Economics – Page 156 – artdiamondblog.com

Obama Should Remember that a Tariff War Helped Create the Great Depression

As an economics graduate student at Harvard, David Rockefeller was a student of Joseph Schumpeter.
After Schumpeter died, his wife spent the last few years of her life working to pull together the disorganized, but nearly completed, manuscript of Schumpeter’s magnificent History of Economic Analysis. In her preface, Mrs. Schumpeter writes: “It seems appropriate at this point to acknowledge gratefully a gift from David Rockefeller and a grant from the Rockefeller Foundation which made possible much of the secretarial and editorial assistance outlined above.” (p. x)
Below I quote a few passages from David Rockefeller’s reaction to Obama’s imposition of tariffs on Chinese automobile tires:

(p. A21) AS if he needed another policy concern to distract him from the health care debate, President Obama now finds himself embroiled in a quarrel with China over his imposition of a steep tariff on automobile tires from that country that is to take effect this week. The Chinese have responded by threatening to impose higher tariffs on American chicken. This may seem like a petty dispute, but the controversy could endanger the global economic recovery if the underlying issue — the rise in protectionism –is not resolved quickly and forcefully. Perhaps Washington has justification for increasing tariffs in this particular case, but in general it sets a bad precedent.

President Obama should resist the desire to accommodate the forces of protectionism from unions, environmentalists and cable television pundits alike. Giving in to their demands may be politically astute, but it would send the wrong message to our trading partners and, more important, inflict damage on the already weakened American economy. Despite the recent rally in the stock market, the next two or three years could still be very painful.
I lived through the stock market crash of 1929 and the Great Depression that followed it, and I saw that there was no direct cause and effect relationship. Rather, there were specific governmental actions and equally important failures to act, often driven by political expediency, that brought on the Depression and determined its severity and longevity.
One critical mistake was America’s retreat from international trade. This not only helped to turn the 1929 stock market decline into a depression, it also chipped away at trust between nations, paving the way for World War II.

For the full commentary, see:
DAVID ROCKEFELLER. “Present at the Trade Wars.” The New York Times (Mon., September 21, 2009): A21.
(Note: the online version of the commentary is dated Sun., Sept. 20.)

Free-Market German Aristocrat Receives Ovation for Opposing Bailout

(p. A7) BERLIN — Could the heir apparent to Chancellor Angela Merkel be a wealthy, handsome 37-year-old baron who loves rock ‘n’ roll?

The baron, Karl-Theodor zu Guttenberg, vaulted to prominence this year when he took over the often dull job of economics minister in the midst of the financial crisis. His independent stand on a thorny economic matter earned him the respect of voters.
. . .

It was his independent streak that earned him the respect of voters, rather than just their curiosity. Mr. Guttenberg broke ranks with Mrs. Merkel over how to handle the troubled German automaker Opel. Mrs. Merkel supported a consortium led by Magna International, a Canadian auto parts maker, and Sberbank, a Russian bank. Mr. Guttenberg favored bankruptcy, and even offered to resign just months into his tenure.
He lost the battle, but gained credibility with voters — an important commodity with a disenchanted electorate that has largely ignored the coming vote. At the big kickoff campaign rally in Düsseldorf for Mrs. Merkel’s conservative Christian Democratic Union, Mr. Guttenberg was the only politician to receive a spontaneous ovation from the crowd of 9,000.

For the full story, see:
NICHOLAS KULISH and JUDY DEMPSEY. “Aristocrat’s Rise Shakes German Doldrums.” The New York Times (Weds., September 22, 2009): A7.
(Note: ellipsis added.)

Adaptation of Thai Rice Farmers to Global Warming

A 2009 study of the effects of global warming on Thai rice farmers, finds that most such farmers have been able to fully adapt to milder changes, and to allay the worst effects of extreme changes. The researchers note that for milder changes, the farmers may even benefit from the increased rainfall that often accompanies such changes. The researchers also note that the adaptation would have been greater if they had been able to take account of the full range of adaptations the farmers could make:

(p. 210) Our results illustrate the complexity of climate change effects on rice yields at both the aggregate and individual levels, the scope of farmers’ ability to counter climate change, and thus the importance of accurate modeling of farmers’ decisions. Overall, farmers are unable to neutralize the adverse effects of the more extreme climate change. However, they are able to cope with milder climate change and even benefit slightly from small increases in rainfall. While most farmers manage to adjust to milder climate change, poor farmers are less able to do so.

It should be noted that in our analysis we consider only farmers’ adjustment through input decision rules. We do not model or incorporate possible changes in timing of input usage, nor broader adjustments such as changes in the type of crop grown or migration. As a result, our findings may overstate both yield changes and implied welfare effects of climate change.

