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Archive for the 'Things Only Tim Cares About' Category

Itenewank: February Edition

February 14th, 2006 by Timothy

To Whom It May Concern,

 I’ll be in Eugene this weekend.  Am as yet unsure of my schedule, but we could probably get together for drinks etc on Sunday some time.  As I am a lazy banker, Monday the 20th is a holiday.  Huzzah.

ODE: Stealing Three Year Old Ideas

February 1st, 2006 by Timothy

This piece in today’s ODE looks an awful lot like the story on Page 12 of OC Vol XX Issue V.

It’s comforting to know that the incidental fee allocated to the top 16 spenders has gone up substantially since 2003. By comforting I mean not at all comforting, of course.

The table below shows a few of the programs from the analysis I did in 2003 and the numbers from the article linked above. My original article contained information for the Counseling Center, which was at that time funded via incidental fee through the PFC. That, if I recall correctly, has been changed and thusly the Counseling Center is not included here. Also, USSA has been added to the ASUO Executive total in the 2006 column, because in 2003 it was one of their line-items along with the OSA.

Look at those growth rates, and note that the rate of inflation between 2003 and 2005, according to the BLS, was 6%. Only two three groups grew less than that, and most grew at many times the rate of inflation. Wonderful. Government in action, don’t you love it?




Percent Growth

Student Recreation Center

$ 537,428

$ 904,086


Lane Transit District

$ 457,158

$ 639,700


Co-Op Family Center

$ 253,303

$ 280,135


ASUO Executive*

$ 234,497

$ 298,842


Child Care Subsidy

$ 220,801

$ 233,656


Career Center

$ 184,788

$ 317,759


Programs and Assesments

$ 142,649

$ 188,369


Legal Services

$ 137,349

$ 206,490


Recreation and Intermurals

$ 125,727

$ 154,091


Women’s Center

$ 125,190

$ 146,759



$ 120,819

$ 120,074


Oregon Daily Emerald

$ 120,000

$ 125,000


Campus Recycling

$ 113,126

$ 166,091


Office of Student Advocacy

$ 107,478

$ 145,647



$ 2,880,313

$ 3,926,699


* Includes USSA

“Free” Uhuh, Right.

January 20th, 2006 by Timothy

Ah, John Kitzhaber, everyone’s favorite cowboy-booted former governor.  He’s back, and as further evidence that doctors don’t know anything about economics (or business, a fact to which anyone in the financial sector will gladly attest), he’s proposing “free” healthcare for all Oregonians.  Proving that kids in the Journalism school don’t learn anything while busily failing the world’s easiest economics class, Ryan Knutson buys the “free” line hook-line-sinker.  The nut ‘graph:

In the future, O’Leary and all other Oregonians may not have to pay a dime for health coverage if former Oregon Gov. John Kitzhaber’s proposed health plan is put into effect. The former emergency room doctor announced his goal to implement drastic reforms to the Oregon health care system to provide free health care to all Oregonians. He hopes to get an initiative in November’s elections and possibly enact legislation in 2007. [Emphasis added]

Right, because the taxes they pay don’t count as expenditure.  I guess the $5000 I paid to Uncle Sam in one way or another in 2005 doesn’t count, then.  Moving on to Kitzhaber’s actual plan:

Kitzhaber’s plan says that pooling tax dollars and federal funds that currently pay for Medicare and Medicaid with the tax break employers currently receive for providing medical insurance for their employees would create an approximate $6.4 billion fund. That fund would provide universal coverage for everyone in the state, yet allow citizens to purchase private insurance if they wanted.

That money breaks down to about $2,000 per person per year, which Kitzhaber said isn’t enough to provide for all Oregonians because the current health care system is too inefficient. However, by overhauling the system to be more cost-effective, the funds would be enough, he told the Register-Guard.

Let’s get this straight, shall we?  His plan relies on diverting money already going to Medicare/caid, diverting other tax revenues from other sources, and “streamlining administrative costs”.  Color me unimpressed.  If the geezer drug giveaway is any indication, this plan is likely to cost much more than initially expected.  Further, there’s going to need to be an additional government bureaucracy to administer this new “free” healthcare.  A couple of years ago the cost of Measure 23 was estimated at $10 billion once the model assumed people with health insurance would drop it to sign on to the socialist medicine.  Kitzhaber’s plan comes up $3.6 billion short of that estimate, and unless he’s got some sort of mystical power over administrative costs, the money is going to have to come from some place.

