Gas Expands!

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An amazing and welcome development has been achieved. As the Wall Street Journal just reported, for the first time in six decades, America exported more natural gas than it imported. It has once again become a net exporter of natural gas, and this new export sector will grow rapidly.

The net export volume is starting modestly: in November we exported 7.4 billion cubic feet (BCF) per day, while still importing 7.0 BCF per day. But no one doubts that from this modest start the volume of exports will grow. American gas exports have gone up by 50% over the past six years, and the Energy Department projects that we will be the third-largest exporter of liquefied natural gas (LNG) by 2020 — behind only Australia and Qatar. Citigroup estimates that by 2020 the US will be supplying to the rest of the world about 20% of the natural gas it produces.

No one doubts that from this modest start the volume of natural gas exports will grow.

To cite one example of success: Cheniere Energy opened a facility in the Sabine Pass (on the border of Texas and Louisiana). It was originally intended to import LNG, but the fracking revolution so decreased the price of natural gas that the plant was quickly “reverse-designed” to export it. Since February, when the plant started shipments of LNG, its output has grown to an average of 1.5 BCF exported per day. Not surprisingly, Cheniere is expanding the Sabine Pass plant rapidly, and will open more export facilities over the next two years.

Three years ago, the Freeport LNG facility at Quintana Island, Texas, got approval to export LNG, and it will begin exporting massive quantities of LNG in two years. Next year, Dominion Resources will start exporting LNG to India and Japan.

The only way this US export industry won’t grow is if the government — intentionally or by simple bungling — stops it.

So this trend toward America becoming the dominant reliable supplier of LNG for the whole damn planet will not just continue — it will accelerate. Thank you again, free market: remarkably shrewd private individuals, acting primarily out of self-interest, came up with a way — fracking — to make domestic oil and natural gas plentiful again, and plentiful indefinitely. Government subsidized losers — technologies such as wind and solar energy — but the free market found the efficient answer.

In fact, the only way this US export industry won’t grow is if the government — intentionally or by simple bungling — stops it. The progressive liberal Democrats hate fracking, of course. Obama did everything he could to impede it — such as taking an unprecedented amount of land out of public use — although most of the land upon which fracking operations are happening is private. Hillary Clinton repeatedly stated her total opposition to fracking (not to mention coal), which likely was a major factor in her ignominious loss to Donald Trump.

Speaking of Trump, he may ironically set back the natural gas export boom brought by fracking. For while he certainly claims to support it, the largest customers of our natural gas are, outside of ourselves, our NAFTA partners, Canada and Mexico. Together they are buying a record high of our total output. But Trump — a populist to the core — hates free trade, and has targeted NAFTA as a “bad deal” for America. His bungling trade policy could well get us into trade wars with the very countries that could become our biggest future energy export markets.




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The Space Aliens Have Finally Come

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Movie reviews took a back seat at Liberty while the election dominated our pages. This was the most divisive election in recent history, with three flawed candidates being nominated by the three major parties. (Yes, I consider the LP a major party at this point, even if the chance of winning is still nonexistent.) The divisiveness only worsened after the surprise election of Donald Trump, with protests that quickly escalated into riots and derisive epithets of “Racist! Homophobe! Sexist!” that escalated into accusations (sometimes false) of personal attacks. College students, whimpering and wailing, were issued blankets, tissues, and even puppies by administrators more anxious to comfort their fears than to teach them how to cope with disappointment.

Sheesh.

As I decided to write my first review for Liberty in over a month, I wondered: which current film would provide the best opportunity to address these issues? Arrival seemed like a sure bet.

Most of us want to be kind, but we also want to know, “Why are they here?”

In this movie, 12 alien spacecraft enter the earth’s atmosphere and hover above locations around the globe, virtually knocking at the door and asking to be let in. But what is their purpose? Do they come in peace, or as galactic imperialists? That’s the question asked in every alien-oriented movie, and it was the key issue that drove Trump’s rise to the presidency. Do we build a wall — a yuge wall — to keep everyone out (at least until a thorough vetting has been performed), or do we open the doors and admit workers from Mexico, refugees from Syria, boat-people from southeast Asia, and anyone else who wants to come in? Most of us want to be kind, but we also want to know, “Why are they here?” Fittingly, that is the tagline of Arrival.

