Category Archives: Public Policy and Governance

The President’s Stupid Trade War

Remember Trump’s declaration that “trade wars are good, and easy to win”? How about “I am a Tariff Man,” or his repeated (inaccurate) claim that foreigners pay tariffs.

Have we ever had a less-informed President? (That’s a rhetorical question. Obviously, being ignorant is one contest Trump wins in a walk.)

Let Paul Krugman explain Trump’s fallacies.

Over the course of 2018 Trump imposed tariffs on about 12 percent of total U.S. imports, and many of those tariffs have been in effect long enough that we can get a first read on their consequences.

On Saturday economists from Columbia, Princeton, and the New York Federal Reserve released a paper, “The impact of the 2018 trade war on U.S. prices and welfare,” that used detailed import data to assess the tariffs’ impact. (The paper, by the way, is a beautiful piece of work.) The conclusion: to a first approximation, foreigners paid none of the bill, U.S. companies and consumers paid all of it. And the losses to U.S. consumers exceeded the revenue from the new tariffs, so the tariffs made America poorer overall.

Krugman explains the essential findings of the cited paper, with graphs–you should click through for the details–and then gives examples.

Consider the following example: pre-tariff, the U.S. imports some good from China that costs $100. Then the Trump administration imposes a 25% tariff, raising the price to consumers to $125. If we just keep importing that good from China, consumers lose $25 per unit purchased – but the government raises an extra $25 in taxes, leaving overall national income unchanged.

Suppose, however, that importers shift to a more expensive source that isn’t subject to the tariff; suppose, for example, that they can buy the good from Vietnam for $115. Then consumers only lose $15 – but there is no tariff revenue, so that $15 is a loss for the nation as a whole….

Putting it all together, the Trump tariffs have raised consumer prices, rather than depressing foreign earnings. Some revenue has been gained, but there has also been what amounts to tax avoidance as consumers turn to other, untaxed sources of what we used to import. But this tax avoidance itself comes at a cost, so the U.S. as a whole is left poorer.

Now, the numbers aren’t that big. The new paper puts the net welfare loss at $1.4 billion a month, or $17 billion a year; that’s less than 0.1 percent of U.S. GDP. But winning it isn’t.

NPR and other media outlets have reported on the far worse effects of Trump’s tariffs on farmers–especially soybean farmers.

Stubbornly low crop prices have been exacerbated by the trade war that decimated the once-lucrative Chinese market for soybeans. China used to be the biggest buyer of U.S.-grown soybeans. But this year, in retaliation for similar U.S. tariffs on Chinese imports, China imposed a 25 percent tariff on imports of U.S. soybeans, resulting in a dramatic drop in shipments.

The American Soybean Association has elaborated on the problems. According to the organization, Trump’s actions have “rocked the foundation of a decades-old trade relationship” between U.S. soybean farmers and China, which has been the largest market for American beans. It has resulted in halted sales, plummeting crop prices, and a lack of security for farmers seeking funding for the 2019 season.

The value of U.S. soybean exports to China has grown 26-fold in 10 years, from $414 million in 1996 to $14 billion in 2017. China imported 31 percent of U.S. production in 2017, equal to 60 percent of total U.S exports and nearly one in every three rows of harvested beans. Over the next 10 years, Chinese demand for soybeans is expected to account for most of the growth in global soybean trade, making it a prime market for the U.S. and other countries.

U.S. soybean growers have realized a nearly 20 percent drop in soy prices since the threat of tariffs began last summer, and the future of soy growers’ relationship with China continues to be in jeopardy. China has pursued new means to procure soybeans and other protein crops, including maximizing soybean imports from other exporting countries, particularly Brazil.

Growers have taken to Twitter and other social platforms today with the hashtag #185DaysStillNeedTrade, along with the popular #RescindtheTariffs hashtag to continue demanding that the Administration bring an end to its lingering trade war with China and help restore certainty and stability to the soy industry.

Certainty and stability aren’t Trump’s strong suits, to put it mildly. Thanks a lot, “Tariff man.”

