Archive for December, 2010
Breastfeeding and the Government
The media is reporting on a new study that finds long-term benefits to kids of breastfeeding.
Yet if health experts agree on the advantages of breastfeeding, why does the federal government subsidize mothers to use formula through the $7 billion Women, Infants, and Children program?
The WIC program is run by the Department of Agriculture, which summarized the subsidies as follows (page 1):
…infants participating in WIC consume about 54 percent of all formula sold in the United States. In most states, WIC participants use food vouchers or food checks to purchase their infant formula, free of charge, at participating retail grocery stores.
It’s true that in addition to handing out free formula, WIC administrators counsel women on the advantages of breastfeeding. But the counseling apparently isn’t working if WIC infants consume more than half of all formula. I am told that breastfeeding isn’t easy, so if you give moms a free alternative, many of them take it.
This is one of many examples we see of the government’s right hand working against its left. The Army Corps of Engineers destroys wetlands, while other federal agencies protect them. Milk and sugar programs push up food prices, while other programs subsidize food costs. Politicians complain about energy companies gouging consumers, yet federal ethanol policies push up energy costs.
The winners in each case are the political class — high-paid government administrators, members of Congress, and the groups hooked on federal subsidies. The losers are the rest of us — average taxpayers and consumers.
For more on federal food subsidies, see here.
This Week in Government Failure
Over at Downsizing Government, we focused on the following issues this week:
- Downsizing Government was featured on C-SPAN.
- Unfortunately, because government has come to dominate road construction, most citizens probably don’t stop to consider that the private sector can provide superior alternatives.
- Evidence that higher education subsidies are counterproductive handouts.
- The omnibus abomination makes it easy to understand why Congress’s approval rating is at a new low.
- The United States is #1! We now have the highest corporate tax rate among the 34 wealthy nations of the Organization for Economic Cooperation and Development.
GAO an Aggressor in War on For-Profits? At Least Someone Cares
Today, AEI’s Rick Hess and Andrew Kelly have a piece at Inside Higher Ed highlighting serious evidence of dirty-dealing in a highly influential Government Accountability Office report on for-profit colleges. Hess and Kelly’s piece is well worth a read and I’m glad they’re on the case.
Unfortunately, theirs is about the only cry of alarm over apparent bias at the supposedly incorruptible GAO — potentially a huge story — I’ve seen since I wrote the following last week:
Now, though much needs to be determined about why the myriad changes to the report were made, I wouldn’t be terribly surprised to learn that people at the GAO have actually been in on the crusade to demonize proprietary colleges. I also, unfortunately, won’t be surprised if no one pays attention to any of this, and the shameless, responsibility-dodging war on for-profits continues unabated.
Sadly, so far my fears have been realized. Other than Hess and Kelly no one, especially in the mainstream media, is giving this story any of the attention it deserves. Apparently, if someone who’s honest about trying to make a buck is being beaten in an alley, it’s easier just to look the other way.
Economic Slack and Inflation
While listening to NPR this morning, I was subjected to yet another economist claiming that we cannot have inflation in an environment of such high economic slack. Setting aside the fact that perhaps this economist missed the 1970s, this is a vital question to examine, because it is the foundation of so much of Bernanke and the Federal Reserve’s current thinking. That is, the notion that inflation is always and everywhere the result of an over-heating, or excess demand, economy.
One of the measures commonly followed by the Fed, and others of the slack-restrains-inflation school, is the measure of capacity utilization rate. Setting aside some of the problems with this measure, are increases in capacity utilization associated with increasing inflation, as would be suggested by the slack-restraint school? It turns out not. Since 1967, when the data series begins, the correlation between capacity utilization and inflation, as measured by the consumer price index (CPI), has been negative. That is, as more and more industrial and economic resources have been brought into use, inflation has actually fallen, rather than risen (as would be predicted). A negative correlation also implies that low or falling capacity utilization does not mean low inflation.
Now what is positively correlated with inflation is the growth in the money supply. The chart below shows annual changes in both CPI and M2. Even just eye-balling the chart, one can see the positive correlation, which also shows up under statistical analysis.
Another question one often hears in today’s economic discussions is what would Milton Friedman say? I won’t claim to be able to channel Milton (or anyone else), but I do think the empirical evidence continues to support the conclusion that inflation is always and everywhere a monetary phenomenon.
