Did NAFTA help the U.S. auto industry?

From Marginal Revolution.

"There are still more than 800,000 jobs in the American auto sector. And there is a good case to be made that without Nafta, there might not be much left of Detroit at all.

“Without the ability to move lower wage jobs to Mexico we would have lost the whole industry,” said Gordon Hanson of the University of California, San Diego, who has been studying the impact of Nafta on industries and workers since its inception more than two decades ago.

Even in the narrowest sense — to protect jobs in car assembly plants — a wall of tariffs against America’s southern neighbor would probably do more harm than good.

And this:

The Honda CR-V assembled in El Salto, Jalisco, for example, uses an American-made motor and transmission. Roughly 70 percent of its content is either American or Canadian, according to government statistics.

This regional integration gave the United States-based auto industry a competitive edge that was critical to its survival. “There was a concern 20 years ago that an auto industry production chain would develop across Asia, including China and Taiwan and Southeast Asia,” Professor Hanson said. “Maybe Nafta saved us from that.”

That is from Eduardo Porter at the NYT."

Global Warming Might Hurt Plant Pathogens

See A Plant Pathogen that Can’t Take the Heat by Craig D. Idso of Cato.

"Plant pathogens have long been a thorn in the side of the agricultural industry, reducing crop production between 10-16 percent annually and costing an estimated $220 billion in economic losses (Chakraborty and Newton, 2011). What is more, there are concerns that such damages may increase in the future if temperatures rise as predicted by global climate models in response to CO2-induced global warming. Noting these concerns, Sabburg et al. (2015) write that “to assess potential disease risks and improve our knowledge of pathogen strengths, flexibility, weakness and vulnerability under climate change, a better understanding of how pathogen fitness will be influenced is paramount.”
In an attempt to obtain that knowledge, the team of four Australian researchers set out to investigate the impact of rising temperatures on Fusarium pseudograminearum, the “predominant pathogen causing crown rot of wheat in Australia” that is responsible for inducing an average of AU$79 million in crop losses each year. More specifically, they examined “whether the pathogenic fitness, defined as a measure of survival and reproductive success of F. pseudograminearum causing crown rot in wheat, is influenced by temperature under experimental conditions.”

The experiment was conducted in controlled-environment glasshouses at the Queensland Crop Development Facility in Queensland, Australia, where eleven lines of wheat were grown under four day/night temperature treatments (15/15°C, 20/15°, 25/15° and 28/15°C for 14-hour days and 10-hour nights). The first three treatments were representative of “the range of average maximum temperatures of the various wheat-growing regions across Australia,” whereas the fourth (28/15°C) treatment was intended to simulate a future warming scenario. The minimum temperatures of all treatments were kept at 15°C because “night-time temperatures over the last 50 years in the large majority of wheat-growing regions across Australia have not shown an increasing temperature trend in all seasons.” With respect to the eleven wheat lines, they were selected based on known susceptibilities and resistances to crown rot. Fourteen days after sowing a portion of each line was infected with F. pseudograminearum and then grown to maturity.

So what did the researchers find?

With respect to disease severity, Sabburg et al. report it was highest under the lowest temperature treatment and declined with increasing temperature (Figure 1a), and this general reduction was noted in all of the eleven wheat lines. Similarly, pathogen biomass was also reduced as treatment temperature increased (Figure 1b). According to the researchers, “on average, warming reduced pathogen biomass in stem base (PB-S) by 52% at either 25/15°C or 28/15°C compared with the biomass at 15/15°C.” And it also decreased the amount of relative pathogen biomass from the stem base to flag leaf node. (The flag leaf is to top leaf on the plant.)

A third fitness measure of F. pseudograminearum – deoxynivalenol (also known as “vomitoxin,” for an obvious reason) content (DON) – was also reduced in the stem base and flag leaf node tissue as temperature treatment increased. And the significance of this finding was noted by the authors as “an encouraging result if we consider temperature rises in the future,” because “DON can make food sources including wheat grains unsafe for human or animal consumption.” That’s putting it mildly!

Figure 1. Effect of temperature on (Panel A) disease severity as expressed by the length of stem base browning (cm) and (Panel B) relative pathogen biomass in stem base (PB-S) and flag leaf node tissue (PB-F) as measured by Fusarium DNA relative to wheat DNA. All measurements in wheat plants were made at maturity following stem base inoculation by Fusarium pseudograminearum. Adapted from Sabburg et al. (2015).

In light of the above results, Sabburg et al. conclude that “this study has clearly established that temperature influences the overall fitness of F. pseudograminearum,” and that “based on our findings, warmer temperatures associated with climate change may reduce overall pathogenic fitness of F. pseudograminearum.” And given the annual production and monetary damages inflicted by this pathogen on wheat, this is news worth both reporting and celebrating!"

We are not in a liquidity trap and "secular stagnation" not caused by the trade deficit

See A little bit pregnant by Scott Sumner.

"Paul Krugman has a new post of mercantilism:

Neil Irwin has a good think piece on Trumpism and the trade deficit; but as Dean Baker rightly suggests, it arguably suffers a bit from being a discussion of the effects of trade deficits in normal times. And these times aren't normal. In normal times, the counterpart of a trade deficit is capital inflows, which reduce interest rates, and there's no reason to believe that trade deficits reduce employment on net, even if they do redistribute it. But we are still living in a world awash with excess savings and inadequate demand, where interest rates can't fall (or at any rate not much) because they're already near zero. That is, we're in a liquidity trap.

Actually we are not in a liquidity trap, and it's not even debatable. Just as a woman cannot be a little bit pregnant, you are either in a liquidity trap or you are not. In the case of the US in 2016, we are not in a liquidity trap. Hence liquidity trap theories do not apply. Krugman's post is completely wrong, because it's entirely built on the incorrect assumption that we are in a liquidity trap.

