We’ve gotten used to American dominance in the internet/​software industries. That may not last forever:

Over the weekend, China announced that it was planning to launch a homegrown operating system to replace Windows and Android for running the nation’s desktop and mobile devices. The first iteration of this “Made in China” OS could roll out as early as October

There is some good and bad with this. The good is that more competition in these industries would be great. While there is already a fair amount of disruption and innovation here, there are also some key products/​services where a couple firms are pretty dominant. Consumers would benefit tremendously from more competition.

At the same time, this may not play out exactly like we free market supporters would like. For example:

• “This new Chinese OS, almost certainly, would be much more of a top-down initiative from the Chinese government (via the Ministry of Industry and Information Technology) that may be more about meeting the needs of the government rather than meeting the needs of consumers.”
• “China’s government could build in backdoors and trapdoors to make it easier to monitor, control and censor users.”
• The basis of this new entrant into the OS market may in part be due to the fact that “Microsoft Windows 8 has been banned in China for use on new government computers since May.”

Americans have gained a lot from Chinese exports of products over the years. It would be great if the same thing could happen in the internet and software worlds.

Many Americans view the dissemination and enforcement of food safety standards as a basic function of government, and it’s difficult for them to imagine a world where food is both safe and unregulated. Libertarians can point out that the safety of a product is, just like quality and price, something that consumers directly care about and as such will be most effectively preserved in a competitive free market. But it’s one thing to make abstract economic arguments and quite another to have real life examples.

Well, here’s an interesting story from China, as reported by Reuters last week:

A Chinese retailer is offering insurance to customers who buy infant milk powder, highlighting the lengths to which companies are going to address concerns about food safety in China.

Suning Commerce Group Ltd, which owns the Redbaby chain of stores, told Reuters it had launched the policy this week, backed by China’s second largest insurer, Ping An Insurance Group.

The policy stipulates that if a brand of milk powder is recalled, customers who bought cans from any Redbaby store or its e‑commerce website would be paid up to 2,000 yuan ($325) per can, with payments capped at 100,000 yuan.

“In recent years, the milk powder market in China has been in a mess,” Suning said in an email.

“We realized that parents pay a great deal of attention to their children’s health and safety, and in particular, the safety of their infants’ foods,” it added. Insurer Ping An said Suning’s policy is the first of its kind in China.

Concerns about the safety of baby milk powder came to the fore in 2008 when thousands of infants fell sick and six died after an industrial chemical was added to raise the apparent protein content of certain products.

Personally, I doubt consumers actually want recall insurance. Parents don’t want to be compensated for buying a product that might injure their babies; they want safe products. But Suning’s providing the insurance signals to consumers that the retailer is willing to vouch for the safety of its product. 

Now that the retailer is on the hook financially, it will predictably put pressure on its suppliers and manufacturers. All of this is done simply to get more business from anxious customers and make more money.

Retailers have always played an important role in bridging the gap between mysterious supply chains and consumer confidence. Even in a highly regulated market, they reliably step in when regulators fail, and they do a better job of meeting the diverse demands of consumers in a pluralistic society.

Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere. We intend to highlight that gimmick and other Apple offshore tax avoidance tactics so that American working families who pay their share of taxes understand how offshore tax loopholes raise their tax burden, add to the federal deficit and ought to be closed.

I have long advocated for modernizing our broken and uncompetitive tax code, but that cannot and must not be an excuse for turning a blind eye to the highly questionable tax strategies that corporations like Apple use to avoid paying taxes in America. The proper place for the bulk of Apple’s creative energy ought to go into its innovative products and services, not in its tax department.

Unlike ever before, the world’s producers have a wealth of options when it comes to where and how they organize product development, production, assembly, distribution, and other functions on the continuum from product conception to consumption. As businesses look to the most productive combinations of labor and capital, to the most efficient production processes, and to the best ways of getting products and services to market, perceptions about the business environment can be determinative. In a global economy, “offshoring” is an inevitable consequence of competition. And policy improvement should be the broad, beneficial result.

I don’t follow domestic regulation as closely as many people at Cato, but I keep an eye on it in relation to “regulatory trade barriers” that are being addressed in trade negotiations. In that context, I came accross this EU attempt to crack down on high-wattage vacuum cleaners:

Consumers are being urged to buy powerful vacuum cleaners while they can after it emerged that some of the most powerful models on the market will disappear in September when a new EU rule comes into force.

An EU energy label, to be introduced from 1 September, means manufacturers will not be able to make or import vacuum cleaners with a motor that exceeds 1,600 watts.

…

European commission spokeswoman for energy Marlene Holzner said in a blog: “As a result of the new EU eco-design and labelling regulations, consumers will also get better vacuum cleaners. In the past, there was no legislation on vacuum cleaners and companies could sell poorly performing vacuum cleaners.”

