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Trump’s Trade Critics Don’t Offer Better Options

August 21, 2019 in Economics

By Michael D. Tanner

Michael D. Tanner

Democrats running for president have certainly not hesitated to
criticize President Trump’s trade policies.

There is a good reason for the rhetoric. Several recent studies,
from researchers at Harvard, Columbia, the IMF, and two different
branches of the Federal Reserve, have all concluded that the
tariffs imposed by President Trump on China and others have indeed
hurt American consumers and threatened economic growth domestically
and internationally. For instance, scholars at Columbia, Princeton,
and the New York Fed found that the Trump tariffs had reduced U.S.
real income by $1.4 billion per month by the end of 2018.

In response — or perhaps just because Americans have a
reactive response to any Trump policy — polls suggest that
support for free trade is on the rise. A Monmouth poll found that
52 percent of Americans in 2018 think free-trade agreements are
good for the United States, a dramatic increase when compared to 24
percent in 2015.

Democrats are right to
disagree with Trump. Too bad they don’t bring any good ideas to the
table.

But what exactly are the Democratic presidential candidates
proposing as an alternative? Their policies — as opposed to
their words — don’t seem all that different. In fact, some of
the Democratic plans may be even more restrictive.

For example, many experts believe that the best way to restrain
China would be to join with our regional allies in some sort of
block, similar to the Trans-Pacific Partnership (TPP). And there is
reason to believe that our allies would be happy to have us join
the pact. But with the exception of extreme long-shot
Representative John Delaney, every major Democratic candidate
either joins Trump in opposing the TPP or is highly critical of the
current negotiation. Even former vice president Joe Biden won’t
commit to the treaty his administration negotiated.

Biden’s change in position is just his latest concession to the
special interests and unions that dominate the Democratic
primaries. He once voted for normal trade relations in China,
NAFTA, and pushed for the Trans-Pacific Partnership, but no
longer.

Nor is it just the TPP that Democrats oppose. Like Trump, most
of the major Democrats oppose NAFTA. But, with the exception of
Beto O’Rourke, they also oppose Trump’s renegotiation of NAFTA
(renamed the United States-Mexico-Canada Agreement, or USMCA). Most
Democrats have also opposed other, bilateral trade deals, such as
those with Korea and Colombia.

The left flank of the Democratic party is even more anti-trade.
Elizabeth Warren, for instance, wants the focus of trade to be on
labor, the environment, and, ironically, consumers. She wants the
U.S. to trade only with countries that have signed the Paris
Agreement …read more

Source: OP-EDS

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Macri’s Kiss of Death: Argentina’s Peso and the IMF

August 20, 2019 in Economics

By Steve H. Hanke

GDP

Steve H. Hanke

Yesterday, the ticket of Alberto Fernandez and Christina
Kirchner crushed the hapless President of the Argentine Republic
Mauricio Macri in a primary election. Their victory virtually
guarantees that the Fernandez-Kirchner team will occupy the Casa
Rosada after the presidential election scheduled for October.

For many, including the pollsters, Sunday’s results were a
stunner. Not for me. I have been warning for over a year that
gradualism, which is Macri’s mantra, is a formula for political
disaster. If that wasn’t enough, the Argentine peso is another time
bomb that has sent many politicians in Argentina into early
retirement. And, to add insult to injury, Macri called in the
“firefighters” from the International Monetary Fund (IMF) to
salvage the peso. These three factors sealed Macri’s fate.

As it turns out, this movie has been played over-and-over again
in Argentina. Argentina has seen many political gradualists bite
the dust. What makes Macri unique is that he advertised gradualism
as a virtue. Macri and his advisers obviously never studied the
history of economic gradualism. When presidents are faced with a
mountain of economic problems, it’s the Big Bangers who
succeed.

As for the venom that can be injected by a peso crisis, the
instances of the poison delivered by that snake bite are almost too
numerous to count. To list but a few of Argentina’s major peso
collapses: 1876, 1890, 1914, 1930, 1952, 1958, 1967, 1975, 1985,
1989, 2001, and 2018.

