Economics and Alaska

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China's growing regional strength

Daniel Drezner posts on the ways that China is translating its growing economic significance into regional political power: "China's growth as a regional power, redux"

For a concrete example, look at the Australian foreign minister's recent statement distancing Australia from potential U.S. military support for Taiwan. See: "Economic basis of political power".

posted by Ben Muse at 9:47 PM

 
Light posting likely

Posting may be light for several weeks, but it should pick up in late September.
posted by Ben Muse at 6:30 AM

 
GPS as a public good

Eric Helland at Marginal Revolution suggests the U.S. GPS system as an example of a a non-rival and non-excludable public good: "Candidate Public Good".
posted by Ben Muse at 9:42 PM

 
Moral hazard and the Pension Benefit Guaranty Corporation

Daniel Drezner points to a Cato study which itself points to the moral hazard issue at the core of upcoming problems with the federal Pension Benefit Guaranty Corporation: "Headlines from the future"

The study is "How to Reduce the Cost of Federal Pension Insurance" by Richard A. Ippolito.

posted by Ben Muse at 5:24 PM

 
Outsourcing and the California legislature

Virginia Postrel reports on a study, commissioned by the California legislature, that finds outsourcing increases employment in California. Postrel reports that the legislature is sitting on the report: "Stifling Good News about Outsourcing"

Meanwhile, Postrel notes,

"...the legislature has passed the first of six anti-outsourcing bills. A bill to "prohibit the state from hiring outside service contractors, such as software companies and call centers, if they planned to use foreign workers for the jobs" is headed to the governor's desk. Only a girly-man would sign it."

If the legislature is bent on increasing taxes, or reducing the volume of services provided, they should also consider replacing the word processing equipment with manual typewriters.

Postrel is passing on things she learned from a Sacramento Bee columnist Daniel Weintraub. Weintraub's column is here: "Lawmakers sit on study praising offshoring jobs".

PS: August 25: Daniel Drezner found the paper, dated yesterday, on the web. He links to it and quotes extracts, here: "Offshoring creates jobs in California".

posted by Ben Muse at 11:09 PM

 
Impact of new overtime rules on Cape Cod

New federal overtime rules took effect on Monday. I posted about them here: "New Overtime Rules".

Eric Gershon reports that "Payday won't change for most Cape employees" (in the Cape Cod Times). The Cape, a resort and retirement area, may be atypical of the national labor market.

As the title indicates, Gershon's survey of employers found little evidence that there would be a significant impact. Most employers have five or fewer workers,so "employers don't have much opportunity to reclassify workers as executives, administrators, or managers, none of whom get overtime pay." The largest employer, Cape Cod Healthcare, with 4,500 employees, and local governments, have unionized work forces, and will see little change.

One employer said that market forces would prevent the change from affecting his workforce:

"...Felis Barreiro, owner of Alberto's Ristorante in Hyannis, said he knows how he could benefit from the new regulations. His two sous chefs could now be exempted from overtime pay as "creative professionals."

But Barreiro said he would adhere to the unwritten laws of the labor market - top performers get top pay, including overtime, or split.

For the same reason, he said, he will also continue to give his head chef overtime benefits, even though he would normally be exempt as a manager..."

The story suggests that the rules change will increase labor market transactions costs:

"Although the Labor Department claims the updated regulations will lower the number of employee lawsuits seeking unpaid or unrecognized overtime work, a Boston lawyer representing Cape police unions disagrees.

"It's going to be an explosion of litigation," said Bryan Decker, a partner at Sandulli Grace, P.C., which represents police unions in Sandwich, Mashpee, Harwich, and Chatham...

"...A prudent business is going to pull out all their job descriptions and start matching them against these new rules," she [Wendy Northcross of the Cape Cod Chamber of Commerce] said..

posted by Ben Muse at 8:50 PM

 
Interstate shipments of wine

Todd Zywicki at The Volokh Conspiracy posted an eight part series on the economic and legal issues associated with state laws discriminating against out-of-state shipments of wine to a state's residents.

Lynne Kiesling has collected links to all eight posts in one post of her own on the Knowledge Problem: "Wine Wars"
posted by Ben Muse at 5:55 PM

 
Disaster relief

Glenn Garvin was in Florida when Hurricane Andrew swept through the state in 1992. He wrote about the public and private responses to the disaster in this January 1993 Reason magazine: "Reaping the Whirlwind". Lots of interesting observations. Like this one:

"...local governments have joined with the construction industry to prevent timely and affordable rebuilding. Much of Dade County is in ruins. About 135,000 dwellings were damaged by the hurricane, perhaps 28,000 completely destroyed. About 82,000 businesses were damaged or destroyed. It would take local contractors a decade or more to do all the work. Even the simplest tasks, such as getting a window pane replaced, require going on waiting lists of at least two months.

With so much work waiting to be done, and plenty of money from insurance companies and the federal government available to finance it, hundreds of out-of-town companies have come to Miami to help. It's a classic case of market forces at work–or it would be, if local governments and contractors hadn't entered into a cabal to thwart them. As Charles Lennon, executive director of the South Florida Builder's Association, observed: "We don't need 6,000 unemployed carpenters from Massachusetts clogging up Interstate 95 looking for a job." To see that they won't be, Dade County officials within days of the hurricane ruled that out-of-county contractors can't do any work until they pass a temporary licensing test. And that test will be given...sometime. In early October, county officials still hadn't gotten around to scheduling the first exam..."

I wonder how this came out. When was the test administered? What was its content? How were out of town contractors integrated into the reconstruction effort. I can see some utility in informational licensing of contractors, but I can also see how this might be used to restrict effort as well - which is the purpose Garvin is suggesting.

This is an interesting article, but it is basically a collection of anecdotes from the Andrew recovery, organized to illustrate the government's incompetence and the vitality and utility of the spontaneous private sector response.

I learned about this from Virginia Postrel

Revised 8-23-04 (title change)
posted by Ben Muse at 11:06 PM

 
Doha Round politics

World Trade Organization (WTO) countries may have reached agreement a few weeks ago in Geneva on a framework for continuing trade talks, but Rosemary Righter sees problems ahead in this Timesonline analysis: "Stop the world, Jacques Chirac wants to get off"

Her argument: The capable French EU trade negotiator, Pascal Lamy, has been deliberately dropped by President Chirac in order to slow negotiating momentum. In the U.S. Kerry is distinctly wobbly on free trade issues. A Kerry victory may mean less U.S. interest in trade talks. The U.K.'s Peter Mandelson, the new EU trade representative, may be able to take up much of the slack left by Lamy's departure, but it's not clear the U.K. would be willing to push ahead if the U.S. were not interested.

The good news:

"...Brazil, India and China now actively want the Doha Round to succeed. Brazil, swelling with pride at its recent victories at the WTO against the EU’s infamous sugar regime and America’s equally indefensible cotton subsidies, displayed a convert’s zeal at Geneva...

...as farmland is concreted over, geography and industrialisation are forcing China to shift from land-intensive grain, which it will increasingly import, to labour-intensive fruit and vegetables that it can export. India, whose farmers should be able to hold their own against all-comers, still does not see that nothing would do its farmers more good than a spot of competition. But its burgeoning service industries could make agricultural protectionism expendable as part of the broader bargain.

