Tag Archives: CNN

One Man’s Privilege is Another’s Punishment

When governments bestow privileges on particular firms, they also impose costs on others. A recent CNN report brings this to light (HT, Rob Raffety).

It tells the story of Bill Keith, an entrepreneur who started a small business out of his garage. He installs solar-powered attic fans that pump away hot air and lower cooling bills. The Obama campaign heard about him and sent someone out to meet (vet) him. Soon the campaign, and then the Administration, was featuring Mr. Keith in speeches and other materials. His story was perfect politics: small businessman meets green energy meets financial success.

Mr. Keith’s business soared, peaking at $5 million in revenue in 2009. But more recently he’s run into trouble:

Today, Keith’s solar star appears to be on a collision course with another Obama policy that may put him out of business. The irony is not lost on Keith: A man whose profile and company soared because of the administration’s energy policy [MM: it isn’t clear from the story what policy he actually benefited from, other than the loads of free advertising] is now falling apart because of a new Obama anti-dumping policy involving China.

While 95 percent of Keith’s fans are American-made, he has yet to find a U.S. company that can make the small customized solar panels that make his fans run.

So he has had to turn to—gasp—Chinese suppliers. And that has made him a target of the Administration’s so-called “anti-dumping” policy. Unless he can prove that the panels he buys are not Chinese-made, he faces tariffs as high as 250% (!). This is an effective rate of $270,000.

In response to CNN inquiries a White House spokesperson responded:

[T]hat the tariff “highlights the degree to which solar panel manufacturers have faced unfair competition from countries like China” and the president’s move to impose a tax on Chinese-made goods is a way to establish “a level playing field with China for American businesses and workers.”

There is a reason that economists are nearly unanimous in supporting free trade. Though tariffs such as those on imported solar panels are a privilege for domestic panel manufacturers, they are a burden for domestic consumers such as Mr. Keith. To make matters worse, economic theory and evidence long ago established the point that the costs borne by consumers outweigh the benefits bestowed on producers.

In this case, there is another cost: debasement of the English language. Notice the words used by the spokesperson. In order to establish a “level playing field” we need to tilt the playing field in favor of domestic producers at the expense of foreign producers and domestic consumers. So an uneven playing field is an even playing? Newspeak, much?

Should the Tea Party Hope for a Government Shutdown?

Last week, yet again, Congress passed a short-term continuing resolution, funding the federal government for another few weeks while Republicans and Democrats attempt to work out some sort of compromise to get an actual bona fide budget passed. This pushed off the prospect of a government shutdown a few more weeks.

Also last week, CNN released a poll finding that 73 percent of Americans believe a government shutdown that lasted a few weeks would be a bad thing. This general opinion seems to cross ethnicity, age, income, geographic region, and political party affiliation (though a little more than half of Republicans would be okay with a shutdown if it lasted only a few days). There was, however, one exception to the near-universal opposition to a shutdown: Tea Partiers. Fifty two percent of those who self-describe as Tea Party supporters thought a government shutdown that lasted a few weeks would actually be a good thing. I should note that 46 percent of Tea Partiers opposed such a shutdown and that the margin of error was plus/minus 5.5 percentage points. Still, this suggests that those who support the Tea Party are far more sanguine about the possibility of a shutdown than other Americans.

As advocates of limited government, are the beliefs of Tea Partiers justified?

As is often the case, we can look to the American states for some guidance. It turns out that in 23 U.S. states, the government will automatically shut down in the event that the governor and the legislature fail to agree on a budget. In his work on budget rules, David Primo examined the theoretical impact of these provisions from a game theoretic perspective. He noted that in states with an automatic shutdown provision, “the legislature will be able to achieve its ideal budget, so long as the governor prefers it to no spending.” (p. 102)

He therefore predicted that states with such a provision will spend more than states without such a rule. He then tested the hypothesis, controlling for a number of other factors known to impact state spending and found that states with an automatic shutdown provision actually spend about $64 more per capita than other states. As he notes, “This effect is remarkably large, given that shutdowns occur rarely.” (p. 103)

This suggests that the federal government’s automatic shutdown provision—by making Congress’s desired spending level a take-it-or-leave-it offer—tends to bias the government toward more spending. By extension, it also suggests that a government shutdown will shift negotiating power toward those who favor more spending. So, paradoxically, fiscally-conservative Tea Partiers stand to lose the most if the federal government shuts down.

Perhaps it is time for them to rethink their support of a shutdown.