 States have only two ways to raise money: taxes and debt.  Being that debt is really just deferred taxation, states only have one way to raise money in the long run.  With the heavy anti-growth sentiment in Oregon, the 5.8% unemployment rate (nearly a full percentage point above the national rate), and the cyclical volatility of Oregon’s primary revenue stream (personal income taxes), Kitzhaber’s plan would be a disaster for Oregon.  Unfortunately, the same people who roundly rejected a similar proposal just a few years ago may be duped into ruining their economy with compassion this time.

Meeting Tonight

November 2nd, 2005 by Ian

What: Oregon Commentator Staff Meeting
Who: You, hopefully
When: Wednesday, Nov. 2 at 7:00pm Pacific Time
Where: EMU Century Room D (On the top floor of the Skylight room.)


October 26th, 2005 by Timothy

I will be in Eugene this weekend, Thursday (Oct 27) evening through Tuesday (Nov 1) midday. Much of this time is already allocated out to various endevours. If you need me, you have my number. Friday is a 21er for my dear, sweet gal, I’ll let you know where we will be “at” as they say.

Shameless Plug

March 27th, 2005 by Timothy

I have a new webventure, where I will be doing some blogging about things. Welcome to the web One-Handed Economist. Thanks to WWB for the name.

Current Account Deficit: Still Not Debt

March 10th, 2005 by Timothy

Don Boudreaux, GMU Economics department head, explains this with a very simple example. He also makes fun of Warren Buffet, which is always nice to see. Remember kids: Making money in arbitrage is very different from understanding what the current account imbalance means.

Fisking DeFazio (and Cuniff while I’m at it)

February 8th, 2005 by Timothy

As the holder of an economics degree that WWB consulted for this by now blogosphere-famous post, I figured I ought to toss in my own two-cents. Unfortunately, Don Luskin already made all of the substantiative points I was going to make. The only thing I’d add is that it’s pitifully easy to beat the long-term bond rate. I can get a CD with a rate higher than three if I shop around a little. Further, bond interest rates are inversely proportionate to prices, which is something to keep in mind.

None of this matters, of course, to Peter DeFazio of the House (D-OR) and Meghann Cuniff of the ODE (PAPER-UO). DeFazio and Cuniff get so many things wrong it’s hard to know where to start. So I’ll start from the top of this lovely piece. ODE text in plain, my own in trixy italics.

President Bush’s plans for revamping the Social Security system, still being unleashed, have raised questions about the future of the system under the proposed changes and have sparked a flurry of debate across the country about the state of the current system.

Still being unleashed? Shouldn’t that be “unveiled” or “introduced” or any number of other less loaded verbs?

Bush touted his reform plan during his Feb. 2 State of the Union address, and this past weekend wrapped up a brief five-state tour dedicated to promoting the plan.

This paragraph is right.

Under Bush’s proposal, workers would have the option of diverting up to two-thirds of their payroll taxes into a private account that could be invested in stocks and real estate rather than contributing to the Social Security trust fund.

One, workers cannot divert up to two-thirds of the FICA to a private account. The FICA is 12.5%, half is paid by one’s employer. The proposal calls for up to four percentage points of the FICA into a personal account, which is about one third of 12.5%. It’s two thirds of one’s own contribution, true, but that’s not what the article says. I think we’ll cover the bit about the “trust fund” in a minute.

Created in 1935, the Social Security system was designed to provide an assured retirement fund to all workers. All employees and their employers in the United States pay a 6.2-percent tax that goes to the trust fund.

This entire sentence is factually false. First of all, as it was conceived by FDR in 1935, SSI wasn’t supposed to be a retirement benefit for all workers. It was originally designed as a Widows’ fund and for those of extremely long age. The life expectancy in 1935 was 64 years, benefits started at 65. The system never anticipated the growth of life expectancy, nor that the ratio of workers to retirees would fall so dramatically. Secondly, any surplus in the FICA is not “paid” into any trust fund. That money goes into the general fund and is used to prop up other spending. The “trust fund” is an accounting fiction, a tally of all the surplus money owed to Social Security by the rest of the federal budget. Plus a modest (3%) interest rate. The surpluses that Social Security has collected over the years are not anywhere, that money is long since spent.

The Congressional Budget Office predicts the trust fund will be depleted by 2018, leaving a pay-as-you-go system that, by 2052, will only have enough funds to provide about 73 percent of the promised benefits. The Social Security Board of Trustees predicts that will come in 2042.

