Can the Free Market Wage War?
[Interventionism: An Economic Analysis • By Ludwig von Mises, Bettina Bien Greaves, ed. Foundation for Economic Education, 1998 • 98 pages]
Interventionism, though written nearly seventy years ago and published in 1998 for the first time, expertly dispatches a scheme popular with a few present-day conservatives. In the view of these professed nationalists, the free market is not good enough. Foreign trade threatens the jobs of American workers. For the good of the nation, tariffs must rise.
But does not elementary economic analysis show the fallacy of trade restrictions? What of the international division of labor? Our new protectionists are not ignorant of economics; but, they aver, economic arguments must take second place to the national interest. If a nationalist explicitly places his ideological convictions above market prosperity, what can be said against him?
Mises offers a ready response. At the time he wrote this short book, arguments of the type just canvassed were very much the order of the day. Nationalist nostrums roused great interest among conservatives in the 1930s and 1940s. Mises was thus thoroughly familiar with the "higher" noneconomic argument for protection.
In response, Mises makes a vital distinction. Tariffs, and similar measures designed to strengthen the nation, "should not be considered as measures of production policy." They aid some citizens at the expense of others; they do not help the economy as a whole.
One might differ as to the advisability of protecting the Prussian Junkers by a tariff on grain imports against the competition of the Canadian farmers who are producing on more fertile soil. But if we advocate a tariff to protect Prussian grain producers, we are not recommending a measure in favor of the production of the supply of grain, but a measure designed to assist the owners of German land at the expense of the German grain consumers. It will never be possible to base an economic system on such assistance privileges. (p. 20)
Mises here completely explodes the nationalist argument for protective tariffs. Since these measures do not benefit the totality of the nation, they cannot be unambiguously endorsed from a nationalist point of view. Commitment to free trade, then, need not rest on utopian commitment to internationalism, as some suppose. Given the goal of nationalism, protection does not follow.
But does not the tariff supporter have here a counter to deploy against Mises? He may grant Mises's point: a tariff will benefit some citizens at the expense of others. Nevertheless, he may say, the national interest dictates that the tariff be instituted. Aid to certain groups, it may be contended, is in the national interest.
Mises appears to concede something to this rejoinder, but his concession does the protectionist little good.
Whether such an expenditure is justified or not is of no concern for economic evaluation. … There are undoubtedly cases in which restrictive measures appear justified to most or all of our citizens. But all restrictive measures are fundamentally expenditures. They diminish the supply of productive means available for the supply of other goods. (p. 20)
Mises's "admission" is in fact a devastating counterargument. Tariffs are never defended by their proponents on the grounds that they privilege some at the expense of others within a nation. Quite the contrary, they are alleged to benefit the nation at the expense of foreigners. Absent an account of the national interest with explicit arguments that justify largesse for special interests, the nationalist defense for tariffs fails utterly.
The case Mises advances against tariffs illustrates the book's dominant theme, one that all readers of Mises will meet as a familiar friend. The proposals advanced by interventionists fail to achieve the goals their advocates have in mind for them, and they thus stand self-condemned. As an example,
[an] attempt by government forcibly to give the national credit money or paper money a value higher than its market price causes effects which Gresham's Law describes. A condition results which generally is called a shortage of foreign exchange. (p. 44)
Should the government attempt to remedy its intervention by further interference, disaster soon impends. The new measure will also fail to achieve the goals of its supporters. Again, the interventionists must confront the basic choice: more intervention or return to the free market. Should the former course entice them on, the result will soon be full-scale socialism. Mises concludes that no third system exists intermediate between the free market and socialism.
Since so many refuse to learn its lesson, Mises's argument against interventionism merits continual repetition. But the details of Mises's case have been often presented in his other works; and Sanford Ikeda, in an interesting work that I have reviewed elsewhere, has gone over the whole argument at length. An unkind reader of the Mises Daily (if such exists) might inquire: must we have this argument repeated once more?
There is justice in this imagined complaint (not, of course, distributive justice, for there is no such thing). With this in mind, let us then turn to a topic that I have found nowhere else in Mises: his analysis of how a free society should wage war.
For one thing, conscription is out. The use of compulsion to man the military characteristically does not stand by itself. Rather, it has formed part of an interventionist scheme to subject the economy to control. As such, it must be rejected for the reason earlier stated: interventionism cannot endure as a stable system.
Mises states the essential point in this way:
The first step which led from the soldiers' war back to total war was the introduction of compulsory military service. … The war was no longer to be only a matter of mercenaries; it was to include everyone who had the necessary physical ability. … But when it is realized that a part of the able-bodied must be used on the industrial front … then there is no reason to differentiate in compulsory service between the able-bodied and the physically unfit. Compulsory military service thus leads to compulsory labor service of all citizens who are able to work, male and female. (p. 69)
But what is the alternative to total war with total state control? Mises's response will surprise no one: he favors reliance on the free market. To support his view that a market economy can effectively wage modern war, Mises advances a surprising claim about the early part of World War II.