When Krugman uses the liquidity trap excuse to justify an otherwise counterproductive policy (such as mercantilism, fiscal stimulus, or artificially higher wages) the term has a very specific meaning. It does not mean "interest rates close to zero." It means interest rates higher than the central bank would prefer. The Fed raised rates in December, and will probably raise them again in June. Interest rates are relatively low, but they are obviously not lowerhigher than the Fed wishes. So Krugman is simply wrong.

To the casual reader this Krugman post may seem like more of the same, but it is actually another step away from the neoliberal analysis that he produced in the 1990s. The first step was when Krugman claimed that fiscal stimulus and mercantilism are only justified when interest rates are at zero. I disagree with that view, but it's a defensible argument. Now he claims that these policies merely require that interest rates be relatively low. That's not even a defensible argument. If rates are low but non-zero, then the central bank has NGDP right where they want it. Right now it's in the central bank's power to raise NGDP growth as high as they like. If we fall back to the zero bound, it would be 100% the fault of the central bank, no one else. Unfortunately, it seems likely that we will fall back to the zero bound in the very next recession. We don't need fiscal stimulus or mercantilism; we need to fix the monetary regime.

There are many other problems with the analysis. Krugman links to a Dean Baker post that suggests the current "secular stagnation" is mainly caused by the trade deficit. But secular stagnation is occurring all over the developed world, including those countries with trade surpluses. Indeed the US is doing better than most other developed countries. The one country that avoided a global recession in 2008-09 was Australia, which has an even bigger deficit, as a share of GDP. Japan has a big surplus. Whatever you think of trade deficits, there is little evidence that trade deficits lead to slower economic growth.

PS. Krugman's post cannot be saved by pointing to the global economy, which does have many countries at the zero bound. The global economy has no overall current account deficit.
PPS. In this post I've assumed that zero interest is the lower bound. If the actual lower bound is a minus 0.75% interest rate, then Krugman's argument is even weaker.

PPPS. The current account deficit in America is almost identical to 30 years ago, as a share of GDP. Trust me, it has nothing to do with "secular stagnation.""

Pfizer’s Inversion Is Good News for American Workers, American Consumers, and American Shareholders

By Daniel J. Mitchell of Cato.

"I’m still capable of being shocked when other people make outlandish assertions.

Like the policy wonk who claimed that capitalism is actually coercion, even though free markets are based on voluntary exchange. Or the statist columnist who argued people aren’t free unless they’re entitled to other people’s money, even though that turns some people into unfree serfs.
Here’s another example of upside-down thinking. It deals with the “inversion” issue, which involves American-chartered companies choosing to redomicile overseas.

A column in the Huffington Post implies that Pfizer is some sort of economic traitor for making a sensible business decision to protect the interests of workers, consumers, and shareholders.

Pfizer…wants to turn its back on America by claiming to be an Irish company through an offshore merger, giving it access to Ireland’s low tax rates. The change would only be on paper. The company would still be run from the United States, enjoying all the benefits of being based in America—such as our taxpayer-supported roads, public colleges, and patent protections—without paying its part to support them.

There’s a remarkable level of inaccuracy in that short excerpt. Pfizer wouldn’t be claiming to be an Irish company. It would be an Irish company. And it would still pay tax to the IRS on all U.S.-source income. All that changes with an inversion is that the company no longer would have to pay tax to the IRS on non-U.S. income. Which is money the American government shouldn’t be taxing in the first place!

Here’s more from the article.

Pfizer could walk out on its existing U.S. tax bill of up to $35 billion if its Irish tax maneuver goes forward. That’s what it already owes the American people on about $150 billion in profits it has stashed offshore, much of it in tax havens.

Wrong again. The extra layer of tax on foreign-source income only applies if the money comes back to the United States. Pfizer won’t “walk out” on a tax liability. Everything the company is doing is fully compliant with tax laws and IRS rules.

Here’s another excerpt, which I think is wrong, but doesn’t involve misstatements.

When corporations dodge their taxes, the rest of us have to make up for what’s missing. We pay for it in higher taxes, underfunded public services, or more debt.

For what it’s worth, the “rest of us” aren’t losers when there’s an inversion. All the evidence shows that ordinary taxpayers benefit when tax competition puts pressure on governments.
By the way, the author wants Obama to arbitrarily and unilaterally rewrite the rules .

President Obama can stop Pfizer’s biggest cash grab: that estimated $35 billion in unpaid taxes it wants to pocket by changing its mailing address. There are already Treasury Department rules in place to prevent this kind of overseas tax dodge. As now written, however, they wouldn’t apply to Pfizer’s cleverly-crafted deal. The Obama Administration needs to correct those regulations so they cover all American companies trying to exploit the loophole Pfizer is using. It already has the authority to do it.

Needless to say, Pfizer can’t “grab” its own money. The only grabbing in this scenario would be by the IRS. Since I’m not an international tax lawyer, I have no idea if the Obama Administration could get away with an after-the-fact raid on Pfizer, but I will note that the above passage at least acknowledges that Pfizer is obeying the law.

Now let’s look at some analysis from someone who actually understands the issue. Mihir Desai is a Harvard professor and he recently explained the reforms that actually would stop inversions in a column for the Wall Street Journal.

Removing the incentive for American companies to move their headquarters abroad is a widely recognized goal. To do so, the U.S. will need to join the rest of the G-7 countries and tax business income only once, in the country where it was earned. …Currently, the U.S. taxes the world-wide income of its corporations at one of the highest rates in the world, but defers that tax until the profits are repatriated. The result is the worst of all worlds—a high federal statutory rate (35%) that encourages aggressive transfer pricing, a significant restriction on capital allocation that keeps cash offshore, very little revenue for the Treasury, and the loss of U.S. headquarters to countries with territorial tax systems.

In other words, America should join the rest of the world and adopt a territorial tax system. And Prof. Desai is right. If the U.S. government stopped the anti-competitive practice of “worldwide” taxation, inversions would disappear.

That’s a lesson other nations seem to be learning. There’s only a small handful of countries with worldwide tax systems and that group is getting smaller every year.