It is noteworthy that the frequency of peso crises picked up
after the establishment of the Central Bank of Argentina (BCRA) in
1935. With that, serial monetary mismanagement ensued. The chart
below tells the BCRA story. Before the BCRA, Argentina (the peso)
held its own against the United States (the dollar), with the
respective per capita GDPs being roughly equal in 1935. But, after
the BCRA entered the picture, a great divergence began. Now, the
U.S. GDP per capita is roughly three times higher than that of
Argentina.

The BCRA’s most recent monetary mishap occurred last year, when
the poor peso lost 58% of its value against the greenback from the
start of 2018 until the end of May 2019. What was behind that
collapse? On Macri’s watch, no less, the BCRA had been
surreptitiously financing the government’s deficit spending. It did
this through the sterilization of increases in the net foreign
asset component of Argentina’s monetary base. This was done via the
sale of bonds issued by the BCRA (LEBACS). The sterilization (and
financing of the government’s deficit) was on a massive scale. In
the January 2017-May 2018 period, the BCRA sterilized 50% of the
total increase in the foreign asset component of …read more

Source: OP-EDS

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Offer More Visas to People Coming Across the Southern Border

August 20, 2019 in Economics

By Alex Nowrasteh

Alex Nowrasteh

While President Trump’s immigration rhetoric continues to focus
on the need to build a southern border wall, his administration is
quietly pursuing a policy that could provide a lasting solution to
the ongoing migrant surge.

The Department of Labor recently signed an agreement with Guatemala to increase bilateral
cooperation for the H-2A visa program for low-skilled Guatemalans.
By providing transparency and accountability measures, such as
ensuring that labor recruiters are bona fide and vetted, the
agreement paves the way for more Guatemalans to come legally.

The administration should sign similar agreements with the other
Northern Triangle countries, El Salvador and Honduras, which are
responsible for the overwhelming number of migrants, as well as
exempt them from H-2A seasonality requirements. Historical
experience suggests increasing legal immigration options would
reduce the number who come illegally.

The Trump administration
could end the Central American border surge by shelving unhelpful
border wall boasts in favor of doubling down on sound H-2A visa
policy initiatives.

The H-2A visa is for seasonal workers in agriculture. It offers
low-skilled migrants the best — and in many cases only
— opportunity to come work in the U.S., while also addressing
the acute labor shortage faced by American farmers. The Trump
administration seems to recognize that economic migration can be
channeled into this legal system.

That’s important, because the surge of Central American migrants
is not correlated with murder rates in their home countries and most arrivals aren’t referred to asylum interviews. Central
Americans are primarily being pushed out of their home countries by
a poor economy — exacerbated by the crash in coffee prices
— and drawn in by a booming labor market here.

Neither of these push nor pull migration factors are going to
change soon, so diverting the migrants onto legal H-2A worker visas
is key to meaningfully fixing the situation on the southern
border.

For proof of the effectiveness of H-2A visas in stemming illegal
migration, the Trump administration can consult recent history.
Legal Mexican migration on expanded H-2A and H-2B (seasonal,
non-agricultural) visas dramatically reduced illegal Mexican
immigration over the last two decades. As the U.S. government
increased the annual number of H-2 visas for Mexicans from 56,090
in 2000 to 242,582 in 2018, Mexican illegal immigration fell from
over 1.6 million in 2000 to almost 137,000 in 2019 so far — a
91% drop.

During that time, a single additional H-2 visa for a Mexican
worker is associated with 2.6 fewer Mexicans apprehended —
controlling for border enforcement.

“Most of my friends go with visas or they don’t go
at all,” said Mexican …read more

Source: OP-EDS

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Save the Endangered Species Act with Common Sense

August 20, 2019 in Economics

By Randal O’Toole

Randal O’Toole

The Endangered Species Act has been called the strongest environmental law Congress has ever written because it gives the government almost unlimited power to regulate private landowners with the objective of saving wildlife, fish, and even insects. Environmental groups that relish seeing this law enforced are upset that the Trump administration is proposing to change how the law is administered.

The Fifth Amendment to the Constitution forbids the taking of private property for public use without compensation. The Endangered Species Act violates the spirit, if not the letter, of this amendment.