Social Security is currently a pay-as-you-go system. Current workers pay for current retirees, the whole pay-as-you-go thing is why we’re having this big damn problem in the first place.

“With each passing year, fewer workers are paying ever-higher benefits to an ever-larger number of retirees,” Bush said in his Feb. 2 address. The administration claims the current system is in crisis, and the only way to salvage it is through reform.

Rep. Peter DeFazio, D-Ore., refuted this claim during a town hall meeting Saturday morning at the Eugene Water and Electric Board Training Center and Community Room, saying Bush’s proposal will do nothing to the Social Security system except “accelerate its depletion time.”

DeFazio held a series of town hall meetings Saturday and Sunday across Oregon to give citizens a chance to ask questions about Bush’s proposal and hear DeFazio’s own proposal for Social Security.

DeFazio’s plan for Social Security would lift the tax cap from $90,000 to $94,000, meaning anyone making less than $94,000 would have to pay Social Security taxes. The increase in taxes would be more than enough to cover the projected shortfall.

The main problem here is the last paragraph, the others are purely informational. Everyone, regardless of income, pays the FICA. The system is capped such that only the first $90,000 of income from anyone is subject to the tax. DeFazio’s proposal makes the first $94,000 subject to the FICA.

“The power elite does not like my idea,” DeFazio said in a phone interview.

More than 300 people attended the meeting and about 100 were turned away because the room was filled to capacity.

DeFazio fielded questions and urged attendees to write letters to the White House voicing opposition to Bush’s Social Security outlook, which he said is based on the most pessimistic of economic assumptions.

More like realistic assumptions that don’t rely on continued growth in immigration. Also, DeFazio doesn’t realize that the current promises are only going to get larger, in real terms, as SSI benefits are wage indexed.

DeFazio’s argument is that the Congressional Budget Office’s statistics do not signify a crisis, and the shortfall that has been projected to happen in about 40 years could easily be quelled with minor changes to the existing system.

DeFazio had various charts and a packet of handouts explaining his view on Bush’s Social Security proposal and detailing his own.

DeFazio said Social Security is a crucial program in the United States: “That’s why I want to, beyond a doubt, provide assurance that it will be there.”

Of course you do, gnome, but do you want to make Federal Employees subject to it? What’s that? No? Very interesting

Eugene resident Charles Fischer called a chart DeFazio used to explain the reduction in benefits that would occur under Bush’s plan misleading because it fails to take into account the amount of money that would be diverted to the proposed personal retirement accounts.

Fischer, an investment adviser with IMS Securities Inc. in Eugene, said in an interview that he feels both political parties have been misleading the public with distorted information about the Social Security system and the different reform proposals.

“We need to have a real honest debate and pull ideas from both parties,” Fischer said Monday.

Fischer said it is wrong to say the system is not in crisis when the trust fund will be depleted in less than 15 years. The assets needed once the trust fund is gone are not there, Fischer said — they only exist in the form of government “IOUs.”

“The federal government has taken all the money out and spent it,” Fischer said. “To claim that the money is there is wrong.”

DeFazio said the claim that the money is not there fails to consider the true meaning of a government bond.

Right, an investment professional misunderstand the nature of government debt…uhuh. Where is the goddamn money to pay back those bonds going to come from? A bond is an IOU, and if the government is going to have to start doing a major pay-down on bonds issued to SSI in order to keep the system afloat, the money is going to have go come from someplace. Eventually, that’ll be in the form of taxes, all sorts of taxes.

“If you believe the United States is still going to have a government, that the U.S. is still going to exist in the next 40 years, then there should be no doubt in your mind that Social Security will be there,” DeFazio said in a phone interview.

Actually, I have a lot of doubt that SS will be there by the time I retire, but I’m glad of that. Today’s young workers have virtually no expectations of the system, and those who will retire after 2052 are mostly children. Now is the time to reform while we can.

University political science professor Joel Bloom said the claim that a depleted trust fund will put the Social Security system into a crisis is an erroneous one that ignores reasonable thinking.

“If you can’t count on government bonds, then the entire national debt is worthless,” Bloom said.

In a way, that’s true, but it still ignores that the money to pay back the bonds has to come from somewhere. Read: general fund. Also, why in the hell is a poli-sci prof (an adjunct, at that) the one to be interviewed for this? Bloom does mostly public opinon and survey studies, and despite is work in that area I doubt he knows much about the sorts of projection models used by the CBO and SS Trustees. Why not somebody in Economics or Finance whose work is more related? Say, Mark Thoma about projections (easily the best econometrician at the UO, and that’s saying something because we’ve some good ones), maybe Chris Ellis or Peter Lambert about the public choice and taxation aspects? Why this guy?

