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Entries Tagged as 'cap-and-trade'

Free Trade Isn’t A Cure-All

June 10th, 2011 at 10:48 am 5 Comments

The American economy has entered a period of turmoil unlike any it has seen in decades.

The solutions, to me at least, do not seem radically easy or clear, but the first step in finding a solution is to clarify our language in talking/thinking about the problem. If we are serious about finding ways of addressing some of the serious structural problems of the economy, we must be willing to offer a thoroughgoing analysis of the whole economic order.

The trends of “globalization” have had a huge impact on the American economy in the past 20 years. Yet I think there have been some confusions in our contemporary discussions of globalization, so here are a few (mildly polemical) challenges to contemporary assumptions, focusing on trade and manufacturing policies.

The decline of manufacturing is not like the decline of agriculture. The shrinking manufacturing sector is often mistakenly analogized to the drastic drop in the number of Americans working in agriculture from 1870 to 1950. The current trade deficit, driven by manufactured goods, disproves that analogy. The story of the Industrial Revolution in America is not the replacement of agriculture by manufacturing but the incorporation of agriculture into a new, broader economy. Throughout industrialization, Americans still produced enough food to feed themselves and those in other nations.

For the most part, we still do produce enough food to do so. The number of Americans working in agriculture has declined drastically, but, due to increases in productivity, the output has only increased. While it is true that productivity has increased in manufacturing and that automation has cut down on the number of needed factory jobs (the US still does produce a lot), such an increase in efficiency does not tell the whole story of the decline of American industry: if it did, we would still be producing huge quantities of shoes, computers, tools, and countless other items. The fact that factories are closing down while our trade deficit has skyrocketed over the past 20 years is a sign of how different the fates of manufacturing and agriculture have been.

We do not live in an era of free trade (or: cheap imports do not equal free trade.) Some of those who criticize the reigning trade hegemony counterpose “fair trade” to the dominant “free trade.” This criticism is mis-aimed. We may not have “fair trade,” but we certainly don’t have “free trade,” either.

The current global trade order is not free trade but actually a species of neo-mercantilism. Many developed nations have opened up their economies to an influx of goods from poorer, often autocratic, mercantilist countries. Most importantly for the case of “free trade,” there is often a great disparity in openness between trading partners. These disparities are especially stark for the United States. U.S. policymakers have in a variety of ways unilaterally opened up the American market while allowing other countries to stack the deck against U.S.0 businesses and workers.

We are told that this flood of imports is “free trade” when, in fact, numerous barriers are put up against American products.

Consider our relationship with the People’s Republic of China, our second-largest trading partner. It would be a stretch to declare that this relationship is “free trade.” The PRC manipulates its currency as a de facto tariff against U.S. goods — and piles further outright tariffs on US goods. The price of entry into the Chinese market is often, in part, a joint-venture agreement, in which a foreign company provides intellectual property and other advanced technologies while local Chinese contacts supply workers and land for factories.

Mandating that businesses open up factories in a nation in order to have access to it is not exactly classical free trade.

These agreements are very often deleterious to U.S. workers and U.S. companies. The office-supply manufacturer Fellowes, for example, opened up a joint-venture manufacturing facility in the PRC. For a few years, this factory led to some considerable profits for Fellowes.

In  2010, this stream of profit came to a sudden end, when Fellowes’s Chinese partner moved to take possession of the facility:

The dramatic moment was in early August, 2010, when Zhou, under the aegis of Shinri, blocked the gates of the joint venture facility with security guards and trucks, preventing people from going in and goods going out, effectively shutting down production. Shinri expelled and confined the managers, moved funds from the joint venture to a Shinri-controlled bank account, sent packing the 1,600 joint venture employees, and at night, drove a truck into the facility and stole Fellowes-owned injection molding tools, some of them weighing several tons.

Fellowes’s former partner now has taken possession of millions of dollars of equipment and technological know-how—all without paying a cent (or a yuan) for it. The Chinese government appears to be giving cover to what many would consider theft. Fellowes is but one of many companies that have had their investments and technologies confiscated by the politically connected of the PRC. Without a basic respect for property rights, there can be no capitalistic free trade.

Trade policy does not happen in a vacuum. In part to cope with the throes of industrialization, the United States passed various worker and consumer protections in the twentieth century: regulations for environmental protections, worker safety, wages, and other areas. When the U.S. economy was bounded by tariffs, these regulations helped ensure that an increase in industrial production went along with an increase in the standards of society. However, in our new era of neo-mercantilist globalism, the role of these standards has become considerably more troubled for U.S. workers.

Consider the case of environmental standards.