Oh, the humanity! Companies might sell “poorly performing vacuum cleaners” to an unsuspecting public! And only legislation can save the day!

Or — and I know this might sound crazy to some people — we could just rely on consumers to evaluate the vacuum cleaners, buying the better ones and leaving the “poorly peforming” ones on the shelf.

Trade policy people spend most of their time talking about free trade between countries. But there is still some work to do on free trade within countries. Some Canadians are making a push right now, as Canadian business groups are calling for Canada’s leaders “to dismantle internal trade barriers and ensure the free movement of goods, services, capital and labour between all parts of the country.”

If that sounds odd, don’t get the wrong idea. It’s not as though Canadian provinces are imposing tariffs on each other. Rather, this is part of a more advanced notion of free trade, where you have a “single market” for goods and services. So for example, these groups complain that:

Different regulations and standards means that manufacturers may need to adapt their machinery in order to produce containers such as dairy creamers, butter and drinkable yogurts for sale nationally across all provincial jurisdictions.

Or:

massage therapy is regulated in some provinces but not all, meaning that a professional would have to become certified in order to be allowed to practice.

These issues are difficult to address between sovereign nations, although people are trying, most notably in the Transatlantic Trade and Investment Partnership negotiations. But within countries, it seems like this is something that could and should be dealt with. Here in the U.S., we have the famous problem of not being able to buy health insurance across state lines. The current effort in Canada seems like a valuable one; it might be useful to have a similar review of internal trade barriers here in the U.S.

It was good of the Washington Post Editorial Board to raise questions yesterday about the veracity of the “jobs-created-by-Export-Import-Bank-policies” claims proffered by the Bank’s supporters. I just wonder whether the editorial pulled its punches where a reporter on assignment or a more inquisitive journalist would have delivered an unabashed blow to the credibility of the Bank’s primary reauthorization argument: that its termination will lead to a reduction in U.S. exports and jobs.

Kudos to the Post for raising an eyebrow at the Bank’s claims of “jobs created” or “jobs supported” by Ex-Im financing: 

[W]hen it comes to jobs, well, just how rigorous are [Ex-Im’s] estimates, really? Congress ordered a study of that very question when it last reauthorized Ex-Im in 2012. In May 2013, the Government Accountability Office (GAO) produced its verdict: Meh.”

“GAO noted that Ex-Im must speak vaguely of “jobs supported,” rather than concretely of jobs created, since its methodology cannot really distinguish between new employment and retained employment. To get a number for “jobs supported,” which includes both a given firm and that firm’s suppliers, Ex-Im multiplies the dollar amount of exports it finances in each industry by a “jobs ratio” (calculated by the Bureau of Labor Statistics).

Using that approach, Ex-Im estimates an average of 6,390 jobs are “supported” by every billion dollars of exports financed. The Post is right to note the GAO’s conclusion:

These figures do not differentiate between full-time and part-time work and, crucially, provide no information about what might have happened to employment at the firms in question, or others, if the resources marshaled by Ex-Im had flowed elsewhere in the economy.

But, of course, what happens to the subsidized and nonsubsidized companies in the absence of Ex-Im is exactly what the Bank wants to conceal because it is the hyped-up specter of job loss that it relies upon to gain support for reauthorization. Realistically, in the short term, Ex-Im benefits some U.S. companies (those whose exports are subsidized) at the expense of other U.S. companies (those whose exports are not subsidized). Termination of Ex-Im will roughly reverse those fortunes by re-leveling the playing field between U.S. companies (to borrow and alter a metaphor) while freeing up the resources Ex-Im controls for more efficient uses.

Alas, the editorial fails to ponder this shuffling-of-resources-from-outsiders-to-insiders function that Ex-Im dutifully serves. Instead it gives an excerpt from the GAO report (in a manner slightly altered from the original) that has the effect of presenting Ex-Im in a more favorable light:

GAO found nothing fraudulent about any of this, nor do we.

Fraud? We weren’t considering fraud. We were evaluating whether the claim that Ex-Im creates or supports jobs is a credible one. Intentionally or not, exonerating Ex-Im from fraud seems to serve the purpose of rendering all other concerns about Ex-Im claims secondary by giving the false impression that the important thrust of the inquiry has been completed. Here’s the full paragraph:

GAO found nothing fraudulent about any of this, nor do we. The watchdog agency simply noted the rather crucial assumptions and limitations embedded in Ex-Im’s methodology and urged the bank to be more transparent about them—because “Congressional and public stakeholders may not fully understand what the jobs number that Ex-Im reports represents and the extent to which Ex-Im’s financing may have affected U.S. employment.” (Emphasis added)

Again, the context in which the editorial reports this GAO finding seems to change the tone and thrust of GAO’s message. Here is the text from the GAO report on this point:

Because of a lack of reporting on the assumptions and limitations of its methodology and data, Congressional and public stakeholders may not fully understand what the jobs number that Ex-Im reports represents and the extent to which Ex-Im’s financing may have affected U.S. employment.