Worth a Thousand Words
Presented without comment. Image here, HT to Uncle.
For more Cato work on the TSA, see “Body Scanners: The Naked Truth,” “On Air Security, We are the Ones We’ve Been Waiting For,” and “TSA Searches, Bomb Risk Near Zero.”
Jim Harper has some blog posts on the topic as well: here, here, here, and here.
Omnibusted
Taxpayers received a rare, albeit small and temporary, victory late last night when Senate Democrats were forced to shelve a pork-laden omnibus bill after establishment Republicans withdrew their support. Instead, Congress will now pass a continuing resolution to fund the government at current levels until the new Congress is seated in January.
The Washington Post nicely summed up what would be a fitting end to the 111th Congress’s two-year spend-a-thon:
The majority leader’s surrender on the spending bill marked a final rebuke for this Congress to the old-school system of funding the government, in which the barons of the Appropriations Committee decided which states would receive tens of millions of dollars each year.
Republicans will crow that they succeeded in preventing a repudiated lame-duck Congress from handing out political Christmas candy on its way out the door—and to a certain extent they’re right. But it also means that the GOP will have to craft long-term funding measures of their own when their new members take office next month. That’s when we will see how serious Republicans are about adhering to the belt-tightening mandate handed up by voters in November.
Republicans had better be just as serious about cutting spending as they were in stopping Democrats from increasing taxes. Prior to the death of the omnibus bill, taxpayers received a reprieve from a massive tax hike scheduled for the first of the year. Unfortunately, the tax bill contained additional spending and no spending cuts, which will mean even more debt if Republicans don’t get their act together next year.
For far too long, Republicans have fixated on tax cuts without lifting a finger to get the spending side of the ledger under control. With Democrats seemingly never able to spend enough, the result has been a major expansion of the federal government and skyrocketing debt. Only substantial spending cuts combined with a reduction in the scope of the federal government’s activities can prevent a fiscal calamity.
Earmarks, Spending, and the Scope of the Federal Government
The Washington Post reported yesterday that Republican senators were turning their back on a massive spending bill stuffed full of their own earmarks. Those earmarks, the Post noted, included quite a few to benefit Mississippi, the home state of Senators Roger Wicker and Thad Cochran:
Wicker, along with Cochran, had by then already sponsored earmarks in the spending bill that would fund an airport expansion in Tunica ($1.75 million), new riverwalk lights in Columbus ($300,000), improvements to a hiking and biking trail in Hattiesburg ($700,000) and improvements to an assortment of bridges, highways, trails, railways and streets across Mississippi.
A burgeoning Tea Party revolt against earmarks caused the bill to be withdrawn. Senate Majority Leader Harry Reid held a press conference to defend earmarks as the constitutional duty of the people’s elected representatives. (And, as many of our friends have emailed to tell us, held up a copy of the Cato pocket Constitution — 10 for $10 this Christmas season! — to make his point. Ah, well.)
But the real problem here is not earmarks. The underlying issue is not whether members of Congress or unelected bureaucrats spend the money that Congress appropriates for highways and the like. The real question is, why are local roads and bridges and hiking trails and riverwalk lights being paid for by taxpayers across the country?
If the people of Columbus, Mississippi, want new lights on their riverwalk, why are they asking the families of New Hampshire and Indiana and Oregon to pay for them? Shouldn’t they pay for their own lights, and let the people of Hattiesburg pay for their own hiking trails, and let the people of Oregon pay for any roads, bridges, or hiking trails that they value?
The fundamental problem is not earmarks. It is that the federal government is paying for clearly local and state responsibilities. Opponents of excessive spending should not stop at an earmark ban. They should insist that the federal government pay for national needs and leave state and local projects to the states and towns that want them.
Taxpayers Got a Big Christmas Present Yesterday, but It Wasn’t the Tax Bill
There’s a lot of attention being paid to yesterday’s landslide vote in the House to prevent a big tax increase next year. If you’re a glass-half-full optimist, you will be celebrating the good news for taxpayers. If you’re a glass-half-empty pessimist, you will be angry because the bill also contains provisions to increase the burden of government spending as well as some utterly corrupt tax loopholes added to the legislation so politicians could get campaign cash from special interest groups.
