Wednesday, June 30, 2010

Is Clarence Thomas the Best Supreme Court Justice?

I'm not a lawyer, so I certainly can't pretend to have expert views, but everytime I read something like this, my regard for Justice Thomas rises even higher.

In the McDonald case, the justices were asked by the plaintiffs to strike down Chicago’s gun-control ordinance as a violation of the Second Amendment to the Constitution. In order to do so, the justices would have to make two maneuvers. Of course, they’d have to rule that the ordinance runs afoul of the Second Amendment’s prescription that “the right of the people to keep and bear Arms, shall not be infringed.” But they’d also have to rule that the Second Amendment restricts not just Congress’s ability to make laws controlling the use of guns, but that of state governments as well. Remember, the Bill of Rights, as originally constructed, only applies to the federal government. In order to extend the Second Amendment to laws passed by states or cities, the court was faced with a choice of two clauses embedded in the 14th Amendment. It could “incorporate” the Second Amendment to the states through the 14th Amendment’s Due Process Clause. Or, pursuant to the 14th Amendment’s Privileges or Immunities Clause, it could deem “the right to bear arms” one of the “Privileges” or “Immunities” that the states are forbidden from taking away. So you’ve never heard of the Privileges or Immunities Clause? We’re not surprised. The clause was largely neutered in a set of cases decided in 1873. ...Those arguing for resuscitation of the Privilege or Immunities Clause pinned their hopes on Justice Antonin Scalia and Justice Clarence Thomas, both known for their “originalist” approach to constitutional interpretation. But Justice Scalia on Monday opted, along with Justices Alito and Kennedy and Chief Justice Roberts, to use the Due Process Clause. As Liptak noted, Justice Scalia, in a concurrence, “acknowledged misgivings about using the due process clause to apply Bill of Rights protections to the states” but went along with it “’since straightforward application of settled doctrine suffices to decide it.’” But in a separate concurrence, Justice Thomas boldly went where no justice has gone before: to the arms of the Privileges or Immunities Clause. He wrote:

[T]he text of the Privileges or Immunities Clause . . . command[s] that “[n]o State shall . . . abridge” the rights of United States citizens . . . the Clause establishes a minimum baseline of federal rights, and the constitutional right to keep and bear arms plainly was among them.

The rationale didn’t carry the day, but many legal commentators were thrilled by Justice Thomas’s concurrence. “He’s sticking with the text of the Constitution,” said Georgetown law professor Randy Barnett, to the Law Blog. “At the same time, nobody voices disagreement with Justice Thomas. And that’s because they can’t.” Writing at Scotusblog, George Mason’s Nelson Lund cheered Thomas’s opinion:

His opinion is scholarly and judicious, and it cements his standing as the only Justice who is more than a half-hearted originalist.

Barnett and others hope that Thomas’s lone dissent has planted the seeds for a constitutional reawakening rooted in the Privileges and Immunities Clause.

Obama's Fiscal Fantasyland

That's the title of Richard Rahn's new column in the Washington Times, which discusses the delusional Keynesian policy being advocated - in America and around the world - by the current administration. As Richard explains, the evidence is overwhelming that government spending does not promote prosperity.
In the face of the unprecedented congressional spending binge, President Obama has been asking Congress to spend even more. Not content with actively promoting the eventual bankruptcy of the United States, Mr. Obama is urging foreign leaders also to increase their government spending - which is truly bizarre. Look at the facts. All of the major European countries have been increasing government spending and deficits at unsustainable rates. The talk for the past couple of months has been about which countries would follow Greece in going over the financial cliff. Responsible economists, financial leaders and, most important, the markets have been telling European leaders they must cut government spending. ...The president still seems to believe in the imaginary world of spending multipliers - whereby each dollar of additional spending results in something in the order of $1.40 in additional output. Proponents of such ideas normally refer to themselves as Keynesians (followers of the ideas of John Maynard Keynes, 1883-1946). ...The Keynesians and socialists have run hundreds of experiments around the world for the past 70 years, inducing governments to try to spend themselves into prosperity. It doesn't work. In the 1970s, Keynesian prescriptions led to "stagflation" in the U.S. and many other countries. It was only when Ronald Reagan, Margaret Thatcher and eventually many other leaders (using the ideas of F.A. Hayek and Milton Friedman) reversed course by cutting tax rates and curtailing spending growth that their economies began to grow rapidly without inflation. Mr. Obama seems to have never learned these lessons, and some of his advisers, who once understood what works and what doesn't, seem to have forgotten. By nature, people like to spend other people's money, and too many in Congress loved what was billed as Keynesian economic theory because it gave them a rationale to be irresponsible spenders.

Tuesday, June 29, 2010

Tom Sowell Wisdom on Firearms and the Constitution

In addition to noting that gun control tends to increase crime by reducing the cost of being a criminal (i.e., thugs are less likely to meet armed resistance), Tom Sowell also explains that people who don't like the Constitution should amend the document rather than appointing ideologically-motivated Justices who ignore what it says.
...there is no obvious reason why issues like gun control should be ideological issues in the first place. It is ultimately an empirical question whether allowing ordinary citizens to have firearms will increase or decrease the amount of violence. Many people who are opposed to gun laws which place severe restrictions on ordinary citizens owning firearms have based themselves on the Second Amendment to the Constitution. But, while the Supreme Court must make the Second Amendment the basis of its rulings on gun control laws, there is no reason why the Second Amendment should be the last word for the voting public. If the end of gun control leads to a bloodbath of runaway shootings, then the Second Amendment can be repealed, just as other Constitutional Amendments have been repealed. Laws exist for people, not people for laws. There is no point arguing, as many people do, that it is difficult to amend the Constitution. The fact that it doesn't happen very often doesn't mean that it is difficult. The people may not want it to happen, even if the intelligentsia are itching to change it. ...As for the merits or demerits of gun control laws themselves, a vast amount of evidence, both from the United States and from other countries, shows that keeping guns out of the hands of law-abiding citizens does not keep guns out of the hands of criminals. It is not uncommon for a tightening of gun control laws to be followed by an increase-- not a decrease-- in gun crimes, including murder. Conversely, there have been places and times where an increase in gun ownership has been followed by a reduction in crimes in general and murder in particular. Unfortunately, the media intelligentsia tend to favor gun control laws, so a lot of hard facts about the futility, or the counterproductive consequences of such laws, never reach the public through the media. We hear a lot about countries with stronger gun control laws than the United States that have lower murder rates. But we very seldom hear about countries with stronger gun control laws than the United States that have higher murder rates, such as Russia and Brazil.

Great Moments in International Bureaucracy

Europe's economy is stagnant and many nations are on the verge of bankruptcy. But one thing you can count on in this time of crisis is for prompt, thoughtful, and intelligent action by the super-bureaucrats of the European Commission. Right? Well, maybe not. You can be confident, however, that they will generate idiotic regulations that increase costs and trample national sovereignty. The latest example is some new red tape that will prohibit grocers from selling items based on numerical quantity. I'm not joking. Here's a blurb from the UK-based Telegraph:
Under the draft legislation, to come into force as early as next year, the sale of groceries using the simple measurement of numbers will be replaced by an EU-wide system based on weight. It would mean an end to packaging descriptions such as eggs by the dozen, four-packs of apples, six bread rolls or boxes of 12 fish fingers. ...The changes would cost the food and retail industries millions of pounds as items would have to be individually weighed to ensure the accuracy of the label. Trade magazine, The Grocer, said food industry sources had described the move as "bonkers" and "absolute madness". Its editor, Adam Leyland, said the EU had "created a multi-headed monster". Caroline Spelman said: "This goes against common sense. Shopkeeping is a long standing British tradition and we know what customers want. They want to buy eggs by the dozen and they should be allowed to – a point I shall be making clear to our partners in Europe." ...Andrew Opie, food director of the British Retail Consortium, which represents 90 per cent of UK shops, said: "This is a bad proposal – we need to help consumers, not confuse them."

Monday, June 28, 2010

Should Convicts Be Allowed to Smoke?

I'm somewhat conflicted by this BBC story from New Zealand. I want prison to be a miserable experience so that there is a strong deterrent effect. Yet anything that keeps prisoners calm is presumably good for prison management. The guy who sent me this story included a comment that a smoking ban will increase the lifespan of prisoners and that will increase the burden on taxpayers (at least for those serving life sentences). I'm enough of a budget geek that this is a compelling argument for me. Give them all unfiltered cigarettes! (except, of course, the ones in jail for victimless crimes, all of whom should be immediately released).
New Zealand is to ban smoking throughout the country's prisons from 1 July 2011, Corrections Minister Judith Collins has announced. The announcement has prompted concerns that violence in prisons could increase if prisoners are denied tobacco. But Ms Collins dismissed the warnings and said high levels of smoking were a risk to staff and prisoners. About 5,700 prisoners - two-thirds of the current total in New Zealand prisons - are smokers. ...Former inmate Shenelle Ngatai told TVNZ that cigarettes were like gold in prisons, where they are used as currency. She also said that jails would become more corrupt if cigarettes were taken off prisoners. ...Denying inmates their "fix" would lead to an increase in violence between desperate prisoners, she added. Human Rights lawyer Michael Bott agreed that the ban would cause more problems than it might solve. "They are going to be very frustrated, very dangerous; it's a toxic dangerous environment, made even worse by such foolishness as this," he told 3News in New Zealand. However, Ms Collins insists that the smoking ban will have other advantages. It would make it easier to put more than one prisoner in each cell, she said, and reduce the number of prison officers suing the government for being exposed to second-hand smoke.

