My former co-clerk (now Hofstra Law prof) Ron Colombo asked that I pass along information on an upcoming symposium at Hofstra Law School. The symposium, Regulation of Currency Exchange and Its Impact on International Business, will be held at Hofstra on February 8. The keynote speaker will be Walter Lukken, Acting Chairman of the CFTC. Three panels are planned:

Is the depreciating dollar good for the U.S. economy? Is it good for the World’s economy? Are there policy or intervention initiatives that the governments and central banks are undertaking or coordinating?

FOREX Regulations in the New Millennium: the impact of Zelener and recent OTC retail FOREX regulations, and the protection of customer funds.

Will the pricing and hedging strategies for individual firms be affected by the declining dollar and the legal implications thereof?

More information and a link to register is here.

Ron tells me there may still be a limited number of openings for papers and presentations. Anyone interested in presenting should contact the editor-in-chief of the Journal of International Business and Law, sponsor of the event. The editor is Paul Sudentas — Phone: (516) 463-6188, E-mail: psuden1@pride.hofstra.edu.

From the Economic Times:

The European Union’s antitrust agency is becoming more influential just as its US counterparts have grown more cautious and inactive, experts say. The European Commission’s recent success in forcing Microsoft to carry out antitrust sanctions underscores the differences, and academic researchers say the US is also hanging back in merger challenges. That makes Brussels, more than Washington, the place where companies must go to get their deal through and where companies must ready themselves against possible antitrust action. It also means competition agencies around the world look to Brussels.

“Influential” v. “cautious” and “inactive.” I get it. The implication is that EU antitrust enforcement is good and US enforcement is bad. The proof? One is allegedly more interventionist than the other. As a general matter, I do not find “more is better” arguments (see, e.g., here) causally linking agency activity to the quality of antitrust policy to be very persuasive. All of these claims should be taken with a grain of salt or two. It is one thing to make observations about trends in public antitrust enforcement over time. This exercise can be quite useful for addressing a number of questions or motivating a discussion of various issues. For example, the news item excerpted above cites to Baker & Shapiro’s recent article on merger enforcement which provides some evidence that federal merger enforcement is down (largely at the DOJ) and that private practitioners have noticed. Baker & Shapiro use this empirical observation as a jumping off point to discuss the structural presumption, burdens of production and persuasion, and to offer a critique of some recent decisions which (in their view) too readily accept entry and expansion defenses.

All of this can be quite productive in terms of generating dialogue concerning potential improvements in antitrust policy. However, it is quite another thing to assert that such data are capable of establishing a causal link between enforcement activity level and the “quality” of antitrust enforcement and/or consumer welfare. I should be incredibly clear here: I do not read Baker & Shapiro to be claiming to have demonstrated such a link empirically (though it is clear from the article that they believe more enforcement would be a good thing) and am not making this point in response to their article. Rather, I am responding to appeals to evidence on activity levels alone to suggest that “more” or “less” enforcement would bring about positive changes for consumers. Maybe such a link would be useful if we were talking about dramatic changes in the rate of enforcement (say, abruptly plummeting to zero or increasing tenfold).

But one should be very cautious about making inferences about consumer welfare from small changes in aggregate enforcement data or anecdotal evidence from a handful of cases. I offer this word of caution in the spirit of the current season when these types of claims are quite popular with the politicians and journalists: while it may be true that the most active antitrust agency is the most influential for a number of reasons, there is simply no theoretical or empirical basis to suggest that the most active agency produces the greatest benefits for consumers.

Larry Solum points to Fernando Teson and Jonathan Klick’s (both of FSU College of Law) Global Justice and Trade: A Puzzling Omission.  It is a thoughtful and provocative paper.  Teson and Klick motivate the paper as an attempt to address the failure of philosophers and human rights scholars not to advocate free trade as a way to improve the welfare of the poor.  But as this excerpt from the end of the abstract suggests, the paper is more ambitious than that:

It is surprising then that philosophers and human rights scholars do not advocate liberalizing trade as a way to improve the welfare of the poor as a class. While many scholars in these fields are silent with respect to the effect of free trade on the poor, some actually argue that liberalized trade is harmful for the poor, contrary to the claims of economists. In this article, we argue that any serious scholar concerned with the plight of the poor needs to address the theory and evidence regarding the effects of trade liberalization on economic growth, suggesting that the standard policy prescriptions of the philosophers and human rights scholars are, at best, of second order concern and, at worst, likely to be counterproductive in terms of improving the welfare of the poor.

Some preliminary reactions to the paper appear below the fold.

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Here is Senator Obama’s economic advisor Austan Goolsbee on globalization and free trade (as described by George Will in his recent column):

“Globalization” means free trade and various deregulations that supposedly put downward pressure on American wages because of imports from low-wage countries. Goolsbee, however, says globalization is responsible for “a small fraction” of today’s income disparities. He says “60 to 70 percent of the economy faces virtually no international competition.” America’s 18.5 million government employees have little to fear from free trade; neither do auto mechanics, dentists and many others.

Goolsbee’s rough estimate is that technology — meaning all that the phrase “information economy” denotes — accounts for more than 80 percent of the increase in earnings disparities, whereas trade accounts for much less than 20 percent. This is something congressional Democrats need to hear from a Democratic economist as they resist trade agreements with South Korea and such minor economic powers as Peru, Panama and Colombia.

While I was less impressed with Obama’s statement on antitrust policy, and his previous attack on Wal-Mart as competitive problem, this statement from Obama’s top economic advisor seems much more sensible. Of course, one could argue there is not much here to get excited about since this is really Goolsbee talking and not Obama. But while I’m happy to cosign Greg Mankiw’s argument that the economist-as-advisor should not be responsible for all positions that the advised takes, in my view it is also sensible to give credit where it is due to the candidate for any benefits associated with selecting good economic advisors. And yes, I realize I’ve painted myself into a position here where economists are essentially only responsible for the economic policy advice that he or she gives and not much else.

As a side note, and as Jon Adler notes at the Volokh Conspiracy, Goolsbee’s position on free trade is light years ahead of Republican candidate Mike Huckabee’s rather ridiculous statement that a country is not free unless it is able to produce “its own food, its own fuel, and its own fighting apparatus.”

In case you haven’t already, I recommend taking a gander at today’s New York Time Book Review.  In it, there is a review of Naomi Klein’s new book, The Shock Doctrine, by Nobel-winning economist, Joe Stiglitz.  It’s an abomination (I’m sure the book is an abomination, too, but I’m referring to the book review). 

If you know anything about Klein you know that she is an ideological zealot, impervious to facts and reason (although I’m sure some would say the same of me.  Except in her case, it’s actually true).  I’m sure she’s well-meaning and all that, but her book No Logo (yes, I have read it), and now this book, as well (judging only by the reviews–I won’t make the mistake of reading more than one Naomi Klein book), reflect an ignorance of economics, markets and politics that can be born only of utter disdain.  I won’t belabor the point. 

But what’s truly embarrassing is that an economist of Joe Stiglitz’s stature would write an utterly fawning review of her book!  I didn’t know that Stiglitz had slipped as far as Paul Krugman into the land of the “formerly-great-now-blinded-by ideology-to-all-reason” but I can only conclude now that he has.  There is not a single word of criticism in this review.  Not one.  At one point he does note that “she’s not an economist but a journalist,” and he similarly says that she “is not an academic and cannot be judged as one.”  But one gets the powerful sense that these are actually compliments!  Rather than follow these statements by noting one or two errors of, say, oversimplification, omission or confusion (of the sort inexcusable, I guess, by an academic or an economist), he follows them with praise for her tenacity and perspicacity as a journalist and he excuses her oversimplification (apparently there is some in the book (shocking!), but Stiglitz can’t be bothered to hold Klein’s shortcomings up to the light) by claiming that her academic targets–Milton Friedman and his ilk–were guilty of oversimplification, too.  Nya, nya!  I’m rubber and you’re glue, whatever bad you say bounces off me and sticks to . . . economists I disagree with!  It’s very illuminating (but not at all in the way one might want to be illuminated by a book review.  But then I guess most reviews are more about the reviewer than the subject, right?).