Under the law, if you have an endangered species on your land, or if the government thinks you might have an endangered species on your land, or if the government knows you don’t have an endangered species on your land but thinks that you might someday have that species on your land, then the government can so strictly regulate your land that you can’t get any economic use out of it. For example, the government told Louisiana landowners that they couldn’t develop their property because it was defined as “critical habitat” for a rare frog — even though the frog didn’t, and couldn’t, live on the land without completely removing existing trees and replacing them with other species.

Effectively, the government is requiring some private landowners to house and feed certain species of wildlife at the landowners’ expense. Moreover, the government can force this without providing any compensation at all. The law doesn’t require the government to consider the cost of its regulation, so government officials can write overly strict rules just in case it might help a species.

Yet there is little evidence that giving the government this power has done much to save species. The few species that have recovered from danger did so mostly for other reasons.

[pullquote]Those who truly want to save rare species should support revisions to the law that give people incentives to save species without imposing the costs on a handful of landowners.[/pullquote]

For example, America’s symbol, the bald eagle, was once considered endangered. But scientists agree that it recovered primarily because the Environmental Protection Agency banned the use of the pesticide DDT a year before the Endangered Species Act was passed.

Moreover, the Endangered Species Act may actually do more harm than good to endangered species. To avoid regulation, the law gives private landowners incentives to do everything they can to keep endangered species …read more

Source: OP-EDS

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Maryland Case Reveals Religious Discrimination in Education

August 20, 2019 in Economics

By Neal McCluskey

Neal McCluskey

If government says that you are free to believe in something,
but not to act on it, you are not truly free. That reality lies at
the heart of a federal lawsuit filed by the Bethel Christian
Academy against the state of Maryland, which kicked the academy out
of a private school voucher program for having policies consistent
with the school’s religious values. Such unequal treatment is
unacceptable.

Immediately at issue are the school’s policies requiring that
students and staff behave in ways consistent with the idea of
marriage being between a man and a woman, and an individual’s
proper gender being the one assigned at birth. The state maintains
that those policies are discriminatory against LGBTQ individuals
and that allowing public money – school vouchers from the state’s
BOOST program – to flow to Bethel Christian is unacceptable.

The state’s position is totally understandable: All people
should be treated equally when government is involved. The problem
is that the state government is not treating religious people
equally – a problem in the public education system not just in
Maryland, but in every state in the country.

It would be better if
Maryland had a scholarship tax credit program than a voucher. Then
taxpayers could choose to direct their education dollars to
religious institutions and get a credit for it, rather than all
taxpayers having some sliver go to religious institutions, like it
or not.

How does the current education system discriminate against
religious people? Everyone is forced to pay for public schools -
government run and funded schools – but those institutions cannot
be religious in nature. They can teach about religion, but even
that is very difficult because public schools must not be perceived
as even incidentally promoting any religious precepts, much less
being openly guided by them. In other words, non-religious people
can get the education they want from the government schools for
which they must pay, but religious people cannot.

There is an excellent reason for prohibiting the endorsement of
religion by public schools: In a diverse society, it would
inevitably end up with government favoring one person’s religion
over another’s. Indeed, for much of our history public schools did
exactly that, typically favoring Protestantism over Catholicism,
Judaism, atheism and so on. The current system no longer favors
Protestantism, instead favoring secularism over religion, a
violation of government’s mandate to be neutral with regard to
religion. Most famously, a public school can teach that the theory
of evolution is true, but not creationism, a religious
explanation.

If government can neither favor nor disfavor religion, what is
it to do? As long as it is going to fund …read more

Source: OP-EDS

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Forget "Checkbook Diplomacy" and Bring the Troops Home

August 20, 2019 in Economics

By Ted Galen Carpenter

Ted Galen Carpenter

President Trump is once again beating the drums about the need
for greater burden-sharing by U.S. allies. The latest example is
his demand that South Koreans pay “substantially
more
” than the current $990 million a year for defraying the
costs of American troops defending their country from North
Korea. 