The opening moments of the film reinforced my intent to write a timely political review. I like the fact that the writers chose the neutral term “arrival” rather than the usual “invasion.” People react to the arrival of the alien ships with stunned silence and disbelief, followed by newscasters reporting riots, looting, and school closings — reminding me of what was happening not far from my movie theater in New York City. Our main character even references Fox News Channel while trying to calm her hysterical mother, saying, “Why are you watching that channel? How many times have I told you not to listen to those idiots?” She also admits to strategic lying in order to get her way: “The story isn’t true, but it proves my point, “ she mutters her sly justification.

But, as so often happens when I come to a movie already thinking about how I’m going to write my review, I soon let go of my preconceived plan and let the actual film envelop me. The film is slow for the alien invasion genre, more Close Encounters of the Third Kind than Independence Day. Leaders in the 12 nations where the spacecraft are hovering do bring in their military, but they do so cautiously. They have learned to be wary of Greeks bearing gifts, but they won’t slam the gates or start shooting the arrows until they’ve seen what’s inside this Trojan horse. What is the purpose of these uninvited arrivals?

Tension develops not so much from fear of attack as from an agonizing slowness that affects our perception of time; unnatural gravity that affects our perception of nature; a 60-beat, pulsating percussion that affects our perception of the aliens; and discordant, dissonant music that simply grates on our nerves.

People react to the arrival of the alien ships with stunned silence and disbelief, followed by newscasters reporting riots, looting, and school closings — reminding me of what was happening not far from my movie theater.

Louise Banks (Amy Adams), a respected linguist, and Ian Donnelly (Jeremy Renner), a first-rate mathematician, are called in to see whether they can communicate with the beings. An academic argument ensues over which is the core of civilization, language or math, but the film does not ask us to endure a cutesy, hormone-driven competition between the two attractive academicians. This is serious business, and they are serious partners in their mission to discover why the aliens have come and whether their intent is peaceful.

Guided by thoughts of her daughter’s birth and childhood, Louise turns to such non-verbal communications as touch, eye contact, body language, and facial expressions as she and Ian work out the “Heptoid” vocabulary. She points out the ambiguity inherent in words, and the consequent importance of understanding context in order to discover intent. “The Sanskrit word for war,” she offers as an example, “is desire for more cows.” Soldiers and bullets, she suggests, are a symptom of war, not the definition of it. I couldn’t help but think of the quote attributed to Frederic Bastiat: “When goods don’t cross borders, soldiers will.” And I again thought of our president-elect and his misguided determination to limit international trade.

For a film about language and communication, there is surprisingly little dialogue. Instead, the actors are asked to communicate their thoughts and emotions to the audience in the way their characters are communicating with the aliens — through body language, movement, and facial expressions. Director Denis Villeneuve couldn’t have asked for a better actress for this task than the brilliantly talented Amy Adams. She approaches the aliens with the same wonder and engagement as she expresses in her interactions with the daughter of her thoughts. We know how she feels about language, and about these aliens, because we know what it’s like to interact with a baby or a child. Language becomes a tool and an emotion. Linguistics become exciting and engaging. And the denouement of the film is wondrous because of all this.

This is a film that surprises you with unexpected stillness, unexpected wonder, unexpected fulfillment. It asks us to embrace life, even when it includes inevitable trauma or sorrow. In the end, I discovered, it is the right film for right now. But not for the reasons I expected. Go see it before you hear any more about it.


Editor's Note: Review of "Arrival," directed by Denis Villeneuve. 21 Laps Entertainment / FilmNation Entertainment, 2016, 115 minutes.



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Ideas Have Consequences

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It probably couldn’t be any worse. The current presidential candidates are about as bad as bad can be.

Just look at them.

  • Ted Cruz, who called a press conference to say that he would not “copulate” with a rat like Donald Trump.
  • Donald Trump, who had every opportunity to gather all anti-establishment voters into his fold but insisted, instead, on alienating as many as possible — e.g., stipulating that in some hypothetical world in which abortion was outlawed, women who had abortions should be “punished,” then putting out a press release saying that he didn’t really mean that, and then saying what he didn’t mean again.
  • Bernie Sanders, spouting non-facts 24/7.
  • Hillary Clinton — say no more.

