Archive for the 'FreeTrade' Category

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Quote Of The Day

“Without subsidies, it would not pay for Americans to produce much cotton; with them, the US is the world’s largest cotton exporter. Some 25,000 rich American cotton farmers divide $3 to $4 billion in subsidies among themselves – with most of the money going to a small fraction of the recipients. The increased supply depresses cotton prices, hurting some 10 million farmers in sub-Saharan Africa alone”. —Joseph Stiglitz, writing on the US cotton industry

E-Tutoring On The Rise And Unions Want None Of It

Yahoo News reports:

BOSTON (Reuters) – Private tutors are a luxury many American families cannot afford, costing anywhere between $25 to $100 an hour. But California mother Denise Robison found one online for $2.50 an hour — in India.

“It’s made the biggest difference. My daughter is literally at the top of every single one of her classes and she has never done that before,” said Robison, a single mother from Modesto.

Her 13-year-old daughter, Taylor, is one of 1,100 Americans enrolled in Bangalore-based TutorVista, which launched U.S. services last November with a staff of 150 “e-tutors” mostly in India with a fee of $100 a month for unlimited hours.

Taylor took two-hour sessions each day for five days a week in math and English — a cost that tallies to $2.50 an hour, a fraction of the $40 an hour charged by U.S.-based online tutors such as market leader Tutor.com that draw on North American teachers, or the usual $100 an hour for face-to-face sessions.

“I like to tell people I did private tutoring every day for the cost of a fast-food meal or a Starbucks’ coffee,” Robison said. “We did our own form of summer school all summer.”

The outsourcing trend that fueled a boom in Asian call centers staffed by educated, low-paid workers manning phones around the clock for U.S. banks and other industries is moving fast into an area at the heart of U.S. culture: education.

It comes at a difficult time for the U.S. education system: only two-thirds of teenagers graduate from high school, a proportion that slides to 50 percent for black Americans and Hispanics, according to government statistics.

China and India, meanwhile, are producing the world’s largest number of science and engineering graduates — at least five times as many as in the United States, where the number has fallen since the early 1980s.

Parents using schools like Taylor’s say they are doing whatever they can to give children an edge that can lead to better marks, better colleges and a better future, even if it comes with an Indian accent about 9,000 miles away.

SLANG & AMERICAN ACCENTS

“We’ve changed the paradigm of tutoring,” said Krishnan Ganesh, founder and chairman of TutorVista, which offers subjects ranging from grammar to geometry for children as young as 6 years old to adults in college.

“It’s not that the U.S. education system is not good. It’s just that it’s impossible to give personalized education at an affordable cost unless you use technology, unless you use the Internet and unless you can use lower-cost job centers like India,” he said over a crackly Internet-phone line from Bangalore. “We can deliver that.”

Many of the tutors have masters degrees in their subjects, said Ganesh. On average, they have taught for 10 years. Each undergoes 60 hours of training, including lessons on how to speak in a U.S. accent and how to decipher American slang.

They are schooled on U.S. history and state curricula, and work in mini-call centers or from their homes across India. One operates out of Hong Kong, teaching the Chinese language.

As with other Indian e-tutoring firms such as Growing Stars Inc., students log on to TutorVista’s Web site and are assigned lessons by tutors who communicate using voice-over-Internet technology and an instant messaging window. They share a simulated whiteboard on their computers.

Denise Robison said Taylor had trouble understanding her tutor’s accent at first. “Now that she is used to it, it doesn’t bother her at all,” she said.

TutorVista launched a British service in August and Ganesh said he plans to expand into China in December to tap demand for English lessons from China’s booming middle class. In 2007, he plans to launch Spanish-language lessons and build on Chinese and French lessons already offered.

A New Delhi tutoring company, Educomp Solutions Ltd., estimates the U.S. tutoring market at $8 billion and growing. Online companies, both from the United States and India, are looking to tap millions of dollars available to firms under the U.S. No Child Left Behind Act for remedial tutoring.

But of course unions, being the anti-competition engine in our public school system, oppose the trend:

Teachers unions hope to stop that from happening.

“Tutoring providers must keep in frequent touch with not only parents but classroom teachers and we believe there is greater difficulty in an offshore tutor doing that,” said Nancy Van Meter, a director at the American Federation of Teachers.

