Free Markets – Page 17 – artdiamondblog.com

Much of the Value of “Chinese” Imports is Added Outside of China

(p. A17) In a 2006 paper, Stanford University economist Lawrence Lau found that Chinese value-added accounted for about 37% of the total value of U.S. imports from China. In 2008, using a different methodology, U.S. International Trade Commission economist Robert Koopman, along with economists Zhi Wang and Shang-jin Wei, found the figure to be closer to 50%. In other words, despite all the hand-wringing about the value of imports from China, one-half to nearly two thirds of that value is not even Chinese. Instead, it reflects the efforts of workers and capital in other countries, including the U.S. In overstating Chinese value by 100% to 200%, the official U.S. import statistics are a poor proxy for job loss.

Seldom noted in the union-controlled discussion of trade on Capitol Hill is that the jobs of large numbers of American workers depend on imports from China. The proliferation of transnational production and supply chains has joined higher-value-added U.S. manufacturing, design, and R&D activities with lower-value manufacturing and assembly operations in China.
According to a widely cited 2007 study by Greg Linden, Kenneth L. Kraemer and Jason Dedrick of the University of California, Irvine, each Apple iPod costs $150 to produce. But only about $4 of that cost is Chinese value-added. Most of the value comes from components made in other countries, including the U.S. Yet when those iPods are imported from China, where they are snapped together, the full $150 is counted as an import from China, adding to the trade deficit and inflating EPI’s job-loss figures.
In reality, those imported iPods support thousands of U.S. jobs up the value chain–in engineering, design, finance, manufacturing, marketing, distribution, retail and elsewhere. A 25% tariff on imports from China would penalize the non-Chinese companies and workers who create most of the iPod’s value.

For the full commentary, see:
DANIEL IKENSON. “China Trade and American Jobs; Studies suggest that one-half to two-thirds of the value of ‘Chinese’ imports is added in other countries, including the U.S.” The Wall Street Journal (Fri., APRIL 2, 2010): A17.

Liberal Democrat Hesburgh Condems Obama Administration’s Killing School Vouchers

My Chicago professor Milton Friedman proposed educational vouchers in Capitalism and Freedom, a great book based on lectures that Friedman delivered several decades ago at Wabash College at the invitation of my first economics professor, Ben Rogge.
Friedman’s belief was that parents generally care about their children, and will seek a good education for them, if provided the means to choose among credible alternatives.
Special interests are arrayed against this idea, but that does not mean that Friedman was wrong.
Another distinguished educator who supports vouchers (see below) is Father Hesburgh, who for many years was President of Notre Dame in my hometown of South Bend, Indiana.

(p. A19) If Martin Luther King Jr. told me once, he told me a hundred times that the key to solving our country’s race problem is plain as day: Find decent schools for our kids. So I was especially heartened to hear Education Secretary Arne Duncan repeatedly call education the “civil rights issue of our generation.” Millions of our children–disproportionately poor and minority–remain trapped in failing public schools that condemn them to lives on the fringe of the American Dream.

. . .
. . . , I was deeply disappointed when Sen. Richard Durbin (D., Ill.) successfully inserted a provision in last year’s omnibus spending bill that ended one of the best efforts to give these struggling children the chance to attend a safe and decent school.
That effort is called the Opportunity Scholarship program. Since 2004 it has allowed thousands of children in Washington, D.C., to escape one of the worst public school systems in the nation by providing them with scholarships of up to $7,500.
Despite its successes, it is now closing down. On Tuesday the Senate voted against a measure introduced by Sen. Joseph Lieberman (I., Conn.) that would have extended the program. Throughout this process Mr. Duncan’s Education Department and the White House raised no protest.
. . .
I know that some consider voucher programs such as the Opportunity Scholarships a right-wing affair. I do not accept that label. This program was passed with the bipartisan support of a Republican president and Democratic mayor. The children it serves are neither Republican nor Democrat, liberal or conservative. They are the future of our nation, and they deserve better from our nation’s leaders.
I have devoted my life to equal opportunity for all Americans, regardless of skin color. I don’t pretend that this one program is the answer to all the injustices in our education system. But it is hard to see why a program that has proved successful shouldn’t have the support of our lawmakers. The end of Opportunity Scholarships represents more than the demise of a relatively small federal program. It will help write the end of more than a half-century of quality education at Catholic schools serving some of the most at-risk African-American children in the District.
I cannot believe that a Democratic administration will let this injustice stand.

