On the Radio: Unemployment Numbers

Today at 5:45 CT/6:45 ET, I’ll appear on the Lars Larson show to talk about today’s new unemployment numbers release, and what policies can strengthen the economy going forward.

For the short version, see this press statement from CEI, or a short article quoting me in Reason.

Bastiat on Trade and National Security

From page 86 of the Liberty Fund edition of Frederic Bastiat’s collected works, Economic Sophisms and “What Is Seen and What Is Not Seen”:

“What will we do in case of war,” [French] people say, “if we are subject to England’s discretion with regard to iron and coal?”

Monopolists in England, for their part, unfailingly proclaim:

“What would become of Great Britain in time of war if she were dependent on France for her food?”

We tend to disregard one fact, which is that this type of dependence resulting from trade and commercial transactions is mutual. We cannot be dependent on foreigners without them being dependent on us.

Bastiat on the Balance of Trade

From page 14 of volume 3 of Frederic Bastiat’s collected works, Economic Sophisms and “What Is Seen and What Is Not Seen”:

But people will say: if foreigners swamp us with their products, they will carry off our money.

What does it matter? Men do not eat money; they do not clothe themselves with gold, nor heat themselves with silver. What does it matter if there is more or less money in the country, if there is more bread on the sideboard, more meat on the hook, more linen in the cupboards, and more wood in the woodshed?

Restating the Case for Free Trade

The case for free trade needs to be restated frequently. Politicians keep pushing the same protectionist policies, as though maybe this time the results will be different. President Trump copied Herbert Hoover’s Smoot-Hawley tariffs. President Biden is copying Trump’s trade policies. They do this in part because voters want them to. As economist Bryan Caplan has documented, most people have anti-market bias and anti-foreign bias, and vote for candidates who cater to those biases.

That means that year after year, market liberals need to keep making the case for free trade’s benefits for prosperity, peace, and its importance for resiliency against crises and shortages. Lasting change comes from the bottom up, not the top down, so that’s where we need to focus our efforts. The latest attempt at popular persuasion, “The (Updated) Case for Free Trade” by the Cato Institute’s Scott Lincicome and Alfredo Carillo Obregon, is worthy of its task. It consists of both a paper and a fantastic website that is worth a scroll.

They hit on several fronts, first by making the economic case for free trade: “The payoff to the United States from expanded trade between 1950 and 2016 was $2.1 trillion, increasing GDP per capita by around $7,000 and GDP per household by around $18,000.” With an economy still feeling the effects of COVID-19 and inflation at a 40-year high, trade’s benefits are essential for millions of families.

They then make the geopolitical case for free trade, as have thinkers from Montesquieu in the 18th century to former Secretary of State Cordell Hull during World War II. Countries that trade with each other rarely go to war with one another. This, not boosting GDP, was the animating principle behind the post-war rules-based international trading system anchored by General Agreement on Tariffs and Trade and then the World Trade Organization. Deep trading relationships are also essential for building diplomatic alliances, which are needed today against Russia and China.

Most importantly, they make the moral case for free trade. Too many economists ignore trade’s moral goodness; Lincicome and Obregon emphasize it. Post-WWII trade liberalization was a significant factor in reducing worldwide extreme poverty from 2.2 billion people in 1970 to 705 million in 2015. That’s a two-thirds reduction in absolute terms, even as global population roughly doubled. In percentage terms, the change is even starker. Extreme poverty was 42.6 percent of world population in 1981 and 8.6 percent in 2018. That’s a four fifths reduction in the proportion of people in extreme poverty, in less than 40 years. Never in human history has anything like this ever happened before, and trade is one of the engines behind it.

That progress is measured in dollars, but it’s not really about money. It’s about reducing infant mortality, and sending kids to school instead of to work in the fields. It’s about access to sanitation, electricity, and medical care. It’s about each generation finally living better than the one before it, even in the poorest places on Earth. Hans Rosling’s book Factfulness shows how deeply trade-enabled growth has improved people’s lives. Trade gives people hope, opportunities, and progress.

