Smoot – Hawley All Over Again

Just as I suggest Canada needs to develop WMD to threaten retaliation against US trade barriers, Canada decides to join other countries in imposing punitive tariffs on US products because of the Byrd amendment [h/t to BF]:

The announcement of a 15 per cent surtax on cigarettes, oysters and live swine from the United States came Thursday, just as the European Union took similar measures.Canada is joining countries from around the world protesting a U.S. trade measure known as the Byrd amendment, which the World Trade Organization has deemed illegal.The Byrd amendment allows American companies to keep the proceeds that Washington collects in anti-dumping disputes – something Canada and other countries complain unfairly enriches their U.S. rival firms.

“For the last four years, Canada and a number of other countries have repeatedly urged the United States to repeal the Byrd amendment,” Trade Minister Jim Peterson said in a statement Thursday.”Retaliation is not our preferred option, but it is a necessary action. International trade rules must be respected.”

The highly unusual Canadian sanctions, which also cover certain types of fish, are to take effect May 1.

The EU says it will slap duties of up to 15 per cent, also on May 1, on such U.S. imports as paper, textiles, machinery and farm produce.The 25-member EU said it took that action “in light of the continuing failure of the United States to bring its legislation in conformity with its international obligations.”

Both Canada and the EU have long asked Washington to repeal the three-year-old Byrd amendment.Last November, the WTO gave Canada and the other co-complainants the authority to retaliate.

The other countries involved include Mexico, Japan, India and Brazil.

I certainly hope we are not squaring off for tariff wars like the ones initiated by the US with the Smoot-Hawley tariffs. Nobody wins with those.

An(other) Exercise in Opportunity Costs

We teach our students that people respond to incentives. If you want to attract more resources to a given use, you must offer more to meet or exceed the opportunity costs. It follows that if you offer less, you will attract fewer scarce resources.

I usually illustrate this concept in the classroom by asking how many students would be willing to work for me as a research assistant at various hypothetical wage rates. Invariably the responses trace out a 3rd-degree polynomial that is positively sloped throughout.

This is nothing more than common sense: supply curves are upward-sloping, except in very extreme cases which are more theoretical than real-world.

So why don’t politicians and bureaucrats understand this? From Number 2 Pencil:

Hmm, so slashing the pay for substitute teachers results in…a huge dearth of substitute teachers. Who would have thought?

Denver Public Schools is asking parents to fill in as substitute teachers. The school district said it’s so short of subs that it’s writing to parents in hopes that they’ll step in. The shortage comes after daily pay for substitutes was cut from $120 to $81.

School officials say substitutes do not need teaching experience, just a college degree and a special certificate, which can be obtained.

There is no way I would go into a classroom with kids I didn’t know (but who knew I was a substitute teacher — I remember how we treated substitutes when I was a kid) for pay that amounts to not much more than I could earn as a socionomologist flipping burgers or selling coffee at a donut shop. No wonder they are having difficulties finding substitute teachers.

Thanks to BrianF for the pointers.

The Minimum Wage Revisited

Who is helped and who is hurt by the minimum wage? Here’s one answer from the Emirates Economist:

As I was relating to my students just the other day, the unintended consequence of the minimum wage in the U.S. is that it enriches white middle class families with working teenagers and further impoverishes working class black families. When you show students the unintended consequences of the minimum wage I’ve noticed that in South Carolina and in the United Arab Emirates there are some students who will ask this question in class: “Say what? You said the purpose of the minimum wage law was to benefit the poor. Why are you teaching us about something that shows the opposite effect?” Though they feel confused, such a student has learned a lot in 50 minutes.

Relate that to the following statistic, cited in that same piece:

It’s not exactly macroeconomics, but PowerLine takes note that the “The Employment Policies Institute has calculated the average family income of employees who would benefit from an increase in the minimum wage based on Census Bureau Data (click here). According to the EPI breakdown (based on 2003 data), the average family income of Minnesota’s destitute minimum wage workers is…$57,421.”

Read that again: $57,421.

His blog belongs on everybody’s blogroll.

Predatory Pricing in Minnesota

Minnesota has passed a law that says big nasty corporate gasoline stations are not allowed to make consumers better off by charging low prices for gasoline. The reason? They’ll drive the small guys out of business and then jack up the prices when they have the market all to themselves. Phil Miller at Market Power has a terrific post debunking such nonsense.

Here is a quote from the article that shows the predatory pricing argument is at work here:

But Cornish said the survival of small stations is at stake if major corporate sellers offer gas at below cost. “It will be a way of closing down these stations – the little ones,” Cornish said. That could be devastating for smaller towns where there might be just a single option for purchasing gas, Cornish said. And if most competitors are eliminated, the big sellers would ultimately be able to sell at a higher price than they could if nearby rivals still existed.