DeFazio said the methods used by supporters of Bush’s proposal to explain the crisis the system will undergo are illogical and aimed at manufacturing a crisis when one does not exist.

Illogical? To use numbers and data? For shame!

Fischer said DeFazio’s plan to raise the tax cap is not an adequate way to tackle the problem and ignores the fact that if the economy does grow, wages will increase, which will subsequently increase Social Security benefits and accelerate the trust fund’s depletion rate.

That’s exactly right, with wage indexing real benefits grow over time. If the economy expands, so do SS benefits, which could make the system even more likely to become insolvent.

But opinions on the state of the system differ greatly, as some say that, with inflation rates and economic growth considered, the amount of benefits that will be available in the system will never fall below inadequate levels.

“Even without a trust fund in 2042, even with only getting 70-something percent of the promised benefits, you guys, your generation, is still going to get more money than your grandparents are getting right now, and that’s supposed to be a crisis,” Bloom said.

Oh, they quoted this guy because he’ll say the right thing. More money in what sense? Will 70% of promised benefits in the future be more or less than real benefits today? Well, that depends on a lot of factors, like the interaction of benefit growth and inflation. Will 70% of the future wage-indexed benefits be more than 100% of benefits today? I’ll tell you when I can borrow Prof. Bloom’s magical economic prediction ball. Furthermore, will the difference between what we pay in and 70% benefits in the future, in real terms, be more or less than the difference between our grandparents’ contribution and benefits in real terms? It’s goddamn impossible to tell. And people say Monetarism is “voodoo-economics”. Sheesh.

The President said last week his plan would not solve the Social Security system’s projected financial problems but added that doing nothing would do even more harm.

Fischer said many people have been disillusioned by the seemingly corporate control of the stock markets and are worried Bush’s plan for private, personal accounts would benefit investment advisers like himself. But Fischer said the accounts would be controlled by the government, leaving no room for investment advisers to benefit from them.

However, Bloom said the problem with investing money rather than contributing to the Social Security trust fund is that it will accelerate the fund’s rate of depletion and allow for risky investments that could jeopardize an individual’s retirement savings.

“It’s inherently more risky. Nobody knows what the stock market is going to do between now and four years from now,” Bloom said.

First of all, I trust a Certified Financial Planner a hell of a lot more than I trust some DC bureaucrat to run my retirement. I can meet, talk with, and explain my objectives to a Financial Planner. Can I call up the SS office in DC and talk to them about the P/E ratio of their funds? I thought not. That aside, so what if Financial Planners benefit from being able to help more people with their retirement? That’s a good thing, it both reduces the size of government and helps folks plan for the future. Furthermore, only a complete idiot will lose an entire portfolio barring fraud or complete meltdown of the financial system. Fraud from your Planner or Broker can be a problem, if you don’t use reputable servicers. Schwab, Fidelity, JP Morgan Chase, American Express, AIM, AIG, and a host of the other big names are about as likely to commit fraud as the Pope is to commit apostacy. Those institutions are highly regulated and watched by the most anal-retentive auditors ever to have sticks in their asses. Expecially after a bunch of foolish Enron employees invested their entire 401(k)s in Enron stock and lost their shirts. That’s a lesson, never put any of your own 401(k) contribution in own-company stock because the company match will be own-company anyway. So as long as you deal with reputable people and companies, barring complete economic collapse you’d have to be a moron to lose everything. Bloom is also only talking about stocks, there are other places to put money: Bonds (federal, state, municipal, corporate, international, etc), money market funds, CDs, mutual funds, futures, index funds, commodities…there are any number of investment options with varying levels of risk and reward. When you’re young, invest aggressively for growth; as you accumulate assets shift the approach to modest growth and asset maintenance; and when you retire concentrate on maintaining your assets exclusively.

The cost of setting up these private accounts is also up for debate. Critics have also questioned how private accounts will affect those dependent on Social Security for disability and survivor benefits. Bush has not said how diverting money from the fund will affect the amount of benefits available to those dependents, DeFazio said.

Private accounts will have beneficiaries like IRAs or 401(k)s do. If you die, your stated beneficiary will recieve the full benefit of your personal account in addition to the SS benefit that is still being paid by the government (You know, that 9.5 percentage points of the FICA everyone is forgetting to say is still going to go to traditional SS).

