Archive for January, 2010
Pepsi Throwback and the Sugar Racket
This weekend while watching a football game with a friend, I saw a commercial for Pepsi “Throwback.” This is a new product containing real sugar instead of high-fructose corn syrup. My friend was incredulous when I explained that soft drinks manufactured for sale domestically generally don’t contain sugar because government protection of the U.S. sugar industry from imports make its use cost-prohibitive.
I am intrigued that Pepsi would market a sugar-based product. In perusing the Internet for news about it, I found countless stories applauding the product but blaming Pepsi and Coke for continuing to use inferior-tasting high-fructose corn syrup. For example, Pepsi Throwback’s Wikipedia page states that soft drink manufacturers switched to high-fructose corn syrup decades ago because of rising sugar prices, but it doesn’t mention that government policy was behind the price increases.
A Cato essay on agricultural regulations and trade barriers explains the government’s sugar racket and its destructive effects. Here are the key points:
- The federal government guarantees a minimum price for sugar in the domestic market by maintaining a system of preferential loan agreements, domestic marketing quotas, and import barriers.
- USDA data show that U.S. sugar prices have been more than twice world market prices.
- The Government Accountability Office estimates that U.S. sugar policies cost American consumers about $1.9 billion annually.
- U.S. food industries that buy sugar are harmed by current sugar policies. The employment in U.S. sugar growing is 61,000, which compares to employment in U.S. businesses that use sugar of 988,000.
- According to a U.S. Department of Commerce report, for each sugar growing and harvesting job saved through high U.S. sugar prices, nearly three confectionary manufacturing jobs are lost.
- Numerous U.S. food manufacturers have relocated to Canada where sugar prices are less than half of U.S. prices and to Mexico where prices are two-thirds of U.S. levels.
Chicago has been particularly hard hit, with many candy companies moving production abroad. One might think that our president, a Chicagoan, would be willing to take on the powerful domestic sugar lobby. But as Dan Griswold discussed in October, Obama’s USDA ignored a plea from domestic sugar-using industries and kept quotas at their current restrictive level.
What about high-fructose corn syrup? Government policy artificially increases the price of sugar, but its corn subsidies artificially reduce the price of corn, which helps make high-fructose corn syrup more cost-effective in products like soft drinks. Major high-fructose corn syrup manufacturers, such as Archer Daniels Midland, benefit from federal programs and they spend lots of money lobbying policymakers to keep them going.
In his classic 1995 Cato policy analysis, “Archer Daniels Midland: A Case Study in Corporate Welfare,” James Bovard recounts ADM’s long-standing influence behind the government’s sugar racket:
Although ADM does not directly produce sugar, Congress and the USDA have created a price umbrella under which ADM’s production of high-fructose corn syrup – a sugar syrup – has become immensely profitable. ADM got into corn fructose production very heavily around 1974, just as sugar prices peaked on world markets. After ADM invested heavily to increase its capacity to produce high-fructose corn syrup ninefold, sugar prices plummeted from 65 cents to 8 cents per pound.
[ADM Chairman Dwayne] Andreas told Business Week in 1976, “If it was a mistake, I’d say it was my mistake.” Business Week noted, “One industry source suggests that ‘Dwayne looks at this as sort of a waiting game, basing his unflappability on the predicted passage of a new sugar bill.’ Such a bill is expected to provide an ‘umbrella’ – that is, to put supports under sugar at a level where high-fructose corn syrup will be at least reasonably profitable. Andreas contributed heavily to the 1968 and 1972 campaigns of Humphrey, Jackson and Nixon. With both parties covered, ADM may reasonably anticipate some legislative help.” That help came in the form of a new sugar bill in 1981.
For ADM, cheaper inputs (corn) plus a more expensive substitute (sugar) equals nice profits at U.S. taxpayer and consumer expense.
Pepsi Throwback will only be available for U.S. consumers to enjoy until February 22nd. After that, Americans looking for Pepsi or Coke with real sugar in it will have to go to Mexico. Hopefully, Mexican politicians won’t put up a wall along the border to stop Americans from sneaking into the country and taking all their good soft drinks.
Update: Several readers have pointed out that “Passover Coke,” which contains sugar instead of high-fructose corn syrup, can be found in certain metropolitan areas around Passover. Coke with sugar manufactured in Mexico can also be found in some Latin American grocery stores.
Tuesday Links
- Should the President be considered “America’s Daddy“? (Not unless you think all American people should be treated like children…)
- Cato President Ed Crane on Tucker Carlson’s new site, “The Daily Caller.”
- More bad news for Blackwater.
- Podcast: “Government Workers’ Padded Paychecks” featuring Chris Edwards.
