Friday, March 08, 2002
Regarding Textile protection, we all know that Pakistan was critical to the successful prosecution of the war in Afghanistan. They've asked that, in response to their efforts on our behalf, we open up our textile market to Pakistani product (which is Pakistan's biggest export, accounting for 2.2 billion to the US alone). We have yet to respond to that request, largely due to the fact that textiles are one of those "sensitive" areas of our economy (I've even heard some people try to claim that we need a domestic textile industry in order to make military uniforms. Can't have our soldiers going out to fight terrorists naked).
The more I think about it, the more I am of the conclusion that the BEST way to protect ourselves from terrorists is to remove the desperation that makes people more susceptible to recruitment by terrorist organizations. The best way to do that is to help those nations become economically developed. Pakistan is a nation where only 5% of the population, in a recent Gallup poll, spoke favorably of the United States. They are also the nation that provided the most support for the Taliban, as they were one of only two nations in the world that recognized them as the legitimate government of Afghanistan. Anything we can do to help change minds in Pakistan will help us, and trade seems the simplest way to change minds.
Trade results in cultural exchanges between nations. Nations who trade heavily with each other are much less likely to do anything that would harm their trading partner, as such harm would inevitably come back to harm them. If we truly want to change minds in the Arab world, we can start by showing that we care about their economic well being. We will help them to develop industries which provide sustainable employment by simply BUYING their products. Heck, we're good at buying stuff. We just bought ourselves out of a recession. How about letting the American people buy themselves out of the risk of terrorist attack?
For a good article on the subject, see this October article on the subject.
The more I think about it, the more I am of the conclusion that the BEST way to protect ourselves from terrorists is to remove the desperation that makes people more susceptible to recruitment by terrorist organizations. The best way to do that is to help those nations become economically developed. Pakistan is a nation where only 5% of the population, in a recent Gallup poll, spoke favorably of the United States. They are also the nation that provided the most support for the Taliban, as they were one of only two nations in the world that recognized them as the legitimate government of Afghanistan. Anything we can do to help change minds in Pakistan will help us, and trade seems the simplest way to change minds.
Trade results in cultural exchanges between nations. Nations who trade heavily with each other are much less likely to do anything that would harm their trading partner, as such harm would inevitably come back to harm them. If we truly want to change minds in the Arab world, we can start by showing that we care about their economic well being. We will help them to develop industries which provide sustainable employment by simply BUYING their products. Heck, we're good at buying stuff. We just bought ourselves out of a recession. How about letting the American people buy themselves out of the risk of terrorist attack?
For a good article on the subject, see this October article on the subject.
It seems Sept. 11th is being used to justify an increasingly restrictive economic environment. The US Department of Defense is considering a policy wherein foreign national would not be allowed to work on DOD IT projects, even projects that deal only with unclassified data. This will have a negative effect on the hiring of foreign workers in IT, as many are hired by consulting and contracting firms. The US government is one of the largest customers for many consulting firms, which means that consulting firms will have less of an incentive to hire foreign workers.
Protecting labor from international competition has the same effect as protecting companies. You end up with a labor force which is less proficient, as well as force companies dependent on IT labor to pay more for it. America can't forget that it is poor immigrants who led to America having the largest and most vibrant economy in the world.
The question should be one of skill. If a foreign worker can do the job better than a domestic worker, then why shouldn't they have the right to do the job? People seem to think economic rules are different when you step outside national borders. They aren't. If you want an efficient economy, you need to have an efficient allocation of labor resources. Even IT workers in Bangalore get something like 45,000 USD at current exchange rates, and that's for living in India where the cost of living is much lower. Most IT workers need to be close to the companies who need them, which means they will have the same cost of living as American workers. Granted, the pool of available IT workers goes up which can lead to downward pressure on wages, but keep in mind that we STILL have an IT worker deficit in the United States. Our success at filling that deficit is one of the things that keeps America's engine of economic growth purring.
Don't let narrow interests use Sept. 11th to justify protectionism. Freedom matters from a personal standpoint as much as an economic one.
Protecting labor from international competition has the same effect as protecting companies. You end up with a labor force which is less proficient, as well as force companies dependent on IT labor to pay more for it. America can't forget that it is poor immigrants who led to America having the largest and most vibrant economy in the world.
