Category Archives: Uncategorized

In the Media: USMCA

Yesterday’s New York Times notes CEI’s opposition to USMCA:

Free traders have also panned the deal, which aims to encourage North American manufacturing by raising barriers to products made outside the continent. The Competitive Enterprise Institute, a nonprofit public policy organization that advocates limited government, announced that the new agreement’s “trade-unrelated provisions and political giveaways set precedents that could harm future trade agreements for decades to come.”

Full article here. Iain Murray’s and my joint statement opposing USMCA is here.

In the Media: USMCA

The Wall Street Journal‘s Jeffrey Sparshott quotes me in this morning’s Real Time Economics newsletter:

Don’t Call it Nafta

The House of Representatives approved President Trump’s amended North American trade pact on Thursday. The U.S. Mexico Canada Agreement, or USMCA, passed by a 385 to 41 vote. The Senate is expected to approve the legislation early next year, after which the president would sign it into law. Mexico’s Senate has approved the deal, but it needs ratification in Canada to enter into force and replace the North American Free Trade Agreement, or Nafta.

The Competitive Enterprise Institute’s Ryan Young: “Its economic impact will be almost too small to measure.”

The newsletter is here. My original statement is here. Iain Murray and I came out against USMCA here.

Carrie Gibson – El Norte: The Epic and Forgotten Story of Hispanic North America

Carrie Gibson – El Norte: The Epic and Forgotten Story of Hispanic North America

The history of North America from the British perspective is a fascinating story. But it’s been done a thousand times. Gibson takes a different approach, visiting the period from the Spanish side. For a fuller picture of North American history than most people get, El Norte would pair well with Bernard Bailyn’s British-focused The Barbarous Years: The Peopling of British North America–The Conflict of Civilizations. Bailyn’s book is a fascinating, if overly detailed, account of the early years on the Eastern seaboard—and the barbarism in his title applies at least as much to the British at least as much as the people they thought barbaric.

But when the British landed at Plymouth Rock, Spanish explorers had already been on the continent for a century. That’s where Gibson come in. She focuses mostly on North America, bringing in South America only where relevant, and also giving some attention to the Caribbean islands, especially Cuba and Puerto Rico. Their interactions with mainland North America have taken many turns over the years, many of which were new to this reader, who is not well-versed in Caribbean history.

For example, the baseball bug bit Cuba early, with the game becoming its national pastime and the island exporting star players as early as the 1920s; Fidel Castro’s passion for the game did not emerge from a vacuum. Today’s Cuban major leaguers, including stars such as Yasiel Puig, Aroldis Chapman, Jose Abreu, and Yoenis Cespedes, are part of a long tradition that predates Cuba’s disastrous revolution that they defected from. Gibson also goes into what Cuban cultural and economic life was like before the revolution. Cuba was well on its way to emerging from a brutal sugar-based economy to one with vibrant business, entertainment, and tourism sectors when the 1957 Revolution turned out the lights, often literally.

Gibson also goes into Puerto Rico’s complicated relationship with the United States that is somehow both close and distant, even today, and the origins of its large expat community in New York City.

The meat of the book dances around from state to state across the southern United States. Gibson spends a lot of time on Louisiana, which spent time in Spanish hands as well as French, as well as in Florida, which remained a Spanish possession even after American independence—Spain and the U.S. were once technically neighbors.

The Southwest also gets its due. The political, ethnic, and cultural boundaries between Mexico and Texas were more fluid back then they are today; today’s border is essentially an accident that stayed in place. There is nothing special about the Rio Grande river, as anyone who has been there will likely tell you. Gibson takes the read from Texas’ Gulf coast through the hill country, and on through New Mexico, Arizona, and California, including the Baja peninsula, from roughly the 16th century up to the present.

Gibson does tie Hispanic-American history somewhat into current events at the vey beginning and end of the book. This makes some sense given the tensions over immigration and nationalism the Trump administration has been stirring up, which will almost certainly outlast it. But Gibson’s focus is more on the history. This is ultimately more effective. Besides being mostly free of off-putting political posturing, Gibson shows that borders, when seen in larger context, are not so sacred. People, language, and culture are fluid, always in motion, and always evolving. The same cannot be said of parochial politics.

Bryan Caplan and Zach Weinersmith – Open Borders: The Science and Ethics of Immigration

Bryan Caplan and Zach Weinersmith – Open Borders: The Science and Ethics of Immigration

A graphic novel about immigration policy, and a superbly done one at that. Caplan, a former professor of mine at George Mason, wrote most of the words. Weinersmith, creator of the Saturday Morning Breakfast Cereal web comic, did the artwork and many of the jokes.

