Category: Free Markets

Free Trade Benefits Harley-Riding Econometricians (and All Other Consumers Too)

Roughly 40 years ago, I completed a very useful econometrics course at the University of Chicago taught by the author of the commentary quoted below. Life is hard to predict, with or without econometrics. Who could have predicted that Eddie Lazear would end up on a Harley?

(p. A15) When I served in the George W. Bush administration, a group of Harley-Davidson -riding cabinet members and White House principals led the 2008 Memorial Day Rolling Thunder motorcycle parade. I own a 100th Anniversary Year Road King Classic. I am disappointed to see President Trump singling out the iconic American motorcycle company for harassment–a precedent that could inflict long-run damage on the U.S. economy.

. . .
Mr. Trump may genuinely believe his trade tactics will pressure other countries to reduce their tariffs, resulting in freer trade overall. This is unlikely. In the meantime his policies impose steep costs on American firms, like Harley-Davidson, and the people who want to buy from them. The best way to get others to buy American is to produce high-quality goods inexpensively. Those American products that do well abroad, Harley-Davidson motorcycles among them, succeed because consumers value them, not because tariffs and trade-war threats force them to buy American.

For the full commentary, see:
Edward Lazear. “Keep Your Tariffs off My Harley.” The Wall Street Journal (Tuesday, Aug. 28, 2018): A15.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Aug. 27, 2018.)

Anthony Bourdain “Let the Locals Shine”

(p. A15) People are mourning celebrity chef Anthony Bourdain all over the world–from Kurdistan to South Africa, from Gaza to Mexico. That may surprise American social-justice warriors who have turned food into a battlefield for what they call “cultural appropriation.”
“When you’re cooking a country’s dish for other people,” an Oberlin College student wrote last year, “you’re also representing the meaning of the dish as well as its culture. So if people not from that heritage take food, modify it and serve it as ‘authentic,’ it is appropriative.” This was prompted by a dining-hall menu that included sushi and banh mi. Celebrity alumna Lena Dunham weighed in on the side of the social-justice warriors.
. . .
Bourdain was a frequent target of similar criticism. When he declared Filipino food the next big thing, a writer for London’s Independent newspaper complained that his “well-meaning” comments were “the latest from a Western (usually white) celebrity chef or food critic to take a once scoffed at cuisine, legitimize it and call it a trend.”
Bourdain took it in stride. Asked on his CNN show, “Anthony Bourdain: Parts Unknown,” what he thought about culinary cultural appropriation, he said: “Look, the story of food is the story of appropriation, of invasion and mixed marriages and war and, you know . . . it constantly changes. You know, what’s authentic anyway?”
. . .
When Bourdain took us to places like Libya and Venezuela and West Virginia, he let the locals shine. His vocation was about more than food. It was about people–understanding their cultures and their lives, lifting them up and making their dishes.

For the full commentary, see:
Elisha Maldonado. “Bourdain vs. the Social-Justice Warriors; The celebrity chef scoffed at the notion of opposing ‘cultural appropriation.'” The Wall Street Journal (Tuesday, June 12, 2018): A15.
(Note: ellipses added.)
(Note: the online version of the commentary has the date June 11, 2018.)

Firms Transship to Avoid Tariffs

(p. B1) SHANGHAI — Want to avoid American tariffs? In China, a company called Settle Logistics says it knows a way.
Specifically, that way goes through Malaysia — a 4,600-mile diversion compared with sending a shipping container from China straight across the Pacific to the United States. But when those Chinese products arrive at an American port, they will look as if they had come from Malaysia, according to the company, and will be spared tariffs aimed at Chinese goods.
“For those unfair trade barriers targeting our industries from certain countries,” Settle Logistics says on its website, “we can adopt other approaches to bypass those trade tariffs in order to expand markets.”
Such zigzagging routes are called transshipments, and President Trump has used them to justify the trade fight he has picked with a number of countries. They could also take on new relevance should the United States and China carry out their threats to levy a total of more than $200 billion in tariffs against each other.
. . .
(p. B6) Stamping out such transshipments could prove difficult. The United States made a big effort in the late 1990s to address the relabeling in Hong Kong of garments that had been made in mainland China, said Patrick Conway, a textiles trade specialist.
But after American officials gathered enough evidence to put companies on a watch list, the companies quickly disappeared, said Mr. Conway, who is the chairman of the economics department at the University of North Carolina at Chapel Hill. Some of the same people involved emerged later, but at other companies.
“We can anticipate a game of Whac-a-Mole,” Mr. Conway said.