The temptation is to attribute the horror of 2016 to the candidates’ abominable personalities, or at most to the failures of the electoral system, which is warmly responsive to televisable personalities (Trump), and to the indefatigable pressure groups that gave us Clinton and Sanders (and Jeb Bush and a few other sparklers).

I think that those factors are important, but they are as nothing when compared with the ideas that are insisted upon by the pressure groups and are projected so abominably by the personalities.

All the problems that are used to justify the literally insane campaigns now being waged were the direct results of unlimited government.

The ideas aren’t many. We’re not dealing with the intellectual intricacy of the questions that Lincoln and Douglas debated. Most of what passes for ideas in today’s campaigning results from a handful of crude, outdated assumptions, as follows:

1. The idea that work produces wealth, and therefore ought to be rewarded — an idea that had the stuffing knocked out of it by the discovery of the principle of marginal utility, a mere 14 decades ago.

2. The age-old idea that wealth should be apportioned by political means; i.e., by force.

These two ideas provide most of Bernie Sanders’ intellectual equipment, if you want to call it that.

3. The pre-1830s idea that free trade is bad for the economy.

Here you will recognize Donald Trump’s motivating idea, and one of Sanders’.

4. The 1970s idea that racial — and “racial” — sensitivities have rights that government must enforce.

This belief, which is merely the flipside of the much older belief that white racial sensitivities must be enforced by government, is the basis of the grievance industry which fuels both Sanders and Clinton, and without which their candidacies might not be able to exist.

5. The idea that, as H.L. Mencken said, “the people know what they want and deserve to get it, good and hard.”

This is populism, which fuels the preposterous windbaggery of Trump and Sanders, and to a degree that of Cruz. It was adequately discredited by the idiotic behavior of the ancient, direct democracies, if not of modern Detroit, Chicago, and New York City.

Now, you may say, and you would be right to say to it, these fallacious notions get a lot of their steam from the true, or sort of true, ideas that are associated with them. Sanders’ people and Trump’s people are right in believing that the financial system is rigged against the majority of Americans. Trump’s people and Cruz’s people are right in thinking that the country is being run into the ground by small groups of wealthy, or otherwise privileged, self-serving apostles of political correctness, seemingly bent on outraging all feelings but their own. Trump’s people are right in thinking that a welfare state cannot admit hordes of immigrants without grossly disadvantaging its own citizens. Clinton’s people are right in their visceral aversion to populism.

It’s remarkable that Clinton’s supporters, though undoubtedly the best “educated” of any of these groups, has the fewest ideas, right or wrong. It’s certainly a commentary on elite education.

But the most remarkable fact is that all the problems that are used to justify the literally insane campaigns now being waged were the direct results of unlimited government. If the American people had voted to increase income inequality, strangle the middle class, create racial tensions, ship jobs overseas, enlarge the permanent underclass, and grant a permanent veto power to an unelected class of well-paid parasites, they couldn’t have gotten better results from their decades of votes for people who wished to expand the government.

Now people of common sense and what used to be common knowledge are seeing (the cliché is unavoidable) the chickens coming home to roost. Are you happy? I’m not.




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Unfair Competition from Robotland

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This campaign season brings many complaints about “shipping jobs overseas.” Candidates promise to crack down on the offending corporations. American workers and the United States as a whole must compete on a slanted playing field against foreigners paid much below a dollar an hour. Moreover, the foreigners manipulate their currencies. They buy less from us than we from them, putting the US into a trade deficit (more exactly, a current-account deficit) costing us many billions of dollars a year. China, Japan, and Mexico count among the worst offenders. Free trade is fine, but only when it is fair.

In a similar but imaginary scenario, technology has advanced so far that “Robots” (in a stretched sense of the word) displace American workers at costs equivalent to Robot wages of 50 cents an hour. What is the difference between shipping jobs to Bangladesh and shipping jobs to Robotland? Well, Robotland does not have a balance of payments, so it cannot be accused of buying less from us than we from it, fleecing us of the difference. In the real world, automatic market mechanisms, if allowed to operate, forestall worrisome trade deficits and surpluses; and if the foreigners do make unbalanced sales to us, what can they do with the money? They acquire American bank accounts, securities, and properties, so supplying us with financial capital on advantageous terms.