As the decades have gone on, our environmental standards have become increasingly invasive and onerous. Government more and more regulates chemical usage, energy sources, waste disposal, land use, and other aspects of environmental production that affect industrial policy. The presumed beneficiary of these regulations is the public at large through the protection of the environment. Our laws tell companies that, if you manufacture in the U.S.A., you must face numerous obligations and pay increased costs due to all these regulations. Our trade policies, however, tell those very same companies that, if they manufacture their products abroad, they need not worry about any U.S. environmental or worker regulations.

One might wonder how the environment is helped when U.S. policies incentivize heavy industry leaving a country with some environmental regulations (such as the U.S.A. or many European countries) and going to a country with far fewer (such as the PRC or India).

I recognize that economic prosperity is often correlated with an increase in environmental protections, so a wealthier India may eventually introduce further environmental protections. But there seems to be an often radical disproportion between how politicians talk about environmental policies and what our trade policies actually encourage. The debate over “global warming” reveals this disproportion at the height of its absurdity.

In the name of “global warming,” the federal government has banned the classical incandescent lightbulb in order to cut down on carbon emissions; meanwhile, through trade policies, it has encouraged a gross increase in carbon emissions through encouraging manufacturing to move to nations with radically less efficient and more polluting forms of industrial production.

“Global warming” advocates often stress that the world is at a tipping point for carbon emissions and forecast the deaths of potentially hundreds of millions of people if carbon patterns do not change right now. Many of these same advocates, however, seem to see no problem with the continued destruction of American manufacturing.

A “cap-and-trade” scheme or carbon tax, without any attention to broader global industrial questions, would do little for American employment or lower carbon emissions. If environmentalism is more than NIMBYism and self-righteousness, we need to consider the effects of our current trade policies upon domestic policies.

To acknowledge (or to wonder about) the limits of neo-mercantilist globalism is not to embrace isolationism; on the contrary, this kind of critique opens up further ways of engaging with the broader community of nations. It would be foolish to turn our economic or political backs on the world, and a tariff war would very likely create more problems than it would solve.

But it would equally foolish to allow our thinking to be frozen by hazy myths and knee-jerk assumptions.

The theory of free trade does have much of value to it. Under the right conditions, trade between nations does lead to a rising tide for all boats. There have also been many benefits to the current neo-mercantilist order, though some of the implicit tensions of this order have risen to the surface during the last few years of economic turmoil.

Yet, living within this order, the United States must find ways to renew its competitive edge and successfully compete with mercantilist powers. It might also, with its allies, consider how best to revise this order so that it better advances the ideals of freedom and prosperity.

Originally published at A Certain Enthusiasm.

Confessions of a Climate Change Convert

April 19th, 2011 at 11:00 am 134 Comments

I was defeated by facts.

It wasn’t all that long ago when I joined others on the right in dismissing concerns about climate change. It was my firm belief that the science was unsettled, buy viagra that any movement associated with Al Gore and Van Jones couldn’t possibly be trusted, recipe that environmentalists were simply left-wing, online anti-capitalist kooks.

It wasn’t until after I read Stanford University professor Morris Fiorina’s book Disconnect (2009) that I started to reconsider things. Fiorina noted that while environmentalism is now considered the domain of the Democratic Party, for many years it was the GOP that was identified with conservationist concerns. I was curious as to how the political climate shifted with regard to environmentalism—and whether there was something to all this talk about climate change.

I’m very fortunate to have acquaintances in the environmentalist movement, and I began discussing my concerns with them last fall. One friend recommended that I read the 2007 Fourth Assessment Report of the Intergovernmental Panel on Climate Change, suggesting that it might resolve some of the questions I had about the science behind climate concerns.

I began reading the report with a skeptical eye, but by the time I concluded I could not find anything to justify my skepticism. The report presented an airtight case that the planet’s temperature has increased dramatically (“Eleven of the last twelve years [1995-2006] rank among the twelve warmest years in the instrumental record of global surface temperature [since 1850]”), that sea levels have undergone a dramatic and disturbing increase since the 1960s (“Global average sea level rose at an average rate of 1.8 [1.3 to 2.3]mm per year over 1961 to 2003 and at an average rate of about 3.1 [2.4 to 3.8]mm per year from 1993 to 2003”) and that climate alteration is having an unusual impact on avian and sea life (“…recent warming is strongly affecting terrestrial biological systems, including such changes as earlier timing of spring events, such as leaf-unfolding, bird migration and egg-laying…observed changes in marine and freshwater biological systems are associated with rising water temperatures, as well as related changes in ice cover, salinity, oxygen levels and circulation”).

