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Archive for July 23rd, 2012

Considering the spectacular incompetence of the Italian government, I’m not surprised that the Italian people take extraordinary steps to protect their income from the tax police.

But I have a hard time cheering their actions, since they routinely vote for corrupt politicians and also seek to mooch off the government that they don’t want to pay for.

Sicily is a useful example. Here are key passages from a New York Times report.

…one region in particular has been in the spotlight: Sicily, which some fear has become “the Greece of Italy” and is at risk of defaulting on its high public debts. …an official in the Sicily branch of Italy’s leading industrialists association called for the island to be put into receivership by the central government to clean up its finances. …Sicily highlights the challenges that Mr. Monti is facing in trying to use pressure from European leaders and international markets to push Italy’s politicians to cut costs. Those expenses have ballooned after decades of a patronage system in which the state has been the primary means of employment in Sicily.

We know there’s a mess. And, to give credit where it’s due, the New York Times does discuss the bloated bureaucracy in Sicily.

…critics say Italy — and Sicily in particular — has been driven into dire financial straits not by austerity but by the rampant public spending of the past, the product of an entrenched jobs-for-votes system that helped keep Italian governments in power and Sicilians employed. Today, Sicily’s regional government has 1,800 employees — more than the British Cabinet Office — and the island employs 26,000 auxiliary forest rangers; in the vast forest lands of British Columbia, there are fewer than 1,500. Out of a population of five million people in Sicily, the state directly or indirectly employs more than 100,000 of them and pays pensions to many more. It changed its pension system eight years after the rest of Italy. (One retired politician recently won a case to keep an annual pension of 480,000 euros, about $584,000.)

Not surprisingly, the political class doesn’t want to fire any of the deadwood, which means an enormous burden on taxpayers and lots of suffering for young people.

“Of course that’s too many,” Mr. Lombardo said of the forest rangers. But he said it was difficult to cut back because state workers have job protection. “We have to wait for them to retire.” That system has come at a cost. Last month, Italy’s audit court issued a scathing report saying that Sicily had 7 billion euros, about $8.5 billion, of liabilities at the end of 2011 and showed “signs of unstoppable decline.” Sicily’s unemployment rate is 19.5 percent, twice the national average, and 38.8 percent of young people do not have jobs.

Lombardo must have spent time in Chicago

By the way, the head of the Sicilian government is a very accomplished politician. It’s not uncommon for lawmakers to go to prison after a stint in government, but it takes a special politician to then go back into “public service.”

Mr. Lombardo, who belongs to the Movement for Autonomy — which believes that Sicily should secede from the Italian state, as unlikely as that is to happen — said he would step down as agreed. (He is under investigation for Mafia ties. He denies the accusations and has not been formally charged. He was jailed on corruption charges in the early 1990s, though he was later acquitted.)

At least some residents have figured out how the political system works.

Many Sicilians, for their part, take a world-weary view of the political class. “If I steal a little, I go to jail; if I steal a lot, I advance my career,” Gioacchino De Giorgi, 34, said as he worked in a tobacco shop in downtown Palermo.

Needless to say, this story is yet another example of why bailouts are a bad idea. As I’ve explained before, governments will only make the right reforms as a final option. Bailouts, by contrast, simply give politicians more time to delay, while also making the debt bubble even bigger as reforms are postponed.

This is true, regardless of whether bailouts come from national governments, the European Commission, or international bureaucracies such as the International Monetary Fund.

And it’s true whether we’re talking about an Italian province, or an American state that also is governed by short-sighted and corrupt politicians. Like California.

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As part of his campaign to expand the size and scope of the federal government (and to justify his advocacy of class-warfare taxation), President Obama has been asserting that all of us benefit from government spending.

It’s why he now echoes Elizabeth Warren’s claim that entrepreneurs owe their success to government programs and activities.

It’s also why he cites the Internet as an example of wise, prudent, and far-seeing government intervention.

Sounds like a powerful example. The kind of anecdote that leaves libertarians momentarily speechless.

But there’s just one small, tiny, itsy-bitsy, teeny-weeny problem with Obama’s example. It ain’t true.

Here are some excerpts from a first-rate column by Gordon Crovitz in the Wall Street Journal.

It’s an urban legend that the government launched the Internet. …The truth is a more interesting story about how innovation happens—and about how hard it is to build successful technology companies even once the government gets out of the way. …If the government didn’t invent the Internet, who did? Vinton Cerf developed the TCP/IP protocol, the Internet’s backbone, and Tim Berners-Lee gets credit for hyperlinks. …But full credit goes to the company where Mr. Taylor worked after leaving ARPA: Xerox. It was at the Xerox PARC labs in Silicon Valley in the 1970s that the Ethernet was developed to link different computer networks. Researchers there also developed the first personal computer (the Xerox Alto) and the graphical user interface that still drives computer usage today. …So having created the Internet, why didn’t Xerox become the biggest company in the world? The answer explains the disconnect between a government-led view of business and how innovation actually happens. Executives at Xerox headquarters in Rochester, N.Y., were focused on selling copiers. From their standpoint, the Ethernet was important only so that people in an office could link computers to share a copier. …As for the government’s role, the Internet was fully privatized in 1995, when a remaining piece of the network run by the National Science Foundation was closed—just as the commercial Web began to boom. Economist Tyler Cowen wrote in 2005: “The Internet, in fact, reaffirms the basic free market critique of large government. Here for 30 years the government had an immensely useful protocol for transferring information, TCP/IP, but it languished. . . . In less than a decade, private concerns have taken that protocol and created one of the most important technological revolutions of the millennia.”

It’s nice to see this urban legend of effective government punctured weakened, but let’s close out this post with a thought experiment. Let’s assume that the federal government deserves the lion’s share of the credit for the Internet.

Our Tax Dollars at Work?

Or we’re sometimes told that NASA generated big benefits, such as Tang and microwave ovens, and maybe those claims are true.

Would any of this justify Obama’s proposals to expand the size and cost of the federal government?

Since I’ve actually explained in one of my videos that there are some forms of government spending – such as capital spending – that can generate positive rates of return, this is an empirical question.

But here’s where Obama’s argument breaks down. If you look at federal outlays for “major public physical capital investment” and “conduct of research and development,” they add up to less than 10 percent of the federal budget.

So the parts of the budget that theoretically might generate some positive spin-offs are trivial. The vast majority of spending, by contrast, is consumed by inefficient tax-and-transfer entitlement programs.

And what are Obama’s two biggest “accomplishments” since taking office? The so-called stimulus and Obamacare, two pieces of legislation that expand the unambiguously unproductive portions of the federal budget.

In other words, like most other politicians, Obama is like an unethical used car salesman. He lures the unsuspecting onto the lot with glib talk of good roads and the Internet, but they wind up driving away with a lemon known as the welfare state.

P.S. Speaking of Elizabeth Warren, here’s an amusing parody of her views as they apply to the world of intimacy. And here’s a video mocking her “Soul Man” claims of Indian ancestry.

P.P.S. Just like I recently apologized to hyenas and gang members, I now apologize to used car salesmen for putting them on the same level of politicians.

P.P.P.S. The government may not have invented the Internet, but it sure is anxious to tax it, with everyone from state politicians to U.N. bureaucrats trying to stick their hands in the cookie jar.

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Addendum: My Cato colleague Jim Harper and others tell me that government played a bigger role than argued by Crovitz, so the first part of this post overstates the argument against government as incubator. But that underscores the importance of what I wrote in the concluding part of the post.

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