What sense does the notion of one country competing with others have? Does it mean that international trade is a zero-sum game, with countries squabbling over shares in a fixed total of gains? On the contrary, international trade and advanced technology are alike in making desired goods more abundant. One country’s relatively low standard of living would trace to technological and entrepreneurial backwardness and perhaps to bad government. It would be absurd to blame its relative poverty on incompetent trade-policy negotiators.

One country’s relatively low standard of living would trace to technological and entrepreneurial backwardness and perhaps to bad government.

In the real world, conceivably, Robotland technology might displace many American workers, inviting Luddite arguments. I do not want to get into that issue here. I merely ask what the difference is between the scenarios of foreign competition and robots.

I wish that today’s vapid political debates could give way to ones with candidates testing one another’s policy-relevant understanding by posing questions like the one about robots. Other questions might be: How do your trade-policy proposals square with the principle of comparative advantage? What light might the absorption approach to balance-of-payments analysis shed on a connection between a trade deficit and a government budget deficit? In what sense is the Social Security trust fund a reassuring reality and in what sense a deceptive farce?

Unfortunately, such questions would not faze Donald Trump. He would respond with vicious personal insults and with reiterations of his own excellence. Anyway, allowing such questions could be entertaining. They might even enlighten some voters.




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On Dogs, Cats, and Carnal Knowledge

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Reading the Drudge Report just after the House of Representatives defeated a bill that would have given President Obama fast track authority (or “TPA,” for “trade-promotion authority”) to conclude free trade agreements, I remembered a line from the first Ghostbusters movie. The busters (Ray, Egon, Winston, and Peter) are explaining to the mayor that his city is headed for “a disaster of biblical proportions.” When the rather obtuse man asks what they mean by “biblical,” Ray says, “Real wrath of God type stuff.” Egon adds, “Forty years of darkness!” Winston chimes in with “the dead rising from the grave!” Whereupon the ever-arch Peter adds loudly, “Human sacrifice . . . dogs and cats living together . . . mass hysteria!”

What happened on June 12 was that a bill to grant Obama the same power (fast track authority) that almost every other president since World War II has been given went down to defeat in a procedural vote, primarily because Democratic members followed their leader Nancy Pelosi (D-CA) in opposing it. The maneuver was to join Republicans who oppose spending more money on work retraining programs — which are usually just boondoggles that don’t retrain anybody — in voting down a package deal that included the TPA and also increased retraining funds that had earlier passed the Senate.

Talk about a dog and a cat being intimate: arch-conservative Drudge lavishing affection upon arch-leftist Pelosi, the neosocialist harpy from Hell.

Fast track authority is the power Congress can (and almost always does) give any president to negotiate free trade agreements (FTAs) in confidence and without congressional meddling. If any FTA is concluded, it of course becomes law only if the Senate votes in favor of it. Naturally, the Senate can only vote the submitted FTA up or down — it cannot amend it, since amending it is renegotiating it, which the other side of the agreement would not accept. Without such power, you have 435 members of Congress playing president, making it impossible to get any treaty — free trade or otherwise — negotiated.

Despite Obama’s last-minute personal intervention, in which he tried to convince his own party members in the House to support his plan, or perhaps because of his intervention, the bill went down by a vote of 302–126. As one unnamed Democratic congressman put it, “She screwed this president.”

But a number of Republicans opposed the measure, too. Here we get to the dogs and cats getting it on together.

After the vote, Matt Drudge ran a large banner on his website. It screamed, “Brave Pelosi Says No!” Talk about a dog and a cat being intimate: arch-conservative Drudge lavishing affection upon arch-leftist Pelosi, the neosocialist harpy from Hell.

I won’t rehearse all the arguments about why free trade is economically beneficial. I have done so at length in these pages (“The Case for Free Trade,” Liberty, December 2010, pp. 33–41). And the case was made again, succinctly and well, in a recent piece by Larry Kudlow, Art Laffer, and Steve Moore. To economists, 90% of whom favor free trade, it is obvious that free trade is on balance economically good for countries engaging in it. Why is it that when 85% of climate scientists agree on anthropogenic global warming, it becomes “settled science,” but when 90% of economists agree that free trade increases wealth (the theory of comparative advantage), the matter is never considered settled?

The reason for Obama’s defeat is threefold.

