Thursday Links
- The War on Terrorism ends; and the winner is… China.
- Fairness Doctrine 2.0: How the government is finding new ways to regulate media.
- Don’t miss Cato’s 27th annual Monetary Conference Thursday, November 19th.
- New Hampshire state government guaranteeing loans to help bail out a local newspaper.
- Podcast: “Atomic Obsession:” When threats are exaggerated, what’s the cost? John Mueller, author of Overblown: How Politicians and the Terrorism Industry Inflate National Security Threats, and Why We Believe Them, comments.
Our ‘Reassured’ Allies
Justin Logan beat me to the punch, but Robert Kagan and Dan Blumenthal’s op-ed in the Washington Post warrants more than just one comment. Kagan and Blumenthal fret that the Obama administration’s policy of “strategic reassurance” is sure to fail. Aimed at encouraging Russia and China, especially, to cooperate with the United States in dealing with a number of common threats, the two predict that the policy will succeed only in making “American allies nervous.”
Maybe that wouldn’t be such a bad thing. Not that we should go around making our allies nervous just for the heck of it, but I worry that our allies have grown, well, too comfortable with the current state of affairs in which American taxpayers and American troops bear a disproportionate share of the costs of securing global peace and prosperity.
And who can blame them? From the perspective of our allies in East Asia (chiefly the Japanese and the South Koreans), and for the Europeans tucked safely within NATO, getting the Americans to pay the costs, and assume the risks, associated with policing the world is a pretty good gig.
The same Robert Kagan made this point explicitly, if somewhat crudely, in his book Of Paradise and Power, when he cast the United States in the heroic role as sheriff, while our wealthy allies were portrayed as cowardly, sniveling townspeople, or, worse, saloon keepers who benefited from the protection of the Americans while selling booze to the bad guys.
For at least two decades, we have adopted a strategy designed to comfort our allies. Our goal has been to discourage them from taking prudent steps to defend themselves. Many Americans are beginning to appreciate just how short-sighted this policy was, and is. Such military capabilities might have proved useful in Afghanistan, for example, and they might ultimately serve a purpose in checking Russian and Chinese ambitions, which would be particularly important if these two countries prove as aggressive as Kagan and Blumenthal claim.
Instead, we have a group of militarily weak and comfortable allies who spend a fraction of what Americans spend on defense, and who can muster political will with respect to foreign policy only when it entails criticizing the United States for not doing enough. In other words, we are reaping what we sowed.
Filed under: Foreign Policy and National Security; General
It Could Happen Here Too
The Washington Post reports that China’s ‘netizens’ are holding authorities to new standard.
Filed under: Government and Politics; Telecom, Internet & Information Policy
Degree Disaster Behind The Great Wall
Based on my regular reading on education, but not China specifically, I know that the world’s most populous nation has had a lot of trouble finding jobs for its throngs of recent college graduates. I wrote a bit about that yesterday, pointing out that the important higher education lesson from China is that pumping out more college grads is meaningless if they don’t have skills that are in demand. Well, thanks to a very helpful Cato@Liberty reader who actually lives in China (and wishes to remain anonymous) I now have a much better idea just how important that lesson is. He directed me to this Asia Times article that includes, among many fascinating tidbits, this startling revelation:
An explosive report released by the Chinese Academy of Social Sciences (CASS) in September said earnings of graduates were now at par and even lower than those of migrant laborers [italics added].
Wow! If this report is accurate, until now I have had no idea how truly ridiculous Washington’s obsession with pumping out more degrees to keep up with the Chinese has been — and I’ve been pretty sure it’s ridiculous! Much more troubling, if I’ve had little clue about the true extent of the absurdity, imagine how far from grasping it our government-loving federal politicians have been! Of course, as I wrote yesterday, even if they did know it, they probably wouldn’t let on.
Filed under: Education and Child Policy; Tax and Budget Policy
If China Jumped Off A Bridge, Would We Do It Too?
Everyone has heard that China is leaving us in its dust when it comes to producing college graduates, and if we don’t do something drastic to catch up they’ll crush us economically as well. Indeed, it’s a driving force behind efforts to ramp up federal higher education intervention.
