March 17, 2003

Why No Free-Trade First Downs?

One of the (few) good things about Republican administrations is that they generally find it much easier to move the free-trade ball forward than do Democratic administrations. Or, at least, they did until this one.

Is the Bush Administration's failure to make progress on free trade due to ineptness or to malevolence? Do the High Politicians simply not care? Or do they care, but have no idea about how to run international economic policy?

I haven't had anyone explain to me what is going on inside the West Wing, at least not in any fashion I find convincing...


U.S. Unilateralism Worries Trade Officials: ... European officials have complained the loudest about the United States breaking trade rules. In one of the largest such judgments, Europe was awarded the right to impose $4 billion worth of trade sanctions against the United States for giving tax breaks to American exporters through foreign sales corporations. European officials say they are tired of waiting for Congress to approve new laws prohibiting these subsidies, and that they may impose 100 percent duties on items like precious stones, sporting goods and agricultural products by the end of the month.

The most glaring example here of going-it-alone tendencies was the United States' last-minute refusal to sign off on an agreement that would help poor nations buy generic medicines through exemptions from trade rules.

Developing nations had pinned their hopes on this agreement to fight AIDS, tuberculosis, malaria and other diseases. But the United States, with the strong approval of the American pharmaceutical industry, exercised the veto that every nation possesses and destroyed the deal.

That upended the timetable for a current round of trade negotiations that is dedicated to helping developing nations. This cause is identified with Mr. Supachai, the former deputy prime minister of Thailand and first director general of the trade agency.

Now he has lost the first battle. "That was a great pity," he said. "It would have sent a powerful message that we talk not only about trade deals but humanitarian deals."

Diplomats said they found it striking that Europe was willing to stand up to its pharmaceutical industries and support the agreement, but that the United States was not.

Sergio Marchi, Canada's permanent representative to the trade organization, said the American position not only put millions of lives at risk, but threatened the organization itself.

"You can't operate 100 percent on local politics if you're part of a multinational organization," he said. "Otherwise, one day it's your politics, next year it's mine, and then there is no more international organization."

Posted by DeLong at March 17, 2003 10:43 AM | TrackBack

Comments

Are some weak minds inside the Administration thinking that world trade means dependence on commercial partners and international institutions, and hence limitations to the ability of the Empire to act unitarily wherever and whenever it feels it is in its interest to? Hence the idea that bilateral trade agreements serve America's interest better, by making int'l (business) law ad-hoc and pitting America individually against a myriad of weaker countries in negociations.

Ot is it simply that this Administration is (voluntarily) captive to the special interests of industries that stand to be exposed to intense competition following trade liberalisation? In other words, this Administration isn't fighting for capitalism, but rather capitalistism. And it shall be rewarded for this courageous stance...

The times, they are changing...

Posted by: Jean-Philippe Stijns on March 17, 2003 11:06 AM

Are some weak minds inside the Administration thinking that world trade means dependence on commercial partners and international institutions, and hence limitations to the ability of the Empire to act unitarily wherever and whenever it feels it is in its interest to? Hence the idea that bilateral trade agreements serve America's interest better, by making int'l (business) law ad-hoc and pitting America individually against a myriad of weaker countries in negociations.

Ot is it simply that this Administration is (voluntarily) captive to the special interests of industries that stand to be exposed to intense competition following trade liberalisation? In other words, this Administration isn't fighting for capitalism, but rather capitalistism. And it shall be rewarded for this courageous stance...

(There is even a more cynical take on this issue. If America's strategy is to prevent the emergence of any "strategic competitor", then it follows that trade, among other things that make all countries richer, should only be encouraged with the greatest caution.)

Posted by: Jean-Philippe Stijns on March 17, 2003 11:10 AM

The thing is, free trade can be (and often is) unpopular in the short-run. Let us charitably suppose that Bush and company have the interests of the United States at heart, and realize that trade liberalization is in the national interest; still, unless you have discipline and principle about it, in addition to mere good intentions and belief in it, the liberalization never really comes...

It's a bit like trying to get on a workout schedule. The Clinton folks said "okay, we're going to start liberalizing trade, so lets do it now," and they pushed NAFTA through and the like.

The Bush folks, on the other hand, say "Okay, we really do need to liberalize trade, but right now we have to worry about the 2002 congressional elections, so there can be steel tariffs for some important constituencies... but after THAT we'll liberalize trade! Okay, now we are concerned about security and have to invade Iraq, but after THAT we'll liberalize trade!" like someone who sincerely wants to start working out, but is always too busy.

At least, that's assuming that Bush really does want free trade and really does have the country's best interests at heart, which I won't definitely assume one way or the other.

Posted by: Julian Elson on March 17, 2003 11:13 AM

Being a student of economics I used to be firmly in the free trade crowd, however I am beginning to have some doubts. I can't escape the idea that free trade and complete trade liberalization will be devestating to American workers.

Manufacturing workers will then move to the service sector is the retort. But how come manufacturing workers don't want to work in the service sector? Most service sector workers on this website are probably skilled and command high wages. Most people on the manufacturing line will end up working the cash register if moved to the service sector.

The gap between rich and poor would widen, the economy would suffer as consumption falls, the dollar would fall making America relatively more competitive but still uncompetitive overall.

I think the school of economics really needs to reconsider. I haven't made up my mind, but above are my concerns.