This is not a new refrain from the president. Most of Trump’s
spats with NATO members have focused on the financial aspects of
burden-sharing. Yet the nature of his complaints leads to the
inescapable conclusion that if allies were willing to spend more on
collective defense efforts, he would have no problem maintaining
Washington’s vast array of military deployments around the
world.

Trump’s obsession with financial burden-sharing misses a far
more fundamental problem. Certainly, the tendency of U.S. allies to
skimp on their own defense spending and instead free ride on the
oversized American military budget is annoying and unhealthy. But
the more serious problem is that so many of Washington’s defense
commitments to allies no longer make sense-if they ever did. Not
only are such obligations a waste of tax dollars, they needlessly
put American lives at risk, and given the danger of nuclear war in
some cases, put America’s existence as a functioning nation in
jeopardy. American military personnel should not be mercenaries
defending the interests of allies and security clients when their
own country’s vital interests are not at stake. Even if treaty
allies offset more of the costs, as Trump demands, we should not
want our military to be modern-day Hessians. 

Donald Trump wants our
allies to pay more, but outdated overseas defense obligations are
the real problem.

Unfortunately, the current situation is not unprecedented.
During the Persian Gulf War, President George H.W. Bush expressed
satisfaction that allied financial contributions offset most of
Washington’s expenses. That was undoubtedly true. Indeed, according
to some calculations, the United States may have ended up with
modest
profit
. Kuwait and Saudi Arabia were especially willing to
contribute financially to support the U.S.-led military campaign to
expel Saddam Hussein’s forces from Kuwait. Japan, still agonizing
over the alleged limitations on military action that its “peace
constitution” imposed, asserted that while it could not send
troops, it would contribute funds to the war effort. All three
countries practiced rather blatant “checkbook
diplomacy
.”

The Persian Gulf War was surprisingly short, and U.S. forces
incurred far fewer casualties than anticipated. However, the
immediate costs were merely the beginning of an expanded
American security role
 in the Middle East that has proven
to be disastrous. The checkbook diplomacy payments of 1990 and 1991
did not even begin to offset those horrendous, ongoing costs in
treasure and blood. 

Financial considerations …read more

Source: OP-EDS

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Terrorist 'Safe Havens' Are a Myth — and No Reason for Continuing the War in Afghanistan

August 19, 2019 in Economics

By John Glaser, John Mueller

John Glaser and John Mueller

America’s longest war may be coming to an end. Although
major obstacles remain, the Trump administration’s
negotiations with the Taliban, led by U.S. special envoy Zalmay
Khalilzad, have made progress toward an agreement that would
include a U.S. military withdrawal. In July, President Trump said “it’s ridiculous”
that we’re still in Afghanistan after almost two decades of
stalemate. His 2020 Democratic challengers seem to agree —
most have called for an end to the war — and fewer and fewer
Republicans are willing to defend it.

But one persistent myth continues to frustrate the political
momentum to end the war and may inhibit the impending debate over
withdrawal. It is by far the most common justification for
remaining in Afghanistan: the fear that, if the Taliban takes over
the country, the group will let Al Qaeda reestablish a presence
there, leaving the terrorist organization to once again plot
attacks on the United States.

Experts have effectively contended that, although 9/11 was
substantially plotted in Hamburg, Germany, just about the only
reason further attacks like that haven’t taken place is that
Al Qaeda needs a bigger territorial base of operations — and
that such a base will inevitably be in Afghanistan.

Virtually all promoters of the war in Afghanistan have stressed
this notion. Barack Obama applied it throughout his presidency.
Gen. David H. Petraeus, who commanded American forces in
Afghanistan, recently contended that a U.S. withdrawal is still premature and would
risk leaving behind a haven for terrorist groups comparable to the
rise of Islamic State following the U.S. withdrawal from Iraq in
2011, according to a Wall Street Journal op-ed he
co-wrote.

Trump reflected this thinking as well when he authorized an
increase of troops to Afghanistan in his first year in office. His
“original instinct,” he noted, was
“to pull out,” but his advisers had persuaded him to
believe that “a hasty withdrawal would create a vacuum that
terrorists … would instantly fill, just as happened before”
the Sept. 11 attacks.

This key justification for staying in Afghanistan has gone
almost entirely unexamined. It fails in several ways.