A (Narrow) Victory for the 2nd Amendment

John Lott is one of America's leading scholars of gun rights and the 2nd Amendment. His Foxnews.com column explains today's ruling in favor of the Constitution and explains how the 2008 Heller decision led to less murder in Washington, DC.
With another closely decided 5 to 4 decision, the Supreme Court ruled today that state governments are not able to ban most Americans from owning most types of handguns. The court ruled that firearms are "essential for self-defense." The court found that if the Second Amendment indeed protects an individual right to own a gun, the notion that the government can't ban all handguns is the minimum protection the Constitution can offer. ...When the “Heller” decision was handed down in 2008 striking down Washington, D.C.'s handgun ban and gunlock regulations, Chicago's Mayor Richard Daley predicted disaster. He said that overturning the gun ban was "a very frightening decision" and predicted more deaths along with Wild West-style shootouts and that people "are going to take a gun and they are going to end their lives in a family dispute." Washington’s Mayor Adrian Fenty similarly warned: "More handguns in the District of Columbia will only lead to more handgun violence." Yet, Armageddon never arrived. Washington’s murder rate has plummeted -- falling by 25 percent in 2009 alone. This compares with a national drop of only 7 percent last year. And D.C.'s drop has continued this ear. Comparing Washington’s crime rates from January 1 to June 17 of this year to the same period in 2008, shows a 34 percent drop in murder. This drop puts D.C.'s murder rate back to where it was before the 1977 handgun ban. Indeed, the murder rate is as low as was before 1967. Other gun crimes have also fallen in Washington. While robberies without guns fell by 7 percent, robberies with gun fell by over 14 percent. Assaults with weapons other than guns fell by 7, but assaults using guns fell by over 20 percent. ...Neither the latest justice, Sonia Sotomayor nor the next potential justice, Elena Kagan are sympathetic to an individual's right to self-defense.

Robert Samuelson's Unintentional Case for Austrian Economics

In his Washington Post column discussing a crisis of confidence among economists, Robert Samuelson correctly notes that Keynesians don't seem to have the right answers. But he concludes that other schools of thought are similarly befuddled by current events. What he writes is not terribly objectionable, but it's almost as if he thinks the fiscal debate in the economics profession is limited to the spend-now-and-forever Keynesians and the all-that-matters-is-the-budget-deficit proponents of "austerity" (which often is just an excuse to raise taxes, as I explain here). I gather Samuelson's not familiar with the Austrian theory developed by scholars such as Mises and Hayek. Unlike the Keynesians and the crowd at the IMF, the Austrian school is not baffled by world events. The Austrians are not so foolish as to think they can predict the economy's short-term fluctuations, but they were the ones who correctly warned against the intervention and spending that created the current mess and they can take a certain grim satisfaction about being proven correct. And they have the only intelligent prescription for what should be done now - namely, that politicians should get out of the way. After all, the crowd in Washington created the mess by doing too much and doing more of the same bad policies will - at best - further reduce the economy's long-term prosperity.
Economics has become the shaky science; its intellectual chaos provides context for today's policy disputes at home and abroad. Consider the matter of budgets. Would bigger deficits stimulate the economy and create jobs, as standard Keynesianism suggests? Or do exploding government debts threaten another financial crisis? The Keynesian logic seems airtight. If consumer and business spending is weak, government raises demand through tax cuts or spending increases. But in practice, governments' high debts impose financial and psychological limits. ...There's a tug of war between the stimulus of bigger deficits and the fears inspired by bigger deficits. ...The disconnect between theory and reality seems ominous. The response to the initial crisis was to throw money at it -- to lower interest rates and expand budget deficits. But with interest rates now low and deficits high, what happens if there's another crisis?

Sunday, June 27, 2010

Taxpayers vs. Bureaucrats, Part XXXIII

If misery loves company, then American and English taxpayers can enjoy a bonding experience after reading this story about excessive pay for bureaucrats in Brussels. According to the Daily Telegraph, at least 1,000 (and probably more than 2,000) of these euro-crats earn more than the U.K. Prime Minster.

More than one thousand EU officials earn more than the Prime Minister, according to research carried out by the The Daily Telegraph. ...Included in the overall total are Herman Van Rompuy, the EU president, Baroness Ashton, Europe's foreign minister, José Manuel Barroso, the European Commission President along with six vice-presidents and 19 commissioners. This group of 28 people, who are all unelected, earn £57,000 to £103,000 more than Mr Cameron and include the three best paid politicians, Mr Van Rompuy, Mr Barroso and Lady Ashton, in the western world. Among the 995 European civil servants, who are on the AD14 to AD16 grades earning £146,267 to £179,703, are at least 90 unelected British EU officials earning more than the Prime Minister. The Commission has admitted that the true numbers cannot be calculated and could be at least twice as high. After tax relief and generous perks are taken into account it is likely that over 2,000 officials are earning more than Mr Cameron. ...Research and information requests have also found that there are 19 European Parliament assistants, or researchers to MEPs, who earn £75,752 a year. Another 12 assistants, eligible along with EU officials for low tax rates, pocket £70,217 a year. A British MP in the House of Commons earns just £65,738.

Questions for Elena Kagan

I don't know what will happen when the Senate Judiciary Committee grills Obama's Supreme Court nominee, but I hope at least one member reads George Will's column and uses some of his suggested questions. They are all worth reading, but here are my three favorites:

The government having decided that Chrysler's survival is an urgent national necessity, could it decide that "Cash for Clunkers" is too indirect a subsidy and instead mandate that people buy Chrysler products? ...Can you name a human endeavor that Congress cannot regulate on the pretense that the endeavor affects interstate commerce? ...Should proper respect for precedent prevent the court from reversing Kelo? If so, was the court wrong to undo the 1896 ruling in Plessy v. Ferguson that segregating the races with "separate but equal" facilities is constitutional?

Saturday, June 26, 2010

Canadian Boondoggles and Russia Is More Capitalist than the U.S. (Again)

The G-20 gab-fest is in Canada this weekend, but Canadian taxpayers are definitely not winners. In a display of waste that might even embarrass a French politician, the Canadian government somehow is going to squander $1 billion hosting the event. I can't even conceive of why such an event should even cost $10 million. Maybe hookers are very expensive up north. One interesting policy issue at the meeting is that the United States is siding with Euro-socialist nations in pushing a bank tax. Fortunately for taxpayers and financial consumers, the former communists in charge of Russia are helping to block this money-grab. This adds to the irony of Russia recently proposing to eliminate capital gains taxation while Obama (and the U.K.'s Cameron) are increasing the tax rate on entrepreneurship and investment. The world is upside down. The EU Observer reports:
With international eyes focusing on the potential 'stimulus versus austerity' scrap between different member states, Canadian citizens meanwhile have reacted in uproar at news that the weekend's bill is set to total over $1 billion. Although 90 percent of that cost comes under the 'security' heading, it is a artificial lake intended to impress journalists in the press area that has come in for the heaviest criticism. The controversy may not be helped by the forecast lack of tangible results set to emanate from the two sets of meetings... The need for a global bank levy provides one the more concrete topics for discussion, but there is no guarantee that participants around the table will come to an agreement. "In the G20, the idea of a bank levy is not supported by at least half of the members," Russian ambassador to the EU Vladimir Chizhov told a group of journalists on Friday morning in Brussels. "Neither is it acceptable to Russia," he continued, arguing that banks would merely pass on the extra costs to their clients.

At Least We Made if Farther than France

I'm not a soccer fan, but I'm nonetheless disappointed that the American team lost. Having said that, at least we got farther than a certain team from a socialist nation (not that we can point too many fingers in that regard considering what Bush and Obama have done). So in honor of the World Cup, here's an image of a recent Wall Street Journal story.

