Every Patriotic American Should Support the President

I wish the title of this blog post referred to the President of the United States, but instead our praise is directed across the Atlantic, to the President of the Czech Republic, who wisely has warned against giving "global governance" powers to the international bureaucrats at the United Nations. President Vaclav Klaus is a great man, who has battled against immense odds to preserve national sovereignty, resisting statist initiatives such as the new EU Constitution (aka, the Lisbon Treaty) and global warming schemes. Klaus understands that international bureaucracies are staffed by leftist ideologues who reflexively distrust markets. Equally important, he recognizes that governments will use "global governance" as a scheme to create tax and regulatory cartels that inevitably expand the burden of government and reduce competition among nations. Here's a Reuters report on the strong speech Klaus gave to the kleptocrats at the United Nations.

Czech President Vaclav Klaus on Saturday criticized U.N. calls for increased "global governance" of the world's economy, saying the world body should leave that role to national governments. The solution to dealing with the global economic crisis, Klaus told the U.N. General Assembly, did not lie in "creating new governmental and supranational agencies, or in aiming at global governance of the world economy." "On the contrary, this is the time for international organizations, including the United Nations, to reduce their expenditures, make their administrations thinner, and leave the solutions to the governments of member states," he said. ...Klaus, a free-market economist who oversaw a wave of privatization in the 1990s after communism collapsed in his homeland, also said the world was "moving in the wrong direction" in combating the economic crisis. "The anti-crisis measures that have been proposed and already partly implemented follow from the assumption that the crisis was a failure of markets and that the right way out is more regulation of markets," he said. Klaus said that was a "mistaken assumption" and it was impossible to prevent future crises through regulatory interventions and similar actions by governments. That will only "destroy the markets and together with them the chances for economic growth and prosperity in both developed and developing countries," he said.

A couple of years ago, I had the honor of introducing Klaus at a conference in France. Very rarely do I meet a politician that exudes philosophical integrity. Klaus was one of those unusual cases. And if you want to know why it is important to preserve jurisdictional competition, here is a video on the specific issue of tax competition. This is rather timely since I leave tomorrow for Singapore, where I will be doing everything I can to undermine the pampered bureaucrats at the OECD and their sinister plans to create a global tax cartel to prop up Europe's inefficient welfare states.

The IMF Is Urging Governments to Adopt Regulatory and Tax Cartels to Benefit Politicians

Price fixing is illegal in the private sector, but unfortunately there are no rules against schemes by politicians to create oligopolies in order to prop up bad government policy. The latest example comes from the bureaucrats at the International Monetary Fund, who are conspiring with national governments to impose higher taxes and regulations on the banking sector. The pampered bureaucrats at the IMF (who get tax-free salaries while advocating higher taxes on the rest of us) say these policies are needed because of bailouts, yet such an approach would institutionalize moral hazard by exacerbating the government-created problem of "too big to fail." But what is particularly disturbing about the latest IMF scheme is that the international bureaucracy wants to coerce all nations into imposing high taxes and excessive regulation. The bureaucrats realize that if some nations are allowed to have free markets, jobs and investment would flow to those countries and expose the foolishness of the bad policy being advocated elsewhere by the IMF. Here's a brief excerpt from a report in the Wall Street Journal:

Mr. Strauss-Kahn said there was broad agreement on the need for consensus and coordination in the reform of the global financial sector. "Even if they don't follow exactly the same rule, they have to follow rules which will not be in conflict," he said. He said there were still major differences of opinion on how to proceed, saying that countries whose banking systems didn't need taxpayer bailouts weren't willing to impose extra taxation on their banks now, to create a cushion against further financial shocks. ...Mr. Strauss-Kahn said the overriding goal was to prevent "regulatory arbitrage"—the migration of banks to places where the burden of tax and regulation is lightest. He said countries with tighter regulation of banks might be able to justify not imposing new taxes.

