy to contract by 5.5% this year and 2% next.</p> <p>But it gets worse. Suppose for a moment that the Greek government reached deeper with cuts, were able to avoid a long-term tax collector strike, and somehow make their deficit target this year. The reality is that their stack of bills are just too high to imagine getting away without getting creditors to take some kind of haircut.</p> <p>Greek debt-to-GDP is <a href=" " target="_blank">currently close</a> to 175%. To put this in context, Greek debt-to-GDP should be closer to 60% or 70%.&nbsp;</p> <p>The credit default swaps <a href=" " target="_blank">market is pricing</a> the probability of a Greek default at 99.9%&mdash;a stunningly sharp bet, and potentially damning for Portugal at 62%, Ireland at 51%, Italy at 33%, and Spain at 28%.&nbsp;</p> <p>Reports today are that <a href=" " target="_blank">discussions are underway</a> for an orderly default, with creditors taking a 40% haircut (more than the 21% that had been floating around in the past months). Whether or not a deal gets done in this framework, the bottom line is that Greece can not afford the interest payments on their massive debt long time. They&rsquo;ve been going to the wrong way on deficits&mdash;just consider that their fiscal deficit was 2.5 billion euros higher in the first two quarters of 2011 than the same period last year&mdash;and the political will to cut everything isn&rsquo;t there. And even cutting everything would probably miss a debt payment eventually.</p> <p><a href="" target="_blank">Kyle Bass</a> has made/is going to make a lot of money.</p> 1012285@ Thu, 13 Oct 2011 12:04:00 EDT (Anthony Randazzo) Congress Passes Free Trade Deals <p>Who says Congress can't do anything good? The House approved the three pending free trade deals yesterday, after they had already been voted through <a href="" target="_blank">in the Senate</a>:</p> <p style="padding-left: 30px;">The South Korea deal passed the Senate by a vote of 83 to 15, and the Panama deal passed 77 to 22. The agreement with Colombia, often considered the most controversial of the three, also passed with a solid majority with a vote of 66 to 33.&nbsp;The House approved the bills earlier in the evening with Korea receiving a vote of 278-151; Panama passed 300-129; and Colombia was approved by a strong margin of 262-167.</p> <p>The deals will certainly be signed by the White House, so now&nbsp;the attention shifts to South Korea and their parliment, which <a href="" target="_blank">has to approve</a> the trade deal.</p> <p>Of course, all this is not to say Congress can do anything perfect. In fact, the expansion of the TAA program as a part of these trade deals significantly lowers their positive impact. And there was plenty of debate <a href="" target="_blank">on this front</a>:</p> <p>&nbsp;</p> <p style="padding-left: 30px;">Democratic Rep. Jan Schakowsky, a friend of President Barack Obama's from his home state of Illinois, called the Korea pact a "bad deal for American workers," during debate Wednesday. Congressional Democratic leaders including Senate Majority Leader Harry Reid of Nevada and Rep. Rosa DeLauro of Connecticut opposed the president on the pacts.</p> <p style="padding-left: 30px;">Republicans and business-group backers, led by the U.S. Chamber of Commerce, were almost united in support of the agreements. "Today, the House passed on a bipartisan basis some of the most important job-creating legislation in the last several years by approving our trade agreements," said House Ways and Means Chairman Dave Camp (R., Mich.).</p> <p style="padding-left: 30px;">Yet some Republicans opposed the pacts because their states could be hurt by them. The deals will provide fresh competition to the U.S.'s already-battered textiles, electronics and manufacturing industries, a fact that drew at-times emotional protests from organized labor, factory workers and the legislators that represent them.</p> <p style="padding-left: 30px;">To soften the blow, Mr. Obama demanded that Congress renew Trade Adjustment Assistance, a program that provides enhanced unemployment benefits to workers displaced by globalization. After months of delay, legislation renewing the program in a less-costly form was fast-tracked by Congress this week.</p> <p>See the whole story from WSJ <a href="" target="_blank">here</a>.</p> <p>See our comments on the three trade deals here: <a href="" target="_blank">South Korea</a>, <a href="" target="_blank">Panama</a>, <a href="" target="_blank">Colombia</a>.&nbsp;</p> <p>&nbsp;</p> 1012283@ Thu, 13 Oct 2011 08:13:00 EDT (Anthony Randazzo) Free Trade as Economic and Social Development Driver <p>A couple of weekends ago, Matt Ridley <a href=" " target="_blank">had a piece</a> in the Wall Street Journal noting &ldquo;that human collaboration is necessary for society to work; that the individual is not&mdash;and has not been for 120,000 years&mdash;able to support his lifestyle; that trade enables us to work for each other not just for ourselves; that there is nothing so antisocial (or impoverishing) as the pursuit of self-sufficiency; and that authoritarian, top-down rule is not the source of order or progress.&rdquo;</p> <p>There are currently three free trade deals pending approval from Congress. We looked at each of them this past week on the OOC blog, noting the positive and negatives in the deals.</p> <ul> <li><a href="" target="_blank">U.S.-South Korea Free Trade Agreement</a></li> <li><a href="" target="_blank">U.S.-Columbia Free Trade Agreement</a></li> <li><a href="" target="_blank">U.S.-Panama Free Trade Agreement</a></li> </ul> <p>In each case, the negatives were ways in which the FTAs failed to fully advance trade and individual freedom, or overly relied on authoritarian ideas that have the effect of limiting collaboration. Still, the trade deals would do a lot of benefit the American economy and job market.</p> <p>The United States should not stop with these deals. There no good reasons to oppose advancing more bilateral trade talks, such as a Transatlantic trade pact or FTA with a nation like Turkey. The problem is that the White House isn't really a big fan of free trade. <a href="" target="_blank">Jagdish Bhagwati wrote last week</a>:</p> <p style="padding-left: 30px;">America&rsquo;s president is captive to the country&rsquo;s labor unions, who buy the false narrative that trade with poor countries is increasing the ranks of the poor in the US by driving down wages. In fact, however, there is plenty of evidence for the rival narrative that rapid and deep labor-saving technological change is what is putting pressure on wages, and that imports of cheap labor-intensive goods that US workers consume are actually offsetting that distress... Again, someone needs to tell Obama that imports create jobs, too, and that his emphasis on promoting US exports alone is bad economics.</p> <p>Also, see the <a href=" " target="_blank">whole Ridley piece here</a> and check out some of <a href="" target="_blank">Ridley&rsquo;s interviews</a> with</p> <div> <object data=";feature" height="350" type="application/x-shockwave-flash" width="425"> <param name="src" value=";feature" /> </object> <br /></div> <p>&nbsp;</p> 1012267@ Fri, 07 Oct 2011 08:03:00 EDT (Anthony Randazzo) Free Trade Agreement Review Series: Panama-U.S. <p>The White House looks to be officially submitting to Congress the three pending free trade agreements (FTA) sometime next week. This is something that&nbsp;<a href="" target="_blank">we&nbsp;and a chorus of others have argued</a>&nbsp;should&nbsp;be a priority for the White House and we hope that Congress acts on addressing the FTAs immediately. But the trade deals are not perfect, as we noted yesterday in looking at the <a href="" target="_blank">Colombia-U.S trade promotion agreement</a> that included unnecessary exporting of bad American labor regulation. And earlier this week we looked at&nbsp;some of the benefits of pending <a href="" target="_blank">South Korea-U.S FTA</a> while noting Congress should avoid expanding the Trade Adjustment Assistance program as a part of ratification. &nbsp;</p> <p>Today we finish our three part trade agreement review series and praise the value of the <a href="" target="_blank">Panama&mdash;U.S. Trade Promotion Agreement</a>, but also note a key flaw in the deal that will limit its value to America that all should be aware of in ensuring we have proper expectations on what economic changes we will see if Congress ratifies this pact:</p> <p>The Panama-U.S. trade pact is the third that awaits approval in Congress, and it is structured very similar to the agreements struck with South Korea and Colombia. Once ratified by Congress this FTA would immediately eliminate tariffs and quotas on 87 percent of American consumer and industrial exports to Panama, with the remaining duties to be removed over a 10-year period. Industrial and agricultural products carry a 7 percent and 15 percent average tariff respectively, and a 0 percent rate will provide a boost to American manufacturing. Given the heavy business currently being done by American firms like Caterpillar, who is heavily invested in providing equipment for the $5.25 billion expansion of the Panama Canal. In fact, construction equipment accounted for $280 million in U.S. exports to Panama last year, and American businesses in this sector stand to benefit significantly from the reduced tariffs. The FTA will also open Panama's $20.6 billion service industry to American businesses, and this will benefit numerous of industries including telecommunications, finance, and distribution.&nbsp;</p> <p>What makes this trade deal distinguishable from the other two at hand is that it calls for &ldquo;tax transparency&rdquo; on the part of Panama, and its status as a major offshore banking center turns this innocent trade deal into a backdoor for crackdowns on tax evasion. When it comes to hunting down tax evaders, the Organization for Economic Cooperation and Development (OECD) leads the way, and the trade agreement pushes Panama to conform to <a href="" target="_blank">tax compliance rules</a> created by the OECD.