For the full story, see:
Keith Bradsher. “Dodging Tariffs With a Handy Detour.” The New York Times (Monday, April 23, 2018): B1 & B6.
(Note: ellipsis added.)
(Note: the online version of the story has the date April 22, 2018, and has the title “Tariff Dodgers Stand to Profit Off U.S.-China Trade Dispute.”)

“Some Things Are True Even if Donald Trump Believes Them!”

(p. A21) One of the hardest things to accept for all of us who want Donald Trump to be a one-term president is the fact that some things are true even if Donald Trump believes them! And one of those things is that we have a real trade problem with China. Imports of Chinese goods alone equal two-thirds of the global U.S. trade deficit today.
. . .
. . . , I sat down with David Autor, the M.I.T. economist who’s done some of the most compelling research on the impacts of China trade. The first problem he raised has to do with the “shock” that China delivered to U.S. lower-tech manufacturers in the years right after Beijing joined the World Trade Organization in 2001, when it gained more open access to the U.S. and other world markets.
. . .
Autor and his colleagues David Dorn and Gordon Hanson found in a 2016 study that roughly 40 percent of the decline in U.S. manufacturing between 2000 and 2007 was due to a surge in imports from China primarily after it joined the W.T.O. And it led to the sudden loss of about one million factory jobs in Ohio, Michigan, Wisconsin and Pennsylvania. Trump won all of those states.
This “China shock,” said Autor, led not only to mass unemployment but also to social disintegration, less marriage, more opioid abuse and more people dropping out of the labor market and requiring government aid. “International trade creates diffuse benefits and concentrated costs,” he added. “China’s rapid rise, while enormously positive for world welfare, has created identifiable losers in trade-impacted industries and the labor markets in which they are located.”
The second problem has to do with access to China’s market for the goods U.S. companies sell. There, noted Autor, “China has not only taken our lunch, they’ve opened a restaurant that’s serving it to their citizens.”
. . . China kept a 25 percent tariff on new cars imported from the U.S. (our tariff is 2.5 percent) and similarly steep tariffs on imported auto parts.

For the full commentary, see:

Friedman, Thomas L.. “Trump’s Right About China, To a Point.” The New York Times (Wednesday, March 14, 2018): A21.
(Note: ellipses added; italics in original.)
(Note: the online version of the commentary has the date March 13, 2018, and has the title “Some Things Are True Even if Trump Believes Them.” My print edition is in this case, and is almost always, the National Edition. I have discovered that sometimes the page number, and even the title and date, differ between the National and the New York print editions.)

The Autor co-authored paper mentioned above, is:

Autor, David H., David Dorn, and Gordon H. Hanson. “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade.” Annual Review of Economics (2016): 205-40.

Macron Gives France Hope That “Tomorrow Can Be Better Than Today”

(p. A27) PARIS — When people used to ask me what I missed about America, I would say, “The optimism.” I grew up in the land of hope, then moved to one whose catchphrases are “It’s not possible” and “Hell is other people.” I walked around Paris feeling conspicuously chipper.
But lately I’ve had a kind of emotional whiplash. France is starting to seem like an upbeat, can-do country, while Americans are less sure that everything will be O.K.
. . .
The French haven’t become magically cheerful, but there’s a creeping sense that hope isn’t idiotic, and life can actually improve. As is common with a new president, there was a jump in optimism after Emmanuel Macron was elected last year. But this time, optimism has remained strong, and in January it hit an eight-year high.
It helps that France’s economy is finally growing more and that Mr. Macron has made good on promises ranging from overhauling the labor laws to shrinking class sizes at kindergartens in disadvantaged areas.
. . .
“The France of the optimists has won, and is dragging the other part of France toward its own side,” said Claudia Senik, an economist who heads the Well-Being Observatory, an academic think tank here.
The French are even taking an intellectual interest in this alien idea. There are optimism clubs, conferences and school programs, scholars of positivity and books like “50+1 Good Reasons to Choose Optimism.” In September Mr. Macron was a patron of the Global Positive Forum, a study group of “positive initiatives” in business and government. (“Tomorrow can be better than today,” the forum’s website insists.)

For the full commentary, see:
Druckerman, Pamela. “The New French Optimism.” The New York Times (Friday, March 23, 2018): A27.
(Note: ellipses added.)
(Note: the online version of the commentary has the date March 22, 2018, and has the title “Are the French the New Optimists?”)