But No Child Left Behind, a signature Bush administration policy, encourages competition among tutoring agencies and leaves the door open for offshore tutors, said Diane Stark Rentner of the Center on Education Policy in Washington.

“The big test is whether the kids are actually learning. Until you answer that, I don’t know if you can pass judgment on whether this is a good or bad way to go,” she said.

More choice for consumers, more tutoring opportunities for those who couldn’t afford it before, and higher test scores, who could oppose such a thing – those who care more about holding on to their monopoly power, that’s who. The full article can be found here. The tutoring company TutorVista can be found here.

Quote Of The Day

“Between 1990 and 2002 more than 174 million people escaped poverty in China, about 1.2 million per month. With an estimated $23 billion in Chinese exports in 2005 (out of a total of $713 billion in manufacturing exports), Wal-Mart might well be single-handedly responsible for bringing about 38,000 people out of poverty in China each month, about 460,000 per year. Even without considering the $263 billion in consumer savings that Wal-Mart provides for low-income Americans, or the millions lifted out of poverty by Wal-Mart in other developing nations, it is unlikely that there is any single organization on the planet that alleviates poverty so effectively for so many people. Moreover, insofar as China’s rapid manufacturing growth has been associated with a decline in its status as a global arms dealer, Wal-Mart has also done more than its share in contributing to global peace”. —Michael Strong, CEO and co-founder (with John Mackey) of FLOW

What Does Exploitation Mean?

It is often heard that transnational corporations are evil for ‘exploiting’ underdeveloped countries ‘cheap labor’ by opening up businesses there and if only corporations would stop their ‘exploitation’, the economies in those countries would improve.

Matt McIntosh, writing in Tech Central Station disagrees and in the process explains some economic principles:

Let us say that I am poor and you are wealthy. I live a harsh life of bare subsistence farming, while you make several thousand dollars per day as a business owner in the widget industry. One day you hire me to make widgets for you at a rate of $1 per widget, which you then sell to make a profit of $2 per widget. Which of us has benefited the most from this exchange?

If you answered that it must be you, this is wrong. It’s true that you are still much, much better off than I am in absolute terms, and that in dollars, you have gained more than I have. But considering our relative starting points and the basic fact of diminishing marginal utility, this transaction has benefited me more than it has benefited you. Simply put, the principle of diminishing marginal utility states that each extra unit of a good provides less subjective benefit to an individual than the last one did: an extra dollar means much, much more to a pauper than to a millionaire. Thus I get much more subjective utility from the extra dollars I now have than you do from the extra dollars you have.

McIntosh continues on to explain why the word ‘exploitation’ only makes sense in economically ignorant majors like Chicano Studies but has practically no meaning in the actual study of poverty reduction, economics. The full article should be read in full, it can be found here.

Fastest Growing States Vote Conservative – Around The World

During the last two presidential elections I reported how pro-growth areas, both demographic and economic, tend to vote Republican and anti-growth areas tend to vote Democrat, for example, the European magazine The Economist shortly after the 2004 election reported:

Mr Bush’s optimistic message gave him a commanding advantage in pro-growth America….Most of Mr Kerry’s base was in stagnant America. Democratic strongholds such as Chicago, Cleveland, San Francisco and Mr Kerry’s Boston have been losing people and jobs.

Mr Bush’s America, for the most part, is booming. This is not just because the red states that voted for Mr Bush are growing faster than the blue states that voted for Mr Kerry. It is also because Mr Bush did well in the fast-growing suburbs and “exurbs” in both red and blue states. Mr Bush’s triumph in greater Phoenix, greater Houston and greater Atlanta was perhaps predictable. But Mr Kotkin points out that he also triumphed in what he calls the “third California”: the vast inland region that is producing the bulk of the state’s growth at the moment.

Well it seems this is a global trend:

Symmetrical politics. There is also a fascinating symmetry in the recent election results in the three NAFTA nations: Mexico, Canada, and the United States. All chose center-right governments by narrow margins, installed by minorities of the voters. Calderon’s 35.9 percent of the vote in a three-party system is eerily similar to the 36.3 percent won by Stephen Harper’s Conservative Party in Canada’s four-party system. We all know about Bush’s two elections. All three leaders have been opposed vociferously, indeed often considered illegitimate, by the metropolitan elites of New York, Toronto, and Mexico City. All three beat parties that claimed only they had national reach–the Democrats here, the Liberals in Canada, and PRI in Mexico–but that were tarred with scandal when they were voted out of office.