</p> <p>Tax evasion is merely the practice of American firms avoiding over-burdensome tax rates in the United States&mdash;rates which are the second highest corporate tax rates in the world, and will soon be the highest when Japan goes through with its approved corporate tax rate reduction. The easiest way to get Americans to pay taxes is to simplify the code, remove double taxation provisions&mdash;like the idea of a corporate tax in the first place&mdash;and use the resources spent trying to get those using tax havens like Panama instead on ensuring that Americans at home are not straight up lying on their tax returns.&nbsp;</p> <p>President Obama demonizes wealthy Americans on a daily basis for not paying their &ldquo;fair share&rdquo; of taxes and in order for his John Hancock to appear on this trade deal, it'll probably have to provide good news for the IRS. The Associated Press did a fact check recently on the president&rsquo;s definition of fair share and came up with a <a href="" target="_blank">damning report</a>. There is no reason for this provision in the Panama-U.S trade agreement.&nbsp;</p> <p>At the turn of the 20th century, the U.S. was the fastest growing economy in the world partly because it was a safe haven from taxes. There were no federal or state income taxes, no payroll taxes, no capital gains taxes, and no corporate taxes. Looking at how to go back to this era of tax policy should be the focus of the government, not provisions like this concession in the Panama-U.S. trade agreement to go after those who use Panama as a tax haven. Though all those people have probably used their money by now anyway so it might not matter.&nbsp;</p> <p>See our previous post on the&nbsp;<a href="" target="_blank">South Korea-U.S. free trade agreement</a> from earlier this week for more on free trade theory. Also see yesterday&rsquo;s post looking at the good and bad in the <a href="" target="_blank">Colombia-U.S. free trade agreement</a>.&nbsp;</p> 1012263@ Thu, 06 Oct 2011 08:57:00 EDT (Anthony Randazzo) Free Trade Agreement Review Series: Colombia-U.S. <p>The White House has said it plans tomorrow or early next week to officially submit to Congress for ratification the three free trade agreements (FTA) on which it has completed negotiations. This is something that&nbsp;<a href="" target="_blank">we&nbsp;and a chorus of others have argued</a> should be a priority for the White House and we hope that Congress acts on addressing the FTAs immediately. But we do feel it is important to point out that the trade deals are not perfect. In first installment in this three part series yesterday, we looked at&nbsp;some of the benefits of, as well as problems with, the pending <a href="" target="_blank">South Korea-U.S. FTA</a>.&nbsp;</p> <p>Today in the second installment of the trade pact review series, we praise the value of the <a href="" target="_blank">United States&mdash;Colombia Trade Promotion Agreement</a>, but also establish some rational expectations on what value it will bring to America:</p> <p>Once approved by Congress, the Colombia-U.S. trade agreement will immediately eliminate 80 percent of tariffs on goods exported from America to Colombia, with the remaining tariffs withdrawn over a 10-year period. An estimated $1.1billion will be added to our exports, which will increase payrolls by the thousands. The trade deal is even projected to increase GDP by $2.5 billion (note: despite the government's recent track record on economic forecasting, the deal will surely bring some positive changes). But as government negotiators are accustomed to doing, the agreement also encourages the exportation of American labor regulations to Colombia&mdash;the same kind of regulations that have contributed to the decline in the number of manufacturing jobs in the U.S. as employers seek more business friendly climates elsewhere. (It is worthwhile to note that inflation, low savings, high taxes, and increased efficiency are <a href="" target="_blank">larger contributors</a>&nbsp;to the decline in the number of manufacturing jobs.) &nbsp;</p> <p>The specific language in the <a href="" target="_blank">agreement</a> that we see adding shackles to business activity includes this clause: &ldquo;Colombia will change its laws to make it a crime, punishable by imprisonment, for an employer to negotiate special deals (collective pacts) with non-union workers with better terms than union contracts.&rdquo; The premise for these regulations is the oft-manhandled idea of &ldquo;workers' rights&rdquo; yet in a free market workers' rights to demand employment from others don't exist&mdash;rather, the threat of losing all potential labor and reputational risk help keep firms from abusing workers.&nbsp;</p> <p>Workers have the same rights as any other human being, whether they work or not. To suggest otherwise is to assume that workers have some kind of special ownership over the ideas or employment potential of job creators/business owners. In this sense, workers' rights are nothing more than privileges granted to unions that force businessmen (and woman) to lose their individual rights as soon as they offer someone a job. By making it illegal for non-union workers to negotiate freely with employers, workers' rights ironically strip certain individuals of the right to offer and accept labor/services in a free economy.&nbsp;</p> <p>In absence of these regulations, worker-employer relations would be simple: if the workers don't like their employers they are free to quite and vice versa. If the employer treats their employees bad, this reputation will make it difficult for them to hire and produce. Employers that offer low wages and tough working conditions experience high turnover rates, which equates to high labor costs. Profit incentives eventually force employers to find ways to increase worker productivity so higher wages are possible.&nbsp;</p> <p>This also leads to safer and more enjoyable working conditions, which create careers out of jobs. All of this explains why and how Henry Ford was able to double wages to $5 a day while cutting working hours from 10 to 8; this also occurred prior to the creation of the Department of Labor. Now, however, American labor regulations turn the process of creating higher wages and better working conditions on its head, and the consequence is increasing labor costs that employers can't offset and outsourcing.&nbsp;</p> <p>But we have derailed a bit into labor theory. The point is that this trade pact is promoting the bad parts of labor regulation that we have in the U.S., and would not be beneficial for Colombia. It remains a question how warmly the Colombian government will enforce the provision. If they fully implement this clause of the FTA though, it will slow production of goods sent to the U.S. and raise their prices such that American consumers may never see the price reduction benefits that were a leading reason to pursue this Colombia-U.S. trade promotion agreement.&nbsp;</p> <p>See our previous post on the <a href="" target="_blank">South Korea-U.S. free trade agreement</a> from yesterday for more on free trade theory. Tomorrow we will look at the third and final FTA pending before Congress, between Panama and the U.S.&nbsp;</p> <p><strong>Update 5pm:</strong></p> <p>The Senate Ways and Means Committee approved the Colombia pact 24-12 this afternoon and sent it to the Senate Finance Committee.</p> 1012262@ Wed, 05 Oct 2011 14:44:00 EDT (Anthony Randazzo) Free Trade Agreement Review Series: South Korea-U.S. <p>The White House is officially submitted to Congress on Monday the three free trade agreements on which it has completed negotiations for ratification. We and other groups encouraged the President to include putting a priority on ratifying the trade agreements as a part of his jobs plan announced last month (see our <a href="" target="_blank">short-term ideas for employment growth</a>). Federal programs are not what gets the jobs market moving again, but they will help some, and they will not hurt the long-term employment outlook in America, particularly because free trade deals allow less expensive exports (with tariffs removed) to replace less efficient production of goods in the U.S. and free up that labor for more productive capacity.&nbsp;</p> <p>That being said, these free trade agreements (FTA) are not perfect, and in the spirit of rational expectations, we wanted to provide a brief overview of what is in these FTAs and what we should anticipate their benefit to the American economy and jobs market will be. Today we begin a three part series, and will have a new post up tomorrow and Thursday to complete the series.</p> <p>We start with <a href="" target="_blank">United States &ndash; Korea Free Trade Agreement</a>:&nbsp;</p> <p><a href="" target="_blank">Hailed as</a> &ldquo;the most commercially significant free trade agreement (FTA) in more than 16 years,&rdquo; under the pact, 95 percent of consumer and industrial imports between the U.S. and South Korea will become free of tariffs, quotas and everything in between within 3 years. The majority of the remaining duties will be erased over a 10-year period. The U.S. International Trade Commission estimates that the FTA will increase exports by at least $10 billion, and will open up Korea's $560 billion service industry to American businesses.</p> <p>In 2008, the manufacturing of goods to be exported to Korea utilized the employment of 230,000 Americans and the removal of tariffs will surely translate into more business and jobs. For instance, one of America&rsquo;s <a href="" target="_blank">top exports to South Korea</a> is aircraft, which means more customers for Boeing as the company prepares to unveil the Dreamliner 787. American agriculture, machinery, and chemicals are also expected to see growth rates.&nbsp;</p> <p>Lower tariffs also will mean lower prices on goods such as Kia automobiles, exported to the U.S. Contrary to critics, this will not necessarily mean fewer sold American made cars. The money saved for consumers on the price reduction from the tariff removal can be used to consume more in the economy (possibly American made goods), driving production in general, and putting money in the pockets of other workers/consumers who may very well buy Fords or Chevys.&nbsp;</p> <p>Critics of the U.S.