The weekend's interesting reads

"Does China benefit the poor in America?" by Greg Mankiw:

Quoting this paper by Christian Broda and John Romalis:

"Over the past three decades there has been a spectacular rise in income inequality as measured by official statistics. In this paper we revisit the distributional consequences of increased imports from China by looking at the compositional differences in the basket of goods consumed by the poor and the rich in America. Using household data on non-durable consumption between 1994 and 2005 we document that much of the rise of income inequality has been offset by a relative decline in the price index of the poor....

We find that inflation for households in the lowest tenth percentile of income has been 6 percentage points smaller than inflation for the upper tenth percentile over this period. The lower inflation at low income levels can be explained by three factors: 1) The poor consume a higher share of non-durable goods —whose prices have fallen relative to services over this period; 2) the prices of the set of non-durable goods consumed by the poor has fallen relative to that of the rich; and 3) a higher proportion of the new goods are purchased by the poor.

We examine the role played by Chinese exports in explaining the lower inflation of the poor. Since Chinese exports are concentrated in low-quality non-durable products that are heavily purchased by poorer Americans, we find that about one third of the relative price drops faced by the poor are associated with rising Chinese imports."

This was actually from a week or so ago. The problem is the except opposite of concentrated benefits and dispersed costs associated with subsidies and tariffs. We get a small group of people who bear the brunt by losing their jobs while the rest of us reap a benefit through lower prices. Some groups get a bigger cost advantage than others.

"Lobbyists Reach for Grass Roots" by Elizabeth Williamson at the WSJ:

"'Folks beat money anytime in a political fight,' says Mr. Frank, who is steering Congress's response to the housing and financial markets crises."

I seriously doubt that. The article talked about how the "National Association of Home Builders said it would reassess its February vote to shut off campaign cash to lawmakers until they acted in builders' favor." Politicians like to think that's the case, but they know it's wrong. The incentives are all screwed up. It goes back the problem of concentrated benefits (those who do the lobbying) and dispersed costs (those who pay the taxes that pay for the subsidies, for example). The article continues:

"Voter disgruntlement with Congress and the White House appears to be driving Washington to strike a more populist pose on an array of issues. In four days this week, Congress took on health insurers and employers for genetic discrimination, oil companies for high pump prices, credit card lenders for unfair practices, and foreign manufacturers and drug companies for safety issues.

All three presidential candidates blame Big Banks, Big Oil, Big Business and high-paid executives for the nation's economic woes. Democrats on Capitol Hill are driving for tighter controls on airlines, banks, and lobbyists, whose freebies for lawmakers Congress itself has pared back.

In this environment, lobbying groups are getting the message to put their members and their dependents out front -- the more Main Street they are, the better."

"Peru's Born-Again Free Marketeer" Weekend Interview with Alan Garcia by Mary Anastasia O'Grady:

"[T]he answer to rising prices is to increase the productive capacity of Peru. That's not a bad course of action, though it will take some time. What would be better is to let the "sol" appreciate. Regrettably, the central bank is loath to do that because it believes it will make exporters less competitive, a view that has led many a government into trouble."

"He certainly packs the optimism necessary for the job; he has no time for the doom-and-gloom set. 'When they say that the world is threatened by immigration, poverty, destruction of the environment and concentration of monopolies, I laugh. I have complete faith in human intelligence and technology to overcome any obstacle, geographic or social.'"

"Senator Snowbird, RIP" WSJ op-ed:

"[Former Ohio Senator] Howard Metzenbaum [who died in March]...denied the state in which he lived most of his life a parting financial gift [by moving to Florida and avoiding Ohio's income tax and estate tax]. But he has at least provided the rest of us with a teaching moment in tax policy. If a liberal lion like Metzenbaum is willing to relocate late in life to avoid his state's death tax, maybe living politicians in Ohio will better understand how their confiscatory tax laws are driving its citizens to warmer climes."