The authors then make the case against protectionism, which has guided trade policy for both the Biden and Trump administrations. In addition to puncturing myths about manufacturing, the balance of trade, and self-sufficiency, they point to good policies that policy makers should adopt.

Free trade is about more than removing obstacles. It is about creating an institutional structure under which people—not politicians and special interests seeking protection—can cooperate, compete, and resolve disputes in ways that they choose.

Cato’s web team put together an excellent website summarizing the case for free trade; Lincicome and Obregon’s paper is also a good read.

These are not the only resources for people interested in the case for free trade. Iain Murray and I wrote the report “Traders of the Lost Ark” a few years ago. Pierre Lemieux’s What’s Wrong with Protectionism?is a fantastic short book. The magnum opus of America’s complicated relationship with free trade is Doug Irwin’s Clashing Over Commerce, the paperback edition of which blurbs my review on the back cover.

This Week in Ridiculous Regulations

Just before the long Memorial Day weekend, the third version of the American Innovation and Choice Online Act, a major antitrust bill, was introduced in Congress in an under-the-radar attempt to make it more palatable. Agencies issued new regulations ranging from avocados to regulation sunsets.

On to the data:

  • Agencies issued 66 final regulations last week, after 61 the previous week.
  • That’s the equivalent of a new regulation every two hours and 32 minutes.
  • With 1,273 final regulations so far in 2022, agencies are on pace to issue 3,090 final regulations this year.
  • For comparison, there were 3,257 new final regulations in 2021, President Biden’s first year, and 3,218 in 2020, President Trump’s final year.
  • Agencies issued 40 proposed regulations in the Federal Register last week, after 28 the previous week.
  • With 868 proposed regulations so far in 2022, agencies are on pace to issue 2,108 proposed regulations this year.
  • For comparison, there were 2,094 new proposed regulations in 2021 and 2,094 in 2020.
  • Agencies published 449 notices last week, after 411 notices the previous week.
  • With 9,225 notices so far in 2022, agencies are on pace to issue 22,391 notices this year.
  • For comparison, there were 20,018 notices in 2021. 2020’s total was 22,458.
  • Last week, 1,196 new pages were added to the Federal Register, after 1,442 pages the previous week.
  • The average Federal Register issue in 2022 contains 313 pages.
  • With 32,288 pages so far, the 2022 Federal Register is on pace for 78,369 pages.
  • For comparison, the 2021 Federal Register totals 74,352 pages, and 2020’s is 87,352 pages. The all-time record adjusted page count (subtracting skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. There are 16 such rules so far in 2021, none from the last week.
  • This is on pace for 39 economically significant regulations in 2022.
  • For comparison, there were 26 economically significant rules in 2021 and five in 2020.
  • The total cost of 2022’s economically significant regulations so far ranges from net savings of $8.31 billion to net savings of $32.62 billion. However, this figure is incomplete. Three economically significant rules issued this year do not give the required cost estimates.
  • For comparison, the running cost tally for 2021’s economically significant rules ranges from net costs of $13.54 billion to $19.36 billion. The 2020 figure ranges from net savings of between $2.04 billion and $5.69 billion, mostly from estimated savings on federal spending. The exact numbers depend on discount rates and other assumptions.
  • There are 101 new regulations meeting the broader definition of “significant” so far in 2022. That is on pace for 245 significant rules for the year.
  • For comparison, there were 387 such new regulations in 2021 and 79 in 2020.
  • So far in 2022, 348 new regulations affect small businesses, on pace for 845. Thirty of them are significant, on pace for 73.
  • For comparison, there were 912 rules in 2021 affecting small businesses, with 101 of them classified as significant. 2020’s totals were 668 rules affecting small businesses, 26 of them significant.

Highlights from last week’s new regulations:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.