Posted by: Dan on March 17, 2003 11:27 AM

Bruce Nussbaum of Businessweek writes, "Chief executives are beginning to worry that globalization may not be compatible with a foreign policy of unilateral preemption. "

The Bush administration priority after Septemeber 11 was stopping terrorism at all costs. They have apparently decided that this requires the US to act unilaterally in its own best interests as defined by the administration. Thus, the focus on destroying the Taliban, ousting SH and controlling Iraq so that oil money will not be diverted to terroist organizations, etc. all fit the administrations strategy to eliminate terrorism. Ignoring international treaties, bullying nations that stand in the way all fit the anti-terroism strategy but are at odds with free trade. Free trade even takes a back seat to political considerations such as the steel tarriffs.

This Bush global strategy is not especially compatible with global trade, open borders, free exchange of currency, etc. that characterize the free trade ideology.

While they may give lip service to free trade, it is not a high priority for this administration.

Posted by: bakho on March 17, 2003 11:31 AM

Linkto Nussbaum article on globalism and Bush foreign policy.

http://businessweek.com/magazine/content/03_12/b3825801.htm

Posted by: bakho on March 17, 2003 11:33 AM

Dan writes :" Most service sector workers on this website are probably skilled and command high wages."

Increasingly high-skilled jobs are being moved offshore, not just manufacturing jobs. Why pay $80,000 for a software engineer in Chicago when you can get one in India for $10,000?

Basically, all that's going to be left are jobs where you have to deal directly with something, and the item can't easily be transported or disposed of. That means repair - of cars, buildings, and people.

Posted by: Jon H on March 17, 2003 12:06 PM

"Developing nations had pinned their hopes on this agreement to fight AIDS, tuberculosis, malaria and other diseases. But the United States, with the strong approval of the American pharmaceutical industry, exercised the veto that every nation possesses and destroyed the deal."

When Brazil was confronted with a choice of prohibitive costs for AIDS drugs, the country threatened to manufacture generic copies of the needed drugs or to import copies no matter the patent and trade rules. Though America and Europe and drug companies complained, Brazil persisted. The result was drug companies much reduced pricing for Brazil and licensed drug rights to Brazil on affordable terms.

Time, perhaps, for other countries to use such bargaining tactics? South Africa could well imitate what Brazil has done in gaining treatment for HIV/AIDS sufferers, but there is and astonishing reluctance by the government. I really can not properly account for the South African reluctance. There may be a sense in parts of southern Africa that HIV/AIDS treatment is too expensive under any terms. I disagree, but do not understand the lack of response by some of the governments.

Posted by: anne on March 17, 2003 12:11 PM

"Diplomats said they found it striking that Europe was willing to stand up to its pharmaceutical industries and support the agreement, but that the United States was not."

European governments have really been willing to allow America to play the heavy. Switzerland, France, Germany, England are not "supporting" differential drug pricing and low fee licensing in southern Africa as much as they are quite on the issue.

Europe is remiss in fostering health care sipport in Africa. Europe is surely remiss in limiting African agricultural trade with use of subsidies. There is blame to go round.

Posted by: anne on March 17, 2003 12:20 PM

I don't think trade is handled by the econ people in this administration; it's a subset of politics (Rove) and diplomacy (Pakistan).

Posted by: Jason McCullough on March 17, 2003 01:07 PM

There is no real conflict between taking the actions necessary to reduce the risk of American civilians being slaughtered and pursuing free trade, and the latter pursuit can actually assist in the the former. Whether this administration can use free trade in this way, is not clear, and the indications are not positive. It is obvious that trade policy gas been largely sublimated to domestic constituencies, be they South Carolina textile workers and companies, or Pennsylvania steel interests, both labor and management. This pandering to narrow domestic constituencies has great potential to harm the Administration's entire foreign policy objective, and something's gotta give. Maybe Bush worked to regain the Executive Branch's fast track authority with a plan in mind. We shall see.

Posted by: Will Allen on March 17, 2003 01:17 PM

**Maybe Bush worked to regain the Executive Branch's fast track authority with a plan in mind. We shall see.**

I must be humor-impaired today...

Posted by: Jean-Philippe Stijns on March 17, 2003 01:29 PM

Why should trade be a zero sum game? We can cushion workers against transition due to trade, as can other economies. Of course, that may not really console Mexican farmers who face displacement. Also, I do not find Mexican farmers being cushioned. Mexico is better off with trade, as are we, but what of the displacement?

We value farmers enough, at least large farmers, to offer large subsidies which restrict trade freedom, but we pay little attention to displacement of farmers in Latin America.

Well, I could argue either way and be quite serious.

Posted by: jd on March 17, 2003 01:51 PM

I dunno. Maybe the top people in the administration have been occupied by other things lately?

Posted by: Jim Glass on March 17, 2003 02:28 PM

But aren't we in for the long haul? When can we expect to shift their attention back to other things?

Posted by: Jean-Philippe Stijns on March 17, 2003 02:44 PM

Let's see, this is supposedly a discussion of the Bush Administration's lack of support for free trade. Some of the items specifically mentioned are:

1) U.S. tax breaks for firms. This seems to be about "free trade" about like attempting to eliminate tax havens in countries like Bermuda is about "free trade."

Why isn't Europe complaining loudly about U.S. subsidies for agriculture...which I would agree is a legitimate free trade issue? Answer: Because the Europeans are even worse, in that regard. (In fact, the Europeans appear to be extremely interested in using this issue to erect even more barriers to other people exporting agricultural goods to Europe.)