All three won thanks to huge margins in economically vibrant hinterlands–George W. Bush’s Texas, Stephen Harper’s Alberta, Vicente Fox’s Guanajuato. Calderon carried the Mexican states north of metro Mexico City by 47 to 22 percent over Lopez Obrador. These are the states where you find giant new factories, glistening shopping malls, rising office buildings, new middle-class subdivisions, Wal-Marts, freshly paved highways. This is the Mexico that NAFTA has brought into being. Just as Bush carried most of our fastest-growing states and Harper’s Conservatives carried Canada’s fastest-growing province, so Mexico’s northern states, which produced more than half the nation’s population growth from 2000 to 2005, voted PAN.

These center-right parties all stand for change–change in the sense of allowing a vibrant private sector to grow and alter our ways of living and making a living. Their opponents tend to stand against change, for the vested interests of public-sector unions, for (in Canada and Mexico) the subsidy of anti-American metropolitan elites. Some years ago, I predicted that NAFTA would produce a Texafication of North America. NAFTA was in large part a Texas project, pushed forward by President George H. W. Bush and shepherded to ratification here by Treasury Secretary Lloyd Bentsen, who grew up in the Lower Rio Grande Valley, and in Mexico by President Carlos Salinas, who grew up in nearby Monterrey. Since 1993, the United States, Canada, and Mexico have all become more like Texas, as people move away from high-tax and slow-growth places. Bush in 2000 and Harper and Calderon in 2006 would not have won on the demographics of the 1980s. But they won on the demographics of today–though, let’s remember, by narrow margins.

Quote Of The Day

“The skeptical reader may well say that this theory is all a little too neat, and that reality is not always like that. So, let us set theory aside for the moment and ask whether or not multinational companies really do make poor countries demonstrably wealthier. When we repair to the data, we find consistently that they do. In Fighting the Wrong Enemy, Columbia University economist Edward Graham reports that, on average, total workers’ compensation offered by U.S.-owned manufacturing companies is 80 percent higher than the average compensation offered by domestically-owned manufacturing companies in middle-income developing countries; in low-income developing countries this figure is even higher, at fully 100 percent more than the average for domestically-owned manufacturing”. — Matt McIntosh, writing in Tech Central Station on the benefits of free trade

Quote Of The Day

“Asian workers would be aghast at the idea of American consumers boycotting certain toys or clothing in protest. The simplest way to help the poorest Asians would be to buy more from sweatshops, not less….For all the misery they can engender, sweatshops at least offer a precarious escape from the poverty that is the developing world’s greatest problem. Over the past 50 years, countries like India resisted foreign exploitation, while countries that started at a similar economic level — like Taiwan and South Korea — accepted sweatshops as the price of development. Today there can be no doubt about which approach worked better. Taiwan and South Korea are modern countries with low rates of infant mortality and high levels of education; in contrast, every year 3.1 million Indian children die before the age of 5, mostly from diseases of poverty like diarrhea”. —Nicholas Kristof and Sheryl Wudunn, writting in the New York Times, quoted in Harvard economist Greg Mankiw’s blog

Quote Of The Day

“There is an isomorphism between immigration, outsourcing, and free trade in general. In each case, overall economic efficiency is increased, due to the law of comparative advantage. There are distributional effects, to be sure, but no nation has been able to demonstrate an ability to use trade restrictions of any sort to reduce overall poverty. Redistribution implies that trade is a zero-sum game. [Those who believe immigration is just a redistribution program imply] that immigration works like a tax on low-income workers and a subsidy to high-income employers. Of course, in any sort of competitive market, employers do not profit from lower costs but must instead pass them onto consumers. But why let a little economics get in the way of a folk-Marxist story? Immigration, like all other forms of trade, is positive-sum game. All forms of trade restrictions hurt the economy. Immigration restrictions may change the composition of the least-well off. Overall, however, by weakening the economy immigration restrictions are likely to produce more poverty rather than less. I am not a passionate supporter of open immigration as an economic policy. I do not think that the gains are huge. But I am angry any time an economist misleadingly describes trade as a “redistribution program.” At that point, you forfeit your identity as an economist and instead become a demagogue”. — Economist Arnold Kling, responding to George Borjas reference to immigration as “just another redistribution program”