For the full commentary, see:
THEODORE M. HESBURGH. “A Setback for Educational Civil Rights; I cannot believe that a Democratic administration will let this injustice of killing D.C. vouchers stand.” The Wall Street Journal (Thurs., MARCH 18, 2010): A19.
(Note: ellipses added.)
(Note: the online version of the article was dated MARCH 17, 2010.)
Reference to the Friedman book mentioned above:
Friedman, Milton. Capitalism and Freedom. Chicago: The University of Chicago Press, 1962.

Underwater Power Cables Maximize Profits and Improve Environment

“Laying line in San Francisco for the Trans Bay Cable project, which submerged 33 miles of cable.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B1) Generating 20 percent of America’s electricity with wind, as recent studies proposed, would require building up to 22,000 miles of new high-voltage transmission lines. But the huge towers and unsightly tree-cutting that these projects require have provoked intense public opposition.

Recently, though, some companies are finding a remarkably simple answer to that political problem. They are putting power lines under water, in a string of projects that has so far provoked only token opposition from environmentalists and virtually no reaction from the larger public.
. . .
(p. B7) . . . , the underwater approach solves some intractable problems. In San Francisco, for example, old power plants that burn natural gas are about to be retired because a new transmission company has succeeded in running a line 33 miles across the San Francisco Bay.
Mr. Stern said his company’s Neptune Cable, which runs from Sayreville, N.J., to Levittown, N.Y., on Long Island, now carries 22 percent of Long Island’s electricity. His company is trying to complete a deal for a cable that would run from Ridgefield, N.J., to a Consolidated Edison substation on West 49th Street in Manhattan.
Those two cables were not motivated primarily by environmental goals — they are meant to connect cheap generation to areas where power prices are high. Mr. Stern’s company, PowerBridge, is now considering two renewable energy projects, however. One cable would connect proposed wind farms on the Hawaiian islands of Molokai and Lanai to the urban center on Oahu, and another would bring wind power from Maine along the Atlantic coast to Boston.

For the full story, see:
MATTHEW L. WALD. “A Power Line Runs Through It; Underwater Cable an Alternative to Electrical Towers.” The New York Times (Weds., March 17, 2010): B1 & B7.
(Note: ellipses added.)
(Note: the online version is dated March 16, 2010 and has the shorter title “Underwater Cable an Alternative to Electrical Towers.”)

New York Forces Entrepreneur to Subsidize His Competitor

(p. A24) Last year, the State Legislature levied a new tariff on most of the businesses in the New York City region. The metropolitan commuter transportation mobility tax requires employers to set aside 34 cents for every $100 in payroll costs, and hand the money over to a battered, barely breathing patient on the state’s fiscal operating table: the Metropolitan Transportation Authority.

The tax has not worked out so well. So far, its projected revenues are coming in about $400 million below the state’s estimates — which, in part, will mean reduced subway and bus service for New Yorkers starting this summer. It has also prompted a furious backlash from suburban officials who resent bankrolling an agency that, they say, benefits the city at the expense of its surrounding counties.
And then there is William Schoolman, 69, amateur activist, self-described ”prototypical entrepreneur,” and proprietor of the Hampton Luxury Liner bus fleet. In December, he filed a lawsuit in State Supreme Court claiming the tax is unconstitutional and demanding its repeal. The reason?
”Competition,” Mr. Schoolman said in a recent telephone interview, anger rising in his voice. ”This is the first time that I ever had to pay a subsidy directly to my competitor. That’s the thing that really bothers me.”

For the full story, see:
MICHAEL M. GRYNBAUM. “Suing Over a Transit Tax, in the Name of Competition.” The New York Times (Tues., February 16, 2010): A24.

Market Entrepreneurs Versus Political Entrepreneurs

“James J. Hill (center) built a great railroad on his own dime.” Source of caption and photo: online version of the WSJ commentary quoted and cited below.