2) Refusal of the United States to sign off on an agreement that would allow poor nations to buy generic medicines.

In other words, the United States government was supporting pharmaceutical firms within its boundaries to be the sole seller of drugs which THEY developed. That's as opposed to firms in India essentially stealing the drugs...because they don't have the brains to develop the drugs themselves.

Again, how is this a "free trade" issue? The answer is, *of course*, it's NOT about free trade! It's about, in the words of a man from Thailand (another country which doesn't have the smarts to do anything but steal drug formulas):

"That was a great pity," he said. "It would have sent a powerful message that we talk not only about trade deals but humanitarian deals."

It sounds to me like it's not a bad idea at all if the WTO collapses. If they've got nothing better to do than work on raising taxes and stealing drug formulas, they're obviously not very concerned about free trade.


Posted by: Mark Bahner on March 17, 2003 03:07 PM

"Why isn't Europe complaining loudly about U.S. subsidies for agriculture..."

That's a good point, but I don't see why it answers the question of the US refusal to stop export tax breaks. Personally, I would welcome the US complaining about European subsidies if it was done in a productive way.

"If they've got nothing better to do than work on raising taxes [...]"

Where did you read that? Can I get a reference?

Posted by: Jean-Philippe Stijns on March 17, 2003 03:57 PM

From Mark Bahner [...](another country which doesn't have the smarts to do anything but steal drug formulas)[...]

To make new drugs you need money, lots of money.

By the way, if I remember correctly, industrial grow in the early USA was based on intellectual property theft.

Have your legislators passed the Mickey Mouse laws?

DSW

Posted by: Antoni Jaume on March 17, 2003 04:24 PM

Free trade?

Isn't that the thing that happens when some analyst/investment banker touts an overpriced, "globalized" telecom stock because he wants to get his kid into the best nursery school in town and HIS minders want to get out of it "at the top"?

(You don't have to answer that, if the answer might tend to incriminate you ;?)

By the way, did anybody see this?


IMF-no clear proof globalization helps the poor

Monday March 17, 6:15 pm ET

By Anna Willard

WASHINGTON, March 17 (Reuters) - The International Monetary Fund sounded more like its critics on Monday when it admitted there is little evidence globalization is helping poor countries.

The IMF, which has often been the target of violent anti-globalization protests, in a new study found economic integration may actually increase the risk of financial crisis in the developing world.

"Theoretical models" show that financial integration can increase economic growth in developing countries, the research found, but in practice it is difficult to prove this link.

"In other words, if financial integration has a positive effect on growth, there is as yet no clear and robust empirical proof that the effect is quantitatively significant," the new report said.

An overview of the study, which was put together by four researchers including the fund's chief economist Kenneth Rogoff, describes the conclusions as "sobering"...."

http://biz.yahoo.com/rf/030317/economy_imf_globalization_1.html

P.S. I note the bulls were running again today. (Seemed just like old times--only lower: A LOT lower ;-)

Posted by: Mike on March 17, 2003 06:48 PM

"We can cushion workers against transition due to trade, as can other economies" - notice, it's never "we do..." or "last time we did...".

"We can..." is as worthless as praising productivity gains without actual production gains - because there COULD have been production gains, if only the powers that be had taken the right steps.

Posted by: P.M.Lawrence on March 17, 2003 09:48 PM

Years hence might not historians mark the apogee of the second great Free-Trade period as Seattle 1999?

As much as it would be convenient to blame Bush, it seems that something structural is at work.

Free-trade, while benefitting many, has appeared to increase income inequality, within and cross countries, so naturally political opposition to free-trade has arisen. Many economists, I'm afraid, have just missed the boat.

Posted by: Andrew Boucher on March 18, 2003 12:10 AM

Free trade is a high-minded economic abstraction with a small-minded politcal obstruction.

Lets set up a "toy economy" to illustrate the problem. Shall we?

Say Alcatraz is a tropical prison camp/country with lots of dirt roads, bananas and disposable, powerless peasants.

And say "Zion" is a temperate industrialized state with lots of theaters, universities, hospitals, sanitation-transportation-communication (& etc.)"infrastructures", civil/criminal legal institutions and other such "luxuries"--as well as a people who are justifiably proud (though not especially jealous or vigilant about) their hard-won prosperity and/or so-called "rights".

Now, say Zion's commercial elite grew tired of the ceaseless struggle with its surly employees and decided it could do a lot better by its capital if it moved the labor intensive part of its operations down to the "business friendly climate" of Alcatraz and shipped its wares back to Zion. Say too, that the economic costs of relocation and shipping (as well as the political costs of bribes to the political "elites" in both courntries necessary to make the scheme work) were small compared to the increased profits they stood to reap on the new arrangement.

How long would it take Zion to degenerate into just another Alcatraz?

Posted by: Mike on March 18, 2003 07:16 AM

Anne raises an interesting point: if the Bush Administration is committed to unilateralism in all areas of foreign and economic policy, how long will it take the rest of the world to reciprocate?

They don't HAVE to adopt our intellectual property rights laws, contracts doctrines, or lower their tariff barriers to our goods. They do it because they see benefits in international cooperation in general and in mulitlateral trade liberalization in specific. But if we welch on our end of the deal, we should not be surprised when the world decides to reply. The end result, given our ludicrous trade imbalance, can only be bad for us if the rest of the world imports less of our stuff, be it barriers on food and cars, piracy of entertainment, or decline in demand for services.

