Wharton School of Business on NAFTA

Despite Trump’s Wharton credentials, he seems to not share their view on free trade. The Wharton School of Business has a good article on the impacts NAFTA had on the United States. The article can be read here. Here are some of the highlights:

[T]wenty-five cents out of every dollar of goods that are imported from Canada to the U.S. is actually ‘Made in USA’ content, as are 40 cents out of every dollar for goods imported into the U.S. from Mexico… Mexico imports more from the U.S. these days than do all of the so-called BRIC nations combined – Brazil, Russia, India and China… [T]he United States has been $127 billion richer each year thanks to ‘extra’ trade growth fostered by NAFTA… And while the costs of NAFTA are highly concentrated in specific industries…the benefits of the trade pact (such as lower prices for imported electronics or clothing) are distributed widely across the U.S.

For example, according to a 2014 report by the Peterson Institute for International Economics (PIIE), the United States has been $127 billion richer each year thanks to “extra” trade growth fostered by NAFTA. ….the pure economic payoff was …$400 [per person].

…[S]ome 14 million jobs rely on trade with Canada and Mexico combined, and the nearly 200,000 export-related jobs created annually by NAFTA pay an average salary of 15% to 20% more than the jobs that were lost… [O]nly about 15,000 jobs on net are lost each year due to NAFTA… ‘[S]ince NAFTA’s enactment, fewer than 5% of U.S. workers who have lost jobs from sizable layoffs (such as when large plants close down) can be attributed to rising imports from Mexico… For every net job lost in this definition, the gains to the U.S. economy were about $450,000, owing to enhanced productivity of the workforce, a broader range of goods and services, and lower prices at the checkout counter for households


The Real Issue with Campaign Finance Reform

Bernie Sanders and Hillary Clinton constantly talk about campaign finance reform and overturning Citizens United, the infamous Supreme Court case that allows individuals and corporations to give unlimited campaign donations as long as it is done indirectly through a Super PAC. But Sanders and Clinton get it all wrong.

Now, there is no doubt that corruption exists in our government. Politicians vote “yes” and “no” on bills all the time in order to placate their donor base. For this reason, the argument for restricting campaign donations are seductive. However, we run into legitimate problems when we attempt to restrict campaign spending, like how Citizens United finally put an end to the two party party duopoly over campaign contributions and how campaign contributions are a form of political speech protected by the 1st amendment.

Beyond those two issues, there are other problems with campaign finance reform, such as the evidence suggesting restrictions on donations benefit incumbents at the expense of the challenger, meaning democracy may be limited after reform (also see the duopoly link, which argues Citizens United increases democratic diversity), and research by the Mercatus Center suggesting campaign finance reform does little to reduce corruption.

Either way, let’s assume Clinton and Sanders have it right: Campaign contributions are pernicious and the Citizens United ruling unjust. Is the case for campaign finance reform strengthened? Not really.

Economist Dan Mitchell has an interesting blog post up which I will excerpt below. I highly recommend readers go and check it out.

Mitchell quotes a NY Times article called the “Conservative Case for Campaign Finance Reform.” Here’s the crux of the argument:

big money in politics encourages big government. Campaign contributions drive spending on earmarks and other wasteful programs — bridges to nowhere, contracts for equipment the military does not need, solar energy companies that go bankrupt on the government’s dime… When politicians are dependent on campaign money from contractors and lobbyists, they’re incapable of holding spending programs to account. Campaign contributions also breed more regulation. Companies in heavily regulated industries such as banking, health care and energy are among the largest contributors. Such companies donate with the hope of winning narrowly tailored exceptions to regulations that help them and disadvantage their competitors

But, as Mitchell argues, the article misses the point. The NY Times article gets it mixed up. As Mitchell writes:

The sun doesn’t rise because roosters crow. It’s the other way around. What Mr. Painter fails to understand is that there’s a lot of money in politics for the simple reason that government has massive powers to tax, spend, and regulate.
Politicians in Washington every year redistribute more than $4 trillion, so interest groups have an incentive to “invest” money in campaigns so they can get some of that loot. Those politicians have created a 75,000-page tax code that is a Byzantine web of special preferences, so interest groups have an incentive to “invest” money in campaigns so they get favorable treatment. And the politicians also have created a massive regulatory morass, so interest groups have an incentive to “invest” so that red tape can be used to create an unlevel playing field for their advantage.

In other words, we don’t need to get money out of politics; we need to get politics out of money. Even assuming every claim Clinton and Sanders have said is true (and, as I noted above, most of them aren’t), the case in favor of campaign finance reform is weak, at best, and at worst, doing little to solve the problem while trampling on the first amendment rights of thousands of Americans.

Is There a “Democratic Deficit” In The United States?


The short answer to that is no, though the New York Times’s recent answer to that was yes. The recent article is very well written and interesting, but I think the influence money has over politics has been overblown and the proposals the author (Michael Lind) proposes would make the problem worse.

Lind’s thesis is effectively this: “Politicians chosen by membership-based mass parties have been replaced by politicians selected by donors and sold by advertising to voters. … The need for candidates to raise large sums of money to run for office effectively screens out Republicans and Democrats whose views differ from those of the donor class, even if those views are popular with conservative or progressive voters.”

While it is true that fundraising is important in elections, being able to raise large amounts of money doesn’t ensure victory by any means. If so, Jeb Bush, Ted Cruz, Marco Rubio, or Scott Walker would have won the primary (Walker had raised a large amount, comparatively speaking, at the time he dropped out). Not only that, but Lind forgets that campaigns that are popular with the base or have strong levels of support—like Ben Carson and Bernie Sanders—have done very well in fundraising from small donors, and Sanders occasionally out-fundraised Hillary Clinton during certain months, despite her strong connections to Wall Street. So Lind’s claim that candidates popular with the base have fundraising difficulties is simply incorrect.

Now, I am not saying campaign spending is unimportant—to a certain degree, it is—but in general campaign contributions seem to have little effect on electoral outcomes.

What I will say, however, is that I think Citizens United—the infamous Supreme Court case that protected unlimited campaign contributions to Super PACs—made democracy better.

Lind seems to think the donor class is some monolithic group with no differing opinions—that is why he says candidates can’t win if their views “differ from those of the donor class.” But, just like any demographic, there is ideological diversity among the wealthy.

Bill Gates, George Soros, and Warren Buffet generally lean to the left (and even then, to varying degrees); the Koch brothers lean libertarian and Shelden Adelson is a foreign policy hawk. Foster Friess, a wealthy Santorum backer, is extremely social conservative whereas Paul Singer, another conservative billionaire, is avidly fan of gay marriage. Wealthy donors disagree with each other, and that’s why unlimited campaign donations have made the system more democratic, not less.

See, before Citizens United, the two parties (Democrats and Republicans) had a duopoly over the donation system. An extremely interesting article by Foreign Affairs explains this in depth. Essentially, the authors argue it all began with the passage of FECA, the Federal Election Campaign Act, whose goal was to increase party influence over the donation system.

FECA limited the amount individuals could donate to specific candidates. Donations to congressional candidates were capped at $1,000 but were capped at $10,000 for political parties, giving parties ten times the campaign donation size. Donations to individual candidates were limited but donations to political parties exploded, meaning the parties had full control over the system.

Now, post Citizens United, Super PACs exist for everything. Every interest group can set them up, and now billionaires—who are an ideologically diverse group (and likely more diverse than most other groups)—can donate to any cause they like. The Kochs, Adelson, Friess, and Singer no longer need to all donate to the GOP; they can donate to any candidate (or cause) they like, with no cap, for any reason. Soros, Goldman Sachs, Gates, and Buffet can donate to any cause they like, too—they no longer have to donate to the party in order to get their thoughts across.

This means more individuals—not fewer—have access to funds than before. Lind doesn’t even mention this two party duopoly over the election contribution system. Citizens United, and the money and “special interest groups” Lind attacks has made the political realm more diverse, not less.

Lind makes many interesting points and I highly recommend reading the article. But, in my opinion—and it’s just that, my opinion—I think he is wrong. Limiting the amount of money in politics has the potential to reduce political diversity, not make it any better.