Kudos to Nicki Kurokawa, a former Cato employee, for this short but substantive video explaining “moral hazard.” She notes that government-subsidized risk played a pernicious role in the housing bubble and financial crisis, and warns that “too big to fail” may create similar problems in the future.
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The Real Meaning of China’s Export Primacy
The Washington Post reports today that China surpassed Germany to become the world’s largest exporter in 2009, adding yet another economic feat to its expanding trophy case. Undoubtedly, U.S. trade skeptics and globophobes will consider this “accolade” the latest evidence of American decline and Chinese ascendancy. But more than it is any refection of China’s economic might, the milestone is testament to the successful erosion of economic, political, physical and technological barriers that had previously constrained human possibilities.
Widespread liberalization of trade and investment rules beginning in earnest after World War II; China’s opening to the West beginning with reforms in 1978; the fall of the Berlin Wall in 1989 and the Soviet Union two years later; the collapse of communism as a viable choice for developing countries; the advent and proliferation of containerized shipping, GPS technology, just-in-time supply chain management techniques, and other marvels of the information, transportation, and communications revolutions have spawned a global division of labor and way of doing things that defy traditional trade policy considerations, and render trade flow accounting rather meaningless.
To borrow the theme and some phrases from my recent paper, “Made on Earth,” global economics is no longer a competition between “Us and Them.” It is no longer “Our” producers against “Their” producers. Instead, because of cross-border investment and transnational production and supply chains, the factory floor has broken though its walls and now spans oceans and borders, rendering U.S. workers and foreign workers collaborative, even complementary, in so many endeavors. There is, of course, competition, but that competition is often between production/supply chains or brands that defy any meaningful national identification because the final products are composed of value-added from multiple countries. Thus, there is cooperation within production/supply chains before there is competition between them.
So, what does all of this have to do with China’s status as the world’s biggest exporter? It means that we should avoid the temptation to attach the wrong meaning to the title. China has become the world’s largest exporter primarily because the global division of labor that has helped reduce the burdens of poverty and create greater wealth still prescribes for China the role of lower-value-added production and final assembly operations in global production/supply chains.
While intermediate goods—components and raw materials—are shipped to China from countries such as Japan, Taiwan, Singapore, Australia, and America, those inputs are often “snapped together” or perhaps subject to slightly higher Chinese valued-added operations before being exported as final goods. For the purpose of trade flow accounting, the entire value of the merchandise is registered as Chinese export value, even when a very small percentage is actually Chinese labor, material and overhead.
That accounting methodology helps explain why China’s exports—to the world and the United States—have surged over the decades (as the division of labor evolved and supply chains proliferated), and why policy focus on the U.S. bilateral trade deficit with China is misplaced. As aptly put in the conclusion of this now-famous study about who captures value in the iPod supply chain:
“[T]rade statistics can mislead as much as inform. For every $300 iPod sold in the U.S., the politically volatile U.S. trade deficit with China increased by about $150 (the factory cost). Yet, the value added to the product through assembly in China is probably a few dollars at most.”
Chinese value-added is very low in higher technology and more sophisticated electronics exports. It is higher in other products that Americans import from China. According to the findings in a recent NBER paper titled “How Much of Chinese Exports is Really Made in China,” about 50 percent of the value of a typical cargo container imported into the United States from China is Chinese value-added, which comports roughly with estimates undertaken by others.
So, as we consider the meaning of China’s new status as global export leader, it is important to understand the value and limitations of the trade data. Those data speak much more convincingly to the virtues of economic interdependence than to China’s stand-alone export prowess.
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Where’s Our Bailout Vote?
It’s easy to forget that the financial crisis was not simply one of American financial institutions getting into trouble; banks around the world found themselves on the brink of failure. One of the more interesting cases is Landsbankinn, a privately owned bank in Iceland. Landsbankinn also operated a branch in Britain and the Netherlands called “Icesave.” When Icesave failed in 2008, the British government rushed in and covered the deposits of its British savers — a move that was neither requested by Landsbankinn or the government of Iceland. Now the Brits are demanding that Iceland pay them to cover those expenses.
For a brief moment it looked like that was exactly what was going to happen, as the legislature in Iceland passed a bill to pay off the Brits. Sensing the public opposition, Iceland’s president blocked the bill. This is likely to lead to a public vote by the people of Iceland on whether they want to cover the losses of British depositors in Icesave.
Britain had no legal basis for seizing Icesave assets in the UK, nor did depositors in Icesave have any right to have their losses covered. If England wants to bail out its citizens, that is its business. Asking Iceland to foot the tab afterwards sets a dangerous precedent.
But then at least the citizens of Iceland are getting a vote on whether to bail out or not. By comparison, both U.S. Treasury Secretaries Paulson and Geithner have decided that U.S. taxpayers must honor foreign investments in Fannie Mae and Freddie Mac, even if those investments were explicitly not insured by the U.S. government. Perhaps the U.S. could learn a little about democracy and accountability from Iceland.
Eat, Pray, Love, Marry–as Long as You’re Heterosexual
Elizabeth Gilbert, the bestselling author of the memoir Eat, Pray, Love, is back with a new book, Committed: A Skeptic Makes Peace With Marriage. In her earlier book Gilbert reflected on her broken marriage, her travels around the world “looking for joy and God and love and the meaning of life,” and her determination never to marry again. In the new book we learn that she surprised herself by meeting a man worth settling down with, a Brazilian living in Indonesia. So they became a couple and settled near Philadelphia, with Jose Nunes regularly leaving the country to renew his visitor’s visa.
But then came a legal shock:
She was in the early stages of research for that book when Nunes was detained, after a visa-renewing jaunt out of the country, by Homeland Security Department officials at the Dallas-Fort Worth International Airport. Popping in and out of the country as he’d been doing was not legal, Nunes was told, and if he wanted to stay permanently they would have to marry.