He ascribes the fall of France to anticapitalist views. Because of campaigns in the 1930s against "war profiteering," the French (and to a lesser extent the British) refused to rely on the market to provide them with the arms they needed to withstand the German onslaught.
On the basis of such [anticapitalist] reasoning the [Léon] Blum government nationalized the French armament industry. When the war broke out and it became imperative to place the productive power of all French plants into the service of the rearmament effort, the French authorities considered it more important to block war profits than to win the war. (p. 72)
Mises's contention is at once exposed to an obvious objection; but he knows this full well and has his counter ready. The German army in 1940 ranked second-to-none as a fighting force; yet it was hardly a free-market army in the style favored by Mises.
But Mises does not deny this. On the contrary, he acknowledges that the "German army has an enormous superiority in every type of equipment that a fighting army requires" (p. 71). Mises's contention is that, given German power, interventionism and anticapitalism are paltry and insufficient responses. Only capitalism, not half-hearted socialism, can defeat a total state.
We may readily grant Mises's point that a hampered market economy is a poor bet during wartime. But how does Mises know that an arms procurement policy of the sort he wants would have led to French victory in 1940? Does he not go too far in this self-confident judgment?
No doubt Mises has not proved his case: his suggestion is merely that of a well-informed contemporary observer. But his contention provides us with a stimulating hypothesis for future research. What was the effect of French restrictionist policies on armaments production during the 1930s? Here is a question that cries out for historical research. And we have Mises's unique combination of mastery of economics with historical insight to thank for it. Though written in 1940, this book is essential reading for all Misesians.
A Four-Step Healthcare Solution
It's true that the US health-care system is a mess, but this demonstrates not market but government failure. To cure the problem requires not different or more government regulations and bureaucracies, as self-serving politicians want us to believe, but the elimination of all existing government controls.
It's time to get serious about health-care reform. Tax credits, vouchers, and privatization will go a long way toward decentralizing the system and removing unnecessary burdens from business. But four additional steps must also be taken:
-
Eliminate all licensing requirements for medical schools, hospitals, pharmacies, and medical doctors and other health-care personnel. Their supply would almost instantly increase, prices would fall, and a greater variety of health-care services would appear on the market.
Competing voluntary accreditation agencies would take the place of compulsory government licensing — if health-care providers believe that such accreditation would enhance their own reputation, and that their consumers care about reputation, and are willing to pay for it.
Because consumers would no longer be duped into believing that there is such a thing as a "national standard" of health care, they would increase their search costs and make more discriminating health-care choices.
-
Eliminate all government restrictions on the production and sale of pharmaceutical products and medical devices. This means no more Food and Drug Administration, which presently hinders innovation and increases costs.
Costs and prices would fall, and a wider variety of better products would reach the market sooner. The market would force consumers to act in accordance with their own — rather than the government's — risk assessment. And competing drug and device manufacturers and sellers, to safeguard against product liability suits as much as to attract customers, would provide increasingly better product descriptions and guarantees.
-
Deregulate the health-insurance industry. Private enterprise can offer insurance against events over whose outcome the insured possesses no control. One cannot insure oneself against suicide or bankruptcy, for example, because it is in one's own hands to bring these events about.
Because a person's health, or lack of it, lies increasingly within his own control, many, if not most health risks, are actually uninsurable. "Insurance" against risks whose likelihood an individual can systematically influence falls within that person's own responsibility.
All insurance, moreover, involves the pooling of individual risks. It implies that insurers pay more to some and less to others. But no one knows in advance, and with certainty, who the "winners" and "losers" will be. "Winners" and "losers" are distributed randomly, and the resulting income redistribution is unsystematic. If "winners" or "losers" could be systematically predicted, "losers" would not want to pool their risk with "winners," but with other "losers," because this would lower their insurance costs. I would not want to pool my personal accident risks with those of professional football players, for instance, but exclusively with those of people in circumstances similar to my own, at lower costs.
Because of legal restrictions on the health insurers' right of refusal — to exclude any individual risk as uninsurable — the present health-insurance system is only partly concerned with insurance. The industry cannot discriminate freely among different groups' risks.
As a result, health insurers cover a multitude of uninsurable risks, alongside, and pooled with, genuine insurance risks. They do not discriminate among various groups of people which pose significantly different insurance risks. The industry thus runs a system of income redistribution — benefiting irresponsible actors and high-risk groups at the expense of responsible individuals and low-risk groups. Accordingly, the industry's prices are high and ballooning.
