Just as a U.S. government agency is about to decide whether a Chinese company can buy a U.S. pork producer, concerns are being raised about foods shipped directly from China. Here is Bloomberg View columnist Adam Minter:

… the U.S. Department of Agriculture … announce[d] that it had ended a ban on Chinese chicken imports by approving four Chinese poultry processors to ship processed (“heat-treated/cooked”) chicken to the U.S. The report on the approved poultry plants noted that the audit set out to “to determine whether the People’s Republic of China’s (PRC) food safety system governing poultry processing remains equivalent to that of the United States (U.S.), with the ability to produce products that are safe, wholesome, unadulterated, and properly labeled.” Needless to say, the Chinese plants passed.

Initially, at least, the chickens will be slaughtered in the U.S. (or another nation that’s allowed to export slaughtered chicken to the U.S.), then shipped to China for processing and re-export. That’s the good news. The bad news is that, according to the New York Times, no USDA inspectors will be present in the Chinese processing plants (despite the fact that China has never before been allowed to export chicken to the U.S.), thus offering consumers no guarantees where the processed chickens were in fact slaughtered. Even worse, because the birds will be processed, the USDA will not require point-of-origin labeling (under USDA rules, foods that have been cooked aren’t subject to point-of-origin labeling). In other words: Consumers will have no way to tell if those chicken nuggets in the supermarket freezer were processed in the U.S. or in China.

Minter’s concerns seem rooted in an old Barenaked Ladies song (“Chickity China the Chinese chicken/​Have a drumstick and your brain stops tickin‘”), but is there any reason to be worried here? Here are some thoughts:

– The Chinese factories were visited by USDA inspectors, who deemed them safe;

– The products at issue are cooked, and then frozen, which should help deal with any bacteria;

– Companies who sell these products are presumably still liable for any harm caused.

If that’s not enough, let me just note that if consumers are worried about eating frozen chicken nuggets processed in China, those companies who process their chicken nuggets elsewhere could indicate this on their package label, picking up new consumers who are hoping to avoid the dreaded Chinese chicken.

The Obama administration celebrated its “leverage” from foreign aid to Egypt, and then demonstrated Washington’s complete political impotence. Now the United Nations’ Millennium Development Goals have been found to have no effect on economic development.

Nations are poor because of bad policies, not inadequate cash balances. This makes economic reform, not foreign aid, the key to growth. Unfortunately, politicians continue to take money from poor people in rich countries and give it to rich people in poor countries in the name of development.

In 2000, the usual assemblage of global leaders adopted the United Nations Millennium Declaration. The Millennium Development Goals were supposed to reduce extreme poverty by 2015.

Alas, the record of more than six decades of government-to-government transfers is failure. Foreign “aid” turned into foreign hindrance, creating long-term dependency while reinforcing self-defeating collectivist economic strategies and subsidizing authoritarian political systems. 

Aid agencies eventually claimed to have developed new, smarter approaches to uplift the poor. Since 2000, total assistance from industrialized states alone has more than doubled, going from $53.9 to $125.6 billion last year. The results, explained the UN, indicated “unprecedented progress” and “remarkable achievements.”

Nevertheless, the UN does not believe its work will finish in 2015. Last year, the UN established a 27-member “High-Level Panel of Eminent Persons on the Post-2015 Development Agenda.” 

In May the group issued its report: “The Panel came together with a sense of optimism and a deep respect for the Millennium Development Goals (MDGs). The 13 years since the millennium have seen the fastest reduction in poverty in human history.” While economic growth and better policies also played a role, noted the group, “it would be a mistake to simply tear up the MDGs and start from scratch.” The goal now is to “finish the job that the MDGs started” by “eradicating extreme poverty from the face of the earth by 2030.”

That is a laudable objective. But it turns out the MDGs have not even reduced extreme poverty.

Columbia economist Howard Steven Friedman, also with the UN Population Fund, analyzed the impact of the MDGs. Earlier this month he published a working paper that concluded: “The general result was that there was no trend in statistically significant accelerations in the MDG indicators after 2000.”

