Watching CNN today, I saw an interesting story on exports that is especially topical in terms of the anti-trade sentiment that has been so prevalent over the past couple of years, particularly during the current campaign for the Presidency.  At various times, Republican candidates like Duncan Hunter, Tom Tancredo, and Mike Huckabee and Democratic frontrunners Hillary Clinton and Barack Obama have advocated greater government intrusion into trade and commerce, and have denigrated free trade agreements like NAFTA.  Trade with China has been another favorite target of politicians' ire, stoked by a spate of product quality issues in Chinese-made toys.

According to data from the US Office of Trade and Industry Information, (a department within the Commerce Department), in 2007 the United States exported $1.1 trillion in goods and services.  That's a 100% increase over the past 15 years, and exports increased in 2007.  The leading countries in increased exports?  Canada, with an $18.2 billion increase, and China, with a $10 billion increase.  Others in the top 5 included Germany ($8.3 billion), and developing economies India ($7.5 billion) and Brazil ($5.4 billion).

The data are significant, as they show that trade is not just a one-way transaction -- a fact ignored by repeated emphasis on the so-called "trade deficit" and by the anecdotes of lost jobs due to trade deals.  Yes, we are importing billions of dollars of goods and services from our NAFTA partners and from China, but we are also increasing our exports as well.  Imports provide American consumers with more choices, greater innovation, and lower prices while stoking competition that improves the quality of American companies.  Exports create jobs as American companies expand their markets overseas.  Both are engines of economic growth; neither should be discouraged by anti-trade government intrusion.

As gasoline prices rise to record levels, the impact is not limited to pain in the pocketbook of American consumers -- apparently it has infected certain candidates for the Presidency with a brazen re-definition of market economics.  The key to lowering the high price of gasoline, according to Sens. Hillary Clinton and Barack Obama, is increasing the expenses of oil companies.  The method for doing so is a so-called "windfall profits tax" on oil companies.  Powerful indeed is the impact of high oil prices if it is powerful enough to turn traditional economics on its head.

The idea of a "windfall profits tax" is a bad one on many different levels, both economically and philosophically.  On a philosophical level, the idea that the government should decide what is a "fair" profit margin, and therefore confiscating more revenues above that level, is in line with the Socialist and Fascist regimes that characterized much of the 20th century world.  The level at which a "windfall" ensues is completely arbitrary, and in the case proposed by Sens. Clinton and Obama, the industry at which they are aimed is also arbitrary.  No "windfall profits tax" on business in general, only on producers of oil.  Why should the government decide for any industry what is an acceptable profit margin?  And, if one were to promote such a government strategy, why only aim such actions on a particular segment of industry?  Why no "windfall profits tax" on, say, trial lawyers?  Or sugar producers?  Or banks?

Thinking further on a philosophical basis, consider where the profits from oil companies (or any company) go.  Those profits can be re-invested in capital (which, for oil companies, is often largely the case -- investment in refinery expansions and exploration are huge parts of their annual budget, since finding, transporting, and refining oil isn't cheap), given to workers in the form of raises, bonuses, and other benefits, or distributed to the shareholders in the form of dividends.  That the companies are profitable makes their stock a good investment for not only individual investors but also pension funds, so increases in stock price and dividend payouts help improve the standard of living for current and future retirees.  A windfall profits tax penalizes those investors, particularly pension funds.

So on a philosophical basis, you have the government arbitrarily deciding which companies are allowed to make how much profit.  They are taking money out of the private sector, where it can create jobs and improve the standard of living for individuals and families.

From an economic standpoint, the idea is even worse.  Of course, a big item in the news is "record profits" for the "Big Oil" companies.  Companies like ExxonMobil are reaping huge profits as demand for petroleum products increases worldwide -- three of the top five Fortune 500 companies are "Big Oil", and all are extremely profitable.  However, re-sorting the list by profitability shows a different story:  while ExxonMobil leads the way with $39.5 billion in profits in 2007, the next oil company isn't until #7, with two financial services companies in the top five.  Only three out of the top 20 profitable companies are oil companies.

Re-sorting the list further yields even more interesting information.  When compared by Return on Revenue, "Big Oil" is suddenly nowhere to be found.  While some energy companies do make the list, e.g., Anadarko Petroleum and a company known as XTO Energy are in the top 10, ExxonMobil, ChevronTexaco, and ConocoPhillips fail to crack even the top 50.  While those "Big Oil" companies are making huge profits, they do not have particularly high profit margins.  Even if one accepts the premise of a "windfall profits tax", it hardly seems like the energy sector is reaping windfalls based on their profit margins and Return on Revenue.