The question should be one of skill. If a foreign worker can do the job better than a domestic worker, then why shouldn't they have the right to do the job? People seem to think economic rules are different when you step outside national borders. They aren't. If you want an efficient economy, you need to have an efficient allocation of labor resources. Even IT workers in Bangalore get something like 45,000 USD at current exchange rates, and that's for living in India where the cost of living is much lower. Most IT workers need to be close to the companies who need them, which means they will have the same cost of living as American workers. Granted, the pool of available IT workers goes up which can lead to downward pressure on wages, but keep in mind that we STILL have an IT worker deficit in the United States. Our success at filling that deficit is one of the things that keeps America's engine of economic growth purring.
Don't let narrow interests use Sept. 11th to justify protectionism. Freedom matters from a personal standpoint as much as an economic one.
I have an article on ZDNet which you can find here. I talk about why consumers benefit from the standard defined by Windows, and why the DOJ's settlement does a better job of ensuring that consumers continue to benefit from those standards.
I also have written a longer article defending the DOJ's settlement with Microsoft, which you can find here.
I also have written a longer article defending the DOJ's settlement with Microsoft, which you can find here.
I'm hoping that the HP/Compaq merger goes through. That's certainly runs counter to what the "conventional wisdom" regarding the merger currently is, but that seems typical of me lately. The griping about all the problems related to the merger strikes me as a bunch of armchair quarterbacks lecturing the professional how he SHOULD have executed on a particular play.
The fact of the matter is, no one knows their respective businesses as well as the management team at HP and Compaq. This merger may in the end be a BAD idea, but I think it's worth letting the parties involved to at least try to make it work. Right now, both HP and Compaq aren't really leading the industry in any spectacular way. SOMETHING must be done different if they want to regain the industry leadership they once had. "Doing things the HP way" might have worked thirty years ago, but it's not working as well now.
Ms. Fiorina deserves the chance to find out whether she's right about this merger. Compaq absorbed Digital years back, which in the end turned out to be a bad merger. Still, there wasn't quite the hue and cry that the HP/Compaq merger seems to be creating in the popular press. I'm only left wondering if all this nonsense isn't a result of the fact that HP's Fiorina is female. If Lou Gerstner (IBM's former CEO and male, at least as far as I know) had been the originator of this merger proposal, would the popular press (or Walter Hewlett) been quite so strident in their opposition?
I'm somewhat surprised that so many investors are seriously considering opposing this merger. Has any of them seriously considered the fallout should this merger fail? They've spent a year and hundreds of millions preparing for this merger. If it fails, they have to start from scratch and rethink their business plan, not to mention write off those hundreds of millions. That should cause some serious downward pressure on HP and Compaq stock, an event which will drive them ever further behind in the market. Is that what investors really want?
The fact of the matter is, no one knows their respective businesses as well as the management team at HP and Compaq. This merger may in the end be a BAD idea, but I think it's worth letting the parties involved to at least try to make it work. Right now, both HP and Compaq aren't really leading the industry in any spectacular way. SOMETHING must be done different if they want to regain the industry leadership they once had. "Doing things the HP way" might have worked thirty years ago, but it's not working as well now.
Ms. Fiorina deserves the chance to find out whether she's right about this merger. Compaq absorbed Digital years back, which in the end turned out to be a bad merger. Still, there wasn't quite the hue and cry that the HP/Compaq merger seems to be creating in the popular press. I'm only left wondering if all this nonsense isn't a result of the fact that HP's Fiorina is female. If Lou Gerstner (IBM's former CEO and male, at least as far as I know) had been the originator of this merger proposal, would the popular press (or Walter Hewlett) been quite so strident in their opposition?
I'm somewhat surprised that so many investors are seriously considering opposing this merger. Has any of them seriously considered the fallout should this merger fail? They've spent a year and hundreds of millions preparing for this merger. If it fails, they have to start from scratch and rethink their business plan, not to mention write off those hundreds of millions. That should cause some serious downward pressure on HP and Compaq stock, an event which will drive them ever further behind in the market. Is that what investors really want?