To deregulate the industry means to restore it to unrestricted freedom of contract: to allow a health insurer to offer any contract whatsoever, to include or exclude any risk, and to discriminate among any groups of individuals. Uninsurable risks would lose coverage, the variety of insurance policies for the remaining coverage would increase, and price differentials would reflect genuine insurance risks. On average, prices would drastically fall. And the reform would restore individual responsibility in health care.
-
Eliminate all subsidies to the sick or unhealthy. Subsidies create more of whatever is being subsidized. Subsidies for the ill and diseased promote carelessness, indigence, and dependency. If we eliminate such subsidies, we would strengthen the will to live healthy lives and to work for a living. In the first instance, that means abolishing Medicare and Medicaid.
Only these four steps, although drastic, will restore a fully free market in medical provision. Until they are adopted, the industry will have serious problems, and so will we, its consumers.
Obama and the Permanent Campaign
Turning critics into enemies isn't presidential.
KARL ROVE
Team Obama is suffering from Extended Campaign Syndrome. In an election, campaign staffers are often just trying to survive until the next week or the next primary. They cut corners because they are fatigued or under pressure. They can be purposely combative and even portray critics as enemies.
Carrying this mindset into the White House can get you into trouble, a lesson the Obama administration is now learning the hard way.
For example, there's a video being circulated online of Barack Obama telling the Illinois AFL-CIO in 2003, "I happen to be a proponent of a single payer universal health-care program . . . we may not get there immediately" and then telling an SEIU Health Care Forum in 2007, "I don't think we're going to be able to eliminate employer coverage immediately. There's going to be some transition process. I can envision a decade out or 15 years out or 20 years out where we've got a much more portable system."
The White House now insists that the president doesn't want to enact a single-payer health-care system or eliminate private insurance. What's more, a White House spokeswoman attacked the video, saying its compilers "Take a phrase here and there—they simply cherry-pick and put it together—and make it sound like he's saying something that he didn't really say."
That's laughable. Mr. Obama's remarks are straightforward and indisputable. Rather than saying his views have changed as he has worked to create a national consensus, the administration denies what is obviously true.
Last week, the White House asked Americans to report "fishy" information about health-insurance reform and its purveyors. Setting the record straight is one thing. Collecting information on critics in this vaguely threatening manner is quite another.
Much of the Democratic response to critics has been inappropriate or unpresidential. Take the reaction to the town-hall meetings taking place across the country. Many people are worried about their health care and a few are responding in unacceptable ways. But Democrats are portraying the opposition as an "angry mob" using, as House Speaker Nancy Pelosi and House Majority Leader Steny Hoyer wrote in a USA Today op-ed, "un-American" tactics. Mr. Obama's "Organizing for America," a political group founded by the president to mobilize supporters, dismisses critics as tools of "insurance companies . . . stirring up fear with false rumors," without presenting a shred of evidence to back up the charge.
The White House may actually welcome this process fight if it is more interested in the state of mind of 60 Democratic senators and 256 Democratic House members than in what the public at large is thinking. It seems to believe attacking critics will reassure nervous members of Congress. The sideshow also distracts attention from the substance of Mr. Obama's plans, which is what is really hurting him.
For example, many small businesspeople are starting to figure out that under ObamaCare it will be cheaper to pay a penalty equal to 8% of payroll than to continue covering their employees' health insurance. How will people feel about Mr. Obama's claim that everyone can keep their existing coverage when their employer tells them it makes better economic sense to dump them into the government-run option than to keep paying for private insurance?
The administration's rhetorical tricks extend to issues beyond health care. The economy continues shedding jobs, yet the administration keeps saying the president's policies save jobs. Last Thursday, Christina Romer, chairwoman of the Council of Economic Advisers, proclaimed at the Economic Club of Washington that the stimulus package has saved "about 485,000 jobs" since February.
The following day, the Bureau of Labor Statistics reported that 247,000 Americans lost their jobs in July. What Team Obama says not only runs counter to the experience of ordinary Americans, it's causing many to conclude that their White House is misleading them.
The administration could strain its credibility further when it updates the government's fiscal projections in the soon-to-be-released report called the "Mid-Session Review." It's likely that the president will blame his predecessor for a larger than previously projected deficit.
About Karl Rove
Karl Rove served as Senior Advisor to President George W. Bush from 2000–2007 and Deputy Chief of Staff from 2004–2007. At the White House he oversaw the Offices of Strategic Initiatives, Political Affairs, Public Liaison, and Intergovernmental Affairs and was Deputy Chief of Staff for Policy, coordinating the White House policy making process.