The report highlighted the key role carbon emissions played in climate alteration, noting, “The largest growth in GHG emissions between 1970 and 2004 has come from energy supply, transport and industry, while residential and commercial buildings, forestry [including deforestation] and agriculture sectors have been growing at a lower rate” and that “[c]hanges in the atmospheric concentrations of GHGs and aerosols, land cover and solar radiation alter the energy balance of the climate system and are drivers of climate change. They affect the absorption, scattering and emission of radiation within the atmosphere and at the Earth’s surface.” I was stunned by the report’s claim that “[t]he observed widespread warming of the atmosphere and ocean, together with ice mass loss, support the conclusion that it is extremely unlikely that global climate change of the past 50 years can be explained without external forcing and very likely that it is not due to known natural causes alone.”

If carbon-fueled climate alteration continues at its current rate, the report noted, we will bear witness to unprecedented health horrors: “The health status of millions of people is projected to be affected through, for example, increases in malnutrition; increased deaths, diseases and injury due to extreme weather events…increased frequency of cardio-respiratory diseases due to higher concentrations of ground-level ozone in urban areas related to climate change; and the altered spatial distribution of some infectious diseases.” In addition, “For increases in global average temperature exceeding 1.5 to 2.5°C and in concomitant atmospheric CO2 concentrations, there are projected to be major changes in ecosystem structure and function, species’ ecological interactions and shifts in species’ geographical ranges, with predominantly negative consequences for biodiversity and ecosystem goods and services, e.g. water and food supply.”

The report did provide some hope, noting that “[s]ocieties can respond to climate change…by reducing GHG emissions [mitigation], thereby reducing the rate and magnitude of change… Policies that provide a real or implicit price of carbon could create incentives for producers and consumers to significantly invest in low-GHG products, technologies and processes.”

I came away from the report convinced that climate alteration poses a critical threat to our health and way of life, and that “policies that provide a real or implicit price of carbon” are in fact necessary, from an economic and a moral standpoint, to mitigate that threat. Such policies—most notably the much-maligned concept of cap-and-trade—should not be considered job-killers but life-savers.

There’s a part of me that understands why libertarian pundits seem to have so much scorn for those who support state action to combat carbon emissions. Modern libertarianism is suffused with skepticism of government, and supporting state regulation of carbon emissions requires, on some level, a belief in government to get things right. Is it even possible to be a libertarian and an environmentalist—or a conservative and an environmentalist, for that matter?

I’m a bit skeptical myself. I’d argue that conservatives and libertarians should strongly support regulation to reduce carbon pollution, since pollution by one entity invariably infringes upon the rights of others (including property rights), and no entity has a constitutional right to pollute. It does not put America on the road to serfdom to suggest that the federal government has a compelling interest in protecting the country from ecological damage. If anything, it puts America on the road to common sense.

Since reconsidering climate science, I’ve had a number of debates with conservative and libertarian friends, who oppose government regulation of carbon emissions in part because they believe those regulations will cost too much. Of course regulations cost; limiting ecological damage and preserving public health requires money. The issue is whether those costs are moral to impose. If no entity has a constitutional right to pollute, and if the federal government has a compelling interest in reducing carbon pollution, then how can those costs not be moral?

In the months following my acceptance of the conclusions in the IPCC report, I’ve had a change in my emotional climate. I go back and forth between disappointment and hope—sadness over seeing Republicans who once believed in the threat of climate change (such as Massachusetts Senator Scott Brown and former Minnesota Governor Tim Pawlenty) suddenly turn into skeptics; optimism about efforts by such groups as Republicans for Environmental Protection and Citizens Climate Lobby to sound the alarm about the need to combat climate pollution. I struggle with the urge to give in to cynicism and bitterness, to write off the American right for its refusal to recognize scientific facts. Thankfully, there’s a stronger urge—an urge to keep working until the American right recognizes that a healthy planet is required to have the life and liberty that allows us to pursue happiness.

Pawlenty’s Cap and Trade About-Face

David Frum March 30th, 2011 at 7:52 am 16 Comments

Here is what I don’t understand about Tim Pawlenty’s reversal – not only on cap-and-trade – but also on any concern for climate change whatsoever:

It would make sense to say:

“Back in 2007, I supported cap-and-trade. That was before the recession. In these difficult times, our economy cannot support an additional burden. Let’s get back to full employment and strong economic growth. Once our economy is prospering again, it will be time to decide what to do to protect our environment.”

Or else:

“Cap-and-trade is a conservative idea, originating with free market economists, that was successfully used by the first Bush administration to stop acid raid. But the actual cap-and-trade bill that emerged from the Democratic House of Representatives was stuffed with gimmicks and giveaways to Democratic constituencies. I could not support that. So as president I’ll be looking for other ideas to protect our environment.”

But whoever is president after 2013 will inherit both an improving economy – and also an accelerating climate-change problem. Why put yourself on record now in ways that will inhibit responding to environmental challenges in the future?