Posted by: Ethan on March 18, 2003 08:33 AM

Ethan -

Thanks. This really is an important point.

Note Stephen Roach -

http://www.morganstanley.com/GEFdata/digests/20030317-mon.html

Stephen Roach (New York)

Globalization is at risk. The growth in global trade has slowed markedly in recent years. There are new frictions in the arena of cross-border commerce, involving such key players as the United States, Europe, Japan, and China. Moreover, the global economy is beset by profound imbalances. And the world is now facing its most wrenching geopolitical fracture since World War II. Can globalization survive, as we know it? ...

Posted by: anne on March 18, 2003 10:26 AM

>>An overview of the study, which was put together by four researchers including the fund's chief economist Kenneth Rogoff, describes the conclusions as "sobering"...."<<

If the study included capital flows, then Rogoff, if he is intellectually honest, should consider writing a letter of apology to Joe Stiglitz. But then again...

Social analysts who combine a study of domestic/international politics with economics will not be at all surprised by the conclusions above of Mike and Andrew Boucher. Because the world economy is not in fact characterized by anything close to perfect competition but is in fact entirely controlled by several hundred multinational corporations, free trade is preferred _only_ when it allows such corporations to seize the market-failure rents available in the world economy, while at the same time they can lobby their host governments to prevent trade in those areas which are not favorable to them.

Not surprisingly, income distribution starts to worsen (as far as I can tell, the World Bank's conclusion that it improved is bogus, since much of the supposed improvement was in China and India, two countries which did not fully follow globalization prescriptions). At the same time, the need for corporations to secure resources leads them to lobby the state to project its power in previously stagnant regions of the world, but the inhabitants of such regions may not be happy. Thus we get Subcomandante Marcos, or less benignly, Osama Bin Laden. The resulting backlash from some of the dominant states then starts to undermine the political cohesion of the developed countries.

The current international political crisis resembles the start of WWI in so many ways that it's not even funny. It is very fortunate that there are no countries currently powerful enough to call the U.S. on its interventionism, though they can refuse to go along.

Posted by: andres on March 18, 2003 11:02 AM

>>In one of the largest such judgments, Europe was awarded the right to impose $4 billion worth of trade sanctions against the United States for giving tax breaks to American exporters through foreign sales corporations. European officials say they are tired of waiting for Congress to approve new laws prohibiting these subsidies, and that they may impose 100 percent duties on items like precious stones, sporting goods and agricultural products by the end of the month.<<

That's interesting.

http://europa.eu.int/cgi-bin/eur-lex/udl.pl?REQUEST=Seek-Deliver&LANGUAGE=en&SERVICE=eurlex&COLLECTION=oj&DOCID=2002c217p00020015

Notice relating to the WTO Dispute Settlement proceeding concerning the United States tax treatment of Foreign Sales Corporations (FSC) — Invitation for comments on the list of products that could be subject to countermeasures

-----------

Who will suffer? (The US have received the result (list of products), but AFAIK it isn't published yet.)

http://www.hillnews.com/news/030503/eutax.aspx

"Some believe that the EC could target goods made in states that could prove crucial to President Bush re-election hopes in 2004."

Posted by: Old European on March 18, 2003 12:11 PM

"Some believe that the EC could target goods made in states that could prove crucial to President Bush re-election hopes in 2004."

I believe that Mike Tyson is terrified of fighting me in a back alley. Also, did you know that the moon was made of green cheese? The European business community will not sacrifice profits to spite the Bush administration. The Old Europeans need the United States far more than America needs them. For instance, I hope that we soon move our troops out of Germany and into Poland. I thank God that my ancestors left Germany some one hundred years ago. Why stay behind with the losers?

Posted by: David Thomson on March 18, 2003 02:42 PM

"Some believe that the EC could target goods made in states that could prove crucial to President Bush re-election hopes in 2004."

I believe that Mike Tyson is terrified of fighting me in a back alley. Also, did you know that the moon was made of green cheese? The European business community will not sacrifice profits to spite the Bush administration. The Old Europeans need the United States far more than America needs them. For instance, I hope that we soon move our troops out of Germany and into Poland. I thank God that my ancestors left Germany some one hundred years ago. Why stay behind with the losers?

Posted by: David Thomson on March 18, 2003 02:42 PM

"That's a good point, but I don't see why it answers the question of the US refusal to stop export tax breaks."

Export tax breaks don't restrict trade. If the Europeans have a problem with the U.S. government's export tax breaks, they should grant export tax breaks themselves. (And then the U.S. government could retaliate by granting still more tax breaks. With a long enough and fierce enough battle, perhaps both sides would have no taxes. ;-))

There are plenty of ways the U.S. does actually block trade, that the Europeans could complain about. Quotas on textiles, for example. Or the steel tariffs, obviously. The fact that the complaint is about tax breaks indicates that the Europeans are more worried about low taxes than restrictions on trade.

"Where did you read that? Can I get a reference?"

The Europeans want the U.S. government to eliminate the tax break; in other words, the Europeans really want the U.S. to raise taxes, not to free up trade.

Posted by: Mark Bahner on March 18, 2003 03:15 PM

Antoni Jaume writes, "To make new drugs you need money, lots of money."