Gilbert didn’t want to marry. She and Nunes spent 10 months traveling in Asia. But then, reading about marriage, writing about her aversion to marriage, getting closer to her new partner, she decided to marry. And so they did. And they lived happily ever after in the New Jersey suburbs.
A happy ending all around. As long as you’re heterosexual. Because, of course, if you’re gay, the U.S. government will tell you that your life partner from Brazil may be allowed to visit the United States, but he won’t be allowed to stay. And guess what? He could stay if you were married, but you can’t get married. Catch-22. And even though you could now marry in some foreign countries and some American states and the District of Columbia, the Defense of Marriage Act still prevents the federal government — including its immigration enforcers — from recognizing valid marriages between same-sex partners.
Is this just a theoretical complaint? As a matter of fact, not at all. At least two well-known writers have recently faced exactly the same situation Gilbert did: a Brazilian life partner who couldn’t live in the United States. Glenn Greenwald, a blogger, author of bestselling books, and author of a Cato Institute study on drug reform in Portugal, has written about his own situation and that of others. Like Greenwald, Chris Crain, former editor of the Washington Blade, has also moved to Brazil to be with his partner.
Carolyn See, reviewing Gilbert’s book in the Washington Post, wrote, “The U.S. government, like a stern father, proposed a shotgun marriage of sorts: If you want to be with him in this country, this Brazilian we don’t know all that much about, you’ll have to marry him.” A shotgun marriage, sort of. But at least the government gave Gilbert a choice. It just told Greenwald and Crain no.
This unfairness could be solved, of course, if the government would have the good sense to listen to Cato chairman Bob Levy, who wrote last week in the New York Daily News on “the moral and constitutional case for gay marriage.” And it may be solved by the lawsuit seeking to overturn California’s Proposition 8 that is being spearheaded by liberal lawyer David Boies and conservative lawyer Ted Olson, writes Newsweek’s cover story this week, “The Conservative Case for Gay Marriage.” Until then: eat, pray, love, marry — as long as you’re heterosexual.
The Real World — D.C.
Reason.tv has a characteristically good video about the failure of House and Senate leaders (and the president) to make negotiations about the health care bill transparent.
It’s probably not true, House Speaker Nancy Pelosi’s statement that “there has never been a more open process…” But even if it is, that doesn’t matter. Technology that can make the legislative process far more open is there, and the audience wishing to use it is there too.
The public’s expectations for open government have risen to what can be achieved—matching past practice is not good enough.
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No Privacy Please, We’re Millennials
TrueSlant’s Kashmir Hill notes—and endorses—Facebook CEO Mark Zuckerberg’s conclusion that the kids today won’t stay off my lawn just don’t care much about privacy.
On the one hand, this shouldn’t be terribly surprising. Quite apart from the recent proliferation of social networking technology, generational researchers have long contrasted the heavily supervised and scheduled upbringings of (middle class) Millennials born in the ’80s and early ’90s with that of their “latch key” Gen X predecessors. And for anyone currently of college age, post‑9/11 levels of security theater are viewed not as a novel expansion of official intrusion, but as the baseline, as normal. This can’t be a matter of total indifference to the fogeys among us, because shifting norms will affect both legislators’ willingness to ratchet up surveillance and, at least potentially, judicial assessments of which “expectations of privacy” society is prepared to recognize as “reasonable” for Fourth Amendment purposes.
Still, let me throw out some grounds for questioning this broad generational diagnosis. Privacy is not just a function of the raw quantity of information available about each of us, but of the control we exercise over that information. To be sure, it may seem that we have less of that as well when any scrap of data that appears on the Internet can so easily be copied and circulated. But for the generation that came of age online, those scraps of data are often part of a very conscious public performance of identity. Not necessarily a performance all of them will be eager to own ten years down the line, but a performance all the same.
In his excellent book The Digital Person, legal scholar Dan Solove contrasts two kinds of privacy dystopia: the Orwellian and the Kafkaesque. The focus in the Orwellian vision is on exposure: Big Brother’s spies and cameras are everywhere, and no detail of your personal life too minute to escape notice. But the plight of Kafka’s Josef K. is somewhat different: He finds himself at the mercy of an inscrutable bureaucracy, with no access to the details of his case file, and no way of tracing the provenance of the information it contains or correcting errors. We are more exposed, but we increasingly set the terms of our exposure.
It’s easy to look at all the information that comes up in a simple Google search for someone’s name and conclude that privacy is dead. But I think it’s at least as significant that the crucial first page of results is likely to consist of information that the individuals themselves have chosen to make public: Blogs, Facebook or MySpace profiles, Twitter accounts, Last.fm pages, YouTube channels. A similar inquiry a generation ago surely would have been much more laborious and less fruitful, but it also would have consisted to a far greater extent of what others had to say about the target: gossip first and foremost, but perhaps also press mentions, official records, and so on. It’s not that such information is now less accessible, but for the average person, it’s pushed to the margin by what we’ve chosen to disclose. That’s not an unmixed blessing—some may feel as though this merely traps them in a kind of openness arms race—but neither is it the privacy death-spiral a purely quantitative analysis might suggest.
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Monday Links
- David Boaz: “Suddenly, I find myself nostalgic for Bill Clinton.…Come back, Bill, all is forgiven. Or most, anyway. As long as you bring a Republican Congress with you.”
- So, have you been following the health-care debate on C‑SPAN? Oh wait…
- Obama administration preparing a new arms package for Taiwan.
- Nat Hentoff to Castro et al: “Roar, tyrants, you cannot hide your racist deeds.”
- Podcast: “Price Controls in Obamacare” featuring Michael F. Cannon.