A Nice Little Reminder
There hasn’t been much in the news about education over the last several weeks, so there haven’t been many education entries here on Cato@Liberty. That should be changing soon, though, with the first round of state “Race-to-the-Top” applications due to the feds on January 19, and the Common Core State Standards Initiative expected to release draft grade-by-grade mathematics and language-arts standards sometime this month.
To tide you over until those two monumental happenings occur, the New York Times today offers a little piece about supposedly tough state “exit examinations” that illustrates why you shouldn’t expect either R to the T or national standards to produce any meaningful improvement in academic outcomes. Quite simply, no matter how good or tough “standards” and “accountability” sound, in government schooling they will almost always end up evaded. After all, what incentive does anyone have to set and meet high standards when they’re going to get paid no matter what?
Government-Subsidized Risk Is a Bad Idea
Kudos to Nicki Kurokawa, a former Cato employee, for this short but substantive video explaining “moral hazard.” She notes that government-subsidized risk played a pernicious role in the housing bubble and financial crisis, and warns that “too big to fail” may create similar problems in the future.
The Real Meaning of China’s Export Primacy
The Washington Post reports today that China surpassed Germany to become the world’s largest exporter in 2009, adding yet another economic feat to its expanding trophy case. Undoubtedly, U.S. trade skeptics and globophobes will consider this “accolade” the latest evidence of American decline and Chinese ascendancy. But more than it is any refection of China’s economic might, the milestone is testament to the successful erosion of economic, political, physical and technological barriers that had previously constrained human possibilities.
Widespread liberalization of trade and investment rules beginning in earnest after World War II; China’s opening to the West beginning with reforms in 1978; the fall of the Berlin Wall in 1989 and the Soviet Union two years later; the collapse of communism as a viable choice for developing countries; the advent and proliferation of containerized shipping, GPS technology, just-in-time supply chain management techniques, and other marvels of the information, transportation, and communications revolutions have spawned a global division of labor and way of doing things that defy traditional trade policy considerations, and render trade flow accounting rather meaningless.
To borrow the theme and some phrases from my recent paper, “Made on Earth,” global economics is no longer a competition between “Us and Them.” It is no longer “Our” producers against “Their” producers. Instead, because of cross-border investment and transnational production and supply chains, the factory floor has broken though its walls and now spans oceans and borders, rendering U.S. workers and foreign workers collaborative, even complementary, in so many endeavors. There is, of course, competition, but that competition is often between production/supply chains or brands that defy any meaningful national identification because the final products are composed of value-added from multiple countries. Thus, there is cooperation within production/supply chains before there is competition between them.
So, what does all of this have to do with China’s status as the world’s biggest exporter? It means that we should avoid the temptation to attach the wrong meaning to the title. China has become the world’s largest exporter primarily because the global division of labor that has helped reduce the burdens of poverty and create greater wealth still prescribes for China the role of lower-value-added production and final assembly operations in global production/supply chains.
While intermediate goods—components and raw materials—are shipped to China from countries such as Japan, Taiwan, Singapore, Australia, and America, those inputs are often “snapped together” or perhaps subject to slightly higher Chinese valued-added operations before being exported as final goods. For the purpose of trade flow accounting, the entire value of the merchandise is registered as Chinese export value, even when a very small percentage is actually Chinese labor, material and overhead.
That accounting methodology helps explain why China’s exports—to the world and the United States—have surged over the decades (as the division of labor evolved and supply chains proliferated), and why policy focus on the U.S. bilateral trade deficit with China is misplaced. As aptly put in the conclusion of this now-famous study about who captures value in the iPod supply chain:
“[T]rade statistics can mislead as much as inform. For every $300 iPod sold in the U.S., the politically volatile U.S. trade deficit with China increased by about $150 (the factory cost). Yet, the value added to the product through assembly in China is probably a few dollars at most.”
Chinese value-added is very low in higher technology and more sophisticated electronics exports. It is higher in other products that Americans import from China. According to the findings in a recent NBER paper titled “How Much of Chinese Exports is Really Made in China,” about 50 percent of the value of a typical cargo container imported into the United States from China is Chinese value-added, which comports roughly with estimates undertaken by others.
So, as we consider the meaning of China’s new status as global export leader, it is important to understand the value and limitations of the trade data. Those data speak much more convincingly to the virtues of economic interdependence than to China’s stand-alone export prowess.
Where’s Our Bailout Vote?
It’s easy to forget that the financial crisis was not simply one of American financial institutions getting into trouble; banks around the world found themselves on the brink of failure. One of the more interesting cases is Landsbankinn, a privately owned bank in Iceland. Landsbankinn also operated a branch in Britain and the Netherlands called “Icesave.” When Icesave failed in 2008, the British government rushed in and covered the deposits of its British savers — a move that was neither requested by Landsbankinn or the government of Iceland. Now the Brits are demanding that Iceland pay them to cover those expenses.
