WSJ vs. FT

Our new enemy of economic freedom is an American and a Democrat. His name is Tom Vilsack and has an opinion piece in the FT today. But I must point out that we have somebody (another American) that sits in the other corner who is a champion of economic freedom, Susan Schwab, who has a piece in my beloved WSJ (More Trade, Less Poverty - A GREAT title).

First I must analyze what Vilsack has to say. He starts out with

While some businesses in my own state of Iowa are excited at the opportunity to export their products to new markets, powerful new competitors are challenging US economic leadership, threatening the nation’s growth and exposing Americans to a new kind of insecurity.

Mr. Vilsack wants us to believe that globalization will only help American exporters. The United States MUST be the economic leader. For a Democrat, that idea is not very democratic (small d) or liberal. Then he states that competition threatens our growth and creates insecurity. Competition is what makes capitalism great. Competition forces one to work harder, think outside the box, charge lower prices to your customer. Without competition, we would be stuck with inefficient monopolies like Mexico where the entire southern part of the country lives in near to total poverty.

Next, Mr. Vilsack discusses how he thinks the government should fight this competition. He organizes them into four pillars. The first...

We should create a “supersized” tax credit for research and experimentation, and establish a network of university-based venture capital funds to finance loans for start-up companies willing to find commercial applications for scientific and technological advances. We should also foster a new generation of scientists and engineers by establishing a national network of 250 publicly financed but independent science and technology academies.

This supersized tax credit is little more than a handout by the government for research. To make this proposal even better, let's have FEMA decide what kind of research we will fund. Then he states that we need a new fund a venture capital firm, a government sponsored one. Now we will have government deciding which companies deserve to be lifted off the ground. Sounds like China or Korea. Lastly, he proposes 250 new schools to be financed by who? Yes, you guessed it, the same government that is running a deficit.

Next suggestion...

It is time to provide transitional health insurance for all unemployed workers and create a new “universal pension” that can be carried from job to job.

The Universal Pension sounds like the personal accounts that President Bush talks about. While I believe Social Security promotes a lack of savings and destroys economic freedom of investment choices, Bush's ideas on Social Security are a step in the right direction. I highly doubt that Mr. Vilsack believes this universal pension contain individual investment choice. He probably thinks Americans are too stupid to decide how to invest their money.

Vilsack goes on to suggest that America should tighten its labor market with new laws and welfare payments that will in my view increase unemployment and widen the government's deficit...

We should cut through the bureaucracy and offer dislocated workers access to money for skills training, while modernising and expanding eligibility for unemployment insurance and trade adjustment assistance such as skills training. We also need to modernise labour laws to preserve the eroding ability of workers to form unions and bargain collectively for wages and benefits. This new compact for worker security is a worthy project that should unite all progressives and all Democrats.

With humor I provide Mr. Vilsack's next target which is the deficit. Hypocrisy follows...

Restoring fiscal sanity in Washington means dealing with a deficit crisis that represents a permanent handicap for our economic competitiveness, a threat to the prosperity of future generations and a dangerous dependence on creditor nations.

Mr. Vilsack ends with the following...

Surrendering to global competition is immoral and unpatriotic; pretending it can be made to go away is an illusion. Americans must do what they have always done in changing times: use their brain power to adapt and succeed.

Interesting way to end. First, he attacks competition again. But I think he is saying that we need to take part in competition and not just waive a white flag. So I agree with him here. But the interesting part is that he tells Americans to use their brains to succeed. The unfortunate part of this apt statement is that the paragraphs that preceded it told Americans that only their government could save them from the evil force of globalization.

John Kenneth Galbraith

"Partly, the Russian system succeeds because, in contrast to the Western industrial economies, it makes full use of its manpower." - John Kenneth Galbraith writing in The New Yorker in 1984.

The GI has two great entries on this man who recently passed away. It is interesting to note that two of the most famous economists to the American public are Milton Freidman and John Kenneth Galbraith. Two polar opposites. Galbraith was a man in love with the state and its control. And Friedman is a man in love with the power of freedom and the ingenuity of the populous.

It should be noted that economic debate is no more in fashion in this country. Now we have Lou Dobbs, Nancy Pelosi, and others from the left and the right who rail against basic economics. We need a debate between the real two sides of economics, Keynesian vs. Classic Liberal. Any takers?

New Finance Minster in Brazil (Incompetence)

Here is an excerpt from today's FT about the new "Finance" Minister in Brazil.

"Palocci’s resignation shakes Brazil’s markets"
By Jonathan Wheatley in São Paulo
Published: March 28 2006 21:34 (Financial Times)

But during the conference and in a television interview on Tuesday there were signs that the focus of policy might shift.

