The weekend's interesting reads

These first two are from last week's The Economist but I read them over the weekend :) .

"Cereal offenders"

"In the past two weeks Cambodia, Indonesia, Kazakhstan, Russia, Argentina, Ukraine and Thailand have restrict[ed] food exports in an attempt to shore up domestic supplies.

Such curbs may be politically expedient, but they are economically self-defeating. They demotivate farmers, push them into growing the wrong crops and jeopardise their future access to markets. Moreover, the restrictions on supply send prices even higher on world markets. As David King, secretary-general of the International Federation of Agricultural Producers, puts it, governments are choosing to 'starve their neighbours', rather than allowing higher prices to encourage their farmers to invest in greater production."

I can't see how world leaders can do these types of things nowadays and not understand what the effects will be. I'm sure they're bowing to political pressure. These choices have consequences and quick-fix legislation isn't the answer to their problems. And farmers, of course, are upset about this. Just like any producer of a commodity (such as oil), people compete in these industries because they are willing to bear the risks of the down cycles so they can enjoy the benefits of the up cycles. When government limits the upside, the producers have fewer incentives to compete and innovate. The last thing you want is for farmers to limit production and not invest.

"How to smite Smoot"

"In June 1930 the Smoot-Hawley tariff act turned a stockmarket collapse into a crippling, decade-long Depression. Now, politicians seem to be preparing for protectionism even while financial meltdown is going on. Barack Obama and Hillary Clinton vie with each other to be nasty about the North American Free-Trade Agreement. Last year the European Union dropped the principle of “free and undistorted competition” from its Lisbon treaty...

But [a] study points out the contradictions between such economic nativism and environmental and social policies. Reducing protectionist subsidies would cut greenhouse gases from cosseted heavy industry. Trade-generated growth would reduce poverty and killer diseases. More immigration would give poor countries incentives to build new schools, if only to offset the brain drain. These are all good reasons to quieten protectionist rhetoric—though if the lessons of the Depression cannot do that, would anything else succeed? "


I wish people would get over the idea that we/the US has to be some kind of wealth leader. This idea the author mentions of "economic nativism" is, I think, an important one. We sometimes have this idea that because our ancestors got here first, we should have the benefits of being here before others do. I have a hard time with the thought that we should be concerned when people from other countries get richer, either by immigrating here and "taking our jobs" or by having the work sent to them and "taking our jobs". This is at root of what I believe: people should be free to make their lives better, however they define better, by doing whatever they want to do, as long as it doesn't interfere with someone else's rights to do the same, regardless of where they live. A Hispanic man who sees a better life for him and his family by moving to the US to work on a farm. He interferes with the US worker competing for the same job in a way no different than a more efficient tractor does.

"Obama's Capital Loss" WSJ editorial:

"Critics howled [Clinton's 1997 cut in capital gains tax rates] would reduce tax revenues, and they howled when Republicans cut the rate to 15% in 2003. What followed in both cases was an enormous "unlocking" effect, as investors sold more stock and assets to take advantage of the lower rate. Capital gains realizations soared to an estimated $729 billion in 2006 from $269 billion in 2002. This goosed Treasury receipts from capital gains, to an estimated $110 billion in 2006 from $49 billion in 2002."

I don't think the idea should be tax revenue maximization, at least not as a government minimalist. The goal of setting appropriate tax rates should be a rate that brings in enough money to support government functions without going into debt AND keeps from distorting investment in the private sector.

"As for Mr. Obama's implication that capital gains remain the privilege of the wealthy well, that's yesterday. In recent decades, the U.S. has become a shareholder society, and average Americans increasingly rely on investment income to save for retirement or even to pay bills."

This is another example of class warfare by the left.

"No Lawyers, Please" WSJ editorial:

"Still, the trial bar is asking Congress to prohibit Americans from agreeing at the start of a business relationship to submit disputes to arbitration. Representative Hank Johnson (D., Georgia) and Senator Russ Feingold (D., Wisconsin) have introduced legislation to do just that. Their bill goes a step further, retroactively invalidating tens of millions of contracts nationwide. Even trial lawyers can dream."