First to be mentioned is the decline in free trade sentiment among Democrats. Coming out of the Great Depression and the devastating war it helped to spawn, Democrats agreed with Republicans that the protectionism associated with the Smoot-Hawley tariffs was and is economically counterproductive and geopolitically dangerous — for, as Frédéric Bastiat observed a century and a half ago, when goods cannot cross borders, soldiers will. That is why fast track authority has been given to all but one president since the end of the second world war.

While Obama is a piss-poor negotiator, any free trade agreement he negotiates will likely err on the side of suffocating regulations for both sides.

But the Democrat party has moved ever more toward the extreme left — progressive liberalism, as Solzhenitsyn observed, ever evolving into socialism — and fewer and fewer Democrats are willing to support free trade. Really, Bill Clinton was the last president to push for it, when he signed NAFTA into law. One of the most important of the core Democrat constituencies, Big Labor, loathes free trade. In this most recent vote, for example, when Pelosi and her myrmidons went against fast track for the president of their own party, Big Labor Daddy Richard Trumka (King of the AFL-CIO) praised her mightily, proclaiming that “she stood up against corporate interests.”

Second, despite the best efforts of House Speaker Boehner and Senate Majority Leader McConnell’s to give Obama fast track authority, a portion of the Republican Party opposed the measure. The biggest reason is their distrust of Obama. That’s why websites such as Breitbart.com and the Drudge Report were bashing the bill mightily.

Now, as any more-than-casual reader of these pages knows, I have been unwavering in my opposition to and contempt for the Obama Regime. To put this simply, I regard Obama as the worst president in modern history. (When I said this not long back, one reader chastised me for not characterizing Obama as the worst president in all history, but I confess that my weakness on the history of 19th-century presidents restrains me from agreeing.) President Obama will have done more to harm this country in both domestic and foreign policy than any other modern president, and if we are lucky enough to elect a decent Republican president in 2016, he or she will have to spend most of a first administration reversing the damage.

But as the old saw has it, even a broken clock is right twice a day. More to the point, while Obama is a piss-poor negotiator, in fact really pathetic at it, any FTA he negotiates will likely err on the side of trying to saddle the other side with what he favors for our side too: suffocating regulations. While that is economically deleterious, I doubt that it will result in a net disadvantage to us. Moreover, any final agreement he negotiates must still be approved by Congress, so any grossly unequal deal — say, one that increases Japan’s access to our markets but protects its agricultural industry — can quite easily be voted down, forcing him back to the table.

A good leader has to be a good teacher, too, and explain the ways in which certain ideas are true and certain other ideas are false.

The third, and in my view the most important, reason for Obama’s loss is Obama himself. Let’s put aside the personality issue, which is that Obama is a patently arrogant, distant, snarky, intellectually mediocre narcissist who doesn’t work or play well with anyone except complete stooges. This doesn’t help him, but it isn’t the biggest problem about his free trade initiative. That problem is his history.

Obama has never gone on a tour, selling the need for a trade agreement with Asia and answering the obvious populist arguments against free trade. In this, ironically, he is like George Bush — who, while he negotiated and signed into law more FTAs than any other president, didn’t explain them, argue their importance, or refute the economically ignorant but passionately tribal populist objections to them. Obama doesn’t explain, you see; he merely shows contempt for differing opinions and expects everyone just to see his colossal greatness.

Worse, his history is one of buying the same populist claptrap arguments against free trade that he is being met with now. He bashed Hillary because her hubby signed NAFTA, which, he claimed (parroting the Trumka types), cost jobs; though this was obviously false, as must have been manifest even to an intellectual lightweight such as himself. When in office, he quickly started trade wars against both Mexico and Canada, wars that ceased only when those neighbors fought back and kicked his ass. He stalled the three FTAs left over from the Bush era, only signing them late into his second term, in the face of the worst economic recovery in American history. Now this guy — out of the blue — advocates free trade?

The average American, like the average person anywhere else on this planet, basically has his scientific and moral views set by history. The physics that the average person believes, for example, holds that objects are completely solid, and that they fall at different speeds; that space is completely empty and infinite in all directions, and that it has but three dimensions. Tradition doesn’t make such ideas true. The economics that the average person believes maintains that while labor deserves to be compensated, the lending of money doesn’t; that it is better if all people do all things for themselves, rather than dividing up the tasks among many people, possibly people in different countries; that saving rather than spending hurts jobs, but protecting home industries promotes jobs; and many other things. Tradition doesn’t make these notions true, either.

