Coyote Blog

Barack Obama and most of the Democratic Party (as well as a sizable Lou Dobbs contingent in the Republican Party) fear trade and globalization.  But like it or not, much of our economic growth is driven directly or indirectly by trade.  In particular, even I found the export growth rates in this chart from Mark Perry surprisingly large:

It is always dangerous to argue with the insane, but I am actually willing to answer Lou Dobbs question:

And what I can't quite figure out amongst these geniuses who are
so-called free traders is, why do they think that about a 35 percent to
40 percent undervaluation of the Chinese yuan to the dollar is free
trade? Why do they think 25 percent duties in tariffs on American
products entering China is free trade?

I will leave aside the question of how he or anybody else knows the yuan is undervalued by this much.  I will accept his premise on the basis that we know the Chinese government spends money to keep the yuan lower than it might be otherwise.  Here is my answer:

Yes, it is not perfectly free trade.  But we let it continue because the freaking Chinese government, its consumers, and its taxpayers are subsidizing Americans.  The Chinese government is making all of its consumers pay higher prices and higher taxes just so American consumers can have lower prices.  Napoleon advised that one never should interrupt an enemy when he is making a mistake -- after all, this same strategy managed to earn Japan a decade and a half long recession.  Our correct response is not tariffs, it is to say, "gee, thanks."  This is for the Chinese people to stop, not our government. 

Why is China doing this?  Because it government is using monetary policy to help out a few favored exporters who have political influence at the expense of all of their consumers and exporters.  And Lou Dobbs wants the US to respond exactly the same way, to punish our consumers to favor some of our favored politically-connected exporters so the Chinese consumers can have lower prices.  Great plan.  Is Lou Dobbs an Chinese agent?

From Fred Thompson, via Insty:

But he received his biggest applause for blasting the bipartisan plan
for immigration reform, which he called unworkable. "We are a nation of
compassion, a nation of immigrants," he said. "But this is our home . .
. and we get to decide who comes into our home."

Isn't this an essentially socialist view of property, that the whole country is essentially owned by all of us collectively and it is our government's responsibility to administer access to this community property?

I am just completing a course on the history of Rome from the Teaching Company (whose products have been universally excellent in my experience).  One of the interesting things that contributed substantially to Rome's strength, at least through the BC years, was their flexibility and success in absorbing many different peoples into the state.  They actually had various grades of citizenship, including such things as Latin Rights where certain peoples could get access to some aspects of citizenship (e.g. ability to conduct commerce and access to the judicial system) while being denied others (e.g. voting). 

Can't we figure out something similar?  Shouldn't it be possible to allow fairly open access to being present and conducting commerce in this country, while still having much tougher and tighter standards for voting and getting government handouts?  The taxes immigrants pay easily cover things like emergency services and extra load on the courts, but fall short of covering extra welfare and education. 

Unfortunately, the debate seems to be dominated either by Lou Dobbs racists who see Mexicans as spreading leprosy or by Marxists who see poor immigrants as a wedge to push socialism.  The problem is again traceable to a President who tries to lead on divisive issues without trying to clearly communicate a moral high ground.  For example, I would have first tried to establish one simple principle that has the virtue of being consistent with most of America's history:   

"The US should allow easy access to our country for immigrants, but immigrants should expect that immigration involves financial risks which they, not current Americans, will need to bear.  Over time, they will have access to full citizenship but the bar for such rights will be set high."

OK, it needs to be shorter and pithier, but you get the idea.  Reagan was fabulous at this, and Clinton was pretty good in his own way.  Bush sucks at it.

Is it just me, or does anyone else sense that, after years of being moderately normal on the air, someone took Lou Dobbs into the back room a few years ago and changed his outlook on life in a manner similar to Arthur Jensen taking Howard Beale aside in the movie Network?  He really seems to have turned into the first prophet of the secular religion of xenophobia and racial purity, much the same way that Howard Beale spread the religion of corporate feudalism before the network finally had to "take him out" for poor ratings.

I usually don't have much to say about Oprah.  I guess my perception of her has always been vaguely negative -- she's given a big leg up to some junk science causes in the past, and some of her recent attempts at charity have seemed to be more about self-promotion than about really helping people (the car giveaway comes to mind).  My real beef with her is probably more petty:  She once inspired my wife, in that way only Oprah seems to be able to do with women, to organize her closets just like Oprah.  What this meant in practice was that I had to go out and buy about 400 matching wooden hangers, and then we had to get rid of all the stuff on our shelves.  Yes, you heard that right:

Wife:  All that stuff cluttering up the shelves in our closet has to go
Me:  Why?  I mean, it's a closet.  It's for storing stuff
W:  It has to go somewhere else
M:  There is no place else
W:  Oprah's closet is beautiful - it has just clothes and nothing else in it.  That's the way our closet should be
M:  But we have no where else to store this stuff.  Why should that shelf sit empty when we have a use for it?
W:  Because it will look great
M:  Who cares?  It's a closet.  Besides, are we really going to take home decorating advice from a woman who has enough money to build a dedicated closet for each pair of shoes she owns?