As President Obama proclaimed when introducing his American Graduation Initiative, which is now part of the ironically titled Student Aid and Fiscal Responsibility Act:
By 2020, this nation will once again have the highest proportion of college graduates in the world….Already we’ve increased Pell grants by $500. We’ve created a $2,500 tax credit for four years of college tuition. We’ve simplified student aid applications….A new GI Bill of Rights…is beginning to help soldiers coming home from Iraq and Afghanistan to begin a new life — in a new economy. And the recovery plan has helped close state budget shortfalls…at the same time making historic investments in school libraries and classrooms and facilities all across America. So we’ve already taken some steps that are building the foundation for a 21st century education system…one that will allow us to compete with China and India and everybody else all around the world.
Now, while a college education could furnish important learning that helps drive innovation and economic development, it could also be as worthless as conferring a bachelor’s degree on a dog. What’s important is that people actually learn things of value, not simply that they get degrees. But a funny thing happened in China…
Yesterday, news broke that China’s top education official has been sacked. Reports the New York Times:
Facing rising criticism over the quality of schools and a crush of jobless college graduates, China’s legislature announced Monday that it had removed the minister of education after six years on the job and replaced him with a deputy.
China has been cranking out college graduates at a breakneak pace, but the quality of the education has become highly suspect and, perhaps more importantly, there haven’t been nearly enough jobs to employ all the newly credentialed. In other words, simply producing more graduates — no matter how much it has frightened some people in America – has largely been a waste.
The obvious lesson from this should be that it’s foolish to simply make massively expanding the ranks of degree holders a national goal. But that doesn’t compute for many U.S. politicians, despite abundant evidence that we don’t need heaps more graduates anymore than China does. It’s getting elected that matters most to politicians, and as long as voters keep believing that government is opening the door to the middle class simply by pushing more and more people to college, politicians will keep wasting taxpayer dollars on unnecessary degrees.
So let’s hope that both voters and politicians will learn China’s clear college lesson: Fixating on degrees is not very smart. Failing that, let’s hope that we at least don’t have any rioting…
Filed under: Education and Child Policy; International Economics and Development
‘Is Obama Punting on Human Rights?’
That’s today’s Arena question over at Politico.
This morning, both Bret Stephens, in the Wall Street Journal, and Mona Charen, at Real Clear Politics, catalogue Obama’s silence on human rights — China, Tibet, Sudan, Iran, Burma, Honduras — and his backpedaling from his campaign rhetoric. Meanwhile, Eric Posner, at the Volokh Conspiracy, rightly credits Obama for, among other things, not backing the Goldstone Report and pressuring Spain to water down its undemocratic “universal jurisdiction” statute, even as he condemns the administration, again rightly, for its decision to join “the comically named U.N. Human Rights Council,” bastion of some of the world’s worst human rights abusers.
What’s missing, it seems, is any coherent and systematic approach to those matters. During the Reagan administration I served for a time at State as director of policy for the Bureau of Human Rights and Humanitarian Affairs — now called, interestingly, the Bureau of Democracy, Human Rights, and Labor. Things were simpler during the Cold War. We focused on totalitarian regimes, somewhat less on authoritarian regimes, since people were allowed to leave those. And, yes, realpolitik played at least a part in our thinking, as inevitably it must. But the basic principles were clear: If human rights were to be respected, not simply behavioral but systematic change would be required. And Reagan kept the pressure on, publicly. With the fall of the Berlin Wall, millions saw that kind of change, in varying degrees. But the contrast between totalitarianism and democratic capitalism is less clear today than it was then, and the Obama administration, in both its foreign and domestic policies, is doing little to clarify it.
The promotion of human rights starts at home, with allowing people to plan and live their own lives, not with vast public programs that compel people to live under government planning. And in foreign affairs it requires both private and public diplomacy, quiet and not-so-quiet attention to the conditions that give rise to human rights abuses. That doesn’t mean military intervention to change those conditions. But neither does it mean remaining silent, as the Obama administration too often has. Countless victims of abuse, from Cuba to China and far beyond, have written about how important it was that they knew that the world knew about them: When America speaks, the world listens. But equally important, history demonstrates that regimes that respect their own people respect other people as well. It’s time for Obama to speak out.