The Keynesian Crack-Up

This is another post with a long excerpt, but this editorial from the Wall Street Journal is excellent. I encourage you to click the link and read the whole thing.
...the larger story is the end of the neo-Keynesian economic moment, and perhaps the start of a healthier policy turn. For going on three years, the developed world's economic policy has been dominated by the revival of the old idea that vast amounts of public spending could prevent deflation, cure a recession, and ignite a new era of government-led prosperity. It hasn't turned out that way. ...The Europeans have had enough and want to swear off the sauce, while the Obama Administration wants to keep running a bar tab. ...Like many bad ideas, the current Keynesian revival began under George W. Bush. Larry Summers, then a private economist, told Congress that a "timely, targeted and temporary" spending program of $150 billion was urgently needed to boost consumer "demand." Democrats who had retaken Congress adopted the idea—they love an excuse to spend—and the politically tapped-out Mr. Bush went along with $168 billion in spending and one-time tax rebates. ...enter Stimulus II, with Mr. Summers again leading the intellectual charge, this time as President Obama's adviser and this time suggesting upwards of $500 billion. When Congress was done two months later, in February 2009, the amount was $862 billion. A pair of White House economists famously promised that this spending would keep the unemployment rate below 8%. Seventeen months later, and despite historically easy monetary policy for that entire period, the jobless rate is still 9.7%. Yesterday, the Bureau of Economic Analysis once again reduced the GDP estimate for first quarter growth, this time to 2.7%, while economic indicators in the second quarter have been mediocre. ...this is a far cry from the snappy recovery that typically follows a steep recession, most recently in 1983-84 after the Reagan tax cuts. ...The response at the White House and among Congressional leaders has been . . . Stimulus III. While talking about the need for "fiscal discipline" some time in the future, President Obama wants more spending today to again boost "demand." Thirty months after Mr. Summers won his first victory, we are back at the same policy stand. The difference this time is that the Keynesian political consensus is cracking up. In Europe, the bond vigilantes have pulled the credit cards of Greece, Portugal and Spain, with Britain and Italy in their sights. ...The larger lesson here is about policy. The original sin—and it was nearly global—was to revive the Keynesian economic model that had last cracked up in the 1970s, while forgetting the lessons of the long prosperity from 1982 through 2007. The Reagan and Clinton-Gingrich booms were fostered by a policy environment for most of that era of lower taxes, spending restraint and sound money. The spending restraint began to end in the late 1990s, sound money vanished earlier this decade, and now Democrats are promising a series of enormous tax increases. Notice that we aren't saying that spending restraint alone is a miracle economic cure. The spending cuts now in fashion in Europe are essential, but cuts by themselves won't balance annual deficits reaching 10% of GDP. That requires new revenues from faster growth, and there's a danger that the tax increases now sweeping Europe will dampen growth further. ...We are told to let Congress continue to spend and borrow until the precise moment when Mr. Summers and Mark Zandi and the other architects of our current policy say it is time to raise taxes to reduce the huge deficits and debt that their spending has produced. Meanwhile, individuals and businesses are supposed to be unaffected by the prospect of future tax increases, higher interest rates, and more government control over nearly every area of the economy. Even the CEOs of the Business Roundtable now see the damage this is doing.

Friday, June 25, 2010

Bureaucracy Run Amok

John Derbyshire of National Review has an interesting article on bureaucratic harassment of private business. He begins with a personal story of something that happened when he first came to the United States and was working at a food-preparation company:

The first federal regulator I ever knew was a fellow named Ernie. ...Ernie was a power freak. If you showed him the respect he thought he was entitled to, he was generally harmless. If you crossed him, however, his wrath was terrible. The boss of the firm was a no-nonsense former Marine. ...He put up with Ernie as best he could, but sometimes the forbearance required was too great. ...On one occasion the boss lost it and yelled at Ernie. Ernie then had his minions go round the firm “tagging” all the preparation tables with what looked like old-fashioned white luggage tags. Peered at up close, the tags revealed printed messages saying that no food product could go anywhere near the tagged table until the tag was removed, with ferocious federal penalties threatened against transgressors. The tags could, of course, only be removed by Ernie. The tables were out of commission. We had to scrub those suckers three or four times over with green scouring pads and Comet before Ernie would deign to remove his tags and let the firm get on with their business. Another time, after some other go-round with the boss, Ernie determined that the firm’s ZIP code was printed on the dinner boxes in too small a font. The boss had to get rolls of stick-over labels printed up, and we menials spent a couple of days working our way through the freezer rooms relabeling the dinners so the ZIP code was in the FDA-approved font size. I guess this was real important to the nation’s health.

The substance of his article is another example of bureaucratic excess, though this time with much greater potential for economic damage. The federal bureaucracy and Washington political elite (with the support of big companies that don't like competition) are hampering the development of an industry that is offering 100-percent safe genetic testing for consumers. The excerpt is long, but shows how government intervention is both unwarranted and driven by bad motives.
A firm named Pathway Genomics, based in San Diego, is one of many that have come up in the past few years offering to scan a person’s DNA and report on any significant disease-risk or drug-response markers. You swab your cheek with a sterile Q-Tip they provide, or spit into a sterile plastic tube, and you send the saliva sample off to them. They scan it and send you back the information. The cost of a test can be from $20 to $500, depending on how many markers are scanned for. Earlier this year Pathway entered into a deal with Walgrens, a nationwide drugstore chain with 7,500 outlets. The deal would have allowed Pathway to operate counters at 6,000 of those outlets, selling their service. Instead of signing up with Pathway via their website and sending in your saliva sample through the mail, you could do the thing right there in your local drugstore. Health reporter Rob Stein at the Washington Post did a story on the Pathway-Walgreens deal. The story appeared in the May 11 edition of the newspaper. By way of researching it, Stein called the FDA to ask them for a quote. ...The call, however, woke the FDA from their dogmatic slumbers. ...The regulocrats lumbered into action. A letter went out to Pathway warning them that their test was a “medical device” likely subject to FDA oversight and pre-marketing approval. Hearing of this, Walgreens canceled the deal with Pathway. Close behind the FDA, like jackals following tigers, came Congress. Henry Waxman, head of the House Energy and Commerce Committee, demanded a comprehensive document dump from three of the firms — every letter, every lab report, every e-mail. Last week the FDA escalated the war, sending letters out to five more of the firms (23andMe, Navigenics, DeCode, Illumina, and Knome) couched in similar terms to the original Pathway letter. ...The logic of classifying these DNA scans as “medical devices” bears a closer look. What actually is a “medical device”? Answer: A medical device is anything the FDA declares to be a medical device. ...You might still think it’s a bit of a stretch to call these tests “medical devices.” They are, after all, merely informational. Consumers are not being dosed with anything, or having anything attached to or implanted in their bodies, nor even inserted into their mouths for purposes of tongue depression. “Medical device”? Huh? ...Lest you should think this is a straightforward tale of power-crazed regulators and tax-hungry politicians killing off an infant industry, please let it be noted that Big Government is by no means the only predator that struggling start-ups must face. There is also Big Business. In seeking to widen its regulatory scope, the FDA has some support from big, established biotech companies. Back in 2008, biotech giant Genentech petitioned the FDA to expand its authority into products involving “laboratory-developed tests” (LDTs). An LDT is one with an expert in the loop. An example of a non-LDT would be a home pregnancy test — no expert between test and interpretation. LDTs are more lightly regulated than non-LDTs, for understandable reasons. ...It was natural for Genentech and other established companies to look with disfavor on impertinent startups taking advantage of regulatory loopholes. Big Business is just as capable of hating entrepreneurial startups as is Big Government. A business can only lobby, though. Government can act. ....The U.S.A. is a real nice place to have a job in government, and still a pretty nice place to work for a big corporation — especially one designated “too big to fail.” For the start-up entrepreneur in an ideologically fraught field, however, the environment is increasingly hostile. Why do they even bother?

The G-20 Fiscal Fight: A Pox on Both Their Houses

Barack Obama and Angela Merkel are the two main characters in what is being portrayed as a fight between American "stimulus" and European "austerity" at the G-20 summit meeting in Canada. My immediate instinct is to cheer for the Europeans. After all, "austerity" presumably means cutting back on wasteful government spending. Obama's definition of "stimulus," by contrast, is borrowing money from China and distributing it to various Democratic-leaning special-interest groups.

But appearances can be deceiving. Austerity, in the European context, means budget balance rather than spending reduction. As such, David Cameron's proposal to boost the U.K.'s value-added tax from 17.5 percent to 20 percent is supposedly a sign of austerity even though his Chancellor of the Exchequer said a higher tax burden would generate “13 billion pounds we don’t have to find from extra spending cuts.”

Raising taxes to finance a bloated government, to be sure, is not the same as Obama's strategy of borrowing money to finance a bloated government. But proponents of limited government and economic freedom understandably are underwhelmed by the choice of two big-government approaches.

What matters most, from a fiscal policy perspective, is shrinking the burden of government spending relative to economic output. Europe needs smaller government, not budget balance. According to OECD data, government spending in eurozone nations consumes nearly 51 percent of gross domestic product, almost 10 percentage points higher than the burden of government spending in the United States.

Unfortunately, I suspect that the "austerity" plans of Merkel, Cameron, Sarkozy, et al, will leave the overall burden of government relatively unchanged. That may be good news if the alternative is for government budgets to consume even-larger shares of economic output, but it is far from what is needed.

Unfortunately, the United States no longer offers a competing vision to the European welfare state. Under the big-government policies of Bush and Obama, the share of GDP consumed by government spending has jumped by nearly 8-percentage points in the past 10 years. And with Obama proposing and/or implementing higher income taxes, higher death taxes, higher capital gains taxes, higher payroll taxes, higher dividend taxes, and higher business taxes, it appears that American-style big-government "stimulus" will soon be matched by European-style big-government "austerity."

Here's a blurb from the Christian Science Monitor about the Potemkin Village fiscal fight in Canada:

This weekend's G-20 summit is shaping up as an economic clash of civilizations – or at least a clash of EU and US economic views. EU officials led by German chancellor Angela Merkel are on a national “austerity” budget cutting offensive as the wisest policy for economic health, ahead of the Toronto summit of 20 large-economy nations. Ms. Merkel Thursday said Germany will continue with $100 billion in cuts that will join similar giant ax strokes in the UK, Italy, France, Spain, and Greece. EU officials say budget austerity promotes the stability and market confidence that are prerequisites for their role in overall recovery. Yet EU pro-austerity statements in the past 48 hours are also defensive – a reaction to public statements from US President Barack Obama and G-20 chairman Lee Myung-bak, South Korea's president, that the overall effect of national austerity in the EU will harm recovery. They are joined by US Treasury Secretary Tim Geithner, investor George Soros, and Nobel laureate and columnist Paul Krugman, among others, arguing that austerity works against growth, and may lead to a recessionary spiral.

