Economics

Why are so many liberals vexed about free trade? Aren’t we supposed to like things that enhance freedom? Now I understand that free trade opens up the possibility that some American jobs will be lost. So what? The purpose of free trade is to allow Americans to have access to products and services at the best available price, even if that means importing something. A case in point is the infamous T-Shirt trade with China. The benefit of that access surely offsets the downside of the lost jobs. If it doesn’t I would argue that we work harder to protect the worker’s ability to move on rather than their old job. Liberals should be looking forward, preparing and soliciting change, rather than hiding behind protectionism and the status quo. That’s what conservatives do. We are better than that.

This week’s Treasury bill auctions have produced a little surprise: the three year notes were sold easily, but a day later the five years notes were less well accepted. The result was that five year interest rates rose slightly — the Government had to settle for higher interest rates in order to attract enough buyers of the notes into the market. While one week’s auctions do not make a trend this is something worth noting. Tuck this information away — it may mark the first signs that the market is getting really worried about our endless deficits [the Govenrment sells these notes to cover the debt caused by the budghet deficit]. The fact that the shorter term notes were snapped up and the longer term notes had to be marked down shows the concern the market has about the medium term future. Let’s all watch this space!

The CEO’s of the major oil companies are being grilled in Washington by a variety of lawmakers intent on attacking what they see as ‘excess’ profits. The gist of their accusation is that the companies have reaped excess profits and are either passing it back to shareholders or hoarding cash, rather than investing in new production. There is talk too of an ‘excess profits’ tax, which would yield about $25 billion in 2005. Now I know we need every penny we can get so Geaorge and the Republicans can pass more tax cuts for the wealthy, but I happen to think an excess profits tax is wrong.

The problem is that consumers are still wedded to oil, which having a special tax to pass on to consumers as a rebate or tax credit does nothing to solve. In fact it makes it worse because it sends the message that the government is committed to protecting, rather than replacing, our oil dependence. Making a fuss over ‘excess’ profits is great theater, but it masks the continuing dearth of hard headed policy making in Washington. This administration [and in this case the Democrats are no better] has absolutely no energy policy that credibly gets America off its oil habit. Just for the record America is the least efficient energy user of all the large industrialized countries: it takes a lot more energy here to produce a dollar of wealth than it does elsewhere. Why? Because energy is ridiculously cheap, so no one has an invcentive to conserve. This summer’s spike in oil costs had practically no lasting effect on consumption, which tells me that consumers are so hooked on oil that they are willing to pay a lot more still if need be. Sounds like a great time to keeep those costs high via an energy tax and drive the country towards conservation and alternative fuels. That’s politically hard to do. That’s leadership. Carping on about so-called excess profits is a just granstanding. It’s a weak cop-out.