Source:
Felkner, John, Kamilya Tazhibayeva, and Robert Townsend. “Impact of Climate Change on Rice Production in Thailand.” American Economic Review 99, no. 2 (May 2009): 205-10.

Jane Jacobs “Rightly Condemned the Arrogance and Elitism of Urban Planners”

Source of book image: online version of the WSJ review quoted and cited below.

(A15) In her day, she was a tenacious activist and an opponent of powerful interests, courting disfavor in high places. But today everyone loves Jane Jacobs, and understandably so. The author of the now-classic “The Death and Life of Great American Cities” (1961) is widely regarded as a common-sense visionary who reminded people about what makes cities livable.

According to Anthony Flint, the author of ”Wrestling With Moses,” Jacobs’s most important contribution was the idea that “cities and city neighborhoods had an organic structure of their own that couldn’t be produced at the drafting table.” Mr. Flint, a former journalist who now works at the Lincoln Institute of Land Policy, clearly counts himself as a Jacobs fan. His book is a lively and informative valentine to her, aimed at showing us especially how she “took on New York’s master builder and transformed the American city.”
The villain of the story is Robert Moses, the ”master builder” who for four decades–from the 1930s into the 1960s–led several well-funded, quasi-governmental agencies and radically transformed the landscape of New York, building roads, bridges, tunnels, parks, playgrounds, beaches and public housing. Though he never held elective office, he was powerful indeed, establishing a formidable base in the city and state bureaucracies. He might have fallen into obscurity after his death if it were not for Robert Caro, who immortalized Moses in “The Power Broker” (1974), a massive biography that portrays Moses as a despot whose creations helped to destroy the city.
. . .
One roots for Jacobs every step of the way, not least because she rightly condemned the arrogance and elitism of urban planners. And Moses was, in fact, a bully who had acquired too much power and disregarded the concerns of local residents. Slum clearance too often targeted functioning working-class neighborhoods, and urban renewal went far beyond what its utopian aims could possibly deliver.

For the full review, see:
VINCENT J. CANNATO. “Not Here, She Said; How Jane Jacobs fought the ‘power broker’ to save the Village–and a city.” The Wall Street Journal (Thurs., July 29, 2009): A15.
(Note: ellipsis added.)

The source of the book being reviewed, is:
Flint, Anthony. Wrestling with Moses: How Jane Jacobs Took on New York’s Master Builder and Transformed the American City. New York, NY: Random House, Inc., 2009.

Creator of Cap-and-Trade Now Says Plan is Ineffective and Inflexible

“When he was a graduate student in the 1960s working to reduce pollutants, Thomas Crocker devised a cap-and-trade system similar to one being considered in Congress.” Source of photo and caption: online version of the WSJ article quoted and cited below.

(p. A7) In the 1960s, a University of Wisconsin graduate student named Thomas Crocker came up with a novel solution for environmental problems: cap emissions of pollutants and then let firms trade permits that allow them to pollute within those limits.

Now legislation using cap-and-trade to limit greenhouse gases is working its way through Congress and could become the law of the land. But Mr. Crocker and other pioneers of the concept are doubtful about its chances of success. They aren’t abandoning efforts to curb emissions. But they are tiptoeing away from an idea they devised decades ago, doubting it can work on the grand scale now envisioned.
“I’m skeptical that cap-and-trade is the most effective way to go about regulating carbon,” says Mr. Crocker, 73 years old, a retired economist in Centennial, Wyo. He says he prefers an outright tax on emissions because it would be easier to enforce and provide needed flexibility to deal with the problem.
. . .
Mr. Crocker sees two modern-day problems in using a cap-and-trade system to address the global greenhouse-gas issue. The first is that carbon emissions are a global problem with myriad sources. Cap-and-trade, he says, is better suited for discrete, local pollution problems. “It is not clear to me how you would enforce a permit system internationally,” he says. “There are no institutions right now that have that power.”
Europe has embraced cap-and-trade rules. Emissions initially rose there because industries were given more permits than they needed, and regulators have since tightened the caps. Meanwhile China, India and other developing markets are reluctant to go along, fearing limits would curb their growth. If they don’t participate, there is little assurance that global carbon emissions will slow much even if the U.S. goes forward with its own plan. And even if everyone signs up, Mr. Crocker says, it isn’t clear the limits will be properly enforced across nations and industries.
The other problem, Mr. Crocker says, is that quantifying the economic damage of climate change — from floods to failing crops — is fraught with uncertainty. One estimate puts it at anywhere between 5% and 20% of global gross domestic product. Without knowing how costly climate change is, nobody knows how tight a grip to put on emissions.
In this case, he says Washington needs to come up with an approach that will be flexible and easy to adjust over a long stretch of time as more becomes known about damages from greenhouse-gas emissions. Mr. Crocker says cap-and-trade is better suited for problems where the damages are clear — like acid rain in the 1990s — and a hard limit is needed quickly.
“Once a cap is in place,” he warns, “it is very difficult to adjust.” For example, buyers of emissions permits would see their value reduced if the government decided in the future to loosen the caps.

For the full story, see:
JON HILSENRATH. “Cap-and-Trade’s Unlikely Critics: Its Creators; Economists Behind Original Concept Question the System’s Large-Scale Usefulness, and Recommend Emissions Taxes Instead.” The Wall Street Journal (Thurs., AUGUST 13, 2009): A7.
(Note: ellipsis added.)

In Economic Policy, as in Medicine: “First, Do No Harm”

(p. A13) Consider someone rushed into an emergency room in severe cardiac distress. After starting acute life-support measures, doctors still apply the rule stated by Galen of Pergamum more than 1,800 years ago: primum non nocere, or “First, do no harm.” Treatment interventions are selected carefully from a battery of technologies and potent drugs while recognizing that any one of them, or a combination, could hurt the patient if misapplied or given in the wrong dosage. Economic interventions require no less care.
. . .
Our economic doctors should permit America’s uniquely effective immune system to take over as companies and financial institutions deleverage their balance sheets. With people and with capitalism, the tincture of time is often the best medicine.

For the full commentary, see:
MICHAEL MILKEN and JONATHAN SIMONS. “Illness as Economic Metaphor; The first rule, as always, is do no harm..” The Wall Street Journal (Sat., June 20, 2009): A13.
(Note: italics in original; ellipsis added.)

Feds Force Farmers to Let Tons of Cherries Rot

“Leonard Ligon, a farmer near Traverse City, Mich., stands in mounds of tart cherries that he had to dump because of a price-stabilization program. Mr. Ligon says he discarded 72,000 pounds of the crop.” Source of photo and caption: online version of the WSJ article quoted and cited below.

(p. A5) Farmers in Michigan and six other states are harvesting a bumper crop of tart cherries. But the bounty is turning out to be the pits for farmers whose fruit is rotting in orchards instead of bubbling in cherry pies.

Under a Depression-era federal program designed to keep prices from plummeting, tart-cherry farmers are being told by fruit processors to leave up to 40% of their crop unharvested.
“It’s kind of heartbreaking,” said Rob Manigold, a tart-cherry farmer near Traverse City, Mich. Michigan grows about 75% of all the tart cherries in the U.S.
. . .
The tart-cherry industry operates under a government-sanctioned plan called a federal marketing order that dates to 1933. It allows farmers and processors to legally regulate supply to keep prices stable. Other commodities that operate under similar programs include some types of dates, olives and kiwifruit.
. . .
This year, the industry board, a 18-member panel of growers and processors, determined that there were more than enough cherries in the fields to satisfy demand and to replenish the reserves. So the board limited how much processors can put on the market in the U.S. That leaves farmers with cherries they can’t sell and are left to rot.
Bern Kroupa, a 61-year-old fruit farmer outside Traverse City in Michigan’s northern lower peninsula, said this year he is going to let about a quarter of his crop — about 500,000 pounds — rot.
. . .
Leonard Ligon, another tart-cherry grower near Traverse City, Mich., generated a lot of local press last week when he dumped 72,000 pounds of cherries alongside a country road on his farm. “I wanted to make the public aware of the plight of the tart-cherry farmer,” he said. “I could call it a mulch pile.”

For the full story, see:
LAUREN ETTER. “Bumper Cherry Crop Turns Sour; Tons of Unharvested Fruit Rots Under Government Program to Keep Prices Stable.” The Wall Street Journal (Sat., AUGUST 22, 2009): A5.
(Note: ellipses added.)

Global Warming Laws May Increase Food Prices

(p. A5) Some of the nation’s biggest food and agriculture companies are planning to release a flurry of studies in coming weeks that scrutinize the potential impact of climate-change legislation, warning that it could lead to higher food prices.
. . .
In a letter sent last month to Sens. Barbara Boxer, the California Democrat, and Republican James Inhofe of Oklahoma, the coalition said the House bill “will increase food and feed prices and reduce the international competitiveness of our businesses.”
The letter said Congress “must take extreme care to avoid adverse impacts on food security, prices, safety, and accessibility to necessary consumer products.” The letter also criticized the House bill for failing to provide transitional assistance to “low-income households struggling with rising food prices.”
When the group’s studies are released, possibly by the end of August, they are likely to reignite tensions between food and ethanol producers that have raged since 2007 when Congress passed energy legislation that gave a big boost to the corn-ethanol industry.
The food industry has complained that the energy bill pushed up prices for corn and other key food ingredients that resulted in higher consumer prices as the ethanol industry siphoned more corn to make ethanol.