Measles, Lies And Politics

In our politically polarized country, it’s tempting to see arguments about the efficacy of medical interventions like vaccines as examples of “non-political arguments.” True, the less-kind among us (I plead guilty) tend to view “anti-vax” parents as deranged left-wing versions of rightwing conspiracy theorists, or less judgmentally, arguably sane but credulous people who haven’t had access to accurate information. We don’t, however, see this particular controversy as a particularly political argument.

A recent, very thoughtful article in The New Yorker disagrees, calling the measles vaccine a “quintessentially political issue.”

Vaccination is a basic political issue, because it is the subject of community agreement. When a high-enough percentage of community members are immunized, a disease can be effectively vanquished. In epidemiological terms, this is known as “herd immunity,” which cannot be maintained below a certain threshold. When enough people reject the community agreement, they endanger the rest. Willfully unvaccinated adults and children can spread diseases to those who cannot be vaccinated or haven’t been vaccinated, such as infants and people with a compromised immune system; these vulnerable populations would probably be safe in conditions of herd immunity. Vaccination and the refusal to vaccinate are political acts: individual decisions that affect others and the very ability of people to inhabit common spaces.

The author cites evidence that a majority of anti-vaxxers are educated white people who have ample access to credible public-health information and scientific studies about vaccination. Much like those who refuse to believe that climate change is real, they simply choose to reject the science; they choose not to believe the medical consensus. As Frank Bruni recently wrote in the New York Times,

Their recklessness and the attendant re-emergence of measles aren’t just a public health crisis. They’re a public sanity one, emblematic of too many people’s willful disregard of evidence, proud suspicion of expertise and estrangement from reason.

The irrationality triggered by anti-vaccination propaganda is yet another example of the current raging conflict between facts and lies in America–a conflict exacerbated by social media. According to the author of the article in The New Yorker, there are even some reports that Russian trolls have been exploiting anti-vax fears as part of the Russian effort to use disinformation to splinter American public opinion.

What would cause well-educated parents to believe that the entire scientific and medical community is lying to them about the risks of vaccination?

The article attributes this reaction to current levels of public distrust–distrust of authority, of government, and especially of a complex, overly-expensive, profit-driven medical system that has few incentives for robust public-health interventions.

The solution to under-vaccination lies not in getting the right kind of information and messaging to the “vaccine-hesitant” but in changing the politics of health care. Political agreement is unlikely among partners who do not trust each other, and near impossible when one side is explicitly profiting from the other. The American health-care system is ill-suited to protect public health, because a profit-driven industry cannot serve as the guardian of public good.

It’s hard for people to trust the credibility of pharmaceutical companies when those companies are jacking up the price of insulin and other life-saving drugs.

The role of trust is something to consider as lawmakers debate the pros and cons of “Medicare-for-All” and  universal systems like those in place in most other modern countries.

 

The Great Gatsby Curve

There’s nothing like being lectured about work by a “princess.”

Recently, Ivanka Trump responded to the introduction of the Green New Deal’s provision for a government jobs guarantee with a dismissive remark to the effect that Americans prefer to work for what they get, and want to live in a country with the potential for social mobility.

Paul Krugman was on the case.

O.K., this was world-class lack of self-awareness: It doesn’t get much better than being lectured on self-reliance by an heiress whose business strategy involves trading on her father’s name. But let’s go beyond the personal here. We know a lot about upward mobility in different countries, and the facts are not what Republicans want to hear.

The key observation, based on a growing body of research, is that when it comes to upward social mobility, the U.S. is truly exceptional — that is, it performs exceptionally badly. Americans whose parents have low incomes are more likely to have low incomes themselves, and less likely to make it into the middle or upper class, than their counterparts in other advanced countries. And those who are born affluent are, correspondingly, more likely to keep their status.

As Krugman notes, Americans like to believe that we “made it on our own,” that we “pulled ourselves up by our bootstraps” (a phrase that tends to infuriate me, since it entirely ignores the fact that large portions of the American public don’t have anything that could remotely be considered “bootstraps.”)