The debate over Social Security is expected to rage for many months as the President continues to unveil his plan. DeFazio vowed to hold more town hall meetings after Saturday’s meeting drew more attendees than any previous town hall meeting.

Fischer said he is hopeful both parties can forgo their political ideologies to examine the state of the system and form a game plan for the future.

“Instead of Bush out there supporting the PRAs at this point and DeFazio saying we don’t have a problem, we need to start from square one,” Fischer said.

Wow, the truest thing in the whole article comes at the very end, I am not surprised.

Income Inequality: Still Not A Big Deal

January 6th, 2005 by Timothy

Andrew Sullivan, whose blog I’ve just started reading again, points to this Economist piece on income inequality in the United States. While usually a great source for economic reporting, this piece falls into some common traps with welfare analysis and sounds any number of useless alarms.

The common perception is that income inequality in the US is bad and only getting worse, however a closer look at the actual numbers doesn’t paint nearly as bleak a picture as we might be led to believe. The US Census Bureau put out Income Inequality in the United States: 2002, and their most recent data do not seem to indicate a huge leap in income inequality.

The United States Gini coefficient is .0462 according to the above paper in 1979 the US Gini was 0.406*. Like golf, low numbers are preferable from a Normative Economic perspective (more on that later). However, methodological changes make data previous to 1993 not exactly comparable to current data. This is sort of a niggling detail, and a fact largely ignored by pretty much everyone. However, it doesn’t seem like the methodological changes were really large enough to have much of an effect, so I suppose it’s not a big deal to go right ahead and ignore them.

Table 7** from the above report shows that the Gini by quintile for before-tax income is 0.448, slightly but not impressively lower than the above. However, the United States has a fairly progressive taxation structure, and people’s welfare is determined not by their gross income but by their disposable income. The same table shows the Gini for after-tax income to be 0.426, which is significantly lower than 0.462 and lower than the 2001 number of 0.434.

But wait! There’s more! Disposable income is not the only thing that contributes to total welfare, which is really the disparity everyone in the Normative community claims to be interested in, so we’ll have to look at yet a more comprehensive number. Once non-cash transfers and the benefits of employer-subsidized health-care are factored in the Gini drops slightly to 0.421. If you factor in the benefits of Medicare and Medicaid, the Gini drops to 0.405. If the value of home equity returns is considered, the Gini declines to 0.400.

Essentially, the more comprehensive a measure of welfare is used, the less inequality we see. What’s more interesting, and really does expose the lie in “tax cuts for the rich”, is that the top quintile of income earners lost statistically significant shares in all income categories except gross income. Further, while the bottom two quinitiles remained largely unchanged (probably because they really don’t pay taxes at all), the shares of aggregate income in the third and fourth quintiles made statistically significant gains over 2001 in all categories except gross income. What does that mean, kids? That middle class Americans have gained a lot over the last couple of years.

That we have an “inequality crisis” in America is a fallacy. This has been a boilerplate issue for liberals and leftists for a long time now, and is unlikely to go away, but it is important to remember that their claims are not really supported by much in the way of evidence.

Later in the week: Marginal tax rates and government outlays, plus why Normative Economics is fundamentally flawed.

*Table A-3: Share of Aggregate Income Recieved By Each Fifth and Top Five Percent of Households 1967-2002

** Percentage of Aggregate Household Income Recieved By Income Quintiles and Gini Index by Income Definition.

I Have Discovered Yet Another Blog By Econ Profs

January 5th, 2005 by Timothy

What’s more is that this one is also run by folks at GMU, a place steadily gaining on my list of places to apply to graduate school in five or so years. Anyway, Cafe Hayek is a good read, and at least as entertaining as Marginal Revolution.

Also, read this piece on why Grover Cleveland should be your hero.


January 3rd, 2005 by Timothy

If only things like this would get more attention. Maybe then, just maybe, the name of this category could be changed to “Things That Rock and Everyone Loves.” Okay, yeah, I’m being way over optimistic. Oh well, a man can dream!

Some Good News

December 16th, 2004 by Timothy

I’ve backdated this as to keep Dan’s most excellent letter to the PFC at the top of the page above my ramblings where it belongs, but I just can’t explain how excited I am by some news about Global Warming.