Libertarianism in China
I am delighted to report that Libertarianism: A Primer has been published in Chinese. Let’s hope for sales in the tens of millions! The good folks at the Atlas Global Initiative posted an interview with me about the book, with subtitles in Chinese. (In my experience, it plays more smoothly if you turn the HD button off. But then, there’s nothing really new in the interview for American viewers.)
Thanks to the good folks at www.guominliyi.org and www.ipencil.org for making this book possible. The support of the project by a Chinese entrepreneur shows not only the growth of the Chinese economy, but one of the additional benefits of economic growth: diverse sources of wealth, with different people making different investments and encouraging diverse ideas.
Libertarianism: A Primer has also been published in Russian, Japanese, Spanish, Czech, Polish, Serbian, Bulgarian, Cambodian, Mongolian, Kurdish, and Persian. Translations into Arabic, Portuguese, and Italian are underway. And of course you can get it in audio form. Not Kindle yet, but feel free to tell them you’d like a Kindle edition.
Fixing Fannie Is Essential
This past week witnessed continued debate in congressional committees over changes to our financial regulatory system. Perhaps catching the most attention was Fed Chairman Ben Bernanke’s appearance before House Financial Services.
Sadly missing from all the noise this week was any discussion over reforming those entities at the center of the housing bubble and mortgage meltdown: Fannie Mae and Freddie Mac.
While many, including Bernanke, have identified the “global savings glut” as a prime force behind the historically low interest rates that drove the housing bubble, often missed in this analysis is the critical role played by Fannie and Freddie as channels of that savings glut. After all, the Chinese Central Bank was not plowing its reserves into Countrywide stock; it was putting hundreds of billions of its dollar reserves into Fannie and Freddie debt. Fannie and Freddie were the vehicle that carried excess world savings into the United States.
Had this massive flow of global capital been invested in productive activities, or even just prime mortgages, it is unlikely tha we would have seen such a large housing bubble. Instead, what did Fannie and Freddie do with its Chinese funds? It invested those funds in the subprime mortgage market. At the height of the bubble, Fannie and Freddie purchased over 40 percent of private-label subprime mortgage-backed securities. Fannie and Freddie also used those funds to lower the underwriting standards of the “prime” whole mortgages it purchased, turning much of the Alt-A and subprime market into what looked to the world like prime mortgages.
Given the massive leverage (at one point Freddie was leveraged 200 to 1) and shoddy credit quality of mortgages on their books, why were the Chinese and other investors so willing to trust their money to Fannie and Freddie? Because they were continually told by U.S. officials that their losses would be covered. At the end of the day, Fannie and Freddie were not bailed out in order to save our housing market; they were bailed out in order to protect the Chinese Central Bank from taking any losses on its Fannie/Freddie investments. Adding insult to injury is the fact that the Chinese accumulated these large dollar holdings in order to suppress the value of their currency, enabling Chinese products to be more competitive with American-made products.
While foreign investors have been willing to put considerable money into Wall Street, without the implied guarantees of Fannie and Freddie, trillions of dollars of global capital flows would not have been funneled into the U.S. subprime mortgage market. As Washington seems intent on continuing to mortgage America’s future to the Chinese, that at minimum it seems that fixing Fannie and Freddie might help insure that something more productive is done with that borrowing.
Sixty Years On, China Has Prosperity, Still Needs Freedom
China’s rise from an isolated state-controlled economy in 1949 to the world’s third largest economy with a vibrant nonstate sector is something to celebrate on the 60th anniversary of the founding of the People’s Republic of China.
Under Deng Xiaoping, China’s transition from plan to market began in earnest in December 1978. For more than 30 years now, China has gradually removed barriers to a market system and increased opportunities for voluntary exchanges. Special economic zones, the end of communal farming, the rise of township and village enterprises, and the massive increase in foreign trade have enabled millions of people to lift themselves out of abject poverty.
