Subsidies v. Windfall Profit Tax for Agriculture

The U.S. Congress recently passed a $307 billion agriculture subsidy bill. This subsidy passed both chambers of Congress by a large margin despite the fact that U.S. Agriculture is already making very healthy profits (Up about 60% in two years), at least partially due to another subsidy – American Ethanol policy.

It’s not clear to me why the government should be subsidizing farmers (although it’s clear why certain politicians favor subsidies*). The default and correct position of the government is generally not to subsidize an industry. It doesn’t really seem fair to take money from some and give it to certain businesses, generally it’s not productive, and it causes political economic problems. So, we generally need a compelling reason why we have a special case necessitating subsidies. However, it isn’t a strategic policy to protect our food supplies, as United States has abundant food and is a net exporter. The United States has about the best farm land in the world and will always have a vibrant agriculture sector (baring the worst global warming predictions coming true).

One reason some could offer to protect farmers is to protect them from the ups and downs of commodity prices. We see no reason to protect other industries from these pressures. In fact, populist politicians want to punish oil companies for the rising price of crude. I don’t recall hearing much talk about instituting a “windfall profit” tax on farmers. Even though, unlike U.S. oil companies, American farmers are definitely using the government to manipulate prices and cause an artificial shortage. The agriculture lobby’s manipulation of the market has far worse effects than high gas prices - it causes people to starve (but people in the 3rd world who have little say in U.S. policy).

So, we’re spending a lot of money to further enrich American farmers and kill people in the Third World (And not even for freedom). I say stop it. I reluctantly give Bush credit for his veto. John McCain gets credit for taking a strong stand against the bill in the Senate. Barack Obama, who says he will fight the special interests, supported this incredibly regressive policy just as he did the 2005 energy handout – He loses credit.

*Subsidies go to the organized special interests with the most political power. Agriculture is a well definite sector that is easy to organize into an effective lobby, and has some broad-based appeal (protect the vaunted family farm, right?). More importantly, states with large agriculture lobbies are vastly overrepresented in Senate and also have a disproportionate role in choosing the President (via the Electoral College and the Iowa Caucus).

Bob Barr as the Libertarian Candidate

Here's Bob Barr, who just won the Libertarian Nomination for President. He looks poised to run a stronger campaign than the LP has run in quite a while. I kinda like him but he uses "Y'all" a little much for my liking.

There are things I like about Obama, McCain, and Barr (But nothing that I like about Clinton). I plan to make an endorsement before November, although I'm honestly not sure who support yet. In moments of uncertainty about who to vote for, it's comforting to rememmber that your vote is essentially worthless

Income Per Natural

An interesting new paper by Michael Clemens and Lant Pritchett has produced the new and I think quite valuable statistic of average income per natural. This stat measures the average income of all those who were born in a country rather than those who live in the country - So, not the average income of residents of Ireland or France but the average income of an Irishman or a Frenchman. It includes those who were born by no longer live in the country and does not include immigrants.

The country with the highest income per natural is the United States. So, human capital from the United States is the most valuable in the world. Does this score some points for the much maligned U.S. educational system? Well, actually I think it reflects the great post-secondary educational system in the United States - which in turn is due to the fact that the college level, the U.S. educational system is actually extremely competitive.

Luxembourg shoots ahead of the United States in income per resident because of the wealthy who are able to establish residency there. But Luxembourg types aside, I would argue that the reason the United States in not number one in income per resident is tremendous amount of poorer immigrants that move to the United States. This is not a bad thing; it’s better for immigrants and most native born Americans. However, it does distort stats for healthcare and inequality, which strengthen the arguments of some policy makers with bad ideas. Income per natural should remind us that the United States is probably the best country in the world to be born… Economically at least.