Some see Bush's caving in to narrow steel-producing interests as a means by which to ensure the renewal of fast track negotiating authority. Fast track is even more important than the economic damage which will result from the decision to place import tariffs on steel. Fast track is necessary if Bush is to negotiate freer trade in the next round of global trade talks. Likewise, if we are ever to extend the success of NAFTA into the rest of the Western hemisphere, Bush needs the ability to negotiate without having the product of those negotiations pulled apart by congressional addendums and revisions. Foreign countries want to know that what is negotiated with the president is what congress will eventually approve, and without fast track, they have no such assurance.
Fast track is even more important after September 11th. One of the biggest complaints among third world members of the WTO is the exemption which exists for agricultural products and textiles. Agriculture and textiles just so happen to be a large component of third world economies, and are highly protected and politically sensitive markets in rich countries. Third world nations see these exemptions as a means by which rich nations open up third world nations to rich nation products but fail to reciprocate by opening up rich nation markets to third world products. They're right, of course. We enrich farmers and textile manufacturers in rich nations at the expense of poor workers in third world economies, which would be ironic if it wasn't so cruel. This is bad economics, and worse, unethical.
The problem is that congressman HATE to make the hard decisions. It's hard for them to make the right choice when they have constituents screaming at them to do what is bad for the country. It's much easier if those congressman can claim that their hands are tied by fast track.
Fast track negotiating authority has already been approved in the House of Representatives, but is being held up in the Senate. If the result of satisfying senators with large steel constituencies is their vote for fast track, there MAY be some utility in Bush's recent decision. If not, however, there is very little to recommend in a decision to place a tax on 15% of the US economy (those that use steel) and deteriorate our free trade credentials.
Fast track is even more important after September 11th. One of the biggest complaints among third world members of the WTO is the exemption which exists for agricultural products and textiles. Agriculture and textiles just so happen to be a large component of third world economies, and are highly protected and politically sensitive markets in rich countries. Third world nations see these exemptions as a means by which rich nations open up third world nations to rich nation products but fail to reciprocate by opening up rich nation markets to third world products. They're right, of course. We enrich farmers and textile manufacturers in rich nations at the expense of poor workers in third world economies, which would be ironic if it wasn't so cruel. This is bad economics, and worse, unethical.
The problem is that congressman HATE to make the hard decisions. It's hard for them to make the right choice when they have constituents screaming at them to do what is bad for the country. It's much easier if those congressman can claim that their hands are tied by fast track.
Fast track negotiating authority has already been approved in the House of Representatives, but is being held up in the Senate. If the result of satisfying senators with large steel constituencies is their vote for fast track, there MAY be some utility in Bush's recent decision. If not, however, there is very little to recommend in a decision to place a tax on 15% of the US economy (those that use steel) and deteriorate our free trade credentials.
Thursday, March 07, 2002
Interesting article on the economic problems associated with protection of the steel industry.
Interesting quote from the previously referenced article:
Steel users employ 57 workers for every one employed in steel production. Steel users account for 13.1 percent of gross domestic product (GDP), while steel producers account for only 0.5 percent. Yet responding to steel producers’ self-inflicted problems with more protectionism will only saddle downstream steel-using industries with price hikes and supply shortages that handicap them vis-à-vis their international competitors. It is bad enough to punish one sector for the failures of another; it is downright foolish, though, to do so when the punished sector is of overwhelmingly greater economic significance.
Interesting quote from the previously referenced article:
Steel users employ 57 workers for every one employed in steel production. Steel users account for 13.1 percent of gross domestic product (GDP), while steel producers account for only 0.5 percent. Yet responding to steel producers’ self-inflicted problems with more protectionism will only saddle downstream steel-using industries with price hikes and supply shortages that handicap them vis-à-vis their international competitors. It is bad enough to punish one sector for the failures of another; it is downright foolish, though, to do so when the punished sector is of overwhelmingly greater economic significance.
Wednesday, March 06, 2002
Here's a sign that our security precautions might be getting a little out of hand. Granted, I understand completely why we need more security at airports. However, evacuating an airport and forcing a plane already in the air to return so that the passengers can be rescanned because a pair of scissors had been found in the ladies room trash seems a bit much.