Japan in 2009 and the United Kingdom in 2010 shifted to a territorial tax regime and lowered their statutory corporate rates. The U.K. did so to stop companies from moving their headquarters abroad; Japan was primarily interested in encouraging its multinationals to reinvest foreign earnings at home.

Professor Desai closes with a broader point about how it’s good for the American economy with multinational firms earn market share abroad.

…it is mistaken to demonize the foreign operations of American multinationals as working contrary to the interests of American workers. Instead the evidence, including research by C. Fritz Foley, James R. Hines and myself, suggests that U.S. companies succeeding globally expand at home—contradicting the zero-sum intuition. Demonizing multinational firms plays to populist impulses today. But ensuring that the U.S. is a great home for global companies and a great place for them to invest is actually the best prescription for rising median wages.

Amen. You don’t get higher wages by seizing ever-larger amounts of money from employers.
This is why we should have a territorial tax system and a much lower corporate tax rate.
Which is what Wayne Winegarden of the Pacific Research Institute argues for in Forbes.

…why would a company consider such a restructuring? The answer: the uncompetitive U.S. corporate income tax code. Attempts to punish companies that are pursuing corporate inversions misdiagnose the problem and, in so doing, make a bad situation worse. The problem that needs to be solved is the uncompetitive and overly burdensome U.S. corporate income tax code. The U.S. corporate income tax code puts U.S. companies at an unsustainable competitive disadvantage compared to their global competitors. The corporate income tax code in the U.S. imposes the highest marginal tax rate among the industrialized countries (a combined federal and average state tax rate of 39.1 percent), is overly-complex, difficult to understand, full of special interest carve-outs, taxes the same income multiple times, and taxes U.S. companies based on their global income.

Mr. Winegarden also makes the key point that a company that inverts still pays tax to the IRS on income earned in America.

…a corporate inversion does not reduce the income taxes paid by U.S. companies on income earned in the U.S. Following a corporate inversion, the income taxes owed by the former U.S. company on its income earned in the U.S. are precisely the same. What is different, however, is that the income that a company earns outside of the U.S. is no longer taxable.

Let’s now return to the specific case of Pfizer.

Veronique de Rugy of the Mercatus Center explains in National Review why the entire inversion issue is a classic case of blame-the-victim by Washington.

Almost 50 companies have chosen to “invert” over the last ten years. More than in the previous 20 years. …there are very good reasons for companies to do this. …for American businesses operating overseas, costs have become increasingly prohibitive. …Europe now sports a corporate-tax rate below 24 percent, while the U.S. remains stubbornly high at 35 percent, or almost 40 percent when factoring in state taxes. …it’s the combination with America’s worldwide taxation system that leaves U.S.-based corporations so severely handicapped. Unlike almost every other nation, the U.S. taxes American companies no matter where their income is earned. …So if a U.S.-based firm does business in Ireland they don’t simply pay the low 12.5 percent rate that everyone else pays, but also the difference between that and the U.S. rate.

Veronique explains why Pfizer made the right choice when it recently merged with an Irish company.

That’s a sensible reason to do what Pfizer has done recently with its attempt to purchase the Irish-based Allergan and relocate its headquarters there. The move would allow them to compete on an even playing field with every other company not based in the U.S. Despite the impression given by critics, they’ll still pay the U.S. rate when doing business here.

And she takes aim at the politicians who refuse to take responsibility for bad policy and instead seek to blame the victims.

…politicians and their ideological sycophants in the media wish to cast the issue as a moral failure on the part of businesses instead of as the predictable response to a poorly constructed corporate-tax code. …Clinton wants to stop the companies from moving with an “exit tax.” Clinton isn’t the first to propose such a silly plan. Lawmakers and Treasury officials have made numerous attempts to stop businesses from leaving for greener pastures and each time they have failed. Instead, they should reform the tax code so that businesses don’t want to leave.

Let’s close with an observation about the Pfizer controversy.

Perhaps the company did make a “mistake” by failing to adequately grease the palms of politicians.
Consider the case of Johnson Controls, for instance, which is another company that also is in the process of redomiciling in a country with better tax law.

Brent Scher of the Washington Free Beacon reports that the company has been a big donor to the Clinton Foundation, which presumably means it won’t be targeted if she makes it to the White House.

Hillary Clinton has spent the past few months going after Johnson Controls for moving its headquarters overseas, but during a campaign event on Monday, her husband Bill Clinton said that it is one of his “favorite companies.” …He described Johnson Controls as “one of my favorite companies” and praised the work it had done in the clean energy sector during an event in North Carolina on Monday. …Johnson Controls has contributed more than $100,000 to the Clinton Foundation and also partnered with it on numerous projects over the past eight years and as recently as 2015. Some of the Clinton Foundation projects included multi-million commitments from Johnson Controls. Bill Clinton pointed out in his speech that his foundation has done business with Johnson Controls—something that Hillary Clinton is yet to mention.

Given the sordid way Washington works, the folks at Johnson Controls may have made a wise “investment” by funneling money into the Clinton machine, but they shouldn’t delude themselves into thinking that this necessarily protects them. If Hillary Clinton ever decides that it is in her interest to throw the company to the wolves, I strongly suspect she won’t hesitate.

Though it’s worth pointing out that Burger King didn’t get attacked very much by the White House when it inverted to Canada, perhaps because Warren Buffett, a major Obama ally, was involved with the deal.

But wouldn’t it be nice if we had a reasonable tax code so that companies didn’t have to worry about currying favor with the political class?"

Who’d a-thunk it? Uber is way more efficient than traditional taxis?

From Mark Perry.

"I’ve written before about some obvious signs of widespread inefficiency in the traditional taxi market, as illustrated in the photo above that show the dozens of taxis that line up every day at The Mayflower Hotel in DC (and at every other major hotel in DC) and sit idly for very long periods of time waiting for passengers.