Equivocating About Trade

Economists almost universally favor expanding free trade. This is because they recognize that increased openness will help some and hurt some others, but (baring some bizarre conditions) the benefits always outweigh the 'costs'. So, it's not unreasonably for those who know a little about trade to just say that more trade is always good for the country. In fact, a more detailed explanation of the upsides and downsides of trade could be confusing to the vast bulk of people who don't understand comparative benefit and scope of the market arguments. Oversimplified summaries of these factors muddle the issue. As a result people are led to believe the issue of free trade is a toss up, and perhaps defer to their own conservative inclinations. Here Don Boudreaux makes a good point along these lines in a letter to the Wall Street Journal:

Would you introduce letters on the polio vaccine with "Vaccine Has Helped Some, Hurt Some"? After all, the vaccine eliminated jobs for workers who made crutches, wheel chairs, and iron-lung machines. Of course, the benefits of the vaccine - especially over the long run - far outweigh the costs. Likewise with consumers' freedom to spend their incomes as they choose. And free trade is nothing more than consistently allowing consumers to spend their incomes as they choose.

There are always those who benefit and those who lose their privileges. Not just from trade, this is the nature of change and life. It is reasonable to help those who fall on hard times as a result of development. But, we shouldn’t let the crutch-makers determine public policy.

Wednesday Afternoon Playlist

It's Wednesday afternoon which seem like the perfect time for some hyperliterate progressive rock (HT Stephen Colbert). Enjoy:

1. The Legionnaire's Lament - The Decemberists
2. Our Life Is Not A Movie Or Maybe - Okkervil River
3. Holland, 1945 - Neutral Milk Hotel
4. I Was Wrong - Social Distortion
5. Godless - Dandy Warhols
6. My Sweet Annette - Drive-by Truckers
7. Fields of Athenry - Dropkick Murphys
8. Everything I Try to Do, Nothing Seems to Turn Out Right - The Decemberists
9. Street Fighting Man - Oasis
10. I Am A Leaver - The Damnwells
11. A Quick One While He's Away - The Who
12. For Real - Okkervil River

Postdiluvian New Orleans

Here's the Atlantic from one year ago describing the New Orleans public school system in the aftermath of Huricane Katrina.

Stripped of most of its domain and financing, the Orleans Parish School Board fired all 7,500 of its teachers and support staff, effectively breaking the teachers’ union. And the Bush administration stepped in with millions of dollars for the expansion of charter schools—publicly financed but independently run schools that answer to their own boards. The result was the fastest makeover of an urban school system in American history.

According to the New York Times last week, test scores are up quite a bit, although still not great. This is what you would expect with a more liberal school system where the unions have less power, and it's nice to see (HT Alex Tabarrok).

Also, see this Megan McArdle post about Bobby Jindal. The Hurricane seems to have shocked Louisiana into actually reforming it's notoriously corrupt government.

The current fad in development economics is the importance of institutions. However, it appears that in developed countries institutions can be destroyed but society will come back better than ever. We know developed countries are much better at recovering from a natural disaster or war than developing nations. The tremendous growth of post World War II European countries and Japan is the best example of this. I used to think this quick recovery was merely the result of quick recoveries due to the survival of human capital. But now I see in many cases very inefficient institutions have been built up in developed societies, and they can be rebuilt much better from scratch after they have been wiped out. These institutions can be destructive like the unions, rent seeking businesses, and corrupt governmental arrangements, but become entrenched. It takes something unique to dislodge them. Perhaps a disaster is more likely than a very brave, principled, and popular politician. After the cost in life of the disaster (which generally far outweighs the gains of post disaster development), many societies seem to be better off after they are rebuilt. This is painful to the Burkian in me, but my thinking is that it is true.

Note: I'm not saving Louisiana is better off now, just as France wasn't more prosperous in 1948 than before the war. However, there are signs that the state could be making tremendous progress that will significantly change how it will be 20 years later, like 1965 France.

Venezuela v Saudi Arabia and Nigeria

Free Exchange has had the same 'Comment of the Week' as long as I can remember:

It's astonishing how many hearts bleed for
Venezuela---especially for the alleged ill-effects of Chavez' policies on the
poor. I suspect these are crocodile tears and the intent is actually entirely
ideological. If Chavez' policies fail, at least the Venezuelans can get rid of
him in the next elections. Spare a thought for Saudi Arabia instead, where
conditions are far more repressive, where the poor have no voice and where they
can't get rid of the king. Or save your tears for Nigeria, where the oil bonanza
has had hardly any impact on reducing poverty.
Akhond of Swat on Venezuela

I think the reason people are bothered by Venezuela is that the country has clearly been moving the wrong direction over the last decade. Saudi Arabia and Nigeria have never really had functioning politics or democracy. It could be argued that Nigeria and Saudi Arabia are making very modest steps forward. Saudi Arabia is strengthening modest secular institutions and the government is a bulwark against perhaps a dangerously radical population. Nigeria is corrupt, and seems to be less democratic the last few years, but is probably one of the better governments in Africa, and definitely improved from a generation ago.