In short, a good leader has to be a good teacher, too, and explain the ways in which certain ideas are true and certain other ideas are false. But Obama can’t teach anyone about fallacious ideas. Indeed, he often simply accepts them himself — unless he was just lying (something he does with amazing frequency and ease) when he campaigned against Hillary. Either way, he’s not able to teach the public why hunter-gatherer myths are wrong.

Maybe the Republicans can save him from the anti-free-trade crowd, but it is unclear that they can. If not, the biggest loser will be the American public. But I believe in the precept that people get the government they deserve.

em




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A Sincere Change of Heart?

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The old adage wisely instructs us to “give credit where credit is due.” I am about to give credit to someone to whom I have given extremely scant credit before: our current president. Obama is apparently doing something I want him to do: he is advocating more FTAs — free trade agreements.

This is a surprising — nay, mindboggling — reversal of the course he took during his first four years. In his first term, he started trade wars with Mexico, Canada, and other places. He stalled, until late in that term, any action on the three residual FTAs that President Bush had left him (with Colombia, Panama, and South Korea). And he generally mouthed the labor union line that free trade “steals” “American” jobs.

But shortly before his reelection, he caved. In the face of a clearly stagnant economy he signed the three FTAs. He has now gone farther. In some of his recent speeches, he has advocated two new large FTA deals — one with the EU, and one — initially proposed by Bush — called the Trans-Pacific Partnership (TPP). He is in favor of concluding those deals quickly. (The US started participating in the TPP negotiations under Bush in 2008.)

Obama backed the notion of an EU deal in his state of the union address, saying, “Tonight, I’m announcing that we will launch talks on a comprehensive trans-Atlantic trade and investment partnership with the European Union . . . because trade that is fair and free across the Atlantic supports millions of good-paying American jobs.”

Of course, free trade with anywhere supports millions of “good-paying” jobs. This proposition has been urged by mainstream economists ever since the debacle of the Smoot-Hawley tariffs — or for that matter since Adam Smith. It has recently been brilliantly explored by Daniel Griswold in his primer on the subject, Mad about Trade (which I have reviewed for these pages). Obama is, it seems, only just learning this.

The trade deal with the EU would be huge. The economies of the EU and the US together constitute over half of world GDP, and the trade between them already accounts for one-third of all trade flows.Not commonly known in the US, but explored in detail in Griswold’s book, is the fact that as of 2010, US private investment in France and Belgium (combined) exceeded US private investment in China and India (combined). According to some estimates, an EU-USA FTA would likely add as much as 1.5% to GDP growth in both regions.

Of course, free trade with anywhere supports millions of “good-paying” jobs. President Obama is, it seems, only just learning this.

Concluding the TPP would also be huge. It would greatly expand the current, modest FTA called the Trans-Pacific Strategic Economic Partnership (“P4” or “TPSEP”), which includes Brunei, Chile, New Zealand, and Singapore. The proposed TPP would embrace Australia, Canada, Malaysia, Mexico, Peru, Vietnam, and us. Japan has just announced that it will join the TPP talks as well. Obama hasn’t commented on the Japanese dimension, but he has indicated that he favors the TPP, viewing it as his “pivot” toward Asia.

There would be great advantage to including Japan in a large free trade zone with the US. The other nations with whom we are negotiating either have FTAs already (Australia, Canada, Chile, and Mexico), or are very small potatoes economically (Brunei, New Zealand, Malaysia, Peru, and so on). Japan, by contrast, is a country with which we have no FTA, and is the third largest economy on earth.

But as happy as I am that Obama seems to be seeing the light, I find myself filled with doubts.

Start with the fact that the president is a notorious liar and dissembler. As a senator, he feigned support for immigration reform but covertly helped kill Bush’s bill, and in the two years in which his party controlled both houses of Congress he refused to introduce a bill of his own. Yet he campaigned for reelection promising — comprehensive immigration reform!

Similarly, as a senator and during his first term (to which he was elected with enormous contributions from union funds) he fought off or stalled all free trade measures. Now he favors free trade? One can be forgiven for wondering whether his conversion is sincere.

Doubt also arises from the question of how persuasive Obama can be on the issue. The opponents of the new FTAs will use his own past arguments against him — the canards about free trade costing jobs, about its resulting in the famous “race to the bottom,” and so on.