Before Karl became known as "The Architect" of President Bush's 2000 and 2004 campaigns, he was president of Karl Rove + Company, an Austin-based public affairs firm that worked for Republican candidates, nonpartisan causes, and nonprofit groups. His clients included over 75 Republican U.S. Senate, Congressional and gubernatorial candidates in 24 states, as well as the Moderate Party of Sweden.
Karl writes a weekly op-ed for The Wall Street Journal, is a Newsweek columnist and is now writing a book to be published by Simon & Schuster. Email the author at Karl@Rove.com or visit him on the web at Rove.com.
Or, you can send him a Tweet @karlrove.
It's true that the deficit was $455 billion when Mr. Obama took office, with $325.3 billion of that from the bank rescue bill Sen. Obama supported.
But since Jan. 20, Mr. Obama has only added to the red ink. He has signed into law a $787 billion stimulus package and a $33 billion expansion of the State Child Health Insurance Program. He's greenlighted spending another $330.4 billion in bank rescue money. And he signed a $410 billion bill to fund discretionary spending for the second half of the current fiscal year, an increase of 8% on an annual basis. By supporting each spending initiative, he robbed himself of the ability to credibly blame others for the size of the deficit.
Life inside the White House is far different from life inside a presidential campaign. The spotlight is brighter and scrutiny greater. While the posse in the White House pressroom is still slow to challenge Mr. Obama, ordinary people are forming their own judgments and they are increasingly negative.
Mr. Obama's exaggerations, misdirection and efforts to divide Americans are becoming more obvious. What worked in the Obama campaign will often backfire on the Obama presidency. But old habits are hard to leave on the trail.
Mr. Rove is the former senior adviser and deputy chief of staff to President George W. Bush.
Is China the Next Real Estate Bubble?
Weak export demand and looming Politburo changes are incentives to keep the monetary spigot wide open.
MICHAEL KURTZ
Chinese policy makers have lately spooked markets into thinking they might soon take away the monetary punch bowl that's been fueling the local asset recovery. Don't be fooled. Beijing is likely to continue priming the monetary pump to support domestic markets.
Exports remain weak despite positive signs from the U.S. and Europe, and domestic consumption has a long way to go to make up the gap. Spending on infrastructure is contributing massively to 2009 growth. Due to the strength of this year's fiscal stimulus, though, such outlays will be hard-pressed to carry GDP forward in 2010.
Thus residential housing construction stands as Chinese leaders' best hope for immediate results. To induce property developers to start new projects, policy makers first had to encourage a rapid drawdown of China's existing unsold housing stock by bolstering shattered sentiment with easy money. This has worked; unsold housing is now equal to roughly nine months of demand, down from more than 14 months at the start of the year. Spurring the property market to this degree is arguably China's most impressive economic feat of 2009.
Seen in this light, stable or rising prices on assets like property, far from being an accidental consequence of loose monetary policy, stand out as the purpose of that policy. The fact that housing construction must carry so much of the growth burden means policy makers likely prefer to err well on the side of too much inflation rather than risk choking off growth too early by mistiming tightening.
Meanwhile, China's political cycle may exacerbate risks of an asset bubble. President and Communist Party Chairman Hu Jintao and other senior leaders are expected to step down at the party's five-year congress in October 2012. Much of the jockeying for appointments to top jobs is already under way, especially for key slots in the Politburo. Mr. Hu will want to secure seats for five of his allies on that body's nine-member standing committee, ensuring his continued influence from the sidelines and allowing him to protect his political legacy.
This requires that Mr. Hu deliver headline GDP growth at or above the 8% level that China's conventional wisdom associates with robust job creation, lest he leave himself open to criticism from ambitious rivals. The related political need to avoid ruffling too many feathers in China's establishment also may incline leaders toward lower-conflict approaches to growth, rather than deep structural reforms that would help rebalance demand toward sustainable private consumption. Easy money is less politically costly than rural land reform or state-enterprise dividend restructuring. This is especially the case given that much of the hangover of a Chinese asset bubble would fall not on the current leadership, but on the next.
Meanwhile, a "bubble coalition" may be building at the economy's ground level. China's banks were initially reluctant to jeopardize their hard-fought internal reforms in the name of inflating a monetary bubble through increased lending. But now that they have lent out massive new sums to home buyers, developers and governments that reap revenues from land sales to developers, the banks have a bigger stake in keeping property prices firm. Homeowners are part of this coalition too, especially the substantial number who are circumventing official downpayment requirements and buying houses with 100% debt.
For all these reasons, China's leaders most likely want to stage-manage asset inflation instead of stopping it. Despite all the talk from Beijing about curtailing excessive credit expansion, policy makers have not taken truly decisive steps, such as raising reserve requirements on banks to sop up liquidity.