Economic freedom has increased personal freedom, but the Chinese Communist Party has no intention of giving up its monopoly on power. China’s future will depend to a large extent on the path of political reform. Further strengthening of private property rights, including land rights, would create new wealth and a growing voice for limiting the power of government. It is doubtful that in another 60 years there will be single-party rule in China.
Filed under: General; International Economics and Development
A Novel Interpretation of “Green Tariffs”
Here’s a nice follow up to my blog post on Tuesday: firms importing solar panels to the United States face a $70 million bill because of unpaid duties.
It seems to me that a government truly concerned about global warming–putting aside the merits of that position–would want to encourage the adoption of solar panels, including by keeping them as cheap as possible. Nor, I would have thought, is this the time to add more fuel to the fire that is starting to characterize the U.S. trade relationship with China. There’s plenty enough fuel for that already.
Filed under: Energy and Environment; General; Trade and Immigration
Reflections on China’s 1949 “Liberation”
During a speaking trip to China three years ago, the young tour guide in Beijing kept referring to “the liberation.” I soon realized that she meant the October Revolution of 1949, in which Mao Tse Tung and the communists seized power and began their rule 60 years ago today.
Far from liberating China, the reign of Mao represents one of the worst tyrannies in the history of mankind. Opposition parties, free speech and freedom of religion were quickly eliminated. The Great Leap Forward of 1958-61 forced the collectivization of agriculture, resulting in a famine that killed tens of millions. The Cultural Revolution of 1966-76, while not as deadly, unleashed chaos that crippled the economy and scarred a generation. As Gordon Chang writes in a Wall Street Journal op-ed this morning, the celebration by the Chinese people will be understandably muted.
China’s real liberation began not 60 years ago, but 30 years ago, with the reforms of Deng Xiaoping. While China remains an oppressive, one-party state politically, its economy has taken a true great leap forward in the past three decades because of market reforms in agriculture, industry, and trade. China’s liberation has far to go, but the Chinese people today are much more free of government interference in their personal, daily lives than they were in the time of Mao.
When I point to China’s economic progress as an example of what trade liberalization can deliver, my debate opponents will sometimes counter that China is a communist country. But China’s dramatic growth has not occurred because of its residual communism. For 30 years now, its government has been in the process of abandoning the communist economic policies of Mao and his fellow “liberators,” much to the benefit of the Chinese people and the world.
Filed under: International Economics and Development; Trade and Immigration
Finally, a Pro-Trade Proposal on Climate Change
One of the main recommendations in my recent paper on climate change and trade was to reduce trade barriers on “environmental goods and services.” Trade liberalization in this area is slated for special attention in the Doha round of multilateral trade negotiations, but progress there is decidedly unimpressive.
I’m under no illusion that this development had anything to do with my recommendations, but it seems that the 30 member countries of the Organization for Economic Cooperation and Development are attempting a trade deal amongst themselves and China to expedite tariff reductions in “climate friendly” goods (more here). Apparently it is designed to be an incentive to get Beijing on board for a global climate deal, but of course American consumers and businesses would gain from cheaper and better access to green technology, too.
I would, of course, prefer that U.S. lawmakers see the value in reducing tariffs on all goods without waiting for the other OECD members to catch on, but surely this development is better than the alternative.
Filed under: Energy and Environment; Trade and Immigration
On What Larger Theory Is Neoconservatism Based?
There have been some interesting writings coming out of AEI’s new Center for Defense Studies recently. On Friday, Daniel Blumenthal offered some thoughts on China. In the course of making the case that Chinese leaders should realize that we are not trying to contain China, he wrote the following:
If countries acted in accordance with rational actor theories of political science, the Chinese would be pretty well assured that we are not going to contain it. We have made clear across administrations that we welcome China’s rise as a great power and urge it to act as a responsible one.
But countries do not act in accordance with political science theories.