To begin with, it is unlikely that a triumphal Taliban would
invite back Al Qaeda. Its relationship with the terrorist group has
been strained since 1996 when Osama bin Laden showed up with his
entourage. The Taliban extended hospitality, but insisted on
guarantees that Bin Laden refrain from issuing incendiary messages
and from engaging in terrorist activities while in the country. He
repeatedly agreed and broke his pledge just as frequently. Veteran
foreign correspondent Arnaud de Borchgrave said he was “stunned by …read more

Source: OP-EDS

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Economic Populism on the Left and Right Is Poisoning US Political Discourse

August 16, 2019 in Economics

By Ryan Bourne

Ryan Bourne

In a 1964 US Supreme Court case, Justice Potter Stewart famously
realised the difficulty of defining hard-core pornography.
Conscious of setting an arbitrary threshold for
“obscenity”, he admitted defeat, concluding:
“Perhaps I could never succeed in intelligibly doing so. But
I know it when I see it …”

Economic populism is similarly hard to define. Yet there is
plenty of it around in the US and, whether it be Democrat
presidential candidates Elizabeth Warren
and Bernie
Sanders on the Left or President Donald Trump and Fox News host
Tucker Carlson on the Right, we should know it when we see or hear
it. The stakes mean it’s too important not to.

Plenty of conventional descriptions of economic populism are
inadequate. Often the term is used to signal disapproval of a
policy idea — a sort of “neoliberalism” moniker
for the age of Trump and Brexit. Left-wing chattering classes
believe that both are “populist” movements, and thus
anything they do must, by definition, be “populist”
too. For these commentators, populism is just another term for
demagoguery.

Others wrongly see populism as synonymous with widely popular,
but misguided, “common sense” economic ideas, such as
“cutting immigration to raise wages”. Its defining
feature is supposedly how it ignores or dismisses the knowledge of
professional economists, exemplified by Michael Gove’s
declaration that “we’ve had enough of experts”.
Populism’s opposite, in this view, is technocracy or
“expert rule.”

But neither of these definitions get to the heart of trends
dominating American politics. Listen to Trump or Warren long enough
and clear patterns emerge that trigger your inner economic populism
alarm.

Most obvious is the way issues are framed. Populists pitch
themselves as true representatives of “the people”,
struggling to overcome some “elite” who undermine
“the people’s” interest. Populism’s first
characteristic is to divide society between a supposed broad
interest and an establishment elite quelling it.

Villains and their supposed crimes can differ. For Elizabeth
Warren and Bernie Sanders, those rigging the system to our
detriment are the rich; mega-corporations; fossil fuel companies;
big tech; and pharmaceutical firms. They supposedly buy elections,
resist needed welfare programs, rewrite regulations in their
interests, stitch up trade deals that undermine workers, rip off
consumers and profiteer off our health.

For Trump and Carlson, the nefarious elites instead are the
Chinese, the cultural America-loathing Left, useless past
negotiators and presidents, international institutions and, again,
big tech companies. Their misdeeds? Selling out or ripping off
American workers on trade; wanting to flood the country with
migrants who hate it; and stamping out conservative voices on
social media.

A key feature of populism
as a “thin ideology” then is the idea of an
elite working against broad majoritarian interests. …read more

Source: OP-EDS

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An Old-Fashioned Recipe for Economic Growth

August 16, 2019 in Economics

By Chelsea Follett, Marian L. Tupy

Chelsea Follett and Marian L. Tupy

With the recent inversion of the yield curve sparking recession
fears in the United States and the stock market swinging wildly in
response to the ongoing trade negotiations with China, some are
wondering if the longest economic expansion in American history may
soon come to an end. Those uncertainties bring renewed urgency to
the age-old question at the heart of economics: what creates
wealth?

Throughout most of human history, there was almost no wealth.
People were very poor, and there weren’t that many of us. While our
species is roughly 300,000 years old, for the first 290,000 years
or so we were foragers barely scraping by. Even after Homo
sapiens
embraced agriculture, progress was still painfully
slow. But then, suddenly, population skyrocketed, followed shortly
by an explosion in income and standards of living.

