Friday, February 8, 2008

David Ranson on "The Candidates and Trade"

Many voters have one major issue that acts as a sorting mechanism during elections. For some it's abortion. Others would pick healthcare, defense, subsidies, religious affiliation, or whether the candidate has a sufficient hatred of Mexicans.

Kinky Friedman (see my profile in the top right corner) was on an AM talk radio station earlier this week, and had several noteworthy comments:
1) Texas governor Rick Perry will be remembered for his hair.
2) If we go into November with a choice between John McCain and Barack Obama, our electoral process will have done its job.

Friedman went on to explain that both McCain and Obama supported Free Trade more than their inter-party competitors, and gave a brief tutorial on the importance of that issue as it relates to our economy.

Later that night, I found an editorial on the same topic but from a much less respected source than Kinky Friedman. You may have heard of The Wall Street Journal. Here's David Ranson:

Ronald Reagan once joked that "government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it!" His quip cuts to the heart of the free-trade debate. Which of the presidential contenders are in favor of facilitating economic movement?

There are only two. McCain and Obama.

Trade is a good litmus test of statesmanship, since many polls show that voters believe trade with other countries hurts our economy.

Those polls are correct. Polls also show that people care about who wins on American Idol and Dancing With The Stars. Polls depress me. I'm afraid that they reflect reality.

Which of the presidential candidates will stick up for free trade in the face of doubtful and sometimes hostile audiences?
During their debates, some of the Republican candidates expressed more ifs, ands or buts about free trade than others. John McCain says: "Free trade should be the continuing principle that guides this nation's economy."

I heard McCain say the same thing on Charlie Rose about a month ago. This was when I switched from being a Rudy supporter to a Rudy basher. Rudy and Romney claimed during a debate that we needed to continue Iowa Farm Subsidies in the name of "Food Security". Sorry Rudy. From that moment on, my heart belonged to another....Just don't know who yet.

Mitt Romney's position is: "I strongly support free trade, but free trade has to be fair in both directions."

Mitt, we hardly knew ye. The only fair trade IS free trade. If trade is burdened by the subsidies you've given to your supporters or to industries in early primary states, that's not fair. If trade is burdened by high tariffs for the same corrupt reasons, that's not fair.

Thank you for running in the Republican Primary, Mitt. Go back to Massachusetts and start reprogramming yourself for 2016. And have some Thomas Sowell, Milton Friedman, and Thomas Friedman programmed into your database.

According to Mike Huckabee: "I believe in free trade, but it has to be fair trade." But elsewhere he has said: "I don't want to see our food come from China, our oil come from Saudi Arabia and our manufacturing come from Europe and Asia."

Why not, Mike? What if they're better at it than we are? What about the things that we're better at than they are? Why not keep your grubby Southern Baptist hands off of it, and let everyone do what they do best?
Your Bible was written in Asia.
Scientology's "Dianetics" and Joseph Smith's "The Book of Mormon" were both written in The U.S.A.
The implications are staggering, aren't they?

Hillary Clinton has taken an even stronger stance against free trade, suggesting that the economic theories underpinning it no longer hold. To support that she cited economics Nobel Laureate Paul Samuelson, but he was only making the long-understood but sometimes forgotten point that, even in the long run, free trade does not benefit everyone.

Correct. Just like the invention of the automobile didn't benefit horseshoe manufacturers.

Mrs. Clinton believes in "smart trade." As president she would appoint an official to ensure that "provisions to protect labor and environmental standards" are enforced by international bodies like the WTO and the International Labor Organization. She proposes a "time out" on future trade agreements, and a reconsideration of existing deals -- including Nafta.

Hear that clanging sound? That's the racket made by The Clintons picking up the treasury and trying to shake the last few coins out of it.

Barack Obama is more even-handed: "Global trade is not going away, technology is not going away, the Internet is not going away. And that means enormous opportunities, but [it] also means more dislocations." In a 2005 essay he said: "It's not whether we should protect our workers from competition, but what we can do to fully enable them to compete against workers all over the world."

Why haven't we heard from this guy until now? Why isn't he a Republican? Why hasn't Barack Obama already blown Bill Clinton out of the water?

If Messrs. McCain and Obama see foreign trade as a glass that is half-full, Mrs. Clinton, Mr. Romney and Mr. Huckabee see the glass as half- empty.

It also works well as a brain metaphor.

The costs that foreign competition impose on the economy have led to government spending programs, and around these have grown powerful constituencies devoted to maintaining and erecting barriers to trade. Farm subsidies protect immobility and hurt prosperity by diverting resources away from cheaper foods (foreign or domestic) toward more expensive ones. Trade adjustment assistance falls partly under the heading of facilitating movement, because it underwrites job retraining and income support for those who seek better opportunities than the jobs they lost.
It was courageous of Mr. McCain to tell Iowans that he would eliminate subsidies for ethanol and other agricultural products.

John McCain went into Iowa, and told everyone asking for a kickback that he would eliminate their subsidies. If he'll do that, he'll march to the gates of Hell and tell Satan to go have relations with himself. THAT is The Straight Talk Express in action.