More interesting information is available when one studies how much taxation "Big Oil" already falls under.  ExxonMobil made $39.5 billion in taxes in 2007; yet they paid over $105 billion in income taxes.  The government's "profit" off of ExxonMobil's products and services was over 265% that of ExxonMobil itself.  Who is making "windfall profits?

Of course, there are the unintended consequences of "windfall profits" taxes as well.  If the marginal benefit of producing additional outputs decrease, then there is less incentive to produce additional outputs.  That's simple economics.  Therefore, if a company is approaching the level of a windfall profit punitive taxation level, the incentive would be to slow production; in the case of petroleum, that means produce less oil.  If demand for petroleum stays constant or rises, then of course this increases the price of petroleum -- a windfall profits tax encourages higher prices on the supply side.  Of course, there's the demand-side effect as well -- whatever tax a company pays, it passes on to its consumers.  Any oil company that did begin paying the punitive tax would have to raise prices to recoup the losses.  So not only would a windfall profits tax raise prices through reduced supply, it would raise prices through offsetting the taxation.

But there's still more.  In reducing the production of domestic oil, implementation of a windfall profits tax would thus increase US reliance on imported oil.  This would empower foreign government-owned oil companies, such as those in Venezuela and Iran, providing governments hostile to the US with increased leverage and economic benefit.  When a similar tax was enacted in the US in the 1970s and 1980s, domestic production fell by 6% and foreign imports increased by 16%.

Implementation of a windfall profits tax is a statist approach that fails to meet any objective economic or philosophically capitalist criteria.  It would hurt the economy, the consumer, and the pensioner.  It would further an anti-business climate in the US, and do so in an arbitrary way.  We need fewer taxes on businesses, not more.

As detailed in a previous post, Democrats in the House of Representatives effectively killed the Columbia Free Trade Agreement, thus passing on a chance to expand the market for American goods and services in Columbia and assist an ally against Hugo Chavez.  Nature abhors a vacuum, and in our absence, our friends to the north are stepping in to fill the vacuum left by our short-sighted, protectionist, anti-trade legislature.

As reported by Bloomberg:

Canada's Trade Minister David Emerson said he may soon complete a free trade agreement with Colombia...

 

…Prime Minister Stephen Harper has made strengthening ties with Latin America a priority in an effort to broaden markets for Canadian commodities and reduce dependence on a slowing U.S. economy. Harper says the trade accord also will help Colombia stem violence against labor leaders.

 

An agreement would give Canadian farmers preferential access to the U.S.'s third largest market for wheat exports in Latin America. It also underscores the risks of growing trade protectionism in the U.S. that includes labor union efforts to thwart a trade accord with South Korea, said Jeffrey Schott, an economist at the Peterson Institute for International Economics in Washington.

Instead of easier access to American products, the Columbian consumer will find Canadian products less expensive and more readily available.  Keep in mind this vital information:  as mentioned in a previous post, 93% of Columbian products already enter the United States tariff-free; the Columbian Free Trade Agreement would remove the tariffs on American goods entering Columbia.  The action taken by Nancy Pelosi's House (and supported by Senators Clinton and Obama) hurts US manufacturers and farmers as well as Columbian consumers.  Fortunately for the Canadians, their Parliamentary leadership is not so short-sighted and isolationist as ours.

In response to the high (and getting higher) price of gasoline, the presidential candidates Hillary Clinton and John McCain have proposed a federal "gasoline tax holiday" for the summer, when gasoline prices traditionally are at their highest.  The proposal, no doubt going nowhere in Congress and therefore somewhat of a campaign gimmick, has been met by skepticism by the general public (if polls are accurate, which is always debatable) and  economists, and downright scorn by various environmental groups.

The current federal gasoline tax stands at $0.18/gallon.  This is a straight per-gallon tax, not a percent of the overall price.  States add their own tax in, from a low of $0.075/gallon in Georgia to a high of $0.321/gallon in Wisconsin; some states add in additional sales taxes and wholesale taxes, further increasing the cost of gasoline, and of course the gasoline retailers, wholesalers, and oil production companies all pay income taxes, capital gains taxes, payroll taxes, and other costs imposed by the government in terms of regulation.  All this together means that the government collects more "profit" off of each gallon of gas than does the companies responsible for its supply.

