Weekend Links
- Cato v. Heritage on the Patriot Act, Round II. Today’s topic: “Where are the demonstrated examples of abuses of liberties because of the Patriot Act? Are there any provisions of the law that civil libertarians would find acceptable?”
- Comparing the Great Depression to the current recession: Did we not learn anything?
- Re-examining the U.S. alliance with Japan: “The current relationship remains trapped in a world that no longer exists.”
- The human cost of delayed economic reform in India: “With earlier reform, 14.5 million more children would have survived, 261 million more Indians would have become literate, and 109 million more people would have risen above the poverty line.”
- Podcast: What we should have learned from our experience in Somalia. Background reading: Somalia, Redux: A More Hands-Off Approach
Is Buying an iPod Un-American?
We own three iPods at my house, including a recently purchased iPod Touch. Since many of the iPod parts are made abroad, is my family guilty of allowing our consumer spending to “leak” abroad, depriving the American economy of the consumer stimulus we are told it so desperately needs? If you believe the “Buy American” lectures and legislation coming out of Washington, the answer must be yes.
Our friends at ReasonTV have just posted a brilliant video short, “Is Your iPod Unpatriotic?” With government requiring its contractors to buy American-made steel, iron, and manufactured products, is it only a matter of time before the iPod—“Assembled in China,” of all places—comes under scrutiny? You can view the video here:
In my upcoming Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, I talk about how American companies are moving to the upper regions of the “smiley curve.” The smiley curve is a way of thinking about global supply chains where Americans reap the most value at the beginning and the end of the production process while China and other low-wage countries perform the low-value assembly in the middle. In the book, I hold up our family’s iPods as an example of the unappreciated benefits of a more globalized American economy:
The lesson of the smiley curve was brought home to me after a recent Christmas when I was admiring my two teen-age sons’ new iPod Nanos. Inscribed on the back was the telling label, “Designed by Apple in California. Assembled in China.” To the skeptics of trade, an imported Nano only adds to our disturbingly large bilateral trade deficit with China in “advanced technology products,” but here in the palm of a teenager’s hand was a perfect symbol of the win-win nature of our trade with China.
Assembling iPods obviously creates jobs for Chinese workers, jobs that probably pay higher-than-average wages in that country even though they labor in the lowest regions of the smiley curve. But Americans benefit even more from the deal. A team of economists from the Paul Merage School of Business at the University of California-Irvine applied the smiley curve to a typical $299 iPod and found just what you might suspect: Americans reap most of the value from its production. Although assembled in China, an American company supplies the processing chips, a Korean company the memory chip, and Japanese companies the hard drive and display screen. According to the authors, “The value added to the product through assembly in China is probably a few dollars at most.”
The biggest winner? Apple and its distributors. Standing atop the value chain, Apple reaps $80 in profit for each unit sold—an amount higher than the cost of any single component. Its distributors, on the opposite high end of the smiley curve, make another $75. And of course, American owners of the more than 100 million iPods sold since 2001—my teen-age sons included—pocket far more enjoyment from the devices than the Chinese workers who assembled them.
To learn a whole lot more about how American middle-class families benefit from trade and globalization, you can now pre-order the book at Amazon.com.
Week in Review: Stimulus, Sarah Palin and a Political Conflict in Honduras
Obama Considering Another Round of Stimulus
With unemployment continuing to climb and the economy struggling along, some lawmakers and pundits are raising the possibility of a second stimulus package at some point in the future. The Cato Institute was strongly opposed to the $787 billion package passed earlier this year, and would oppose additional stimulus packages on the same grounds.
“Once government expands beyond the level of providing core public goods such as the rule of law, there tends to be an inverse relationship between the size of government and economic growth,” argues Cato scholar Daniel J. Mitchell. “Doing more of a bad thing is not a recipe for growth.”
Mitchell narrated a video in January that punctures the myth that bigger government “stimulates” the economy. In short, the stimulus, and all big-spending programs are good for government, but will have negative effects on the economy.
Writing in Forbes, Cato scholar Alan Reynolds weighs in on the failures of stimulus packages at home and abroad:
In reality, the so-called stimulus package was actually just a deferred tax increase of $787 billion plus interest.
Whether we are talking about India, Japan or the U.S., all such unaffordable spending packages have repeatedly been shown to be effective only in severely depressing the value of stocks and bonds (private wealth). To call that result a “stimulus” is semantic double talk, and would be merely silly were it not so dangerous.
In case you’re keeping score, Cato scholars have opposed government spending to boost the economy without regard to the party in power.
For more of Cato’s research on government spending, visit Cato.org/FiscalReality.
Finally, an Ally That Doesn’t Wait for America
Washington’s willingness to toss security guarantees about the globe like party favors has encouraged other nations to do little for their own defense. From the European, Japanese, and South Korean standpoint, why spend more when the Americans will take care of you?
But it looks like Australia takes a different view, and is willing to do more to defend itself and its region. Reports the Daily Telegraph:
The latest defence White Paper recommends buying 100 advanced F-35 jet fighters and 12 powerful submarines equipped with cruise missiles, a capability which no other country in the region is believed to possess.
The “potential instability” caused by the emergence of China and India as major world powers was cited as the most pressing reason for this military build-up. In particular, Australian defence planners are believed to be concerned about China’s growing naval strength and America’s possible retreat as a global power in the decades ahead.
Chinese officials say their country’s growing power threatens no-one. Behind the scenes, Beijing is thought to be unhappy about Australia’s White Paper, with one Chinese academic saying it was “typical of a Western Cold War mentality”.
But the Chinese navy has almost doubled the number of secret, long-distance patrols conducted by its submarines in the past year. The reach of its navy is extending into Australian waters. China is also acquiring new amphibious assault ships that can transport a battalion of troops.
So instead of calling Washington to deal with Beijing, the Australians are building up their own navy. Novel approach! Now, how can we implant a bit of the Aussie character in America’s other friends around the globe?
Time for Japan to Do More
It seems that the Japanese government no longer seems entirely comfortable relying on America for it’s defense.
A draft of Japan’s new mid-term defense policy guidelines is calling for the reinforcement of military personnel and equipment in the face of growing regional tensions, Kyodo news agency said.
The draft, obtained by Kyodo, says Japan needs to reverse its policy of reducing its defense budgets in light of North Korea’s missile launches and nuclear tests, as well as China’s rise to a major military power, the news agency said.
The document urges the government to raise the number of Ground Self-Defense Forces troops by 5,000 to 160,000, Kyodo said.
The new National Defense Program Guidelines, covering five years to March 2015, are scheduled to be adopted by the government by the end of the year.
The draft also says there is a need to “secure options responsive to changing situations” of international security, indicating Tokyo’s intention of considering if it should be capable of striking enemy bases, Kyodo said.
This is good news. Historical concerns remain, of course, but World War II ended more than six decades ago. The Japan of today is very different than the Imperial Japan of yore — the mere fact that Japanese have been so reluctant to become a normal country again illustrates the change.
There’s still a substantial distance for Japan to go. But the Japanese government is moving in the right direction.
Obviously, peace in East Asia benefits all concerned. That peace will be more sure if Tokyo is prepared to defend itself and help meet regional contingencies. It is time for prosperous and populous allies to stop assuming that Washington’s job is to defend them so they can invest in high-tech industries, fund generous welfare states, and otherwise enjoy life at America’s expense.
Cato on Facebook
Cato on Twitter
Cato on YouTube
Cato Tweets