What is globalisation?
One can be sure that virtually every one of the 2822 academic papers on globalisation written in 1998 included its own definition, as would each of the 589 new books on the subject published in that year.
Many see it as a primarily economic phenomenon, involving the increasing interaction, or integration, of national economic systems through the growth in international trade, investment and capital flows.
However, one can also point to a rapid increase in cross-border social, cultural and technological exchange as part of the phenomenon of globalisation.
The sociologist, Anthony Giddens, defines globalisation as a decoupling of space and time, emphasising that with instantaneous communications, knowledge and culture can be shared around the world simultaneously.
A Dutch academic who maintains a good website on globalisation, http://globalize.kub.nl/ Ruud Lubbers, defines it as a process in which geographic distance becomes a factor of diminishing importance in the establishment and maintenance of cross border economic, political and socio-cultural relations
Left critics of globalisation define the word quite differently, presenting it as worldwide drive toward a globalised economic system dominated by supranational corporate trade and banking institutions that are not accountable to democratic processes or national governments.
Globalisation is an undeniably capitalist process. It has taken off as a concept in the wake of the collapse of the Soviet Union and of socialism as a viable alternate form of economic organisation.
Try this: Globalisation is the rapid increase in cross-border economic, social, technological exchange under conditions of capitalism.
Simon Reich also explores this question in a working paper for the Helen Kellogg Institute for International Studies at the University of Notre Dame
"What is globalization? Four Possible Answers", Working Paper #261 - December 1998 - that is downloadable at www.nd.edu/~kellogg/WPS/261.pdf
A comprehensive and regularly updated bibliography on all aspects of the political economy of globalization compiled by Douglas Nelson of the Murphy Institute of Political Economy at Tulane University can also be found at www.tulane.edu/~dnelson/BIBS/GlobalBib.pdf
It attempts to characterize globalization, and its effects on poverty, the environment, gender, culture, and political structure and dynamics.
David Held and Anthony McGrew write in their entry for Oxford Companion to Politics that globalisation can be conceived as a process (or set of processes) which embodies a transformation in the spatial organization of social relations and transactions, expressed in transcontinental or interregional flows and networks of activity, interaction and power.
Their detailed conception of globalisation can be found at the site supporting their book, Global Transformations, at www.polity.co.uk/global/
For more extensive discussion of globalisation after September 11 see the links in http://www.globalisationguide.org/sb02.html
When did globalisation begin?
There is no agreed starting point, but understanding of globalisation is helped by considering the following.The first great expansion of European capitalism took place in the 16th century, following the first circumnavigation of the earth in 1519 to 1521.
There was a big expansion in world trade and investment in the late nineteenth century. This was brought to a halt by the First World War and the bout of anti-free trade protectionism that led to the Great Depression in 1930. Some see this period as an interruption to the process of globalisation commenced in the late 19th century.
A sense that the world was united was generated by the establishment of the International Date Line and world time zones, together with the near global adoption of the Gregorian calendar between 1875 and 1925. During that period, international standards were also agreed for telegraphy and signalling.
The end of the Second World War brought another great expansion of capitalism with the development of multinational companies interested in producing and selling in the domestic markets of nations around the world. The emancipation of colonies created a new world order. Air travel and the development of international communications enhanced the progress of international business.
The fall of the Berlin Wall and the collapse of the Soviet Union ended the cold war between the forces of capitalism and socialism with capitalism triumphant. The development of the internet made possible the organisation of business on a global scale with greater facility than ever before.
An excellent paper exploring this, and other issues relating to globalisation, is written by Mauro Guillen, at The Wharton School and Department of Sociology at the University of Pennsylvania The paper, Is Globalization Civilizing, Destructive Or Feeble? A Critique Of Five Key Debates In The Social-Science Literature can be downloaded from:
http://knowledge.wharton.upenn.edu/show_paper.cfm?id=938
Politics and Black Americans
Dr. Thomas Sowell's recent column, "Republicans and Blacks," (April 10, 2008) pointed out the foolhardiness of Republican strategy to secure more black votes. He pointed out that it is a losing strategy to reach blacks through the civil rights organizations and black politicians. It's like a quarterback trying to throw a pass to a receiver surrounded by a bunch of defenders. The second losing strategy is to appeal to blacks by offering the same kinds of things that Democrats offer -- token honors, politically correct rhetoric and welfare state handouts.