First, if consumers in the small town have an option to buy low-price gasoline at a “corporate” gas station, why should the government restrict their options and how would this be devastating to the community? It would have just the opposite effect. Sure, the owner of the gas station would feel a negative effect, but the consumers of gas in the small town would gain. Not only could they get gas cheaper, but they can put the savings towards the purchase of other things.

Second, those who use the predatory pricing argument say they fear monopolization. Never mind that the evidence suggests that predatory pricing exists in models but not in practice. If there really is only one gas station in a small town, doesn’t that station have market power which it can use to jack up its prices? Won’t legislation designed to keep competitors out enhance its market power and allow it to maintain its high prices? The answer to both questions is yes.

Third, do we really think that the small town gas station would actually go out of business? What if the nearest “corporate” gas station is 30 miles away? How often are residents of the little town going to drive 60 miles (30 miles there and back) just to get a full tank of gas?

Despite such cogent pieces as this, it seems our work is never done.

Canada Needs a Nuclear Weapons Programme Walk Softly and Carry a Big Nuke

Over the past several decades, the Canadian gubmnt has made a number of empty pronouncements to assert its identity and its sovereignty in a world in which it, de facto, has little or no power.

Two recent notable incidents include Canada’s refusal to support the United States’ invasion of Iraq and Canada’s pronouncement that it would not support the U.S. missile defense system. Clearly neither of these positions had any influence on anything anywhere in the universe other than to make many Canadians feel a bit less dependent on, or under the influence of, the United States and make some of them feel morally superior to the war-mongering gringos.

At the same time, U.S. protectionism and barriers to trade have been problematic for Canadian producers in some industries. Old conflicts over hogs and logs and the negotiation of the autopact led many Canadians to hope that continued negotiations and better treaties would reduce some of the erratic protectionism from the U.S. Reducing U.S. non-tariff barriers to trade, especially its “guilty-until-proven-innocent” anti-dumping tribunal and the multitude of local content restrictions, was a major reason so many Canadians were hopeful that recent trade treaties would be even more beneficial to both countries than they turned out to be.

Unfortunately, despite the general movement toward considerably freer trade between the U.S. and Canada, the continuing softwood lumber disputes and the continued U.S. ban on imports of Canadian beef are clearly protectionist motivated. [see here for a clear statement of the growth of U.S. protectionism]. The problem for Canada is that we have no way of threatening anything to the U.S. in order to obtain speedier and fuller compliance by the U.S. with the Canada-U.S. Free Trade Agreement, with the North American Free Trade Agreement [NAFTA], and the decisions made by the WTO. The best we can come up with is, “If you don’t stop hurting our beef industry, we’ll just have to…. we’ll just have to …. well, we’ll think of something.”

My proposal is that Canada should develop a nuclear weapons programme.

The U.S. has shown with both Iran and North Korea, especially when pressured by other gubmnts, that it is willing to try to buy off the gubmnts of other countries that appear to be well along the way toward development of nuclear weapons.

For this strategy to work, the Canadian gubmnt would have to get the project well underway, lest the U.S. treat us like Iraq: invade us and demolish it, or hire the Israelis to do it for them [or just nuke us 'til we glow]. But once Canada has a few nukes pointed at New York City, Washington DC, or Burbank California, it would be difficult for the U.S. to threaten pre-emptive strikes. And then we could talk about maybe, possibly dismantling our programme depending on the U.S. position on softwood lumber, beef, and many other trade issues.

I am not a political insider. For all I know, the Canadian gubmnt is already on this path. Let’s face it, we have plenty of uranium and a well-developed nuclear power industry, and so movements in this direction would not be out of the question.

It’s not a new idea. Not only have North Korea and Iran exploited it; see The Mouse That Roared.

Canada Needs a Nuclear Weapons Programme Walk Softly and Carry a Big Nuke

Over the past several decades, the Canadian gubmnt has made a number of empty pronouncements to assert its identity and its sovereignty in a world in which it, de facto, has little or no power.

Two recent notable incidents include Canada’s refusal to support the United States’ invasion of Iraq and Canada’s pronouncement that it would not support the U.S. missile defense system. Clearly neither of these positions had any influence on anything anywhere in the universe other than to make many Canadians feel a bit less dependent on, or under the influence of, the United States and make some of them feel morally superior to the war-mongering gringos.

At the same time, U.S. protectionism and barriers to trade have been problematic for Canadian producers in some industries. Old conflicts over hogs and logs and the negotiation of the autopact led many Canadians to hope that continued negotiations and better treaties would reduce some of the erratic protectionism from the U.S. Reducing U.S. non-tariff barriers to trade, especially its “guilty-until-proven-innocent” anti-dumping tribunal and the multitude of local content restrictions, was a major reason so many Canadians were hopeful that recent trade treaties would be even more beneficial to both countries than they turned out to be.