Yes, and after U.S. (and British and French) firms spend hundreds of millions of dollars developing life-saving drugs, India, Brazil, and South Africa want to steal the formulas, and make copies (because it costs very little to actually manufacture the drugs).

Forgive me if I'm not impressed, when a Thai WTO official wants to help those countries steal the formulas for drugs they can't develop on their own. (So he can satisfy his desire for "humanitarian deals.")

"By the way, if I remember correctly, industrial grow in the early USA was based on intellectual property theft."

Not mainly of foreign intellectual property...at least that I'm aware of. Most major inventions of the 18th and 19th century that I can think of were by U.S. citizens: Eli Whitney's cotton gin, McCormack's reaper, Goodyear's rubber vulcanization.

Hmmm...well, there was (British) George Stephenson's locomotive. Antiseptics by (Hungarian) Ignaz Semmelweis.

http://inventors.about.com/library/weekly/aa111100a.htm

So if people in the U.S. stole those things, they were important inventions. But, for example, a lot of the cost of a locomotive is in it's manufacturing. (As opposed to drug development or software development, where the cost is in the development.)

In any case, even if U.S. early wealth *was* based on "intellectual property theft" (which I don't think was the case)...that wouldn't change my position. Theft is wrong...in significant part because there's no incentive to spend hundreds of millions of dollars developing life-saving drugs, if anyone can steal the formulas.

I'll admit this is a difficult question...just how long someone should be rewarded for inventing something. But it really bugs me that the *only* side of the story that seems to be presented here is that the drug manufacturers (and the U.S. government, who is trying to protect their intellectual property) are the "bad guys"...and the Indians, who basically do what *anyone* could do, are somehow the heroes.\

"Have your legislators passed the Mickey Mouse laws?"

I think it was passed. I agree that law (extending copyright protection for 20 more years beyond the death of the originator) is completely ridiculous. I don't think that law comes even close to meeting the U.S. Constitution's guideline of "a brief period."

Again, I certainly don't advocate that generic drugs *never* be allowed to be manufactured. Even a decade of protection would be enough, in my opinion. But to simply allow anyone to copy either drugs or software (or anything else where the money to develop is far greater than the money to manufacture) basically eliminates any incentive to come up with new drugs or software.

Posted by: Mark Bahner on March 18, 2003 03:51 PM

"I thank God that my ancestors left Germany some one hundred years ago. Why stay behind with the losers?" - curiously, my Irish ancestors looked down on those of their neighbours who emigrated to the USA as losers, mere economic refugees who hadn't been able to cut it. (My ancestors emigrated to France after the First World War, which made them political.)

But returning to the point, the ONLY respects in which the rest of the world needs the USA more than vice versa are those in which the rest of the world has been deprived of effective freedom of action. For instance when Europe "needs" the USA to intervene in the Balkans, it is only because experience has shown that any effective action without the USA would have the rug pulled out from under it. So, the USA deserves no credit for saving the world from those problems which it not only frequently contributed towards making, but also which it prevented anyone else from repairing.

Looking over recent history, that gives us a set of benchmarks to use. On the whole the USA was part of the solution before Suez, ambiguous over the next generation, and part of the problem ever since the end of the Cold War.

Posted by: P.M.Lawrence on March 18, 2003 07:00 PM

andres says:

"...much of the supposed improvement was in China and India, two countries which did not fully follow globalization prescriptions). At the same time, the need for corporations to secure resources leads them to lobby the state to project its power in previously stagnant regions of the world, but the inhabitants of such regions may not be happy. Thus we get Subcomandante Marcos, or less benignly, Osama Bin Laden. The resulting backlash from some of the dominant states then starts to undermine the political cohesion of the developed countries.

The current international political crisis resembles the start of WWI in so many ways that it's not even funny. It is very fortunate that there are no countries currently powerful enough to call the U.S. on its interventionism, though they can refuse to go along."

Interestingly, Chain accounts for $100 b/yr of the currently $400+b/yr US "trade deficit." ("Off-hand," I don't know the India "number" but I wouldn't be surprised if it was similar.)

Ironically, if "professional Democrats" hadn't squandered the political opportunity (and economic resources) afforded them by the demise of the Reagan/Bush regime (and the end of the "Cold War"), we might now be a whole lot farther along the road to a (more) mutually beneficial, sustainable, peaceful and prosperous international "Hydrogen economy" AND a healthier, happier more "cohesive" planet as well as "body politic" here at home.

Unfortunately for EVERYBODY, the path of least (political) resistance was (and still is) to pander to the rich/powerful and propagandize the "hoi poloi"....

Posted by: Mike on March 18, 2003 07:26 PM

Frankly, Bahner, I'm a bit surprised at your view on tax breaks for exporting firms. Countries which grant tax-breaks to exporting firms are supporting their firm's ability to export at the expense of revenue, but the forgone revenue has to come from somewhere, doesn't it? Really, how are highly specific, targetted tax breaks (say, for mortgages on homes, solar panels, research & development) designed explicitly to forgo revenue to distort incentives toward a specific kind of behavior different than direct government subsidies? If I fill out a tax form, in which I get an exemption for doing something the government likes, am I freer from big government because I get to keep my own money than if I fill out the tax form with no exemptions, then apply to a government agency for a grant/subsidy the same size as the exemption I would otherwise have?

Posted by: Julian Elson on March 19, 2003 07:30 AM

"Frankly, Bahner, I'm a bit surprised at your view on tax breaks for exporting firms."