And, of course, there is the obligatory, barely disguised self-promotion (remember that part about reviews really being about the reviewer).  Just read this paragraph:

Klein is not an academic and cannot be judged as one. There are many places in her book where she oversimplifies. But Friedman and the other shock therapists were also guilty of oversimplification, basing their belief in the perfection of market economies on models that assumed perfect information, perfect competition, perfect risk markets. Indeed, the case against these policies is even stronger than the one Klein makes. They were never based on solid empirical and theoretical foundations, and even as many of these policies were being pushed, academic economists were explaining the limitations of markets — for instance, whenever information is imperfect, which is to say always.

Now which academic economists were doing all this explaining about imperfect information, Joe?  I can’t recall.  Anyway, even the claims he generously makes here on Naomi’s behalf are themselves untenable oversimplifications.  Please, do show me where Friedman believes that ideas can be implemented in a frictionless world?  The claim that Friedman’s models employed simplifying assumptions is true.  But, then, that’s the point of models, even the ones Stiglitz uses.  They are called “models” not “complete, messy representations of reality.”  The implication that Friedman’s assumptions, because they were simplifications, led to results with no relevance is a claim only a journalist or a non-academic would make.   I commend one of Friedman’s most important works–The Methodology of Positive Economics–to Stiglitz’s attention.  He shouldn’t find it too troubling to read–it doesn’t even mention free markets or Ronald Reagan.  Here’s just one important bit:

A theory or its “assumptions” cannot possibly be thoroughly “realistic” in the immediate descriptive sense so often assigned to this term. A completely “realistic” theory of the wheat market would have to include not only the conditions directly underlying the supply and demand for wheat but also the kind of coins or credit instruments used to make exchanges; the personal characteristics of wheat-traders such as the colour of each trader’s hair and eyes, his antecedents and education, the number of members of his family, their characteristics, antecedents, and education, etc.; the kind of soil on which the wheat was grown, its physical and chemical characteristics, the weather prevailing during the growing season; the personal characteristics of the farmers growing the wheat and of the consumers who will ultimately use it; and so on indefinitely. Any attempt to move very far in achieving this kind of “realism” is certain to render a theory utterly useless.

Most important, however, what Friedman knew and what Stiglitz and Klein utterly ignore is that world is a messy place, and implementation of even the best academic ideas must be undertaken with appropriate expectations about the limitations of the institutions doing the implementing.  The only oversimplification here is the one (propounded by Klein, who is an ardent activist, and Stiglitz, who has no excuse) that says that because markets don’t always work perfectly, government solutions are better.  If you read Stiglitz’s review, you’ll see that all of Klein’s examples have one thing in common:  The only alternatives to the actions she abhors are ones entailing more government “solutions” to the endemic problems of the market. 

But the best part is that the refutation of her (and Joe’s) philosophy jumps off every page of her books.  For the common element in each of the actions she decries (Bush taking advantage of misery in Iraq to impose capitalism; the Sri Lankan government displacing poor fishermen in the wake of the 2004 tsunami, etc.) is that the evil being perpetrated, even by her own standards, is being perpetrated by the government!  I know enough about Klein from her other book to know that the irony of this is completely lost on her.  While advocating tirelessly for various forms of government solutions to the evils of capitalism run amok, it is completely lost on her that all of her alleged examples of such run-amokery are perpetrated by . . . governments.  I’m sure she and Joe believe that if only the right governments were in charge, then none of this would happen and the world would be a shiny, happy place.  The naiveté in that is thick.  Again, excusable for an anti-globalization hack like Klein; a bit jarring for a Nobel Prize winner like Stiglitz.

But enough ranting.  There are more important things to do.  I’ll leave you with just this:

I’ve included a longer excerpt from Friedman below the fold.  It contains not only the above bit about the usefulness of simplifying assumptions, but also a nice refutation of the specific claims Stiglitz makes about the irrelevance of models assuming perfect competition.  Frankly this may be the most embarrassing part:  That Stiglitz would make the claims he does in full knowledge that the very person he tries to tar with irrelevance had long ago penned his own clarification (and refutation) of precisely this point.  As I said, it’s an abomination.

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EU Competition Commissioner Neelie Kroes responds to the USDOJ Antitrust AG’s criticism of the recent Microsoft decision:

“It is totally unacceptable that a representative of the U.S. administration criticized an independent court of law outside its jurisdiction … The European Commission does not pass judgment on rulings by U.S. courts, and we expect the same degree of respect.”

While it is relatively novel so far as I know, I can’t say I’m too bothered by the DOJ commenting on a ruling of an EU court outside its jurisdiction. The missions of both U.S. antitrust agencies have traditionally included some level of advocacy. The implications of foreign antitrust enforcement may certainly be felt by American consumers, and this is especially the case where the foreign standard is significantly more restrictive than the domestic one. There is no doubt that antitrust counsel to U.S. firms operating in Europe will be forced to reckon with this decision. Open dialogue about the merits of these competing standards, including U.S. standards of course, seems like a good idea to me.

UPDATE: Danny Sokol also fears that the Microsoft judgment will strain U.S.-E.U. relations.   Hanno Kaiser reacts more favorably to the Microsoft decision, describing it as “a tributary of the US case” that “completes or at least complements the original DOJ case against Microsoft.”

The August 24th draft is available in Chinese and English here.  HT: Danny Sokol.

Those of us who defend the right to outsource are frequently criticized for lacking compassion and for being concerned only with the bottom line. I’ll admit that profitability concerns generally motivate decisions to outsource (and most other business decisions), but I won’t concede that outsourcing imposes a net harm on the economically disadvantaged. If we’re really concerned with alleviating the worst instances of poverty and are not focused only on protecting our own kind, we should support the right to outsource.

John Tierney makes this point in today’s NYT. Echoing comments of Michael Strong, the head of “a nonprofit group promoting entrepreneurship abroad,” Tierney observes that the evilest outsourcer of them all — Wal-Mart — can rightly claim to have done more than just about anyone else to alleviate the suffering of the poor:

Making toys or shoes for Wal-Mart in a Chinese or Latin American factory may sound like hell to American college students — and some factories should treat their workers much better, as Strong readily concedes. But there are good reasons that villagers will move hundreds of miles for a job.

Most “sweatshop� jobs — even ones paying just $2 per day — provide enough to lift a worker above the poverty level, and often far above it, according to a study of 10 Asian and Latin American countries by Benjamin Powell and David Skarbek. In Honduras, the economists note, the average apparel worker makes $13 a day, while nearly half the population makes less than $2 a day.

[NOTE: Powell and Skarbek discuss their study here.]

This is not to say, of course, that there are no “victims” of outsourcing. Some Americans lose their jobs. Others find they can’t command as much for their services because of cheap foreign labor.

Yet, that cheap foreign labor produces benefits at home — lower prices. Moreover, Wal-Mart’s job offerings are routinely oversubscribed (there are typically around ten applicants per open position — sometimes many more), suggesting that lots of workers think the jobs aren’t that bad.

This is not enough for many Wal-Mart critics, who maintain that consumer savings don’t justify the economic dislocation caused by Wal-Mart’s cost-cutting and, as Tierney explains, would “rather see Wal-Mart and other retailers paying higher wages to their employees, and selling more products made by Americans instead of foreigners.”

That position, though, is ethically suspect. In Tierney’s words:

[T]his argument makes moral sense only if your overriding concern is saving the jobs and protecting the salaries of American workers who are already far better off than most of the planet’s population. If you’re committed to Bono’s vision of “making poverty history,� shouldn’t you take a less parochial view? Shouldn’t you be more worried about villagers overseas subsisting on a dollar a day?

Indeed.

Today’s Israeli newspapers have an interesting story about a multibillion dollar antitrust suit that an Israeli manufacturing firm has brought against Israel’s three major banks. The complaint alleges that the banks price colluded on rates, charging identically in five distinct rate categories: a uniform prime rate always 1.5% above the central bank’s; a uniform risk premium of 3%; a uniform 3.5% extension premium; a uniform credit allocation fee of 1.5% per quarter; and uniform quarterly management fees of NIS 150.

Not being an expert in Israeli antitrust law, I cannot confidently predict an outcome in the case. I can say, however, that such allegations would have a tough time succeeding here in the U.S. An individual bank’s position in world capital markets is very similar to the position of a single gas station in the world market for oil. Both are classic “price takers” in the sense that neither can affect the world price by its own behavior. It is not surprising that banks who pay the same price for capital would charge the same fee for it, just as it is not surprising for adjacent gas stations to charge the same price per gallon. Such pricing behavior may well be the product of competition and is hardly evidence of collusion. Firms operating in competitive markets can ill afford to charge more than their competitors.

To be sure, the banking industry is heavily regulated both here and in Israel, and thus banks in both countries may well be earning supracompetitive profits. But the abnormally high profits engendered by regulation are not forbidden by antitrust, which condemns only the anticompetive behavior of private actors and not the actions government.

A hopeful sign in the case is that Israel’s antitrust authority has not signed on. The sophisticated lawyers who work there, many of whom have studied at American law schools, are well aware of the difference between price collusion and price leadership. Hopefully the Israeli courts that are hearing this case will understand this too.

Joel Trachtman at International Economic Law & Policy blog and Julian Ku at Opinio Juris are commenting on the role of international law in shaping US behavior, in this case with respect to compliance with WTO rulings.

As Joel points out, “[t]raditional realist political science considers traditional international law ‘epiphenomenal,’ meaning that the real action is in hard power politics, and the law does not affect behavior.” He thinks that recent US actions to eliminate certain cotton subsidies and repeal the Byrd Amendment (that’s the one transferring anti-dumping duties levied on foreign firms to their domestic “victims”) in order to comply with WTO rulings suggest the realist approach is incomplete.

Julian agrees (with qualification): “As a legal matter, of course, it demonstrates that yes, the U.S. does sometimes comply with international tribunal decisions, as long as there is political will to do so.” He clarifies in a comment: “I do think the ‘law’ has some independent effect on Congress’ decision, but it would be a mistake to consider it the only cause of Congress’ action.”

I think US compliance here does not demonstrate that international law has independent force. See below the fold for the realist take on WTO compliance by the US. (more…)

First, Joel Trachtman of Tufts’ (great and soon-to-be better) Fletcher School has started up a new international trade blog, called International Economic Law and Policy. If you know anything about international trade law and/or economics, you know Joel Trachtman and thus you know that this will be a must-read. He has been joined at the blog by Columbia Law’s Petros Mavroidis.

Second, check out Security Dilemmas, a blog on international politics and law by my friend Seth Weinberger (international politics, Puget Sound). Insightful, pithy and irreverent — it’s everything you’d want in a blog. Here’s a taste of his recent take-down of Dan Rather’s 60 Minutes report on North Korea:

“There were no tours available at any price to areas where mass starvation has been reported. We were allowed to go into the countryside, but not to the jails that have been called gulags for political prisoners.” There are only reports of starvation? The US Institute of Peace estimates that 2-3 million people died of famine between 1994 and 1998. The average daily food ration during the famine was estimated to be 600 calories, or 1/4 of what is needed. People are often reduced to eating grass and bark. Entire generations of children have had their development stunted. And Rather tells us that there are “reports” of starvation? And that the jails are “called gulags?” No mention of the forced abortions, the testing of biological and chemical agents on prisoners, the 20-25% death rates, the arrest and imprisonment of entire families for the “crimes” of one member, or any other of the barbaric conditions mentioned here in a NBC special report, here in The Aquariums of Pyongyang, here in a report in the San Diego Union-Tribune, on in any other of the innumerable reports on North Korean gulags. No, Rather only mentioned reports of mass starvation and that some people call these prisons gulags.

Check ‘em out.