In this post from last August “Why are a dozen taxis lined up every day at The Mayflower Hotel?” I wrote:

In a dynamic Uber world, the available drivers respond to demand, and are directed by Uber to areas where there are a lot of passengers. And when demand is really high, surge pricing goes into effect to attract even more drivers to areas of high demand. But when there are always a dozen taxis sitting around idly at The Mayflower (and most other DC hotels), that just seems like an outdated form of transportation inefficiency, an inefficient excess supply, a failure to balance supply and demand, and something that would never happen in a ride-sharing world of much greater transportation efficiency.

There’s now evidence of just how inefficient legacy taxis are compared to UberX when measured by two capacity utilization rates: a) the fraction of time taxi and UberX drivers have a fare-paying passenger in their cars and b) the percentage of total miles driven by taxi and UberX drivers with a passenger in their cars. The anecdotal evidence of taxi inefficiency I observe almost every day in DC is now confirmed more formally in a new NBER research paper by Judd Cramer and Alan B. Krueger titled “Disruptive Change in the Taxi Business: The Case of Uber,” here’s the abstract:

In most cities, the taxi industry is highly regulated and utilizes technology developed in the 1940s. Ride sharing services such as Uber and Lyft, which use modern internet-based mobile technology to connect passengers and drivers, have begun to compete with traditional taxis. This paper examines the efficiency of ride sharing services vis-à-vis taxis by comparing the capacity utilization rate of UberX drivers with that of traditional taxi drivers in five cities. The capacity utilization rate is measured by the fraction of time a driver has a fare-paying passenger in the car while he or she is working, and by the share of total miles that drivers log in which a passenger is in their car. The main conclusion is that, in most cities with data available, UberX drivers spend a significantly higher fraction of their time, and drive a substantially higher share of miles, with a passenger in their car than do taxi drivers. Four factors likely contribute to the higher capacity utilization rate of UberX drivers: 1) Uber’s more efficient driver-passenger matching technology; 2)the larger scale of Uber than taxi companies; 3) inefficient taxi regulations; and 4) Uber’s flexible labor supply model and surge pricing more closely match supply with demand throughout the day.

From the Findings section of the paper:

Figure 1 (reproduced above to the right of the photo) summarizes estimates of the mileage-based capacity utilization measure for Los Angeles and Seattle, the only two cities for which we have been able to obtain information on taxi drivers’ miles. In Los Angeles, taxi drivers have a passenger in the car for 40.7% of the miles they drive, while UberX drivers have a passenger in the car for 64.2% of their miles, resulting in a 58% higher capacity utilization rate for UberX drivers. In Seattle, UberX drivers achieve a 41% higher capacity utilization rate than taxis in terms of share of miles driven with a passenger in the car [39.1% for taxis vs. 55.2% for UberX].

And when capacity utilization is measured by time with a passenger:

Across the five cities (LA, NYC, Seattle, San Francisco and Boston), UberX drivers have a passenger in their car around half the time that they are working, whereas taxi drivers have a passenger in their car anywhere from 32% of the time in Boston to nearly half the time in New York City.

From the paper’s Conclusion:

There are several possible reasons why UberX drivers may achieve significantly higher capacity utilization rates than taxi drivers. First, Uber utilizes a more efficient driver-passenger matching technology based on mobile internet technology and smart phones than do taxis, which typically rely on a two-way radio dispatch system developed in the 1940s or sight-based street hailing. Second, in most cities Uber currently has more driver partners on the road than the largest taxi cab company. Apart from the technology, there are network efficiencies from scale, as pure chance would likely result in an Uber driver being closer to a potential customer than a taxi driver from any particular company given the larger scale of Uber. Third, inefficient taxi licensing regulations can prevent taxi drivers who drop off a customer in a jurisdiction outside of the one that granted their license from picking up another customer in that location. Fourth, Uber’s flexible labor supply model and surge pricing probably more closely matches supply with demand during peak demand hours and other hours of the day.

The concluding section of the paper also raises some important implications of Uber’s significantly higher capacity utilization rates compared to traditional taxis: a) Uber’s greater efficiency translates to lower fares (e.g. UberX drivers in LA could charge 37% less than taxis and generate the same revenue per hour) and b) greater operational efficiency translates to less traffic congestion and less wasteful fuel consumption in cities like LA, where for every mile driven by taxis with a passenger in the car, they travel 1.46 miles without a passenger; the comparable figure for UberX drivers is 0.56 miles.
Finally, the authors’ findings also have implications for occupational licensing laws, which are frequently impossible to repeal directly due to the entrenched power of politically connected, government-protected industry cartels like Big Taxi. However, new innovative technologies like Uber and Lyft as one example, are bringing about disruptive changes that are weakening (and could eventually eliminate) inefficient, unnecessary and counterproductive occupational licensing laws that for many, many generations were impervious to change.

Related: Beyond their much greater operational efficiency which lowers prices and reduces congestion, ride-sharing services are also providing other unintended side-benefits. For example, Uber and Lyft are being given credit for encouraging redevelopment of neighborhoods around downtown Nashville and helping to revitalize the city’s urban core, see story here,  here’s a quote: “What it’s doing for the neighborhoods near downtown Nashville is amazing. This is changing the game,” said developer Khira Turner."

Scientists Find No Evidence Polar Bears Are Undergoing A ‘Climate Crisis’

By Michael Bastasch Daily Caller.

"A new study by Canadian scientists once again debunks the notion polar bears are currently being harmed by global warming. Researchers with Canada’s Lakehead University found “no evidence” polar bears are currently threatened by warming.

“We see reason for concern, but find no reliable evidence to support the contention that polar bears are currently experiencing a climate crisis,” Canadian scientists wrote in their study, published in the journal Ecology and Evolution.

Scientists looked at 13 polar bear subpopulations and found “much of the scientific evidence indicating that some polar bear subpopulations are declining due to climate change-mediated sea ice reductions is likely flawed by poor mark–recapture sampling.” This means researchers aren’t able to put together accurate “demographic parameters.”

