Couldn’t Help But Comment (052008, Morning)

Dangerous Trade Games Indeed — From a Wall Street Journal editorial this morning:

By rejecting long-settled procedures that prevented congressional sidetracking of trade deals negotiated by presidents, the House has hamstrung U.S. trade policy and created the gravest threat to the global trading system in decades.

….. the “fast track” process (was) embodied in trade legislation in 1974 and renamed Trade Promotion Authority in 2002. Under those rules, devised largely by Democratic legislators, Congress agreed to vote on trade agreements submitted by the president within a fixed period of time and without amending their terms, provided that Congress authorized the talks in advance and that administration trade officials consulted closely with the Hill throughout the process. This approach has enabled the U.S., under presidents and congressional majorities of both parties, to participate effectively in international trade negotiations.

The House action abruptly and unilaterally terminates this highly successful system. The immediate effect is to scuttle the pending free trade agreements with Panama and Korea, as well as Colombia, and to end any remaining prospect for an early conclusion of the Doha Round in the World Trade Organization.

The much more profound impact, however, is to remove the U.S. from any significant international trade negotiations for the foreseeable future. Current and former chief trade officials of three of the world’s largest trading entities have told me that, since the House action, the U.S. has lost all credibility. In other words, the “time out” proposed for trade policy by one of the major presidential candidates – a central goal of the opponents of globalization – has already been called.

The U.S. will suffer severe economic and foreign policy costs if the House action is permitted to stand. Careful studies at our Peterson Institute for International Economics show that the U.S. economy is $1 trillion per year richer as a result of the trade liberalization of the past 60 years, and that we would gain another $500 billion per year if the world could move to totally free trade.

The Peterson Institute findings are here in summary form.

About that $1 trillion PER YEAR: This means that as of 2005, when the study was done, our GDP is about 8% higher than it would have been. Our workers, corporations, and entrepreneurs have been freed up to do the things they are good at — things that are higher-value to us and our trading partners — while other countries workers, corporations, and entrepreneurs have taken on tasks at which they excel.

Has it been perfect? Of course not.

Has it been exploited by some (particularly China)? Yes, and it has to be addressed.

Are there things that we shouldn’t stop doing, despite the economics, for national security reasons? Yes (sorry, WSJ).

But on balance, does free trade beat the alternative? As Peterson notes — by miles.

Freer trade has also lifted millions worldwide out of poverty.

By shutting the door indefinitely on freer trade, the self-styled party of compassion has totally lost its bearings on this issue.

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From the “Fundamental Truths of Life” file, also in today’s WSJ — Kurt Hauser’s “law” and its meaning:

On this page in 1993, he (Hauser) stated that “No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP.” What a pity that his discovery has not been more widely disseminated …..

Because Mr. Hauser’s horizontal straight line is a simple fact, it is ultimately far more compelling. It also presents a major opportunity. It seems likely that the tax system could maintain a 19.5% yield with a top bracket even lower than 35%.

Of course it can — The mid- and late-1980s top rate of 28% maintained that yield.

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More bad news for recession rooters – Leading indicators rose. Not impressively, but up nonetheless.

Let’s compare the headlines on this item:
- Wall Street Journal — “Leading Indicators Rise For a Second Month.”
- CNNMoney.com — “Leading indicators edge higher.”
- Bloomberg, as carried in the NY Times — “Index Implies Slowdown May Prove a Short One.”
- Associated Press — “Index: Weak economy may dodge a recession.” The AP’s Ellen Simon’s opening: “Gas prices are high, food’s more expensive and the job market’s cold, but the U.S. may still avoid a recession.”