Sowell suggests that Republican strategy should be to highlight the liberal Democratic agenda that has done great harm to the poorest of the black community. Among those he mentions is the environmental agenda where "tens of thousands of blacks who have been forced out of a number of liberal Democratic California counties by skyrocketing housing prices, brought on by Democratic environmentalists' severe restrictions on the building of homes or apartments." Since 1970, San Francisco's black population has been cut in half.
Then there are the liberal judges and parole boards who have turned criminals loose to prey on black communities. According to Bureau of Justice statistics, between 1976 and 2005, while 13 percent of the population, blacks committed over 52 percent of the nation's homicides and were 46 percent of the homicide victims. Ninety-four percent of black homicide victims had a black person as their murderer.
The Democratic leadership gives unquestioned support of teacher unions that have delivered near criminally fraudulent education. Professors Abigail and Stephen Thernstrom's book, "No Excuses: Closing the Racial Gap in Learning," reports that the average black high school graduate performs a little worse than white eighth-graders in both reading and U.S. history, and a lot worse in math and geography. Black education is the worst in cities where Democrats, both black and white, have held the reigns of political power for decades and in cities spending the largest amount of money on education. Washington, D.C., ranking third in the nation in terms of per-pupil expenditures, is a classic example. At 12 of its 19 high schools, more than 50 percent of the students test below basic in reading, and at some of those schools the percentage approaches 80 percent. At 15 of these schools, over 50 percent test below basic in math, and in 12 of them 70 to 99 percent do so. The National Assessment of Educational Progress (NAEP), which conducts periodic testing, defines "below basic" as not having any of the knowledge and skills to master a subject.
Both Democratic and Republican leaders give support to economic agendas harmful to poor black people. A particularly egregious example is New York City's taxicab licensing law that requires that a person, as of May 2007, pay $600,000 for a license to own and operate one taxicab. Then there's the Davis-Bacon Act that mandates "prevailing wages" be paid on all federally financed or assisted construction projects. The Davis-Bacon Act is a pro-union law that discriminates against non-unionized black construction contractors and black workers. In fact, that was the original intent of the Davis-Bacon Act of 1931. During its 1931 legislative debate, quite a few congressmen expressed their racist intentions, such as Rep. Clayton Allgood, D-Ala., who said, "Reference has been made to a contractor from Alabama who went to New York with bootleg labor. This is a fact. That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country." While today's supporters of the Davis-Bacon Act talk differently, its discriminatory effects are the same.
If a politician had the guts to take on these issues, it's stupid to address them through the black civil rights or education establishment, or the black political structure. The reason is that blacks who are members of, or are served by, these establishments have an interest in the status quo.
Free Google, Microsoft and Yahoo! From Antitrust Fascism
Yahoo! has just released its first-quarter earnings numbers, and neither the market nor analysts are impressed. What will be the company's next move? Multiple suitors claim that they can leverage Yahoo!'s online products and talented employees better than Yahoo!'s widely criticized management is doing. The leading bidder is Microsoft, whose $40 billion offer it is prepared to take directly to Yahoo! shareholders via a proxy fight. Other proposals said to be in the running are an advertising collaboration with Google, a merger with AOL, and a possible deal involving News Corp (including MySpace).
The stakes are high. The right move could lead Yahoo! to a new level of innovation and profit, while the wrong move could cause the company's value to plummet.
Unfortunately, the fate of Yahoo! will not be determined simply by who makes the best proposal to shareholders--but by whose proposal antitrust bureaucrats arbitrarily deem sufficiently "competitive."