Later in the piece, he wrote the following:
China is not the only country that is rising. So is India. But we do not worry about India’s rise. That is because India is a democracy. Almost everything it does is transparent to us. We share liberal values with India, including the desire to strengthen the post-World War II liberal international order of open trade and investment and the general desire among democracies to settle internal and external disputes peacefully and democratically. The fact that China is not a democracy matters greatly as it rises. It makes its rise more disruptive as countries have to divine its intentions and observe the gap between its rhetorical policy of a “Peaceful Rise” and some of its actions that are inconsistent with a peaceful rise.
He closed thusly:
Wouldn’t it be nice if China got on board with all the post-modern, feel-good notions about international politics put forth by the Obama Administration? In the 21st century, says the Obama team, all countries have common interests in confronting transnational issues like climate change and proliferation. Sorry guys, those who lead China think 21st century international politics will look more or less like it did in the past. They favor good old fashioned power politics. Unfortunately for Obama, that forces us to do the same.
There’s an awful lot of interesting stuff going on here. First, Blumenthal’s claim that “countries do not act in accordance with political science theories” is strangely incoherent. As his second and third quotes above make clear, Blumenthal has a political science theory–two actually.
Hey G-20! Here’s How You Curb Protectionism
Last week I recommended reading a new paper published by the Lowy Institute in Australia, which proposes an utterly sensible reform for the G-20, if curbing protectionism is a serious aim.
Using Australia’s own successful experience as an example, the authors recommend other countries adopt “domestic transparency” programs, which would essentially include analysis from an independent, apolitical board or agency that measures the real costs and benefits of proposed trade restrictions.
The findings of these independent reviews would be accessible to the public—and probably published in newspapers and other popular media—in advance of any decision to impose or reject the proposed trade restrictions. The findings wouldn’t legally bind the authorities to take any particular action, but would help chase from the shadows the real costs of protectionism, so that those ultimately making the decision know that the public at large is aware of the costs.
When a politician knows that he/she can benefit politically by imposing import duties, the costs of which are hidden in higher prices paid by consumers, who are unlikely to make the causal connection, there is a profound asymmetry of incentives and disincentives. The politician is much more likely to choose to secure the political benefit of imposing duties since the costs are hidden. But if light is shone on those costs, through domestic transparency initiatives, that asymmetry is reduced or eliminated. Politicians, under these circumstances, can go back to the special interests and say how much they’d like to help out with a tariff, but the costs don’t justify the measure. And the protection-seekers know the politician’s hands are tied because the public is aware of those costs.
Well, Alan Mitchell of the Australian Financial Review on Monday supposed how the presence of a domestic transparency regime would have affected President Obama’s tire tariff decision. It is very instructive:
Tire Tariff Decision Won’t Soon be Forgotten
The good folks over at Freedom to Trade recently filmed an interview with me about the implications of the China tire tariffs:
And if you just can’t get enough about the ramifications of the tire tariff, check out this Canadian Business News clip from yesterday, or this one from CNBC today.
More Evidence on America’s Socialism
KPMG has released its annual survey of personal income tax rates around the world. The survey covers 86 countries, including all the high-income nations and many middle- and lower-income nations, such as Brazil, China, and India.
The chart shows the top personal income tax rates in 2009 for national governments, per the KPMG study. The current top U.S. rate is 35 percent, which is substantially above the 86-country average of 28.9 percent. The Obama administration plans to let the U.S. rate jump to 39.6 percent in 2011, which would be almost 11 points higher than the international average.
Worse still, the United States has state income taxes with rates up to 10 percent that are piled on top of the federal tax. Some of the nations in the survey (e.g. Canada) also have subnational income taxes, but many, or most, of them do not.
Finally, note that supporters of government health care expansion have been eyeing further increases in the top U.S. tax rate above 40 percent. Alas, we need more of the Global Tax Revolution to sweep across our shores.
Filed under: International Economics and Development; Tax and Budget Policy
Rep. Flake’s Wise Counsel on the Tire Tariff
Earlier today, Congressman Jeff Flake, Arizona Republican, sent a letter to President Obama urging him to reconsider his decision to impose a 35 percent tariff on tires imported from China.