Polar bears became the poster child for environmentalists who argued melting Arctic sea ice could kill thousands of bears that would have nowhere to rest while hunting in the summer months. Former Vice President Al Gore even featured polar bears swimming for their lives in his 2006 film on global warming.

Fears about global warming’s impact on polar bears even spurred the U.S. Fish and Wildlife Service (FWS) to list the bear as “threatened” under the Endangered Species Act in 2008 — the first species to be listed over possibly being harmed in the future from global warming.

FWS argued in 2008 that “the best available science” showed “that loss of sea ice threatens and will likely continue to threaten polar bear habitat.”

“Any significant changes in the abundance, distribution, or existence of sea ice will have effects on the number and behavior of these animals and their prey,” according to FWS. “This loss of habitat puts polar bears at risk of becoming endangered in the foreseeable future, the standard established by the ESA for designating a threatened species.”

Scientists, however, have increasingly been questioning alarmists, like Gore, and the U.S. government for listing the bears under the ESA. For starters, there are way more polar bears alive today than 40 years ago.

In fact, polar bears have likely survived past ice-free periods in the Arctic. Scientists recently found there’s no evidence of marine life extinctions in the Arctic in the past 1.5 million years, despite the Arctic going through periods of prolonged periods with no summer ice cover.

What’s more interesting is that periods in the Arctic when sea ice was exceptionally thick, polar bears and other Arctic animals had the hardest time surviving.

“We suggest that the qualitative projections for dramatic reductions in population numbers and range are overly pessimistic given the response of polar bears, climate, and sea ice to the present,” scientists with the U.S. Geological Survey (USGS) and the University of Alaska Fairbanks wrote in a study published in January.

Now, Canadian researchers are using “Inuit and Inuvialuit traditional ecological knowledge” and other methods to call into question alarmist polar bear estimates.

“We suggest that the qualitative projections for dramatic reductions in population numbers and range are overly pessimistic given the response of polar bears, climate, and sea ice to the present,” Canadian scientists wrote.

Shrinking Arctic sea ice may not be the real threat to polar bears. Veteran zoologist Susan Crockford argues that thick spring ice is a bigger problem for polar bears than sparse summer ice.

“Thick spring ice near shore drives seals to give birth elsewhere because they cannot maintain their breathing holes in the ice,” Crockford wrote on her blog. “This leaves mothers emerging from onshore dens with newborn cubs with nothing to eat at a time when they desperately need food: cubs die quickly, mothers more slowly.”"

Lancet Commission Recommends Drug Legalization

As the U.N. prepares for a special session on "the world drug problem," 22 experts catalog the costs of prohibition.

By Jacob Sullum of Reason. Excerpt:

"The report of the Johns Hopkins–Lancet Commission on Drug Policy and Health, published in the medical journal last Thursday, faults U.N. officials for conflating drug use with drug abuse, a black-and-white, all-or-nothing attitude that leads not only to vacuous slogans but to highly punitive, violently repressive policies that do far more harm than good. "The authors of the UN Office on Drugs and Crime (UNODC) 2015 annual report concluded that, of an estimated 246 million people who used an illicit drug in the past year, 27 million (around 11%) experienced problem drug use, which was defined as drug dependence or drug-use disorders," the commission says. "The idea that all drug use is dangerous and evil has made it difficult to see potentially dangerous drugs in the same light as potentially dangerous foods, tobacco, alcohol, and other substances for which the goal of social policy is to reduce harms. Harm reduction, an essential element of public health policy, has too often been lost in drug policy making amid a dominant discourse on the overwhelming evil of drugs."

Harm reduction aims to minimize the damage done by drug control policies as well as the damage done by drugs themselves. Prohibition magnifies the hazards of heroin use, for example, by creating a black market in which potency is unpredictable and encouraging both injection (because that's the most efficient route of administration and prohibition makes heroin artificially expensive) and needle sharing (through laws that limit access to syringes and punish possession of them). As a result, heroin users are more likely to die from overdoses or blood-borne diseases than they would be if heroin were legal.

Violence is another familiar product of prohibition, which relies on violence to suppress trafficking and creates black markets in which there is no legal way to resolve disputes. "In Mexico," the report notes, "the striking increase in homicides since the government decided to use military forces against drug traffickers in 2006 has been so great that it reduced life expectancy in the country....The increase in homicides after 2006 is highly significant and notable, especially after a long downward trend in homicides. No other country in Latin America—and few elsewhere in the world—have had such a rapid increase in mortality in so short a time." According to one estimate, "drug-war-related deaths pushed the national homicide rate up by 11 per 100,000," which is "2.5 times the total homicide rate in the USA in 2014."



Some of the damage done by drug prohibition can be ameliorated by harm reduction measures that fall short of legalization, such as needle exchange programs, safe injection spaces, greater availability of the overdose-reversing drug naloxone, and prescription of heroin or other replacement opioids to addicts. The commission recommends those steps, along with decriminalization of possession for personal use, a policy it says has proven successful in Portugal and the Czech Republic. But some problems are inherent in any attempt to forcibly suppress drug use. Although prohibition-related violence can be reduced by dialing back the war on drugs, for instance, it cannot be eliminated as long as production and distribution of certain intoxicants are criminal activities.

"Policies meant to prohibit or greatly suppress drugs present a paradox," the report says. "They are portrayed and defended vigorously by many policy makers as necessary to preserve public health and safety, and yet the evidence suggests that they have contributed directly and indirectly to lethal violence, communicable-disease transmission, discrimination, forced displacement, unnecessary physical pain, and the undermining of people’s right to health....We believe that the weight of evidence for the health and other harms of criminal markets and other consequences of prohibition catalogued in this commission is likely to lead more countries (and more US states) to move gradually towards regulated drug markets—a direction we endorse.""

China Trade Isn't Killing America's Working Class

Government handouts maybe more responsible.