Quote Of The Day

“We now know that the secret to curing hunger and poverty is capitalism and free trade. We have seen that demonstrated irrefutably in East Asia, which has experienced the greatest alleviation of poverty in the history of man. In half a century, places like Hong Kong, Taiwan and South Korea have gone from subsistence to First World status. And now free markets and free trade are lifting tens of millions of people out of poverty in India and China”. —Charles Krauthammer, in an old article titled, How Times Have Changed, where he takes Democrats to task for standing against the #1 cure for poverty

Quote Of The Day

“The trade issue is crippling the Democrats. The unions are terrified by trade, and they’re still a major Democratic constituency. Hillary Clinton will be caught in this dilemma unless the party faces up to it and says, ‘Look, we really can’t be against trade with poor countries.’ ” —Jagdish Bhagwati, Columbia University economist who wrote In Defense of Globalization writing in The New York Magazine

America’s Trade Deficit Is A Blessing

Donald Boudreaux, Chairman of the Department of Economics at George Mason University, attempts to clear up the commonly misunderstood trade deficit:

Contrary to popular opinion, this so-called “deficit” is a blessing.

Consider that if Americans export lumber, sheetrock, and architectural blueprints to China so that people build a factory there, we’re gleeful. “Wonderful!” we proclaim. “Exports are up and our trade deficit is down!”

But if those very same building materials are assembled by Americans into a factory situated and operated in, say, Utah and then bought by Chinese investors, we complain — led today by the likes of Senators Charles Schumer and Lindsey Graham — that “Something’s wrong! Our trade deficit is higher!”

Truth is, though, that nothing economically important separates the first scenario from the second. In each case the world’s stock of productive capital grows as Americans produce things for sale to foreigners. Those cases appear different from each other only because of the conventions of international commercial accounting, which records investments separately from imports and exports.

This accounting convention creates the false impression that an excess of imports over exports — called a “trade deficit” — is an ominous imbalance requiring corrective action. In fact, America’s trade deficit is evidence, not of any imbalance, but of the happy fact that our economy is so strong and stable that foreigners invest here eagerly.

When foreigners sell things to Americans they earn dollars. If foreigners then spend all of those dollars on American exports, trade is “balanced.” There’s no trade deficit or surplus. But if foreigners instead invest some of those dollars in dollar-denominated assets — say, by purchasing that factory in Utah, houses in Hawaii, or shares of Google — they obviously must buy fewer American exports. So the trade deficit grows as investment in the U.S. rises.

Although dollars spent by foreigners on investments are not spent on items classified as U.S. exports, these dollars nevertheless are spent in the U.S. They raise the value of American corporations and real-estate, and improve American workers’ productivity. In turn, those increases in asset values and productivity enhance Americans’ current ability to buy goods and services — perhaps the same goods and services that foreigners would have bought had they not invested their dollars here.

Isn’t it better, though, if Americans do the investing and foreigners the consuming? No. What’s important is to have lots of investment to increase worker productivity, which ultimately is the only way to raise our living standards. The nationality of investors is insignificant.

Because savings and investment are indeed so beneficial, we should welcome rather than regret foreign savings invested in our country. If we applaud the guy across the street who forgoes that vacation in Las Vegas in order to save and invest more in the U.S. economy, we should applaud also the guy across the ocean who does the same.

But doesn’t a higher trade deficit mean that Americans are sinking more deeply into debt? Not at all. A trade deficit isn’t debt. My young son, for example, received for Christmas several Chinese-made toys. These were bought with cash. If the Chinese toymakers invest their newly earned dollars in, say, that factory in Utah, the U.S. trade deficit rises but no debt is created. Neither I nor any other American owes any foreigner anything as a result of my purchase of toys from China and the corresponding Chinese purchase of equity in a company located in America.

More generally, whenever foreigners buy American real-estate or equity, or when they simply hold dollars in their portfolios, our trade deficit rises without creating debt.