Free Trade Increases Economic Growth

(p. 3) When President Trump imposed tariffs on imported solar panels and washing machines, I was reminded of a line from George Orwell: “We have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men.”
. . . , my subject is economics, and to most people in my field, the benefits of an unfettered system of world trade are obvious.
. . .
. . . , economists have emphasized how trade affects productivity. In a model pioneered by my Harvard colleague Marc Melitz, when a nation opens up to international trade, the most productive firms expand their markets, while the least productive are forced out by increased competition. As resources move from the least to the most productive firms, overall productivity rises.
. . .
A skeptic might say that all this is just theory. Where’s the evidence?
One approach to answering this question is to examine whether countries that are open to trade enjoy greater prosperity. In a 1995 paper, the economists Jeffrey D. Sachs and Andrew Warner studied a large sample of nations and found that open economies grew significantly faster than closed ones.
. . .
Trade restrictions often accompany other government policies that interfere with markets. Perhaps these other policies, rather than trade restrictions, impede growth.
To address this problem, a third approach to measuring the effects of trade, proposed by the economists Jeffrey A. Frankel of Harvard and David C. Romer of the University of California, Berkeley, focuses on geography. Some countries trade less because of geographic disadvantages.
For example, New Zealand is disadvantaged compared with Belgium because it is farther from other populous countries. Similarly, landlocked nations are disadvantaged compared with nations with their own seaports. Because these geographic characteristics are correlated with trade, but arguably uncorrelated with other determinants of prosperity, they can be used to separate the impact of trade on national income from other confounding factors.
After analyzing the data, Mr. Frankel and Mr. Romer concluded that “a rise of one percentage point in the ratio of trade to G.D.P. increases income per person by at least one-half percent.”

For the full commentary, see:
N. GREGORY MANKIW. ”Economic View; Reviewing the Tenets of Free Trade.” The New York Times, SundayBusiness Section (Sun., February 18, 2018): 3.
(Note: ellipses added.)
(Note: the online version of the commentary has the date FEB. 16, 2018, and has the title ”Economic View; Why Economists Are Worried About International Trade.”)

The Melitz article mentioned above, is:
Melitz, Marc. “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity.” Econometrica 71, no. 6 (Nov. 2003): 1695-1725.

The Sachs and Warner article mentioned above, is:
Sachs, Jeffrey D., and Andrew Warner. “Economic Reform and the Process of Global Integration ” Brookings Papers on Economic Activity 26, no. 1 (1995 ): 1-95.

The Frankel and Romer article mentioned above, is:
Frankel, Jeffrey A., and David H. Romer. “Does Trade Cause Growth?” American Economic Review 89, no. 3 (June 1999): 379-99.

Reinvesting Profits Enables the Scaling Up of Success

(p. A17) Muhammad Yunus has big goals: zero world poverty, zero unemployment and zero net carbon emissions.
. . .
Mr. Yunus has long been a hero of mine for his innovative faith in the resourcefulness of low-income people.
. . .
If you want to motivate support for social enterprise, a utopian promise of “A World of Three Zeros” makes for a better book title than “Helping 60 Albanian Farmers Grow Herbs.” And Mr. Yunus’s paean to entrepreneurship does indeed deliver inspiration about the power of human creativity. But problematic arguments remain, especially his imprecise criticisms of the current economic system and the implausibility of replacing the whole system with social entrepreneurship.
A major problem is one of scale. Mr. Yunus’s many social-enterprise examples are all on the same micro level as the 60 Albanian herb farmers. And while there’s nothing wrong with making a large number of small-scale efforts to help a great many people, it doesn’t qualify as a whole new system for the $76 trillion global economy. Mr. Yunus doesn’t confront the scaling problem. He could have noted, for instance, that successful social entrepreneurs, unlike successful private entrepreneurs, by definition don’t get the high profits to reinvest in scaling up successes.

For the full review, see:
William Easterly. “BOOKSHELF; How to Solve Global Poverty.” The Wall Street Journal (Sat., Oct. 3, 2017): A17.
(Note: ellipses added.)
(Note: the online version of the review has the date Oct. 2, 2017.)

The book under review, is:
Yunus, Muhammad. A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Net Carbon Emissions. New York: PublicAffairs, 2017.