By Shikha Dalmia. Excerpt:

"For starters, there is every reason to believe that even after job losses are factored in, trade with China and other developing countries has benefited even working-class Americans. A study by UCLA's Pablo D. Fajgelbaum and Columbia University's Amit Khandelwal found that the economic effects of trade are definitely skewed—but in favor of lower-income consumers, who enjoy 90 percent of trade's benefits. Why? Because trade lowers prices in areas such as food, clothing, and low-end consumer goods where these folks spend the bulk of their paychecks.

Likewise, another study by University of Chicago's Christian Broda and John Roma found that, thanks to trade, inflation for the basket of goods that poor people buy has been much lower than for those that rich people purchase. Those in the top five percentile have experienced 1.2 percent annual inflation, and the bottom 10th 0.4 percent. This means that in terms of actual buying power, poor people are not falling behind rich people as rapidly as the doomsayers would have you believe, and may in fact be closing the gap.

Shutting the door to cheap Chinese imports won't bring manufacturing jobs back to America. Why? Because American manufacturers that open shop here are far more likely to heavily automate rather than hire overpriced American labor to remain globally competitive. (Are you listening, Mr. Trump?) And for those who remain without jobs, cutting off cheap imports will mean that their unemployment checks will go less far. In short, in a world with diminished trade, Americans won't get better-paying jobs, they'll just get even poorer.

Autor estimates that about a quarter of manufacturing job losses in America between 2000 and 2007 were the result of Chinese imports. Other estimates put these losses closer to a fifth—with automation causing the rest. Either way, it's hardly news that trade would result in some job losses.

What is news is that, post trade liberalization with China, workers who lost their jobs didn't quickly bounce back and move on to higher and better things in growing industries, as standard trade theory would predict and as has historically been the case. Indeed, usually even if whole towns and cities succumb to trade or other forces of creative destruction, the vast majority of their inhabitants flee to better climes elsewhere. This time around, however, a significant number of Americans seem to have gotten stuck in a downward spiral where they are. For example, workers in Tennessee's furniture district, which was badly hit by cheap Chinese imports, never found new jobs.

What's driving the diminishing dynamism of the American workforce? Why do so many Americans seemingly prefer to drop out of the labor market or take lower paying jobs closer to home rather than seeking better opportunities elsewhere in the country?

Is it because there are no jobs? Hardly. Total non-farm job openings are at a record high, with a million positions in blue-collar fields like construction and transportation going begging. Yet the labor participation rate in the country is at a record low.

A skills gap between employer need and worker qualifications can explain some of this gap, as well as America's aging population. But the other big culprit is government policies that disincentive work.
Chief among them is Congress' relaxation of the rules for claiming Social Security disability during the Reagan years so that a worker's own subjective self assessment—rubber stamped by his own self-selected physician—would be enough to file a successful claim. What's more, it also made the payment more generous.

The upshot was that when the Great Recession hit in 2008, many able-bodied adults went on Social Security disability after their unemployment benefits ran out and never got off. Scott Lincicome of Cato Institute notes that between 1990 and 2014, the percentage of working-age adults receiving disability more than doubled.

This meant that workers had less need to uproot themselves from their families and communities for jobs far away. The aforementioned Tennessee workers have preferred to stray not too far from their original commuting zones, for example. In other words, family ties became a barrier to—as opposed to facilitator of—individual ambition. But this dampening of drive will prevent Americans not only from adapting to the gale force winds of trade but other disruptions as well. Indeed, if China, India, and—as per Donald Trump's new bugaboo—Vietnam, pose a mortal threat to Americans, what exactly will they do when robots arrive on the scene? Call for repealing the laws of physics? Deport scientists?"

Japan’s Descent into Keynesian Parody

By Daniel J. Mitchell of Cato.

"It’s very hard to be optimistic about Japan. I’ve even referred to the country as a basket case.
But my concern is not that the country has been mired in stagnation for the past 25 years. Instead, I’m much more worried about the future. The main problem is that Japan has the usual misguided entitlement programs that are found in most developed nations, but has far-worse-than-usual demographics. That’s not a good long-term combination.

As I repeatedly point out in my speeches and elsewhere, a modest-sized welfare state can be sustained in a nation with a population pyramid. But even a small welfare state is a challenge for a country with a population cylinder. And it’s a crisis for a jurisdiction such as Japan that will soon have an upside-down pyramid.

To make matters worse, Japanese politicians don’t seem overly interested in genuine entitlement reform. Instead, most of the discussion (egged on by the tax-free bureaucrats at the OECD) seems focused on how to extract more money from the private sector to finance an ever-growing public sector.

But the icing on the cake of bad policy is that Japanese politicians are addicted to Keynesian economics. For more than two decades, they’ve enacted one “stimulus package” after another. None of these schemes have succeeded. Indeed, the only real effect has been a quadrupling of the debt burden.

The Wall Street Journal shares my pessimism. Here’s some of what was stated in an editorial late last year.

Japan is in recession for the fifth time in seven years, and the…Prime Minister who promised to end his country’s stagnation is failing at the task. …Mr. Abe’s economic plan consisted of three “arrows,” starting with fiscal spending and monetary easing. The result is a national debt set to hit 250% of GDP by the end of the year. The Bank of Japan is buying bonds at a $652 billion annual rate, a more radical quantitative easing than the Federal Reserve’s. …The third arrow, structural economic reform, offered Japan the only hope of sustained economic growth. …But for every step Mr. Abe takes toward reform, one foot remains planted in the political economy of Japan Inc. In April 2014, Mr. Abe acquiesced to a disastrous three percentage-point increase in the value-added tax, to 8%, pushing Japan into its first recession on his watch. More recently, he has pushed politically popular but economically ineffectual spending measures on child care and help for the elderly. …only 25% of the population now believes Abenomics will improve the economy. Reality has a way of catching up with political promises.

You might think that even politicians might learn after repeated failure that big government is not a recipe for prosperity.