“The man in the street isn’t interested in monetary policy or the exchange rate,” he said. “He wants to know if Brazil will grow.”

This finance minister is the replacement to the former finance minister, Palocci. People are worried that this new guy will change the market friendly policies that Brazil currently enjoys. This guy seems to not understand his new job description or he might just not understand economics. Without sound monetary policy and a free floating exchange rate, there will be NO economic growth.

Our First Enemy of Global Economic Freedom (GEF) - Lou Dobbs

In celebration of our new blog, we award the first weekly award for ENEMY OF GLOBAL ECONOMIC FREEDOM to LOU DOBBS!

Benn Steil does a great job of highlighting the stupidity of Lou Dobbs and how HE is hurting America and the global economy.

Dobbsism, unintelligently designed for our times

BY BENN STEIL (Finacial Times)
March 27, 2006 Monday

"Even if the result is more profits for multinational corporations, do we truly believe that exporting those jobs will lead to a better life in this country, for our workers? . . . Or should we rely on public policy, regulation, tariffs, and quotas to protect our standard of living? Or should we share the blind faith of many in corporate America and Washington, in the power of a free market to resolve these questions?"

Lou Dobbs, Exporting America, 2004

"Faith is required in all views regarding the beginning of life, whether scientific, so-called, or whether religious . . . The fact is that evolution, Darwinism, is not a fully explained or completely rigorous and defined science that has testable results within it."

Lou Dobbs, CNN, May 12, 2005

As an economist, I feel a communal and curmudgeonly kinship with evolutionary biologists. We are brothers and sisters in a seemingly endless - and at times, it seems, hopeless - struggle to persuade others that impersonal and unseen forces shape our world in predictable ways which, though far from obvious, are eminently demonstrable. The resistance we are up against I will call Dobbsism. Dobbsism is a form of primal consciousness, exemplified by crusading American television anchor Lou Dobbs, through which people impute what they observe to intention. It is the consciousness behind belief in intelligent design, according to which biological life must have been designed by a creator, given its complexity. It is likewise behind the belief that a complex social construct like a "national economy" must be deliberately de-signed by enlightened policymakers, lest joblessness, poverty and mass bankruptcy result from the neglect.

To be clear, no biologist would claim that conscious design cannot improve on unguided evolution. Thousands of years of deliberate human genetic modification of animals and plants attest otherwise. Likewise, no economist would claim that economic outcomes cannot be improved by policy interventions. Governments that create money, spend it, and allocate and enforce property rights wisely are essential to private wealth creation. However, it is exceptionally well established that enormous and highly adaptive biological complexity can emerge, and has emerged, over periods of time that are well beyond what humans can intuitively grasp, through processes that are entirely unguided by a deliberate, thinking force. Evolution is indeed "just a theory". Gravity is as well. But evolution is a theory strongly supported by the fossil record, comparative anatomy, the distribution of species, embryology and molecular biology. Likewise, the foundation of the doctrine of free trade, that there is an inherent gain in production specialisation along the lines of comparative competence, is far from obvious but logically impeccable and empirically sound. Of this theory of comparative advantage, Nobel Prize winner Paul Samuelson wrote: "That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them."

Why should we care? Well, Dobbsism is not only widespread, but can be dangerous. Take President George W. Bush's imposition of tariffs on imported steel in 2002, on which Mr Dobbs commented enthusiastically that: "It appeared that the president had decided he had a far more important constituency to serve than the members of the World Trade Organisation, the European Union, and the so-called free traders: namely, working men and women in this country". Powerful stuff. But is it true that Mr Bush faced down foreigners and free traders to the benefit of American workers?

It is a simple task to count the number of American steel workers at two different points in time, even if it is less straightforward to determine the portion of any decline that resulted from foreign competition (as opposed to, for example, new technology). Unfortunately for economists however, they must apply considerably more data and higher maths in order to estimate the effect of steel tariffs on American workers, the vast majority of whom do not work in the steel industry. Studies have found that the tariffs produced tens of thousands of job losses in steel-using industries.

Yet since statistical estimation techniques are not nearly as comforting as counting steel workers, Dobbsism would dismiss such an exercise as "just theory". And we non-Dobbsists are left with the hopeless task of arguing that tens of thousands of workers who lost their jobs to the invisible effects of protectionism have been neither intelligently designed nor accounted for.

The writer is director of international economics at the Council on Foreign Relations and co-author of Financial Statecraft: The Role of Financial Markets in American Foreign Policy