-Korea FTA also note that the textile, electronics, and floral industries will see higher competition because of the trade deal. But it's important to note that tariffs aren't a zero-sum game: free trade works because it allows the market to shift resources to companies who are more productive, and more production equates to lower prices and higher standards of living.&nbsp;</p> <p>The removal of trade restrictions would undoubtedly force some American businesses to either cut production or make new products as money goes to the most efficient use in the market. Some may even need to close shop, which is why the Trade Adjustment Assistance program was created to provide unemployment benefits and training for new jobs (we personally oppose at TAA program as an inappropriate use of federal resources, but we will point out that certain individual do benefit in the near-term from the program as long as it exists). TAA also helps affected businesses receive financial assistance to help with production changes. Apparently, though, this is not enough, as one of the main things stalling confirmation of this and the other three trade agreements is that the Democrats want to expand the TAA program and the GOP doesn&rsquo;t want more spending. A compromise appears close on that issue, but the details are not clear yet.&nbsp;</p> <p>At the end of the day, the TAA program is merely welfare to businesses and jobs that benefited from tariffs at the expense of American consumers. Put another way, any workers that lose their jobs because of this FTA work for companies that do not produce efficiently, which is why they will lose business. &nbsp;</p> <p>The Free Trade Agreement between the US and South Korea is still a step in the right direction, but the strings attached to it will put the American economy a half step back from where it could be. Expanding the TAA program would also add millions to the deficit and boost inflation.</p> <p>Next up, tomorrow we look at the Colombia-U.S. trade pact. Later on this week, we will then review the Panama-U.S. trade deal.&nbsp;</p> <p><strong>Update 10/5:</strong></p> <p>In the legislation approving the Korea-U.S. trade deal, there are some tax provisions tucked deep down. First, the bill proposes federal and state prison agencies annually provide "certain information on their inmates to reduce improper payments sent to prisoners" according to <a href="" target="_blank">Real Time Economics</a>. Second, the bill would "increase the penalty for paid tax return preparers who don&rsquo;t make all the necessary checks when applying for a refundable tax credit." Third, the deal would "increase beginning in 2013 the penalty to $500 from $100 for paid tax preparers who don&rsquo;t perform all the due diligence required for the earned income tax credit." The logic behind these provisions is sensible:&nbsp;</p> <p style="padding-left: 30px;">By making sure that certain tax refunds aren&rsquo;t going to people who aren&rsquo;t eligible, the measures are expected to offset the cost of the trade deals. The trade agreements with Panama, Colombia and South Korea would otherwise formally add to the deficit, since the deals would lower tariffs on imports from the three countries, though lawmakers from both parties have said they expect the deals to result in thousands of new jobs. Tariffs on U.S. exports would also be lowered in the agreements.</p> <p style="padding-left: 30px;">Lawmakers and Obama have long had their sights set on reducing improper tax payments. The Internal Revenue Service pays out roughly $11 billion to $13 billion per year to people who have improperly claimed the earned income tax credit, according to the agency&rsquo;s estimates, cited by the Treasury Inspector General for Tax Administration. Prisoners are among those not eligible for the earned income tax credit, but some have received tax refunds by filing false returns.</p> <p>See the whole post <a href="" target="_blank">here</a>.</p> 1012261@ Tue, 04 Oct 2011 19:18:00 EDT (Anthony Randazzo) The Decline in Deaths from Extreme Weather, 1900â??2010 <p>Aggregate mortality attributed to all extreme weather events globally has declined by more than 90% since the 1920s, in spite of a four-fold rise in population and much more complete reporting of such events. The aggregate mortality rate declined by 98%, largely due to decreased mortality in three main areas:</p> <div><ol> <li>Deaths and death rates from droughts, which were responsible for approximately 60% of cumulative deaths due to extreme weather events from 1900&ndash;2010, are more than 99.9% lower than in the 1920s.</li> <li>Deaths and death rates for floods, responsible for over 30% of cumulative extreme weather deaths, have declined by over 98% since the 1930s.</li> <li>Deaths and death rates for storms (i.e. hurricanes, cyclones, tornados, typhoons), responsible for around 7% of extreme weather deaths from 1900&ndash;2008, declined by more than 55% since the 1970s.</li> </ol></div> <div>To put the public health impact of extreme weather events into context, cumulatively they now contribute only 0.07% to global mortality. Mortality from extreme weather events has declined even as all-cause mortality has increased, indicating that humanity is coping better with extreme weather events than it is with far more important health and safety problems.</div> 1012158@ Thu, 22 Sep 2011 00:00:00 EDT (Indur M. Goklany) An Economic Lesson from 9/11 <p>In the week ahead you will see a lot of September 11 anniversary columns about terrorism, about heroes, about war, about loss. This is a September 11 column about the economics of cities and how free-market capitalism is the best disaster recovery method ever invented.</p> <p>On September 11, 2001, some partners and I were in the middle of starting a new daily newspaper in New York City. The closing of the deal to create the company to bring out the paper had been scheduled for that day, and it was delayed for a few weeks by the attack. But that fall the initial few staffers of the <em>New York Sun</em> were out looking for office space in Manhattan.</p> <p>Some of us had wanted to be downtown to begin with&mdash;closer to City Hall and the courthouses, closer to staff who lived in Brooklyn, closer to the city&rsquo;s historic Newspaper Row where the original <em>New York Sun</em> had had its printing press generations earlier. The attack more or less sealed the location issue. Of all the far-reaching and grave consequences of the terrorist attacks of September 11, 2001, it seems almost irreverent to mention that all of a sudden lower Manhattan real estate was a buyer&rsquo;s (or, in our case, renter&rsquo;s) market. But so it was.</p> <p>In December of 2001, the <em>New York Sun</em> set up its newsroom on Chambers Street, five blocks to the north of ground zero. The sidewalks were gritty and chaotic, even by the standard of New York City&rsquo;s ordinarily gritty and chaotic baseline. Telephone and electric cables ran along the streets as if it were a movie set. The gutters were full of a muddy reddish brown combination of what seemed to be the remnants of both water that had been used to fight the fires and the debris and dust that came down in the collapse of the Twin Towers. Many stores and even entire buildings were vacant or for rent.</p> <p>This week, I returned and took a walk around that Chambers Street block, along with a few of the streets one block in each direction. What a remarkable place. Food-wise, the options include at least two high-end Italian restaurants and two low-end pizza joints, sushi, &ldquo;Tex-Mexican,&rdquo; two French restaurants, a Puerto Rican restaurant, and the Pakistani Tea House, whose window displays, along with two brief <em>New York Times</em> write-ups, a certificate issued by the <em>New York Press</em> newspaper in 1998 naming it &ldquo;Best Halal Cab Stand.&rdquo; Chains, such as McDonald&rsquo;s, Subway, and Starbucks, coexist with one-of-a-kind establishments.</p> <p>What was in 2001 a vacant two-story building at the corner of Chambers and West Broadway has been replaced with a fancy 11-story hotel. One storefront offers Chinese traditional acupuncture; another, Brazilian waxing. Businesses catering to children and parents&mdash;a paint-it-yourself ceramics studio, the Tribeca Treats cupcake bakery, Gymboree&mdash;mix with bars, dry-cleaners, cellphone dealers, a health club, and a school of barbering. A sign advertises a multimillion-dollar duplex apartment for sale above a thrift shop.</p> <p>At Zucker&rsquo;s Bagels and Smoked Fish, the bulletin board bristles with advertising for yet more businesses, these mostly too small for storefronts&mdash;&ldquo;At-Home Pilates,&rdquo; &ldquo;Marlene&rsquo;s Cleaning,&rdquo; &ldquo;LSAT Tutor,&rdquo; &ldquo;Need Child Care?&rdquo; &ldquo;Learn HTML.&rdquo; Someone is even trying to turn the poster business into a business&mdash;&ldquo;Get paid to post flyers!&rdquo;</p> <p>Perhaps 60 percent of the businesses are newly created in the past decade. At least one, a grocer, has been there since 1885.</p> <p>The contrast with ground zero, where a government agency was in charge of rebuilding and a decade later there are still no buildings complete or businesses open, is stark. Of course, the challenges of the ground zero site itself were and are much greater, including the sensitivities of victims&rsquo; families. And government provided some incentives in the neighborhood that surrounded the site as well. But the greatest incentives were the potential rewards that come to entrepreneurs who pursue their dreams in a free enterprise system.</p> <p>Had the cleverest government urban planner or even Disney Imagineer tried to plan this neighborhood from scratch, it would have never happened this way. A pediatric endocrinologist&rsquo;s office next to a bar? Luxury housing above thrift-shops or around the corner from check-cashing joints? A barbershop six feet wide, so narrow that the barbers need to stop clipping mid-cut and pivot aside to make way for incoming customers to squeeze by into the open chairs deeper inside? Who would approve those plans? Never mind the hassle of signing separate leases with dozens of little-known small businessmen of unknown creditworthiness rather than pursuing a few long-term deals with large, well-known companies.