Trade, Mission Creep, and the Indo-Pacific Economic Framework

President Biden announced this week a major economic agreement with a dozen countries in the Indo-Pacific region, to be called the Indo-Pacific Economic Framework (IPEF). Its goal is to provide a larger diplomatic and economic counterweight to China and increase America’s presence in Asia.

At first glance, it seems like an odd move. President Obama had already negotiated the Trans-Pacific Partnership (TPP) with many of the same countries in IPEF. President Trump pulled out of the TPP when he took office, but all the other member countries continued on without U.S. involvement under the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Negotiating costs for rejoining TPP/CPTPP would likely be minimal, while the economic benefits of more open trading relationships will help offset America’s high monetary inflation. As a political bonus, President Biden would be undoing a major part of the Trump trade agenda. So why is Biden starting with a new agreement from scratch? I argue that it’s part of a long-term evolution in how governments are treating trade policy.

One difference is that IPEF has a different regional focus. The TPP/CPTPP focuses on the Pacific Rim, so it has members in South and Central America, not just Asia. IPEF focuses on China’s neighbors, most significantly India. America is IPEF’s only non-Asian member. So, the different diplomatic focus explains part of it.

Another factor for choosing IPEF over rejoining TPP/CPTPP is political: It will not require Senate confirmation. That is a large hurdle at any time, but with Republicans likely to take over the Senate, they would be unlikely to give President Biden a victory, despite their sharing a protectionist trade outlook.

But the broader reason, about which I am more concerned, may be mission creep. I will hold off on further judgments on IPEF until more details become public, but the point about trade policy’s loss of focus on trade is important enough to discuss now.

The North American Free Trade Agreement (NAFTA), which went into effect in 1994, was accompanied by side agreements on non-trade issues, specifically environment and labor. This was a first for major trade agreements. Those side agreements are why CEI originally opposed NAFTA. Our analysts at the time favored the free trade parts of the bill, but they did not like the precedent set by the trade-unrelated side agreements. They had a point. In the years that followed, trade-unrelated issues took on greater prominence in new agreements, and their page lengths ballooned accordingly.

By the time President Trump replaced NAFTA with the United States-Mexico-Canada Agreement (USMCA), NAFTA’s non-trade side agreements were folded into the main agreement, which is now more than 2,000 pages long. During the Obama era, trade agreements began to lose the word “free” from their names. President Trump took it even further. As I pointed out at the time, “USMCA’s name does not contain the words ‘free’ or ‘trade.’ This is symbolism, but also important.”

It also accurately reflected the contents. This shift in emphasis is why Iain Murray and I came out against USMCA. We liked that it would mostly preserve NAFTA’s zero-tariff relationships with Mexico and Canada, but those were already in place, and all the new trade-unrelated provisions meant more net burdens and more opportunities for cronyism.

IPEF represents the next logical step in that process. Again, details to come. But the administration’s early remarks make it seem that rejoining TPP is not on the agenda and that IPEF will have little to do with trade. At least TPP treated trade relations seriously. USMCA’s bad precedent has likely borne bad fruit.

We’ll soon see what IPEF contains. But if it is a multi-issue thicket of ideological wish list items and special favors for politically connected interest groups, its member countries may end up bickering about small provisions when they should be cooperating on the big picture of building together a counterweight to China.

This Week in Ridiculous Regulations

The government’s Disinformation Board was ended before it began. President Biden invoked the Defense Production Act to address the baby formula shortage. The 2022 Federal Register topped 30,000 pages. Agencies issued new regulations ranging from post office closures to pear taxes.