I began with gloomy reflections about a potential loss of momentum on the Western front. But the prospects for trade liberalisation are brighter today than they have been for five years, because the conspiracy theories about globalisation are losing their allure for the rising stars of the global trade scene. Celso Amorim, Brazil’s Foreign Minister, proudly declared after Geneva that trade is now a multipolar game. The good news is that he appears to be right."

posted by Ben Muse at 9:28 PM

 
World Crime Roundup

Cronaca reports that Munch's painting "The Scream" was stolen from an Oslo museum: "The Scream" stolen . Last winter I posted on the tie between "The Scream" and the explosion of Krakatoa: "What Munch saw, where, and when".

Meanwhile, Tyler Cowen at Marginal Revolution posts on the "The Economics of Mexican Kidnapping" and on "How to Spot a Liar".

posted by Ben Muse at 7:32 AM

 
New Overtime Rules

New rules from the Department of Labor (DOL) governing "time and a half" overtime under the 1938 Fair Labor Standards Act (FLSA) take effect on Monday. Here's the New York Times report: "New Overtime Rules to Take Effect Monday", and here's a report from the Washington Post: "Rules for Overtime Pay to Take Effect".

The U.S. Department of Labor's overtime pay page is here: "Overtime Pay". The DOL's webpage on the new rules themselves is here: "FairPay".

The Economic Policy Institute's Ross Eisenbrey estimates the changes in the extent to which workers will be covered by the overtime rules in: "Longer Hours, Less Pay".

"Under the current Fair Labor Standards Act (FLSA) regulations, most workers are guaranteed the right to overtime pay, commonly known as “time-and-a-half,” for every hour worked beyond the normal 40-hour workweek. Three basic tests determine whether workers are exempt (i.e., ineligible for overtime pay) or non-exempt (i.e., eligible for overtime pay). The regulatory changes issued by the Bush Administration in April 2004 would make drastic changes to these tests, vastly increasing the number of exempt employees and making it likely that millions of them will work longer hours at reduced pay.

Under current law, each of the following three tests must be met to classify an employee as exempt and therefore ineligible for overtime. First, the “salary-level test” stipulates that employees earning less than a certain level each week cannot be exempt. Second, the “salary-basis test” states that employees must be paid a set salary—not an hourly wage—in order to be exempt. Finally, the third screening test is the “duties test,” which states that a worker cannot be denied overtime pay unless his or her duties are primarily “administrative,” “professional,” or “executive” in nature.

The new regulations would raise the salary level under which all employees are protected to $455 per week (i.e., any employee making under $455 would be eligible for overtime benefits). Under current law that level is set at $155 ($170 for professionals), a pay rate that has remained unchanged since 1975. A salary of $455 per week equals an annual salary of just $23,660, about $5,000 a year above the poverty level for a family of four. And because the exemption level is not indexed for inflation, it will protect fewer and fewer workers over time. Initially, about 400,000 employees who work overtime will now be paid for it.

The many other rules changes—principally those amending the three key duties tests—would dramatically increase the number of workers who would be classified as “professional,” “administrative,” or “executive” and thus remove millions of additional workers from overtime coverage.

Changes in the primary duty test and the redefinition of “executive” will allow employers to deny overtime pay to workers who do very little supervision and a great deal of manual or routine work, including employees in factories and industrial plants. Employees who can only recommend—but not carry out—the “change of status” of the two employees that they “supervise” will be exempted as “executives” even if they manage nothing more substantial than a team or grouping of employees...

Approximately 130,000 chefs and sous chefs who are not executive chefs will be exempted as “learned professionals” and “creative professionals.” Pre-kindergarten and nursery school teachers, no matter how low their pay, will be exempt under the new rule, even if their work does not require the exercise of discretion and judgment...

Altogether, we estimate that nearly six million employees will lose their right to overtime pay on the basis of just 10 of the many changes the final rule makes in these critical regulations..."

Eisenbrey's paper is concerned with the extent to which different groups are or are not covered by the rules. Eisenbrey is not enthusiastic about this rule; he takes it for granted that the existing overtime rules benefit those who are covered. I'm not sure that's a forgone conclusion.

As Alex Tabarrok pointed out the other day, in another context ("Economic foundations of law") contracts have a variety of elements, and a rule constraining one of these can be offset if the contracting parties make changes in other parts. An externally imposed requirement that college students working as crew on whale watching boats get 150% of their base salary if they work more than 40 hours a week may mean lower base salaries than otherwise, particularly if the firm anticipates that its employees will probably be working more than 40 hours a week during a busy summer season.

posted by Ben Muse at 11:25 PM

 
Australian general elections coming?

John Quiggen reports that general elections are likely soon in Australia, and that issues of Australian relations with the U.S. are likely to loom large in the debate: "Notes from (Down Under) Ground

posted by Ben Muse at 10:15 PM

 
Buying movie tickets on the internet

Dina ElBoghdady reports on the sale of movie tickets over the internet in tomorrow's Washington Post: Movie Previews. Online Ticketing, a Business Model Looking for Legs"

"...Consider Ellen Frishberg of Ellicott City. Now that she's discovered online ticketing, she sees no reason to bother with the box office, especially if her two children, ages 13 and 11, are in tow.

Frishberg doesn't want to risk showing up for a sold-out show. "Then [the kids] insist on seeing something else, and that something else is usually something I don't want them to see," she said.

Instead, she finds reviews of the movies her children want to see online. She then clicks onto the film's Web page, punches in her Zip code, locates the nearest theater, scans show times and types in her credit card number. At the theater, she claims her tickets, usually at an electronic kiosk or service desk..."

The services that sell the tickets charge a fee on the order of $1 per ticket. On line sales accounted for 4.3% of ticket sales last year, a three-fold increase in three years.

The article suggests that the most people now use the system to get tickets to movies that might be sold out. There is debate over whether this approach to selling tickets is going to take off. It will help when people can print out tickets at home - like airplane boarding passes now - so they don't have to stand in a line to pick up their tickets.

posted by Ben Muse at 9:34 PM

 
Alaska gets its fifth gold medal (in it's history)

Beth Bragg reports in today's Anchorage Daily News: "Alaskan is golden":

" year ago this month, Matt Emmons bagged a caribou in the Brooks Range with a single shot. Friday, he bagged a gold medal at the Summer Olympics in Athens with 70 shots, most of them dead solid perfect.

Using a gun borrowed from a fellow Alaskan, Emmons claimed gold in the men's 50-meter prone rifle competition. He became the fourth Alaskan to win an Olympic championship and the fifth to win an Olympic medal..."

posted by Ben Muse at 10:22 AM

 
New EU Trade Chief

Vic Keegan (at "Kick All Agricultural Subsidies") posts that Pascal Lamy has been replaced as the chief EU trade negotiator by Peter Mandelson of the UK: "Blair trade - Europe's new commissioner". The appointment came about a week ago.

Mandelson's career has had its ups and downs. Here is a BBC profile of Mandelson. Roy Hattersley writes about Mandelson in The Guardian: "The curse of Peter Mandelson".

"...Mandelson has all the attributes which would make a great commissioner - except one. He lacks discretion. But he has the ability to master his brief, argue his case and take the hard decisions which every sort of politician must face. And he has the capacity for charming the Brussels social circuit, apparently a necessary qualification for success in that city.

It is extraordinary that a man of such conspicuous intelligence does not realise that his best interests lie in concentrating on the job rather than reading about himself in the gossip columns. Paradoxically, Peter Mandelson is in urgent need of a good press adviser."