Venezuela has a two hundred year history of (often dysfunctional) democracy. Hugo Chavez has taken dangerous steps towards undermining that democracy. He is destroying the economy, which fortunately for him has thus far has been masked by rising oil prices. Furthermore, he is trying to influence other Andean countries and that influence has almost universally been negative. His support for the thuggish FARC in Columbia comes quickly to mind. And also, there is a question of how able Colombians are to get rid of Chavez if his policies fail.

So, I agree that we should worry about the poor and suffering in other countries, but I think that Venezuela is very important. Is it a country on the margin between liberal democracy and some sort of authoritarianism, and it has been going the wrong direction. So, the marginal people in a developing nation are being hurt.

Clinton and the Gas Tax

Paying attention to the election can be quite annoying. Elections are generally decided by ‘low information’ voters who generally do not have good reasoning behind their votes. As a result, politicians generally campaign with some pretty asinine arguments. If we want less of this, we need to ridicule these arguements and punish the politicians who push them.

Hillary Clinton appears to be the ultimate panderer off bad but sometimes appealing arguments. One particularly bad issue, that Hillary Clinton is making her big campaign issue right now is a gas tax holiday. Approximately 100% of economists think this is a bad idea, but Clinton dismisses economic opinion as ‘elitist’. I think this means that even though it is a bad idea, a lot of marginal voters don’t understand economics well enough to realize this. Most people would understand the flaw in Clinton’s position if it was explained to them, so Clinton strategy is to dismiss informed opinion, as strong leaders should… The gas tax is only 18 cents per gallon, abolishing it would have little effect outside of cutting funding for transportation. It would encourage more driving however, which is counterproductive towards the country’s goals of reducing pollution and dependence on foreign oil. It’s a Pigouvian tax, which is actually one of the few taxes with strong economic backing.

She’s not unintelligent. So, I think this is just a character issues. Hillary Clinton clearly fails once again.

Choices with Zimbabwe

Zimbabwe is slowly moving to a run off election, which it appears has already been decided by the intimidation of Robert Mugabe’s thugs (And the legion of dead voters who votes 100% for ZANU-PF).

The relatively liberal minded international community has a couple options when dealing with an autocrat stubbornly and viciously clinging to power, like Robert Mugabe. Basically, they can offer him immunity to just leave or they can leave open the possibility of criminal prosecution once he is out of office.

Mugabe and his cronies’ biggest fear is prosecution. They don't want to end up like Charles Taylor. With the crimes they have committed and continue to commit, they would almost certainly face prosecution once out of office. So, Mugabe and his cronies desperately need to keep the old man in office. Their lives pretty much depend on it. As a result, they are willing to participate in some very nasty behavior in order to maintain his government. Their guilt for this additional brutal behavior reinforces their need to maintain power.

So, one way to get guys like Mugabe out is to promise immunity if they agree to peacefully leave office. Such a promise would have a chance of persuading Robert Mugabe to go. Zimbabwe would be better off in the near term. Zimbabwe has a lot of problems, and all of these problems would probably be better handled in the coming years with another government. But of course, this path lets the guilty men go free.

Prosecuting these criminals certainly is more morally appealing. However, the threat of prosecution is one of the reasons Mugabe clings to office. So, here’s what I think is the decisive point: If the international community prosecutes regimes for crimes against humanity that will create a huge incentive against future crimes against humanity. The Romans understood this incentive. In the Roman Republic after their one-year terms, Consuls would strand trial for their behavior in office. If you want less bad behavior, increase the price of it. Mugabe should spend the rest of his life in court or jail, and let that be a warning to folks who could follow his path.

P.S. Another route would be the actual route Charles Taylor’s post presidency took. Promise him immunity if he leaves and then renege. Of course, this is a reason promises of immunity won’t have much force if offer now, which makes the choice easier.