Great Comment in the WSJ

The following appeared the "Letters to the Editor" section of the WSJ...

I was surprised to learn from your editorial that Hugo Chávez is allowed to sell oil to Joe Kennedy's Citizens Energy Corp. at a 40% discount. Surely a price this far below market runs afoul of the "antidumping" policies beloved by many in Mr. Kennedy's party. Shouldn't the American public be protected from lower prices on oil in the same way they've been protected from lower prices on bicycles, frozen concentrated orange juice, tissue paper, footwear, fishing tackle, hot-rolled carbon steel, televisions, replacement windshields, shrimp and several hundred other imported items. If Democrats allow lower prices here, they may even have to tolerate Wal-Mart.

Bruce E. Ikawa
Professor of Business and Economics Hillsdale College
Hillsdale, Mich.

Thank you to Don Boudreaux for posting this on his blog.

Chirac does it again

On my website, I have two articles. One by Chirac and one by Wolfowitz. Chirac states that he believed Europe should unite to take on globalization. He highlighted how his government (along with Germany) spent money on the "most promising sectors." He also reinforced the idea that if he helps to reform CAP, then other nations must "give and take" (reinforcing the mistaken view that trade liberalization is a zero sum game). On the other hand, Paul Wolfowitz's article points to trade liberalization as the best remedy for enriching the wealth all nations around the world.

And now in yesterday's Financial Times, President Chirac does it again. He continues his misguided fight to "protect" European wealth. This time he is opposed to foreign interests (in this case - America) taking over Euronext (a European conglomerate of exchanges). This is the third fight against foreign takeovers of French companies by Chirac in a couple months. First, it was his block of Enel's (Italy) potential takeover of Gaz de France (France) with a government-backed merger of Gaz de France with Suez (France). Then it was Chirac's opposition to the potential hostile takeover by Mittal Steel's Lakshimi Mittal of France's Arcelor (the world's second largest steelmaker). Now it is the potential NYSE/Euronext merger.

The problem is that mergers should be purely based on economics and shareholder interests. If politics were to get involved, efficiency would be its victim. Chirac might favor a "Franco-German" solution. However, if a politically forced merger were to take the place of the current one, the company might be set up for failure. This fact is best summed up by the difference in opinions between Chirac and his German counterpart, Merkel:

Mr Chirac said: "I will not hide the fact that I favour the Franco-German
solution for reasons of principle, and I would regret it if this solution is not
adopted in the end."Angela Merkel, Germany's chancellor, was more reserved,
saying: "We have always thought that in Europe it is good to build strong
economic units." But she added that any merger would be "a purely economic
decision" and said "these are events over which we can exert no influence".

The one of the largest shareholders of Euronext said it best with the following quote:

Yes, a merger makes sense with one or the other. But to decide which partner is
best, we must put them in competition until the very last moment.That is the
role of management, not to block one and to throw yourself into the arms of the
other.

Contradictory Protectionist

Barry Lynn has a ridiculous article in the May 30th FT. He points to the state as the only entity able to control the economy. He views America's faith in the market as "utopian." However, to look towards the market and not the government is actually realist. Free-market economics is the better of the two options (Socialism vs. Capitalism). By taxing less, protecting national economies less, etc. you decrease the probability of deadweight loss in the global economy. In fact, the only utopian ideal is Marxism where one would have to believe the government to be run by saints.

Next, Lynn points to the "power vacuum" created by globalization...

Similarly, there is no better time than now to grasp that the real question is not, as Americans like to frame it, free trade versus protectionism. It is whether the world trading system will be regulated by private companies that are answerable only to the rich and powerful, and are profoundly un­equipped for the task of processing complex information for the sake of society, or by states built to assess risk and to be answerable to all citizens.

However, Lynn misses the point that consumers have most of the power in a market economy. If a product fails, so does the company. Monopolies are, for the most part, unsustainable when there is constant threat of competition. Only with regulation do consumers lose out and monopolies are created (see Mexico).

Lynn continues with...

Utopian universalism is dead. The sooner nations gather to bury its corpse – and harness, hobble or break up the immense companies that have grown so powerful in the shadow of that myth – the more likely we will be to save globalisation. This, of course, can happen only if we define globalisation, once again, as a political process that must be managed by nation states. The result may not be perfect, and it certainly will be no utopia. But it is the best we can expect on this earth. And that may be enough.

States are destrutive when it comes to economics. Lynn must have failed to learn economics before he began teaching at LSE. Look at what happened to SE Asia. They grew because of market economics but in an unsustainable way (see 1998 crisis) due to the inefficiencies created by protectionism and infant industry industrialization (does not prepare companies for future competition).

However, the best part of Lynn's piece is that he admits the destruction caused by a collapse of a free (for Lynn: free means no state intervention) trading system.

It would be Pollyannaish to deny that grave dangers abound. The last time a free-trade system unwound, when Britain’s “invisible empire” vanished almost overnight in the 1880s, one result was a scramble for territory. Europe’s powers carved up Africa, then began to hack away at China, in a process that helped set the stage for the first world war.

Farm Aid and a Great Depression

Sallie James of Cato writes about more legislation proposed by Congress that will keep America's farm subsidies going. This is a slap in the face to the multilateral Doha Round. If we are going to use unilateral measures, we should at least do so by increasing free trade (ie. FTAs) and not by increasing government hand-outs in the name of "leveling the playing field."

Her last paragraph sums up the absurdity of this legislation...

The proposed legislation will keep the current farm bill in place for "at
least" one crop year after the congressional approval of any Doha outcome. Given
that the "emergency" aid given to farmers as part of the New Deal in the 1930s
is still with us, largely intact, more than 70 years later, there is little
reason to hope that the opportunity to reform U.S. agricultural policy will be
seized any more forcefully a year after negotiations are over than now, when
there is so much to be gained from stepping up to the plate.

It's still winnable!

Six CEOs from six major multinationals try to convince the investing public that Doha needs to succeed and there is still hope for its success. In an eloquent but brief paragraph, these leaders articulate why the movement towards freer trade (overseen by a rules-based WTO) will make life better for old and young, rich and poor, white and black, male and female...

We have strongly supported the Doha Round since its launch four years ago, with its emphasis on helping the developing world through multilateral trade liberalization and on real new market access opportunities in goods and services for all. Our collective experience has taught us that multilateral trade liberalization and a rules-based global trading system will foster economic growth, create jobs, give consumers more choices and improve lives in both the developing and the developed world. For us, a stable and open trading system is a most important prerequisite for our decisions to invest in the future.

They also highlight some of the amazing benefits that Doha has to offer...

These include outlawing all agricultural export subsidies by 2013, introducing duty- and quota-free market access for almost all exports from 32 least-developed countries by 2008, and eliminating developed-country export subsidies to cotton by as early as the end of this year.