Why are poor nations doing better? For this answer we must look the marketplace, not structural economists, central planning, aid bureaucracies, government-to-government transfers, or the MDGs. 

As I point out in my latest Forbes Online column:

“Of course, grave injustices persist in many of these lands. Those with influence continue to manipulate political systems to win economic favors. However, more often than not, foreign aid turns into yet another resource for the well-connected to exploit. Aid encourages a further concentration of already dangerously centralized power.

Rather than hope more international communiqués and funds will eliminate poverty, Western states should reconsider policies which hinder developing countries from taking full advantage of the global marketplace. For example, protectionism, especially in agriculture, is an costly barrier. Trade agreements which attempt to impose unrealistically expensive environmental and labor standards on what remain poor societies is another. Political “aid” which strengthens regimes that, like Egypt, actively hinder economic and political reform also impedes development.”

The cup again will be passed to cash-strapped governments to fund the MDGs and whatever replaces them in 2015. But governments should stop wasting their citizens’ hard-earned cash when the only result will be to add to the fiscal tsunami threatening their children’s future.

Well, this is awkward.

OK, not really. Because despite the fact that a mooted Ex-Im loan will help my homeland (or, more precisely, a company based in my homeland), it is still not ok.

The Ex-Im bank touts itself as an easy yes, a no-brainer of an institution to which no rational person who likes exports, jobs, and children could ever possibly object. It’s self-funding! It lends only for entirely risk-free purposes! It creates jobs! It is merely correcting a market failure, so even conservatives should support it! (I’ve written before about why those areallmyths).

But often when Ex-Im funds a purchase abroad, some other American firm will suffer. Delta Airlines has long been critical of loans supporting Boeing exports that it says enable its competition to offer cheaper flights and hurt its business. And now we have a new example of the unintended consequences of picking winners, whereby Ex-Im is reportedly considering financing the sale of about $520 million worth of Caterpillar earthmoving equipment to an Australian mining firm. That has attracted the ire of Minnesota Senators Franken and Klobuchar, because it could hurt mines in their state. From the Duluth News Tribune: 

It’s not that Minnesota’s congressional delegation doesn’t like Australia, mate. But the idea of a U.S. government bank loaning money to an Australian iron ore mine that will compete with Minnesota taconite?

That’s what they don’t like.

U.S. Sens. Al Franken and Amy Klobuchar and U.S. Rep. Rick Nolan, all Minnesota Democrats, are on record opposing a plan in front of the U.S. Export-Import Bank to invest in equipment for the giant Roy Hill iron mine in Australia’s northwestern Outback…

Cleveland-based Cliffs Natural Resources, with four mines in Minnesota and Michigan, has led the charge to stop the loan, saying it threatens U.S. mining jobs and, with new Asian steel produced from Australian ore, eventually threatens U.S. steel industry jobs.

Details of the loan, including the name of the beneficiary U.S. company, are supposed to remain secret to prevent foreign competitors getting a leg up. But the News Tribune has learned that the U.S. manufacturer is Caterpillar Inc. and that the equipment includes giant trucks, bulldozers and shovels made in Illinois and Wisconsin.

And that means the Export-Import Bank now is being squeezed by two titans of U.S. industry.

The bank is conducting an “extensive economic impact study” on the loan, Phil Cogan, vice president of communications for the Washington-based bank, told the News Tribune.

The deal is expected to reach the bank’s board for a vote in the next few weeks, and that’s why lawmakers and some Minnesota mining interests are weighing in as the bank accepts public comments.

Incidentally, the project in question is operated by Australia’s richest person, Gina Reinhart. From everything I’ve heard and read, Ms. Rinehart seems an extremely able businesswoman, more than capable of financing her own purchases if she decides they are viable. This seems like yet another misguided “investment” by the Ex-Im Bank. Mate.

