A Better Border Adjustment Tariff

At Bloomberg View Ted Halstead proposes what appears to me to be a much better border adjustment tariff than the one proposed by the Trump Administration:

China is several times less energy-efficient than the U.S., emitting far more greenhouse gases per unit of economic output. Whether the industry is steel, cement, clothing or electronics, this amounts to an implicit subsidy for dirty production in China, at the expense of U.S.-based manufacturers. The way to level the playing field is to penalize China’s carbon intensity.

The Trump administration has instead based its trade strategy on the outdated notion that China is a currency manipulator. These days, the renminbi is, if anything, overvalued, not undervalued. The White House has also toyed with the idea of a border adjustment tariff as proposed by House Republicans. America’s retailers are fiercely opposed, however, and this proposal would probably run afoul of World Trade Organization rules.

The shrewd play for Trump would be to pivot to a border carbon-adjustment policy, something that would benefit most American companies and be compatible with WTO rules. It would tax the carbon contents of imports from all countries whose environmental standards are weaker than American ones, and rebate any carbon fees paid by U.S. companies on the products they export to those countries. This would enhance our terms of trade and substantially reduce the U.S. trade deficit with China.

To do that while remaining within World Trade Organization rules, we’d need to impose a carbon tax here. That could be done on a Pigouvian basis. The federal government is spending a lot to keep the trade in oil flowing. We’re keeping the sea lanes open, for example. And the trillions we’ve spent on military expeditions in the Middle East haven’t strictly been for humanitarian reasons, believe it or not.

Such a move would also provide a different way of thinking about our trade relationships with other countries not limited to China but particularly in the case of China. The list of possible border adjustment tariffs isn’t limited to carbon. There are clean air and water regulations, labor regulations, safety regulations, and any number of others.

Do we support safe workplaces just here in the United States or everywhere? Twenty years ago most rare earth elements used in the semiconductor and other industries were produced here. Now they’re produced in China. The reason that those industries and the jobs they supported pulled up stakes was due to air and water regulations. Rare earth refining operations can be damaging to the environment.

Do we just oppose environmental damage here in the United States or do we oppose it everywhere?

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From Comments

This comment is so good I’ve promoted it from comments to the front page. Referring to the revelations about the “unmasking” of the names of Trump Administration officials by Susan Rice in classified reports:

This whole situation is extremely troubling for a number of reasons:

  • You have an incoming/new administration with what appear to be at least uncomfortably close ties to one of America’s primary strategic adversaries. The extent and consequence of these ties isn’t yet known.
  • You have the outgoing administration possibly using the quite powerful tools of the intelligence community in order to damage a domestic political opponent. We don’t know the extent and consequences of that either.
  • In all this, we have factions in the government and especially the always anonymous government officials who will gladly compromise US intelligence collection of foreign adversaries through selective leaks of information, sources and methods for partisan purposes. The vast majority of these leaks clearly come from upper tier political appointees.
  • We have the legions of myopic, blinkered partisans with their selective outrage based solely on partisan scorekeeping and not first principles.
  • We have a completely ineffective Congress, a powerful Executive that is only held back by the courts which are under increasing political pressure.
  • Finally, we have a public that is divided, is ignorant on the details of most of these issues and is kept ignorant by media outlets that selectively filter and spin information to serve various agendas. Amid all this are the various weekly “outrages” that are either manufactured or lack any importance, but serve as distractions or useful political tools for purposes like character assassination. These outrages are quickly forgotten as others rise to replace them in the great circle of life called social media and the 24/7 news cycle.

None of this, on it’s face, is good. It’s evidence we are either in a political crisis or on the cusp of one. We can monitor the building pressure but we cannot predict the spark. In the thread on Venezuela I thought about taking issue with [ed. another commenter’s] comment about how we aren’t in a position to sneer about other countries, but on second thought I think he’s right.

A crisis is often necessary to bring needed change in the face of sclerotic governance, but there’s no guarantee that we won’t auger in like Venezuela is doing.

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The Venezuelan Limbo

How bad could things get in Venezuela? At RealClearWorld Allison Fedirka speculates:

The most likely scenario is a combination approach in which public unrest is the major engine driving the transformative process. As options for legal resolution – such as elections – become less likely and daily quality of life deteriorates, public unrest will intensify. Regardless of how these forces combine, they exist and are converging to a point of rupture this year, which will result in the breaking point for Maduro and his government. For the first time in nearly two decades, the United States and others in the region will have the opportunity to reset relations with Venezuela.

I don’t think I’d be so quick to dismiss the Venezuelans’ ability to snatch defeat from the jaws of victory. Their track record has been pretty solid lately.