Environmental groups favor higher-priced gasoline as a means of reducing overall consumption -- many have called for increases in gasoline taxes, stating that the current average price at this writing of $3.63/gallon is still too low, and that prices more in line with those in Europe are needed to promote conservation.  My guess is that the public would disagree with that assessment, particularly since gasoline prices hit the poorest citizens in any society the hardest -- older cars tend to have less fuel efficiency, and most poor people tend not to be able to afford a new hybrid Prius.

The economists and politicians have come out against the gasoline tax holiday for various reasons.  Some, like Alice Rivlin, who served in the previous Clinton Administration, cites the need for higher gasoline taxes in her analysis, and no doubt others fall into that camp.  Many favor anti-global warming carbon "cap and trade" taxes that are de facto increases on the price of all products that utilize petroleum in their production (or packaging, or transportation, which of course ultimately means all products whatsoever).

Other economists, however, employ a more rigorous analysis.  The gist of their opposition to the gasoline tax holiday centers around a couple of points.  First of all, the drop in price would increase demand for gasoline.  Of course, this is Economics 101 -- lower prices stimulate higher demand for a product.  However, subtracting 18 cents per gallon from a record high gasoline price still yields a near record price -- will demand be that much stimulated by a reduction to a price that was already spurring decreased consumption?

A second argument is that the oil companies will simply swallow up the reduction in the tax, meaning prices will stay the same and the oil companies will increase their already-record profits.  To combat this supposed scenario, Hillary Clinton is proposing a "windfall profits tax" on the oil companies.  I'd be interested in hearing of any example from any point in the history of any country where raising a tax on a specific industry has ever resulted in a lower price for any product -- if a company's tax burden is increased, to maintain a profit margin the company will either raise the price of its products to recoup the loss, or else they will look for other cost reductions -- layoffs, decreased investment in capital projects, lower dividend payments to shareholders.  None of these actions promote lower prices for consumers nor spur economic activity; the Clinton argument suggests that the government is a better provider of economic growth than are businesses.  But this argument also ignores another truth about a free market:  competition among businesses for the consumers' dollars promotes lower prices.  Would a retraction of the 18.4 cent gasoline tax result in an immediate drop in the price of a gallon of gasoline of 18.4 cents?  Probably not, especially if the dollar continues to weaken (which is a complete topic itself).  But competition and a return to Economics 101 point towards an overall reduction in price.

A third argument against decreasing the government's intrusion into the purchase of fuel is that because that gasoline tax is currently earmarked for the road construction fund, such a tax holiday will result in no roads being built.  This calamity would lead to loss in jobs, and many seek to paint a dire picture of crumbling infrastructure and bread lines for construction workers.  But this presupposes that the government could not simply cut spending in other areas and channel that money instead to continue those road projects.  It also ignores the state gasoline taxes, many of which have some percentage earmarked for construction.  But on a more philosophical level, such a view that cutting the gasoline tax would lead to lost jobs in the overall economy suggests that the government, not the private sector, is the engine of job growth in the economy.  Comparing job growth in the United States with those countries with a higher tax burden (and common sense) suggest otherwise.

A final argument against the proposal is that it is simply an election-year gimmick, a pander to voters.  On this issue, I have to agree -- it is a sort of gimmick.  However, I fail to see how this is any more of a "gimmick" that "panders" to voters than promising them free college, or free health care, or other supposedly "free" (read:  money is confiscated from someone else to pay for them) services from the government.  At least this so-called gimmick increases the amount of money that people keep to spend for themselves rather than turn over to the government rather than promising to confiscate money from one group of people to give to another.  It might be a small amount, even a small amount of money in the hands of individuals rather than the government is a good thing in my book.

Ultimately, I believe that the tax holiday should be enacted, so long as spending is cut in other areas to "pay for" the tax cut, providing the road tax fund with no reduction in revenues.  Perhaps a good start would be to repeal all earmarks in the budget; as we've seen, there are billions of dollars there to be cut, and roads are actually a valid function of government.  Ultimately, I cast my lot with the great Nobel Laureate Milton Friedman (yes, he is an economist):  ""I favor tax reductions under any circumstances, for any excuse, for any reason, at any time."  It's our money, not the government's -- they should have to beg for every penny, not the other way around.

A favorite rhetorical nemesis during the current campaign for the US Presidency is the concept of free trade agreements. With its advantages and benefits well established from Adam Smith's Wealth of Nations, through various of the Federalist Papers, to the writings of Friedrich Hayek and Milton Friedman, concepts such as comparative advantage and economy of scale inherent to freer trade with less government intrusion on the marketplace are well explained and the benefits well documented.

The key to capitalism is capital investment.  The key to successful capital investment is yielding a profit — a gain in the value of the capital investment:  a capital gain.  The capital gain represents value that has actually been created — new value, new wealth that can lead to innovation, jobs, economic prosperity.  Whether the investment is real estate, or a factory, or stock and mutual funds for a pension or retirement account, capital investment is the engine of a free market economy, fueled by the desire for making a profit — a capital gain — on the investment.  The government then taxes that capital gain, even if the money used in the initial investment has already been taxed as a wage, inheritance, or even a previous capital gain.

Both Democratic candidates for President have already supported an increase in the capital gains tax.  In votes already taken in the Senate, both have voted to increase the rate from its current 15% to 20%.  Sen. Obama has advocated a further increase to 28% on the rate. 

Increasing the capital gains tax rate by definition increases the intrusiveness of government on individuals and the economy; thus, the Democratic contenders are advocating less liberty for American citizens and more power for the government, as well as greater economic inefficiency.  They are also decreasing the value of investing in capital in the United States — any investor makes his decisions based on the potential return; increasing the amount of any profit due to the government reduces the potential return.  If a potential capital investor has a choice between two options with probable equivalent returns yet one investment's profit is taxed at 28% and another is taxed at only 15% (or not at all), where is the investor's money most likely to go?  Which investment has a competitive advantage, and which investment has a competitive disadvantage imposed by the government?.

To evaluate the relative competitive aspect of raising the US capital gains tax rate, it is instructive to compare the US rate to that imposed by the governments of other countries.  Following are some various top rates for comparison (source:  Australian Treasury, "International Comparison of Australia's Taxes, p. 208):  Australia:  24.3%; Austria, Belgium, Czech Republic, Germany, Greece, Mexico, New Zealand, Switzerland, and Turkey:  0%; Canada: 23.2%; Iceland and Japan:  10%; Italy:  12.5%; Ireland:  20%; Slovakia:  19%; United Kingdom:  40%; Denmark:  62%, Sweden:  30%.  Thus, raising the capital gains tax even to 20% would be putting the US economy at a capital investment disadvantage relative to other potential investment opportunities, and increasing the tax to 28% would take the US even further behind competitively, particularly when compared with our two biggest trading partners, Canada and Mexico.

Competitiveness aside, what is the purpose of taxation?  Ostensibly to raise the revenue necessary to fund the activities of the government.  Obviously, there is considerable debate about what those activities should be, but ultimately the purpose of taxation is funding the government.  However, looking at the history of the capital gains tax provides some interesting information — raising the capital gains tax paradoxically tends to produce less revenue, not more, while decreasing the capital gains tax tends to produce more revenue.  This has consistently occurred in every single instance over the past 50 years.

The capital gains tax was increased in 1968, increasing from 25% to 36.5% phased in over 4 years; not only did capital gains tax revenues decrease, it took 8 years before revenues reached 1968 levels again.  Think about that again:  the tax rate was raised in 1968, but revenue didn't break even until 1976!  The rate was cut back to 20% in 1979, and revenues immediately increased, with the government collecting new record revenues each year until 1986 — that's 7 straight years of record-setting collections following a cut in the capital gains rate.  The string was ended in 1986 with an increase in the rate back to 28%.  This time, it took ten years for revenue collections to reach 1986 levels.  The rate was cut to 20% in 1998, then 15% in 2003.  In both cases, revenues once again increased.

The evidence is clear:  raising the capital gains tax does not increase revenue to the government.  Without exception, each time the government has increased the rate, collections have decreased.  Without exception, each time the government has decreased the rate, collections have increased.  So raising the capital gains tax rate doesn't merely hurt the competitiveness of our economy compared to other countries, it actually fails to increase revenue to the government.

Which begs the question:  why do Senators Obama and Clinton make raising the capital gains tax rate a central part of their economic platform if it hurts the economy, hurts our competitiveness, and fails to generate revenue?  When presenting with the facts during a debate, Sen. Obama made an astounding statement:  that the rate needed to be raised to promote "fairness".  Thus, he made it apparent that a legitimate function of government is to punish one group of people using tax rates.  Apparently, it is "fair" to confiscate wealth from an arbitrarily chosen group of people, regardless of whether or not it brings in additional revenue to the government.  Apparently, it is more "fair" if certain people pay more in taxes.  Apparently, it is now a function of government to enforce some sort of "fairness" on people who happen to be investing in the economy.  One is tempted to ask where in the Declaration of Independence, Federalist Papers, or Constitution such a role for government is espoused.

But raising a tax rate to enforce some standard of "fairness" demonstrates even greater misunderstanding by Sen. Obama about the economy and capital gains taxes.  It is tempting to assume that it is largely "the rich" who pay capital gains taxes.  Yet the facts say otherwise.  Approximately 50% of tax returns claiming capital gains taxes are filed by people earning less than $50,000 per year, and 75% of the claimants earn less than $100,000 per year.  That's hardly "rich", and it seems hard to claim that increases the tax burden on these people is making things more "fair" for anyone else.

Just as Sens. Obama and Clinton ignored (and misrepresented) the facts in seeking to demonize free trade agreements, they now ignore the facts about the capital gains tax in seeking to engage in class warfare.  While both speak nostalgically of the 1990s economic boom, they both seek to undermine the policies that made that boom possible.  Rather than promising greater liberty for the individual, they are seeking greater control by an ever-intrusive government. 

This list is by no means exhaustive, and as individuals we may agree or disagree with the respective agendas of one or all of the above groups.  The point is, however, that the groups are lobbying not on behalf of a select few, but for expanding liberty for all.  Whether or not one agrees with a cut in the tax on capital gains, the fact remains that cutting a tax increases liberty -- the individual has more say in how the fruits of his own labor are spent.  Whether or not one believes that labor unions hurt competitiveness, the fact remains that compulsory membership in an intrusion on individual liberty.

How many among us have a lobbyist working on our behalf in Washington?  Thankfully, we all do.  Thankfully, not all lobbyists are "special" interests -- some have individual liberty for every American in mind.

This spring's Presidential campaign has been a winter of discontent for free trade.  The Columbian Free Trade Agreement is seemingly dead in the House thanks to a scuttling of the rules by Speaker Nancy Pelosi, stabbing an ally in the back while strengthening socialist dictator Hugo Chavez.  Both Democratic Presidential nominees have chosen to ignore the economic benefits of the North American Free Trade Agreement, pledging to renegotiate the deal and impose a moratorium on future agreements.  Increases in employment, exports, manufacturing, and overall economic growth are instead portrayed as job losses and economic misery in Orwellian rhetorical gymnastics.

Increasing the government intrusion in the marketplace raises prices for consumers, decreases the size of the market (thus reducing economies of scale and specialization efficiencies), and distorts the market.  By contrast, reducing government taxation on trade opens new markets for American exports, lowers prices, increases innovation, promotes competition, and provides more choices for consumers.  Individuals choose what's best for themselves and their families, rather than the government deciding for everyone.  The benefits are well-documented, at least for those who prefer facts to polls, anecdotes, and demagoguery.

The Columbian Free Trade Agreement opposition is particularly difficult to understand -- Columbian products already enter the United States tariff-free!  The effect of the Columbia FTA would be to lower Columbian tariffs on American products, opening new markets to goods and services produced in America.  The benefit to Columbia?  Of course, there's the usual benefits mentioned above:  lower prices and more choices for consumers.  But there's also another carrot:  the current trade benefits accorded under the Andean Trade Promotion Agreement must be re-qualified periodically; the Columbian FTA would make the agreement permanent.

Democrats often accuse Republicans in general, and President Bush in particular, of a "go-it-alone" philosophy when dealing with foreign affairs.  Yet free trade agreements are the ultimate partnership between nations, as each nation becomes truly invested in the success of the other while at the same time promoting its own prosperity.  Often, labor and environmental laws are used as an excuse for thwarting trade deals, yet these are typically quite easily negotiated into the deal.  On a more fundamental level, they are almost inherent in a free trade agreement with the United States, as countries become more mindful of worker and ecological protections as they become more prosperous, and workers become more empowered to seek better working conditions when there is more competition for their services.  Citizens become more mindful of environmental issues when they become property owners and when property rights are respected and promoted.  Trade and commerce promote all of these things in a free society.

So in the face of economic evidence that shows free trade to be a benefit to American consumers, from whence comes the anti-trade sentiment?  Perhaps Senator Obama put his finger on it in his now-famous speech at a San Francisco fundraiser, when he said that when Americans "get bitter, they cling to ... anti-trade sentiment as a way to explain their frustrations.”  Let us hope that Sens. Obama and Clinton get over their bitterness, or whatever is fueling the anti-trade fervor,  and return to sound principles of free market capitalism.

As the debate continues over trade in the US presidential campaign, again and again we are told stories of shuttered factories and lost jobs.  To make it even more personal, the "story" of a particular individual, sometimes named, sometimes not, is told in soft, sympathetic tones.  The moral of the story, of course, is that this hard working American would still have a job if it weren't for the ravages of trade deals, whereby the evil corporations were able to "ship jobs overseas" to be worked instead by lower-skilled, cheaper workers.  It all sounds so heart-wrenching.  Some politicians appeal to the national pride instinct, claiming that trade deals result in exchanging good-paying factory jobs for lower-paying jobs in the service sector; they argue that we are losing our ability to produce "stuff", as well as make an honest living.

The truth, however, conflicts with the message of these stories.  Typically, when a politician deals in anecdotes instead of broad facts, it is because the facts don't support the politician's claims; such is the case when speaking of trade and manufacturing.  While the percentage of manufacturing workers in the US has decreased, manufacturing output has increased, as shown in the following chart produced by the Federal Reserve:



So based on the facts, we are producing more goods, just requiring fewer workers to do so.  That would seem to be a good thing -- we're increasing efficiency and productivity.  If we were losing jobs due to simply moving them to another country of origin, there would be a corresponding drop in manufacturing output.  Instead, we see that not only has manufacturing increased since the passage of NAFTA, it has increased at a greater rate than any other time in the past 50 years, stalled only by the min-recession of 2000 and the aftermath of 9/11.

Trade increases the size of the market into which businesses and industries can sell, as well as increases the number of choices for consumers.  Protectionist trade policies only serve to "protect" favored businesses from having to compete, from having to produce goods and services that people want at competitive prices.  Restricting trade promotes government corruption, as special interests seek to influence the government to protect a particular business or sector.  Restricting trade ultimately can promote war, as there is a financial and economic disincentive to destroy one's best customer.

Those are the facts; let's hope that pulling on the "mind strings" is a stronger endeavor than pulling at the "heart strings":  let's hope that facts win out over anecdotes.

On the CNBC show Kudlow & Company today, Teamsters Union President James P. Hoffa decried the Columbian Free Trade Agreement that is currently stalled by Congress.  Following the usual protectionist playbook, he spoke of jobs "shipped overseas", and followed up his broad-based assertions with heart-moving anecdotes of specific factories that have been shuttered, like a York Peppermint Patty plant in Pennsylvania, somehow because of decreased taxation on American imports and exports.  He accused NAFTA of being an economic detriment, decried the so-called "trade deficit", and pledged to work to stop other free trade agreements in their tracks as well as renegotiating current trade pacts; in short, he advocated a return to the policies of the Herbert Hoover Administration.

Host Larry Kudlow had no wrenching stories of single mothers or unemployed workers, but did have interesting facts at his disposal -- the usual recitation of the benefits of trade on the US economy:  25 million jobs created since NAFTA was passed, increases in exports and manufacturing output.  But in addition to the usual litany of free trade benefits, he had a silver bullet especially for Hoffa:  since the passage of NAFTA, trucking volume, a measure in which a Teamsters leader should be highly interested, has skyrocketed.

It is well-established and basically undisputed that exports create jobs and prosperity -- exported goods are produced by American workers, shipped on American trucks, and sold overseas.  Of course, rarely is any product exclusively made in any country -- "Made in America" products most likely contain components made in other countries from materials mined or produced in yet another locale -- but the debate on trade doesn't involve the economic value of exports.  Rather, it is the economic impact of imports around which the debate revolves.  If exports create jobs, the protectionists claim, then it just stands to reason that imports destroy jobs.

Fortunately, this isn't the case.  If a consumer, whether an individual, family, or business, purchases an imported commodity, service, or product, it is because the purchased item was more efficiently made elsewhere.  Whether the advantage is price, quality, or some combination of both, the consumer is making the choice to purchase the imported product based on some advantage it has relative to one domestically produced.  Cheaper toys or food means more money for families to spend on a college fun, retirement, or a vacation.  Of course, there can be localized losses -- cheaper steel imports can take business away from domestic steel factories; however, that increased efficiency in the steel market promotes construction, as well as potentially leading to greater innovation in the domestic steel market as a response to the competition.  But Kudlow's trucking numbers illustrate another point about imports:  if people are going to buy imported commodities and products, just like exports, they have to be shipped from the ports to the consumers.  And if families and businesses are spending less on individual items, chances are higher that they'll purchase more total items -- thus more items that need to be shipped.  The head of the Teamsters Union, ostensibly worried about maintaining business for the trucking industry, should be advocating more trade, not less.

Of course, phrases like "increased productivity", "market competition", and "trucking index appreciation" don't strike the same chord as images of shuttered factories, hungry children, and dilapidated warehouses.  Who needs to bother with facts, when heart-stirring anecdotes can sway voters in an election?

Politicians love spending money.  Ronald Reagan's famous quip was that saying government spends like a drunken sailor was an insult to drunken sailors -- at least they are spending their own money, while the government is spending ours.  So while the government is coming up with schemes to fund, they are counting on forcing the taxpayers to foot the bill, regardless of whether or not an expenditure is effective, efficient, or even worthwhile.

Even worse than the idea that politicians take the first fruits of our labors to spend at will and whim is the attitude of many that they are justified in doing so and need not answer to the sources of their funding.  To many, those of us who wish to send less of our money to Washington (or the state capital) and spend more of it on our own families are "greedy"; some even claim that we don't even "deserve" our own paychecks.  We are taxed on our labors, we are taxed on our investments, we are taxed on our savings, we are taxed on our purchases, we are taxed on our profits, and then we are taxed when we die.

All this taxation serves a government that spends our money without regard to success.  As Judge Janice Rogers Brown has noted, "[g]overnment is the only enterprise in the world which expands in size when its failures increase."  Consider that rarely does a government program or tax get cut, much less eliminated, especially if it fails miserably in its stated goal, or if the stated need to be addressed no longer exists.  One such example is the telecommunications tax that was enacted to fund the Spanish American War in 1898; the tax was finally repealed -- over 100 years later.  If a government program doesn't seem to be working, instead of cutting or reforming it, the government typically responds by [i]increasing[/i] funding.  Consider the Rural Utilities Service, started during FDR's New Deal -- do we really still need a government program to ensure that rural areas get electricity(assuming it was ever a good idea)?

According to the conservative Heritage Foundation, the federal budget contains 342 economic development programs, 130 different programs serving at-risk youth, 130 more programs for the disabled, 75 different programs supporting international educational and exchanges, and 72 different clean water programs.  Assuming for a second that each of these is a valid function of the federal government; could perhaps some of these programs be consolidated, cutting staff and bureaucracy?  When was the last time these programs were reviewed for effectiveness?  The Heritage Foundation also details $60 billion in corporate welfare, and up to $30 billion in agriculture subsidies (the majority of which go to large agribusiness firms as well as rich celebrities like Ted Turner and the late disgraced Enron CEO Ken Lay).

Even the tax code itself is often used as a government program; specialized, "targeted" tax breaks allow the government to reward activities and behavior it finds good at the expense of others, rather than trying to simply persuade individuals and businesses to act in a certain way and lowering taxes for everyone.  Buying a house might be a good financial decision for many; however, should people who prefer to rent be forced to subsidize the purchase?  State taxes can be written off on the federal income tax return, effectively meaning that people living in states with low tax burdens partially subsidize the tax bills for those residents of high-tax states.  Nearly everyone knows smoking is bad for one's health, but rather than ban tobacco, the government turned it into a cash cow by ramping up cigarette taxes. 

Rather than putting the onus on "greedy" and "undeserving" individuals, the government should be forced to justify every cent confiscated from its citizens.  The first test any government expenditure should be forced to pass is this:  is this program authorized by the Constitution?  If not, it should not be funded by the federal government.  If truly necessary, then the program or function should be delegated to state or local governments; if truly necessary, then a Constitutional amendment can be proposed to add it to the federal government's list of responsibilities.  But if the government is funding an activity or program, they should at least be looking to see if the program duplicates other existing programs, is effective, and is efficient.

When putting together an annual (or monthly, or even weekly) budget, most individuals, families, and businesses perform at least a perfunctory review of expenses and decide whether or not a particular good, service, activity, or employee is still necessary; it isn't automatically added to the list unless it meets certain criteria.  Not so the government:  each item is "baselined" with an automatic increase year-to-year.  Thus, a budget "cut" most often means that a particular program was actually increased, just at a lower rate than had been previously baselined.  Let's say a person eats sushi once a week, but plans to start eating sushi three times a week when he gets his next raise; the raise comes, and he decides instead to increase his visits to the sushi place only to twice a week instead of thrice:  by the government's method of accounting, he has actually cut his sushi intake, in spite of the total consumption increasing by 100%!  This is how politicians can claim to be "fiscally responsible" while government spending keeps increasing at rates faster than inflation.

Instead, the government should start it's budgeting based on a "Zero Option":  each cabinet agency should have to build its budget from scratch -- from zero.  Every program should be forced to put together a budget that justifies every expense requested, based on the stated goals of the program and the estimated needs and independent of previous years' expenditures.  Each cabinet secretary should be tasked with ensuring that every program for which tax money is requested is not duplicated.  Instead of the "default" setting for government spending being an increase over the previous year's spending, the "default" is nothing at all.

The government creates no value itself:  it has to rely on money collected from individuals, families, and businesses to fund its service offerings.  Those entities have no choice in whether or not they can comply; the government has the power of force, the power of a gun, to compel compliance.  With that power should come the responsibility to justify every confiscation, to prove that the government "needs" and "deserves" the money taken.  It's OUR money, not the government's.  Implementing the Zero Option would emphasize that fact and help the politicians remember that crucial point.

The venerable taxpayer advocate group Citizens Against Government Waste puts out a list each year detailing the wasteful projects on which our Senators and Representatives are spending the money they confiscate from our paychecks each week.  The list details the "pork barrel" projects, commonly called "earmarks", that are largely serving a local or special interest, are not ever discussed in hearings or committee meetings, not competitively awarded, and are typically inserted into spending bills by an individual member of Congress.  Recipients of earmarks have included such things as a Teapot Museum, The Lobster Institute of Maine, space alien watch programs, and the now-infamous "Bridge to Nowhere" in Alaska.

The 2008 "Pig Book" was released this week, and it provides valuable information about our elected officials and how the respect (or lack thereof) they have for the money taken from their constituents.  So far in 2008, five senators have requested zero earmark projects:  Republicans DeMint, McCain, and Coburn, and Democrats Feingold and McCaskill.  The top ten worst Senate offenders, led by Republican Thad Cochran of Mississippi, added over $4 billion in spending to our budget; widen the scope to the top 15 offenders, and over $6 billion of the fruits of our labors were spent cavalierly by those Senators on projects in their respective states -- projects that were never scrutinized on the merits, never discussed on the floor of the Senate, never requested by the executive branch.  On the House side, there are 10 members who received no earmarks this year, and the worst 10 spenders "only" cost us about $1.4 billion.

Of course, beyond the mere earmarks are many other projects benefiting special and local interests that receive our federal tax dollars.  Some of the projects are no doubt worthy of support, like local libraries and public mass transit systems; however, shouldn't a local library or bus line be the responsibility of the local community benefiting from the service?  If Houston wants to expand its Metrorail service, regardless of whether or not it is a good idea shouldn't matter to the federal government; a taxpayer in, say, Toledo shouldn't be footing the bill for a Houstonian's train ride.  I certainly believe public libraries provide an important service; however, I shouldn't be asked to pay for a library in, say, Bakersfield. 

Businesses and industries benefit from our money as well.  Rather than requiring businesses to provide goods and services people wish to purchase in order to remain in business, "corporate welfare" -- special subsidies and protections for businesses -- are rampant in our federal budget.  The Department of Commerce is chock-full of corporate welfare programs.  Granted, there are some valid functions within the Commerce Department:  the Census Bureau, the National Institute of Standards and Technology, and the Office of Patents and Trademarks administer functions of the federal government specifically defined within the Constitution.  I believe a pretty good case can be made as well for the National Oceanic & Atmospheric Administration and for the Economic & Statistical Analysis division.  But those functions together equal only about 50-60% of the $9.25 billion budgeted to the Department in Fiscal Year 2009, and that's assuming there aren't subdivisions within those valid divisions that could be cut.  Add to that top-line programs like the Emergency Steel Guaranteed Loan Program, Minority Business Development Agency,  National Telecommunications and Information Administration, and, yes, the Emergency Oil & Gas Guaranteed Loan Program (at a time of record oil & gas prices!) all sound like they are rife with corporate special benefits.  Keep in mind this is only one cabinet agency; the Department of Agriculture spends billions more on corporate handouts, some of which serve as a double whammy:  they charge your tax money to support higher food prices for families and individuals.

Ultimately, the key to all of this is a simple concept:  every dollar spent by the government is a dollar taken from taxpayers.  Every dollar paid in taxes to the government is involuntary, and is a dollar that families and individuals don't have to spend on clothing, food, education, health care, and investing for retirement.  The bottom line:  it's OUR money, and by not treating our money with respect, politicians are not treating us with respect.  We deserve better; we should demand it.