In this new paper, I argue that an overly burdensome U.S. regulatory state is partly responsible for the downward trend in domestic and foreign investment in U.S. factories, professional services operations, distribution centers, and research and development facilities. EPA mandates, Obamacare’s costly, complicated new health care directives, and the slowly emerging financial services restrictions stemming from Dodd Frank, are just some of the new regulations that have thickened the Federal Register to more than 80,000 pages per year and added 16,500 new pages to the Code of Federal Regulations during the Obama presidency, undoubtedly deflecting and chasing investment and business creation to foreign shores.

Oddly, this massive expansion of federal rules has evolved as President Obama has simultaneously expressed concerns about the impacts of both declining investment and regulatory overkill on economic growth. In 2011, the president issued Executive Order 13563 under the heading “Improving Regulation and Regulatory Review.” Section 1 states:

Our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness and job creation. It must be based on the best available science. It must allow for public participation and an open exchange of ideas. It must promote predictability and reduce uncertainty. It must identify and use the best, most innovative, and least burdensome tools for achieving regulatory ends. It must take into account benefits and costs, both quantitative and qualitative. It must ensure that regulations are accessible, consistent, written in plain language, and easy to understand. It must measure, and seek to improve, the actual results of regulatory requirements.

The president issued this EO in the wake of his party’s mid-term election rebuke, perhaps to indicate that he understood the concerns of business. He even required that his agencies formulate plans for undertaking systematic, retrospective reviews of their rules and regulations with an eye toward making them less imposing on society:

Sec. 6. Retrospective Analyses of Existing Rules. (a) To facilitate the periodic review of existing significant regulations, agencies shall consider how best to promote retrospective analysis for rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned…

In the words of a former chief economist at the Council of Economic Advisers:

The single greatest problem with the current system is that most regulations are subject to a cost-benefit analysis only in advance of their implementation. That is the point when the least is known and any analysis must rest on many unverifiable and potentially controversial assumptions.

Moreover, in a study titled “Validating Regulatory Analysis,” the OMB presented results comparing the projected benefits and costs of regulations with the actual benefits and costs measured after promulgation and implementation and found that projections “tend to overestimate both benefits and costs, but they have a significantly greater tendency to overestimate benefits than costs.” According to the data in Table 3–2 of the study, the benefits projected by regulators in their “Regulatory Impact Analyses” were overestimated 40 percent of the time; the costs were underestimated 26 percent of the time, and; the benefits-cost ratio was overestimated 47 percent of the time.

These miscalculations are compounded by regulators’ own stated bias to err on the side of regulating. Describing its Utility MACT rule (regulation of the emissions of large power plants) in the Federal Register, the EPA admitted:

We may determine it is necessary to regulate under section 112 even if we are uncertain whether [the rule] will address the identified hazards… We believe it is reasonable to err on the side of regulation of such highly toxic pollutants in the face of uncertainty (emphasis added).

Considering that U.S. regulatory costs amount to about $1.75 trillion per year – a figure that exceeds the total value added of the entire U.S. manufacturing sector – these obvious problems with the U.S. regulatory state are no laughing matter.

Economics teaches the theory of diminishing marginal returns, which holds that even though an additional unit of input may generate more output, there is a point beyond which the addition to total output from each new increment of input begins to decline. The concept applies to regulation. Take pollution abatement. In 1970, when the EPA began to regulate activities that were presumed to have adverse impacts on environmental quality, there was great scope for air and water quality improvement. There was a lot of low-hanging fruit in those days. The marginal benefit of the first unit of abatement effort is much greater (and the marginal cost much lower) when air or water quality is lower.

But, today, after the most obvious and affordable abatement measures have already been adopted and the associated benefits have been reaped, the marginal cost of the next increment of improvement is greater and the marginal benefit from that effort is smaller. In fact, after working down the continuum of abatement efforts toward the limits of technological feasibility, the marginal cost of the next increment of abatement becomes even higher and the marginal benefit even lower. More broadly, the relationship between the amount of regulation and its societal benefits is not linear. Nor is the relationship between regulation and its costs.