The emphasis in the editorial’s portrayal implies that the Ex-Im data may be chock full of compelling evidence of the Bank’s importance, but without adequate explanation that evidence is too complex for Congress and public stakeholders to fully comprehend. However, the clear meaning of the GAO report is that the Ex-Im data are limited in their utility as evidence of the Bank’s importance to jobs, exports, and the economy, and that using the data for that purpose is misrepresentative and misleading.

Had the Editorial Board dug a little deeper into the GAO report, it might have found, among other limitations to “Employment Requirements Tables” (ERTs, used by Ex-Im to project its jobs-supported figures), is that “the employment data are a count of jobs, not of persons employed… Persons who hold multiple jobs show up multiple times in the employment data.” Basically, it is job “functions” that are counted, not jobs, and—despite the best efforts of organized labor—it is quite common for one worker to perform multiple job functions.

Moreover, Ex-Im’s “jobs-supported” numbers derive from ERTs that themselves derive from input-output analysis conducted by the Bureau of Economic Analysis and roughly follows—with some customized adjustments—the approach of other Commerce Department studies on the relationship between exports and jobs. In the “Methodology and Caveats” section of the 2010 Commerce Department study “Exports Support American Jobs,” there is this disclaimer:

Averages derived from IO analysis should not be used as proxies for change. They should not be used to estimate the net change in employment that might be supported by increases or decreases in total exports, in the exports of selected products or in the exports to selected countries or regions.

Of course, that is precisely what Ex-Im proponents are doing. Those important caveats have not deterred pro-reauthorization lobbyists from warning members of Congress of how many jobs are imperiled in their states and districts in the absence of reauthorization. In most cases, the actual effect of Ex-Im authorizations on particular states and districts is so small relative to the economy and relative to overall exports that creative arithmetic features prominently. 

For instance, yesterday the Chamber of Commerce tweeted:

In Ohio alone, Ex-Im has supported 15,300 jobs and financed $2.4 billion worth of exports since 2007.” (Emphasis added)

Let’s parse: We are talking about a seven-year period here, so on an annual basis Ex-Im has financed an average of $343 million in Ohio exports, supporting 2,186 jobs. (The jobs figure is based on Ex-Im’s estimate of 6,390 jobs supported per $1 billion of exports financed, and as mentioned above, these are really job “functions.”) But Ohio has exported an average of $47 billion per year since 2007 and employs 5.4 million workers. I suppose tweeting, “In Ohio alone, Ex-Im has supported 0.04% of all jobs and financed 0.7% of all exports” wouldn’t convey the same sense of urgency to Ohio’s congressional caucus.

In the end, the editorial seems to diminish the importance of its own inquiry by giving a nod to the way things are done inside the Beltway, offering a faintly exasperated, but more tongue-in-cheek “lobbyists will be lobbyists” excuse instead of speaking out against the continued use of propaganda in the policy debate.

If you were looking for an example to show just how awful the legislative process is in Washington, the ongoing saga over catfish inspection is just perfect. On its face, the 2008 law requiring the U.S. Department of Agriculture to inspect catfish facilities seems relatively benign. Who doesn’t want safer catfish? In reality, though, the law has nothing to do with food safety and everything to do with supporting the Southern catfish industry at everyone else’s expense.

Switching catfish inspection from the FDA (where it is now) to the USDA won’t make catfish any safer. This isn’t really a controversial point, either. The USDA itself has said that catfish is a low risk food and can’t explain how its inspections will reduce that risk in any meaningful way. The Government Accountability Office has advised Congress to repeal the program. 

The new inspection regime is slated to cost taxpayers $14 million more per year than the current one. But there’s actually a much greater harm being done here.

Aside from the cost, the main impact of the new inspection regime—and its actual purpose—is that foreign catfish producers will be banned from the U.S. market until they can show equivalence to U.S. production standards. Regardless of how they produce the catfish, showing equivalence will take years. In the meantime, U.S. consumers will be left with nothing but domestic catfish at hugely inflated prices.

The good news is that a growing, bipartisan group of legislators has been trying to kill the program since its stealthy insertion into the 2008 farm bill. Most recently, Rep. Vicky Hartzler (R‑MO) announced that she will propose an amendment to the 2015 Agriculture Appropriations Bill to defund the new inspection program. This may be the last chance to kill the program before it finally goes into effect, exposing the United States to retaliatory action for violating our trade obligations.

The amendment will probably succeed, as similar amendments have in the past, but—just as before—that may not be enough. The program exists not because half of our illustrious legislators have been fooled into supporting it but because Thad Cochran (R‑MS) has seniority on key committees. He and a handful of other legislators in Mississippi, Louisiana, and Arkansas are the only ones pushing for this program. 

I talk more with Caleb Brown about Thad Cochran’s Crony Catfish in this Cato podcast: