Driverless Cars: You Heard It Here First

Lawrence D. Burns asks, in the Wall Street Journal and in his new book Autonomy: The Quest to Build the Driverless Car, why the major automobile companies ignored the technology that could create self-driving cars and are now playing catchup to Google:

Early in 2011, two top engineers for Google traveled together to Detroit on what amounted to a diplomatic mission. They had just spent 18 months on a top-secret project called Chauffeur: the development of a car that could drive itself over 10 different 100-mile routes on public roads. Now they were looking for a partner to carry the project forward. “The idea was, if you’re going to make self-driving cars, you have to work with a car company,” recalls Chris Urmson, who made the trip with fellow engineer Anthony Levandowski. “Maybe they’ll sell us cars to build a fleet. Maybe we’re going to be retrofitting our stuff onto their cars to sell.”

But they couldn’t find any takers.

They might have been better prepared if they had read Cato analyst Randal O’Toole’s early warning, also in the Wall Street Journal but in early 2010:

Consumers today can buy cars that steer themselves; accelerate and brake to maintain a safe driving distance from cars ahead; and detect and avoid collisions with other cars on all sides. Making them completely driverless will involve little more than a software upgrade.

O’Toole’s article was based on his book Gridlock: Why We’re Stuck in Traffic and What to Do About ItReading his manuscript was the first time I’d heard about the possibility of self-driving cars. You’d think Detroit would have been ahead of me, but maybe not so much.

Posted on August 20, 2018  Posted to Cato@Liberty

How Government Saps Our Energy

Visiting the Solyndra solar-panel factory in Fremont, California, in May 2010, President Barack Obama declared, “The true engine of economic growth will always be companies like Solyndra.”

With paternalistic attempts at planning our lives, the government takes away a choice that lets millions of people choose how to spend their own money to achieve their own purposes.

Well, that didn’t work out so well. Despite $535 million in federal loan guarantees, Solyndra declared bankruptcy 16 months later.

The idea of “green energy” — energy from natural, renewable sources such as sunlight, wind, and rain — has been a bright, shining dream of environmentalists for decades. Its viability always seems just over the horizon.

Oh, you can find plenty of headlines like “Further Dramatic Fall in Price of Solar Energy Forecast for 2018” and “Renewable Energy Will Be Consistently Cheaper Than Fossil Fuels By 2020, Report Claims.” But here’s the thing: Those headlines and reports are usually produced by interested parties: environmentalist groups or industry associations or government agencies. They don’t hold up to scrutiny.

Government as Energy Investor

We have decades of experience with the federal government trying to subsidize and encourage new sources of energy. A Department of Energy report in 2008, before the massive expenditures of the Obama “stimulus” package, estimated that the federal government had spent $172 billion since 1961 on basic research and development of advanced energy technologies. Consider some of the big-ticket items:

  • The Clinch River Breeder Reactor was an experimental nuclear fission power project in Tennessee that cost taxpayers $1.7 billion — more than $4 billion in today’s dollars — before being abandoned in 1983.
  • The Synthetic Fuels Corporation was created in 1980 to develop oil shale, tar sands, and coal gasification technologies to wean us off imported oil. Congress authorized $20 billion, but eventually it was closed in 1986 after spending “only” $2 billion.
  • George W. Bush spent $1.2 billion on a fruitless effort to develop a hydrogen-powered car.
  • Presidents since Jimmy Carter have tried to develop “clean coal,” a method to burn domestic coal in an environmentally friendly way. From the Healy project in Alaska to the Kemper plant in Mississippi, these efforts have overspent and underperformed. As Steven Mufson of the Washington Post wrote in 2014, “The only thing the Kemper power plant is burning now is money.”

Indeed, Mufson wrote in an earlier article, “Not a single one of these much-ballyhooed initiatives is producing or saving a drop or a watt or a whiff of energy.”

The Solyndra Debacle

When President Obama took office, with the stock market crashing and unemployment rising, his first order of business was the American Recovery and Reinvestment Act, which he called stimulus and Tea Partiers called “porkulus.” It was an $800 billion package of federal spending that was supposed to restart the economy and create jobs. Economist Steven Horwitz called it the Democrats’ Patriot Act, an opportunity to enact a whole variety of programs that they had wanted to pass for years but couldn’t get through Congress in the absence of a crisis.

Clean energy was a big part of the stimulus bill - about $90 billion. A “ginormous” clean energy package, said journalist Michael Grunwald. And as Obama’s factory visit demonstrated, Solyndra was a crown jewel.

Heavily subsidized government projects don’t always fall apart as fast as Solyndra. But the president of the United States made it a centerpiece of his economic and environmental policies, so it’s worth a closer look.

Solyndra was founded in 2005 to make solar photovoltaic systems for commercial rooftops. By 2009 it had $100 million in revenue and a market cap estimated at up to $2 billion in an anticipated IPO. In March of that year, it received a $535 million loan guarantee as part of the ARRA. It also received a $25.1 million tax break from California’s Alternative Energy and Advanced Transportation Financing Authority.

In May 2010, President Obama took his victory lap at Solyndra’s new factory and declared that “companies like Solyndra are leading the way toward a brighter and more prosperous future.” But in fact, as the New York Times reported later, “behind the pomp and pageantry, Solyndra was rotting inside, hemorrhaging cash so quickly that within weeks of Mr. Obama’s visit, the company canceled plans to offer shares to the public.”

Partly because of the rapidly declining cost of a competing solar technology, Solyndra announced it was filing for Chapter 11 on August 31, 2011.

Why did the government pour so much money into a failing company, even as it spiraled downward? Certainly the environmentalist impulse to find something, anything, that could replace widely demonized fossil fuels was important. But when governments pick winners, politics usually rears its ugly head. Official investigations and reporters dug into the story and found that, as the Washington Post reported, “Obama’s green-technology program was infused with politics at every level… Political considerations were raised repeatedly by company investors, Department of Energy bureaucrats and White House officials.”

The family funds of Oklahoma billionaire George Kaiser, a big Obama fundraiser, owned a third of Solyndra. As the company was failing, Kaiser wrote to a Solyndra board member, “Why don’t you pursue your contacts with the WH?” Two months later the board member wrote Kaiser, “The DOE really thinks politically before it thinks economically.” Solyndra’s lobbyists met at least three times with an aide to top White House official Valerie Jarrett.

But as energy journalist Amy Harder asked, which would be worse, crony capitalism infused with politics, or an administration that actually believed so strongly in its commitment to green energy that it ignored all the signs of looming disaster? “By denying politics was involved, the administration is saying that its top officials genuinely and continuously thought Solyndra was a good bet-despite numerous warnings raised both inside and outside of the administration-and that the loan-guarantee program was being carefully managed despite oversight reports and an internal West Wing memo that said otherwise.”

Former Treasury secretary and Obama adviser Larry Summers might say that crony capitalism and boneheaded government economics are both part of the same problem. Brad Jones, a venture capitalist with an investment in Solyndra, told Summers the government’s spending on clean energy was “haphazard,” citing Solyndra as an example. “While that (loan) is good for us, I can’t imagine it’s a good way for the government to use taxpayer money.” Summers responded, “I relate well to your view that gov is a crappy vc [venture capitalist] and if u were closer to it [government] you’d feel more strongly.”

By the way, on the same day that President Obama spoke at the Solyndra plant in California, an official of his administration participated in a groundbreaking ceremony for Nissan North America’s new advanced battery manufacturing facility in Smyrna, Tennessee, made possible by a $1.4 billion loan from unsuspecting taxpayers. In 2017, Nissan announced plans to sell that plant and its entire electric battery operations to GSR Capital, a Chinese firm partly funded by the government. The sale fell through in 2018, but Nissan is still looking for a buyer.

Politics and Energy

The connections between government, politics, and energy go way back, of course. Coal in the 19th century, the oil depletion allowance, nuclear power, and the Price-Anderson Act — “clean energy” is certainly not the first industry to be entangled with government favoritism. Robert L. Bradley Jr. wrote 1,992 pages (not a typo) on Oil, Gas, and Government: The U.S. Experience.

Most people figured out that the Clinch River Breeder Reactor was a money sink by the time Ronald Reagan took office, 10 years after its creation, but Senate Majority Leader Howard Baker (R-Tenn.) kept the Tennessee project in business for a few more years. I’m old enough to remember the wailing and gnashing of teeth when Reagan was elected, and the entire Washington establishment worried that he would actually cut the budget. And I remember clearly the front-page story in The Washington Post about the first firm stand congressional Democrats took to preserve essential government services. On February 10, 1981, under the headline, “House Democrats Unify Against Synfuels Cuts,” the Post reported:

“The entire Democratic leadership in the House joined yesterday in warning the Reagan administration to keep its budget-cutting hands off the synthetic fuels subsidy program Congress created last year.

As the list of spending cuts proposed by the new administration circulated on Capitol Hill, including a big cutback in the federal underwriting of a massive synfuels development program, House Majority Leader Jim Wright (D-Tex.), who led the fight for the program in the last Congress, sprang into action.”

In the Solyndra aftermath, Michael Graetz, a professor at Columbia Law School and the author of The End of Energy, said, “We’re making very large bets, and the decisions seem to be more grounded in politics and geography than in engineering and science.”

Switching parties doesn’t seem to stop that process. Recently, Energy Secretary Rick Perry proposed subsidizing nuclear and coal plants, helping those fuel sources compete with cheaper natural gas. The plan was opposed by a broad coalition of the natural gas industry, renewable energy providers, environmentalists, and free-marketers, and was blocked by the Federal Energy Regulatory Commission. But in June, Bloomberg reported on a draft plan to “use emergency authority under two federal laws to order grid operators to buy electricity or generation capacity” from a list of coal and nuclear plants designated by the Department of Energy.

Is Green Energy Viable?

We keep reading those stories about the falling cost of renewable energy, and there’s some truth to them. But as Peter Van Doren, an energy specialist at the Cato Institute, notes, “a closer examination of the characteristics and costs of electricity systems demonstrates that current renewable technologies are not economically competitive.”

Particularly in California, pricing and regulatory schemes have been set up to encourage the use of solar energy. Without price subsidies, consumer-generated solar power wouldn’t be viable. Large-scale solar generation and onshore wind generation might be competitive with natural gas. But it’s hard to store and transmit solar and wind energy, so we can’t replace conventional energy with them.

The basic point is simple: If solar, wind, or other “renewable” energy sources were economically viable, companies would produce them at a profit. They wouldn’t need subsidies.

Politics and Economics

Most proposals for government regulations and subsidies reflect a failure to understand Economics 101. The economic challenge is to use available resources — land, labor, capital, and ideas — to satisfy as many human needs as possible. But how do businesses or economic planners know what people need or want? This vitally important information about other people’s wants is embodied in prices. Prices don’t just tell us how much something costs at the store. The price system pulls together all the information available in the economy about what each person wants, how much he values it, and how it can best be produced. Prices make that information usable to both producer and consumer. Each price contains within it information about consumer demands and costs of production, ranging from the amount of labor needed to produce the item, to the cost of labor, to the bad weather on the other side of the world that is raising the price of the raw materials needed to produce the good. Instead of having to know all the details, one is presented with a simple number: the price.

Market prices tell producers when something can’t be produced for less than what consumers will pay for it. If a product needs to be subsidized in order to be produced, that tells us that consumers don’t value it as much as other goods that could be produced with available resources. If solar power or aging coal plants need subsidies, that tells us that they’re not economically viable. If consumers don’t want to purchase the product, and thus lenders don’t want to give such firms money, then there’s no good reason to force the taxpayers to do so.

Solar entrepreneur James Nelson testified on green business subsidies in 2012 before the House of Representatives Subcommittee on Regulatory Affairs and Federal Management. On the “Downsizing Government” website, Chris Edwards summarized his criticisms of subsidies:

  • Firms that receive subsidies become spendthrift. Nelson contrasted his firm’s lean operations with Solyndra’s spendthrift ways. He noted that the “most powerful driver in our industry is the relentless reduction in cost.” But government subsidies tend to inflate costs.
  • Subsidies are not driven by market demands. Nelson noted that U.S. adoption of solar energy at the time lagged behind some other nations. But “this should not bother us if it means that the other countries are investing in technology that is not economically viable.” Put another way, just because other countries may be misallocating resources, does not mean that we should also.
  • Subsidies distort business decisions. Nelson noted that “giving companies money to set up manufacturing in the U.S. may doom them to failure by financing them into a strategically uncompetitive position.” If subsidies induce U.S. firms to set up production in higher-cost places, it will ultimately disadvantage them in the global marketplace.
  • Venture capitalists have already funded the best projects, leaving the dogs for the government. If venture capitalists “reject a project, it is difficult to believe that the government could do a better job of picking a winner,” argued Nelson.

The argument for subsidies is that businesses are self-interested and short-sighted. Put the government in charge of handing out money, we’re told, and the decisions will be made by highly trained, public-spirited economists or lawyers, irrespective of political considerations.

But the reality is that people are people. Government employees are just as self-interested as corporate employees. And therefore, they are susceptible to political influence, persuasion by interested parties, outright bribes, and personal preferences.

The argument for keeping more of society in the private sector is not that there’s no self-interest or corruption in business; it is that the market system has more competition, more checks and balances, and more incentives to satisfy customers.

As Adam Smith suggested with his “invisible hand” metaphor, the competitive market system channels self-interest in a socially beneficial way - into the search for ways to attract customers - while the non-market system actually encourages unrestrained self-interest.

The Solyndra story is a classic case study. It has all the hallmarks of government decision-making:

  • Officials spending other people’s money with little incentive to spend it prudently
  • Political pressure to make decisions without proper vetting
  • The substitution of political judgment for the judgments of millions of investors
  • The enthusiastic embrace of fads like “green energy”
  • Political officials ignoring warnings from civil servants
  • Crony capitalism, the close connections between politicians and the companies that benefit from government allocation of capital
  • The appearance — at least — of favors for political supporters
  • The kind of promiscuous spending that has delivered us $21 trillion in national debt.

If you want government to guide the economy, to pick winners and losers, to override market investment decisions, then this is what you want.

Finally, we should just note that when government takes our money to subsidize one business or industry over another, it takes away our freedom. Most of us spend most of our waking hours trying to make money to give our families a better life. If that hard-earned money is taken away from us by force, it should be for some clear public good. Bailing out no-longer-profitable coal plants or never-yet-profitable wind and solar projects is not good enough.

President Obama’s energy secretary, Steven Chu, is a very smart man. He won the Nobel Prize in Physics in 1997 for his work to develop methods to cool and trap atoms with laser light. And perhaps he just doesn’t think we lesser intellects should be left to our own devices. He told Congress after Solyndra’s bankruptcy that “the final decisions on Solyndra were mine, and I made them with the best interest of the taxpayer in mind.” But he didn’t actually let the taxpayers decide which energy companies to lend their money to. Three months earlier, opposing a House bill to repeal the 2007 federal law that effectively outlawed incandescent light bulbs, Chu said, “We are taking away a choice that continues to let people waste their own money.”

Exactly. With paternalistic attempts at planning our lives, the government takes away a choice that lets millions of people choose how to spend their own money to achieve their own purposes.

Posted on August 20, 2018  Posted to Cato@Liberty

How One Company Got the FDA to Ban All Its Competitors

Tom Toles cartoon on regulations

John Kelly, who writes a local column for the Washington Post, set out to investigate a century-old milk bottle claiming medicinal qualities and discovered a mid-20th century story of rent-seeking and crony capitalism:

But the big change for Burton-Parsons came in the late 1960s, when it entered the burgeoning soft contact lens market — not the lenses themselves, but the solution used to clean them.

And that’s where things took an interesting turn.

Up until 1974, consumers could purify their contact lenses by boiling them for 10 minutes in distilled water with salt tablets. But that year an Food and Drug Administration microbiologist named Mary Bruch — known as “the first lady of contact lenses” — gained oversight of that product. Bolstered by FDA ophthalmologist Arnauld Scafidi, Bruch started disallowing soft lens manufacturers from utilizing salt tablets, decreeing that consumers risked eye infection.

The only cleaning solution she approved was made by Burton-Parsons, which by then was headquartered in Seat Pleasant, Md., and owned by the Manfuso family, which also owned horse-racing tracks around the state. Its product — Boil-n-Soak — cost four times as much as the simple salt tablets.

It emerged during congressional hearings in 1980 that Bruch and Scafidi had been repeatedly wined and dined by Burton-Parsons executives. The Washington Post’s John F. Berry wrote: “Expense records showed that top executives bought Bruch more than 50 meals at places ranging from Caesars Palace in Las Vegas and Brennans in New Orleans to Maison Blanche and L’Auberge Chez Francois in the Washington area . . . [Bruch] also told the congressional committee that she exchanged vintage wine with one of the Manfusos who shared her interest in fine wine.”

Scafidi was unable to provide research to substantiate his claims that salt tablets were unsafe.

In 1974, Burton-Parsons had annual sales of about $5 million. In 1979, after five years of a near monopoly, it was sold to Alcon Laboratories, a subsidiary of Nestle S.A. of Switzerland, for $110 million, according to industry estimates.

Bruch and Scafidi were investigated by the FBI for the favors they allegedly gave the firm. Scafidi resigned, and Bruch was fired.

More on rent-seeking, crony capitalism, and lobbying regulators.

Posted on August 16, 2018  Posted to Cato@Liberty

David Boaz discusses the Ohio election results and the upcoming midterms on Bill O’Reilly’s No Spin News Podcast

Posted on August 8, 2018  Posted to Cato@Liberty

Socialist Experiments

In the summer of 1982, after the Cato Institute’s week-long seminar at Dartmouth, I drove to Boston with one of the other attendees. Touring the city, we encountered a protest rally on Boston Common. I don’t remember just what the rally was about – probably the “nuclear freeze” or a general protest against nuclear weapons, which was a strong movement then. As we watched, a young woman approached and handed us flyers calling for socialism. “Like in Russia and China?” I asked her. Unwilling to defend those disastrous results, she responded “We’re more interested in the experiments currently going on in Zimbabwe and Nicaragua.” I knew very little about those “experiments” and had nothing much to say.

Paramilitary members in Monimbo, Nicaragua

Now, though, 36 years later, we know a great deal about those experiments in socialism. The photograph at right appears on the front page of Friday’s Washington Post with the caption “Paramilitary members stand guard on July 17 at a dismantled barricade after police and pro-government forces stormed the Monimbo neighborhood of Masaya, Nicaragua, which had become a center of resistance.”

I was reminded of something very candid that the socialist economist Robert Heilbroner wrote: that socialism depends on central planning and a collective moral commitment and thus on command and obedience to the plan. And that means that “The rights of individuals to their Millian liberties [are] directly opposed to the basic social commitment to a deliberately embraced collective moral goal… Under socialism, every dissenting voice raises a threat similar to that raised under a democracy by those who preach antidemocracy.” Democratic liberties like free speech and free press are an inherent threat to the planners’ control.

And of course Zimbabwe suffered for some 37 years under the increasingly authoritarian rule of Robert Mugabe, which may or may not have changed with Mugabe’s replacement by his vice president. 

Consider not just democracy but standard of living. In the 36 years since I had that conversation, Nicaragua has been under the rule of socialist Daniel Ortega for about half that time, and Zimbabwe under Mugabe for the entire period. Nicaragua’s GDP per capita is the lowest in Central America – far below market-liberal Costa Rica and 50 percent below war-torn Honduras. Zimbabwe is even poorer. These aren’t just numbers. They indicate how people live. They tell us that in 2018, in a world growing rapidly richer, where poverty is plummeting, people in these countries remain desperately in need of businesses, jobs, food, and medicine. 

I wonder if my socialist interlocutor from 1982 is still interested in the socialist experiments in Nicaragua and Zimbabwe. 

Footnote: Kristian Niemetz of IEA wrote about how socialist “experiments” always become embarrassing after a few years. Except for “very short-lived experiments, such as the Paris Commune…. Those are the Jim Morrisons of socialism. They ended before they could turn into embarrassments.”

Posted on August 3, 2018  Posted to Cato@Liberty

RIP Andrea Rich

I am saddened to report that my dear friend Andrea Millen Rich died this morning at her home in Philadelphia at the age of 79 after a 19-year battle with lung cancer. She was, among many other things, the proprietor of Laissez Faire Books and the wife for 41 years of Howard Rich, the Cato Institute’s longest-serving Board member.

For more than 40 years Andrea was at the center of the libertarian movement, a mentor, counselor, friend, supporter, facilitator, networker, and gracious hostess to hundreds of freedom lovers – young, old, well-known, obscure, successful, down-on-their-luck, didn’t matter. 

She was the first chair of the New York Libertarian Party in 1973-74. The vice chair was Howard S. Rich, whom she soon married. From 1974 to 1977 she was vice chair of the national Libertarian Party, and in 1980 she played a key role in developing television advertising for the campaign of Ed Clark, the Libertarian presidential nominee.

From 1982 to 2005 she was the president of Laissez-Faire Books, which billed itself as “the world’s largest collection of books on liberty.” It had a retail location on Mercer Street in Greenwich Village, described in Radicals for Capitalism by Brian Doherty as “an important social center for the movement in America’s biggest city, a place for any traveling libertarian to stop for company and succor.” But in those pre-Amazon days, it was far better known for its monthly catalog that reached libertarians around the world. Through its Fox & Wilkes publishing imprint it brought many classic libertarian books back into print. (Brian Doherty’s own reflections, along with those of Nick Gillespie, can be found at Reason.)

Andrea often negotiated with publishers to make books more affordable, and some books only found publishers because Laissez-Faire could guarantee an audience beyond the small academic market. She even taught me how to negotiate with publishers. Through her work with Laissez-Faire she became friendly with leading libertarian writers including Milton and Rose Friedman, Robert Nozick, Thomas Sowell, Nathaniel Branden, Thomas Szasz, Charles Murray, Richard Epstein, David Kelley, and Margit von Mises, widow of economist Ludwig von Mises.

As president of the Center for Independent Thought, the parent organization of Laissez-Faire Books, she also launched and managed the Thomas S. Szasz Award for Outstanding Contributions to the Cause of Civil Liberties and the Roy A. Childs Fund for Independent Scholars. CIT’s biggest project was Stossel in the Classroom, which repackaged ABC News and Fox Business videos on economics and public policy by John Stossel for classroom use. The videos have been viewed by tens of millions of high school students – according to Stossel, reaching more people than ABC News and Fox News.

Along the way she also helped to found the Center for Libertarian Studies in 1976 and served on the boards of the Foundation for Economic Education, the oldest free-market think tank, and the Atlas Network, an international association of think tanks. She traveled as far as Russia and Kenya to meet libertarians and spread the ideas of freedom.

Andrea Millen was born February 8, 1939, to the late Louis and Vera Millen of Johnson City, Tennessee. She graduated from Science Hill High School and attended the University of Alabama. After she got a summer job at CBS answering fan mail for Mighty Mouse and Heckle and Jeckle (“my handwriting was perfect for it, they said”), she never went back to school. For 18 years, she worked in television, including for Sid Caesar, Joe Pyne, and the NBC News election unit.

She lived most of her life in Manhattan and Orangeburg, NY, but moved to Philadelphia in 2009.

She is survived by her husband of 41 years, Howard Rich, her sister Elaine Millen of Charlotte, NC, stepsons Joseph Rich and Dan Rich, Dan’s wife Maureen, and granddaughters Cati and Samantha.

Posted on August 1, 2018  Posted to Cato@Liberty

Rep. Jamie Raskin (D – MD) cites David Boaz’s article, “Donald Trump’s Eminent Domain Love Nearly Cost a Widow Her House,” on C-SPAN

Posted on July 23, 2018  Posted to Cato@Liberty

The Hidden Costs of Tariffs

This news report from the Washington Post is a striking example of the absurd costs of complex tariff systems:

Brand-new Ford Transit Connect vans, made in Spain, are dropped off at U.S. ports several times a month. First, they pass through customs — and then workers hired by the automaker start to rip the vehicles apart. The rear seats are plucked out. The seat belts in back go, too. Sometimes, the rear side windows are covered with painted plates. Any holes left in the floor are patched over. 

Why? Because there’s a 25 percent tariff on imported pickup trucks and work vans, but only a 2.5 percent tariff on passenger vans. So even with all the extra effort of building a passenger-quality van, and then dismantling it, it’s still cheaper to do that than to pay a substantial tax on the import. 

The story is also a reminder of how bad policies can linger for decades. In the early 1960s Europeans increased their purchases of American chicken. European governments responded by imposing tariffs on chicken imported from the United States. In retaliation, President Lyndon B. Johnson imposed a 25 percent tariff – known as the “chicken tax” – on potato starch, dextrin, brandy, and light trucks. Tariffs on the other products were eventually lifted, but the high tax on light trucks remains. Thus the counterproductive construction and destruction. And by the way, this is no secret; the Wall Street Journal wrote about Ford’s practice in 2009.

The Post goes on to report:

Tariff engineering has a long history.

In the 1880s, the Supreme Court ruled it was acceptable for a sugar importer to intentionally darken refined sugar with molasses to lower the grade and secure a lower duty. Three decades later, the court took up the case of a company accused of trying to evade a 60 percent duty on strung pearls by instead shipping loose pearls with holes pre-drilled for stringing. Those faced only a 10 percent duty….

For example, some athletic shoes, such as Converse All-Stars, come with just enough fuzzy cloth on the rubber soles to qualify them as lower-duty slippers. In the early 1980s, the United States imposed a tariff on motorcycles with engines larger than 700 cubic centimeters in a bid to protect U.S.-based Harley-Davidson, so Japanese companies turned to making 699-cubic-centimeter motorcycles instead.

[See https://www.cato.org/publications/policy-analysis/taking-america-ride-politics-motorcycle-tariffs]

Sugar import quotas also create opportunities for gaming the system, which the government tries to block. In 1985, the Wall Street Journal and then the New York Times reported that the Reagan administration had slapped emergency quotas on “edible preparations” such as jams, candies, and glazes—and even imported frozen pizzas from Israel—lest American companies import such products for the purpose of extracting the sugar from them. Apparently it might have been cheaper to import pizzas, squeeze the tiny amount of sugar out of them, and throw away the rest of the pizza than to buy sugar at U.S. producers’ protected prices.

A U.S. tariff is a tax on the American people. That’s easy to see. American consumers and businesses are forced to pay higher prices for the goods they want to buy. What is not so obvious is all the deadweight loss such obstacles to trade create. Businesses and consumers may have to shift their purchases to a less-preferred domestic alternative. And as the reports above indicate, companies sometimes go to great lengths to get around the obstacles created by tariffs, quotas, and other barriers to trade. Just think of all that wasted labor and material involved in getting a Ford passenger van from a Spanish factor to an eager American consumer. This is pure waste, waste that literally makes America poorer. In the case of the chicken tax, the waste is related to a 1963 executive order that’s never been rescinded. The sugar quotas benefit a highly concentrated, politically effective industry and impose costs on far more businesses.

Tariffs impose costs on Americans. We should be reducing and eliminating them, not expanding them.

Posted on July 9, 2018  Posted to Cato@Liberty

Could Inefficiency Balance Out Overregulation?

The top left-hand story on the front page of the Metro section of today’s Washington Post:

Lawyers for the District argued Wednesday for the dismissal of a lawsuit that challenges city regulations requiring some child-care workers to obtain associate degrees or risk losing their jobs….

The requirements … stipulate that child-care center directors must earn bachelor’s degrees and assistant teachers and home-care providers must earn Child Development Associate (CDA) certificates.

Meanwhile, just across the page, in the top right-hand space:

About 1,000 teachers in D.C. Public Schools — a quarter of the educator workforce — lack certification the city requires to lead a classroom, according to District education leaders.

So how about this compromise: the child-care licensing requirement will go into effect, but it will be enforced by the crack management team at DC Public Schools?

Posted on June 22, 2018  Posted to Cato@Liberty

Pro-business? Wilbur Ross Channels Hillary Clinton

On Wednesday members of the Senate Finance Committee questioned Secretary of Commerce Wilbur Ross about the costs to American businesses of the administration’s tariffs. Ross was unsympathetic:

When Thune warned that the drop in soybean prices (caused by China’s retaliatory tariffs) was costing South Dakota soybean farmers hundreds of millions of dollars, Ross responded by saying he heard the price drop “has been exaggerated.”…

Ross told Sen. Mike Enzi (R-Wyo.) that he’s heard the rising cost of newsprint for rural newspapers “is a very trivial thing,” and he told Sen. Benjamin L. Cardin (D-Md.) that it’s tough luck if small businesses don’t have lawyers to apply for exemptions: “It’s not our fault if people file late.”

That reminded me of then-First Lady Hillary Clinton’s response in 1993 to a small businessman about how her health care plan might raise his costs:

“I can’t go out and save every undercapitalized entrepreneur in America.”

Seems like lots of Washington operators don’t care much about the burdens that taxes, regulations, mandates, tariffs, and other policies impose on small businesses and their employees.

Posted on June 21, 2018  Posted to Cato@Liberty

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