Simon Taylor reports on the appointment, Mandelson's first meeting with the other EU Commissioners in Brussels, and the emoluments of his office, in this Guardian story: "Mandelson bonds in Brussels". Ambrose Evans-Pritchard does a similar report for the Telegraph here: "I'm spurning spin to help poor, says Mandelson".

posted by Ben Muse at 10:48 PM

 
Economic basis of political power

This week, the Australian Foreign Minister Alexander Downer told a Chinese audience that Australia was not bound by the ANZUS Treaty with the U.S. to come to U.S. aid if China tried to retake Taiwan by force. John Kerin reports in The Australian: "Downer retreats on Taiwan".

"Mr Downer told his Beijing audience that the ANZUS alliance was invoked only in the event of an attack on either country and that it was the US that was obliged by a separate agreement to defend Taiwan."

This is new:

"There has been a long-held assumption that, under the ANZUS alliance, Australia would provide military support to the US, should China invade Taiwan."

The Taiwanese are concerned: "Taiwan urges ANZUS solidarity".

"Dr Kau [Taiwanese Deputy Foreign Minister - Ben] says Taiwan would like to see more positive comments from Australia.

"To some extent, [Mr Downer's comments] may not be helpful because, as you know, China has taken a fairly militant position on the Taiwan issue," he said.

"If the world community is not committed to maintaining peace and the stability in the Taiwan Strait area, it could be sending a wrong message to Beijing.

"Australia would help the regional peace and stability by sending a more positive message to Beijing." "

Downer elaborated later in the week:

"Mr Downer yesterday retreated from his Beijing remarks, describing the prospect of a flare-up over Taiwan as "hypothetical". He stressed that Australia always maintained a position of not commenting on the position it would take.

"I have no idea in a hypothetical situation -- which would be a terrible crisis for the Asia-Pacific -- what action any country would take, including ours," Mr Downer told CNN in Hong Kong. "We've always maintained the position, in the 8 1/2 years I've been the Foreign Minister, that we make no comment about what would happen in a hypothetical circumstance." "

The Prime Minister says ("PM denies Downer damaged US ties") :

"Mr Howard concedes Australia is obliged to go to the aid of the US if it is involved in conflict but denies he is contradicting his Minister."

Kerin suggests that Downer's comments reflect changing relative power in East Asia, founded on Chinese economic growth:

"But Mr Downer's suggestion that Australia would not necessarily come to Taiwan's aid is a stunning shift in the power balance in the Pacific, which some defence analysts suggest is permanent and recognises China's growing economic importance...

But defence and foreign affairs analysts said that while they were surprised Mr Downer had publicly expressed the view Australia might not automatically support the US over Taiwan, government people had been expressing similar views in Canberra for months.

Mr Downer's comments represented not only a shift in Australian foreign policy but also a recognition of China's increasing economic importance to Australia.

"For Mr Downer to make the point publicly in Beijing suggests a significant shift in our relations with the US and a growing recognition of China's power in the Pacific," Lowy Institute senior fellow Alan Dupont said last night. "And this has come from an Australian government far closer to Washington than most."

Former Australian ambassador to China and ANU professor of economics Ross Garnaut said last night Mr Downer's first comments represented "wise foreign policy in terms of the Australia-China relationship"..."

Australian Kevin Parish at Troppo Armadillo posted on the comments: "A Useful Idiot".

"Whether Australia should intervene on either side in a China-US conflict will depend entirely on an assessment of Australia's national interest at the time, and that assessment wouldn't necessarily result in a decision to back America given China's increasing importance as a trading partner (not to mention the fact that Taiwan arguably is and always has been an integral part of China, used as a temporary refuge by the losing side in a civil war). Moreover, the fact that both nations are huge military powers with vast nuclear arsenals tends to suggest we'd be well advised to keep our heads down unless there's some overwehelming reason to get involved..."

Australian trade blogger Peter Gallagher also comments: "Strategic shadows". Gallagher points to China's growing economic strength:

"Naturally, given China's rapid economic growth and the higher profile it has adopted in foreign policy in the past two or three years, our interest tends to be in what China will become. But we also have to pay close attention to what we will become as a result of our relations with China..."

The Australians don't appear to feel threatened by China's growing political and military strength. The news stories and blogger comments suggest an intent by Downer to accommodate China over Taiwan in deference to the the growing regional significance of the Chinese economy.

I don't see any sense in the articles or posts (and obviously I've only looked at a few) of an Australian security interest in Taiwanese independence. In comments last week before going to China, Downer indicated that Australia favored a "one-China" policy, and that it was concerned about the implications of the China-Taiwan issue for regional stability: "Downer Against Taiwan's Independence".

The bloggers comment on moral dimensions to the case: China is an authoritarian state with a bad human rights record; Taiwan is a democracy; China may or may not have a historical claim to Taiwan; should Australians be concerned about the impact on Australia of growing ties to China?

See Channel News Asia for a recent story: "PM brushes off criticism of Australian FM's Taiwan war comments"

Revised 8-20-04

posted by Ben Muse at 9:54 PM

 
The cost of one more driver

Eric Helland, at Marginal Revolution, links to and discusses a paper by Aaron Edlin and Pinar Karaca-Mandic on road congestion externalities: "Toll Roads and Externalities"

Among other things, Edlin and Karaca-Mandic find that "In California, a very high-traffic state, we estimate that a typical additional driver increases the total insurance premiums that others pay by roughly $2231 ±$549 each year."

In July, the British Ministry for Transport released a report on the feasibility of road pricing to address driving externalities. The report web page is here: "Road Pricing Feasibility Study".

"12. There is significant experience, both internationally and in the UK, of road charging schemes. They fall into three main types: charges for crossing a cordon; for driving in an area (e.g. the London Congestion Charge) and charging for the use of a linear section of infrastructure such as a bridge or motorway. They use technologies such as toll booths, self-declaration, microwave tags and automatic number plate recognition. These are well proven, but limited in scale. As demand management tools they are effective at dealing with city centres (the London charge has cut congestion in the charged area by an average of 30 per cent), but cannot deal with large complex urban areas without a large number of boundaries with infrastructure at each one. And they can be blunt. They do not distinguish between short and long journeys, or several journeys in a zone.

13. The key to a fully national road pricing scheme is a technology which can charge by time, distance and place to target the costs, including environmental costs. Most costs are caused by congestion. Targeting congestion might require a complex 'box' on board the vehicle which could work out exactly where, when and over what distance the vehicle was being used, possibly using a positioning system, although the technology requirement will depend on the precise requirements of the scheme, and on technological developments over time. On the advice of experts, the study estimates that the equipment necessary to deliver a full position-based charging scheme will not be available in a mass market, low-cost form, until at least 2014."

Global positioning systems could provide the opportunity to monitor activity and provide the necessary pricing flexibility:

"4.15 Technologies that can charge by time, place and distance are at the forefront of technological development. While the individual components are available, getting them to work together to the required standard is the challenge. This would entail the development of a complex 'box' on board the vehicle that uses several different technologies (including position-fixing and communications facilities for transferring data to and from the charging authority). No such unit is currently manufactured for the mass market or has the necessary capability to be applicable for all vehicles. There are emerging possibilities of using the technology of the mobile phone cellular radio network that can give the location of a mobile phone, similarly to give the location of a vehicle. But the most likely candidate for a reliable and accurate positioning technology is that offered by positioning satellites."

posted by Ben Muse at 10:59 PM

 
Kerry likes the WTO framework

Doug Palmer of Reuters reports that Kerry spokesmen have endorsed the new WTO Doha Round negotiations framework: "WTO Framework Deal 'Positive' - Kerry
Campaign".

Labor, however, wants him to make some changes:

"...Meanwhile, U.S. labor groups want Kerry to push for changes in the framework if he is elected in November.

"Our main concern with the framework is that there's absolutely no discussion on workers' right," said Elizabeth Drake, international policy analyst with the AFL-CIO, the United States' largest labor organization.

Developing countries have long resisted negotiations on labor in the WTO, fearing that could lead to costly new burdens and give rich countries an excuse to block their exports.

Former President Bill Clinton's suggestion that labor rights should be in trade agreements was one reason the December 1999 Seattle WTO meeting ended in failure."

posted by Ben Muse at 3:37 PM

 
Disaster insurance in Florida

In 1992 Hurricane Andrew killed 23 people, caused $15.5 billion in damage to insured property in Florida alone, and bankrupted almost a large number of insurance companies.

Frederick Mello describes how Florida adapted afterwards, for the Cape Cod Times: "Florida may be insurance bellwether" (Cape Codders, of course, may have their own hurricane disaster sometime, and have an interest in this).

"...Following Andrew, Florida allowed home insurance companies to raise rates annually, sometimes steeply, to create a financial "surplus" as a buffer against future storm losses...

...Average annual premiums already exceed $2,000 in Palm Beach County, $2,200 in Broward County and $2,700 in Dade County...

Florida insurers also began imposing wind-storm deductibles equivalent to at least 2 percent of a property's insured value, as opposed to a standard deductible of $500 or so. A homeowner with a $100,000 policy, for instance, would pay $2,000 out-of-pocket for storm damage. In exchange, homeowners receive a slight break on their annual premiums, and are guaranteed renewal the following year.

After Andrew, the state also created a catastrophe fund, to "re-insure," or reimburse insurers following a major storm causing $4.5 billion in damages or more...

That doesn't mean Florida is entirely out of the woods. The "CAT fund" is designed to withstand two major hurricanes per decade, paying insurers up to $15 billion for a single storm...

After Andrew, companies also adjusted computer-based hurricane models to account for greater storm damage than previously anticipated..."

posted by Ben Muse at 12:34 PM

 
Price gouging

Hurricane season brings a spate of blog posts on price gouging. This year Michael Munger at EconoLog has weighed in: "The Political Economy of Wishful Thinking". Over at Division of Labor we have E. Frank Stephenson: "Charley and "Price Gouging" ", Chuck Skipton: ""Unconscionable acts" in the sunny state of Florida:", and G. Dirk Mateer: "From CNN on gouging"

There were a number of posts last year. I did one ("The pros and cons of price gouging") that has links to others. This past March Kevin Brancato at Truck and Barter posted on anti-price gouging legislation in Virginia: "Anti-Price Gouging Law in VA".

The anti-price gouging legislation raises three general questions: (1) What impacts do these laws have on efficiency; (2) What is the source of the moral intuition that makes people think of price increases during or after a hurricane are unfair and wrong (as opposed to simply unpleasant); (3) What is the political economy of these things - what determines adoption and program characteristics?

The theoretical answer to question (1) is covered pretty well in the posts. The answer to the resource allocation question seems to be that non-price rationing will be substituted for price rationing. Non-price rationing is likely to involve higher transactions costs than price rationing. Available resources will be used in sub-optimal ways to a greater extent than otherwise. It will take longer for needed supplies to enter the affected region. The cost of government's response to the disaster will be greater than otherwise, because it will incur costs to enforce the price control, and may be expected to intervene to help deal with price control related supply shortages.

(Last year, Tyler Cowen introduced a different dimension to the discussion when he wondered why there wasn't more price gouging during Hurricane Isabel, despite the absence of legislation: "I survived hurricane Isabel, but couldn't buy a flashlight or the right size batteries, the night before the storm was to come. Merchants let supply run out rather than raise the prices...")

The existence of these laws may affect homeowner and business behavior before a disaster. (Skipton notes that, "The state of Florida also, conveniently, defines what is meant for the price of a commodity to be 'unconscionable' as a price that possesses 'a 'gross disparity' from the average price of that commodity during the 30 days immediately prior to the emergency. ' " Does this have implications for pricing decisions just prior to hurricane season?)

The posts (mine included) address the theoretical efficiency implications, but don't generally deal with the empirical literature (if there is any) on gouging laws. For example, do these laws actually significantly slow private sector supply responses? The Tyler Cowen post cited above implies that certain types of merchants will resist raising certain types of prices. This should affect the efficiency implications of a price gouging law.

The blogs don't generally deal with the last two questions either. Why do we think the price increases are unfair? Why will many of them think the fairness issue trumps the resource allocation issue? Who gains and who loses, and how do transactions costs affect the ability of the different groups to organize to pursue their interests politically?

Wednesday's New York Times has an anthology of Florida price gouging anecdotes, prepared by Joseph Treaster: "With Storm Gone, Floridians Are Hit With Price Gouging"

"...Under Florida law, each proven case of price gouging carries a penalty of $1,000; each case of deceptive business practices carries a penalty of $10,000 except when the victim is over 60, in which case the penalty rises to $15,000. The complaints began to trickle in as the storm was approaching and a few came in immediately afterward. But now the pace is picking up, said Sara Kinsey, who has been working late into the night answering the attorney general's complaint hot line.

She said she had heard from a man who said he was told that the new price for a small household generator was now $2,000, up from about $250.

Many of the complaints have been for two necessities: bottled water and ice. But prices have also jumped for construction work and construction materials, and the authorities expect more of that as the recovery stretches on.

Janet Snyder, a pharmacy technician in Cape Coral, said several men in two pickup trucks spotted her roof damage and offered to lay down a temporary covering of plastic sheeting. They wanted $600, about four times what she figured was the right price, based on 15 rolls of plastic that usually sell for $10 each..."

Skip Sauer points to a gouging blog post (by Brenden Koerner) that I missed in " 'The man out to end us had a hurricane business' ".

posted by Ben Muse at 8:59 PM

 
Islamic economics

Virginia Postrel abstracts insights from a recent book on Islamic economics, in this New York Times column: "Economics and Islam"

"...Islamists do offer economic and social prescriptions that can be subjected to the same analytical and empirical scrutiny as any other policies. That scrutiny is particularly important for Muslim countries where Islamists play a significant role in politics.

In a new book, "Islam and Mammon: The Economic Predicaments of Islamism" (Princeton University Press), Timur Kuran, professor of economics and law and the King Faisal professor of Islamic thought and culture at the University of Southern California, looks at the cluster of ideas known as Islamic economics.

This concept, he notes, is a 20th-century one, developed in India before independence..."

posted by Ben Muse at 11:11 PM

 
U.S. and European work effort

The New York Times recently carried an article by Mark Landler on hours worked by Europeans: "Europe Ponders the Meaning of Life". Europeans work less than people in the U.S. Landler locates the cause in cultural differences:

"...For Europeans, a proper balance between work and play is more than a fringe benefit of prosperity. It is central to a way of life that most people here, whether they confess it or not, believe is superior to the American one: less harried, less materialistic, less dehumanizing.

With more free time, the thinking here goes, Europeans can better nurture their families, contribute to their communities and cultivate their minds. Americans, caught in the frantic pursuit of success, and the McMansions and S.U.V.'s that come with it, don't have time for such a rich life..."

It's hard for me to judge what Europeans think from up here in Alaska, but offhand this doesn't strike me as a very insightful analysis. I think he may be picking up things some people are saying over there, but I'm not sure he's actually put his finger on the reason why working hours are currently different.

This paper by Edward Prescott notes that Europeans in certain countries used to work longer hours than we did, and argues that the change in hours worked was due to changes in marginal rates of taxation ("Why Do Americans Work So Much More Than Europeans"):

"Table 1 reports the G-7 countries’ output,labor supply,and productivity statistics relative to the United States for 1993–96 and 1970–74. The important observation for the 1993–96 period is that labor supply (hours per person) is much higher in Japan and the United States than it is in Germany, France, and Italy. Canada and the United Kingdom are in the intermediate range. Another observation is that U.S. output per person is about 40 percent higher than in the European countries, with most of the differences in output accounted for by differences in hours worked per person and not by differences in productivity,that is,in output per hour worked. Indeed, the OECD statistics indicate that French productivity is 10 percent higher than U.S.productivity.In Japan,the output per person difference is accounted for by lower productivity and not by lower labor supply.

Table 1 shows a very different picture in the 1970–74 period. The difference is not in output per person. Then, European output per person was about 70 percent of the
U.S.level, as it was in 1993–96 and is today. However, the reason for the lower output in Europe is not fewer market hours worked,as is the case in the 1993–96
period,but rather lower output per hour. In 1970–74, Europeans worked more than Americans. The exception is Italy. What caused these changes in labor supply?"

What caused these changes in labor supply? Prescott's statistical analysis suggests that it was changes in relative marginal tax rates:

"...In this article, I determine the importance of tax rates in accounting for these differences in labor supply for the major advanced industrial countries and find that tax rates alone account for most of them...

The important observation is that the low labor supplies in Germany, France, and Italy are due to high tax rates. If someone in these countries works more and produces 100 additional euros of output, that individual gets to consume only 40 euros of additional consumption and pays directly or indirectly 60 euros in taxes...

An important observation is that when European and U.S. tax rates were comparable, European and U.S. labor supplies were comparable. At the aggregate level, where idiosyncratic factors are averaged out, people are remarkably similar across countries. This is true not only for the G-7 countries, but for Chile and Mexico as
shown by Bergoeing et al.(2002) and for Argentina as shown by Kydland and Zarazaga (2002)...

I am surprised that virtually all the large differences between the U.S. labor supply and those of Germany and France are due to differences in tax systems. I expected institutional constraints on the operation of labor markets and the nature of the unemployment benefit system to be of major importance. They do appear to be
important in Italy in the 1970 –74 period."

On June 10 I posted on a post by Kash over at Angry Bear: "Do you use your productivity for consumption or for leisure? And why?". The labor hour estimates above exclude untaxed labor, so don't pick up the underground sectors in the different countries. One of the people commenting on my earlier post, ivan, suggested that tax incentives may be prompting Europeans to spend relatively more time in the underground economy.

Arnold Kling posts on the care that needs to be taken in interpreting the European and U.S. productivity measures, here: "European Productivity"

posted by Ben Muse at 10:25 PM

 
Words to avoid in book reviews

Tom Payne provides a list of cliches common to book reviews, in this piece from the Daily Telegraph: "Circle of cliches"

This makes it into an economics blog because of the analysis of the incentives implied by the cliche, "the editor should be shot":

"editor should be shot – wouldn't it be better to shoot those who write "the editor should be shot"? The phrase normally appears in connection with a list of minor quibbles. But to punish editors with this ultimate sanction would lead to a smaller number of editors, not only through their execution but also by discouraging people from becoming editors in the future. The grim consequence of this would be a major increase in minor quibbles."

A funny column. I learned about this at the Arts & Letters Daily

posted by Ben Muse at 3:06 PM

 
Brain function and choice

Jerry Adler reports on neuroeconomics - the study of the brain physiology of choice, for MSNBC: "Mind Reading"

"...Inside the scanner [brain scanner - Ben] at Caltech, I played a version of what economists call the "investment game." Quartz, in the next room, watched images of my brain while I manipulated a thumb switch and studied choices on fiber-optic goggles. At the same time his collaborator Read Montague was overseeing a subject inside a similar machine in his laboratory at Baylor University. The game is played thusly: at the start of each of 10 rounds, I am given an imaginary stake of $10. I can keep it all, or "invest" some or all of it with my opposite number at Baylor. Anything I invest gets tripled, and the other player then has the option of returning any portion of that amount back to me. If I keep $5 and invest $5, the other player has $15 to divide between us. He can keep it all and send me nothing if he chooses, but since in this version of the game we play for 10 rounds—there are also one-round variations—he obviously has an incentive to keep my trust. This game investigates one of the —hottest topics in behavioral economics: interpersonal trust. Observing that some societies are consistently richer than others, social scientists have invoked such ingenious explanations as "the Protestant ethic" (of working and saving for the future) or "the resource curse" (when an elite controls a valuable natural resource, such as oil, and has no incentive to encourage political and economic modernization). One of the newest explanations is "trust," which varies widely between societies and is strongly correlated with economic growth, says Paul Zak, an economist at Claremont Graduate University. Trust encourages savings and investment, and reduces the "transaction cost" of investigating the people you do business with. But, compared with well-studied behaviors such as aggression, relatively little is known about the biological basis for trust. (Zak's own research is not on brain function directly, but on oxytocin, a hormone that seems to promote trust. It is usually studied in relation not to the stock market but to lovemaking and breast-feeding.)..."

How did Adler do? You'll have to read the story.

I learned about this story from Arts & Letters Daily

posted by Ben Muse at 3:04 PM

 
Scary stories reg writers tell around the campfire: "Jim Tozzi and the Data Quality Act"

The three-part Washington Post series on regulation continues with a story on the Data Quality Act (DQA) by Rick Weiss: " 'Data Quality' Law Is Nemesis Of Regulation" .

The DQA was passed in 2000 as an obscure 32 word section in a 712 page appropriations act. Congress directed the Office of Management and Budget (OMB) to prepare guidelines to "provide policy and procedural guidance to Federal agencies for ensuring and maximizing the quality, objectivity, utility, and integrity of information (including statistical information) disseminated by Federal agencies." Here's a short overview of the OMB guidelines: "The Data Quality Act: A revoluation in the role of science in policy making or a can of worms?".

Weiss describes the origins of the DQA, and explains how it has been used - with a special case study of the regulation of the herbicide artazine. The general theme is that the DQA was introduced as a tool for use by business interests to hobble health, safety, and environmental regulation. No one can be against the use of better science, so a requirement for better science has considerable rhetorical power. But since scientific results always have an element of uncertainty, if you set the science standards high enough you can create grounds for delaying or derailing science-based regulation.

There is a certain amount of credible evidence that small amounts of atrazine can disrupt "hormones in wildlife - in some cases turning frogs into bizarre creatures bearing both male and female sex organs." Weiss describes how industry lobbyist Jim Tozzi (the author of the DQA itself) challenged EPA science on atrazine:

"...That petition, filed by Tozzi, made a two-pronged attack on the effort to regulate atrazine more stringently. The first was to claim that the evidence for atrazine's gender-bending effects in frogs was not fully reproduced by other Syngenta-funded EcoRisk [Syngenta makes artazine, EcoRisk was a consulting firm hired by Syngenta to test it for potential problems - Ben] scientists...