Then he provides the data.

Among advanced countries, there is a strong negative correlation between inequality and mobility, sometimes referred to as the “Great Gatsby curve.” This makes sense. After all, huge disparities in parents’ income tend to translate into large disparities in children’s opportunities.

And people do, by the way, seem to understand this point. Many Americans don’t realize how unequal our society really is; when given facts about income inequality, they become more likely to believe that coming from a wealthy family plays a big role in personal success.

I had never run across the “Great Gatsby curve,” but it makes sense. Everyone who raises children implicitly understands that those children’s prospects are tied to the quality of the education we provide for them, very much including the enrichment that comes with their extra-curricular experiences. That’s why homes in districts with good schools sell at a premium, why parents shell out eye-popping amounts for summer camps, music lessons and sports equipment.

The “princess” may be unaware that large numbers of Americans simply cannot afford those things–and when they can’t, social mobility suffers accordingly.

Back to the “potential for upward mobility”: Where do people from poor or modest backgrounds have the best chance of getting ahead? The answer is that Scandinavia leads the rankings, although Canada also does well. And here’s the thing: The Nordic countries don’t just have low inequality, they also have much bigger governments, much more extensive social safety nets, than we do. In other words, they have what Republicans denounce as “socialism” (it really isn’t, but never mind).

To put it in terms even a clueless Princess might understand, a generous social safety net provides the bootstraps that allow people to pull themselves up.

 

More About Economic Systems

A comment posted to yesterday’s blog noted that I had not defined capitalism. Fair point.

The following description is from my last book, Talking Politics? What You Need To Know Before Opening Your Mouth, in which I included the following descriptions/comparison of capitalism and socialism.

Capitalism is defined as an economic and political system in which a country’s trade and industry are controlled by private owners for profit. It is characterized by free markets, where the prices of goods and services are determined by supply and demand, rather than set by government. Economists often define the ideal of free trade as a transaction between a willing buyer and a willing seller, both of whom are in possession of all information relevant to that transaction.

Understanding the importance of free trade to capitalism is important, because it defines the proper role of government in a capitalist system—as an “umpire” or referee, ensuring that everyone plays by the rules. For example, Teddy Roosevelt reminded us that monopolies distort markets; if one company can dominate a market, that company can dictate prices and other terms with the result that those transactions will no longer be truly voluntary. If Manufacturer A can avoid the cost of disposing of the waste produced by his factory, by dumping it into the nearest river, he will be able to compete unfairly with Manufacturer B, who is following the rules governing proper waste disposal. If Chicken Farmer A is able to control his costs and gain market share by failing to keep his coops clean and his chickens free of disease, unwary consumers will become ill. Most economists agree that in order for markets to operate properly, government must act as an “umpire,” assuring a level playing field.

This need for government is a response to what economists call “market failure.” There are three situations in which Adam Smith’s “invisible hand” doesn’t work: when monopolies or corrupt practices replace competition; when so-called “externalities” like pollution harm people who aren’t party to the transaction (who are neither buyer nor seller); and when there are “information asymmetries,” that is, when buyers don’t have access to information they need to bargain in their own interest. Since markets don’t have built-in mechanisms for dealing with these situations, most economists argue that regulation is needed.

Economists and others often disagree about the need for particular regulations, but most do agree that an absence of all regulatory activity undermines capitalism. Unregulated markets can lead to a different system, sometimes called corporatism. In corporatist systems, government regulations favoring powerful corporate interests are the result of lobbying by corporate and monied special interests that stand to benefit from them. You might think of it as a football game where one side has paid the umpire to make calls favorable to that team.

Socialism is the collective provision of goods and services. The decision whether to pay for certain services collectively rather than leaving their production and consumption to the free market can be based upon a number of factors. First, there are some goods that free markets cannot or will not produce. Economists call them public goods, and define them as both “non-excludable” –meaning that individuals who haven’t paid for them cannot be effectively kept from using them—and “non-rivalrous,” meaning that use by one person does not reduce the availability of that good to others. Examples of public goods include fresh air, knowledge, lighthouses, national defense, flood control systems and street lighting. If we are to have these goods, they must be supplied by the whole society, usually through government, and paid for with tax dollars.