This book is aimed at skeptics, and Caplan and Weinsersmith do a much better job of appealing to them than most people do. In some ways, Open Borders is an example of what happens when someone is able to pass an ideological Turing test—a concept Caplan coined in 2011. They are routinely charitable to their opponents, and confront their strongest arguments as their proponents actually present them. This is much more effective than building up straw men and knocking them down, leaving the original argument untouched. It is also more difficult, which is why many people do not bother.

If immigration restrictionists pick up the book—and early sales figures suggest some of them are—Caplan and Weinersmith should allay a lot of peoples’ fears with their calm, accessible presentation that is rigorously backed with data and research (interested readers can consult roughly 30 pages worth of notes at the back of the book). They convey a tone that is light-hearted and serious at the same time, which is not an easy balance to strike. And even if they don’t convince very many people to embrace open borders, the sheer weight of data, theory, philosophy, and morality in their favor should at least push most readers a little bit in their direction at the margin.

Caplan and Weinersmith make a very good team. Hopefully they collaborate again in the future.

This Week in Ridiculous Regulations

Britain held a major election, and the U.S. House of Representatives is set to impeach President Trump. At the same time, Trump is poised for a victory on the USMCA trade agreement, which CEI came out against. Meanwhile, agencies published new regulations ranging from aerosol cans to Philly fireworks.

On to the data:

  • Last week, 64 new final regulations were published in the Federal Register, after 40 the previous week.
  • That’s the equivalent of a new regulation every two hours and 38 minutes.
  • Federal agencies have issued 2,839 final regulations in 2019. At that pace, there will be 2,970 new final regulations. Last year’s total was 3,367 regulations.
  • Last week, agencies published 409 notices, for a total of 20,819 in 2019. At that pace, there will be 21,774 new notices this year. Last year’s total was 21,656.
  • Last week, 1,155 new pages were added to the Federal Register, after 1,258 pages the previous week.
  • The 2019 Federal Register totals 68,324 pages. It is on pace for 71,456 pages. The 2018 total was 68,302 pages. The all-time record adjusted page count (which subtracts 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. Four such rules have been published this year. Five such rules were published in 2018.
  • The running cost tally for 2019’s economically significant regulations currently ranges from savings of $4.39 billion to $4.08 billion, mostly from estimated savings on federal spending. The 2018 total ranges from net costs of $220.1 million to $2.54 billion, depending on discount rates and other assumptions.
  • Agencies have published 65 final rules meeting the broader definition of “significant” so far this year. 2018’s total was 108 significant final rules.
  • So far in 2019, 481 new rules affect small businesses; 21 of them are classified as significant. 2018’s totals were 660 rules affecting small businesses, with 29 of them significant.

Highlights from last week’s new final regulations:

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

On the Radio: China Trade

On Monday, December 16 at 6:35 AM ET, I’ll be on Richmond’s Morning News with John Reid on WRVA to talk China and trade.

That’s 5:35 AM for me here in the Central time zone. Fortunately, I’m always happy to talk trade policy.

Phase One of a China-U.S. Trade Agreement and the Ratchet Effect

As of Friday, December 13th, the U.S. and Chinese governments have agreed in principle to phase one of a trade agreement. The Chinese government will purchase more U.S. agricultural products, and according to The Wall Street Journal, “Mr. Wang [China’s Vice Minister of Commerce] said that the agreement would cover a range of contentious issues, including agriculture, intellectual property protection, technology transfer and liberalization of the financial sector, without elaborating.” The U.S. will hold off on a planned tariff increase set for Sunday, December 15th. It will also decrease tariffs on $120 billion of Chinese goods from 15 percent to 7.5 percent.

Details are still sketchy at this point, and are subject to change. The agreement also needs to be formally ratified by both countries. It is unclear how long this would take. President Trump also has a history backing out of already-announced major policy changes, and might do so again at any time. This might partially explain Beijing’s muted tone, and why they did not announce such a significant deal until after Beijing’s markets closed. A sudden gain on Friday’s news could be wiped out, or worse, on Monday if Trump backs out over the weekend.