Anyway, guys out there, you probably know the drill.

But I must say my opinion is changing a bit.  I was deprecating about her book club, because of some of the specific book choices, until I saw the stat that something like half the adults in this country never read a book again after they leave school.  If Oprah can get women as fired up about reading as my wife is about having a zen closet, power to her.

And, I have to defend her in her current endeavor, where she is giving $40 million to start a school for girls in Africa.  Good.  I don't know if it will work, but it is worth a try.  We know that giving direct aid into kleptocratic totalitarian African governments is worse than useless, so maybe education is an answer.

Amazingly, she is under fire for this program, as people across the political spectrum ask why she is giving this money to Africa when everything is not perfect in this country.  This argument strikes me as more Lou Dobbs-type nationalistic xenophobia.  Sure inner city schools in this country suck, but they are better than what is in Africa (nothing) and its not clear that money alone is going to fix government-run schools (besides, Bill Gates and Warren Buffet are already taking a swing at that).  I personally would love to contribute to inner-city education, but until there is a framework such that someone other than the government controls the schools, I am not going to do it. 

There is no reason why Africans are less deserving of charity than Americans, and several reasons why they may be more deserving.  Recognize that most blacks in this country, even those in the inner-city, would be in the top quintile of wealth in Africa.  So good for Oprah.

Update:  Andrew Coulson of Cato argues that Oprah misdiagnoses the inner city education problem - its not the kids, its the schools.  I would argue its both.  School choice gives kids a chance to attend a better, more stimulating school.  But it also acts as a sorting process, separating kids and parents who want a good education and getting them away from the cancer of kids that don't.  I think Oprah (and Bill Cosby before her) correctly diagnoses that there is certainly a depressing number in the latter category.  However, all that is peripheral.  Oprah does not owe her charity to the US.  Africa is a perfectly reasonable target for her charity (and why does Oprah catch crap for focusing on Africa when no one gives Bono similar grief?)

I still get a lot of email and
commentary on my posts explaining why a trade deficit does not
necessarily result in a build up of debt.  Its a mistake that
protectionists like Lou Dobbs make, either accidentally or on
purpose, to confuse the trade deficit with a debt (Dobbs, in the linked article, claimed that we had $5 Trillion in accumulated trade debt).  In another
attempt to explain this, I want to present a thought experiment.

In our hypothetical, a regular old
American guy named Joe walks into a Wal-Mart to buy new Plasma TV.
Lets assume that Joe is presented with two choices, a Chinese-made TV
and an American-made TV.  The American TV is $2000 and carries a
brand Joe recognizes;  the Chinese TV is $1800 and is a brand Joe
does not recognize.  As far as he can tell, both are featured
similarly.

Joe may choose to take a chance with an
unknown brand to save $200, or he may not.  Let's see what happens
either way.  If Joe picks the Chinese TV over the American TV, the US
trade deficit will likely be worse, by whatever Wal-Mart has to pay
to restock the shelves.  But, while the trade deficit may be worse if
Joe buys Chinese, is there any additional debt created by buying
Chinese rather than American?

Well, Joe doesn't have more or less
personal debt either way.  Whether he is paying with cash or
financing the TV, this decision is unaffected by whether he buys
Chinese or American.  He may happen to buy Chinese and take on debt
to purchase the TV, but the decision to take on debt has nothing to
do with the fact that it is an import.  If he had bought the American
TV, he presumably would have taken on debt for that purchase as well.
In fact, if anything, since the Chinese TV is cheaper, Joe's
personal debt is reduced by buying Chinese over American.

In fact, the only way in which Joe's
personal debt could be said to be increased by Chinese imports is if
the $200 price differential was enough to change his mind from
not-buying a TV to buying one, and he then financed the purchase.
But this is only going to occur in a small percentage of
transactions, and besides, it would be unfair to call something so
empowering "“ ie giving Joe the power to get something he really
wants that he would otherwise been unable to "“ as a negative.
(Update: I do think this is sortof the logic trade opponents
use.  They argue that "rampant consumerism"is causing an increase
in consumer debt which is kindof sortof tied up in some way with this
whole cheap Chinese goods at Wal-Mart thing, so therefore trade
causes debt.  This may sound good rhetorically at an
anti-globalization rally but makes no sense scientifically).