Seriously, how many people these days would allow some idiot to take over a plane with little more than a sharp instrument? Not many, I would imagine, knowing what we know now. I'm more worried about shoe bombs a la Richard Reid than passengers ever again allowing men with box cutters to hijack a plane.
Seriously, how many people these days would allow some idiot to take over a plane with little more than a sharp instrument? Not many, I would imagine, knowing what we know now. I'm more worried about shoe bombs a la Richard Reid than passengers ever again allowing men with box cutters to hijack a plane.
President Bush has decided to impose tariffs on steel imports. As the article I linked to shows, one questions how useful such an action will truly be given how badly it has annoyed our trading partners. Lord knows why creating conflict with our partners in the midst of war on terrorism makes any sense, but from a political standpoint, it satisfies certain narrow interests in the run up to elections this November.
Import duties on steel are a bad idea for a number of pragmatic reasons. First, rest assured that our trading partners will retaliate with import duties of their own, costing other American companies that have nothing to do with steel. Second, those same trading partners will surely file a case against us with the WTO, which WILL rule against us, adding to the string of cases we have lost in the WTO and undermining our credibility in international trade negotiations. Third, within the United States, companies that depend on steel as an input will have to pay more to support what is, in essence, an indirect subsidy to the American steel industry. Fourth, steel companies will have less incentive to restructure, leading to an industry that will remain on life support for the forseeable future (as is always the case with protected industries).
America used to be the torch bearer for the expansion of free trade. One would think that the collapse of socialist economies around the world would have made clear the merits of trusting the wisdom of free individuals in market economies. Instead, we have boosted antitrust enforcement, stalled the approval of fast track negotiating authority, insisted on the addition of labor and environmental restrictions to future WTO negotiations, and used with increasing frequency the WTO "anti-dumping" back door to protect American industries from the rigors of open competition.
We've forgotten what it was that made America the richest nation in the world. If the attacks on America should tell us anything, it is that freedom has ethical AND practical benefits. America is affluent and the Islamic world is not because we believe in freedom, and they don't. That freedom is expressed in the right to buy what we want and sell what we want without the interference of a government which tries to tell us what we should buy or sell. As it turns out, free people build more efficient and prosperous economies.
Politics is NEVER an excuse to do the wrong thing for the nation. If the price of politics is a deterioration of our nation's credibility as a champion of free markets, that is too high a price to pay.
Import duties on steel are a bad idea for a number of pragmatic reasons. First, rest assured that our trading partners will retaliate with import duties of their own, costing other American companies that have nothing to do with steel. Second, those same trading partners will surely file a case against us with the WTO, which WILL rule against us, adding to the string of cases we have lost in the WTO and undermining our credibility in international trade negotiations. Third, within the United States, companies that depend on steel as an input will have to pay more to support what is, in essence, an indirect subsidy to the American steel industry. Fourth, steel companies will have less incentive to restructure, leading to an industry that will remain on life support for the forseeable future (as is always the case with protected industries).
America used to be the torch bearer for the expansion of free trade. One would think that the collapse of socialist economies around the world would have made clear the merits of trusting the wisdom of free individuals in market economies. Instead, we have boosted antitrust enforcement, stalled the approval of fast track negotiating authority, insisted on the addition of labor and environmental restrictions to future WTO negotiations, and used with increasing frequency the WTO "anti-dumping" back door to protect American industries from the rigors of open competition.
We've forgotten what it was that made America the richest nation in the world. If the attacks on America should tell us anything, it is that freedom has ethical AND practical benefits. America is affluent and the Islamic world is not because we believe in freedom, and they don't. That freedom is expressed in the right to buy what we want and sell what we want without the interference of a government which tries to tell us what we should buy or sell. As it turns out, free people build more efficient and prosperous economies.
Politics is NEVER an excuse to do the wrong thing for the nation. If the price of politics is a deterioration of our nation's credibility as a champion of free markets, that is too high a price to pay.
Sometimes I wonder if the religious conservatives who seem to control the Republican party these days are suicidally stupid. I base that conclusion on Richard Riordan's failure to claim the Republican nomination for the governor's race. Richard Riordan's only crime appears to be that he supports gun control, abortion rights and gay rights. Those are big no-nos for the conservative fringe of the Republic party, and in response to 8 million spent by the DEMOCRATIC nominee (the current governor of California, Gray Davis), duly voted him down.