Most importantly, the new FTAs are fraught with special difficulties. Let’s begin with the EU. The problem lies with countries such as France, which is highly unlikely to open its domestic manufacturing sector to true competition. The French are notorious for protecting their film and other “cultural” industries by import quotas and direct subsidies. They are famed for their inventiveness in erecting “non-tariff barriers” to trade. And they just elected a Socialist government that loathes free-market economics (which leftist Europeans disparagingly call “neoliberal economic theory”).

The opponents of the new free trade agreements will use Obama's own past arguments against him — the canards about free trade costing jobs, about its resulting in the famous “race to the bottom,” and so on.

Especially contentious is the issue of agricultural imports. America has always been an agricultural hyperpower, thanks to the vast expanse of its arable land and the incredible productivity of its farmers. American farmers have been at the forefront of agronomic invention, from the use of tractors to the use of GPS (global positioning satellite location finding) to the genetic manipulation of grains. France, in particular, and Europe, in general, oppose the sale of genetically modified foods, and are lavish in their subsidization of their farmers.

With unemployment running high in many EU countries — especially Greece and Spain, where it approaches 25%, or about what the US suffered during the Great Depression — an FTA with America will be a tough sell. The average European is as much a believer in populist economic fallacies as the average American, and especially in the myth that free trade costs domestic jobs. (It’s always funny how opponents on both sides of an FTA can argue that it will send jobs over to the other side).

You can catch a glimmer of the difficulty in clenching this deal when you hear Karel De Gucht, no less than the EU trade commissioner, who is pitching an FTA with the US to lower the automobile tariffs that make cars so expensive in Europe, hasten to assure France that it would never be required to dismantle its subsidies and quotas on cultural industries.

Even more problematic will be an FTA that involves Japan. The Japanese certainly want the benefits an FTA with America would bring, such as an end to the tariff we impose on their automobiles — a tariff that runs as high as 25%. If these tariffs were eliminated, Japan’s auto imports alone would jump by perhaps 6%. (No doubt this is why the UAW, the AFL-CIO, and the domestic automakers are alarmed at the very idea of ending those tariffs). But Japan is erecting large obstacles to an early deal for true free trade. They are aggressively “pulling a Bernanke,” that is, weakening the value of the yen, so that Japanese manufactured goods will drop in price compared to American goods. This would rather quickly reduce the impact of our tariff barriers.

An even more significant problem is the fact that a real FTA that included Japan would immediately open Japanese farmers to massive competition by America’s vastly more efficient agriculture. To cite one example: Japan imposes a stunning 778% tariff on imported rice. In other words, Japan’s rice farmers are so comparatively inefficient that they need to be protected by a tariff of nearly eight-fold the American price — a whole new meaning for the Eightfold Way!

Japanese Prime Minister Shinzo Abe, who decided to join the TPP talks, already faces opposition to his move, and has promised, “I will protect Japan’s agriculture and its food at all costs.” That doesn’t make it sound as if there were much chance of a major deal to open trade on both sides.

Over the long term, of course, competition would be good, very good, for Japan. Its citizens would get cheaper food, enabling them to buy more of other things or save more capital to create or expand competitive industries. Free trade would free up people from the farms, enabling them to work more creatively and productively in knowledge-based industries. This would be a major advantage, given that Japan’s population is aging rapidly.

But economics is not the same as culture. In a nation as socially cohesive and static as if Japan, it will be very difficult to convince people to allow their farm industry to shrink. Yet you don’t need to be Japanese to succumb to the myths of protectionism. Populist economics is popular all over the world because, well, the populace is basically the same all over the world. As Hayek noted, our evolution from hunter-gatherers has left us with instincts that are often counterproductive.

If Obama really has seen the light — about which, again, I am skeptical — he would do better to emulate Bush. Go for bilateral FTAs with countries with whom we have a better chance of success. I would urge him to focus on just two countries: Brazil and India. I will be brief here, having discussed the possibility of an FTA with Brazil elsewhere.

Start with the fact that bilateral FTAs are inherently easier to negotiate, since the special interest groups, those omnipresent rentseekers, are easier to hold in check, being fewer than those aroused by action on a broader front.

In a nation as socially cohesive and static as if Japan, it will be very difficult to convince people to allow their farm industry to shrink.