Tozzi said reliance on irreproducible results would violate the Data Quality Act because information that is not reproducible is "not accurate, reliable or useful."

As evidence of irreproducibility, he pointed to the dozen or so studies sponsored by Syngenta in addition to Hayes's study [Tyrone Hayes, a professor at UC Berkeley, who had done considerable work on atrazine, both for EcoRisk and independently. His experiments had indicated that small amounts of atrazine could have considerable impact on frogs - Ben]. An independent panel of experts convened by the EPA had already expressed exasperation over the conflicting results and mistakes they found in the design and implementation of those studies.

In at least two of the studies the "control" frogs that were supposed to be atrazine-free were later found to have been in water contaminated with atrazine, an error the scientists said was unintentional. Another set of Syngenta studies was found to be unreliable because 80 to 90 percent of the animals died, apparently as a result of inadequate care.

Essentially what Syngenta-funded scientists did "was produce a number of studies that were purposefully flawed and misleading, and that changed the weight of the evidence," Hayes said.

While the EPA review also found some flaws in Hayes's studies, his conclusions have been echoed by at least four other independent research teams in three countries.

"What a coincidence that everybody can find an effect of atrazine on gonads," Hayes said, "except [those] funded by Syngenta."

David Michaels, a professor of occupational and environmental health at George Washington University School of Public Health and Health Services, said even a good study will appear "not reproducible" if enough bad studies are thrown into the mix.

"I call this 'manufacturing uncertainty,' and there is a whole industry to do this," said Michaels, who was the Energy Department's assistant secretary for environment, safety and health under Clinton. "They reanalyze the data to make [previously firm] conclusions disappear -- poof. Then they say one study says yes and the other says no, so we're nowhere."

Pastoor of Syngenta said there was no conspiracy to create conflicting data..."

Minor title change, 8-16-04.
posted by Ben Muse at 9:56 PM

 
The political use of economic analysis

The city of Arlington in Texas is considering providing funding for a new stadium for the Dallas Cowboys. See "New stadium in Arlington: Be careful what you request" (link provided by Craig Depken). The city evidently votes on it this November.

Depken (an economist at the University of Texas at Arlington) reports (in his blog Heavy Lifting) on an economic analysis, commissioned by the City of Arlington, of the stadium proposal. "Arlington stadium saga continues...".

Apparently the study only measures benefits and doesn't count any costs. Moreover, all benefits are measured in 2010 dollars. Inflation between now and 2010 is assumed to be 3% a year, so the benefit estimate will be misleadingly high. Depken notes that, while local papers noted that costs were not counted, broadcast media outlets treated the results as an actual cost-benefit study.

I learned about Depken's posts from Skip Sauer, who says that that at Clemson, they refer to distorted analyses created by boosters to promote a project as "Billboard Economics".

Revised 8-15-04. The title used to be "The use of cost-benefit analysis to mislead." The report itself doesn't claim to be a cost-benefit analysis. The title is "Economic and Fiscal Impacts
for the Proposed NFL Stadium in Arlington, Texas." In general it appears to be an optimistic application of multiplier analysis to stadium related expenditures. The Dallas Morning News has a helpful article on the report, here: "Study on Arlington Cowboys stadium debated ". (registration required)

posted by Ben Muse at 8:39 AM

 
Bush Administration regulation

The Washington Post has begun a three part series on regulation under the Bush Admistration. The first contribution, by Amy Goldstein and Sarah Cohen, appears tomorrow: "Bush Forces a Shift In Regulatory Thrust. OSHA Made More Business Friendly"

posted by Ben Muse at 7:33 PM

 
State anti-gouging laws are counterproductive

Michael Munger elaborates: "The Political Economy of Wishful Thinking" Useful links.

posted by Ben Muse at 4:38 PM

 
Raw materials tariffs hurt raw material using industries

That can't come as any surprise. Virginia Postrel points to a current example; tariffs on Canadian lumber and Mexican cement that drive up these inputs and exacerbate the troubles of the construction industry, and threaten the economic recovery: "Recession-Boosting Protectionism"

posted by Ben Muse at 9:00 PM

 
How to make monkeys work hard

Randall Parker (FuturePundit) reports that scientists have been able to manipulate chemical processes in the brains of monkeys in ways that, at least for a few weeks, make them work harder and more efficiently: "Monkeys Turned Into Workaholics With Brain Gene Suppression". The experiment was based on a new understanding of the genetic basis of the way the brain evaluates effort-reward relationships.

Parker anticipates eventual application to humans and speculates about the implications: (1) treatment for certain mental disorders such as depression; (2) decisions by healthy people to take the drug, in order to give themselves an edge at work; (3) employer requests for genetic material from prospective employees to make sure they will be hard workers; (4) macroeconomic productivity enhancements through widespread use of a drug based on this knowledge; (5) genetic engineering of children so that they have a desirable work ethic.

Title change, 8-16-04.

posted by Ben Muse at 2:27 PM

 
What kind of a hold do these people have over the government?

Under the framework rules just negotiated in Geneva, countries are allowed to shield "sensitive" products from liberalization to some extent.

Big sugar is in line for shielding: Today the "PR Newswire" reports that, "A top government trade policy official told an international sweetener industry conference that the United States is "very likely" to designate sugar as a sensitive product in the Doha Round of World Trade Organization negotiations..." The rest of the story is here: "U.S. Official Tells International Sweetener Symposium: U.S. Very Likely to Designate Sugar as Sensitive Product in WTO"

Kenneth Dam writes,

"Sugar production constitutes an extreme but illustrative case of the lengths to which governments have been persuaded to go in supporting domestic agricultural production. It also illustrates why the notion of deep proportional reductions in support would face strong interest group opposition even in the United States. In chapter 1 we saw that the sugar industry involved an iron triangle of interest group, Executive bureau, and congressional committee. In 1981 President Reagan agreed to impose quotas on sugar imports in order to effectuate a congressional decision to set a minimum domestic price for raw sugar at a level more than twice the world price. The beauty of the quota arrangement from the standpoint of each angle of the iron triangle...was that domestic sugar growers would have their incomes enhanced without the necessity of appropriating any funds. The resulting sugar program added "another $3 billion a year to American consumers' grocery bills," according to a 1988 Commerce Department study. A General Accounting Office study found that in 1998 the direct gain to the sugar industry was $1.6 billion. But the impact is more complicated than appears because the sugar program generated a further implicit subsidy to corn farmers, who were able to sell more corn for use in high-fructose corn syrup, "which is profitably sold to soft-drink bottlers because domestic sugar prices are propped up so much." Thus, the sugar program acquired a second domestic constituency and further diminished the efficiency of both domestic agriculture and international trade."

Kenneth Dam, The Rules of the Global Game, page 111)

The text of the framework agreement on sensitive products reads:

"Sensitive Products

Selection

31. Without undermining the overall objective of the tiered approach, Members may designate an appropriate number, to be negotiated, of tariff lines to be treated as sensitive, taking account of existing commitments for these products.

Treatment

32. The principle of ‘substantial improvement’ will apply to each product.

33. ‘Substantial improvement’ will be achieved through combinations of tariff quota commitments and tariff reductions applying to each product. However, balance in this negotiation will be found only if the final negotiated result also reflects the sensitivity of the product concerned.