Thursday, June 24, 2010

Big-Business Lobby Group Supports So-Called Stimulus and Obamacare and then Has Gall to Complain about Big Government

Regular readers of this blog know that big corporations often are enemies of free markets and individual liberty. So it is hardly suprising to know that the Business Roundtable, a lobby representing CEOs of major companies, supported the wasteful and ineffective stimulus pprogram in 2009 and the bloated new healthcare entitlement in 2010. Big companies, after all, are quite proficient at working the system to obtain unearned wealth and to rig the rules against smaller competitors.

What is surprising, however, is that representatives of that organization now have the chutzpah to complain about a "hostile environment for investment and job creation." Equally galling, the group has published a document called "Policy Burdens Inhibiting Economic Growth." We've all heard the joke about the guy who murders his parents and then asks the court for mercy because he's an orphan. The Business Roundtable has adopted that strategy, except this time taxpayers are the butt of the joke.

Here's an excerpt from the Washington Post report:
The chairman of the Business Roundtable, an association of top corporate executives that has been President Obama's closest ally in the business community, accused the president and Democratic lawmakers Tuesday of creating an "increasingly hostile environment for investment and job creation." Ivan G. Seidenberg, chief executive of Verizon Communications, said that Democrats in Washington are pursuing tax increases, policy changes and regulatory actions that together threaten to dampen economic growth and "harm our ability . . . to grow private-sector jobs in the U.S." ...The final straw, said Roundtable president John Castellani, was the introduction of two pieces of legislation, now pending in Congress, that the group views as particularly bad for business. One, a provision of the administration's financial regulation overhaul, would make it easier for shareholders to nominate corporate board members. The other would raise taxes on multinational corporations. The rhetoric accompanying the tax proposals has been particularly harsh, Castellani said, with Democrats vowing to campaign in this fall's midterm elections on a platform of punishing companies that move jobs overseas. ...Seidenberg polled the members of the Business Roundtable and a sister organization, the Business Council. The result was a 54-page document, delivered to Orszag on Monday, chock full of bullet points about actions taken or considered by a wide array of executive agencies, including the White House Middle Class Task Force and the Food and Drug Administration. "We believe the cumulative effect of these proposals will help defeat the objectives we all share -- reducing unemployment, improving the
competitiveness of U.S. companies and creating an environment that fosters long-term economic growth," Seidenberg wrote in a cover letter for the document, titled "Policy Burdens Inhibiting Economic Growth."

European Central Bank President Wants to Exacerbate Continent's Fiscal Crisis

It's been amusing, in an I-told-you-so fashion, to follow the fiscal crises in Greece, Spain, and other European welfare states. And I feel like a voyeuristic ghoul as I observe the incredibly misguided bailout policies being adopted by the political elites (who are trying to bailout the business elites who made silly loans to corrupt nations in Southern Europe). But I'm not sure how to describe my emotions (dumbfounded fascination?) about the latest bad idea emanating from Europe - to have a fiscal federation that would give bureaucrats in Brussels power over national budgets. It's quite possible that this would result in some externally-imposed discipline for a basket case such as Greece, so it would not always lead to terrible results. But most of the decisions would be bad, particularly since the Euro-crats would use new powers to curtail tax competition in order to enhance the ability of governments to impose bad tax policy in order to seize more money. Moreover, fiscal centralization would exacerbate the main problem in Europe by creating a new avenue - cross-border subsidies - for people who want to mooch by getting access to other people's money. The Wall Street Journal Europe has a good editorial on the issue:
Of all the possible responses to Europe's sovereign debt woes, the notion of centralizing fiscal authority in Brussels may well be the most destructive. But that was exactly what European Central Bank President Jean-Claude Trichet proposed in testimony before the European Parliament Monday. Mr. Trichet's idea is that an independent body within the European Commission should have broad power to sanction national governments for fiscal or macroeconomic policies that threatened the stability of the euro. This would amount, in Mr. Trichet's words, to the "equivalent of a fiscal federation" for the euro zone. Mr. Trichet has spent nearly 40 years as a civil servant in one form or another, which may explain his belief that Europe's budgetary problems can be solved by technocrats. ...Fiscal centralization would also undermine competition between different fiscal and macroeconomic policies within the euro zone. That would delight some countries, and probably some at the European Commission as well. During this crisis, French Finance Minister Christine Lagarde has criticized Germany for becoming too competitive for the euro zone's own good. And a decade ago, France was among the euro-zone countries that
attacked Ireland for lowering its corporate income-tax rate to 12.5% to attract
investment. ...Ireland's 12.5% corporate tax rate was an experiment that contributed to a lowering of rates around the world in the succeeding years.

Great Moments in Government Stupidity

There really isn't much I can add to this story in USA Today about the IRS giving money to prisoners. Yes, it is a story about typical government incompetence. But it also shows the inevitable problems that occur when government engages in industrial policy and social engineering via the tax code. Let's call this argument 1,549,628 in favor of the flat tax.
Despite efforts by the IRS to combat scams, thousands of individuals — including nearly 1,300 prison inmates — have defrauded the government of millions of dollars in home buyer credits, Treasury's inspector general reported Wednesday. ...1,295 prisoners, including 241 serving life sentences, received $9.1 million in credits, even though they were incarcerated at the time they reported that they purchased their home. These prisoners didn't file joint returns, so their claims could not have been the result of purchases made with or by their spouses, the report said. 2,555 taxpayers received $17.6 million in credits for homes purchased before the dates allowed by law. 10,282 taxpayers received credits for homes that were also used by other taxpayers to claim the credit. In one case, 67 taxpayers used the same home to claim the credit.

Wednesday, June 23, 2010

Nazis, Communists, and Moral Bankruptcy

Jeff Jacoby righteously - and rightfully - condemns the moral perversion that allows people to overlook the barbaric cruelty and oppression of communism.

If Jose Saramago, the Portuguese writer who died on Friday at 87, had been an unrepentant Nazi for the last four decades, he would never have won international acclaim or received the 1998 Nobel Prize for Literature. Leading publishers would never have brought out his books, his works would not have been translated into more than 20 languages, and the head of Portugal’s government would never have said on his death — as Prime Minister José Sócrates did say last week — that he was “one of our great cultural figures and his disappearance has left our culture poorer." But Saramago wasn’t a Nazi, he was a communist. And not just a nominal communist, as his obituaries pointed out, but an "unabashed" (Washington Post), “unflinching’’ (AP), “unfaltering’’ (New York Times) true believer. A member since 1969 of Portugal’s hardline Communist Party, Saramago called himself a “hormonal communist’’ who in all the years since had "found nothing better." ...the idea that good people can be devoted communists is grotesque. The two categories are mutually exclusive. There was a time, perhaps, when dedication to communism could be absolved as misplaced idealism or naiveté, but that day is long past. After Auschwitz and Babi Yar, only a moral cripple could be a committed Nazi. By the same token, there are no good and decent communists — not after the Gulag Archipelago and the Cambodian killing fields and Mao’s “Great Leap Forward.’’ Not after the testimonies of Alexander Solzhenitsyn and Armando Valladares and Dith Pran. In the decades since 1917, communism has led to more slaughter and suffering than any other cause in human history. Communist regimes on four continents sent an estimated 100 million men, women, and children to their deaths — not out of misplaced zeal in pursuit of a fundamentally beautiful theory, but out of utopian fanaticism and an unquenchable lust for power. Mass murder and terror have always been intrinsic to communism. “Many archives and witnesses prove conclusively,’’ wrote Stéphane Courtois in his introduction to “The Black Book of Communism,’’ a magisterial compendium of communist crimes first published in France in 1997, “that terror has always been one of the basic ingredients of modern communism.’’ The uniqueness of the Holocaust notwithstanding, the savageries of communism and of Nazism are morally interchangeable — except that the former began much earlier than the latter, lasted much longer, and shed far more blood.

Let's Celebrate Some Inspiring News on Property Rights

This new video from the Institute for Justice celebrates the backlash against the Supreme Court's reprehensible Kelo decision that allowed politicians to seize private property for the benefit of commercial developers and other campaign contributors.



The best part of the video comes shortly before the three-minute mark, when the narrator notes that the corrupt politicians of New London, CT, have not received any additional tax revenue as a result of stealing Susette Kelo's house. Sometimes, as I noted in an earlier blog entry, there is poetic justice.

The Tea Party Strikes Again as Pro-Bailout Congressman Loses Primary

There were closely-watched primaries yesterday in South Carolina and Utah. Most of the attention was on the Palmetto State, where an Indian-American woman won the GOP nomination for governor and an African-American won the nomination for the first district congressional seat. Both are positive developments since the respective candidates appear to be solid, limited-government conservatives. But the most important race, in my humble opinion, was the battle to unseat incumbent GOP Congressman Bob Inglis, who was a TARP-supporting, pro-tax Republican. As this Politico story indicates, he got completely stomped as voters wisely recognized that he had become a fan of big government.