</p> <p>Yet when the decisions are left to dozens of individual property owners and potential renters rather than to central planners or quasi-public development corporations, deals have a way of getting made, and risks have a way of getting taken. The quirky, dynamic energy that draws visitors to New York wins out. The city does more than merely recover. It prospers.</p> <p><em>Ira Stoll is editor of <a href=""></a> and author of <a href="">Samuel Adams: A Life</a>. This column <a href="">first appeared</a> at<br /></em></p> 1012193@ Tue, 06 Sep 2011 12:00:00 EDT (Ira Stoll) Trading Fertility for Prosperity <p>Historian Thomas Carlyle described economics as the dismal science, a pessimistic tag he came up with as he contemplated the predictions of 18th century&nbsp;economist Robert Thomas Malthus that population would always outstrip the food supply, leaving millions to starve. More recent research suggests that economics might better be called the cheery science. A new study finds that trade-induced economic growth leads to lower fertility and rising incomes&mdash;derailing Malthus' gloomy prognostications.&nbsp;</p> <p>The global average number of children that women had over the course of their lifetimes was about five in the early 1950s. Since then the average has&nbsp;<a href=";f=variableID:54">dropped by half to 2.5 children</a>&nbsp;per woman. As global fertility declined, the&nbsp;<a href="">value of world merchandise exports</a>&nbsp;[PDF] during the same period has soared by nearly 90 times. Coincidence? Bucknell University political scientist John Doces doesn&rsquo;t think so. in a new study, &ldquo;<a href="">Globalization and Population: International Trade and the Demographic Transition</a>&rdquo; published in the journal&nbsp;<em>International Interactions</em>,&nbsp;he argues that increasing international trade contributed to lowering fertility rates.</p> <p>Doces' findings differs from that of other scholars, notably the analysis by Brown University economist Oded Galor and colleagues. Galor argues that the demographic transition, the shift from high birth and death rates to low birth and death rates chiefly occurred in the rich countries that comprise the Organization for Economic Cooperation and Development (OECD) and not in poor countries.</p> <p>In his notorious "<a href="">An Essay on the Principle of Population</a>," Malthus suggested that people on average would produce as many children as they could feed, if not more. In modern econspeak, children are a normal good, i.e., as income increased demand for kids would also increase. But that isn&rsquo;t happening now.</p> <p>Instead, researchers have noted that as incomes increased, the number of children per woman has decreased. One possible explanation for this phenomenon is that the opportunity cost of raising children has risen over time. Opportunity cost is a benefit that must be given up to acquire or achieve something else; in this case, a parent would be foregoing the extra income he or she would earn working and instead spend the time rearing a child. In this analysis the price of children measured in foregone income rises over time lowering demand for them.&nbsp;</p> <p>However, Galor&nbsp;<a href="">points out</a>&nbsp;[PDF] that in the initial stages of the industrial revolution as incomes were increasing in Western Europe, average fertility was increasing, just as Malthus predicted. (In contrast,&nbsp;<a href="">U.S. fertility rates</a>&nbsp;appear to have been falling throughout the 19th&nbsp;century from 7 children per white woman in 1800 to 3.5 in 1900.) Galor suggests that the opportunity cost argument for fertility decline is too simple. If income were the key determinant, one would find that fertility should fall as any country reaches a specific level of average per capita income. Instead, Galor notes that at the end of the 19th&nbsp;century, fertility rates begin to plummet simultaneously for a number of Western European countries at very different per capita income levels.</p> <p>Galor argues that fertility began to fall as Western European economies developed increased demand for human capital during what he calls the second phase of the industrial revolution. In this analysis, initial increases to average incomes produced by technological progress resulted in parents increasing both the quantity and quality of their children. However, toward the end of the 19th&nbsp;century, Galor asserts, &ldquo;further increases in the rate of technological progress induced a reduction in fertility, generating a decline in population growth and an increase in the average level of education.&rdquo; Parents began to invest in quality over quantity.</p> <p>As economic growth was increasingly fueled by the development of ever more complicated technologies and management services, the premium to education began to increase. The result is that parents switched from having more children to investing in higher quality (more educated) children.</p> <p>OECD economist Fabrice Murtin, using data from 71 countries from 1870 to 2000, recently estimated in his study, &ldquo;On the Demographic Transition,&rdquo; [downloadable&nbsp;<a href="">here</a>] that &ldquo;education, rather than income or health-related variables, is the most robust determinant of the birth rate, potentially explaining about 50 to 80 percent of its decrease when average schooling grows from 0 to 10 years.&rdquo; Galor cites data showing that the percent of British children ages 6-14 who were in school rose from about 10 percent in 1860 to more than 80 percent by 1895.</p> <p>So far, so good. But Galor argues that at the turn of 20th&nbsp;century international trade encouraged fertility rates to fall further as rich countries began to specialize in the production of the sorts of goods that required a lot of human capital to make. On the other hand, poor countries increasingly specialized in goods that required a lot of manual labor to produce. The result was rising incomes for both rich and poor countries, but a fateful divergence in fertility trends.</p> <p>During the 20th century, fertility rates basically continued to fall in rich countries as they invested in more human capital, especially in higher levels of education. In addition, as demand for human capital grew in rich countries, schooling expanded to include women who then entered the paid workforce. This further raised the opportunity costs of having children and encouraged further fertility reductions.</p> <p>Meanwhile poor countries channeled a larger share of their gains from increased international trade into producing more children. As a consequence, &ldquo;the demographic transition in these non-industrial economies has been significantly delayed,&rdquo; asserts Galor, &ldquo;Increasing further their relative abundance of unskilled labor, enhancing their comparative disadvantage in the production of skill-intensive goods, and delaying their process of development.&rdquo;</p> <p>In the second half of the 20th&nbsp;century many poor countries began to see rapid declines in their fertility rates. Doces looks at recent data from a large number of countries and finds that those that are most open to international trade are the ones experiencing the fastest decline in their fertility rates. Doces argues that the primary cost of having children is the time and money it takes to raise them which leaves parents less time to consume other goods. International trade expands the types and lowers the costs of the goods people can enjoy. The cost of rearing children does not decline substantially so they become more expensive relative to the new opportunities and goods afforded by increased international trade.</p> <p>In addition, Doces cites&nbsp;<a href="">research</a>&nbsp;[PDF] that shows &ldquo;increasing international exchange and communication create new opportunities for income-generating work and expose countries to norms that, in recent decades, have promoted equality for women.&rdquo; As a result, trade-induced demand for human capital expands to include women, further cutting fertility rates even in poor countries.</p> <p><a href=""> Recent research</a>&nbsp;by University of Helsinki economists Ulla Lehmijoki and Tapio Palokangas bolsters the finding that in the short run trade liberalization boosts birth rates, but in the long run it cuts fertility. Again, largely because it encourages the development of women&rsquo;s human capital (education), which makes child-bearing relatively more costly.</p> <p>In the mid-20th&nbsp;century, some economists promoted the autarkic import-substitution development fad that involved imposing high tariffs on imports and the creation of state-owned manufacturing enterprises. The Helsinki researchers suggest that import substitution may have &ldquo;slowed down capital accumulation and thereby prolonged the period of high population growth&rdquo; in countries that adopted such policies.</p> <p>History shows that a world without trade is impoverished, ignorant, misogynistic, and overpopulated relative to available resources. That&rsquo;s the world that&nbsp;<a href="">our ancestors lived in</a>&nbsp;[PDF]. In the modern era, trade liberalization promotes a virtuous cycle that boosts incomes, raising the value of education, resulting in the protection of women&rsquo;s rights, and eventually inducing a fall in fertility rates. That&rsquo;s really good news from the science formerly known as "dismal."</p> <p><em><a href="mailto:rbailey&#64;">Ronald Bailey</a>&nbsp;is&nbsp;Reason&nbsp;magazine's science correspondent. His book</em>&nbsp;<a href="">Liberation Biology: The Scientific and Moral Case for</a>&nbsp;<a href="">the Biotech Revolution</a><em>&nbsp;is now available from Prometheus Books. This column <a href="">first appeared</a> at<br /></em></p> 1012136@ Tue, 30 Aug 2011 16:45:00 EDT (Ronald Bailey) China Derangement Syndrome <p>The 1979 book, <em>Japan As Number One: Lessons for America</em>, by East Asia scholar Ezra Vogel stoked fears that the United States was about to be outcompeted by the land of the rising sun. And why not? The United States had just suffered through a decade of stagflation and was about to enter what was then the worst recession since the Great Depression. By the late &lsquo;80s, the case seemed ironclad. &ldquo;I don't mean to be an alarmist, but I get the uneasy feeling that America is history,&rdquo; wrote Robert Kuttner, then the economics correspondent for <em>The New Republic,</em> in the <em>Los Angeles Times</em> in May 1988. Kuttner supplied evidence for his concern: &ldquo;The total value of stocks listed on the Tokyo stock exchange is now $3.54 trillion dollars, compared to $2.34 trillion for the New York Stock Exchange.