Nor is it true that a higher trade deficit means that Americans are selling off assets. Whenever, for example, IKEA builds a new store in the U.S., a new asset is created. No Americans had to part with assets as a pre-condition for this Swedish investment in America.

Of course, part or all of the trade deficit can become debt. This happens whenever Americans borrow dollars from foreigners. As it happens, the most prodigious borrower today is Uncle Sam. But despite self-righteous accusations leveled at foreigners by the likes of Senators Schumer and Graham, the fact remains that U.S. government indebtedness is not caused by foreigners buying Uncle Sam’s bonds, but by Congress spending beyond its means. If government debt is a problem, then Congress should stop borrowing. Complaints about the trade deficit are a red herring.

We Americans have many real problems confronting us. The trade deficit isn’t one of them.

The full article can be found here.

Quote Of The Day

“In all times and in all places there has been too much government. We now know what prosperity is: it is the gradual extension of the division of labour through the free exchange of goods and ideas, and the consequent introduction of efficiencies by the invention of new technologies. This is the process that has given us health, wealth and wisdom on a scale unimagined by our ancestors. It not only raises material standards of living, it also fuels social integration, fairness and charity. It has never failed yet. No society has grown poorer or more unequal through trade, exchange and invention. Think of pre-Ming as opposed to Ming China, seventeenth century Holland as opposed to imperial Spain, eighteenth century England as opposed to Louis XIV’s France, twentieth century America as opposed to Stalin’s Russia, or post-war Japan, Hong Kong and Korea as opposed to Ghana, Cuba and Argentina. Think of the Phoenicians as opposed to the Egyptians, Athens as opposed to Sparta, the Hanseatic League as opposed to the Roman Empire. In every case, weak or decentralised government, but strong free trade led to surges in prosperity for all, whereas strong, central government led to parasitic, tax-fed officialdom, a stifling of innovation, relative economic decline and usually war….Sure, it is possible to have too little government. Only, that has not been the world’s problem for millennia. After the century of Mao, Hitler and Stalin, can anybody really say that the risk of too little government is greater than the risk of too much? The dangerous idea we all need to learn is that the more we limit the growth of government, the better off we will all be”. —Matt Ridley, science writer answering the Edge.org question of the year

An Economists New Years Resolutions

Gregory Mankiw, a professor at Harvard University and former chairman of President Bush’s Council of Economic Advisers gives us his New Years Resolutions:

CAMBRIDGE, Mass. — Now is a time when most of us sit back and reflect on the past year and on how to do better in the year ahead. Since I know, however, that economic policy makers inside the Beltway are often too busy for such introspection, my gift to them is a list of seven New Year’s resolutions. Any senator, congressman or presidential wannabe is free to adopt them as his or her own. Just repeat after me:
• #1: This year I will be straight about the budget mess. I know that the federal budget is on an unsustainable path. I know that when the baby-boom generation retires and becomes eligible for Social Security and Medicare, all hell is going to break loose. I know that the choices aren’t pretty — either large cuts in promised benefits or taxes vastly higher than anything ever experienced in U.S. history. I am going to admit these facts to the American people, and I am going to say which choice I favor.

• #2: This year I will be unequivocal in my support of free trade. I am going to stop bashing the Chinese for offering bargains to American consumers. I am going to ask the Bush administration to revoke the textile quotas so Americans will find it easier to clothe their families. I am going to vote to repeal the antidumping laws, which only protect powerful domestic industries from foreign competition. I am going to admit that unilateral disarmament in the trade wars would make the U.S. a richer nation.

• #3: This year I will ask farmers to accept the free market. While I believe the government should provide a safety net for the truly needy, taxpayers shouldn’t have to finance handouts to farmers, many of whom are wealthy. Farmers should meet the market test as much as anyone else. I will vote to repeal all federal subsidies to growers of corn, wheat, cotton, soybeans and rice. I will vote to allow unrestricted import of sugar. (See resolution no. 2.) I will tell Americans that eliminating our farm subsidies should not be a “concession” made in trade negotiations but a policy change that we affirmatively embrace.