34. Some MFN-based tariff quota expansion will be required for all such products. A base for such an expansion will be established, taking account of coherent and equitable criteria to be developed in the negotiations. In order not to undermine the objective of the tiered approach, for all such products, MFN based tariff quota expansion will be provided under specific rules to be negotiated taking into account deviations from the tariff formula."

posted by Ben Muse at 1:19 PM

 
Moral hazard links

Mahalanobis provides useful links to four online articles on moral hazard, here: "Moral Hazard"

posted by Ben Muse at 11:16 PM

 
Randal O'Toole doesn't think the National Parks need more money

Resource economist Randal O'Toole critiques a Kerry proposal to increase the National Park System budget with money obtained by a reform of the Mining Act of 1872: "Mining the National Parks"

O'Toole argues that this creates an incentive for the Park Service to encourage park mining. Moreover, he argues that much of the Park Service backlog of investment needs is unneeded (and expensive) employee housing.

posted by Ben Muse at 10:40 PM

 
Making Babies

Remember when overpopulation was a problem? It's not now, at least in the developed countries. Andrew David Chamberlin reports on Australia's new baby bonus to encourage childbearing: "Australia's Baby Economics"

posted by Ben Muse at 9:28 PM

 
The Alaska Senate race

Blaine Harden reports for the Washington Post on the Alaska Senate race between former Anchorage Mayor and Alaska Governor Tony Knowles, and incumbent U.S. Senator Lisa Murkowski: "Sen. Murkowski's Big Problem: Dad, the Governor"

Murkowski was appointed to office by her father, Governor Frank Murkowski. Governor Murkowski was one of our U.S. Senators for many years, but won the governor's office in 2002, and appointed his daughter, a state legislator, to fill his unexpired term. This was an awful way to start out.

Challenger Tony Knowles has his own burden. He has to overcome the perception that John Kerry and the Democrats aren't really excited about opening more areas on the north slope to oil drilling or more acreage in the Tongass Forest in SE Alaska to lumbering.

posted by Ben Muse at 9:17 PM

 
DeLong on Skidelsky and Keynes

Brad DeLong re-reviewed the first two books of Robert Skidelsky's three volume biography of John Maynard Keynes: "Robert Skidelsky's Biography of John Maynard Keynes" in a post today. A good read (the review and the books).

posted by Ben Muse at 8:22 PM

 
What's in it for our Australian friends?

In February, the US and Australia signed a Free Trade Agreement (FTA). Details may be found at the website of the U.S. Trade Representative (USTR), here: "U.S.-Australia Free Trade Agreement", and at the website of the Australian Department of Foreign Affairs and Trade (DFAT), here: "Australia-United States Free Trade Agreement".

In the US, Congress and the President have both signed off on the agreement. Meanwhile, in Australia, they're weighing the pros and cons of the treaty. In Australia, I gather that legislative assent isn't necessary for a treaty to come into force, but it is necessary for the enabling legislation. The Australian House has passed legislation, and now it is before the Australian Senate.

John Quiggin has a nice post giving linking to the range of Australian blog opinion on the deal: John Quiggin: A good week for Ozplogistan. Quiggin himself has posted extensively on the politics and economics of the FTA. His posts can be found by typing in "FTA" on the his blog's search engine (just down the right hand column a little bit).

posted by Ben Muse at 10:15 PM

 
Can you imagine preparing the EA/RIA/IRFA for these regulations?

Alex Tabarrok at Marginal Revolution notes that, after New Zealand decriminalized prostitution, the NZ Occupational Safety and Health Service had to prepare appropriate regulation: "Regulating sex work".

If we go that route here, someone will have to prepare the regulatory analyses required by the National Environmental Policy Act (a CE, and EA, or an EIS), Presidential Executive Order 12866 (cost-benefit analysis - an RIA), and the Regulatory Flexibility Act (impacts on small business - a certification, or an IRFA, a FRFA, and a small business compliance guide). Various other assessments (federalism, environmental justice) may be appropriate. All with appropriate peer review and compliance with the Data Quality Act.

I hope someone else has to do it. I bought Posner's book on law, economics and sex policy (Sex and Reason), once because I thought it might have some amusing examples to hold my students' attention, but I became too embarrassed to finish reading it.
posted by Ben Muse at 12:40 PM

 
The WTO uphold's Brazil's challenge to the EU sugar quotas

The Washington Post has the story here: "WTO Rules Against EU Sugar Subsidies". The New York Times reports here: "W.T.O. Rules for Brazil in Sugar Dispute".

Peter Gallagher comments here: "Sugar case victory on EU subsidies ", and Vic Keegan comments here: "Legal victory against sugar subsidies".

posted by Ben Muse at 10:18 PM

 
"Summertime and the Living is Easy"

If you're on Cape Cod this summer, take a dip in a kettle hole. If you're there on a rainy Saturday, go to my Dad's bookstore, Parnassus Book Service, in Yarmouthport. Tell him I sent you. For something a little different, buy a copy of In the Footsteps of Thoreau. 25 Historic Nature Walks on Cape Cod by Adam Gamble, and take a hike. Gamble has designed 55 hikes, long and short, so you can follow Thoreau on his four excursions to the Cape in the 1840s and '50s. You may also want to read Thoreau's Cape Cod.

I've been following the reopening of the Delsea Drive-in of Vineland, N.J., this summer ("Drive-in movies"). Samuel was there the first weekend, and posted this report, with pictures, to his blog: "Cheap Thrills".
posted by Ben Muse at 4:07 PM

 
Labor's share of national income

The most recent National Economic Trends of the Federal Reserve Bank of St. Louis has a short cover story by Michael Pakko on trends in labor's share of U.S. national income: "Labor's share"

His figure shows his estimate of total labor compensation by year since 1948 (including wages, salaries, employer social insurance contributions and benefits, an estimate of the labor portion of proprietors' income) and and an estimate of wage and salary income:

"...The dashed line shows wage and salary income as a fraction of national income. This measure clearly shows a declining trend in recent decades. Having reached a peak of 58 percent in 1970, wages and salaries have declined to only 52 percent of national income in 2003. However, if we consider total compensation—including employer social insurance contributions and benefits—labor’s share has shown very little variation. By this measure, labor’s share of national income has averaged 70.5 percent over the past 50 years and has remained within a narrow range of that average..."

See the commentary on this post over at Mahalanobis: "Growth Theory: Stylized Facts".

posted by Ben Muse at 9:48 PM

 
What would a Kerry trade policy look like?

Daniel Drezner tries to figure it out given the conflicting signals from the Kerry camp: "Laura Tyson vs... John Kerry".

Peter Gallagher wonders if it matters: "Is Kerry a 'free trader'? Does it matter? ".
posted by Ben Muse at 9:21 PM

 
What happened at the WTO?

Rather than multiply the number of posts, I'll try to accumulate a number of links in this one over the next day or so.

What was the point

The point of these negotiations was to get a political agreement on a framework within which to pursue more detailed negotiations. The framework identifies issues to pursue (for example, elimination of export subsidies), issues not to pursue (for example, transparency in government procurement), and describes how issues are to be pursued (for example cut agricultural tariffs using a tiered formula). But lots of details are left out.

Negotiations to flesh out the framework will begin again in September. The European Union's (EU)'s trade representative, Pascal Lamy, indicated today that he thought the negotiations could be completed by the end of 2005 (about 12 months later than originally planned). The next conference of WTO member country ministers takes place in December 2005 in Hong Kong. If the agreement is completed in 2005, it could become effective in 2006. This WTO web page describes how the negotiations are organized: "The Trade Negotiations Committee".