But you would be wrong.

Notwithstanding the fact that Keynesian economics hasn’t worked, Japanese politicians are doubling down on the wrong approach.

According to a report from Bloomberg, American Keynesians (when they’re not busing giving bad advice to Greece) are telling Japan to dig a deeper hole.

Paul Krugman urged Japanese Prime Minister Shinzo Abe to…expand fiscal stimulus to revive the economy.

Reuters filed a similar report:

U.S. economist Paul Krugman said on Tuesday he advised Japan’s Prime Minister Shinzo Abe to…boost fiscal spending… Krugman’s advice was the same as that which fellow U.S. economist Joseph Stiglitz gave Abe last week.

Indeed, there apparently was a consensus for bigger government:

Every one of the economists that Prime Minister Shinzo Abe has invited here for a series of meetings with policymakers has recommended that Japan let loose government spending… When Abe asked why consumer spending has remained feeble since the 2014 consumption tax increase, the U.S. academic suggested the answer lies in expectations that fiscal stimulus will end. …Abe’s government…appears to be seeking to rally the G-7 for aggressive fiscal policy.

So why did the Japanese government create an echo chamber of Keynesianism? Perhaps because politicians want an excuse to buy votes with other people’s money.

With an upper house election looming in July, ruling coalition lawmakers also are eager to dole out massive public spending.

And it appears that Japanese politicians are happy to take advice when it’s based on their spending vice ostensibly being a fiscal virtue. That’s not too shocking, but the Keynesian scheme that’s being prepared is a parody even by Krugmanesque standards.

Japan’s government is considering handing out gift certificates to low-income young people in a supplementary budget for fiscal 2016 as consumer spending remains sluggish on a slow wage recovery, the Sankei Shimbun newspaper reported Thursday. Government officials believe certificates for purchasing daily necessities would lead to spending, unlike cash handouts which could be saved… The additional fiscal program would follow a similar measure for seniors and the ruling coalition would use it to gain voter support before the Upper House election expected in July, the daily said.

Maybe the politicians will succeed in buying votes, but they shouldn’t expect better economic performance. Giving people gift certificates won’t alter incentives to work, save, and invest (the behaviors that actually result in more economic output).Indeed, on the margin, these handouts may lure a few additional people out of the labor force. 

The plan is foolish, even from a Keynesian perspective. Since money is fungible, do these people really think gift certificates will encourage more spending that cash handouts?

By the way, another reason to be pessimistic about Japan is that there apparently aren’t any politicians who understand economics. Or, at least, there aren’t any that want good policy. The opposition party isn’t opposed to Keynesian foolishness. Instead, it’s leader is only concerned about who gets the goodies.

Katsuya Okada, the leader of the main opposition Democratic Party of Japan, said in parliamentary debate in January. “Elderly people are not the only ones who are suffering. Among the working generation, only a limited number of people are feeling the fruit of Abenomics.”

The bottom line is that Japan will become another Greece at some point. I’m not smart enough to know whether that will happen in five years or twenty-five years, but barring a radical reversal in government policy, the nation is in deep long-run trouble."

Banning credit checks harms African-Americans

From Marginal Revolution.

"But a new study from Robert Clifford, an economist at the Boston Fed, and Daniel Shoag, an assistant professor at Harvard’s Kennedy School, finds that when employers are prohibited from looking into people’s financial history, something perverse happens: African-Americans become more likely to be unemployed relative to others.

…What’s surprising is how that redistribution happened. In states that passed credit-check bans, it  became easier for people with bad credit histories to compete for employment. But disproportionately, they seem to have elbowed aside black job-seekers.

I can’t say that mechanism makes me feel better about the world, but there you go. Consider this:

A powerful study published last year in the Review of Economics and Statistics shows something of the opposite happening: When employers began to require drug tests for job applicants, they started hiring more African-Americans.

“The likely explanation for these findings is that prior to drug testing, employers overestimated African-Americans’ drug use relative to whites,” the study’s author explained in an op-ed. Drug tests allowed black job applicants to disprove the incorrect perception that they were addicts.

It’s possible that credit checks were playing a similar role to drug tests, offering a counterbalance to inherent biases or assumptions about black job-seekers.

Glyphosate Saves Lives, Reduces Child Labor, and More

By Angela Logomasini of CEI.

"David Zaruk, aka the Risk Monger, has produced an excellent series of blog posts on why the herbicide glyphosate (the active ingredient in “Roundup”) is a wonderful thing, despite “cancer classifications” and demonization by greens. In a refreshingly blunt and honest series of posts, he makes some fantastic points that must shock green activists who can’t imagine why anyone would dare use a chemical to control noxious weeds, grow food, and feed the world. 

Some key points that Zaruk offers include:

1. Weed killers help reduce child labor. Yes, that’s what I said. Zaruk has real-life experience to prove it. Check out this post.
2. The cancer researchers at the International Agency for Research on Cancer (IARC) have lost credibility within Europe’s scientific community because of their reckless classification of glyphosate as “probably carcinogenic.” Indeed, the decision is tainted with junk science, anti-pesticide activism, and politics. Zaruk has all the details here and here.
3. “Glyphosate Saves Lives.” That’s item #6 on Zaruk’s post: “10 Reasons why Glyphosate is Good.” Zaruk offers so much insightful information in this post that it should be mandatory reading for anyone who doubts that weed killers can be safe, good for the environment, and yes, even save lives. Check it out."

Almost everything you hear from POTUS candidates about trade deals is wrong

From Greg Mankiw.

"The new IGM Panel poll of prominent economists asks about this proposition:

An important reason why many workers in Michigan and Ohio have lost jobs in recent years is because US presidential administrations over the past 30 years have not been tough enough in trade negotiations.

Only 5 percent agree, while 64 percent disagree.  (The rest were uncertain or did not answer.)  A previous poll asked about this statement:

Past major trade deals have benefited most Americans.

On this one, 83 percent agreed, and zero percent disagreed.

So the next time you hear some candidate complain about trade deals, remember that he or she is disagreeing with the vast majority of economists."

Coastal marshes, and the major carbon sink they represent, are significantly more resilient to foreseen climate changes than previously thought

See Elevated CO2 to the Salt Marsh Rescue! by Craig D. Idso of Cato.

"Coastal marshes are valuable ecosystems that provide important nutrients to coastal waters that help sustain local food webs. They are also increasingly recognized as valuable carbon sinks, sequestering significant quantities of carbon both above and below ground. In recent years, however, concerns have been expressed that these ecosystems are in danger of collapsing in response to rising sea levels that are projected to occur as a consequence of CO₂-induced global warming. If such fears are correct, melting ice will increase the rate of sea level rise beyond which these ecosystems can keep up, essentially them to a submerged death, which would have substantial repercussions on surrounding communities.

But how likely is it that this gloomy scenario will occur?

Investigating this very topic, the three-member research team of Ratliff et al. (2015) used a one-dimensional ecomorphodynamic model to “assess the direct impacts of elevated CO₂ on marsh morphology, relating to ongoing and emerging environmental change.” According to the authors, previous works have revealed large increases in marsh plant biomass productivity in response to elevated concentrations of atmospheric CO₂, yet “direct CO₂ effects on vegetation and marsh accretion (as opposed to its indirect effects, e.g., via the increase in temperature) have not yet been incorporated into marsh models. As a result, they note the relative importance of CO₂ effects on marsh dynamics “remains unknown” … until now, that is.

Using a meta-analysis of CO₂ enrichment data, Ratliff et al. were able to model the impact of CO₂ fertilization on coastal marsh vegetation and morphological dynamics for varying rates of relative sea level rise that are projected to occur under future global warming. Accordingly, the authors report “we found that the fertilization effect of elevated atmospheric CO₂ significantly increases marsh resilience to drowning and decreases the spatial extent of marsh retreat under high rates of sea level rise.” In addition, they found that the more expansive marshes under elevated CO₂ resulted in greater carbon sequestration such that “the fertilization effect may also contribute to a stabilizing feedback within the climate system, where increasing biomass production and organic deposition consequently sequester greater amounts of CO₂.”

In light of the above findings, Ratliff et al. conclude that their results “imply that coastal marshes, and the major carbon sink they represent, are significantly more resilient to foreseen climate changes than previously thought.” And that good news should suppress fears of the untimely demise of coastal marsh vegetation due to possible climate change-related increases in sea level. Sadly, such fears could have been avoided altogether, if the models would have included this important direct benefit of CO₂ from the get-go."

A Rising U.S. Trade Deficit Does Not Mean Rising American Financial Obligations to Non-Americans

By Don Boudreaux of Cafe Hayek.

"Here’s a letter to Forbes:

Dan Ikenson correctly explains why Noah Smith is mistaken to argue that the U.S. trade deficit is synonymous with American indebtedness to foreigners (“The U.S. Trade Deficit Is Not A Debt To Repay,” March 22).  Mr. Ikenson’s argument makes clear that a foreigner who, say, builds a new and profitable food-processing plant in Texas does not thereby become a creditor to Americans despite the fact that this transaction increases the U.S. trade deficit.

Also worth pointing out is the fact that increased foreign ownership of assets in America is not synonymous with decreased American ownership of assets.  That is, Mr. Ikenson’s argument against Mr. Smith can be reinforced by noting that the stock of productive capital is not fixed in size.  It can grow both globally and within a given country – a reality that means that the total value of Americans’ ownership of dollar-denominated assets does not necessarily fall when the total value of foreigners’ ownership of such assets rises.

Suppose that the foreigner who owns that new plant in Texas is uniquely talented at building and operating such a plant in an economy such as that of Texas.  This foreigner thus outbid Americans to purchase the land on which the plant is situated.  Further suppose that the American who sold the land to the foreigner used the full proceeds of the sale as seed money to start a successful IT company in Austin.  In this simple (but plausible) example, the value of Americans’ ownership of dollar-denominated assets rises along with the rise in the value of foreigners’ ownership of dollar-denominated assets.  (Indeed, here the rise in the value of American-owned dollar-denominated assets was enhanced by the trade-deficit-increasing transaction that raised the value of foreign-owned dollar-denominated assets.)

The bottom line is that, not only is it an error to equate a rising U.S. trade deficit with rising American indebtedness, it is also an error to equate rising foreign ownership of ‘American’ assets with declining American ownership of ‘American’ assets."

Western economic growth benefited the life-style of the very rich much less than it benefited the life-style of the less well-off

See Henry Ford versus Henry Royce by David Henderson of EconLog.

"Last weekend, I was at a conference in Ogden, Utah co-sponsored by Liberty Fund and the Charles Koch Foundation. One of my favorite readings for the conference is the Introduction to the book How the West Grew Rich by Nathan Rosenberg and L.E. Birdzell, Jr. and one of the passages I had forgotten was this:

It is an oddity of Western economic growth that, while it made some individuals extremely rich, it benefited the life-style of the very rich much less than it benefited the life-style of the less well-off. The reason is to be found in the nature of the innovations that the West most conspicuously rewarded. Innovations that reduced the cost of producing goods did not appreciably change the life-style of people who were abundantly able to pay pre-innovation prices, and the most lucrative new products were those with a market among the many, rather than among the few. Thus the first textile factories produced fabrics of inferior quality, which the rich did not want, and a century later, the great automobile fortune was Henry Ford's, not Henry Royce's.

And later in the paragraph:

It is much easier to think of innovations which benefited only the less well-off than it is to think of innovations which have benefited only the rich.

I would have altered this last slightly. Almost every innovation I can think of benefited the less well-off a lot, percentage-wise, and the rich a little, percentage-wise, but not zero."

How Free Markets Helped Farming In New Zealand

From the book The Economics of Public Issues.