Why antagonize China?

From George Gilder’s column in today’s Wall Street Journal, Meanwhile, Secretary of State Hillary Clinton and the president’s friends at Google are hectoring China on Internet policy. Although commanding twice as many Internet users as we do, China originates fewer viruses and scams than does the U.S. and with Taiwan produces comparable amounts of Internet gear. As an authoritarian regime, it obviously will not be amenable to an open and anonymous net regime. Protecting information on the Internet is a responsibility of U.S. corporations and their security tools, not the State Department. The full column is here.

Evolving theory of network effects

Should antitrust enforcers be concerned about entry barriers in the search ad market? Some believe the market exhibits “network effects,” according to the New York Times. Although traditionally applied to Industrial Age industries with high fixed costs like railroads and telephone exchanges, anything now exhibits a network effect if its value increases because more people use it. Network effects are “everywhere,” according to a top former antitrust official. Coke and Pepsi drinkers, for example, “benefit from the network of their fellow consumers because Coke and Pepsi are widely available in restaurants and in vending machines,” claims Timothy J. Muris. A preexisting network of vending machines is admittedly tough for soft drink imitators to replicate. But a barrier to imitation can Read More ›

Trade war

Picking up on Braden Cox’s recent post over at Technology Liberation Front, “Abuse of Power? Competition Commissioner that Pushes ‘Smart Business Decisions,’” it’s no secret that Europe’s software industry is years behind Microsoft, and not surprising the industry is seeking help from politicians in Brussels. When Kroes, a politician, talks about open standards one must assume she is referring to the European software industry, not to the open source movement generally. Of course, for the moment “the enemy of my enemy [may be] my friend,” as they say. In her remarks last week Kroes said, “I know a smart business decision when I see one — choosing open standards is a very smart business decision indeed,” Ms. Kroes told a Read More ›

Profits Surplus vs. Trade Surplus

The Chinese have a big trade surplus with us. But as I noted yesterday, the U.S. has a massive worldwide profits surplus. Which would you rather have? James Fallows of The Atlantic is now living in Shanghai and points to a recent study that makes this point in a concrete way. Richard McCormack of Manufacturing & Technology News summarizes here a new study of the components of an iPod, showing the revenue and profit margins of the various vendors and the desinger and seller of the iPod, Apple. The Personal Computing Industry Center found that on the $299 Video iPod Apple’s gross margin was $80, with revenue of $30 going to distribution and $45 to retail. That’s more than half Read More ›

Growth and Jobs for Europe?

EUROCHAMBRES, the association of European chambers of commerce, has a new report out measuring the EU’s progress achieving its ambitious plan of becoming “the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment.” Unfortunately, the report concludes that the EU is still losing ground. In two years’ time, the gap EU-US (sic) has widened for all economic indicators: Income (GDP per capita). The current EU level for income was achieved by the US in 1985. Since the first edition of the study, the time gap has increased by 3 years; Employment and R&D. Both the current EU levels for employment and Read More ›

“Embrace the Deficit”

David Malpass of Bear Stearns has, not surprisingly, written the best article on the “trade deficit.” Malpass, along with George Gilder, Ken Fisher, and I, agree that the U.S. needs more debt, not less, in both our trade and domestic budget accounts. Malpass explains how the trade deficit is actually a capital surplus, why we will never have to “pay back” these supposed debts, and why the U.S. is not “squanderville” but a haven for capital-hungry growth and innovation: Like young households, many companies also spend more than they produce, using bonds and bank loans, some from foreigners, to make up the difference. They add employees, machines, supplies and advertising before they produce. Growing corporations are expected to be cash Read More ›

Lindsey-squared on China Policy

Former Bush economic advisor Larry Lindsey wrote a great book on taxes , and he helped design the excellent 2003 tax-cuts, right before he was asked to leave the White House. But on monetary policy, Larry Lindsey looks more like famed protectionist Lindsey Graham. In today’s Wall Street Journal, Lindsey uses the occasion of Chinese President Hu Jintao’s upcoming U.S. visit to make the case for a forced appreciation of the Chinese yuan. Where to begin? – Lindsey writes that China wants the government to set monetary policy but the U.S. wants “the market” to set monetary policy. This is curious given that our Federal Reserve, not “the market,” has monopoly control over the money supply. – Lindsey argues that Read More ›

Meanwhile, Schumer-Graham learn something…

As Chinese computers come under fire here in the U.S., Sens. Chuck Schumer and Lindsey Graham are in China eating some crow (sub. req.). Suggesting that maybe their blunt approach of a 27.5 percent tariff on China is less than optimal, Graham says, “I am more sensitive now than I was before to how hard it will be to move toward a floating currency,” and Schumer offers, “We are more optimistic that this can be worked out than we were in the past. But whether it will be, we’re not certain yet.” When you consider how easy it was for two Senators with no economic knowledge and who had never set foot in China to gain so much traction with Read More ›

There they go again…

What a mindnumbingly senseless precedent the Dubai Ports World fiasco has set. This time around it’s the State Department’s purchase of 15,000 “Think Pad” computers. “What’s wrong with that?” you might ask — “I’ve got a Think Pad. IBM, right?” Ah, but a year ago, IBM sold its low-margin PC division, including its Think Pad line, to Lenovo Group of China — scratch that, cue thunderclaps and witch cackles, Lenovo Group of Red Communist China. The $13 million worth of PCs, you see, are therefore now a probable effort to spy on our diplomats. At least two members of the U.S.-China Economic & Security Review Commission, including its chairman, Larry Wortzel, are worried and think you should be worried, too. Read More ›

Encouraging news on Asia trade?

Two items in today’s Wall Street Journal “Washington Wire” indicate the Administration might be wising up on the free trade front. Ambassador Karan Bhatia, who is off on a five-nation Asian trade mission, commented from Manila: “Political support for free trade is weaker than it has been in many years,” he said, citing “the recent public discussion in the United States on the issue of foreign investment,” alluding to the uproar over a Dubai investment in U.S. port operations as well as U.S. skepticism about China and the Central American Free Trade Agreement. “In a way we have not seen for years, economic isolationists on both ends of the political spectrum are reasserting themselves.” Maybe the Dubai Ports fiasco really Read More ›