If you want some unambiguously good news, however, ignore the tax deal and celebrate the fact that Senator Harry Reid had to give up his attempt to enact a pork-filled, $1 trillion-plus spending bill. This “omnibus appropriation” not only had an enormous price tag, it also contained about 6,500 earmarks. As I explained in the New York Post yesterday, earmarks are “special provisions inserted on behalf of lobbyists to benefit special interests. The lobbyists get big fees, the interest groups get handouts and the politicians get rewarded with contributions from both. It’s a win-win-win for everyone — except the taxpayers who finance this carousel of corruption.”
This sleazy process traditionally has enjoyed bipartisan support, and many Republican senators initially were planning to support the legislation notwithstanding the voter revolt last month. But the insiders in Washington underestimated voter anger at bloated and wasteful government. Thanks to talk radio, the Internet (including sites like this one), and a handful of honest lawmakers, Reid’s corrupt legislation suddenly became toxic.
The resulting protests convinced GOPers — even the big spenders from the Appropriations Committee — that they could no longer play the old game of swapping earmarks for campaign cash. This is a remarkable development and a huge victory for the Tea Party movement.
Investigate All Air Travelers, Say Experts in Dog Food Rebranding
Washington Post staff writers Anne Kornblut and Ashley Halsey cite “experts” six times in a story today about the nascent pendulum swing in airport security policy back toward government investigation of travelers.
“[M]ore than a dozen U.S. officials, lawmakers and experts interviewed said they would like to move to a system that relies more on passenger data than on airport checkpoint screening,” they write. “[I]f the security system were allowed to access even more — such as personal information collected by companies that do credit ratings — suspicious passengers would be more readily identified, experts say.”
Without irony, they cite these methods as a way of closing gaps in current airport security. But no system would be quite so gapped as a system of mass investigations. As I wrote recently with regard to the “Trusted Traveler” notion, which has the same provenance:
[P]recisely what biographical information assures that a person is “good”? (The proposal is for government action: it would be a violation of due process to keep the criteria secret and an equal protection violation to unfairly divide good and bad.) How do we know a person hasn’t gone bad from the time that their goodness was established?
Kornblut and Halsey have turned up what appears to be a new idea by citing only experts who have not thought through the weaknesses, due process issues, and privacy costs in identity-based security. Mass investigation of air travelers is rebranded dog food. We don’t need to run to the bowl and drive our snouts into it.
House Bill Repeals DADT the Right Way
The House passed a repeal of Don’t Ask, Don’t Tell (DADT) yesterday, and it appears that the Senate will take up the measure sometime next week. Good.
DADT should end. I’ve said so, and debated the issue with repeal opponent Stuart Koehl (posts 1, 2, 3, and 4). Most servicemembers I know (appropriate disclaimer here) already have a mindset of Don’t Ask, Don’t Care, and its time for official policy to catch up.
We should note that a legislative effort is the right way to change the current policy. DADT is based on a law – 10 U.S.C. § 654 – enacted with the FY1994 National Defense Authorization Act.
Some have argued (and here, and here) that President Obama could stop enforcing DADT by executive order. The President does have control over enlisted separations under 10 U.S.C. § 12305 and officer separations under 10 U.S.C. § 123. But, as Gene Healy noted in a recent column, “it would be kinda cool if our representatives got to vote on [policies] before they became the law of the land.” More than kinda cool, it would comply with the Constitution, which gives Congress the authority “To make Rules for the Government and Regulation of the land and naval Forces.”
The repeal legislation also deals with the legal and policy questions that are implicated with DADT repeal. This is important in a couple of ways. First, the policy change is phased in over time, giving the services time to adjust policies.
Second, as I said at this event, the sexual offenses in the Uniform Code of Military Justice (UCMJ) are a mess that Congress needs to untangle along with repeal. Article 125 of the UCMJ criminalizes all sodomy – heterosexual, homosexual, consensual, or otherwise. As this article points out, the Court of Appeals for the Armed Forces’ decision in United States v. Marcum wounded Article 125 in the wake of Lawrence v. Texas, but did not kill it. The definition of “sexual intercourse” in the UCMJ only includes sex between a man and a woman, so the offenses of adultery, prostitution, and patronizing a prostitute under Article 134 of the UCMJ don’t apply when committed in a homosexual manner. The UCMJ should adopt a uniform standard – criminalize sexual behavior that is prejudicial to the good order and discipline of the armed forces, period. The DOD Report takes this into account (see pp. 138-39) and Congress and the military will have a chance to sort things out as repeal is under way.