Between 1700 and 1900, the world’s population rose from about
600 million people to about 1.5 billion people. Between 1800 and
1900, GDP per person per day doubled. Income grew over twice as
much in that century as in the preceding 18 centuries combined. The
two trends of rising income and population are related.

It is obvious how wealth allows for a larger population, but
could a larger population in turn also create more wealth? The
answer is yes — so long as people are allowed to innovate.
The computer or tablet or smartphone on which you are reading this
op-ed is the product of a complex web of human innovation and
cooperation that spans the globe.

People have been innovating since the australopithecines left
the African forests — carrying primitive weapons — some
seven million years ago. Moreover, we have been specializing at
least since Homo erectus some two million years ago. Yet
economic progress was very slow. So, what did the species do
differently in the last 250 years or so? What allowed humanity at
last to fully realize its innovative potential to create
wealth?

To figure out what caused the wealth explosion, we need to
consider where and when the change began. Economic growth started
to accelerate some 250 years ago, first in Great Britain and the
Netherlands, then the rest of Western Europe and North America, and
finally the rest of the world. What happened?

There are different theories, many of them complementary. The
Nobel-prize-winning economist Douglass North contends that the
evolution of institutions, including constitutions, laws, and
property rights, was instrumental to economic development.
Economist Deirdre McCloskey attributes the wealth explosion, or the
“great enrichment,” to a change in attitudes about
markets and innovation. Long scorned as vulgar, merchants and
inventors began to enjoy respect and institutional protection
— what she calls “bourgeois …read more

Source: OP-EDS

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Do Oren Cass’s Justifications for Industrial Policy Stack Up?

August 15, 2019 in Economics

By Ryan Bourne

Ryan Bourne

Oren Cass wants the U.S. government to adopt a manufacturing-focused “industrial
policy.”

In a speech at the National Conservatism conference last month,
the Manhattan Institute scholar explicitly repudiated the view that
resources are usually best allocated by voluntary market trades
between consumers and producers.

No, said Cass, “market economies do not automatically allocate
resources well across sectors.” Some “vital sectors…suffer from
underinvestment” as a result and, though naturally imperfect, a
“sensible industrial policy” could improve on the outcomes we
currently experience.

A belief that there is such widespread “market failure” to be
corrected through the government thumbing the scale might sound
familiar to those with knowledge of the socialist economic planning
debates. Cass baulks at the idea the socialist label can be
thrown at him. But he has not yet answered the central questions
this analogy poses: Why is the government better placed to decide
the industrial composition of the economy than the interaction of
consumers and producers? And would the political system deliver an
economically-reasoned industrial policy in practice?

Some industrial policy advocates rightly state that
current policy is more interventionist than we would like, and
replete with incentives, subsidies, and tax breaks that could be
considered a de facto industrial policy for the economy
already.

But Cass’s case is not merely a criticism of how current policy
operates, or seeking to level the playing field. He explicitly says
that markets do not allocate funds effectively, thus
implying an explicit manufacturing-focused industrial strategy
from government would be desirable even if today’s current
distortions were eliminated.

Yet his speech gives no indication of how we might judge how
well or badly resources are currently allocated across sectors, nor
a measure of how we could judge whether there is indeed currently
“underinvestment” within them.

Oren Cass asserts that
markets cannot generally allocate resources efficiently by
industry. Yet he provides no meaningful metrics to show this is the
case, nor shows why his policies would deliver better
outcomes.

The closest he gets is a throwaway line about the size of
manufacturing in U.S. output (12 percent) being smaller than in
Germany (23 percent) and Japan (19 percent). No evidence is
presented for why these levels are optimal or even better.

Without this kind of information, how are we to judge Cass’s
industrial policy prescriptions and whether they achieve his goals?
Is economic efficiency his aim? Employment? Or something else?

In the absence of meaningful metrics for success, we must
instead assess the likelihood of what he foresees as the social and
economic benefits from a manufacturing-focused policy shift.

The Supposed Benefits of Manufacturing

Manufacturing, which he defines as making “physical things”
(traditional manufacturing, …read more

Source: OP-EDS