Frankly, Mr. Elson, I'm not surprised that you're surprised about my view on exporting tax breaks. :-)

"Countries which grant tax-breaks to exporting firms are supporting their firm's ability to export at the expense of revenue, but the forgone revenue has to come from somewhere, doesn't it?"

No, it doesn't have to come from somewhere, if the government size is cut by an equivalent amount.

This is the fundamental difference of my point of view, and virtually everyone else's that I've read on this website. I start from the point of view that government size *could* be zero...and then go--very reluctantly--upwards from there. You, Dr. DeLong, and virtually everyone else, seem to start with the point of view that government size should at least be as big as it is now.

That is a huge difference in point of view. I look at EVERY federal government expenditure (I care more about that than state and local governments), and ask, "Does the federal government REALLY need to do this, or could it be done some other way?" When one starts from this point of view, one arrives at the conclusion that virtually everything the U.S. government presently does is not necessary. (Even in matters of defense, which I consider to be one of the few legitimate uses for federal government. For example, I ask, "Do we REALLY need troops in Europe, Saudi Arabia, or South Korea?" And the answer that *I* get is, "No, not strictly to protect the United States. Maybe to protect Europe, Saudi Arabia, or South Korea...but that is NOT a proper duty of the U.S. government.")

"Really, how are highly specific, targetted tax breaks (say, for mortgages on homes, solar panels, research & development) designed explicitly to forgo revenue to distort incentives toward a specific kind of behavior different than direct government subsidies?"

Heh, heh, heh! (Oy, vey!) Yes, I see how *your* point of view (and Dr. DeLong's, and virtually everyone else on this site) leads you to that question.

Y'all (Southern expression ;-)) don't see the difference between reducing taxes on the rich, or collecting taxes to PAY to the rich. (In fact, in the case of prescription drug coverage for Medicare, most of y'all actually PREFER the latter. Truly amazing...and depressing.)

From *my* point of view, there is a HUGE difference between *not taking* a person's money, and *giving* a person someone else's money.

"If I fill out a tax form, in which I get an exemption for doing something the government likes, am I freer from big government because I get to keep my own money than if I fill out the tax form with no exemptions, then apply to a government agency for a grant/subsidy the same size as the exemption I would otherwise have?"

:-) This is remarkable...and why I come here. I find it fascinating to read people who have such a different (in my opinion, distorted :-)) view of the world. The answer is, "This isn't about *your* freedom!" (Always worried about your freedom, but never about anyone else's! ;-)) You're right, either way, *you* are free. But in the second case, you are taking away OTHER people's freedom, where in the first case, you're not. That's because, in the second case, people are being compelled (by the government) to give you their money. In the first case, you're not taking anyone's money.

Of course, I can see that your response to this will be, "Yes, I *am* taking away other people's freedom in the first case, by forcing the government to go elsewhere for revenue." So my response to your response is, "No, the *government* is taking other people's freedom, by needing that money in the first place."

Try to start with a point of view that maybe there wouldn't need to be any government, and go upwards from there. Then, you'll see that the tax breaks aren't such a big deal ...except to countries that have really high taxes, and don't want the competition from low-tax countries. Direct subsidies, on the other hand, ARE a big deal.

As I wrote previously, I hope no one thinks that I don't have large criticisms of the Bush Adminstration's policies on trade. They supported the steel tariffs. They supported even larger agricultural subsidies than when they came in. They haven't lifted quotas on textile imports. There are a whole range of possibilities for criticizing the Bush Adminstration on not supporting free trade. But export tax breaks, and simply trying to protect the intellectual property of U.S. drug firms...those are pretty pathetic places to start.

Posted by: Mark Bahner on March 19, 2003 09:23 AM

"How long would it take Zion to degenerate into just another Alcatraz?"

Why wouldn't Alcatraz's income go up?

Mark, "they should die to protect patent rights" is a pretty lousy defense. Might I suggest favoring the government just buy the rights? I don't see that one being opposed by much of anyone.

Might I point out that tax breaks to export-producing industries are industrial policy? The government picking winners? Surely you don't think that's a good idea.

Posted by: Jason McCullough on March 19, 2003 12:24 PM

Mark, military protection is a lot like medical protection. It works a lot better and costs a lot less when applied sooner. Forward bases are preventative measures. By the time it gets to our shore the costs of dealing with it are much higher.

anne, Brazil has drug production facilities, Africa by and large does not. Bytheway, did you ever check into Chile's market and its economic performance compared to its neighbors or did David's brush off because of its monetary controls convince you that it in no way resembles an ongoing IMF proscribed stabilization program? Any thoughts on how that discussion of the Washington concensus and Chile might apply to this thread?

Posted by: Stan on March 19, 2003 12:31 PM

Stan – South Africa in particular could be a major drug supplier to the rest of Africa. I am puzzling over why it is not, and think there is concern among a number of the governments that even the cheapest of drugs for HIV/AIDS may prove too expensive because of the on-going need.

This is a very important question and I wish I had even a little more definite answer!

Posted by: anne on March 19, 2003 01:24 PM

Jason McCullough writes:

"Why wouldn't Alcatraz's income go up?"

To which I reply:

Doubtless Alcatraz's trade surplus vs. Zion (and probably its GNP as well--depending on the vagaries of the two countries' tax laws, accounting gimmicks & etc.) would go up.