Rather, officials seem concerned mainly with injecting occasional reminders that markets are still two-directional, so as to avoid a one-way stampede with more dire inflationary consequences. When their negative rhetoric is too effective, they've proven just as willing to talk markets up again.
All this is at least leading to some accidental reforms as policy makers try to vent monetary pressures. Domestic initial public offering issuance has been restarted, with five companies listing shares worth a total of $7.9 billion just since July 10. The main intent is to absorb errant liquidity, but such listings might also help usher in governance reform via further privatization. China also is increasingly green-lighting capital outflows, such as outbound mergers and acquisitions and portfolio investment through sovereign entities.
A freer capital account is a positive and necessary step on China's long-term path toward economic modernization. Still, a recovery strategy dependent on reinflating an asset bubble is fraught with risks. It could exacerbate politically destabilizing wealth disparities, cause misallocation of savings and physical resources, and create the threat of widespread wealth destruction if policy makers misjudge the exit strategy and have to step hard on the brakes. Inflationary missteps also could spur a return to price controls, as seen in January 2008 when China last fought back inflation. This would reverse admirable recent price liberalization designed to encourage more efficient resource use.
There's a saying that you meet your fate on the road you took to avoid it. If China continues down the road of asset inflation to drive growth, rather than embracing tough structural reforms, that fate may be more troublesome than policy makers expect.
From 'Yes, We Can,' to 'No! Don't!'
Obama turns out to be brilliant at becoming, not being, president.
Don't strain the system. Don't add to the national stress level. Don't pierce when you can envelop. Don't show even understandable indignation when you can show legitimate regard. Realize that the ties that bind still bind but have grown dryer and more worn with time. They need to be strengthened, not strained.
Govern knowing we are a big, strong, mighty nation, a colossus that is, however, like all highly complex, highly wired organisms, fragile, even at places quite delicate. Don't overburden or overexcite the system. America used to have fringes, one over here and the other over there. The fringes are growing. The fringes have their own networks. All sorts of forces exist to divide us. Try always to unite.
These are things one always wants people currently rising in government to know deep in their heads and hearts. They are the things the young, fierce staffers in any new White House, and the self-proclaimed ruthless pragmatists in this one, need to hear, be told or be reminded of.
***
The big, complicated, obscure, abstruse, unsettling and ultimately unhelpful health-care plans, proposals and ideas keep rolling out of Washington. Five bills, thousands of pages, "as it says on page 346, paragraph 3, subsection D." No one knows what will be passed, what will make its way through House-Senate "conference." They don't even know what the president wants, what his true agenda is. He never seems to be leveling, only talking. Everything's open to misdirection and exaggeration, and everything, people fear, will come down to some future bureaucrat's interpretation of paragraph 3, subsection D, part 22.
What a disaster this health-care debate is. It strains, stresses and pierces, it unnecessarily agitates and is doomed to be the cause of further agitation. Who doubts the final bill will be something between a pig in a poke and three-card Monte?
Which is too bad, because our health care system actually needs to be made better.
***
There are smart and experienced people who say whatever the mess right now, the president will get a bill of some sort because he has the brute numeric majority. A rising number say no, this thing has roused such ire he won't get much if anything. I don't know, but this is true: If he wins it, will be a victory not worth having. It will have cost too much. It has lessened the thing an admired president must have from the people, and that is trust.
It is divisive save in one respect. The Obama White House has done the near impossible: It has united the Republican Party. Social conservatives, economic conservatives, libertarians—they're all against the health-care schemes as presented so far. They're shoulder-to-shoulder at the barricade again.
***
The president's town hall meeting on Tuesday in Portsmouth, N.H., was supposed to be an antidote to the fractious town halls with members of Congress the past weeks. But it was not peaceful, only somnolent. Actually it was a bit of a disaster. It looked utterly stacked, with softball after softball thrown by awed and supportive citizens. When George W. Bush did town halls like that—full of people who'd applaud if he said tomorrow we bring democracy to Saturn—it was considered a mark of manipulation and insecurity. And it was. So was Mr. Obama's.
The first question was from a Democratic state representative from Dover named Peter Schmidt. He began, "One of the things you've been doing in your campaign to change the situation is you've been striving for bipartisanship."
"Right," the president purred. They were really holding his feet to the fire.
"My question is," Mr. Schmidt continued, "if the Republicans actively refuse to participate in a reasonable way with reasonable proposals, isn't it time to just say ,'We're going to pass what the American people need and what they want without the Republicans'?"
Stop, Torquemada, stop!
The president said it would be nice to pass a bill in a "bipartisan fashion" but "the most important thing is getting it done for the American people."