The WTO web site and the text of the agreement

The WTO web site release on the negotiation results is here: "Round-the-clock meetings produce ‘historic’ breakthrough". The text of the actual agreement is here: "Text of the ‘July package’ — the General Council’s post-Cancún decision". The U.S. Trade Representative's site has this useful bulleted list of key agreement elements: "Trade Facts".

Overviews

Peter Gallagher provides a preliminary analysis of the final document, here: "A guide to the WTO Framework Agreement. ".

Paul Blustein summarizes the agreement in the Washington Post: "Accord Reached On Global Trade".

"...In simple terms, the deal struck Sunday would work as follows: Wealthy nations would cut their subsidy payments to farmers, especially payments that tend to lead to overproduction and gluts in supply on world markets. Such subsidies have drawn widespread condemnation for depressing global crop prices and robbing farmers in poor lands of their livelihoods.

In return, developing nations would cut the steep tariffs that many of them maintain on agricultural and industrial goods, thereby expanding market opportunities for rich-country exporters.

But whether those cuts will be deep or shallow, immediate or gradual depends on how far negotiators are willing to go in making concessions as the Doha Round progresses. Sunday's deal leaves a huge amount of detail to be negotiated later, and negotiators here fought hard to keep many of their commitments as vague as possible to maintain their flexibility in the future talks..."

Michael Hughes of Reuters surveys reactions from a variety of countries and private charities (such as Oxfam): "Europe Lauds WTO Deal; China Complains".

The August 3 issue of the weekly trade bulletin "Bridges" from the International Centre for Trade and Sustainable Development (ICTSD) has several articles on the negotiations: "WTO: July Framework Agreed At Eleventh Hour", " Agriculture: 'Remarkable Turn-Around' From Cancun", and "Work on Development Sees Limited Progress At WTO".

The Economist weighs in: "Progress at last, but still a long way to go".

Why was agreement reached in Geneva, but not in Cancun?

Peter Gallagher argues that Geneva succeeded because of the (1) the EU was willing to lay its agricultural export subsidies on the table (and French protests suggested that this was a proposal the world community had now but might not have later), and (2) because,while the text that formed the starting point in Cancun was an EU/US compromise, the text that formed the starting point in Geneva had input and buy-in from more countries and perspectives.

Peter Wilson, in The Australian contrasts the roles played by the less developed countries differed in Cancun and Geneva: "Poor nations flex trade muscles". A group of five countries or country-groupings (US, EU, Australia, Brazil and India) played a crucial role in the negotiations. Wilson provides a nice description of the origin of this group of "Five Interested Parties" or "FIP." Gustavo Capdevila writes about the changed negotiating roles of Canada and Japan, on the one hand, and Brazil and India, on the other: "TRADE: Recasting the Starring Roles in WTO".

Paul Blustein reports that the negotiations may have been successful, because poor countries were afraid of the damage that would be done to the WTO if they were not: "Poor Nations Put Premium on WTO's Survival ".

"...In the end, for all the fierceness of their differences over issues such as farm subsidies and tariffs on manufactured goods, the representatives of the WTO's 147 member countries stepped to the brink and saw that the abyss into which they might plunge was deeper and scarier than the leap they had taken in Cancun. Many fretted that the Doha Round, and conceivably the trade body itself, might not be able to withstand another Cancun-style blow.

Those concerns were particularly strong among developing countries, including some of the same Latin American, African and Asian nations that had celebrated their defiant stance at Cancun as a triumph over the arrogance of the United States and the European Union. Despite complaints that Washington and Brussels use their clout to tilt the terms of global trade in their own favor, developing countries are keenly aware that the WTO system protects the interests of poor lands, especially small ones, much better than if world trade were governed by regional blocs or by the equivalent of the law of the jungle..."

State Trading Boards

The agreement calls for the end of trade-distorting practices by State Trading Boards, such as the Canadian Wheat Board. This Canada.com story, "Canada's wheat board under fire as WTO members agree to cut farm subsidies", describes a certain amount of Canadian concern about this issue:

"...Ken Ritter, president of the Canadian Wheat Board, said he was concerned the deal would break a promise the Canadian government made to protect the grain marketing monopoly.

In a telephone conference call from Geneva after the deal was announced, Peterson said: "In terms of supply management and in the case of the wheat board, I have to be honest with you, we were under attack."

"It was one against 146. We had absolutely no allies at the negotiating table, so there's no doubt that the WTO is not going to be a friend of either supply management or the Canadian Wheat Board."

Canada's Agriculture Minister Andy Mitchell added: "In (the agreement's) text, it suggests that as a state trading enterprise...that it is operating in a manner that distorts trade, that it is operating and providing export subsidies and as such would be required to cease activities that would be defined as export subsidies."

"The position of Canada is that the wheat board does not operate in such a manner, that its actions are not trade-distorting."

"The wheat board has been challenged on a number of occasions in the past and on each occasion it has been found that it has not been operating in that manner."..."

Similar concerns have also been raised in Australia: "End not nigh for single-desk sales: Vaile".

The "Group of 10"

The Group of 10 was a grouping of ten countries that sought to protect their agricultural sectors with subsidies and high tariffs. The countries included Switzerland, Japan, Norway, Taiwan, and South Korea. This July 23 Swissinfo report summarizes their negotiating objectives: "Switzerland defends agriculture subsidies".

The agreement calls for reductions in agricultural tariffs. This is a concern to countries like Japan and Norway, which protect agricultural sectors behind high tariff barriers. The Japan Times says that Japan sees a lot of flexibility in the agreement to protect its high agricultural tariffs: "WTO adopts framework accord for global trade".

"The agreement calls for the WTO to adopt a "tiered formula" under which products with higher tariffs will face deeper tariff cuts.

By taking into consideration positions of food-importing countries like Japan, the accord proposes that each WTO member be given discretion in designating politically "sensitive" products, such as rice for Japan.

"Without undermining the overall objective of the tiered approach, members may designate an appropriate number, to be negotiated, of tariff lines to be treated as sensitive, taking account of existing commitments for these products," it says.

On Saturday, Japanese Agriculture, Forestry and Fisheries Minister Yoshiyuki Kamei said at a news conference Tokyo supports the revised text because it "allows for a broad framework agreement where food-importing nations will continue to assert what they deem necessary."

In the agreement, the WTO remained uncommitted to a tariff cap or a ceiling for high-tariff products that the so-called Group of 10 food-importing countries, including Japan, strongly opposes in order to protect their high-tariff agricultural products.

"The role of a tariff cap in a tiered formula with distinct treatment for sensitive products will be further evaluated," the document says.

Japanese negotiation sources said the phrase indicates the WTO has effectively decided to postpone making a decision on the tariff-cap issue until future talks."

Norwegian farmers are concerned about the loss of tariff protection as well: "Norwegian farmers fear new WTO agreement". With respect to the Swiss: "Swiss give cautious welcome to global trade deal".

The Indians seem pleased

The Indian government and papers seem pleased with the results. Here's the Indian government's press release: "Major Victory for India in WTO Revised Framework Agreement". The Indian Express reports that "Delhi wears a broad smile at Geneva table". The Times of India reports: "Jai Kisan deal: India scores win at WTO". The Hindustan Times: "India has its way at WTO talks".

Revised Tuesday, August 3, 9:20 PM

posted by Ben Muse at 12:47 PM