But why on Earth should anybody imagine the "powerless, disposable peasants" of Alctraz would realize even a significant fraction of the income lost to the hapless citizens of "Zion"?

In fact, "Zion's commercial elite's" entire "small-minded" scheme depends upon the fact that they WOULDN'T.....

Posted by: Mike on March 19, 2003 01:28 PM

Stan - About Chile.

Will go back to my notes. Chile struck me as quite encouraging. Peru with its allocation of real estate titles to "shanty town" families also is encouraging and interesting. Brad gave a link to a Princeton thesis on the Peru land reform experiment [terrific thesis].

Will look to notes and continue.

Posted by: anne on March 19, 2003 01:29 PM

http://www.nytimes.com/2003/03/19/international/americas/19MEXI.html

March 19, 2003

With Little Loans, Mexican Women Overcome
By TIM WEINER - NYTimes

SAN MARCOS ACTEOPAN, Mexico — Guadalupe Castillo Ureña was widowed at 31, left alone with five children when her husband died trying to get to the United States from their hut here in the foothills of Mexico's southern Sierras.

She was among the poorest of the poor — scraping by, like half the people in Mexico, and half the world's six billion people, on $2 a day or less, barely surviving.

Then an organization called Finca came to the village. It asked the women there — and only the women — whether they would be interested in borrowing a little money, at the stiff interest rate of 6 percent a month, to start their own businesses.

Change came. With a loan of about $250, Ms. Ureña, now 35, started making hundreds of clay pots this winter. With Finca's help, they were sold in bulk to a wholesaler, who sells them in the city. She pocketed $15 to $20 a week in profit. That sum, the first real money she had ever earned, was enough to help feed her children and pay their school expenses.

"It's exhausting," she said, "kneading the mud, stoking the kiln. But it's something. An opportunity."

These small loans, known as microcredit or microfinance, are not a charity. They are a growing business that is producing wealth in some of the world's poorest countries....

Posted by: anne on March 19, 2003 01:33 PM

anne, I assume that Bush's AIDs pledge is in some way tied up in it all. Maybe the political gain of a direct handout was easier to see for the end-users and therefore preferable? The Peru topic sounds interesting.

Posted by: Stan on March 19, 2003 01:48 PM

No. I do not think the issue is even free versus low cost or very low cost drugs. My firm sense is that fostering a health care industry in all its complexity may not be seen as a development key, though I think it IS. Again, you are raising a fine point. Remember, even in America we write as though health care is a COST rather than a benefit to the general economy.

Look. The points you have made are important! I am thinking.

Posted by: anne on March 19, 2003 02:02 PM

Stan -

The question I am asking myself is whether a health care industry can be critical to the developed and for development. The answer seems assuredly YES.

Paul Krugman wrote a bit about this for America, and Brad noted a recent article about this matter. I am thinking and searching.

Posted by: anne on March 19, 2003 02:06 PM

Stan – Why speak of health care as though it were a sort of drain on resources? Darn. What would Boston or Providence be without the health care strength from critical care and hospitals to biotech?

Posted by: anne on March 19, 2003 02:09 PM

"Mark, 'they should die to protect patent rights' is a pretty lousy defense."

Jason: 1) "let's take their property" has killed far (far!) more people than "let's protect patent rights," and 2) the *majority* of people who die today, die for lack of money.

If a person learns even one thing from economics, it should be that second fact. The whole *foundation* of economics is that economics is the study of how scarce resources, that could be put to other uses, are used.

If any government pays X dollars for buying drugs to *treat* AIDS, it means that there are that there are X dollars LESS for *preventing* AIDS (or malaria, or whatever).

As you yourself imply later in your post, it's a mistake for governments to "pick winners." That applies not only to picking "winning" industries, but also to picking "winning" medical treatment or prevention strategies.

"Might I suggest favoring the government just buy the rights? I don't see that one being opposed by much of anyone."

I oppose it, absent a constitutional amendment... which I do not support. The purpose of the federal government, as stated in the Constitution is limited to such things as providing for the common defense, coining and regulating the value of money, regulating commerce, and some other things. No where in the Constitution does it mention "treating the ill"....ESPECIALLY "treating the ill of other countries."

But even beyond that, it almost certainly will save *more* lives, for X amount of money, to work on AIDS *prevention,* rather than treatment. (I would be happy to read any evidence to the contrary, however.) Economics is a "dismal science" precisely because there is only so much money available.

From this website, the cost of virtually 100% prevention of AIDS transmission from mother to baby is $1. What that means, however, is that, if $1000s are spent on treatment of a mother after giving birth, there will be 10s, 100s, or 1000s of babies that can't get the treatment to prevent the transmission at birth. So spending those $1000s on the mother after birth will end up killing 10s, 100s, or 1000s of babies, due to contracting AIDS.

http://www.u2page.com/story.htm

"According to Dr. Nils Daulaire, president and CEO of Washington-based Global Health Council, mothers transmit HIV either during the birth process, or during breastfeeding. However, one dose of the drug Nevirapine, given to the mother at delivery, and one dose given to the baby within the first 72 hours, can virtually eliminate the risk of passing HIV along to the infant. The cost of the two doses is $1. This is a very small price for a life, but beyond the reach of many in Africa."

What I *would* support, is private charitable giving to address AIDS in Africa. As a matter of fact, this charity looks pretty good to me, and I think I'll give them some money:

http://www.aids.org.za/

"Might I point out that tax breaks to export-producing industries are industrial policy? The government picking winners? Surely you don't think that's a good idea."