On to the data:

  • Agencies issued 61 final regulations last week, after 67 the previous week.
  • That’s the equivalent of a new regulation every two hours and 45 minutes.
  • With 1,207 final regulations so far in 2022, agencies are on pace to issue 3,079 final regulations this year.
  • For comparison, there were 3,257 new final regulations in 2021, President Biden’s first year, and 3,218 in 2020, President Trump’s final year.
  • Agencies issued 28 proposed regulations in the Federal Register last week, after 32 the previous week.
  • With 828 proposed regulations so far in 2022, agencies are on pace to issue 2,112 proposed regulations this year.
  • For comparison, there were 2,094 new proposed regulations in 2021 and 2,094 in 2020.
  • Agencies published 411 notices last week, after 470 notices the previous week.
  • With 8,776 notices so far in 2022, agencies are on pace to issue 22,388 notices this year.
  • For comparison, there were 20,018 notices in 2021. 2020’s total was 22,458.
  • Last week, 1,442 new pages were added to the Federal Register, after 2,205 pages the previous week.
  • The average Federal Register issue in 2022 contains 317 pages.
  • With 31.091 pages so far, the 2022 Federal Register is on pace for 79,691 pages.
  • For comparison, the 2021 Federal Register totals 74,352 pages, and 2020’s is 87,352 pages. The all-time record adjusted page count (subtracting skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. There are 16 such rules so far in 2021, one from the last week.
  • This is on pace for 41 economically significant regulations in 2022.
  • For comparison, there were 26 economically significant rules in 2021 and five in 2020.
  • The total cost of 2022’s economically significant regulations so far ranges from net savings of $8.31 billion to net savings of $32.62 billion. However, this figure is incomplete. Three economically significant rules issued this year do not give the required cost estimates.
  • For comparison, the running cost tally for 2021’s economically significant rules ranges from net costs of $13.54 billion to $19.36 billion. The 2020 figure ranges from net savings of between $2.04 billion and $5.69 billion, mostly from estimated savings on federal spending. The exact numbers depend on discount rates and other assumptions.
  • There are 94 new regulations meeting the broader definition of “significant” so far in 2022. This is on pace for 240 significant rules for the year.
  • For comparison, there were 387 such new regulations in 2021, and 79 in 2020.
  • So far in 2022, 333 new regulations affect small businesses, on pace for 849. Thirty of them are significant, on pace for 77.
  • For comparison, there were 912 rules in 2021 affecting small businesses, with 101 of them classified as significant. 2020’s totals were 668 rules affecting small businesses, 26 of them significant.

Highlights from last week’s new regulations:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.

On the TV: Baby Formula

Newsy interviewed me recently for a segment on baby formula. The video and accompanying article are here.

Baby Formula and Regulatory Failure

A lot of people are blaming free markets for the baby formula shortage. As the economist Jagdish Bhagwati might say, the problem with this is that the invisible hand is nowhere to be seen. The baby formula market is filled with sweetheart government contracts, protective tariffs, barriers to entry, and other regulations. Government has so insulated the industry from competition that it’s a minor miracle the industry isn’t even more concentrated than it already is. Critics do not have a free market to point to.

In an op-ed being syndicated to newspapers by Inside Sources, I go through some of these regulations, then point out how absurd it is that many proposed solutions to the mess these regulations caused is to add still more regulations.

First, parents receiving WIC [Special Supplemental Nutrition Program for Women, Infants, and Children] assistance are allowed to choose only certain brands. Second, consumers must pay a 17.5 percent tariff on any imported formula, which prices countless brands out of the U.S. market. It’s a nice arrangement for the companies—and for their lobbyists—but it raises prices for families and makes it difficult to boost supplies during shortages.

When new formulas enter the market, regulations forbid sellers from letting anyone know about them for 90 days, even as manufacturers may advertise existing formulas all they like. Those first months on the shelf are make-or-break for many new products, which is why existing producers like this otherwise pointless regulation. At times like this, parents might appreciate hearing about new options.

One of those options is toddler formula, which in many cases meets the Food and Drug Administration’s nutritional requirements for infant formula. However, FDA regulations prohibit many manufacturers from recommending this option.

That is just the beginning of the government-created mess. The whole piece is here.