&rdquo;</p> <p>In his 1988 book, <em>Trading Places: How We Are Giving Our Future to Japan and How to Reclaim It</em><em>,</em> former Reagan administration trade negotiator Clyde Prestowitz warned, &ldquo;The power behind the Japanese juggernaut is much greater than most Americans suspect, and the juggernaut cannot stop of its own volition, for Japan has created a kind of automatic wealth machine, perhaps the first since King Midas.&rdquo; (I confess that I was a producer for the national weekly PBS television program <em>American Interests</em> at the time on which we regularly featured Japan alarmists.)</p> <p>Two decades later, we know that the panic over Japanese economic competition was greatly exaggerated. Japan is not Number One and in fact as of last year it became Number Three, behind China.</p> <p>Twenty-five years ago, what the Japanophobes were worried about were the differential economic growth rates of the United States versus Japan. At times in the 1980s, <a href="">Japan&rsquo;s GDP</a> was growing at nearly 10 percent per year whereas the <a href="">GDP in the U.S.</a> was growing at a merely respectable 4 percent per year. (All figures are unadjusted for inflation.) In 1988, Japan&rsquo;s GDP was $3 trillion and the U.S. GDP was about $5 trillion. If Japan&rsquo;s economy continued to grow at 10 percent annually and the U.S. grew only at 4 percent, Japan&rsquo;s GDP would have exceeded that of the U.S. in just 10 years.</p> <p>Instead, the Japanese financial bubble burst. In 2011, Japan&rsquo;s GDP in current dollars is $5.5 trillion whereas U.S. GDP is nearly $15 trillion. Per capita GDP (adjusted for purchasing power parity) for Japan is $34,000 while the figure is $46,000 for Americans. Japan has suffered through essentially two decades of stagflation and no one is any longer recommending that the U.S. adopt Japanese style top-down industrial policy as an economic panacea.</p> <p>Now comes China. &ldquo;We are getting our clock cleaned by Chinese state capitalism,&rdquo; <a href=""> wrote</a> Robert Kuttner, now editor of <em>The American Prospect</em>, earlier this year at <em>The</em> <em>Huffington Post</em>. &ldquo;The U.S. could lose its status as the world&rsquo;s biggest economic power within five years,&rdquo; <a href=""> reported</a> <em>The Daily Mail</em> in April. The <em>Mail</em> article was based on calculations released by the International Monetary Fund projecting that total Chinese GDP will surpass U.S. GDP by 2016 on a <a href="">purchasing power parity</a> basis.</p> <p>Can that be? <a href=""> China&rsquo;s total GDP</a> is around $6 trillion today. Assuming 10 percent GDP growth for the next 20 years, China&rsquo;s GDP would rise to $40 trillion. If the U.S. economy grew at say, 3 percent per year, total GDP would be $27 trillion. Back in 2007, before the financial crisis, the investment bank Goldman Sachs issued a <a href=""> report</a> [PDF] that projected that Chinese GDP would be $26 trillion in 2030 compared to $23 trillion for the U.S. It bears noting that current Chinese purchasing power parity per capita is <a href="">about $6,000</a> compared to $46,000 for Americans.</p> <p>But it is unlikely that China&rsquo;s economy can sustain 10 percent economic growth for two more decades. Economic history suggests that once countries catch up with leading economies in terms of technologies and business management, growth slows down. In which case, China&rsquo;s growth might slow down to a mere 5 percent. Assuming sustained respective 5 percent and 3 percent growth rates for China and the U.S. for two decades, China&rsquo;s total GDP would reach $16 trillion, not $34 trillion. In 30 years, it would grow to $26 trillion, by which time U.S. GDP would be $36 trillion. In 40 years, China&rsquo;s GDP would $42 trillion and U.S. GDP would be $49 trillion. In 50 years, China&rsquo;s GDP would finally surpass that of the U.S. reaching $69 trillion compared to $66 trillion.</p> <p>Anyone who thinks that they know what the purchasing power parity might be between the two countries by 2060 is seriously deluded. These kinds of calculations can only provide rough scenarios for the economic future.</p> <p>As the recent history of Japan shows, it is possible to adopt economic policies that would cause our economy to stagnate for decades. In which case, China&rsquo;s GDP may well surpass ours sooner rather than later.&nbsp;</p> <p>On the other hand, China has picked most of the low-hanging fruit, economically speaking. Future productivity increases will not come from merely copying technologies developed in other advanced countries. In addition, growth depends on the kind of innovative management that can only thrive in open societies. Unless China makes the transition to an open society, its future is not growth, but stagnation. If it does make the transition, then China will not be a rival, but a partner.&nbsp;</p> <p><a href="mailto:rbailey&#64;"><em>Ronald Bailey</em></a> <em>is</em> Reason <em>magazine's science correspondent. His book</em> <a href="">Liberation Biology: The Scientific and Moral Case for</a> <a href="">the Biotech Revolution</a> <em>is now available from Prometheus Books. This column <a href="">first appeared</a> at<br /></em></p> 1012099@ Tue, 23 Aug 2011 17:30:00 EDT (Ronald Bailey) Small Steps Towards Recovery: EU-US Free Trade <p>There is no silver bullet to fixing the economy, and focusing on jobs by itself is not the right approach. We need a series of changes that promote growth, and a willingness to accept it will take a few years to see the seeds we plant today take root.</p> <p>Here is one small change that would help with economic growth:</p> <p style="padding-left: 30px;">While tariffs are already low between the U.S. and the EU, the enormous size of their economic relationship&mdash;$600 billion in trade and $2 trillion invested by companies in each other's markets every year&mdash;means that even small steps could yield significant gains in prosperity.<br /><br /> According to a report by the Brussels-based European Center for International Political Economy, a trans-Atlantic zero-tariffs initiative would increase combined U.S.-EU gross domestic product by $180 billion within five years. That's more added growth than either would receive from the completion of the Doha Round of multilateral trade talks. And while Doha is facing serious obstacles to its completion, a "Trans-Atlantic Zero" deal could be signed quickly. The issues that have held up bilateral trade pacts in the past&mdash;social, labor and environmental standards&mdash;should not matter between the U.S. and EU, which share roughly similar ways of organizing their societies.<br /><br /> Since one-third of trans-Atlantic trade occurs between branches of the same firm, eliminating tariffs on that trade would cut costs for both American and European companies and make them more competitive in global markets. That could help trans-Atlantic firms respond to the rise of Chinese, Indian, Brazilian and other emerging-market firms without resorting to protectionist measures.</p> <p>Read the whole argument from Peter Rashish <a href="" target="_blank">in the Wall Street Journal</a>.</p> 1012056@ Fri, 19 Aug 2011 08:07:00 EDT (Anthony Randazzo) The Turkish Model and Jasmine Revolution <p>The Turkish political model is unique and enviable to its troubled regional neighbors. Last month Turkey continued to set itself apart from its Arab neighbors as well as its central and southeast Asian brethren with another open, peaceful, pluralistic election strapped under its belt. The Turkish form of government grows exponentially in strength with each successful election and reduced threat of military intervention. But as a strictly followed playbook, it is a poor fit for the Arab world that has been thrown into turmoil by the Jasmine Revolution.</p> <p>Turkey is possibly the world's most politically stable Islamic country that has a pluralist secular democracy. And after decades of military interventions into the political sphere, Turkey appears to be turning a corner, as the Justice and Development Party (AK Party) won a third consecutive election with support from roughly 50 percent of the electorate.</p> <p class="MsoNormal"><span style="font-family:">Combined with a growing economy, a stable banking sector, a successful privatization program over the past several years, and increasing prominence in both NATO and the G-20, many have suggested the Turkish governance structure could be a model for Arab nations that are attempting to throw off decades of rule by the few to embrace democratic and liberalized reforms.</span></p> <p class="MsoNormal"><span style="font-family:">On first blush the idea is reasonable. Turkey shares many similar characteristics to Arab nations that are embroiled today in turmoil: it is predominantly Muslim, has a history of militaristic intervention in the political sphere, and has an affinity for strong leaders, such as Mubarak, Nasser, Qaddafi, Assad, and, naturally, Atat&uuml;rk.</span></p> <p class="MsoNormal"><span style="font-family:">But if you dig further into understanding the Turkish model, it becomes clear that the nation's unique secularism makes replication for any other country nearly impossible. The brilliance of the Turkish model is its ability to blend political Islam and a democratic government into a cohesive societal structure.</span>&nbsp;</p> <p class="MsoNormal"><span style="font-family:">The model finds its roots in the founder of the Turkish republic, Mustafa Kemal Atat&uuml;rk. He ensured the separation of mosque and state by abolishing Islamic law and making secular western-style reforms that paved the way for a secular government to flourish. Today, the ruling AK Party caries Atat&uuml;rk's vision of embracing Islam in society as a cultural identity but keeps it at arms length when setting public policy. The AK Party has spent the past 10 years working towards more economic and political freedoms, dramatically lowering Turkey's inflation rate, giving political rights to the Kurds, selling state enterprises, leading it into the top 15 economies globally, and dramatically improving relations with neighboring countries.