Now let's take Wal-mart.  Assuming they
know how to price items, they will make a gross margin on either the
Chinese or the American TV.  How, then, can having to restock the TV
Joe bought by buying one from an American factory for say $1400
affect Wal-Mart any differently than paying the same (or less) money
to a Chinese company?  The answer is that it has no effect.  Buying
Chinese vs. American has no effect on Wal-Mart's debt.

So let's say Joe bought the Chinese TV,
and the Chinese end up with $1400 (the factory price) in US currency
courtesy of Wal-Mart.  If they don't need anything in the US, they
will trade this currency for yuan to someone in China who does want
to buy something in the US.  Let's assume that these dollars are all
incremental, so none go to buying exports from the US or goods to be
consumed in the US.  Let's assume that it all gets invested as
profits, and further, let's assume that it gets invested 100% in US
debt securities.

Aha!  People want to say to me.  There
is the debt!  Chinese are buying up US bonds.  And so they are.  But
trade did not cause or create the debt.  Just because Chinese trade
dollars are reinvested in debt securities does not mean trade cause
the debt.  In fact, the US government debt would exist with or
without Chinese trade, courtesy of the tax and spend whores of both
parties in the US Congress.  If the Chinese had not bought the debt,
someone else would have, and the debt still would have existed.  In
fact, the US debt would likely have just been a bit larger and a bit
costlier without Chinese buyers to bring down interest rates.

So, to review, an average American
makes an incremental decision to buy Chinese rather than American,
the trade deficit gets worse, but no debt is created.  So I renew my
challenge to Lou Dobbs, who claims America has $5 trillion in trade
debt by asking a simple question:  Where?

Sorry posting has been light this week.  A reader was nice enough to point to the latest rant by Lou Dobbs here.  Apparently, he has decided to take the position that free traders are now elitists, while folks like him who want the government to pick and choose winners among American businesses and industries as "populist."  The obvious response of course is that beneficiaries of American protectionist legislation tend to read as the who's who of politically connected elitists.  It is also hilarious to equate free trade, whose benefits are backed by 100 out of 100 economists, with some irrational faith-based belief system.  But I will leave that aside to point to this line:

He and others completely disregard the $5 trillion in trade debt that
the United States has built up through 30 consecutive years of trade
deficits. That trade debt is rising faster than our national debt and
is simply economically unsustainable, no matter what any faith-based
economist would argue. Our political, business and media elites
continue to disregard reality.

Here is my very, very simple challenge for Lou Dobbs to help those of us who obviously don't get it:  Point to where this $5 Trillion of Debt is.   What private individuals or corporations owe it to whom?  That should be simple.  With the national debt, we can just go out and count all those government bonds.  But where is this trade "debt"?

Answer:  IT DOESN'T EXIST.  What he means is that over some time span of several decades, American has a cumulative trade deficit of $5 trillion.  But trade deficit does not mean debt.  I showed this in great detail here.  Calling it a "trade debt" is not a sloppy mistake on Dobbs part but an outright lie, meant to make the point that running deficits every year is unsustainable.  But America has become the wealthiest country in the world running trade deficits for the majority of the last 100 years.   In fact, one can argue that the trade deficit itself only exists as a phantom of the awkward and limited way in which we measure trade. 

Postscript: I constantly get people who write me that the fact the Chinese are buying up a lot of US government bonds or corporate bonds with their trade profits is proof of a "trade debt."  No such thing.  The US Government bonds are evidence of a fiscal deficit of the federal government, also called the national debt, and exists not because of trade but because Congress has no fiscal discipline.  Corporate debt is growing to buy back stock, make corporate acquisitions, and to buy new plants and facilities.  The fact the Chinese help to fund these debts does not mean that trade caused this debt.  In fact, foreigners buying US debt securities depresses interest rates and actually keeps the national debt lower.

Here is a thought experiment:  Wal-Mart runs a multi-billion dollar trade deficit every year with China.  Why isn't it building up lot's of debt to the Chinese?

I was going to write a Fourth of July post, but it kept looking like my past Memorial Day effort, so, since I am in France and ready to go consume more food, I will take a shortcut this holiday:

Every Memorial Day, I am assaulted with various quotes from people
thanking the military for fighting and dying for our right to vote.  I
would bet that a depressing number of people in this country, when
asked what their most important freedom was, or what made America
great, would answer "the right to vote."