(p. A17) Let’s bring back the robber barons.

“Robber baron” became a term of derision to generations of American students after many earnest teachers made them read Matthew Josephson’s long tome of the same name about the men whose enterprise drove the American industrial age from 1861 to 1901.
Josephson’s cast of pillaging villains was comprehensive: Rockefeller, Carnegie, Vanderbilt, Morgan, Astor, Jay Gould, James J. Hill. His table of contents alone shaped impressions of those times: “Carnegie as ‘business pirate’.” “Henry Frick, baron of coke.” “Terrorism in Oil.” “The sack of California.”
I say, bring ’em back, and the sooner the better. What we need, a lot more than a $1,000 tax credit, are industries no one has thought of before. We need vision, vitality and commercial moxie. This government is draining it away.
The antidote to Josephson’s book is a small classic by Hillsdale College historian Burton W. Folsom called “The Myth of the Robber Barons: A New Look at the Rise of Big Business in America” (Young America’s Foundation). Prof. Folsom’s core insight is to divide the men of that age into market entrepreneurs and political entrepreneurs.
Market entrepreneurs like Rockefeller, Vanderbilt and Hill built businesses on product and price. Hill was the railroad magnate who finished his transcontinental line without a public land grant. Rockefeller took on and beat the world’s dominant oil power at the time, Russia. Rockefeller innovated his way to energy primacy for the U.S.
Political entrepreneurs, by contrast, made money back then by gaming the political system. Steamship builder Robert Fulton acquired a 30-year monopoly on Hudson River steamship traffic from, no surprise, the New York legislature. Cornelius Vanderbilt, with the slogan “New Jersey must be free,” broke Fulton’s government-granted monopoly.

For the full commentary, see:
DANIEL HENNINGER. “Bring Back the Robber Barons.” The Wall Street Journal (Mon., MARCH 4, 2010): A17.
(Note: the online version of the article is dated MARCH 3, 2010.)

The full reference for Folsom’s book is:
Folsom, Burton W. The Myth of the Robber Barons. 4th ed: Young America’s Foundation, 2003.

United States Exports “High-Value-Added Services that Support Well-Paying Jobs”

Source of graph: online version of the WSJ article quoted and cited below.

(p. A23) Exports of American services have jumped by 84 percent since 2000, while the growth rate among goods was 66 percent. America trails both China and Germany in sales of goods abroad, but ranks No. 1 in global services by a wide margin. And while trade deficits in goods have been enormous — $840 billion in 2008 — the country runs a large and growing surplus in services: we exported $144 billion more in services than we imported, dwarfing the surpluses of $75 billion in 2000 and $58 billion in 1992.

Equally important, Commerce Department data show that the United States is a top-notch competitor in many of the high-value-added services that support well-paying jobs.
. . .
. . . , will Washington offer tax breaks or other export incentives? While businesses may clamor for them, these would be a setback for freer trade — after all, for years it has been America that has been hectoring other countries to end their subsidies to exporters. Will Washington try to pick winners in the global marketplace, like green energy? More often than not, this kind of industrial policy wastes money, fosters inefficiency and creates few permanent jobs.

For the full story, see:
W. MICHAEL COX. “An Order of Prosperity, to Go.” The New York Times (Weds., February 17, 2010): A23.
(Note: ellipses added.)

Chamber’s Donohue Promotes Free Enterprise

Chamber of Commerce President Tom Donohoe. Source of caricature: online version of the WSJ article quoted and cited below.

(p. A13) The White House’s war on the Chamber has come just as the group is launching a new $100 million campaign promoting free enterprise.

“We want to encourage and promote and educate and get a bunch of enthusiasm behind . . . the free enterprise system with free capital markets and free trade and the ability to fail and fall right on your ass and get up and do it again!” he says.
The belief in that system, Mr. Donohue says, has been eroded by the recession and subsequent criticism of the free market. “The purpose of this is to get out of the doldrums! Quit sulking and worrying.” He hopes the campaign will remind Americans that “We created 20 million jobs in the ’90s, we can do it again. We don’t have to do it exactly like that–Adam Smith didn’t have a BlackBerry–but we ought to pay attention to what made it work.”