Consider the Microsoft bid. If Yahoo! shareholders decide the Microsoft bid is best for their company, and want to move forward immediately with the challenging task of combining two companies with thousands of employees, they may be prohibited from doing so. Antitrust enforcers could hold up progress for months deliberating whether the merger is "anticompetitive"--and then possibly kill it altogether. Competitor Google is cheerleading this outcome, claiming on its official blog that "Microsoft plus Yahoo! equals an overwhelming share of instant messaging and web email accounts. And between them, the two companies operate the two most heavily trafficked portals on the Internet."
But a Microsoft and Yahoo! combined market share offers no threat to competition whatsoever--a fact that search-giant Google should know, given that the once-puny company was able to out-compete the once-dominant Yahoo! and the mighty Microsoft. Whether a market is competitive is not determined by the number of competitors or the percentage of customers that choose to buy their products; it is determined by whether companies are free to attempt to outdo one another to win over customers with superior products. The fact that someone is winning in a market by a large margin does not make the situation anti-competitive. It illustrates that competitive freedom has produced a company with superlative products.
Google, Microsoft, and Yahoo! have high market shares only insofar as their products are more appealing to consumers than are their competitors'. None of these companies, or any combination of two or even three of them, can force a single consumer to use its services instead of a more attractive search engine or web portal available--nor can it prevent competitors from outdoing it with superior products.
A Microsoft-Yahoo! combination could not threaten competition. To the contrary, it would be an act of free competition, an ambitious attempt by two companies to improve their products by combining strengths. What would actually stop competition would be to prevent the shareholders of these companies from making a move they regard as vital to their success.
The threat of antitrust prosecution is also impeding Google's own efforts to make a deal with Yahoo!. Google has proposed that Yahoo! outsource its search advertising to Google, a move that some analysts say could boost Yahoo!'s ad revenue by 25 percent. Unfortunately, if Yahoo! agrees to the deal, the government will likely kill it because, once again, the companies have a high combined market share. According to Reuters, "Antitrust experts said regulators would likely oppose any permanent alliance between Google and Yahoo." And, just as Google is calling Microsoft's bid anti-competitive given its market share, Microsoft is saying the same of Google: "Any definitive agreement between Yahoo and Google would consolidate over 90 percent of the search advertising market in Google's hands," Microsoft's general counsel complained. "This would make the market far less competitive."
In reality, no deal between Google and Yahoo! is a threat to anyone besides inferior competitors; neither company can force even one person to click on http://www.google.com/. Yahoo! should be able to field and accept any offer from Google it chooses--including a full-blown acquisition. Indeed, it is very possible that if cash-rich Google were not terrified of antitrust prosecution, it, like Microsoft, would try to acquire Yahoo! outright. Such a deal might be Yahoo! shareholders' best option and make possible a whole new level of Internet content--but under antitrust, it won't even come to the table.
What we are observing in the battle over Yahoo! is not genuine, merit-based competition, but competition based on political pull. He who cajoles antitrust bureaucrats to endorse his deal and stop his competitors, wins.
Instead of attempting to outdo one another in crying to the government, Google and Microsoft should take a principled stand in favor of open competition for Yahoo!--a competition in which the company's fate is decided by who makes the best business proposal and not who has the craftiest lobbyists and lawyers.
More broadly, they--and we--should call into question the antitrust laws that make competition-by-pull possible.
Congressional Problem Creation: There Still is No Free Lunch
Most of the great problems we face are caused by politicians creating solutions to problems they created in the first place. Politicians and a large percentage of the public lose sight of the unavoidable fact that for every created benefit, there's also a created cost or, as Nobel Laureate Milton Friedman put it, "There's no free lunch." While the person who receives the benefit might not pay or even be aware of the cost, but as sure as night follows day, there is a cost borne by someone. Let's look at a couple of congressionally created problems.