For the full story, see:
LAUREN ETTER. “Food Firms Fret Over Potential Impact of Climate Bill; Coalition, Including Agricultural Giants, Plans to Draw Attention to Concerns That Legislation Could Lead to Higher Food Prices.” The Wall Street Journal (Weds., Aug. 13, 2009): A5.
(Note: ellipsis added.)

Omaha’s MidAmerican Energy “Is Ready to Assist BYD’s Foray into the U.S. Auto Market”

“Wang Chuanfu, the chairman of Chinese auto maker BYD, with one of the company’s cars at the automobile show in Detroit in January.” Source of photo and caption: online version of the WSJ article quoted and cited below.

(p. B5) XIAN, China — BYD Co., the Chinese auto maker part-owned by Warren Buffett’s company, is finalizing plans for an all-electric battery car that would be sold in the U.S. next year, ahead of the original schedule, Chairman Wang Chuanfu said.
. . .
One source of Mr. Wang’s confidence in attacking the U.S. car market is BYD’s ties with MidAmerican Energy Holding Co., the unit of Mr. Buffett’s Berkshire Hathaway Inc. that paid about $230 million for a 9.9% stake in BYD.
MidAmerican Chairman David Sokol, who was also interviewed in Xian, said MidAmerican is ready to assist BYD’s foray into the U.S. auto market in “any way we could be helpful.” MidAmerican also might invest in BYD’s new initiatives in the U.S., which, in addition to automobiles, could involve solar panels and battery technology for power utilities.
Mr. Sokol also said MidAmerican hopes to boost its BYD stake if the chance arises. “If in the future there is an opportunity for us to continue to invest in BYD, we will be happy to increase our stake over time, but we will do it in cooperation with BYD,” he said. Mr. Wang said an increase is “negotiable.”

For the full story, see:
NORIHIKO SHIROUZU. “BYD to Sell Electric Car in U.S. Market Next Year.” The Wall Street Journal (Sat., AUGUST 22, 2009): B5.
(Note: ellipsis added.)

Obama Industrial Policy Risks Funding Dead Ends

(p. B1) President Obama has cast himself as a reluctant interventionist in two of the nation’s major industries, Wall Street and Detroit. The federal aid, he says, is a financial bridge to a postcrisis future and the hand-holding will be temporary.

Even so, the scale of the government investment and control — especially by the auto task force now vetting plans at Chrysler and General Motors — points to an approach that has been shunned by the United States more than other developed nations.
“By any coherent definition, this is industrial policy,” said Marcus Noland, a senior fellow at the Peterson Institute for International Economics.
. . .
(p. B7) . . . a more comprehensive, industrial-policylike approach to Detroit carries its own perils, economists say. In trying to manage the industrial shrinkage, they say, there is a fine line between easing the social impact and protecting jobs in ways that inhibit economic change and renewal. In pursuit of new growth, governments risk encouraging overinvestment in areas that prove to be technological dead ends.
In the Japanese experience, economists see evidence of both dangers. Problems, they say, are typically byproducts of what economists call “political capture.” That is, an industrial sector earmarked for special government attention builds up its own political constituency, lobbyists and government bureaucrats to serve that industry. They slow the pace of change, and an economy becomes less nimble and efficient as a result.
Economists say the phenomenon is scarcely confined to nations with explicit industrial policies and cite the history of agricultural subsidies in America or military procurement practices.
But going down the path of industrial policy certainly holds that risk. “You have to bear in mind the opportunity costs of these kinds of government interventions, and remember that life is not an economic textbook and that politics can easily override economic rationality,” said Mr. Noland, an author, with Howard Pack, of “Industrial Policy in an Era of Globalization: Lessons From Asia.”

For the full story, see:
STEVE LOHR. “Highway to the Unknown; Forays in Industrial Policy Bring Risks.” The New York Times (Weds., May 19, 2009): B1 & B7.
(Note: the online title is “In U.S., Steps Toward Industrial Policy in Autos.”)
(Note: ellipses added.)
The full reference to Noland and Pack’s book is:
Noland, Marcus, and Howard Pack. Industrial Policy in an Era of Globalization: Lessons from Asia, Policy Analyses in International Economics. Washington, D.C.: Peterson Institute, 2003.