In short, repeal is the right thing to do, and passing this law is the right way to do it.
Lies, Damned Lies, and Trade Statistics
If you want to understand how global integration and cross-border investment have left U.S. trade policy in need of a new purpose, check out today’s Wall Street Journal article about the Apple iPhone’s complex production-supply chain. (And then see this analysis for more depth and detail.) The story is both testament to the benefits of globalization and the latest indictment of a decrepit international trade flow accounting system that nourishes misleading trade skeptics and misinforms policy.
Following in the footsteps of a groundbreaking and widely-cited 2007 UC-Irvine study, which disaggregated the components of a Chinese-assembled Apple iPod and assigned its constituent value to the companies and countries responsible for their production, two researchers at the Asian Development Bank Institute applied a similar analysis to the Apple iPhone. Like the UC-Irvine iPod study before it, the ADBI analysis found that just a tiny fraction of the cost of producing the iPhone is Chinese value-added. The only Chinese input is labor, which is used to assemble the components manufactured in other countries. The value of that labor accounts for $6.50 or 3.6 percent of the total cost of $178.96 to produce an iPhone (about the same percentage as the iPod). The other 96.4 percent of that total is the cost of components produced (and the labor and overhead employed to produce those components) in Japan, Germany, South Korea, the United States, and several other countries. This breakdown is very similar to that found for the iPod in 2007, and the punch lines are identical.
While firms in Japan and Germany account for the most expensive parts (and quite obviously benefit from the advent of the iPhone), most of the value of the iPhone (like the iPod) accrues to Apple, which reaps the lion’s share of the approximately 100 percent markup. When iPhones sell for $399 in the United States, the difference between that retail price and the $178.96 cost of production goes to retailers, distributors, marketers, other firms in the supply chain, and to Apple, which distributes some earnings to its shareholders and retains some for research and development, supporting engineering and design jobs higher up the value chain so that the virtuous circle can continue.
Rather than appreciate how this complementary process harnesses the benefits of our globalized division of labor, some begrudge iPod and iPhone sales in the United States for adding to the bilateral trade deficit. Technically, for every $399 iPhone sold in the United States, the U.S. bilateral trade deficit with China increases by $178.96. Even though only $6.50 of that iPhone is Chinese value, under our antiquated, pre-globalization, method of tallying a nation’s imports and exports, the entire $178.96 is chalked up as an import from China because that was the product’s final point of assembly. According to the authors of the ADBI study, iPhones added $1.9 billion to the politically volatile U.S. trade deficit with China in 2009. Alas, this is the basis of the claim—popular among the most shameless trade critics—that America has a “high-tech” trade deficit with China.
Should we lament a trade deficit in iPhones or any other products assembled abroad, particularly when those products comprise U.S. value-added and support high-paying U.S. jobs? I think not. As I wrote last year:
U.S. factories and workers are more likely to be collaborating with Chinese factories and workers in production of the same goods than they are to be competing directly. The proliferation of vertical integration (whereby the production process is carved up and each function performed where it is most efficient to perform that function) and transnational supply chains has joined higher value-added U.S. manufacturing, design, and R&D activities with lower-value manufacturing and assembly operations in China. The old factory floor has broken through its walls and now spans oceans and borders. Though the focus is typically on American workers who are displaced by competition from China, legions of American workers and their factories, offices, and laboratories would be idled without access to complementary Chinese workers in Chinese factories. Without access to lower-cost labor in places like Shenzhen, countless ideas hatched in U.S. laboratories—which became viable commercial products that support hundreds of thousands of jobs in engineering, design, marketing, logistics, retailing, finance, accounting, and manufacturing—might never have made it beyond conception because the costs of production would have been deemed prohibitive for mass consumption. Just imagine if all of the components in the Apple iPod had to be manufactured and assembled in the United States. Instead of $150 per unit, the cost of production might be multiple times that amount.