Unfortunately, despite the general movement toward considerably freer trade between the U.S. and Canada, the continuing softwood lumber disputes and the continued U.S. ban on imports of Canadian beef are clearly protectionist motivated. [see here for a clear statement of the growth of U.S. protectionism]. The problem for Canada is that we have no way of threatening anything to the U.S. in order to obtain speedier and fuller compliance by the U.S. with the Canada-U.S. Free Trade Agreement, with the North American Free Trade Agreement [NAFTA], and the decisions made by the WTO. The best we can come up with is, “If you don’t stop hurting our beef industry, we’ll just have to…. we’ll just have to …. well, we’ll think of something.”

My proposal is that Canada should develop a nuclear weapons programme.

The U.S. has shown with both Iran and North Korea, especially when pressured by other gubmnts, that it is willing to try to buy off the gubmnts of other countries that appear to be well along the way toward development of nuclear weapons.

For this strategy to work, the Canadian gubmnt would have to get the project well underway, lest the U.S. treat us like Iraq: invade us and demolish it, or hire the Israelis to do it for them [or just nuke us 'til we glow]. But once Canada has a few nukes pointed at New York City, Washington DC, or Burbank California, it would be difficult for the U.S. to threaten pre-emptive strikes. And then we could talk about maybe, possibly dismantling our programme depending on the U.S. position on softwood lumber, beef, and many other trade issues.

I am not a political insider. For all I know, the Canadian gubmnt is already on this path. Let’s face it, we have plenty of uranium and a well-developed nuclear power industry, and so movements in this direction would not be out of the question.

It’s not a new idea. Not only have North Korea and Iran exploited it; see The Mouse That Roared.

Canada Needs a Nuclear Weapons Programme Walk Softly and Carry a Big Nuke

Over the past several decades, the Canadian gubmnt has made a number of empty pronouncements to assert its identity and its sovereignty in a world in which it, de facto, has little or no power.

Two recent notable incidents include Canada’s refusal to support the United States’ invasion of Iraq and Canada’s pronouncement that it would not support the U.S. missile defense system. Clearly neither of these positions had any influence on anything anywhere in the universe other than to make many Canadians feel a bit less dependent on, or under the influence of, the United States and make some of them feel morally superior to the war-mongering gringos.

At the same time, U.S. protectionism and barriers to trade have been problematic for Canadian producers in some industries. Old conflicts over hogs and logs and the negotiation of the autopact led many Canadians to hope that continued negotiations and better treaties would reduce some of the erratic protectionism from the U.S. Reducing U.S. non-tariff barriers to trade, especially its “guilty-until-proven-innocent” anti-dumping tribunal and the multitude of local content restrictions, was a major reason so many Canadians were hopeful that recent trade treaties would be even more beneficial to both countries than they turned out to be.

Unfortunately, despite the general movement toward considerably freer trade between the U.S. and Canada, the continuing softwood lumber disputes and the continued U.S. ban on imports of Canadian beef are clearly protectionist motivated. [see here for a clear statement of the growth of U.S. protectionism]. The problem for Canada is that we have no way of threatening anything to the U.S. in order to obtain speedier and fuller compliance by the U.S. with the Canada-U.S. Free Trade Agreement, with the North American Free Trade Agreement [NAFTA], and the decisions made by the WTO. The best we can come up with is, “If you don’t stop hurting our beef industry, we’ll just have to…. we’ll just have to …. well, we’ll think of something.”

My proposal is that Canada should develop a nuclear weapons programme.

The U.S. has shown with both Iran and North Korea, especially when pressured by other gubmnts, that it is willing to try to buy off the gubmnts of other countries that appear to be well along the way toward development of nuclear weapons.

For this strategy to work, the Canadian gubmnt would have to get the project well underway, lest the U.S. treat us like Iraq: invade us and demolish it, or hire the Israelis to do it for them [or just nuke us 'til we glow]. But once Canada has a few nukes pointed at New York City, Washington DC, or Burbank California, it would be difficult for the U.S. to threaten pre-emptive strikes. And then we could talk about maybe, possibly dismantling our programme depending on the U.S. position on softwood lumber, beef, and many other trade issues.

I am not a political insider. For all I know, the Canadian gubmnt is already on this path. Let’s face it, we have plenty of uranium and a well-developed nuclear power industry, and so movements in this direction would not be out of the question.

It’s not a new idea. Not only have North Korea and Iran exploited it; see The Mouse That Roared.

$1 Billion in Farm Aid from the Canadian Federal Gubmnt

The Canadian Federal Gubmnt has announced that is will provide $1 billion in aid for Canada’s farmers [from the Globe & Mail, registration req'd]

Tuesday’s payment comes as Canadian beef farmers continue to be hammered by continued trade restrictions with the United States. Grain growers, meanwhile, are struggling to overcome low commodity prices, the impact of a stronger Canadian dollar and the one-two punch of recent droughts and frosts in some regions.