</span>&nbsp;</p> <p class="MsoNormal"><span style="font-family:">The model is not without its challenges. It requires a constant tension between French-styled secularism, and the need to encourage freedom of religion expression. This is most profoundly played out in the public square </span><a href=""><span style="font-family:">through the debate</span></a><span style="font-family:"> over whether women should be allowed to cover their heads when entering public buildings.</span></p> <p class="MsoNormal"><span style="font-family:">The nature of the headscarf debate, however, is why Egypt, Libya, Tunisia, and Syria can't perfectly replicate the Turkish model. </span><span style="font-family:">Turkey's uniqueness lies in its secularized view of Islam.</span></p> <p class="MsoNormal"><span style="font-family:">Ninety-nine percent of the population is Muslim, yet the definition of being a Muslim is different in Turkey than other Middle Eastern countries. The main difference is that the Turkish government separates state and religion. They do not impose Shari'a law or allow political parties that seek to impose Islamic rules on the state. In contrast, Egypt names Islam as the state religion and claims Shari'a as the framework for its laws.<span style="mso-spacerun:yes">&nbsp;</span></span>&nbsp;</p> <p class="MsoNormal"><span style="font-family:">Given Turkey's primarily Muslim population there has long been a fear that Islamist leaning parties would undermine the state's secular foundations. The military initiated four coups between 1960 and 1997 to stem what it viewed as rise of political Islam (not to mention the failed </span><a href=""><span style="font-family:">e-coup of 2007</span></a><span style="font-family:">). The last of the coups was actually conducted through </span><a href=""><span style="font-family:">a memorandum</span></a><span style="font-family:"> that subsequently banned the ruling Welfare Party and dissolved the ruling coalition government. The secular leaning court system has struck down a number of political parties it viewed as outside the vision Atat&uuml;rk set out for the country, and it ruled that the Welfare Party </span><a href=""><span style="font-family:">should be banned</span></a><span style="font-family:"> "because of its actions against the principles of the secular republic."</span>&nbsp;</p> <p class="MsoNormal"><span style="font-family:">Today's AK Party is an outgrowth of the vanquished Welfare Party, and has faced judicial challenges of its own due to its leaders' inclinations towards Islam. However, outspoken Prime Minister Recep Erdo&#287;an has said time and again his party has no desire to implement Shari'a law or introduce political Islam into the government. Instead his party has pushed for more religious freedom, such as their push to end the ban on headscarves, as a part of an individual rights program meant to support Turkey's candidacy for the European Union.</span></p> <p class="MsoNormal"><span style="font-family:">If Turkey were to end the ban on headscarves it might make their political model a bit more compatible with Arab nations in revolt, as most Middle Eastern countries </span><span style="font-family:">highly esteem the hijab. For example in 2007 in Iran, the police began cracking down on women who were becoming lax about their dress. The police stopped pedestrians and cars warning them to wear the hijab and arrested them if they argued back. But there remain other differences.</span></p> <p class="MsoNormal"><span style="font-family:">Perhaps Turkey's most unique identifier is their geographical position. Turkey is at the crossroads between Europe and Asia making them an inherently strategic country. This is seen in Istanbul where the Bosporus strait connects Europe on the western side and Asia on the eastern side. Turkey uses its strategic location to act as a bridge in uniting the Eastern and Western worlds. </span><span style="font-family:">Turkish President Abdullah G&uuml;l </span><a href=""><span style="font-family:">says</span></a><span style="font-family: ">, "At a time that people are talking of a clash of civilizations, Turkey is a natural bridge of civilizations."</span></p> <p class="MsoNormal"><span style="font-family:">Taking advantage of their prime location, Turkey's ruling party has adopted a "zero problems with neighbors" approach to foreign policy. The AK party is working to mend relations with neighboring countries, such as Syria, Iran, and Armenia, where diplomatic ties have been strained or nonexistent in the past few decades. Foreign Minister Ahmet Davuto&#287;lu, who developed the new policy, </span><a href=""><span style="font-family: ">says</span></a><span style="font-family:"> that his goal in the Middle East is "to act as a force for stability in an unstable region." Turkey has taken action on this goal by increasing trade with the Middle East. In December 2010, the Turkish Confederation of Businessmen and Industrialists organized a conference in Istanbul where hundreds of businessmen from Turkey and the Middle East signed business deals to increase trade between the two countries. Most recently, Turkey signed a trade pact with Iran that could potentially be worth $30 billion. Turkey has taken advantage of their strategic location and is able to benefit from both the eastern and western sides of the globe.</span></p> <p class="MsoNormal"><span style="font-family:">Syria and Egypt's neighbors, including Israel, make this foreign policy goal much more difficult to achieve. The geographic irrelevance of Tunisia gives them a handicap. And though Libya's oil fields make them internationally significant, their internal political instability will need to be the primary focus before a foreign policy shift. The more radically motivated religious populous of Libya also makes it unlikely they will be able adopt the domestic politics of the Turkish model.</span></p> <p class="MsoNormal"><span style="font-family:">Egypt and other Arab countries certainly can use the Turkish model to the extent that they show Islam and democracy can coexist and be quite compatible. Trying to create an exact replica of the Turkish government, however, would be a mistake. Turkey's inherently strategic location at the crossroads between the East and West and secularized view of Islam have had such an impact on the government and mentality of the body politic that no other country would be wise to replicate it. Syria, Tunisia, Egypt, and other nations wrestling with reforming the future can take the core values that the Turkish model presents and adopt them al a carte as long as their goal is to create a more stable, politically liberalized, and economically free</span><span style="font-family:"> </span><span style="font-family:">system of governance.<span style="mso-spacerun:yes">&nbsp;&nbsp;</span></span></p> <p><em>Amanda L. Patterson is a junior at The King's College, New York City who recently participated in an international conference on Turkish-U.S. Relations at Bilkent University in Ankara, Turkey. Anthony Randazzo is director of economic research at Reason Foundation and coodinator of a new venture between Reason and Turkish think-tank Ankara Opinion and Research Center (ADAM).</em></p> 1011869@ Thu, 07 Jul 2011 15:30:00 EDT (Amanda L. Patterson) Free Trade, Without Apologies <p>International trade has been one of the most powerful forces for prosperity in the history of the world. But a lot of Democrats, including the one occupying the Oval Office, treat it as a mixed blessing at best, requiring reparations for the alleged victims.</p> <p>That's the source of the fight between the president and congressional Republicans over two things the White House wants: free trade agreements with South Korea, Colombia, and Panama and renewal of assistance to workers whose jobs disappear because of foreign competition.</p> <p>Republicans are agreeable to the trade deals. But the Trade Adjustment Assistance program, which doles out funds for extended unemployment benefits, job training, and relocation, is another story entirely.</p> <p>They think it amounts to largely wasting billions of dollars. They see no reason to hold free trade hostage to this boondoggle. And they're right.</p> <p>The argument for the program is that trade has many beneficiaries and a small number of victims, who ought to be compensated for their trouble. Most of us get richer from buying and selling in the international marketplace, and this program takes some of that extra wealth and spreads it around to the unlucky few who are worse off.</p> <p>But the logic has never stood up well to inspection. If a steelworker in Pennsylvania loses his job because of competition from Texas, he is just as unemployed as one whose competition comes from Brazil. Yet the latter gets special help and the former gets none.</p> <p>Capitalism is a dynamic system producing ceaseless change. Lots of people have been laid off because of big forces beyond their control&mdash;from the financial crisis to the housing bust to the price of fuel.</p> <p>They get considerable help in the form of unemployment insurance (which has been extended to up to 99 weeks for the current troubles). Why are those affected by trade entitled to additional consideration?</p> <p>The answer is political, not economic. To get lawmakers distrustful of global commerce to go along with trade agreements, presidents had to give them this program as compensation.</p> <p>But as compensation, it falls lamentably short. The purpose is to assure that jobless workers find well-paid new employment. In reality, it's no big favor to the recipients. The surprise is that for all the money spent ($1.3 billion this year), the program's impact is undetectable.</p> <p>In a new study published in the journal <em>Contemporary Economic Policy</em>, American University economists Kara Reynolds and John Palatucci found "no statistical evidence that the TAA program improves the average employment outcome of beneficiaries over a comparison group." It makes zero difference.