Now, don't get me wrong, the right to vote in a representative
democracy is great and has proven a moderately effective (but not
perfect) check on creeping statism.  A democracy, however, in and of
itself can still be tyrannical.  After all, Hitler was voted into power
in Germany, and without checks, majorities in a democracy would be free
to vote away anything it wanted from the minority - their property,
their liberty, even their life.   Even in the US, majorities vote to curtail the rights of minorities all the time, even when those minorities are not impinging on anyone else.  In the US today, 51% of the population have voted to take money and property of the other 49%.

In my mind, there are at least three founding principles of the
United States that are far more important than the right to vote:

• The Rule of Law.  For about 99% of human
  history, political power has been exercised at the unchecked capricious
  whim of a few individuals.  The great innovation of western countries
  like the US, and before it England and the Netherlands, has been to
  subjugate the power of individuals to the rule of law.  Criminal
  justice, adjudication of disputes, contracts, etc. all operate based on
  a set of laws known to all in advance.

Today the rule of law actually faces a number of threats in this
country.  One of the most important aspects of the rule of law is that
legality (and illegality) can be objectively determined in a repeatable
manner from written and well-understood rules.  Unfortunately, the
massive regulatory and tax code structure in this country have created
a set of rules that are subject to change and interpretation constantly at
the whim of the regulatory body.  Every day, hundreds of people and
companies find themselves facing penalties due to an arbitrary
interpretation of obscure regulations (examples I have seen personally here).

• Sanctity and Protection of Individual Rights.
  Laws, though, can be changed.  In a democracy, with a strong rule of
  law, we could still legally pass a law that said, say, that no one is
  allowed to criticize or hurt the feelings of a white person.  What
  prevents such laws from getting passed (except at major universities)
  is a protection of freedom of speech, or, more broadly, a recognition
  that individuals have certain rights that no law or vote may take
  away.  These rights are typically outlined in a Constitution, but are
  not worth the paper they are written on unless a society has the desire
  and will, not to mention the political processes in place, to protect
  these rights and make the Constitution real.   

Today,
even in the US, we do a pretty mixed job of protecting individual
rights, strongly protecting some (like free speech) while letting
others, such as property rights or freedom of association, slide. 

• Government is our servant.
  The central, really very new concept on which this country was founded
  is that an individual's rights do not flow from government, but are
  inherent to man.  That government in fact only makes sense to the
  extent that it is our servant in the defense of our rights, rather than
  as the vessel from which these rights grudgingly flow.

Statists
of all stripes have tried to challenge this assumption over the last
100 years.   While their exact details have varied, every statist has
tried to create some larger entity to which the individual should be
subjugated:  the Proletariat, the common good, God, the master race.
They all hold in common that the government's job is to sacrifice one
group to another.  A common approach among modern statists is to create
a myriad of new non-rights to dilute and replace our fundamental rights
as individuals.  These new non-rights, such as the "right" to health
care, a job, education, or even recreation, for god sakes, are
meaningless in a free society, as they can't exist unless one
person is harnessed involuntarily to provide them to another person.
These non-rights are the exact opposite of freedom, and in fact require
enslavement and sacrifice of one group to another.

Don't believe that this is what statists are working for? The other day I saw this quote from the increasingly insane Lou Dobbs (Did you ever suspect that Lou got pulled into a room a while back by some strange power broker as did Howard Beale in Network?):

Our population explosion not only detracts from our quality of life but
threatens our liberties and freedom as well. As Cornell's Pimentel puts
it, "Back when we had, say, 100 million people in the U.S., when I
voted, I was one of 100 million people. Today, I am one of 285 million
people, so my vote and impact decreases with the increase in the
population." Pimentel adds, "So our freedoms also go down the drain."

What??
In a society with a rule of law protecting individual rights, how does
having a diluted vote reduce your freedom?  The only way it does, and therefore what must be in the author's head, is if
one looks at government as a statist tug of war, with various parties
jockeying for a majority so they can plunder the minority.  But in this
case, freedom and rule of law are already dead, so what does a
dilution of vote matter?  He is arguing that dilution of political
power reduces freedom -- this country was rightly founded on just the
opposite notion, that freedom requires a dilution of political power.

At the end of the day, our freedoms in this country will only last
so long as we as a nation continue to hold to the principle that our
rights as individuals are our own, and the government's job is to
protect them, not to ration them.  Without this common belief, all the
other institutions we have discussed, from voting to the rule of law to
the Constitution, can be subverted in time.

So to America's soldiers, thank you.  Thank you for protecting this
fragile and historically unique notion that men and women own
themselves and their lives.