Rep. Bob Inglis (R-S.C) became the third House member and the fifth member of Congress to be defeated this year, losing by an overwhelming margin Tuesday in a GOP primary that served as a referendum on Inglis’s conservative credentials. ...After finishing a distant second in the June 8 primary, Inglis’s loss did not come as a surprise. Still, the margin of defeat was stunning: Spartanburg County Solicitor Trey Gowdy, who had slammed Inglis for his positions on everything from the Iraq war troop surge to drilling in the Arctic National Wildlife Refuge in an effort to paint the congressman as insufficiently conservative, won 71 percent to Inglis’s 29 percent. ...Before the ballots had been cast Tuesday, many Republican operatives in Washington and South Carolina had written off the prospect of an Inglis victory, chalking up his seemingly inevitable loss to a combination of an anti-incumbent tide and local frustration with his departures from conservative orthodoxy. ...As town halls raged last summer, Inglis came under glaring criticism from conservative activists after he told a room of angry town hall attendees to “turn off” Glenn Beck.

Tuesday, June 22, 2010

The U.K. Version of Meet the New Boss, Same as the Old Boss

As the chart below indicates, the United Kingdom has a large budget deficit solely because government spending has increased to record levels. Unfortunately, the new Tory-Liberal coalition government has decided that taxpayers should be punished for all the over-spending that occurred when the Labor government was in charge.

The Telegraph reports that the top capital gains rate will jump to 28 percent, up from 18 percent (the new government foolishly thinks this will result in more revenue). But the biggest change is that the value-added tax will increase to 20 percent. According to Business Week, the Chancellor of the Exchequer (the British equivalent of Treasury Secretary) actually bragged that the VAT increase was good since it would generate "13 billion pounds we don’t have to find from extra spending cuts." Here are some further details from Business Week about the disappointing fiscal news from London.

British Chancellor of the Exchequer George Osborne increased the value-added tax rate to 20 percent from 17.5 percent in the first permanent change to the levy on sales of goods and services in almost two decades. “The years of debt and spending make this unavoidable,” Osborne told Parliament in London in his emergency budget today as he announced a package of spending cuts and tax increases to cut the U.K.’s record deficit. ...“We understand that the budget deficit needs to be tackled but we think the focus needs to be cutting public spending over tax rises,” Krishan Rama, a spokesman for the industry lobby group, the British Retail Consortium, said in a telephone interview yesterday. ...VAT has remained at 17.5 percent in every year except one since 1991, when John Major’s Conservative administration raised the rate from 15 percent to help plug a deficit.
The one tiny glimmer of good news from the budget is that the corporate tax rate is being reduced from 28 percent to 24 percent, which is probably a reflection of the strong and virtuous tax competition that is forcing greedy governments to lower tax rates in order to attract and/or retain business activity. There also is a two-year pay freeze for government bureaucrats, but this is hardly good news since a 30-percent pay cut is needed to bring compensation down to private sector levels.

Tea Parties, Defense Spending, Overpaid Bureaucrats, Green Energy, and International Taxation

These are the issues I discuss in this wide-ranging Fox Business News interview.

Top House Democrat Calls for Middle-Class Tax Hikes

I've frequently argued that the main purpose of "taxing the rich" is not to collect more revenue. Smart leftists, after all, understand that there are very strong Laffer Curve effects at the top of the income scale since investors and entrepreneurs have considerable ability to control the timing, level, and composition of their income. So if higher tax rates on upper-income taxpayers don't collect much revenue, why is the left so insistent on class-warfare taxation? The answer, I think, is that soak-the-rich taxes are a "loss-leader" that politicians impose in order to pave the way for higher taxes on the middle class. Indeed, I made this point in my video on class warfare taxation, and noted that are not enough rich people to finance big government. As such, politicians that want to tax the middle class hope to soften opposition among ordinary people by first punishing society's most productive people. We already know that tax rates on the so-called rich will jump next January thanks to higher income tax rates, higher capital gains tax rates, more double taxation of dividends, and higher death taxes. Now the politicians are preparing to drop the other shoe. Excerpted below is a blurb from the Washington Post about a member of the House Democratic leadership urging middle-class tax hikes, and let's not forgot all the politicians salivating for a value-added tax.

Tax cuts that benefit the middle class should not be "totally sacrosanct" as policymakers try to plug the nation's yawning budget gap, House Majority Leader Steny Hoyer (D-Md.) said Monday, acknowledging that it would be difficult to reduce long-term deficits without breaking President Obama's pledge to protect families earning less than $250,000 a year. Hoyer, the second-ranking House Democrat, said in an interview that he expects Congress to extend middle-class tax cuts enacted during the Bush administration that are set to expire at the end of this year. But he said the extension should not be permanent. Hoyer said he plans to call for a "serious discussion" about the affordability of the tax breaks. ...The overarching point in Hoyer's remarks is the need for a bipartisan plan that includes spending cuts and tax increases, in the tradition of deficit-reduction deals cut under former presidents George H.W. Bush and Bill Clinton. Drafting such a plan would require a reexamination of tax cuts enacted in 2001 and 2003, Hoyer says -- cuts that benefited most taxpayers.

Monday, June 21, 2010

Congressman Barton, BP, Obama, and the Oil Spill

I was interviewed by CNN about the issues relating to Congressman Barton's apology to BP. The network only used one of my quotes from the interview, and I was happy to see that I was not taken out of context (always a danger when you are taped in advance).



To augment my limited quote from the story, my main gripe with the $20 billion fund is that compensation claims should be part of the regular legal process and not the result of pressure from the White House. That being said, I won't be too agitated about the fund - assuming that the money does not become a piggy bank for White House vote buying. On the broader issue of BP and the spill, protecting people from harm (either intentional harm, which is addressed by the criminal justice system, or unintentional harm, which should be addressed through the tort system) is one of the few legitimate functions of government.

One final comment. The CNN story, shortly after the 2:00 mark, makes it appear as if polling data shows the American people favor Obama's approach. That is not the case. The polling data simply shows that people don't think the spill is under control and that they think BP should pay all damages. That's not contrary to Obama's position, but neither is it contrary to the libertarian position.

A Bigger Government Means a Less Prosperous Economy

A new study from the Mercatus Center at George Mason University examines some of the academic research about the relationship between government spending and economic performance. Reinforcing many of the points I made in my theory and evidence videos, the GMU study finds that big government undermines growth:

Although the studies are not all consistent, historical evidence suggests an undesirable, long-run effect from government spending: it crowds out private-sector spending and uses money in unproductive ways. ...Professor Emeritus of Law at George Mason University Gordon Tullock suggests that politicians and bureaucrats try to gain control of as much of the economy as possible.5 Moreover, demand for government resources by the private sector leads to misallocation of resources through “rent seeking”—the process by which industries and individuals lobby the government for money. Rather than spend money where it is most needed, legislators instead allocate money to favored groups. ...A 1974 paper by Stanford’s Gavin Wright found that political attempts to maximize votes explained between 59 and 80 percent of the difference in per capita federal spending to the states during the Great Depression. ...An NBER paper that analyzes a panel of OECD countries found that government spending also has a strong negative correlation with business investment. Conversely, when governments cut spending, there is a surge in private investment. ...Additionally, in a study of 76 countries, the University of Vienna’s Dennis C. Mueller and George Mason University’s Thomas Stratmann found a statistically significant negative correlation between government size and economic growth.

Taxpayers vs. Bureaucrats, Part XXXII

American taxpayers are not the only ones getting ripped off by lavish pay and perks for bureaucrats. The Daily Mail reports on a new study about public sector pay in the United Kingdom:
Public sector employees work nine years less than their private sector counterparts but are paid 30 per cent more, a bombshell report reveals today. Extraordinary research tells a tale of two Britains - a state sector awash with taxpayers' cash while the rest of the economy struggles to stay afloat. Public sector workers enjoy better pay than those in the private sector, as well as better pensions, shorter hours, and earlier retirement. Over their lifetimes, those in the private sector work 23 per cent longer - equivalent to an extra nine years and ten weeks - than public sector employees. This is thanks to a combination of shorter hours, more time off and earlier retirement. The findings explode once and for all the old idea that public sector workers have better job security and gold-plated pensions because they have lower salaries. ...The report, by centre-Right think tank Policy Exchange, also found that the chance of being made compulsorily redundant in the civil service is an astonishing 0.00007 per cent. Generous pension schemes in the state sector are now worth up to 15 per cent on top of salary, the report says, while public sector pay costs have soared by more than a third in real terms over the last seven years - three times faster than in the private sector. ...etween 1997 and 2007 public sector productivity fell, while productivity in the private sector increased by nearly 28 per cent - leaving the former only two-thirds as productive as the latter. Between 2002 and 2009, the number working in the public sector increased nearly five times more quickly than numbers in the private sector.

Sunday, June 20, 2010

While Obama Fiddles, Ukraine and Taiwan Reduce Corporate Tax Burdens

The United States has the world's worst corporate tax system, with a job-killing tax rate of about 40 percent. In the European Union, the average rate is about 25 percent, but that's just one part of the world that is moving in the right direction. My Cato colleague recently did a blog post about Taiwan's politicians lowering that nation's corporate tax rate to 17 percent. Now Tax-news.com is reporting that Ukraine's government is doing something similar, reducing the corporate tax rate from 25 percent to 17 percent.

Ukraine’s new Prime Minister, Mykola Azarov has announced his government’s intention, in a revised tax code, to slash the country’s corporate income tax rate starting 2011, and then further on a transitional basis through 2014 to enhance the nation’s economic performance and fiscal attractiveness. According to the Prime Minister, the corporate income tax will be cut from 25% to 20% in 2011, and cut 1% annually from then on, until 2014 when the rate will stand at 17%. The Value Added Tax is to also to be reduced on a progressive basis over a similar timescale. Explaining the government’s methodology, Azarov was quoted by the national radio station NCRU as saying: “This innovative document is a real tax reform that will improve the investment climate in Ukraine and will improve the nation’s attractiveness for conducting business.”
It's worth noting that a low corporate tax rate is not a silver bullet for an economy with other bad policies. Ukraine has one of the world's most repressive economies, so reducing the corporate tax rate is just one of many reforms that is needed. But, all other things being equal, lower tax rates always are a good idea.