For the full interview, see:
KIMBERLEY A. STRASSEL. “OPINION: THE WEEKEND INTERVIEW with Tom Donohue; Business Fights Back; His organization under attack by the White House, the president of the Chamber of Commerce stands by his defense of free enterprise.” The Wall Street Journal (Sat., October 24, 2009): A13.
(Note: the online version of the article has the date October 23, 2009.)
(Note: ellipsis in original.)

Socialist Chavez’s Thugs Destroy Venezuelans’ Economic Freedom

“A member of the National Guard stands guard during a inspection of prices at a store in La Guaira outside Caracas Jan. 12.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A8) CARACAS — President Hugo Chávez’s decision to devalue Venezuela’s currency in order to shore up government finances could backfire on the populist leader if the move leads to substantially higher prices and extends an economic downturn.

Just days after Mr. Chávez cut the value of the “strong bolivar” currency, some businesses were marking up prices. Shoppers jammed stores to stock up on goods before the increases took hold.
Amelia Soto, a 52-year-old housewife waited in line at a Caracas drugstore to buy 23 tubes of toothpaste. “Everywhere I hear that prices are going to skyrocket so I want to buy as much as I can now,” she said.
Airlines have doubled fares; government officials said they were looking into reports that large retail chains were also increasing prices.
. . .
The price increases are setting the stage for confrontations with authorities following Mr. Chávez’s orders to shut down retailers that raise prices.
. . .
The higher prices for consumer goods represent a huge liability for a country facing 27% inflation, one of the highest levels in the world.

For the full story, see:
DARCY CROWE and DAN MOLINSKI. “Prices in Venezuela Surge After Devaluation.” The Wall Street Journal (Weds., JANUARY 13, 2010): A8.
(Note: the online version of the article has the title “Venezuelans Rush to Shop as Stores Increase Prices.”)
(Note: ellipses added.)

EU’s Farm Subsidy Program Creates Fraud and High Prices

Source of the table: online version of the NYT article quoted and cited below.

(p. B1) Call it the mystery of the European sugar triangle.

It began when Belgian customs officials examined shipping records for dozens of giant tanker trucks that outlined an odd, triangular journey across Europe. The trucks, each carrying 22 tons of liquid sugar, swung through eight nations and covered a driving distance of roughly 2,500 miles from a Belgian sugar refinery to Croatia and back — instead of taking the most direct, 900-mile route.
Along the way the trucks made a brief stop in Kaliningrad, a grim and bustling Russian border checkpoint on the Baltic Sea.
Suddenly the sugar triangle made sense to them. Because Russia, and not Croatia, was listed as the intended destination, the shipments qualified for valuable special payments known as export rebates from the European Union’s farm subsidy program.
Some 200 shipments roared along this route over a three-year-period, investigators say, earning 3 million euros in refunds (about $4.5 million) for the Belgian sugar maker Beneo-Orafti. In the spring, dozens of Belgian and European investigators raided the company’s offices, freezing half of its refunds and initiating an investigation that could cost the company the remaining 1.5 million euros, and possibly more.
In the sprawling European subsidy program — which lavishes more than 50 billion euros ($75 billion at current exchange rates) a year in agricultural aid — no commodity is more susceptible to fraud, chicanery and rule-bending, experts say, than simple household sugar.
(p. B4) Across Europe there are some 2.5 million acres of beet fields that will produce 16.7 million metric tons of sugar this year for an industry worth 7 billion euros. Last year the European Union spent 475 million euros in price supports for sugar, including export subsidies. Then it spent another 1.3 billion euros on restructuring aid to reform a subsidy regime so lavish that it even prompted cold-weather Finland to start producing more sugar.
Sugar producers across the Continent cashed in — from Italy, where Italia Zuccheri collected more than 139 million euros, to France, where a handful of sugar producers received 128.5 million.
With this much money at stake, critics and some analysts say, the sugar subsidy system is like a cookie jar waiting to be pilfered.
. . .
“There’s a whole world of commercial fraud, which goes under the radar for most people,” said James Byrne, a law professor at the George Mason University School of Law in Virginia who has studied the global sugar trade. “It is a parallel universe that mimics the real world of commerce and finance.”