I've been annoyingly repetitious on the importance of making governments compete with each other, largely because the evidence showing that jurisdictional rivalry is a very effective force for good policy around the world. I've done videos showing the benefits of tax competition, videos making the economic and moral case for tax havens, and videos exposing the myths and demagoguery of those who want to undermine tax competition. I've traveled around the world to fight the international bureaucracies, and even been threatened with arrest for helping low-tax nations resist being bullied by high-tax nations. Simply stated, we need jurisdictional competition so that politicians know that taxpayers can escape fiscal oppression. In the absence of external competition, politicians are like fiscal alcoholics who are unable to resist the temptation to over-tax and over-spend.

This is why the IMF's new scheme should be resisted. It is not the job of international bureaucracies to interfere with the sovereign right of nations to determine their own tax and regulatory policies. If France and Germany want to adopt statist policies, they should have that right. Heck, Obama wants America to make similar mistakes. But Hong Kong, Switzerland, the Cayman Islands, and other market-oriented jurisdictions should not be coerced into adopting the same misguided policies.

Competition Between Governments Can Help Thwart Over-Regulation

A new study from the University of Michigan Law School's Empirical Legal Studies Center finds that it is more difficult today for politicians to impose excessive financial regulation because firms can migrate to jurisdictions with more pro-market policy. The author notes tht this is less true for institutions, such as big banks, that want government protection, but laissez-faire entities such as hedge funds have substantial ability to flee bad government policy:

Jurisdictional competition spread from corporate law to its close cousin, securities law. Historically, issuers listed their stock for trading on one of the exchanges in the country where they principally did business. Improvements in communication and related technologies, however, have made possible an international market for stock exchange listings that resembles in many respects the long‐standing federal market for corporate charters in the United States. Now companies can list their shares for trading on exchanges in any number of countries; there is no longer a logical nexus between the site of a company’s headquarters and where its shares are traded. ...Does that free movement of capital limit the ability of the Obama administration to reform financial regulation in the United States? ...After the United States effectively raised listing standards by enacting the Sarbanes‐Oxley Act in 2002, foreign companies headed for the door. London seized the opportunity; fourteen of the top twenty initial public offerings (“IPOs”) listed on the London Stock Exchange (“LSE”) came from outside the United Kingdom in 2005 to 2008. By contrast, only four of the top twenty IPOs in New York came from outside the United States. Further, it was not only foreign companies that were leaving; United States companies left the public market in droves, headed for the greener (or at less regulated) fields of private equity, and they were not being replaced. A Grant Thornton study documented a staggering thirty‐nine percent decline in United States listings from a peak of 8,823 in 1997 to only 5,401 in 2008. ...hedge funds can go elsewhere if a country tries to enmesh them in red tape. Running a hedge fund only requires an office and an Internet connection. ...Debates over hedge fund regulation take place against the shadow of the threat of the flight of these financial intermediaries. And that flight has already begun. The United Kingdom raised its top tax rate to fifty percent in April. That move, along with EU restrictions on borrowing by hedge funds, already prompted a number of hedge funds to emigrate to greener pastures. ...Hedge fund bankers are not happy about being treated like bankers. Unlike bankers, however, they do not have to stick around and take it. “About [twenty] percent of the hedge‐fund community could leave the [United Kingdom] in the next two or three years. The feeling among the hedge‐community is there is a better place to be.” Where is that better place? Asia. Places like Singapore are attracting hedge funds... Of course, the fact that Singapore does not tax capital gains may have had something to do with its attractiveness. ...So what does global competition mean for populist retribution against the money changers? Apparently it depends on the mobility of the money changes you are talking about. Big banks need government backing to be credible with depositors and counterparties, so the bankers at those institutions are going to have to stick around and take it. Smaller institutions, like hedge funds, are much more portable, and if Western governments attempt to impose banker‐like restrictions on them, they will head elsewhere. ...The forces of financial capitalism can no longer be confined within the boundaries of a single nation, so regulation is not simply a matter of mustering the requisite political will. There is no shortage of anger against the bankers in the current environment, but it can only be deployed against financial intermediaries who cannot flee the regulatory wrath. ...International competition in financial services regulation now serves as a check on populist retribution, but only a partial one.