Every Memorial Day, I am assaulted with various quotes from people thanking the military for fighting and dying for our right to vote.  I would bet that a depressing number of people in this country, when asked what their most important freedom was, or what made America great, would answer "the right to vote."

Now, don't get me wrong, the right to vote in a representative democracy is great and has proven a moderately effective (but not perfect) check on creeping statism.  A democracy, however, in and of itself can still be tyrannical.  After all, Hitler was voted into power in Germany, and without checks, majorities in a democracy would be free to vote away anything it wanted from the minority - their property, their liberty, even their life.   Even in the US, majorities vote to curtail the rights of minorities all the time, even when those minorities are not impinging on anyone else.  In the US today, 51% of the population have voted to take money and property of the other 49%.

In my mind, there are at least three founding principles of the United States that are far more important than the right to vote:

• The Rule of Law. For about 99% of human history, political power has been exercised at the unchecked capricious whim of a few individuals.  The great innovation of western countries like the US, and before it England and the Netherlands, has been to subjugate the power of individuals to the rule of law.  Criminal justice, adjudication of disputes, contracts, etc. all operate based on a set of laws known to all in advance.

Today the rule of law actually faces a number of threats in this country.  One of the most important aspects of the rule of law is that legality (and illegality) can be objectively determined in a repeatable
manner from written and well-understood rules.  Unfortunately, the massive regulatory and tax code structure in this country have created a set of rules that are subject to change and interpretation constantly at the whim of the regulatory body.  Every day, hundreds of people and companies find themselves facing penalties due to an arbitrary interpretation of obscure regulations (examples I have seen personally here).

• Sanctity and Protection of Individual Rights.  Laws, though, can be changed.  In a democracy, with a strong rule of law, we could still legally pass a law that said, say, that no one is allowed to criticize or hurt the feelings of a white person.  What prevents such laws from getting passed (except at major universities) is a protection of freedom of speech, or, more broadly, a recognition that individuals have certain rights that no law or vote may take away.  These rights are typically outlined in a Constitution, but are not worth the paper they are written on unless a society has the desire and will, not to mention the political processes in place, to protect these rights and make the Constitution real.

Today, even in the US, we do a pretty mixed job of protecting individual rights, strongly protecting some (like free speech) while letting others, such as property rights or freedom of association, slide.

• Government is our servant.  The central, really very new concept on which this country was founded is that an individual's rights do not flow from government, but are inherent to man.  That government in fact only makes sense to the extent that it is our servant in the defense of our rights, rather than as the vessel from which these rights grudgingly flow.

Statists of all stripes have tried to challenge this assumption over the last 100 years.   While their exact details have varied, every statist has tried to create some larger entity to which the individual should be subjugated:  the Proletariat, the common good, God, the master race.  They all hold in common that the government's job is to sacrifice one group to another.  A common approach among modern statists is to create a myriad of new non-rights to dilute and replace our fundamental rights as individuals.  These new non-rights, such as the "right" to health care, a job, education, or even recreation, for god sakes, are meaningless in a free society, as they can't exist unless one
person is harnessed involuntarily to provide them to another person.
These non-rights are the exact opposite of freedom, and in fact require
enslavement and sacrifice of one group to another.

Don't believe that this is what statists are working for? The other day I saw this quote from the increasingly insane Lou Dobbs (Did you ever suspect that Lou got pulled into a room a while back by some strange power broker as did Howard Beale in Network?):

Our population explosion not only detracts from our quality of life but threatens our liberties and freedom as well. As Cornell's Pimentel puts it, "Back when we had, say, 100 million people in the U.S., when I voted, I was one of 100 million people. Today, I am one of 285 million people, so my vote and impact decreases with the increase in the population." Pimentel adds, "So our freedoms also go down the drain."

What??

In a society with a rule of law protecting individual rights, how does having a diluted vote reduce your freedom?  The only way it does, and therefore what must be in the author's head, is if one looks at government as a statist tug of war, with various parties jockeying for a majority so they can plunder the minority.  But in this case, freedom and rule of law are already dead, so what does a dilution of vote matter?  He is arguing that dilution of political power reduces freedom -- this country was rightly founded on just the opposite notion, that freedom requires a dilution of political power.

At the end of the day, our freedoms in this country will only last so long as we as a nation continue to hold to the principle that our rights as individuals are our own, and the government's job is to protect them, not to ration them.  Without this common belief, all the other institutions we have discussed, from voting to the rule of law to the Constitution, can be subverted in time.

So to America's soldiers, thank you.  Thank you for protecting this fragile and historically unique notion that men and women own themselves and their lives.