For the full story, see:
STEPHEN CASTLE and DOREEN CARVAJAL. “Subsidies Spur Fraud In European Sugar.” The New York Times (Tues., October 27, 2009): B1 & B4.
(Note: the online version of the article has the title “Fraud Plagues Sugar Subsidy System in Europe” and has the date October 26, 2009. The online version reverses the order of the authors’ names, and differs significantly in the first several paragraphs, mainly stylistically, but also somewhat in substance. The version quoted here is the online version.)
(Note: ellipsis added.)

Source of both the map and the table: online version of the NYT article quoted and cited above.

Economic Freedom Declined in United States in 2009

Source of table: online version of the WSJ article quoted and cited below.

(p. A17) The United States is losing ground to its major competitors in the global marketplace, according to the 2010 Index of Economic Freedom released today by the Heritage Foundation and The Wall Street Journal. This year, of the world’s 20 largest economies, the U.S. suffered the largest drop in overall economic freedom. Its score declined to 78 from 80.7 on the 0 to 100 Index scale.

The U.S. lost ground on many fronts. Scores declined in seven of the 10 categories of economic freedom. Losses were particularly significant in the areas of financial and monetary freedom and property rights. Driving it all were the federal government’s interventionist responses to the financial and economic crises of the last two years, which have included politically influenced regulatory changes, protectionist trade restrictions, massive stimulus spending and bailouts of financial and automotive firms deemed “too big to fail.” These policies have resulted in job losses, discouraged entrepreneurship, and saddled America with unprecedented government deficits.
. . .
The abiding lesson of the last few years is that the battle for liberty requires perpetual vigilance. President Obama professes desire to foster prosperity, environmental protection, poverty reduction and better health care. How ironic, then, that his economic proposals so consistently ignore or even undermine the one system–free enterprise capitalism–that has proven best able to achieve those goals.
Now America’s once high-flying economy is barely crawling forward. Americans deserve better, and they can do better–as soon as they reverse course and start regaining the economic freedom that made America the most prosperous country in the world.

For the full story, see:
TERRY MILLER. “The U.S. Isn’t as Free as It Used to Be; Canada now boasts North America’s freest economy.” The Wall Street Journal (Weds., JANUARY 20, 2010): A17.
(Note: the online version of the article is dated JANUARY 19, 2010.)
(Note: ellipsis added.)

The Decline of Motive Power in Socialist Venezuela

“In Venezuela, which faces power shortages, blackouts have spurred protests like this demonstration in Caracas.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A11) CARACAS — Venezuela, a country with vast reserves of oil and natural gas, as well as massive rushing waterways that cut through its immense rain forests, strangely finds itself teetering on the verge of an energy crisis.
. . .
The government has forced draconian electricity rationing on certain sectors, which could make matters worse for an economy already racked by recession. Critics say the socialist government is trying to snuff out capitalist-driven sectors with the rationing, while allowing government-favored industries in good standing to continue with business as usual.
Shopping malls, which analysts say use less than 1% of the power consumed in Venezuela, have nonetheless been a main focus for the government.
Malls have been told most stores can only be open between 11 a.m. and 9 p.m.
“In a certain way, Chávez is attacking capitalism with the orders on shopping malls,” said Emilio Grateron, mayor of Caracas’s Chacao municipality, a bastion of those opposed to Mr. Chávez. “By limiting the hours we can go to malls, he is trying to slowly take away liberties, to create absolute control over things such as shopping.”
In Venezuela, whose capital Caracas is consistently ranked among the world’s most dangerous cities, residents see shopping malls as one of few havens in the country.
The government’s rationing efforts are also hitting metal producers. Their production has already been cut as much as 40%. Mr. Rodriguez, the electricity minister, said they may have to be completely closed to save more electricity.

For the full story, see:
DAN MOLINSKI. “Energy-Rich Venezuela Faces Power Crisis.” The Wall Street Journal (Fri., JANUARY 8, 2009): A11.
(Note: ellipsis added.)