Please Don't Feed the Bums

I'm sure a lot of statist will be horrified by this story from the west coast, but they've probably never had to deal with aggressive bums that make a career out of mooching. The economics in this story are rather straightforward: If you make it easier for people to be bums, more people will be bums. There are separate, and much more challenging issues about people on the streets who are mentally unbalanced, but I strong suspect a strong majority of bums are not in that category.

A sticker with the phrase “Please don’t feed our bums” is stuck on storefronts around Ocean Beach and is based on satire of The National Park Service’s “Please don’t feed the bears” sticker. The sticker is also bringing a serious message. “People who live and work in the area know how it feels to be harassed by these people,” said Chaz Lomack, who works at an Ocean Beach business. The stickers are targeting a new group of homeless -- young aggressive panhandlers who choose not to work and ask for money instead. ...An employee at an Ocean Beach store called The Black started carrying the stickers two weeks ago. Ken Anderson, who did not want to be interviewed on camera, said the stickers were meant to make the community realize the homeless population has become out of control. “A lot of these kids have cell phones and they come from well-off families,” said Lomack. There have even been reports of violence against people who do not give the homeless money. “We don’t want them to do that because it is just enabling them to do their thing,” said Lomack.

America's Self-Destructive (and Imperialist) Tax Regime

One of my main issues at the Cato Institute (and one of the reasons I was a founder of the Center for Freedom and Prosperity) is protecting and promoting fiscal sovereignty. I don't want international bureaucracies such as the United Nations or Paris-based Organization for Economic Cooperation and Development telling nations what kind of tax systems they're allowed to have - especially since those bureaucracies want to undermine tax competition in order to prop up high-tax welfare states. While I realize international tax issues are not that exciting, there is an excellent column in the Wall Street Journal Europe that shows the negative impact when nations (in this case, the United States) seek to tax economic activity in other nations. When foreigners no longer want to invest in America and when Americans are compelled into giving up U.S. citizenship, that's a sign of a bad tax code:

American expatriates are fast becoming the world's financial refugees. Onerous legislation from the U.S. government is making it too difficult – and too expensive – for banks to service U.S. citizens that live abroad. ...An increasing number are taking the most drastic step and renouncing their citizenship. ...bankers, lawyers and accountants are waking up to the wider implications of the new rules. American expats, it seems, may only be the first to suffer. ...Foreign banks are, in effect, being asked to act as the international enforcement arms of the Internal Revenue Service. Those banks that don't comply will be subject to a 30% withholding tax on all payments made to them in the U.S. Many banks and wealth managers have decided it is far easier to politely show their U.S. clients the door. Earlier this month, the law firm Withers conducted a survey of bankers, accountants, independent financial advisers, trust companies and other private client advisors to analyze the impact of the HIRE Act. Over half said they have seen instances where Americans were denied investment and banking services in the last two years. And 95% expect this to increase as a result of the HIRE Act. ...The U.S. government already taxes expatriate citizens on their worldwide income regardless of where it is earned or where they live, making them the only people in the developed world who are taxed in both their country of citizenship and country of residence. ...there has been an explosion in the time it takes us to keep U.S. expat clients compliant with the U.S. tax regime. He says that their bills have "at least doubled" in the past couple of years. ...A number of banks decided that the concept of U.S. citizenship was too nebulous for them to police. Darlene Hart, the chief executive of U.S. Tax & Financial Services says that when the rule came out in 2001 many of her U.S. clients received letters from their wealth managers telling them that their investment portfolios had been liquidated. Now a second wave of banks – especially in Switzerland but increasingly in the UK and the Channel Islands – are closing their doors to Americans because of the added burden of the HIRE Act. ...What then are U.S. expats to do if even more banks cut them adrift as a result of those reviews? A small but growing number have decided that the best way to avoid the rules is to hand in their passports. According to U.S. government figures, twice as many Americans renounced their citizenship in the last quarter of 2009 than in the whole of 2008. The numbers are still only in the hundreds but are expected to rise now that the HIRE Act has been signed. Ms. Hart says the last time she checked it was not possible to get an appointment at the U.S. embassy in London to renounce citizenship until 2012. In Bern, you couldn't get an appointment until June next year. ...Those that don't want to take such a drastic step can move their investments back to the U.S. However, this can be tricky without an address in the U.S. because of the Patriot Act, which tightened up the procedures by which banks verify their clients' identities. ...although it is the U.S. expats that are suffering the most at the moment, the impact of the new law could eventually be felt far more widely. The banks that sign up to the new rules are likely to pay for the required upgrades to their systems by increasing the bank fees for their rest of their customers. And eventually the reverberations from the HIRE Act may also be felt back in the U.S. ...Nearly three-quarters of respondents to the Withers survey said they expected to see investment into the U.S. decrease in the coming years because of the HIRE Act. Wegelin & Co. is, for one, advising its clients to exit all direct investments in U.S. securities.

Saturday, June 19, 2010

Great Moments in Government Waste: Tax Dollars for a Wealthy Casino

Here's another taxpayer ripoff story. Some of the so-called stimulus money was used to subsidize a casino that rakes in $1.3 billion every year. Something to keep in mind the next time a politician tells you that there's no waste in the budget and we need to raise taxes:

With the support of Sen. Chris Dodd, D.-Conn., the federal government has awarded $54 million to Connecticut's politically well-connected Mohegan Indian tribe, which operates one of the highest grossing casinos in the U.S. The tribe runs the sprawling Mohegan Sun casino, halfway between New York City and Boston, which earned more than $1.3 billion in gross revenues in 2009. ...Lynn Malerba, chairwoman of the Mohegan Tribal Council, defended the award of the stimulus loan to the tribe, and said that every member of Connecticut's seven-member Congressional delegation except one had provided assistance in securing the funds. "The whole Connecticut delegation, I think aside from [Rep.] Jim Himes, who was traveling, sent a letter in support." Bryan DeAngelis, communications director for Sen. Dodd, confirmed Dodd's support for the loan. "Senator Dodd supported this project in the same manner and for the same reasons he supports federal assistance for other Connecticut projects – creating and preserving local jobs," said DeAngelis. "The only factor that mattered in Dodd's support of these loans was job creation and economic recovery in Connecticut." A former aide to Dodd, Charles Bunnell, is Chief of Staff for External and Governmental Affairs for the tribe.

Red Light Cameras Are a Dangerous Government Ripoff

Radley Balko's Reason article explains how local governments install red-light cameras in ways that increase accidents because they are greedy for more revenue:

...the Florida Public Health Review published a research paper that concluded the cameras "actually increase crashes and injuries, providing a safety argument not to install them." In particular, there has been a dramatic increase in rear-end collisions, suggesting that people are slamming on their brakes to avoid a ticket. Similarly, a 2005 Washington Post report found that after the city installed its traffic light cameras, collisions at the camera-equipped intersections went up rather than down. But the cameras brought the city $32 million in revenue. So rather than halting the program, the city chose to expand it. A number of researchers have shown that lengthening yellow lights at crash-prone intersections is much more effective at preventing collisions than issuing automated citations. (The North Carolina Urban Transit Institute, for example, came to that conclusion after an extensive study funded by the U.S. Department of Transportation. Other studies along those lines have been conducted by the Virginia Department of Transportation, the Texas Department of Transportation, and North Carolina A&T.) But lengthening yellow lights doesn’t add cash to city coffers, so few jurisdictions have considered it. ...at least six cities have been caught shortening yellow lights after installing cameras at intersections, putting motorists in more peril while simultaneously picking their pockets when they unexpectedly run through red lights. ...Until media reports and citizen complaints prompted a change in the law, motorists in Washington, D.C., who wanted to challenge an automated ticket had their claims heard not by a government court but by the same company that received a percentage of every fine collected. Such policies have sparked a backlash: As of December, 15 states and nine cities had banned automated citation cameras.

Russia Getting Rid of Capital Gains Tax

The former communists running Russia apparently understand tax policy better than the buffoons in charge of U.S. tax policy. Not only does Russia have a 13 percent flat tax, but the government has just announced it will eliminate the capital gains tax (which shouldn't exist in a pure flat tax anyhow). Here's a passage from the BBC report:

Russia will scrap capital gains tax on long-term direct investment from 2011, President Dmitry Medvedev has said. ...Mr Medvedev told the St Petersburg International Economic Forum that long-term direct investment was "necessary for modernisation". ...Its oil revenues fund, which has been financing the deficit, is expected to end next year, and the government wants to attract more foreign investment to boost the economy.
Sounds like President Medvedev has watched the Center for Freedom and Prosperity's video explaining why there should be no capital gains tax. Now we just need to get American politicians to pay attention.