Bill Simon now stands to lose, and lose badly, to the incumbent Mr. Davis (which is why he spent 8 million making sure Riordan didn't get the nomination). He will lose, because religious conservatives don't typify your average California voter. That's a shame, because governor Gray Davis is just about the worst governor California has had in a long time.
Consider his handling of the California energy crisis. He completely ignored the cause of the energy crisis, which was a half-baked privatization scheme that freed wholesale energy prices but fixed the price paid by consumers at a low rate. This destroyed profits for the newly "privatized" utilities and removed any incentive for them to invest in new production capacity. Instead, Davis chose to blame "greedy energy wholesalers", the US government (for not fixing wholesale prices to save governor Davis, er, California), and ANYONE but the California legislature which caused the problem in the first place. This was a textbook case of government management of the economy leading to inefficiences and failure.
Governor Davis' chose to browbeat outside energy wholesalers for "not being good citizens" for charging the market-clearing price (he also negotiated long-term contracts at the start of the energy crisis which locked in high energy wholesale prices, which just goes to show why bureaucrats make poor replacement for professionals with an understanding of the market). That is the kind of thinking that got California into its energy mess in the first place. Price controls DO NOT WORK and have NEVER worked. Better to let the high profits generated by wholesalers create an incentive for newcomers to spend the money to compete with them. Profits attract competition. That is, and has ALWAYS been, the way the free market works.
Richard Riordan would have understood that. He ran on a platform of things that matter. Bill Simon ran on a special-interest platform. It's frightening to think that enough people care about little else besides their narrow pet interests that he would win the nomination.
Bill Simon now stands to lose, and lose badly, to the incumbent Mr. Davis (which is why he spent 8 million making sure Riordan didn't get the nomination). He will lose, because religious conservatives don't typify your average California voter. That's a shame, because governor Gray Davis is just about the worst governor California has had in a long time.
Consider his handling of the California energy crisis. He completely ignored the cause of the energy crisis, which was a half-baked privatization scheme that freed wholesale energy prices but fixed the price paid by consumers at a low rate. This destroyed profits for the newly "privatized" utilities and removed any incentive for them to invest in new production capacity. Instead, Davis chose to blame "greedy energy wholesalers", the US government (for not fixing wholesale prices to save governor Davis, er, California), and ANYONE but the California legislature which caused the problem in the first place. This was a textbook case of government management of the economy leading to inefficiences and failure.
Governor Davis' chose to browbeat outside energy wholesalers for "not being good citizens" for charging the market-clearing price (he also negotiated long-term contracts at the start of the energy crisis which locked in high energy wholesale prices, which just goes to show why bureaucrats make poor replacement for professionals with an understanding of the market). That is the kind of thinking that got California into its energy mess in the first place. Price controls DO NOT WORK and have NEVER worked. Better to let the high profits generated by wholesalers create an incentive for newcomers to spend the money to compete with them. Profits attract competition. That is, and has ALWAYS been, the way the free market works.
Richard Riordan would have understood that. He ran on a platform of things that matter. Bill Simon ran on a special-interest platform. It's frightening to think that enough people care about little else besides their narrow pet interests that he would win the nomination.
Monday, March 04, 2002
President Bush needs to admit that he has no coherent policy with respect to the Israeli/Palestinian situation rather than undermining through apathy the peace initiative proposed by the Saudis. The Bush administration's rather tired refrain has been that Arafat needs to do more to rein in Palestinian terrorists. This ignores, of course, how little control Arafat has over his own people after a decade without managing a peace agreement with Israel, and the lack of credibility which results from Israeli soldiers who regularly bulldoze houses in the occupied territories or kill Palestinians at checkpoints. Sharon's tactics have changed little since as Defence Minister he oversaw the invasion of Lebanon in 1982 (which lead to the massacres at the Sabra and Shatila refugee camps, and Sharon’s removal in 1983). He believed that a military solution to the Palestinian question worked then, and still believes it today.