Rep. Flake makes all the right points in his letter, reminding the president that:
Your decision to impose duties on Chinese tires is likely to encourage other domestic industries to file their own petitions for relief under Section 421. The potential for an endless cycle of U.S. restrictions and subsequent retaliation from China is the last thing our economic recovery needs.
I wish there were more members of Congress like Rep. Flake. Our Trade Vote Records feature on our web site offers a searchable data base of all major trade votes going back to the mid-1990s. Our data base confirms that Rep. Flake is the most consistent supporter in all of Congress in opposing both subsidies and barriers to trade.
The president should heed Rep. Flake’s wise letter.
Filed under: International Economics and Development; Trade and Immigration
Obama’s Tire Tariff Could Raise Prices by 20 to 30 Percent
President Obama’s decision to impose a 35 percent tariff on imported tires from China was not an act of statesmanship. The White House admitted as much by announcing its decision at 10 p.m. on Friday evening in order to minimize news coverage.
A few union leaders are cheering, but in just about every other way our country is worse off. Among the biggest losers will be low-income American families. The tariffs apply to lower-end tires that sell for $50 or $60 each, compared to $200 for higher-end tires. As The Wall Street Journal reported this morning:
The low end of the market will feel the impact of the tariff most, as U.S. manufacturers, who joined the Chinese in opposing the tariffs, have said it isn’t profitable to produce inexpensive tires in domestic plants.
“I think within the next 60 days you’ll see some pretty significant price increases,” said Jim Mayfield, president of Del-Nat Tire Corp. of Memphis, Tenn., a large importer and distributor of Chinese tires. He estimates prices for “entry-level” tires could increase 20% to 30%.
The anti-poor bias of U.S. tariffs is one of the themes of my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization. With his decision Friday, President Obama has revealed himself to be a friend of the status quo.
Filed under: International Economics and Development; Trade and Immigration
Monday Links
- Obama spoke on Wall Street today about increasing regulation of the American financial system. But did deregulation really cause the financial crisis?
- Burnt rubber: Obama’s decision to slap a 35 percent tariff on Chinese tires whiffs of senseless protectionism.
- According to the Economic Freedom in the World report, the U.S. was ranked the second-freest economy in 2000. It has fallen to 6th place this year.
- A bold exit strategy for Afghanistan.
- Why it’s time for the U.S. to start doing less abroad.
- Podcast: China’s economy is on track to be larger than the U.S. economy in a few years. Trade expert Dan Griswold says, “So what?”
New Cato Paper Warns of the Consequences of Restrictions on Chinese Tires
Despite the controversy that seems to color all portrayals of U.S. trade with China, the bilateral relationship has held up remarkably well, to the benefit of both countries. But, as I explain in this hot-off-the-presses Free Trade Bulletin, things could go south quickly if President Obama grants the wish of the United Steelworkers union to impose import restrictions on Chinese-produced passenger tires.
Under a special U.S. statute that applies only to China, the president can authorize import restrictions in cases where a domestic industry is found to be suffering from “market disruption” on account of increased imports from China. The U.S. International Trade Commission already rendered that conclusion in the tires case and recommended that the president impose duties of 55 percent. Though duties might benefit the USW, which represents fewer than half of all U.S. tire production workers, the restrictions would be immensely costly to almost every other interest in the tire supply chain, including distributors, wholesalers, retailers, downstream industrial users, and consumers — especially lower income consumers. Such a decision would amount to a crystal clear U.S. disavowal of its pledge to the G-20 to avoid new invocations of protectionism, just one week ahead of the G-20 summit in Pittsburgh.
The stakes are particularly high in the tires case because the president has the discretion to reject the tariff recommendations altogether, which is exactly what President Bush did on all four occasions when the ITC recommended restrictions under this statute during his administration. Unlike antidumping and countervailing duty restrictions, which run on statutory autopilot without requiring the president’s attention or consent, Section 421 explicitly requires the attention and participation of the U.S. president. The Chinese will view restrictions in this case, then, as a personal directive of President Obama, and the consequences for bilateral relations could be severe.
Please read the paper and circulate liberally.
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