Friday, June 18, 2010

Great Moments in Government Stupidity

This is not a story from The Onion. Instead, the Associated Press has a report of a school in Rhode Island that banned the hat of little eight-year old David Morales because he decorated it with a couple of toy soldiers that...gasp...had tiny little plastic weapons. I'm not even sure what to say about this, other than that the school bureaucrats probably applied for jobs with TSA and were demonstrating that they were qualified. On the other hand, if the school's history classes teach that we beat the Nazis by prevailing in a game of rock-paper-scissors, then perhaps the school truly does have a "zero tolerance" policy about weapons. Here's the relevant section of the report:

Christan Morales said her son just wanted to honor American troops when he wore a hat to school decorated with an American flag and small plastic Army figures. But the school banned the hat because it ran afoul of the district's zero-tolerance weapons policy. Why? The toy soldiers were carrying tiny guns. "His teacher called and said it wasn't appropriate," Morales said. Morales' 8-year-old son, David, had been assigned to make a hat for the day when his second-grade class would meet their pen pals from another school. She and her son came up with an idea to add patriotic decorations to a camouflage hat. Earlier this week, after the hat was banned, the principal at the Tiogue School in Coventry told the family that the hat would be fine if David replaced the Army men holding weapons with ones that didn't have any, according to Superintendent Kenneth R. Di Pietro.

Government Intervention and the Great Depression

Citing a scholarly book by Richard Vedder and Lowell Gallaway, Tom Sowell concisely explains that government intervention caused the Great Depression.

Right here and right now there is a widespread belief that the unregulated market is what got us into our present economic predicament, and that the government must "do something" to get the economy moving again. FDR's intervention in the 1930s has often been cited by those who think this way. ...Although the big stock market crash occurred in October 1929, unemployment never reached double digits in any of the next 12 months after that crash. Unemployment peaked at 9 percent, two months after the stock market crashed-- and then began drifting generally downward over the next six months, falling to 6.3 percent by June 1930. This was what happened in the market, before the federal government decided to "do something." What the government decided to do in June 1930-- against the advice of literally a thousand economists, who took out newspaper ads warning against it-- was impose higher tariffs, in order to save American jobs by reducing imported goods. This was the first massive federal intervention to rescue the economy, under President Herbert Hoover, who took pride in being the first President of the United States to intervene to try to get the economy out of an economic downturn. Within six months after this government intervention, unemployment shot up into double digits-- and stayed in double digits in every month throughout the entire remainder of the decade of the 1930s, as the Roosevelt administration expanded federal intervention far beyond what Hoover had started. If more government regulation of business is the magic answer that so many seem to think it is, the whole history of the 1930s would have been different.
I particularly like that Sowell compares the 1929 and 1987 stock market crashes. The market actually fell more in 1987, but Reagan wisely did nothing and the economy continued growing.

The very fact that we still remember the stock market crash of 1929 is remarkable, since there was a similar stock market crash in 1987 that most people have long since forgotten. What was the difference between these two stock market crashes? The 1929 stock market crash was followed by the most catastrophic depression in American history, with as many as one-fourth of all American workers being unemployed. The 1987 stock market crash was followed by two decades of economic growth with low unemployment. But that was only one difference. The other big difference was that the Reagan administration did not intervene in the economy after the 1987 stock market crash-- despite many outcries in the media that the government should "do something."

Will the Euro Turn into the Argentinian Peso or the Zimbabwean Dollar?

I hope the title to this blog post is completely wrong, but the news out of Europe is very grim. Politicians have been over-spending and going deeper and deeper into debt. This negatively affects the private sector in the usual ways (higher taxes, unproductive allocation of resources, etc), but also creates instability in the financial sector since many banks and other institutions have naively lent lots of money to corrupt and inefficient governments. And as this story from the Telegraph indicates, the European Central Bank has been forced to surrenders its independence and is now monetizing government debt. In theory, the ECB is taking other steps to compensate, but the problem is so large (and the political willingness to solve the problem by radically shrinking government is so small) that it is difficult to see a good ending to this saga.

Fitch Ratings has warned that it may take massive asset purchases by the European Central Bank to prevent Europe's sovereign debt crisis escalating out of control. ...The ECB agreed to start buying Greek, Portuguese, and Irish bonds in April to help buttress the EU's `shock and awe' package, known as the European Financial Stability Facility. Total purchases so far have been €47bn (£39bn). It has focused its firepower on Greece, mopping up some €25bn of government bonds. This has prevented a collapse of the Greek debt market but at the high political price of letting banks and funds dump their holdings onto the EU taxpayer. ECB council member Jose Manuel Gonzalez-Paramo said it was "not entirely correct" to assume that the ECB was the sole buyer of the debt. "We will continue buying bonds until the situation has stabilized," he said. ...Fitch said European banks must refinance nearly €2 trillion of long-term debt by the end of 2012 in an unfriendly market. "There's an awful lot of debt coming due in 2011 and 2012, and that is becoming a concern," said Bridget Gandy, the agency's banking expert.

Thursday, June 17, 2010

Political Humor

The kids filed back into class Monday morning. They were very excited.

Their weekend assignment was to sell something, then give a talk on productive salesmanship.

Little Sally led off: "I sold girl scout cookies and I made $30," she said proudly, "My sales approach was to appeal to the customer's civil spirit and I credit that approach for my obvious success."

"Very good," said the teacher.

Little Jenny was next.

"I sold magazines," she said, "I made $45 and I explained to everyone that magazines would keep them up on current events."

"Very good, Jenny," said the teacher.

Eventually, it was Little Johnny's turn.

The teacher held her breath...

Little Johnny walked to the front of the classroom and dumped a box full of cash on the teacher's desk. "$2,467," he said.

"$2,467!" cried the teacher, "What in the world were you selling?"

"Toothbrushes," said Little Johnny.

"Toothbrushes," echoed the teacher,

"How could you possibly sell enough tooth brushes to make that much money?"

I found the busiest corner in town," said Little Johnny, "I set up a Dip & Chip stand, I gave everybody who walked by a free sample."

They all said the same thing, "Hey, this tastes like dog shit!"

Then I would say,"It is dog shit. Wanna buy a toothbrush?"

"I used the governmental approach of giving you something crummy that they say is good, and then making you pay to get the awful taste out of your mouth."

Three Cheers for Slovakia!

President Andrew Jackson is believed to have said that "One man with courage makes a majority." Well, let's hope this statement also applies to women. The incoming Prime Minister of Slovakia, Ms. Iveta Radicova, has the power to stop the corrupt and misguided European bailout scheme. At one point, Irish voters had the power to stop more centralization, bureaucratization, and harmonization in Brussels. Then the President of the Czech Republic had the opportunity to derail the movement to a socialist superstate in Brussels. In both cases, the forces of statism eventually prevailed. The bailout is a different issue, but the underlying issues are the same. Should nations have both the sovereign right to determine their own policies and should they also have the responsibility of dealing with the consequences of those actions? Here's a blurb from the EU Observer about whether Slovakia will save Europe from the political elites:

The emerging new leadership in Slovakia has said the country will not contribute its share of the €110 billion rescue package for Greece. In addition, Bratislava is likely not to add its signature to the €750 billion eurozone support mechanism - something that could put the entire project on ice. ..."It would be a serious blow to the EFSF and the euro area's ability to stand behind its members [if a member does not sign]," a senior eurozone official told this website. He explained that all 16 signatures on the document - which specifies provisions on how to issue loan guarantees if necessary - are required to bring the emergency mechanism to life. ...Conservative politician Iveta Radicova, the likely next prime minister, described the bloc's €750 billion rescue fund during the pre-election debates as "bad, dangerous and [the] worst possible solution." On Tuesday (15 June), Ms Radicova also re-iterated that she is against Slovakia providing any financial support to Greece.

Should the SEC Be Rewarded for Incompetence?

In a column for the Washington Times, my Cato colleague Richard Rahn uses the Securities and Exchange Commission as an example of a government agency that fails to perform its core mission and then uses that failure to seek a bigger budget.

The budget for the Securities and Exchange Commission (SEC) grew tenfold (to more than $1 billion) in the past 25 years, but there is no evidence it has made us any safer from financial fraud. In fact, the opposite seems to be the case. The Madoff Ponzi scheme was the biggest financial fraud ever. Yet when knowledgeable people presented evidence of the Madoff scheme to the SEC, they were just blown off. Now the SEC wants a bigger budget as a reward for its failure, and the agency and members of Congress are demanding more power for the SEC. The United States has many laws against financial fraud, so that is not the problem. The problem may be - in addition to SEC incompetence - that the public assumes the SEC is looking out for it and consequently fails to do proper due diligence. In other words, the existence of the SEC may be increasing rather than diminishing risk.
The more profound issue, which Richard also addresses, is whether the very existence of bureaucracies such as the SEC results in more fraud and financial turmoil. Or, let's flip the question: Is there any evidence that the SEC (or other bureaucracies) have made a positive difference? The answer isn't necessarily no, but it sure would be nice to see any peer-reviewed evidence that the answer is yes.

Wednesday, June 16, 2010

A Totalitarian Future for Europe?

I don't often agree with the statist president of the European Commission, but Mr. Barroso may be right when he warns that some nations are at risk of descending back into dictatorship. But while he may be correct in his diagnosis, his proposed solution is more of the policies - redistribution, handounts, bailouts, and subsidies - that have caused nations to get in trouble in the first place. At best, this approach postpones the day of reckoning - but it also causes a much bigger collapse.