Mr. Sharon, unfortunately, viewed America’s response to the attacks of Sept. 11th as granting implicit support to an increased military offensive against Palestinian terrorists. Bush seems to have agreed, though one questions how well thought out that response has been given how short a time Admiral Zinni (Bush’s peace envoy) spent in the middle east and how little Bush speaks about the situation in Israel. There is NO COMPARISON between the attacks of Sept. 11th and Israel’s military offensive against the Palestinians. The Palestinians are, essentially, an occupied people, and like occupied people in other areas of the world (Algeria, Vietnam (under the French), India, etc), will respond as such.
President Bush needs to consider why past attempts at peace failed. Much of that failure was due to the fact that Arafat negotiates from a position of powerlessness. It is RIGHT for him to expect a territorially intact Palestinian homeland, one free of Jewish "settlers" or checkpoints which chop the territories into a patchwork quilt. Unfortunately, Arafat has zero leverage to make that happen.
The Saudi proposal is a great idea at a number of levels. First, it provides Arafat the bargaining chip (peace between Israel and the entire Middle East) he needs to extract the concessions the Palestinian people deserve. Second, the idea comes from the Saudis, which gives it a much better chance of acceptance in an area which, however unfairly, views America as their enemy. Third, it provides America the chance to show support for an Arab initiative, which is important given America's track record of rubber stamping Israel's position at the UN. Fourth, it comes at a "good" time, if you define "good" as being a point at which Palestinians and Israelis are so desperate to end the violence that they are willing to make the hard concessions (including on the Palestinian side, who ought to trade control over Jerusalem for an intact Palestinian homeland).
With a Democratic party doing everything in their power to erode support for a popular Republican president in preparation for elections this Fall, President Bush's reluctance to state that someone else (particularly Saudi Arabia) has a better idea may make sense. It only makes sense, however, if politics trumps statesmanship. It's hard to view the Saudi proposal as a "bad" idea, unless you happen to be someone who sees value in Israeli control over the occupied territories. The Palestinians deserve a homeland under their control as much as the current generation of Israelis, most of whom were born in Israel, have to theirs.
Mr. Sharon, unfortunately, viewed America’s response to the attacks of Sept. 11th as granting implicit support to an increased military offensive against Palestinian terrorists. Bush seems to have agreed, though one questions how well thought out that response has been given how short a time Admiral Zinni (Bush’s peace envoy) spent in the middle east and how little Bush speaks about the situation in Israel. There is NO COMPARISON between the attacks of Sept. 11th and Israel’s military offensive against the Palestinians. The Palestinians are, essentially, an occupied people, and like occupied people in other areas of the world (Algeria, Vietnam (under the French), India, etc), will respond as such.
President Bush needs to consider why past attempts at peace failed. Much of that failure was due to the fact that Arafat negotiates from a position of powerlessness. It is RIGHT for him to expect a territorially intact Palestinian homeland, one free of Jewish "settlers" or checkpoints which chop the territories into a patchwork quilt. Unfortunately, Arafat has zero leverage to make that happen.
The Saudi proposal is a great idea at a number of levels. First, it provides Arafat the bargaining chip (peace between Israel and the entire Middle East) he needs to extract the concessions the Palestinian people deserve. Second, the idea comes from the Saudis, which gives it a much better chance of acceptance in an area which, however unfairly, views America as their enemy. Third, it provides America the chance to show support for an Arab initiative, which is important given America's track record of rubber stamping Israel's position at the UN. Fourth, it comes at a "good" time, if you define "good" as being a point at which Palestinians and Israelis are so desperate to end the violence that they are willing to make the hard concessions (including on the Palestinian side, who ought to trade control over Jerusalem for an intact Palestinian homeland).
With a Democratic party doing everything in their power to erode support for a popular Republican president in preparation for elections this Fall, President Bush's reluctance to state that someone else (particularly Saudi Arabia) has a better idea may make sense. It only makes sense, however, if politics trumps statesmanship. It's hard to view the Saudi proposal as a "bad" idea, unless you happen to be someone who sees value in Israeli control over the occupied territories. The Palestinians deserve a homeland under their control as much as the current generation of Israelis, most of whom were born in Israel, have to theirs.