For a brief moment it looked like that was exactly what was going to happen, as the legislature in Iceland passed a bill to pay off the Brits. Sensing the public opposition, Iceland’s president blocked the bill. This is likely to lead to a public vote by the people of Iceland on whether they want to cover the losses of British depositors in Icesave.
Britain had no legal basis for seizing Icesave assets in the UK, nor did depositors in Icesave have any right to have their losses covered. If England wants to bail out its citizens, that is its business. Asking Iceland to foot the tab afterwards sets a dangerous precedent.
But then at least the citizens of Iceland are getting a vote on whether to bail out or not. By comparison, both U.S. Treasury Secretaries Paulson and Geithner have decided that U.S. taxpayers must honor foreign investments in Fannie Mae and Freddie Mac, even if those investments were explicitly not insured by the U.S. government. Perhaps the U.S. could learn a little about democracy and accountability from Iceland.
Eat, Pray, Love, Marry–as Long as You’re Heterosexual
Elizabeth Gilbert, the bestselling author of the memoir Eat, Pray, Love, is back with a new book, Committed: A Skeptic Makes Peace With Marriage. In her earlier book Gilbert reflected on her broken marriage, her travels around the world “looking for joy and God and love and the meaning of life,” and her determination never to marry again. In the new book we learn that she surprised herself by meeting a man worth settling down with, a Brazilian living in Indonesia. So they became a couple and settled near Philadelphia, with Jose Nunes regularly leaving the country to renew his visitor’s visa.
But then came a legal shock:
She was in the early stages of research for that book when Nunes was detained, after a visa-renewing jaunt out of the country, by Homeland Security Department officials at the Dallas-Fort Worth International Airport. Popping in and out of the country as he’d been doing was not legal, Nunes was told, and if he wanted to stay permanently they would have to marry.
Gilbert didn’t want to marry. She and Nunes spent 10 months traveling in Asia. But then, reading about marriage, writing about her aversion to marriage, getting closer to her new partner, she decided to marry. And so they did. And they lived happily ever after in the New Jersey suburbs.
A happy ending all around. As long as you’re heterosexual. Because, of course, if you’re gay, the U.S. government will tell you that your life partner from Brazil may be allowed to visit the United States, but he won’t be allowed to stay. And guess what? He could stay if you were married, but you can’t get married. Catch-22. And even though you could now marry in some foreign countries and some American states and the District of Columbia, the Defense of Marriage Act still prevents the federal government — including its immigration enforcers — from recognizing valid marriages between same-sex partners.
Is this just a theoretical complaint? As a matter of fact, not at all. At least two well-known writers have recently faced exactly the same situation Gilbert did: a Brazilian life partner who couldn’t live in the United States. Glenn Greenwald, a blogger, author of bestselling books, and author of a Cato Institute study on drug reform in Portugal, has written about his own situation and that of others. Like Greenwald, Chris Crain, former editor of the Washington Blade, has also moved to Brazil to be with his partner.
Carolyn See, reviewing Gilbert’s book in the Washington Post, wrote, “The U.S. government, like a stern father, proposed a shotgun marriage of sorts: If you want to be with him in this country, this Brazilian we don’t know all that much about, you’ll have to marry him.” A shotgun marriage, sort of. But at least the government gave Gilbert a choice. It just told Greenwald and Crain no.
This unfairness could be solved, of course, if the government would have the good sense to listen to Cato chairman Bob Levy, who wrote last week in the New York Daily News on “the moral and constitutional case for gay marriage.” And it may be solved by the lawsuit seeking to overturn California’s Proposition 8 that is being spearheaded by liberal lawyer David Boies and conservative lawyer Ted Olson, writes Newsweek’s cover story this week, “The Conservative Case for Gay Marriage.” Until then: eat, pray, love, marry — as long as you’re heterosexual.
The Real World – D.C.
Reason.tv has a characteristically good video about the failure of House and Senate leaders (and the president) to make negotiations about the health care bill transparent.
It’s probably not true, House Speaker Nancy Pelosi’s statement that “there has never been a more open process…” But even if it is, that doesn’t matter. Technology that can make the legislative process far more open is there, and the audience wishing to use it is there too.
The public’s expectations for open government have risen to what can be achieved—matching past practice is not good enough.
No Privacy Please, We’re Millennials
TrueSlant’s Kashmir Hill notes—and endorses—Facebook CEO Mark Zuckerberg’s conclusion that the kids today won’t stay off my lawn just don’t care much about privacy.
On the one hand, this shouldn’t be terribly surprising. Quite apart from the recent proliferation of social networking technology, generational researchers have long contrasted the heavily supervised and scheduled upbringings of (middle class) Millennials born in the ’80s and early ’90s with that of their “latch key” Gen X predecessors. And for anyone currently of college age, post-9/11 levels of security theater are viewed not as a novel expansion of official intrusion, but as the baseline, as normal. This can’t be a matter of total indifference to the fogeys among us, because shifting norms will affect both legislators’ willingness to ratchet up surveillance and, at least potentially, judicial assessments of which “expectations of privacy” society is prepared to recognize as “reasonable” for Fourth Amendment purposes.