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Changing Times

At RealClearWorld Robert Zaretsky provides a briefing on the French presidential election. His thesis is that there’s a dramatic change going on in French politics:

The second debate on April 4, unlike the first debate, will include all 11 presidential candidates. Despite the enlarged cast, all eyes will be on three candidates — Le Pen, Melenchon, and Macron — none representing one of France’s traditional political parties. Regardless how the debate, and the first round, sorts itself out, politics as usual in France will be the great loser.

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Housing Vouchers

There’s an interesting article on the effectiveness of housing vouchers at the Center on Budget and Policy Priorities you might be interested in. Here’s a snippet:

Rigorous research shows that vouchers — which enable families to rent decent, modest, private-market housing for about 30 percent of their income — sharply reduce the frequency with which low-income families move and the share of such families that live in overcrowded housing, doubled up with other families, in shelters, or on the streets (see chart).

That’s the sort of policy that should be able to garner bipartisan support.

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Is There a Future for NATO?

Not the North Atlantic Treaty Organization although there’s some doubt about whether there’s a future for that, either. The other NATO. The National Association of Theater Owners. Movie theaters are having a bad time. Here’s what happened at their most recent convention as reported at The Verge:

Studio after studio touted their box office achievements. Executives couldn’t stop dropping superlatives, describing how the business was “thriving.” NATO chairman John D. Loeks went so far as to call reports about various threats to the industry “fake news.” But the truth is the industry is facing challenges, something that only Disney’s executive vice president of theatrical distribution, Dave Hollis, really had the courage to acknowledge directly.

“Even though we’ve had these gains in overall box office, we can also see that attendance has been more or less flat,” Hollis said during a Tuesday state of the union presentation. He stressed that while ticket prices have largely masked the problem, attendance simply isn’t growing, with the exponential uptick in internet usage and other activities a likely culprit. “This is disruption personified,” he said, to a near-silent industry crowd.

It didn’t help that a week before the show, Variety reported that six of the seven Hollywood studios were in active negotiations to release their films for home viewing less than three weeks after they hit theaters. Historically, the theatrical release window has been sacrosanct. It’s the amount of time movies play in theaters — and only in theaters — before rolling out to video on demand, Blu-ray, streaming services, and the other various options on a staggered schedule. Right now that window is largely standardized around 90 days (some players offer films a couple of weeks earlier through electronic services), with theater owners taking the position that a shortened window could irrevocably harm their business, if not sink it entirely.

You’d think they’d be used to it by now. The first time the movie business was dirupted was nearly 70 years ago, that time by television. In the 1930s and 40s you could go to a movie theater, see an A movie, a news reel, a cartoon, maybe a short subject or serial, and then a B movie. A whole evening’s entertainment for a very reasonable price.

Television killed the news reels, short subjects, serials, and Bs. Or, more precisely, television coopted them. The B movies of 70 or 80 years ago are what television is.

Back in the early 50s the studios struck back with Cinemascope, Panavision, 3D, even Smell-O-Vision and Percepto!, offering experiences that television couldn’t replicate. Yet. Today’s home theaters offer viewing experiences very much like those of actual movie theaters. Everything except the social aspects.

I don’t think that offering dinner or booze will help much. You’ve probably got Jack Daniels or Bacardi at home and can mix your drinks to your own tastes. Streaming and early streaming release may be the last straw for movie theaters.

Unless moviemakers can come up with something new to attract viewers into their theaters, movie theaters themselves may be as obsolete as the Mighty Wurlitzer.

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I Treat a Sick Human Being

You might be interested in this article at the New Yorker on the application of machine learning to medical diagnostics. As should surprise no one it’s an excellent application of neural networks.

Medicine is where the real potential for efficiencies from automation resides. Not fast food. Artificial intelligence can apply machines to things that machines are good at while allowing human doctors to interact with their flesh and blood patients.

Potential problem: we don’t select physicians for these skills.

The title of this post is from a modern rendering of the Hippocratic Oath written by Louis Lasagna, Academic Dean of the School of Medicine at Tufts University in 1965:

I will remember that I do not treat a fever chart, a cancerous growth, but a sick human being, whose illness may affect the person’s family and economic stability. My responsibility includes these related problems, if I am to care adequately for the sick.

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A City Overwhelmed by Scandals

Charles Lipson summarizes:

One reason it is so hard to follow the Washington/FBI/Intel/Congress/Trump administration scandals is that there are

  • So many players,
  • Several separate scandals, and
  • Very little public information.

The opposing parties emphasize different scandals

American citizens should be interested in all three as they unfold.