Why do government official feel the desire to actively prevent two parties from entering into a mutually agreeable contract? Oh yeah. Most lawmakers are lawyers. Who would benefit the least from arbitration? Lawyers.

"School Choice---Now More Than Ever" WSJ Editorial Board by Jason Riley:

"In Mr. Stern's view, education reformers would do better to de-emphasize choice and focus instead on improving curriculums and teacher quality. The reality is that the former fuels the latter. Researchers at the Urban Institute, by no means a bastion of conservatives, recently collected information on how public schools respond to competitive pressure. It turns out that one response is to put in place instructional reforms, including more rigorous standards. In other words, instructional reform is a product of competitive pressure and is less likely to occur in the absence of school choice."

The is good example of not being able to legislate a societal good. You can tell people to do good, but until you provide the incentives to do so, they won't. With top down, one-size-fits-all programs, like No Child Left Behind, you remove flexibility to adapt to the demands of users/consumers and you create bureaucracy that inhibits providers.

"Scrap the Visa Cap" WSJ op-ed by Shikha Dalmia:

"America's political leaders are so fixated on illegal immigration they've barely noticed that the U.S. is losing the race for the best high-tech minds. This country won't keep its edge in the global economy until legislators stop behaving like border sentries and start acting like international recruiters...

[M]ost industrialized countries, facing their own skills crunch, are liberalizing their immigration policies to make themselves more attractive. England recently scrapped its Byzantine work permit program in favor of a Canadian-style point system that will allow entry to some skilled workers even before they get a job. New Zealand has a remarkable program that gives accredited private companies fast-track access to work visas that they can hand to foreign workers along with a job offer. Australia is considering modifying its skilled visa program along similar lines...

Not all that other industrialized countries are doing is worth emulating. Canada's point system, which is gaining popularity, often recruits foreigners whose skills don't match employers' needs. Yet at least they realize that the real immigration problem is not too many foreign workers knocking at their door -- but too few. America should worry less about keeping unskilled immigrants out -- and more about keeping skilled immigrants in. Otherwise, it'll lose the race for the most crucial resource in the knowledge economy: intellectual capital."

Like I mentioned above, we need to get over the idea that we need to keep foreign skilled people out so they don't take the jobs our native skilled people can fill at a higher wage. When we do this, one of three things will happen: 1) the job will go unfilled and the firm will be less productive as a result, meaning higher production costs and higher costs for consumers; 2) the job will simply go overseas and the tax will be provided remotely, giving the firm even more incentive to offshore other similar jobs; and 3) they will be forced to pay the higher cost for the same services, again leading to less productivity as well as resources are diverted from less profitable investments. With the exception of 2), these are the same results of limiting immigration of low-skilled foreign workers.

"Taking on the World" WSJ op-ed by Michael Malone:

"Ultimately, our strongest competitive advantage is the ingenuity and entrepreneurship of the American people. One of the miracles of the last few years is how, in places like Silicon Valley, smart young men and women have still managed to create great new companies in the face of every impediment Congress and the regulatory agencies have thrown at them.

But these advantages are slowly shifting to elsewhere in the world. The single most important thing Washington can do right now is to unleash these people and support new company formation in the tech world – and then enable the most successful of those companies to go public again."

I don't agree with a lot of how he things we should re-vamp our competitive structure. He suggests several ways government should intervene that I don't favor, such as government agencies promoting American brands (subsidizing those companies' marketing budgets to the detriment of foreign competitors), programs of "direct investment, subsidies and tax breaks" to make sure we have the best internet accessibility, "requir[ing] U.S.-based companies to maintain free speech in all their international subsidiaries". On the other hand, I do think we need to understand that the world is constantly changing and evolving and if we don't do what we can to keep the best players on the field, we won't do so well.