Then came a grade-school girl. "I saw a lot of signs outside saying mean things about reforming health care" she said. Here one expected a gentle and avuncular riff on the wonderful and vivid expressions of agreement and disagreement to be seen in a vibrant democracy. But no. The president made a small grimace. "I've seen some of those signs," he said. There's been a "rumor" the House voted for "death panels" that will "pull the plug on grandma," but it's all a lie.
I'm glad he'd like psychiatric care included in future coverage, because after that answer that child may need therapy.
***
The president seemed like a man long celebrated as being very good at politics—the swift rise, the astute reading of a varied electorate—who is finding out day by day that he isn't actually all that good at it. In this sense he does seem reminiscent of Jimmy Carter, who was brilliant at becoming president but not being president. (Actually a lot of them are like that these days.)
Also, something odd. When Mr. Obama stays above the fray, above the nitty-gritty of specifics, when he confines his comments on health care to broad terms, he more and more seems . . . pretty slippery. In the town hall he seemed aware of this, and he tried to be very specific about the need for this aspect of a plan, and the history behind that proposal. And yet he seemed even more slippery. When he took refuge in the small pieces of his argument, he lost the major threads; when he addressed the major threads, he seemed almost to be conceding that the specifics don't hold.
When you seem slippery both in the abstract and the particular, you are in trouble.
***
Looking back, a key domestic moment in this presidency occurred only eight days after his inauguration, when Mr. Obama won House passage of his stimulus bill. It was a bad bill—off point, porky and philosophically incoherent. He won 244-188, a rousing victory for a new president. But he won without a single Republican vote. That was the moment the new division took hold. The Democrats of the House pushed it through, and not one Republican, even those from swing districts, even those eager to work with the administration, could support it.
This, of course, was politics as usual. But in 2008 people voted against politics as usual.
It was a real lost opportunity. It marked the moment congressional Republicans felt free to be in full opposition. It gave congressional Democrats the impression that they were in full control, that no one could stop their train. And it was the moment the president, looking at the lay of the land, seemed to reveal he would not govern in a vaguely center-left way, as a unifying figure even if a beset one being beaten 'round the head by the left, but in a left way, without the modifying "center." Or at least as one who happily cedes to the left in Congress each day.
Things got all too vividly divided. It was a harbinger of the health care debate.
I always now think of a good president as sitting at the big desk and reaching out with his long arms and holding on to the left, and holding on to the right, and trying mightily to hold it together, letting neither spin out of control, holding on for dear life. I wish we were seeing that. I don't think we are.
World Trade Victory
A blow to Chinese protectionism, and a lesson for the U.S.
Wednesday's World Trade Organization decision against Chinese media protectionism is good news for U.S. exporters, but even better news for Chinese consumers and industry. The case, involving U.S. entertainment and media exports, illustrates the benefits of a rules-based global trading system, particularly at a time of rising protectionism.
A WTO dispute resolution panel ruled against several of China's key regulations on the distribution of media such as films, music and DVDs, long the bane of Hollywood. Among the most onerous is the requirement that many products pass through state-controlled middlemen. This cuts into the companies' ability to profit from their work since the monopolist middlemen can command outsize fees. It also contributes to copyright infringement because pirates happily fill the void when legitimate content can't be widely distributed.
These distribution constraints have been in place for a decade or more. What's changed now is that China's 2001 entry into the WTO gives governments and industries an opportunity to deal with the issue without resorting to a trade war. The increasing amount of WTO litigation involving Beijing (on either side of a dispute) is a sign of success in integrating China into the global economy.
Beijing has said it will appeal at least some parts of the ruling. But if it loses, China will have to decide whether to bring itself into line with the WTO judgment. The alternative would be to maintain the illegal policies and simply bear the cost of any retaliatory measures the U.S. might one day impose.
Limits on the distribution of media content lie at the heart of the Communist Party's attempts to regulate what ideas can reach Chinese eyes and ears. That may partly explain why, unlike in earlier WTO cases, including one over distribution of financial news, Beijing wasn't able or willing to negotiate a settlement before this complaint went to a dispute panel.
WTO rules explicitly allow censorship in China as elsewhere, and China negotiated other media controls into its accession agreement—including a cap on the number of foreign films allowed to be released each year, at 20. But China's leaders know as well as anyone that controlling the distribution of content makes it easier to control the content itself.
Beijing would best serve its own interests by abiding by the WTO ruling, not least because China itself is increasingly turning to the WTO for protection from other countries unfairly blocking Chinese goods from their markets. For China to maintain its own credibility as a complainant in trade cases, Beijing needs to be willing to play fair when it loses a case.
Taking genuine steps to fix its trade shortcomings will be important for its relationship with Washington. U.S. Trade Representative Ron Kirk has made "enforcement" a centerpiece of his agenda. The Administration is weighing a request for protectionism against Chinese tires. Chinese chickens are in Congress's line of sight. China's best chance of defusing all this is to demonstrate that it is as committed to playing by global trading rules as the U.S. should be.