This bailout policy, like all previous ones, is being implemented to cushion farmers’ losses from detrimental risk. Essentially, all Canadian taxpayers are providing insurance for the farmers.

The main beneficiaries, however, are not farmers, per se. Rather, the main beneficiaries are farm land owners. If farmers had buy their own insurance or had to bear these risks themselves, people would be less willing to go into farming, the demand for farm land would be lower, and farm land prices would drop. But by subsidizing farming through these types of insurance schemes, the gubmnt induces more people to stay in farming (or get into farming), thus increasing the demand for farm land. It has gotten to the point that most people expect the gubmnt to bail out farmers during off-years, and this expectation is now capitalized into the price of farm land.

The other major beneficiary of this aid is lending institutions. What would happen if the gubmnt just let the farmers go bankrupt? Major lending institutions would lose big on many of their agricultural loans. The result of bailing out farmers (who likely could work elsewhere in the economy) is that the financial institutions can avoid the costs and losses due to bankruptcy proceedings.

Of course, as Posner and Becker point out, if lending institutions anticipate that borrowers are less likely to declare bankruptcy, the borrowers will receive lower interest rates on their loans. And so once again, they will be willing to pay more for the farmland.

Henry George would have loved it.

Data Collection

This will surely be making the rounds, from Mahalanobis [thanks to BrianF for the pointers]:

From the Scottish Journal of Political Economy (Pricing Personal Services: An Empirical Study of Earnings in the UK Prostitution Industry): In late 1998, a website named Punternet was launched in the UK by an individual using the pseudonym ‘Galahad’. The website’s main purpose is an information exchange for clients. Clients are invited to submit ‘reports’ to the site on prostitutes whom they have recently encountered. The report is submitted pro-forma, and contains the location and duration of the encounter, the working-name and contact details of the provider, some information about her physical attributes and personality, a description of the services rendered, and, most crucially, the price paid. The data set generated by this website presents us with a rare opportunity to identify the factors which determine the price paid to a provider for their services.

At the same time, a bunch of MPs in Canada are proposing a massive, long junket to Sweden, the Netherlands, and Nevada, to study the different possible schemes for decriminalizing prostitution in Canada. I wonder what type of research they have in mind that they cannot do from their offices…

To read more on the possible decriminalization of prostitution in Canada, see this and this.

The Coase Theorem and Terri Schaivo

According to the Coase Theorem,

1. If legal entitlements are well-defined and easily enforceable, and
2. if transactions costs are low, then
3. resources will move to their most highly valued use.

In the case of Terri Schaivo, the courts appear to have decided: her husband has the legal entitlement to decide what to do with her. It has been costly for him (and many others), but this legal entitlement has withstood many assaults and is (in some sense) comparatively easy to enforce.

If her parents wished to obtain the legal entitlement to decide what to do with her, presumably the transaction costs were quite low. They could have made a deal. If her husband was in it strictly for the money, he could have sold his legal entitlement for quite a large sum, according to Steven Landsburg.

I have less understanding of why Schiavo’s parents want to keep
feeding her. And insofar as they want others to keep feeding her—through Medicare, etc.—I think we can safely ignore their preferences. But provided they and their supporters are willing to bear those costs, I infer that this is something they want very much and there’s not much reason to stop them.

You could argue in response that Michael Schiavo has signaled an equally strong desire to bury her (by turning down an offer of $1 million and by some reports $10 million)…

He turned down a $10m offer to purchase that legal entitlement? I understand he wanted to remarry, and that he is nominally a Roman Catholic and so divorce might not have been acceptable, but why would he turn down such a large offer?

He may not have had much of a choice. Aside from the bad PR he would receive — accepting money for his wife’s life would seem like some form of ghoulish ransom — the decision was apparently made many years ago. This is from Wikipedia:

On March 11, 2005, media tycoon Robert Herring (who believes that embryonic stem cell research could cure Schiavo’s condition in the future) offered $1 million to Michael Schiavo if he agreed to waive his
guardianship to his wife’s parents. The offer was rejected, Schiavo having reportedly found it “offensive.” Schiavo’s attorney, George Felos, stated that Schiavo has received other monetary offers, also rejected, including one of $10 million. These offers may have been made under the misconception that the removal of Mrs. Schiavo’s feeding tube remains simply a matter of Mr. Schiavo’s choice. It was ruled in February 2000 that Mrs. Schiavo would choose to have the tube removed, and Michael Schiavo does not have the ability to simply overrule this legal determination.

According to this interpretation, the legal entitlement was determined to belong to Terri Schiavo herself; the court also determined that she did not wish to sell it to her parents (or their representatives) on behalf of her husband. I am sure there are many other interpretations of the events, but I like this Coasian approach.