“Authentic” Rees-Mogg Appeals to Texans Deep in the Heart of England

(p. A10) Among the most unlikely developments of this political season in Britain has been that Mr. Rees-Mogg — whose conservative views include a hard line on departure from the European Union and on abortion and gay marriage — is being talked up as a possible Conservative Party leader.
This unfurled in phases all summer. Youth activists coined the term “Moggmentum,” touting him as the only Tory, as Conservatives are also known, with the charisma to match the Labour leader, Jeremy Corbyn. A 24-year-old man from South Yorkshire had the phrase tattooed on his chest, sending the newspapers into transports of delight. Memes followed. There were online quizzes (“Name Your Child the Jacob Rees-Mogg Way”) and T-shirts (“This fellow is a Rees-Moggian teen”). Someone recorded electronic dance tracks called Moggwave.
. . .
An interview on a morning TV show highlighting Mr. Rees-Mogg’s position on abortion — he opposes it even in the case of rape or incest — was expected to put an end to the chatter. But it appeared, for many, to have the opposite effect.
Voters understood that his positions were to the right of his party, but they had found a quality in him that mattered more than positions. He was, they said, “authentic.”
A decade ago, many Conservative Party leaders wanted nothing to do with Mr. Rees-Mogg. He first attracted national attention in the late 1990s, when he ran unsuccessfully for a seat in a working-class Labour stronghold in Scotland and went out to shake voters’ hands in the company of his nanny. (It was reported that they had campaigned in a Bentley, but he later denied this charge; it was a Mercedes.)
. . .
In Parliament, Mr. Rees-Mogg fell to the far right of the Tory spectrum, opposing climate change legislation and increased spending on welfare benefits and supporting tax breaks for bankers and corporations. In an interview, he said the Tory party must win a “battle of ideas” between the forces of the free market and socialism, and that its message to voters, especially young ones, had been too timorous.
“I think that conservative principles have a broad appeal and you should state them boldly, and the point of a Conservative election is to do conservative things, not to do Labour things but slightly less damaging,” he said. Voters today, he said, were drawn to politicians with more pointed views, both on the left and right, “because the centrist approach didn’t succeed.”
. . .
Radstock was a mining town until the last pits closed down, in the 1970s. Among those waiting to see him was Scott Williams, a knife-maker with brawny forearms and the accent of a Hollywood pirate. Mr. Williams said he had always considered himself staunchly Labour, but was increasingly concerned about attacks on his personal liberties. He had fiercely supported Brexit.
“I belong in Texas,” he said. “That’s the type of person I am. I don’t fit in in England.”
Mr. Williams said he had paid little attention to Mr. Rees-Mogg’s voting record on taxes or welfare — “I don’t really keep count on politics” — but had been drawn to him in recent months, and was impressed when he stood by his hard-line view on abortion.
“Something I do like about Jacob, he’s a straight talker,” he said. “He is who he is. He may be blue blood, but at least you get a straight answer.”

For the full story, see:
ELLEN BARRY. “The Saturday Profile; Latest Populist Craze in Britain: An Unabashed Elitist.” The New York Times (Sat., SEPT. 30, 2017): A10.
(Note: ellipses added.)
(Note: the online version of the story has the date SEPT. 29, 2017, and has the title “The Saturday Profile; The Latest Populist Craze in Britain: An Unabashed Elitist.”)


Connecticut Upholds Car Dealerships’ “Lucrative Stranglehold” on New Car Market

(p. A23) Connecticut and Tesla should be a perfect fit. But lawmakers failed to act on a bill in this year’s regular legislative session (for the third straight year) that would have legalized direct sales by Tesla, whose business model is rooted in selling directly to consumers.
The culprit? Heavy lobbying by the state’s car dealerships.
Thanks to Connecticut’s decades-old franchise laws, new cars can be sold only through licensed franchises independent of carmakers. Even though only about 5,500 zero-emission cars have sold in Connecticut since 2011, Tesla’s effort to cut out the middlemen would undermine the lucrative stranglehold that car dealerships have on the new car market.
. . .
. . . , the National Automobile Dealers Association claimed franchise laws “keep prices competitive and low.” However, a 2009 paper by an economist at the Justice Department’s Antitrust Division instead concluded that “car customers would benefit from elimination of state bans on auto manufacturers’ making direct sales to consumers.” The paper pointed to a study by a Goldman Sachs analyst in 2000 that found that direct manufacturer sales could lower costs by 8.6 percent, with most of the savings resulting from more efficient matching between consumer demand and supply, and a subsequent reduction in inventory.
No wonder the Federal Trade Commission has criticized franchise laws as a “special protection” for these dealers — “a protection that is likely harming both competition and consumers.”