After I sent in the article, President Biden invoked the Defense Production Act to import more baby formula. It would do this by requisitioning commercial aircraft to fly in formula from abroad. But the only imports allowed would be from factories that meet all FDA regulations, which are designed in part precisely to keep foreign formula out of the U.S. market, so it wouldn’t do much good without some regulatory relief. And those imports would start happening on their own the minute such relief is offered. Either way, this Defense Production Act action is performative at best, and disruptive at worst, since those aircraft have other uses.

Image credit: Chris Freiman.

The better solution would be something called mutual recognition. If a competent regulator with similar standards to ours, like Europe, Japan, Australia, and the like, approves something, then it should automatically be approved in the U.S. In return, those regulators should give similar approval to U.S.-approved products.

Domestic baby formula producers will howl at having to face honest competition, but the next time a factory goes down, parents won’t be left scrambling, and even during normal times, actual market competition will help lower prices.

The op-ed is here. The Cato Institute’s Gabriella Beaumont-Smith and Scott Lincicome have also done excellent work on the baby formula shortage.

This Week in Ridiculous Regulations

Inflation remained high at 8.3 percent and Federal Reserve Chair Jerome Powell was confirmed to a second term. A baby formula shortage is exposing the vulnerabilities of the managed trade-style policies the last two administrations have pursued. Agencies issued new regulations ranging from fireworks to krill meal.

On to the data:

  • Agencies issued 67 final regulations last week, after 56 the previous week.
  • That’s the equivalent of a new regulation every two hours and 30 minutes.
  • With 1,146 final regulations so far in 2022, agencies are on pace to issue 3,081 final regulations this year.
  • For comparison, there were 3,257 new final regulations in 2021, President Biden’s first year, and 3,218 in 2020, President Trump’s final year.
  • Agencies issued 32 proposed regulations in the Federal Register last week, after 42 the previous week.
  • With 800 proposed regulations so far in 2022, agencies are on pace to issue 2,151 proposed regulations this year.
  • For comparison, there were 2,094 new proposed regulations in 2021 and 2,094 in 2020.
  • Agencies published 470 notices last week, after 394 notices the previous week.
  • With 8,365 notices so far in 2022, agencies are on pace to issue 22,487 notices this year.
  • For comparison, there were 20,018 notices in 2021. 2020’s total was 22,458.
  • Last week, 2,205 new pages were added to the Federal Register, after 1,867 pages the previous week.
  • The average Federal Register issue in 2022 contains 319 pages.
  • With 29,645 pages so far, the 2022 Federal Register is on pace for 79,691 pages.
  • For comparison, the 2021 Federal Register totals 74,352 pages, and 2020’s total is 87,352 pages. The all-time record adjusted page count (subtracting skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. There are 15 such rules so far in 2021, three from the last week.
  • This is on pace for 40 economically significant regulations in 2022.
  • For comparison, there were 26 economically significant rules in 2021 and five in 2020.
  • The total cost of 2022’s economically significant regulations so far ranges from net savings of $8.42 billion to $32.73 billion. However, this figure is incomplete. Three economically significant rules issued this year do not give the required cost estimates.
  • For comparison, the running cost tally for 2021’s economically significant rules ranges from net costs of $13.54 billion to $19.36 billion. The 2020 figure ranges from net savings of between $2.04 billion and $5.69 billion, mostly from estimated savings on federal spending. The exact numbers depend on discount rates and other assumptions.
  • There are 91 new regulations meeting the broader definition of “significant” so far in 2022. This is on pace for 245 significant rules for the year.
  • For comparison, there were 387 such new regulations in 2021 and 79 in 2020.
  • So far in 2022, 318 new regulations affect small businesses, on pace for 855. Thirty of them are significant, on pace for 81.
  • For comparison, there were 912 rules in 2021 affecting small businesses, with 101 of them classified as significant. 2020’s totals were 668 rules affecting small businesses, 26 of them significant.

Highlights from last week’s new regulations:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.