But for the sake of argument, suppose phase one is ratified smoothly. Where would U.S.-China trade stand? It would still be worse off than just a few years ago. Both countries’ trade barriers would remain higher than before the trade war started. The trade war is a fresh example of the “ratchet effect” Robert Higgs warned about in his classic book Crisis and Leviathan. A crisis results in expanded government power, which is never fully walked back. Post-crisis leviathan remains larger on net.

In this case, a fabricated crisis over Trump’s misunderstanding of trade deficits has created a new trade leviathan. If it is ever tamed, it will take years. Both U.S. political parties are taking a populist turn. Chinese President Xi Jinping has spent six years consistently re-centralizing China’s economy and rejecting needed economic and political liberalization. Tariffs from the U.S. are clearly not encouraging better behavior. In this political climate, two years of trade mistakes might take a generation to fix, or longer. Both countries would be better off if they had never fought a trade war in the first place.

Many of China’s promised phase one reforms are vague, and difficult or impossible to measure. It is also unclear what will happen to China’s retaliatory tariff increases, which are penalizing U.S. exporters even as China has lowered its tariffs against the rest of the world over the last two years. The ratchet will remain tighter than before the trade war. It is just a question now of how much tighter.

The story is similar for the U.S., which will keep in place 25 percent tariffs against $250 billion worth of Chinese goods that did not exist two years ago. Those still-new tariffs will keep consumer prices artificially high after phase one passes. Companies in all manner of industries will still be scrambling for ways to adapt to suddenly higher costs and disrupted supply chains.

Businesses in both countries are having to make important long-run decisions right now with no idea of what’s to come next. This is bad for investment, and one reason the risk of recession in the U.S. remains uncomfortably high despite an otherwise-excellent economy.

President Trump has said that phase two negotiations will begin immediately, but there is no indication yet what his goals are for phase two, what its timetable will be, how many phases there will be, or what Trump’s ultimate policy goals are. These will be Trump’s problems for at most another five years. Most businesses hope to be around for rather longer than that, and would like to be able to plan accordingly.

Alvin E. Roth – Who Gets What ― and Why: The New Economics of Matchmaking and Market Design

Alvin E. Roth – Who Gets What ― and Why: The New Economics of Matchmaking and Market Design

Roth co-won the 2012 economics Nobel. His work focuses on solving coordination problems in markets. His most famous work is on matching donors and recipients for kidney transplants. But his insights also apply to other areas from matching college dorm roommates to football bowl game opponents, to marriage matchmaking, to residency and internship assignments for medical school graduates.

He has also greatly improved K-12 school placement systems in cities that allow a limited amount of school choice, such as New York City. In ranked-choice systems, many parents found it in their interest to rank their choices not in their actual order of preference. This level of gamesmanship gummed up the works for both parents and schools, and prevented honest signals from being sent. Borrowing from auction theory, Roth devised a lottery system that worked best when parents honestly ranked their order of preference when applying for schools. This made life simpler for parents, students, and schools, lowered the transaction costs of engaging in the lottery system, and made for better matches all around. Roth advises that similar lessons apply to students applying to college. Apply to the best schools you can, but don’t do early admission unless you have enough information to know that’s your best match. At the same time, apply to some “safe schools” since the better schools tend to be more competitive.

Crucial to Roth’s work is his distinction between thick and thin markets. Thick markets have numerous buyers and sellers with all manner of different preferences. Thin markets are much more difficult to find matches in. Some of the biggest challenges Roth has faced involved thin markets that lack a price system. For example, not only do kidney donations have to match the recipient’s blood type, it is illegal to compensate the donor in every country except, of all places, Iran.

This is where Roth falls short. The obvious solution is to allow price systems to emerge. As numerous economists have pointed out, banning compensated organ donations quite literally kills people. It is one of the most immoral policies a government can enforce. Roth’s work has consisted of second-best workarounds of these bad policies. He has saved hundreds, if not thousands of lives—his Nobel is well-earned. The trouble is that Roth is aware that his matchmaking work treats symptoms rather than problems, and seems content to leave it at that. He does not oppose paid organ donations. But he is also in no hurry to work to change social norms and government policy in a more humane direction.

The astute reader will notice that even in lower-stakes markets where Roth has worked on solving coordination problems, they tend to be either non-profit markets or markets that do not use money. He has devised brilliant systems to work around a lack of a price system, and some good rules of thumb that any non-price market designer can use. But, as with organs, in many cases the better solution is simply to introduce a price system where possible.