The Community Reinvestment Act of 1977, whose provisions were strengthened during the Clinton and Bush administrations, is a federal law that mandates or intimidates lenders to offer credit throughout their entire market and discourages them from restricting their credit services to high-income markets, a practice known as redlining. The Community Reinvestment Act encouraged banks and thrifts to make so-called "no doc" and "liar" loans to customers who had no realistic ability to pay them back. A decade of monetary expansion by the Federal Reserve Bank, contributing to the housing bubble, encouraged lending institutions to take risks they otherwise would not have taken. Government actions created the subprime crisis and now government-proposed "solutions," such as foreclosure holidays, bailouts and further regulation of financial institutions, to the problems they created will create more problems.
Congress, doing the bidding of environmental extremists, created our energy supply problem. Oil and gas exploration in a tiny portion of the coastal plain of Alaska's Arctic National Wildlife Refuge would, according to a 2002 U.S. Geological Survey's estimate, increase our proven domestic oil reserves by approximately 50 percent. The Pacific and Atlantic Oceans and eastern Gulf of Mexico offshore areas have enormous reserves of oil and natural gas. These energy sources of oil have also been placed off limits by Congress. Because of onerous regulations, it has been 30-plus years since a new refinery has been built. Similar regulations also explain why the U.S. nuclear energy production is a fraction of what it might be.
Congress' solution to our energy supply problems is not to relax supply restrictions but to enact the Energy Independence and Security Act of 2007 that mandates that oil companies increase the amount of ethanol mixed with gasoline. Anyone with an ounce of brains would have realized that diverting crops from food to fuel use would raise the prices of a host of corn-related foods, such as corn-fed meat and dairy products. Wheat and soybeans prices have also risen as a result of fewer acres being planted in favor of corn. A Purdue University study found that the ethanol program has cost consumers $15 billion in higher food costs in 2007 and it will be considerably higher in 2008. Higher food prices, as a result of the biofuels industry, have not only affected the U.S. consumer, they have had international consequences as seen in the food riots that have broken out in Egypt, Haiti, Yemen, Bangladesh and other nations.
What's the congressional response? On May 1, Sen. Charles Schumer, D-N.Y., chairman of the Joint Economic Committee, convened a hearing on rising food prices saying, "The anxiety felt over higher food prices is going to be just as widespread, and will equal or surpass, the anger and frustrations so many Americans have about higher gas prices." Congress' proposed "solutions" to the energy and food mess they've created include a windfall profits tax on oil companies, a gasoline tax holiday for the summer, increases in the food stamp program and foreign food aid. These measures will not solve the problem but will create new problems.
Americans are rightfully angry about higher energy and food prices but their anger should be directed toward the true villains -- the Congress and the White House.
Anatomy of a Beltway Smear Campaign
During the past two years, while my nomination to the Federal Election Commission was pending – and before I withdrew last week – friends would call whenever the latest newspaper story or blog post attacking me was planted by political operatives and left-wing advocacy organizations.
They always asked the same question: Why was I putting up with the character assassination that has become the norm in Senate confirmation battles whenever a conservative is nominated for public office?
![[Anatomy of a Beltway Smear Campaign]](http://s.wsj.net/public/resources/images/OB-BM115_oj_von_20080519185522.jpg) |
| David Gothard |
In 17 years of practicing law I'd never been accused of ethical or professional lapses. Since my arrival in Washington, however, I've been called corrupt and unethical, and labeled as everything from a Klansman to a Nazi (my last name seems to generate that latter pejorative) for my work at the Department of Justice.
All of these charges were levied because I dared to take a different view of the law than the political left in the area of civil rights, voting and election law. Those outside Washington cannot conceive how far advocacy organizations, party activists and congressional staffers are willing to go to personally destroy anyone who doesn't agree with their political agenda.
In 2001, I joined the Justice Department as a career lawyer in the civil rights division. True enough, I had been warned the division was a cauldron of left-wing political activism. In fact, in a 1990s redistricting case, a federal judge criticized the career lawyers of the division for behaving like the in-house counsel of the ACLU. He said that "the considerable influence of ACLU advocacy on the voting rights decisions of the United States Attorney General is an embarrassment."
The reputation of the division was well-deserved. From the very first day on the job it was clear that my new colleagues were offended by my presence. Indeed, I eventually learned from a few friendlier lawyers in the division that it was a miracle I had been hired: The career staff would discard qualified applicants if they saw anything that suggested conservative leanings.
A number of former career lawyers in the division very publicly criticized my nomination to the FEC in 2006. Their criticisms were trumpeted by the media. While the stories always portrayed these critics as "nonpartisan" professionals, nothing could be further from the truth.
The legal work I saw from these and other lawyers in the division was distorted by politics and partisan policy views. They often misrepresented the facts and applicable law in order to manipulate the division's political appointees.
Take, for example, a Mississippi case in which the Justice Department ultimately won a judgment against local officials for blatant and intentional discrimination to deny voters their right to vote. The chief of the voting section, Joseph Rich, deleted the recommendation to file a lawsuit from the original memorandum prepared by the investigating attorney that summarized the case. Why? Because this case involved discrimination by black officials against white voters. According to lawyers involved in the case, Mr. Rich did not believe the Voting Rights Act should be used to protect white voters against racial discrimination.
In a 2003 Texas redistricting controversy, the recommendations of Mr. Rich and his lawyers to object to the Texas plan exactly paralleled the claims of the attorney representing the Democratic plaintiffs in a later lawsuit against the state. The attorney was formerly in the civil rights division of the Justice Department.
I opposed their objections, because they were clearly wrong under the facts and the applicable law. A federal court had already determined that under the Voting Rights Act there were only eight protected majority-minority congressional districts in Texas. Mr. Rich and his colleagues tried to claim that there were 11. But the claims were specious, and were only put forth to help the Democratic Party.
I have been relentlessly attacked over the past two years for my stance in that Texas redistricting controversy, and for the Justice Department's preclearance, under the Voting Rights Act, of a voter ID law from Georgia. But the Supreme Court and other federal courts have made it quite clear that the Justice Department reached the correct legal conclusion in both cases. The opinions of the career lawyers in those cases were rejected for good reason; as I held all along, they were legally wrong.
I explained all of this in great detail in materials I provided to the Senate after my confirmation hearing in June 2007. No matter; the reasoned – and undisputed – legal explanation was ignored by the left, the media and the Democratic Senators trying to stop my confirmation. Yet I am still being called a racist and a "vote suppressor" because I agree with the Supreme Court on the constitutionality of voter ID laws.
The Bush administration filed more voting-rights lawsuits in its first five years than the Clinton administration filed in its last five years. And we did so without having over $4 million in attorneys' fees levied against us for filing frivolous discrimination claims, as occurred during that administration.
I do plead guilty to this: bringing to the attention of superiors at the Justice Department the legal manipulations of ideologues in the Civil Rights Division who passed themselves off as professional civil servants while carrying water for their friends and allies in left-wing organizations like the ACLU. Had I kept silent, I would likely be in a far different position than I am today. But I did not, and those I butted heads with have their revenge.
My own hard feelings will pass. But the political system has been damaged once more by the poisonous tactics of the left, and there is no reason to think that the whole sorry spectacle will not be repeated again and again and again. So long as such tactics are accepted and even encouraged by politicians and the media, it will become harder and harder to find ordinary citizens willing to submit to the character assassination that now passes for our confirmation process.
Europe's Soft Powerlessness
FROM TODAY'S WALL STREET JOURNAL EUROPE
Any dictator concerned about Western condemnation of his actions could learn a lot from Uzbekistan's President Islam Karimov. Tashkent's strongman, with some help from Berlin, has just outmaneuvered the European Union to get the sanctions against his regime lifted.
Three years ago, the EU agreed on an Uzbek arms embargo and visa bans against top regime officials involved in the brutal crackdown on demonstrators in the eastern city of Andijan. No one can be sure how many men, women and children were killed on May 13, 2005, when security forces opened fire on the crowd. The authorities never allowed an independent inquiry. But conservative estimates suggest some 750 people died that day.
In fact, an independent investigation was one of the key conditions the EU had set for lifting the sanctions imposed in response to the mass killings and the torture, forced confessions and show trials that followed. It was an all-too-rare case of the EU taking the international lead on a tough foreign policy issue. The U.S. never even got as far as sanctions.
Sadly, European nerves didn't hold up. In late April, the EU suspended the sanctions for a second six-month period. Set to expire altogether in October, the sanctions are now as good as dead. Of course, the EU didn't get its independent investigation into Andijan, or any of the other demands it made in 2005. Instead, EU foreign ministers justified their action by saying Uzbekistan had made progress in human rights. This was based on the slimmest evidence imaginable.
Tashkent had, they said, abolished the death penalty and adopted international standards against child labor. These were only paper promises, however, and we have yet to see their actual implementation. Let's wait for autumn, when the regime will no doubt begin its annual drive of forced child labor. Tens of thousands of children are taken out of school for months at a time to pick cotton which provides $1 billion a year for the regime but little or nothing -- certainly not education -- for the kids.
EU foreign ministers also praised Tashkent for releasing a handful of human-rights activists even as thousands of prisoners of conscience remain behind bars.
Europe's chief diplomats were also very excited that Tashkent agreed to an EU-Uzbekistan "human rights dialogue -- media democratization seminar." I am one of the 15 people the EU invited to this meeting and I would welcome the opportunity to call for press freedom in Tashkent, something my Uzbek colleagues could never do.
However, I am skeptical the seminar would achieve much. To propose a discussion on media democratization in a country that has never had an independent media, where censorship is all-pervasive and countless journalists are in prison or exile, is the height of ineffectual rhetorical gesture. But it probably won't even happen anyway. Just after the EU suspended the sanctions, Tashkent -- surprise, surprise -- refused to confirm the seminar's date, which they had earlier agreed to. The meeting has now been "postponed" indefinitely.
If any one EU member state deserves credit for this foreign-policy failure it is Germany. From the start, Berlin has worked against sanctions and then pushed to weaken them with a determination and effectiveness that would be the envy of any paid lobbyist Tashkent could ever hope to hire.
Perhaps this sounds an odd political approach for a country whose experience with two dictatorships in the 20th century gives it a greater obligation than most to speak out against authoritarianism. But Germany has been willing to sell out its own and European values for two misguided reasons. The first is that Berlin seems to harbor the unrealistic hope that Uzbek gas could make a real contribution to the diversification of European energy supplies. But the Central Asian country's gas reserves are much lower than Tashkent suggests. What's more, getting them to Europe would be costly, not to mention risky given the country's instability.
That's why even with the proposed Nabucco pipeline -- designed to link Europe to Azerbaijan and hopefully one day to a second pipeline to Central Asia -- no one in the industry has suggested feeding Uzbek gas into this new network. In any case, Uzbekistan's gas exports currently go to Gazprom.
The second is a military base Germany has in the southern Uzbek city of Termez, which it uses for its operations in Afghanistan. Since earlier this year, other NATO members have also been able to use Termez.
But the base's military significance hardly justifies supporting an authoritarian regime. Tashkent's violence against its own people only erodes the kind of regional stability the NATO mission is designed to encourage in the first place.
European foreign policy has been made to look foolish by establishing a principled stand only to surrender those same principles in a couple of short years. The humiliation is compounded by the timing. The suspension of the sanctions comes just weeks ahead of the anniversary of the massacre.
Berlin's maneuvers in support of the Karimov regime have done a huge discredit to the EU. The message this episode sends to other authoritarian rulers, such as in Belarus, Burma or Zimbabwe, is all too clear: You don't need to fulfill the conditions for the lifting of European sanctions. All you need to do is wait it out. The EU will back down soon enough. Soft power, indeed.
You Can't Soak the Rich
Kurt Hauser is a San Francisco investment economist who, 15 years ago, published fresh and eye-opening data about the federal tax system. His findings imply that there are draconian constraints on the ability of tax-rate increases to generate fresh revenues. I think his discovery deserves to be called Hauser's Law, because it is as central to the economics of taxation as Boyle's Law is to the physics of gases. Yet economists and policy makers are barely aware of it.
Like science, economics advances as verifiable patterns are recognized and codified. But economics is in a far earlier stage of evolution than physics. Unfortunately, it is often poisoned by political wishful thinking, just as medieval science was poisoned by religious doctrine. Taxation is an important example.
The interactions among the myriad participants in a tax system are as impossible to unravel as are those of the molecules in a gas, and the effects of tax policies are speculative and highly contentious. Will increasing tax rates on the rich increase revenues, as Barack Obama hopes, or hold back the economy, as John McCain fears? Or both?
Mr. Hauser uncovered the means to answer these questions definitively. On this page in 1993, he stated that "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." What a pity that his discovery has not been more widely disseminated.
![[You Can't Soak the Rich]](http://s.wsj.net/public/resources/images/ED-AH556B_ranso_20080519194014.gif)
The chart nearby, updating the evidence to 2007, confirms Hauser's Law. The federal tax "yield" (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%. This is what scientists call an "independence theorem," and it cuts the Gordian Knot of tax policy debate.
The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.
What happens if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser's Law says it will also lower tax revenue. That's a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice. It would surely be unpopular today with those presidential candidates who plan to raise tax rates on the rich – if they knew about it.
Although Hauser's Law sounds like a restatement of the Laffer Curve (and Mr. Hauser did cite Arthur Laffer in his original article), it has independent validity. Because Mr. Laffer's curve is a theoretical insight, theoreticians find it easy to quibble with. Test cases, where the economy responds to a tax change, always lend themselves to many alternative explanations. Conventional economists, despite immense publicity, have yet to swallow the Laffer Curve. When it is mentioned at all by critics, it is often as an object of scorn.
Because Mr. Hauser's horizontal straight line is a simple fact, it is ultimately far more compelling. It also presents a major opportunity. It seems likely that the tax system could maintain a 19.5% yield with a top bracket even lower than 35%.
What makes Hauser's Law work? For supply-siders there is no mystery. As Mr. Hauser said: "Raising taxes encourages taxpayers to shift, hide and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation."
Putting it a different way, capital migrates away from regimes in which it is treated harshly, and toward regimes in which it is free to be invested profitably and safely. In this regard, the capital controlled by our richest citizens is especially tax-intolerant.
The economics of taxation will be moribund until economists accept and explain Hauser's Law. For progress to be made, they will have to face up to it, reconcile it with other facts, and incorporate it within the body of accepted knowledge. And if this requires overturning existing doctrine, then so be it.
Presidential candidates, instead of disputing how much more tax to impose on whom, would be better advised to come up with plans for increasing GDP while ridding the tax system of its wearying complexity. That would be a formula for success.
Mr. Ranson is head of research at H.C. Wainwright & Co. Economics Inc.
The Democrats' Dangerous Trade Games
President Bush and the Democratic Congress are locked in fierce conflict over approval of U.S. free trade agreements with Colombia, Panama and South Korea. Presumptive presidential candidates Barack Obama and John McCain hold sharply different views on the merits of free trade and globalization. Whether we're prepared for it or not, a major national debate on these issues is looming for the fall campaign and beyond.
Meanwhile, our venerable House of Representatives, in the context of the Colombia agreement, has recklessly changed the rules for congressional action on trade legislation. By rejecting long-settled procedures that prevented congressional sidetracking of trade deals negotiated by presidents, the House has hamstrung U.S. trade policy and created the gravest threat to the global trading system in decades.
By effectively killing "fast track" procedures that guarantee a yes-or-no vote on trade agreements within 90 days, lawmakers in Washington, led by House Speaker Nancy Pelosi, have destroyed the credibility of the U.S. as a reliable negotiating partner.
Our unique constitutional system – under which Congress is responsible for "foreign commerce" but the president has authority to negotiate with other governments – has required the creation of special procedures to mesh with the parliamentary systems of other countries where executive and legislative branches almost always work together. Without arrangements that assure reasonably prompt congressional action on agreements negotiated by the president, other countries legitimately fear that Congress will simply let deals languish, or insist on further concessions.
The House was in fact doing both with respect to the pending agreements with Colombia and Korea, before the Bush administration forced the issue by submitting implementing legislation on the former. Facing such circumstances, other countries will not take on the domestic battles surrounding their own liberalization, and thus will not engage seriously with the U.S. in either multilateral or bilateral talks.
This is not theory but history. One of President John F. Kennedy's crowning achievements, the Kennedy Round of trade negotiations of the 1960s, was shorn of two of its major components by congressional refusal to even vote on them. That action unbalanced the agreement so severely that a furious European Community, our main trading partner then and now, made clear that it would never again negotiate with the U.S. without firm assurance against the recurrence of such an outcome. The other major trading nations took similar positions.
The result was the "fast track" process, embodied in trade legislation in 1974 and renamed Trade Promotion Authority in 2002. Under those rules, devised largely by Democratic legislators, Congress agreed to vote on trade agreements submitted by the president within a fixed period of time and without amending their terms, provided that Congress authorized the talks in advance and that administration trade officials consulted closely with the Hill throughout the process. This approach has enabled the U.S., under presidents and congressional majorities of both parties, to participate effectively in international trade negotiations.
The House action abruptly and unilaterally terminates this highly successful system. The immediate effect is to scuttle the pending free trade agreements with Panama and Korea, as well as Colombia, and to end any remaining prospect for an early conclusion of the Doha Round in the World Trade Organization.
The much more profound impact, however, is to remove the U.S. from any significant international trade negotiations for the foreseeable future. Current and former chief trade officials of three of the world's largest trading entities have told me that, since the House action, the U.S. has lost all credibility. In other words, the "time out" proposed for trade policy by one of the major presidential candidates – a central goal of the opponents of globalization – has already been called.
The U.S. will suffer severe economic and foreign policy costs if the House action is permitted to stand. Careful studies at our Peterson Institute for International Economics show that the U.S. economy is $1 trillion per year richer as a result of the trade liberalization of the past 60 years, and that we would gain another $500 billion per year if the world could move to totally free trade.
The European Union, and the large and dynamic economies of Asia, will now strike trade compacts among themselves that discriminate against the U.S. rather than do deals with us. Examples will likely include EU-India and EU-Korea, and eventually an Asia-wide trade area. We will lose billions of dollars worth of exports and the associated high-paying jobs – just at a time when improvements in our trade balance, fortified by continuing growth abroad and a highly competitive dollar, are cushioning our slowdown. The multilateral trade system, including the highly effective dispute settlement mechanism in the World Trade Organization, will erode further and weaken our ability to tear down barriers in China, India and other large emerging markets.
Most profound of all will be the impact on U.S. foreign policy. Any new administration, whether Democratic or Republican, will seek to reverse the perception of unilateralism inherited from its predecessor. But effective withdrawal from the international trading system moves us in the opposite direction. The next president will be very badly served by inheriting such a mess on trade.
It would help if Congress and the present administration could pick up the pieces and pass the Colombia agreement, and the pending Korea and Panama agreements as well. But the fundamental problem of U.S. international credibility on trade will remain until a foolproof Trade Promotion Authority, or some equivalent successor, is renewed in perpetuity.
This can probably be done only as part of a "grand bargain" that recognizes the costs as well as the huge benefits of liberalization, and thus includes a substantial expansion of governmental assistance to workers dislocated by trade.
In the absence of such a renewed foundation for an open and active U.S. trade policy, both our economy and our foreign policy will suffer severely.
Mr. Bergsten is the director of the Peterson Institute for International Economics.
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