Browsing the blog archives for August, 2016.

The Value of Polls

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Polls get far too much attention in the press, especially several months before an election. Nonetheless, the misnomers about the polling process never cease to amaze me. I’ve addressed polling in the past, but I’m going to update my comments in this post.

Who you ask, what you ask, how you ask, and how you tabulate the results are critical. Polling is a science, but it’s also a social science. Instead of measuring chemical reactions in a lab, you are measuring attitudes. People are much more complicated than chemicals, they don’t always tell the truth, and election polls must factor in one’s likelihood to vote. For these reasons, even the best professional pollsters get different answers when they are polling on the same issue.

Of course, another reason poll results can vary widely is that some pollsters are biased and seek certain results as a means of influencing behavior. If polls show that most Americans support candidate A, then some supporters of candidate B might give up or blame the candidate, and undecided voters—wanting to get behind a winner—might tend to support candidate A as well. I think the actual behavior of most voters is not affected by polls, but this isn’t the point. Even if poll results only influence the activity of 2-3% of voters, they can easily swing an election.

Leading questions and poor wording are common problems. Consider the question, “Do you think Hillary Clinton should be held accountable for using a private email server during her tenure as Secretary of State? Even if respondents share a common understanding of the scandal, “held accountable” might mean a reprimand to some and jail time to others. The results from questions such as these are simply not valid.

Even when questions are clear and worded correctly, some errors are difficult to overcome. Election pollsters try to survey a small group of voters that precisely represents the population of actual voters. A common misconception is that you cannot produce a reliable poll with only several hundred respondents. Statistically, you can. The real problem is how you select the respondents. Phone polls are common, but they not include lots of voters who don’t have landlines, don’t answer calls from unknown callers, or do not respond in a truthful manner.  Pollsters try to account for this problem by adjusting results, but they are really guessing.

Some errors are difficult to calculate from the outset. For example, should polls include candidates other than Clinton and Trump? The knee-jerk answer is yes because they will be on the ballot, but history—which can be wrong—tells us that most third party supporters end up voting for one of the two major candidates. Gary Johnson might poll at 10% in some states, but how many of his supporters will switch to Clinton or Trump in November? Nobody really knows. This issue alone is enough to weaken the results.

If you really like to follow polls, I suggest tracking averages at Real Clear Politics. By incorporating lots of polls into a composite, they probably average out some of the error on both sides. This is still just a best guess, but it’s better than relying on a single poll. At the end of the day, however, I suggest that you treat all polls with serious caution. They can and will be deceiving.

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Government Subsidies & Free/Fair Trade

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My last few blogs have addressed the free/fair trade debate. This one focuses on government subsidies.

The argument on subsidies goes like this: It’s not fair that US companies have to compete with firms that are subsidized in some way by other governments. In countries like China, many firms are partially- or wholly-owned by the government. These state-owned enterprises (SOEs) have an advantage because they receive support that private companies do not. As a result, American companies are at a disadvantage, and something needs to be done to level the playing field.

To understand this argument better, think about the US Postal Service. The USPS is owned by the federal government and loses billions annually. A recent analysis by Robert Shapiro estimates that taxpayers subsidize the agency by about $18 billion each year (http://www.sonecon.com/docs/studies/Study_of_USPS_Subsidies-Shapiro-Sonecon-March_25_2015.pdf) . Only part of this amount comes from direct payments; most comes from regulations that provide the USPS with unfair competitive advantages. For example, not only is the USPS exempt from state and federal taxes, but other delivery services are barred from leaving letters or packages in USPS mailboxes. In fact, federal law prohibits these carriers from delivering any letters or packages for less than $3, essentially keeping them out of the first class mail business. With a monopoly in this arena, the USPS is free to overcharge for letters and cut prices on package delivery where it faces competition from UPS, Fedex, and others.

SOEs are common in certain industries, such as airlines. Emirates, Etihad and Qatar are three examples from the Middle East. Delta, American, and United have long argued that competing with such airlines is unfair because these airlines receive billions from their respective governments each year.

SOEs are also common in certain countries. For example, China’s 12 largest firms are government-owned (http://fortune.com/2015/07/22/china-global-500-government-owned/). Like the USPS, these firms receive both direct and indirect government support that gives them unfair competitive advantages.

Two points should be made on the other side of the argument. First, just as we saw in the currency manipulation argument, Americans benefit form artificially low prices when they purchase subsidized products or services from global competitors. Second, it’s difficult to argue against SOEs in other countries when so many private companies in the US are receiving their own goodies from governments. Whether it’s an exemption from state taxes or a federal “green energy” subsidy, foreign companies can lodge the same complaint. How can a Chinese solar panel company compete globally if an American company receives a government subsidy to produce its own panels?

While it is true that cronies in the US often receive government support for their business ventures, they receive on average a lot less than their counterparts elsewhere. For this reason, the argument against subsidies—especially against SOEs—is valid. The Chinese, for example, have committed to addressing this problem by some degree of privatization, but there is still a long way to go. Trump and others have a leg to stand on here, but we need to be willing to practice what we preach.

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Regulations & Free/Fair Trade

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I’ve decided to post at least one more blog on the free/fair trade debate, this one on government regulations.

Free trade opponents in the US typically argue that Mexico, China, Viet Nam, and other less-developed trade partners do not have a similar regulatory infrastructure. Because “they don’t care about the environment or treating people fairly,” manufacturers there “get away with paying dollar-a-day” wages in sweatshops and dumping their waste directly into rivers and streams. This lack of common sense regulations, the argument goes, allows irresponsible companies—many with connections to US firms—to enjoy an unfair cost advantage. American companies that play by the rules just can’t compete.

There is some truth to this argument. Dumping pollutants into rivers is not uncommon in the developing world. Here are two examples of many:

http://www.ibtimes.com/chinas-river-blood-jian-turns-red-after-chemical-dump-photos-709258

http://www.washingtonpost.com/wp-dyn/content/article/2006/10/24/AR2006102400987_pf.html

But the argument weakens when we consider how much “common sense” is really a part of most of these regulations. While workers in the developing world earn much less than those in the US, their wages are set by the market. They line up for jobs in the factory just as many Americans did a hundred years ago because production work is more attractive than the alternative. Agriculture is the best option for some, but others who cannot find work in factories simply live on the streets and beg, or even turn to prostitution. Economies differ and it’s not necessary to pay $15 an hour to a line worker in Bangladesh just because Hillary and Bernie think companies should be forced to pay that as a minimum wage.

It is also true that US firms are over-regulated and spend a lot on compliance. It’s not reasonable to expect developing nations to over-regulate their economies to be on a par with US firms. We can solve much of this problem by cutting and streamlining regulations in our own industries so that the “regulation gap” narrows.

I haven’t heard Trump cite the regulation argument for restricting trade, but I’ve heard Sanders and others on the left do so. While some of the basic environmental arguments might be valid—especially if the pollution directly affects the US as is the case with Mexican border cities—we should clean up our own house first. There are no objective standards when it comes to various forms of regulation, so insisting that other countries should meet ours doesn’t make sense.

When it comes to regulating business, we should focus on cutting at home instead of forcing other nations to match our inefficiencies. Trump appears to understand this facet of the trade debate and is calling for less regulation. Clinton wants more restrictions on business which will only increase costs and make us less competitive as a nation.

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