  1. Russian interference in 2016 election
  2. Team Trump’s Connections to Russians Before and After the Election
  3. Obama White House spying on Team Trump and “unmasking” secret name(s)

He goes on to analyze and discuss all three. Read the whole thing.

I haven’t remarked on any of these recently because I’m content to let the investigation work its way through. I would prefer a non-partisan investigation, by either a blue ribbon panel or a special prosecutor, and I suspect we’ll get their eventually.

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Make Your Arguments Carefully

I really ought to create boilerplate for this. I don’t support Donald Trump or his policies. Nothing I write should be construed as a defense of Trump. However, I do think that Christine Todd Whitman should rethink her Atlantic defense of the Environmental Protection Agency that she headed under the George W. Bush Administration:

Pollution poses an undeniable threat to public health, as the Supreme Court has validated. A 2013 Massachusetts Institute of Technology study reported that roughly 19,000 more people die prematurely from automobile pollution each year than die in car accidents. The same year, Harvard University researchers found that pregnant women living in areas with elevated levels of air pollution “were up to twice as likely” to have an autistic child, compared with women in low-pollution locations. And a new study released in January found that air pollution increases the risk and expedites the onset of dementia and other forms of cognitive decline.

The Clean Air Act of 1970 was designed to control air pollution on a national level by authorizing the development of comprehensive regulations to limit emissions. It has been extremely successful—between 1970 and 2015, “aggregate national emissions [of] six common pollutants alone dropped an average of 70 percent,” the EPA reports. A summary report of the benefits and costs associated with the act estimates that public and private spending to reduce pollution will reach approximately $65 billion annually by 2020. By contrast, the economic benefits are estimated to reach approximately $2 trillion dollars in 2020 alone. Yet under Trump’s proposed budget—despite the public-health and economic advantages—funding for the Clean Air Act would be cut in half.

The problem is that “controlling pollution” and the EPA aren’t synonymous. Not everything that the EPA does controls pollution and not everything that controls pollution was administered by the EPA.

The picture at the top of this post shows the results of the release of three million gallons of contaminated water from the Gold King Mine in San Juan County, Colorado into the Animas River. That’s a prima facie case for an agency that doesn’t just need reform or reining in but punishment.

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Amerisclerosis in Five Charts

I’m beginning to see a number of articles cropping up on economic stagnation in the United States. Between the two articles I’ve read today there are five charts: per capita health care spending, rent as a percentage of median income, changes in sales concentration from 1982 to 2012, corporate birth death rates, and share of employment by new firms. Here’s a snippet from the article by Charles Hughes at E21:

The American economy is stagnating. The creative destruction of old businesses exiting and new ones starting up has slowed. Fewer people are working at new companies. These trends have only accelerated post-recession. Many of the fresh new entrants hailed as disruptive startups, such as Uber and Facebook, have been on the scene for a decade or more.
This stagnation reduces the amount of competition and the rate that new ideas are introduced. Economic growth and individual workers both suffer as a result. How much have things slowed down, and can anything reverse it?

while here’s a sample of the article by Noah Smith at Bloomberg View:

What can be done about Amerisclerosis? There was hope in some circles that President Donald Trump would follow through on his campaign pledge to restore U.S. competitiveness and efficiency. It’s still early in his presidency, but so far little movement in that direction has materialized.

There is no obvious solution on the horizon. But as with Europe and Japan in the 1990s, the crucial first step is to recognize the severity of the problem. A general awareness of sclerosis is helpful in generating the urgency to find solutions at all levels of society — government, business and community.

The charts provide some hints on the contours of the “obvious solution”. They’re not that difficult to recognize:

  • We need more basic production in the U. S. not less. Too little basic production makes it very hard for the U. S. economy to recover after an economic downturn.
  • Stop subsidizing big companies. Help workers, consumers, and small businesses rather than big businesses. In particular stop subsidizing big banks and financial institutions. Break up monopolies.
  • Slow the subsidies to health care. The Congress knew that was necessary 20 years ago; they just didn’t have the guts to follow through.
  • Reduce the deadweight loss of government. That doesn’t mean a return to the world of The Octopus or The Jungle. It means distinguishing between the regulations that we want and need and those that aren’t working, aren’t necessary, or not wanted.

I also think it means less military adventurism but I appear to be in the minority on that.

Our present economic conditions are not laws of physics. They’re the results of decisions, of policies. In aggregate those decisions have resulted in an enormous concentration of wealth in very few hands and stagnation everywhere else. To change the present tack or, more accurately, doldrums, we’ve got to make some different choices.

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