At one point, looking back on one of his more successful designs, Roth was proud to view himself as an engineer, rather than a mere student, seeking understanding. This is hubris on his part. Adam Smith famously warned that people are not chess pieces that can be moved around the board as a planner sees fit. The pieces have their own wants and desires. They move on their own in ways nobody can foresee. Roth’s second-best solutions are often improvements. But they are just that—second-best. Even the wisest, most compassionate designer cannot meet peoples’ needs as well as an honest price system can allow people to adapt and create for themselves, on their terms.

CEI Opposes USMCA

This is a joint statement from Iain Murray and me, originally posted at CEI.org.

The Competitive Enterprise Institute (CEI) today announced its opposition to the USMCA agreement between the United States, Mexico, and Canada.

Statement by CEI Vice President for Strategy Iain Murray and senior fellow Ryan Young:

“While USMCA is not that different from NAFTA, its trade-unrelated provisions and political giveaways set precedents that could harm future trade agreements for decades to come. USMCA’s acronym, which scraps NAFTA’s “F” and “T” standing for “Free Trade,” is more telling than its drafters likely intended.”

Murray and Young make the points that trade negotiations should:

  • Free trade, not manage it.
  • Set economic precedents, not political ones.
  • Allow countries to compete with one another on setting least-onerous regulations, not standardize a one-size-fits-all regulatory regime for all countries.
  • Focus on trade, not include more than 2,000 pages of campaign bragging points and payoffs to political constituencies.

Unfortunately, the USMCA:

  • Preserves NAFTA’s near-zero tariffs between its members but raises several non-tariff barriers, from export quotas to sourcing requirements to monetary policy.
  • Is filled with trade-unrelated provisions that do not belong in a trade agreement. Energy and environmental provisions will narrowly benefit politically connected companies and activists but raise consumer prices and reduce their choices. Regulatory obstacles for automobile parts will dismantle supply chains that have taken decades to build and make new cars even more expensive. Labor provisions, aimed at buying union political support, that will reduce access to Mexican products for U.S. producers and consumers.
  • Will influence how upcoming agreements are made with China, the United Kingdom, and the European Union.

CEI opposed the original NAFTA because its non-tariff barriers and trade-unrelated provisions could become entrenched in future trade agreements – fears that proved well-founded.

Related analysis:

Traders of the Lost Ark

The Ideal U.S.-U.K Free Trade Agreement

Thomas Paine – Common Sense

Thomas Paine – Common Sense

A few years ago, I had a brief conversation with Tom Palmer in which he drew a contrast between the bourgeois Paine and the more aristocratic Edmund Burke. Paine is direct, unsubtle, and efficient, both in writing style and in his revolutionary fervor. Burke has a more lengthy, detached, and tradition-minded prose style, and a cautious, almost tentative political philosophy to match it.

Having finally sat down for a serious study of Paine for the first time, Tom’s point makes a lot of sense. Both men were liberals, in the correct sense of the term. But they were also very different from each other. Both supported the American Revolution. But where Burke opposed the French Revolution, Paine not only supported it, he participated in it. The two men also engaged in a war of words so heated that, while living in France, Paine was convicted in absentia in England for his attacks on Burke.

But that was all in the future for Thomas Paine in January 1776. Common Sense is a masterpiece of the pamphlet format, which was popular in 18th century America, as Bernard Bailyn describes in great detail in his Ideological Origins of the American Revolution. Shorter than a full book or even a monograph, but longer than a magazine story, pamphlets were a common persuasive tool during Revolutionary times. They were also often read aloud, since literacy was far from universal in those days. This fact of life influenced pamphlets’ short length, their direct, simplified writing style, and their common use of universally-understood metaphors and references that everyone knew. Paine, though he was a deist and not a Christian, devotes a significant portion of Common Sense to the Bible’s warnings against the dangers of kings–many of which had come true under George III. In an appendix added later on, Paine appeals to Quakers to drop their pacifism and join the Revolutionary cause.

Among Paine’s more practical insights is that America and Britain essentially separated as soon as British troops fired their first shot. There was no going back to the way things were, even if people wanted to. Additionally, continued union would cause economic harm to the American people through no fault of their own. Otherwise-willing European buyers and sellers with no grudge against American merchants would keep their wallets closed and their ships away from Americans for as long as they remained British subjects. Continued allegiance to the crown was also potentially bad for American soldiers’ life expectancies if Britain were to press them into its military and its America-unrelated conflicts. Paine’s foreign policy non-interventionism was integral to the Founders’ thought, and today’s political leaders would do well to move in that sensible direction.