For the full commentary, see:
NICK SIBILLA. “‘Connecticut Should Be Tesla Turf.” The New York Times (Fri., JULY 7, 2017): A23.
(Note: ellipses added.)
(Note: the online version of the commentary has the title “Connecticut Should Be Tesla Country.”)

The Department of Justice research paper, mentioned above, is:

Bodisch, Gerald R. “Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers.” U.S. Department of Justice, Economic Analysis Group, Competition Advocacy Paper # EAG 09-1 CA. May 2009.

Price Gouging Rewards Conservation and Increases Supply

(p. B1) On its face, the very idea of price gouging, especially during a natural disaster, feels outrageous. Indeed, 34 states have anti-gouging laws meant to protect consumers.
However, in a small slice of the world of economists and businesses, there is a fascinating debate about the topic — with many arguing that price gouging is actually a good thing.
. .
(p. B6) “Price caps discourage extraordinary supply efforts that would help bring goods in high demand into the affected area,” Michael Giberson, an instructor with the Center for Energy Commerce in the Rawls College of Business at Texas Tech University, wrote in an opinion piece from several years ago that was widely circulated around parts of Wall Street this weekend. Meanwhile, he suggested, “You discourage conservation of needed goods at exactly the time they are in high demand.”
He added, “In a classic case of unintended consequences, the law harms the very people whom lawmakers intend to help.”
Consider this scenario, as described by Matt Zwolinski, the director of the Center for Ethics, Economics, and Public Policy at the University of San Diego: If a hotel that normally charges $50 per room were allowed to double the price to $100 a night during an emergency, “a family that might have chosen to rent separate rooms for parents and children at $50 per night will be more likely to rent only one room at the higher price, and a family whose home was damaged but in livable condition might choose to tough it out if the cost of a hotel room is $100 rather than $50.”
The result, he contended in a paper titled “The Ethics of Price Gouging,” is that allowing higher prices “increases the available supply — as a result of consumers’ economizing behavior, more hotel rooms are available to individuals and families who need them most.”

For the full commentary, see:
Sorkin, Andrew Ross. “DEALBOOK; Price Gouging Can Aid Victims? Why Some Economists Say Yes.” The New York Times (Tues., Sept. 12, 2017): B1 & B6.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Sept. 11, 2017, and has the title “Hurricane Price Gouging Is Despicable, Right? Not to Some Economists.”)

The article by Zwolinski, mentioned above, is:
Zwolinski, Matt. “The Ethics of Price Gouging.” Business Ethics Quarterly 18, no. 3 (July 2008): 347-78.

“I Believe in Free Markets and Open Skies”

(p. B1) DELHI — When the fast-growing Malaysian carrier AirAsia wanted to expand, India looked like the ideal frontier.
. . .
Then, AirAsia discovered the difficulties of doing business in India.
While it benefited from a recent loosening of restrictions on foreign investment in airlines, AirAsia India has contended with a web of red tape and regulations for new entrants that have added significant cost and complexity to its operations.
. . .
(p. B7) . . . Mr. Chandilya acknowledges that he misjudged India’s regulatory environment, which is uniquely stringent for airlines.
Taxes on aviation turbines are higher than almost anywhere else in the world. Every airline, even those with just a few planes, is also required to fly regularly to remote regions, where flights often run half full. And new entrants like AirAsia India are prohibited from flying lucrative international routes until they are five years old and have at least 20 aircraft, the so-called 5/20 rule.
“I believe in free markets and open skies, but if you look at the policies we have in place, I don’t think we have that at all,” Mr. Chandilya said.
. . .
Each Indian state controls its own taxes on aviation turbine fuel, and in many places it is kept as high as 30 percent. More than half of AirAsia India’s operating costs are fuel-related.
High taxes also extend to maintenance and Indian airlines often choose to take their aircraft to nearby countries for that work. AirAsia India plans to send its planes to Malaysia or Singapore for servicing once they’ve been operational for two years.
“I talk to ministers and policy makers about how they can help the industry and promote growth, but it is very difficult to get them to understand that reducing these taxes will probably boost their states’ economies,” Mr. Chandilya said.

For the full story, see:
MAX BEARAK. “India’s Restricted Airspace.” The New York Times (Tues., JUNE 23, 2015): B1 & B7.
(Note: eilipses added.)
(Note: the online version of the story has the date JUNE 22, 2015, and has the title “AirAsia Faces Red Tape and Tough Competition in India.”)