Not all goods and services that we provide collectively are public goods. Policymakers have often based decisions to socialize services on other considerations: we socialize police and fire protection because doing so is generally more efficient and cost-effective, and because most of us believe that limiting such services only to people who can afford to pay for them would be immoral. We socialize garbage collection in more densely populated urban areas in order to enhance the livability of our cities and to prevent disease transmission.

Getting the “mix” right between goods that we provide collectively and those we leave to the free market is important, because too much socialism hampers economic health. Just as unrestrained capitalism can become corporatism, socializing the provision of goods that the market can supply reduces innovation and incentives to produce. During the 20th Century, many countries experimented with efforts to socialize major areas of their economies, and even implement  socialism’s extreme, communism, with uniformly poor results. Not only did economic productivity suffer, so did political freedom. (When governments have too much control over the means of production and distribution, they can easily become authoritarian.)

Virtually all countries today have mixed economies. The challenge is getting the right balance between socialized and free market provision of goods and services.

 

 

My Timing Is Terrible

As some of my readers know, I ran for Congress in 1980. (I even won a Republican primary–and I was pro-choice and pro-gay-rights. That wouldn’t happen in the cult that has replaced the GOP of which I was a member!)

At the time, defense policy was an issue; among the positions I took was that , if we must have a  draft, it should include women. (You are beginning to see why I lost the election.)

Well, it is now 39 years later, and a court has concluded that I was right. Not that the army is rushing to comply with the court’s ruling.

AUSTIN, Texas (AP) — The chairman of a panel considering changes to the U.S. military draft said Monday its recommendations to Congress won’t be influenced by a federal judge’s recent ruling that the current system is unconstitutional because it only applies to men.

The military has not drafted anyone into service in more than 40 years, but American men must still register when they turn 18. Recent efforts to make registration also mandatory for women have set off intense debate in Washington.

I have my concerns about our current all-volunteer army, which depends far too heavily on “contractors” (aka mercenaries), and enlists disproportionate numbers of poor kids who have few options while demanding no sacrifice from more comfortable ones. But that’s a post for a different day.

U.S. District Judge Gray Miller declared a male-only draft unconstitutional in his ruling late Friday, but he stopped of ordering the government to make any immediate changes. He said the time for debating “the place of women in the Armed Forces” is over. Women now make up 20 percent of the Air Force, 19 percent of the Navy, 15 percent of the Army and 8.6 percent of the Marines, according to Pentagon figures.

Among the many changes we have experienced since 1980, the nature of war and the identity of the threats America faces have changed rather dramatically. It will be interesting to see whether attitudes about the capacities and obligations of men and women have changed enough to enlarge the draft as well.

The decision comes as Congress awaits a report next year from an 11-member commission to study the issue of selective service. It is chaired by former Nevada Rep. Joe Heck, who personally supports that women also be required to register for the draft.

Heck said the ruling won’t influence its report or hurry along the eventual recommendations to Congress. He described a generational divide in public comments his commission has collected about women and the draft.

“If you talk to those who would be impacted, that is males and females ages 18 to 25, they say, ‘yes, women should have to register. It’s a matter of equality,’” Heck said. “If you talk to an older population, they’re the ones who seem to be reluctant.”

The lawsuit in Texas was brought by the National Coalition for Men, a men’s rights group. The Defense Department lifted the ban on women in combat in 2013, and Miller stopped of ordering the government to take any immediate action with the draft in his ruling late Friday.

The last major decision on selective service was the U.S. Supreme Court ruling in 1981 that upheld excluding women because they were not allowed to serve in combat at the time.

“While historical restrictions on women in the military may have justified past discrimination, men and women are now ‘similarly situated for purposes of a draft or registration for a draft,’” Miller wrote. “If there ever was a time to discuss ‘the place of women in the Armed Services,’ that time has passed.”

My time, on the other hand, may be at hand…