</p> <p>Tying a renewal of this program to the new trade deals, which originated in the Bush administration, is particularly bizarre. It assumes that such agreements make some American workers at a disadvantage. The truth is that U.S. trade deals invariably require other governments to do the real heavy lifting.</p> <p>We're already largely open to imports. It's the rest of the world that isn't.</p> <p>At the moment, for example, farm products entering South Korea are subject to duties of 54 percent on average&mdash;compared to the typical U.S. rate of 9 percent. American-made cars face an 8 percent levy in South Korea; Korean cars shipped to the U.S. get off with 2.5 percent.</p> <p>These tariffs would either be abolished immediately or phased out over time, bringing both sides down to zero. We scrap low tariffs on their goods&mdash;while the Koreans get rid of high ones on ours. How could that be harmful to American industries and workers?</p> <p>Likewise with Colombia. Few Colombian goods pay any U.S. import duties at all, but our exports to Colombia get taxed at an average rate of 12 percent. Free trade means both sides go to zero. Panama? Same basic story.</p> <p>The value of free trade agreements deals is twofold. The first is to open up foreign markets to our exporters, who are projected to reap big sales gains from the new access. The second is to lower the cost of imports to consumers, which also tends to lower the price of goods made here at home.</p> <p>We could treat open commerce as a proven way to raise the living standards of all Americans, instead of pretending it's a dangerous foreign plot. But for many politicians, that's an impossible adjustment.</p> <p><strong>COPYRIGHT 2011 CREATORS.COM</strong></p> 1011882@ Mon, 04 Jul 2011 07:00:00 EDT (Steve Chapman) "Buy American" Is Un-American <p>Buy American! A conventional, well-intentioned, patriotically affirming sentiment. We've heard it all our lives. But unless you crave less competition, fewer choices, and higher prices, it's also a completely irrational one.</p> <p>Naturally, then, as we kick off "Recovery Summer! Part Deux," the chairwoman of the Democratic National Committee says that buying homemade cars is a matter of national importance. "If it were up to the candidates for president on the Republican side, we would be driving foreign cars," Rep. Debbie Wasserman Schultz explained while defending the protectionist auto/union bailout. "They would have let the auto industry in America go down the tubes." (And by "we," Wasserman Schultz, proud American, is talking about herself and her sweet Japanese-made Infiniti FX35.)</p> <p>As if that weren't enough, those who oppose this brand of corporate welfare, according to Wasserman Schultz, also reject the very idea of "American exceptionalism." Now, one might argue that those who claim we must bankroll a few politically favored companies because an entire manufacturing sector could collapse are the ones skeptical of American ingenuity, perseverance, and exceptionalism.</p> <p>But God, evidently, loves the Volt and the Volt only. And Americans&mdash;people who can do almost anything, including, but not limited to, electing politicians who keep rotten companies buoyant for political gain&mdash;have a patriotic duty to buy poorly conceived automobiles. You have an obligation to insulate Washington's favorite companies from responsibility. For God and for country, taxpayers must purchase cars from corporations that have not come close&mdash;despite the contention of the administration&mdash;to paying back what they already owe you.</p> <p>But hey, the car was assembled in Michigan. If that's not a sign of American exceptionalism, I don't know what is.</p> <p>Even if Wasserman Schultz's "Buy American" rhetoric were genuine, it would be severely misguided. Every time we overpay for an American-made product (whatever it is), don't we also spend less on an array of other services and products that create jobs at home? Real jobs. Self-sustaining jobs. If we all mechanically bought American, wouldn't we allow manufacturers to avoid competition and rely on their locations rather than the excellence of their products? Sounds like the opposite of exceptionalism.</p> <p>Companies on the dole also have incentive to please their benefactors in Washington&mdash;a place that has the power to offer more handouts or to stifle competition. Like much of modern liberalism these days, a socially responsible outcome is far more important than a profitable one. Business is for social good, not for profit-mongering. We have no clue what's good for us, anyway. These companies, though, have less incentive to keep prices low or to innovate or to meet consumer demand.</p> <p>Nobel Prize-winning economist and <em>New York Times</em> columnist Paul Krugman once explained in his book <em>Pop Internationalism</em> 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"&mdash;buy union because taxpayers subsidize GM and it pays workers and they subsidize unions that subsidize the right candidates. A mutually beneficial exchange.</p> <p>Or maybe&mdash;like most Americans, however inclined they are to embrace populist rhetoric regarding trade during tough times&mdash;Wasserman Schultz acts rationally when spending her own money. Now if only that rationality could seep into her political life, we'd be a lot better off.</p> <p><em>David Harsanyi is a columnist at The Blaze. Follow him on Twitter &#64;davidharsanyi. <br /></em></p> <p><strong>COPYRIGHT 2011 CREATORS.COM</strong></p> 1011741@ Wed, 01 Jun 2011 12:00:00 EDT (David Harsanyi) Is China Faltering? <p>Could China be faltering?</p> <p>Chris Kuehl, chief economist for the <a href="">Fabricators &amp; Manufacturers Association</a>, recently noted that the rapid growth of China's manufacturing base has come with costs. Moreover, Chinese productivity is still lower than the U.S. and productivity continues to improve rapidly here. According to <a href="">comments reported in ThomasNet News</a>&nbsp;(May 18, 2011), Kuehl sees China struggling to keep productivity up and wages low enough to compete. (See also the article <a href="">here</a>.) <a href="">According to Kuehl</a>,</p> <div style="line-height: 200%; text-indent: 0.5in; margin: 0in 0in 0pt; padding-left: 30px;"><span style="color: black;">&ldquo;The Chinese built quickly on a base of low wage workers and significant government assistance as well as a very low valued currency that has allowed the growth of the export economy,&rdquo; he says. &ldquo;The future is not looking so positive for the Chinese, however. Wages are growing at 17 percent annually, while in the U.S. they are growing at 3 percent. </span></div> <div style="line-height: 200%; text-indent: 0.5in; margin: 0in 0in 0pt; padding-left: 30px;"><span style="color: black;">&ldquo;That is just for the average worker&rsquo;s wage,&rdquo; he stresses. &ldquo;If one looks at the managerial levels and among skilled workers, the rate of Chinese wage growth is about 135 percent per year; in the U.S. that same group is seeing wage growth of 3.7 percent. The Chinese pay scale is still far less than in the U.S., but that gap is closing very fast.&rdquo;</span></div> <div style="line-height: 200%; text-indent: 0.5in; margin: 0in 0in 0pt; padding-left: 30px;"><span style="color: black;">Kuehl admits China has made great strides in terms of productivity &ndash; an improvement of 10 times in the last 20 years. Yet, he claims, this still leaves China at a third of the productivity the U.S. boasts, and the U.S. is seeing productivity gains of almost 8 percent per year these days. </span></div> <p>China's transportation infrastructure is almost all outwardly oriented to facilitate an export economy. Transportation systems designed to grow the domestic economy are much weaker. (Based on our direct experience in China, we would concur.)&nbsp;</p> 1011697@ Sat, 28 May 2011 08:16:00 EDT (Samuel Staley) Tracking China: Census 2010 <p>Wendell Cox has a revealing and accessible <a href="">summary of the major demographic trends facing China from the nation's 2010 census</a>. Increasing wealth and the one child policy has helped dramatically reduce population growth rates, Wendell contends. Now, 50 percent of China's population lives in cities, implying 50 million more people live in cities than the United Nations projected for 2010. Notably, the "floating population"--migrants how lack formal registration--increased by 100 million to 220 million (about two thirds of the total U.S. population).</p> <p>More interestingly, 83 percent of the population migration has been to the eastern and coastal provinces. This shouldn't be a surprise since this is where the vast majority of the job growth has been since the reforms opened up China's economy in the late 1970s. What is surprising, however, is that some internal provinces and municipalities such as Chongqing (where Reason has a research project) and Chengdu (Sichuan Province) are not experiencing similar rapid growth. Their populations are falling. These provinces in Central China are targets of the national government's growth initiatives.</p> 1011614@ Wed, 04 May 2011 14:19:00 EDT (Samuel Staley) â??No Nation Was Ever Ruined By Tradeâ? <p>The headline is a quotation from Benjamin Franklin, who added, &ldquo;Even seemingly the most disadvantageous.&rdquo; Franklin believed that free trade was good for everybody. In the 21st century lots of Americans and their <a href=""> politicians</a> believe the opposite: Being open to trade allows rapacious corporations to &ldquo;ship jobs overseas.&rdquo;</p> <p>In the 2010 mid-term elections, the Democratic National Committee <a href=""> rolled out</a> a television ad campaign accusing various Republican candidates of favoring policies that shipped jobs overseas. More recently, Senate Majority Leader Harry Reid (D-Nev.) <a href=""> declared</a>, &ldquo;I think we should do a lot more to stop shipping jobs overseas.&rdquo; In the meantime, the Doha Round of international trade negotiations has been on the <a href=";fsrc=rss"> brink of collapse</a> for a while, <a href=""> sparking fears</a> the freer trade system painstakingly built over the last 50 years might begin to unravel.