Instead, he expressed strong support for job retraining programs: "We need to go to the community colleges. We even need, if you're a senior laid-off worker who gets another job, to make up in compensation for the amount of money that's the difference between the job that he lost."

Yeah, he had to do a little pandering....

This last idea goes far beyond helping workers and industries adapt to a changing world. A broad program of wage insurance could create another expensive constituency. Moreover, it would weaken the incentive to seek out the most productive and rewarding new jobs, and it would be unfair to those whose jobs have been disrupted by causes other than foreign trade.

Yeah, he just had to do a little pandering. It wasn't supposed to make sense.

Mr. Romney sometimes advocates less government intervention, other times more. In an optimistic speech in Detroit, he said "that Michigan can once again lead the world's automotive industry. But it means we're going to have to change things in Washington."

No, Mitt, you'll have to start in Detroit. Detroit priced itself out of the market. See, if we were to restructure the.....Wait a minute....Mitt, you're dropping out of the race? You're no longer parachuting into town halls promising the sun, moon and stars to every special interest group? We don't have to worry about your blather any longer? Good.

Rightly pointing out that "the burdens on American manufacturing are largely imposed by government," Mr. Romney believes "taking off those burdens is only part of the solution."
But he will not leave the rest to the marketplace. He pledges to "make a five-fold increase -- from $4 billion to $20 billion -- in our national investment in energy research, fuel technology, materials science, and automotive technology." He also says he would maintain U.S. farm-subsidy programs until other countries remove theirs.

I know he's out of the race, but I have to make this point: Let's say that Kroger's has Cokes on sale for 20 cents each. At Albertson's, they cost a quarter. Kroger is subsidizing their Cokes with the sale of other, more expensive products. Should the government intervene and insist that Albertson's subsidize their Cokes also? Or should the government act to force Kroger to sell their Cokes only at a fair price? Or should the government stay out of it, and continue doing what governments do worst?

The Democratic candidates do not speak of reducing or eliminating farm-subsidy spending, only of redirecting it toward the "little guy."

This is because they need contributions from The Big Guy so they can do further harm to The Little Guy in the name of fairness. Look into the cost vs. selling price of sugar when you get a chance.

According to his Web site, Mr. Obama "will make sure our farm subsidies help family farmers, not giant corporations." He envisages "a national commitment to prepare every child in America with the education they need to compete in the new economy; to provide retraining and wage insurance so even if you lose your job you can train for another." These are laudable goals, but they sound impossibly expensive.

Yeah, more pandering.

On willingness to let the markets rather than government drive the adaptation of the economy to foreign competition, Messrs. McCain and Obama outscore Mr. Romney. On willingness to confront politically entrenched but trade-unfriendly policies such as farm subsidies, Mr. McCain beats both Messrs. Obama and Romney.
Still, there's one final insight that even the most enlightened candidates have not grasped: the automatic reciprocity of markets. Opposition by Mr. Romney to the phasing-out of U.S. farm subsidies until other countries phase out theirs reflects a seductive theme in all free-trade debates -- "fairness."

Allow me to reframe the debate...."We're not going to stop shafting our low income shoppers with subsidies for the rich until you stop shafting your low income shoppers with subsidies for the rich." Please discuss amongst yourselves.

Fears that the U.S. does not always get a fair shake are widely shared. Says Mr. Romney: "As we pursue new trade agreements, I'm far less interested in just getting an agreement signed than I am in getting an agreement signed that is good for America."

God, I'm glad he's gone. Screw the agreements. Just let us trade and swap stuff with each other. You don't have to turn everything into a 2,500 page document filled with provisions and freebies for all your contributors.

Government policy can influence trading patterns, but it can't force them. Politicians like Mr. Romney tend to feel most at home in a command-and-control environment. But they are living in a dream world if they think they can either dictate or enforce the patterns of trade. The rough justice of the markets will decide.

Yep. And the longer we wait to figure that out, the further behind we're going to be. China and India are figuring out the basics. We're not along on the stage any more.

It's widely assumed that trade opportunities will be unfair unless balance is negotiated with foreign governments. Not so. U.S. imports and exports are tied into an integrated market system. The economy must export goods (or sell off assets) to pay for the imports it chooses. Because the system pays for its imports with exports, reciprocity is automatic. If imports are taxed or obstructed, that acts as an obstruction to exports too. We need a president who is wise enough to recognize that protectionism impedes our exports as well as our imports.

Thank you, Mr. David Ranson. We can't keep going with these trade agreements that slow everything down. Remember that crap about the future being divided between the Haves and the Have-Nots? Not so. The future will be divided between The Fast and The Slow.

The candidates should not forget that whatever Washington does will be imitated (or retaliated against) by other countries. What goes around comes around. It's up to the U.S. to set the best example.

And the best example would be John McCain or Barack Obama.

David Ranson is head of research at H.C. Wainwright Economics Inc.

No comments: