Ed Lotterman: Let’s not blow small stories out of proportion

November 8, 2013 

“Nothing succeeds like excess.”

Oscar Wilde’s wry twist on an old motto is a good description of U.S. politics today. Unfortunately, what is in excess often is exaggeration and any success achieved is not for our society as a whole. So be careful not be swayed by chronic overhyping when reading either news or opinions.

You can be sure that this is happening when the word “slash” is used in describing either tax or spending changes, when a “huge payoff” is promised from incremental changes to trade deals, or when the positive (jobs) or negative (pollution) effects of energy projects is described.

In recent years, House Republicans have introduced bills to cut the SNAP program, formerly known as food stamps. Their cuts largely consist of tightening loopholes that states had discovered.

Democrats who oppose the proposal and many media stories describe this return to what Congress intended 20 years ago as “slashing” food stamps.

I beg to differ.

The primary issue is “categorical eligibility,” which means that some people who are eligible for another program automatically gain access to SNAP, when they otherwise wouldn’t.

State and local human services departments used these loopholes to enroll people at a very low level of benefits in one of these other programs for the purpose of getting them into SNAP through the back door. It was all legal, but clearly not what the framers of the 1996 Welfare Reform law, nor those who designed the successive changes to SNAP, intended.

The Congressional Research Service estimates it would result in “budget savings of $11.4 billion over the 5 years from FY2014 to FY2018.” This is about one tenth of 1 percent of the federal budget. If adopted, SNAP outlays would drop by perhaps 3 percent and about 4 percent of recipients would be cut from benefits. These hardly are slashing effects on either end of the food-stamp question.

For another example, take a recent Chicago Tribune article lauding a trade pact between Canada and the European Union that reduces restrictions on mutual trade and investment. This is largely by streamlining bureaucratic steps and harmonizing regulation, such as details of patent systems and acceptable feed additives that may be used in livestock for meat to be exported to and from Canada and the EU.

This is a good move that will improve economic efficiency in both regions. But the Chicago Tribune editorial board goes wildly overboard in arguing that “a huge payoff awaits” if the U.S. emulates the Canada-EU pact.

Yes, there are bureaucratic inefficiencies and incompatible regulatory approaches that discourage some trade. But the level of trade between the United States and Europe has been high for decades and the cost of trade restrictions, both overt and hidden, is low relative to the value of that trade. Sure, streamlining things further could promote more efficient use of resources in the two regions. But that increase probably won’t be large enough to even show up in the trade statistics. It will be just one relevant factor among many in long-run trends.

Moreover, there always are adjustment costs when trade rules change. Economists usually ignore these — the analysis is cleaner if you set them aside. But when Princeton’s Dani Rodrick, one of this generation’s best trade economists, actually looked at both adjustment costs and efficiency gains from trade liberalization agreements in recent decades, he found that the efficiency benefits were generally lower and the adjustment costs higher than commonly assumed.

In many cases, the advantages gained from the last marginal trimming of trade restrictions was less than the costs incurred by businesses and households having to adjust.

So don’t expect a dramatic boost in output from a trade pact that will take years to negotiate, given all the entrenched interests that feel threatened, even if in very minor ways.

The proposed Keystone XL pipeline is yet another issue over which rhetoric has spun way out of control. At one point in their ever-changing demands, House Republicans wanted the Obama administration to approve the pipeline as a price for avoiding a partial government shutdown. They claim it will create jobs and boost output.

Opponents paint environmental damage in apocalyptic terms. Spills will foul ground and surface waters and the very existence of the pipeline will foster dirty oil production that will make the planet sizzle.

Employment is a real issue and possible environmental costs are a real issue. But the magnitude of each, relative to the national economy, is minuscule.

Build the pipeline and you may see a slight, temporary blip in employment in Montana and South Dakota, where any major project is large relative to a labor force of a few hundred thousand. But it won’t be possible to separate it out nationally from all the other things going on.

Ditto for the environment, if you don’t build it. The water systems of the Nebraska Sand Hills and of the Ogallala Aquifer may remain slightly more pristine. But Canada’s “dirty” oil then will eventually make its way to that country’s Pacific coast by one means or another, and any damage will just occur elsewhere.

In all three cases mentioned, there are legitimate issues that need to be hashed out. These are issues on which well-intentioned people can come to different conclusions. But they are not issues that are large relative to our national economy nor relative to other problems — political, social or economic — that we as a society face. It would be good for all of us if politicians, the media and the general public would be a bit more careful about the language we choose in our public debates.

Economist Edward Lotterman teaches and writes in St. Paul, Minn. Write him at ed@edlotterman.com.

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