As for the Obama Administration, well, the same lesson applies. For the system to work, America must be ready to abide by its own agreements. Fumbles like the "Buy American" stimulus provision, clearly a violation of the WTO, or the continuing ban on Mexican trucks, a Nafta infraction, are an invitation to others to play the same game.
The media case shows how much the U.S. can gain by getting other countries to play by global rules. Amid the celebration in Washington, it's worth remembering that's a two-way street.
Bernanke in the Cross-Hairs
Bernanke in the Cross-Hairs
Benjamin Bernanke's problems are now Team Obama's.
What to do when your plans to save the financial system from future disaster are being derailed by the guy who supposedly saved the financial system from current disaster? Someone hide Ben Bernanke.
The Obama administration might be wishing it had a secure location for the Federal Reserve chief. The Treasury Department's proposal to overhaul the financial regulatory system is in trouble. Congress left town after bitter hearings, rancorous accusations and dire warnings about the proposal's future. And that was just from Democrats.
At the center of the fight is Mr. Bernanke, or more precisely the administration's central idea: to invest his Federal Reserve with new "ultimate authority" to oversee the nation's banks, hedge funds and insurers. In relatively normal times, such a serious proposal might merit a serious debate. But these are not normal times.
Mr. Bernanke's extraordinary moves the past year—bailing out financial institutions, forcing bank takeovers, elbowing into fiscal policy—has turned him into a lightning rod. Politicians frustrated by the handling of the financial crisis have turned sour on giving the central bank even more powers. The White House helped create this Frankenstein, having encouraged Mr. Bernanke to operate as an arm of the Treasury. It's now left to handle the monster, as Congress seizes on the administration's proposal as a proxy to bash the Bernanke Federal Reserve.
Mr. Bernanke is unrepentant—whether on the monetary, fiscal or bailout front—and argues his sweeping actions staved off "Depression 2.0." He only needs to convince most of Congress.
On the right, he's under fire for the bailouts of Bear Stearns and AIG as ill-defined interventions in the private sector. His decision to make direct purchases of mortgage securities, troubled assets, and even Treasury securities—directly monetizing federal debt to effectively finance congressional spending—has fueled claims of dangerous fiscal meddling.
The left is no happier, casting the bailouts as Mr. Bernanke's smooch to a corrupt corporate America. Add in the Fed's deliberate secrecy, and many liberals are nursing visions of the Fed chief overseeing a fleet of black helicopters.
Meanwhile, both sides have joined to seize on his handling of Bank of America's Merrill Lynch acquisition. Put aside the question of whether that deal spread more risk than it contained. The accusations that Mr. Bernanke had threatened CEO Ken Lewis and sat on pertinent financial disclosure was a red flag to House investigators to go digging.
Far from deference, Mr. Bernanke's recent testimonies have been treated with all the delicacy usually reserved for a mob boss. Indiana Republican Rep. Dan Burton at a summer hearing went so far as to accuse Mr. Bernanke of phrasing his answers to avoid perjury. Some members of Congress also object to Mr. Bernanke's handling of his actual job—monetary policy—not that anyone's had much time to get to that.
Mr. Bernanke can't even catch a break from fellow regulators. In recent congressional hearings, Federal Deposit Insurance Corp. Chairman Sheila Bair and Comptroller of the Currency John Dugan opposed giving the Fed more power. Even a dressing down by Treasury Secretary Tim Geithner couldn't make them shut up. This is the usual turf warfare, but it is also payback; Ms. Bair has split with Treasury and the Fed over bank bailouts and other policy decisions.
Instead of discussing ways to give the Fed new powers, the bank's actions have given Congress the opening it has long wanted to exert more control over the institution. Nearly two-thirds of the House has co-sponsored a bill requiring deep financial audits of the central bank. Other members are pushing to revamp the Fed's structure in a way that gives Congress more say over the regional Federal Reserve banks.
Mr. Obama's problem is that there's no easy exit. Mr. Bernanke's term is up in January, which theoretically gives the president the ability to name a replacement. Then again, while the Bernanke power grab began with Hank Paulson, it was aided by then-New York Fed president Mr. Geithner—who as Mr. Obama's Treasury Secretary has used the Fed as an extension of his department. The Fed's claim of independence is today so tenuous that an Obama knock on Mr. Bernanke is in effect a knock on his own policies.
Mr. Bernanke, for his part, is waging a campaign for another term. Yet renomination sets up an uncertain confirmation fight with an increasingly hostile Congress. The president's top economic adviser, Larry Summers, has been as subtle as Genghis Khan in his desire to be tapped for the job, but he brings his own headaches. If the hot topic is too much Fed independence, Mr. Obama's naming of a close political ally won't calm any fears on Capitol Hill.