That’s right, Global Warming. Steve Verdon [DRINK!] points out this most interesting piece about the Global Warming “hockey stick”. It turns out that the model used to generate that data is fundamentally flawed and generated a similar graph when given trendless monte carlo data. Practical upshot? Global Warming may not even be real.

And this is good news, no matter which way you slice it. If you were worried about the end of the world, hooray, we are saved! If you were sick of listening to econuts talk about the sad state of the planet, they no longer have a stick to lean on! Of course, it’ll be 50 years before they give up that flawed graph, but we can dream.

And yes, I know I’m being hyperbolic, because this really just reopens the debate, but that’s a ton of progress…we’ll see how long popular wisdom takes to catch up.

[UPDATE]: I have forward-dated Dan’s entry above to appear on the top of the page for the next month, I figure it should stay there until school is back in session. Other posts will appear below it. Do not be alarmed.

Shut up, OSPIRG.

December 4th, 2004 by Timothy

As the OSPIRG campaign against the high price of textbooks continues to demonstrate their complete and utter inability to understand markets, a number of Econobloggers have taken a look and come to varying conclusions.

Henry at Crooked Timber suggests that textbooks have relatively inelastic demand. His intitial comment about “low demand” causing high prices on some books is, umm…backwards…he’s intuition is correct: that it costs so much to produce limited runs the books are expensive, but that factors in as “high marginal costs” not “low demand.” In a world where all firms have some pricing power, especially in publishing where one publisher might have exclusive rights to a book, higher marginal costs will mean significanly high prices as the monopolists extract rents from the market. Anyway, moving right along…

Alex Tabarrok suggests that third-party decision making is the cause. He also draws a nice parallel with healthcare, and I’m much persuaded by his take on that.

Mark Steckbeck suggests that the increase in resale has led publishers to capture the resale value in their initial price. He even does a present-value calculation, exciting!

I’m inclined to think that it’s probably all of these things in concert. Any one would be enough to increase prices some, all of them at once is enough to really amplify the effect. If kids are actually achieving a net welfare gain through resale, then the OSPIRG kiddies are trying to make people worse off, which should come as a surprise to exactly no one. Oh, and you’ll be excited to note that there’s an OSPIRG blog.

UPDATE: Commenters at Coffee Grounds point out that in a high fixed-cost industry, the supply curve is discontinuous and therefore low demand can lead to higher prices because of the discontinuity in supply. Fixed costs play a role in the entry/exit decision of the firm, and because the marginal cost of the first unit is so very high, the price of it will be as well. I considered adding a couple of graphs to the update, but stopped myself. If you must have graphs, email me and I shall construct them.

What Good Is French Anyway?

November 13th, 2004 by Timothy

Back on the mean, needle-covered streets of Lake Oswego where I grew up, I was required to take two years of language to graduate from high school. Today I speak exactly no spanish, I might be able to ask for a bathroom, a telephone, and maybe a drink, but damned if there’s a chance in hell I’d ever understand the reply. Guest blogger Daniel Akst at Marginal revolution argues that it might make more sense to require finance. As I have a degree in Economics but have never been able to balance my own checkbook, and certainly would’ve been completely incapable of that feat upon graduating from highschool, I tend to agree.

Some Economics

November 11th, 2004 by Timothy

The WSJ Econoblog has been pretty interesting this week, if you’d like to see Tyler Cowen beat the hell out of John Irons RE: Trade, go here

Irons falls into the main trap of the anti-globalization wingnuts, namely he thinks pollution havens exist:

But should we allow ourselves to be taken advantage of when countries with lower environmental standards or fewer worker protections beat us in the race to the bottom?

I hold only a BS in Economics, Irons is a Ph.D., he should know better than this. Pollution havens do not happen in the real world because the ability for countries to change tax policy exists. Do some countries have lower environmental standards? Yes, yes they do, but those standards will not be changed to attract Foreign Direct Investment (FDI) because lowering taxes achieves a higher net welfare gain. Lower taxes decrease government revenue, but don’t allow additional negative externalities, and still manage to attract FDI. Furthermore, environmental regulations can be thought of as a luxury good: once you have a sufficient level of income you tend to pollute less. See Also: Environmental Kuznets Curve.

Cowan’s money quote, which is right on:

Poor countries should not have the same environmental and labor standards that the U.S. does; they simply cannot afford them and do not have the requisite legal structures to enforce them. The best way to improve their standards is to help them grow rich, so outsourcing is part of the solution in this regard. And outsourcing no more destroys American jobs than does technical progress.