The president – at least implicitly – seems to get this. Another executive order (Executive Order 12866), which is “supplemental to and reaffirm[ed]” by the more recent Executive Order 13563, mandates that regulating agencies “must, among other things…select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (emphasis added).” Net benefits are maximized at the level of regulation where the marginal benefit equals the marginal cost. In other words, the “optimal” amount of regulation is the amount that maximizes net benefits, and that happens at the level of regulation where the marginal benefit of an additional unit of regulation equals its marginal cost.

The nearby charts help convey these concepts. Net benefits are maximized at 35 units of regulation, where the vertical difference between the total benefits curve (TB) and the total cost curve (TC) is maximized. The net benefit of regulation to society increases with more regulation, up to the point of optimal regulation. (For many regulation, the optimal level may very well be close to zero.) After that, the marginal cost of an additional increment of regulation rises, the marginal benefit declines, and the net benefit to society shrinks. Rather than aim for the optimum, regulators tend not to recognize constraints until point C, where total benefit equals total cost. But at every point beyond 35 units and up to 70 units (point C), the net benefit of regulation is declining. And to make matters even worse, by overestimating the benefits and underestimating costs of regulation (which happens almost half of the time, according the study cited earlier), regulators are actually operating well to the right of point C, where the net benefit of regulation to society is negative (TB < TC). 

As put succinctly in a report of the President’s Council of Economic Advisers, “A regulation that is expected to eliminate 90 percent of a certain harmful emissions at a cost of $100 million per year may well generate higher net benefits than one that eliminates 98 percent of those emissions at a cost of $1 billion per year.” Until someone forces regulators to heed the results of marginal analysis, expect more rules and regulations, and less investment and growth.

This morning, Cato published a new study of mine titled, “Reversing Worrisome Trends: How to Attract and Retain Investment in a Competitive Global Economy.” The thrust of the paper is that, despite still being the world’s premiere destination for foreign direct investment, the U.S. share of the global stock of direct investment fell from 39% in 1999 to 17% today.

This downward trend is attributable to two broad factors. First, developing economies – many of which have achieved greater political stability, sustained economic growth, improved infrastructure and higher-quality worker skill sets – are now viable options for pulling in the kinds of FDI that was once untenable in those locales. Second, a deteriorating business and investment climate in the United States – owing to burgeoning, burdensome, and uncertain regulations; an antiquated, punitive corporate tax system; incoherent immigration, energy, and trade policies; a wayward tort system; cronyism and perceptions thereof; and other perverse incentives and disincentives of policy have pushed investment away.

The first trend should be welcomed and embraced; the second must be reversed. From the study:

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.

The capacity of the United States to continue to be a magnet for both foreign and domestic investment is largely a function of its advantages, many of which are shaped by public policy. Considerations of taxes, regulations, trade openness, access to skilled workers, infrastructure, energy policy, and dozens of other policy matters factor into decisions about whether, where, and how much to invest. It should be of major concern that inward FDI has been erratic and relatively downward trending in recent years, but why that is the case should not be a mystery. U.S. scores on a variety of renowned business surveys and investment indices measuring policy and perceptions of policy suggest that the U.S. business environment is becoming increasingly less hospitable.

Although some policymakers recognize the need for reform, others seem to be impervious to the investment-repelling effects of some of the laws and regulations they create. Some see the shale gas and oil booms as more than sufficient for overcoming policy shortcomings and attracting the necessary investment. The most naive consider “American” companies to be tethered to the U.S. economy and obligated to invest and hire in the United States, regardless of the quality of the business and policy environments. They fail to appreciate that increasingly transnational U.S.-based businesses are not obligated to invest, produce, or hire in the United States.

It is the responsibility of policymakers, however, to create an environment that is more attractive to prospective investors. Current laws, regulations, and other conditions affecting the U.S. business environment are conspiring to deter inward investment and to encourage companies to offshore operations that could otherwise be performed competitively in the United States.

A proper accounting of these policies, followed by implementation of reforms to remedy shortcomings, will be necessary if the United States is going to compete effectively for the investment required to fuel economic growth and higher living standards.

Details, charts, and analysis, and citations are all included here.

Phew. That was close.