</p> <p>A new study, <a href=""> </a><a href="">Trade and Unemployment: What Do the Data Say?</a>, by three European economists published in the journal, <em>European Economic Review</em> in March, forthrightly asks the question: <em>Does exposure to international trade create or destroy jobs?</em> Their answer strongly backs the observation made by Franklin more than 230 years ago. &ldquo;A 10 percent increase in total trade openness reduces aggregate unemployment by about three quarters of one percentage point,&rdquo; they conclude. To be a bit more precise, they find, &ldquo;A 10 percentage point increase lowers the equilibrium rate of unemployment by about 0.76 percentage points.&rdquo; Trade creates jobs.</p> <p>In general, the higher a country&rsquo;s volume of international trade, the higher is its degree of openness. Trade openness is generally measured by adding together the value of both exports and imports and dividing that sum by total gross domestic product (GDP). Crudely, let&rsquo;s say an economy imports $10 billion annually and exports $10 billion annually and has a total GDP of $100 billion. That would yield a trade openness index figure of 20 percent. Another country with a GDP of $100 billion exports $15 billion and imports $15 billion, yielding a trade openness index of 30 percent.</p> <p>Roughly speaking, U.S. GDP was $15 trillion in 2010, and exports and imports combined totaled just over $4 trillion, yielding a trade openness index figure of 27 percent. Without going into detail, the European economists derive a real trade openness index by taking differing price levels among countries into account.</p> <p>The researchers then compare the relative trade openness of 20 developed countries in the Organization for Economic Cooperation and Development with their unemployment rates over time. They take into account other factors such as union membership, national employment protection policies, tax rates on wages, and the generosity of unemployment insurance.</p> <p>The researchers report that generous unemployment benefits correlate slightly with higher unemployment, suggesting that workers have less incentive to look hard for work. Also, high unemployment correlates with the size of the tax wedge, that is, the difference between what employees take home in earnings and what it costs to employ them. Basically, this means the higher the income tax rate, the higher the level of unemployment.</p> <p>The researchers go on to analyze the effect of freer trade on a selection of 62 developing countries. They take into account features like the size of the black market economy and whether a country is landlocked or not. Again, they find that openness to trade boosts employment, concluding that &ldquo;the effect of a 10 percentage point increase in openness lowers unemployment by about 1 percentage point.&rdquo;</p> <p>So why does free trade create more jobs? The study suggests that freer trade boosts overall productivity, enabling companies to hire more workers. Trade enhances competition which weeds out inefficient firms and allows more productive ones to expand. As the average efficiency of firms in a country increases, they can earn more revenues by boosting production. And that leads to hiring additional workers.&nbsp;</p> <p>To get some idea of how much opening international trade further would benefit people, economists at the Peterson Institute for International Economics in Washington, D.C., calculate that concluding the Doha Round of free trade negotiations could boost global GDP between <a href="">$165 billion and $283 billion</a> per year.</p> <p>So why do people, especially politicians, believe the opposite? The 19th century French economist Frederic Bastiat explained this sort of disheartening policy myopia his brilliant essay, &ldquo;<a href="">What is Seen and What is Not Seen</a>.&rdquo; People tend to focus on the seen consequences of a policy, in this case, competition from trade eliminating some jobs at relatively inefficient companies.</p> <p>But they miss the unseen benefits, such as new jobs that result from increased average productivity. Naturally, the people who lose their jobs are worried and angry, so they call their member of Congress to complain about &ldquo;unfair&rdquo; trade. Fearing that they may lose their jobs, the denizens of Capitol Hill seek to enact legislation to block imports or mandate &ldquo;Buy American&rdquo; to protect their complaining constituents against &ldquo;unfair&rdquo; trade. In politics, as in much of life, the squeaky wheels get oiled.</p> <p>The seen result of this political dynamic is that a few workers get to keep their jobs while the unseen outcome is that more people are out of work than would otherwise have been. In addition, protectionist legislation makes other Americans worse off by forcing them to spend more because they are denied access to cheaper and better exports. Our politicians get it backwards: Trade creates jobs for Americans and everyone else.</p> <p><em>Science Correspondent</em> <a href="mailto:rbailey&#64;"><em>Ronald Bailey</em></a> <em>is author of</em> <a href="">Liberation Biology: The Scientific and Moral Case for the Biotech Revolution</a> <em>(Prometheus Books). This column <a href="">first appeared</a> at<br /></em></p> 1011613@ Tue, 03 May 2011 16:30:00 EDT (Ronald Bailey) US Missing Huge Opportunity by Not Opening Up Trade With Turkey <p>Something was missing from Francisco Sanchez&rsquo;s speech on boosting trade with the Middle East last month. Obama&rsquo;s Trade Czar highlighted the UAE, Saudi Arabia, and Qatar as excellent prospects for freeing up economic relations with the US, but for some reason the world&rsquo;s 17th largest economy and biggest non-oil economic force in the Middle East was absent: Turkey.</p> <p>As a leading emerging market in terms of stability, with a growing footprint in the financial world, the Republic of Turkey is not just a causal NATO ally. Nor is it just a member of Goldman&rsquo;s &ldquo;Next 11&rdquo; investable equity markets. It is an economic power with massive potential for partnership with the United States.</p> <p>Turkey&rsquo;s economy has been growing strongly for the past decade, and the Turkish government has realized this, attempting to open up commercial relations with other countries to continue this growth at an ever-quickening rate. Turkey signed a free trade agreement (FTA) with Lebanon in November of 2010 and has numerous other FTA proposals pending, in addition to its participation in the European Customs Union. Even Iran recently announced it would seek to triple its trade volume with Turkey in 2011 and remove all barriers to trade.</p> <p>The United States ignores economic partnership with Turkey at its own loss. While Turkish exports to the US have stagnated since 2001, Turkish exports to the EU, Middle East, North Africa, and the Balkans have all increased by threefold in the same period. These countries have realized the advantages of freer trade with Turkey and are currently reaping the benefits.</p> <p>With persistent unemployment plaguing American households the gains of free trade with Turkey are pointedly sharp. Free trade means lower Turkish tariffs on exported American goods, especially American food and agricultural products (which are currently at about 18%). Some other tariff examples include motor vehicles (10%), tennis shoes (17%), and cotton (7%).</p> <p>Getting rid of these taxes would lower prices and increase demand, allowing American companies to expand their business in the ever-growing Turkish consumer market. This would also make capital investments in Turkey more attractive, opening up a wealth of opportunities. Increased demand and sales for American companies would then lead to creating jobs and stimulating the economy in the process.</p> <p>The benefits of free trade are not only better, less expensive products in Istanbul and Izmir, freer trade would lower (or eliminate) US tariffs on Turkish imports into the US. Some products such as Turkish clothing currently cost between 15% and 20% more because of import duties. These tariffs are laid on American consumers; taking them away would allow Americans to pay less on everything from wool coats (16% tariffs) and leather goods (6%) to pillows (5%) and baby clothes (9%).</p> <p>Some have argued that lowering US tariffs would create more competition for American companies and hurt workers here. However, considering that Turkey is a world leader in the apparel and leather industries, countless American businesses would see their input costs lowered by removing the taxes on imports from Anatolia. This would make business more profitable (read: more money to expand and hire laborers) while potentially lowering costs for American consumers as well.</p> <p>Plus, Turkish firms in the US hire American workers. Companies such as Sarar, a predominantly menswear store with locations across the country, and Goldas, a jewelry manufacturer headquartered in New York, are subject to these high import duties. Eliminating such duties would allow them to grow their business in the US, where they would hire more Americans and provide business for other American companies, such as equipment manufacturers or maintenance firms.</p> <p>The US currently has FTAs with 17 countries. Close military allies (Israel), Muslim countries (Jordan), and emerging economies (Chile) are all represented. These pacts remove most tariffs and other technical trade barriers, but they also attempt to facilitate cooperation and education efforts, illustrating to businesses the opportunities that exist and cutting down on the costs of market research.</p> <p>Opening up trade with a country who is being compared to rising economic powers such as Brazil and South Korea is a no-brainer for the United States, especially considering the aforementioned economic benefits of free trade. Now that the Obama administration has made the Middle Eastern economy a trade priority, there is little reason to not consider Turkey for an FTA. Other countries have realized the gains of increased trade with Turkey. If the government continues to dawdle on trade with Turkey, it will indeed miss this fantastic opportunity to provide a much needed shot in the arm to the American economy.</p> 1011351@ Fri, 11 Mar 2011 00:00:00 EST (Joshua Newell)