Congress intends to take up the financial regulatory proposal in earnest in September, at which point the Bernanke show continues. The once hard line between the "independent" Fed and the rest of official Washington has been blurred. Mr. Bernanke's problems are now the Obama team's.
Obama's Senior Moment
Obama's Senior Moment
Why the elderly are right to worry when the government rations medical care.
Elderly Americans are turning out in droves to fight ObamaCare, and President Obama is arguing back that they have nothing to worry about. Allow us to referee. While claims about euthanasia and "death panels" are over the top, senior fears have exposed a fundamental truth about what Mr. Obama is proposing: Namely, once health care is nationalized, or mostly nationalized, rationing care is inevitable, and those who have lived the longest will find their care the most restricted.
***
Far from being a scare tactic, this is a logical conclusion based on experience and common-sense. Once health care is a "free good" that government pays for, demand will soar and government costs will soar too. When the public finally reaches its taxing limit, something will have to give on the care and spending side. In a word, care will be rationed by politics.
Mr. Obama's reply is that private insurance companies already ration, by deciding which treatments are covered and which aren't. However, there's an ocean of difference between coverage decisions made under millions of voluntary private contracts and rationing via government. An Atlantic Ocean, in fact. Virtually every European government with "universal" health care restricts access in one way or another to control costs, and it isn't pretty.
The British system is most restrictive, using a black-box actuarial formula known as "quality-adjusted life years," or QALYs, that determines who can receive what care. If a treatment isn't deemed to be cost-effective for specific populations, particularly the elderly, the National Health Service simply doesn't pay for it. Even France—which has a mix of public and private medicine—has fixed reimbursement rates since the 1970s and strictly controls the use of specialists and the introduction of new medical technologies such as CT scans and MRIs.
Yes, the U.S. "rations" by ability to pay (though in the end no one is denied actual care). This is true of every good or service in a free economy and a world of finite resources but infinite wants. Yet no one would say we "ration" houses or gasoline because those goods are allocated by prices. The problem is that governments ration through brute force—either explicitly restricting the use of medicine or lowering payments below market rates. Both methods lead to waiting lines, lower quality, or less innovation—and usually all three.
Stocks in Broad Retreat
Stocks declined on Friday as new economic data gave investors already inclined to take a break after a solid two-day gain little reason to deviate from that plan.
The Dow Jones Industrial Average was down 121 points at 9277, giving back nearly all of its nearly 160-point gain from the last two sessions. The Nasdaq Composite Index was off 1.5%. The S&P 500 declined 1.7%, led by its basic-materials sector, off 2.9%, and industrials, off 2.3%.
![[Markets Data]](http://s.wsj.net/public/resources/images/MDGpromo_D01222009151210.jpg)
On the New York Stock Exchange declining shares outpaced advancing shares by a ratio of more than four to one. Trading volume was light.
Hastening stocks' decline, a closely watched report showed consumers' moods darkened this month. The University of Michigan's consumer-sentiment index was 63.2, below the mean economist expectation for a reading in the range of 69. Consumer spending, which accounts for about two thirds of U.S. economic activity, is critical to a broader economic rebound.
The sentiment reported followed a weaker-than-expected retail sales report and a less-than-encouraging outlook from Wal-Mart Stores for the critical back-to-school shopping season on Thursday.
On Friday, shares of J.C. Penney fell more than 5% after the department-store operator reported swung to a $1 million loss in its fiscal second quarter and said it expects break-even results in the current quarter, disappointing investors.
Renewed concern about the health of the consumer manifested in other markets as well, weighing on commodities prices and sending some investors back into the safe haven of government debt. The front-month crude-oil futures contract sank below $70 a barrel and investors piled into Treasurys, bringing the key 10-year yield down to 3.52% in recent trading.
Meanwhile, new readings of inflation and industrial production were roughly in line with analysts' expectations. The Labor Department said its consumer-price index was unchanged on a monthly basis in July from June, though prices in annual terms fell at the fastest rate since 1950. And the Federal Reserve said industrial production last month rose 0.5% compared to June the while use of capacity by industries expanded to 68.5% from June's 68.1%.
Earlier this week, the Federal Reserve indicated that it isn't concerned about an imminent outbreak of inflation. While energy and commodity prices have risen recently, "substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time," the Fed said in a policy statement Wednesday.
Adding to the pressure on blue chips, Boeing shares were down more than 4% after the company was forced to halt work at a plant in Italy after new flaws in the production of its 787 Dreamliner aircraft turned up.
No comments:
Post a Comment