Earlier this month, Secretary of Agriculture Tom Vilsack said that without a new farm bill to replace the 2008 farm bill, the USDA would not have the authority or the funds to continue paying the $147m per year bribe we had settled with Brazil in 2010 as part of a trade deal. (The fulsome details are available in this blog post, written at the time of the deal, and more about the underlying trade dispute is available in this 2005 policy analysis by Cato Adjunct Scholar Dan Sumner). And without those bribes, Brazil would likely suspend the ceasefire deal and retaliate against U.S. export interests by raising import taxes and suspending its obligations to protect Americans’ intellectual property. So, Mr. Vilsack implied, Congress needs to pass a farm bill now, and include changes to the cotton program that would satisfy the Brazilians and prevent a trade war. 

Well stand down, America, because according to some unnamed trade experts quoted by Inside U.S. Trade today [$], Mr. Vilsack’s analysis is not exactly correct. He may even be lying:

Agriculture Secretary Tom Vilsack misconstrued the facts, or was at least misleading, when he claimed last week that the U.S. government will lose the authority on Oct. 1 to continue paying Brazil $147 million annually under a temporary settlement to a World Trade Organization dispute, according to four non-government experts.

The statement, these experts agreed, was clearly aimed at pressuring Congress to pass a new farm bill and thereby resolve the longstanding fight with Brazil over agricultural subsidies…

But a decision on whether to end that authority is clearly within the purview of the administration — not Congress, these experts said. In other words, if the authority is expiring this fall, it is only because the administration has determined internally that it wants it to expire and does not want to continue making the payments, they said…

“In my opinion, if the farm bill were extended again for one year and the Brazilians were OK with another year’s worth of payments and there was an agreement from both sides, Vilsack would have the authority to continue payments,” one Senate aide said. “He and the [administration] just don’t want to and they are using this as leverage” to try and secure passage of a new farm bill, the aide added.

Numerous other sources also pointed out that the administration did not gain new authority from Congress when it instituted the payments in 2010, and said there is no reason to believe it would need such an act of Congress now in order to maintain its current ability to pay Brazilian cotton growers. No appropriations legislation has been passed in several years, and this has not affected the payments at all…

Another agriculture industry source also said the secretary’s implication that passage of the farm bill would fix the dispute with Brazil was also misleading. Brazil has continuously criticized the pending farm bill proposals for potentially increasing the level of government support for cotton farmers compared with current levels, and for not making any changes to a WTO-faulted export credit guarantee program also operated by the CCC.

Vilsack also said last week that, due to sequestration, the administration would not be able to pay the full amount to Brazil this year either (Inside U.S. Trade, Aug. 9). Observers also said it was unclear to them whether this was really the case, or if this was an elected choice by the administration designed to increase pressure on Congress. [all emphases added]

So it looks like the mad panic to pass a farm bill is unjustified, at least as far as the Brazil cotton dispute is concerned. Mr. Vilsack, whose agency clearly has a vested interest in the farm bill’s passage given that it justifies the USDA’s very existence, may have been stretching the truth in pursuit of his goal. The USDA can keep paying the bribes whatever happens, and the farm bill proposals under consideration are unlikely to satisfy the Brazilians anyway.

The ideal solution, of course, would be to do away with U.S. cotton supports (and all other agricultural programs) altogether. We could save taxpayers and consumers billions of dollars, and put that $147m to better use. That would be a farm bill worth passing immediately.

Blogger Matt Yglesias proposes that in order to promote competition in the airline industry, foreign-owned airlines should be allowed to fly domestic routes here in the United States:

This is a great idea, and I hope this gets done as part of the TTIP and other trade talks. I just wanted to comment on his statement that this “isn’t ‘trade’ per se.” In fact, it is trade per se. For two decades now, trade rules have covered trade in services, which can be carried out through a number of different “modes.” I don’t want to get all technical (and believe me, this gets really technical), but when a foreign entity operates a service in the market of another country, that constitutes trade and can be part of trade liberalization commitments in trade agreements.

So, including airline trade liberalization in the TTIP would not be anything novel–it would just be good policy.