• #4: This year I will admit that there are some good taxes. Everyone hates taxes, but the government needs to fund its operations, and some taxes can actually do some good in the process. I will tell the American people that a higher tax on gasoline is better at encouraging conservation than are heavy-handed CAFE regulations. It would not only encourage people to buy more fuel-efficient cars, but it would encourage them to drive less, such as by living closer to where they work. I will tell people that tolls are a good way to reduce traffic congestion — and with new technologies they are getting easier to collect. I will advocate a carbon tax as the best way to control global warming. Because we may well need to raise more revenue (see resolution no. 1), I’ll always be on the lookout for these good taxes.

• #5: This year I will not be tempted to bash the Fed. Ben Bernanke, soon to be the new chairman of the Federal Reserve, will not inherit Alan Greenspan’s halo, and so may be a tempting target. But I will resist temptation. I know that the U.S. has an independent central bank for good reason. I know that sometimes the Fed needs to raise interest rates to fight inflation, even if it risks slowing growth in incomes and employment. I will let Mr. Bernanke and his colleagues do their job. Difficult as it is, I will hold my tongue.

• #6: This year I will vote to eliminate the penny. The purpose of the monetary system is to facilitate exchange, but I have to acknowledge that the penny no longer serves that purpose. When people start leaving a monetary unit at the cash register for the next customer, the unit is too small to be useful. I know that some people will be upset when their favorite aphorisms become anachronistic, but a nickel saved is also a nickel earned.

• #7: This year I will be modest about what government can do. I know that economic prosperity comes not from government programs but from entrepreneurial inspiration. Adam Smith was right when he said, “Little else is required to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice.” As a government official, I am not going to promise more than I can deliver. I am going to focus my attention on these three goals — peace, easy taxes, and a tolerable administration of justice — and I am going to trust the creativity of the American people to do the rest.

Quote Of The Day

“”Liberals” seem have been renamed “progressives” these days, but for some reason they still seem to be hostile to freer trade–although Gene Sperling is a refreshing exception. As a liberal/progressive economist, this hostility to trade has long pained me. Frankly, I don’t see anything “progressive” about protectionism”. —Alan Blinder, the Gordon S. Rentschler Memorial Professor of Economics at Princeton University and Director of Princeton’s Center for Economic Policy Studies

Quote Of The Day

“Regarding U.S. policies towards Latin America, there is a double standard everywhere you look. It is crystal clear where Lula, Chávez, Kirchner, Vásquez, etc. want to go. Many ideas and policies of Marx, Lenin, Stalin, Mao, Castro, and Che Guevara are being rediscovered and openly applied by them, while U.S. foreign economic policy continues to sail down a third way between capitalism and socialism. No wonder such little respect is shown towards Washington. Free trade, yes, but not regarding sugar or shrimp or steel or lumber or whatever deep pocket lobbyists want to keep out today. Private enterprise and the right to work, sure, as long as the interests of American unions are safeguarded by “fair trade”, which includes a “level playing field” (unaffordable wages and working conditions) and “no child labor”, even if the real alternative for many of those youngsters is begging or prostitution, rather than going to school.

A hundred years ago, 50% of Americans worked in agriculture and no one in Washington dared to tell farmers that their children could not help in the field or that going to class was more important than food on the table. Most Latin Americans still work in agriculture. Thinking how your great-grandparents would have reacted if Washington tried to apply to them its current foreign economic policies will help understand how Latin Americans see those deceitful policies, displayed as “fair trade””. —Carlos A. Ball, editor of AIPE, a Spanish-language news organization based in Florida, and adjunct scholar with the Cato Institute

Outsourcing Is Becoming A Reality For Tutors

Outsource Reporter writes:

For some time now, the Indian media has reported how teachers are a hot export from India – several leave every year to fill vacant positions in UK and USA. Now, technology is enabling teaching remotely – teachers sitting in India teach primarily math and science.

The first e-tutoring businesses started less than three years ago, and already thousands of Indian teachers coach U.S. students in math, science or English for about $15-$20 an hour, a fraction of the $40-$100 that private tutoring costs in the United States.

Since then, it has been a rapidly growing business. Most companies are reluctant to talk about earnings. But Shantanu Prakash, chief executive of India-based Educomp Datamatics, estimates that Indian online tutoring companies earned about $10 million last year, 80 percent of it from the United States. But considering the large Information technology industry in India, that’s small change.