Second, note that while countries such as Japan and France are very culturally homogeneous, Brazil and India are, like the US, ethnically and culturally diverse. Such diversity tends to lessen (though not to eliminate) the tribalist-populist impulse to fear trade with the Other.

Third, Brazil and India are big countries. Brazil, with 200 million citizens, is the fifth largest country in population, and India is the second largest. Unlike Japan and most of Europe, Brazil and India are still growing in population, so they will have a young labor force for decades to come. They are likelier than other countries to allow the importation of food, and more eager to gain access to our manufactured goods markets.

Finally, both countries are growing economically at a fast clip. Brazil already has the world’s sixth largest economy. Both are nations whose greatest economic growth lies in their future, not their past.

They seem altogether better bets than those the administration is pursuing. Maybe — my recurring skepticism whispers — that is why the administration isn’t pursuing them.

ldquo;race to the bottom,

ldquo;race to the bottom,




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On Our Way Down

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While our nation remains mired in economic uncertainty, sluggish growth, high unemployment, and even higher underemployment — in short, Obamalaise — other nations continue to move ahead. A recent report brings this point home.

Citigroup projects that the pattern of world trade is going to shift dramatically over the next 40years, and not in our favor. Citi’s research indicates that Developing Asia’s share of total world trade, which in 2010 was 24%, will grow to 42% in 2030 and 46% by 2050. Conversely, Western Europe, which had the largest share of total world trade in1990 (48%) dropped to 34% in 2010. That's still the largest share. But by 2030, that will dwindle to only 19%, and by 2050 it will be a meager 15%. North America will see similar declines.

Citi projects that China will become the biggest-trading country by 2015, surpassing the U.S. — the current leader — within only four years, and will stay on top for the foreseeable future. But even more remarkable is the forecast that the US will also be overtaken by — India. Even though India was not even in the top 10 largest trading countries in 2010, by 2050 it will become the second largest.

Now, research projections can be wrong — for one thing, they cannot for see exogenous events (e.g., what if China and India get into a major war?). But the trends are pretty clear.

And the causes of these trends are also clear. One cause of trade growth (among others) is the willingness to trade freely with other nations. Asia has embraced free trade with a vengeance, while Obama has done his best to block all progress on the issue, even going so far as to reverse the free trade agreements we have, simply to please his union bosses. For Obama, it is as if Adam Smith never existed. This is taking its toll.

p




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When Pigs Fly

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There is an old adage in which I find considerable wisdom: “When a pig flies, you don’t criticize it for not staying up very long.” I take the meaning of this saying to be that when someone who has a habit of making poor choices finally makes a moderately good one, you ought to praise the success, even if you feel he could have done more.

Well, a pig has flown. President Obama, who for his first two years ran the most anti-free-trade administration since the days of the Smoot-Hawley tariff, has managed to salvage a free-trade agreement (FTA) with South Korea, after stalling it for two years and being snubbed in Asia when he tried to strongarm a new deal. He managed a minor renegotiation, getting some relief from Korea’s environmental regulations on our cars and a slowing of our phase-out of tariffs on the Koreans’ trucks. He did this, however, at the cost of keeping Korea’s tariffs on our cars in place for five more years, and of an extra two years of Korean tariffs on American pork products. Hardly worth the wait on a deal that was already well negotiated in 2007.

But the good news is that Obama will finally let the deal proceed, and that 95% of all US and South Korean tariffs will be eliminated within five years. The deal also opens up greater trade in services, allowing (for example) more Korean banks in America and more American banks in Korea. That’s all good.

Now that Speaker Pelosi is finally history, chances are good that Speaker Boehner (“Blubbering Boehner” to his chums) will get the FTA with Korea through the House — and also the FTAs with Colombia and Panama, which have been languishing on the sidelines since Bush left office. It would be helpful if the pig could stay aloft long enough to help get these deals past Congress. So far, Obama hasn’t bothered to do that. He has shown a touching deference to the unions that oppose them, and that gave so much to his presidential campaign.

Yet it seems to be dawning on the exceptionally obtuse Obama that it may be far more useful to his 2012 reelection (gag!) campaign to have lower unemployment than to have higher union contributions poured into his campaign coffers. Perhaps the pig isn’t just flying; perhaps he has had an epiphany.

If for that we are hardly ecstatic, we can at least be satisfied.




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