"California's Energy Colonialism" WSJ op-ed by Max Schulz:

"The blunt secret is this: California now imports lots of energy from neighboring states to make up for having too few power plants. Up to 20% of the state's power comes from coal-burning plants in Nevada, New Mexico, Utah, Colorado and Montana. Another significant portion comes from large-scale hydropower in Oregon, Washington State and the Hoover Dam near Las Vegas...

California's proud claim to have kept per-capita energy consumption flat while growing its economy is less impressive than it seems. The state has some of the highest energy prices in the country – nearly twice the national average – largely because of regulations and government mandates to use expensive renewable sources of power. As a result, heavy manufacturing and other energy-intensive industries have been fleeing the Golden State in droves...

Californians may feel good about their environmental consciousness. But someone needs to build power plants and oil refineries to fuel their economy. Someone needs to manufacture the cars they drive, the airplanes they fly, the chemicals and resins and paints and plastics that make their lives comfortable."

"Congressman Proposes that Government Establish a 'Reasonable Profits Board'" Tax Policy Blog at the Tax Foundation by Gerald Prante (HT: Club for Growth):

"Rep. Paul Kanjorski's (D-PA) may top all [tax proposals] in terms of its stupidity. From the Times Leader, Kanjorski's plan would do the following:

• H.R. 5800 would tax industries’ windfall profits.

• The bill would set up a Reasonable Profits Board to determine when these companies’ profits are in excess, and then tax them on those windfall profits.

• As oil and gas companies’ windfall profits increase, so would the tax rate for those companies.

• Kanjorski said his legislation will encourage oil companies to lower prices to prevent them from receiving higher tax rates."

Sounds pretty socialist, no? How in the world will a board of 5, 10, or 20 men and women figure out exactly what is a "reasonable profit", even with a team of 100 economists? What about a reasonable loss board? When you truncate their gains, you should also truncate their losses. Create a collar. What kinds of incentives would this create? If you assume their cost structure would remain the same and be just as efficient (which it assuredly wouldn't), instead of the profits going to shareholders, they would go to the government. But, then you consider the likelihood that these companies would decide to pass these profits to employees, in the form of higher wages, or to suppliers, in the form of higher prices for inputs, or just lose them to inefficiency, rather than pay them to the government. There's no incentive to be profitable. So now you have to create another "board" to make sure these companies are working hard enough to realize these profits...

"Fairness, Idealism, and Other Atrocities" LA Times op-ed by P.J. O'Rourke (HT: Don Boudreaux at Cafe Hayek):

This is very cool. I recommend reading the whole thing. Here are a few excerpts:

"There's nothing the matter with honest moneymaking. Wealth is not a pizza, where if I have too many slices you have to eat the Domino's box. In a free society, with the rule of law and property rights, no one loses when someone else gets rich."

"[T]he problem isn't politicians -- it's politics. Politics won't allow for the truth. And we can't blame the politicians for that."

"Well, I am here to advocate for unfairness. I've got a 10-year-old at home. She's always saying, "That's not fair." When she says this, I say, "Honey, you're cute. That's not fair. Your family is pretty well off. That's not fair. You were born in America. That's not fair. Darling, you had better pray to God that things don't start getting fair for you." What we need is more income, even if it means a bigger income disparity gap. "

"The Bible is very clear about one thing: Using politics to create fairness is a sin. Observe the Tenth Commandment. "

"Clinton spurns "elite" economists on gas tax" Reuters:

"'I'm not going to put my lot in with economists,' Clinton said when asked to name an economist who backed her proposal. 'We've got to get out of this mind-set where somehow elite opinion is always on the side of doing things that really disadvantage the vast majority of Americans.'"

This is about the most ridiculous comment I can imagine a politician making. Granted, a lot of environmentalists say the same thing about the Bush administration with respect to global warming, but there are some differences. First, economists have studied the effects of tax policy for decades, while the global warming alarmists are extrapolating a current trend into the future. Second, the body of experts is much closer to unanimous on the side of the economists, which isn't the case for the scientists.

Arnold Kling had this to add:

"Soon I expect to hear the Senator from New York promise to jump out of a tenth-story window and fly, to demonstrate defiance of "elite" physicists who doubt the feasibility of the project."