During my recent visits to Europe, I was surprised by the level of pessimism from all segments of the population. The general assessment is that Europe is heading downhill and that there is little hope of changing direction because too many people have been convinced by politicians that they are entitled to mooch. But, as Margaret Thatcher famously warned, the problem with socialism is that you eventually run out of other people's money. That is what is happening in Europe. But rather than sober up, the Greeks and others are rioting in hopes of finding new victims to consume. Many people I talked to expressed concern that this attitude eventually would cause economic collapse and lead to some sort of anti-democratic rule. The optimists (if you can call them that) think the result may be some sort of soft despotism dictated by Brussels and enforced by bribes from (mostly) German taxpayers. Others are more dour and fear the rise of more malignant forms of dictatorship.

Here's a blurb from the U.K.-based Daily Mail:

Democracy could ‘collapse’ in Greece, Spain and Portugal unless urgent action is taken to tackle the debt crisis, the head of the European Commission has warned. In an extraordinary briefing to trade union chiefs last week, Commission President Jose Manuel Barroso set out an ‘apocalyptic’ vision in which crisis-hit countries in southern Europe could fall victim to military coups or popular uprisings as interest rates soar and public services collapse because their governments run out of money. The stark warning came as it emerged that EU chiefs have begun work on an emergency bailout package for Spain which is likely to run into hundreds of billions of pounds. ...Leaders are expected to thrash out a rescue package for Spain’s teetering economy. Spain is expected to ask for an initial guarantee of at least £100 billion, although this figure could rise sharply if the crisis deepens. News of the behind-the-scenes scramble in Brussels spells bad news for the British economy as many of our major banks have loaned Spain vast sums of money in recent years. Germany’s authoritative Frankfurter Allgemeine Newspaper reported that Spain is poised to ask for multi-billion pound credits. Mr Barroso and Jean-Claude Trichet of the European Central Bank are united on the need for a rescue plan. The looming bankruptcy of Spain, one of the foremost economies in Europe, poses far more of a threat to European unity and the euro project than Greece. Greece contributes 2.5 percent of GDP to Europe, Spain nearly 12 percent.

With Vermont Earning the Dubious Distinction of First Place, Northeastern States Dominate the Moocher Index

The Center for Immigration Studies recently put out a study arguing that immigration has had negative effects on California. One of their measures was a comparison of how many people in the state were receiving some form of welfare compared to other states. I found that data (see Table 3 of the report) very interesting, but not because of the immigration debate (I'll leave others to debate that topic). Instead, I wanted to get a better understanding of the variations in government dependency. Is there a greater willingness to sign up for income redistribution programs, all other things being equal, from one state to another? The "all other things being equal" caveat is very important, of course, since the comparison produced by CIS may simply be an indirect measure of the factors that determine welfare eligibility. One obvious (albeit crude) way of addressing this problem is to subtract each state's poverty rate to get a measure of how many non-poor people are signed up for income-redistribution programs. Let's call this the Moocher Index.

A few quick observations. Why is Vermont (by far) the state with the largest proportion of non-poor people signed up for welfare programs? I have no idea, but maybe this explains why they elect people like Bernie Sanders. But it's not just Vermont. Four of the top five states on the Moocher Index are from the Northeast, as are six of the top nine. Mississippi also scores poorly, coming in second, but many other southern states do well. Indeed, if we reversed the ranking and did a Self-Reliance Index, Virginia, Florida, and Georgia would score in the top 10. Nevada, arguably the nation's most libertarian state, is the state with the lowest number of non-poor people signed up for welfare.

Let's now emphasize several caveats. I'm not an expert on the mechanics of social welfare program, but even I know that eligibility is not governed solely by the poverty rate. Indeed, some welfare programs are open to people with much higher levels of income. This means that a more thorough analysis at the very least would have to include some measure of income distribution by state. Moreover, states use different formulas for Medicaid eligibility, so this index ideally also would be adjusted for state-specific policies that make it easier or harder for people to become dependent. There also are some states (and even colleges) that actually try to lure people into signing up for welfare, which also might affect the results. And I'm sure there are many other factors that are important, including perhaps immigration. If anybody knows of most substantive research in this area, please don't hesitate to share material.

Anti-Tax Competition Schemes by High-Tax Nations Will Expand the Underground Economy

Regular readers know that I am a big supporter of international tax competition as a mechanism to limit the greed of the political elite. Unfortunately, the statists are having some success in their efforts to undermine the fiscal sovereignty of low-tax jurisdictions. Even the Swiss have been forced to weaken their human rights policy of protecting financial privacy. So does this mean the politicians from high-tax nations will get more money to spend? Probably not. One reason is that "better" enforcement of high tax rates on saving and investment will have the same economic impact as an increase in tax rates. This, of course, will mean less saving and investment, which translates into slower growth and a smaller tax base. Another reason is that restrictions on the ability to shift economic activity across border to escape oppressive taxation will lead many people to find domestic strategies as a substitute means of protecting their income and assets. An article by a Romanian academic explains further and notes that low-tax jurisdictions will continue to enjoy better economic performance.

It is of course illegal not to declare assets and income held abroad, but the fact that some people are driven to this extreme suggests that in some countries taxes have reached unacceptably high levels. In exactly the same fashion, people are also driven to hide some of their economic activity from the tax man, giving rise to the well known phenomenon of the underground economy. In fact, tax evasion is as old as taxes themselves, and the best way to minimize it is to levy reasonable taxes. International tax evasion and the local underground economy provide the two main escape routes. In modern democratic times, they also set implicit limits to the growth of government. They are both illegal, but the local shadow economy is now so widespread that governments know that they cannot enforce compliance without becoming hugely unpopular (suggesting that high taxes are, in fact, not as widely accepted by the population as some would like to think). Limiting international tax competition looks a much easier bet. However, if high-tax countries are successful in stopping the shift of savings to tax havens by enforcing transparency and information exchange, they will displace, but not halt, tax evasion and fiscal competition. The underground economy, both local and international, will grow. In the meantime, wealthy people and their assets will continue to move from high to low tax environments. Over time, the economically more attractive places will still enjoy much higher rates of economic growth.

Tuesday, June 15, 2010

Taxpayers vs. Bureaucrats, Part XXXI

The competition to be the Greece of America has a lot of contestants. California and Illinois certainly are strong candidates. New Jersey was an early favorite, though Gov. Christie is actually doing some good things and pulling the state back from the precipice. But let's not forget New York. Here's an excerpt from a Wall Street Journal column about how bureaucrats are gaming this system to get absurd salaries:

Will there be a run on New York's debt, much like we saw in Greece this spring, causing interest rates to soar in Athens? With a $135 billion budget, New York State faces a shortfall of around $9 billion, which might be manageable if politicians had the courage to go "where the money is," says E.J. McMahon, a state budget expert at the Manhattan Institute. "The big problem," he adds, "is that no one will take on the unions and especially their gigantic pensions." A new Manhattan Institute report shows that it's been business-as-usual in the state's dealings with Big Labor, despite the fiscal crisis. Last year, 74,000 workers at the Metropolitan Transit Authority got a 2.4% raise even as their agency was teetering on bankruptcy. Some 8,000 MTA employees now earn $100,000 or more in annual salary, and 44 earn more than $200,000 a year, putting them in the top 3% of income in America. The latest plan, Mr. McMahon says, is for Gov. Paterson and the Democrats in the legislature to "cap rising pension bills by 'amortizing' them, which essentially means borrowing $2.5 billion from the pension fund in the next four years alone. Of course, this won't reduce costs -- it will merely push them into the future."

Don't Blame Obama for the Oil Spill

Anne Applebaum is completely correct in stating that President Obama should not be blamed for the BP oil spill - either that it happened or that the leak hasn't been stopped. I think Republicans look stupid when they attack Obama for what is happening, though I can sympathize with the "payback" impulse since Democrats attacked Bush for Hurricane Katrina - a debacle that occurred largely because of the incompetence and corruption of the state government of Louisiana and the city government of New Orleans (though I also blame Bush for acting as if the federal government somehow was responsible for hurricane response and relief - and thus added federal government bungling to the mix). Applebaum also echoes the point I made about BP having the greatest expertise and incentive to solve the problem:

Here is the hard truth: The U.S. government does not possess a secret method for capping oil leaks. Even the combined wisdom of the Obama inner circle -- all of those Harvard economists, silver-tongued spin doctors and hardened politicos -- cannot prevent tens of thousands of tons of oil from pouring out of hole a mile beneath the ocean surface. ...In truth, the organization most likely to have the phone numbers of the "experts" is BP. The organization that will get them to Louisiana fastest is BP. I am writing this not because I like, admire or even have an opinion about the company formerly known as British Petroleum but because BP's shareholders have already lost billions of dollars and BP's executives are motivated to find solutions faster than anyone in the White House ever could. Bashing BP or seeking to punish BP is pointless.
While Obama is not to blame for the oil spill, there are four things worth adding to the discussion. First, the leftists in the Administration and elsewhere are demonizing BP and claiming that this is evidence that more regulation is needed of evil companies, but perhaps this demagoguery is a way of distracting people from paying attention to the fact that Obama was a top recipient of largesse from the company and that BP institutionally is very left-wing. Second, the White House, because it has refused to waive a protectionist piece of legislation known as the Jones Act, actually does bear a bit of blame for the slow reaction and clean-up efforts. Not surprisingly, the reason for his failure to act is that the unions have him on a very short leash. Third, everyone should take a deep breath and not make a bad situation worse by overreacting and passing misguided legislation. Last but not least, the White House moratorium on drilling was an example of pointless overreaction.