No, I don't think it's a great idea. (And apparently you agree in this area...but don't agree, or haven't considered, about picking winners and losers for AIDS treatment/prevention.)

I've never written that targeted export tax breaks are a great idea. My point, once again, was that there are *far* more important areas where the Bush adminstration has failed to promote free trade (e.g., steel tariffs, agricultural subsidies, continued limits on textile imports, etc.). The fact that this article doesn't mention any of those other areas--and even mentions stealing drug formulas, which even the advocate admits has nothing to do with freeing trade--tells me that the author basically doesn't really care much about free trade.

P.S. That site also had this gem from Bono: "Earlier in the program, Bono said, “people are dying for the worst of all reasons… money.” The other speakers provided a number of examples of this being exactly the case."

Sigh. It's a shame so few people in the world know anything about economics. If they knew anything about economics they'd know that MOST people--even in the United States--die for the reason of money.

Posted by: Mark Bahner on March 19, 2003 02:29 PM

Dear David Thomson!

Perhaps you have misunderstood my comment. This was no "threat". It was just the final result of the WTO Dispute Settlement Body. If the Bush Administration accepts the result, Microsoft Corporation, Caterpillar Inc., Honeywell International Inc., United Technologies Corporation and The Boeing Company will suffer. (2nd link)

(The "foreign sales corporations" system lets companies with a foreign presence, such as Boeing Co. and Microsoft Corp., to exempt between 15 percent and 30 percent of their export income from U.S. taxes. – FOX News)

But probably the Bush Administration doesn't comply. And I just don't know the major exporters of the discussed products (see below ANNEX A, EU-link contains detailed product codes).
-------------------------------------------
David Thomson: >>For instance, I hope that we soon move our troops out of Germany and into Poland.<<

Funny. Deep in your heart you are still a German. Here in Germany we've discussed this "threat" (first mentioned by Jesse Helms) and nearly anyone hopes the same. But the reason isn't anti-Americanism. No, P.M. Lawrence has already explained some important facts. Further, the Bush-doctrine simply don't produce the public good "security".

Even your glorious troops need German soldiers to save the military bases from terrorist attacks. And if the US remove their military bases, our airports will be able to expand. Otherwise the necessary expansion is a very big problem of the densely populated Germany.

We don't want the problems produced by the PNAC-plutocracy and therefore we don't want the troops --- the PNAC-instrument.

This is just a result of the Bush-Administration.

Here in Europe we're not afraid of Al-Qaeda. At the moment the Bush Administration generates new terrorists but the last months have shown that even the Pakistani police is more effective than the US-army. With respect to terrorism Pakistan is a more important ally than the US.

ANNEX A

LIST OF PRODUCTS

1 Live animals
2 Meat and edible meat offal
4 Dairy produce; birds' eggs; natural honey; edible products of animal origin, not elsewhere
specified or included
5 Products of animal origin not elsewhere specified or included
7 Edible vegetables and certain roots and tubers
8 Edible fruit and nuts; peel of citrus fruit or melons
10 Cereals
11 Products of the milling industry; malt; starches; inulin; wheat gluten
12 Oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruit; industrial or medical plants; straw and fodder
15 Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes
16 Preparations of meat, of fish or of crustaceans, molluscs or other aquatic invertebrates
17 Sugars and sugar confectionery
19 Preparations of cereals, flour, starch or milk; pastrycooks' products
20 Preparations of vegetables, fruit, nuts or other parts of plants
21 Miscellaneous edible preparations
23 Residues and waste from the food industries; prepared animal fodder
33 Essential oils and resinoids; perfumery, cosmetic or toilet preparations
34 Soap, organic surface-active agents, washing preparations, lubricating preparations, artificial waxes, prepared waxes, polishing or souring preparations, candles and similar articles, modelling pastes, ‘dental waxes ’and dental prepartions with a basis of plaster
35 Albuminoidal substances; modified starches; glues; enzymes
41 Raw hides and skins (other than furskins)and leather
42 Articles of leather; saddlery and harness; travel goods, handbags and similar containers; articles of animal gut (other than silk-worm gut)
43 Furskins and artificial fur; manufactures thereof
44 Wood and articles of wood; wood charcoal
48 Paper and paperboard; articles of paper pulp, paper or paperboard
49 Books, newspapers, pictures and other products of the printing industry; manuscripts,
typescripts and plans
51 Wool, fine and coarse animal hair; yarn and fabrics of horsehair
52 Cotton
54 Man-made filaments
57 Carpets and other textile floor coverings
61 Articles of apparel and clothing accessories, knitted or crocheted
62 Articles of apparel and clothing accessories, not knitted or crocheted
63 Other made up textile articles; sets; worn clothing and worn textile articles; rags
64 Footwear, gaiters and the like; parts of such articles
69 Ceramic products
70 Glass and glassware
71 Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with precious metal, and articles thereof; imitation jewellery; coins
72 Iron and steel
73 Articles of iron or steel
74 Copper and articles thereof
76 Aluminium and articles thereof
82 Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal
83 Miscellaneous articles of base metal
84 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof
85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers,
television image and sound recorders and reproducers, and parts and accessories of such
articles
95 Toys, games and sports requisites; parts and accessories thereof

Posted by: Old European on March 20, 2003 07:39 AM
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