Still, let me throw out some grounds for questioning this broad generational diagnosis. Privacy is not just a function of the raw quantity of information available about each of us, but of the control we exercise over that information. To be sure, it may seem that we have less of that as well when any scrap of data that appears on the Internet can so easily be copied and circulated. But for the generation that came of age online, those scraps of data are often part of a very conscious public performance of identity. Not necessarily a performance all of them will be eager to own ten years down the line, but a performance all the same.
In his excellent book The Digital Person, legal scholar Dan Solove contrasts two kinds of privacy dystopia: the Orwellian and the Kafkaesque. The focus in the Orwellian vision is on exposure: Big Brother’s spies and cameras are everywhere, and no detail of your personal life too minute to escape notice. But the plight of Kafka’s Josef K. is somewhat different: He finds himself at the mercy of an inscrutable bureaucracy, with no access to the details of his case file, and no way of tracing the provenance of the information it contains or correcting errors. We are more exposed, but we increasingly set the terms of our exposure.
It’s easy to look at all the information that comes up in a simple Google search for someone’s name and conclude that privacy is dead. But I think it’s at least as significant that the crucial first page of results is likely to consist of information that the individuals themselves have chosen to make public: Blogs, Facebook or MySpace profiles, Twitter accounts, Last.fm pages, YouTube channels. A similar inquiry a generation ago surely would have been much more laborious and less fruitful, but it also would have consisted to a far greater extent of what others had to say about the target: gossip first and foremost, but perhaps also press mentions, official records, and so on. It’s not that such information is now less accessible, but for the average person, it’s pushed to the margin by what we’ve chosen to disclose. That’s not an unmixed blessing—some may feel as though this merely traps them in a kind of openness arms race—but neither is it the privacy death-spiral a purely quantitative analysis might suggest.
Monday Links
- David Boaz: “Suddenly, I find myself nostalgic for Bill Clinton….Come back, Bill, all is forgiven. Or most, anyway. As long as you bring a Republican Congress with you.”
- So, have you been following the health-care debate on C-SPAN? Oh wait…
- Obama administration preparing a new arms package for Taiwan.
- Nat Hentoff to Castro et al: “Roar, tyrants, you cannot hide your racist deeds.“
- Podcast: “Price Controls in Obamacare” featuring Michael F. Cannon.
Al Qaeda Wants You to Panic
If you read just one thing on al Qaeda’s failed Christmas Day bombing, read Fareed Zakaria’s column in today’s Washington Post.
If you’re hungry for more, Peter Beinart in Time and this article in the Wall Street Journal also get it right.
And if you’re convinced, or even modestly intrigued, by the suggestion that one of the key goals of terrorism is to terrorize, and the appropriate response is to not be, then listen to or watch this event on Wednesday.
Federal Bias Toward Homeownership
The Wall Street Journal ran the story last week: “U.S. Now a Renters’ Market.” Apartment vacancies hit a 30-year high in the last quarter of 2009, and rents are falling in most markets. For current or former homeowners trying to stumble out of the debris left from the government-fueled housing bubble, a renter-friendly environment is a positive opportunity.
But it’s also a reminder of how the government’s obsession with homeownership continues to distort the market for housing. As the Journal notes, “Government efforts to prop up the housing market also threaten the apartment sector by making it easier for some renters to buy homes. Some landlords have reported a slight uptick in renters moving out to buy homes.”
Homeownership in the U.S. began an upward trajectory following the federal government’s plunge into the housing market during the Great Depression. Prior to that fewer than half of Americans owned their own home according to University of Pennsylvania Prof. Thomas J. Sugrue. Owning one’s home is now viewed in this country as American as apple pie. but as Sugrue points out, this mentality is “a story riddled with irony”:
[F]or at the same time that Uncle Sam brought the dream of home ownership to reality—he kept his role mostly hidden, except to the army of banking, real-estate and construction lobbyists who rose to protect their industries’ newfound gains Tens of millions of Americans owned their own homes because of government programs, but they had no reason to doubt that their home ownership was a result of their own virtue and hard work, their own grit and determination—not because they were the beneficiaries of one of the grandest government programs ever.
Indeed, the housing industry “army” remains a potent force behind the government’s distortionary housing policies, as I discussed in a policy analysis on the Department of Housing and Urban Development’s failures:
An important driver of the bad policymaking is the large influence that housing lobby groups have in Washington. Ultimately, federal policymakers are responsible for their actions, but a brief review of the political power of the housing lobbies illustrates where policymakers get a lot of their bad ideas.
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