Detailed Abstractions

For good news – we have more research helping to confirm what true free trade advocates have always believed.  We don’t see a decrease in wages or living standards by trading with developing countries.  Via NBER here:

Concerns that (1) growth in developing countries could worsen the US terms of trade and (2) that increased US trade with developing countries will increase US wage inequality both implicitly reflect the assumption that goods produced in the United States and developing countries are close substitutes and that specialization is incomplete. In this paper we show on the contrary that there are distinctive patterns of international specialization and that developed and developing countries export fundamentally different products, especially those classified as high tech….

Which translated means, the US, one of their main agents in their research, has an economic dynamism (here & here)which results in the US never directly competing with other countries’ lower paid labor:

…Judged by export shares, the United States and developing countries specialize in quite different product
categories that, for the most part, do not overlap. Moreover, even when exports are classified in the
same category, there are large and systematic differences in unit values that suggest the products made
by developed and developing countries are not very close substitutes—developed country products
are far more sophisticated….

& this of course isn’t the only research making such conclusions (here & here).

But that’s not all.  We’ve seen historically that creating obstacles to free trade can hurt us severely (here):

One of the major causes of the Depression was Congress’s passage of the Smoot-Hawley Tariff, which was signed into law on June 17, 1930. Smoot-Hawley placed tariffs on more than 20,000 imported goods. It halted the recovery from the 1929 downturn and resulted in retaliatory tariffs from U.S. trading partners and a decline in U.S. imports and exports of more than 50 percent….

Though not all would say cause (here):

“The best estimates are that the multiplier is roughly 2. In that case, real GDP would have declined by about 3.4% between 1929 and 1931 as a result of the decline in real exports. Real GDP actually declined by about 16.5% between 1929 and 1931, so the decline in real exports can account for only about 21% of the total decline in real GDP.”

Irregardless, the research and economist communities agree on the benefits of free trade (here):

A 1990 survey of economists employed in the United States found that more than 90 percent generally agreed with the proposition that the use of tariffs and import quotas reduced the average standard of living….

Congress’ answer to all of this? A trade war with China (here):

The Democrat-backed bill passed by 348 to 79, and targets countries that hold down the value of their currencies, as many accuse China of doing….

The Senate’s answer?  A trade war with China (here): 

The chairman of the Senate Finance Committee said Wednesday that the upper chamber is “poised” to legislation meant to hammer China for its currency policies…

To paraphrase an axiom:  With economic heavy weights like this as friends, who need enemies… but I’m sure there’s no way they’ll screw up health care, right?

The President? A trade war with China…. sort of no.  While he’s pushing China just as other presidents have (here):

The Obama Administration believes that China needs to take steps on rectifying its currency value, White House Press Secretary Robert Gibbs said….

He hasn’t stated he would sign anything and other administration officials are pushing different views (here):

Treasury Department Secretary Timothy Geithner said there was “no risk” of a global currency war during a wide ranging interview with Charlie Rose Tuesday evening….

Intelligently, he’s keeping his options open in this very way.  Though I’m not sure I want to bet that he continues down the road of economics considering his approval ratings., but a smart move overall.

It’s a truism of real leaders since the dawn of time; they find themselves, not from true success and stable times, but rather from adversity and chaos. When faced with those seemingly insurmountable odds, it’s the strongest who remain calm, read the landscape, and discover new answers from which they can seek out continued success.

Though under great stress, we humans tend towards the flight or flight response. True leaders however, can use these difficulties against themselves to provide both motivation and a sense of urgency to gain the ingenuity required for such challenges.

This is understood well in society. Like business leaders who understand innovation can be helped significantly by design constraints (here):

Great designers understand this. Charles Eames says design is all about innovating around constraints. And it’s the constraints – the scarcity – that fires the designer’s creativity. Smart business people “get it” too. Amazon founder Jeff Bezos embraces self-imposed scarcity saying, “One of the only ways to get out of a tight box is to invent your way out.”

They understand that principle of economic scarcity. As do military leaders. Sun Tzu notes in the Art of War:

For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill.

For President Obama, the Tea Party & the Republicans taking back control of the House of Representatives could give him the opportunity to display true deft.

Assuming it does happen as predicted (here via the Philly Inquirer) however, the President is accorded a tough task ahead.

He would now have the body responsible for appropriations bills (all spending bills much start in the House & they are very important. For instance, they can kill health care by simply not funding it….) mainly in place due to running against him. Secondarily, while they don’t wish to be seen as obstructers, their willingness to work with Obama will be small even without their election strategy. Because any bill passed, regardless of how/why, if it turns out to be a good or well liked idea, Obama will naturally take credit to further his chances for re-election in 2012.

& the Democrats know that neither the President nor health care is a selling point for this election, even if they are communicating differently. The facts are that se hasn’t really made many direct candidate speeches, just backyard BBQs in key districts in key states. They are essentially, and correctly, playing against their weakness – his popularity.

Not a bad strategy in the short term, but I think people have heard him speak enough and any celebrity (yes, while the President is certainly more important and more powerful than any normal celebrity, s/he is still a celebrity) runs the risk of over saturation.

Irregardless, with Obama, the question is can he live inside those constraints?

What we know is given a new landscape, the answer for tomorrow’s question will not be the same answer as today’s. I think if he can push himself with a sense of urgency, surveys the landscape to see what he has and what he can accomplish with what he has. Then uses both the sense of urgency and strategic thinking by changing his game plan when the field of battle changes…. well, then we’ll see a real leader who may live up to his Nobel Peace Prize (here).

Or said more succinctly, it’s a crappy state of affairs you might find yourself in Mr. President, but challenges is how leaders prove themselves.

Honestly, I don’t think he’ll be able to do it. I think he’s too insecure (here) about himself and his handlers seem to know little more than an approval ratings drop equals time for Obama to give more speeches. & I don’t honestly think that’s likely to change…. but predictions are better left to Ms. Cleo.

What is likely however is the people around him understand exactly this point.  They do know it. The question is whether their emotions towards their beliefs (see: Confirmation Bias here & here) combined with the difficulty of telling a President who gives great speeches to shut up. Not to mention game theory predicts leaders to surround themselves with “yes men”.

All of that makes significant and required change seem unlikely, but I’d never count out someone who made it to the Presidency, nor, the team that helped him get there.

So Mr. President, here’s your chance.

As you might have noticed, I’ve stayed away from writing about the Arizona immigration bill.  I’ve done so because I have little understanding on what it means to live close to a border where millions of immigrants cross illegally each year.  I don’t know the pain experienced by this massive influx, nor do I really know what has and hasn’t been tried to resolve those pains.

Lastly, I’m honestly not in the habit of arguing against a specific state law, unless it’s clearly anti-freedom.  For instance, when an idiotic Senator proposes a complete ban on a specific crib because of 32 infant deaths since 2000 – I rightfully call her out (here).   Meaning that generally speaking, I don’t see the Arizona law as anything immoral or anti-freedom and my lack of real world understanding has kept me out of this debate.

That was until I learned, thanks to the unprecedented outpouring from world leaders, that this Arizona thing…. well, apparently it has far reaching consequences.

To start with – I think this is the very first time an American president has come out so strongly against a state law based solely on premonition (here via Raw Story).  According to our new pre-crime way of thinking, this law has got to be stopped by any means necessary, because as President Obama states:

I think the Arizona law has the potential of being applied in a discriminatory fashion. Now, after it was initially passed, the Arizona legislature amended it and said that this should not be carried out in a discriminatory way. But I think a fair reading of the language of the statute indicates that it gives the possibility of individuals who are deemed suspicious of being illegal immigrants from being harassed or arrested. And the judgments that are going to be made in applying this law are troublesome….

To translate, this roughly means – “it (the law) might be used for discriminatory purposes, therefore it’s wrong”.    Which would be a very valid argument for a law which say…. kept blacks out of school, but for a law only meant and written to enforce the current immigration laws, he’s basically trying to block a state law because it might be abused.

Additionally, the legal system itself is and has been open for discriminatory abuse by those in appropriate positions who are willing to use their authority towards discriminatory ends.  You see, where there are so many laws on the books that necessitate selective enforcement, then you automatically end up leaving the selection process to those on the ground.

To clarify:  I don’t believe law enforcement professionals are racists or tend to abuse their power en mass & I don’t believe this AZ law will necessarily be used in such a way.  My only point is when every single car on the highway is driving at least 10 miles per hour over the speed limit, those with the power to enforce the law can do so selectively.  This by its very nature allows for discriminatory practices.

It would be interesting to hear  President Obama make such a case, but that’s not the main thrust of his argument.  His argument is guilty until proven innocent.

Lastly, Mr. Obama, don’t we have other things to worry about?  Like two active conflicts?  Continuing terror threats at home?  Economic & health care “crises”?

But what really has me perplexed is the president from our southern neighbor, Mexico.  Apparently, the Arizona law is so horribly wrong, he had to take lots of time, to address international press both here @ a home and to address Congress as part of an active & aggressive PR campaign against the AZ law (here via The Arizona Republic):

WASHINGTON – Mexican President Felipe Calderón harshly criticized a new Arizona immigration law in an address to Congress on Thursday, saying it “ignores a reality that cannot be erased by decree.”…

Now to be fair I agree with that quoted portion; which is our current immigration policy stance by default, ignores the reality on the ground.  With all due disrespect to Mr. Calderón however, I don’t think he gets the reality either.

He is, not only a world leader (very tenuous use), but specifically the leader of Mexico.  A country with a higher murder rate than some active war zones have deaths.  A country whose police force and justice system is either completely corrupt or completely unable to deal with organized crime.  A country whose citizenry, run as fast as possible, by any means possible to the closest possible safe haven, even knowing they will actively face many additional hardships through their actions.   A quick skim through reports (here via Stratfor or here via the Economist) will give you ample reason why this is so.

Yet, Mr.  Calderón’s worries are about an AZ law and our freedom to arm ourselves:

…his request that Congress do something about the availability of high-powered weapons along the border….

Maybe he’s completely unaware that it is illegal in the US to buy the weapons many organized criminals use in Mexico such as hand grenades, rocket propelled grenades, and automatic weapons.

Irregardless of Mr.  Calderón’s understanding of US gun laws, the citizens of Mexico would be better served if their leader spent time repairing his country, instead of  throwing boulders from a glass house.

Given the current urgent competing priorities for both countries, combined with both presidents having a laser like focus on this issue, I think there really remains one question:

What is their (Obama, Calderon, etc) fear?