Consider how many fewer iPods Apple would have sold; how many fewer jobs iPod production, distribution, and sales would have supported supported; how much lower Apple’s profits (and those of the entities in its supply chains) would have been; how much lower Apple’s research and development expenditures would have been; how much smaller the markets for music and video downloads, car accessories, jogging accessories, and docking stations would be; how many fewer jobs those industries would support; and the lower profits those industries would generate. Now multiply that process by the hundreds of other similarly ubiquitous devices and gadgets: computers, Blu-Ray devices, and every other product that is designed in the United States and assembled in China from components made in the United States and elsewhere.
The Atlantic’s James Fallows characterizes the complementarity of U.S. and Chinese production sharing as following the shape of a “Smiley Curve” plotted on a chart where the production process from start to finish is measured along the horizontal axis and the value of each stage of production is measured on the vertical axis. U.S. value-added comes at the early stages—in branding, product conception, engineering, and design. Chinese value-added operations occupy the middle stages—some engineering, some manufacturing and assembly, primarily. And more U.S. value-added occurs at the end stages in logistics, retailing, and after-market servicing. Under this typical production arrangement, collaboration, not competition, is what links U.S. and Chinese workers.
The proliferation of cross border investment and global production-supply chains is a major reason the world averted a global trade war of 1930s proportions during and in the wake of the recession, as described in this paper; it explains why Chinese currency appreciation between 2005 and 2008 did not reduce the U.S. trade deficit with China during that period, and why Yuan appreciation, alone, going forward will have no discernible impact on the deficit in this paper; and, it explains why the world should rejoice in China’s becoming the world’s largest exporter in 2009, in this oped.
Global integration requires new thinking about trade statistics, which should be reported on a constituent value-added basis, if at all. It also requires that trade policy get with the times and consist of goals that are not mired in the old “Us” versus “Them” way of thinking. Relying on old-fashioned trade statistics for 21st century policy decisions is a recipe for disaster.
Consumer Group Sues McDonald’s Over Happy Meals
The Center for Science in the Public Interest (CSPI), which has long agitated for wider government intervention in food and nutritional matters, has filed a lawsuit charging that McDonald’s is violating California consumer laws by marketing Happy Meals with toys. It wants to force the burger chain either to drop the toy, or to replace the meals’ food components with something more whole-grain-and-vegetable-y. The New York Daily News invited me to have my say on the controversy, and I did. I pointed out that the lawsuit seemed to be aimed at an end run around the reality of individual choice:
No one forced [named plaintiff Monet] Parham to take her daughters to McDonald’s, buy them that particular menu item, and sit by as they ate every last French fry in the bag (if they did).
No, she’s suing because when she said no, her kids became disagreeable and “pouted” — for which she wants class action status. If she gets it, McDonald’s isn’t the only company that should worry. Other kids pout because parents won’t get them 800-piece Lego sets, Madame Alexander dolls and Disney World vacations. Are those companies going to be liable too?
The center’s [CSPI's] longtime shtick is to complain that businesses like McDonald’s, rather than our own choices, are to blame for rising obesity. So let’s take Happy Meals as an example. When you buy one, you get a string of choices. Milk or soda? (Is that really a hard choice for a parent worried about nutrition?) You can swap out the fattening French fries for “apple dippers” with caramel sauce and plenty of kid appeal. But your choices do not end there. If you think the scoop of fries is too big for a kid serving, you can tell the kid to share it with the grownup on hand, namely you. (You’re the grownup. You make the rules.) You can even, shocking as this sounds, toss the surplus French fries into the disposal bin.
…[I]t’s unlikely that even California courts will approve this suit. But in the mean time, the Center for Science in the Public Interest will fatten off the publicity, unattractively.
You can read the whole thing here. As I’ve noted at my website Overlawyered, the case is one element in a wider campaign that includes newly enacted bans on Happy Meals in San Francisco and nearby Marin County. In June, California blogger Bruce Nye predicted that CSPI would try to build on a 1983 California Supreme Court precedent, Committee on Children’s Television, Inc. v. General Foods Corp., that invites suits over advertising to kids that is purportedly “predatory,” but that they’d run into trouble proving (as the law has required since California voters passed Prop 64 in 2004) that its client, Ms. Parham, is “a person who has suffered injury in fact and has lost money or property” owing to the advertising. Even under California law, having to say “no” to one’s kids is not a legal injury.
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